[Federal Register Volume 63, Number 17 (Tuesday, January 27, 1998)]
[Notices]
[Pages 4038-4071]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-1790]



[[Page 4037]]

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Part III





Department of Labor





_______________________________________________________________________



Pension and Welfare Benefits Administration



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Proposed Exemptions; MBNA America Bank, National Association (MBNA); 
Notice

  Federal Register / Vol. 63, No. 17 / Tuesday, January 27, 1998 / 
Notices  

[[Page 4038]]



DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Application No. D-10304, et al.]


Proposed Exemptions; MBNA America Bank, National Association 
(MBNA)

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.

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.

MBNA America Bank, National Association (MBNA), Located in Newark, 
Delaware, (Application No. D-10304)

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 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990).

Section I--Transactions

    A. Effective as of the date this proposed exemption is granted, 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 trust, 
the sponsor or an underwriter and an employee benefit plan subject to 
the Act or section 4975 of the Code (a 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 Section 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, as defined in Section III.K. below, by any person who 
has discretionary authority or renders investment advice with respect 
to the assets of the Excluded Plan that are invested in 
certificates.1
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    \1\ Section I.A. provides no relief from sections 406(a)(1)(E), 
406(a)(2) and 407 for any person rendering investment advice to an 
Excluded Plan within the meaning of section 3(21)(A)(ii) and 
regulation 29 CFR 2510.3-21(c).
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    B. Effective as of the date this proposed exemption is granted, 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 trust, 
the sponsor or an 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 receivables contained in the trust constituting 0.5 
percent or less of the fair market value of the obligations or 
receivables contained in the aggregate undivided interest in the trust 
allocated to the certificates of the relevant series, 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, 
as defined in Section III.L., and at least 50 percent of the aggregate 
undivided interest in the trust allocated to the certificates of a 
series is acquired by persons independent of the Restricted Group;
    (iii) A plan's investment in each class of certificates of a series 
does not exceed 25 percent of all of the certificates of that class 
outstanding at the time of the acquisition;
    (iv) Immediately after the acquisition of the certificates, no more 
than 25 percent of the assets of a plan with

[[Page 4039]]

respect to which the person has discretionary authority or renders 
investment advice is invested in certificates representing the 
aggregate undivided interest in a trust allocated to the certificates 
of a series and containing receivables sold or serviced by the same 
entity; 2 and
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    \2\ For purposes of this proposed 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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    (v) Immediately after the acquisition of the certificates, not more 
than 25 percent of the assets of a plan with respect to which the 
person has discretionary authority or renders investment advice is 
invested in certificates representing an interest in the trust, or 
trusts containing receivables sold or serviced by the same entity. For 
purposes of paragraphs B.(1)(iv) and B.(1)(v) only, an entity shall not 
be considered to service receivables contained in a trust if it is 
merely a subservicer of that trust;
    (2) The direct or indirect acquisition or disposition of 
certificates by a plan in the secondary market for such certificates, 
provided that conditions set forth in Section I. B.(1)(i), (iii) 
through (v) are met; and
    (3) The continued holding of certificates acquired by a plan 
pursuant to Section I.B.(1) or (2).
    C. Effective as of the date that the proposed exemption is granted, 
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, 
including reassigning receivables to the sponsor, removing from the 
trust receivables in accounts previously designated to the trust, 
changing the underlying terms of accounts designated to the trust, 
adding new receivables to the trust, designating new accounts to the 
trust, the retention of a retained interest by the sponsor in the 
receivables, the exercise of the right to cause the commencement of 
amortization of the principal amount of the certificates, or the use of 
any eligible swap transactions, provided that:
    (1) Such transactions are carried out in accordance with the terms 
of a binding pooling and servicing agreement;
    (2) The pooling and servicing agreement is provided to, or 
described in all material respects in the prospectus or private 
placement memorandum provided to, investing plans before they purchase 
certificates issued by the trust; 3
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    \3\ In the case of a private placement memorandum, such 
memorandum must contain substantially the same information that 
would be disclosed in a prospectus if the offering of the 
certificates were made in a registered public offering under the 
Securities Act of 1933. In the Department's view, the private 
placement memorandum must contain sufficient information to permit 
plan fiduciaries to make informed investment decisions. For purposes 
of this proposed exemption, all references to ``prospectus'' include 
any related supplement thereto, and any documents incorporated by 
reference therein, pursuant to which certificates are offered to 
investors.
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    (3) The addition of new receivables or designation of new accounts, 
or the removal of receivables in previously-designated accounts, meets 
the terms and conditions for such additions, designations or removals 
as are described in the prospectus or private placement memorandum of 
such certificates, which terms and conditions have been approved by 
Standard & Poor's Ratings Services, Moody's Investors Service, Inc., 
Duff & Phelps Credit Rating Co., or Fitch Investors Service, L.P., or 
their successors (collectively, the Rating Agencies), and does not 
result in the certificates receiving a lower credit rating from the 
Rating Agencies than the then current rating of the certificates; and
    (4) The series of which the certificates are a part will be subject 
to an ``Economic Pay Out Event'' (as defined in Section III.X.), which 
is set forth in the pooling and servicing agreement and described in 
the prospectus or private placement memorandum associated with the 
series, the occurrence of which will cause any revolving period, 
scheduled amortization period or scheduled accumulation period 
applicable to the certificates to end, and principal collections to be 
applied to monthly payments of principal to, or the accumulation of 
principal for the benefit of, the certificateholders of such series 
until the earlier of payment in full of the outstanding principal 
amount of the certificates of such series or the series termination 
date specified in the prospectus or private placement memorandum.
    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 under section 4975(a) and (b) of the Code, by reason 
of section 4975(c)(1)(E) or (F) of the Code, for the receipt of a fee 
by the servicer of the trust, in connection with the servicing of the 
receivables and the operation 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.U. below.
    D. Effective as of the date that the proposed exemption is granted, 
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 
transaction 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 as 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.

Section II--General Conditions

    A. The relief provided under Section 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 such terms 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 either: (i) in one of the two 
highest generic rating categories from any one of the Rating Agencies; 
or (ii) for certificates with a duration of one year or less, the 
highest short-term generic rating category from any one of the Rating 
Agencies; provided that, notwithstanding such ratings, this exemption 
(if granted) shall apply to a particular class of certificates only if 
such class (an Exempt Class) is part of a series in which credit 
support is provided to the Exempt Class through a senior-subordinated 
series structure or other form of third-party credit support which, at 
a minimum, represents five (5) percent of the outstanding principal 
balance of certificates issued for the Exempt Class, so that an 
investor in the Exempt Class will not bear the initial risk of loss;
    (4) The trustee is not an affiliate of any other member of the 
Restricted Group. However, the trustee shall not be considered to be an 
affiliate of a servicer solely because the trustee has succeeded to the 
rights and responsibilities of the servicer pursuant to the terms of a

[[Page 4040]]

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 consideration received by 
the sponsor as a consequence of the assignment of receivables (or 
interests therein) to the trust, to the extent allocable to the series 
of certificates purchased by a plan, represents not more than the fair 
market value of such receivables (or interests); and the sum of all 
payments made to and retained by the servicer, to the extent allocable 
to the series of certificates purchased by a plan, represents not more 
than reasonable compensation for the servicer's services under the 
pooling and servicing agreement and reimbursement of the servicer's 
reasonable expenses in connection therewith;
    (6) The plan investing in such certificates is an ``accredited 
investor'' as defined in Rule 501(a)(1) of Regulation D of the 
Securities and Exchange Commission (SEC) under the Securities Act of 
1933;
    (7) The trustee of the trust is a substantial financial institution 
or trust company experienced in trust activities and is familiar with 
its duties, responsibilities, and liabilities as a fiduciary under the 
Act (i.e. ERISA). The trustee, as the legal owner of, or holder of a 
perfected security interest in, the receivables in the trust, enforces 
all the rights created in favor of certificateholders of such trust, 
including plans;
    (8) Prior to the issuance by the trust of any new series, 
confirmation is received from the Rating Agencies that such issuance 
will not result in the reduction or withdrawal of the then current 
rating of the certificates held by any plan pursuant to this exemption;
    (9) To protect against fraud, chargebacks or other dilution of the 
receivables in the trust, the pooling and servicing agreement and the 
Rating Agencies require the sponsor to maintain a seller interest of 
not less than 2 percent of the principal balance of the receivables 
contained in the trust;
    (10) Each receivable added to a trust is an eligible receivable, 
based on criteria of the relevant Rating Agency(ies) and as specified 
in the pooling and servicing agreement. The pooling and servicing 
agreement requires that any change in the terms of the cardholder 
agreements must be made applicable to the comparable segment of 
accounts owned or serviced by the sponsor which are part of the same 
program or have the same or substantially similar characteristics;
    (11) The pooling and servicing agreement limits the number of the 
sponsor's newly originated accounts to be designated to the trust, 
unless the Rating Agencies otherwise consent in writing, to the 
following: (i) With respect to any three-month period, 15 percent of 
the number of existing accounts designated to the trust as of the first 
day of such period, and (ii) with respect to any twelve-month period, 
20 percent of the number of existing accounts designated to the trust 
as of the first day of such twelve-month period;
    (12) The pooling and servicing agreement requires the sponsor to 
deliver an opinion of counsel semi-annually confirming the validity and 
perfection of each transfer of newly originated accounts to the trust 
if such opinion is not delivered with respect to each interim addition;
    (13) The pooling and servicing agreement requires the sponsor and 
the trustee to receive confirmation from a Rating Agency that no 
Ratings Effect (i) will result from a proposed transfer of newly 
originated accounts to the trust, or (ii) will have resulted from the 
transfer of all newly originated accounts added to the trust during the 
preceding three-month period (beginning at quarterly intervals 
specified in the pooling and servicing agreement and ending in the 
calendar month prior to the date such confirmation is issued), provided 
that a Rating Agency confirmation shall not be required under clause 
(ii) for any three-month period in which any additions of newly 
originated accounts occurred only after receipt of prior Rating Agency 
confirmation pursuant to clause (i);
    (14) If a particular series of certificates held by any plan 
involves a Ratings Dependent or Non-Ratings Dependent Swap entered into 
by the trust, then each particular swap transaction relating to such 
certificates:
    (a) Shall be an Eligible Swap;
    (b) Shall be with an Eligible Swap Counterparty;
    (c) In the case of a Ratings Dependent Swap, shall include as an 
early payout event, as specified in the pooling and servicing 
agreement, the withdrawal or reduction by any Rating Agency of the swap 
counterparty's credit rating below a level specified by the Rating 
Agency where the servicer (as agent for the trustee) has failed, for a 
specified period after such rating withdrawal or reduction, to meet its 
obligation under the pooling and servicing agreement to:
    (i) Obtain a replacement swap agreement with an Eligible Swap 
Counterparty which is acceptable to the Rating Agency and the terms of 
which are substantially the same as the current swap agreement (at 
which time the earlier swap agreement shall terminate); or
    (ii) Cause the swap counterparty to establish any collateralization 
or other arrangement satisfactory to the Rating Agency such that the 
then current rating by the Rating Agency of the particular series of 
certificates will not be withdrawn or reduced;
    (d) In the case of a Non-Ratings Dependent Swap, shall provide 
that, if the credit rating of the swap counterparty is withdrawn or 
reduced below the lowest level specified in Section III.II. hereof, the 
servicer, as agent for the trustee, shall within a specified period 
after such rating withdrawal or reduction:
    (i) Obtain a replacement swap agreement with an Eligible Swap 
Counterparty, the terms of which are substantially the same as the 
current swap agreement (at which time the earlier swap agreement shall 
terminate); or
    (ii) Cause the swap counterparty to post collateral with the 
trustee of the trust in an amount equal to all payments owed by the 
counterparty if the swap transaction were terminated; or
    (iii) Terminate the swap agreement in accordance with its terms; 
and
    (e) Shall not require the trust to make any termination payments to 
the swap counterparty (other than a currently scheduled payment under 
the swap agreement) except from ``Excess Finance Charge Collections'' 
(as defined below in Section III.LL.) or other amounts that would 
otherwise be payable to the servicer or the seller; and
    (15) Any series of certificates, to which one or more swap 
agreements entered into by the trust applies, may be acquired or held 
in reliance upon this proposed exemption only by Qualified Plan 
Investors.
    B. Neither any underwriter, sponsor, trustee, servicer, insurer, 
nor any obligor, unless it or any of its affiliates has discretionary 
authority or renders investment advice with respect to the plan assets 
used by a plan to acquire certificates, shall be denied the relief 
provided under Section I, if the provision in Section II.A.(6) above is 
not satisfied for the acquisition or holding by a plan of such 
certificates, provided that:
    (1) Such condition is disclosed in the prospectus or private 
placement memorandum; and

[[Page 4041]]

    (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 shall 
be required to make a written representation regarding compliance with 
the condition set forth in Section II.A.(6).

Section III--Definitions

    For purposes of this proposed exemption:
    A. Certificate means a certificate:
    (1) That (i) represents a beneficial ownership interest in the 
assets of a trust and entitles the holder to payments denominated as 
principal, interest and/or other payments made as described in the 
applicable prospectus or private placement memorandum and in accordance 
with the pooling and servicing agreement in connection with the assets 
of such trust, to the extent allocable to the series of certificates 
purchased by a plan, either currently or after a revolving period 
during which principal payments on assets of the trust are reinvested 
in new assets, or (ii) is denominated as a debt instrument that 
represents a regular interest in a financial asset securitization 
investment trust (FASIT), within the meaning of section 860L(a) of the 
Code, and is issued by and is an obligation of the trust.
    For purposes of this proposed exemption, references to 
``certificates representing an interest in a trust'' include 
certificates denominated as debt which are issued by a trust; and
    (2) With respect to which (a) MBNA or any of its affiliates is the 
sponsor, and (b) MBNA, any of its affiliates, or an ``underwriter'' (as 
defined in Section III.C.) is the sole underwriter or the manager or 
co-manager of the underwriting syndicate or a selling or placement 
agent.
    B. Trust means an investment pool, the corpus of which is held in 
trust and consists solely of:
    (1) Either
    (a) Receivables (as defined in Section III.V.); or
    (b) Participations in a pool of receivables (as defined in Section 
III.V.) where such beneficial ownership interests are not subordinated 
to any other interest in the same pool of receivables; \4\
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    \4\ The Department notes that no relief would be available under 
the exemption if the participation interests held by the trust were 
subordinated to the rights and interests evidenced by other 
participation interests in the same pool of receivables.
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    (2) Property which has secured any of the assets described in 
Section III.B.(1); \5\
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    \5\ MBNA states that it is possible for credit card receivables 
to be secured by bank account balances or security interests in 
merchandise purchased with credit cards. Thus, the proposed 
exemption should permit foreclosed property to be an eligible trust 
asset.
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    (3) Undistributed cash or permitted investments made therewith 
maturing no later than the next date on which distributions are to be 
made to certificate holders, except during a Revolving Period (as 
defined herein) when permitted investments are made until such cash can 
be reinvested in additional receivables described in paragraph (a) of 
this Section III.B.(1);
    (4) Rights of the trustee under the pooling and servicing 
agreement, and rights under any cash collateral accounts, insurance 
policies, third-party guarantees, contracts of suretyship and other 
credit support arrangements for any certificates, swap transactions, or 
under any yield supplement agreements,\6\ yield maintenance agreements 
or similar arrangements; and
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    \6\ In a series involving an accumulation period (as defined in 
Section III.Z.), a yield supplement agreement may be used by the 
Trust to make up the difference between (i) the reinvestment yield 
on permitted investments, and (ii) the interest rate on the 
certificates of that series.
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    (5) Rights to receive interchange fees received by the sponsor as 
partial compensation for the sponsor's taking credit risk, absorbing 
fraud losses and funding receivables for a limited period prior to 
initial billing with respect to accounts designated to the trust.
    Notwithstanding the foregoing, the term trust does not include any 
investment pool unless: (i) the investment pool consists only of 
receivables 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 two highest generic rating 
categories by at least one of the Rating Agencies for at least one year 
prior to the plan's acquisition of certificates pursuant to this 
exemption; and (iii) certificates evidencing an interest 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 an entity which has received from the 
Department an individual prohibited transaction exemption which 
provides relief for the operation of asset pool investment trusts that 
issue asset-backed pass-through securities to plans that is similar in 
format and substance to this proposed exemption (each, an Underwriter 
Exemption); \7\ any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by or under common control with 
such entity; and any member of an underwriting syndicate or selling 
group of which such firm or affiliated person described above is a 
manager or co-manager with respect to the certificates.
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    \7\ For a listing of Underwriter Exemptions, see the description 
provided in the text of the operative language of Prohibited 
Transaction Exemption (PTE) 97-34 (62 FR 39021, July 21, 1997).
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    D. Sponsor means MBNA, or an affiliate of MBNA that organizes a 
trust by transferring credit card receivables or interests therein to 
the trust in exchange for certificates.
    E. Master Servicer means MBNA or an affiliate that is a party to 
the pooling and servicing agreement relating to trust receivables and 
is fully responsible for servicing, directly or through subservicers, 
the receivables in the trust pursuant to the pooling and servicing 
agreement.
    F. Subservicer means MBNA or an affiliate of MBNA, or an entity 
unaffiliated with MBNA which, under the supervision of and on behalf of 
the master servicer, services receivables contained in the trust, but 
is not a party to the pooling and servicing agreement.
    G. Servicer means MBNA or an affiliate which services receivables 
contained in the trust, including the master servicer and any 
subservicer or their successors pursuant to the pooling and servicing 
agreement.
    H. Trustee means an entity which is independent of MBNA and its 
affiliates and is the trustee of the trust. In the case of certificates 
which are denominated as debt instruments, ``trustee'' also means the 
trustee of the indenture trust.
    I. Insurer means the insurer or guarantor of, provider of other 
credit support for, or other contractual counterparty of, a trust. 
Notwithstanding the foregoing, a swap counterparty is not an insurer, 
and 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 receivable included in 
the trust.
    K. Excluded Plan means any plan with respect to which any member of

