[Federal Register Volume 59, Number 170 (Friday, September 2, 1994)]
[Notices]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-21772]


[[Page Unknown]]

[Federal Register: September 2, 1994]


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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-9732, et al.]

 

Proposed Exemptions; BMF Financial Corp. Deferred Savings Plan

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of Proposed Exemptions.

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

Written Comments and Hearing Requests

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

[Application No. D-9732]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 C.F.R. Part 
2570, Subpart B (55 F.R. 32836, 32847, August 10, 1990). If the 
exemption is granted the restrictions of sections 406(a), 406 (b)(1) 
and (b)(2) of the Act and the sanctions resulting from the application 
of section 4975 of the Code, by reason of section 4975(c)(1) (A) 
through (E) of the Code, shall not apply to (1) the past acquisition of 
certain stock rights (the Rights) by the Plan pursuant to a stock 
rights offering (the Offering) by BMJ Financial Corporation (BMJ) to 
shareholders of record as of February 9, 1993 of BMJ common stock (the 
Common Stock); (2) the holding of the Rights by the Plan during the 
subscription period of the Offering; and (3) the past exercise of the 
Rights by the Plan; provided that the following conditions are 
satisfied:

    (1) The Plan's acquisition and holding of the Rights occurred in 
connection with the Offering made available to all shareholders of 
the Common Stock;
    (2) The Plan's acquisition and holding of the Rights resulted 
from an independent act of BMJ as a corporate entity, and all 
holders of Common Stock, including the Plan, were treated in the 
same manner with respect to the Offering; and
    (3) The authority for all decisions regarding the acquisition, 
holding and control of the Rights by the Plan was exercised by an 
independent fiduciary which made determinations as to whether and 
how the Plan should exercise or sell the Rights acquired through the 
Offering.

EFFECTIVE DATE: This exemption, if granted, will be effective as of 
February 9, 1993, the Record Date of the Offering.

Summary of Facts and Representations

    1. BMJ Financial Corporation (BMJ) is a bank holding corporation 
chartered in New Jersey, with its headquarters in Bordentown, New 
Jersey. BMJ and its affiliates sponsor the Plan on behalf of their 
employees. In order to obtain additional capital to comply with certain 
federal regulatory requirements governing minimum capitalization, BMJ 
determined to issue stock rights (the Rights) in 1993. The Rights were 
issued to all holders of BMJ common stock (the Common Stock), enabling 
recipients to acquire additional shares of Common Stock. Since the Plan 
was among the holders of Common Stock when the Rights were issued by 
BMJ, the Plan received such Rights. BMJ requests an exemption to permit 
the Plan's past acquisition and holding of the Rights under the 
circumstances and conditions described herein.
    2. The Plan is a profit-sharing plan that receives elective 
employee contributions pursuant to arrangements subject to section 
401(k) of the Code, and employer matching contributions subject to 
section 401(m) of the Code. Employer matching contributions are paid in 
the form of Common Stock. As of December 31, 1992, the Plan had 
approximately 304 participants and total assets of $4,075,795.52. The 
Plan is administered by a committee consisting of six employees and an 
outside director, each appointed by BMJ's board of directors (the 
Committee). The Committee directs the administration of the Plan and 
possesses all powers necessary to carry out the terms of the Plan. The 
Bank of Mid-Jersey serves as the current trustee (the Trustee) for the 
Plan, as directed by the Committee. In order to enable the Plan's 
active participation in the Offering and to provide for independent 
representation of the Plan's interests with respect to the Offering, 
certain amendments were made to the Plan's trust document (the Trust 
Agreement) prior to the Offering. The amendments are described as 
follows: (a) The Trust Agreement was amended to authorize BMJ to 
appoint one or more investment managers to manage the investment of all 
or a portion of the Plan assets; (b) The Trust Agreement was amended to 
require BMJ to furnish to the Trustee the name of any Plan investment 
manager appointed by BMJ and to allow the Trustee to assume that any 
such manager remains authorized to direct the Trustee until notified 
otherwise; and (c) The Trust Agreement was amended to permit the 
Trustee to take any actions necessary to carry out the instructions of 
an appointed investment manager properly authorized under the Trust 
Agreement.
    Pursuant to the amendments to the Plan, BMJ entered into an 
agreement (the Appointment) with the Swathmore Group, Inc. (the 
Fiduciary) providing for independent representation of the Plan with 
respect to the Offering. The terms of the Appointment provide that the 
Fiduciary serves as an ``investment manager'' on behalf of the Plan, as 
that term is defined in section 3(38) of Title I of the Act, with 
respect to the Offering. Under the Appointment, the Fiduciary is 
granted, for the entire period of the Offering, the exclusive authority 
to direct the Committee with respect to (a) All Rights issued to the 
Plan, (b) all Common Stock held by the Plan, and (c) the employer 
matching contributions paid to the Plan in cash by BMJ and its 
affiliates on January 12, January 29, February 12, February 26, and 
March 12, 1993. BMJ represents that the Fiduciary was selected to serve 
in this capacity because of its extensive investment experience, its 
familiarity with securities distributions like the Offering, its prior 
experience as an investment manager on behalf of plans subject to the 
Act, and its independence from all other parties to the transaction. 
The Fiduciary represents that it is a registered investment advisor 
incorporated under the laws of Delaware, that it has substantial 
fiduciary experience under the Act, and that it is independent of and 
unrelated to BMJ and its affiliates.
    3. On February 9, 1993, BMJ had issued and outstanding 
approximately 4,365,295 shares of Common Stock, $1.00 par value, of 
which 122,042.02 shares, or 2.80 percent, were owned by the Plan.\1\ 
Executive officers of BMJ directly or indirectly owned, in the 
aggregate, 33,910 shares of the outstanding common stock, excluding (1) 
Shares held by the Plan, (2) shares subject to stock options, and (3) 
shares held in certain trusts established for the benefit of 
nonemployee members of the BMJ board of directors. Accordingly, as of 
February 9, 1993 the combined holdings of the Plan and BMJ's executive 
officers were approximately 155,952 shares, or 3.57 percent of the 
issued and outstanding Common Stock, while unrelated persons held 
approximately 4,209,343 shares, or 96.43 percent, of the issued and 
outstanding Common Stock. Pursuant to a registration statement filed by 
the Securities and Exchange Commission effective February 12, 1993, BMJ 
announced that it intended to distribute certain stock subscription 
rights (the Rights) to BMJ's Common Stock holders, as part of a plan of 
recapitalization of BMJ and two of its subsidiaries, the Bank of Mid-
Jersey and Mt. Holly State Bank.

