[Federal Register Volume 62, Number 139 (Monday, July 21, 1997)]
[Notices]
[Pages 39021-39026]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-19131]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 97-34; Applications Nos. D-10245 and
D-10246]
Amendment to Prohibited Transaction Exemptions (PTEs) 90-30
Involving Bear, Stearns & Co. Inc., 90-32 Involving Prudential
Securities Incorporated, et al.
AGENCY: Pension and Welfare Benefits Administration, Department of
Labor.
ACTION: Grant of an amendment to the Underwriter
Exemptions.1
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SUMMARY: This document contains a final exemption issued by the
Department of Labor (the Department) which amends the Underwriter
Exemptions. The Underwriter Exemptions are individual exemptions that
provide relief for the origination and operation of certain asset pool
investment trusts and the acquisition, holding and disposition of
certain asset backed pass-through certificates representing undivided
interests in those investment trusts. The amendment: (1) Modifies the
definition of ``Trust'' to include a pre-funding account (the Pre-
Funding Account) and a capitalized interest account (the Capitalized
Interest Account) as part of the corpus of the Trust; (2) provides
retroactive relief for transactions involving asset pool investment
trusts containing pre-funding accounts which have occurred on or after
January 1, 1992; (3) includes in the definition of ``Certificate'' a
debt instrument that represents an interest in a Financial Asset
Securitization Investment Trust (FASIT); and (4) makes certain changes
to the Underwriter Exemptions that reflect the Department's current
interpretation of the Underwriter Exemptions.
\1\ The term Underwriter Exemptions refers to the following
individual Prohibited Transaction Exemptions (PTEs): PTE 89-88, 54
FR 42582 (October 17, 1989); PTE 89-89, 54 FR 42569 (October 17,
1989); PTE 89-90, 54 FR 42597 (October 17, 1989); PTE 90-22, 55 FR
20542 (May 17, 1990); PTE 90-23, 55 FR 20545 (May 17, 1990); PTE 90-
24, 55 FR 20548 (May 17, 1990); PTE 90-28, 55 FR 21456 (May 24,
1990); PTE 90-29, 55 FR 21459 (May 24, 1990); PTE 90-30, 55 FR 21461
(May 24, 1990); PTE 90-31, 55 FR 23144 (June 6, 1990); PTE 90-32, 55
FR 23147 (June 6, 1990); PTE 90-33, 55 FR 23151 (June 6, 1990); PTE
90-36, 55 FR 25903 (June 25, 1990); PTE 90-39, 55 FR 27713 (July 5,
1990); PTE 90-59, 55 FR 36724 (September 6, 1990); PTE 90-83, 55 FR
50250 (December 5, 1990); PTE 90-84, 55 FR 50252 (December 5, 1990);
PTE 90-88, 55 FR 52899 (December 24, 1990); PTE 91-14, 55 FR 48178
(February 22, 1991); PTE 91-22, 56 FR 03277 (April 18, 1991); PTE
91-23, 56 FR 15936 (April 18, 1991); PTE 91-30, 56 FR 22452 (May 15,
1991); PTE 91-62, 56 FR 51406 (October 11, 1991); PTE 93-31, 58 FR
28620 (May 5, 1993); PTE 93-32, 58 FR 28623 (May 14, 1993); PTE 94-
29, 59 FR 14675 (March 29, 1994); PTE 94-64, 59 FR 42312 (August 17,
1994); PTE 94-70, 59 FR 50014 (September 30, 1994); PTE 94-73, 59 FR
51213 (October 7, 1994); PTE 94-84, 59 FR 65400 (December 19, 1994);
PTE 95-26, 60 FR 17586 (April 6, 1995); PTE 95-59, 60 FR 35938 (July
12, 1995); PTE 95-89, 60 FR 49011 (September 21, 1995); PTE 96-11,
61 FR 3490 (January 31, 1996); PTE 96-22, 61 FR 14828 (April 3,
1996); PTE 96-84, 61 FR 58234 (November 13, 1996); PTE 96-92, 61 FR
66334 (December 17, 1996); PTE 96-94, 61 FR 68787 (December 30,
1996); PTE 97-05, 62 FR 1926 (January 14, 1997); and PTE 97-28, 62
FR 28515 (May 23, 1997).
In addition, the Department notes that it is also granting
individual exemptive relief for Ironwood Capital Partners Ltd.,
Final Authorization Number (FAN) 97-02E (November 25, 1996) and
Deutsche Bank AG, New York Branch and Deutsche Morgan Grenfell/C.J.
Lawrence Inc., FAN 97-03E (December 9, 1996), which received the
approval of the Department to engage in transactions substantially
similar to the transactions described in the Underwriter Exemptions
pursuant to PTE 96-62.
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EFFECTIVE DATE: This amendment to the Underwriter Exemptions is
effective for transactions occurring on or after January 1, 1992,
except as otherwise provided in subsection II.A.(7) and section III.AA.
of the exemption.