[[Page 4042]]

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) Each swap counterparty;
    (7) Any obligor with respect to receivables contained in the trust 
constituting more than 0.5 percent of the fair market value of the 
aggregate undivided interest in the trust allocated to the certificates 
of a series, determined on the date of the initial issuance of such 
series of certificates by the trust; or
    (8) Any affiliate of a person described in Section III.L.(1)-(7).
    M. Affiliate of another person includes:
    (1) Any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with such other person;
    (2) Any officer, director, partner, employee, relative (as defined 
in section 3(15) of the Act), a brother, a sister, or a spouse of a 
brother or sister of such other person; and
    (3) Any corporation or partnership of which such other person is an 
officer, director or partner.
    N. Control means the power to exercise a controlling influence over 
the management or policies of a person other than an individual.
    O. A person will be ``independent'' of another person only if:
    (1) Such person is not an affiliate of that other person; and
    (2) The other person, or an affiliate thereof, is not a fiduciary 
who has investment management authority or renders investment advice 
with respect to any assets of such person.
    P. Sale includes the entrance into a forward delivery commitment 
(as defined in Section III.Q. below), provided that:
    (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 section 2550.408c-2.
    S. Pooling and Servicing Agreement means the agreement or 
agreements among a sponsor, a servicer and the trustee establishing a 
trust and any supplement thereto pertaining to a particular series of 
certificates. 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.
    T. Series means an issuance of a class or various classes of 
certificates by the trust all on the same date pursuant to the same 
pooling and servicing agreement, and any supplement thereto and 
restrictions therein.
    U. 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 with respect to 
the receivables;
    (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 or described in all 
material respects in the prospectus or private placement memorandum 
provided to the plan before it purchases certificates issued by the 
trust; and
    (4) The amount paid to investors in the trust is not reduced by the 
amount of any such fee waived by the servicer.
    V. Receivables means secured or unsecured obligations of credit 
card holders which have arisen or arise in Accounts designated to a 
trust. Such obligations represent amounts charged by cardholders for 
merchandise and services and amounts advanced as cash advances, as well 
as periodic finance charges, annual membership fees, cash advance fees, 
late charges on amounts charged for merchandise and services and 
certain other fees (such as bad check fees, cash advance fees, and 
other fees specified in the cardholder agreements) designated by card 
issuers (other than a qualified administrative fee as defined in 
Section III.U.).
    W. Accounts are revolving credit card accounts serviced by MBNA or 
an affiliate, which were originated or purchased by MBNA or an 
affiliate, and are designated to a trust such that receivables arising 
in such accounts become assets of the trust.
    X. Revolving Period means a period of time, as specified in the 
pooling and servicing agreement, during which principal collections 
allocated to a series are reinvested in newly generated receivables 
arising in the accounts.
    Y. Amortization Period means a period of time specified in the 
pooling and servicing agreement during which a portion of the principal 
collections allocated to a series will commence to be paid to the 
certificateholders of such series in installments.
    Z. Accumulation Period means a period of time specified in the 
pooling and servicing agreement during which a portion of the principal 
collections allocated to a series will be deposited in an account to be 
distributed to certificateholders in a lump sum on the expected 
maturity date.
    AA. Pay Out Event means any of the events specified in the pooling 
and servicing agreement or supplement thereto that results (in some 
instances without further affirmative action by any party) in the early 
commencement of either an amortization period or an accumulation 
period, including (1) the failure of the sponsor or the servicer, 
whichever is subject to the relevant obligation under the pooling and 
servicing agreement, (i) to make any payment or deposit required under 
the pooling and servicing agreement within five (5) business days after 
such payment or deposit was required to be made, or (ii) to observe or 
perform any of its other covenants or agreements set forth in the 
pooling and servicing agreement, which failure has a material adverse 
effect on holders of investor certificates of the relevant series and 
continues unremedied for 60 days; (2) a breach of any representation or 
warranty made by the sponsor or the servicer in the pooling and 
servicing agreement that continues to be incorrect in any material 
respect for 60 days; (3) the occurrence of certain bankruptcy events 
relating to the sponsor or the servicer; (4) the failure by the sponsor 
to convey to the trust additional receivables to maintain the minimum 
seller interest that is required by the pooling and servicing agreement 
and the Rating Agencies; (5) if a class of investor certificates is in 
an Accumulation Period, the amount on deposit in the accumulation 
account in any month is

[[Page 4043]]

less than the amount required to be on deposit therein; (6) the failure 
to pay in full amounts owing to investors on the expected maturity 
date; and (7) the Economic Pay Out Event.
    BB. An Economic Pay Out Event occurs automatically when the 
portfolio yield for any series of certificates, averaged over three 
consecutive months (or such other period approved by one of the Rating 
Agencies) is less than the base rate of the series averaged over the 
same period. Portfolio yield for a series of certificates for any 
period is equal to the sum of the finance charge collections and other 
amounts treated as finance charge collections less total defaults for 
the series divided by the outstanding principal balance of the investor 
certificates of the series, or such other measure approved by one of 
the Rating Agencies. The base rate for a series of certificates for any 
period is the sum of (i) amounts payable to certificateholders of the 
series with respect to interest, (ii) servicing fees allocable to the 
series payable to the servicer, and (iii) any credit enhancement fee 
allocable to the series payable to a third party credit enhancer, 
divided by the outstanding principal balance of the investor 
certificates of the series, or such other measure approved by one of 
the Rating Agencies.
    CC. CCA or Cash Collateral Account means that certain account 
established in the name of the trustee that serves as credit 
enhancement with respect to the investor certificates and holds cash 
and/or permitted investments (as defined below in Section III.KK.) 
which conform to applicable provisions of the pooling and servicing 
agreement.
    DD. Group means a group of any number of series offered by the 
trust that share finance charge and/or principal collections in the 
manner described in the applicable prospectus or private placement 
memorandum.
    EE. Ratings Effect means the reduction or withdrawal by a Rating 
Agency of its then current rating of the certificates held by any plan 
pursuant to this proposed exemption.
    FF. Principal Receivables Discount means, with respect to any 
account designated by the sponsor, the portion of the related principal 
receivables that represents a discount from the face value thereof and 
that is treated under the pooling and servicing agreement as finance 
charge receivables.
    GG. Ratings Dependent Swap means an interest rate swap, or (if 
purchased by or on behalf of the trust) an interest rate cap contract, 
that is part of the structure of a series of certificates where the 
rating assigned by the Rating Agency to any series of certificates held 
by any plan is dependent on the terms and conditions of the swap and 
the rating of the swap counterparty, and if such certificate rating is 
not dependent on the existence of the swap and rating of the swap 
counterparty, such swap or cap shall be referred to as a ``Non-Ratings 
Dependent Swap''. With respect to a Non-Ratings Dependent Swap, each 
Rating Agency rating the certificates must confirm, as of the date of 
issuance of the certificates by the trust, that entering into an 
Eligible Swap with such counterparty will not affect the rating of the 
certificates.
    HH. Eligible Swap means a Ratings Dependent or Non-Ratings 
Dependent Swap:
    (1) Which is denominated in U.S. Dollars;
    (2) Pursuant to which the trust pays or receives, on or immediately 
prior to the respective payment or distribution date for the series of 
certificates, a fixed rate of interest, or a floating rate of interest 
based on a publicly available index (e.g. LIBOR or the U.S. Federal 
Reserve's Cost of Funds Index (COFI)), with the trust receiving such 
payments on at least a quarterly basis and obligated to make separate 
payments no more frequently than the swap counterparty, with all 
simultaneous payments being netted;
    (3) Which has a notional amount that does not exceed either (i) the 
certificate balance of the class of certificates to which the swap 
relates, or (ii) the portion of the certificate balance of such class 
represented by receivables;
    (4) Which is not leveraged (i.e. payments are based on the 
applicable notional amount, the day count fractions, the fixed or 
floating rates designated in subparagraph (2) above, and the difference 
between the products thereof, calculated on a one to one ratio and not 
on a multiplier of such difference);
    (5) Which has a final termination date that is the earlier of the 
date on which the trust terminates or the related class of certificates 
is fully repaid; and
    (6) Which does not incorporate any provision which could cause a 
unilateral alteration in any provision described in subparagraphs (1) 
through (4) above without the consent of the trustee.
    II. Eligible Swap Counterparty means a bank or other financial 
institution which has a rating, at the date of issuance of the 
certificates by the trust, which is in one of the three highest long-
term credit rating categories, or one of the two highest short-term 
credit rating categories, utilized by at least one of the Rating 
Agencies rating the certificates; provided that, if a swap counterparty 
is relying on its short-term rating to establish eligibility hereunder, 
such counterparty must either have a long-term rating in one of the 
three highest long-term rating categories or not have a long-term 
rating from the applicable Rating Agency, and provided further that if 
the series of certificates with which the swap is associated has a 
final maturity date of more than one year from the date of issuance of 
the certificates, and such swap is a Ratings Dependent Swap, the swap 
counterparty is required by the terms of the swap agreement to 
establish any collateralization or other arrangement satisfactory to 
the Rating Agencies in the event of a ratings downgrade of the swap 
counterparty.
    JJ. Qualified Plan Investor means a plan investor or group of plan 
investors on whose behalf the decision to purchase certificates is made 
by an appropriate independent fiduciary that is qualified to analyze 
and understand the terms and conditions of any swap transaction used by 
the trust and the effect such swap would have upon the credit ratings 
of the certificates. For purposes of the proposed exemption, such a 
fiduciary is either:
    (1) a ``qualified professional asset manager'' (QPAM),8 
as defined under Part V(a) of PTE 84-14 (49 FR 9494, 9506, March 13, 
1984);
---------------------------------------------------------------------------

    \8\  PTE 84-14 provides a class exemption for transactions 
between a party in interest with respect to an employee benefit plan 
and an investment fund (including either a single customer or pooled 
separate account) in which the plan has an interest, and which is 
managed by a QPAM, provided certain conditions are met. QPAMs (e.g. 
banks, insurance companies, registered investment advisers with 
total client assets under management in excess of $50 million) are 
considered to be experienced investment managers for plan investors 
that are aware of their fiduciary duties under ERISA.
---------------------------------------------------------------------------

    (2) an ``in-house asset manager'' (INHAM),9 as defined 
under Part IV(a) of PTE 96-23 (61 FR 15975, 15982, April 10, 1996); or
---------------------------------------------------------------------------

    \9\ PTE 96-23 permits various transactions involving employee 
benefit plans whose assets are managed by an INHAM, an entity which 
is generally a subsidiary of an employer sponsoring the plan which 
is a registered investment adviser with management and control of 
total assets attributable to plans maintained by the employer and 
its affiliates which are in excess of $50 million.
---------------------------------------------------------------------------

    (3) A plan fiduciary with total assets under management of at least 
$100 million at the time of the acquisition of such certificates.
    KK. Permitted Investments means investments that either (i) are 
direct obligations of, or obligations fully guaranteed as to timely 
payment of principal and interest by, the United States or any agency 
or instrumentality thereof, provided that such obligation is backed by 
the full faith and credit of the

[[Page 4044]]

United States, or (ii) have been rated (or the obligor thereof has been 
rated) in one of the three highest generic rating categories by a 
Rating Agency; are described in the pooling and servicing agreement; 
and are permitted by the relevant Rating Agency(ies).
    LL. Excess Finance Charge Collections means, as of any day funds 
are distributed from the trust, the amount by which the finance charge 
collections allocated to certificates of a series exceed the amount 
necessary to pay certificate interest, servicing fees and expenses, to 
satisfy cardholder defaults or charge-offs, and to reinstate credit 
support.
    The Department notes that this proposed exemption, if granted, will 
be included within the meaning of the term ``Underwriter Exemption'' as 
it is defined in Section V(h) of the Grant of the Class Exemption for 
Certain Transactions Involving Insurance Company General Accounts, 
which was published in the Federal Register on July 12, 1995 (see PTE 
95-60, 60 FR 35925).

Summary of Facts and Representations

    1. The applicant is MBNA America Bank, National Association (i.e. 
MBNA), a national banking association located in Wilmington, Delaware. 
MBNA conducts nationwide consumer lending programs principally 
comprised of credit card related activities. MBNA is a wholly-owned 
subsidiary of MBNA Corporation, a bank holding company organized under 
the laws of Maryland in 1990.
    2. The transactions for which an exemption is requested are 
investments by employee benefit plans in certain certificates 
(Certificates) representing the right to receive principal and interest 
payments from the assets of various Trusts which hold credit card 
receivables. Each Trust will issue, from time to time, a particular 
series of Certificates (i.e. a Series) which will be secured by the 
Trust's assets. A Series may include one or more classes of 
Certificates, some of which may be subordinate to others. However, only 
senior certificates issued by such Trusts, which meet the restrictive 
criteria designed to ensure investor safety discussed herein would be 
eligible for the exemptive relief to be provided under this proposed 
exemption.

