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Secretary of Labor Thomas E. Perez
Proposed Exemptions; Morgan Stanley & Company Incorporated [Notices] [11/13/1996]

EBSA (Formerly PWBA) Federal Register Notice

Proposed Exemptions; Morgan Stanley & Company Incorporated [11/13/1996]

[PDF Version]

Volume 61, Number 220, Page 58237-58253

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DEPARTMENT OF LABOR
[Application No. D-10108, et al.]

 
Proposed Exemptions; Morgan Stanley & Company Incorporated

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

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SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the prohibited transaction restriction of the Employee 
Retirement Income Security Act of 1974 (the Act) and/or the Internal 
Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

    All interested persons are invited to submit written comments or 
requests for a hearing on the pending exemptions, unless otherwise 
stated in the Notice of Proposed Exemption, within 45 days from the 
date of publication of this Federal Register Notice. Comments and 
requests for a hearing should state: (1) the name, address, and 
telephone number of the person making the comment or request, and (2) 
the nature of the person's interest in the exemption and the manner in 
which the person would be adversely affected by the exemption. A 
request for a hearing must also state the issues to be addressed and 
include a general description of the evidence to be presented at the 
hearing. A request for a hearing must also state the issues to be 
addressed and include a general description of the evidence to be 
presented at the hearing.

ADDRESSES: All written comments and requests for a hearing (at least 
three copies) should be sent to the Pension and Welfare Benefits 
Administration, Office of Exemption Determinations, Room N-5649, U.S. 
Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C. 
20210. Attention: Application No. stated in each Notice of Proposed 
Exemption. The applications for exemption and the comments received 
will be available for public inspection in the Public Documents Room of 
Pension and Welfare Benefits Administration, U.S. Department of Labor, 
Room N-5507, 200 Constitution Avenue, N.W., Washington, D.C. 20210.

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all 
interested persons in the manner agreed upon by the applicant and the 
Department within 15 days of the date of publication in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and to request a hearing 
(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in 
applications filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990). 
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 requested 
to the Secretary of Labor. Therefore, these notices of proposed 
exemption are issued solely by the Department.
    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

Morgan Stanley & Co. Incorporated; Located in New York, New York

[Application No. D-10108]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990).

Section I--Transactions

    A. Effective August 25, 1995, the restrictions of section 406(a)(1) 
(A) through (D) of the Employee Retirement Income Security Act of 1974 
(the Act) and the taxes imposed by section 4975 (a) and (b) of the 
Internal Revenue Code of 1986 (the Code), by reason of section 4975 
(c)(1) (A) through (D) of the Code, shall not apply to any purchase or 
sale of a security between an employee benefit plan and a broker-dealer 
affiliated with Morgan Stanley & Co. and subject to British law (MSC/UK 
Affiliate), if the following conditions, and the conditions of Section 
II, are satisfied:
    (1) The MSC/UK Affiliate customarily purchases and sells securities 
for its own account in the ordinary course of its business as a broker-
dealer.
    (2) Such transaction is on terms at least as favorable to the plan 
as those which the plan could obtain in an arm's length transaction 
with an unrelated party.
    (3) Neither the MSC/UK Affiliate nor an affiliate thereof has 
discretionary authority or control with respect to the investment of 
the plan assets involved in the transaction, or renders investment 
advice (within the meaning of 29 CFR 2510.3-21(c)) with respect to 
those assets, and the MSC/UK Affiliate is a party in interest or 
disqualified person with respect to the plan assets involved in the 
transaction solely by reason of section 3(14)(B) of the Act or section 
4975(e)(2)(B) of the Code, or by reason of a relationship to a person 
described in such sections. For purposes of this paragraph, the MSC/UK 
Affiliate shall not be deemed to be a fiduciary with respect to a plan 
solely by reason of providing securities custodial services for a plan.
    B. Effective August 25, 1995, the restrictions of section 406(a)(1) 
(A) through (D) 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 lending of securities that are assets of 
an employee benefit plan to an MSC/UK Affiliate if the following 
conditions, and the conditions of Section II, are satisfied:
    (1) Neither the MSC/UK Affiliate (the Borrower) nor an affiliate of 
the Borrower has discretionary authority or control with respect to the 
investment of the plan assets involved in the transaction, or renders 
investment advice (within the meaning of 29 CFR 2510.3-21(c)) with 
respect to those assets;
    (2) The plan receives from the Borrower, either by physical 
delivery or by book entry in a securities depository located in the 
United States, by the close of business on the day on which the 
securities lent are delivered to the Borrower, collateral consisting of 
U.S. currency, securities issued or

[[Page 58238]]

guaranteed by the United States Government or its agencies or 
instrumentalities, or irrevocable United States bank letters of credit 
issued by a person other than the Borrower or an affiliate thereof, or 
any combination thereof, having, as of the close of business on the 
preceding business day, a market value (or, in the case of letters of 
credit, a stated amount) equal to not less than 100 percent of the then 
market value of the securities lent. The collateral referred to in this 
Section I(B)(2) must be held in the United States;
    (3) Prior to the making of any such loan, the Borrower shall have 
furnished the following items to the fiduciary for the plan who is 
making decisions on behalf of the plan with respect to the lending of 
securities (the Lending Fiduciary): (1) the most recent available 
audited statement of the Borrower's financial condition, (2) the most 
recent available unaudited statement of the Borrower's financial 
condition (if more recent than such audited stated), and (3) a 
representation that, at the time the loan is negotiated, there has been 
no material adverse change in the Borrower's financial condition since 
the date of the most recent financial statement furnished to the plan 
that has not been disclosed to the Lending Fiduciary. Such 
representation may be made by the Borrower's agreement that each such 
loan shall constitute a representation by the Borrower that there has 
been no such material adverse change;
    (4) The loan is made pursuant to a written loan agreement, the 
terms of which 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. Such agreement may be in the form of a master agreement covering 
a series of securities-lending transactions;
    (5) The plan (1) receives a reasonable fee that is related to the 
value of the borrowed securities and the duration of the loan, or (2) 
has the opportunity to derive compensation through the investment of 
cash collateral. Where the plan has that opportunity, the plan may pay 
a loan rebate or similar fee to the Borrower, if such fee is not 
greater than the plan would pay an unrelated party in an arm's-length 
transaction;
    (6) The plan receives the equivalent of all distributions made to 
holders of the borrowed securities during the term of the loan, 
including, but not limited to, cash dividends, interest payments, 
shares of stock as a result of stock splits and rights to purchase 
additional securities;
    (7) If the market value of the collateral on the close of trading 
on a business day is less than 100 percent of the market value of the 
borrowed securities at the close of trading on that day, the Borrower 
shall deliver, by the close of business on the following business day, 
an additional amount of collateral (as described in paragraph (2)) the 
market value of which, together with the market value of all previously 
delivered collateral, equals at least 100 percent of the market value 
of all the borrowed securities as of such preceding day. 
Notwithstanding the foregoing, part of the collateral may be returned 
to the Borrower if the market value of the collateral exceeds 100 
percent of the market value of the borrowed securities, as long as the 
market value of the remaining collateral equals at least 100 percent of 
the market value of the borrowed securities;
    (8) The loan may be terminated by the plan at any time, whereupon 
the Borrower shall deliver certificates for securities identical to the 
borrowed securities (or the equivalent thereof in the event of 
reorganization, recapitalization or merger of the issuer of the 
borrowed securities) to the plan within (1) the customary delivery 
period for such securities, (2) three business days, or (3) the time 
negotiated for such delivery by the plan and the Borrower, whichever is 
lesser; and
    (9) In the event the loan is terminated and the Borrower fails to 
return the borrowed securities or the equivalent thereof within the 
time described in paragraph (8) above, then (i) the plan may, under the 
terms of the loan agreement, purchase securities identical to the 
borrowed securities (or their equivalent as described above) and may 
apply the collateral to the payment of the purchase price, any other 
obligations of the Borrower under the agreement, and any expenses 
associated with the sale and/or purchase, and (ii) the Borrower is 
obligated, under the terms of the loan agreement, to pay, and does pay 
to the plan, the amount of any remaining obligations and expenses not 
covered by the collateral plus interest at a reasonable rate. 
Notwithstanding the foregoing, the Borrower may, in the event the 
Borrower fails to return borrowed securities as described above, 
replace non-cash collateral with an amount of cash not less than the 
then current market value of the collateral, provided such replacement 
is approved by the Lending Fiduciary.
    (10) If the Borrower fails to comply with any condition of this 
exemption, in the course of engaging in a securities-lending 
transactions, the plan fiduciary who caused the plan to engage in such 
transaction shall not be deemed to have caused the plan to engage in a 
transaction prohibited by section 406(a)(1)(A) through (D) of the Act 
solely by reason of the Borrower's failure to comply with the 
conditions of the exemption.
    C. Effective August 25, 1995, the restrictions of sections 
406(a)(1) (A) through (D) and 406(b)(2) of the Act and the taxes 
imposed by section 4975 (a) and (b) of the Code shall not apply to any 
extension of credit to an employee benefit plan by an MSC/UK Affiliate 
to permit the settlement of securities transactions or in connection 
with the writing of options contracts provided that the following 
conditions are met:
    (a) The MSC/UK Affiliate is not a fiduciary with respect to any 
assets of such plan, unless no interest or other consideration is 
received by such fiduciary or any affiliate thereof in connection with 
such extension of credit; and
    (b) Such extension of credit would be lawful under the Securities 
Exchange Act of 1934 and any rules or regulations thereunder if such 
act, rules or regulations were applicable.

Section II--General Conditions

    A. The MSC/UK Affiliate is registered as a broker-dealer with the 
Securities and Futures Authority of the United Kingdom (the S.F.A.);
    B. The MSC/UK Affiliate is in compliance with all requirements of 
Rule 15a-6 (17 CFR 240.15a-6) under the Securities and Exchange Act of 
1934, which provides for foreign broker-dealers a limited exemption 
from U.S. registration requirements;
    C. Prior to the transaction, the MSC/UK Affiliate enters into a 
written agreement with the plan in which the MSC/UK Affiliate consents 
to the jurisdiction of the courts of the United States with respect to 
the transactions covered by this exemption;
    D.(1) The MSC/UK Affiliate maintains or causes to be maintained 
within the United States for a period of six years from the date of 
such transaction such records as are necessary to enable the persons 
described in this section to determine whether the conditions of this 
exemption have been met; except that a party in interest with respect 
to an employee benefit plan, other than the MSC/UK Affiliate, shall not 
be subject to a civil penalty under section 502(i) of the Act or the 
taxes imposed by section 4975(a) or (b) of the Code, if such records 
are not maintained, or are not available for examination as required by 
this section, and a prohibited transaction will not be deemed to have 
occurred if, due to circumstances

[[Page 58239]]

beyond the control of the MSC/UK Affiliate, such records are lost or 
destroyed prior to the end of such six year period;
    (2) The records referred to in subsection (1) above are 
unconditionally available for examination during normal business hours 
by duly authorized employees of the Department of Labor, the Internal 
Revenue Service, plan participants and beneficiaries, any employer of 
plan participants and beneficiaries, and any employee organization any 
of whose members are covered by such plan; except that none of the 
persons described in this subsection shall be authorized to examine 
trade secrets of Morgan Stanley & Co. or the MSC/UK or any commercial 
or financial information which is privileged or confidential.

