skip to page content
Secretary of Labor Hilda L. Solis
     DOL Home > Federal Register > By Agency > EBSA
EBSA Notices

Amendment to Prohibited Transaction Exemption (PTE) 97-34 Involving Bear, Stearns & Co. Inc., Prudential Securities Incorporated, et al. (D-10829)   [11/13/2000]
[PDF]
[Federal Register: November 13, 2000 (Volume 65, Number 219)]
[Notices]               
[Page 67765-67774]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13no00-135]                         

-----------------------------------------------------------------------

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Prohibited Transaction Exemption 2000-58]

 
Amendment to Prohibited Transaction Exemption (PTE) 97-34 
Involving Bear, Stearns & Co. Inc., Prudential Securities Incorporated, 
et al. (D-10829)

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

ACTION: Grant of an amendment to the Underwriter Exemptions.\1\

-----------------------------------------------------------------------
---------------------------------------------------------------------------

    \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 96-22, 
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); 
PTE 97-28, 62 FR 28515 (May 23, 1997); PTE 97-34, 62 FR 39021 (July 
21, 1997); PTE 98-08, 63 FR 8498 (February 19, 1998); PTE 99-11, 64 
FR 11046 (March 8, 1999); PTE 2000-19, 65 FR 25950 (May 4, 2000); 
PTE 2000-33, 65 FR 37171 (June 13, 2000); PTE 2000-41, 65 FR 51039 
(August 22, 2000); and PTE 2000-55 (November, 2000).
    In addition, the Department notes that it is also granting 
individual exemptive relief for: Deutsche Bank AG, New York Branch 
and Deutsche Morgan Grenfell/C.J. Lawrence Inc., Final Authorization 
Number (FAN) 97-03E (December 9, 1996); Credit Lyonnais Securities 
(USA) Inc., FAN 97-21E (September 10, 1997); ABN AMRO Inc., FAN 98-
08E (April 27, 1998); and Ironwood Capital Partners Ltd., FAN 99-31E 
(December 20, 1999), 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.
---------------------------------------------------------------------------

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) Permits, for 
certain categories of transactions, the offering of ``investment 
grade'' mortgage-backed securities and asset-backed securities which 
are either senior or subordinated; (2) permits the use of eligible 
interest rate swaps (both ratings dependent and non-ratings dependent) 
under circumstances described in this amendment; (3) permits the use of 
yield supplement agreements which involve notional principal amounts; 
and (4) makes certain changes to the Underwriter Exemptions that 
reflects the Department's current interpretation of the Underwriter 
Exemptions.
    Finally, the amendment provides exemptive relief for transactions 
involving: (1) An Issuer of mortgage-backed securities or asset-backed 
securities which is a trust (including a grantor or owner trust), 
REMIC, FASIT, special purpose corporation, limited liability company or 
partnership and (2) mortgage-backed securities or asset-backed 
securities issued which are either debt or equity investments.

[[Page 67766]]


EFFECTIVE DATE: This amendment to the Underwriter Exemptions is 
effective for transactions occurring on or after August 23, 2000, 
except as otherwise provided in sections I.C., II.A.(4)(b), and III.JJ. 
of the amendment to the Underwriter Exemptions.

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

SUPPLEMENTARY INFORMATION: On August 23, 2000, notice was published in 
the Federal Register (65 FR 51454) of the pendency before the 
Department of a proposed exemption to amend PTE 97-34, 62 FR 39021 
(July 21, 1997) (the 1997 Amendment). The 1997 Amendment amended over 
forty individual 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 was requested by application dated October 22, 1999, 
and as restated in later submissions on behalf of Morgan Stanley & Co. 
Incorporated \2\ (the Applicant). In preparing the application, the 
Applicant received input from members of The Bond Market Association 
(TBMA).
---------------------------------------------------------------------------

    \2\ PTE 90-24, 55 FR 20548 (May 17, 1990).
---------------------------------------------------------------------------

    The Department proposed the amendment to this individual exemption 
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).\3\ 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.\4\ The Department notes that it also proposed the same 
individual exemptive relief for: Deutsche Bank AG, New York Branch and 
Deutsche Morgan Grenfell/C.J. Lawrence Inc., FAN 97-03E (December 9, 
1996); Credit Lyonnais Securities (USA) Inc., FAN 97-21E (September 10, 
1997); ABN AMRO Inc., FAN 98-08E (April 27, 1998); and Ironwood Capital 
Partners Ltd., FAN 99-31E (December 20, 1999), 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.
---------------------------------------------------------------------------

    \3\ 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 sections 
406 and 408 of the Act should be read to refer as well to the 
corresponding provisions of section 4975 of the Code.
    \4\ In this regard, the entities who received the other 
Underwriter Exemptions were contacted concerning their participation 
in this amendment process.
---------------------------------------------------------------------------

