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Secretary of Labor Thomas E. Perez
Grant of Individual Exemptions; MBNA America Bank, National Association [Notices] [04/07/1998]

EBSA (Formerly PWBA) Federal Register Notice

Grant of Individual Exemptions; MBNA America Bank, National Association [04/07/1998]

[PDF Version]

Volume 63, Number 66, Page 17020-17035

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

Prohibited Transaction Exemption 98-13; Exemption Application No. 
D-10304, et al.]

 
Grant of Individual Exemptions; MBNA America Bank, National 
Association

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemptions.

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

Statutory Findings

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

    MBNA America Bank, National Association (MBNA)
    Located in Wilmington, Delaware
    [Prohibited Transaction Exemption No. 98-13; Application No. D-
10304]

[[Page 17021]]

Exemption

Section I--Transactions
    A. The restrictions of sections 406(a) and 407(a) of the Act and 
the taxes imposed by section 4975(a) and (b) of the Code, by reason of 
section 4975(c)(1)(A) through (D) of the Code, shall not apply to the 
following transactions involving trusts and certificates evidencing 
interests therein:
    (1) The direct or indirect sale, exchange or transfer of 
certificates in the initial issuance of certificates between the trust, 
the sponsor or an underwriter and an employee benefit plan subject to 
the Act or section 4975 of the Code (a 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 Section 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, as defined in Section III.K. below, by any person who 
has discretionary authority or renders investment advice with respect 
to the assets of the Excluded Plan that are invested in 
certificates.<SUP>1</SUP>
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    \1\ Section I.A. provides no relief from sections 406(a)(1)(E), 
406(a)(2) and 407 for any person rendering investment advice to an 
Excluded Plan within the meaning of section 3(21)(A)(ii) and 
regulation 29 CFR 2510.3-21(c).
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    B. The restrictions of sections 406(b)(1) and 406(b)(2) of the Act 
and the taxes imposed by section 4975(a) and (b) of the Code, by reason 
of section 4975(c)(1)(E) of the Code, shall not apply to:
    (1) The direct or indirect sale, exchange or transfer of 
certificates in the initial issuance of certificates between the trust, 
the sponsor or an 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 receivables contained in the trust constituting 0.5 
percent or less of the fair market value of the aggregate undivided 
interest in the trust allocated to the certificates of the relevant 
series, 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, 
as defined in Section III.L., and at least 50 percent of the aggregate 
undivided interest in the trust allocated to the certificates of a 
series is acquired by persons independent of the Restricted Group;
    (iii) A plan's investment in each class of certificates of a series 
does not exceed 25 percent of all of the certificates of that class 
outstanding at the time of the acquisition;
    (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 is 
invested in certificates representing the aggregate undivided interest 
in a trust allocated to the certificates of a series and containing 
receivables sold or serviced by the same entity; <SUP>2</SUP> and
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    \2\ For purposes of this exemption, each plan participating in a 
commingled fund (such as a bank collective trust fund or insurance 
company pooled separate account) shall be considered to own the same 
proportionate undivided interest in each asset of the commingled 
fund as its proportionate interest in the total assets of the 
commingled fund as calculated on the most recent preceding valuation 
date of the fund.
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    (v) 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 is 
invested in certificates representing an interest in the trust, or 
trusts containing receivables sold or serviced by the same entity. For 
purposes of paragraphs B.(1)(iv) and B.(1)(v) only, an entity shall not 
be considered to service receivables contained in a trust if it is 
merely a subservicer of that trust;
    (2) The direct or indirect acquisition or disposition of 
certificates by a plan in the secondary market for such certificates, 
provided that conditions set forth in Section I.B.(1)(i) and (iii) 
through (v) are met; and
    (3) The continued holding of certificates acquired by a plan 
pursuant to Section I.B. (1) or (2).
    C. The restrictions of sections 406(a), 406(b) and 407(a) of the 
Act and the taxes imposed by section 4975 (a) and (b) of the Code, by 
reason of section 4975(c) of the Code, shall not apply to transactions 
in connection with the servicing, management and operation of a trust, 
including reassigning receivables to the sponsor, removing from the 
trust receivables in accounts previously designated to the trust, 
changing the underlying terms of accounts designated to the trust, 
adding new receivables to the trust, designating new accounts to the 
trust, the retention of a retained interest by the sponsor in the 
receivables, the exercise of the right to cause the commencement of 
amortization of the principal amount of the certificates, or the use of 
any eligible swap transactions, provided that:
    (1) Such transactions are carried out in accordance with the terms 
of a binding pooling and servicing agreement;
    (2) The pooling and servicing agreement is provided to, or 
described in all material respects in the prospectus or private 
placement memorandum provided to, investing plans before they purchase 
certificates issued by the trust; <SUP>3</SUP>
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    \3\ In the case of a private placement memorandum, such 
memorandum must contain substantially the same information that 
would be disclosed in a prospectus if the offering of the 
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 exemption, all references to ``prospectus'' include any 
related supplement thereto, and any documents incorporated by 
reference therein, pursuant to which certificates are offered to 
investors.
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    (3) The addition of new receivables or designation of new accounts, 
or the removal of receivables in previously-designated accounts, meets 
the terms and conditions for such additions, designations or removals 
as are described in the prospectus or private placement memorandum for 
such certificates, which terms and conditions have been approved by 
Standard & Poor's Ratings Services, Moody's Investors Service, Inc., 
Duff & Phelps Credit Rating Co., or Fitch IBCA, Inc., or their 
successors (collectively, the Rating Agencies), and does not result in 
the certificates receiving a lower credit rating from the Rating 
Agencies than the then current rating of the certificates; and
    (4) The series of which the certificates are a part will be subject 
to an ``Economic Pay Out Event'' (as defined in Section III.BB.), which 
is set forth in the pooling and servicing agreement and described in 
the prospectus or private placement memorandum associated with the 
series, the occurrence of which will cause any revolving period, 
scheduled amortization period or scheduled accumulation period 
applicable to the certificates to end, and principal collections to be 
applied to

[[Page 17022]]

monthly payments of principal to, or the accumulation of principal for 
the benefit of, the certificateholders of such series until the earlier 
of payment in full of the outstanding principal amount of the 
certificates of such series or the series termination date specified in 
the prospectus or private placement memorandum.
    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 under section 4975(a) and (b) of the Code, by reason 
of section 4975(c)(1) (E) or (F) of the Code, for the receipt of a fee 
by the servicer of the trust, in connection with the servicing of the 
receivables and the operation 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.U. below.
    D. The restrictions of sections 406(a) and 407(a) of the Act and 
the taxes imposed by sections 4975 (a) and (b) of the Code, by reason 
of sections 4975(c)(1) (A) through (D) of the Code, shall not apply to 
any transaction 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 as 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.
Section II--General Conditions
    A. The relief provided under Section 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 such terms would be in an arm's-length transaction with an 
unrelated party;
    (2) The rights and interests evidenced by the certificates are not 
subordinated to the rights and interests evidenced by other 
certificates of the same trust;
    (3) The certificates acquired by the plan have received a rating at 
the time of such acquisition that is either: (i) In one of the two 
highest generic rating categories from any one of the Rating Agencies; 
or (ii) for certificates with a duration of one year or less, the 
highest short-term generic rating category from any one of the Rating 
Agencies; provided that, notwithstanding such ratings, this exemption 
shall apply to a particular class of certificates only if such class 
(an Exempt Class) is at the time of such acquisition part of a series 
in which credit support is provided to the Exempt Class through a 
senior-subordinated series structure or other form of third-party 
credit support which, at a minimum, represents five (5) percent of the 
outstanding principal balance of certificates issued for the Exempt 
Class, so that an investor in the Exempt Class will not bear the 
initial risk of loss;
    (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 consideration received by 
the sponsor as a consequence of the assignment of receivables (or 
interests therein) to the trust, to the extent allocable to the class 
of certificates purchased by a plan, represents not more than the fair 
market value of such receivables (or interests); and the sum of all 
payments made to and retained by the servicer, to the extent allocable 
to the class of certificates purchased by a plan, 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 (SEC) under the Securities Act of 
1933;
    (7) The trustee of the trust is a substantial financial institution 
or trust company experienced in trust activities and is familiar with 
its duties, responsibilities, and liabilities as a fiduciary under the 
Act (i.e. ERISA). The trustee, as the legal owner of, or holder of a 
perfected security interest in, the receivables in the trust, enforces 
all the rights created in favor of certificateholders of such trust, 
including plans;
    (8) Prior to the issuance by the trust of any new series, 
confirmation is received from the Rating Agencies that such issuance 
will not result in the reduction or withdrawal of the then current 
rating of the certificates held by any plan pursuant to this exemption;
    (9) To protect against fraud, chargebacks or other dilution of the 
receivables in the trust, the pooling and servicing agreement and the 
Rating Agencies require the sponsor to maintain a seller interest of 
not less than 2 percent of the principal balance of the receivables 
contained in the trust;
    (10) Each receivable added to a trust is an eligible receivable, 
based on criteria of the relevant Rating Agency(ies) and as specified 
in the pooling and servicing agreement. The pooling and servicing 
agreement requires that any change in the terms of the cardholder 
agreements must be made applicable to the comparable segment of 
accounts owned or serviced by the sponsor which are part of the same 
program or have the same or substantially similar characteristics;
    (11) The pooling and servicing agreement limits the number of the 
sponsor's newly originated accounts to be designated to the trust, 
unless the Rating Agencies otherwise consent in writing, to the 
following: (i) With respect to any three-month period, 15 percent of 
the number of existing accounts designated to the trust as of the first 
day of such period, and (ii) with respect to any twelve-month period, 
20 percent of the number of existing accounts designated to the trust 
as of the first day of such twelve-month period;
    (12) The pooling and servicing agreement requires the sponsor to 
deliver an opinion of counsel semi-annually confirming the validity and 
perfection of each transfer of receivables in newly originated accounts 
to the trust if such opinion is not delivered with respect to each 
interim addition;
    (13) The pooling and servicing agreement requires the sponsor and 
the trustee to receive confirmation from a Rating Agency that no 
Ratings Effect (i) will result from a proposed transfer of receivables 
in newly originated accounts to the trust, or (ii) will have resulted 
from the transfer of receivables in all newly originated accounts added 
to the trust during the preceding three-month period (beginning at 
quarterly intervals specified in the pooling and servicing agreement 
and ending in the calendar month prior to the date such confirmation is 
issued), provided that a Rating Agency confirmation shall not be 
required under clause (ii) for any three-month period in which any 
additions of newly originated accounts occurred only after receipt of 
prior Rating Agency confirmation pursuant to clause (i);
    (14) If a particular class of certificates held by any plan 
involves a Ratings

