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Secretary of Labor Thomas E. Perez
Proposed Exemptions; Massachusetts Mutual Life Insurance Company (MM) [Notices] [08/11/1999]

Proposed Exemptions; Massachusetts Mutual Life Insurance Company (MM) [08/11/1999]

[PDF Version]

Volume 64, Number 154, Page 43738-43757

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Application No. D-10244, et al.]

 
Proposed Exemptions; Massachusetts Mutual Life Insurance Company 
(MM)

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

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

Written Comments and Hearing Requests

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

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

Notice to Interested Persons

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

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in 
applications filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990). 
Effective December 31, 1978, section 102 of Reorganization Plan No. 4 
of 1978 (43 FR 47713, October 17, 1978) transferred the authority of 
the Secretary of the Treasury to issue exemptions of the type requested 
to the Secretary of Labor. Therefore, these notices of proposed 
exemption are issued solely by the Department.
    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

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

[Application No. D-10244]

Proposed Exemption

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

Section I. Covered Transactions

    If the exemption is granted, the restrictions of sections 406(a), 
406(b)(1) and (b)(2) and 407(a) 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 sale 
and/or exchange by MM of a partial or complete interest in certain 
properties (the Properties) from its general investment account assets 
to one or more separate investment accounts, for which MM shall receive 
as consideration cash and/or a corresponding interest in such separate 
account or separate accounts (the Separate Account Transaction), 
provided the conditions set forth in section II are satisfied.

Section II. Conditions

    (A) The sale and exchange of the Properties is a one-time 
transaction with respect to each separate account of MM which will be 
established for the Properties; i.e., all Properties transferred in 
that transaction will be conveyed at the same time, and no further 
properties will be transferred from MM to such separate account;
    (B) In no event shall MM provide any financing with respect to any 
sale or exchange transaction which is the subject of the exemption 
proposed herein;
    (C) Before the subject transaction is consummated, (i) An 
independent appraisal firm will have valued each Property to be 
transferred by MM to one or more separate accounts; (ii) the value of 
each Property so appraised will be confirmed by the appraiser as of a 
date not more than two weeks prior to the issuance of interests to 
third party investors in the separate accounts, and if a material 
change has occurred the appraiser will revise its appraisal to reflect 
that new value; (iii) an independent fiduciary for each employee 
benefit plan subject to the Act (collectively, the Plans) will, prior 
to agreeing to invest in the separate account, be provided with all 
information regarding the Properties to

[[Page 43739]]

be sold to the separate account, including third party appraisals and a 
private placement memorandum or other offering document, which will 
describe the legal structure and include risk disclosures, a summary of 
principal terms and a schedule of fees; and (iv) such independent 
fiduciary will have reviewed all pertinent terms of the sale and 
exchange of the properties to the separate accounts and will have 
concluded that the transaction is in the best interest of the Plan; and
    (D) Only Plans with total assets having an aggregate fair market 
value of at least $50 million are permitted to engage in the Covered 
Transactions, provided, however, that--
    (1) In the case of two or more Plans which are maintained by the 
same employer, controlled group of corporations or employee 
organization, whose assets are commingled for investment purposes in a 
single master trust or any other entity the assets of which are ``plan 
assets'' under 29 CFR section 2510.3-101 (the Plan Asset Regulation), 
which entity engages in a Covered Transaction, the foregoing $50 
million requirement shall be deemed satisfied if such trust or other 
entity has aggregate assets which are in excess of $50 million; 
provided that if the fiduciary responsible for making the investment 
decision on behalf of such group trust or other entity is not the 
employer or an affiliate of the employer, such fiduciary has total 
assets under its management and control, exclusive of the $50 million 
threshold amount attributable to plan investment in the commingled 
entity, which are in excess of $100 million.
    (2) In the case of two or more Plans which are not maintained by 
the same employer, controlled group of corporations or employee 
organization, whose assets are commingled for investment purposes in a 
group trust or any other form of entity the assets of which are ``plan 
assets'' under the Plan Asset Regulation, which engages in a Covered 
Transaction, the foregoing $50 million requirement is satisfied if such 
trust or other entity has aggregate assets which are in excess of $50 
million (excluding the assets of any Plan with respect to which the 
fiduciary responsible for making the investment decision on behalf of 
such group trust or other entity or any member of the controlled group 
of corporations including such fiduciary is the employer maintaining 
such Plan or an employee organization whose members are covered by such 
Plan). However, the fiduciary responsible for making the investment 
decision on behalf of such group trust or other entity--
    (i) Has full investment responsibility with respect to Plan assets 
invested therein; and
    (ii) Has total assets under its management and control, exclusive 
of the $50 million threshold amount attributable to Plan investment in 
the commingled entity, which are in excess of $100 million. (In 
addition, none of the entities described above are formed for the sole 
purpose of engaging in the Covered Transactions.)

Summary of Facts and Representations

    1. MM is a mutual life insurance company organized under the laws 
of the Commonwealth of Massachusetts and subject to supervision and 
regulation by the Insurance Commissioner of Massachusetts. On February 
29, 1996, Connecticut Mutual Life Insurance Company (CM), a mutual life 
insurance company organized under the laws of the State of Connecticut, 
was merged with and into MM.
    2. MM conducts business in all 50 states, as well as in the 
District of Columbia and Puerto Rico. Presently, MM has more than 2 
million policyholders. MM, either directly or through its affiliates, 
offers a complete portfolio of life and health insurance, asset 
accumulation products, and health and pension employee benefits to its 
employees (including former employees of CM) and investment management 
services. As of December 31, 1998, MM had $67 billion in assets, and 
the assets under its management as of that date approximate $176 
billion.
    3. MM performs a wide variety of services for Plans. As part of 
these activities, MM enters into arrangements with other employers for 
the administration of their Plans and the investment of their Plan 
assets. In addition, MM sponsors retirement plans for its own 
employees, including the MassMutual Employee Pension Plan (the MM 
Plan), a defined benefit plan adopted in 1948. MM also sponsors the 
retirement plan for the benefit of CM employees prior to the merger and 
to which MM succeeded as a result of the merger.
    4. MM has been involved in real estate mortgage investing for more 
than 50 years and in equity real estate investing for more than 30 
years. As of December 31, 1998, MM estimates that it had commercial 
mortgage loan assets of approximately $4.7 billion, residential 
mortgage loan pool investments of $1.4 billion and commercial real 
estate equity investments of approximately $1.9 billion.
    5. In 1994, MM created a wholly-owned subsidiary, Cornerstone Real 
Estate Advisors, Inc. (Cornerstone), to offer investment management 
services for MM's real estate equity portfolio, as well as to third 
parties. Cornerstone is registered as an investment adviser under the 
Investment Adviser's Act of 1940, as amended.
    6. The exemption proposed herein involves a transaction relating to 
the sale for cash and/or exchange for units of one or more separate 
accounts maintained by MM of certain real estate, i.e. the Properties, 
from the general account of MM to those separate accounts. The 
transaction, the Separate Account Transaction, relates to certain 
Properties which MM proposes to transfer to one or more separate 
investment accounts of MM and in exchange for which MM shall receive 
cash and an interest in such separate investment account or accounts. 
For the Separate Account Transaction, no financing will be provided by 
MM's general account. Moreover, no commissions or similar payment will 
be paid in connection with the sale or exchange of the Properties.
    7. The Separate Account Transaction--The transfer of the Properties 
will be structured in one of two ways: (1) The separate account(s) will 
acquire the entire interest of MM's general account in the Properties, 
and, in return, MM's general account will receive cash and/or units in 
the separate account(s); or (2) the separate account(s) will purchase a 
partial interest in the Properties for cash from the general account, 
and the general account will retain the remaining interest in the 
Properties. In each instance, the consideration received by MM will 
equal the fair market value of the interest of the Properties 
transferred. The transaction will occur simultaneously with or prior to 
the investment in the separate account(s) by third party investors.
    8. The fair market value of each of the Properties will be 
determined by an independent appraiser as of the date of the sale or 
exchange. The independent appraiser will be a recognized real estate 
expert in the type and geographic area of the Properties.
    9. Units or interests in such separate accounts will also be 
marketed to tax-exempt entities, including Plans. The minimum 
investment in such separate accounts has not been determined, but in no 
event will be less than $1 million. The determination of any Plan or 
other entity to make an investment in such separate accounts will be in 
the sole discretion of that Plan or entity and neither MM nor any 
affiliate of MM shall serve in any fiduciary capacity to any such Plan 
or entity in determining

[[Page 43740]]