FOR FURTHER INFORMATION CONTACT: Wendy McColough of the Department,
telephone (202) 219-8971. (This is not a toll-free number.)
SUPPLEMENTARY INFORMATION: On May 23, 1997, notice was published in the
Federal Register (62 FR 28502) of the pendency before the Department of
a proposed exemption to amend PTEs 90-30, 55 FR 21461 (May 24, 1990)
and 90-32, 55 FR 23147 (June 6, 1990), two of the Underwriter
Exemptions. The Underwriter Exemptions are a group of individual
exemptions that provide substantially identical relief for the
operation of certain asset pool investment trusts and the acquisition
and holding by plans of certain asset-backed pass-through certificates
representing interests in those trusts. These exemptions provide relief
from certain of the restrictions of sections 406(a), 406(b) and 407(a)
of the Act and from the taxes imposed by section 4975(a) and (b) of the
Code, by reason of certain provisions of section 4975(c)(1) of the
Code.
The amendment to PTEs 90-30 and 90-32 was requested by application
dated March 25, 1996, and as restated in a later submission dated
February 26, 1997, on behalf of Bear, Stearns & Co. Inc.2
and Prudential Securities Inc.3 (the Applicants). In
preparing the application, the Applicants received input from members
of the PSA The Bond Market Trade Association (formerly the Public
Securities Association) (PSA).
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\2\ PTE 90-30, 55 FR 21461 (May 24, 1990). Bear, Stearns & Co.
Inc. (Bear, Stearns) is an international investment banking firm
which engages in securities transactions as both a principal and
agent and which provides a broad range of underwriting, research and
financial services to its clients.
\3\ PTE 90-32, 55 FR 23147 (June 6, 1990). PTE 90-32 was granted
to Prudential-Bache Securities, Inc. which subsequently changed its
corporate name to Prudential Securities Incorporated (Prudential).
Prudential is a full service securities broker-dealer and investment
banking firm.
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The Department proposed the amendment to these individual
exemptions pursuant to section 408(a) of the Act and section 4975(c)(2)
of the Code, and in accordance with the procedures set forth in 29 CFR
Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990).4
In addition, the Department proposed to provide the same relief on its
own motion pursuant to the authority described above for many of the
other Underwriter Exemptions which have substantially similar terms and
conditions.5 The Department also proposed to provide the
same relief to Ironwood Capital Partners Ltd. (D-10424) and Deutsche
Bank AG, New York Branch and Deutsche Morgan Grenfell/C.J. Lawrence
Inc. (D-10433), which received the approval of the Department to engage
in transactions substantially similar to the transactions described in
the Underwriter Exemptions pursuant to PTE 96-62.
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\4\ Section 102 of Reorganization Plan No. 4 of 1978 (43 FR
47713, October 17, 1978, 5 U.S.C. App. 1 [1995]) generally
transferred the authority of the Secretary of the Treasury to issue
exemptions under section 4975(c)(2) of the Code to the Secretary of
Labor. In the discussion of the exemption, references to section 406
and 408 of the Act should be read to refer as well to the
corresponding provisions of section 4975 of the Code.
\5\ In this regard, the entities who received the other
Underwriter Exemptions were contacted concerning their participation
in this amendment process.
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The notice set forth a summary of facts and representations
contained in the application for exemption and referred interested
persons to the application for a complete statement of the facts and
representations. The application has been available for public
inspection at the Department in Washington, D.C.
The notice also invited interested persons to submit comments on
the
[[Page 39022]]
requested exemption to the Department. In addition, the notice stated
that any interested person might submit a written request that a public
hearing be held. The Department received one written comment submitted
by PSA. The comment indicated complete support for the proposed
amendment to the Underwriter Exemptions. No requests for a hearing were
received by the Department in regard to the proposed amendment.
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and section 4975(c)(2) of the Code does
not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions of the Act and the Code, including
any prohibited transaction provisions to which the exemption does not
apply and the general fiduciary responsibility provisions of section
404 of the Act, which require, among other things, a fiduciary to
discharge his or her duties respecting the plan solely in the interest
of the participants and beneficiaries of the plan and in a prudent
fashion in accordance with section 404(a)(1)(B) of the Act; nor does it
affect the requirements of section 401(a) of the Code that the plan
operate for the exclusive benefit of the employees of the employer
maintaining the plan and their beneficiaries;
(2) In accordance with section 408(a) of the Act and section
4975(c)(2) of the Code and the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon
the entire record, the Department finds that the exemption is
administratively feasible, in the interests of the plans and their
participants and beneficiaries and protective of the rights of the
participants and beneficiaries;
(3) This exemption is supplemental to, and not in derogation of,
any other provisions of the Act and/or the Code, including statutory or
administrative exemptions and transitional rules. Furthermore, the fact
that a transaction is subject to an administrative or statutory
exemption is not dispositive of whether the transaction is in fact a
prohibited transaction; and
(4) The availability of this exemption is subject to the express
condition that the material facts and representations contained in each
application are true and complete and accurately describe all material
terms of the transactions which are the subjects of the exemption.