[[Page 17023]]

Dependent or Non-Ratings Dependent Swap entered into by the trust, then 
each particular swap transaction relating to such certificates:
    (a) shall be an Eligible Swap;
    (b) shall be with an Eligible Swap Counterparty;
    (c) in the case of a Ratings Dependent Swap, shall include as an 
early payout event, as specified in the pooling and servicing 
agreement, the withdrawal or reduction by any Rating Agency of the swap 
counterparty's credit rating below a level specified by the Rating 
Agency where the servicer (as agent for the trustee) has failed, for a 
specified period after such rating withdrawal or reduction, to meet its 
obligation under the pooling and servicing agreement to:
    (i) obtain a replacement swap agreement with an Eligible Swap 
Counterparty which is acceptable to the Rating Agency and the terms of 
which are substantially the same as the current swap agreement (at 
which time the earlier swap agreement shall terminate); or
    (ii) cause the swap counterparty to establish any collateralization 
or other arrangement satisfactory to the Rating Agency such that the 
then current rating by the Rating Agency of the particular class of 
certificates will not be withdrawn or reduced;
    (d) in the case of a Non-Ratings Dependent Swap, shall provide 
that, if the credit rating of the swap counterparty is withdrawn or 
reduced below the lowest level specified in Section III.II. hereof, the 
servicer, as agent for the trustee, shall within a specified period 
after such rating withdrawal or reduction:
    (i) obtain a replacement swap agreement with an Eligible Swap 
Counterparty, the terms of which are substantially the same as the 
current swap agreement (at which time the earlier swap agreement shall 
terminate); or
    (ii) cause the swap counterparty to post collateral with the 
trustee of the trust in an amount equal to all payments owed by the 
counterparty if the swap transaction were terminated; or
    (iii) terminate the swap agreement in accordance with its terms; 
and
    (e) shall not require the trust to make any termination payments to 
the swap counterparty (other than a currently scheduled payment under 
the swap agreement) except from ``Excess Finance Charge Collections'' 
(as defined below in Section III.LL.) or other amounts that would 
otherwise be payable to the servicer or the seller; and
    (15) Any class of certificates, to which one or more swap 
agreements entered into by the trust applies, may be acquired or held 
in reliance upon this exemption only by Qualified Plan Investors.
    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 Section I, if the provision in Section II.A.(6) above is 
not satisfied for the 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 shall 
be required to make a written representation regarding compliance with 
the condition set forth in Section II.A.(6).
Section III--Definitions
    For purposes of this exemption:
    A. Certificate means a certificate:
    (1) That (i) represents a beneficial ownership interest in the 
assets of a trust and entitles the holder to payments denominated as 
principal, interest and/or other payments made as described in the 
applicable prospectus or private placement memorandum and in accordance 
with the pooling and servicing agreement in connection with the assets 
of such trust, to the extent allocable to the series of certificates 
purchased by a plan, either currently or after a revolving period 
during which principal payments on assets of the trust are reinvested 
in new assets, or (ii) is denominated as a debt instrument that 
represents a regular interest in a financial asset securitization 
investment trust (FASIT), within the meaning of section 860L(a) of the 
Code, and is issued by and is an obligation of the trust.
    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; and
    (2) With respect to which (a) MBNA or any of its affiliates is the 
sponsor, and (b) MBNA, any of its affiliates, or an ``underwriter'' (as 
defined in Section III.C.) is the sole underwriter or the manager or 
co-manager of the underwriting syndicate or a selling or placement 
agent.
    B. Trust means an investment pool, the corpus of which is held in 
trust and consists solely of:
    (1) Either
    (a) Receivables (as defined in Section III.V.); or
    (b) Participations in a pool of receivables (as defined in Section 
III.V.) where such beneficial ownership interests are not subordinated 
to any other interest in the same pool of receivables; <SUP>4</SUP>
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    \4\ The Department notes that no relief would be available under 
the exemption if the participation interests held by the trust were 
subordinated to the rights and interests evidenced by other 
participation interests in the same pool of receivables.
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    (2) Property which has secured any of the assets described in 
Section III.B.(1); <SUP>5</SUP>
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    \5\ MBNA states that it is possible for credit card receivables 
to be secured by bank account balances or security interests in 
merchandise purchased with credit cards. Thus, the exemption should 
permit foreclosed property to be an eligible trust asset.
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    (3) Undistributed cash or permitted investments made therewith 
maturing no later than the next date on which distributions are to be 
made to certificateholders, except during a Revolving Period (as 
defined herein) when permitted investments are made until such cash can 
be reinvested in additional receivables described in paragraph (a) of 
this Section III.B.(1);
    (4) Rights of the trustee under the pooling and servicing 
agreement, and rights under any cash collateral accounts, insurance 
policies, third-party guarantees, contracts of suretyship and other 
credit support arrangements for any certificates, swap transactions, or 
under any yield supplement agreements,<SUP>6</SUP> yield maintenance 
agreements or similar arrangements; and
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    \6\ In a series involving an accumulation period (as defined in 
Section III.Z.), a yield supplement agreement may be used by the 
Trust to make up the difference between (i) the reinvestment yield 
on permitted investments, and (ii) the interest rate on the 
certificates of that series.
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    (5) Rights to receive interchange fees received by the sponsor as 
partial compensation for the sponsor's taking credit risk, absorbing 
fraud losses and funding receivables for a limited period prior to 
initial billing with respect to accounts designated to the trust.
    Notwithstanding the foregoing, the term ``trust'' does not include 
any investment pool unless: (i) the investment pool consists only of 
receivables 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 two highest generic rating

[[Page 17024]]

categories by at least one of the Rating Agencies for at least one year 
prior to the plan's acquisition of certificates pursuant to this 
exemption; and (iii) certificates evidencing an interest 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 an entity which has received from the 
Department an individual prohibited transaction exemption which 
provides relief for the operation of asset pool investment trusts that 
issue asset-backed pass-through securities to plans that is similar in 
format and substance to this exemption (each, an Underwriter 
Exemption); <SUP>7</SUP> any person directly or indirectly, through one 
or more intermediaries, controlling, controlled by or under common 
control with such entity; and any member of an underwriting syndicate 
or selling group of which such firm or affiliated person described 
above is a manager or co-manager with respect to the certificates.
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    \7\ For a listing of Underwriter Exemptions, see the description 
provided in the text of the operative language of Prohibited 
Transaction Exemption (PTE) 97-34 (62 FR 39021, July 21, 1997).
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    D. Sponsor means MBNA, or an affiliate of MBNA that organizes a 
trust by transferring credit card receivables or interests therein to 
the trust in exchange for certificates.
    E. Master Servicer means MBNA or an affiliate 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 
receivables in the trust pursuant to the pooling and servicing 
agreement.
    F. Subservicer means MBNA or an affiliate of MBNA, or an entity 
unaffiliated with MBNA 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 MBNA or an affiliate which services receivables 
contained in the trust, including the master servicer and any 
subservicer or their successors pursuant to the pooling and servicing 
agreement.
    H. Trustee means an entity which is independent of MBNA and its 
affiliates and is the trustee of the trust. In the case of certificates 
which are denominated as debt instruments, ``trustee'' also means the 
trustee of the indenture trust.
    I. Insurer means the insurer or guarantor of, provider of other 
credit support for, or other contractual counterparty of, a trust. 
Notwithstanding the foregoing, a swap counterparty is not an insurer, 
and 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 receivable 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) Each swap counterparty;
    (7) Any obligor with respect to receivables contained in the trust 
constituting more than 0.5 percent of the fair market value of the 
aggregate undivided interest in the trust allocated to the certificates 
of a series, determined on the date of the initial issuance of such 
series of certificates by the trust; or
    (8) Any affiliate of a person described in Section III.L.(1)-(7).
    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 that:
    (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 section 2550.408c-2.
    S. Pooling and Servicing Agreement means the agreement or 
agreements among a sponsor, a servicer and the trustee establishing a 
trust and any supplement thereto pertaining to a particular series of 
certificates. 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.
    T. Series means an issuance of a class or various classes of 
certificates by the trust all on the same date pursuant to the same 
pooling and servicing agreement, and any supplement thereto and 
restrictions therein.