    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, DC.
    The notice also invited interested persons to submit comments on 
the 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 three written comments 
in response to the proposed amendment. No requests for a hearing were 
received by the Department in regard to the proposed amendment.
    The first commentator observed that it has been his experience that 
certain trustees of collectively bargained qualified plans may incur 
unnecessary risk with plan assets when they allow investment managers 
to purchase debt securities that can only be priced by the underwriter 
or manually priced by the investment manager. Plans that by their 
nature are ``marked to market'' for annual valuations, i.e., defined 
contribution plans, may find that assets are unintentionally misstated 
for plan participants when there is a general disruption in the debt 
market. Similarly, defined benefit plans may be forced to hold assets 
to maturity when an investment manager buys a ``BBB'' securitization 
vehicle and the general interest rate market rises. According to the 
commentator, the underwriter may not make a secondary market when there 
is an absence of bidders for such issues.
    The Department notes that the fiduciary responsibility provisions 
of the Act would apply to any decision made by a plan fiduciary or 
investment manager to purchase asset-backed securities or other debt 
securities as part of its investment program. In this regard, section 
404(a) of the Act requires, among other things, that a fiduciary of a 
plan act prudently, solely in the interest of the plan's participants 
and beneficiaries, and for the exclusive purpose of providing benefits 
to participants and beneficiaries when making investment decisions on 
behalf of the plan. The Department's determination to expand the 
Underwriter Exemptions to permit the offering of ``investment grade'' 
asset backed securities, which may be senior or subordinated, should 
not be viewed as an endorsement by the Department of the suitability of 
specific securities for a particular plan. Rather, it is the 
responsibility of the plan fiduciary to act ``prudently'' with respect 
to the selection of suitable investments, taking into account the 
plan's particular facts and circumstances. The Department further notes 
that plan fiduciaries would be liable for any losses to the plan 
resulting from a decision to purchase asset-backed securities or other 
debt securities if such purchase was not prudent at the time the 
decision was made.
    Another commentator was concerned that the proposed amendment may 
in some way limit the exemptive relief available under the previously 
granted Underwriter Exemptions and the 1997 Amendment. The commentator 
proposed that the following language be added to the preamble of the 
final exemption:

    Nothing in this final exemption limits the exemptive relief 
otherwise available under any of the Underwriter Exemptions, as in 
effect prior to the effective date of this final exemption, to 
transactions related to any securitization transaction that closed 
prior to the date of publication of this final exemption in the 
Federal Register.

    In response to this comment, the Department notes that this 
amendment does not limit the exemptive relief otherwise available under 
any of the Underwriter Exemptions, the 1997 Amendment or the individual 
exemptive relief for entities 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. In fact, the Department notes that this amendment expands the 
relief available under the Underwriter Exemptions. In the Department's 
view, those transactions which meet the requirements of the 1997 
Amendment, would fall within the scope of the relief provided by this 
amendment.
    The third commentator posed a question regarding the application of 
the

[[Page 67767]]

proposed amendment to subordinated and ``BBB'' rated securities that 
were issued prior to August 23, 2000. The Department notes that the 
amendment is applicable to the purchase by plans of subordinated and 
``BBB'' rated securities after August 23, 2000, provided that these 
transactions meet the requirements set forth in the amendment.
    The commentator further noted that the Department proposed to 
expand the scope of the Underwriter Exemptions to cover securitization 
transactions that use ``special purpose'' corporations, limited 
partnerships, limited liability companies and owner trust structures. 
As part of the proposed amendment, the Department required, under 
section II.A.(8), that certain provisions be included in the documents 
establishing the Issuer. The commentator was concerned that some of the 
new requirements under section II.A.(8) would also be applicable to 
securitization transactions that use traditional ``common law'' trust 
structures. As a result, the commentator requested that the Department 
clarify the requirements set forth in section II.A.(8) of the proposed 
amendment. The Department believes the following explanation will 
clarify the intended scope of the requirements of section II.A.(8) of 
the amendment.
    The Applicant provided the following information to the Department 
during the comment period. Trusts are generally of two types under 
local or state law. Those referred to as ``common law trusts,'' and 
those referred to as ``owner trusts'' (or ``business trusts,'' for 
example, Delaware business trusts). While both types of trusts are 
created by contract between a settlor and a trustee for the benefit of 
beneficiaries, a common law trust does not exist as a separate entity 
and is governed under common law; whereas an owner trust is created 
under state statutes and is a separate legal entity. The terms 
``grantor trust,'' ``REMIC,'' and ``FASIT'' are tax classifications.
    The Department notes that this amendment generally is effective for 
transactions occurring on or after August 23, 2000. On that date, this 
amendment would apply to the expanded list of Issuers defined in 
section III.B. of the amendment. Accordingly, it is the view of the 
Department that section II.A.(8) is applicable to those Issuers that 
are owner trusts, partnerships, special purpose corporations or limited 
liability companies which meet the conditions of the amendment on or 
after August 23, 2000 including the requirements contained in section 
II.A.(8). Conversely, it is the view of the Department that section 
II.A.(8) would not apply to grantor trusts, REMICs or FASITs which were 
eligible for relief under the 1997 Amendment, provided that the 
conditions of that exemption were met.
    Finally, the commentator requested that the Department clarify 
whether offshore entities (special purpose corporations, limited 
partnerships, limited liability companies and trusts organized under 
non-United States law) are permissible securitization vehicles under 
the amendment. The Department does not believe that a sufficient 
showing has been made that inclusion of offshore entities as 
securitization vehicles would be protective of the interests of 
participants and beneficiaries. Accordingly, it is the view of the 
Department that offshore entities are beyond the scope of relief 
provided by this amendment.
    The Department notes that it has modified the definition of 
``Qualified Plan Investor,'' at section III.HH. of the amendment, to 
clarify that this definition refers only to the swap agreements 
described at section II.A.(10) of the 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 the 
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 Part 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 96-22, 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); PTE 97-28, 62 FR 28515 (May