Exemption
Under section 408(a) of ERISA and section 4975(c)(2) of the Code,
and in accordance with the procedures set forth in 29 CFR 2570, subpart
B (55 FR 32836, August 10, 1990), the Department amends the following
individual Prohibited Transaction Exemptions (PTEs): PTE 89-88, 54 FR
42582 (October 17, 1989); PTE 89-89, 54 FR 42569 (October 17, 1989);
PTE 89-90, 54 FR 42597 (October 17, 1989); PTE 90-22, 55 FR 20542 (May
17, 1990); PTE 90-23, 55 FR 20545 (May 17, 1990); PTE 90-24, 55 FR
20548 (May 17, 1990); PTE 90-28, 55 FR 21456 (May 24, 1990); PTE 90-29,
55 FR 21459 (May 24, 1990); PTE 90-30, 55 FR 21461 (May 24, 1990); PTE
90-31, 55 FR 23144 (June 6, 1990); PTE 90-32, 55 FR 23147 (June 6,
1990); PTE 90-33, 55 FR 23151 (June 6, 1990); PTE 90-36, 55 FR 25903
(June 25, 1990); PTE 90-39, 55 FR 27713 (July 5, 1990); PTE 90-59, 55
FR 36724 (September 6, 1990); PTE 90-83, 55 FR 50250 (December 5,
1990); PTE 90-84, 55 FR 50252 (December 5, 1990); PTE 90-88, 55 FR
52899 (December 24, 1990); PTE 91-14, 55 FR 48178 (February 22, 1991);
PTE 91-22, 56 FR 03277 (April 18, 1991); PTE 91-23, 56 FR 15936 (April
18, 1991); PTE 91-30, 56 FR 22452 (May 15, 1991); PTE 91-62, 56 FR
51406 (October 11, 1991); PTE 93-31, 58 FR 28620 (May 5, 1993); PTE 93-
32, 58 FR 28623 (May 14, 1993); PTE 94-29, 59 FR 14675 (March 29,
1994); PTE 94-64, 59 FR 42312 (August 17, 1994); PTE 94-70, 59 FR 50014
(September 30, 1994); PTE 94-73, 59 FR 51213 (October 7, 1994); PTE 94-
84, 59 FR 65400 (December 19, 1994); PTE 95-26, 60 FR 17586 (April 6,
1995); PTE 95-59, 60 FR 35938 (July 12, 1995); PTE 95-89, 60 FR 49011
(September 21, 1995); PTE 96-11, 61 FR 3490 (January 31, 1996); PTE 96-
22, 61 FR 14828 (April 3, 1996); PTE 96-84, 61 FR 58234 (November 13,
1996); PTE 96-92, 61 FR 66334 (December 17, 1996); PTE 96-94, 61 FR
68787 (December 30, 1996); PTE 97-05, 62 FR 1926 (January 14,1997); and
PTE 97-28, 62 FR 28515 (May 23, 1997) (collectively, the Underwriter
Exemptions).
In addition, the Department is also granting individual exemptions
to Ironwood Capital Partners Ltd., Final Authorization Number (FAN) 97-
02E (November 25, 1996) and Deutsche Bank AG, New York Branch and
Deutsche Morgan Grenfell/C.J. Lawrence Inc., FAN 97-03E (December 9,
1996), which received the approval of the Department to engage in
transactions substantially similar to the transactions described in the
Underwriter Exemptions pursuant to PTE 96-62.
I. Transactions
A. Effective January 1, 1992, the restrictions of sections 406(a)
and 407(a) of the Act and the taxes imposed by section 4975(a) and (b)
of the Code by reason of section 4975(c)(1)(A) through (D) of the Code
shall not apply to the following transactions involving trusts and
certificates evidencing interests therein:
(1) The direct or indirect sale, exchange or transfer of
certificates in the initial issuance of certificates between the
sponsor or underwriter and an employee benefit plan when the sponsor,
servicer, trustee or insurer of a trust, the underwriter of the
certificates representing an interest in the trust, or an obligor is a
party in interest with respect to such plan;
(2) The direct or indirect acquisition or disposition of
certificates by a plan in the secondary market for such certificates;
and
(3) The continued holding of certificates acquired by a plan
pursuant to subsection I.A. (1) or (2).
Notwithstanding the foregoing, section I.A. does not provide an
exemption from the restrictions of sections 406(a)(1)(E), 406(a)(2) and
407 of the Act for the acquisition or holding of a certificate on
behalf of an Excluded Plan by any person who has discretionary
authority or renders investment advice with respect to the assets of
that Excluded Plan.6
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\6\ Section I.A. provides no relief from sections 406(a)(1)(E),
406(a)(2) and 407 of the Act for any person rendering investment
advice to an Excluded Plan within the meaning of section
3(21)(A)(ii) of the Act, and regulation 29 CFR 2510.3-21(c).