U. 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 with respect to 
the receivables;
    (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 or described in all 
material respects in the prospectus or private placement memorandum 
provided to the plan before it purchases certificates issued by the 
trust; and
    (4) The amount paid to investors in the trust is not reduced by the 
amount of any such fee waived by the servicer.
    V. Receivables means secured or unsecured obligations of credit 
card holders which have arisen or arise in

[[Page 17025]]

Accounts designated to a trust. Such obligations represent amounts 
charged by cardholders for merchandise and services and amounts 
advanced as cash advances, as well as periodic finance charges, annual 
membership fees, cash advance fees, late charges on amounts charged for 
merchandise and services and certain other fees (such as bad check 
fees, cash advance fees, and other fees specified in the cardholder 
agreements) designated by card issuers (other than a qualified 
administrative fee as defined in Section III.U.).
    W. Accounts are revolving credit card accounts serviced by MBNA or 
an affiliate, which were originated or purchased by MBNA or an 
affiliate, and are designated to a trust such that receivables arising 
in such accounts become assets of the trust.
    X. Revolving Period means a period of time, as specified in the 
pooling and servicing agreement, during which principal collections 
allocated to a series are reinvested in newly generated receivables 
arising in the accounts.
    Y. Amortization Period means a period of time specified in the 
pooling and servicing agreement during which a portion of the principal 
collections allocated to a series will commence to be paid to the 
certificateholders of such series in installments.
    Z. Accumulation Period means a period of time specified in the 
pooling and servicing agreement during which a portion of the principal 
collections allocated to a series will be deposited in an account to be 
distributed to certificateholders in a lump sum on the expected 
maturity date.
    AA. Pay Out Event means any of the events specified in the pooling 
and servicing agreement or supplement thereto that results (in some 
instances without further affirmative action by any party) in the early 
commencement of either an amortization period or an accumulation 
period, including (1) the failure of the sponsor or the servicer, 
whichever is subject to the relevant obligation under the pooling and 
servicing agreement, (i) to make any payment or deposit required under 
the pooling and servicing agreement within five (5) business days after 
such payment or deposit was required to be made, or (ii) to observe or 
perform any of its other covenants or agreements set forth in the 
pooling and servicing agreement, which failure has a material adverse 
effect on holders of investor certificates of the relevant series and 
continues unremedied for 60 days; (2) a breach of any representation or 
warranty made by the sponsor or the servicer in the pooling and 
servicing agreement that continues to be incorrect in any material 
respect for 60 days; (3) the occurrence of certain bankruptcy events 
relating to the sponsor or the servicer; (4) the failure by the sponsor 
to convey to the trust additional receivables to maintain the minimum 
seller interest that is required by the pooling and servicing agreement 
and the Rating Agencies; (5) the failure to pay in full amounts owing 
to investors on the expected maturity date; and (6) the Economic Pay 
Out Event.
    BB. An Economic Pay Out Event occurs automatically when the 
portfolio yield for any series of certificates, averaged over three 
consecutive months (or such other period approved by one of the Rating 
Agencies) is less than the base rate of the series averaged over the 
same period. Portfolio yield for a series of certificates for any 
period is equal to the sum of the finance charge collections and other 
amounts treated as finance charge collections less total defaults for 
the series divided by the outstanding principal balance of the investor 
certificates of the series, or such other measure approved by one of 
the Rating Agencies. The base rate for a series of certificates for any 
period is the sum of (i) amounts payable to certificateholders of the 
series with respect to interest, (ii) servicing fees allocable to the 
series payable to the servicer, and (iii) any credit enhancement fee 
allocable to the series payable to a third party credit enhancer, 
divided by the outstanding principal balance of the investor 
certificates of the series, or such other measure approved by one of 
the Rating Agencies.
    CC. CCA or Cash Collateral Account means that certain account 
established in the name of the trustee that serves as credit 
enhancement with respect to the investor certificates and holds cash 
and/or permitted investments (as defined below in Section III.KK.) 
which conform to applicable provisions of the pooling and servicing 
agreement.
    DD. Group means a group of any number of series offered by the 
trust that share finance charge and/or principal collections in the 
manner described in the applicable prospectus or private placement 
memorandum.
    EE. Ratings Effect means the reduction or withdrawal by a Rating 
Agency of its then current rating of the certificates held by any plan 
pursuant to this exemption.
    FF. Principal Receivables Discount means, with respect to any 
account designated by the sponsor, the portion of the related principal 
receivables that represents a discount from the face value thereof and 
that is treated under the pooling and servicing agreement as finance 
charge receivables.
    GG. Ratings Dependent Swap means an interest rate swap, or (if 
purchased by or on behalf of the trust) an interest rate cap contract, 
that is part of the structure of a series of certificates where the 
rating assigned by the Rating Agency to any senior class of 
certificates held by any plan is dependent on the terms and conditions 
of the swap and the rating of the swap counterparty, and if such 
certificate rating is not dependent on the existence of the swap and 
rating of the swap counterparty, such swap or cap shall be referred to 
as a ``Non-Ratings Dependent Swap''. With respect to a Non-Ratings 
Dependent Swap, each Rating Agency rating the certificates must 
confirm, as of the date of issuance of the certificates by the trust, 
that entering into an Eligible Swap with such counterparty will not 
affect the rating of the certificates.
    HH. Eligible Swap means a Ratings Dependent or Non-Ratings 
Dependent Swap:
    (1) which is denominated in U.S. Dollars;
    (2) pursuant to which the trust pays or receives, on or immediately 
prior to the respective payment or distribution date for the senior 
class of certificates, a fixed rate of interest, or a floating rate of 
interest based on a publicly available index (e.g. LIBOR or the U.S. 
Federal Reserve's Cost of Funds Index (COFI)), with the trust receiving 
such payments on at least a quarterly basis and obligated to make 
separate payments no more frequently than the swap counterparty, with 
all simultaneous payments being netted;
    (3) which has a notional amount that does not exceed either (i) the 
certificate balance of the class of certificates to which the swap 
relates, or (ii) the portion of the certificate balance of such class 
represented by receivables;
    (4) which is not leveraged (i.e. payments are based on the 
applicable notional amount, the day count fractions, the fixed or 
floating rates designated in subparagraph (2) above, and the difference 
between the products thereof, calculated on a one to one ratio and not 
on a multiplier of such difference);
    (5) which has a final termination date that is the earlier of the 
date on which the trust terminates or the related class of certificates 
is fully repaid; and
    (6) which does not incorporate any provision which could cause a 
unilateral alteration in any provision described in subparagraphs (1) 
through (4) above without the consent of the trustee.
    II. Eligible Swap Counterparty means a bank or other financial 
institution which has a rating, at the date of

[[Page 17026]]

issuance of the certificates by the trust, which is in one of the three 
highest long-term credit rating categories, or one of the two highest 
short-term credit rating categories, utilized by at least one of the 
Rating Agencies rating the certificates; provided that, if a swap 
counterparty is relying on its short-term rating to establish 
eligibility hereunder, such counterparty must either have a long-term 
rating in one of the three highest long-term rating categories or not 
have a long-term rating from the applicable Rating Agency, and provided 
further that if the senior class of certificates with which the swap is 
associated has a final maturity date of more than one year from the 
date of issuance of the certificates, and such swap is a Ratings 
Dependent Swap, the swap counterparty is required by the terms of the 
swap agreement to establish any collateralization or other arrangement 
satisfactory to the Rating Agencies in the event of a ratings downgrade 
of the swap counterparty.
    JJ. Qualified Plan Investor means a plan investor or group of plan 
investors on whose behalf the decision to purchase certificates is made 
by an appropriate independent fiduciary that is qualified to analyze 
and understand the terms and conditions of any swap transaction used by 
the trust and the effect such swap would have upon the credit ratings 
of the certificates. For purposes of the exemption, such a fiduciary is 
either:
    (1) A qualified professional asset manager (QPAM),<SUP>8</SUP> as 
defined under Part V(a) of PTE 84-14 (49 FR 9494, 9506, March 13, 
1984);
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    \8\ PTE 84-14 provides a class exemption for transactions 
between a party in interest with respect to an employee benefit plan 
and an investment fund (including either a single customer or pooled 
separate account) in which the plan has an interest, and which is 
managed by a QPAM, provided certain conditions are met. QPAMs (e.g. 
banks, insurance companies, registered investment advisers with 
total client assets under management in excess of $50 million) are 
considered to be experienced investment managers for plan investors 
that are aware of their fiduciary duties under ERISA.
---------------------------------------------------------------------------

    (2) An in-house asset manager (INHAM),<SUP>9</SUP> as defined under 
Part IV(a) of PTE 96-23 (61 FR 15975, 15982, April 10, 1996); or
---------------------------------------------------------------------------

    \9\ PTE 96-23 permits various transactions involving employee 
benefit plans whose assets are managed by an INHAM, an entity which 
is generally a subsidiary of an employer sponsoring the plan which 
is a registered investment adviser with management and control of 
total assets attributable to plans maintained by the employer and 
its affiliates which are in excess of $50 million.
---------------------------------------------------------------------------