Section III--Definitions

    ``Affiliate'' of a person shall include: (i) Any person directly or 
indirectly, through one or more intermediaries, controlling, controlled 
by, or under common control with such other person; (ii) any officer, 
director, or partner, employee or relative (as defined in section 3(15) 
of the Act) of such other person; and (iii) any corporation or 
partnership of which such other person is an officer, director or 
partner. For purposes of this definition, the term ``control'' means 
the power to exercise a controlling influence over the management or 
policies of a person other than an individual.
    ``Security'' shall include equities, fixed income securities, 
options on equity and on fixed income securities, government 
obligations, and any other instrument that constitutes a security under 
U.S. securities laws. The term ``security'' does not include swap 
agreements or other notional principal contracts.

Summary of Facts and Representations

    1. Morgan Stanley & Co. Incorporated (MSC) is an international 
securities firm that performs securities underwriting, distribution and 
trading, merger, acquisition, restructuring and other corporate 
financial services for clients world wide. Clients include 
multinational corporations, governments, emerging growth companies, 
financial institutions and individual investors.
    2. MSC has foreign affiliates world wide who are in the business of 
trading securities, including a broker-dealer affiliate in London, 
England (the MSC/UK Affiliate), currently Morgan Stanley & Co. 
International Limited. MSC represents that in the ordinary course of 
their business as broker-dealers, these foreign affiliates customarily 
operate as traders in dealers markets wherein the broker-dealer 
purchases and sells securities for its own account and engages in 
purchases and sales of securities with its clients, and that such 
trades are referred to as principal transactions. MSC states that in 
issuing Prohibited Transaction Class Exemption 75-1 (PTCE 75-1, 40 FR 
50845, October 31, 1975) the Department has recognized the functions of 
registered broker-dealers in principal transactions on behalf of 
clients which are employee benefit plans covered by the Act. Part II of 
PTCE 75-1 provides exemptive relief from section 406(a) of the Act for 
principal transactions between plans and broker-dealers which are 
registered under the Securities Exchange Act of 1934, provided all 
requirements stated in Part II are satisfied. MSC represents that like 
the U.S. dealer markets, international equity and debt markets, 
including the options markets, are no less dependent on a willingness 
of dealers to trade as principals. In the absence of an exemption for 
principal transactions, such as PTCE 75-1, those responsible for 
trading activities on behalf of plan investors would be prevented from 
engaging in transactions with those broker-dealers and banks that 
provide the markets for the securities and are most capable of handling 
such transactions.
    3. MSC represents that over the past decade, plans have 
increasingly invested in foreign equity and debt securities, including 
foreign government securities. MSC states that plans seeking to enter 
into such investments may wish to increase the number of trading 
partners available to them by trading with foreign broker-dealers such 
as the MSC/UK Affiliate. However, where MSC provides services to such 
plans which are covered by the Act, principal transactions with the 
MSC/UK Affiliate would be prohibited by the Act. The exemptive relief 
afforded U.S. broker-dealers by PTCE 75-1 would not be available with 
respect to the MSC/UK Affiliate because that class exemption is limited 
to broker-dealers registered with the U.S. Securities and Exchange 
Commission (S.E.C.) under the Securities Exchange Act of 1934 (the 1934 
Act). MSC represents that its MSC/UK Affiliate is not so registered 
but, instead, is governed by the rules, regulations and registration 
requirements of the Securities and Futures Authority of the United 
Kingdom (the S.F.A.). Furthermore, MSC represents that Rule 15(a)-6 of 
the 1934 Act offers foreign broker-dealers limited exemption from the 
S.E.C. registration requirements pursuant to provisions with which the 
MSC/UK Affiliate is able to comply. However, MSC states that because of 
the S.E.C. registration requirement of PTCE 75-1, the MSC/UK Affiliate 
is prevented from engaging in principal transactions with plans with 
respect to which MSC is a party in interest, even though such affiliate 
is registered with the S.F.A., experienced in the markets, and able to 
satisfy the Rule 15(a)-6 requirements for S.E.C. registration 
exemption. Accordingly, MSC is requesting an individual exemption to 
permit its MSC/UK Affiliate to engage in principal transactions with 
plans under the terms and conditions set forth herein, which MSC 
represents are equivalent to those set forth in PTCE 75-1, Part 
II.<SUP>1
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    \1\ The Department notes that the proposed principal 
transactions are subject to the fiduciary responsibility 
requirements of part 4, subtitle B, title I of the Act. Section 
404(a) of the Act requires, among other things, that a fiduciary of 
a plan act prudently, solely in the interest of the plan's 
participants and beneficiaries, and for the exclusive purpose of 
providing benefits to participants and beneficiaries when making 
investment decisions on behalf of a plan.
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    4. The proposed exemption will be applicable only to transactions 
affected by an MSC/UK Affiliate which is registered as a broker-dealer 
with the S.F.A. and in compliance with Rule 15(a)-6. MSC represents 
that the role of a broker-dealer in a principal transaction in the 
United Kingdom is substantially identical to that of a broker-dealer in 
a principal transaction in the United States. MSC further represents 
that registration of a broker-dealer with the S.F.A. is equivalent to 
registration of a broker-dealer with the S.E.C. under the 1934 Act. MSC 
maintains that the S.F.A. has promulgated rules for broker-dealers 
which are equivalent to S.E.C. rules, relating to registration 
requirements, minimum capitalization, reporting requirements, periodic 
examinations, fund segregation, client protection, and enforcement. MSC 
represents that the rules and regulations set forth by the S.F.A. and 
the S.E.C. share a common objective: the protection of the investor by 
the regulation of securities markets. MSC explains that under S.F.A. 
rules, persons who manage investments or give advice with respect to 
investments must be registered as a ``registered representative''. If a 
person is not a registered representative and, as part of his duties, 
makes commitments in market dealings or transactions, that person must 
be registered as a ``registered trader''. MSC represents that the 
S.F.A. rules require each firm which employs registered representatives 
or

[[Page 58240]]

registered traders to have positive tangible net worth and be able to 
meet its obligations as they fall due, and that the S.F.A. rules set 
forth comprehensive financial resource and reporting/disclosure rules 
regarding capital adequacy. In addition to demonstration of capital 
adequacy, MSC states that the S.F.A. rules impose reporting/disclosure 
requirements on broker-dealers with respect to risk management, 
internal controls, and all records relating to a counterparty, and that 
all records must be produced at the request of the S.F.A. at any time. 
MSC states that S.F.A.'s registration requirements for broker-dealers 
are backed up by potential fines and penalties, and rules which 
establish a comprehensive disciplinary system.
    5. MSC represents that in addition to the protections which are 
afforded by registration with S.F.A., compliance with the requirements 
of Rule 15a-6 (17 CFR 240.15a-6) under the 1934 Act will offer 
additional protections in lieu of registration with the S.E.C. MSC 
states that Rule 15a-6 provides an exemption from U.S. broker-dealer 
registration for a foreign broker-dealer that induces or attempts to 
induce the purchase or sale of any security (including over-the-counter 
equity and debt options) by a ``U.S. institutional investor'' or a 
``U.S. major institutional investor'', provided that the foreign broker 
dealer, among other things, enters into these transactions through a 
U.S. registered broker-dealer intermediary. The term ``U.S. 
institutional investor'', as defined in Rule 15a-6(b)(7), includes an 
employee benefit plan within the meaning of the Employee Retirement 
Income Security Act of 1974 (the Act) if (a) the investment decision is 
made by a plan fiduciary, as defined in section 3(21) of the Act, which 
is either a bank, savings and loan association, insurance company or 
registered investment advisor, or (b) the employee benefit plan has 
total assets in excess of $5 million, or (c) the employee benefit plan 
is a self-directed plan with investment decisions made solely by 
persons that are ``accredited investors'' as defined in Rule 501(a)(1) 
of Regulation D of the Securities Act of 1933, as amended. The term 
``U.S. major institutional investor'' is defined as a person that is a 
U.S. institutional investor that has total assets in excess of $100 
million. MSC represents that the intermediation of the U.S. registered 
broker-dealer imposes upon the foreign broker-dealer the requirement 
that the securities transaction be effected in accordance with a number 
of U.S. securities laws and regulations applicable to U.S. registered 
broker-dealers.
    MSC represents that under Rule 15a-6, a foreign broker-dealer that 
induces or attempts to induce the purchase or sale of any security by a 
U.S. institutional or major institutional investor in accordance with 
Rule 15a-6 must, among other things:
    (a) Consent to service of process for any civil action brought by, 
or proceeding before, the S.E.C. or any self-regulatory organization;
    (b) Provide the S.E.C. with any information or documents within its 
possession, custody or control, any testimony of any such foreign 
associated persons, and any assistance in taking the evidence of other 
persons, wherever located, that the S.E.C. requests and that relates to 
transactions effected pursuant to the Rule;
    (c) Rely on the U.S. registered broker-dealer through which the 
transactions with the U.S. institutional and major institutional 
investors are effected to (among other things):
    (1) Effect the transactions, other than negotiating their terms;
    (2) Issue all required confirmations and statements;
    (3) As between the foreign broker-dealer and the U.S. registered 
broker-dealer, extend or arrange for the extension of credit in 
connection with the transactions;
    (4) Maintain required books and records relating to the 
transactions, including those required by Rules 17a-3 (Records to be 
Made by Certain Exchange Members) and 17a-4 (Records to be Preserved by 
Certain Exchange Members, Brokers and Dealers) of the 1934 Act;
    (5) Receive, deliver, and safeguard funds and securities in 
connection with the transactions on behalf of the U.S. institutional 
investor or U.S. major institutional investor in compliance with Rule 
15c3-3 of the 1934 Act (Customer Protection--Reserves and Custody of 
Securities); and
    (6) Participate in all oral communications (e.g., telephone calls) 
between the foreign associated person and the U.S. institutional 
investor (not the U.S. major institutional investor), and accompany the 
foreign associated person on all visits with both U.S. institutional 
and major institutional investors. By virtue of this participation, the 
U.S. registered broker-dealer would become responsible for the content 
of all these communications.
    6. MSC represents that a normal part of the execution of securities 
transactions by broker-dealers on behalf of customers, including 
employee benefit plans, is the extension of credit to customers to 
permit the settlement of transactions in the customary settlement 
period, and that such extensions of credit are also customary 
activities of broker-dealers in connection with the writing of option 
contracts. MSC notes that exemptive relief for such transactions is 
provided under Part V of PTCE 75-1. However, the exemptive relief under 
Part V of PTCE 75-1, like that under Part II, is available only with 
respect to broker-dealers which are registered with the S.E.C. under 
the 1934 Act. Accordingly, MSC requests that the exemption include 
relief for extensions of credit by the MSC/UK affiliate in the ordinary 
course of the purchase or sale of securities, regardless of whether 
they are effected on an agency or a principal basis. The proposed 
exemption provides relief for extensions of credit by the MSC/UK 
Affiliate to a plan to permit the settlement of securities transactions 
or in connection with the writing of options contracts, provided that 
the MSC/UK Affiliate is not a fiduciary with respect to any assets of 
the plan, unless no interest or other consideration is received by the 
MSC/UK Affiliate in connection with such extension of credit. The 
proposed exemption also requires that the extension of credit would be 
lawful under the 1934 Act and any rules or regulations thereunder if 
such act, rules, or regulations were applicable.
    7. In addition to exemptive relief for principal transactions and 
extensions of credit in connection with the purchase or sale of 
securities, MSC is also requesting exemptive relief for the lending of 
securities, equivalent to that provided under the terms and conditions 
of Prohibited Transaction Class Exemption 81-6 (PTCE 81-6, 46 FR 7527, 
January 23, 1981, amended at 52 FR 18754, May 19, 1987), a class 
exemption to permit certain loans of securities by employee benefit 
plans. MSC represents that in PTCE 81-6 the Department has recognized 
that securities lending represents a low-risk means of enhancing the 
investment return of plans with respect to securities that would 
otherwise be idle. MSC represents that the conditions of Section I(B) 
of the proposed exemption will subject the MSC/UK Affiliate to all of 
the conditions imposed on broker-dealers under PTCE 81-6, other than 
registration under the 1934 Act. MSC notes that such conditions include 
requirements relating to daily marking to market, setting collateral at 
100 percent of the market value of the securities, the rules for 
termination of the loan, and return of the borrowed securities. In 
addition, MSC notes that