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B. Effective January 1, 1992, the restrictions of sections
406(b)(1) and 406(b)(2) of the Act and the taxes imposed by section
4975(a) and (b) of the Code by reason of section 4975(c)(1)(E) of the
Code shall not apply to:
(1) The direct or indirect sale, exchange or transfer of
certificates in the initial issuance of certificates between the
sponsor or underwriter and a plan when the person who has discretionary
authority or renders investment advice with respect to the investment
of plan assets in the certificates is (a) an obligor with respect to 5
percent or less of the fair market value of obligations or receivables
contained in the trust, or (b) an affiliate of a person described in
(a); if:
(i) The plan is not an Excluded Plan;
(ii) solely in the case of an acquisition of certificates in
connection with the initial issuance of the certificates, at least 50
percent of each class of certificates in which plans have
[[Page 39023]]
invested is acquired by persons independent of the members of the
Restricted Group and at least 50 percent of the aggregate interest in
the trust is acquired by persons independent of the Restricted Group;
(iii) a plan's investment in each class of certificates does not
exceed 25 percent of all of the certificates of that class outstanding
at the time of the acquisition; and
(iv) immediately after the acquisition of the certificates, no more
than 25 percent of the assets of a plan with respect to which the
person has discretionary authority or renders investment advice are
invested in certificates representing an interest in a trust containing
assets sold serviced by the same entity.7 For purposes of
this paragraph B.(1)(iv) only, an entity will not be considered to
service assets contained in a trust if it is merely a subservicer of
that trust;
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\7\ For purposes of this exemption, each plan participating in a
commingled fund (such as a bank collective trust fund or insurance
company pooled separate account) shall be considered to own the same
proportionate undivided interest in each asset of the commingled
fund as its proportionate interest in the total assets of the
commingled fund as calculated on the most recent preceding valuation
date of the fund.
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(2) The direct or indirect acquisition or disposition of
certificates by a plan in the secondary market for such certificates,
provided that the conditions set forth in paragraphs B.(1) (i), (iii)
and (iv) are met; and
(3) The continued holding of certificates acquired by a plan
pursuant to subsection I.B. (1) or (2).
C. Effective January 1, 1992, the restrictions of sections 406(a),
406(b) and 407(a) of the Act, and the taxes imposed by section 4975 (a)
and (b) of the Code by reason of section 4975(c) of the Code, shall not
apply to transactions in connection with the servicing, management and
operation of a trust, provided:
(1) such transactions are carried out in accordance with the terms
of a binding pooling and servicing arrangement; and
(2) the pooling and servicing agreement is provided to, or
described in all material respects in the prospectus or private
placement memorandum provided to, investing plans before they purchase
certificates issued by the trust.8
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\8\ In the case of a private placement memorandum, such
memorandum must contain substantially the same information that
would be disclosed in a prospectus if the offering of the
certificates were made in a registered public offering under the
Securities Act of 1933. In the Department's view, the private
placement memorandum must contain sufficient information to permit
plan fiduciaries to make informed investment decisions. For purposes
of this Amendment, references to ``prospectus'' include any related
prospectus supplement thereto, pursuant to which certificates are
offered to investors.
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Notwithstanding the foregoing, section I.C. does not provide an
exemption from the restrictions of section 406(b) of the Act or from
the taxes imposed by reason of section 4975(c) of the Code for the
receipt of a fee by a servicer of the trust from a person other than
the trustee or sponsor, unless such fee constitutes a ``qualified
administrative fee'' as defined in section III.S.
D. Effective January 1, 1992, the restrictions of sections 406(a)
and 407(a) of the Act, and the taxes imposed by sections 4975 (a) and
(b) of the Code by reason of sections 4975(c)(1)(A) through (D) of the
Code, shall not apply to any transactions to which those restrictions
or taxes would otherwise apply merely because a person is deemed to be
a party in interest or disqualified person (including a fiduciary) with
respect to a plan by virtue of providing services to the plan (or by
virtue of having a relationship to such service provider described in
section 3(14) (F), (G), (H) or (I) of the Act or section 4975(e)(2)
(F), (G), (H) or (I) of the Code), solely because of the plan's
ownership of certificates.