The Trusts

    3. Each Trust is created under a Pooling and Servicing Agreement 
(PSA) between MBNA, as Seller and Servicer, and an independent and 
unaffiliated Trustee. Upon creation of a Trust, the Seller transfers to 
the Trust a pool of interest-bearing credit card receivables which are 
selected under strict criteria approved by one or more of certain 
nationally recognized rating agencies,10 from the portfolio 
of revolving credit card accounts owned by MBNA. The PSA establishes 
the general parameters for the Trust, such as the requirements for 
eligible receivables to be transferred to the Trust, the manner of 
transferring and administering and servicing the receivables, Seller 
representations and covenants as to receivable eligibility, Servicer 
and Trustee duties and eligibility, and other matters.
---------------------------------------------------------------------------

    \10\ As noted in Section I.C.(3) above, these rating agencies 
are: (i) Standard & Poors Ratings Services, a division of McGraw-
Hill Companies Inc.; (ii) Moody's Investors Service, Inc.; (iii) 
Duff & Phelps Credit Rating Co.; and (iv) Fitch Investors Service, 
L.P., or their successors (collectively, the Rating Agencies).
---------------------------------------------------------------------------

    The applicant represents that any Trust that issues a class of 
Certificates to be covered by the proposed exemption would include the 
following investor safeguards:
    (a) Restricted selection of receivables;
    (b) Periodic reporting and monitoring of accounts;
    (c) Minimum receivable requirements;
    (d) Restrictions regarding addition and removal of accounts;
    (e) Servicer eligibility requirements;
    (f) Servicer daily reports, duties and public accounting firm 
review;
    (g) Trustee eligibility and duties;
    (h) Restrictions on investments;
    (i) Protection from the consequences of unplanned events; and
    (j) Limited discretion.
    These investor safeguards are discussed in the following 
paragraphs.
    4. Restricted Selection of Receivables. In order for a receivable 
to be eligible for transfer to the Trust, either on the initial closing 
date or on any subsequent date, it must have arisen under an eligible 
account. An eligible account is one that is in existence and owned by 
and maintained with MBNA (as of the initial selection date or, with 
respect to additional accounts, as of the relevant addition date), and 
is payable in U.S. dollars. In addition, an eligible account must have 
a United States address for its obligor, must not have been classified 
as counterfeit, canceled, fraudulent, stolen or lost, and must not have 
been charged off by MBNA under its customary and usual charge-off 
procedures. The eligible receivable must have been created in 
compliance with applicable law. All consents, licenses and other 
approvals necessary for the creation of the receivable and the 
execution of the credit card agreement must have been obtained and be 
in full force and effect, and MBNA must have good title to the 
receivable, free and clear of liens. Finally, an eligible receivable 
must constitute the legal valid and binding payment obligation of the 
obligor, and constitute an ``account'' under Article 9 of the Uniform 
Commercial Code (the ``UCC''), as in effect in the State of Delaware, 
so as to grant the Trust a first priority security interest in the 
event of bankruptcy. Once the pool of eligible accounts has been 
identified, accounts are selected at random for the transfer of their 
receivables to the Trust so as to provide a combination of receivables 
that is representative of the entire pool of eligible receivables.
    MBNA represents and warrants that the receivables transferred to 
the Trust, and the accounts related to those receivables, meet the 
above-described standards for eligible receivables and accounts, and 
that no selection procedures adverse to the Certificateholders have 
been employed in selecting accounts. These restrictions on account 
selection are in place to prevent the concentration of high risk 
accounts. Each relevant Rating Agency requires that all of these 
safeguards be in place before a superior rating is given.
    5. Periodic Reporting and Monitoring of Accounts. In connection 
with the transfer of the receivables to the Trust, MBNA must record and 
file a UCC financing statement (including any continuation statements, 
when applicable) in order to perfect the assignment of the receivables, 
and must deliver a file-stamped copy of such financing or continuation 
statement to the Trustee. MBNA must also indicate in its computer 
system file of credit card accounts the receivables transferred to the 
Trust by identifying the accounts with a unique designation, as 
described in the PSA. MBNA must deliver a complete list of all accounts 
in the Trust to the Trustee on or prior to the initial closing date and 
thereafter on a periodic basis as required by the PSA.
    The Trustee is able to continually monitor the Trust's assets by 
reviewing the monthly reports regarding pool performance which are 
prepared for the Trustee and investors by MBNA, as Servicer. In 
addition, MBNA provides the Trustee with a complete list of accounts on 
a periodic basis, as required by the PSA. Each relevant Rating Agency 
requires significant monitoring procedures for the servicing of 
receivables to ensure investor safety before a superior rating is 
granted.
    6. Minimum Receivable Requirements. The aggregate principal amount 
of the receivables held by the Trust must be at least equal to the sum 
of the principal amount of the

[[Page 4045]]

Certificates (prior to the commencement of any related amortization or 
accumulation) for all Series then outstanding (other than a Series 
which is backed in full by accumulated cash or permitted investments 
(see Paragraph 11 below)). If, on the last business day of any month, 
the aggregate amount of principal receivables is less than the required 
minimum, MBNA must designate additional accounts (or may convey 
participations in other credit card receivable pools sponsored by MBNA) 
to be transferred to the Trust so that the aggregate principal 
receivables will meet the minimum requirement.
    Interests in the assets of each Trust are allocated among the 
Certificate holders of each Series and the Seller (i.e., MBNA). The 
interest in the Trust assets allocated to the Seller is referred to as 
the ``Seller Interest.'' To protect against fraud, chargebacks or other 
dilution of receivables in the Trust, the PSA and the Rating Agencies 
will require MBNA, as the Trust's sponsor, to maintain a seller 
interest of not less than 2 percent of the principal balance of the 
receivables contained in the Trust (referred to as the ``Minimum Seller 
Interest''). If, during any period of 30 consecutive days, the Seller 
Interest averages less than the Minimum Seller Interest, MBNA must 
designate additional accounts (or participations in other MBNA credit 
card receivable pools) to be transferred by MBNA to the Trust in order 
to satisfy the minimum requirement. When account payments exceed 
account purchases, the total pool of receivables in the relevant Trust 
contracts. As a result, the Seller Interest declines, thus providing a 
buffer to prevent a decline in the principal balance of the 
Certificates prior to the scheduled payment of principal. Thus, when 
the receivable balances in the accounts that secure the Certificates 
decline, the Seller Interest decreases, not the principal balance of 
the Certificates. When the account balances again increase, the Seller 
Interest is increased. The Seller Interest will also decline as a 
result of dilution of the receivable portfolio resulting from noncash 
reductions such as merchandise returns or servicer errors.
    The minimum receivable requirement and Minimum Seller Interest 
requirement imposed on MBNA by the PSA (as described above) cause the 
Trustee, Servicer or Seller to have limited discretion regarding the 
minimum size of the Trust. Each relevant Rating Agency gains comfort 
from these minimum receivable levels that the Trust will be maintained 
so as not to adversely affect the ability of the Trust assets to 
support the promised interest and/or principal payments to Certificate 
holders.
    7. Restrictions Regarding Addition and Removal of Accounts. In 
addition to the limitations discussed above regarding the selection of 
accounts and minimum receivable requirements, the following 
restrictions apply to the addition of accounts subsequent to the 
initial transfer to the Trust. Any transfer of receivables from 
additional accounts must be preceded by written notice to the Trustee, 
each relevant Rating Agency and the Servicer specifying the approximate 
aggregate amount of receivables to be transferred. In connection with 
the transfer, MBNA will warrant that the additional accounts are 
eligible accounts and that each receivable is an eligible receivable, 
and that no selection procedures believed by MBNA to be materially 
adverse to the interest of the Certificateholders were utilized in 
selecting the accounts. MBNA must deliver an opinion of counsel with 
respect to the added receivables to the Trustee, with a copy to each 
relevant Rating Agency, that such addition is enforceable and that the 
Trust has either a valid transfer of, or a grant of security interest 
in, the additional accounts. The PSA requires that the Servicer and the 
Trustee receive confirmation from a Rating Agency that no Ratings 
Effect (i.e., a downgrade or withdrawal of the then current rating of 
any outstanding Series of Certificates) either (i) will result from a 
proposed transfer of receivables from additional accounts to the Trust, 
or (ii) will have resulted from the transfer of all receivables from 
additional accounts added to the Trust during the preceding three-month 
period (beginning at quarterly intervals specified in the PSA and 
ending in the calendar month prior to the date such confirmation is 
issued). However, a Rating Agency confirmation will not be required for 
any three-month period in which any additions of newly originated 
accounts occurred only after receipt of a prior Rating Agency 
confirmation.
    MBNA may remove receivables, subject to the minimum receivable 
requirements discussed above, not more than once in a monthly period. 
MBNA must give the Trustee and the Servicer written notice stating the 
approximate aggregate principal balance of the removal, and certifying 
that such removal must not result in a Pay Out Event. MBNA must warrant 
that no selection procedures believed by it to be materially adverse to 
the Certificateholders were utilized in selecting the removed 
receivables. Each relevant Rating Agency must have confirmed that such 
proposed removal will not result in a Ratings Effect. MBNA states 
further that the amount of any receivables that are removed must be 
less than 5 percent of the aggregate amount of principal receivables 
or, if any Series is paid in full, the amount of receivables removed 
must approximate the initial investor interest of such Series.
    Each Rating Agency has determined that the number of additional 
accounts from which receivables may be added is generally limited to: 
(i) with respect to any three-month period, 15 percent of the number of 
existing accounts designated to the Trust as of the first day of such 
period, and (ii) with respect to any twelve-month period, 20 percent of 
the number of accounts designated to the Trust as of the first day of 
such 12-month period. However, if this maximum amount is greater than a 
similar test (specified in the PSA) based on the calendar year, then 
the calendar year test serves as the maximum addition. MBNA may be able 
to exceed the maximum addition amount if approval is received from each 
relevant Rating Agency.
    By informing the relevant Rating Agencies of all details regarding 
additions and removals, the Trust is effectively reexamined each time 
these events occur in order to assure that the changes to the Trust 
assets will not adversely affect the rating of any outstanding Series. 
Each relevant Rating Agency scrutinizes the receivables from the 
additional accounts, or the relative strength of the pool of 
receivables designated to the Trust both before and after the removal, 
as the case may be, in making any such re-examinations.
    8. Servicer Eligibility Requirements. The Servicer of the 
receivables must be either the Seller (MBNA), an affiliate of MBNA, or 
an entity unaffiliated with MBNA acting as a ``Subservicer'' which is 
qualified to service a portfolio of consumer revolving credit card 
accounts and meets certain requirements. Under such requirements, the 
entity acting as either a Servicer or Subservicer must be legally 
qualified and have the capacity to service the accounts, must be 
qualified to use the software used to service the accounts, must have 
demonstrated the ability to professionally and competently service a 
portfolio of similar accounts in accordance with customary standards of 
skill and care, and must have a certain net worth (e.g. at least 
$50,000,000). These requirements are in line with the Rating Agencies' 
standards for servicers.
    Regardless of whether the Servicer is MBNA, an affiliate, or a 
third party meeting the eligibility requirements discussed above, the 
Servicer's duties

[[Page 4046]]

are largely ministerial and are provided in detail in the PSA. The 
Servicer administers the receivables, collects payments due thereunder, 
makes withdrawals from the various accounts created under the PSA which 
are forwarded to the Trustee on the dates and in the manner provided 
under the PSA, commences enforcement proceedings with respect to 
delinquent receivables and makes filings and other necessary reports 
with the SEC and any state securities authorities as necessary to 
comply with the law. The Servicer must maintain fidelity bond coverage 
insuring against losses through its own wrongdoing, and is entitled to 
receive a reasonable servicing fee which is specifically enumerated in 
each PSA supplement.
    9. Servicer Daily Reports, Duties and Public Accounting Firm 
Review. On each business day the Servicer must prepare and make 
available to the Trustee a record of the collections processed on the 
preceding day and the aggregate amount of receivables as of the close 
of business on the preceding day. The Servicer must prepare monthly for 
the Trustee, the paying agent, any credit enhancement provider, and 
each relevant Rating Agency, a certificate setting forth the aggregate 
collections processed during the preceding month with respect to each 
Series outstanding, the aggregate amounts of the investor percentages 
of collections of finance charge receivables and principal receivables 
processed during the preceding month with respect to each Series 
outstanding, the balances in the finance charge account, the principal 
account or any Series account during the preceding month, and other 
detailed information.
    The Servicer will provide annually a certificate from an officer 
indicating that the Servicer's activities over a 12-month period were 
reviewed and the officer believed such obligations were fully performed 
under the PSA. Every year, a nationally recognized firm of independent 
certified public accountants will review the internal accounting 
controls and their relation to the servicing of the receivables as well 
as the mathematical accuracy of the Servicer's monthly reports, and the 
results will be provided to the Trustee, any credit enhancement 
provider, and each relevant Rating Agency. These additional reviews of 
the Servicer are designed to prevent Servicer fraud and limit Servicer 
discretion. These safeguards protect investors and are a positive 
factor in a Rating Agency's evaluation.
    10. Trustee Eligibility and Duties. The Trustee must be a financial 
institution organized, doing business and regulated under the laws of 
the United States, any State and/or the District of Columbia and have a 
long-term unsecured debt rating as specified in the PSA. The Trustee 
must be independent of MBNA and its affiliates and meet the same 
requirements that would be necessary for an eligible Servicer (as 
discussed under ``Servicer Eligibility Requirements'' above). Any 
successor Trustee must also meet these requirements and be approved by 
each relevant Rating Agency.
    The Trustee is responsible for receiving collections from 
receivables as provided in the PSA, investing any moneys as directed in 
the PSA, and directing payments to Certificateholders according to the 
plan of allocation and payment detailed in the PSA. In performing these 
functions, the Trustee has little, if any, discretion. The Trustee is 
also responsible for examining any resolutions, statements, 
certificates, opinions, reports or other instruments in order to 
determine whether they substantially conform to the requirements of the 
PSA. The Trustee has no power to vary the corpus of the Trust and must 
perform the duties of other parties should they fail to perform under 
the PSA. Like the Servicer restrictions, the restrictions on the 
Trustee limit discretion, enhance investor protection, and are a 
positive influence on a Rating Agency's evaluation.
    11. Restrictions on Investments. The collections of principal 
receivables and finance charge receivables held in the Trust may be 
invested by the Trustee only in ``permitted investments'' during the 
interim periods between collection and payout to the 
Certificateholders. Such permitted investments are detailed in the PSA 
and represent what each relevant Rating Agency considers to be secure 
investments that sufficiently protect investors. Under the proposed 
exemption, permitted investments would be investments that either (i) 
are direct obligations of, or obligations fully guaranteed as to timely 
payment of principal and interest by, the United States or any agency 
or instrumentality thereof, provided that such obligation is backed by 
the full faith and credit of the United States, or (ii) have been rated 
(or the obligor thereof has been rated) in one of the three highest 
generic rating categories by a Rating Agency. In addition, all 
permitted investments must be described in the PSA and permitted by the 
relevant Rating Agencies.
    12. Protection From the Consequences of Unplanned Events. If MBNA 
should desire to merge or consolidate with, or assume the obligations 
of, another entity, certain provisions of the PSA ensure that the Trust 
assets remain secure. The new entity involved in the merger or 
consolidation must be a national banking association, a state banking 
corporation or another entity not subject to bankruptcy laws and must 
be organized and regulated under the laws of the United States, any 
State and/or the District of Columbia. The new entity must expressly 
assume the performance of every covenant and obligation of MBNA, and 
MBNA must provide the Trustee with an opinion of counsel that such 
assumption is legal, valid and binding. Finally, each relevant Rating 
Agency must be notified in advance of the change. Similarly, a merger, 
consolidation or assumption of the obligations of the Servicer also 
requires the same protections of a full assumption of liabilities, an 
opinion of counsel and Rating Agency notification.
    The Certificateholders of each Series receive protection from 
certain unplanned events (called ``Pay Out Events''). If a ``Pay Out 
Event'' occurs with respect to a Series, either (i) a rapid 
amortization period will commence during which the Certificates of such 
Series will be paid down periodically, as provided in the PSA 
Supplement, with the principal collections allocable to such Series or 
with principal collections allocable to other Series which are shared 
within the same Group (as discussed in Paragraph 15 below), or (ii) a 
rapid accumulation period will commence during which the Series' 
principal collections will be accumulated until a designated payment 
date. Pay Out Events include ``Trust Pay Out Events,'' which apply to 
all Series, and ``Series Pay Out Events,'' which apply to particular 
Series. ``Trust Pay Out Events'' include: (i) certain events of 
insolvency, conservatorship or receivership relating to MBNA; (ii) the 
Trust becomes an ``investment company'' within the meaning of the 
Investment Company Act of 1940, as amended; and (iii) MBNA becomes 
unable for any reason to transfer receivables to the Trust as required 
by the PSA.
    Series Pay Out Events generally include:
    (a) Failure of MBNA to make required payments or observe its other 
covenants to the extent there is a material adverse effect on the 
Certificateholders of that Series;
    (b) Breach by MBNA of its representations and warranties to the 
extent there is a material adverse effect on the Certificateholders of 
that Series;

[[Page 4047]]