[[Page 67768]]

23, 1997); PTE 97-34, 62 FR 39021 (July 21, 1997); PTE 98-08, 63 FR 
8498 (February 19, 1998); PTE 99-11, 64 FR 11046 (March 8, 1999); PTE 
2000-19, 65 FR 25950 (May 4, 2000); PTE 2000-33, 65 FR 37171 (June 13, 
2000); PTE 2000-41, 65 FR 51039 (August 22, 2000); and PTE 2000-55 
(November, 2000).
    In addition, the Department notes that it is also granting 
individual exemptive relief for: Deutsche Bank AG, New York Branch and 
Deutsche Morgan Grenfell/C.J. Lawrence Inc., Final Authorization Number 
(FAN) 97-03E (December 9, 1996); Credit Lyonnais Securities (USA) Inc., 
FAN 97-21E (September 10, 1997); ABN AMRO Inc., FAN 98-08E (April 27, 
1998); and Ironwood Capital Partners Ltd., FAN 99-31E (December 20, 
1999), 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 for transactions occurring on or after August 23, 
2000, 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 
section 4975(c)(1)(A) through (D) of the Code shall not apply to the 
following transactions involving Issuers and Securities evidencing 
interests therein:
    (1) The direct or indirect sale, exchange or transfer of Securities 
in the initial issuance of Securities between the Sponsor or 
Underwriter and an employee benefit plan when the Sponsor, Servicer, 
Trustee or Insurer of an Issuer, the Underwriter of the Securities 
representing an interest in the Issuer, or an Obligor is a party in 
interest with respect to such plan;
    (2) The direct or indirect acquisition or disposition of Securities 
by a plan in the secondary market for such Securities; and
    (3) The continued holding of Securities 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 Security 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.\5\
---------------------------------------------------------------------------

    \5\ 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).
---------------------------------------------------------------------------

    B. Effective for transactions occurring on or after August 23, 
2000, the restrictions of sections 406(b)(1) and 406(b)(2) of the Act 
and the taxes imposed by sections 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 Securities 
in the initial issuance of Securities 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 Securities is (a) an Obligor with respect to 5 percent or 
less of the fair market value of obligations or receivables contained 
in the Issuer, 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 Securities in 
connection with the initial issuance of the Securities, at least 50 
percent of each class of Securities in which plans have invested is 
acquired by persons independent of the members of the Restricted Group 
and at least 50 percent of the aggregate interest in the Issuer is 
acquired by persons independent of the Restricted Group;
    (iii) A plan's investment in each class of Securities does not 
exceed 25 percent of all of the Securities of that class outstanding at 
the time of the acquisition; and
    (iv) Immediately after the acquisition of the Securities, 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 Securities representing an interest in an Issuer containing 
assets sold or serviced by the same entity.\6\ For purposes of this 
paragraph (iv) only, an entity will not be considered to service assets 
contained in an Issuer if it is merely a Subservicer of that Issuer;
---------------------------------------------------------------------------

    \6\ For purposes of this Underwriter 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.
---------------------------------------------------------------------------

    (2) The direct or indirect acquisition or disposition of Securities 
by a plan in the secondary market for such Securities, provided that 
the conditions set forth in paragraphs (i), (iii) and (iv) of 
subsection I.B.(1) are met; and
    (3) The continued holding of Securities acquired by a plan pursuant 
to subsection I.B.(1) or (2).
    C. Effective for transaction occurring on or after August 23, 2000, 
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 an Issuer, 
including the use of any Eligible Swap transaction; or, effective 
January 1, 1999, the defeasance of a mortgage obligation held as an 
asset of the Issuer through the substitution of a new mortgage 
obligation in a commercial mortgage-backed Designated Transaction, 
provided:
    (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 
Securities issued by the Issuer; \7\ and
---------------------------------------------------------------------------

    \7\ 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 securities 
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, 
references to ``prospectus'' include any related prospectus 
supplement thereto, pursuant to which Securities are offered to 
investors.
---------------------------------------------------------------------------

    (3) The defeasance of a mortgage obligation and the substitution of 
a new mortgage obligation in a commercial mortgage-backed Designated 
Transaction meet the terms and conditions for such defeasance and 
substitution as are described in the prospectus or private placement 
memorandum for such Securities, which terms and conditions have been 
approved by a Rating Agency and does not result in the Securities 
receiving a lower credit rating from the Rating Agency than the current 
rating of the Securities.
    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 Issuer from a person other than 
the Trustee or Sponsor, unless such fee constitutes a Qualified 
Administrative Fee.
    D. Effective for transactions occurring on or after August 23, 
2000, 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

[[Page 67769]]

(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 Securities.