    (3) A plan fiduciary with total assets under management of at least 
$100 million at the time of the acquisition of such certificates.
    KK. Permitted Investments means investments that either (i) are 
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 obligation is backed by 
the full faith and credit of the United States, or (ii) have been rated 
(or the obligor thereof 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 relevant 
Rating Agency(ies).
    LL. Excess Finance Charge Collections means, as of any day funds 
are distributed from the trust, the amount by which the finance charge 
collections allocated to certificates of a series exceed the amount 
necessary to pay certificate interest, servicing fees and expenses, to 
satisfy cardholder defaults or charge-offs, and to reinstate credit 
support.
    The Department notes that this exemption is included within the 
meaning of the term ``Underwriter Exemption'' as it is defined in 
Section V(h) of the Grant of the Class Exemption for Certain 
Transactions Involving Insurance Company General Accounts, which was 
published in the Federal Register on July 12, 1995 (see PTE 95-60, 60 
FR 35925).
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption refer to 
the notice of proposed exemption (the Proposal) published on January 
27, 1998, at 63 FR 4038.
    Written Comments and Modifications. The applicant (i.e. MBNA) 
submitted certain comments on the text of the Proposal.
    With respect to issues of a substantive nature, the applicant 
suggested two revisions which are discussed below.
    First, MBNA requests that the phrase ``at the time of such 
acquisition'' should be inserted immediately following the word ``is'' 
in the 13th line of Section II.A.(3) of the Proposal (63 FR at 4039, 
column 3). In this regard, Section II.A.(3) concerns minimum ratings 
for the certificates issued by a trust and the proviso contained 
therein requires certain minimum credit support for each Exempt Class 
of certificates. MBNA suggests that the proviso with respect to minimum 
credit support be changed to clarify that the five (5) percent minimum 
only needs to be present at the time of an acquisition of a 
certificate.
    The Department believes that this modification is consistent with 
the requirements of Section II.A.(3) that the certificates acquired by 
a plan have received a rating at the time of acquisition that is in one 
of the high rating categories discussed therein. The Department notes 
that the conditions of this exemption are designed to ensure, among 
other things, that certain actions taken by the trust or the sponsor 
(i.e. MBNA) do not result in the certificates issued by the trust 
receiving a lower credit rating from the Rating Agencies than the then 
current rating of the certificates--i.e. a Ratings Effect. For example, 
Section II.A.(8) requires that confirmation must be received from the 
Rating Agencies that the issuance of any new series of certificates by 
the trust will not result in a Ratings Effect. Likewise, Sections 
I.C.(3) and II.A.(13) require that the addition of new receivables or 
designation of new accounts to the trust must meet terms and conditions 
which have been described in the prospectus or private placement 
memorandum for the certificates and have been approved by the Rating 
Agencies. The pooling and servicing agreements also require 
confirmations from the Rating Agencies that such actions will not 
result in a Ratings Effect. Therefore, the Department has made MBNA's 
suggested modification to the language of Section II.A.(3) with the 
understanding that any credit enhancements used by a trust to obtain a 
high rating for a particular class of certificates at the time such 
certificates are acquired by a plan should be sufficient to avoid any 
Ratings Effect on the certificates in the future, and that adverse 
changes to the level of minimum credit support required for an Exempt 
Class may have a Ratings Effect unless other arrangements satisfactory 
to the Rating Agencies are made.
    Second, with respect to the definition of the term ``Pay Out 
Event'' contained in Section III.AA. of the Proposal, MBNA states that 
clause (5) of that definition does not describe a pay out event for 
MBNA's securitization transactions for credit card receivables. In this 
regard, Section III.AA. of the Proposal contains a nonexclusive list of 
seven events which may trigger an early payout to certificateholders. 
Clause (5) of the Proposal describes a Pay Out Event as follows:

    ``* * * if a class of investor certificates is in an 
Accumulation Period, the amount on deposit in the accumulation 
account in any month is less than the amount required to be on 
deposit therein.''

    However, MBNA states that a Pay Out Event does not occur with 
regard to the amount of principal accumulated each month in the 
accumulation account.

[[Page 17027]]

MBNA states further that Clause (6) of Section III.AA. of the Proposal 
expresses the operative requirement, i.e., Class A certificateholders 
must be repaid the principal amount of their investment by the expected 
maturity date. Thus, MBNA represents that the inclusion of Clause (5) 
in the Proposal, as described above, should be deleted.
    The Department acknowledges the applicant's clarification and has 
deleted Clause (5) as it appeared in the definition of the term ``Pay 
Out Event'' in the Proposal. Thus, Section III.AA. of the Proposal has 
been renumbered to reflect this deletion.
    In addition, the applicant submitted a number of comments that 
relate to what are described as certain language ``glitches'' in the 
Proposal. These are discussed below.
    First, MBNA requests that the heading used in the Proposal be 
changed to reflect the fact that its headquarters is now located in 
Wilmington, Delaware (rather than Newark, Delaware).
    Second, with respect to Section I.B.(1) of the Proposal relating to 
an obligor for receivables contained in the trust constituting 0.5 
percent or less of the fair market value of the obligations or 
receivables contained in the aggregate undivided interest in the trust 
allocated to the certificates of a series, MBNA states that the 
language ``* * * obligations or receivables contained in the * * *'' is 
unnecessary and should be deleted from that subsection in order to be 
consistent with the description of such an obligor used in the 
definition of ``Restricted Group'' in Section III.L.(7).
    Third, in Section I.B.(1)(v) of the Proposal, MBNA requests that 
the word ``not'' be changed to ``no'' in order to be consistent with 
the description in Section I.B.(1)(iv).
    Fourth, MBNA requests that the word ``and'' be substituted for the 
comma (``,'') used in Section I.B.(2) of the Proposal.
    Fifth, MBNA requests that the word ``for'' be substituted for the 
word ``of'' in the 8th line of Section I.C.(3) of the Proposal (see 63 
FR at 4039, column 2).
    Sixth, MBNA states that Section I.C.(3) and footnote 10 of the 
Proposal should be revised to reflect the change in Fitch's formal name 
to ``Fitch IBCA, Inc.''
    Seventh, MBNA states that in Section I.C.(4), the cross reference 
to the definition of an ``Economic Pay Out Event'' should be changed 
from Section III.X. to Section III.BB.
    Eighth, MBNA requests that the word ``class'' should be substituted 
for the word ``series'' in the 11th and 17th lines of Section II.A.(5) 
of the Proposal (see 63 FR at 4040, column 1).
    Ninth, MBNA requests that the words ``receivables in'' be inserted 
between the words ``of'' and ``newly'' in lines 5-6 of Section 
II.A.(12) of the Proposal, as well as in lines 5-6 and 8 of Section 
II.A.(13) of the Proposal (see 63 FR at 4040, column 2).
    Tenth, MBNA requests that the word ``class'' be substituted for the 
word ``series'' in line 1 of Section II.A.(14) of the Proposal and in 
Section II.A.(14)(c)(ii) therein (63 FR at 4040, columns 2 and 3).
    Eleventh, MBNA requests that the word ``class'' be substituted for 
the word ``series'' in Section II.A.(15).
    Twelfth, MBNA requests that the word ``assets'' be substituted for 
the word ``receivables'' in the 4th (but not the 6th) line of the 
definition of ``Master Servicer'' in Section III.E. of the Proposal (63 
FR at 4041, column 3).
    Thirteenth, MBNA requests that the words ``senior class'' be 
substituted for the word ``series'' in the 7th line of the definition 
of ``Ratings Dependent Swap'' in Section III.GG. of the Proposal (63 FR 
at 4043, column 1).
    Fourteenth, MBNA requests that the words ``senior class'' be 
substituted for the word ``series'' in the 4th line of the definition 
of ``Eligible Swap'' in Section III.HH(2) of the Proposal (63 FR at 
4043, column 2).
    Fifthteenth, MBNA requests that the words ``senior class'' be 
substituted for the word ``series'' in the 18th line of the definition 
of ``Eligible Swap Counterparty'' in Section III.II. of the Proposal 
(63 FR at 4043, column 3).
    The Department acknowledges each of these requested revisions to 
the Proposal and has so modified the language of the exemption 
contained herein.
    Finally, the applicant's comments on the Proposal contained certain 
minor clarifications concerning the information included in the Summary 
of Facts and Representations for the Proposal. The Department 
acknowledges all of the clarifications made by MBNA to this 
information.
    For further information regarding MBNA's comments or other matters 
discussed herein, interested persons are encouraged to obtain a copy of 
the exemption application file (No. D-10304) which is available in the 
Public Documents Room of the Pension and Welfare Benefits 
Administration, U.S. Department of Labor, Room N-5638, 200 Constitution 
Avenue, N.W., Washington, D.C. 20210.
    No other written comments, and no requests for a hearing, were 
received by the Department.
    Accordingly, the Department has determined to grant the exemption 
as modified herein.

FOR FURTHER INFORMATION CONTACT: Mr. E. F. Williams of the Department, 
telephone (202) 219-8194. (This is not a toll-free number.)