[[Page 58241]]

the collateral will be in U.S. dollars and will be held in the United 
States.
    8. In summary, the applicant represents that the proposed 
transactions satisfy the criteria of section 408(a) of the Act for the 
following reasons: (1) With respect to principal transactions affected 
by the MSC/UK Affiliate, the exemption will enable plans to realize the 
same benefits of efficiency and convenience which derive from principal 
transactions executed pursuant to Part II of PTCE 75-1 by broker-
dealers registered in the United States; (2) With respect to extensions 
of credit by the MSC/UK Affiliate in connection with purchases or sales 
of securities, the exemption will enable the MSC/UK to extend credit in 
the ordinary course of business to affect the transactions within the 
customary settlement period or in connection with the writing of 
options contracts; (3) With respect to securities lending transactions 
affected by the MSC/UK Affiliate, the exemption will enable plans to 
realize a low-risk return on securities that otherwise would remain 
idle, as in securities lending transactions executed pursuant to PTCE 
81-6 by broker-dealers registered in the United States; and (3) The 
proposed exemption generally imposes terms and conditions upon the 
transactions executed by the MSC/UK Affiliate which are the same as 
those imposed on U.S. broker-dealers under PTCE 75-1 and PTCE 81-6.

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

General Electric Pension Trust (the GE Trust), Located in Fairfield, 
Connecticut

[Application Nos. D-10285 Thru D-10287]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted, the restrictions of sections 406(a), 406(b)(1) and 
406(b)(2) of the Act and the sanctions resulting from the application 
of section 4975 of the Code, by reason of section 4975(c)(1) (A) 
through (E) of the Code,<SUP>2 shall not apply, effective July 12, 
1996, to the past sale by the GE Trust of its stock in AmeriData 
Technologies, Inc. (the AmeriData Stock) to General Electric Capital 
Corporation (GECC) and GECC's indirect, wholly-owned subsidiary, GAC 
Acquisition I Corporation (GAC), both of which are parties in interest 
with respect to the GE Trust and affiliates of the General Electric 
Company (GE) the sponsor of the GE Trust, in connection with the merger 
(the Merger) of GAC and AmeriData Technologies, Inc. (AmeriData), 
provided that the following conditions were satisfied:
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    \2\ For purposes of this proposed exemption references to 
specific provisions of Title I of the Act, unless otherwise 
specified, refer also to the corresponding provisions of the Code.
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    (a) The sale of the AmeriData Stock by the GE Trust was a one-time 
transaction for cash;
    (b) The GE Trust received the fair market value for each share of 
the AmeriData Stock on the date of the sale;
    (c) The GE Trust received no less consideration than that received 
by similarly situated AmeriData shareholders at the same time in the 
same transaction;
    (d) The GE Trust paid no commissions, fees or other expenses in 
connection with the sale of the AmeriData Stock to GECC and GAC;
    (e) The terms of the sale were no less favorable to the GE Trust 
than those obtainable by other similarly situated shareholders of 
AmeriData Stock;
    (f) The GE Trust tendered its shares of AmeriData Stock only at the 
close of the tender-offer period and only after a majority of the 
outstanding shares of AmeriData had been tendered; and
    (g) The transactions engaged in by the GE Trust with respect to the 
AmeriData Stock (including the acquisition, holding and subsequent sale 
to GECC and GAC) were not part of an arrangement designed to benefit 
GE, any of its affiliates, or any other party in interest with respect 
to the GE Trust.

EFFECTIVE DATE: This proposed exemption, if granted, will be effective 
as of July 12, 1996, the closing date of the tender-offer period for 
the AmeriData Stock in connection with the Merger.

Summary of Facts and Representations

    1. The GE Trust is a single pension trust through which three (3) 
defined benefit plans (the Plans) are funded. These Plans provide 
pension and death benefits to eligible employees and their 
beneficiaries. As of December 31, 1995, there were approximately 
465,000 participants in the Plans. The Plans which participate in the 
GE Trust are: (a) the General Electric Company Pension Plan (the GE 
Plan), which is maintained by GE; (b) the Components Pension Plan for 
Puerto Rico, which is maintained by Caribe General Electric Products, 
Inc., an affiliate of GE; and (c) the ERC Retirement Plan, which is 
maintained by Employers Reinsurance Corporation, an affiliate of GE. As 
of December 31, 1995, the GE Trust had total net assets of 
approximately $30.3 billion.
    2. The assets of the GE Trust are held in trust by seven (7) 
trustees (the Trustees) who are all employees of GE and who are 
appointed by the Benefit Plans Investment Committee (BPIC). The Board 
of Directors of GE appoints officers of GE to serve as members of BPIC. 
BPIC determines the investment policies with respect to the assets of 
the Plans in the GE Trust.
    3. GE offers diversified manufacturing and technical services 
worldwide. An indirect, wholly-owned subsidiary of GE, GECC, provides 
financial services in the following categories: special insurance 
services, consumer services, specialized financing, equipment 
management, and mid-market financing. The affiliates of GE play a 
primary role in the proposed transaction. In this regard, GECC 
established GAC, as an indirect, wholly-owned special purpose 
subsidiary, to acquire AmeriData. In this regard, it is represented 
that GAC will be merged into AmeriData at which time AmeriData will 
become an affiliate of GE. Because GECC is a participating employer 
under the GE Plan, GECC and GAC are parties in interest with respect to 
the GE Trust.
    4. AmeriData, with offices in Stamford, Connecticut, is a 
corporation registered under the laws of the State of Delaware. 
AmeriData is an international provider of computer products and 
services, as well as technology consulting services. Shares of 
AmeriData Stock are widely-held and publicly-traded on the New York 
Stock Exchange. It is represented that approximately 24,938,845 shares 
of AmeriData Stock are considered outstanding for purposes of Delaware 
General Corporation Law (DGCL), as of July 23, 1996.
    5. The Applicants represent that, as of December 31, 1995, the 
readily identifiable shareholders of AmeriData Stock were: (1) the GE 
Trust; (2) two investment Partnerships; (3) SBC Technologies, Inc., a 
wholly-owned subsidiary of AmeriData; and (4) the officers and 
directors of AmeriData. It is represented that the remaining shares of 
AmeriData Stock were held by the general public.
    As of December 31, 1995, the officers and directors of AmeriData 
owned 11.8 percent (11.8%) of the shares of AmeriData Stock. It is 
represented that, as of May 20, 1996, management shareholders of 
AmeriData owning approximately 6 percent (6%) of the

[[Page 58242]]

outstanding shares of AmeriData Stock had entered into binding 
agreements to tender their shares. None of the officers and directors 
of AmeriData are employed by GE or its affiliates.
    With respect to the two investment partnerships, the combined 
ownership represented a total of 10.9% of the shares of AmeriData 
Stock. Neither investment partnership has any affiliation with GE.
    6. As of December 31, 1995, the GE Trust owned approximately 
2,101,404 shares of the AmeriData Stock. These shares represented 
approximately 9.7 percent (9.7%) of the total outstanding shares of the 
AmeriData Stock at that time. It is represented that the Trustees 
acquired the 2,101,404 shares of the AmeriData Stock in a number of 
transactions over the period from May 1993 through October 1994. The 
cost to the GE Trust of its 2,101,404 shares of AmeriData stock, as 
shown on the GE Trust's financial records, was $21,566,026. It is 
represented that the GE Trust acquired some of the AmeriData Stock in 
blind transactions on the open market. In addition, the remaining 
AmeriData Stock was acquired in various transactions with AmeriData or 
its predecessor, including but not limited to purchases, the exercise 
of warrants, and the receipt of stock dividends.<SUP>3 It is 
represented that at the time of these transactions neither AmeriData 
nor its predecessor was related to GE, nor was either a party in 
interest with respect to the GE Trust. The Applicants represent that 
the decisions made by the Trustees regarding the acquisition of the 
AmeriData Stock were made independent of, and without knowledge that in 
the future an affiliate of GE would attempt to acquire all of the 
outstanding shares of AmeriData Stock.
---------------------------------------------------------------------------

    \3\  In this regard, the Department is not providing any opinion 
in this proposed exemption as to whether the acquisition and holding 
of the AmeriData Stock by the GE Trust violated any of the 
provisions of Part IV of Title I of the Act. However, the Department 
notes that section 404(a) of the Act requires, among other things, 
that a plan fiduciary act prudently, solely in the interest of the 
participants and beneficiaries of a plan, and for the exclusive 
purpose of providing benefits to participants and beneficiaries when 
making investment decisions for such plan.
---------------------------------------------------------------------------