II. General Conditions

    A. The relief provided under section I. is available only if the 
following conditions are met:
    (1) The acquisition of Securities by a plan is on terms (including 
the Security 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 Securities are not 
subordinated to the rights and interests evidenced by other Securities 
of the same Issuer, unless the Securities are issued in a Designated 
Transaction;
    (3) The Securities acquired by the plan have received a rating from 
a Rating Agency at the time of such acquisition that is in one of the 
three (or in the case of Designated Transactions, four) highest generic 
rating categories;
    (4) The Trustee is not an Affiliate of any member of the Restricted 
Group. For purposes of this requirement:
    (a) 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; and
    (b) Effective for transactions occurring on or after January 1, 
1998, subsection II.A.(4) will be deemed satisfied notwithstanding a 
Servicer becoming an Affiliate of the Trustee as the result of a merger 
or acquisition involving the Trustee, such Servicer and/or their 
Affiliates which occurs after the initial issuance of the Securities, 
provided that:
    (i) such Servicer ceases to be an Affiliate of the Trustee no later 
than six months after the later of August 23, 2000 or the date such 
Servicer became an Affiliate of the Trustee; and
    (ii) such Servicer did not breach any of its obligations under the 
Pooling and Servicing Agreement, unless such breach was immaterial and 
timely cured in accordance with the terms of such agreement, during the 
period from the closing date of such merger or acquisition transaction 
through the date the Servicer ceased to be an Affiliate of the Trustee;
    (5) The sum of all payments made to and retained by the 
Underwriters in connection with the distribution or placement of 
Securities represents not more than Reasonable Compensation for 
underwriting or placing the Securities; the sum of all payments made to 
and retained by the Sponsor pursuant to the assignment of obligations 
(or interests therein) to the Issuer 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 Securities 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 Issuer have 
not all been transferred to the Issuer on the Closing Date, additional 
obligations of the types specified in subsection III.B.(1) may be 
transferred to the Issuer during the Pre-Funding Period in exchange for 
amounts credited to the Pre-Funding Account, provided that:
    (a) The Pre-Funding Limit is not exceeded;
    (b) All such additional obligations meet the same terms and 
conditions for determining the eligibility of the original obligations 
used to create the Issuer (as described in the prospectus or private 
placement memorandum and/or Pooling and Servicing Agreement for such 
Securities), 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 securityholders or by a Rating Agency;
    (c) The transfer of such additional obligations to the Issuer 
during the Pre-Funding Period does not result in the Securities 
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 Securities by the Issuer;
    (d) The weighted average annual percentage interest rate (the 
average interest rate) for all of the obligations held by the Issuer 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 transferred to the Issuer on the Closing Date;
    (e) 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 Trustee) 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 or the holder of a security interest in the 
obligations held by the Issuer, will enforce all the rights created in 
favor of securityholders of the Issuer, including employee benefit 
plans subject to the Act;
    (8) In order to insure that the assets of the Issuer may not be 
reached by creditors of the Sponsor in the event of bankruptcy or other 
insolvency of the Sponsor:
    (a) The legal documents establishing the Issuer will contain:
    (i) Restrictions on the Issuer's ability to borrow money or issue 
debt other than in connection with the securitization;
    (ii) Restrictions on the Issuer merging with another entity, 
reorganizing, liquidating or selling assets (other than in connection 
with the securitization);

[[Page 67770]]

