[Federal Register Volume 59, Number 111 (Friday, June 10, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-14170]


[[Page Unknown]]

[Federal Register: June 10, 1994]


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DEPARTMENT OF LABOR
[Application No. D-9681, et al.]

 

Proposed Exemptions; NatWest Securities Corporation, Inc.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of Proposed Exemptions.

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

Written Comments and Hearing Requests

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

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

Notice to Interested Persons

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

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

NatWest Securities Corporation, Inc. (NatWest) Located in New York, New 
York

[Application No. D-9681]

Proposed Exemption

I. Transactions
    A. Effective December 22, 1993, 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 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.\1\
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    \1\Section I.A. provides no relief from sections 406(a)(1)(E), 
406(a)(2) and 407 for any person rendering investment advice to an 
Excluded Plan within the meaning of section 3(21)(A)(ii) and 
regulation 29 CFR 2510.3-21(c).
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    B. Effective December 22, 1993, 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 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 or serviced by the same entity.\2\ 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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    \2\For purposes of this exemption, each plan participating in a 
commingled fund (such as a bank collective trust fund or insurance 
company pooled separate account) shall be considered to own the same 
proportionate undivided interest in each asset of the commingled 
fund as its proportionate interest in the total assets of the 
commingled fund as calculated on the most recent preceding valuation 
date of the fund.
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    (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 December 22, 1993, 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.\3\

    \3\In the case of a private placement memorandum, such 
memorandum must contain substantially the same information that 
would be disclosed in a prospectus if the offering of the 
certificates were made in a registered public offering under the 
Securities Act of 1933. In the Department's view, the private 
placement memorandum must contain sufficient information to permit 
plan fiduciaries to make informed investment decisions.
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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 December 22, 1993, 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 at 
the time of such acquisition that is in one of the three highest 
generic rating categories from either Standard & Poor's Corporation 
(S&P's), Moody's Investors Service, Inc. (Moody's), Duff & Phelps Inc. 
(D&P) or Fitch Investors Service, Inc. (Fitch);
    (4) The trustee is not an affiliate of any 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; and
    (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.
    B. Neither any underwriter, placement agent, sponsor, trustee, 
servicer, insurer, or any obligor, unless it or any of its affiliates 
has discretionary authority or renders investment advice with respect 
to the plan assets used by a plan to acquire certificates, shall be 
denied the relief provided under 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 a Real Estate Mortgage 
Investment Conduit (REMIC) within the meaning of section 860D(a) of the 
Internal Revenue Code of 1986; and
    (b) That is issued by and is an obligation of a trust; with respect 
to certificates defined in (1) and (2) for which NatWest or any of its 
affiliates which is subject to the jurisdiction of the United States 
courts 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 in the United States and consists solely of:
    (1) Either
    (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);
    (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);
    (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 commercial real property);
    (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);
    (e) ``Guaranteed governmental mortgage pool certificates,'' as 
defined in 29 CFR 2510.3-101(i)(2);
    (f) Fractional undivided interests in any of the obligations 
described in clauses (a)-(e) of this section B.(1);
    (2) Property which had secured any of the obligations described in 
subsection B.(1);
    (3) Undistributed cash or temporary investments made therewith 
maturing no later than the next date on which distributions are to be 
made to certificateholders; and
    (4) rights of the trustee under the pooling and servicing 
agreement, and rights under any insurance policies, third-party 
guarantees, contracts of suretyship and other credit support 
arrangements with respect to any obligations described in subsection 
B.(1).

Notwithstanding the foregoing, the term ``trust'' does not include any 
investment pool unless: (1) The investment pool consists only of assets 
of the type which have been included in other investment pools, (ii) 
certificates evidencing interests in such other investment pools have 
been rated in one of the three highest generic rating categories by 
S&P's, Moody's, D&P, or Fitch for at least one year prior to the plan's 
acquisition of certificates pursuant to this exemption.
    C. Underwriter means:
    (1) NatWest;
    (2) Any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by or under common control with 
NatWest; or
    (3) Any member of an underwriting syndicate or selling group of 
which NatWest or a person described in (2) 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 Service 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 receivables contained in the 
trust, but is not a party to the pooling and servicing agreement.
    G. Servicer means any entity which services receivables 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 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 of 
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);
    (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:
    (a) Which is secured by equipment which is leased;
    (b) Which is secured by the obligation of the lessee to pay rent 
under the equipment lease; and
    (c) With respect to which the trust's security interest in the 
equipment is at least as protective of the rights of the trust as the 
trust would have 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:
    (a) The trust holds a security interest in the lease;
    (b) The trust holds a security interest in the leased motor 
vehicle; and
    (c) The trust's security 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.

EFFECTIVE DATE: This exemption, if granted, will be effective for 
transactions occurring on or after December 22, 1993.