II. General Conditions
A. The relief provided under Part I is available only if the
following conditions are met:
(1) The acquisition of certificates by a plan is on terms
(including the certificate price) that are at least as favorable to the
plan as they would be in an arm's-length transaction with an unrelated
party;
(2) The rights and interests evidenced by the certificates are not
subordinated to the rights and interests evidenced by other
certificates of the same trust;
(3) The certificates acquired by the plan have received a rating
from a rating agency (as defined in section III.W) at the time of such
acquisition that is in one of the three highest generic rating
categories;
(4) The trustee is not an affiliate of any other member of the
Restricted Group. However, the trustee shall not be considered to be an
affiliate of a servicer solely because the trustee has succeeded to the
rights and responsibilities of the servicer pursuant to the terms of a
pooling and servicing agreement providing for such succession upon the
occurrence of one or more events of default by the servicer;
(5) The sum of all payments made to and retained by the
underwriters in connection with the distribution or placement of
certificates represents not more than reasonable compensation for
underwriting or placing the certificates; the sum of all payments made
to and retained by the sponsor pursuant to the assignment of
obligations (or interests therein) to the trust represents not more
than the fair market value of such obligations (or interests); and the
sum of all payments made to and retained by the servicer represents not
more than reasonable compensation for the servicer's services under the
pooling and servicing agreement and reimbursement of the servicer's
reasonable expenses in connection therewith;
(6) The plan investing in such certificates is an ``accredited
investor'' as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of 1933;
and
(7) In the event that the obligations used to fund a trust have not
all been transferred to the trust on the closing date, additional
obligations as specified in subsection III.B.(1) may be transferred to
the trust during the pre-funding period (as defined in Section III.BB.)
in exchange for amounts credited to the pre-funding account (as defined
in Section III.Z.), provided that:
(a) The pre-funding limit (as defined in Section III.AA.), is not
exceeded;
(b) All such additional obligations meet the same terms and
conditions for eligibility as those of the original obligations used to
create the trust corpus (as described in the prospectus or private
placement memorandum and/or pooling and servicing agreement for such
certificates), which terms and conditions have been approved by a
rating agency. Notwithstanding the foregoing, the terms and conditions
for determining the eligibility of an obligation may be changed if such
changes receive prior approval either by a majority vote of the
outstanding certificateholders or by a rating agency;
(c) The transfer of such additional obligations to the trust during
the pre-funding period does not result in the certificates receiving a
lower credit rating from a rating agency upon termination of the pre-
funding period than the rating that was obtained at the time of the
initial issuance of the certificates by the trust;
(d) The weighted average annual percentage interest rate (the
average interest rate) for all of the obligations in the trust at the
end of the pre-funding period will not be more than 100 basis points
lower than the average interest rate for the obligations which were
[[Page 39024]]
transferred to the trust on the closing date;
(e) Effective for transactions occurring on or after May 23, 1997,
in order to ensure that the characteristics of the receivables actually
acquired during the pre-funding period are substantially similar to
those which were acquired as of the closing date, the characteristics
of the additional obligations will either be monitored by a credit
support provider or other insurance provider which is independent of
the sponsor or an independent accountant retained by the sponsor will
provide the sponsor with a letter (with copies provided to the rating
agency, the underwriter and the trustees) stating whether or not the
characteristics of the additional obligations conform to the
characteristics of such obligations described in the prospectus,
private placement memorandum and/or pooling and servicing agreement. In
preparing such letter, the independent accountant will use the same
type of procedures as were applicable to the obligations which were
transferred as of the closing date;
(f) The pre-funding period shall be described in the prospectus or
private placement memorandum provided to investing plans; and
(g) The trustee of the trust (or any agent with which the trustee
contracts to provide trust services) will be a substantial financial
institution or trust company experienced in trust activities and
familiar with its duties, responsibilities, and liabilities as a
fiduciary under the Act. The trustee, as the legal owner of the
obligations in the trust, will enforce all the rights created in favor
of certificateholders of such trust, including employee benefit plans
subject to the Act.
B. Neither any underwriter, sponsor, trustee, servicer, insurer,
nor any obligor, unless it or any of its affiliates has discretionary
authority or renders investment advice with respect to the plan assets
used by a plan to acquire certificates, shall be denied the relief
provided under Part I, if the provision of subsection II.A.(6) above is
not satisfied with respect to acquisition or holding by a plan of such
certificates, provided that (1) Such condition is disclosed in the
prospectus or private placement memorandum; and (2) in the case of a
private placement of certificates, the trustee obtains a representation
from each initial purchaser which is a plan that it is in compliance
with such condition, and obtains a covenant from each initial purchaser
to the effect that, so long as such initial purchaser (or any
transferee of such initial purchaser's certificates) is required to
obtain from its transferee a representation regarding compliance with
the Securities Act of 1933, any such transferees will be required to
make a written representation regarding compliance with the condition
set forth in subsection II.A.(6) above.
III. Definitions
For purposes of this exemption:
A. Certificate means:
(1) A certificate--
(a) That represents a beneficial ownership interest in the assets
of a trust; and
(b) That entitles the holder to pass-through payments of principal,
interest, and/or other payments made with respect to the assets of such
trust; or
(2) A certificate denominated as a debt instrument--
(a) That represents an interest in either a Real Estate Mortgage
Investment Conduit (REMIC) or a Financial Asset Securitization
Investment Trust (FASIT) within the meaning of section 860D(a) or
Section 860L, respectively, of the Internal Revenue Code of 1986, as
amended: and
(b) That is issued by and is an obligation of a trust; with respect
to certificates defined in (1) and (2) above for which the Underwriter
is either (i) the sole underwriter or the manager or co-manager of the
underwriting syndicate, or (ii) a selling or placement agent.