    (iii) Restrictions limiting the authorized activities of the Issuer 
to activities relating to the securitization;
    (iv) If the Issuer is not a Trust, provisions for the election of 
at least one independent director/partner/member whose affirmative 
consent is required before a voluntary bankruptcy petition can be filed 
by the Issuer; and
    (v) If the Issuer is not a Trust, requirements that each 
independent director/partner/member must be an individual that does not 
have a significant interest in, or other relationships with, the 
Sponsor or any of its Affiliates; and
    (b) The Pooling and Servicing Agreement and/or other agreements 
establishing the contractual relationships between the parties to the 
securitization transaction will contain covenants prohibiting all 
parties thereto from filing an involuntary bankruptcy petition against 
the Issuer or initiating any other form of insolvency proceeding until 
after the Securities have been paid; and
    (c) Prior to the issuance by the Issuer of any Securities, a legal 
opinion is received which states that either:
    (i) A ``true sale'' of the assets being transferred to the Issuer 
by the Sponsor has occurred and that such transfer is not being made 
pursuant to a financing of the assets by the Sponsor; or
    (ii) In the event of insolvency or receivership of the Sponsor, the 
assets transferred to the Issuer will not be part of the estate of the 
Sponsor;
    (9) If a particular class of Securities held by any plan involves a 
Ratings Dependent or Non-Ratings Dependent Swap entered into by the 
Issuer, then each particular swap transaction relating to such 
Securities:
    (a) Shall be an Eligible Swap;
    (b) Shall be with an Eligible Swap Counterparty;
    (c) In the case of a Ratings Dependent Swap, shall provide that if 
the credit rating of the counterparty is withdrawn or reduced by any 
Rating Agency below a level specified by the Rating Agency, the 
Servicer (as agent for the Trustee) shall, within the period specified 
under the Pooling and Servicing Agreement:
    (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 
Securities will not be withdrawn or reduced.
    In the event that the Servicer fails to meet its obligations under 
this subsection II.A.(9)(c), plan securityholders will be notified in 
the immediately following Trustee's periodic report which is provided 
to securityholders, and sixty days after the receipt of such report, 
the exemptive relief provided under section I.C. will prospectively 
cease to be applicable to any class of Securities held by a plan which 
involves such Ratings Dependent Swap; provided that in no event will 
such plan securityholders be notified any later than the end of the 
second month that begins after the date on which such failure occurs.
    (d) In the case of a Non-Ratings Dependent Swap, shall provide 
that, if the credit rating of the counterparty is withdrawn or reduced 
below the lowest level specified in section III.GG., 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 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 Issuer to make any termination payments 
to the counterparty (other than a currently scheduled payment under the 
swap agreement) except from Excess Spread or other amounts that would 
otherwise be payable to the Servicer or the Sponsor;
    (10) Any class of Securities, to which one or more swap agreements 
entered into by the Issuer applies, may be acquired or held in reliance 
upon this Underwriter Exemption only by Qualified Plan Investors; and
    (11) Prior to the issuance of any debt securities, a legal opinion 
is received which states that the debt holders have a perfected 
security interest in the Issuer's assets.
    B. Neither any Underwriter, Sponsor, Trustee, Servicer, Insurer or 
any Obligor, unless it or any of its Affiliates has discretionary 
authority or renders investment advice with respect to the plan assets 
used by a plan to acquire Securities, shall be denied the relief 
provided under section I., if the provision of subsection II.A.(6) is 
not satisfied with respect to acquisition or holding by a plan of such 
Securities, provided that (1) such condition is disclosed in the 
prospectus or private placement memorandum; and (2) in the case of a 
private placement of Securities, 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 Securities) 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).

III. Definitions

    For purposes of this exemption:
    A. ``Security'' means:
    (1) A pass-through certificate or trust certificate that represents 
a beneficial ownership interest in the assets of an Issuer which is a 
Trust and which entitles the holder to payments of principal, interest 
and/or other payments made with respect to the assets of such Trust; or
    (2) A security which is denominated as a debt instrument that is 
issued by, and is an obligation of, an Issuer; with respect to 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.
    B. ``Issuer'' means an investment pool, the corpus or assets of 
which are held in trust (including a grantor or owner Trust) or whose 
assets are held by a partnership, special purpose corporation or 
limited liability company (which Issuer may be 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 Code); and the corpus or assets of 
which consist 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); and/or
    (c) Obligations that bear interest or are purchased at a discount 
and which are

[[Page 67771]]

secured by single-family residential, multi-family residential and/or 
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; and/or
    (e) Guaranteed governmental mortgage pool certificates, as defined 
in 29 CFR 2510.3-101(i)(2) \8\; and/or
    (f) Fractional undivided interests in any of the obligations 
described in clauses (a)-(e) of this subsection B.(1).\9\
---------------------------------------------------------------------------

    \8\ In Advisory Opinion 99-05A (Feb. 22, 1999), the Department 
expressed its view that mortgage pool certificates guaranteed and 
issued by the Federal Agricultural Mortgage Corporation (``Farmer 
Mac'') meet the definition of a guaranteed governmental mortgage 
pool certificate as defined in 29 CFR 2510.3-101(i)(2).
    \9\ The Department wishes to take the opportunity to clarify its 
view that the definition of Issuer contained in subsection III.B. 
includes a two-tier structure under which Securities issued by the 
first Issuer, which contains a pool of receivables described above, 
are transferred to a second Issuer which issues Securities that are 
sold to plans. However, the Department is of the further view that, 
since the Underwriter Exemption generally provides relief only for 
the direct or indirect acquisition or disposition of Securities that 
are not subordinated, no relief would be available if the Securities 
held by the second Issuer were subordinated to the rights and 
interests evidenced by other Securities issued by the first Issuer, 
unless such Securities were issued in a Designated Transaction.
---------------------------------------------------------------------------

