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Secretary of Labor Thomas E. Perez
Amendment to Prohibited Transaction Exemptions (PTEs) 90-30 Involving Bear, Stearns & Co. Inc., 90-32 Involving Prudential Securities Incorporated, et al. [Notices] [07/21/1997]

EBSA (Formerly PWBA) Federal Register Notice

Amendment to Prohibited Transaction Exemptions (PTEs) 90-30 Involving Bear, Stearns & Co. Inc., 90-32 Involving Prudential Securities Incorporated, et al. [07/21/1997]

[PDF Version]

Volume 62, Number 139, Page 39021-39026

[DOCID:fr21jy97-99]

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 97-34; Applications Nos. D-10245 and 
D-10246]

 
Amendment to Prohibited Transaction Exemptions (PTEs) 90-30 
Involving Bear, Stearns & Co. Inc., 90-32 Involving Prudential 
Securities Incorporated, et al.

AGENCY: Pension and Welfare Benefits Administration, Department of 
Labor.

ACTION: Grant of an amendment to the Underwriter 
Exemptions.<SUP>1</SUP>

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SUMMARY: This document contains a final exemption issued by the 
Department of Labor (the Department) which amends the Underwriter 
Exemptions. The Underwriter Exemptions are individual exemptions that 
provide relief for the origination and operation of certain asset pool 
investment trusts and the acquisition, holding and disposition of 
certain asset backed pass-through certificates representing undivided 
interests in those investment trusts. The amendment: (1) Modifies the 
definition of ``Trust'' to include a pre-funding account (the Pre-
Funding Account) and a capitalized interest account (the Capitalized 
Interest Account) as part of the corpus of the Trust; (2) provides 
retroactive relief for transactions involving asset pool investment 
trusts containing pre-funding accounts which have occurred on or after 
January 1, 1992; (3) includes in the definition of ``Certificate'' a 
debt instrument that represents an interest in a Financial Asset 
Securitization Investment Trust (FASIT); and (4) makes certain changes 
to the Underwriter Exemptions that reflect the Department's current 
interpretation of the Underwriter Exemptions.

    \1\ The term Underwriter Exemptions refers to the following 
individual Prohibited Transaction Exemptions (PTEs): PTE 89-88, 54 
FR 42582 (October 17, 1989); PTE 89-89, 54 FR 42569 (October 17, 
1989); PTE 89-90, 54 FR 42597 (October 17, 1989); PTE 90-22, 55 FR 
20542 (May 17, 1990); PTE 90-23, 55 FR 20545 (May 17, 1990); PTE 90-
24, 55 FR 20548 (May 17, 1990); PTE 90-28, 55 FR 21456 (May 24, 
1990); PTE 90-29, 55 FR 21459 (May 24, 1990); PTE 90-30, 55 FR 21461 
(May 24, 1990); PTE 90-31, 55 FR 23144 (June 6, 1990); PTE 90-32, 55 
FR 23147 (June 6, 1990); PTE 90-33, 55 FR 23151 (June 6, 1990); PTE 
90-36, 55 FR 25903 (June 25, 1990); PTE 90-39, 55 FR 27713 (July 5, 
1990); PTE 90-59, 55 FR 36724 (September 6, 1990); PTE 90-83, 55 FR 
50250 (December 5, 1990); PTE 90-84, 55 FR 50252 (December 5, 1990); 
PTE 90-88, 55 FR 52899 (December 24, 1990); PTE 91-14, 55 FR 48178 
(February 22, 1991); PTE 91-22, 56 FR 03277 (April 18, 1991); PTE 
91-23, 56 FR 15936 (April 18, 1991); PTE 91-30, 56 FR 22452 (May 15, 
1991); PTE 91-62, 56 FR 51406 (October 11, 1991); PTE 93-31, 58 FR 
28620 (May 5, 1993); PTE 93-32, 58 FR 28623 (May 14, 1993); PTE 94-
29, 59 FR 14675 (March 29, 1994); PTE 94-64, 59 FR 42312 (August 17, 
1994); PTE 94-70, 59 FR 50014 (September 30, 1994); PTE 94-73, 59 FR 
51213 (October 7, 1994); PTE 94-84, 59 FR 65400 (December 19, 1994); 
PTE 95-26, 60 FR 17586 (April 6, 1995); PTE 95-59, 60 FR 35938 (July 
12, 1995); PTE 95-89, 60 FR 49011 (September 21, 1995); PTE 96-11, 
61 FR 3490 (January 31, 1996); PTE 96-22, 61 FR 14828 (April 3, 
1996); PTE 96-84, 61 FR 58234 (November 13, 1996); PTE 96-92, 61 FR 
66334 (December 17, 1996); PTE 96-94, 61 FR 68787 (December 30, 
1996); PTE 97-05, 62 FR 1926 (January 14, 1997); and PTE 97-28, 62 
FR 28515 (May 23, 1997).
    In addition, the Department notes that it is also granting 
individual exemptive relief for Ironwood Capital Partners Ltd., 
Final Authorization Number (FAN) 97-02E (November 25, 1996) and 
Deutsche Bank AG, New York Branch and Deutsche Morgan Grenfell/C.J. 
Lawrence Inc., FAN 97-03E (December 9, 1996), which received the 
approval of the Department to engage in transactions substantially 
similar to the transactions described in the Underwriter Exemptions 
pursuant to PTE 96-62.
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EFFECTIVE DATE: This amendment to the Underwriter Exemptions is 
effective for transactions occurring on or after January 1, 1992, 
except as otherwise provided in subsection II.A.(7) and section III.AA. 
of the exemption.