For purposes of this exemption, references to ``certificates
representing an interest in a trust'' include certificates denominated
as debt which are issued by a trust.
B. Trust means an investment pool, the corpus of which is held in
trust and consists solely of:
(1) (a) Secured consumer receivables that bear interest or are
purchased at a discount (including, but not limited to, home equity
loans and obligations secured by shares issued by a cooperative housing
association); and/or
(b) Secured credit instruments that bear interest or are purchased
at a discount in transactions by or between business entities
(including, but not limited to, qualified equipment notes secured by
leases, as defined in section III.T.); and/or
(c) Obligations that bear interest or are purchased at a discount
and which are secured by single-family residential, multi-family
residential and commercial real property (including obligations secured
by leasehold interests on residential or commercial real property);
and/or
(d) Obligations that bear interest or are purchased at a discount
and which are secured by motor vehicles or equipment, or qualified
motor vehicle leases (as defined in section III.U.); and/or
(e) Guaranteed governmental mortgage pool certificates, as defined
in 29 CFR 2510.3-101(i)(2); and/or
(f) Fractional undivided interests in any of the obligations
described in clauses (a)-(e) of this subsection B.(1); 9
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\9\ It is the Department's view that the definition of ``Trust''
contained in subsection III.B. includes a two-tier trust structure
under which certificates issued by the first trust, which contains a
pool of receivables described above, are transferred to a second
trust which issues certificates that are sold to plans. However, the
Department is of the further view that, since the exemption provides
relief for the direct or indirect acquisition or disposition of
certificates that are not subordinated, no relief would be available
if the certificates held by the second trust were subordinated to
the rights and interests evidenced by other certificates issued by
the first trust.
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(2) Property which had secured any of the obligations described in
subsection III.B.(1);
(3) (a) Undistributed cash or temporary investments made therewith
maturing no later than the next date on which distributions are to made
to certificateholders; and/or
(b) Cash or investments made therewith which are credited to an
account to provide payments to certificateholders pursuant to any yield
supplement agreement or similar yield maintenance arrangement to
supplement the interest rates otherwise payable on obligations
described in subsection III.B.(1) held in the trust, provided that such
arrangements do not involve swap agreements or other notional principal
contracts; and/or 10
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\10\ The Department notes that the definition of ``Trust''
contained in Section III.B. includes cash or investments credited to
an account to provide payments to certificateholders pursuant to a
yield supplement agreement or similar yield maintenance arrangement
to supplement the interest rates otherwise payable on obligations
described in section B.(1) held in the trust, provided that such
arrangements do not involve swap agreements or other notional
principal contracts.
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(c) Cash transferred to the trust on the closing date and permitted
investments made therewith which:
(i) are credited to a pre-funding account established to purchase
additional obligations with respect to which the conditions set forth
in clauses (a)-(g) of subsection II.A.(7) are met and/or
(ii) are credited to a capitalized interest account (as defined in
Section III.X.); and
(iii) are held in the trust for a period ending no later than the
first distribution date to certificateholders occurring after the end
of the pre-funding period,
For purposes of this clause (c) of subsection III.B.(3), the term
``permitted investments'' means investments which
[[Page 39025]]
are either: (i) direct obligations of, or obligations fully guaranteed
as to timely payment of principal and interest by, the United States or
any agency or instrumentality thereof, provided that such obligations
are backed by the full faith and credit of the United States or (ii)
have been rated (or the obligor has been rated) in one of the three
highest generic rating categories by a rating agency; are described in
the pooling and servicing agreement; and are permitted by the rating
agency.
(4) Rights of the trustee under the pooling and servicing
agreement, and rights under any insurance policies, third-party
guarantees, contracts of suretyship, yield supplement agreements
described in clause (b) of subsection III.B.(3) and other credit
support arrangements with respect to any obligations described in
subsection III.B.(1).
Notwithstanding the foregoing, the term ``trust'' does not include
any investment pool unless: (i) the obligations contained in the
investment pool consist only of assets of the type described in clauses
(a)-(f) of subsection III.B.(1) which have been included in other
investment pools, (ii) certificates evidencing interests in such other
investment pools have been rated in one of the three highest generic
rating categories by a rating agency for at least one year prior to the
plan's acquisition of certificates pursuant to this exemption, and
(iii) certificates evidencing interests in such other investment pools
have been purchased by investors other than plans for at least one year
prior to the plan's acquisition of certificates pursuant to this
exemption.
C. Underwriter means:
(1) An entity defined as an Underwriter in subsection III.C.(1) of
each of the Underwriter Exemptions that are being amended by this
exemption. In addition, the term Underwriter includes Ironwood Capital
Partners Ltd. and Deutsche Bank AG, New York Branch and Deutsche Morgan
Grenfell/C.J. Lawrence Inc.(which received the approval of the
Department to engage in transactions substantially similar to the
transactions described in the Underwriter Exemptions pursuant to PTE
96-62);
(2) Any person directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with
such entity; or
(3) Any member of an underwriting syndicate or selling group of
which a person described in subsections III.C.(1) or (2) above is a
manager or co-manager with respect to the certificates.