    7. On May 20, 1996, GECC, GAC and AmeriData entered into an 
agreement and plan of merger (the Merger Agreement). In this regard, 
the Boards of Directors of these parties unanimously approved the 
acquisition of AmeriData by GECC and GAC by means of the merger of GAC 
with and into AmeriData. In connection with the Merger, GAC made a 
tender offer on May 24, 1996, for all outstanding shares of AmeriData 
Stock. The tender-offer period began on May 24, 1996, and was to expire 
on June 21, 1996, subject to the satisfaction or waiver of certain 
closing conditions. Because certain closing conditions could not be 
satisfied or waived before June 21, the tender-offer period was 
extended until July 12, 1996.
    Pursuant to the tender, GAC offered to purchase the stock of 
AmeriData for $16 a share or approximately $490 million in the 
aggregate. The tender price represented a premium of approximately 47.1 
percent (47.1%) over the closing price of $10\7/8\ per share for 
AmeriData Stock on April 19, 1996, thirty-one (31) days prior to the 
public announcement of the execution of the Merger Agreement. In this 
regard, it is represented the trading price of shares of AmeriData 
Stock on the open market during the tender-offer period, ranged from 
$15\3/4\ to $15\7/8\ per share, except that the closing price per share 
was $15\5/8\ on May 27, and $16 on June 17, and July 5, 8, and 10, 
1996. The Board of Directors of AmeriData unanimously approved such 
tender offer and recommended that its shareholders accept the tender.
    8. While it would have been possible for the GE Trust, as a 
shareholder of AmeriData Stock to ignore the recommendation of the 
Board of Directors and sell its shares in the open market or in a 
private transaction before the close of the tender-offer period, it is 
represented that this approach would probably have resulted in loss of 
some profits to the GE Trust. Since any purchaser of the AmeriData 
Stock (either in the open market or in a private transaction) during 
the tender-offer period could normally expect to resell such shares for 
the tender-offer price, the transaction would be worthwhile for such 
purchaser only if it paid to the GE Trust a price less than the tender-
offer price so as to realize a profit from the spread. By accepting the 
tender offer, the GE Trust avoided losing part of the profit on its 
investment and was able to sell its shares for the full tender-offer 
price.
    9. Regardless of whether or not the GE Trust tendered its shares, 
once a majority of the outstanding shares of AmeriData Stock were 
tendered by shareholders other than the GE Trust, in no event could the 
GE Trust have continued to hold its shares of AmeriData Stock. In this 
regard, under the terms of the Merger Agreement, GAC was not required 
to proceed with the purchase of the tendered shares, if less than a 
majority of AmeriData Stock was tendered as of the close of the tender-
offer period. However, if a majority, but less than 100 percent (100%) 
of the shares of AmeriData Stock were tendered, then GAC was bound to 
acquire the tendered shares. Further, under the terms of the Merger 
Agreement once a majority of shares had been tendered, GAC in its 
capacity as the acquiring corporation, was obligated to cause a forced 
redemption of all the shares of AmeriData Stock which had not been 
tendered initially. In this regard, under the terms of the Merger 
Agreement, such follow-on merger would redeem, at the same $16 per 
share consideration, all the remaining shares of AmeriData Stock held 
by parties other than GAC. GAC was assured under Delaware law, that 
once a majority of shares had been tendered, it would be able to 
acquire all of the shares of AmeriData either through a short-form 
merger or a shareholder vote followed by a merger. In the event that at 
least 90 percent (90%) of the shares of AmeriData Stock were tendered 
in the tender offer, such follow-on merger would be a ``short-form'' 
merger under Section 253 of the DGCL and would not require a vote of 
shareholders. In the event that less than 90 percent (90%) of the 
shares were tendered, a follow-on merger under Section 251 of DGCL 
would be accomplished by a shareholder vote.
    It is represented that the total number of shares of AmeriData 
Stock tendered to GAC at the close of the tender-offer period was 
22,421,080 out of a total of 24,938,845 shares. The number of shares 
tendered represented 89.9 percent (89.9%) of the total number of 
outstanding shares of AmeriData Stock. In order to proceed with a 
``short-form'' merger under Section 253 of the DGCL which would not 
require a vote of shareholders, GAC subsequently purchased a sufficient 
number of shares of AmeriData Stock directly from AmeriData at the same 
$16 per share price so that GAC became a 90 percent (90%) shareholder. 
AmeriData was then merged with GAC using the ``short-form'' merger 
provisions of DGCL with the result that AmeriData as a surviving 
company is now a wholly owned subsidiary of GECC.
    10. The Applicants represent that the Trustees made a fiduciary 
decision not to tender the GE Trust's shares of AmeriData Stock until 
the close of the tender-offer period, and then to do so only if at that 
time at least 51 percent (51%) of the other shareholders had already 
tendered their shares. The Trustees determined that such a conditional 
tender should be made, and that the shares of AmeriData Stock held by 
the GE Trust should be tendered only if the specified conditions were 
met immediately prior to the close of the

[[Page 58243]]

tender-offer period, so that the arm's length nature of the transaction 
by the Trustees would be confirmed by the actions of independent 
parties, prior to the tender by the Trustees. Also, the Trustees 
concluded that by waiting for a majority of shareholders other than the 
GE Trust to tender, no issue would arise as to whether the Trustees had 
facilitated the acquisition by GAC of AmeriData Stock, since once a 
majority of other shareholders had tendered their shares, GAC was 
obligated to redeem all of the outstanding shares of AmeriData Stock.
    11. The Trustees carried out the conditional tender in a two part 
process. First, several days prior to the close of the tender-offer 
period, the Trustees filed a letter with the Chase Manhattan Bank, in 
its capacity as Depository for the tender-offer, which stated that the 
Trustees' tender of the shares of AmeriData Stock held by the GE Trust 
was conditional and was to be effective if and only if immediately 
prior to the expiration of the tender-offer period, at least 51 percent 
(51%) of the shares of AmeriData Stock had been validly tendered and 
not withdrawn. In addition, the Trustees dispatched a letter which 
would effectuate the transmittal of its shares of AmeriData Stock, 
providing that the conditions of its tender were met. As more than a 
majority of shares of AmeriData Stock were tendered by independent 
shareholders at the close of the tender-offer period, the GE Trust 
tendered its shares to GAC on July 12, 1996. In this regard, it is 
represented that, as of July 17, 1996, a check in an amount of 
approximately $33,622,464 million representing a purchase price of $16 
per share, payable to the GE Trust for its 2,101,404 shares of 
AmeriData Stock tendered to GAC was received by State Street Bank, 
acting as custodian for the GE Trust. Accordingly, the GE Trust and the 
Plans (collectively, the Applicants) request retroactive relief from 
the prohibited transactions provisions of the Act provided certain 
conditions were met for the past sale to GAC under the terms of the 
tender offer of AmeriData Stock which, prior to the effective date of 
this exemption, was held by the GE Trust.
    12. The Applicants maintain that the proposed sale is 
administratively feasible in that the transaction would be a one-time 
cash sale. In this regard, there will be no need for the Department to 
monitor or supervise the transaction. It is represented that the cost 
of filing the application for exemption will be borne by GE Trust and 
that the cost of notifying interested persons will be borne by GE or 
one of its affiliates.
    13. It is represented that the transaction is protective of the GE 
Trust and the Plans, because the terms of transaction to the Plan were 
no less favorable than those received by other similarly situated 
shareholders of AmeriData Stock. In this regard, the terms of the 
tender were carefully negotiated on an arm's length basis as to all 
AmeriData shareholders by parties independent of the Applicants.
    It is represented that the transaction has sufficient safeguards 
for the protection of the Plans. Among such safeguards included in this 
exemption, is the fact that the GE Trust could only tender its shares 
of AmeriData Stock at the close of the tender-offer period and then 
only if at the close of such period a majority of the outstanding 
shares of AmeriData Stock had already been tendered by parties other 
than the GE Trust. In this regard it is represented that GE Trust could 
not have caused the transaction to occur because of their decision to 
tender. In addition, because the GE Trust did not tender its shares 
until the end of the tender-offer period and then tendered only after a 
majority of independent investors in AmeriData had tendered, it is 
represented that the arm's length nature of the tender was confirmed.
    It is further represented that the GE Trust was protected, because 
a majority of the shares of AmeriData Stock were tendered by 
independent shareholders before the GE Trust tendered its shares. Since 
all tenders were revocable up to the close of the tender-offer period, 
had a third party made a more favorable offer, then all the 
shareholders, including the GE Trust, would have revoked their tender 
to GAC in favor of such competing offer. Accordingly, it is represented 
that there was no potential for abuse. In addition, it is represented 
that during the tender-offer period, there was in fact no competing 
tender offer made by a third party.
    14. It is represented that the transaction is in the interest of 
the GE Trust and the Plans, because accepting the tender resulted in 
the highest and best sales price of AmeriData Stock for the GE Trust 
and the Plans. In this regard, the GE Trust and the Plans avoided 
disposing of their shares of AmeriData Stock on the open market at less 
than the tender-offer price. It is represented that the GE Trust was 
informally advised by outside investment counsel that, because the GE 
Trust would be disposing of a large block of AmeriData Stock, if such 
shares were sold on the open market the price would likely be reduced 
to as low as $15\1/2\ per share. It is estimated that if the GE Trust 
had disposed of the AmeriData Stock on the open market at $15\1/2\ per 
share, rather than tendering such shares at $16 per share, the Plans 
would have received $1,050,702 less.
    Further, the GE Trust and the Plans benefit from being able to 
tender the AmeriData Stock, rather than sell the shares on the open 
market. In this regard, in a sale on the open market the Plans would 
have paid commissions, which were not incurred by the Plans by 
accepting the tender offer.
    15. In summary, the Applicants represent that the transaction 
satisfies the statutory criteria of section 408(a) of the Act and 
section 4975(c)(2) of the Code because:
    (a) The sale of the AmeriData Stock by the GE Trust was a one- time 
transaction for cash;
    (b) The GE Trust, and the Plans received the fair market value for 
each share of the AmeriData Stock on the date of the sale;
    (c) The GE Trust received no less consideration than other 
similarly situated shareholders of the AmeriData Stock received at the 
same time in the same transaction;
    (d) The GE Trust paid no commissions, fees, or other expenses in 
connection with the sale of the AmeriData Stock to GECC and GAC;
    (e) The terms of the sale were no less favorable to the GE Trust, 
and the Plans, then those obtainable in an arm's length transaction 
engaged in by other similarly situated shareholders of AmeriData Stock; 
and
    (f) The GE Trust tendered its shares of AmeriData Stock only at the 
close of the tender-offer period and only after a majority of the 
outstanding shares of AmeriData had been tendered.