    \1\The applicant represents that the Common Stock owned by the 
Plan as of the Record Date constituted qualifying employer 
securities as defined in section 407(d)(5) of Title I of the Act 
and, therefore, satisfied the requirements of section 407(a) of 
Title I of the Act.
    4. Under the terms of the Rights offer (the Offering), each 
shareholder received 0.56 Rights for each share of Common Stock held as 
of the close of business on Tuesday, February 9, 1993 (the Record 
Date). The Rights were treated as separate securities under federal 
securities laws and were traded on the NASDAQ national market system 
separately from the Common Stock. Pursuant to the terms of the 
Offering, the Rights were exercisable until 5:00 p.m. E.S.T. on Monday, 
March 15, 1993. Thereafter, any unexercised Rights expired and became 
worthless. Each Right conferred upon the registered holder thereof the 
right (the Basic Privilege) to purchase one share of Common Stock at a 
stated exercise price of $4.75 per share (the Exercise Price). Each 
Right also carried with it the nontransferable right to subscribe, at 
the Exercise Price, for the shares underlying any Rights that remained 
unexercised upon the expiration of the Offering on March 15, 1993, 
subject to proration (the Oversubscription Privilege).2 Only 
holders of Common Stock who exercised all their Rights pursuant to the 
Basic Privilege were entitled to subscribe for shares pursuant to the 
Oversubscription Privilege.