    Notwithstanding the foregoing, residential and home equity loan 
receivables issued in Designated Transactions may be less than fully 
secured, provided that: (i) The rights and interests evidenced by the 
Securities issued in such Designated Transactions (as defined in 
section III.DD.) are not subordinated to the rights and interests 
evidenced by Securities of the same Issuer; (ii) such Securities 
acquired by the plan have received a rating from a Rating Agency at the 
time of such acquisition that is in one of the two highest generic 
rating categories; and (iii) any obligation included in the corpus or 
assets of the Issuer must be secured by collateral whose fair market 
value on the Closing Date of the Designated Transaction is at least 
equal to 80% of the sum of: (I) the outstanding principal balance due 
under the obligation which is held by the Issuer; and (II) the 
outstanding principal balance(s) of any other obligation(s) of higher 
priority (whether or not held by the Issuer) which are secured by the 
same collateral.
    (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 made to 
securityholders; and/or
    (b) Cash or investments made therewith which are credited to an 
account to provide payments to securityholders pursuant to any Eligible 
Swap Agreement meeting the conditions of subsection II.A.(9) or 
pursuant to any Eligible Yield Supplement Agreement; and/or
    (c) Cash transferred to the Issuer 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 paragraphs (a)-(g) of subsection II.A.(7) are met; and/or
    (ii) Are credited to a Capitalized Interest Account; and
    (iii) Are held by the Issuer for a period ending no later than the 
first distribution date to securityholders occurring after the end of 
the Pre-Funding Period.
    For purposes of this paragraph (c) of subsection III.B.(3), the 
term ``permitted investments'' means investments which: (i) are either: 
(x) 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 (y) have been 
rated (or the Obligor has been rated) in one of the three highest 
generic rating categories by a Rating Agency; (ii) are described in the 
Pooling and Servicing Agreement; and (iii) 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, Eligible Yield Supplement 
Agreements, Eligible Swap Agreements meeting the conditions of 
subsection II.A.(9) or other credit support arrangements with respect 
to any obligations described in subsection III.B.(1).
    Notwithstanding the foregoing, the term ``Issuer'' does not include 
any investment pool unless: (i) the assets of the type described in 
paragraphs (a)-(f) of subsection III.B.(1) which are contained in the 
investment pool have been included in other investment pools, (ii) 
Securities evidencing interests in such other investment pools have 
been rated in one of the three (or in the case of Designated 
Transactions, four) highest generic rating categories by a Rating 
Agency for at least one year prior to the plan's acquisition of 
Securities pursuant to this Underwriter Exemption, and (iii) Securities 
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 Securities pursuant to this Underwriter 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 Deutsche Bank AG, 
New York Branch and Deutsche Morgan Grenfell/C.J. Lawrence Inc, Credit 
Lyonnais Securities (USA) Inc., ABN AMRO Inc. and Ironwood Capital 
Partners Ltd. (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) is a manager 
or co-manager with respect to the Securities.
    D. ``Sponsor'' means the entity that organizes an Issuer by 
depositing obligations therein in exchange for Securities.
    E. ``Master Servicer'' means the entity that is a party to the 
Pooling and Servicing Agreement relating to assets of the Issuer and is 
fully responsible for servicing, directly or through Subservicers, the 
assets of the Issuer.
    F. ``Subservicer'' means an entity which, under the supervision of 
and on behalf of the Master Servicer, services loans contained in the 
Issuer, but is not a party to the Pooling and Servicing Agreement.
    G. ``Servicer'' means any entity which services loans contained in 
the Issuer, including the Master Servicer and any Subservicer.
    H. ``Trust'' means an Issuer which is a trust (including an owner 
trust, grantor trust or a REMIC or FASIT which is organized as a 
Trust).
    I. ``Trustee'' means the Trustee of any Trust which issues 
Securities and also includes an Indenture Trustee. ``Indenture 
Trustee'' means the Trustee appointed under the indenture pursuant to 
which the subject Securities are issued, the rights of holders of the 
Securities are set forth and a security interest in the Trust assets in 
favor of

[[Page 67772]]