Notice to Interested Persons

    The Applicants represent that because of the large number of 
potentially interested persons, it is not possible to provide a 
separate copy of the Notice of Proposed Exemption (the Notice) to each 
participant in the Plans. However, GE will post a photocopy of the 
Notice, as published in the Federal Register, plus a copy of the 
supplemental statement (the Supplemental Statement), in the form set 
forth in the Department's regulations under 29 CFR 2570.43(b)(2), on 
bulletin boards normally used for employee notices in each of its 
offices and operating facilities and in the offices and operating 
facilities of its affiliates within fifteen (15) days of the 
publication of such Notice in the Federal Register. Apart from this 
method of notifying all interested persons, the Applicants represent 
that the only practical form of providing notice to former employees,

[[Page 58244]]

retirees, and other employees, is to publish a notice in the 1995 
Summary Annual Report which will be distributed to such person on or 
before December 15, 1996, via first class mail. Such notice in the 
Summary Annual Report will notify former employees, retirees, and other 
employees that they may obtain a copy of the proposed exemption and 
information on how to comment from Joseph C. Keifer, Controller of the 
GE Trust at (203) 921-2167. The comment period will end thirty (30) 
days after the mailing of the Summary Annual Report.

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

First Chicago NBD Corporation (FCNBD), Located in Chicago, Illinois

[Application No. D-10361]

Proposed Exemption

I. Transactions

    A. Effective October 8, 1996, 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).
---------------------------------------------------------------------------

    B. Effective October 8, 1996, 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;
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    (2) The direct or indirect acquisition or disposition of 
certificates by a plan in the secondary market for such certifi cates, 
provided that the conditions set forth in paragraphs B.(1) (i), (iii) 
and (iv) are met; and
    (3) The continued holding of certificates acquired by a plan 
pursuant to subsection I.B. (1) or (2).
    C. Effective October 8, 1996, 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.
---------------------------------------------------------------------------

    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. Effective October 8, 1996, 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

[[Page 58245]]

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 Structured 
Rating Group (S&P's), Moody's Investors Service, Inc. (Moody's), Duff & 
Phelps Inc. (D & P) or Fitch Investors Service, Inc. (Fitch);
    (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 
FCNBD or any of its affiliates 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); <SUP>7
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    \7\ It is the Department's view that the definition of ``trust'' 
contained in III.B. includes a two-tier structure under which 
certificates issued by the first trust, which contains a pool of 
receivables described above, are transferred to a second trust which 
issues securities that are sold to plans. However, the Department is 
of the further view that, since the exemption provides relief for 
the direct or indirect acquisition or disposition of certificates 
that are not subordinated, no relief would be available if the 
certificates held by the second trust were subordinated to the 
rights and interests evidenced by other certificates issued by the 
first trust.
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    (2) property which 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) FCNBD;
    (2) Any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by or under common control with 
FCNBD; or
    (3) Any member of an underwriting syndicate or selling group of 
which FCNBD 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.

[[Page 58246]]

    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 receivables contained in the 
trust, but is not a party to the pooling and servicing agreement.
    G. Servicer means any entity which services receivables contained 
in the trust, including the master servicer and any subservicer.
    H. Trustee means the trustee of the trust, and in the case of 
certificates which are denominated as debt instruments, also means the 
trustee of the indenture trust.
    I. Insurer means the insurer or guarantor of, or provider of other 
credit support for, a trust. Notwithstanding the foregoing, a person is 
not an insurer solely because it holds securities representing an 
interest in a trust which are of a class subordinated to certificates 
representing an interest in the same trust.
    J. Obligor means any person, other than the insurer, that is 
obligated to make payments with respect to any obligation or receivable 
included in the trust. Where a trust contains qualified motor vehicle 
leases or qualified equipment notes secured by leases, ``obligor'' 
shall also include any owner of property subject to any lease included 
in the trust, or subject to any lease securing an obligation included 
in the trust.
    K. Excluded Plan means any plan with respect to which any member of 
the Restricted Group is a ``plan sponsor'' within the meaning of 
section 3(16)(B) of the Act.
    L. Restricted Group with respect to a class of certificates means:
    (1) Each underwriter;
    (2) Each insurer;
    (3) The sponsor;
    (4) The trustee;
    (5) Each servicer;
    (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.
    W. FCNBD means First Chicago NBD Corporation and its affiliates.
    The Department notes that this proposed 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.

Summary of Facts and Representations

    1. FCNBD, a Delaware corporation, is a Chicago, Illinois based bank 
holding company formed by the merger of First Chicago Corporation with 
and into NBD Bancorp, Inc., which has assets of over $113 billion and 
through its subsidiaries operates more than 763 branches in various 
cities in Florida, Illinois, Indiana, Michigan and Wisconsin, as well 
as various overseas locations. FCNBD also owns and operates 
subsidiaries that engage in trust, brokerage, investment management, 
equipment leasing, venture capital, mortgage banking, consumer finance 
and insurance.
    First Chicago Capital Markets, Inc. (FCCM), a Delaware corporation, 
is a wholly-owned indirect subsidiary of FCNBD. FCCM was organized in 
1988 and pursuant to an August 1988 order (the 1988 Order) of the 
Federal Reserve Board (FRB) is authorized to engage, to a limited 
extent, in underwriting and dealing in certain mortgage-backed 
securities, municipal revenue bonds, commercial paper and consumer 
receivables-related securities transactions. In March, 1994, FCCM 
received further authorization from the FRB to: (i) underwrite and deal 
in all types of debt securities, including rated and unrated long-term 
debt, medium term notes and convertible debt securities; (ii) privately 
place and act as riskless principal in all types of securities, 
including equity securities; and (iii) engage in certain related 
investment and advisory activities. These orders are currently subject 
to the condition that FCNBD does not derive more than 10% of its total 
gross revenues from such activities. FCCM does not at this time have 
authority to underwrite equity securities. FCCM is a broker-dealer 
registered with the Securities and Exchange Commission and in all 50 
states, and is a member of the National Association of Securities 
Dealers, Inc. In addition, FCNBD affiliates have the power to sell 
interests in their own assets in the form of asset-backed securities.
    FCNBD's investment banking department has served as senior manager 
with full structuring responsibilities for over $16.4 billion in public 
asset-backed securities transactions since 1988 and agented $1.1 
billion of private placement transactions in 1994 alone. It has one of 
the largest departments specializing in asset-backed securities of any 
bank or Wall Street firm, with approximately 50 professionals. The 
asset-backed securities staff has extensive experience in structuring 
both taxable and tax-exempt obligations having a wide range of 
structural characteristics as well as security arrangements. FCNBD 
originated and placed $22.8 billion in asset-backed commercial paper 
transactions through October 1995.

Trust Assets

    2. FCNBD seeks exemptive relief to permit plans to invest in pass-
through certificates representing undivided interests in the following 
categories of trusts: (1) single and multi-family residential or 
commercial mortgage investment trusts; <SUP>8 (2) motor vehicle 
receivable investment trusts; (3) consumer or commercial receivables 
investment trusts; and (4) guaranteed governmental mortgage pool 
certificate investment trusts.<SUP>9
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    \8\ The Department notes that PTE 83-1 [48 FR 895, January 7, 
1983], a class exemption for mortgage

[[Page 58247]]

pool investment trusts, would generally apply to trusts containing 
single-family residential mortgages, provided that the applicable 
conditions of PTE 83-1 are met. FCNBD requests relief for single-
family residential mortgages in this exemption because it would 
prefer one exemption for all trusts of similar structure. However, 
FCNBD has stated that it may still avail itself of the exemptive 
relief provided by PTE 83-1.
    \9\ Guaranteed governmental mortgage pool certificates are 
mortgage-backed securities with respect to which interest and 
principal payable is guaranteed by the Government National Mortgage 
Association (GNMA), the Federal Home Loan Mortgage Corporation 
(FHLMC), or the Federal National Mortgage Association (FNMA). The 
Department's regulation relating to the definition of plan assets 
(29 CFR 2510.3-101(i)) provides that where a plan acquires a 
guaranteed governmental mortgage pool certificate, the plan's assets 
include the certificate and all of its rights with respect to such 
certificate under applicable law, but do not, solely by reason of 
the plan's holding of such certificate, include any of the mortgages 
underlying such certificate. The applicant is requesting exemptive 
relief for trusts containing guaranteed governmental mortgage pool 
certificates because the certificates in the trusts may be plan 
assets.
---------------------------------------------------------------------------

    3. Commercial mortgage investment trusts may include mortgages on 
ground leases of real property. Commercial mortgages are frequently 
secured by ground leases on the underlying property, rather than by fee 
simple interests. The separation of the fee simple interest and the 
ground lease interest is generally done for tax reasons. Properly 
structured, the pledge of the ground lease to secure a mortgage 
provides a lender with the same level of security as would be provided 
by a pledge of the related fee simple interest. The terms of the ground 
leases pledged to secure leasehold mortgages will in all cases be at 
least ten years longer than the term of such mortgages.<SUP>10
---------------------------------------------------------------------------

    \10\ Trust assets may also include obligations that are secured 
by leasehold interests on residential real property. See PTE 90-32 
involving Prudential-Bache Securities, Inc. (55 FR 23147, June 6, 
1990 at 23150).
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Trust Structure

    4. Each trust is established under a pooling and servicing 
agreement between a sponsor, a servicer and a trustee. The sponsor or 
servicer of a trust selects assets to be included in the trust. These 
assets are receivables which may have been originated by a sponsor or 
servicer of the trust, an affiliate of the sponsor or servicer, or by 
an unrelated lender and subsequently acquired by the trust sponsor or 
servicer.<SUP>11
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    \11\ It is the view of the Department that section III.B.(4) 
includes within the definition of the term ``trust'' rights under 
any yield supplement or similar arrangement which obligates the 
sponsor or master servicer, or another party specified in the 
relevant pooling and servicing agreement, to supplement the interest 
rates otherwise payable on the obligations described in section 
III.B.(1), in accordance with the terms of a yield supplement 
arrangement described in the pooling and servicing agreement, 
provided that such arrangements do not involve swap agreement or 
other notional principal contracts.
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    On or prior to the closing date, the sponsor acquires legal title 
to all assets selected for the trust, establishes the trust and 
designates an independent entity as trustee. On the closing date, the 
sponsor conveys to the trust legal title to the assets, and the trustee 
issues certificates representing fractional undivided interests in the 
trust assets. FCNBD, alone or together with other broker-dealers, acts 
as underwriter or placement agent with respect to the sale of the 
certificates. All of the public offerings of certificates presently 
contemplated are to be underwritten by FCNBD on a firm commitment 
basis. In addition, FCNBD anticipates that it may privately place 
certificates on both a firm commitment and an agency basis. FCNBD may 
also act as the lead underwriter for a syndicate of securities 
underwriters.
    Certificateholders will be entitled to receive monthly, quarterly 
or semi-annual installments of principal and/or interest, or lease 
payments due on the receivables, adjusted, in the case of payments of 
interest, to a specified rate--the pass-through rate--which may be 
fixed or variable.
    When installments or payments are made on a semi-annual basis, 
funds are not permitted to be commingled with the servicer's assets for 
longer than would be permitted for a monthly-pay security. A segregated 
account is established in the name of the trustee (on behalf of 
certificateholders) to hold funds received between distribution dates. 
The account is under the sole control of the trustee, who invests the 
account's assets in short-term securities which have received a rating 
comparable to the rating assigned to the certificates. In some cases, 
the servicer may be permitted to make a single deposit into the account 
once a month. When the servicer makes such monthly deposits, payments 
received from obligors by the servicer may be commingled with the 
servicer's assets during the month prior to deposit. Usually, the 
period of time between receipt of funds by the servicer and deposit of 
these funds in a segregated account does not exceed one month. 
Furthermore, in those cases where distributions are made semi-annually, 
the servicer will furnish a report on the operation of the trust to the 
trustee on a monthly basis. At or about the time this report is 
delivered to the trustee, it