    \2\If the oversubscription requests exceeded the number of 
available shares, the available shares were to be allocated or 
``prorated'' among the oversubscribers in proportion to the number 
of shares each purchased pursuant to the Basic Privilege.
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    A total of 3,176,144 shares of the Common Stock were issued by BMJ 
pursuant to the Offering. Of this total, 2,444,565 shares were issued 
through the exercise of Rights, with 2,100,433 shares purchased through 
the Basic Privilege and 344,132 shares purchased through the 
Oversubscription Privilege. The remaining 731,579 shares of the total 
sold pursuant to the Offering were sold pursuant to standby purchase 
agreements with eight standby purchasers. Executive officers and 
members of the board of directors of BMJ purchased 207,883 shares of 
the Common Stock issued pursuant to the Offering. Gross proceeds 
generated by BMJ from the Offering totalled $15,086,684, including 
$3,470,000 raised through standby purchase agreements. All sales of 
Common Stock pursuant to the Offering were made at the Exercise Price, 
$4.75 per share. On February 8, 1993, prior to the Record Date, the 
Common Stock closed on the NASDAQ system at a price of $8.88 per share. 
The Plan received 68,343 Rights as a result of the Offering because the 
Plan had held 122,042 shares of Common Stock as of the Record Date.
    5. The Fiduciary represents that it exercised due diligence to 
determine the most prudent response to the Offering on behalf of the 
Plan, and that all information relevant to the Offering was analyzed, 
including the following: (a) The terms of the Plan and its trust 
document; (b) the economic impact on the Plan under various 
alternatives, including selling the Rights, exercising the Rights, 
taking no action and any combination of these alternatives; (c) the 
cash balances available to the Plan, the Plan's expected cash flow and 
the Plan's ability to borrow cash; (d) the likely value of the 
Oversubscription Privilege and the likelihood of any shares becoming 
available thereunder; and (e) the procedures and methodology of the 
Offering.
    On the basis of its considerations of all options available to the 
Plan under the circumstances prevailing at the time of the Offering, 
the Fiduciary represents that it determined that the most prudent 
course of action was for the Plan to exercise the Basic Privilege with 
respect to all 68,343 Rights issued to the Plan. To do so, the Plan 
needed $324,629.25 in cash, which was $263,335.49 more than the Plan 
ultimately received in cash matching contributions before the close of 
the Offering on March 15, 1993. In order to generate the additional 
cash needed to exercise the Rights, the Fiduciary determined that the 
Plan should sell a portion of the Common Stock held by the Plan. In 
addition, the Fiduciary also determined that the Plan should borrow 
$60,000, if possible, to acquire an additional 12,500 shares of Common 
Stock, if such shares became available to the Plan pursuant to the 
Oversubscription Privilege. Although the Plan had additional shares of 
Common Stock it could sell to raise the cash necessary to exercise the 
Oversubscription Privilege, the Fiduciary represents that it had 
determined that very few shares of additional Common Stock would become 
available pursuant to the Oversubscription Privilege, and that the 
transaction costs involved in the Plan selling the additional shares 
were not justified. The Fiduciary determined that a short-term loan, on 
the other hand, permitted the Plan to raise the necessary cash at 
relatively modest cost.
    The Fiduciary states that once it had made the foregoing 
determinations, it directed the Committee and the Trustee to take the 
following steps: (1) Immediately sell 38,000 shares of Common Stock on 
the NASDAQ system for $7.00 per share, which was the net price per 
share prevailing on the NASDAQ on March 4, 1993, the day the 
instructions were received; (2) Apply the sales proceeds and the cash 
matching contributions to exercise the Basic Privilege with respect to 
all Rights issued to the Plan at a cost of $324,629.25; and (3) If 
possible, borrow $60,000 (the Loan) and apply the Loan proceeds to 
exercise the Oversubscription Privilege for an additional 12,500 shares 
of Common Stock, subject to the following conditions: (a) The Loan was 
not to be outstanding for more than 30 days; (b) To the extent some or 
all of the 12,500 shares did not become available pursuant to the 
Oversubscription Privilege, the remaining Loan proceeds were to be 
applied to repay the unused portion of the Loan.
    According to the Fiduciary's instructions, the Trustee and the 
Committee executed the sale of 38,000 shares of Common Stock and 
purchased 68,343 shares of Common Stock at the Exercise Price by 
exercising the Basic Privilege on behalf of the Plan. However, because 
an unrelated lender could not be located to make the Loan to the Plan, 
the Fiduciary directed the Trustee and the Committee not to exercise 
the Oversubscription Privilege.
    6. The applicant represents that as a result of participating in 
the Offering as directed by the Fiduciary, the Plan realized a net gain 
of $182,027.70. Prior to the Offering, the Plan held 122,042 shares of 
Common Stock and was scheduled to receive cash matching contributions 
of $61,293.76 before the end of the Offering. The applicant explains 
that the Plan's normal practice would have been to invest the cash 
matching contributions in Common Stock through a dividend reinvestment 
program on the 10th day of the month following the date on which the 
contribution was received. If the Plan had not participated in the 
Offering and instead had followed its normal practice, the Plan would 
have held 128,700 shares of Common Stock, plus $12,261.05 in cash, at 
the end of the Offering on March 15, 1993. BMJ states that these assets 
would have had a fair market value on that date of $1,039,717.05. By 
participating in the Offering as directed by the Fiduciary, the Plan 
instead held 153,385 shares of Common Stock, plus $2,664.51 in cash, at 
the end of the Offering on March 15, 1993, resulting in total Plan 
assets with a fair market value of $1,221,744.75.
    7. The applicant states that the issuance of the Rights to the Plan 
resulted from unilateral, independent actions of BMJ, and that the 
Plan, as an owner of Common Stock, received the Rights on the same 
basis as all other Common Stock owners. The applicant explains that the 
purpose of the Offering was to generate necessary capital for BMJ and 
that the inevitable effect of issuing new shares of Common Stock was 
the dilution of the proportionate interest in the corporation 
represented by all previously-issued shares. Accordingly, Common Stock 
owners who failed to exercise the Rights could be expected to 
experience a diminution in their proportionate interest in BMJ and a 
decrease in the value of their Common Stock shares. Common Stock owners 
who exercised their Rights could avoid such reductions of interest and 
value, and could potentially experience a net gain. The applicant notes 
that the Fiduciary determined that the most prudent course of action 
for the Plan with respect to the Offering was to participate by 
exercising the Rights to the maximum extent possible.
    8. In summary, the applicant represents that the transactions 
satisfy the criteria of section 408(a) of the Act for the following 
reasons: (a) The Plan's receipt of the Rights through the Offering 
resulted from unilateral, independent actions of BMJ with the sole 
intent of generating necessary additional capital; (b) The Plan 
received the Rights, and was accorded treatment under the Offering, on 
the same basis as all other owners of Common Stock as of the Record 
Date of the Offering; (c) The interests of the Plan with respect to the 
Rights and the Offering were represented independently of BMJ, by the 
Fiduciary, who had sole responsibility with respect to the Plan's 
actions regarding the Rights; and (d) The Fiduciary determined that the 
most prudent course of action on behalf of the Plan with respect to the 
Offering was the exercise of the Rights to the maximum extent possible.

