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

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