[[Page 58248]]

will be made available to certificateholders and delivered to or made 
available to each rating agency that has rated the certificates.
    5. Some of the certificates will be multi-class certificates. FCNBD 
requests exemptive relief for two types of multi-class certificates: 
``strip'' certificates and ``fast-pay/slow-pay'' certificates. Strip 
certificates are a type of security in which the stream of interest 
payments on receivables is split from the flow of principal payments 
and separate classes of certificates are established, each representing 
rights to disproportionate payments of principal and interest.<SUP>12
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    \12\ It is the Department's understanding that where a plan 
invests in REMIC ``residual'' interest certificates to which this 
exemption applies, some of the income received by the plan as a 
result of such investment may be considered unrelated business 
taxable income to the plan, which is subject to income tax under the 
Code. The Department emphasizes that the prudence requirement of 
section 404(a)(l)(B) of the Act would require plan fiduciaries to 
carefully consider this and other tax consequences prior to causing 
plan assets to be invested in certificates pursuant to this 
exemption.
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    ``Fast-pay/slow-pay'' certificates involve the issuance of classes 
of certificates having different stated maturities or the same 
maturities with different payment schedules. Interest and/or principal 
payments received on the underlying receivables are distributed first 
to the class of certificates having the earliest stated maturity of 
principal, and/or earlier payment schedule, and only when that class of 
certificates has been paid in full (or has received a specified amount) 
will distributions be made with respect to the second class of 
certificates. Distributions on certificates having later stated 
maturities will proceed in like manner until all the certificateholders 
have been paid in full. The only difference between this multi-class 
pass-through arrangement and a single-class pass-through arrangement is 
the order in which distributions are made to certificateholders. In 
each case, certificateholders will have a beneficial ownership interest 
in the underlying assets. In neither case will the rights of a plan 
purchasing a certificate be subordinated to the rights of another 
certificateholder in the event of default on any of the underlying 
obligations. In particular, if the amount available for distribution to 
certificateholders is less than the amount required to be so 
distributed, all senior certificateholders then entitled to receive 
distributions will share in the amount distributed on a pro rata 
basis.<SUP>13
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    \13\ If a trust issues subordinated certificates, holders of 
such subordinated certificates may not share in the amount 
distributed on a pro rata basis with the senior certificateholders. 
The Department notes that the exemption does not provide relief for 
plan investment in such subordinated certificates.
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    6. For tax reasons, the trust must be maintained as an essentially 
passive entity. Therefore, both the sponsor's discretion and the 
servicer's discretion with respect to assets included in a trust are 
severely limited. Pooling and servicing agreements provide for the 
substitution of receivables by the sponsor only in the event of defects 
in documentation discovered within a short time after the issuance of 
trust certificates (within 120 days, except in the case of obligations 
having an original term of 30 years, in which case the period will not 
exceed two years). Any receivable so substituted is required to have 
characteristics substantially similar to the replaced receivable and 
will be at least as creditworthy as the replaced receivable.
    In some cases, the affected receivable would be repurchased, with 
the purchase price applied as a payment on the affected receivable and 
passed through to certificateholders.

Parties to Transactions

    7. The originator of a receivable is the entity that initially 
lends money to a borrower (obligor), such as a homeowner or automobile 
purchaser, or leases property to a lessee. The originator may either 
retain a receivable in its portfolio or sell it to a purchaser, such as 
a trust sponsor.
    Originators of receivables included in the trusts will be entities 
that originate receivables in the ordinary course of their business, 
including finance companies for whom such origination constitutes the 
bulk of their operations, financial institutions for whom such 
origination constitutes a substantial part of their operations, and any 
kind of manufacturer, merchant, or service enterprise for whom such 
origination is an incidental part of its operations. Each trust may 
contain assets of one or more originators. The originator of the 
receivables may also function as the trust sponsor or servicer.
    8. The sponsor will be one of three entities: (i) a special-purpose 
or other corporation unaffiliated with the servicer, (ii) a special-
purpose or other corporation affiliated with the servicer, or (iii) the 
servicer itself. Where the sponsor is not also the servicer, the 
sponsor's role will generally be limited to acquiring the receivables 
to be included in the trust, establishing the trust, designating the 
trustee, and assigning the receivables to the trust.
    9. The trustee of a trust is the legal owner of the obligations in 
the trust. The trustee is also a party to or beneficiary of all the 
documents and instruments deposited in the trust, and as such is 
responsible for enforcing all the rights created thereby in favor of 
certificateholders.
    The trustee will be an independent entity, and therefore will be 
unrelated to FCNBD, the trust sponsor or the servicer. FCNBD represents 
that the trustee will be a substantial financial institution or trust 
company experienced in trust activities. The trustee receives a fee for 
its services, which will be paid by the servicer or sponsor. The method 
of compensating the trustee which is specified in the pooling and 
servicing agreement will be disclosed in the prospectus or private 
placement memorandum relating to the offering of the certificates.
    10. The servicer of a trust administers the receivables on behalf 
of the certificateholders. The servicer's functions typically involve, 
among other things, notifying borrowers of amounts due on receivables, 
maintaining records of payments received on receivables and instituting 
foreclosure or similar proceedings in the event of default. In cases 
where a pool of receivables has been purchased from a number of 
different originators and deposited in a trust, the receivables may be 
``subserviced'' by their respective originators and a single entity may 
``master service'' the pool of receivables on behalf of the owners of 
the related series of certificates. Where this arrangement is adopted, 
a receivable continues to be serviced from the perspective of the 
borrower by the local subservicer, while the investor's perspective is 
that the entire pool of receivables is serviced by a single, central 
master servicer who collects payments from the local subservicers and 
passes them through to certificateholders.
    Receivables of the type suitable for inclusion in a trust 
invariably are serviced with the assistance of a computer. After the 
sale, the servicer keeps the sold receivables on the computer system in 
order to continue monitoring the accounts. Although the records 
relating to sold receivables are kept in the same master file as 
receivables retained by the originator, the sold receivables are 
flagged as having been sold. To protect the investor's interest, the 
servicer ordinarily covenants that this ``sold flag'' will be included 
in all records relating to the sold receivables, including the master 
file, archives, tape extracts and printouts.
    The sold flags are invisible to the obligor and do not affect the 
manner in which the servicer performs the billing,

[[Page 58249]]

posting and collection procedures related to the sold receivables. 
However, the servicer uses the sold flag to identify the receivables 
for the purpose of reporting all activity on those receivables after 
their sale to investors.
    Depending on the type of receivable and the details of the 
servicer's computer system, in some cases the servicer's internal 
reports can be adapted for investor reporting with little or no 
modification. In other cases, the servicer may have to perform special 
calculations to fulfill the investor reporting responsibilities. These 
calculations can be performed on the servicer's main computer, or on a 
small computer with data supplied by the main system. In all cases, the 
numbers produced for the investors are reconciled to the servicer's 
books and reviewed by public accountants.
    The underwriter will be a registered broker-dealer that acts as 
underwriter or placement agent with respect to the sale of the 
certificates. Public offerings of certificates are generally made on a 
firm commitment basis. Private placement of certificates may be made on 
a firm commitment or agency basis. It is anticipated that the lead and 
co-managing underwriters will make a market in certificates offered to 
the public.
    In some cases, the originator and servicer of receivables to be 
included in a trust and the sponsor of the trust (although they may 
themselves be related) will be unrelated to FCNBD. In other cases, 
however, affiliates of FCNBD may originate or service receivables 
included in a trust or may sponsor a trust.
Certificate Price, Pass-Through Rate and Fees
    11. In some cases, the sponsor will obtain the receivables from 
various originators pursuant to existing contracts with such 
originators under which the sponsor continually buys receivables. In 
other cases, the sponsor will purchase the receivables at fair market 
value from the originator or a third party pursuant to a purchase and 
sale agreement related to the specific offering of certificates. In 
other cases, the sponsor will originate the receivables itself.
    As compensation for the receivables transferred to the trust, the 
sponsor receives certificates representing the entire beneficial 
interest in the trust, or the cash proceeds of the sale of such 
certificates. If the sponsor receives certificates from the trust, the 
sponsor sells all or a portion of these certificates for cash to 
investors or securities underwriters.
    12. The price of the certificates, both in the initial offering and 
in the secondary market, is affected by market forces, including 
investor demand, the pass-through interest rate on the certificates in 
relation to the rate payable on investments of similar types and 
quality, expectations as to the effect on yield resulting from 
prepayment of underlying receivables, and expectations as to the 
likelihood of timely payment.
    The pass-through rate for certificates is equal to the interest 
rate on receivables included in the trust minus a specified servicing 
fee.<SUP>14 This rate is generally determined by the same market forces 
that determine the price of a certificate. The price of a certificate 
and its pass-through, or coupon, rate together determine the yield to 
investors. If an investor purchases a certificate at less than par, 
that discount augments the stated pass-through rate; conversely, a 
certificate purchased at a premium yields less than the stated coupon.
---------------------------------------------------------------------------

    \14\ The pass-through rate on certificates representing 
interests in trusts holding leases is determined by breaking down 
lease payments into ``principal'' and ``interest'' components based 
on an implicit interest rate.
---------------------------------------------------------------------------