the holders of the Securities is created. The Trustee or the Indenture 
Trustee is also a party to or beneficiary of all the documents and 
instruments transferred to the Issuer, and as such, has both the 
authority to, and the responsibility for, enforcing all the rights 
created thereby in favor of holders of the Securities, including those 
rights arising in the event of default by the servicer.
    J. ``Insurer'' means the insurer or guarantor of, or provider of 
other credit support for, an Issuer. Notwithstanding the foregoing, a 
person is not an insurer solely because it holds Securities 
representing an interest in an Issuer which are of a class subordinated 
to Securities representing an interest in the same Issuer.
    K. ``Obligor'' means any person, other than the Insurer, that is 
obligated to make payments with respect to any obligation or receivable 
included in the Issuer. Where an Issuer 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 Issuer, or subject to any lease securing an 
obligation included in the Issuer.
    L. ``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.
    M. ``Restricted Group'' with respect to a class of Securities 
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 Issuer constituting more than 5 percent of the aggregate 
unamortized principal balance of the assets in the Issuer, determined 
on the date of the initial issuance of Securities by the Issuer;
    (7) Each counterparty in an Eligible Swap Agreement; or
    (8) Any Affiliate of a person described in subsections III.M.(1)-
(7).
    N. ``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.
    O. ``Control'' means the power to exercise a controlling influence 
over the management or policies of a person other than an individual.
    P. 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.
    Q. ``Sale'' includes the entrance into a Forward Delivery 
Commitment, 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 Underwriter 
Exemption applicable to sales are met.
    R. ``Forward Delivery Commitment'' means a contract for the 
purchase or sale of one or more Securities to be delivered at an agreed 
future settlement date. The term includes both mandatory contracts 
(which contemplate obligatory delivery and acceptance of the 
Securities) and optional contracts (which give one party the right but 
not the obligation to deliver Securities to, or demand delivery of 
Securities from, the other party).
    S. ``Reasonable Compensation'' has the same meaning as that term is 
defined in 29 CFR 2550.408c-2.
    T. ``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 subsection III.T.(1);
    (3) The ability to charge the fee, the circumstances in which the 
fee may be charged, and an explanation of how the fee is calculated are 
set forth in the Pooling and Servicing Agreement; and
    (4) The amount paid to investors in the Issuer will not be reduced 
by the amount of any such fee waived by the Servicer.
    U. ``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 Issuer's security interest in the 
equipment is at least as protective of the rights of the Issuer as the 
Issuer would have if the equipment note were secured only by the 
equipment and not the lease.
    V. ``Qualified Motor Vehicle Lease'' means a lease of a motor 
vehicle where:
    (1) The Issuer owns or holds a security interest in the lease;
    (2) The Issuer owns or holds a security interest in the leased 
motor vehicle; and
    (3) The Issuer's security interest in the leased motor vehicle is 
at least as protective of the Issuer's rights as the Issuer would 
receive under a motor vehicle installment loan contract.
    W. ``Pooling and Servicing Agreement'' means the agreement or 
agreements among a Sponsor, a Servicer and the Trustee establishing a 
Trust. ``Pooling and Servicing Agreement'' also includes the indenture 
entered into by the Issuer and the Indenture Trustee.
    X. ``Rating Agency'' means Standard & Poor's Ratings Services, a 
division of The McGraw-Hill Companies Inc., Moody's Investors Service, 
Inc., Duff & Phelps Credit Rating Co., Fitch ICBA, Inc. or any 
successors thereto.
    Y. ``Capitalized Interest Account'' means an Issuer account: (i) 
Which is established to compensate securityholders for shortfalls, if 
any, between investment earnings on the Pre-Funding Account and the 
interest rate payable under the Securities; and (ii) which meets the 
requirements of paragraph (c) of subsection III.B.(3).
    Z. ``Closing Date'' means the date the Issuer is formed, the 
Securities are first issued and the Issuer'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 Issuer.
    AA. ``Pre-Funding Account'' means an Issuer account: (i) Which is 
established to purchase additional obligations, which obligations meet 
the conditions set forth in paragraph (a)-(g) of subsection II.A.(7); 
and (ii) which meets the requirements of paragraph (c) of subsection 
III.B.(3).
    BB. ``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 Securities 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.

[[Page 67773]]

    CC. ``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 ninety days after the Closing Date.
    DD. ``Designated Transaction'' means a securitization transaction 
in which the assets of the Issuer consist of secured consumer 
receivables, secured credit instruments or secured obligations that 
bear interest or are purchased at a discount and are: (i) Motor 
vehicle, home equity and/or manufactured housing consumer receivables; 
and/or (ii) motor vehicle credit instruments in transactions by or 
between business entities; and/or (iii) single-family residential, 
multi-family residential, home equity, manufactured housing and/or 
commercial mortgage obligations that are secured by single-family 
residential, multi-family residential, commercial real property or 
leasehold interests therein. For purposes of this section III.DD., the 
collateral securing motor vehicle consumer receivables or motor vehicle 
credit instruments may include motor vehicles and/or Qualified Motor 
Vehicle Leases.
    EE. ``Ratings Dependent Swap'' means an interest rate swap, or (if 
purchased by or on behalf of the Issuer) an interest rate cap contract, 
that is part of the structure of a class of Securities where the rating 
assigned by the Rating Agency to any class of Securities held by any 
plan is dependent on the terms and conditions of the swap and the 
rating of the counterparty, and if such Security rating is not 
dependent on the existence of the swap and rating of the 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 Securities must confirm, as of the date of issuance 
of the Securities by the Issuer, that entering into an Eligible Swap 
with such counterparty will not affect the rating of the Securities.