Citibank (South Dakota), N.A., Citibank (Nevada), N.A., and 
Affiliates Located in North Sioux Falls, South Dakota

[Prohibited Transaction Exemption No. 98-14; Application No. D-10313]

Exemption

Section I--Transactions
    A. The restrictions of sections 406(a) and 407(a) of the Act and 
the taxes imposed by section 4975(a) and (b) of the Code, by reason of 
section 4975(c)(1)(A) through (D) of the Code, shall not apply to the 
following transactions involving trusts and certificates evidencing 
interests therein:
    (1) The direct or indirect sale, exchange or transfer of 
certificates in the initial issuance of certificates between the trust, 
the sponsor or an underwriter and an employee benefit plan subject to 
the Act or section 4975 of the Code (a 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 Section 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, as defined in Section III.K. below, by any person who 
has discretionary authority or renders investment advice with respect 
to the assets of the Excluded Plan that are invested in 
certificates.<SUP>10</SUP>
---------------------------------------------------------------------------

    \10\ 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. 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

[[Page 17028]]

the trust, the sponsor or an 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 receivables contained in the trust constituting 0.5 
percent or less of the fair market value of the aggregate undivided 
interest in the trust allocated to the certificates of a series, 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, 
as defined in Section III.L., and at least 50 percent of the aggregate 
undivided interest in the trust allocated to the certificates of a 
series is acquired by persons independent of the Restricted Group;
    (iii) A plan's investment in each class of certificates of a series 
does not exceed 25 percent of all of the certificates of that class 
outstanding at the time of the acquisition;
    (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 is 
invested in certificates representing the aggregate undivided interest 
in a trust allocated to the certificates of a series and containing 
receivables sold or serviced by the same entity;<SUP>11</SUP> and
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    \11\ 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.
---------------------------------------------------------------------------

    (v) Immediately after the acquisition of the certificates, not more 
than 25 percent of the assets of a plan with respect to which the 
person has discretionary authority or renders investment advice is 
invested in certificates representing an interest in the trust, or 
trusts containing receivables sold or serviced by the same entity. For 
purposes of paragraphs B.(1)(iv) and B.(1)(v) only, an entity shall not 
be considered to service receivables contained in a trust if it is 
merely a subservicer of that trust;
    (2) The direct or indirect acquisition or disposition of 
certificates by a plan in the secondary market for such certificates, 
provided that conditions set forth in Section I.B.(1)(i), (iii) through 
(v) are met; and
    (3) The continued holding of certificates acquired by a plan 
pursuant to Section I.B.(1) or (2).
    C. The restrictions of sections 406(a), 406(b) and 407(a) of the 
Act and the taxes imposed by section 4975(a) and (b) of the Code, by 
reason of section 4975(c) of the Code, shall not apply to transactions 
in connection with the servicing, management and operation of a trust, 
including the reassignment to the sponsor of receivables, the removal 
from the trust of accounts previously designated to the trust, the 
changing of the underlying terms of accounts designated to the trust, 
the adding of new receivables to the trust, the designation of new 
accounts to the trust, the retention of a retained interest by the 
sponsor in the receivables, the exercise of the right to cause the 
commencement of amortization of the principal amount of the 
certificates, or the use of any eligible swap transactions, provided:
    (1) Such transactions are carried out in accordance with the terms 
of a binding pooling and servicing agreement; 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>12</SUP>
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    \12\ 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 exemption, all references to ``prospectus'' include any 
related supplement thereto, and any documents incorporated by 
reference therein, pursuant to which certificates are offered to 
investors.
---------------------------------------------------------------------------

    (3) The addition of new receivables or designation of new accounts, 
or the removal of receivables or previously-designated accounts, meets 
the terms and conditions for such additions, designations or removals 
as are described in the prospectus or private placement memorandum for 
such certificates, which terms and conditions have been approved by 
Standard & Poor's Ratings Services, Moody's Investor Service, Inc., 
Duff & Phelps Credit Rating Co., or Fitch Investors Service, L.P., or 
their successors (collectively, the Rating Agencies), and does not 
result in the certificates receiving a lower credit rating from the 
Rating Agencies than the then current rating for the Certificates; and
    (4) The series of which the certificates are a part will be subject 
to an Economic Early Amortization Event, which is set forth in the 
pooling and servicing agreement and described in the prospectus or 
private placement memorandum associated with the series, the occurrence 
of which will cause any Revolving Period, Controlled Amortization 
Period, or Accumulation Period applicable to the certificates to end, 
and principal collections to be applied to monthly payments of 
principal to, or accumulated for the account of, the certificateholders 
of such series until the earlier of: (i) Payment in full of the 
outstanding principal amount of such certificates of such series, or 
(ii) the series termination date specified in the prospectus or private 
placement memorandum.
    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 under section 4975(a) and (b) of the Code, by reason 
of section 4975(c)(1)(E) or (F) of the Code, for the receipt of a fee 
by the servicer of the trust, in connection with the servicing of the 
receivables and the operation 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. below.
    D. The restrictions of sections 406(a) and 407(a) of the Act and 
the taxes imposed by sections 4975(a) and (b) of the Code, by reason of 
sections 4975(c)(1)(A) through (D) of the Code, shall not apply to any 
transaction 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 as 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.
Section II--General Conditions
    A. The relief provided under Section 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 such terms 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;

[[Page 17029]]

    (3) The certificates acquired by the plan have received a rating at 
the time of such acquisition that is either: (i) in one of the two 
highest generic rating categories from any one of the Rating Agencies; 
or (ii) for certificates with a duration of one year or less, the 
highest short-term generic rating category from any one of the Rating 
Agencies; provided that, notwithstanding such ratings, this exemption 
shall apply to a particular class of certificates only if such class 
(an Exempt Class) is at the time of such acquisition part of a series 
in which credit support is provided to the Exempt Class through a 
senior-subordinated series structure or other form of third-party 
credit support which, at a minimum, represents five (5) percent of the 
outstanding principal balance of certificates issued for the Exempt 
Class, so that an investor in the Exempt Class will not bear the 
initial risk of loss;
    (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 consideration received by 
the sponsor as a consequence of the assignment of receivables (or 
interests therein) to the trust represents not more than the fair 
market value of such receivables (or interests); and the sum of all 
payments made to and retained by the servicer, that are allocable to 
the series of certificates purchased by a plan, 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 (SEC) under the Securities Act of 
1933;
    (7) The trustee of the trust is a substantial financial institution 
or trust company experienced in trust activities and is familiar with 
its duties, responsibilities, and liabilities as a fiduciary under the 
Act (i.e. ERISA). The trustee, as the legal owner of the receivables in 
the trust, enforces all the rights created in favor of 
certificateholders of such trust, including employee benefit plans 
subject to the Act;
    (8) Prior to the issuance of any new series in the trust, 
confirmation must be received from the Rating Agencies that such 
issuance will not result in the reduction or withdrawal of the then 
current rating or ratings of the certificates held by any plan pursuant 
to this exemption;
    (9) To protect against fraud, chargebacks or other dilution of 
receivables in the trust, the pooling and servicing agreement and the 
Rating Agencies require the sponsor to maintain a seller interest of 
not less than the greater of (i) 2 percent of the initial aggregate 
principal balance of investor certificates issued by the trust, or (ii) 
7 percent of the outstanding aggregate principal balance of investor 
certificates issued by the trust;
    (10) Each receivable added to the trust will be an eligible 
receivable, based on criteria of the Rating Agency and as specified in 
the pooling and servicing agreement. The pooling and servicing 
agreement requires that any change in the terms of any cardholder 
agreements also be made applicable to the comparable segment of 
Accounts owned or serviced by the sponsor which are part of the same 
program or have the same or substantially similar characteristics;
    (11) The pooling and servicing agreement limits the number of the 
sponsor's newly originated accounts to be added to the trust, unless 
the Rating Agency otherwise affirmatively consents, to the following: 
(i) With respect to any three month period, 15 percent of the number of 
existing accounts designated to the trust as of the first day of such 
period, and (ii) with respect to any calendar year, 20 percent of the 
number of existing accounts designated to the trust as of the first day 
of such calendar year;
    (12) The pooling and servicing agreement requires the sponsor to 
deliver an opinion of counsel semi-annually confirming the validity and 
perfection of each transfer of newly originated accounts to the trust;
    (13) The pooling and servicing agreement requires the sponsor and 
the trustee to receive at specified quarterly intervals during the 
year, confirmation from a Rating Agency that the addition of all newly 
originated accounts added to the trust (during the three month period 
ending in the calendar month prior to such confirmation) will not have 
resulted in a Ratings Effect;
    (14) If a particular series of certificates held by any plan 
involves a Ratings Dependent or Non-Ratings Dependent Swap entered into 
by the trust, then each particular swap transaction relating to such 
certificates:
    (a) shall be an Eligible Swap;
    (b) shall be with an Eligible Swap Counterparty;
    (c) in the case of a Ratings Dependent Swap, shall include as an 
early amortization event, as specified in the pooling and servicing 
agreement, the withdrawal or reduction by any Rating Agency of the swap 
counterparty's credit rating below a level specified by the Rating 
Agency where the servicer (as agent for the trustee) has failed, for a 
specified period after such rating withdrawal or reduction, to meet its 
obligation under the pooling and servicing agreement to:
    (i) obtain a replacement swap agreement with an Eligible Swap 
Counterparty which is acceptable to the Rating Agency and the terms of 
which are substantially the same as the current swap agreement (at 
which time the earlier swap agreement shall terminate); or
    (ii) cause the swap counterparty to establish any collateralization 
or other arrangement satisfactory to the Rating Agency such that the 
then current rating by the Rating Agency of the particular class of 
certificates will not be withdrawn or reduced;
    (d) in the case of a Non-Ratings Dependent Swap, shall provide 
that, if the credit rating of the swap counterparty is withdrawn or 
reduced below the lowest level specified in Section III.II. hereof, the 
servicer (as agent for the trustee) shall within a specified period 
after such rating withdrawal or reduction:
    (i) obtain a replacement swap agreement with an Eligible Swap 
Counterparty, the terms of which are substantially the same as the 
current swap agreement (at which time the earlier swap agreement shall 
terminate); or
    (ii) cause the swap counterparty to post collateral with the 
trustee of the trust in an amount equal to all payments owed by the 
counterparty if the swap transaction were terminated; or
    (iii) terminate the swap agreement in accordance with its terms; 
and
    (e) shall not require the trust to make any termination payments to 
the swap counterparty (other than a currently scheduled payment under 
the swap agreement) except from ``Excess Finance Charge Collections'' 
(as defined below in Section III.LL.) or other amounts that would 
otherwise be payable to the servicer or the seller; and

[[Page 17030]]