Summary of Facts and Representations

    1. NatWest is a corporation incorporated under the laws of the 
State of New York on March 28, 1986. NatWest, together with its 
affiliate NatWest International Securities, Inc. (NatWest 
International) is a broker-dealer registered as such under the 
Securities and Exchange Act of 1934, as amended. NatWest is an indirect 
wholly-owned subsidiary of National Westminster Bank Plc (NatWest Plc 
U.K.), an English banking institution. NatWest Plc U.K. operates in the 
United States through NatWest Bank Plc, N.Y. Branch (NatWest Bank Plc), 
which is a New York State licensed branch of NatWest Plc U.K. It 
derives its basic powers from the New York Banking law and is subject 
to the supervision of the New York Banking Department.
    NatWest Capital Markets Ltd. (NatWest Capital) and NatWest 
Securities Ltd. (NatWest Securities) are registered and authorized as 
broker-dealers in the United Kingdom. NatWest Plc U.K., through its 
various affiliates, maintains a long-standing investment banking 
presence in key financial centers around the world, and is active on a 
global basis in dealing, making markets and distribution of a broad 
range of debt and equity securities of both governmental and private 
issuers, and has capabilities worldwide in corporate finance, financial 
advisory, foreign exchange transactions and asset securitization.
    NatWest Plc U.K., NatWest Bank Plc, and their non-U.S. affiliates 
are active in structuring asset securitization transactions, both 
within the U.S. and overseas, which can involve facilitating or 
providing credit enhancement or placement agent services, in connection 
with the issuance and placement of asset-backed instruments in the form 
of medium-term notes, commercial paper or bank syndicated loans.
    The U.K.-based NatWest affiliates have participated outside the 
U.S. in the underwriting or placement of mortgage-backed securities 
relating to U.K. mortgage loans.
    Within the U.S., the underwriting and distribution activities of 
the NatWest affiliates have been limited to acting in a pure brokerage 
capacity for its U.S. institutional client base, and (through NatWest 
Bank Plc) acting as placement agent. NatWest Bank Plc is authorized 
under section 200 of the New York Banking to act as placement agent 
with respect to mortgage-backed and asset-backed securities (as well as 
other debt and equity securities). With respect to mortgage-backed or 
asset-backed securities transactions, NatWest Bank Plc acted on 
December 22, 1993, as the placement agent of certain privately placed 
mortgage-backed pass-through certificates for SWP Mortgage Securities 
Trust 1993-A, the assets of which consisted of multifamily apartment 
building mortgage loans sold by SWP Depositor, Inc. to the trust. 
NatWest requests that the exemption proposed herein apply to any and 
all transactions relating to the sale, holding and transfer of the 
pass-through certificates issued by that trust and the operation of 
that trust, including the servicing of its assets.
    With respect to distributions or placements within the U.S., 
NatWest Capital and NatWest Securities may act as placement agent or 
underwriter (through the U.S.-based NatWest affiliates acting in an 
agency capacity or as brokers) with respect to mortgage-backed and 
asset-backed securities (as well as other debt and equity securities), 
consistent with the Federal Reserve Board's Regulation K (12 CFR 
section 211) and relevant U.S. securities laws and regulations. NatWest 
and/or NatWest International may in the future be making application to 
the Federal Reserve Board for authority (Section 20 Authority) and bank 
regulatory approval to act as placement agent and to underwrite and 
deal in mortgage-backed and asset-backed securities (as well as other 
debt and equity securities) under Section 20 of the Glass-Steagall Act 
(12 U.S.C. at 377). In the event that NatWest and/or NatWest 
International make such application to the Federal Reserve Board and 
receive Section 20 Authority, NatWest requests that the exemption 
proposed herein apply to the private placement and underwriting 
activities of NatWest and/or NatWest International.\4\
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    \4\As described herein, the term ``NatWest'' refers to NatWest 
and its affiliates unless the context otherwise requires.
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    NatWest represents that any of its affiliates which acts as 
underwriter or placement agent with respect to a transaction for which 
the exemption proposed herein would be relied on will be subject to the 
jurisdiction of the United States courts (either because it is a U.S. 
entity, or, in the event that a foreign affiliate acts as underwriter 
or placement agent with respect to any such transaction, because the 
foreign affiliate will consent to personal jurisdiction in the U.S. 
courts. NatWest represents that in the event a foreign affiliate of 
NatWest acts as underwriter or placement agent, any sales of 
certificates to a plan will be effected through a U.S. entity 
(including NatWest or an affiliate) acting as an agent or broker. 
Further, NatWest represents that all sales of certificates that are 
effected in reliance on the exemption proposed herein will comply with 
applicable federal and state law.
Trust Assets
    2. NatWest seeks exemptive relief to permit plans to invest in 
pass-through certificates representing undivided interests in the 
following categories of trusts: (1) Single and multi-family residential 
or commercial mortgage investment trusts;\5\ (2) motor vehicle 
receivable investment trusts; (3) consumer or commercial receivables 
investment trusts; and (4) guaranteed governmental mortgage pool 
certificate investment trusts.\6\
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    \5\The Department notes that Prohibited Transaction Exemption 
(PTE) 83-1 (48 FR 895, January 7, 1983) a class exemption for 
mortgage pool investment trusts, would generally apply to trusts 
containing single-family residential mortgages, provided that the 
applicable conditions of PTE 83-1 are met. NatWest and its 
affiliates request relief for single-family residential mortgages in 
this exemption because it would prefer one exemption for all trusts 
of similar structure. However, NatWest and its affiliates have 
stated that they may still avail themselves of the exemptive relief 
provided by PTE 83-1.
    \6\Guaranteed governmental mortgage pool certificates are 
mortgage-backed securities with respect to which interest and 
principal payable is guaranteed by the Governmental National 
Mortgage Association (GNMA), the Federal Home Loan Mortgage 
Corporation (FHLMC), or the Federal National Mortgage Association 
(FNMA). The Department's regulation relating to the definition of 
plan assets (29 CFR 2510.3-101(i)) provides that where a plan 
acquires a guaranteed governmental mortgage pool certificate, the 
plan's assets include the certificate and all of its rights with 