FOR FURTHER INFORMATION CONTACT: Ronald Willett of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)
H. Stephen Cranston Professional Corporation Pension Plan and Trust 
(the Plan), Located in San Marino, California

[Application No. D-9733]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of 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). If the exemption is granted the sanctions resulting 
from the application of section 4975 of the Code, by reason of section 
4975(c)(1) (A) through (E) of the Code shall not apply to the proposed 
cash sale (the Sale) of certain real property (the Property) by the 
Plan to H. Stephen Cranston and Karen Y. Cranston, husband and wife, 
and disqualified persons with respect to the Plan; provided that (1) 
the Sale is a one-time transaction for cash; (2) the Plan does not 
experience any loss nor incur any expenses from the proposed 
transaction; and (3) the Plan receives as consideration from the Sale 
the greater of either (a) the fair market value of the Property as 
determined by a qualified, independent appraiser on the date of the 
Sale, or (b) an amount equal to all the funds expanded by the Plan in 
acquiring and maintaining the Property during its period of ownership.

Summary of Facts and Representations

    1. The Plan is a defined benefit plan that has one participant, H. 
Stephen Cranston. As of March 31, 1993, the total assets of the Plan 
were $748,627. The fiduciaries of the Plan, who have investment 
discretion over the assets of the Plan, are H. Stephen Cranston and his 
wife, Karen Y. Cranston, who are also the applicants for the exemption.
    The sponsoring employer of the plan is a California professional 
corporation which is designated as H. Stephen Cranston Professional 
Corporation. It is engaged in the practice of general business law with 
its offices in San Marino, California. H. Stephen Cranston is the sole 
shareholder and only employee.3

    \3\Since Mr. H. Stephen Cranston is the sole shareholder of the 
sponsor of the Plan and the only participant in the Plan, there is 
no jurisdiction under Title I of the Act pursuant to 29 CFR 2510.3-
3(c)(1). However, there is jurisdiction under Title II of the Act 
pursuant to section 4975 of the Code.
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    2. The Property consists of 59.9 acres of forested land that is 
located in Linn County on 48063 Cascadia Drive, Cascadia, Oregon. The 
improvements on the Property are a 67 year old two-story house with a 
detached barn and shed. The house is represented by the applicants to 
be in a deplorable condition and uninhabitable. There is no available 
drinking water, the prior occupants destroyed the furnace for heating 
the house, and the septic tank needs to be replaced. There is no 
basement under the house and the wood foundation, which is riddled with 
termites and dry rot, is braced to avoid collapsing.
    The Property was appraised by Scott Lepman, SRA, RM of Albany, 
Oregon, an independent appraiser, who determined, as of March 18, 1994, 
that the Property had a fair market value of $128,000. Among other 
things, Mr. Lepman determined that the Property would not qualify for 
bank financing; and also, he observed many structural defects on the 
Property: the buildings need painting; the sunporch needs to be 
finished; the ceiling in the living room is in disrepair; the walls in 
several rooms need repairing; and the house's foundation is 
structurally unsound. He also observed functional obsolence such as, 
the house has unevenly settled and has no conventional source for 
heating. Mr. Lepman also indicated that the barn and shed are in 
disrepair.
    Mr. Lepman described the location of the Property, which is 
surrounded by forest land, to be in a mixed neighborhood of poor to 
good dwellings that vary in age and design, and are predominately 
located on large parcels that are devoted to agricultural and timber 
production. Mr. Lepman referred to the properties in the area as below 
average in visual appeal and in level of maintenance. He further stated 
that the area is an older rural community with a declining timber base 
due to the enforced governmental protections of the spotted owl.
    3. The Property was purchased by the Plan on July 30, 1990, from 
Charlie West and Lorraine West, husband and wife, for the total 
consideration of $70,000. The Wests are represented by the applicants 
as unrelated persons with respect to the Plan and its sole participant.
    The applicants represent that the purchase of the Property was made 
by the Plan with the intention that the timber on the Property would be 
cut and sold over a number of years for a profitable return to the 
Plan. During 1992, the Plan had cut approximately 40 percent of the 
timber on the Property for a net return of $43,646.32 after expenses.
    Since the cutting in 1992, the applicants represent that 
circumstances have curtailed further timber cutting. One intervening 
condition has been the recent reporting of spotted owls in the area 
followed by the imposition of governmental regulations precluding the 
cutting of timber and destroying the owl's habitat. Another curtailment 
to cutting timber on the Property is the State of Oregon requirements 
that all trees cut must be replaced with new trees that survive for at 
least five years. The applicants represent that because of the steep 
and uneven contours of the Property the survival of new trees is 
precarious and uncertain. Also, after the replanting there is a need 
for the services of a professional forester to care for the new 
plantings for an additional three years.
    Since the Plan purchased the Property in 1990 for $70,000 and 
incurred legal fees of $262.35, the applicants represent that the Plan 
has expended an additional sum of $15,794.38 for repairs and 
maintenance of the Property. The expenses to the Plan included such 
things as property taxes, roof repairs, weed and rubbish removal, 
electrical repairs, fence and gate repairs, chimney removal, materials 
and labor for bracing the foundation of house, and security services.
    4. The applicants propose that the Property be sold to them for the 
higher of either its fair market value or for the total amount of funds 
expended by the Plan acquiring and maintaining the Property, so that 
the Plan can avoid the continuing expenses of repairing, reforesting, 
and maintaining the Property. In addition, the Plan will be able to 
invest the funds from the Sale in liquid assets that generate yields 
and incur less expenses. The applicants state that the Plan will incur 
no expenses nor any losses from the proposed transaction.
    The applicants represent that the proposed transaction will be in 
the best interests of the Plan and its participant and beneficiaries 
because it is unlikely that the Property can be sold to persons 
unrelated to the Plan. The applicants represent, and the appraiser 
corroborates, that the Property is not habitable and the availability 
of bank financing for the purchase of the Property is not foreseeable. 
Also, the likelihood of finding a purchaser in the area with adequate 
cash is represented to be remote because of the high unemployment in 
the area due to logging restrictions involving the ecological problem 
of the spotted owl.
    The applicants who are the only persons affected by the proposed 
transaction desire that the proposed transaction be consummated.
    5. In summary, the applicants represent that the proposed 
transaction will satisfy the criteria of section 4975(c)(2) of the Code 
because (a) the Sale of the Property involves a one-time transaction 
for cash; (b) the Plan will not incur any expenses from the Sale; (c) 
the Plan will receive as consideration from the Sale the greater of 
either the fair market value of the Property as determined by a 
qualified, independent appraiser on the date of the Sale, or an amount 
equal to all the funds expended by the Plan in acquiring and 
maintaining the Property during its period of ownership; (d) the Sale 
will permit the Plan to reinvest illiquid assets into income producing, 
liquid assets; and (e) the Plan will avoid the expenses and risks 
involved in maintaining and developing the Property.