FOR FURTHER INFORMATION CONTACT: Wendy McColough of the Department, 
telephone (202) 219-8971. (This is not a toll-free number.)

SUPPLEMENTARY INFORMATION: On May 23, 1997, notice was published in the 
Federal Register (62 FR 28502) of the pendency before the Department of 
a proposed exemption to amend PTEs 90-30, 55 FR 21461 (May 24, 1990) 
and 90-32, 55 FR 23147 (June 6, 1990), two of the Underwriter 
Exemptions. The Underwriter Exemptions are a group of individual 
exemptions that provide substantially identical relief for the 
operation of certain asset pool investment trusts and the acquisition 
and holding by plans of certain asset-backed pass-through certificates 
representing interests in those trusts. These exemptions provide relief 
from certain of the restrictions of sections 406(a), 406(b) and 407(a) 
of the Act and from the taxes imposed by section 4975(a) and (b) of the 
Code, by reason of certain provisions of section 4975(c)(1) of the 
Code.
    The amendment to PTEs 90-30 and 90-32 was requested by application 
dated March 25, 1996, and as restated in a later submission dated 
February 26, 1997, on behalf of Bear, Stearns & Co. Inc.<SUP>2</SUP> 
and Prudential Securities Inc.<SUP>3</SUP> (the Applicants). In 
preparing the application, the Applicants received input from members 
of the PSA The Bond Market Trade Association (formerly the Public 
Securities Association) (PSA).
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    \2\ PTE 90-30, 55 FR 21461 (May 24, 1990). Bear, Stearns & Co. 
Inc. (Bear, Stearns) is an international investment banking firm 
which engages in securities transactions as both a principal and 
agent and which provides a broad range of underwriting, research and 
financial services to its clients.
    \3\ PTE 90-32, 55 FR 23147 (June 6, 1990). PTE 90-32 was granted 
to Prudential-Bache Securities, Inc. which subsequently changed its 
corporate name to Prudential Securities Incorporated (Prudential). 
Prudential is a full service securities broker-dealer and investment 
banking firm.
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    The Department proposed the amendment to these individual 
exemptions pursuant to section 408(a) of the Act and section 4975(c)(2) 
of the Code, and in accordance with the procedures set forth in 29 CFR 
Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990).<SUP>4</SUP> 
In addition, the Department proposed to provide the same relief on its 
own motion pursuant to the authority described above for many of the 
other Underwriter Exemptions which have substantially similar terms and 
conditions.<SUP>5</SUP> The Department also proposed to provide the 
same relief to Ironwood Capital Partners Ltd. (D-10424) and Deutsche 
Bank AG, New York Branch and Deutsche Morgan Grenfell/C.J. Lawrence 
Inc. (D-10433), which received the approval of the Department to engage 
in transactions substantially similar to the transactions described in 
the Underwriter Exemptions pursuant to PTE 96-62.
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    \4\ Section 102 of Reorganization Plan No. 4 of 1978 (43 FR 
47713, October 17, 1978, 5 U.S.C. App. 1 [1995]) generally 
transferred the authority of the Secretary of the Treasury to issue 
exemptions under section 4975(c)(2) of the Code to the Secretary of 
Labor. In the discussion of the exemption, references to section 406 
and 408 of the Act should be read to refer as well to the 
corresponding provisions of section 4975 of the Code.
    \5\ In this regard, the entities who received the other 
Underwriter Exemptions were contacted concerning their participation 
in this amendment process.
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    The notice set forth a summary of facts and representations 
contained in the application for exemption and referred interested 
persons to the application for a complete statement of the facts and 
representations. The application has been available for public 
inspection at the Department in Washington, D.C.
    The notice also invited interested persons to submit comments on 
the

[[Page 39022]]

requested exemption to the Department. In addition, the notice stated 
that any interested person might submit a written request that a public 
hearing be held. The Department received one written comment submitted 
by PSA. The comment indicated complete support for the proposed 
amendment to the Underwriter Exemptions. No requests for a hearing were 
received by the Department in regard to the proposed amendment.