respect to such certificate under applicable law, but do not, solely 
by reason of the plan's holding of such certificate, include any of 
the mortgages underlying such certificate. The applicant is 
requesting exemptive relief for trusts containing guaranteed 
governmental mortgage pool certificates because the certificates in 
the trusts may be plan assets.
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    3. Commercial mortgage investment trusts may include mortgages on 
ground leases or real property. Commercial mortgages are frequently 
secured by ground leases on the underlying property, rather than by fee 
simple interests. The separation of the fee simple interest and the 
ground lease interest is generally done for tax reasons. Properly 
structured, the pledge of the ground lease to secure a mortgage 
provides a lender with the same level of security as would be provided 
by a pledge of the related fee simple interest. The terms of the ground 
leases pledged to secure leasehold mortgages will in all cases be at 
least ten years longer than the term of such mortgages.\7\
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    \7\Trust assets may also include obligations that are secured by 
leasehold interests on residential real property. See PTE 90-32 
involving Prudential-Bache Securities, Inc. (55 FR 23147, June 6, 
1990) at 23150.
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Trust Structure
    4. Each trust is established under a pooling and servicing 
agreement between a sponsor, a servicer and a trustee. The sponsor or 
servicer of a trust selects assets to be included in the trust. These 
assets are receivables which may have been originated, in the ordinary 
course of business, by a sponsor or servicer of the trust, an affiliate 
of the sponsor or servicer, or by an unrelated lender and subsequently 
acquired by the trust sponsor or servicer.
    On or prior to the closing date, the sponsor acquires legal title 
to all assets selected for the trust, establishes the trust and 
designates an independent entity as trustee. On the closing date, the 
sponsor conveys to the trust legal title to the assets, and the trustee 
issues certificates representing fractional undivided interests in the 
trust assets. NatWest, or one or more broker-dealers (which may include 
NatWest), acts (or may act in the future) as underwriter or placement 
agent with respect to the sale of the certificates. In addition, 
NatWest anticipates privately placing certificates on both a firm 
commitment and an agency basis.
    Certificateholders are entitled to receive monthly, quarterly or 
semi-annually installments of principal and/or interest, or lease 
payments due on the receivables, adjusted, in the case of payments of 
interest, to a specified rate--the pass-through rate--which may be 
fixed or variable.
    When installments or payments are made on a semi-annual basis, 
funds are not permitted to be commingled with the servicer's assets for 
longer than would be permitted for a monthly-pay security. A segregated 
account is established in the name of the trustee (on behalf of 
certificateholders) to hold funds received between distribution dates. 
The account is under the sole control of the trustee, who invests the 
account's assets in short-term securities which have received a rating 
comparable to the rating assigned to the certificates. In some cases, 
the servicer may be permitted to make a single deposit into the account 
once a month. When the servicer makes such monthly deposits, payments 
received from obligors by the servicer may be commingled with the 
servicer's assets during the month prior to deposit. In no event will 
the period of time between the receipt of funds by the servicer and 
deposit of these funds in a segregated account exceed 45 days. 
Furthermore, in those cases where distributions are made semi-annually, 
the servicer will furnish a report on the operation of the trust to the 
trustee on a monthly basis. At or about the time this report is 
delivered to the trustee, it will be made available to 
certificateholders and delivered to or made available to each rating 
agency that has rated the certificates.
    5. Some of the certificates will be multi-class certificates. 
NatWest requests exemptive relief for two types of multi-class 
certificates: ``Strip'' certificates and ``fast-pay/slow-pay'' 
certificates. Strip certificates are a type of security in which the 
stream of interest payments on receivables is split from the flow of 
principal payments and separate classes of certificates are 
established, each representing rights to disproportionate payments of 
principal and interest.\8\
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    \8\It is the Department's understanding that where a plan 
invests in REMIC ``residential'' interest certificates to which this 
exemption applies, some of the income received by the plan as a 
result of such investment may be considered unrelated business 
taxable income to the plan, which is subject to income tax under the 
Code. The Department emphasizes that the prudence requirements of 
section 404(a)91)(B) of the Act would require plan fiduciaries to 
carefully consider this and other tax consequences prior to causing 
plan assets to be invested in certificates pursuant to this 
exemption.
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    ``Fast-pay/slow-pay'' certificates involve the issuance of classes 
of certificates having different stated maturities or the same 
maturities with different payment schedules. Interest and/or principal 
payments received on the underlying receivables are distributed first 
to the class of certificates having the earliest stated maturity of 
principal and/or earlier payment schedule, and only when that class of 
certificates has been paid in full (or has received a specified amount) 
will distributions be made with respect to the second class of 
certificates. Distributions on certificates having later stated 
maturities will proceed in like manner until all the certificateholders 
have been paid in full. The only difference between this multi-class 
pass-through arrangement and a single-class pass-through arrangement is 
the order in which distributions are made to certificateholders. In 
each case, certificateholders will have a beneficial ownership interest 
in the underlying assets. In neither case will the rights of a plan 
purchasing certificates be subordinated to the rights of another 
certificateholder in the event of default on any of the underlying 
obligations. In particular, if the amount available for distribution to 
certificateholders is less than the amount required to be so 
distributed, all senior certificateholders will share in the amount 
distributed on pro rata basis.\9\
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    \9\If a trust issue subordinate certificates, holders of such 
subordinate certificates may not share in the amount distributed on 
a pro rata basis. The Department notes that the exemption does not 