whether an investment in such separate account shall be made. Prior to 
agreeing to invest in the separate account, an independent fiduciary 
for each Plan will have before it all the information regarding the 
properties to be sold to the separate account, including third party 
appraisals and a private placement memorandum or other offering 
document which will describe the legal structure and include risk 
disclosures, a summary of principal terms and a schedule of fees. The 
applicant represents that independent fiduciaries for the Plans will 
have all information necessary to make their decisions prior to their 
agreement to invest in the separate account. The applicant further 
represents that Plans investing in the separate accounts will be large, 
sophisticated Plans that will equal or exceed $50 million in assets (or 
be part of a group trust of that size which also meets other tests).
    10. In any particular Covered Transaction, the real estate 
Properties in the portfolio to be sold to the separate account will be 
determined and disclosed to an independent fiduciary for each Plan 
before the transaction occurs. Appraisals of the Properties to be 
included in the portfolio, performed by appraisers independent of MM, 
will be available to each such fiduciary. The value of each Property so 
appraised will be confirmed by the appraiser as of a date not more than 
two weeks prior to the issuance of interests to third party investors 
in the separate accounts, and if a material change has occurred the 
appraiser will revise its appraisal to reflect that new value. Each 
Covered Transaction will be a one-time transaction (i.e., all 
Properties transferred in that transaction will be conveyed at the same 
time, and no other Properties will be transferred by MM to that 
separate account) with respect to a portfolio of Properties and a 
particular ``start-up'' separate account of MM which will invest in 
such Properties. Any purchase, sale, or exchange of property between 
MM's general account and any MM separate account will independently 
meet the conditions of the exemption proposed herein.
    11. In summary, the applicant represents that the subject 
transactions satisfy the criteria contained in section 408(a) of the 
Act for the following reasons: (a) The sale and exchange of the 
Properties is contemplated as a one-time transaction with respect to 
each separate account of MM which will be established for the Property 
group (i.e., all Properties transferred in that transaction will be 
conveyed at the same time, and no other Properties will be transferred 
by MM to that separate account); (b) in no event shall MM provide any 
financing with respect to any sale or exchange transaction which is the 
subject of the exemption proposed herein; (c) before the subject 
transactions are consummated, (i) An independent appraisal firm will 
have valued each Property to be transferred by MM to one or more 
separate accounts; (ii) the value of each Property so appraised will be 
confirmed by the appraiser as of a date not more than two weeks prior 
to the issuance of interests to third party investors in the separate 
accounts, and if a material change has occurred the appraiser will 
revise its appraisal to reflect that new value; (iii) an independent 
fiduciary for each Plan will, prior to agreeing to invest in the 
separate account, be provided with all information regarding the 
Properties to be sold to the separate account, including third party 
appraisals and a private placement memorandum or other offering 
document, which will describe the legal structure and include risk 
disclosures, a summary of principal terms and a schedule of fees; and 
(iv) such independent fiduciary will have reviewed all pertinent terms 
of the sale and exchange of the properties to the separate accounts and 
will have concluded that the transaction is in the best interest of the 
Plan; and (d) Plans investing in the separate accounts will be large, 
sophisticated Plans that will equal or exceed $50 million in assets (or 
be part of a group trust of that size which also meets other tests).

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

Modern Woodmen of America Employees' Savings Plan (the Plan) 
Located in Rock Island, Illinois

[Application No. D-10518]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted, the restrictions of sections 406(a), 406(b)(1) and (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 past sale, on March 23, 1998, by the Plan 
of certain commercial mortgages and bonds (the Securities) to Modern 
Woodmen of America (the Employer), a party in interest with respect to 
the Plan, provided that the following conditions were satisfied: (1) 
The sale was a one-time transaction for cash; (2) the Plan paid no 
commissions nor other expenses relating to the sale; (3) for each 
Security, the Plan received an amount equal to the highest, as of the 
date of the sale, of (a) the par value, (b) the book value, or (c) the 
fair market value of the Security, as determined by a qualified, 
independent appraiser; and (4) the Plan received the accrued but unpaid 
interest that was due on each Security at the time of the transaction.

    Effective date: The proposed exemption, if granted, will be 
effective as of March 23, 1998.

Summary of Facts and Representations

    1. The Plan was a defined contribution plan sponsored by the 
Employer, a fraternal life insurance society. As of June 30, 1997, the 
Plan had approximately 1,141 participants and beneficiaries. As of that 
same date, the Plan had total assets of approximately $37,541,533.40. 
Until April 1, 1998, the trustee of the Plan was the Savings Plan 
Investment Committee (the Committee), comprised of five employees of 
the Employer having responsibility for investment of the Plan's assets. 
Effective April 1, 1998, the Plan was merged into a new 401(k) Plan 
providing for individually directed accounts that is being administered 
by Vanguard Funds.
    2. Among the assets of the Plan were the Securities, which 
consisted of 21 privately placed commercial mortgages and bonds. Each 
of the Securities was purchased by the Plan at various times between 
1989 and 1996 from various unrelated brokers. The amount paid by the 
Plan for the Securities in each case was either the par value or the 
book value. The Committee believed that the Plan's acquisition of these 
Securities was consistent with the Plan's investment objectives at the 
time. Since the Securities were not publicly traded, there was no ready 
market for the Securities.<SUP>1</SUP> As a result of the need to 
liquidate the Securities quickly, in order to implement the merger of 
the Plan into a new 401(k) Plan on April 1, 1998, the Employer filed an 
exemption application with the Department seeking to purchase the 
Securities from the Plan. On March 23, 1998, the

[[Page 43741]]

Employer purchased the Securities from the Plan for a total of 
$5,685,534.46.
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    \1\ The Department expresses no opinion herein as to whether the 
acquisition and holding of the Securities by the Plan violated any 
of the provisions of Part 4 of Title I in the Act. However, the 
Department notes that section 404(a) of the Act requires, among 
other things, that a plan fiduciary act prudently and solely in the 
interest of the plan and its participants and beneficiaries when 
making investment decisions on behalf of the plan.
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    3. The applicant represents that the terms of the sale were at 
least as favorable to the Plan as terms the Plan could have obtained in 
an arm's length transaction with an unrelated party. For each Security, 
the Employer paid the Plan an amount equal to the highest, as of March 
23, 1998, of (a) the par value,<SUP>2</SUP> (b) the book 
value,<SUP>3</SUP> or (c) the fair market value of the Security, as 
determined by a qualified, independent appraiser.
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    \2\ The par value of each Security was the face value of the 
Security at the time of the transaction. For example, a bond selling 
at par is worth the same dollar amount for which it was issued or at 
which it will be redeemed at maturity, typically $1,000 per bond.
    \3\ The book value of each Security was the value at which it 
was carried on the Plan's balance sheet. For example, a bond is 
typically considered to have a book value equal to its outstanding 
principal balance plus accrued but unpaid interest.
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    With respect to the fair market value of the Security, the highest 
quotation obtained from three reputable independent mortgage banking 
firms was used. The appraisals of the mortgages were conducted by (i) 
Cauble & Company, located in Charlotte, North Carolina, (ii) Rob Wolf & 
Associates, located in San Francisco, California, and (iii) Venture 
Mortgage, located in Edina, Minnesota. The appraisals of the bonds were 
conducted by (i) Piper Jaffray, located in Minneapolis, Minnesota, and 
(ii) John G. Kinnard & Co., located in Minneapolis, Minnesota. Each of 
the entities which appraised the value of the Securities was a dealer 
who would have bought or sold such Securities in the ordinary course of 
its business. The appraised value amounts assume that there is a 
willing third party buyer to purchase the security, although there is 
no active market for the Securities.
    The sale of the Securities by the Plan to the Employer was a one-
time transaction for cash. The Plan paid no commissions nor other 
expenses relating to the sale of the Securities, which represented a 
significant savings to the Plan in transaction costs.
    4. The assets purchased by the Employer from the Plan, which 
included 10 mortgages and 11 bonds, are individually listed below.

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                                                  Net rate                                                                    Accured
                  Description                    (percent)    Maturity         Par           Book value          FMV          interest    Purchase price
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       Mortgages
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Butler Family Partnership, Walgreen's                 7.375    01/10/16      $607,021.21      $576,670.15      $623,410.78    $1,616.62  
   $625,027.40
 (Lessee), Missouri City, TX..................                                                      95.00           102.70
Ervin & Susanne Bard, K-Mart (Lessee),                8.75     07/01/12       486,562.87       486,562.87       531,472.62    
2,601.76       534,074.38
 Huntington, IN...............................                                                     100.00           109.23
The Byrd Companies, Inc., First Alabama Bank          9.375    03/01/11       362,572.72       362,572.72       412,498.98    
1,227.46       413,726.44
 (Lessee), Vestavia Hills, AL.................                                                     100.00           113.77
JRL Amerivest, Ameritech Michigan (Lessee),           7.75     03/10/01       461,784.70       461,784.70       481,410.55    
1,292.36       482,702.91
 Auburn, MI...................................                                                     100.00           104.25
Stockbridge Property Co., (Jonathan P. Rosen),        9.75     02/10/07       279,470.04       279,470.04       308,702.61       983.97   
   309,686.58
 Good Year Tire & Rubber (Lessee),                                                                 100.00           110.46
 Stockbridge, GA..............................
Bogel Investments, Inc., The City of Irving,          7.75     07/10/06       770,194.00       770,194.00       802,696.19     2,155.47      
804,851.66
 TX, Irving, TX...............................                                                     100.00           104.22
Argonne Forest Partnership, (Al Payne & Joel          8.00     01/01/05       478,512.11       478,512.11       494,207.31    
2,339.39       496,546.70
 O'Connor), ALCO Standard (Lessee), Spokane,                                                       100.00           103.28
 WA...........................................
Dr. Fred Wurlitzer, (Rezan, L.P.), May Dept.          8.625    01/10/03       250,547.01       250,547.01       260,368.45       780.35    
  261,149.80
 Stores (Lessee), Plano, TX...................                                                     100.00           103.92
Morro Palmes Shopping Ctr., Winn-Dixie                8.125    04/10/01       385,577.12       385,577.12       397,915.59     1,131.29 
     399,046.88
 (Lessee), Abbeville, SC......................                                                     100.00           103.20
Audrey Weedn, Toys ``R'' Us (Lessee), Houston,        9.00     05/01/99       110,143.11       108,469.57       112,103.66      
605.79       112,709.45
 TX...........................................                                                      98.50           101.78
    Total.....................................  ...........  ..........     4,192,384.89     4,160,360.29     4,424,786.74    14,734.46     4,439,521.20
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[[Page 43742]]