NOTICE TO INTERESTED PERSONS: Since the applicants are the only persons 
affected by the proposed transaction, there is no need to distribute 
notice to interested persons. Comments are due 30 days after 
publication of this notice in the Federal Register.

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

GE Capital Mortgage Services, Inc. (GECMSI) Located in Cherry Hill, New 
Jersey; and GECC Capital Markets Group, Inc. (Capital Markets; 
together, the Applicants) Located in Stamford, Connecticut [Application 
Nos. D-9748 and D-9749]

Proposed Exemption

I. Transactions
    A. Effective June 28, 1994, 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.\4\

    \4\Section I.A. provides no relief from sections 406(a)(1)(E), 
406(a)(2) and 407 for any person rendering investment advice to an 
Excluded Plan within the meaning of section 3(21)(A)(ii) and 
regulation 29 CFR 2510.3-21(c).
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    B. Effective June 28, 1994, 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.\5\ 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;

    \5\For purposes of this exemption, each plan participating in a 
commingled fund (such as a bank collective trust fund or insurance 
company pooled separate account) shall be considered to own the same 
proportionate undivided interest in each asset of the commingled 
fund as its proportionate interest in the total assets of the 
commingled fund as calculated on the most recent preceding valuation 
date of the fund.
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    (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 June 28, 1994, 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.\6\

    \6\In the case of a private placement memorandum, such 
memorandum must contain substantially the same information that 
would be disclosed in a prospectus if the offering of the 
certificates were made in a registered public offering under the 
Securities Act of 1933. In the Department's view, the private 
placement memorandum must contain sufficient information to permit 
plan fiduciaries to make informed investment decisions.
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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 June 28, 1994, 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, 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; and
    (c) with respect to which (i) one of the Applicants or any of their 
affiliates is the sponsor, and an entity which has received from the 
Department an individual prohibited transaction exemption relating to 
certificates which is similar to this exemption is the sole underwriter 
or the manager or co-manager of the underwriting syndicate or a selling 
or placement agent; or (ii) one of the Applicants or any of their 
affiliates is the sole underwriter or the manager or co-manager of the 
underwriting syndicate or a selling or placement agent; or
    (2) a certificate denominated as a debt instrument--
    (a) that represents an interest in 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 which (i) one of the Applicants or any of their affiliates is the 
sponsor, and an entity which has received from the Department an 
individual prohibited transaction exemption relating to certificates 
which is similar to this exemption is the sole underwriter or the 
manager or co-manager of the underwriting syndicate or a selling or 
placement agent; or manager or co-manager of the underwriting 
syndicate, or (ii) one of the Applicants is the sole underwriter or the 
manager or co-manager of the underwriting syndicate, or a selling or 
placement agent.