provide relief for plan investment in such subordinated 
certificates.
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    6. For tax reasons, the trust must be maintained as an essentially 
passive entity. Therefore, both the sponsor's discretion and the 
servicer's discretion with respect to assets included in a trust are 
severely limited. Pooling and servicing agreements provide for the 
substitution of receivables by the sponsor only in the event of defects 
in documentation discovered within a short time after the issuance of 
trust certificates (within 120 days, except in the case of obligations 
having an original term of 30 years, in which case the period will not 
exceed two years). Any receivable so substituted is required to have 
characteristics substantially similar to the replaced receivable and 
will be at least as creditworthy as the replaced receivable.
    In some cases, the affected receivable would be repurchased, with 
the purchase price applied as a payment on the affected receivable and 
passed through to certificateholders.
Parties to Transactions
    7. The originator of a receivable is the entity that initially 
lends money to a borrower (obligor), such as a homeowner or automobile 
purchaser, or leases property to a lessee. The originator may either 
retain a receivable in its portfolio or sell it to a purchaser, such as 
a trust sponsor.
    Originators of receivables included in the trusts will be entities 
that originate receivables in the ordinary course of their business, 
including finance companies, for whom such origination constitutes the 
bulk of their operations, financial institutions for whom such 
origination constitutes a substantial part of their operations, and any 
kind of manufacturer, merchant, or service enterprise for whom such 
origination is an incidental part of its operations. Each trust may 
contain assets of one or more originators. The originator of the 
receivables may also function as the trust sponsor or servicer.
    8. The sponsor will be one of three entities: (i) A special-purpose 
or other corporation unaffiliated with the servicer, (ii) a special-
purpose or other corporation affiliated with the servicer, or (iii) the 
servicer itself. Where the sponsor is not also the servicer, the 
sponsor's role will generally be limited to acquiring the receivables 
to be included in the trust, establishing the trust, designating the 
trustee, and assigning the receivables to the trust.
    9. The trustee of a trust is the legal owner of the obligations in 
the trust. The trustee is also a party to or beneficiary of all the 
documents and instruments deposited in the trust, and as such is 
responsible for enforcing all the rights created thereby in favor of 
certificateholders.
    The trustee will be an independent entity, and therefore will be 
unrelated to NatWest, the trust sponsor or the servicer. NatWest 
represents that the trustee will be a substantial financial institution 
or trust company experienced in trust activities. The trustee receives 
a fee for its services, which will be paid by the sponsor or servicer. 
The method of compensating the trustee will be specified in the pooling 
and servicing agreement and disclosed in the prospectus or private 
placement memorandum relating to the offering of the certificates.
    10. The servicer of a trust administers the receivables on behalf 
of the certificateholders. The servicer's functions typically involve, 
among other things, notifying borrowers of amounts due on receivables, 
maintaining records of payments received on receivables and instituting 
foreclosure or similar proceedings in the event of default. In cases 
where a pool of receivables has been purchased from a number of 
different originators and deposited in a trust, it is common for the 
receivables to be ``subserviced'' by their respective originators and 
for a single entity to ``master service'' the pool of receivables on 
behalf of the owners of the related series of certificates. Where this 
arrangement is adopted, a receivable continues to be serviced from the 
perspective of the borrower by the local subservicer, while the 
investor's perspective is that the entire pool of receivables is 
serviced by a single, central master servicer who collects payments 
from the local subservicers and passes them through to 
certificateholders.
    Receivables of the type suitable for inclusion in a trust 
invariably are serviced with the assistance of a computer. After the 
sale, the servicer keeps the sold receivables on the computer system in 
order to continue monitoring the accounts. Although the records 
relating to sold receivables are kept in the same master file as 
receivables retrained by the originator, the sold receivables are 
flagged as having been sold. To protect the investors' interest, the 
servicer ordinarily covenants that this ``sold flag'' will be included 
in all records relating to the sold receivables, including the master 
file, archives, tape extracts, and printouts.
    The sold flags are invisible to the obligor, and do not affect the 
manner in which the servicer performs the billing, posting and 
collection procedures relating to the sold receivables. However, the 
servicer uses the sold flag to identify the receivables for the purpose 
of reporting all activity on those receivables after their sale to the 
investors.
    Depending on the type of receivable and the details of the 
servicer's computer system, in some cases the servicer's internal 
reports can be adapted for investor reporting with little or no 
modification. In other cases, the servicer may have to perform special 
calculations to fulfill the investor reporting responsibilities. These 
calculations can be performed on the servicer's main computer, or on a 
small computer with data supplied by the main system. In all cases, the 
numbers produced for the investors are reconciled to the servicer's 
books and reviewed by public accountants.
    The underwriter will be registered broker-dealer that acts as 
underwriter or placement agent with respect to the sale of the 
certificates. Public offerings of certificates are generally made on a 
firm commitment or agency basis. Private placements of certificates may 
be made on a firm commitment or agency basis.
    It is anticipated that the lead or co-managing underwriter will 
make a market in certificates offered to the public.
    In some cases, the originator and servicer of receivables to be 
included in a trust and the sponsor of the trust (though they 
themselves may be related) will be unrelated to NatWest. In other 
cases, however, NatWest (directly or through one or more of its U.S. 
banking affiliates) may originate or service receivables included in a 
trust, or may sponsor a trust.
Certificate Price, Pass-Through Rate and Fees
    11. In some cases, the sponsor will obtain the receivables from 
various originators pursuant to existing contracts with such 
originators under which the sponsor will purchase the receivables at 