D. Sponsor means the entity that organizes a trust by depositing
obligations therein in exchange for certificates.
E. Master Servicer means the entity that is a party to the pooling
and servicing agreement relating to trust assets and is fully
responsible for servicing, directly or through subservicers, the assets
of the trust.
F. Subservicer means an entity which, under the supervision of and
on behalf of the master servicer, services loans contained in the
trust, but is not a party to the pooling and servicing agreement.
G. Servicer means any entity which services loans contained in the
trust, including the master servicer and any subservicer.
H. Trustee means the trustee of the trust, and in the case of
certificates which are denominated as debt instruments, also means the
trustee of the indenture trust.
I. Insurer means the insurer or guarantor of, or provider of other
credit support for, a trust. Notwithstanding the foregoing, a person is
not an insurer solely because it holds securities representing an
interest in a trust which are of a class subordinated to certificates
representing an interest in the same trust.
J. Obligor means any person, other than the insurer, that is
obligated to make payments with respect to any obligation or receivable
included in the trust. Where a trust contains qualified motor vehicle
leases or qualified equipment notes secured by leases, ``obligor''
shall also include any owner of property subject to any lease included
in the trust, or subject to any lease securing an obligation included
in the trust.
K. Excluded Plan means any plan with respect to which any member of
the Restricted Group is a ``plan sponsor'' within the meaning of
section 3(16)(B) of the Act.
L. Restricted Group with respect to a class of certificates means:
(1) each underwriter;
(2) each insurer;
(3) the sponsor;
(4) the trustee;
(5) each servicer;
(6) any obligor with respect to obligations or receivables included
in the trust constituting more than 5 percent of the aggregate
unamortized principal balance of the assets in the trust, determined on
the date of the initial issuance of certificates by the trust; or
(7) any affiliate of a person described in (1)-(6) above.
M. Affiliate of another person includes:
(1) Any person directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control
with such other person;
(2) Any officer, director, partner, employee, relative (as defined
in section 3(15) of the Act), a brother, a sister, or a spouse of a
brother or sister of such other person; and
(3) Any corporation or partnership of which such other person is an
officer, director or partner.
N. Control means the power to exercise a controlling influence over
the management or policies of a person other than an individual.
O. A person will be ``independent'' of another person only if:
(1) such person is not an affiliate of that other person; and
(2) the other person, or an affiliate thereof, is not a fiduciary
who has investment management authority or renders investment advice
with respect to any assets of such person.
P. Sale includes the entrance into a forward delivery commitment
(as defined in section III.Q. below), provided:
(1) The terms of the forward delivery commitment (including any fee
paid to the investing plan) are no less favorable to the plan than they
would be in an arm's length transaction with an unrelated party;
(2) The prospectus or private placement memorandum is provided to
an investing plan prior to the time the plan enters into the forward
delivery commitment; and
(3) At the time of the delivery, all conditions of this exemption
applicable to sales are met.
Q. Forward delivery commitment means a contract for the purchase or
sale of one or more certificates to be delivered at an agreed future
settlement date. The term includes both mandatory contracts (which
contemplate obligatory delivery and acceptance of the certificates) and
optional contracts (which give one party the right but not the
obligation to deliver certificates to, or demand delivery of
certificates from, the other party).
R. Reasonable compensation has the same meaning as that term is
defined in 29 CFR 2550.408c-2.
S. Qualified Administrative Fee means a fee which meets the
following criteria:
(1) the fee is triggered by an act or failure to act by the obligor
other than the normal timely payment of amounts owing in respect of the
obligations:
(2) the servicer may not charge the fee absent the act or failure
to act referred to in (1);
[[Page 39026]]
(3) the ability to charge the fee, the circumstances in which the
fee may be charged, and an explanation of how the fee is calculated are
set forth in the pooling and servicing agreement; and
(4) the amount paid to investors in the trust will not be reduced
by the amount of any such fee waived by the servicer.
T. Qualified Equipment Note Secured By A Lease means an equipment
note:
(1) which is secured by equipment which is leased;
(2) which is secured by the obligation of the lessee to pay rent
under the equipment lease; and
(3) with respect to which the trust's security interest in the
equipment is at least as protective of the rights of the trust as would
be the case if the equipment note were secured only by the equipment
and not the lease.
U. Qualified Motor Vehicle Lease means a lease of a motor vehicle
where:
(1) the trust owns or holds a security interest in the lease;
(2) the trust owns or holds a security interest in the leased motor
vehicle; and
(3) the trust's interest in the leased motor vehicle is at least as
protective of the trust's rights as the trust would receive under a
motor vehicle installment loan contract.