                                                                    Corporate Issues
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Railroads:
    Baltimore & Ohio..........................        8.75     10/15/99      $100,826.94      $101,661.28       103,473.65    $3,872.03      
107,345.68
                                                                                                   100.90          102.625
    Chesapeake & Ohio.........................        8.75     10/15/99        50,597.13        51,002.52        51,925.30     1,943.07       
53,868.37
                                                                                                   100.90          102.625
    Chicago & Northwestern Transportation.....        6.65     06/15/99        25,862.20        25,862.20        25,862.20      
468.18        26,330.38
                                                                                                   100.00           100.00
    Denver & Rio Grande.......................        6.65     06/15/99        19,216.34        19,216.34        19,216.34       347.87       
19,564.21
                                                                                                   100.00           100.00
    Kansas City Southern......................        6.65     06/15/98         2,358.07         2,358.07         2,358.07        42.69         2,400.76
                                                                                                   100.00           100.00
    Railbox...................................        9.357    01/10/99        56,255.48        54,526.84        57,380.59       190.08        57,570.67
                                                                                                    96.90           102.00
    Seaboard Systems..........................        8.75     11/15/99        50,800.74        51,371.18        52,578.77     1,580.47       
54,159.24
                                                                                                   101.20           103.50
Industrials, Utilities & Governments:
    Shelby Funding Corp.......................        8.00     10/01/05       259,877.99       259,877.99       263,334.37     9,933.11      
273,267.48
                                                                                                   100.00           101.33
    Third Sixth Mont..........................        8.00     07/01/05       275,786.99       231,661.07       275,786.99     5,025.45      
280.812.44
                                                                                                   100.00           100.00
    Maine Public Service......................        7.12     05/01/98       178,000.00       177,303.53       178,000.00     5,002.54      
183,002.54
                                                                                                   100.00           100.00
    Fairchild Farms (FmHA)....................        8.75     04/15/07       181,218.51       181,218.51       181,218.51     6,472.98      
187,691.49
                                                                                                   100.00            99.40
                                               ---------------------------------------------------------------------------------------------------------
        Total.................................  ...........  ..........     1,200,800.39     1,200,185.45     1,211,134.79    34,878.47     1,246,013.26
                                               ---------------------------------------------------------------------------------------------------------
        Grand Totals..........................  ...........  ..........     5,393,185.28     5,360,545.74     5,635,921.53    49,612.93     5,685,534.46
        (Mortgages & Bonds)...................
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As indicated by the chart above, the Plan received a price for each 
Security equalling the Security's current fair market value. However, 
with respect to four of the 11 bonds sold by the Plan, the fair market 
value was determined to be equal to both the bond's par value and book 
value. In addition, with respect to two of the bonds, the fair market 
value was equal to the bond's par value. All of the other bonds and all 
10 of the mortgages had a fair market value which exceeded either their 
par value or their book value at the time of the transaction.
    The Plan also received the accrued but unpaid interest that was due 
on the Security at the time of the transaction.
    The applicant represents that the sale was in the best interests of 
the Plan and of its participants and beneficiaries because it enabled 
the Plan to divest itself of illiquid assets at the best possible 
price. In addition, the sale permitted Plan participants to timely 
direct the investment of the full value of their individual accounts, 
as of the effective date of the reconstituted Plan (i.e., April 1, 
1998).
    5. In summary, the applicant represents that the subject 
transaction satisfied the statutory criteria for an exemption under 
section 408(a) of the Act for the following reasons: (1) The sale of 
the Securities by the Plan to the Employer was a one-time transaction 
for cash; (2) the Plan paid no commissions nor other expenses relating 
to the sale of the Securities; (3) for each Security, the Plan received 
an amount equal to the highest, as of March 23, 1998, of (a) par value, 
(b) book value, or (c) the fair market value of the Security, as 
determined by a qualified, independent appraiser; (4) the Plan received 
the accrued but unpaid interest that was due on each Security at the 
time of the transaction; and (5) the Plan divested itself of illiquid 
assets, thus permitting Plan participants to timely direct the 
investment of the full value of their individual accounts in the new 
401(k) Plan.

Notice to Interested Persons

    Notice of the proposed exemption shall be given to all interested 
persons by personal delivery or by first-class mail within five days of 
the date of publication of the notice of pendency in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and/or request a hearing 
with respect to the proposed exemption. Comments and requests for a 
hearing are due within 35 days of the date of publication of this 
notice in the Federal Register.

    For Further Information Contact: Ms. Karin Weng of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

Fleet Bank (RI), National Association (Fleet) Located in 
Providence, Rhode Island

[Exemption Application No. D-10643]

Proposed Exemption

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

Section I--Transactions

    A. Effective as of the date this proposed exemption is published in 
the Federal Register, the restrictions of

[[Page 43743]]

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>4</SUP>
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    \4\ Section I.A. provides no relief from sections 406(a)(1)(E), 
406(a)(2) and 407 for any person rendering investment advice to an 
Excluded Plan within the meaning of section 3(21)(A)(ii) and 
regulation 29 CFR 2510.3-21(c).
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    B. Effective as of the date this proposed exemption is published in 
the Federal Register, 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; \5\ and
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    \5\ For purposes of this exemption, each plan participating in a 
commingled fund (such as a bank collective trust fund or insurance 
company pooled separate account) shall be considered to own the same 
proportionate undivided interest in each asset of the commingled 
fund as its proportionate interest in the total assets of the 
commingled fund as calculated on the most recent preceding valuation 
date of the fund.
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    (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. Effective as of the date this proposed exemption is published in 
the Federal Register, 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>6</SUP>
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    \6\ In the case of a private placement memorandum, such 
memorandum must contain substantially the same information that 
would be disclosed in a prospectus if the offering of the 
certificates were made in a registered public offering under the 
Securities Act of 1933. In the Department's view, the private 
placement memorandum must contain sufficient information to permit 
plan fiduciaries to make informed investment decisions. 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

[[Page 43744]]

applicable to the certificates to end, and principal collections to be 
applied to 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. Effective as of the date this proposed exemption is published in 
the Federal Register, 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 will be 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 two (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 consecutive three-month period 
commencing in January, April, July and October of each calendar year, 
15 percent of the number of existing accounts designated to the trust 
as of the first day of the calendar year during which such monthly 
period commenced, 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 confirming the validity and perfection of 
each transfer of receivables in newly originated accounts to the trust 
for 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 will result from (i) a Required Addition (as defined in 
Section III.MM.) in excess of the limits in paragraph B.(11) above, or 
(ii) any Restricted Additions (as defined in Section III.NN.);
    (14) If a particular class 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;

[[Page 43745]]

    (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 sponsor;
    (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 proposed 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) Fleet or any of its affiliates is the 
sponsor, and (b) Fleet, 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>7</SUP>
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    \7\ 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 
paragraph B.(1) above; <SUP>8</SUP>
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    \8\ Fleet 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 B.(1)(a) 
above;
    (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>9</SUP> yield maintenance 
agreements or similar arrangements; and
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    \9\ 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 
categories by at least one of the Rating Agencies for at least one year 
prior to the plan's acquisition of certificates

[[Page 43746]]

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>10</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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    \10\ 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 Fleet, or an affiliate of Fleet that organizes 
a trust by transferring credit card receivables or interests therein to 
the trust in exchange for certificates.
    E. ``Master Servicer'' means Fleet 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 Fleet or an affiliate of Fleet, or an 
entity unaffiliated with Fleet 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 Fleet 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 Fleet 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 paragraphs L.(1) through 
(7) above.
    M. ``Affiliate'' of another person includes:
    (1) Any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with such other person;
    (2) Any officer, director, partner, employee, relative (as defined 
in section 3(15) of the Act), a brother, a sister, or a spouse of a 
brother or sister of such other person; and
    (3) Any corporation or partnership of which such other person is an 
officer, director or partner.
    N. ``Control'' means the power to exercise a controlling influence 
over the management or policies of a person other than an individual.
    O. A person will be ``independent'' of another person only if:
    (1) Such person is not an affiliate of that other person; and
    (2) The other person, or an affiliate thereof, is not a fiduciary 
who has investment management authority or renders investment advice 
with respect to any assets of such person.
    P. ``Sale'' includes the entrance into a forward delivery 
commitment (as defined in Section III.Q. below), provided 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 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 paragraph U.(1) above;
    (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 Accounts designated to a 
trust. Such obligations represent amounts charged

[[Page 43747]]

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 
Fleet or an affiliate, which were originated or purchased by Fleet 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 paragraph HH.(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 paragraphs HH.(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

[[Page 43748]]

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 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>11</SUP> 
as defined under Part V(a) of PTE 84-14 (49 FR 9494, 9506, March 13, 
1984);
---------------------------------------------------------------------------

    \11\ 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>12</SUP> as defined 
under Part IV(a) of PTE 96-23 (61 FR 15975, 15982, April 10, 1996); or
---------------------------------------------------------------------------

    \12\ 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.
    MM. ``Required Additions'' means accounts which are required to be 
added to the trust when either the seller amount is less than the 
minimum required seller amount or the principal amount is less than the 
required principal amount.
    NN. ``Restricted Additions'' means accounts which may be added to 
the trust at the discretion of the sponsor only upon confirmation from 
a Rating Agency that no Ratings Effect will result from the addition.
    The Department notes that this proposed exemption, if granted, will 
be 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).

EFFECTIVE DATE: This proposed exemption, if granted, will be effective 
for transactions described herein and occurring on or after the date 
this proposed exemption is published in the Federal Register.

Summary of Facts and Representations

    1. The applicant is Fleet Bank (RI), National Association (Fleet), 
a national banking association located in Providence, Rhode Island. 
Fleet conducts nationwide consumer lending programs principally 
comprised of credit card related activities. Fleet is a wholly-owned 
indirect subsidiary of Fleet Financial Group, Inc. On February 20, 
1998, through a series of transactions, Advanta National Bank (Advanta) 
transferred substantially all of its consumer credit card business to 
affiliates of Fleet Financial Group, Inc., including Fleet. As a 
result, the rights and obligations of Advanta, as Seller and Servicer, 
under the relevant Pooling and Servicing Agreements (each, a PSA), were 
assigned, transferred to and assumed by Fleet.
    2. The transactions for which an exemption is requested are 
investments by employee benefit plans in certain certificates 
(Certificates) representing the right to receive principal and interest 
payments from the assets of various Trusts which hold credit card 
receivables. Each Trust will issue, from time to time, a particular 
series of Certificates (i.e., a Series) which will be secured by the 
Trust's assets. A Series may include one or more classes of 
Certificates, some of which may be subordinate to others. However, only 
senior certificates issued by such Trusts, which meet the restrictive 
criteria designed to ensure investor safety discussed herein would be 
eligible for the exemptive relief to be provided under this proposed 
exemption.