fair market value from originator or a finance company pursuant to a 
purchase and sale agreement related to the specific offering of 
certificates. In other cases, the sponsor will originate the 
receivables itself.
    As compensation for the receivables transferred to the trust, the 
sponsor receives cash, or certificates representing the entire 
beneficial interest in the trust. The sponsor sells some or all of 
these certificates for cash to investors or securities underwriters.
    12. The price of the certificates, both in the initial offering and 
in the secondary market, is affected by market forces including 
investor demand, the pass-through interest rate on the certificates in 
relation to the rate payable on investments of similar types and 
quality, expectations as to the effect on yield resulting from 
prepayment of underlying receivables, and expectations as to the 
likelihood of timely payment.
    The pass-through rate for certificates is equal to the interest 
rate on receivables included in the trust minus a specified servicing 
fee.\10\ This rate is generally determined by the same market forces 
that determine the price of a certificate. The price of a certificate 
and its pass-through, or coupon rate, together determine the yield to 
investors. If an investor purchases a certificate at less than par, 
that discount augments the stated pass-through rate; conversely, a 
certificate purchased at a premium yields less than the stated coupon.
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    \10\The pass-through rate on certificates representing interests 
in trusts holding leases is determined by breaking down lease 
payments, into ``principal'' and ``interest'' components based on an 
implicit interest rate.
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    13. As compensation for performing its servicing duties, the 
servicer (who may also be the sponsor or an affiliate thereof, and 
receive fees for acting as sponsor) will retain the difference between 
payments received on the receivables in the trust and payments payable 
(at the pass-through rate) to certificateholders, except that in some 
cases a portion of the payments on receivables may be paid to a third 
party, such as a fee paid to a provider of credit support. The servicer 
may receive additional compensation by having the use of the amounts 
paid on the receivables between the time they are received by the 
servicer and the time they are due to the trust (which time is set 
forth in the pooling and servicing agreement). The servicer, typically 
will be required to pay the administrative expenses of servicing the 
trust, including in some cases the trustee's fee, out of its servicing 
compensation.
    The servicer is also compensated to the extent it may provide 
credit enhancement to the trust or otherwise arrange to obtain credit 
support from another party. This ``credit support fee'' may be 
aggregated with other servicing fees, and is either paid in a lump sum 
at the time the trust is established, or out of the interest income 
received on the receivables in excess of the pass-through rate.
    14. The servicer may be entitled to retain certain administrative 
fees paid by a third party usually the obligor. These administrative 
fees fall into three categories: (a) prepayment fees; (b) late payment 
and payment extension fees; and (c) expenses, fees and charges 
associated with foreclosure or repossession, or other conversion of a 
secured position into cash proceeds, upon default of an obligation.
    Compensation payable to the servicer will be set forth or referred 
to in the pooling and servicing agreement and described in reasonable 
detail in the prospectus or private placement memorandum relating to 
the certificates.
    15. Payments on receivables may be made by obligors to the servicer 
at various times during the period preceding any date on which pass-
through payments to the trust are due. In some cases, the pooling and 
servicing agreement may permit the servicer to place these payments in 
non-interest bearing accounts in itself or to commingle such payments 
with its own funds prior to the distribution dates. In these cases, the 
servicer would be entitled to the benefit derived from the use of the 
funds between the date of payment on a receivable and the pass-through 
date. Commingled payments may not be protected from the creditors of 
the servicer in the event of the servicer's bankruptcy or receivership. 
In those instances when payments on receivables are held in non-
interest bearing accounts or are commingled with the servicer's own 
funds, the servicer is required to deposit these payments by a data 
specified in the pooling and servicing agreement into an account from 
which the trustee makes payments to certificateholders.
    16. The underwriter will receive a fee in connection with the 
securities underwriting or private placement of certificates. In a fir 
commitment underwriting this fee would consist of the difference 
between what the underwriter receives for the certificates that it 
distributes and what it pays the sponsor for those certificates. In a 
private placement, the fee normally takes the form of an agency 
commission paid by the sponsor. In a best efforts underwriting in which 
the underwriter would sell certificates in a public offering on an 
agency basis, the underwriter would receive an agency commission rather 
than a fee based on the difference between the price at which the 
certificates are sold to the public and what it pays the sponsor. In 
some private placements the underwriter may buy certificates as 
principal, in which case its compensation would be the difference 
between what it receives for the certificates that it sells and what it 
pays the sponsor for these certificates.
Purchase of Receivables by the Servicer
    17. The applicant represents that as the principal amount of the 
receivables in a trust is reduced by payment, the cost of administering 
the trust generally increases, making the servicing of the trust 
prohibitively expensive at some point. Consequently the pooling and 
servicing agreement generally provides that the servicer may purchase 
the receivables included in the trust when the aggregate unpaid balance 
payable on the receivables is reduced to a specified percentage 
(usually between 5 and 10 percent) of the initial balance.
    The repurchase price for such an option is set at a level such that 
the certificateholders will receive the full amount on all of the 
receivables held by the trust plus the accrued interest at the pass-
through rate plus the full amount of property, if any, that has been 
required by the trust through collections on or liquidations of the 
receivables.
Certificate Ratings
    18. The certificates will have received one of the three highest 
ratings available from either S&P's, Moody's, D&P or Fitch. Insurance 
or other credit support (such as overcollateralization, surety bonds, 
letter of credit or guarantees) will be obtained by the trust sponsor 