V. Pooling and Servicing Agreement means the agreement or
agreements among a sponsor, a servicer and the trustee establishing a
trust. In the case of certificates which are denominated as debt
instruments, ``Pooling and Servicing Agreement'' also includes the
indenture entered into by the trustee of the trust issuing such
certificates and the indenture trustee.
W. Rating Agency means Standard & Poor's Structured Rating Group,
Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co. or
Fitch Investors Service, L.P.
X. Capitalized Interest Account means a trust account: (i) which is
established to compensate certificateholders for shortfalls, if any,
between investment earnings on the pre-funding account and the pass-
through rate payable under the certificates; and (ii) which meets the
requirements of clause (c) of subsection III.B.(3).
Y. Closing Date means the date the trust is formed, the
certificates are first issued and the trust's assets (other than those
additional obligations which are to be funded from the pre-funding
account pursuant to subsection II.A.(7)) are transferred to the trust.
Z. Pre-Funding Account-- means a trust account: (i) Which is
established to purchase additional obligations, which obligations meet
the conditions set forth in clauses (a)-(g) of subsection II.A.(7); and
(ii) which meets the requirements of clause (c) of subsection
III.B.(3).
AA. Pre-Funding Limit means a percentage or ratio of the amount
allocated to the pre-funding account, as compared to the total
principal amount of the certificates being offered which is less than
or equal to: (i) 40 percent, effective for transactions occurring on or
after January 1, 1992, but prior to May 23, 1997; and (ii) 25 percent,
for transactions occurring on or after May 23, 1997.
BB. Pre-Funding Period means the period commencing on the closing
date and ending no later than the earliest to occur of: (i) the date
the amount on deposit in the pre-funding account is less than the
minimum dollar amount specified in the pooling and servicing agreement;
(ii) the date on which an event of default occurs under the pooling and
servicing agreement; or (iii) the date which is the later of three
months or 90 days after the closing date.
IV. Modifications
For the Underwriter Exemptions provided to Residential Funding
Corporation, Residential Funding Mortgage Securities, Inc., et. al. and
GE Capital Mortgage Services, Inc. and GECC Capital Markets (the
Applicants) (PTEs 94-29 and 94-73, respectively);
A. Section III.A. of this amendment is modified to read as follows:
A. Certificate means:
(1) A certificate--
(a) That represents a beneficial ownership interest in the assets
of a trust; and
(b) That entitles the holder to pass-through payments of principal,
interest, and/or other payments made with respect to the assets of such
trust; or
(c) With respect to which (i) one of the Applicants or any of its
affiliates is the sponsor, and an entity which has received from the
Department an individual prohibited transaction exemption relating to
certificates which is similar to this exemption is the sole underwriter
or the manager or co-manager of the underwriting syndicate or a selling
or placement agent; or (ii) one of the Applicants or any of its
affiliates is the sole underwriter or the manager or co-manager of the
underwriting syndicate or a selling or placement agent; or
(2) A certificate denominated as a debt instrument--
(a) That represents an interest in either a Real Estate Mortgage
Investment Conduit (REMIC) or a Financial Asset Securitization
Investment Trust (FASIT) within the meaning of section 860D(a) or
section 860L, respectively, of the Internal Revenue Code of 1986, as
amended: and
(b) That is issued by and is an obligation of a trust with respect
to which (i) one of the Applicants or any of its affiliates is the
sponsor, and an entity which has received from the Department an
individual prohibited transaction exemption relating to certificates
which is similar to this exemption is the sole underwriter or the
manager or co-manager of the underwriting syndicate or a selling or
placement agent or (ii) one of the Applicants or any of its affiliates
is the sole underwriter or the manager or co-manager of the
underwriting syndicate, or a selling or placement agent.
For purposes of this exemption, references to ``certificates
representing an interest in a trust'' include certificates denominated
as debt which are issued by a trust.
B. Section III.C. of this amendment is modified to read as follows:
C. Underwriter means:
(1) An entity defined as an Underwriter in subsection III.C.(1) of
each of the Underwriter Exemptions that are being amended by this
exemption. In addition, the term Underwriter includes Ironwood Capital
Partners Ltd. and Deutsche Bank AG, New York Branch and Deutsche Morgan
Grenfell/C.J. Lawrence Inc. (which received the approval of the
Department to engage in transactions substantially similar to the
transactions described in the Underwriter Exemptions pursuant to PTE
96-62);
(2) Any person directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with
such entity;
(3) Any member of an underwriting syndicate or selling group of
which a person described in subsections III.C. (1) or (2) above is a
manager or co-manager with respect to the certificates; or
(4) an entity which has received from the Department an individual
prohibited transaction exemption relating to certificates which is
similar to this exemption.
EFFECTIVE DATE: This exemption is effective for transactions occurring
on or after January 1, 1992 except as otherwise provided in subsection
II.A.(7) and section III.AA.
Signed at Washington, D.C., this 16 day of July, 1997.
Ivan L. Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 97-19131 Filed 7-18-97; 8:45 am]
BILLING CODE 4510-29-P