The Trusts

    3. Each Trust is created under a PSA between Fleet, as Seller and 
Servicer, and an independent and unaffiliated Trustee. Upon creation of 
a Trust, the Seller transfers to the Trust a pool of interest-bearing 
credit card receivables which are selected under strict criteria 
approved by one or more of certain nationally recognized rating 
agencies,<SUP>13</SUP> from the portfolio of revolving credit card 
accounts owned by Fleet. The PSA establishes the general parameters for 
the Trust, such as the requirements for eligible receivables to be 
transferred to the Trust, the manner of transferring and administering 
and servicing the receivables, Seller representations and covenants as 
to receivable eligibility, Servicer and Trustee duties and eligibility, 
and other matters.
---------------------------------------------------------------------------

    \13\ As noted in Section I.C.(3) above, these rating agencies 
are: (i) Standard & Poors Ratings Services, a division of McGraw-
Hill Companies Inc.; (ii) Moody's Investors Service, Inc.; (iii) 
Duff & Phelps Credit Rating Co.; and (iv) Fitch IBCA, Inc., or their 
successors (collectively, the Rating Agencies).
---------------------------------------------------------------------------

    The applicant represents that any Trust that issues a class of 
Certificates to be covered by the proposed exemption would include the 
following investor safeguards:
    (a) Restricted selection of receivables;
    (b) Periodic reporting and monitoring of accounts;
    (c) Minimum receivable requirements;
    (d) Restrictions regarding addition and removal of accounts;
    (e) Servicer eligibility requirements;

[[Page 43749]]

    (f) Servicer reports, duties and public accounting firm review;
    (g) Trustee eligibility and duties;
    (h) Restrictions on investments;
    (i) Protection from the consequences of unplanned events; and
    (j) Limited discretion.
    These investor safeguards are discussed in the following 
paragraphs.
    4. Restricted Selection of Receivables. In order for a receivable 
to be eligible for transfer to the Trust, either on the initial closing 
date or on any subsequent date, it must have arisen under an eligible 
account. An eligible account is one that is in existence and owned by 
and maintained with Fleet (as of the initial selection date or, with 
respect to additional accounts, as of the relevant addition cut-off 
date), and is payable in U.S. dollars. In addition, an eligible account 
must have a United States address for its obligor, must not have been 
classified as fraudulent, stolen or lost, and (except as provided 
below) must not contain a defaulted receivable. However, eligible 
accounts may include accounts, the receivables of which have been 
written off, or which have been identified as fraudulent, stolen or 
lost, provided that the balance of all receivables included in such 
accounts is reflected on the books and records of the Seller (and is 
treated for purposes of the PSA) as ``zero,'' and charging privileges 
with respect to all such accounts have been canceled in accordance with 
the relevant credit card guidelines (i.e, investors do not pay for such 
accounts but receive the benefit of any payments made on such 
accounts). The eligible receivable must have been created in compliance 
with applicable law. All consents, licenses and other approvals 
necessary for the creation of the receivable and the execution of the 
credit card agreement must have been obtained and be in full force and 
effect, and Fleet must have good title to the receivable, free and 
clear of liens. Finally, an eligible receivable must constitute the 
legal valid and binding payment obligation of the obligor, and 
constitute an ``account'' or ``general intangible'' under Article 9 of 
the Uniform Commercial Code (the ``UCC''), as in effect in the State of 
Rhode Island, so as to grant the Trust a first priority security 
interest in the event of bankruptcy. Once the pool of eligible accounts 
has been identified, accounts are selected at random for the transfer 
of their receivables to the Trust so as to provide a combination of 
receivables that is representative of the entire pool of eligible 
receivables.
    Fleet represents and warrants that the receivables transferred to 
the Trust, and the accounts related to those receivables, meet the 
above-described standards for eligible receivables and accounts, and 
that no selection procedures adverse to the Certificateholders have 
been employed in selecting accounts. These restrictions on account 
selection are in place to prevent the concentration of high risk 
accounts. Each relevant Rating Agency requires that all of these 
safeguards be in place before a superior rating is given.
    5. Periodic Reporting and Monitoring of Accounts. In connection 
with the transfer of the receivables to the Trust, Fleet must record 
and file a UCC financing statement (including any continuation 
statements, when applicable) in order to perfect the assignment of the 
receivables, and must deliver a file-stamped copy of such financing or 
continuation statement to the Trustee. Fleet must also indicate in its 
computer system file of credit card accounts the receivables 
transferred to the Trust by identifying the accounts with a unique 
designation, as described in the PSA. Fleet must deliver a complete 
list of all accounts in the Trust to the Trustee on or prior to the 
initial closing date and thereafter on a periodic basis as required by 
the PSA.
    The Trustee is able to continually monitor the Trust's assets by 
reviewing the monthly reports regarding pool performance which are 
prepared for the Trustee and investors by Fleet, as Servicer. In 
addition, Fleet provides the Trustee with a complete list of accounts 
prior to each addition or removal, as required by the PSA. Each 
relevant Rating Agency requires significant monitoring procedures for 
the servicing of receivables to ensure investor safety as a condition 
to a superior rating.
    6. Minimum Receivable Requirements. The aggregate principal amount 
of the receivables held by the Trust must be at least equal to the sum 
of the principal amount of the Certificates (prior to the commencement 
of any related amortization or accumulation) for all Series then 
outstanding (other than a Series which is backed in full by accumulated 
cash or permitted investments (see Paragraph 11 below) less any 
accumulated excess funding amount held in the Trust for 
Certificateholders. If, on the last business day of any month, the 
aggregate amount of principal receivables is less than the required 
minimum, Fleet must designate additional accounts or may convey 
participations in other credit card receivable pools sponsored by Fleet 
to be transferred to the Trust so that the aggregate principal 
receivables will meet the minimum requirement.
    Interests in the assets of each Trust are allocated among the 
Certificateholders of each Series and the Seller (i.e., Fleet) and the 
principal portion of the Seller's interest is referred to as the 
``Seller Amount.'' The interest in the Trust assets allocated to the 
Seller is referred to as the ``Seller Interest'' less any accumulated 
excess funding amount held in the Trust for Certificateholders. To 
protect against fraud, chargebacks or other dilution of receivables in 
the Trust, the PSA and the Rating Agencies will require Fleet, as the 
Trust's sponsor, to maintain a seller interest of not less than 2 
percent of the principal balance of the receivables contained in the 
Trust (referred to as the ``Required Seller Percentage''). If, on the 
last business day of any month, the Seller Amount is less than the 
Required Seller Percentage, Fleet must designate additional accounts or 
participations in other credit card receivable pools to be transferred 
by Fleet to the Trust in order to satisfy the minimum requirement. When 
account payments exceed account purchases, the total pool of 
receivables in the relevant Trust contracts. As a result, the Seller 
Interest declines, thus providing a buffer to prevent a decline in the 
principal balance of the Certificates prior to the scheduled payment of 
principal. Thus, when the account balances that secure the Certificates 
decline, the Seller Interest decreases, not the principal balance of 
the Certificates. When the account balances again increase, the Seller 
Interest is increased. The Seller Interest will also decline as a 
result of dilution of the receivable portfolio resulting from noncash 
reductions such as merchandise returns or servicer errors.
    The minimum receivable requirement and Required Seller Percentage 
requirement imposed on Fleet by the PSA (as described above) cause the 
Trustee, Servicer or Seller to have limited discretion regarding the 
minimum size of the Trust. Each relevant Rating Agency gains comfort 
from these minimum receivable levels that the Trust will be maintained 
so as not to adversely affect the ability of the Trust assets to 
support the promised interest and/or principal payments to 
Certificateholders.
    7. Restrictions Regarding Addition and Removal of Accounts. In 
addition to the limitations discussed above regarding the initial 
selection of accounts and minimum receivable requirements, the 
following restrictions apply to the addition of accounts subsequent to 
the initial transfer of receivables to the Trust. Any transfer of 
receivables from additional accounts

[[Page 43750]]