For purposes of this exemption, references to ``certificates 
representing an interest in a trust'' include certificates denominated 
as debt which are issued by a trust.

    B. Trust means an investment pool, the corpus of which is held in 
trust 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: (i) 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, and 
(iii) certificates evidencing interests in such other investment pools 
have been purchased by investors other than plans for at least one year 
prior to the plan's acquisition of certificates pursuant to this 
exemption.

    C. Underwriter means:
    (1) any of the Applicants;
    (2) any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by or under common control with 
any of the Applicants; or
    (3) any member of an underwriting syndicate or selling group of 
which any of the Applicants or a person described in (2) is a manager 
or co-manager with respect to the certificates; or
    (4) an entity which has received from the Department an individual 
prohibited transaction exemption relating to certificates which is 
similar to this exemption.
    D. Sponsor means the entity that organizes a trust by depositing 
obligations therein in exchange for certificates.
    E. Master Servicer means the entity that is a party to the pooling 
and servicing agreement relating to trust assets and is fully 
responsible for servicing, directly or through subservicers, the assets 
of the trust.
    F. Subservicer means an entity which, under the supervision of and 
on behalf of the master servicer, services loans contained in the 
trust, but is not a party to the pooling and servicing agreement.
    G. Servicer means any entity which services loans contained in the 
trust, including the master servicer and any subservicer.
    H. Trustee means the trustee of the trust, and in the case of 
certificates which are denominated as debt instruments, also means the 
trustee of the indenture trust.
    I. Insurer means the insurer or guarantor of, or provider of other 
credit support for, a trust. Notwithstanding the foregoing, a person is 
not an insurer solely because it holds securities representing an 
interest in a trust which are of a class subordinated to certificates 
representing an interest in the same trust.
    J. Obligor means any person, other than the insurer, that is 
obligated to make payments with respect to any obligation or receivable 
included in the trust. Where a trust contains qualified motor vehicle 
leases or qualified equipment notes secured by leases, ``obligor'' 
shall also include any owner of property subject to any lease included 
in the trust, or subject to any lease securing an obligation included 
in the trust.
    K. Excluded Plan means any plan with respect to which any member of 
the Restricted Group is a ``plan sponsor'' within the meaning of 
section 3(16)(B) of the Act.
    L. Restricted Group with respect to a class of certificates means:
    (1) each underwriter;
    (2) each insurer;
    (3) the sponsor;
    (4) the trustee;
    (5) each servicer;
    (6) any obligor with respect to obligations or receivables included 
in the trust constituting more than 5 percent of the aggregate 
unamortized principal balance of the assets in the trust, determined on 
the date of the initial issuance of certificates by the trust; or
    (7) any affiliate of a person described in (1)-(6) above.
    M. Affiliate of another person includes:
    (1) Any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with such other person;
    (2) Any officer, director, partner, employee, relative (as defined 
in section 3(15) of the Act), a brother, a sister, or a spouse of a 
brother or sister of such other person; and
    (3) Any corporation or partnership of which such other person is an 
officer, director or partner.
    N. Control means the power to exercise a controlling influence over 
the management or policies of a person other than an individual.
    O. A person will be ``independent'' of another person only if:
    (1) such person is not an affiliate of that other person; and
    (2) the other person, or an affiliate thereof, is not a fiduciary 
who has investment management authority or renders investment advice 
with respect to any assets of such person.
    P. ``Sale'' includes the entrance into a forward delivery 
commitment (as defined in section Q below), provided:
    (1) The terms of the forward delivery commitment (including any fee 
paid to the investing plan) are no less favorable to the plan than they 
would be in an arm's length transaction with an unrelated party;
    (2) The prospectus or private placement memorandum is provided to 
an investing plan prior to the time the plan enters into the forward 
delivery commitment; and
    (3) At the time of the delivery, all conditions of this exemption 
applicable to sales are met.
    Q. Forward delivery commitment means a contract for the purchase or 
sale of one or more certificates to be delivered at an agreed future 
settlement date. The term includes both mandatory contracts (which 
contemplate obligatory delivery and acceptance of the certificates) and 
optional contracts (which give one party the right but not the 
obligation to deliver certificates to, or demand delivery of 
certificates from, the other party).
    R. ``Reasonable compensation'' has the same meaning as that term is 
defined in 29 CFR 2550.408c-2.
    S. Qualified Administrative Fee means a fee which meets the 
following criteria:
    (1) the fee is triggered by an act or failure to act by the obligor 
other than the normal timely payment of amounts owing in respect of the 
obligations;
    (2) the servicer may not charge the fee absent the act or failure 
to act referred to in (1);
    (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 June 28, 1994.