    13. As compensation for performing its servicing duties, the 
servicer (who may also be the sponsor or an affiliate thereof, and 
receive fees for acting in that capacity) will retain the difference 
between payments received on the receivables in the trust and payments 
payable (at the pass-through rate) to certificateholders, except that 
in some cases a portion of the payments on receivables may be paid to a 
third party, such as a fee paid to a provider of credit support. The 
servicer may receive additional compensation by having the use of the 
amounts paid on the receivables between the time they are received by 
the servicer and the time they are due to the trust (which time is set 
forth in the pooling and servicing agreement). The servicer typically 
will be required to pay the administrative expenses of servicing the 
trust, including in some cases the trustee's fee, out of its servicing 
compensation.
    The servicer is also compensated to the extent it may provide 
credit enhancement to the trust or otherwise arrange to obtain credit 
support from another party. This ``credit support fee'' may be 
aggregated with other servicing fees, and is either paid out of the 
interest income received on the receivables in excess of the pass-
through rate or paid in a lump sum at the time the trust is 
established.
    14. The servicer may be entitled to retain certain administrative 
fees paid by a third party, usually the obligor. These administrative 
fees fall into three categories: (a) prepayment fees; (b) late payment 
and payment extension fees; and (c) expenses, fees and charges 
associated with foreclosure or repossession, or other conversion of a 
secured position into cash proceeds, upon default of an obligation.
    Compensation payable to the servicer will be set forth or referred 
to in the pooling and servicing agreement and described in reasonable 
detail in the prospectus or private placement memorandum relating to 
the certificates.
    15. Payments on receivables may be made by obligors to the servicer 
at various times during the period preceding any date on which pass-
through payments to the trust are due. In some cases, the pooling and 
servicing agreement may permit the servicer to place these payments in 
non-interest bearing accounts maintained with itself or to commingle 
such payments with its own funds prior to the distribution dates. In 
these cases, the servicer would be entitled to the benefit derived from 
the use of the funds between the date of payment on a receivable and 
the pass-through date. Commingled payments may not be protected from 
the creditors of the servicer in the event of the servicer's bankruptcy 
or receivership. In those instances when payments on receivables are 
held in non-interest bearing accounts or are commingled with the 
servicer's own funds, the servicer is required to deposit these 
payments by a date specified in the pooling and servicing agreement 
into an account from which the trustee makes payments to 
certificateholders.
    16. The underwriter will receive a fee in connection with the 
securities underwriting or private placement of certificates. In a firm 
commitment underwriting, this fee would consist of the difference 
between what the underwriter receives for the certificates that it 
distributes and what it pays the sponsor for those certificates. In a 
private placement, the fee normally takes the form of an agency 
commission paid by the sponsor. In a best efforts underwriting in which 
the underwriter would sell certificates in a public offering on an 
agency basis, the underwriter would receive an agency commission rather 
than a fee based on the difference between the price at which the 
certificates are sold to the public and what it pays the sponsor. In 
some private placements, the underwriter may buy certificates as 
principal, in which case its compensation would be the difference 
between what it receives for the

[[Page 58250]]

certificates that it sells and what it pays the sponsor for these 
certificates.
Purchase of Receivables by the Servicer
    17. The applicant represents that as the principal amount of the 
receivables in a trust is reduced by payments, the cost of 
administering the trust generally increases, making the servicing of 
the trust prohibitively expensive at some point. Consequently, the 
pooling and servicing agreement generally provides that the servicer 
may purchase the receivables remaining in the trust when the aggregate 
unpaid balance payable on the receivables is reduced to a specified 
percentage (usually 5 to 10 percent) of the initial aggregate unpaid 
balance.
    The purchase price of a receivable is specified in the pooling and 
servicing agreement and will be at least equal to: (1) the unpaid 
principal balance on the receivable plus accrued interest, less any 
unreimbursed advances of principal made by the servicer; or (2) the 
greater of (a) the amount in (1) or (b) the fair market value of such 
obligations in the case of a REMIC, or the fair market value of the 
receivables in the case of a trust that is not a REMIC.
Certificate Ratings
    18. The certificates will have received one of the three highest 
ratings available from either S&P's, Moody's, D&P or Fitch. Insurance 
or other credit support (such as surety bonds, letters of credit, 
guarantees, or overcollateralization) will be obtained by the trust 
sponsor to the extent necessary for the certificates to attain the 
desired rating. The amount of this credit support is set by the rating 
agencies at a level that is a multiple of the worst historical net 
credit loss experience for the type of obligations included in the 
issuing trust.
Provision of Credit Support
    19. In some cases, the master servicer, or an affiliate of the 
master servicer, may provide credit support to the trust (i.e. act as 
an insurer). In these cases, the master servicer, in its capacity as 
servicer, will first advance funds to the full extent that it 
determines that such advances will be recoverable (a) out of late 
payments by the obligors, (b) from the credit support provider (which 
may be the master servicer or an affiliate thereof) or, (c) in the case 
of a trust that issues subordinated certificates, from amounts 
otherwise distributable to holders of subordinated certificates, and 
the master servicer will advance such funds in a timely manner. When 
the servicer is the provider of the credit support and provides its own 
funds to cover defaulted payments, it will do so either on the 
initiative of the trustee, or on its own initiative on behalf of the 
trustee, but in either event it will provide such funds to cover 
payments to the full extent of its obligations under the credit support 
mechanism. In some cases, however, the master servicer may not be 
obligated to advance funds but instead would be called upon to provide 
funds to cover defaulted payments to the full extent of its obligations 
as insurer. Moreover, a master servicer typically can recover advances 
either from the provider of credit support or from future payments on 
the affected assets.
    If the master servicer fails to advance funds, fails to call upon 
the credit support mechanism to provide funds to cover delinquent 
payments, or otherwise fails in its duties, the trustee would be 
required and would be able to enforce the certificateholders' rights, 
as both a party to the pooling and servicing agreement and the owner of 
the trust estate, including rights under the credit support mechanism. 
Therefore, the trustee, who is independent of the servicer, will have 
the ultimate right to enforce the credit support arrangement.
    When a master servicer advances funds, the amount so advanced is 
recoverable by the master servicer out of future payments on 
receivables held by the trust to the extent not covered by credit 
support. However, where the master servicer provides credit support to 
the trust, there are protections in place to guard against a delay in 
calling upon the credit support to take advantage of the fact that the 
credit support declines proportionally with the decrease in the 
principal amount of the obligations in the trust as payments on 
receivables are passed through to investors. These safeguards include:
    (a) There is often a disincentive to postponing credit losses 
because the sooner repossession or foreclosure activities are 
commenced, the more value that can be realized on the security for the 
obligation;
    (b) The master servicer has servicing guidelines which include a 
general policy as to the allowable delinquency period after which an 
obligation ordinarily will be deemed uncollectible. The pooling and 
servicing agreement will require the master servicer to follow its 
normal servicing guidelines and will set forth the master servicer's 
general policy as to the period of time after which delinquent 
obligations ordinarily will be considered uncollectible;
    (c) As frequently as payments are due on the receivables included 
in the trust (monthly, quarterly or semi-annually, as set forth in the 
pooling and servicing agreement), the master servicer is required to 
report to the independent trustee the amount of all past-due payments 
and the amount of all servicer advances, along with other current 
information as to collections on the receivables and draws upon the 
credit support. Further, the master servicer is required to deliver to 
the trustee annually a certificate of an executive officer of the 
master servicer stating that a review of the servicing activities has 
been made under such officer's supervision, and either stating that the 
master servicer has fulfilled all of its obligations under the pooling 
and servicing agreement or, if the master servicer has defaulted under 
any of its obligations, specifying any such default. The master 
servicer's reports are reviewed at least annually by independent 
accountants to ensure that the master servicer is following its normal 
servicing standards and that the master servicer's reports conform to 
the master servicer's internal accounting records. The results of the 
independent accountants' review are delivered to the trustee; and
    (d) The credit support has a ``floor'' dollar amount that protects 
investors against the possibility that a large number of credit losses 
might occur towards the end of the life of the trust, whether due to 
servicer advances or any other cause. Once the floor amount has been 
reached, the servicer lacks an incentive to postpone the recognition of 
credit losses because the credit support amount thereafter is subject 
to reduction only for actual draws. From the time that the floor amount 
is effective until the end of the life of the trust, there are no 
proportionate reductions in the credit support amount caused by 
reductions in the pool principal balance. Indeed, since the floor is a 
fixed dollar amount, the amount of credit support ordinarily increases 
as a percentage of the pool principal balance during the period that 
the floor is in effect.
Disclosure
    20. In connection with the original issuance of certificates, the 
prospectus or private placement memorandum will be furnished to 
investing plans. The prospectus or private placement memorandum will 
contain information material to a fiduciary's decision to invest in the 
certificates, including:
    (a) Information concerning the payment terms of the certificates, 
the rating of the certificates, and any material risk factors with 
respect to the certificates;
    (b) A description of the trust as a legal entity and a description 
of how the trust was formed by the seller/servicer or other sponsor of 
the transaction;

[[Page 58251]]

    (c) Identification of the independent trustee for the trust;
    (d) A description of the receivables contained in the trust, 
including the types of receivables, the diversification of the 
receivables, their principal terms, and their material legal aspects;
    (e) A description of the sponsor and servicer;
    (f) A description of the pooling and servicing agreement, including 
a description of the seller's principal representations and warranties 
as to the trust assets and the trustee's remedy for any breach thereof; 
a description of the procedures for collection of payments on 
receivables and for making distributions to investors, and a 
description of the accounts into which such payments are deposited and 
from which such distributions are made; identification of the servicing 
compensation and any fees for credit enhancement that are deducted from 
payments on receivables before distributions are made to investors; a 
description of periodic statements provided to the trustee, and 
provided to or made available to investors by the trustee; and a 
description of the events that constitute events of default under the 
pooling and servicing contract and a description of the trustee's and 
the investors' remedies incident thereto;
    (g) A description of the credit support;
    (h) A general discussion of the principal federal income tax 
consequences of the purchase, ownership and disposition of the pass-
through securities by a typical investor;
    (i) A description of the underwriters' plan for distributing the 
pass-through securities to investors; and
    (j) Information about the scope and nature of the secondary market, 
if any, for the certificates.
    21. Reports indicating the amount of payments of principal and 
interest are provided to certificateholders at least as frequently as 
distributions are made to certificateholders. Certificateholders will 
also be provided with periodic information statements setting forth 
material information concerning the underlying assets, including, where 
applicable, information as to the amount and number of delinquent and 
defaulted loans or receivables.
    22. In the case of a trust that offers and sells certificates in a 
registered public offering, the trustee, the servicer or the sponsor 
will file such periodic reports as may be required to be filed under 
the Securities Exchange Act of 1934. Although some trusts that offer 
certificates in a public offering will file quarterly reports on Form 
10-Q and Annual Reports on Form 10-K, many trusts obtain, by 
application to the Securities and Exchange Commission, a complete 
exemption from the requirement to file quarterly reports on Form 10-Q 
and a modification of the disclosure requirements for annual reports on 
Form 10-K. If such an exemption is obtained, these trusts normally 
would continue to have the obligation to file current reports on Form 
8-K to report material developments concerning the trust and the 
certificates. While the Securities and Exchange Commission's 
interpretation of the periodic reporting requirements is subject to 
change, periodic reports concerning a trust will be filed to the extent 
required under the Securities Exchange Act of 1934.
    23. At or about the time distributions are made to 
certificateholders, a report will be delivered to the trustee as to the 
status of the trust and its assets, including underlying obligations. 
Such report will typically contain information regarding the trust's 
assets, payments received or collected by the servicer, the amount of 
prepayments, delinquencies, servicer advances, defaults and 
foreclosures, the amount of any payments made pursuant to any credit 
support, and the amount of compensation payable to the servicer. Such 
report also will be delivered to or made available to the rating agency 
or agencies that have rated the trust's certificates.
    In addition, promptly after each distribution date, 
certificateholders will receive a statement prepared by the servicer or 
trustee summarizing information regarding the trust and its assets. 
Such statement will include information regarding the trust and its 
assets, including underlying receivables. Such statement will typically 
contain information regarding payments and prepayments, delinquencies, 
the remaining amount of the guaranty or other credit support and a 
breakdown of payments between principal and interest.