must be preceded by written notice to the Trustee, each relevant Rating 
Agency and the Servicer specifying the approximate aggregate amount of 
receivables to be transferred. In connection with the transfer, Fleet 
will warrant that the additional accounts are eligible accounts and 
that each receivable is an eligible receivable, and that no selection 
procedures believed by Fleet to be materially adverse to the interest 
of the Certificateholders were utilized in selecting the accounts. 
Fleet must deliver an opinion of counsel with respect to the added 
receivables to the Trustee, with a copy to each relevant Rating Agency, 
that such addition is enforceable and that the Trust has either a valid 
transfer of, or a grant of security interest in, the additional 
accounts. The PSA requires that the Servicer and the Trustee receive 
confirmation from a Rating Agency that no Ratings Effect (i.e., a 
downgrade or withdrawal of the then current rating of any outstanding 
Series of Certificates) will result from a proposed transfer of 
accounts to the Trust.
    Fleet may remove receivables and accounts, subject to the minimum 
receivable requirements discussed above. Fleet must give the Trustee 
and the Servicer and the relevant Rating Agencies written notice 
stating the approximate aggregate principal balance of the removal, and 
certifying that such removal must not result in a Pay Out Event. Fleet 
must warrant that no selection procedures believed by it to be 
materially adverse to the Certificateholders were utilized in selecting 
the removed receivables. Each relevant Rating Agency must have 
confirmed that such proposed removal will not result in a Ratings 
Effect. Fleet states further that the amount of any receivables that 
are removed must be less than 5 percent of the aggregate amount of 
principal receivables or, if any Series is paid in full, the amount of 
receivables removed must approximate the initial investor interest of 
such Series.
    Each Rating Agency has determined that the number of additional 
accounts from which receivables may be added is generally limited to: 
(i) with respect to any consecutive three-month period commencing in 
January, April, July and October of each calendar year, 15 percent of 
the number of existing accounts designated to the Trust as of the first 
day of the calendar year in which such monthly period commenced, and 
(ii) with respect to any calendar year, 20 percent of the number of 
accounts designated to the Trust as of the first day of such calendar 
year. Fleet may be able to exceed the maximum addition amount if 
approval is received from each relevant Rating Agency.
    By informing the relevant Rating Agencies of all details regarding 
additions and removals, the Trust is effectively reexamined each time 
these events occur in order to assure that the changes to the Trust 
assets will not adversely affect the rating of any outstanding Series. 
Each relevant Rating Agency scrutinizes the receivables in the 
additional accounts, or the relative strength of the pool of 
receivables designated to the Trust both before and after the addition 
or removal, as the case may be, in making any such re-examinations.
    8. Servicer Eligibility Requirements. The Servicer of the 
receivables must be either the Seller (Fleet), an affiliate of Fleet, 
or an entity unaffiliated with Fleet acting as a ``Subservicer'' which 
is qualified to service a portfolio of consumer revolving credit card 
accounts and meets certain requirements. Under such requirements, the 
entity acting as either a Servicer or Subservicer must be legally 
qualified and have the capacity to service the accounts, must be 
qualified to use the software used to service the accounts, must have 
demonstrated the ability to professionally and competently service a 
portfolio of similar accounts in accordance with customary standards of 
skill and care, and must have a certain net worth (e.g. at least 
$50,000,000). These requirements are in line with the Rating Agencies' 
standards for servicers.
    Regardless of whether the Servicer is Fleet, an affiliate of Fleet, 
or a third party meeting the eligibility requirements discussed above, 
the Servicer's duties are largely ministerial and are provided in 
detail in the PSA. The Servicer administers the receivables, collects 
payments due thereunder, makes withdrawals from the various accounts 
created under the PSA which are forwarded to the Trustee on the dates 
and in the manner provided under the PSA, commences enforcement 
proceedings with respect to delinquent receivables and makes filings 
and other necessary reports with the SEC and any state securities 
authorities as necessary to comply with the law. The Servicer must 
maintain fidelity bond coverage insuring against losses through its own 
wrongdoing, and is entitled to receive a reasonable servicing fee which 
is specifically enumerated in each PSA supplement.
    9. Servicer Daily Reports, Duties and Public Accounting Firm 
Review. On each business day the Servicer, upon prior written notice by 
the Trustee, must prepare and make available to the Trustee a record of 
the collections processed on the second preceding business day and the 
aggregate amount of receivables as of the close of business on such 
day. The Servicer must prepare monthly for the Trustee, the paying 
agent, any credit enhancement provider, and each relevant Rating 
Agency, a certificate setting forth the aggregate collections processed 
during the preceding month with respect to each Series outstanding, the 
aggregate amount of the investor percentages of collections of finance 
charge receivables and principal receivables processed during the 
preceding month with respect to each Series outstanding, the balances 
in the finance charge account, the principal account or any Series 
account during the preceding month, and other detailed information.
    The Servicer will provide annually a certificate from an officer 
indicating that the Servicer's activities over a 12-month period were 
reviewed and the officer believed such obligations were fully performed 
under the PSA. Every year, a nationally recognized firm of independent 
certified public accountants will review the internal accounting 
controls and their relation to the servicing of the receivables as well 
as the mathematical accuracy of the Servicer's monthly reports, and the 
results will be provided to the Trustee, any credit enhancement 
provider, and each relevant Rating Agency. These additional reviews of 
the Servicer are designed to prevent Servicer fraud and limit Servicer 
discretion. These safeguards protect investors and are a positive 
factor in a Rating Agency's evaluation.
    10. Trustee Eligibility and Duties. The Trustee must be a 
corporation, bank, or other financial institution organized, doing 
business and regulated under the laws of the United States, any State 
or the District of Columbia and have a long-term unsecured debt rating 
as specified in the PSA. The Trustee must be independent of Fleet and 
its affiliates and meet the same requirements that would be necessary 
for an eligible Servicer (as discussed under ``Servicer Eligibility 
Requirements'' above in paragraph 8). Any successor Trustee must also 
meet these requirements and be approved by each relevant Rating Agency.
    The Trustee is responsible for receiving collections from 
receivables as provided in the PSA, investing any moneys as directed in 
the PSA, and directing payments to Certificateholders according to the 
plan of allocation and payment detailed in the PSA. In performing these 
functions, the Trustee has little, if any, discretion. The Trustee is 
also responsible for examining any

[[Page 43751]]

resolutions, statements, certificates, opinions, reports or other 
instruments in order to determine whether they substantially conform to 
the requirements of the PSA. The Trustee has no power to vary the 
corpus of the Trust and must perform the duties of other parties should 
they fail to perform under the PSA. Like the Servicer restrictions, the 
restrictions on the Trustee limit discretion, enhance investor 
protection, and are a positive influence on a Rating Agency's 
evaluation.
    11. Restrictions on Investments. The collections of principal 
receivables and finance charge receivables held in the Trust may be 
invested by the Trustee only in ``permitted investments'' during the 
interim periods between collection and payment to the 
Certificateholders. Such permitted investments are detailed in the PSA 
and represent what each relevant Rating Agency considers to be secure 
investments that sufficiently protect investors. Under the proposed 
exemption, permitted investments would be 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. In addition, all 
permitted investments must be described in the PSA and permitted by the 
relevant Rating Agencies.
    12. Protection From the Consequences of Unplanned Events. If Fleet 
should desire to merge or consolidate with, or assume the obligations 
of, another entity, certain provisions of the PSA ensure that the Trust 
assets remain secure. The new entity involved in the merger or 
consolidation must be a national banking association, a state banking 
corporation, a savings and loan association, or another entity not 
subject to bankruptcy laws or a bankruptcy remote corporation and must 
be organized and regulated under the laws of the United States, any 
State or the District of Columbia. The new entity must expressly assume 
the performance of every covenant and obligation of Fleet, and Fleet 
must provide the Trustee with an opinion of counsel that such 
assumption is legal, valid and binding. Finally, each relevant Rating 
Agency must be notified in advance of the change. Similarly, a merger, 
consolidation or assumption of the obligations of the Servicer also 
requires the same protections of a full assumption of liabilities, an 
opinion of counsel and Rating Agency notification.
    The Certificateholders of each Series receive protection from 
certain unplanned events (called ``Pay Out Events''). If a ``Pay Out 
Event'' occurs with respect to a Series, either (i) a rapid 
amortization period will commence during which the Certificates of such 
Series will be paid down periodically, as provided in the PSA 
Supplement, with the principal collections allocable to such Series or 
with principal collections allocable to other Series which are shared 
within the same Group (as discussed in Paragraph 15 below), or (ii) a 
rapid accumulation period will commence during which the Series' 
principal collections will be accumulated until a designated payment 
date. Pay Out Events include ``Trust Pay Out Events,'' which apply to 
all Series, and ``Series Pay Out Events,'' which apply to particular 
Series. ``Trust Pay Out Events'' include: (i) Certain events of 
insolvency, conservatorship or receivership relating to Fleet; (ii) the 
Trust becomes an ``investment company'' within the meaning of the 
Investment Company Act of 1940, as amended; and (iii) Fleet becomes 
unable for any reason to transfer receivables to the Trust as required 
by the PSA.
    ``Series Pay Out Events'' generally include:
    (a) Failure of Fleet to make required payments or observe its other 
covenants to the extent there is a material adverse effect on the 
Certificateholders of that Series;
    (b) Breach by Fleet of its representations and warranties to the 
extent there is a material adverse effect on the Certificateholders of 
that Series;
    (c) A default by the Servicer that would have a material adverse 
effect on the Certificateholders of that Series;
    (d) Failure of Fleet to convey additional accounts as required to 
meet the required seller percentage and principal balance requirements; 
and
    (e) The net portfolio yield for any three consecutive monthly 
periods is less than the base rate for such period (an ``Economic Pay 
Out Event'').
    With respect to item (e) above, Fleet states that an ``Economic Pay 
Out Event'' will occur 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.
    Fleet states that an ``Economic Pay Out Event'' should not occur 
because the amount of receivables included within the Trust has been 
designed to create ``excess spread'' between the yield on the 
receivables and the certificate rates. ``Excess spread'' is the amount 
by which the yield on the receivables held by the Trust exceeds, at any 
point in time, the amounts necessary to pay certificate interest, 
principal (if such payments are due to certificateholders), servicing 
fees and expenses, and to satisfy cardholder defaults or charge-offs. 
The Rating Agencies examine the expected amount of ``excess spread'' 
very closely before providing a high credit rating for the 
certificates.
    A ``Pay Out Event'' accelerates the scheduled payments or 
accumulation of principal on the Certificates as specified within each 
PSA Supplement, and eliminates shared allocations from such Series, 
thus increasing the probability of full payment to senior 
Certificateholders, including plan investors. During a rapid 
amortization period, which is triggered by a ``Pay Out Event'', all 
collections are distributed periodically (instead of being distributed 
on the originally scheduled principal payment dates), as provided in 
the PSA Supplement, until the senior Certificateholders are paid in 
full. During a rapid accumulation period, also triggered by a ``Pay Out 
Event'', all principal collections allocated to the senior Certificates 
are accumulated and invested by the Trustee until the senior 
Certificateholders' interest is backed in full by cash and/or permitted 
investments which will be distributed on the originally scheduled 
payment date. Payments or accumulations are then directed to the next 
level of Certificates below the senior Certificates, until all 
Certificates have been paid or accumulated, or the Trust terminates. 
Because this accelerated pay out or accumulation schedule is triggered 
as a result of poor

[[Page 43752]]

performance, senior Certificateholders are protected from a loss which 
might result from long-term yield reduction, and are, to a level of 
certainty necessary to support a rating of ``AA'' (or better), likely 
to receive their entire investment return. The timing or amount of the 
payments or accumulations is specifically defined in each PSA 
Supplement, further protecting investors from mismanagement. This 
automatic pay out trigger is important to each relevant Rating Agency 
as well, because it strictly limits the potential losses to investors.
    Investors are also protected from the negative consequences of an 
event of Seller insolvency. If one or more of a number of indications 
of insolvency are present, a ``Pay Out Event'' occurs and a rapid 
amortization or a rapid accumulation period is triggered. As discussed 
above, this event accelerates payments or accumulation of collections 
to maximize the probability that senior Certificateholders will be paid 
promptly and in full. In addition, the Trustee also liquidates the 
receivables (unless otherwise instructed by Certificateholders 
representing undivided interests aggregating more than 50 percent of 
each outstanding Series) in order to further accelerate the pay out or 
accumulation process. The proceeds of the liquidation are distributed 
or accumulated in the tiered manner discussed above in the low-yield 
scenario.
    13. Limited Discretion. Inherent in all of the restrictions 
surrounding creation and management of the Trust, discussed above, is 
the limited ability of any party to the transaction to make 
discretionary decisions that would have a major impact on the Trust 
assets. The PSA addresses every possible important decision and 
provides the exact course of action required. Each detail is designed 
to ensure maximum investor security, and minimum Trustee and Servicer 
discretion.