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and section 4975(c)(2) of the Code does 
not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions of the Act and the Code, including 
any prohibited transaction provisions to which the exemption does not 
apply and the general fiduciary responsibility provisions of section 
404 of the Act, which require, among other things, a fiduciary to 
discharge his or her duties respecting the plan solely in the interest 
of the participants and beneficiaries of the plan and in a prudent 
fashion in accordance with section 404(a)(1)(B) of the Act; nor does it 
affect the requirements of section 401(a) of the Code that the plan 
operate for the exclusive benefit of the employees of the employer 
maintaining the plan and their beneficiaries;
    (2) In accordance with section 408(a) of the Act and section 
4975(c)(2) of the Code and the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon 
the entire record, the Department finds that the exemption is 
administratively feasible, in the interests of the plans and their 
participants and beneficiaries and protective of the rights of the 
participants and beneficiaries;
    (3) This exemption is supplemental to, and not in derogation of, 
any other provisions of the Act and/or the Code, including statutory or 
administrative exemptions and 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 availability of this exemption is subject to the express 
condition that the material facts and representations contained in each 
application are true and complete and accurately describe all material 
terms of the transactions which are the subjects of the exemption.

Exemption

    Under section 408(a) of ERISA and section 4975(c)(2) of the Code, 
and in accordance with the procedures set forth in 29 CFR 2570, subpart 
B (55 FR 32836, August 10, 1990), the Department amends the following 
individual Prohibited Transaction Exemptions (PTEs): PTE 89-88, 54 FR 
42582 (October 17, 1989); PTE 89-89, 54 FR 42569 (October 17, 1989); 
PTE 89-90, 54 FR 42597 (October 17, 1989); PTE 90-22, 55 FR 20542 (May 
17, 1990); PTE 90-23, 55 FR 20545 (May 17, 1990); PTE 90-24, 55 FR 
20548 (May 17, 1990); PTE 90-28, 55 FR 21456 (May 24, 1990); PTE 90-29, 
55 FR 21459 (May 24, 1990); PTE 90-30, 55 FR 21461 (May 24, 1990); PTE 
90-31, 55 FR 23144 (June 6, 1990); PTE 90-32, 55 FR 23147 (June 6, 
1990); PTE 90-33, 55 FR 23151 (June 6, 1990); PTE 90-36, 55 FR 25903 
(June 25, 1990); PTE 90-39, 55 FR 27713 (July 5, 1990); PTE 90-59, 55 
FR 36724 (September 6, 1990); PTE 90-83, 55 FR 50250 (December 5, 
1990); PTE 90-84, 55 FR 50252 (December 5, 1990); PTE 90-88, 55 FR 
52899 (December 24, 1990); PTE 91-14, 55 FR 48178 (February 22, 1991); 
PTE 91-22, 56 FR 03277 (April 18, 1991); PTE 91-23, 56 FR 15936 (April 
18, 1991); PTE 91-30, 56 FR 22452 (May 15, 1991); PTE 91-62, 56 FR 
51406 (October 11, 1991); PTE 93-31, 58 FR 28620 (May 5, 1993); PTE 93-
32, 58 FR 28623 (May 14, 1993); PTE 94-29, 59 FR 14675 (March 29, 
1994); PTE 94-64, 59 FR 42312 (August 17, 1994); PTE 94-70, 59 FR 50014 
(September 30, 1994); PTE 94-73, 59 FR 51213 (October 7, 1994); PTE 94-
84, 59 FR 65400 (December 19, 1994); PTE 95-26, 60 FR 17586 (April 6, 
1995); PTE 95-59, 60 FR 35938 (July 12, 1995); PTE 95-89, 60 FR 49011 
(September 21, 1995); PTE 96-11, 61 FR 3490 (January 31, 1996); PTE 96-
22, 61 FR 14828 (April 3, 1996); PTE 96-84, 61 FR 58234 (November 13, 
1996); PTE 96-92, 61 FR 66334 (December 17, 1996); PTE 96-94, 61 FR 
68787 (December 30, 1996); PTE 97-05, 62 FR 1926 (January 14,1997); and 
PTE 97-28, 62 FR 28515 (May 23, 1997) (collectively, the Underwriter 
Exemptions).
    In addition, the Department is also granting individual exemptions 
to Ironwood Capital Partners Ltd., Final Authorization Number (FAN) 97-
02E (November 25, 1996) and Deutsche Bank AG, New York Branch and 
Deutsche Morgan Grenfell/C.J. Lawrence Inc., FAN 97-03E (December 9, 
1996), which received the approval of the Department to engage in 
transactions substantially similar to the transactions described in the 
Underwriter Exemptions pursuant to PTE 96-62.

I. Transactions

    A. Effective January 1, 1992, the restrictions of sections 406(a) 
and 407(a) of the Act and the taxes imposed by section 4975(a) and (b) 
of the Code by reason of section 4975(c)(1)(A) through (D) of the Code 
shall not apply to the following transactions involving trusts and 
certificates evidencing interests therein:
    (1) The direct or indirect sale, exchange or transfer of 
certificates in the initial issuance of certificates between the 
sponsor or underwriter and an employee benefit plan when the sponsor, 
servicer, trustee or insurer of a trust, the underwriter of the 
certificates representing an interest in the trust, or an obligor is a 
party in interest with respect to such plan;
    (2) The direct or indirect acquisition or disposition of 
certificates by a plan in the secondary market for such certificates; 
and
    (3) The continued holding of certificates acquired by a plan 
pursuant to subsection I.A. (1) or (2).
    Notwithstanding the foregoing, section I.A. does not provide an 
exemption from the restrictions of sections 406(a)(1)(E), 406(a)(2) and 
407 of the Act for the acquisition or holding of a certificate on 
behalf of an Excluded Plan by any person who has discretionary 
authority or renders investment advice with respect to the assets of 
that Excluded Plan.<SUP>6</SUP>
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    \6\ Section I.A. provides no relief from sections 406(a)(1)(E), 
406(a)(2) and 407 of the Act for any person rendering investment 
advice to an Excluded Plan within the meaning of section 
3(21)(A)(ii) of the Act, and regulation 29 CFR 2510.3-21(c).
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    B. Effective January 1, 1992, 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