    (c) A default by the Servicer that would have a material adverse 
effect on the Certificateholders of that Series; and
    (d) The portfolio yield for any three consecutive monthly periods 
is less than the average base rate for such period (an ``Economic Pay 
Out Event'').
    With respect to item (d) above, MBNA states that an ``Economic Pay 
Out Event'' will occur automatically when the portfolio yield for any 
series of certificates, averaged over three consecutive months (or such 
other period approved by one of the Rating Agencies) is less than the 
base rate of the series averaged over the same period. Portfolio yield 
for a series of certificates for any period is equal to the sum of the 
finance charge collections and other amounts treated as finance charge 
collections less total defaults for the series divided by the 
outstanding principal balance of the investor certificates of the 
series, or such other measure approved by one of the Rating Agencies. 
The base rate for a series of certificates for any period is the sum of 
(i) amounts payable to certificateholders of the series with respect to 
interest, (ii) servicing fees allocable to the series payable to the 
servicer, and (iii) any credit enhancement fee allocable to the series 
payable to a third party credit enhancer, divided by the outstanding 
principal balance of the investor certificates of the series, or such 
other measure approved by one of the Rating Agencies.
    MBNA states that an ``Economic Pay Out Event'' should not occur 
because the amount of receivables included within the Trust has been 
designed to create ``excess spread'' between the yield on the 
receivables and the certificate rates. Excess spread is the amount by 
which the yield on the receivables held by the Trust exceeds, at any 
point in time, the amounts necessary to pay certificate interest, 
principal (if such payments are due to certificateholders), servicing 
fees and expenses, and to satisfy cardholder defaults or charge-offs. 
The Rating Agencies examine the expected amount of ``excess spread'' 
very closely before providing a high credit rating for the 
certificates.
    A ``Pay Out Event'' accelerates the scheduled payments or 
accumulation of principal on the Certificates as specified within each 
PSA Supplement, and eliminates shared allocations from such Series, 
thus increasing the probability of full payment to senior 
Certificateholders, including plan investors. During a rapid 
amortization period, which is triggered by a ``Pay Out Event'', all 
collections are distributed periodically (instead of being distributed 
on the originally scheduled principal payment dates), as provided in 
the PSA Supplement, until the senior Certificateholders are paid in 
full. During a rapid accumulation period, also triggered by a ``Pay Out 
Event'', all principal collections allocated to the senior Certificates 
are accumulated and invested by the Trustee until the senior 
Certificateholders' interest is backed in full by cash and/or permitted 
investments which will be distributed on the originally scheduled 
payment date. Payments or accumulations are then directed to the next 
level of Certificates below the senior Certificates, until all 
Certificates have been paid or accumulated, or the Trust terminates. 
Because this accelerated pay out or accumulation schedule is triggered 
as a result of poor performance, senior Certificateholders are 
protected from a loss which might result from long-term yield 
reduction, and are, to a level of certainty necessary to support a 
rating of ``AA'' (or better), likely to receive their entire investment 
return. The timing or amount of the payments or accumulations is 
specifically defined in each PSA Supplement, further protecting 
investors from mismanagement. This automatic pay out trigger is 
important to each relevant Rating Agency as well, because it strictly 
limits the potential losses to investors.
    Investors are also protected from the negative consequences of an 
event of Seller insolvency. If one or more of a number of indications 
of insolvency are present, a ``Pay Out Event'' occurs and a rapid 
amortization or a rapid accumulation period is triggered. As discussed 
above, this event accelerates payments or accumulation of collections 
to maximize the probability that senior Certificateholders will be paid 
promptly and in full. In addition, the Trustee also liquidates the 
receivables (unless otherwise instructed by Certificateholders 
representing undivided interests aggregating more than 50 percent of 
each outstanding Series) in order to further accelerate the pay out or 
accumulation process. The proceeds of the liquidation are distributed 
or accumulated in the tiered manner discussed above in the low-yield 
scenario.
    13. Limited Discretion. Inherent in all of the restrictions 
surrounding creation and management of the Trust, discussed above, is 
the limited ability of any party to the transaction to make 
discretionary decisions that would have a major impact on the Trust 
assets. The PSA addresses every possible important decision and 
provides the exact course of action required. Each detail is designed 
to ensure maximum investor security, and minimum Trustee and Servicer 
discretion.

The Series

    14. Once a Trust is established, a Series of Certificates may be 
issued pursuant to a PSA Supplement. One Trust typically supports 
multiple Series of Certificates over time. Each Series issued under a 
Trust is secured, along with other outstanding Series, by the assets of 
the issuing Trust. The PSA Supplement builds on the PSA by specifying 
the parameters for the Series, such as the number and type of 
Certificates, subordination and payment structuring, and other credit 
enhancement features.
    The life of a Series consists of a revolving period and an 
amortization or accumulation period. During both periods, daily 
collections are allocated to the Trust accounts in the manner specified 
in the PSA Supplement. Interest payments are made periodically to the 
Certificateholders as provided in the PSA Supplement, and principal is 
paid in a lump sum on the date designated in the PSA Supplement (in the 
case of an accumulation period), or periodically pursuant to a schedule 
in the PSA Supplement (in the case of an amortization period), for each 
class of Certificates. The allocation of collections and the priority 
of payments differs slightly during the revolving period and the 
amortization or accumulation period.
    15. During a Series' revolving period, periodic interest payments 
are made to Certificateholders. Principal payments, however, are not 
made until the amortization period or at the end of the accumulation 
period. Principal collections during the revolving period typically are 
shared among the Series that are members of the same Group. If one 
Series has principal receipts greater than needed to pay principal for 
that period, the excess may be used to pay principal for another Series 
in the Group which may have a need for such principal collections. In 
such instances, the minimum principal receivable balances required by 
the Rating Agencies for all Series must be maintained. The process of 
sharing within the Group spreads payment risk over a broader base of 
collections and effectively allows concentration of principal 
collections supporting a particular Series, resulting in increased 
reliability of the payment streams.
    Principal collections received during the amortization or 
accumulation period are also potentially shared, but are first applied 
to the principal funding for the Series to which they relate. The

[[Page 4048]]

amortization or accumulation period ends on the earliest of: (i) when 
the investors interests are paid in full; (ii) the Series termination 
date provided in the PSA Supplement; or (iii) the commencement of a 
rapid amortization or rapid accumulation period. Finance charges and 
fees collected during the revolving period and the accumulation or 
amortization period are applied to the related Series, and are not 
generally shared within the Group.
    16. Every Trust will have a variety of credit enhancement features, 
as described in the PSA and specified in the applicable PSA Supplement. 
In addition to the Group sharing of collections discussed above, other 
credit enhancements may include subordination and letters of credit or 
other third party arrangements. The type and value of credit 
enhancement for a particular Series is designed to compliment the 
underlying Trust receivables so that, as a whole, the Trust assets 
satisfy the relevant Rating Agency's requirements for the superior 
rating desired. In this regard, MBNA represents that the particular 
class of certificates for each series to which this proposed exemption 
would apply (an Exempt Class) will have credit support provided to the 
Exempt Class through either a senior-subordinated series structure or 
other form of third party credit support which, at a minimum, will 
represent five (5) percent of the outstanding principal balance of 
certificates issued for the Exempt Class, so that an investor in the 
Exempt Class will not bear the initial risk of loss.
    Each Series with an Exempt Class covered by the proposed exemption 
will include one or more of the following credit enhancing investor 
safeguards (as discussed further below): (i) Subordination; (ii) Third 
Party Credit Enhancement; and (iii) Allocation of Collections and 
Payments to Certificateholders Allows No Variation.
    17. Subordination. Typically, a Series will have some form of 
subordination incorporated within the payment schedule detailed in the 
PSA Supplement. Such a Series will consist of at least one class of 
senior Certificates (typically designated as ``Class A Certificates'') 
which will be allocated collections in a more favorable manner than, 
and/or prior to, another class (or other classes) of Certificates 
(i.e., the next lower level, typically designated as ``Class B 
Certificates'') and often will include an uncertificated class 
subordinate to the Class B Certificates (typically designated as the 
``Collateral Interest'' or ``Class C Interest''). The subordination 
process generally will involve both the receipt of collections and the 
effect of losses. Thus, such collections will be applied to the senior 
(or Class A) Certificates first and then the second tier (or Class B) 
Certificates, and will be applied last to the lowest level class of 
Certificates (or the Collateral Interest). Conversely, the losses will 
first reduce the lowest class of Certificates (or the Collateral 
Interest), only affecting the senior (or Class A) Certificates after 
all other classes have been reduced to zero. The result of this tiered 
structure is that the senior (or Class A) Certificates are protected 
from nonpayment by the lower classes. If the certainty of payment 
provided by the subordination or other credit support mechanism is 
insufficient to allow each relevant Rating Agency to bestow one of its 
two highest ratings on the senior Certificates, the senior Certificates 
would not be eligible for the relief provided under the proposed 
exemption.
    18. Third Party Credit Enhancement. A Series may include a form of 
credit enhancement provided by an outside party, such as a letter of 
credit, a cash collateral account, insurance or a guaranty or other 
extension of credit. This arrangement will be documented by a separate 
contract outlining the terms of the enhancement. A holder of the 
Collateral Interest (described in the preceding paragraph) or other 
subordinate interest holder may be a loan provider or an investor in 
the Class C Interest, and the PSA Supplement typically requires that a 
minimum Collateral Interest (or subordinate interest) be a feature of 
each Series. As with all the forms of credit enhancement, the terms and 
the amount of the Collateral Interest will be dependent upon an 
evaluation of the other Trust assets and the additional support needed 
to satisfy each relevant Rating Agency that the Certificates are 
sufficiently protected from default.
    19. Allocation of Collections and Payments to Certificateholders 
Allows No Variation. The PSA Supplement provides instructions to the 
Servicer regarding each day's collections and the allocation of those 
collections to the various accounts created by the PSA. These 
instructions indicate how to make the payments and allocations during 
the revolving period, the amortization or accumulation period and the 
rapid amortization or rapid accumulation period, if any. The 
instructions also cover the treatment of other moneys from loans or 
other credit enhancement features, and carefully describe how to 
accommodate any excess collections, or how to compensate for any 
shortfalls. In following these detailed instructions, the Servicer does 
not make any discretionary decisions. The tasks are predetermined and 
largely ministerial. These explicit instructions, in concert with the 
Servicer reporting and review requirements, are designed to permit each 
relevant Rating Agency to conclude that mismanagement risks are 
minimal.

The Certificates

    20. Each Series may include a class or various classes of 
Certificates, some of which may be subordinate to others.
    Certificateholders will be entitled to receive periodic payments of 
interest based upon a fixed or variable interest rate which is set 
forth in the PSA Supplement and applied to the Certificateholder's 
unpaid principal balance. Certificateholders will also be entitled to 
receive a lump sum principal payment on the scheduled payment date, or 
a series of periodic payments beginning on the scheduled payment 
commencement date, as specified in the PSA Supplement, to the extent of 
the Certificateholder's investor interest.
    As noted earlier, only Certificates that are not subordinate to any 
other class or classes of Certificates (the ``Senior Certificates'') 
would be eligible for exemptive relief under the proposed exemption.
    21. MBNA represents that a plan would invest in the Certificates 
for the same reasons any investor would invest in a highly secure, 
``AA'' (or better) rated investment with attractive yields. The Senior 
Certificates represent an investment alternative which offers all the 
benefits of a highly rated fixed-income security, such as fixed payment 
streams, investment diversity and market rates of return. Permitting 
plans to invest in Senior Certificates in reliance on the proposed 
exemption would provide plans with additional and safe investment 
opportunities.
    22. With respect to the credit ratings of the Certificates, MBNA 
states that the rating reflects a Rating Agency's opinion as to the 
relative amount of protection that investors have against loss of 
principal and interest during the life of the security. A high rating 
comports with a low risk of loss. In order to achieve this rating, each 
relevant Rating Agency requires the credit card securitizations 
effected through the Trust to include a variety of safeguards--such as 
subordination or other forms of credit enhancement, limitations on the 
Seller's discretion, and Rating Agency approval of certain actions 
taken with respect to the Trust or a Series of Certificates. Each 
relevant Rating Agency typically requires legal opinions regarding the 
credit card securitization's structure and performs

[[Page 4049]]

stress tests on the portfolio of selected receivables in order to 
evaluate the securitization's anticipated performance within a range of 
significant market fluctuations. In addition, each relevant Rating 
Agency performs a comprehensive review of all documents related to the 
credit card securitization before the formal rating is given. Each 
relevant Rating Agency must provide confirmations that additions of 
receivables from accounts to a Trust, or withdrawals of existing 
accounts from a trust, will not result in a Ratings Effect on the 
Certificates.
    After its rating is assigned, the Rating Agency monitors the 
performance of the credit card receivables included in a Trust in order 
to assess whether the performance remains consistent with the rating. 
Although variations in portfolio performance are expected during a 
Certificate's duration and are factored into a Rating Agency's 
analysis, extreme and unexpected performance results may result in a 
revision of the rating. MBNA makes its Trust performance information 
available to each relevant Rating Agency in a variety of ways, in order 
to ensure that the Rating Agency receives all the information it deems 
necessary to make its evaluation. For example, MBNA provides 
information on portfolio performance broken down by account balance, 
credit limit, account age, delinquency period and geographic 
distribution.
    MBNA states that the receipt of one of the two highest generic 
ratings from a Rating Agency represents the result of an exhaustive 
analysis of the many risk factors involved with a Series of 
Certificates, and provides a comfort level to investors that the 
potential reduction in yield as a result of credit losses is 
minimal.\11\
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    \11\ In this regard, the Department was advised by 
representatives from two of the Rating Agencies (RA Reps) of certain 
issues concerning the ratings of certificates issued by trusts 
holding credit card receivables. The RA Reps discussed, among other 
things, the fact that different banks use different underwriting 
standards and may offer cardholders different terms on their 
accounts. Some banks may be willing to accept cardholders with more 
risky credit histories while other banks may not or may offer better 
terms to cardholders with superior payment histories. The result may 
be that some banks have a higher quality portfolio of receivables 
than other banks. The RA Reps stated that if a bank securitizes a 
portfolio of receivables which holds a number of riskier accounts, 
the Rating Agencies will require more credit enhancement measures 
because different assumptions will have to be made about the 
performance of the portfolio--e.g. higher charge-off rates will be 
assumed and greater ``excess spread'' will be necessary to avoid 
losses--in order to achieve an ``AAA'' rating. Thus, for example, 
Bank A's certificates may receive an ``AAA'' rating along with 
MBNA's certificates even though Bank A may experience more charge-
offs on the credit card accounts and may have different payment 
rates on the receivables associated with those accounts.
---------------------------------------------------------------------------

    23. MBNA represents that the statistics on Certificates backed by 
credit card trusts indicate that they are sound investments. In this 
regard, MBNA states that public credit card securitization transactions 
have been in existence since 1987 and issuers have successfully sold 
over $230 billion in Certificates backed by credit card receivables 
since then with a zero investor loss rate. MBNA states further that 
plans have invested during this time in such Certificates, despite the 
prohibited transaction provisions of the Act, in reliance upon the 
Department's regulation defining ``plan assets'' and, specifically, the 
``100-Holder Exception'' for ``publicly-offered'' securities (see 29 
CFR 2510.3-101).\12\
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    \12\ The Department's regulation defining ``plan assets'' 
provides that, if a plan invests in a publicly-offered security, the 
plan's assets will not include, solely by reason of such investment, 
any of the underlying assets of the entity issuing the security 
(i.e. the ``look-through rule'' will not apply and the operations of 
the entity will not be subject to scrutiny under the prohibited 
transaction provisions of the Act). The regulation defines a 
``publicly-offered'' security as one that is freely transferable, 
widely-held, and registered under the federal securities laws. A 
class of securities is ``widely held'' if it is owned by 100 or more 
investors who are independent of the issuer and of one another at 
the conclusion of the offering (see 29 CFR 2510.3-101(b)(3)).
---------------------------------------------------------------------------