The Series

    14. Once a Trust is established, a Series of Certificates may be 
issued pursuant to a PSA Supplement. One Trust typically supports 
multiple Series of Certificates over time. Each Series issued under a 
Trust is secured, along with other outstanding Series, by the assets of 
the issuing Trust. The PSA Supplement builds on the PSA by specifying 
the parameters for the Series, such as the number and type of 
Certificates, subordination and payment structuring, and other credit 
enhancement features.
    The life of a Series consists of a revolving period and an 
amortization or accumulation period. During both periods, daily 
collections are allocated to the Trust accounts in the manner specified 
in the PSA Supplement. Interest payments are made periodically to the 
Certificateholders as provided in the PSA Supplement, and principal is 
paid in a lump sum on the date designated in the PSA Supplement (in the 
case of an accumulation period), or periodically pursuant to a schedule 
in the PSA Supplement (in the case of an amortization period), for each 
class of Certificates. The allocation of collections and the priority 
of payments differs slightly during the revolving period and the 
amortization or accumulation period.
    15. During a Series' revolving period, periodic interest payments 
are made to Certificateholders. Principal payments, however, are not 
made until the amortization period or at the end of the accumulation 
period. Principal collections during the revolving period typically are 
shared among the Series that are members of the same Group. If one 
Series has principal receipts greater than needed to pay principal for 
that period, the excess may be used to pay principal for another Series 
in the Group which may have a need for such principal collections. In 
such instances, the minimum principal receivable balances required by 
the Rating Agencies for all Series must be maintained. The process of 
sharing within the Group spreads payment risk over a broader base of 
collections and effectively allows concentration of principal 
collections supporting a particular Series, resulting in increased 
reliability of the payment streams.
    Principal collections received during the amortization or 
accumulation period are also potentially shared, but are first applied 
to the principal funding for the Series to which they relate. The 
amortization or accumulation period ends on the earliest of: (i) When 
the investor interests are paid in full; (ii) the Series termination 
date provided in the PSA Supplement; or (iii) the commencement of a 
rapid amortization or rapid accumulation period. Finance charges and 
fees collected during the revolving period and the accumulation or 
amortization period are applied to the related Series, and are not 
generally shared within the Group.
    16. Every Trust will have a variety of credit enhancement features, 
as described in the PSA and specified in the applicable PSA Supplement. 
In addition to the Group sharing of collections discussed above, other 
forms of credit enhancement may include subordination and letters of 
credit or other third party arrangements. The type and value of credit 
enhancement for a particular Series is designed to complement the 
underlying Trust receivables so that, as a whole, the Trust assets 
satisfy the relevant Rating Agencies' requirements for the superior 
rating desired. In this regard, Fleet represents that the particular 
class of certificates for each series to which this proposed exemption 
would apply (an Exempt Class) will have credit support provided to the 
Exempt Class through either a senior-subordinated series structure or 
other form of third party credit support which, at a minimum, will 
represent 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.
    Each Series with an Exempt Class covered by the proposed exemption 
will include one or more of the following credit enhancing investor 
safeguards (as discussed further below): (i) subordination; (ii) third 
party credit enhancement; and (iii) predetermined allocation of 
collections and payments to certificateholders allows no variation.
    17. Subordination. Typically, a Series will have some form of 
subordination incorporated within the payment schedule detailed in the 
PSA Supplement. Such a Series will consist of at least one class of 
senior Certificates (typically designated as ``Class A Certificates'') 
which will be allocated collections in a more favorable manner than, 
and/or prior to, another class (or other classes) of Certificates 
(i.e., the next lower level, typically designated as ``Class B 
Certificates'') and often will include an uncertificated class 
subordinate to the Class B Certificates (typically designated as the 
``Collateral Interest'' or ``Class C Interest''). The subordination 
process generally will involve both the receipt of collections and the 
effect of losses. Thus, such collections will be applied to the senior 
(or Class A) Certificates first and then the second tier (or Class B) 
Certificates, and will be applied last to the lowest level class of 
Certificates (or the Collateral Interest). Conversely, the losses will 
first reduce the lowest class of Certificates (or the Collateral 
Interest), only affecting the senior (or Class A) Certificates after 
all other classes have been reduced to zero. The result of this tiered 
structure is that the senior (or Class A) Certificates are protected 
from nonpayment by the lower classes. If the certainty of payment 
provided by the subordination or other credit support mechanism is 
insufficient to allow each relevant Rating Agency to bestow one of its 
two highest ratings on the senior Certificates, the senior Certificates

[[Page 43753]]

would not be eligible for the relief provided under the proposed 
exemption.
    18. Third Party Credit Enhancement. A Series may include a form of 
credit enhancement provided by an outside party, such as a letter of 
credit, a cash collateral account, insurance or a guaranty or other 
extension of credit. This arrangement will be documented by a separate 
contract outlining the terms of the enhancement. A holder of the 
Collateral Interest (described in paragraph 17) or other subordinate 
interest holder may be a loan provider or an investor in the Class C 
Interest, and the PSA Supplement typically requires that a minimum 
Collateral Interest (or subordinate interest) be a feature of each 
Series. As with all the forms of credit enhancement, the terms and the 
amount of the Collateral Interest will be dependent upon an evaluation 
of the other Trust assets and the additional support needed to satisfy 
each relevant Rating Agency that the Certificates are sufficiently 
protected from default.
    19. Predetermined Allocation of Collections and Payments to 
Certificateholders Allows No Variation. The PSA Supplement provides 
instructions to the Servicer regarding each day's collections and the 
allocation of those collections to the various accounts created by the 
PSA. These instructions indicate how to make the payments and 
allocations during the revolving period, the controlled amortization or 
controlled accumulation period and the rapid amortization or rapid 
accumulation period, if any. The instructions also cover the treatment 
of other moneys from loans or other credit enhancement features, and 
carefully describe how to accommodate any excess collections, or how to 
compensate for any shortfalls. In following these detailed 
instructions, the Servicer does not make any discretionary decisions. 
The tasks are predetermined and largely ministerial. These explicit 
instructions, in concert with the Servicer reporting and review 
requirements, are designed to permit each relevant Rating Agency to 
conclude that mismanagement risks are minimal.

The Certificates

    20. Each Series may include a class or various classes of 
Certificates, some of which may be subordinate to others. 
Certificateholders will be entitled to receive periodic payments of 
interest based upon a fixed or variable interest rate which is set 
forth in the PSA Supplement and applied to the Certificateholder's 
unpaid principal balance. Certificateholders will also be entitled to 
receive a lump sum principal payment on the scheduled payment date, or 
a series of periodic payments beginning on the scheduled payment 
commencement date, as specified in the PSA Supplement, to the extent of 
the Certificateholder's investor interest.
    As noted earlier, only Certificates that are not subordinate to any 
other class or classes of Certificates (the ``Senior Certificates'') 
would be eligible for exemptive relief under the proposed exemption. 
However, subordinate certificates that are part of a Series which 
includes Senior Certificates eligible for the proposed exemption could 
be purchased by insurance company general accounts if the conditions of 
Prohibited Transaction Exemption 95-60, 60 FR 35925 (July 12, 1995) 
(PTE 95-60), are satisfied.
    21. Fleet represents that a plan would invest in the Certificates 
for the same reasons any investor would invest in a highly secure, 
``AA'' (or better) rated investment with attractive yields. The Senior 
Certificates represent an investment alternative which offers all the 
benefits of a highly rated fixed-income security, such as fixed payment 
streams, investment diversity and market rates of return. Permitting 
plans to invest in Senior Certificates in reliance on the proposed 
exemption would provide plans with additional and safe investment 
opportunities.
    22. With respect to the credit ratings of the Certificates, Fleet 
states that the rating reflects a Rating Agency's opinion as to the 
relative amount of protection that investors have against loss of 
principal and interest during the life of the security. A high rating 
comports with a low risk of loss. In order to achieve this rating, each 
relevant Rating Agency requires the credit card securitizations 
effected through the Trust to include a variety of safeguards--such as 
subordination or other forms of credit enhancement, limitations on the 
Seller's discretion, and Rating Agency approval of certain actions 
taken with respect to the Trust or a Series of Certificates. Each 
relevant Rating Agency typically requires legal opinions regarding the 
credit card securitization's structure and performs stress tests on the 
portfolio of selected receivables in order to evaluate the 
securitization's anticipated performance within a range of significant 
market fluctuations. In addition, each relevant Rating Agency performs 
a comprehensive review of all documents related to the credit card 
securitization before the formal rating is given. Each relevant Rating 
Agency must provide confirmations that additions of receivables from 
accounts to a Trust, or withdrawals of existing accounts from a trust, 
will not result in a Ratings Effect on the Certificates.
    After its rating is assigned, the Rating Agency monitors the 
performance of the credit card receivables included in a Trust in order 
to assess whether the performance remains consistent with the rating. 
Although variations in portfolio performance are expected during a 
Certificate's duration and are factored into a Rating Agency's 
analysis, extreme and unexpected performance results may result in a 
revision of the rating. Fleet makes its Trust performance information 
available to each relevant Rating Agency in a variety of ways, in order 
to ensure that such Agency receives all the information it deems 
necessary to make its evaluation. For example, Fleet provides 
information on portfolio performance broken down by account balance, 
credit limit, account age, delinquency period and geographic 
distribution.
    Fleet states that the receipt of one of the two highest generic 
ratings from a Rating Agency represents the result of an exhaustive 
analysis of the many risk factors involved with a Series of 
Certificates, and provides a comfort level to investors that the 
potential reduction in yield as a result of credit losses is 
minimal.<SUP>14</SUP>
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    \14\ In this regard, the Department was advised by 
representatives from two of the Rating Agencies (RA Reps) of certain 
issues concerning the ratings of certificates issued by trusts 
holding credit card receivables. The RA Reps discussed, among other 
things, the fact that different banks use different underwriting 
standards and may offer cardholders different terms on their 
accounts. Some banks may be willing to accept cardholders with more 
risky credit histories while other banks may not or may offer better 
terms to cardholders with superior payment histories. The result may 
be that some banks have a higher quality portfolio of receivables 
than other banks. The RA Reps stated that if a bank securitizes a 
portfolio of receivables which holds a number of riskier accounts, 
the Rating Agencies will require more credit enhancement measures 
because different assumptions will have to be made about the 
performance of the portfolio--e.g. higher charge-off rates will be 
assumed and greater ``excess spread'' will be necessary to avoid 
losses--in order to achieve an ``AAA'' rating. Thus, for example, 
Bank A's certificates may receive an ``AAA'' rating along with 
Fleet's certificates even though Bank A may experience more charge-
offs on the credit card accounts and may have different payment 
rates on the receivables associated with those accounts.
---------------------------------------------------------------------------