[[Page 39023]]

invested is acquired by persons independent of the members of the 
Restricted Group and at least 50 percent of the aggregate interest in 
the trust is acquired by persons independent of the Restricted Group;
    (iii) a plan's investment in each class of certificates does not 
exceed 25 percent of all of the certificates of that class outstanding 
at the time of the acquisition; and
    (iv) immediately after the acquisition of the certificates, no more 
than 25 percent of the assets of a plan with respect to which the 
person has discretionary authority or renders investment advice are 
invested in certificates representing an interest in a trust containing 
assets sold serviced by the same entity.<SUP>7</SUP> For purposes of 
this paragraph B.(1)(iv) only, an entity will not be considered to 
service assets contained in a trust if it is merely a subservicer of 
that trust;
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    \7\ For purposes of this exemption, each plan participating in a 
commingled fund (such as a bank collective trust fund or insurance 
company pooled separate account) shall be considered to own the same 
proportionate undivided interest in each asset of the commingled 
fund as its proportionate interest in the total assets of the 
commingled fund as calculated on the most recent preceding valuation 
date of the fund.
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    (2) The direct or indirect acquisition or disposition of 
certificates by a plan in the secondary market for such certificates, 
provided that the conditions set forth in paragraphs B.(1) (i), (iii) 
and (iv) are met; and
    (3) The continued holding of certificates acquired by a plan 
pursuant to subsection I.B. (1) or (2).
    C. Effective January 1, 1992, 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>8</SUP>
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    \8\  In the case of a private placement memorandum, such 
memorandum must contain substantially the same information that 
would be disclosed in a prospectus if the offering of the 
certificates were made in a registered public offering under the 
Securities Act of 1933. In the Department's view, the private 
placement memorandum must contain sufficient information to permit 
plan fiduciaries to make informed investment decisions. For purposes 
of this Amendment, references to ``prospectus'' include any related 
prospectus supplement thereto, pursuant to which certificates are 
offered to investors.
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    Notwithstanding the foregoing, section I.C. does not provide an 
exemption from the restrictions of section 406(b) of the Act or from 
the taxes imposed by reason of section 4975(c) of the Code for the 
receipt of a fee by a servicer of the trust from a person other than 
the trustee or sponsor, unless such fee constitutes a ``qualified 
administrative fee'' as defined in section III.S.
    D. Effective January 1, 1992, the restrictions of sections 406(a) 
and 407(a) of the Act, and the taxes imposed by sections 4975 (a) and 
(b) of the Code by reason of sections 4975(c)(1)(A) through (D) of the 
Code, shall not apply to any transactions to which those restrictions 
or taxes would otherwise apply merely because a person is deemed to be 
a party in interest or disqualified person (including a fiduciary) with 
respect to a plan by virtue of providing services to the plan (or by 
virtue of having a relationship to such service provider described in 
section 3(14) (F), (G), (H) or (I) of the Act or section 4975(e)(2) 
(F), (G), (H) or (I) of the Code), solely because of the plan's 
ownership of certificates.