    (15) Any class of certificates which entails one or more swap 
agreements entered into by the trust shall be sold only to Qualified 
Plan Investors.
    B. Neither any underwriter, sponsor, trustee, servicer, insurer, or 
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 Section I, if the provision in Section II.A.(6) above is 
not satisfied for the 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 shall 
be required to make a written representation regarding compliance with 
the condition set forth in Section II.A.(6).
Section III--Definitions
    For purposes of this exemption:
    A. Certificate means
    (1) A certificate:
    (a) That represents a beneficial ownership interest in the assets 
of a trust;
    (b) That entitles the holder to payments denominated as principal 
and interest, and/or other payments made in connection with the assets 
of such trust, either currently, or after a Revolving Period during 
which principal payments on assets in the trust are reinvested in new 
assets; or (2) A certificate denominated as a debt instrument that 
represents an interest in a financial asset securitization investment 
trust (FASIT) within the meaning of section 860L of the Code, and that 
is issued by and is an obligation of a trust;

which is sold upon initial issuance by an underwriter (as defined in 
Section III.C.) in an underwriting or private placement.
    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) Receivables (as defined in Section III.T.); or
    (b) Participations in a pool of receivables (as defined in Section 
III.T.) where such beneficial ownership interests are not subordinated 
to any other interest in the same pool of receivables; <SUP>13</SUP>
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    \13\ The Department notes that no relief would be available 
under the exemption if the participation interests held by the trust 
were subordinated to the rights and interests evidenced by other 
participation interests in the same pool of receivables.
---------------------------------------------------------------------------

    (2) Property which has secured any of the assets described in 
Section III.B.(1); <SUP>14</SUP>
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    \14\ Citibank states that it is possible for credit card 
receivables to be secured by bank account balances or security 
interests in merchandise purchased with credit cards. Thus, the 
exemption should permit foreclosed property to be an eligible trust 
asset.
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    (3) Undistributed cash or permitted investments made therewith 
maturing no later than the next date on which distributions are to be 
made to certificateholders, except during a Revolving Period (as 
defined herein) when permitted investments are made until such cash can 
be reinvested in additional receivables described in paragraph (a) of 
this Section III.B.(1);
    (4) Rights of the trustee under the pooling and servicing 
agreement, and rights under any cash collateral accounts, insurance 
policies, third-party guarantees, contracts of suretyship and other 
credit support arrangements for any certificates, swap transactions, or 
under any yield supplement agreements,<SUP>15</SUP> yield maintenance 
agreements or similar arrangements; and
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    \15\ In a series involving an accumulation period (as defined in 
Section III.AA), a yield supplement agreement may be used by the 
Trust to make up the difference between (i) the reinvestment yield 
on permitted investments, and (ii) the interest rate on the 
certificates of that series.
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    (5) Rights to receive interchange fees received by the sponsor as 
partial compensation for the sponsor's taking credit risk, absorbing 
fraud losses and funding receivables for a limited period prior to 
initial billing with respect to accounts designated to the trust.
    Notwithstanding the foregoing, the term ``trust'' does not include 
any investment pool unless: (i) The investment pool consists only of 
receivables 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 two highest generic rating 
categories by at least one of the Rating Agencies for at least one year 
prior to the plan's acquisition of certificates pursuant to this 
exemption; and (iii) certificates evidencing an interest 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 an entity which has received an individual 
prohibited transaction exemption from the Department that provides 
relief for the operation of asset pool investment trusts that issue 
``asset-backed'' pass-through securities to plans, that is similar in 
format and structure to this exemption (the Underwriter Exemptions); 
<SUP>16</SUP> any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by or under common control with 
such entity; and any member of an underwriting syndicate or selling 
group of which such firm or affiliated person described above is a 
manager or co-manager with respect to the certificates.
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    \16\ For a listing of the Underwriter Exemptions, see the 
description provided in the text of the operative language of 
Prohibited Transaction Exemption (PTE) 97-34 (62 FR 39021, July 21, 
1997).
---------------------------------------------------------------------------

    D. Sponsor means Citibank or an affiliate of Citibank that 
organizes a trust by transferring credit card receivables or interests 
therein to the trust in exchange for certificates.
    E. Master Servicer means Citibank or an entity affiliated with 
Citibank that is a party to the pooling and servicing agreement 
relating to trust receivables and is fully responsible for servicing, 
directly or through subservicers, the receivables in the trust pursuant 
to the pooling and servicing agreement.
    F. Subservicer means Citibank or an affiliate, or an entity 
unaffiliated with Citibank, 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 Citibank or an affiliate which services 
receivables contained in the trust, including the master servicer and 
any subservicer or their successors pursuant to the pooling and 
servicing agreement.
    H. Trustee means an entity which is independent of Citibank and its 
affiliates and is the trustee of the trust. In the case of certificates 
which are denominated as debt instruments, ``trustee'' also means the 
trustee of the indenture trust.
    I. Insurer means the insurer or guarantor of, provider of other 
credit support for, or other contractual counterparty of, a trust. 
Notwithstanding the foregoing, a swap counterparty is not an insurer, 
and a person is not an insurer solely because

[[Page 17031]]

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 receivable 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) Each swap counterparty;
    (7) Any obligor with respect to receivables contained in the trust 
constituting more than 0.5 percent of the fair market value of the 
aggregate undivided interest in the trust allocated to the certificates 
of a series, determined on the date of the initial issuance of such 
series of certificates by the trust; or
    (8) Any affiliate of a person described in Section III.L. (1)-(7).
    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 section 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 with respect to 
the receivables;
    (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 or described in all 
material respects in the prospectus or private placement memorandum 
provided to the plan before it purchases certificates issued by the 
trust; and
    (4) The amount paid to investors in the trust is not reduced by the 
amount of any such fee waived by the servicer.
    T. Receivables means secured or unsecured obligations of credit 
card holders which have arisen or arise in Accounts designated to a 
trust. Such obligations represent amounts charged by cardholders for 
merchandise and services and amounts advanced as cash advances, as well 
as periodic finance charges, annual membership fees, cash advance fees, 
late charges on amounts charged for merchandise and services and over-
limit fees and fees of a similar nature designated by card issuers 
(other than a qualified administrative fee as defined in Section III.S. 
above).
    U. Accounts are revolving credit card accounts serviced by Citibank 
or an affiliate, which were originated or purchased by Citibank or an 
affiliate, and are designated to a trust such that receivables arising 
in such accounts become assets of the trust.
    V. Pooling and Servicing Agreement means the agreement or 
agreements among a sponsor, a servicer and the trustee establishing a 
trust and any supplement thereto pertaining to a particular series of 
certificates. 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. Early Amortization Event means the events specified in the 
pooling and servicing agreement that result (in some instances without 
further affirmative action by any party) in an early amortization of 
the certificates, including: (1) The failure of the sponsor or the 
servicer (i) to make any payment or deposit required under the pooling 
and servicing agreement or supplement thereto within five (5) business 
days after such payment or deposit was required to be made, or (ii) to 
observe or perform any of its other covenants or agreements set forth 
in the pooling and servicing agreement or supplement thereto, which 
failure has a material adverse effect on investors and continues 
unremedied for 60 days; (2) a breach of any representation or warranty 
made by the sponsor or the servicer in the pooling and servicing 
agreement or supplement thereto that continues to be incorrect in any 
material respect for 60 days; (3) the occurrence of certain bankruptcy 
events relating to the sponsor or the servicer; (4) the failure by the 
sponsor to convey to the trust additional receivables to maintain the 
minimum seller interest that is required by the pooling and servicing 
agreement and the Rating Agencies; (5) the failure to pay in full 
amounts owing to investors on the expected maturity date; and (6) the 
Economic Early Amortization Event.
    X. Series means an issuance of a class or various classes of 
certificates by the trust all on the same date pursuant to the same 
pooling and servicing agreement and any supplement thereto and 
restrictions therein.
    Y. Revolving Period means a period of time, as specified in the 
pooling and servicing agreement, during which principal collections 
allocated to a series are reinvested in newly generated receivables.
    Z. Controlled Amortization Period means a period of time specified 
in the pooling and servicing agreement during which a portion of the 
principal collections allocated to a series will commence to be paid to 
the certificateholders of such series in installments.

[[Page 17032]]