to the extent necessary for the certificates to attain the desired 
rating. The amount of this credit support is set by the rating agencies 
at a level that is a multiple of the worst historical net credit loss 
experience for the type of obligations included in the issuing trust.
Provision of Credit Support
    19. In some cases, the master servicer, or an affiliate of the 
master servicer, may provide credit support to the trust (i.e., act as 
an insurer). In these cases, the master servicer, in its capacity as 
servicer, will first advance funds to the full extent that it 
determines that such advances will be recoverable (a) out of late 
payments by the obligors, (b) from the credit support provider (which 
may be itself) or, (c) in the case of a trust that issues subordinated 
certificates, from amounts otherwise distributable to holders of 
subordinated certificates, and the master servicer will advance such 
funds in a timely manner. In some transactions, the master servicer may 
not be obligated to advance funds, but instead would be called upon to 
provide funds to cover defaulted payments to the full extent of its 
obligations as insurer. Moreover, a master servicer typically can 
recover advances either from the provider of credit support or from the 
future payment stream. When the servicer is the provider of the credit 
support and provides its own funds to cover defaulted payments, it will 
do so either on the initiative of the trustee, or on its own initiative 
on behalf of the trustee, but in either event it will provide such 
funds to cover payments to the full extent of its obligations under the 
credit support mechanism.
    If the master servicer fails to advance funds, fails to call upon 
the credit support mechanism to provide funds to cover defaulted 
payments, or otherwise fails in its duties, the trustee would be 
required and would be able to enforce the certificateholders' rights, 
as both a party to the pooling and servicing agreement and the owner of 
the trust estate, including rights under the credit support mechanism. 
Therefore, the trustee, who is independent of the servicer, will have 
the ultimate right to enforce the credit support arrangement.
    When a master servicer advances funds, the amount so advanced is 
recoverable by the master servicer out of future payments on 
receivables held by the trust to the extent not covered by credit 
support. However, where the master servicer provides credit support to 
the trust, there are protections in place to guard against a delay in 
calling upon the credit support to take advantage of the fact that the 
credit support declines proportionally with the decrease in the 
principal amount of the obligations in the trust as payments on 
receivables are passed through to investors. These safeguards include:
    (a) There is often a disincentive to postponing credit losses 
because the sooner repossession or foreclosure activities are 
commenced, the more value that can be realized on the security for the 
obligation;
    (b) The master servicer has servicing guidelines which include a 
general policy as to the allowable delinquency period after which an 
obligation ordinarily will be deemed uncollectible. The pooling and 
servicing agreement will require the master servicer to follow its 
normal servicing guidelines and will set forth the master servicer's 
general policy as to the period of time after which delinquent 
obligations ordinarily will be considered uncollectible;
    (c) As frequently as payments are due on the receivables included 
in the trust (monthly, quarterly, or semi-annually as set forth in the 
pooling and servicing agreement), the master servicer is required to 
report to the independent trustee the amount of all past-due payments 
and the amount of all servicer advances, along with other current 
information as to collections on the receivables and draws upon the 
credit support. Further, the master servicer is required to deliver to 
the trustee annually a certificate of an executive officer of the 
master servicer stating that a review of the servicing activities has 
been made under such officer's supervision, and either stating that the 
master servicer has fulfilled all of its obligations under the pooling 
and servicing agreement or, if the master servicer has defaulted under 
any of its obligations, specifying any such default. The master 
servicer's reports are reviewed at least annually by independent 
accountants to ensure that the master servicer is following its normal 
servicing standards and that the master servicer's reports conform to 
the master servicer's internal accounting records. The results of the 
independent accountants' review are delivered to the trustee;
    (d) The credit support has a ``floor'' dollar amount that protects 
investors against the possibility that a large number of credit losses 
might occur towards the end of the life of the trust, whether due to 
servicer advances or any other cause. Once the floor amount has been 
reached, the master servicer lacks an incentive to postpone the 
recognition of credit losses because the credit support amount becomes 
a fixed dollar amount, subject to reduction only for actual draws. From 
the time that the floor amount is effective until the end of the life 
of the trust, there are no proportionate reductions in the credit 
support amount caused by reductions in the pool principal balance. 
Indeed, since the floor is a fixed dollar amount, the amount of credit 
support ordinarily increases as a percentage of the pool principal 
balance during the period that the floor is in effect. The protection 
provided by a floor dollar amount to the credit support applies 
particularly where the master servicer and the insurer are affiliated 
or are the same entity. (An entity should not be considered as insurer 
solely because it holds subordinated certificates.)
Disclosure
    20. In connection with the original issuance of certificates, the 
prospectus or private placement memorandum will be furnished to 
investing plans. The prospectus or private placement memorandum will 
contain information material to a fiduciary's decision to invest in the 
certificates, including:
    (a) Information concerning the payment terms of the certificates, 
the rating of the certificates, and any material risk factors with 
respect to the certificates;
    (b) A description of the trust as a legal entity and a description 
of how the trust was formed by the seller/servicer or other sponsor of 
the transaction;
    (c) Identification of the independent trustee for the trust;
    (d) A description of the receivables contained in the trust, 
including the types of receivables, the diversification of the 
receivables, their principal terms and their material legal aspects;
    (e) A description of the sponsor and servicer;
    (f) A description of the pooling and servicing agreement, including 
a description of the seller's principal representations and warranties 