II. General Conditions

    A. The relief provided under Part I is available only if the 
following conditions are met:
    (1) The acquisition of certificates by a plan is on terms 
(including the certificate price) that are at least as favorable to the 
plan as they would be in an arm's-length transaction with an unrelated 
party;
    (2) The rights and interests evidenced by the certificates are not 
subordinated to the rights and interests evidenced by other 
certificates of the same trust;
    (3) The certificates acquired by the plan have received a rating 
from a rating agency (as defined in section III.W) at the time of such 
acquisition that is in one of the three highest generic rating 
categories;
    (4) The trustee is not an affiliate of any other member of the 
Restricted Group. However, the trustee shall not be considered to be an 
affiliate of a servicer solely because the trustee has succeeded to the 
rights and responsibilities of the servicer pursuant to the terms of a 
pooling and servicing agreement providing for such succession upon the 
occurrence of one or more events of default by the servicer;
    (5) The sum of all payments made to and retained by the 
underwriters in connection with the distribution or placement of 
certificates represents not more than reasonable compensation for 
underwriting or placing the certificates; the sum of all payments made 
to and retained by the sponsor pursuant to the assignment of 
obligations (or interests therein) to the trust represents not more 
than the fair market value of such obligations (or interests); and the 
sum of all payments made to and retained by the servicer represents not 
more than reasonable compensation for the servicer's services under the 
pooling and servicing agreement and reimbursement of the servicer's 
reasonable expenses in connection therewith;
    (6) The plan investing in such certificates is an ``accredited 
investor'' as defined in Rule 501(a)(1) of Regulation D of the 
Securities and Exchange Commission under the Securities Act of 1933; 
and
    (7) In the event that the obligations used to fund a trust have not 
all been transferred to the trust on the closing date, additional 
obligations as specified in subsection III.B.(1) may be transferred to 
the trust during the pre-funding period (as defined in Section III.BB.) 
in exchange for amounts credited to the pre-funding account (as defined 
in Section III.Z.), provided that:
    (a) The pre-funding limit (as defined in Section III.AA.), is not 
exceeded;
    (b) All such additional obligations meet the same terms and 
conditions for eligibility as those of the original obligations used to 
create the trust corpus (as described in the prospectus or private 
placement memorandum and/or pooling and servicing agreement for such 
certificates), which terms and conditions have been approved by a 
rating agency. Notwithstanding the foregoing, the terms and conditions 
for determining the eligibility of an obligation may be changed if such 
changes receive prior approval either by a majority vote of the 
outstanding certificateholders or by a rating agency;
    (c) The transfer of such additional obligations to the trust during 
the pre-funding period does not result in the certificates receiving a 
lower credit rating from a rating agency upon termination of the pre-
funding period than the rating that was obtained at the time of the 
initial issuance of the certificates by the trust;
    (d) The weighted average annual percentage interest rate (the 
average interest rate) for all of the obligations in the trust at the 
end of the pre-funding period will not be more than 100 basis points 
lower than the average interest rate for the obligations which were

[[Page 39024]]

transferred to the trust on the closing date;
    (e) Effective for transactions occurring on or after May 23, 1997, 
in order to ensure that the characteristics of the receivables actually 
acquired during the pre-funding period are substantially similar to 
those which were acquired as of the closing date, the characteristics 
of the additional obligations will either be monitored by a credit 
support provider or other insurance provider which is independent of 
the sponsor or an independent accountant retained by the sponsor will 
provide the sponsor with a letter (with copies provided to the rating 
agency, the underwriter and the trustees) stating whether or not the 
characteristics of the additional obligations conform to the 
characteristics of such obligations described in the prospectus, 
private placement memorandum and/or pooling and servicing agreement. In 
preparing such letter, the independent accountant will use the same 
type of procedures as were applicable to the obligations which were 
transferred as of the closing date;
    (f) The pre-funding period shall be described in the prospectus or 
private placement memorandum provided to investing plans; and
    (g) The trustee of the trust (or any agent with which the trustee 
contracts to provide trust services) will be a substantial financial 
institution or trust company experienced in trust activities and 
familiar with its duties, responsibilities, and liabilities as a 
fiduciary under the Act. The trustee, as the legal owner of the 
obligations in the trust, will enforce all the rights created in favor 
of certificateholders of such trust, including employee benefit plans 
subject to the Act.
    B. Neither any underwriter, sponsor, trustee, servicer, insurer, 
nor any obligor, unless it or any of its affiliates has discretionary 
authority or renders investment advice with respect to the plan assets 
used by a plan to acquire certificates, shall be denied the relief 
provided under Part I, if the provision of subsection II.A.(6) above is 
not satisfied with respect to acquisition or holding by a plan of such 
certificates, provided that (1) Such condition is disclosed in the 
prospectus or private placement memorandum; and (2) in the case of a 
private placement of certificates, the trustee obtains a representation 
from each initial purchaser which is a plan that it is in compliance 
with such condition, and obtains a covenant from each initial purchaser 
to the effect that, so long as such initial purchaser (or any 
transferee of such initial purchaser's certificates) is required to 
obtain from its transferee a representation regarding compliance with 
the Securities Act of 1933, any such transferees will be required to 
make a written representation regarding compliance with the condition 
set forth in subsection II.A.(6) above.