    AA. Accumulation Period means a period of time specified in the 
pooling and servicing agreement during which a portion of the principal 
collections allocated to a series will be deposited in an account to be 
distributed to certificateholders in a lump sum on the expected 
maturity date.
    BB. CCA or Cash Collateral Account means that certain account, 
established by the trustee, that serves as credit enhancement with 
respect to the investor certificates and consists of cash deposits and 
the proceeds of investments thereon, which investments are permitted 
investments, as defined below.
    CC. Permitted Investments means investments which: (1) are 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 obligation is backed by the 
full faith and credit of the United States, or (2) 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.
    DD. Group means a group of any number of series offered by the 
trust that share finance charge and/or principal collections in the 
manner described in the prospectus.
    EE. An Economic Early Amortization Event occurs automatically when 
finance charge collections averaged over three consecutive months are 
less than the total amount payable on the investor certificates, 
including (i) amounts payable to, or on behalf of, certificateholders, 
with respect to interest, defaults, and chargeoffs, (ii) servicing fees 
payable to the servicer, and (iii) any credit enhancement fee payable 
to the third-party credit enhancer and allocable to the 
certificateholders. With respect to a series to which an Accumulation 
Period (as defined above in Section III.AA.) applies, an additional 
Economic Early Amortization Event occurs when, for any time during the 
Accumulation Period, the yield on the receivables in the Trust is less 
than the weighted average of the certificate rates of all series 
included in a particular Group within the Trust.
    FF. Ratings Effect means the reduction or withdrawal by a Rating 
Agency of its then current rating of the investor certificates of any 
outstanding series.
    GG. Principal Receivables Discount means, with respect to any 
account designated by the sponsor, the portion of the related principal 
receivables that represents a discount from the face value thereof and 
that is treated under the pooling and servicing agreement as finance 
charge receivables.
    HH. Eligible Swap means an interest rate swap, or (if purchased by 
or on behalf of the trust) an interest rate cap, that is part of the 
structure of a class of certificates:
    (1) which is denominated in U.S. Dollars;
    (2) pursuant to which the trust pays or receives on or immediately 
prior to the respective payment or distribution date for the class of 
certificates, a fixed rate of interest, or a floating rate of interest 
based on a publicly available index (e.g. LIBOR or the U.S. Federal 
Reserve's Cost of Funds Index (COFI)), with the trust receiving such 
payments on at least a quarterly basis and obligated to make separate 
payments no more frequently than the swap counterparty, with all 
simultaneous payments being netted;
    (3) which has a notional amount that does not exceed either (i) the 
certificate balance of the class of certificates to which the swap 
relates, or (ii) the portion of the certificate balance of such class 
represented by receivables;
    (4) which is not leveraged, (i.e. payments are based on the 
applicable notional amount, the day count fractions, the fixed or 
floating rates designated in (2) above, and the difference between the 
products thereof, calculated on a one to one ratio and not on a 
multiplier of such difference);
    (5) which has a termination date that is the earlier of the date on 
which the trust terminates or the related class of certificates is 
fully repaid; and
    (6) which does not incorporate any provision which could cause a 
unilateral alteration in a provision described in clauses (1) through 
(4) hereof without the consent of the trustee.
    II. Eligible Swap Counterparty means a bank or other financial 
institution with a rating at the date of issuance of the certificates 
by the trust which is in one of the three highest long-term credit 
rating categories, or one of the two highest short-term credit rating 
categories, utilized by at least one of the Rating Agencies rating the 
certificates; provided that, if a swap counterparty is relying on its 
short-term rating to establish eligibility hereunder, such counterparty 
must either have a long-term rating in one of the three highest long-
term rating categories or not have a long-term rating from the 
applicable Rating Agency, and provided further that if the class of 
certificates with which the swap is associated has a final maturity 
date of more than one year from the date of issuance of the 
certificates, and such swap is a Ratings Dependent Swap, the swap 
counterparty is required by the terms of the swap to establish any 
collateralization or other arrangement satisfactory to the Rating 
Agency in the event of a ratings downgrade of the swap counterparty.
    JJ. Qualified Plan Investor means a plan investor or group of plan 
investors on whose behalf the decision to purchase certificates is made 
by an appropriate independent fiduciary that is qualified to analyze 
and understand the terms and conditions of any swap transaction used by 
the trust and the effect such swap would have upon the credit ratings 
of the certificates. For purposes of this exemption, such a fiduciary 
is either:
    (1) a qualified professional asset manager (QPAM), as defined under 
Part V(a) of PTE 84-14 (49 FR 9494, 9506, March 13, 1984); 
<SUP>17</SUP>
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    \17\ PTE 84-14 provides a class exemption for transactions 
between a party in interest with respect to an employee benefit plan 
and an investment fund (including either a single customer or pooled 
separate account) in which the plan has an interest, and which is 
managed by a QPAM, provided certain conditions are met. QPAMs (e.g. 
banks, insurance companies, registered investment advisers with 
total client assets under management in excess of $50 million) are 
considered to be experienced investment managers for plan investors 
that are aware of their fiduciary duties under ERISA.
---------------------------------------------------------------------------

    (2) an in-house asset manager (INHAM), as defined under Part IV(a) 
of PTE 96-23 (61 FR 15975, 15982, April 10, 1996); <SUP>18</SUP> or
---------------------------------------------------------------------------

    \18\ PTE 96-23 permits various transactions involving employee 
benefit plans whose assets are managed by an INHAM, an entity which 
is generally a subsidiary of an employer sponsoring the plan which 
is a registered investment adviser with management and control of 
total assets attributable to plans maintained by the employer and 
its affiliates which are in excess of $50 million.
---------------------------------------------------------------------------

    (3) a plan fiduciary with total assets under management of at least 
$100 million at the time of the acquisition of such certificates.
    KK. Ratings Dependent Swap means an interest rate swap, or (if 
purchased by or on behalf of the trust) an interest rate cap contract, 
that is part of the structure of a series of certificates where the 
rating assigned by the Rating Agency to any senior class of 
certificates held by any plan is dependent on the terms and conditions 
of the swap and the rating of the swap counterparty, and if such 
certificate rating is not dependent on the existence of such swap and 
rating of the swap counterparty, such swap or cap shall be referred to 
as a ``Non-Ratings Dependent Swap''. With respect to a Non-Ratings 
Dependent Swap, each Rating Agency rating the certificates must 
confirm, as of the date of issuance of the certificates by the trust, 
that

[[Page 17033]]

entering into an Eligible Swap with such counterparty will not affect 
the rating of the certificates.
    LL. Excess Finance Charge Collections means, as of any day funds 
are distributed from the trust, the amount by which the finance charge 
collections allocated to certificates of a series exceed the amount 
necessary to pay certificate interest, servicing fees and expenses, to 
satisfy cardholder defaults or charge-offs, and to reinstate credit 
support.
    The Department notes that this exemption is included within the 
meaning of the term ``Underwriter Exemption'' as it is defined in 
Section V(h) of the Grant of the Class Exemption for Certain 
Transactions Involving Insurance Company General Accounts, which was 
published in the Federal Register on July 12, 1995 (see PTE 95-60, 60 
FR 35925).
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption refer to 
the notice of proposed exemption (the Proposal) published on January 
27, 1998 at 63 FR 4052.
    Written Comments and Modifications: The applicant (i.e. Citibank) 
submitted certain comments on the text of the Proposal.
    First, Section II.A.(3) concerns minimum ratings for the 
certificates issued by a trust and the proviso contained therein 
requires certain minimum credit support for each Exempt Class of 
certificates. Citibank suggests that the proviso with respect to 
minimum credit support be changed to clarify that the five (5) percent 
minimum only needs to be present at the time of an acquisition of a 
certificate.
    The Department believes that this modification is consistent with 
the requirements of Section II.A.(3) that the certificates acquired by 
a plan have received a rating at the time of acquisition that is in one 
of the high rating categories discussed therein. In this regard, the 
Department notes that the conditions of this exemption are designed to 
ensure, among other things, that certain actions taken by the trust or 
the trust sponsor (i.e. Citibank) do not result in the certificates 
issued by the trust receiving a lower credit rating from the Rating 
Agencies than the then current rating of the certificates--i.e. a 
Ratings Effect. For example, Section II.A.(8) requires that 
confirmation must be received from the Rating Agencies that the 
issuance of any new series of certificates by the trust will not result 
in a Ratings Effect. Likewise, Sections I.C.(3) and II.A.(13) require 
that the addition of new receivables or designation of new accounts to 
the trust must meet terms and conditions which have been described in 
the prospectus or private placement memorandum for the certificates and 
have been approved by the Rating Agencies. The pooling and servicing 
agreements also require confirmations from the Rating Agencies that 
such actions will not result in a Ratings Effect.<SUP>19</SUP> 
Therefore, the Department has made Citibank's suggested modification to 
the language of Section II.A.(3) with the understanding that any credit 
enhancements used by a trust to obtain a high rating for a particular 
class of certificates at the time such certificates are acquired by a 
plan should be sufficient to avoid any Ratings Effect on the 
certificates in the future, and that adverse changes to the level of 
minimum credit support required for an Exempt Class may have a Ratings 
Effect unless other arrangements satisfactory to the Rating Agencies 
are made.
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    \19\ See the discussion of a ``Lump Sum Addition'' of 
receivables to the trust in Paragraph 7 in the Summary of Facts and 
Representations included in the Proposal (63 FR at 4060). See also 
Footnote 30 (63 FR at 4061) regarding the satisfaction of certain 
conditions required by the Rating Agencies to avoid a Ratings Effect 
and judgments that must be made by Citibank that such additions, or 
any removals, of accounts will not adversely affect the timing or 
amount of payments to certificateholders (referred to in the Series 
prospectus as an ``Adverse Effect'').
---------------------------------------------------------------------------

    Second, with respect to Section II.A.(14)(c) relating to Ratings 
Dependent Swaps, Section II.A.(14)(c)(ii) of the Proposal states that 
one of the options in the event of a credit ratings downgrade of the 
Eligible Swap Counterparty for such swap transactions is to ``* * * 
cause the swap counterparty to establish any collateralization or other 
arrangement satisfactory to the Rating Agency such that the then 
current rating by the Rating Agency of the particular series of 
certificates will not be withdrawn or reduced.'' [emphasis added] 
Citibank suggests that since a swap transaction by a trust might relate 
to only one class of certificates in a series issued by the trust, it 
would be more precise to substitute the word ``class'' for ``series'' 
in Section II.A.(14)(c)(ii).
    Similarly, Section II.A.(15) of the Proposal requires that ``* * * 
[a]ny Series of certificates which entails one or more swap agreements 
entered into by the trust shall be sold only to Qualified Plan 
Investors.'' Citibank believes that it would be more precise to 
substitute the word ``class'' for ``series'' in Section II.A.(15).
    Likewise, in Section III.HH. of the Proposal, the definition of 
``Eligible Swap'' contains numerous references to a ``series'' of 
certificates to which the swap transaction relates. Citibank believes 
that it would be more precise for these references to be changed to a 
``class'' of certificates.
    The Department agrees with these suggestions and, accordingly, has 
modified the language of the final exemption.
    Finally, with respect to the definition of the term ``Early 
Amortization Event'' contained in Section III.W. of the Proposal, 
Citibank notes that there is a nonexclusive list of seven events which 
may trigger an early amortization to certificateholders. The fifth 
event listed as an early amortization event is as follows:

    ``* * * if a class of investor certificates is in an 
Accumulation Period, the amount on deposit in the accumulation 
account in any month is less than the amount required to be on 
deposit therein.''