    23. Fleet represents that the statistics on Certificates backed by 
credit card trusts indicate that they are sound investments. In this 
regard, Fleet states that public credit card securitization 
transactions have been in existence since 1987 and issuers have 
successfully sold over $230 billion in Certificates backed by credit 
card receivables since then with a zero investor loss rate. Fleet 
states further that plans have invested during this time in such 
Certificates,

[[Page 43754]]

despite the prohibited transaction provisions of the Act, in reliance 
upon the Department's regulation defining ``plan assets'' and, 
specifically, the ``100-Holder Exception'' for ``publicly-offered'' 
securities (see 29 CFR 2510.3-101).<SUP>15</SUP>
---------------------------------------------------------------------------

    \15\ The Department's regulation defining ``plan assets'' 
provides that, if a plan invests in a publicly-offered security, the 
plan's assets will not include, solely by reason of such investment, 
any of the underlying assets of the entity issuing the security 
(i.e. the ``look-through rule'' will not apply and the operations of 
the entity will not be subject to scrutiny under the prohibited 
transaction provisions of the Act). The regulation defines a 
``publicly-offered'' security as one that is freely transferable, 
widely-held, and registered under the federal securities laws. A 
class of securities is ``widely held'' if it is owned by 100 or more 
investors who are independent of the issuer and of one another at 
the conclusion of the offering (see 29 CFR 2510.3-101(b)(3)).
---------------------------------------------------------------------------

    Fleet maintains that the proposed exemption offers a number of 
safeguards in the form of concentration restrictions that are designed 
to provide additional protections for plan investors which are not 
included in the typical 100-holder exception transactions. For example, 
for purposes of the relief from the prohibitions of section 406(b) of 
the Act <SUP>16</SUP> provided under Section I.B. herein (relating to 
certain obligors of the Trust who may have discretionary authority for 
a plan investing in certificates of the Trust), the proposed exemption 
limits such plan's investment in any class of Certificates of any 
Series to not more than 25 percent of the principal amount of the 
Certificates of that class outstanding at the time of acquisition. In 
addition, immediately after the acquisition of the certificates, not 
more than 25 percent of the assets of such a plan may be invested in 
certificates representing an interest in the trust, or trusts 
containing receivables sold or serviced by the same entity. Further, 
the proposed exemption requires that at least 50 percent of the 
outstanding principal amount of each class of Certificates in which 
plans have invested, and at least 50 percent of the outstanding 
aggregate interest of the Trust, in connection with the initial 
issuance of the Certificates, must be acquired by persons independent 
of the Sponsor, the Servicer and other related parties. These 
restrictions are designed to protect plan investors from the risks 
inherent in excessive ownership concentration and related party 
transactions.
---------------------------------------------------------------------------

    \16\ Section 406(b) of the Act, in pertinent part, prohibits a 
plan fiduciary from dealing with the assets of the plan in his own 
interest or for his own account, or from acting on behalf of a party 
(or representing a party) whose interests are adverse to the 
interests of the plan and its participants and beneficiaries.
---------------------------------------------------------------------------

    24. Fleet represents that the requested exemption is similar to the 
Underwriter Exemptions.\17\ The Underwriter Exemptions are a series of 
exemptions granted by the Department to various underwriters or trust 
sponsors for transactions relating to the acquisition by plans of 
certificates representing interests in trusts holding various types of 
assets (e.g. single and multi-family residential or commercial 
mortgages, motor vehicle leases and related vehicles, equipment leases 
or other secured obligations), as provided in Section III.B. of the 
Underwriter Exemptions.
---------------------------------------------------------------------------

    \17\ As indicated in Footnote 7 above, PTE 97-34 (which granted 
an amendment to the Underwriter Exemptions) contains the most 
comprehensive listing of these exemptions.
---------------------------------------------------------------------------

    The Trusts described under the proposed exemption for Certificates 
backed by credit card receivables differ from trusts holding secured 
obligations in that the Trusts do not contain a fixed pool of assets 
and the receivables are not secured by real or tangible personal 
property. However, Fleet states that this difference in structure does 
not represent a difference in the quality or safety of investments by 
plans and other investors in the Certificates. Under the proposed 
exemption, Fleet represents that the other forms of credit enhancement 
provide at least the same level of security for investors in Trusts 
holding credit card receivables as exists for investors in trusts 
holding tangible or real property as collateral for the payment 
obligations to Certificateholders. In addition, Trusts holding credit 
card receivables do not involve the expense and administrative 
complexities of foreclosure procedures relating to tangible and real 
property.
    25. Certificateholders are entitled to receive periodic payments of 
interest based upon an interest rate, which may be variable or fixed. 
This interest rate is specified or defined in the PSA Supplement for 
the particular Series and is applied to the outstanding principal 
balance of the Certificates. This outstanding balance (net of any 
charge-offs) is known as the investor interest for the senior class of 
Certificates. Certificateholders are also entitled to receive principal 
payments on the scheduled payment dates, or sooner or later under 
certain limited circumstances, pursuant to the PSA Supplement to the 
extent of the Certificateholders' investor interest. The payments are 
funded from collections on the related receivables and allocated to the 
investor interests as provided in the PSA Supplement.
    Fleet states that a Series or class of Certificates may have the 
benefit of an interest rate swap agreement entered into between the 
Trustee for a Trust and a bank or other financial institution acting as 
a swap counterparty. Pursuant to the swap agreement, the swap 
counterparty would pay a certain rate of interest to the Trust in 
return for a payment of a rate of interest by the Trust, from 
collections allocable to the relevant Series or class of Certificates, 
to the swap counterparty. Fleet represents that the credit rating 
provided to a particular Series or class of Certificates by the 
relevant Rating Agency may or may not be dependent upon the existence 
of a swap agreement. Thus, in some instances, the terms and conditions 
of the swap agreements will not effect the credit rating of the Series 
or class of Certificates to which the swap relates (i.e. a ``Non-
Ratings Dependent Swap'').
    Fleet states that whether or not the credit rating of a particular 
Series or class of Certificates is dependent upon the terms and 
conditions of one or more interest rate swap agreements entered into by 
the Trust (i.e. a ``Ratings Dependent Swap'' or a ``Non-Ratings 
Dependent Swap''), each particular swap transaction will be an 
``Eligible Swap'' as defined in Section III.HH. above.
    In this regard, an Eligible Swap will be a swap transaction:
    (a) Which is denominated in U.S. Dollars;
    (b) Pursuant to which the Trust pays or receives, on or immediately 
prior to the respective payment or distribution date for the applicable 
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 counterparty, with 
all simultaneous payments being netted;
    (c) 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;
    (d) 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 item (b) above, and the difference between 
the products thereof, calculated on a one to one ratio and not on a 
multiplier of such difference);
    (e) Which has a final termination date that is the earlier of the 
date on which

[[Page 43755]]

the Trust terminates or the related class of Certificates is fully 
repaid; and
    (f) Which does not incorporate any provision which could cause a 
unilateral alteration in any provision described in items (a) through 
(e) above without the consent of the Trustee.
    In addition, any Eligible Swap entered into by the Trust will be 
with an ``Eligible Swap Counterparty'', which will be 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 (see Section III.II above). However, 
if a swap counterparty is relying on its short-term rating to establish 
its eligibility, 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.
    With respect to a Ratings Dependent Swap, an Eligible Swap 
Counterparty will be subject to certain collateralization or other 
arrangements satisfactory to the Rating Agencies in the event of a 
rating downgrade of such swap counterparty below a level specified by 
the Rating Agency, which would be no lower than the level that would 
make such counterparty ``eligible'' under this proposed exemption (see 
Section III.II. above). If these arrangements are not established 
within a specified period, as described in the PSA, there will be an 
early payout event causing certificateholders to receive an earlier 
than expected payout of principal on their certificates for the series 
to which the swap relates. However, with respect to a Non-Ratings 
Dependent Swap, the PSA will not specify that there be an early payout 
event for the series to which the swap relates if the credit rating of 
the swap counterparty falls below the level required for it to be 
considered an Eligible Swap Counterparty (as described in Section 
III.II. above). In such instances, in order to protect the interests of 
the Trust as a swap counterparty, the servicer (as agent for the 
trustee of the trust) will be required to either:
    (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 will 
terminate);
    (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.
    Under any termination of a swap, the Trust will not be required 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'' or other amounts that would 
otherwise be payable to the servicer or the seller (i.e. Fleet). In 
this regard, ``excess finance charge collections'' will be, as of any 
day funds are distributed from the Trust, the amounts by which the 
finance charge collections allocated to certificates of a series exceed 
the amounts necessary to pay certificate interest, servicing fees and 
expenses, to satisfy cardholder defaults or charge-offs, and to 
reinstate credit support.
    With respect to Non-Ratings Dependent Swaps, each Rating Agency 
rating the Certificates must confirm, as of the date of issuance of the 
Certificates by the Trust, that entering into the swap transactions 
with the Eligible Swap Counterparty will not effect the rating of the 
Certificates, even if such counterparty is no longer an ``eligible'' 
counterparty and the swap is terminated.\18\
---------------------------------------------------------------------------