III. Definitions

    For purposes of this exemption:
    A. Certificate means:
    (1) A certificate--
    (a) That represents a beneficial ownership interest in the assets 
of a trust; and
    (b) That entitles the holder to pass-through payments of principal, 
interest, and/or other payments made with respect to the assets of such 
trust; or
    (2) A certificate denominated as a debt instrument--
    (a) That represents an interest in either a Real Estate Mortgage 
Investment Conduit (REMIC) or a Financial Asset Securitization 
Investment Trust (FASIT) within the meaning of section 860D(a) or 
Section 860L, respectively, of the Internal Revenue Code of 1986, as 
amended: and
    (b) That is issued by and is an obligation of a trust; with respect 
to certificates defined in (1) and (2) above for which the Underwriter 
is either (i) the sole underwriter or the manager or co-manager of the 
underwriting syndicate, or (ii) a selling or placement agent.
    For purposes of this exemption, references to ``certificates 
representing an interest in a trust'' include certificates denominated 
as debt which are issued by a trust.
    B. Trust means an investment pool, the corpus of which is held in 
trust and consists solely of:
    (1) (a) Secured consumer receivables that bear interest or are 
purchased at a discount (including, but not limited to, home equity 
loans and obligations secured by shares issued by a cooperative housing 
association); and/or
    (b) Secured credit instruments that bear interest or are purchased 
at a discount in transactions by or between business entities 
(including, but not limited to, qualified equipment notes secured by 
leases, as defined in section III.T.); and/or
    (c) Obligations that bear interest or are purchased at a discount 
and which are secured by single-family residential, multi-family 
residential and commercial real property (including obligations secured 
by leasehold interests on residential or commercial real property); 
and/or
    (d) Obligations that bear interest or are purchased at a discount 
and which are secured by motor vehicles or equipment, or qualified 
motor vehicle leases (as defined in section III.U.); and/or
    (e) Guaranteed governmental mortgage pool certificates, as defined 
in 29 CFR 2510.3-101(i)(2); and/or
    (f) Fractional undivided interests in any of the obligations 
described in clauses (a)-(e) of this subsection B.(1); <SUP>9</SUP>
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    \9\ It is the Department's view that the definition of ``Trust'' 
contained in subsection III.B. includes a two-tier trust structure 
under which certificates issued by the first trust, which contains a 
pool of receivables described above, are transferred to a second 
trust which issues certificates that are sold to plans. However, the 
Department is of the further view that, since the exemption provides 
relief for the direct or indirect acquisition or disposition of 
certificates that are not subordinated, no relief would be available 
if the certificates held by the second trust were subordinated to 
the rights and interests evidenced by other certificates issued by 
the first trust.
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    (2) Property which had secured any of the obligations described in 
subsection III.B.(1);
    (3) (a) Undistributed cash or temporary investments made therewith 
maturing no later than the next date on which distributions are to made 
to certificateholders; and/or
    (b) Cash or investments made therewith which are credited to an 
account to provide payments to certificateholders pursuant to any yield 
supplement agreement or similar yield maintenance arrangement to 
supplement the interest rates otherwise payable on obligations 
described in subsection III.B.(1) held in the trust, provided that such 
arrangements do not involve swap agreements or other notional principal 
contracts; and/or <SUP>10</SUP>
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    \10\ The Department notes that the definition of ``Trust'' 
contained in Section III.B. includes cash or investments credited to 
an account to provide payments to certificateholders pursuant to a 
yield supplement agreement or similar yield maintenance arrangement 
to supplement the interest rates otherwise payable on obligations 
described in section B.(1) held in the trust, provided that such 
arrangements do not involve swap agreements or other notional 
principal contracts.
---------------------------------------------------------------------------

    (c) Cash transferred to the trust on the closing date and permitted 
investments made therewith which:
    (i) are credited to a pre-funding account established to purchase 
additional obligations with respect to which the conditions set forth 
in clauses (a)-(g) of subsection II.A.(7) are met and/or
    (ii) are credited to a capitalized interest account (as defined in 
Section III.X.); and
    (iii) are held in the trust for a period ending no later than the 
first distribution date to certificateholders occurring after the end 
of the pre-funding period,
    For purposes of this clause (c) of subsection III.B.(3), the term 
``permitted investments'' means investments which

[[Page 39025]]