Forward Delivery Commitments

    24. To date, no forward delivery commitments have been entered into 
by FCNBD in connection with the offering of any certificates, but FCNBD 
may contemplate entering into such commitments. The utility of forward 
delivery commitments has been recognized with respect to offering 
similar certificates backed by pools of residential mortgages, and 
FCNBD may find it desirable in the future to enter into such 
commitments for the purchase of certificates.

Secondary Market Transactions

    25. It is FCNBD's normal policy to attempt to make a market for 
securities for which it is lead or co-managing underwriter. FCNBD 
anticipates that it will make a market in certificates.

Retroactive Relief

    26. FCNBD represents that it has not engaged in transactions 
related to mortgage-backed and asset-backed securities based on the 
assumption that retroactive relief would be granted prior to the date 
of their application. However, FCNBD requests the exemptive relief 
granted to be retroactive to October 8, 1996, the date of their 
application, and would like to rely on such retroactive relief for 
transactions entered into prior to the date exemptive relief may be 
granted.

Summary

    27. In summary, the applicant represents that the transactions for 
which exemptive relief is requested satisfy the statutory criteria of 
section 408(a) of the Act due to the following:
    (a) The trusts contain ``fixed pools'' of assets. There is little 
discretion on the part of the trust sponsor to substitute receivables 
contained in the trust once the trust has been formed;
    (b) Certificates in which plans invest will have been rated in one 
of the three highest rating categories by S&P's, Moody's, D&P or Fitch. 
Credit support will be obtained to the extent necessary to attain the 
desired rating;
    (c) All transactions for which FCNBD seeks exemptive relief will be 
governed by the pooling and servicing agreement, which is made 
available to plan fiduciaries for their review prior to the plan's 
investment in certificates;
    (d) Exemptive relief from sections 406(b) and 407 for sales to 
plans is substantially limited; and
    (e) FCNBD anticipates that it will make a secondary market in 
certificates.

Discussion of Proposed Exemption

I. Differences Between Proposed Exemption and Class Exemption PTE 83-1

    The exemptive relief proposed herein is similar to that provided in 
PTE 81-7 [46 FR 7520, January 23, 1981], Class Exemption for Certain 
Transactions Involving Mortgage Pool Investment Trusts, amended and 
restated as PTE 83-1 [48 FR 895, January 7, 1983].
    PTE 83-1 applies to mortgage pool investment trusts consisting of 
interest-bearing obligations secured by first or second mortgages or 
deeds of trust on single-family residential property. The exemption 
provides relief from sections

[[Page 58252]]

406(a) and 407 for the sale, exchange or transfer in the initial 
issuance of mortgage pool certificates between the trust sponsor and a 
plan, when the sponsor, trustee or insurer of the trust is a party-in-
interest with respect to the plan, and the continued holding of such 
certificates, provided that the conditions set forth in the exemption 
are met. PTE 83-1 also provides exemptive relief from section 406 
(b)(1) and (b)(2) of the Act for the above-described transactions when 
the sponsor, trustee or insurer of the trust is a fiduciary with 
respect to the plan assets invested in such certificates, provided that 
additional conditions set forth in the exemption are met. In 
particular, section 406(b) relief is conditioned upon the approval of 
the transaction by an independent fiduciary. Moreover, the total value 
of certificates purchased by a plan must not exceed 25 percent of the 
amount of the issue, and at least 50 percent of the aggregate amount of 
the issue must be acquired by persons independent of the trust sponsor, 
trustee or insurer. Finally, PTE 83-1 provides conditional exemptive 
relief from section 406 (a) and (b) of the Act for transactions in 
connection with the servicing and operation of the mortgage trust.
    Under PTE 83-1, exemptive relief for the above transactions is 
conditioned upon the sponsor and the trustee of the mortgage trust 
maintaining a system for insuring or otherwise protecting the pooled 
mortgage loans and the property securing such loans, and for 
indemnifying certificate holders against reductions in pass-through 
payments due to defaults in loan payments or property damage. This 
system must provide such protection and indemnification up to an amount 
not less than the greater of one percent of the aggregate principal 
balance of all trust mortgages or the principal balance of the largest 
mortgage.
    The exemptive relief proposed herein differs from that provided by 
PTE 83-1 in the following major respects: (1) The proposed exemption 
provides individual exemptive relief rather than class relief; (2) The 
proposed exemption covers transactions involving trusts containing a 
broader range of assets than single-family residential mortgages; (3) 
Instead of requiring a system for insuring the pooled receivables, the 
proposed exemption conditions relief upon the certificates having 
received one of the three highest ratings available from S&P's, 
Moody's, D&P or Fitch (insurance or other credit support would be 
obtained only to the extent necessary for the certificates to attain 
the desired rating); and (4) The proposed exemption provides more 
limited section 406(b) and section 407 relief for sales transactions.

II. Ratings of Certificates

    After consideration of the representations of the applicant and 
information provided by S&P's, Moody's, D&P and Fitch, the Department 
has decided to condition exemptive relief upon the certificates having 
attained a rating in one of the three highest generic rating categories 
from S&P's, Moody's, D&P or Fitch. The Department believes that the 
rating condition will permit the applicant flexibility in structuring 
trusts containing a variety of mortgages and other receivables while 
ensuring that the interests of plans investing in certificates are 
protected. The Department also believes that the ratings are indicative 
of the relative safety of investments in trusts containing secured 
receivables. The Department is conditioning the proposed exemptive 
relief upon each particular type of asset-backed security having been 
rated in one of the three highest rating categories for at least one 
year and having been sold to investors other than plans for at least 
one year.<SUP>15
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    \15\ In referring to different ``types'' of asset-backed 
securities, the Department means certificates representing interests 
in trusts containing different ``types'' of receivables, such as 
single family residential mortgages, multi-family residential 
mortgages, commercial mortgages, home equity loans, auto loan 
receivables, installment obligations for consumer durables secured 
by purchase money security interests, etc. The Department intends 
this condition to require that certificates in which a plan invests 
are of the type that have been rated (in one of the three highest 
generic rating categories by S&P's, D&P, Fitch or Moody's) and 
purchased by investors other than plans for at least one year prior 
to the plan's investment pursuant to the proposed exemption. In this 
regard, the Department does not intend to require that the 
particular assets contained in a trust must have been ``seasoned'' 
(e.g., originated at least one year prior to the plan's investment 
in the trust).
---------------------------------------------------------------------------

III. Limited Section 406(b) and Section 407(a) Relief for Sales

    FCNBD represents that in some cases a trust sponsor, trustee, 
servicer, insurer, and obligor with respect to receivables contained in 
a trust, or an underwriter of certificates may be a pre-existing party 
in interest with respect to an investing plan.<SUP>16 In these cases, a 
direct or indirect sale of certificates by that party in interest to 
the plan would be a prohibited sale or exchange of property under 
section 406(a)(1)(A) of the Act.<SUP>17 Likewise, issues are raised 
under section 406(a)(1)(D) of the Act where a plan fiduciary causes a 
plan to purchase certificates where trust funds will be used to benefit 
a party in interest.
---------------------------------------------------------------------------

    \16\ In this regard, we note that the exemptive relief proposed 
herein is limited to certificates with respect to which FCNBD or any 
of its affiliates is either (a) the sole underwriter or manager or 
co-manager of the underwriting syndicate, or (b) a selling or 
placement agent.
    \17\ The applicant represents that where a trust sponsor is an 
affiliate of FCNBD, sales to plans by the sponsor may be exempt 
under PTE 75-1, Part II (relating to purchases and sales of 
securities by broker-dealers and their affiliates), if FCNBD is not 
a fiduciary with respect to plan assets to be invested in 
certificates.
---------------------------------------------------------------------------

    Additionally, FCNBD represents that a trust sponsor, servicer, 
trustee, insurer, and obligor with respect to receivables contained in 
a trust, or an underwriter of certificates representing an interest in 
a trust may be a fiduciary with respect to an investing plan. FCNBD 
represents that the exercise of fiduciary authority by any of these 
parties to cause the plan to invest in certificates representing an 
interest in the trust would violate section 406(b)(1), and in some 
cases section 406(b)(2), of the Act.
    Moreover, FCNBD represents that to the extent there is a plan asset 
``look through'' to the underlying assets of a trust, the investment in 
certificates by a plan covering employees of an obligor under 
receivables contained in a trust may be prohibited by sections 406(a) 
and 407(a) of the Act.
    After consideration of the issues involved, the Department has 
determined to provide the limited sections 406(b) and 407(a) relief as 
specified in the proposed exemption.

NOTICE TO INTERESTED PERSONS: The applicant represents that because 
those potentially interested participants and beneficiaries cannot all 
be identified, the only practical means of notifying such participants 
and beneficiaries of this proposed exemption is by the publication of 
this notice in the Federal Register. Comments and requests for a 
hearing must be received by the Department not later than 30 days from 
the date of publication of this notice of proposed exemption in the 
Federal Register.

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 of disqualified 
person from certain other provisions of the Act and/or the Code,

[[Page 58253]]

including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
section 404 of the Act, which 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) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete, and that each application 
accurately describes all material terms of the transaction which is the 
subject of the exemption.

    Signed at Washington, DC, this 7th day of November, 1996.
Ivan Strasfeld
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, Department of Labor.
[FR Doc. 96-29035 Filed 11-12-96; 8:45 am]
BILLING CODE 4510-29-P