    \18\ RA Reps have indicated to the Department that certain 
series of certificates issued by a trust holding credit card 
receivables will have certificate ratings that are not dependent on 
the existence of a swap transaction entered into by the trust. 
Therefore, a downgrade in the swap counterparty's credit rating 
would not cause a downgrade in the rating established by the Rating 
Agency for the certificates. RA Reps state that in such instances 
there will be more credit enhancements (e.g. ``excess spread'', 
letters of credit, cash collateral accounts) for the series to 
protect the certificateholders than there would be in a comparable 
series where the trust enters into a so-called Ratings Dependent 
Swap. Non-Ratings Dependent Swaps are generally used as a 
convenience to enable the trust to pay certain fixed interest rates 
on a series of certificates. However, the receipt of such fixed 
rates by the trust from the counterparty is not a necessity for the 
trust to be able to make its fixed rate payments to the 
certificateholders.
---------------------------------------------------------------------------

    Any class of senior Certificates to which one or more swap 
agreements entered into by the trust applies, will be acquired or held 
only by Qualified Plan Investors (as defined in Section III.JJ. above). 
Qualified Plan Investors will be plan investors represented by an 
appropriate independent fiduciary that is qualified to analyze and 
understand the terms and conditions of any swap transaction relating to 
the class of senior Certificates to be purchased and the effect such 
swap would have upon the credit rating of the senior Certificates to 
which the swap relates.
    For purposes of the proposed exemption, such a qualified 
independent fiduciary will be either:
    (i) A ``qualified professional asset manager'' (i.e. QPAM), as 
defined under Part V(a) of PTE 84-14;\19\
---------------------------------------------------------------------------

    \19\ See Footnote 11 above.
---------------------------------------------------------------------------

    (ii) An ``in-house asset manager'' (i.e. INHAM), as defined under 
Part IV(a) of PTE 96-23;\20\ or
---------------------------------------------------------------------------

    \20\ See Footnote 12 above.
---------------------------------------------------------------------------

    (iii) A plan fiduciary with total assets under management of at 
least $100 million at the time of the acquisition of such Certificates.

Disclosures Available to Investing Plans

    26. In connection with the original issuance of certificates, the 
prospectus or private offering memorandum will be furnished to 
investing plans. The prospectus or private offering memorandum will 
contain information pertinent to a plan's decision to invest in the 
Certificates, such as:
    (a) Information concerning the Certificates, including payment 
terms, certain tax consequences of owning and selling Certificates, the 
legal investment status and rating of the Certificates, and any special 
considerations with respect to the Certificates;
    (b) Information about the underlying receivables, including the 
types of receivables, statistical information relating to the 
receivables, their payment terms, and the legal aspects of the 
receivables;
    (c) Information about the servicing of the receivables, including 
the identity of the servicer and servicing compensation;
    (d) Information about the Sponsor of the Trust;
    (e) A full description of the material terms of the Pooling and 
Servicing Agreement; and
    (f) Information about the scope and nature of the secondary market, 
if any, for such Certificates.
    Certificateholders will be provided with information concerning the 
amount of principal and interest to be paid on Certificates in 
connection with each distribution to Certificateholders. 
Certificateholders will also be provided with periodic information 
statements setting forth material information concerning the status of 
the Trust.
    In the case of a Trust that offers and sells Certificates in a 
registered public offering, the Trustee, the Servicer or the Sponsor 
will file such periodic reports as may be required to be filed under 
the Securities Exchange Act of 1934, as amended (the '34 Act). Although 
some Trusts that offer Certificates in a public offering will file 
quarterly reports on

[[Page 43756]]

Form 10-Q and Annual Reports on Form 10-K, many Trusts (i) obtain, by 
application to the SEC, a complete exemption from the requirement to 
file quarterly reports on Form 10-Q and a modification of the 
disclosure requirements for annual reports on Form 10-K; or (ii) are 
not subject to such requirements for one or more Series of Certificates 
issued by the Trust. If such an exemption is obtained, these Trusts 
normally would continue to have the obligation to file current reports 
on Form 8-K to report material developments concerning the Trust and 
the Certificates. While the SEC's interpretation of the periodic 
reporting requirement is subject to change, periodic reports concerning 
a Trust will be filed to the extent required under the '34 Act.
    Fleet states that at or about the time distributions are made to 
Certificateholders, reports will be delivered to the Trustee as to the 
status of the Trust and its assets, including underlying Receivables. 
Such reports will typically contain information regarding the Trust's 
assets, payments received or collected by the Servicer, the amount of 
delinquencies and defaults, the amount of any payments made pursuant to 
any credit support or credit enhancement feature, and the amount of 
compensation payable to the Servicer. Such reports will also be 
delivered or made available to the Rating Agency that currently rates 
the Certificates. Such reports will be available to investors and its 
availability will be made known to potential investors. In addition, 
promptly after each distribution date, Certificateholders will receive 
a statement summarizing information regarding the Trust and its assets 
and the applicable Series, including underlying receivables.
    28. In summary, Fleet represents that the proposed transactions 
will meet the statutory criteria of section 408(a) of the Act because, 
among other things:
    (a) The acquisition of senior Certificates by a plan will be on 
terms (including 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;
    (b) The rights and interests evidenced by the senior Certificates 
will not be subordinated to the rights and interests evidenced by other 
investor Certificates of the Trust;
    (c) Any senior Certificates acquired by a plan will have received a 
rating at the time of such acquisition that is in one of the two 
highest generic rating categories from any one of the Rating Agencies 
or, for certificates with a duration of one year or less, the highest 
short-term generic rating category from any one of the Rating Agencies;
    (d) The Trustee of the Trust will not be an affiliate of any other 
member of the Restricted Group;
    (e) The sum of all payments made to and retained by the 
underwriters in connection with the distribution or placement of 
Certificates will represent 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 will represent 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, which are allocable to 
the Series or class of certificates purchased by a plan, will represent 
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;
    (f) Any plan investing in such Certificates will be an ``accredited 
investor'' as defined in Rule 501(a)(1) of Regulation D of the SEC 
under the Securities Act of 1933, as amended;
    (g) The terms of each Series or class of Certificates, and the 
conditions under which Fleet may designate additional accounts to, or 
remove previously-designated accounts from, the Trust will be described 
in the prospectus or private placement memorandum provided to investing 
plans;
    (h) The Trustee of the Trust will be a substantial financial 
institution or trust company experienced in trust activities and would 
be familiar with its duties, responsibilities and liabilities as a 
fiduciary under the Act;
    (i) The PSA will include ``Economic Pay Out Events'' triggered by a 
decline in the performance of the receivables in the Trust;
    (j) To protect against fraud, chargebacks or other dilution of the 
receivables in the Trust, the PSA and the Rating Agencies will require 
Fleet, as the Trust's sponsor, to maintain a seller interest of not 
less than 2 percent of the principal balance of the receivables 
contained in the Trust;
    (k) Each receivable added to a Trust will be an eligible 
receivable, based on criteria of the relevant Rating Agency(ies) and as 
specified in the PSA;
    (l) The PSA will require that any change in the terms of any 
cardholder agreements also will be made applicable to the comparable 
segment of accounts owned or serviced by Fleet which are part of the 
same program or have the same or substantially similar characteristics;
    (m) The addition of new receivables or designation of new accounts, 
and the removal of previously-designated accounts, will meet the terms 
and conditions for such additions, designations, or removals as 
described in the prospectus or private placement memorandum for such 
Certificates, which terms and conditions will have been approved by 
each relevant Rating Agency, and will not result in the Certificates 
receiving a lower credit rating from the relevant Rating Agency than 
the then current rating of the Certificates;
    (n) Any swap transaction relating to senior Certificates that are 
covered by the proposed exemption must satisfy the several investor-
protective conditions applicable to Eligible Swaps and must be entered 
into by the Trust with an Eligible Swap Counterparty; and
    (o) Any class of Certificates to which one or more swap agreements 
entered into by the Trust applies may be acquired or held by plans in 
reliance upon this proposed exemption only if such plans are 
represented by ``Qualified Plan Investors.''

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

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest of disqualified 
person from certain other provisions of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
section 404 of the Act, which among other things require a fiduciary to 
discharge his duties respecting the plan solely in the interest of the 
participants and beneficiaries of the plan and in a prudent fashion in 
accordance with section 404(a)(1)(b) of the act; nor does it affect the 
requirement of section 401(a) of the Code that the plan must operate 
for the exclusive benefit of the employees of the employer maintaining 
the plan and their beneficiaries;
    (2) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries and

[[Page 43757]]

protective of the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete and accurately describe all 
material terms of the transaction which is the subject of the 
exemption. In the case of continuing exemption transactions, if any of 
the material facts or representations described in the application 
change after the exemption is granted, the exemption will cease to 
apply as of the date of such change. In the event of any such change, 
application for a new exemption may be made to the Department.

    Signed at Washington, DC, this 2nd day of August, 1999.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 99-20190 Filed 8-10-99; 8:45 am]
BILLING CODE 4510-29-P