as to the trust assets and the trustee's remedy for any breach thereof; 
a description of the procedures for collection of payments on 
receivables and for making distributions to investors, and a 
description of the accounts into which such payments are deposited and 
from which such distributions are made; identification of the servicing 
compensation and any fees for credit enhancement that are deducted from 
payments on receivables before distributions are made to investors; a 
description of periodic statements provided to the trustee, and 
provided to or made available to investors by the trustee; and a 
description of the events that constitute events of default under the 
pooling and servicing contract and a description of the trustee's and 
the investors' remedies incident thereto;
    (g) A description of the credit support;
    (h) A general discussion of the principal federal income tax 
consequences of the purchase, ownership and disposition of the pass-
through securities by a typical investor;
    (i) A description of the underwriters' and/or placement agent's 
plan for distributing the pass-through securities to investors; and
    (j) Information about the scope and nature of the secondary market, 
if any, for the certificates.
    21. Reports indicating the amount of payments of principal and 
interest are provided to certificateholders at least as frequently as 
distributions are made to certificateholders. Certificateholders will 
also be provided with periodic information statements setting forth 
material information concerning the underlying assets, including, where 
applicable, information as to the amount and number of delinquent and 
defaulted loans or receivables.
    22. In the case of a trust that offers and sells certificates in a 
registered public offering, the trustee, the servicer or the sponsor 
will file such periodic reports as may be required to be filed under 
the Securities Exchange Act of 1934. Although some trusts that offer 
certificates in a public offering will file quarterly reports on Form 
10-Q and Annual Reports on Form 10-K, many trusts obtain, by 
application to the Securities and Exchange Commission, a complete 
exemption from the requirement to file quarterly reports on Form 10-Q 
and a modification of the disclosure requirements for annual reports on 
Form 10-K. If such an exemption is obtained, these trusts normally 
would continue to have the obligation to file current reports on Form 
8-K to report material developments concerning the trust and the 
certificates. While the Securities and Exchange Commission's 
interpretation of the periodic reporting requirements is subject to 
change, periodic reports concerning a trust will be filed to the extent 
required under the Securities Exchange Act of 1934.
    23. At or about the time distributions are made to 
certificateholders, a report will be delivered to the trustee as to the 
status of the trust and its assets, including underlying obligations. 
Such report will typically contain information regarding the trust's 
assets, payments received or collected by the servicer, the amount of 
prepayments, delinquencies, servicer advances, defaults and 
foreclosures, the amount of any payments made pursuant to any credit 
support, and the amount of compensation payable to the servicer. Such 
report also will be delivered to or made available to the rating agency 
or agencies that have rated the trust's certificates.
    In addition, promptly after each distribution date, 
certificateholders will receive a statement prepared by the trustee 
summarizing information regarding the trust and its assets. Such 
statement will include information regarding the trust and its assets, 
including underlying receivables. Such statement will typically contain 
information regarding payments and prepayments, delinquencies, the 
remaining amount of the guaranty or other credit support and a 
breakdown of payments between principal and interest.
Forward Delivery Commitments
    24. NatWest represents that, to date, it has not entered into any 
forward delivery commitments in connection with the offering of pass-
through certificates. However, NatWest states that it may contemplate 
entering into such commitments. NatWest notes that the utility of 
forward delivery commitments has been recognized with respect to the 
offering of similar certificates backed by pools of residential 
mortgages. As such, NatWest states that it may find it desirable in the 
future to enter into such commitments for the purchase of certificates.
Secondary Market Transactions
    25. NatWest, to the extent it obtains Section 20 Authority (see 
rep. 1, above) would normally attempt to make a market for securities 
for which it is lead or co-managing underwriter in the future. It is 
also NatWest's general policy to facilitate sales by investors who have 
purchased certificates if NatWest has acted as placement agent in the 
original placement of the certificates and if such investors request 
NatWest's assistance. Such policy is in effect for the transaction 
entered into on December 22, 1993, as to which NatWest Bank Plc acted 
as placement agent.
Retroactive Relief
    26. NatWest represents that it has engaged in one transaction 
related to mortgage-backed and asset-backed securities (see rep 1, 
above), based on the assumption that retroactive relief would not be 
granted. NatWest represents that the transaction was entered into in 
conformance with the exception contained in the Department's regulation 
relating to the definition of plan assets (29 CFR 2510.3-101) which 
applies where equity participation by benefit plan investors is not 
``significant''. However, it is difficult to monitor whether the 
percentage interest of plans in a trust is at all times not 
``significant'' for purposes of that regulation. Accordingly, relief is 
requested for transactions which have occurred on or after December 22, 
1993.
Summary
    27. In summary, the applicant represents that the transactions for 
which exemptive relief is requested satisfy the statutory criteria of 
section 408(a) of the Act due to the following:
    (a) The trusts contain ``fixed pools'' of assets. There is little 
discretion on the part of the trust sponsor to substitute receivables 
contained in the trust once the trust has been formed;
    (b) Certificates in which plans invest will have been rated in one 
of the three highest rating categories by S&P's, Moody's, D&P or Fitch. 
Credit support will be obtained to the extent necessary to attain the 
desired rating;
    (c) All transactions for which NatWest seeks exemptive relief will 
be governed by the pooling and servicing agreement, which is made 
available to plan fiduciaries for their review prior to the plan's 
investment in certificates;
    (d) Exemptive relief from sections 406(b) and 407 for sales to 
plans is substantially limited; and
    (e) NatWest anticipates that it will make a secondary market in 
certificates with respect to which it acts as an underwriter in the 
future.