    Although such an event was previously described by Citibank as a 
possible early amortization ``trigger'', Citibank is now concerned that 
the inclusion of this ``event'' in the definition of the term ``early 
amortization event'' may be misleading to investors. In this regard, 
Citibank states that there is no amount required to be on deposit in 
the accumulation account in any particular month, other than that 
amount which is required to be in the account in the last month of the 
Accumulation Period. Any shortfall in the amount required to be in the 
accumulation account in the last month of an Accumulation Period would 
be an ``early amortization event''. Such an event was already included 
in the list contained in the definition of that term in the Proposal 
(see Section III.W.(6) of the Proposal). Thus, Citibank represents that 
the inclusion of the fifth event, as described above, is unnecessary 
and should be deleted.
    The Department acknowledges the applicant's clarification and has 
deleted the fifth event described in the definition of the term ``early 
amortization event'' as used in the Proposal. Section III.W. of the 
final exemption has been renumbered to reflect this deletion.
    No other written comments, and no requests for a hearing, were 
received by the Department.
    Accordingly, the Department has determined to grant the exemption 
as modified herein.

FOR FURTHER INFORMATION CONTACT: Mr. E.F. Williams of the Department, 
telephone (202) 219-8194. (This is not a toll-free number.)

[[Page 17034]]

Massachusetts Mutual Life Insurance Company (MassMutual), Located 
in Springfield, Massachusetts

[Prohibited Transaction Exemption 98-15; Exemption Application No. D-
10436]

Exemption

    The restrictions of sections 406(a), 406 (b)(1) and (b)(2) of the 
Act and the sanctions resulting from the application of section 4975 of 
the Code, by reason of section 4975(c)(1) (A) through (E) of the Code, 
shall not apply to (1) The mergers of the following Connecticut Mutual 
Life Insurance Company (CML) separate investment accounts (SIAs), the 
assets of which include assets of employee benefit plans (the Plans), 
into the following Massachusetts Mutual Life Insurance Company 
(MassMutual) SIAs: CML Select into MassMutual SIA-A, CML Fixed Income 
into MassMutual SIA-E, CML Basis into MassMutual SIA-F, CML Money 
Market into MassMutual SIA-G, and CML Overseas into MassMutual SIA-I 
(the Merger Transactions); (2) the transfer of Plan assets from CML 
Dimensions and CML Converts, after termination of those SIAs, into 
MassMutual SIA-E and MassMutual SIA-A, respectively (the Termination 
Transfers); and (3) the transfer of Plan assets from CML Life Style 
Funds designated as CML Asset Allocation A, CML Asset Allocation B, and 
CML Asset Allocation C, after termination of those funds, into 
MassMutual SIA-BC, MassMutual SIA-BP, and MassMutual SIA-BA, 
respectively (the Life Style Transfers; the Termination Transfers and 
the Life Style Transfers are referred to collectively as the Transfer 
Transactions); provided the following conditions are met:
    (A) At least 30 days prior to the effective date of each Merger and 
Transfer Transaction, MassMutual provides to a fiduciary of each Plan 
participating in the CML SIAs (the Plan Fiduciary) affected by the 
Transaction full written disclosure of information concerning the 
proposed Transaction and the affected MassMutual SIAs', including a 
current prospectus and a full and detailed written description of the 
fees charged by the affected MassMutual SIAs and the funds in which 
they invest, the differential between that fee level and the fee level 
applicable to the affected CML SIAs and the reasons why MassMutual 
believes that the investment is appropriate for the Plans. The notice 
will also inform the Plan Fiduciary of the proposed effective date of 
the Transaction;
    (B) As part of the disclosure required under paragraph (A) of this 
exemption, MassMutual notifies the Plan Fiduciary in writing that 
instead of participating in the particular Merger or Transfer 
Transaction proposed by MassMutual, the Plan Fiduciary may direct that 
the assets of the Plan in the affected CML SIA may be transferred, 
without penalty, charge or adjustment, to any other available 
MassMutual SIA or liquidated, without penalty, charge or adjustment, 
for a cash payment to the Plan equal to the fair market value of the 
Plan's interest in the affected SIA in lieu of the Plan's participation 
in the proposed transaction;
    (C) Upon completion of the Merger Transactions, the fair market 
value of the interests of each Plan participating in the MassMutual 
SIAs immediately following such Merger Transactions equals the fair 
market value of such Plan's interest in the affected CML SIAs 
immediately before the transactions;
    (D) Upon completion of the Transfer Transactions, the fair market 
value of the interests of each Plan participating in the MassMutual 
SIAs immediately following such Transfer Transactions equals the fair 
market value of such Plan's interest in the affected CML SIAs 
immediately before the transaction;
    (E) The assets of each of the Plans are invested in the same or 
similar investment type or asset class before and after the Merger and 
Transfer Transactions;
    (F) The assets of the CML SIAs will be valued for purposes of the 
Merger and Transfer Transactions at the ``independent current market 
price'' within the meaning of Rule 17a-7 of the Securities and Exchange 
Commission under the Investment Company Act of 1940. The assets of the 
CML SIAs being merged or transferred and the assets of the MassMutual 
SIAs affected by the merger or transfer will be valued in a single 
valuation using the same methodology by the same custodian at the close 
of the same business day that the Merger and Transfer Transactions are 
effected;
    (G) No later than forty five (45) days after the Merger and 
Transfer Transactions, each Plan Fiduciary will be provided a written 
confirmation of the Transactions which will include a statement of the 
number of units held by each Plan in each affected CML SIA, the unit 
value of each such CML SIA unit and the aggregate dollar value of such 
Plan's CML SIA units, determined immediately prior to the Transactions, 
as well as the number of units held by each Plan in each affected 
MassMutual SIA, the unit value of each such MassMutual SIA unit, and 
the aggregate dollar value of such Plan's MassMutual SIA units, 
determined immediately after the Transactions.
    (H) Neither MassMutual nor any of its affiliates receives any fees 
or commissions in connection with the Merger and Transfer Transactions;
    (I) The Plans pay no sales commissions or fees in connection with 
the Merger and Transfer Transactions;
    (J) The Plans participating in the CML SIAs are not employee 
benefit plans sponsored or maintained by MassMutual or CML; and
    (K) All assets involved in the transactions are securities for 
which market quotations are readily available, or cash.
    For a more complete statement of the summary of facts and 
representations supporting the Department's decision to grant this 
exemption refer to the Notice of Proposed Exemption published on 
January 27, 1998 at 63 FR 4068.

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

Overland, Ordal, Thorson & Fennell Pulmonary Consultants, P.C. 
Profit Sharing Plan & Trust (the Plan) Located in Medford, Oregon

[Prohibited Transaction Exemption 98-15; Exemption Application No. D-
10523]

Exemption

    The restrictions of sections 406(a), 406(b)(1) and (b)(2) of the 
Act and the sanctions resulting from the application of section 4975 of 
the Code, by reason of section 4975(c)(1)(A) through (E) of the Code, 
shall not apply to the cash sale (the Sale) of a certain parcel of real 
property (the Property) by the individually directed account (the 
Account) in the Plan of Eric S. Overland, M.D. (Dr. Overland) to Dr. 
Overland, provided that the following conditions are met:
    (a) The Sale is a one-time transaction for cash;
    (b) The terms and conditions of the Sale are at least as favorable 
to the Account as those obtainable in an arm's length transaction with 
an unrelated party;
    (c) The Account receives an amount equal to the average of the two 
updated appraisals of the Property as of the date of Sale; and
    (d) The Account is not required to pay any commissions, costs or 
other expenses in connection with the Sale.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of the proposed exemption published on February 6, 1998, at 
63 FR 6216.

[[Page 17035]]

    Written Comments The Department received one written comment from 
the representative of the applicant. The comment pertains to the 
applicant's original submission of two appraisals of the Property, one 
for $90,000 and the other for $120,000. Because of the significant 
disparity between the appraisals, the Department determined that the 
average of the two, $105,000, most appropriately represented the fair 
market value of the Property. The commentator proposes that the 
applicant update both appraisals as of the transfer date and suggests 
that the fair market value of the Property should be the average of the 
two appraisals. The Department is of the view that in this instance, 
this method of valuation is appropriate and is hereby adopted for 
purposes of this exemption. Accordingly, the language of condition (c) 
of the exemption is hereby changed from ``The Account receives the 
greater of the fair market value of the Property as of the date of sale 
or $105,000,'' to ``The Account receives an amount equal to the average 
of the two updated appraisals of the Property as of the date of Sale.''

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

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions to which the 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) These exemptions are supplemental to and not in derogation of, 
any other provisions of the Act and/or the Code, including statutory or 
administrative exemptions and transactional rules. Furthermore, the 
fact that a transaction is subject to an administrative or statutory 
exemption is not dispositive of whether the transaction is in fact a 
prohibited transaction; and
    (3) The availability of these exemptions is subject to the express 
condition that the material facts and representations contained in each 
application accurately describes all material terms of the transaction 
which is the subject of the exemption.

    Signed at Washington, D.C., this 2nd day of April, 1998.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, Department of Labor.
[FR Doc. 98-9048 Filed 4-6-98; 8:45 am]
BILLING CODE 4510-29-P