FF. ``Eligible Swap'' means a Ratings Dependent or Non-Ratings 
Dependent Swap:

    (1) Which is denominated in U.S. dollars;
    (2) Pursuant to which the Issuer pays or receives, on or 
immediately prior to the respective payment or distribution date for 
the class of Securities to which the swap relates, 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 Issuer 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;
    (3) Which has a notional amount that does not exceed either: (i) 
The principal balance of the class of Securities to which the swap 
relates, or (ii) the portion of the principal balance of such class 
represented solely by those types of corpus or assets of the Issuer 
referred to in subsections III.B.(1), (2) and (3);
    (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 subsection III.FF.(2), 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 either the earlier 
of the date on which the Issuer terminates or the related class of 
securities is fully repaid; and
    (6) Which does not incorporate any provision which could cause a 
unilateral alteration in any provision described in subsections 
III.FF.(1) through (4) without the consent of the Trustee.
    GG. ``Eligible Swap Counterparty'' means a bank or other financial 
institution which has a rating, at the date of issuance of the 
Securities by the Issuer, 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 Securities; provided that, if a swap counterparty 
is relying on its short-term rating to establish eligibility under the 
Underwriter Exemption, such swap counterparty must either have a long-
term rating in one of the three highest long-term rating categories or 
not have a long-term rating from the applicable Rating Agency, and 
provided further that if the class of Securities with which the swap is 
associated has a final maturity date of more than one year from the 
date of issuance of the Securities, 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.
    HH. ``Qualified Plan Investor'' means a plan investor or group of 
plan investors on whose behalf the decision to purchase Securities 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 Issuer and the effect such swap would have upon the credit 
ratings of the Securities. For purposes of the Underwriter Exemption, 
such a fiduciary is either:
    (1) A ``qualified professional asset manager'' (QPAM),\10\ as 
defined under Part V(a) of PTE 84-14, 49 FR 9494, 9506 (March 13, 
1984);
---------------------------------------------------------------------------

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

    \11\ 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 Securities.
    II. ``Excess Spread'' means, as of any day funds are distributed 
from the Issuer, the amount by which the interest allocated to 
Securities exceeds the amount necessary to pay interest to 
securityholders, servicing fees and expenses.
    JJ. ``Eligible Yield Supplement Agreement'' means any yield 
supplement agreement, similar yield maintenance arrangement or, if 
purchased by or on behalf of the Issuer, an interest rate cap contract 
to supplement the interest rates otherwise payable on obligations 
described in subsection III.B.(1). Effective for transactions occurring 
on or after April 7, 1998, such an agreement or arrangement may involve 
a notional principal contract provided that:
    (1) It is denominated in U.S. dollars;
    (2) The Issuer receives on, or immediately prior to the respective 
payment date for the Securities covered by such agreement or 
arrangement, a fixed rate of interest or a floating rate of interest 
based on a publicly available index (e.g., LIBOR or COFI), with the

[[Page 67774]]

Issuer receiving such payments on at least a quarterly basis;
    (3) It is not ``leveraged'' as described in subsection III.FF.(4);
    (4) It does not incorporate any provision which would cause a 
unilateral alteration in any provision described in subsections 
III.JJ.(1)-(3) without the consent of the Trustee;
    (5) It is entered into by the Issuer with an Eligible Swap 
Counterparty; and
    (6) It has a notional amount that does not exceed either: (i) the 
principal balance of the class of Securities to which such agreement or 
arrangement relates, or (ii) the portion of the principal balance of 
such class represented solely by those types of corpus or assets of the 
Issuer referred to in subsections III.B.(1), (2) and (3).

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 exemption is modified to read as follows:
    A. ``Security'' means:
    (1) A pass-through certificate or trust certificate that represents 
a beneficial ownership interest in the assets of an Issuer which is a 
Trust and which entitles the holder to payments of principal, interest 
and/or other payments made with respect to the assets of such Trust; or
    (2) A security which is denominated as a debt instrument that is 
issued by, and is an obligation of, an Issuer; 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 Securities 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.

B. Section III.C. of this exemption 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., Deutsche Bank AG, New York Branch and Deutsche Morgan 
Grenfell/C.J. Lawrence Inc.; ABN AMRO and Credit Lyonnais Securities, 
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 Securities; or
    (4) Any entity which has received from the Department an individual 
prohibited transaction exemption relating to Securities which is 
similar to this exemption.

I. Effective Date

    This exemption is effective for transactions occurring on or after 
August 23, 2000, except as otherwise provided in section I.C., 
subsection II.A.(4)(b), and section III.JJ. of the exemption. Section 
I.C., relating to the defeasance of mortgage obligations, is applicable 
to transactions occurring on or after January 1, 1999; subsection 
II.A.(4)(b) is applicable to transactions occurring on or after January 
1, 1998; and section III.JJ., relating to Eligible Yield Supplement 
Agreements involving notional principal contracts, is applicable to 
transactions occurring on or after April 7, 1998.

    Signed at Washington, D.C., this day of November, 2000.
Ivan L. Strasfeld,
Director of Exemption, Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 00-28855 Filed 11-9-00; 8:45 am]
BILLING CODE 4510-29-P