are either: (i) direct obligations of, or obligations fully guaranteed 
as to timely payment of principal and interest by, the United States or 
any agency or instrumentality thereof, provided that such obligations 
are backed by the full faith and credit of the United States or (ii) 
have been rated (or the obligor has been rated) in one of the three 
highest generic rating categories by a rating agency; are described in 
the pooling and servicing agreement; and are permitted by the rating 
agency.
    (4) Rights of the trustee under the pooling and servicing 
agreement, and rights under any insurance policies, third-party 
guarantees, contracts of suretyship, yield supplement agreements 
described in clause (b) of subsection III.B.(3) and other credit 
support arrangements with respect to any obligations described in 
subsection III.B.(1).
    Notwithstanding the foregoing, the term ``trust'' does not include 
any investment pool unless: (i) the obligations contained in the 
investment pool consist only of assets of the type described in clauses 
(a)-(f) of subsection III.B.(1) which have been included in other 
investment pools, (ii) certificates evidencing interests in such other 
investment pools have been rated in one of the three highest generic 
rating categories by a rating agency for at least one year prior to the 
plan's acquisition of certificates pursuant to this exemption, and 
(iii) certificates evidencing interests in such other investment pools 
have been purchased by investors other than plans for at least one year 
prior to the plan's acquisition of certificates pursuant to this 
exemption.
    C. Underwriter means:
    (1) An entity defined as an Underwriter in subsection III.C.(1) of 
each of the Underwriter Exemptions that are being amended by this 
exemption. In addition, the term Underwriter includes Ironwood Capital 
Partners Ltd. and Deutsche Bank AG, New York Branch and Deutsche Morgan 
Grenfell/C.J. Lawrence Inc.(which received the approval of the 
Department to engage in transactions substantially similar to the 
transactions described in the Underwriter Exemptions pursuant to PTE 
96-62);
    (2) Any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by or under common control with 
such entity; or
    (3) Any member of an underwriting syndicate or selling group of 
which a person described in subsections III.C.(1) or (2) above is a 
manager or co-manager with respect to the certificates.
    D. Sponsor means the entity that organizes a trust by depositing 
obligations therein in exchange for certificates.
    E. Master Servicer means the entity that is a party to the pooling 
and servicing agreement relating to trust assets and is fully 
responsible for servicing, directly or through subservicers, the assets 
of the trust.
    F. Subservicer means an entity which, under the supervision of and 
on behalf of the master servicer, services loans contained in the 
trust, but is not a party to the pooling and servicing agreement.
    G. Servicer means any entity which services loans contained in the 
trust, including the master servicer and any subservicer.
    H. Trustee means the trustee of the trust, and in the case of 
certificates which are denominated as debt instruments, also means the 
trustee of the indenture trust.
    I. Insurer means the insurer or guarantor of, or provider of other 
credit support for, a trust. Notwithstanding the foregoing, a person is 
not an insurer solely because it holds securities representing an 
interest in a trust which are of a class subordinated to certificates 
representing an interest in the same trust.
    J. Obligor means any person, other than the insurer, that is 
obligated to make payments with respect to any obligation or receivable 
included in the trust. Where a trust contains qualified motor vehicle 
leases or qualified equipment notes secured by leases, ``obligor'' 
shall also include any owner of property subject to any lease included 
in the trust, or subject to any lease securing an obligation included 
in the trust.
    K. Excluded Plan means any plan with respect to which any member of 
the Restricted Group is a ``plan sponsor'' within the meaning of 
section 3(16)(B) of the Act.
    L. Restricted Group with respect to a class of certificates means:
    (1) each underwriter;
    (2) each insurer;
    (3) the sponsor;
    (4) the trustee;
    (5) each servicer;
    (6) any obligor with respect to obligations or receivables included 
in the trust constituting more than 5 percent of the aggregate 
unamortized principal balance of the assets in the trust, determined on 
the date of the initial issuance of certificates by the trust; or
    (7) any affiliate of a person described in (1)-(6) above.
    M. Affiliate of another person includes:
    (1) Any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with such other person;
    (2) Any officer, director, partner, employee, relative (as defined 
in section 3(15) of the Act), a brother, a sister, or a spouse of a 
brother or sister of such other person; and
    (3) Any corporation or partnership of which such other person is an 
officer, director or partner.
    N. Control means the power to exercise a controlling influence over 
the management or policies of a person other than an individual.
    O. A person will be ``independent'' of another person only if:
    (1) such person is not an affiliate of that other person; and
    (2) the other person, or an affiliate thereof, is not a fiduciary 
who has investment management authority or renders investment advice 
with respect to any assets of such person.
    P. Sale includes the entrance into a forward delivery commitment 
(as defined in section III.Q. below), provided:
    (1) The terms of the forward delivery commitment (including any fee 
paid to the investing plan) are no less favorable to the plan than they 
would be in an arm's length transaction with an unrelated party;
    (2) The prospectus or private placement memorandum is provided to 
an investing plan prior to the time the plan enters into the forward 
delivery commitment; and
    (3) At the time of the delivery, all conditions of this exemption 
applicable to sales are met.
    Q. Forward delivery commitment means a contract for the purchase or 
sale of one or more certificates to be delivered at an agreed future 
settlement date. The term includes both mandatory contracts (which 
contemplate obligatory delivery and acceptance of the certificates) and 
optional contracts (which give one party the right but not the 
obligation to deliver certificates to, or demand delivery of 
certificates from, the other party).
    R. Reasonable compensation has the same meaning as that term is 
defined in 29 CFR 2550.408c-2.
    S. Qualified Administrative Fee means a fee which meets the 
following criteria:
    (1) the fee is triggered by an act or failure to act by the obligor 
other than the normal timely payment of amounts owing in respect of the 
obligations:
    (2) the servicer may not charge the fee absent the act or failure 
to act referred to in (1);

[[Page 39026]]