    MBNA maintains that the proposed exemption offers a number of 
safeguards in the form of concentration restrictions that are designed 
to provide additional protections for plan investors which are not 
included in the typical 100-holder exception transactions. For example, 
for purposes of the relief from the prohibitions of section 406(b) of 
the Act \13\ provided under Section I.B. herein (relating to certain 
obligors of the Trust who may have discretionary authority for a plan 
investing in certificates of the Trust), the proposed exemption limits 
such plan's investment in any class of Certificates of any Series to 
not more than 25 percent of the principal amount of the Certificates of 
that class outstanding at the time of acquisition. In addition, 
immediately after the acquisition of the certificates, not more than 25 
percent of the assets of such a plan may be invested in certificates 
representing an interest in the trust, or trusts containing receivables 
sold or serviced by the same entity. Further, the proposed exemption 
requires that at least 50 percent of the outstanding principal amount 
of each class of Certificates in which plans have invested, and at 
least 50 percent of the outstanding aggregate interest of the Trust, in 
connection with the initial issuance of the Certificates, must be 
acquired by persons independent of the Sponsor, the Servicer and other 
related parties. These restrictions are designed to protect plan 
investors from the risks inherent in excessive ownership concentration 
and related party transactions.
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    \13\ Section 406(b) of the Act, in pertinent part, prohibits a 
plan fiduciary from dealing with the assets of the plan in his own 
interest or for his own account, or from acting on behalf of a party 
(or representing a party) whose interests are adverse to the 
interests of the plan and its participants and beneficiaries.
---------------------------------------------------------------------------

    24. MBNA represents that the requested exemption is similar to the 
Underwriter Exemptions.\14\ The Underwriter Exemptions are a series of 
exemptions granted by the Department to various underwriters or trust 
sponsors for transactions relating to the acquisition by plans of 
certificates representing interests in trusts holding various types of 
assets (e.g. single and multi-family residential or commercial 
mortgages, motor vehicle leases and related vehicles, equipment leases 
or other secured obligations), as provided in Section III.B. of the 
Underwriter Exemptions.
---------------------------------------------------------------------------

    \14\ As indicated in Footnote 7 above, PTE 97-34 (which granted 
an amendment to the Underwriter Exemptions) contains the most 
comprehensive listing of these exemptions.
---------------------------------------------------------------------------

    The Trusts described under the proposed exemption for Certificates 
backed by credit card receivables differ from trusts holding secured 
obligations in that the Trusts do not contain a fixed pool of assets 
and the receivables are not secured by real or tangible personal 
property. However, MBNA states that this difference in structure does 
not represent a difference in the quality or safety of investments by 
plans and other investors in the Certificates. Under the proposed 
exemption, MBNA represents that the other forms of credit enhancement 
provide at least the same level of security for investors in Trusts 
holding credit card receivables as exists for investors in trusts 
holding tangible or real property as collateral for the payment 
obligations to Certificateholders. In addition, Trusts holding credit 
card receivables do not involve the expense and administrative 
complexities of foreclosure procedures relating to tangible and real 
property.
    25. Certificateholders are entitled to receive periodic payments of 
interest based upon an interest rate, which may be variable or fixed. 
This interest rate is specified or defined in the PSA Supplement for 
the particular Series and is applied to the outstanding principal 
balance of the Certificates. This outstanding balance (net of any 
charge-offs) is known as the investor

[[Page 4050]]

interest for the senior class of Certificates. Certificateholders are 
also entitled to receive principal payments on the scheduled payment 
dates, or sooner or later under certain limited circumstances, pursuant 
to the PSA Supplement to the extent of the Certificateholders' investor 
interest. The payments are funded from collections on the related 
receivables and allocated to the investor interests as provided in the 
PSA Supplement.
    MBNA states that a Series or class of Certificates may have the 
benefit of an interest rate swap agreement entered into between the 
Trustee for a Trust and a bank or other financial institution acting as 
a swap counterparty. Pursuant to the swap agreement, the swap 
counterparty would pay a certain rate of interest to the Trust in 
return for a payment of a rate of interest by the Trust, from 
collections allocable to the relevant Series or class of Certificates, 
to the swap counterparty. MBNA represents that the credit rating 
provided to a particular Series or class of Certificates by the 
relevant Rating Agency may or may not be dependent upon the existence 
of a swap agreement. Thus, in some instances, the terms and conditions 
of the swap agreements will not effect the credit rating of the Series 
or class of Certificates to which the swap relates (i.e. a ``Non-
Ratings Dependent Swap'').
    MBNA states that whether or not the credit rating of a particular 
Series or class of Certificates is dependent upon the terms and 
conditions of one or more interest rate swap agreements entered into by 
the Trust (i.e. a ``Ratings Dependent Swap'' or a ``Non-Ratings 
Dependent Swap''), each particular swap transaction will be an 
``Eligible Swap'' as defined in Section III.HH. above.
    In this regard, an Eligible Swap will be a swap transaction:
    (a) Which is denominated in U.S. Dollars;
    (b) Pursuant to which the Trust pays or receives, on or immediately 
prior to the respective payment or distribution date for the applicable 
senior class of Certificates, a fixed rate of interest, or a floating 
rate of interest based on a publicly available index (e.g. LIBOR or the 
U.S. Federal Reserve's Cost of Funds Index (COFI)), with the Trust 
receiving such payments on at least a quarterly basis and obligated to 
make separate payments no more frequently than the counterparty, with 
all simultaneous payments being netted;
    (c) Which has a notional amount that does not exceed either (i) the 
certificate balance of the class of certificates to which the swap 
relates, or (ii) the portion of the certificate balance of such class 
represented by receivables;
    (d) Which is not leveraged (i.e. payments are based on the 
applicable notional amount, the day count fractions, the fixed or 
floating rates designated in item (b) above, and the difference between 
the products thereof, calculated on a one to one ratio and not on a 
multiplier of such difference);
    (e) Which has a final termination date that is the earlier of the 
date on which the Trust terminates or the related class of Certificates 
is fully repaid; and
    (f) Which does not incorporate any provision which could cause a 
unilateral alteration in any provision described in items (a) through 
(e) above without the consent of the Trustee.
    In addition, any Eligible Swap entered into by the Trust will be 
with an ``Eligible Swap Counterparty'', which will be a bank or other 
financial institution with a rating at the date of issuance of the 
Certificates by the Trust which is in one of the three highest long-
term credit rating categories, or one of the two highest short-term 
credit rating categories, utilized by at least one of the Rating 
Agencies rating the Certificates (see Section III.II above). However, 
if a swap counterparty is relying on its short-term rating to establish 
its eligibility, such counterparty must either have a long-term rating 
in one of the three highest long-term rating categories or not have a 
long-term rating from the applicable Rating Agency.
    With respect to a Ratings Dependent Swap, an Eligible Swap 
Counterparty will be subject to certain collateralization or other 
arrangements satisfactory to the Rating Agencies in the event of a 
rating downgrade of such swap counterparty below a level specified by 
the Rating Agency, which would be no lower than the level that would 
make such counterparty ``eligible'' under this proposed exemption (see 
Section III.II. above). If these arrangements are not established 
within a specified period, as described in the PSA, there will be an 
early payout event causing certificateholders to receive an earlier 
than expected payout of principal on their certificates for the series 
to which the swap relates. However, with respect to a Non-Ratings 
Dependent Swap, the PSA will not specify that there be an early payout 
event for the series to which the swap relates if the credit rating of 
the swap counterparty falls below the level required for it to be 
considered an Eligible Swap Counterparty (as described in Section 
III.II. above). In such instances, in order to protect the interests of 
the Trust as a swap counterparty, the servicer (as agent for the 
trustee of the trust) will be required to either:
    (i) Obtain a replacement swap agreement with an Eligible Swap 
Counterparty, the terms of which are substantially the same as the 
current swap agreement (at which time the earlier swap agreement will 
terminate);
    (ii) Cause the swap counterparty to post collateral with the 
trustee of the trust in an amount equal to all payments owed by the 
counterparty if the swap transaction were terminated; or
    (iii) Terminate the swap agreement in accordance with its terms.
    Under any termination of a swap, the Trust will not be required to 
make any termination payments to the swap counterparty (other than a 
currently scheduled payment under the swap agreement) except from 
``excess finance charge collections'' or other amounts that would 
otherwise be payable to the servicer or the seller (i.e. MBNA). In this 
regard, ``excess finance charge collections'' will be, as of any day 
funds are distributed from the Trust, the amounts by which the finance 
charge collections allocated to certificates of a series exceed the 
amounts necessary to pay certificate interest, servicing fees and 
expenses, to satisfy cardholder defaults or charge-offs, and to 
reinstate credit support.
    With respect to Non-Ratings Dependent Swaps, each Rating Agency 
rating the Certificates must confirm, as of the date of issuance of the 
Certificates by the Trust, that entering into the swap transactions 
with the Eligible Swap Counterparty will not effect the rating of the 
Certificates, even if such counterparty is no longer an ``eligible'' 
counterparty and the swap is terminated.\15\
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    \15\ RA Reps have indicated to the Department that certain 
series of certificates issued by a trust holding credit card 
receivables will have certificate ratings that are not dependent on 
the existence of a swap transaction entered into by the trust. 
Therefore, a downgrade in the swap counterparty's credit rating 
would not cause a downgrade in the rating established by the Rating 
Agency for the certificates. RA Reps state that in such instances 
there will be more credit enhancements (e.g. ``excess spread'', 
letters of credit, cash collateral accounts) for the series to 
protect the certificateholders than there would be in a comparable 
series where the trust enters into a so-called Ratings Dependent 
Swap. Non-Ratings Dependent Swaps are generally used as a 
convenience to enable the trust to pay certain fixed interest rates 
on a series of certificates. However, the receipt of such fixed 
rates by the trust from the counterparty is not a necessity for the 
trust to be able to make its fixed rate payments to the 
certificateholders.
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    Any class of senior Certificates to which one or more swap 
agreements entered into by the trust applies, will be acquired or held 
only by Qualified Plan

[[Page 4051]]

Investors (as defined in Section III.JJ. above). Qualified Plan 
Investors will be plan investors represented by an appropriate 
independent fiduciary that is qualified to analyze and understand the 
terms and conditions of any swap transaction relating to the class of 
senior Certificates to be purchased and the effect such swap would have 
upon the credit rating of the senior Certificates to which the swap 
relates.
    For purposes of the proposed exemption, such a qualified 
independent fiduciary will be either:
    (i) A ``qualified professional asset manager'' (i.e. QPAM), as 
defined under Part V(a) of PTE 84-14; \16\
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    \16\ See Footnote 8 above.
---------------------------------------------------------------------------

    (ii) an ``in-house asset manager'' (i.e. INHAM), as defined under 
Part IV(a) of PTE 96-23; \17\ or
---------------------------------------------------------------------------

    \17\ See Footnote 9 above.
---------------------------------------------------------------------------

    (iii) A plan fiduciary with total assets under management of at 
least $100 million at the time of the acquisition of such Certificates.

Disclosures Available to Investing Plans

    26. In connection with the original issuance of certificates, the 
prospectus or private offering memorandum will be furnished to 
investing plans. The prospectus or private offering memorandum will 
contain information pertinent to a plan's decision to invest in the 
Certificates, such as:
    (a) Information concerning the Certificates, including payment 
terms, certain tax consequences of owning and selling Certificates, the 
legal investment status and rating of the Certificates, and any special 
considerations with respect to the Certificates;
    (b) Information about the underlying receivables, including the 
types of receivables, statistical information relating to the 
receivables, their payment terms, and the legal aspects of the 
receivables;
    (c) Information about the servicing of the receivables, including 
the identity of the servicer and servicing compensation;
    (d) Information about the Sponsor of the Trust;
    (e) A full description of the material terms of the Pooling and 
Servicing Agreement; and
    (f) Information about the scope and nature of the secondary market, 
if any, for such Certificates.
    Certificateholders will be provided with information concerning the 
amount of principal and interest to be paid on Certificates in 
connection with each distribution to Certificateholders. 
Certificateholders will also be provided with periodic information 
statements setting forth material information concerning the status of 
the Trust.
    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 (the '34 Act). 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 (i) 
obtain, by application to the SEC, 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; or (ii) 
are not subject to such requirements for one or more Series of 
Certificates issued by the Trust. 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 SEC's interpretation of the 
periodic reporting requirement is subject to change, periodic reports 
concerning a Trust will be filed to the extent required under the '34 
Act.
    MBNA states that at or about the time distributions are made to 
Certificateholders, reports will be delivered to the Trustee as to the 
status of the Trust and its assets, including underlying Receivables. 
Such reports will typically contain information regarding the Trust's 
assets, payments received or collected by the Servicer, the amount of 
delinquencies and defaults, the amount of any payments made pursuant to 
any credit support or credit enhancement feature, and the amount of 
compensation payable to the Servicer. Such reports will also be 
delivered or made available to the Rating Agency that currently rates 
the Certificates. Such reports will be available to investors and its 
availability will be made known to potential investors. In addition, 
promptly after each distribution date, Certificateholders will receive 
a statement summarizing information regarding the Trust and its assets 
and the applicable Series, including underlying receivables.
    28. In summary, MBNA represents that the proposed transactions will 
meet the statutory criteria of section 408(a) of the Act because, among 
other things:
    (a) The acquisition of senior Certificates by a plan will be on 
terms (including Certificate price) that are at least as favorable to 
the plan as such terms would be in an arm's-length transaction with an 
unrelated party;
    (b) The rights and interests evidenced by the senior Certificates 
will not be subordinated to the rights and interests evidenced by other 
investor Certificates of the Trust;
    (c) Any senior Certificates acquired by a plan will have received a 
rating at the time of such acquisition that is in one of the two 
highest generic rating categories from any one of the Rating Agencies 
or, for certificates with a duration of one year or less, the highest 
short-term generic rating category from any one of the Rating Agencies;
    (d) The Trustee of the Trust will not be an affiliate of any other 
member of the Restricted Group;
    (e) The sum of all payments made to and retained by the 
underwriters in connection with the distribution or placement of 
Certificates will represent not more than reasonable compensation for 
underwriting or placing the Certificates; the consideration received by 
the Sponsor as a consequence of the assignment of receivables (or 
interests therein) to the Trust will represent not more than the fair 
market value of such receivables (or interests); and the sum of all 
payments made to and retained by the Servicer, which are allocable to 
the Series or class of certificates purchased by a plan, will represent 
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;
    (f) Any plan investing in such Certificates will be an ``accredited 
investor'' as defined in Rule 501(a)(1) of Regulation D of the SEC 
under the Securities Act of 1933;
    (g) The terms of each Series or class of Certificates, and the 
conditions under which MBNA may designate additional accounts to, or 
remove previously-designated accounts from, the Trust will be described 
in the prospectus or private placement memorandum provided to investing 
plans;
    (h) The Trustee of the Trust will be a substantial financial 
institution or trust company experienced in trust activities and would 
be familiar with its duties, responsibilities and liabilities as a 
fiduciary under the Act;
    (i) The PSA will include ``Economic Pay Out Events'' triggered by a 
decline in the performance of the receivables in the Trust;
    (j) To protect against fraud, chargebacks or other dilution of the 
receivables in the Trust, the PSA and the Rating Agencies will require 
MBNA, as the Trust's sponsor, to maintain a seller interest of not less 
than 2 percent

[[Page 4052]]

of the principal balance of the receivables contained in the Trust;
    (k) Each receivable added to a Trust will be an eligible 
receivable, based on criteria of the relevant Rating Agency(ies) and as 
specified in the PSA;
    (l) The PSA will require that any change in the terms of any 
cardholder agreements also will be made applicable to the comparable 
segment of accounts owned or serviced by MBNA which are part of the 
same program or have the same or substantially similar characteristics;
    (m) The addition of new receivables or designation of new accounts, 
or removal of previously-designated accounts, will meet the terms and 
conditions for such additions, designations, or removals as described 
in the prospectus or private placement memorandum for such 
Certificates, which terms and conditions will have been approved by 
each relevant Rating Agency, and will not result in the Certificates 
receiving a lower credit rating from the relevant Rating Agency than 
the then current rating of the Certificates;
    (n) Any swap transaction relating to senior Certificates that are 
covered by the proposed exemption must satisfy the several investor-
protective conditions applicable to Eligible Swaps and must be entered 
into by the Trust with an Eligible Swap Counterparty; and
    (o) Any class of Certificates to which one or more swap agreements 
entered into by the Trust applies may be acquired or held by plans in 
reliance upon this proposed exemption only if such plans are 
represented by ``Qualified Plan Investors.''