Discussion of Proposed Exemption

I. Differences Between Proposed Exemption and Class Exemption PTE 83-1
    The exemptive relief proposed herein is similar to that provided in 
PTE 81-7 (46 FR 7520, January 23, 1981), Class Exemption for Certain 
Transactions Involving Mortgage Pool Investment Trusts, amended and 
restated as PTE 83-1 (48 FR 895, January 7, 1983).
    PTE 83-1 applies to mortgage pool investment trusts consisting of 
interest-bearing obligations secured by first or second mortgages or 
deeds of trust on single-family residential property. The exemption 
provides relief from sections 406(a) and 407 for the sale, exchange or 
transfer in the initial issuance of mortgage pool certificates between 
the trust sponsor and a plan, when the sponsor, trustee or insurer of 
the trust is a party-in-interest with respect to the plan, and the 
continued holding of such certificates, provided that the conditions 
set forth in the exemption are met. PTE 83-1 also provides exemptive 
relief from section 406 (b)(1) and (b)(2) of the Act for the above-
described transactions when the sponsor, trustee or insurer of the 
trust is a fiduciary with respect to the plan assets invested in such 
certificates, provided that additional conditions set forth in the 
exemption are met. In particular, section 406(b) relief is conditioned 
upon the approval of the transaction by an independent fiduciary. 
Moreover, the total value of certificates purchased by a plan must not 
exceed 25 percent of the amount of the issue, and at least 50 percent 
of the aggregate amount of the issue must be acquired by persons 
independent of the trust sponsor, trustee or insurer. Finally, PTE 83-1 
provides conditional exemptive relief from section 406 (a) and (b) of 
the Act for transactions in connection with the servicing and operation 
of the mortgage trust.
    Under PTE 83-1, exemptive relief for the above transactions is 
conditioned upon the sponsor and the trustee of the mortgage trust 
maintaining a system for insuring or otherwise protecting the pooled 
mortgage loans and the property securing such loans, and for 
indemnifying certificate holders against reductions in pass-through 
payments due to defaults in loan payments or property damage. This 
system must provide such protection and indemnification up to an amount 
not less than the greater of one percent of the aggregate principal 
balance of all trust mortgages or the principal balance of the largest 
mortgage.
    The exemptive relief proposed herein differs from that provided by 
PTE 83-1 in the following major respects: (1) The proposed exemption 
provides individual exemptive relief rather than class relief; (2) The 
proposed exemption covers transactions involving trusts containing a 
broader range of assets than single-family residential mortgages; (3) 
Instead of requiring a system for insuring the pooled receivables, the 
proposed exemption conditions relief upon the certificates having 
received one of the three highest ratings available from S&P's, 
Moody's, D&P or Fitch (insurance or other credit support would be 
obtained only to the extent necessary for the certificates to attain 
the desired rating); and (4) The proposed exemption provides more 
limited section 406(b) and section 407 relief for sales transactions.
II. Rating of Certificates
    After consideration of the representations of the applicant and 
information provided by S&P's, Moody's, D&P and Fitch, the Department 
has decided to condition exemptive relief upon the certificates having 
attained a rating in one of the three highest generic rating categories 
from S&P's, Moody's, D&P or Fitch. The Department believes that the 
rating condition will permit the applicant flexibility in structuring 
trusts containing a variety of mortgages and other receivables while 
ensuring that the interests of plans investing in certificates are 
protected. The Department also believes that the ratings are indicative 
of the relative safety of investments in trusts containing secured 
receivables. The Department is conditioning the proposed excemptive 
relief upon each particular type of asset-backed security having been 
rated in one of the three highest rating categories for at least one 
year and having been sold to investors other than plans for at least 
one year.\11\
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    \11\In referring to different ``types'' of asset-backed 
securities, the Department means certificates representing interests 
in trusts containing different ``types'' of receivables, such as 
single family residential mortgages, multi-family residential 
mortgages, commercial mortgages, home equity loans, auto loan 
receivables, installment obligations for consumer durable secured by 
purchase money security interests, etc. The Department intends this 
condition to require that certificates in which a plan invests are 
of the type that have been rated (in one of the three highest 
generic rating categories by S&P's, D&P, Fitch or Moody's) and 
purchased by investors other than plans for at least one year prior 
to the plan's investment pursuant to the proposed exemption. In this 
regard, the Department does not intend to require that the 
particular assets contained in a trust must have been ``seasoned'' 
(e.g., originated at least one year prior to the plan's investment 
in the trust).
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III. Limited Section 406(b) and Section 407(a) Relief for Sales
    NatWest represents that in some cases a trust sponsor, trustee, 
servicer, insurer, and obligor with respect to receivables contained in 
a trust, or an underwriter and/or placement agent of certificates may 
be a pre-existing party in interest with respect to an investing 
plan.\12\ In these cases, a direct or indirect sale or certificates by 
that party in interest to the plan would be a prohibited sale or 
exchange of property under section 406(a)(1)(A) of the Act.\13\ 
Likewise, issues are raised under section 406(a)(1)(D) of the Act where 
a plan fiduciary causes a plan to purchase certificates where trust 
funds will be used to benefit a party in interest.
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    \12\In this regard, we note that the exemptive relief proposed 
herein is limited to certificates with respect to which NatWest or 
any of its affiliates is either: (a) The sole underwriter or manager 
or comanager of the underwriting syndicate, or (b) a selling or 
placement agent.
    \13\The applicant represents that where a trust sponsor is an 
affiliate of NatWest, sales to plans by the sponsor may be exempt 
under PTE 75-1, part II (relating to purchases and sales of 
securities by broker-dealers and their affiliates), if NatWest is 
not a fiduciary with respect to plan assets to be invested in 
certificates.
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    Additionally, NatWest represents that a trust sponsor, servicer, 
trustee, insurer, and obligor with respect to receivables contained in 
a trust, or an underwriter and/or placement agent of certificates 
representing an interest in a trust may be a fiduciary with respect to 
an investing plan. NatWest represents that the exercise of fiduciary 
authority by any of these parties to cause the plan to invest in 
certificates representing an interest in the trust would violate 
section 406(b)(1), and in some cases section 406(b)(2), of the Act.
    Moreover, NatWest represents that to the extent there is a plan 
asset ``look through'' to the underlying assets of a trust, the 
investment in certificates by a plan covering employees of an obligor 
under receivables contained in a trust may be prohibited by sections 
406(a) and 407(a) of the Act.
    After consideration of the issues involved, the Department has 
determined to provide the limited sections 406(b) and 407(a) relief as 
specified in the proposed exemption.

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

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest of disqualified 
person from certain other provisions of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
section 404 of the Act, which among other things require a fiduciary to 
discharge his duties respecting the plan solely in the interest of the 
participants and beneficiaries of the plan and in a prudent fashion in 
accordance with section 404(a)(1)(b) of the act; nor does it affect the 
requirement of section 401(a) of the Code that the plan must operate 
for the exclusive benefit of the employees of the employer maintaining 
the plan and their beneficiaries;
    (2) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete and accurately describe all 
material terms of the transaction which is the subject of the 
exemption. In the case of continuing exemption transactions, if any of 
the material facts or representations described in the application 
change after the exemption is granted, the exemption will cease to 
apply as of the date of such change. In the event of any such change, 
application for a new exemption may be made to the Department.

    Signed at Washington, DC, this 7th day of June, 1994.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 94-14170 Filed 6-9-94; 8:45 am]
BILLING CODE 4510-29-M