    (3) the ability to charge the fee, the circumstances in which the 
fee may be charged, and an explanation of how the fee is calculated are 
set forth in the pooling and servicing agreement; and
    (4) the amount paid to investors in the trust will not be reduced 
by the amount of any such fee waived by the servicer.
    T. Qualified Equipment Note Secured By A Lease means an equipment 
note:
    (1) which is secured by equipment which is leased;
    (2) which is secured by the obligation of the lessee to pay rent 
under the equipment lease; and
    (3) with respect to which the trust's security interest in the 
equipment is at least as protective of the rights of the trust as would 
be the case if the equipment note were secured only by the equipment 
and not the lease.
    U. Qualified Motor Vehicle Lease means a lease of a motor vehicle 
where:
    (1) the trust owns or holds a security interest in the lease;
    (2) the trust owns or holds a security interest in the leased motor 
vehicle; and
    (3) the trust's interest in the leased motor vehicle is at least as 
protective of the trust's rights as the trust would receive under a 
motor vehicle installment loan contract.
    V. Pooling and Servicing Agreement means the agreement or 
agreements among a sponsor, a servicer and the trustee establishing a 
trust. In the case of certificates which are denominated as debt 
instruments, ``Pooling and Servicing Agreement'' also includes the 
indenture entered into by the trustee of the trust issuing such 
certificates and the indenture trustee.
    W. Rating Agency means Standard & Poor's Structured Rating Group, 
Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co. or 
Fitch Investors Service, L.P.
    X. Capitalized Interest Account means a trust account: (i) which is 
established to compensate certificateholders for shortfalls, if any, 
between investment earnings on the pre-funding account and the pass-
through rate payable under the certificates; and (ii) which meets the 
requirements of clause (c) of subsection III.B.(3).
    Y. Closing Date means the date the trust is formed, the 
certificates are first issued and the trust's assets (other than those 
additional obligations which are to be funded from the pre-funding 
account pursuant to subsection II.A.(7)) are transferred to the trust.
    Z. Pre-Funding Account-- means a trust account: (i) Which is 
established to purchase additional obligations, which obligations meet 
the conditions set forth in clauses (a)-(g) of subsection II.A.(7); and 
(ii) which meets the requirements of clause (c) of subsection 
III.B.(3).
    AA. Pre-Funding Limit means a percentage or ratio of the amount 
allocated to the pre-funding account, as compared to the total 
principal amount of the certificates being offered which is less than 
or equal to: (i) 40 percent, effective for transactions occurring on or 
after January 1, 1992, but prior to May 23, 1997; and (ii) 25 percent, 
for transactions occurring on or after May 23, 1997.
    BB. Pre-Funding Period means the period commencing on the closing 
date and ending no later than the earliest to occur of: (i) the date 
the amount on deposit in the pre-funding account is less than the 
minimum dollar amount specified in the pooling and servicing agreement; 
(ii) the date on which an event of default occurs under the pooling and 
servicing agreement; or (iii) the date which is the later of three 
months or 90 days after the closing date.

IV. Modifications

    For the Underwriter Exemptions provided to Residential Funding 
Corporation, Residential Funding Mortgage Securities, Inc., et. al. and 
GE Capital Mortgage Services, Inc. and GECC Capital Markets (the 
Applicants) (PTEs 94-29 and 94-73, respectively);
    A. Section III.A. of this amendment is modified to read as follows:
    A. Certificate means:
    (1) A certificate--
    (a) That represents a beneficial ownership interest in the assets 
of a trust; and
    (b) That entitles the holder to pass-through payments of principal, 
interest, and/or other payments made with respect to the assets of such 
trust; or
    (c) With respect to which (i) one of the Applicants or any of its 
affiliates is the sponsor, and an entity which has received from the 
Department an individual prohibited transaction exemption relating to 
certificates which is similar to this exemption is the sole underwriter 
or the manager or co-manager of the underwriting syndicate or a selling 
or placement agent; or (ii) one of the Applicants or any of its 
affiliates is the sole underwriter or the manager or co-manager of the 
underwriting syndicate or a selling or placement agent; or
    (2) A certificate denominated as a debt instrument--
    (a) That represents an interest in either a Real Estate Mortgage 
Investment Conduit (REMIC) or a Financial Asset Securitization 
Investment Trust (FASIT) within the meaning of section 860D(a) or 
section 860L, respectively, of the Internal Revenue Code of 1986, as 
amended: and
    (b) That is issued by and is an obligation of a trust with respect 
to which (i) one of the Applicants or any of its affiliates is the 
sponsor, and an entity which has received from the Department an 
individual prohibited transaction exemption relating to certificates 
which is similar to this exemption is the sole underwriter or the 
manager or co-manager of the underwriting syndicate or a selling or 
placement agent or (ii) one of the Applicants or any of its affiliates 
is the sole underwriter or the manager or co-manager of the 
underwriting syndicate, or a selling or placement agent.
    For purposes of this exemption, references to ``certificates 
representing an interest in a trust'' include certificates denominated 
as debt which are issued by a trust.
    B. Section III.C. of this amendment is modified to read as follows:
    C. Underwriter means:
    (1) An entity defined as an Underwriter in subsection III.C.(1) of 
each of the Underwriter Exemptions that are being amended by this 
exemption. In addition, the term Underwriter includes Ironwood Capital 
Partners Ltd. and Deutsche Bank AG, New York Branch and Deutsche Morgan 
Grenfell/C.J. Lawrence Inc. (which received the approval of the 
Department to engage in transactions substantially similar to the 
transactions described in the Underwriter Exemptions pursuant to PTE 
96-62);
    (2) Any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by or under common control with 
such entity;
    (3) Any member of an underwriting syndicate or selling group of 
which a person described in subsections III.C. (1) or (2) above is a 
manager or co-manager with respect to the certificates; or
    (4) an entity which has received from the Department an individual 
prohibited transaction exemption relating to certificates which is 
similar to this exemption.

EFFECTIVE DATE: This exemption is effective for transactions occurring 
on or after January 1, 1992 except as otherwise provided in subsection 
II.A.(7) and section III.AA.

    Signed at Washington, D.C., this 16 day of July, 1997.
Ivan L. Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 97-19131 Filed 7-18-97; 8:45 am]
BILLING CODE 4510-29-P