FOR FURTHER INFORMATION CONTACT: Mr. E.F. Williams of the Department, 
telephone (202) 219-8194. (This is not a toll-free number.)

Citibank (South Dakota), N.A., Citibank (Nevada), N.A., and 
Affiliates
Located in North Sioux Falls, South Dakota (Application No. D-10313)

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 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990).

Section I--Transactions

    A. Effective as of the date this proposed exemption is granted, 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 trust, 
the sponsor or an underwriter and an employee benefit plan subject to 
the Act or section 4975 of the Code (a 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 Section 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, as defined in Section III.K. below, by any person who 
has discretionary authority or renders investment advice with respect 
to the assets of the Excluded Plan that are invested in 
certificates.\18\
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    \18\ 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 as of the date this proposed exemption is granted, 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 trust, 
the sponsor or an 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 receivables contained in the trust constituting 0.5 
percent or less of the fair market value of the aggregate undivided 
interest in the trust allocated to the certificates of a series, 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, 
as defined in Section III.L., and at least 50 percent of the aggregate 
undivided interest in the trust allocated to the certificates of a 
series is acquired by persons independent of the Restricted Group;
    (iii) A plan's investment in each class of certificates of a series 
does not exceed 25 percent of all of the certificates of that class 
outstanding at the time of the acquisition;
    (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 is 
invested in certificates representing the aggregate undivided interest 
in a trust allocated to the certificates of a series and containing 
receivables sold or serviced by the same entity; 19 and
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    \19\ For purposes of this proposed 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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    (v) Immediately after the acquisition of the certificates, not more 
than 25 percent of the assets of a plan with respect to which the 
person has discretionary authority or renders investment advice is 
invested in certificates representing an interest in the trust, or 
trusts containing receivables sold or serviced by the same entity. For 
purposes of paragraphs B.(1)(iv) and B.(1)(v) only, an entity shall not 
be considered to service receivables contained in a trust if it is 
merely a subservicer of that trust;
    (2) The direct or indirect acquisition or disposition of 
certificates by a plan in the secondary market for such certificates, 
provided that conditions set forth in Section I. B.(1)(i), (iii) 
through (v) are met; and
    (3) The continued holding of certificates acquired by a plan 
pursuant to Section I.B.(1) or (2).
    C. Effective as of the date that the proposed exemption is granted, 
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, 
including the reassignment to the sponsor of receivables, the removal 
from the trust of accounts previously designated to the trust, the 
changing of the underlying terms of accounts designated to the trust, 
the adding of

[[Page 4053]]

new receivables to the trust, the designation of new accounts to the 
trust, the retention of a retained interest by the sponsor in the 
receivables, the exercise of the right to cause the commencement of 
amortization of the principal amount of the certificates, or the use of 
any eligible swap transactions, provided:
    (1) Such transactions are carried out in accordance with the terms 
of a binding pooling and servicing agreement; 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; 20
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    \20\ In the case of a private placement memorandum, such 
memorandum must contain substantially the same information that 
would be disclosed in a prospectus if the offering of the 
certificates were made in a registered public offering under the 
Securities Act of 1933. In the Department's view, the private 
placement memorandum must contain sufficient information to permit 
plan fiduciaries to make informed investment decisions. For purposes 
of this proposed exemption, all references to ``prospectus'' include 
any related supplement thereto, and any documents incorporated by 
reference therein, pursuant to which certificates are offered to 
investors.
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    (3) The addition of new receivables or designation of new accounts, 
or the removal of receivables or previously-designated accounts, meets 
the terms and conditions for such additions, designations or removals 
as are described in the prospectus or private placement memorandum for 
such certificates, which terms and conditions have been approved by 
Standard & Poor's Ratings Services, Moody's Investor Service, Inc., 
Duff & Phelps Credit Rating Co., or Fitch Investors Service, L.P., or 
their successors (collectively, the Rating Agencies), and does not 
result in the certificates receiving a lower credit rating from the 
Rating Agencies than the then current rating for the Certificates; and
    (4) The series of which the certificates are a part will be subject 
to an Economic Early Amortization Event, which is set forth in the 
pooling and servicing agreement and described in the prospectus or 
private placement memorandum associated with the series, the occurrence 
of which will cause any Revolving Period, Controlled Amortization 
Period, or Accumulation Period applicable to the certificates to end, 
and principal collections to be applied to monthly payments of 
principal to, or accumulated for the account of, the certificateholders 
of such series until the earlier of: (i) payment in full of the 
outstanding principal amount of such certificates of such series, or 
(ii) the series termination date specified in the prospectus or private 
placement memorandum.
    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 under section 4975(a) and (b) of the Code, by reason 
of section 4975(c)(1)(E) or (F) of the Code, for the receipt of a fee 
by the servicer of the trust, in connection with the servicing of the 
receivables and the operation 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. below.
    D. Effective as of the date that the proposed exemption is granted, 
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 
transaction 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 as 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.

Section II--General Conditions

    A. The relief provided under Section 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 such terms 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 either: (i) in one of the two 
highest generic rating categories from any one of the Rating Agencies; 
or (ii) for certificates with a duration of one year or less, the 
highest short-term generic rating category from any one of the Rating 
Agencies; provided that, notwithstanding such ratings, this exemption 
(if granted) shall apply to a particular class of certificates only if 
such class (an Exempt Class) is part of a series in which credit 
support is provided to the Exempt Class through a senior-subordinated 
series structure or other form of third-party credit support which, at 
a minimum, represents five (5) percent of the outstanding principal 
balance of certificates issued for the Exempt Class, so that an 
investor in the Exempt Class will not bear the initial risk of loss;
    (4) The trustee is not an affiliate of any other member of the 
Restricted Group. However, the trustee shall not be considered to be an 
affiliate of a servicer solely because the trustee has succeeded to the 
rights and responsibilities of the servicer pursuant to the terms of a 
pooling and servicing agreement providing for such succession upon the 
occurrence of one or more events of default by the servicer;
    (5) The sum of all payments made to and retained by the 
underwriters in connection with the distribution or placement of 
certificates represents not more than reasonable compensation for 
underwriting or placing the certificates; the consideration received by 
the sponsor as a consequence of the assignment of receivables (or 
interests therein) to the trust represents not more than the fair 
market value of such receivables (or interests); and the sum of all 
payments made to and retained by the servicer, that are allocable to 
the series of certificates purchased by a plan, represents not more 
than reasonable compensation for the servicer's services under the 
pooling and servicing agreement and reimbursement of the servicer's 
reasonable expenses in connection therewith;
    (6) The plan investing in such certificates is an ``accredited 
investor'' as defined in Rule 501(a)(1) of Regulation D of the 
Securities and Exchange Commission (SEC) under the Securities Act of 
1933;
    (7) The trustee of the trust is a substantial financial institution 
or trust company experienced in trust activities and is familiar with 
its duties, responsibilities, and liabilities as a fiduciary under the 
Act (i.e. ERISA). The trustee, as the legal owner of the receivables in 
the trust, enforces all the rights created in favor of 
certificateholders of such trust, including employee benefit plans 
subject to the Act;
    (8) Prior to the issuance of any new series in the trust, 
confirmation must be received from the Rating Agencies that such 
issuance will not result in the reduction or withdrawal of the then 
current rating or ratings of the certificates held by any plan pursuant 
to this exemption;
    (9) To protect against fraud, chargebacks or other dilution of 
receivables in the trust, the pooling and

[[Page 4054]]

servicing agreement and the Rating Agencies require the sponsor to 
maintain a seller interest of not less than the greater of (i) 2 
percent of the initial aggregate principal balance of investor 
certificates issued by the trust, or (ii) 7 percent of the outstanding 
aggregate principal balance of investor certificates issued by the 
trust;
    (10) Each receivable added to the trust will be an eligible 
receivable, based on criteria of the Rating Agency and as specified in 
the pooling and servicing agreement. The pooling and servicing 
agreement requires that any change in the terms of any cardholder 
agreements also be made applicable to the comparable segment of 
Accounts owned or serviced by the sponsor which are part of the same 
program or have the same or substantially similar characteristics;
    (11) The pooling and servicing agreement limits the number of the 
sponsor's newly originated accounts to be added to the trust, unless 
the Rating Agency otherwise affirmatively consents, to the following: 
(i) with respect to any three month period, 15 percent of the number of 
existing accounts designated to the trust as of the first day of such 
period, and (ii) with respect to any calendar year, 20 percent of the 
number of existing accounts designated to the trust as of the first day 
of such calendar year;
    (12) The pooling and servicing agreement requires the sponsor to 
deliver an opinion of counsel semi-annually confirming the validity and 
perfection of each transfer of newly originated accounts to the trust;
    (13) The pooling and servicing agreement requires the sponsor and 
the trustee to receive at specified quarterly intervals during the 
year, confirmation from a Rating Agency that the addition of all newly 
originated accounts added to the trust (during the three month period 
ending in the calendar month prior to such confirmation) will not have 
resulted in a Ratings Effect;
    (14) If a particular series of certificates held by any plan 
involves a Ratings Dependent or Non-Ratings Dependent Swap entered into 
by the trust, then each particular swap transaction relating to such 
certificates:
    (a) Shall be an Eligible Swap;
    (b) Shall be with an Eligible Swap Counterparty;
    (c) In the case of a Ratings Dependent Swap, shall include as an 
early amortization event, as specified in the pooling and servicing 
agreement, the withdrawal or reduction by any Rating Agency of the swap 
counterparty's credit rating below a level specified by the Rating 
Agency where the servicer (as agent for the trustee) has failed, for a 
specified period after such rating withdrawal or reduction, to meet its 
obligation under the pooling and servicing agreement to:
    (i) Obtain a replacement swap agreement with an Eligible Swap 
Counterparty which is acceptable to the Rating Agency and the terms of 
which are substantially the same as the current swap agreement (at 
which time the earlier swap agreement shall terminate); or
    (ii) Cause the swap counterparty to establish any collateralization 
or other arrangement satisfactory to the Rating Agency such that the 
then current rating by the Rating Agency of the particular series of 
certificates will not be withdrawn or reduced;
    (d) In the case of a Non-Ratings Dependent Swap, shall provide 
that, if the credit rating of the swap counterparty is withdrawn or 
reduced below the lowest level specified in Section III.II. hereof, the 
servicer (as agent for the trustee) shall within a specified period 
after such rating withdrawal or reduction:
    (i) Obtain a replacement swap agreement with an Eligible Swap 
Counterparty, the terms of which are substantially the same as the 
current swap agreement (at which time the earlier swap agreement shall 
terminate); or
    (ii) Cause the swap counterparty to post collateral with the 
trustee of the trust in an amount equal to all payments owed by the 
counterparty if the swap transaction were terminated; or
    (iii) Terminate the swap agreement in accordance with its terms; 
and
    (e) Shall not require the trust to make any termination payments to 
the swap counterparty (other than a currently scheduled payment under 
the swap agreement) except from ``Excess Finance Charge Collections'' 
(as defined below in Section III.LL.) or other amounts that would 
otherwise be payable to the servicer or the seller; and
    (15) Any Series of certificates which entails one or more swap 
agreements entered into by the trust shall be sold only to Qualified 
Plan Investors.
    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 Section I, if the provision in Section II.A.(6) above is 
not satisfied for the 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 shall 
be required to make a written representation regarding compliance with 
the condition set forth in Section II.A.(6).

Section III--Definitions

    For purposes of this proposed exemption:
    A. Certificate means
    (1) A certificate:
    (a) That represents a beneficial ownership interest in the assets 
of a trust;
    (b) That entitles the holder to payments denominated as principal 
and interest, and/or other payments made in connection with the assets 
of such trust, either currently, or after a Revolving Period during 
which principal payments on assets in the trust are reinvested in new 
assets; or
    (2) A certificate denominated as a debt instrument that represents 
an interest in a financial asset securitization investment trust 
(FASIT) within the meaning of section 860L of the Code, and that is 
issued by and is an obligation of a trust;
which is sold upon initial issuance by an underwriter (as defined in 
Section III.C.) in an underwriting or private placement.
    For purposes of this proposed 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) Receivables (as defined in Section III.T.); or
    (b) Participations in a pool of receivables (as defined in Section 
III.T.) where such beneficial ownership interests are not subordinated 
to any other interest in the same pool of receivables; 21
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    \21\ The Department notes that no relief would be available 
under the exemption if the participation interests held by the trust 
were subordinated to the rights and interests evidenced by other 
participation interests in the same pool of receivables.

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[[Page 4055]]

    (2) Property which has secured any of the assets described in 
Section III.B.(1); 22
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    \22\ Citibank states that it is possible for credit card 
receivables to be secured by bank account balances or security 
interests in merchandise purchased with credit cards. Thus, the 
proposed exemption should permit foreclosed property to be an 
eligible trust asset.
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    (3) Undistributed cash or permitted investments made therewith 
maturing no later than the next date on which distributions are to be 
made to certificate holders, except during a Revolving Period (as 
defined herein) when permitted investments are made until such cash can 
be reinvested in additional receivables described in paragraph (a) of 
this Section III.B.(1);
    (4) Rights of the trustee under the pooling and servicing 
agreement, and rights under any cash collateral accounts, insurance 
policies, third-party guarantees, contracts of suretyship and other 
credit support arrangements for any certificates, swap transactions, or 
under any yield supplement agreements,23 yield maintenance 
agreements or similar arrangements; and
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    \23\ In a series involving an accumulation period (as defined in 
Section III.AA), a yield supplement agreement may be used by the 
Trust to make up the difference between (i) the reinvestment yield 
on permitted investments, and (ii) the interest rate on the 
certificates of that series.
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    (5) Rights to receive interchange fees received by the sponsor as 
partial compensation for the sponsor's taking credit risk, absorbing 
fraud losses and funding receivables for a limited period prior to 
initial billing with respect to accounts designated to the trust.
    Notwithstanding the foregoing, the term ``trust'' does not include 
any investment pool unless: (i) the investment pool consists only of 
receivables 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 two highest generic rating 
categories by at least one of the Rating Agencies for at least one year 
prior to the plan's acquisition of certificates pursuant to this 
exemption; and (iii) certificates evidencing an interest 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 an entity which has received an individual 
prohibited transaction exemption from the Department that provides 
relief for the operation of asset pool investment trusts that issue 
``asset-backed'' pass-through securities to plans, that is similar in 
format and structure to this proposed exemption (the Underwriter 
Exemptions); 24 any person directly or indirectly, through 
one or more intermediaries, controlling, controlled by or under common 
control with such entity; and any member of an underwriting syndicate 
or selling group of which such firm or affiliated person described 
above is a manager or co-manager with respect to the certificates.
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    \24\ For a listing of the Underwriter Exemptions, see the 
description provided in the text of the operative language of 
Prohibited Transaction Exemption (PTE) 97-34 (62 FR 39021, July 21, 
1997).
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    D. Sponsor means Citibank or an affiliate of Citibank that 
organizes a trust by transferring credit card receivables or interests 
therein to the trust in exchange for certificates.
    E. Master Servicer means Citibank or an entity affiliated with 
Citibank that is a party to the pooling and servicing agreement 
relating to trust receivables and is fully responsible for servicing, 
directly or through subservicers, the receivables in the trust pursuant 
to the pooling and servicing agreement.
    F. Subservicer means Citibank or an affiliate, or an entity 
unaffiliated with Citibank, which, under the supervision of and on 
behalf of the master servicer, services receivables contained in the 
trust, but is not a party to the pooling and servicing agreement.
    G. Servicer means Citibank or an affiliate which services 
receivables contained in the trust, including the master servicer and 
any subservicer or their successors pursuant to the pooling and 
servicing agreement.
    H. Trustee means an entity which is independent of Citibank and its 
affiliates and is the trustee of the trust. In the case of certificates 
which are denominated as debt instruments, ``trustee'' also means the 
trustee of the indenture trust.
    I. Insurer means the insurer or guarantor of, provider of other 
credit support for, or other contractual counterparty of, a trust. 
Notwithstanding the foregoing, a swap counterparty is not an insurer, 
and 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 receivable 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) Each swap counterparty;
    (7) Any obligor with respect to receivables contained in the trust 
constituting more than 0.5 percent of the fair market value of the 
aggregate undivided interest in the trust allocated to the certificates 
of a series, determined on the date of the initial issuance of such 
series of certificates by the trust; or
    (8) Any affiliate of a person described in Section III.L.(1)-(7).
    M. Affiliate of another person includes:
    (1) Any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with such other person;
    (2) Any officer, director, partner, employee, relative (as defined 
in section 3(15) of the Act), a brother, a sister, or a spouse of a 
brother or sister of such other person; and
    (3) Any corporation or partnership of which such other person is an 
officer, director or partner.
    N. Control means the power to exercise a controlling influence over 
the management or policies of a person other than an individual.
    O. A person will be ``independent'' of another person only if:
    (1) Such person is not an affiliate of that other person; and
    (2) The other person, or an affiliate thereof, is not a fiduciary 
who has investment management authority or renders investment advice 
with respect to any assets of such person.
    P. Sale includes the entrance into a forward delivery commitment 
(as defined in Section III.Q. below), provided:
    (1) The terms of the forward delivery commitment (including any fee 
paid to the investing plan) are no less favorable to the plan than they 
would be in an arm's length transaction with an unrelated party;
    (2) The prospectus or private placement memorandum is provided to 
an investing plan prior to the time the plan enters into the forward 
delivery commitment; and
    (3) At the time of the delivery, all conditions of this exemption 
applicable to sales are met.
    Q. Forward Delivery Commitment means a contract for the purchase or 
sale of one or more certificates to be delivered at an agreed future 
settlement date. The term includes both mandatory