Summary of Facts and Representations

    1. GECMSI is incorporated in the State of New Jersey, and is a 
wholly-owned subsidiary of GE Capital Mortgage Corporation, a holding 
company, which in turn is a wholly-owned subsidiary of General Electric 
Capital Corporation. GECMSI is engaged in the business of acquiring and 
servicing residential mortgage loans secured by one- to four-family 
homes. GECMSI's servicing business is derived from one of two sources: 
a) it will acquire or originate a mortgage loan which it will service; 
or b) it will service a mortgage loan which it has neither acquired nor 
originated. GECMSI is also involved in the home equity business through 
its Home Equity Services unit.
    Capital Markets is incorporated in the State of Delaware, and is a 
wholly-owned subsidiary of General Electric Capital Corporation. 
Capital Markets engages in certain limited securities-related 
transactions on behalf of General Electric Capital Corporation and its 
subsidiaries. Capital Markets is registered with the Securities and 
Exchange Commission as a broker-dealer under the Securities and 
Exchange Act of 1934.
Trust Assets
    2. The Applicants seek 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;7 (2) motor vehicle 
receivable investment trusts; (3) consumer or commercial receivables 
investment trusts; and (4) guaranteed governmental mortgage pool 
certificate investment trusts.8

    \7\The Department notes that 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. The Applicants request relief for single-family residential 
mortgages in this exemption because it would prefer one exemption 
for all trusts of similar structure. However, the Applicants have 
stated that they may still avail themselves of the exemptive relief 
provided by PTE 83-1.
    \8\Guaranteed governmental mortgage pool certificates are 
mortgage-backed securities with respect to which interest and 
principal payable is guaranteed by the Government 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 Applicants are 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 of 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.9

    \9\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 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. The certificates are either publicly or privately 
offered.
    Certificateholders are entitled to receive monthly or quarterly 
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.
    A segregated account is established in the name of the trustee or 
the servicer (in either case, on behalf of certificateholders) to hold 
funds received between distribution dates. The account is under the 
sole control of the trustee or the servicer, as applicable, 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 receipt of funds by the servicer and 
deposit of these funds in a segregated account exceed 45 days.
    5. Some of the certificates will be multi-class certificates. The 
Applicants request 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.10

    \10\It is the Department's understanding that where a plan 
invests in REMIC ``residual'' 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 requirement of 
section 404(a)(1)(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. In certain transactions of 
this type, 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 
a certificate 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 then entitled to receive 
distributions will share in the amount distributed on a pro rata 
basis.11

    \11\If a trust issues subordinated certificates, holders of such 
subordinated certificates may not share in the amount distributed on 
a pro rata basis with the senior certificateholders. 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. 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 the 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 GECMSI. 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 the trust sponsor, the servicer or underwriter or 
placement agent. The Applicants represent 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 servicer, sponsor or out of trust assets. 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.
    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 the underwriter or the 
placement agent. In other cases, however, GECMSI may originate or 
service receivables included in a trust, or may sponsor a trust for 
which Capital Markets will be the underwriter or placement agent.
Certificate Price, Pass-Through Rate and Fees
    11. Where the sponsor of a trust is not the originator of 
receivables included in a trust, the sponsor generally purchases the 
receivables in the secondary market, either directly from the 
originator or from another secondary market participant. The price the 
sponsor pays for a receivable is determined by competitive market 
forces, taking into account payment terms, interest rate, quality, and 
forecasts as to future interest rates.
    As compensation for the receivables transferred to the trust, the 
sponsor receives certificates representing the entire beneficial 
interest in the trust, or the cash proceeds of the sale of such 
certificates. If the sponsor receives certificates from the trust, the 
sponsor sells all or a portion of these certificates for cash to 
investors or securities underwriters. In some transactions, the sponsor 
or an affiliate may retain a portion of the certificates for its own 
account. In addition, in some transactions the originator may sell 
receivables to a trust for cash. At the time of the sale, the trustee 
would sell certificates to the public or to underwriters and use the 
cash proceeds of the sale to pay the originator for receivables sold to 
the trust. The transfer of the receivables to the trust by the sponsor, 
the sale of certificates to investors, and the receipt of the cash 
proceeds by the sponsor generally take place simultaneously.
    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.12 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.