[[Page 4056]]

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 section 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 with respect to 
the receivables;
    (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 or described in all 
material respects in the prospectus or private placement memorandum 
provided to the plan before it purchases certificates issued by the 
trust; and
    (4) The amount paid to investors in the trust is not reduced by the 
amount of any such fee waived by the servicer.
    T. Receivables means secured or unsecured obligations of credit 
card holders which have arisen or arise in Accounts designated to a 
trust. Such obligations represent amounts charged by cardholders for 
merchandise and services and amounts advanced as cash advances, as well 
as periodic finance charges, annual membership fees, cash advance fees, 
late charges on amounts charged for merchandise and services and over-
limit fees and fees of a similar nature designated by card issuers 
(other than a qualified administrative fee as defined in Section III.S. 
above).
    U. Accounts are revolving credit card accounts serviced by Citibank 
or an affiliate, which were originated or purchased by Citibank or an 
affiliate, and are designated to a trust such that receivables arising 
in such accounts become assets of the trust.
    V. Pooling and Servicing Agreement means the agreement or 
agreements among a sponsor, a servicer and the trustee establishing a 
trust and any supplement thereto pertaining to a particular series of 
certificates. In the case of certificates which are denominated as debt 
instruments, ``pooling and servicing agreement'' also includes the 
indenture entered into by the trustee of the trust issuing such 
certificates and the indenture trustee.
    W. Early Amortization Event means the events specified in the 
pooling and servicing agreement that result (in some instances without 
further affirmative action by any party) in an early amortization of 
the certificates, including: (1) the failure of the sponsor or the 
servicer (i) to make any payment or deposit required under the pooling 
and servicing agreement or supplement thereto within five (5) business 
days after such payment or deposit was required to be made, or (ii) to 
observe or perform any of its other covenants or agreements set forth 
in the pooling and servicing agreement or supplement thereto, which 
failure has a material adverse effect on investors and continues 
unremedied for 60 days; (2) a breach of any representation or warranty 
made by the sponsor or the servicer in the pooling and servicing 
agreement or supplement thereto that continues to be incorrect in any 
material respect for 60 days; (3) the occurrence of certain bankruptcy 
events relating to the sponsor or the servicer; (4) the failure by the 
sponsor to convey to the trust additional receivables to maintain the 
minimum seller interest that is required by the pooling and servicing 
agreement and the Rating Agencies; (5) if a class of investor 
certificates is in an Accumulation Period, the amount on deposit in the 
accumulation account in any month is less than the amount required to 
be on deposit therein; (6) the failure to pay in full amounts owing to 
investors on the expected maturity date; and (7) the Economic Early 
Amortization Event.
    X. Series means an issuance of a class or various classes of 
certificates by the trust all on the same date pursuant to the same 
pooling and servicing agreement and any supplement thereto and 
restrictions therein.
    Y. Revolving Period means a period of time, as specified in the 
pooling and servicing agreement, during which principal collections 
allocated to a series are reinvested in newly generated receivables.
    Z. Controlled Amortization Period means a period of time specified 
in the pooling and servicing agreement during which a portion of the 
principal collections allocated to a series will commence to be paid to 
the certificateholders of such series in installments.
    AA. Accumulation Period means a period of time specified in the 
pooling and servicing agreement during which a portion of the principal 
collections allocated to a series will be deposited in an account to be 
distributed to certificateholders in a lump sum on the expected 
maturity date.
    BB. CCA or Cash Collateral Account means that certain account, 
established by the trustee, that serves as credit enhancement with 
respect to the investor certificates and consists of cash deposits and 
the proceeds of investments thereon, which investments are permitted 
investments, as defined below.
    CC. Permitted Investments means investments which: (1) are direct 
obligations of, or obligations fully guaranteed as to timely payment of 
principal and interest by, the United States or any agency or 
instrumentality thereof, provided that such obligation is backed by the 
full faith and credit of the United States, or (2) have been rated (or 
the obligor has been rated) in one of the three highest generic rating 
categories by a Rating Agency; are described in the pooling and 
servicing agreement; and are permitted by the Rating Agency.
    DD. Group means a group of any number of series offered by the 
trust that share finance charge and/or principal collections in the 
manner described in the prospectus.
    EE. An Economic Early Amortization Event occurs automatically when 
finance charge collections averaged over three consecutive months are 
less than the total amount payable on the investor certificates, 
including (i) amounts payable to, or on behalf of, certificateholders, 
with respect to interest, defaults, and chargeoffs, (ii) servicing fees 
payable to the servicer, and (iii) any credit enhancement fee payable 
to the third-party credit enhancer and allocable to the 
certificateholders. With respect to a series to which an Accumulation 
Period (as defined above in Section III.AA.) applies, an additional 
Economic Early Amortization Event occurs when, for any time during the 
Accumulation Period, the yield on the receivables in the Trust is less 
than the weighted average of the certificate rates of all series 
included in a particular Group within the Trust.
    FF. Ratings Effect means the reduction or withdrawal by a Rating 
Agency of its then current rating of the investor certificates of any 
outstanding series.
    GG. Principal Receivables Discount means, with respect to any 
account designated by the sponsor, the portion of the related principal 
receivables that represents a discount from the face value thereof and 
that is treated under the pooling and servicing agreement as finance 
charge receivables.
    HH. Eligible Swap means an interest rate swap, or (if purchased by 
or on behalf of the trust) an interest rate cap, that is part of the 
structure of a Series of certificates:

[[Page 4057]]

    (1) Which is denominated in U.S. Dollars;
    (2) Pursuant to which the trust pays or receives on or immediately 
prior to the respective payment or distribution date for the series of 
certificates, a fixed rate of interest, or a floating rate of interest 
based on a publicly available index (e.g. LIBOR or the U.S. Federal 
Reserve's Cost of Funds Index (COFI)), with the trust receiving such 
payments on at least a quarterly basis and obligated to make separate 
payments no more frequently than the swap counterparty, with all 
simultaneous payments being netted;
    (3) Which has a notional amount that does not exceed either (i) the 
certificate balance of the class of certificates to which the swap 
relates, or (ii) the portion of the certificate balance of such class 
represented by receivables;
    (4) Which is not leveraged, (i.e. payments are based on the 
applicable notional amount, the day count fractions, the fixed or 
floating rates designated in (2) above, and the difference between the 
products thereof, calculated on a one to one ratio and not on a 
multiplier of such difference);
    (5) Which has a termination date that is the earlier of the date on 
which the trust terminates or the related Series of certificates is 
fully repaid; and
    (6) Which does not incorporate any provision which could cause a 
unilateral alteration in a provision described in clauses (1) through 
(4) hereof without the consent of the trustee.
    II. Eligible Swap Counterparty means a bank or other financial 
institution with a rating at the date of issuance of the certificates 
by the trust which is in one of the three highest long-term credit 
rating categories, or one of the two highest short-term credit rating 
categories, utilized by at least one of the Rating Agencies rating the 
certificates; provided that, if a swap counterparty is relying on its 
short-term rating to establish eligibility hereunder, such counterparty 
must either have a long-term rating in one of the three highest long-
term rating categories or not have a long-term rating from the 
applicable Rating Agency, and provided further that if the series of 
certificates with which the swap is associated has a final maturity 
date of more than one year from the date of issuance of the 
certificates, and such swap is a Ratings Dependent Swap, the swap 
counterparty is required by the terms of the swap to establish any 
collateralization or other arrangement satisfactory to the Rating 
Agency in the event of a ratings downgrade of the swap counterparty.
    JJ. Qualified Plan Investor means a plan investor or group of plan 
investors on whose behalf the decision to purchase certificates is made 
by an appropriate independent fiduciary that is qualified to analyze 
and understand the terms and conditions of any swap transaction used by 
the trust and the effect such swap would have upon the credit ratings 
of the certificates. For purposes of the proposed exemption, such a 
fiduciary is either:
    (1) A ``qualified professional asset manager'' (QPAM), as defined 
under Part V(a) of PTE 84-14 (49 FR 9494, 9506, March 13, 1984);\25\
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    \25\ PTE 84-14 provides a class exemption for transactions 
between a party in interest with respect to an employee benefit plan 
and an investment fund (including either a single customer or pooled 
separate account) in which the plan has an interest, and which is 
managed by a QPAM, provided certain conditions are met. QPAMs (e.g. 
banks, insurance companies, registered investment advisers with 
total client assets under management in excess of $50 million) are 
considered to be experienced investment managers for plan investors 
that are aware of their fiduciary duties under ERISA.
---------------------------------------------------------------------------

    (2) An ``in-house asset manager'' (INHAM), as defined under Part 
IV(a) of PTE 96-23 (61 FR 15975, 15982, April 10, 1996);\26\ or
---------------------------------------------------------------------------

    \26\ PTE 96-23 permits various transactions involving employee 
benefit plans whose assets are managed by an INHAM, an entity which 
is generally a subsidiary of an employer sponsoring the plan which 
is a registered investment adviser with management and control of 
total assets attributable to plans maintained by the employer and 
its affiliates which are in excess of $50 million.
---------------------------------------------------------------------------

    (3) A plan fiduciary with total assets under management of at least 
$100 million at the time of the acquisition of such certificates.
    KK. Ratings Dependent Swap means an interest rate swap, or (if 
purchased by or on behalf of the trust) an interest rate cap contract, 
that is part of the structure of a series of certificates where the 
rating assigned by the Rating Agency to any series of certificates held 
by any plan is dependent on the terms and conditions of the swap and 
the rating of the swap counterparty, and if such certificate rating is 
not dependent on the existence of such swap and rating of the swap 
counterparty, such swap or cap shall be referred to as a ``Non-Ratings 
Dependent Swap''. With respect to a Non-Ratings Dependent Swap, each 
Rating Agency rating the certificates must confirm, as of the date of 
issuance of the certificates by the trust, that entering into an 
Eligible Swap with such counterparty will not affect the rating of the 
certificates.
    LL. Excess Finance Charge Collections means, as of any day funds 
are distributed from the trust, the amount by which the finance charge 
collections allocated to certificates of a series exceed the amount 
necessary to pay certificate interest, servicing fees and expenses, to 
satisfy cardholder defaults or charge-offs, and to reinstate credit 
support.
    The Department notes that this proposed exemption, if granted, will 
be included within the meaning of the term ``Underwriter Exemption'' as 
it is defined in Section V(h) of the Grant of the Class Exemption for 
Certain Transactions Involving Insurance Company General Accounts, 
which was published in the Federal Register on July 12, 1995 (see PTE 
95-60, 60 FR 35925).

Summary of Facts and Representations

    1. The applicants are Citibank (South Dakota), N.A., Citibank 
(Nevada), N.A. (together referred to herein as either ``the Banks'' or 
``Citibank''), and their Affiliates (collectively, the Applicants). 
Each of the Banks is a national banking association and an indirect 
wholly-owned subsidiary of Citicorp.
    2. The Banks are, collectively, through their securitization trust 
vehicles, the largest issuers of credit card receivable asset-backed 
securities (ABS) in the United States. As of May 26, 1996, such 
vehicles had issued over $46 billion of credit card receivable ABS. The 
Banks created Citibank Credit Card Master Trust I (the Trust), formerly 
known as Standard Credit Card Master Trust I, in May 1991 by entering 
into a pooling and servicing agreement (a Pooling Agreement) with 
Yasuda Bank and Trust Company (U.S.A.), as trustee (the Trustee), for 
the purpose of securitizing a portion of each Bank's portfolio of 
credit card receivables.
    Although the Banks, the Trust and the Pooling Agreement are 
described herein, the Applicants request an exemption for any master 
trust similar to the Trust (a Similar Master Trust) \27\ established by 
either of the Banks or an Affiliate pursuant to a pooling and servicing 
agreement or other contractual arrangement similar to the Pooling

[[Page 4058]]

Agreement and satisfying the conditions set forth in this proposed 
exemption. In addition, although Citibank (South Dakota) is described 
as the owner of Accounts and the servicer and a seller with respect to 
the Trust, the Applicants request an exemption for any Similar Master 
Trust established by the Banks or one or more Affiliates of the Banks, 
regardless of the identity or affiliation of the servicer, for which 
Citibank or an Affiliate acts as the Master Servicer.
---------------------------------------------------------------------------

    \27\ With respect to such Similar Master Trusts, Citibank states 
that the Small Business Act of 1996 created a new form of statutory 
entity called a ``financial asset securitization investment trust'' 
(FASIT) which may be used to securitize debt obligations such as 
credit card receivables, home equity loans, and automobile loans. 
The Applicants state that a FASIT is equitably owned by a single 
taxable corporation and issues asset-backed securities that are 
treated as debt for Federal Income Tax purposes. Activities of a 
FASIT are generally limited to holding a portfolio of qualified 
loans. For local law purposes, a FASIT might be a trust, a 
corporation, or a designated subset of the assets of a trust or a 
corporation. The Applicants represent that some certificates covered 
by the proposed exemption may be issued by a FASIT, assuming all of 
the conditions of the exemption are met including the requirement 
that the certificates be issued by a Trust (as defined herein).
---------------------------------------------------------------------------