    \12\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, and receive fees for acting in 
that capacity) 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 or deposited into a reserve fund. 
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 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 out of the 
interest income received on the receivables in excess of the pass-
through rate or paid in a lump sum at the time the trust is 
established.
    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 fees related to the modification of the 
terms of an obligation as permitted by the provisions of the pooling 
and servicing agreement (including the partial release of collateral to 
the extent provided therein); and (c) 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 date 
specified in the pooling and servicing agreement into an account from 
which the trustee makes payments to certificateholders.
    16. Underwriters or placement agents will receive a fee in 
connection with the securities underwriting or private placement of 
certificates. In a firm commitment underwriting, this fee would consist 
of the difference between what such underwriter receives for the 
certificates that it distributes and what it pays the sponsor for those 
certificates. In some public offerings, however, an underwriter may 
sell certificates on an agency basis in a best efforts underwriting. In 
those cases, the underwriter would receive an agency commission paid by 
the sponsor plus reimbursement for out-of-pocket expenses. In a private 
placement, the fee normally takes the form of an agency commission paid 
by the sponsor.
Purchase of Receivables by the Servicer
    17. The Applicants represent 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 remaining in the trust when the aggregate unpaid 
balance payable on the receivables is reduced to a specified percentage 
(usually 5 to 10 percent) of the initial aggregate unpaid balance.
    The purchase price of a receivable is specified in the pooling and 
servicing agreement and will be at least equal to: (1) the unpaid 
principal balance on the receivable plus accrued interest, less any 
unreimbursed advances of principal made by the servicer; or (2) the 
greater of (a) the amount in (1) or (b) the fair market value of such 
obligations in the case of a REMIC, or the fair market value of the 
certificates in the case of a trust that is not a REMIC.
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 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. 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. In some cases, however, 
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. However, a master 
servicer typically can recover advances either from the provider of 
credit support or from future payments on the affected assets.
    If the master servicer fails to advance funds, fails to call upon 
the credit support mechanism to provide funds to cover delinquent 
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 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 (usually monthly or quarterly 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; and
    (d) Credit support will be provided based upon a specified 
percentage of the aggregate initial principal balance of the 
receivables included in the trust. The credit support is a fixed dollar 
amount, subject to reduction only for actual draws thereon, throughout 
the life of the trust. As a result (subject to draws thereon), the 
amount of this credit support will increase as a percentage of the pool 
principal during the life of the trust. The Applicants represent that 
this approach thereby provides investors with greater protection than 
the approach which permits proportionate reductions in the credit 
support, subject to a floor which only is effective towards the end of 
the life of the trust.
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' 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.
Secondary Market Transactions
    24. It is the policy of many underwriters to attempt to make a 
market for securities for which it is lead or co-managing underwriter. 
It is also the policy of many placement agents to facilitate sales by 
investors who purchase certificates if such entity has acted as agent 
or principal in the original private placement of the certificates and 
if such investors request such entity's assistance.
Retroactive Relief
    25. The Applicants represent that they have engaged in transactions 
related to mortgage-backed and asset-backed securities based on the 
assumption that retroactive relief would not be granted. However, it is 
possible that some transactions may have occurred that would be 
prohibited. For example, because many certificates are held in street 
or nominee name, it is not always possible to identify whether the 
percentage interest of plans in a trust is or is not ``significant'' 
for purposes of the Department's regulation relating to the definition 
of plan assets (29 CFR 2510.3-101(f)). These problems are compounded as 
transactions occur in the secondary market. In addition, with respect 
to the ``publicly-offered security'' exception contained in that 
regulation (29 CFR 2510.3-101(b)), it is difficult to determine whether 
each purchaser of a certificate is independent of all other purchasers.
    Therefore, the Applicants request relief retroactive for 
transactions which have occurred on or after June 28, 1994, the date 
the Applicants originally filed their exemption application with the 
Department.
Summary
    26. In summary, the Applicants represent 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 the Applicants seek 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) Many underwriters have made, and the Applicants anticipate that 
such underwriters will continue to make, a secondary market in the 
publicly-offered certificates sponsored by GECMSI.

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 certificateholders 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. Ratings of Certificates
    After consideration of the representations of the Applicants 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 Applicants 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 exemptive 
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.13

    \13\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 durables 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
    The Applicants represent that in some cases a trust sponsor, 
trustee, servicer, insurer, and obligor with respect to receivables 
contained in a trust, or an underwriter of certificates may be a pre-
existing party in interest with respect to an investing plan.14 In 
these cases, a direct or indirect sale of 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.15 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.

    \14\In this regard, we note that the exemptive relief proposed 
herein is limited to certificates with respect to which the 
Applicants or any of their affiliates are either (a) the sole 
underwriter or manager or co-manager of the underwriting syndicate, 
(b) a selling or placement agent, or (c) the sponsor, in which case 
an entity which has received from the Department an individual 
prohibited transaction exemption relating to certificates which is 
similar to this exemption is the sole underwriter or the manager or 
co-manager of the underwriting syndicate, or a selling or placement 
agent.
    \15\The Applicants represent that where a trust sponsor is one 
of the Applicants or its affiliate, 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 none 
of the Applicants is a fiduciary with respect to plan assets to be 
invested in certificates.
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    Additionally, the Applicants represent that a trust sponsor, 
servicer, trustee, insurer, and obligor with respect to receivables 
contained in a trust, or an underwriter of certificates representing an 
interest in a trust may be a fiduciary with respect to an investing 
plan. The Applicants represent 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, the Applicants represent 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.

NOTICE TO INTERESTED PERSONS: The Applicants represent that because 
those potentially interested participants and beneficiaries cannot all 
be identified, the only practical means of notifying such participants 
and beneficiaries of this proposed exemption is by the publication of 
this notice in the Federal Register. Comments and requests for a 
hearing must be received by the Department not later than 30 days from 
the date of publication of this notice of proposed exemption in the 
Federal Register.

FOR FURTHER INFORMATION CONTACT: Gary 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 30th day of August, 1994.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 94-21772 Filed 9-1-94; 8:45 am]
BILLING CODE 4510-29-P