The Series

    3. The Pooling Agreement allows the Trust to issue multiple series 
of investor certificates (each, a Series) with different coupons, 
interest payment dates, maturities and other terms. The assets of the 
Trust consist primarily of receivables (the Receivables) from a 
portfolio of revolving credit card accounts (the Accounts) and 
collections thereon. The Banks are required to provide sufficient 
Receivables to allow the reinvestment of principal collections during 
the Revolving Period (as discussed below) for a Series. The Banks 
retain an ownership interest in the Trust in the form of a seller 
certificate. By maintaining this interest, the Banks share with the 
certificateholders of each Series a pro rata mutual interest in the 
overall credit quality of the Receivables in the Trust.
    Investor certificates of a Series may be sold by the Banks directly 
to purchasers, through underwriting syndicates led by one or more 
managing underwriters, through an underwriter acting alone or through 
agents designated from time to time. As of June 25, 1997, investors in 
the Trust owned approximately $24.5 billion in certificates issued by 
the Trust, comprising 33 outstanding Series. The Banks expect to issue 
additional Series evidencing interests in the Trust from time to time. 
The Banks may offer additional Series with terms similar to or 
significantly different from an outstanding Series. Before issuance of 
any new Series, the Banks must receive confirmation from Standard & 
Poor's Ratings Group, Moody's Investors Service, Inc., Duff & Phelps 
Credit Rating Co., or Fitch Investors Service, L.P. (a Rating Agency) 
that the ratings on any outstanding Series will not be reduced or 
withdrawn (a Ratings Effect) as a result of such new issuance. The 
particular terms of each Series are determined at the time of sale and 
are contained in a supplement to the Pooling Agreement (a Series 
Supplement).
    The investor certificates of each Series represent beneficial 
interests in the assets of the Trust and evidence the right to receive 
distributions of principal and interest therefrom. Although 
representing beneficial interests in the Trust assets, the investor 
certificates have a structure similar to debt instruments, with a 
principal amount and a coupon. The investor certificates are treated as 
debt for federal income tax purposes, and are also issued in authorized 
denominations like debt. Each Series has an expected maturity date (the 
Expected Final Payment Date) and a legal final maturity date (the 
Series Termination Date). Citibank states that the Expected Final 
Payment Date is not the date on which the payment of the security is 
legally obligated to be paid. Rather, the Expected Final Payment Date 
is the date on which, to a high degree of certainty, collections on the 
Receivables are expected to be sufficient to repay the investors. 
However, the investors must be repaid by the Series Termination Date 
and, if necessary, any interest in the Receivables represented by the 
investor certificates of such Series will be sold and the proceeds 
distributed to investors to make such repayment.
    All Series issued by the Trust to date are subdivided into a senior 
class of investor certificates and a junior or subordinated class of 
investor certificates, or have the benefit of third-party credit 
support such that a person other than an investor in senior 
certificates bears the initial risk of loss. In this regard, Citibank 
represents that the particular class of certificates for each series to 
which this proposed exemption would apply (an Exempt Class) will have 
credit support provided to the Exempt Class through either a senior-
subordinated series structure or other form of third party credit 
support which, at a minimum, will represent five (5) percent of the 
outstanding principal balance of certificates issued for the Exempt 
Class, so that an investor in the Exempt Class will not bear the 
initial risk of loss.
    The subdivision of a Series into two classes, along with the credit 
enhancement discussed herein, permits the senior or Class A 
certificates to receive an ``AAA'' rating, the highest possible 
investment grade rating. The subordinate or Class B certificates also 
receive an investment grade rating, typically ``A''. The ratings 
address the likelihood that investors will receive all interest when 
due and principal by the legal final maturity date. As discussed in 
more detail below, these ratings are based upon, among other things, 
(i) the historical performance of the Receivables arising in the 
Accounts, (ii) a loan made by a third party financial institution to a 
cash collateral account (CCA) established by the Trustee to serve as 
credit enhancement for the Class A and Class B Certificates or other 
credit enhancement, and (iii) in the case of the Class A Certificates, 
the subordination of the Class B Certificates.
    The Applicants state that if a CCA is used as credit enhancement 
for a Series, only cash in the form of a loan will be contributed or 
deposited in a CCA. The loans made to a CCA will be made by third-party 
financial institutions, unrelated to Citibank. The Trustee will have 
the right to draw on the CCA under the terms of the Series supplement 
to the Pooling Agreement and the related loan agreement for the CCA. 
Cash deposits held in a CCA will be invested in certain permitted 
investments, as described in the Pooling Agreement, and such 
investments will be either highly rated or otherwise approved by a 
Rating Agency. The Applicants state further that not all Series will 
have the benefit of a CCA. Some Series will have other forms of credit 
enhancement (such as a letter of credit or a reserve fund) as set forth 
in the applicable prospectus supplement for the Series.
    In general, under current Rating Agency guidelines for the Master 
Trust, the Class A Certificates comprise 94 percent of the principal 
amount of a Series and the Class B Certificates comprise 6 percent of 
the principal amount of a Series. Citibank states that where a CCA is 
used as enhancement for a Series, the CCA will be funded at closing in 
an amount generally equal to 7 percent of the principal amount of the 
Series. The CCA is often further divided into a 5 percent shared CCA, 
which is shared by the Class A and Class B Certificateholders, but with 
the Class A Certificateholders having priority, and a 2% Class B CCA, 
which is for the exclusive benefit of the Class B Certificateholders. 
The CCA provider receives a monthly fee for providing the loan. This 
fee is deducted from the monthly finance charge collections allocated 
to the Series, but only after first deducting amounts payable to, or on 
behalf of, the investor certificateholders of such Series, as described 
below.
    Citibank represents that the Trust may commence a new program (the 
``MTC Program'') for the issuance of a new Series of investor 
certificates to be comprised of senior certificates (Series A 
Certificates) and subordinate certificates (Series B Certificates). 
Under the MTC Program, the Series B Certificates will be subordinated 
to each Series of Series A Certificates, in accordance with the current 
Rating Agency guidelines. The Series issued under the MTC Program will 
also have the benefit of a common CCA which

[[Page 4059]]

will be funded in an amount sufficient to permit each of the Series A 
Certificates to receive an ``AAA'' rating and each of the Series B 
Certificates to receive at least an ``A'' rating.
The Receivables and the Accounts
    4. The Receivables conveyed by the Banks to the Trust consist of 
all amounts charged by cardholders for merchandise and services and 
amounts advanced as cash advances (Principal Receivables), and all 
periodic finance charges, annual membership fees, cash advance fees, 
late charges on amounts charged for merchandise and services and 
certain other fees designated by the Banks (Finance Charge 
Receivables). Citibank states that as of April 21, 1997, the Trust had 
$35,677,604,475 in Receivables, of which $35,175,269,487 were Principal 
Receivables and $502,335,488 were Finance Charge Receivables. The 
Receivables conveyed to the Trust to date were generated under the VISA 
or MasterCard \28\ programs and were either originated by Citibank or 
purchased by Citibank from other credit card issuers. Citibank states 
that other credit card receivables may be included in the Trust so long 
as the eligibility criteria discussed herein are met.
---------------------------------------------------------------------------

    \28\ VISA and MasterCard are registered trademarks of VISA 
U.S.A., Inc. and MasterCard International Incorporated, 
respectively.
---------------------------------------------------------------------------

    The Accounts are owned by Citibank (South Dakota), but a 
participation in the Receivables in certain of the Accounts was sold to 
Citibank (Nevada) prior to their conveyance to the Trust. The Accounts 
have been selected from substantially all of the Eligible Accounts (as 
defined under ``Eligibility Criteria'' below) in the credit card 
portfolio of Citibank (South Dakota) (referred to herein as ``the 
Portfolio''). Citibank (South Dakota) believes that the Accounts are 
representative of the Eligible Accounts in the Portfolio. Citibank 
represents in the Pooling Agreement that the inclusion of the Accounts, 
as a whole, does not represent an adverse selection from among the 
Eligible Accounts.
    The Pooling Agreement designates Citibank (South Dakota) to service 
the Accounts on behalf of the Trust, including collecting payments due 
under the Receivables. Citibank, as the servicer of the Trust, receives 
fees for its services from the Trustee or sponsor of the Trust. 
Citibank states that the sum of all payments made to and retained by 
Citibank, as the servicer of the Trust, which are allocable to the 
series of certificates purchased by a plan, will represent not more 
than reasonable compensation for such services and reimbursement of any 
reasonable expenses in connection therewith. Citibank, in its role as 
servicer of the Receivables in the Trust, does not receive fees from 
other persons other than the Trustee or sponsor. Citibank may receive 
fees from others for activities unrelated to the Trust, and may receive 
payments from obligors on Receivables in the Trust because it has some 
other relationship to the obligors, such as the provider of credit card 
insurance. In this regard, Citibank states that the proposed exemption 
would permit it to receive a ``qualified administrative fee'' (as 
defined in Section III.S) from a person other than the Trustee or 
sponsor of the Trust under circumstances which are similar to those 
which were permitted in the Underwriter Exemptions.
    Principal receivables are sold to the Trust at par (or, as 
discussed below, at a discount to par) in exchange for a seller 
certificate or to maintain investor certificates during the Revolving 
Period. Each dollar of investor certificates entitles an investor to a 
dollar of principal receivables. Prior to transferring principal 
receivables to the Trust, Citibank may redesignate a portion of 
principal receivables to be classified as finance charge receivables 
(a/k/a the Principal Receivables Discount). This allows Citibank to 
transfer lower yielding receivables to the Trust at a discount from 
their par value and to treat the discounted portion of the principal 
receivables collected as finance charge receivables (a Discount 
Option). The Discount Option enables Citibank to add receivables 
relating to credit card accounts with relatively low finance charge 
rates without adversely effecting the ``excess spread'' between the 
certificate rate and the overall net yield on the receivables held in 
the Trust. The discounted portion of the principal receivables is not 
counted toward any requirements for maintaining the ``required minimum 
principal balance'' (as discussed below). Citibank states that the 
redesignation of principal receivables as finance charge receivables 
will not disadvantage investors as each dollar of investor certificates 
will always be entitled to a dollar of principal receivables held in 
the Trust.
    Upon the sale of investor certificates, the transaction between 
Citibank and the Trust is characterized as a sale for generally 
accepted accounting principals. However, legal opinions issued in 
connection with such a sale may conclude that the transaction is either 
an absolute transfer of the receivables to the Trust or, in the 
alternative, a grant of a perfected security interest in the 
Receivables for the benefit of certificateholders in the Trust.
    The Pooling Agreement sets forth the various requirements governing 
the quantity and quality of Receivables that may be included in the 
Trust. In connection with any conveyance to the Trust, Citibank must 
make certain representations and warranties regarding the Receivables, 
including that the Receivables to be conveyed meet eligibility criteria 
described below and specified in the Pooling Agreement. Citibank also 
must maintain the level of Principal Receivables at or above a certain 
minimum amount specified by the Rating Agencies (see discussion of 
additions of accounts in Paragraph 7 below).
    Notwithstanding such requirements, the Pooling Agreement contains 
provisions analogous to the collateral substitution provisions in a 
loan agreement or indenture relating to a secured loan, which permit 
Citibank, subject to certain conditions imposed by the Rating Agencies, 
to designate new Accounts or remove certain Accounts, to cause the 
reassignment to Citibank of previously conveyed Receivables and, 
subject to certain limitations, to change the underlying terms of the 
Accounts with cardholders.
    5. Representations and Warranties. On the issuance date for a 
Series of investor certificates, Citibank makes representations and 
warranties to the Trust relating to the Receivables and Accounts to the 
effect, among other things, that:
    (a) Each Account was an Eligible Account (as defined under the 
``Eligibility Criteria'' below), generally as of the date the 
Receivables arising therein were initially conveyed to the Trust;
    (b) Each of the Receivables then existing in the Accounts is an 
Eligible Receivable; and
    (c) As of the date of creation of any new Receivable, such 
Receivable is an Eligible Receivable.
    The Pooling Agreement provides that if Citibank breaches any such 
representation or warranty, and such breach has a material adverse 
effect on the investor certificateholders' interest, as determined by 
the Trustee, the Receivables with respect to the affected Account will 
be reassigned to Citibank if the breach remains uncured after a 
specified period of time.
    Citibank states that it also represents and warrants to the Trust, 
among other things, that as of the issuance date for a Series of 
investor certificates the Pooling Agreement and Series

[[Page 4060]]

Supplement thereto creates a valid sale, transfer and assignment to the 
Trust of all right, title and interest of Citibank in the Receivables 
or the grant of a first priority perfected security interest under the 
Uniform Commercial Code as in effect in South Dakota and Nevada in such 
Receivables. If Citibank breaches such representation or warranty, and 
such breach has a material adverse effect on the investor 
certificateholders' interest, the Trustee or the holders of the 
investor certificates may direct Citibank to accept the reassignment of 
the Receivables in the Trust and transfer funds to the Trust in an 
amount equal to the outstanding principal amount of the investor 
certificates plus accrued interest thereon.
    6. Eligibility Criteria. An Eligible Account is a credit card 
account owned by Citibank (South Dakota) which: (a) is in existence and 
maintained by Citibank (South Dakota); (b) is payable in U.S. dollars; 
(c) in the case of initial Accounts, has a cardholder with a billing 
address located in the United States or its territories or possessions 
or a military address; (d) has a cardholder who has not been identified 
as being involved in a voluntary or involuntary bankruptcy proceeding; 
(e) has not been identified as an Account with respect to which the 
related card has been lost or stolen; (f) has not been sold or pledged 
to any other party; (g) does not have receivables which have been sold 
or pledged to any other party; and (h) in the case of the Accounts 
initially assigned to the Trust, is a VISA or MasterCard revolving 
credit card account.
    An Eligible Receivable is a Receivable: (a) Which has arisen under 
an Eligible Account; (b) which was created in compliance in all 
material respects with all requirements of law and pursuant to a credit 
card agreement which complies in all material respects with all 
requirements of law; (c) with respect to which all material consents, 
licenses, approvals or authorizations of, or registrations with, any 
governmental authority required to be obtained or given in connection 
with the creation of such Receivable or the execution, delivery, 
creation and performance by Citibank (South Dakota) or by the original 
credit card issuer, if not Citibank (South Dakota), of the related 
credit card agreement have been duly obtained or given and are in full 
force and effect; (d) as to which at the time of its transfer to the 
Trust, the Banks or the Trust have good and marketable title, free and 
clear of all liens, encumbrances, charges and security interests; (e) 
which has been the subject of a valid transfer and assignment from the 
Banks to the Trust of all the Banks' right, title and interest therein 
or the grant of a first priority perfected security interest therein 
(and in the proceeds thereof); (f) which will at all times be a legal, 
valid and binding payment obligation of the cardholder thereof 
enforceable against such cardholder in accordance with its terms, 
subject to certain customary exceptions relating to the bankruptcy of 
the cardholder; (g) which at the time of its transfer to the Trust, has 
not been waived or modified except as permitted under the Pooling 
Agreement; (h) which is not at the time of its transfer to the Trust 
subject to any right of rescission, set off, counterclaim or defense 
(including the defense of usury), other than certain bankruptcy-related 
defenses; (i) as to which Citibank has satisfied all obligations to be 
fulfilled at the time it is transferred to the Trust; (j) as to which 
Citibank has done nothing, at the time of its transfer to the Trust, to 
impair the rights of the Trust or investor certificateholders of a 
Series therein, and (k) which constitutes either an ``account'' or a 
``general intangible'' under the Uniform Commercial Code as then in 
effect under South Dakota or Nevada state law.
    7. Additions of Accounts. To maintain Citibank's seller interest in 
the Trust, the Pooling Agreement contains provisions analogous to 
collateral maintenance requirements under a secured loan that require 
Citibank to designate new Accounts (the receivables in which will be 
conveyed to the Trust) if, as of the end of any calendar week, the 
total amount of Principal Receivables in the Trust is less than the 
amount required by the Rating Agencies (the Required Minimum Principal 
Balance).
    The Pooling Agreement provides that Citibank will be required to 
make a Lump Sum Addition to the Trust in the event that the amount of 
Principal Receivables is not maintained at a minimum level equal to the 
greater of: (a) 107 percent of the sum of the invested amounts of all 
outstanding investor certificates of all Series, or (b) 102 percent of 
the sum of the initial invested amounts of all outstanding investor 
certificates of all Series (or, if applicable for a particular Series, 
the highest invested amount during a Due Period,29 or, 
during any accumulation period, scheduled amortization period, early 
amortization period or Class A amortization period, the highest 
invested amount during the Due Period preceding the first Due Period 
for such accumulation scheduled amortization period, early amortization 
period or Class A amortization period). Citibank may, upon 30 days 
prior notice to the Trustee, the Rating Agency and any provider of 
Series credit enhancement, reduce the Required Minimum Principal 
Balance, provided that such reduction will not result in (1) a 
reduction or withdrawal of any Rating Agency's rating of the investor 
certificates of any outstanding Series, or (2) an adverse effect, as 
defined in the Pooling Agreement (an Adverse Effect) on the 
certificateholders of any Series, and provided further that the 
Required Minimum Principal Balance may never be less than 102 percent 
of the sum of the initial invested amounts of all outstanding investor 
certificates of all Series (or, if applicable for a particular Series, 
the highest invested amount during a Due Period, or, during any 
scheduled amortization period, early amortization period or Class A 
amortization period, the highest invested amount during the Due Period 
preceding the first Due Period for such scheduled amortization period, 
early amortization period or Class A amortization period).
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    \29\ A Due Period refers to the monthly period beginning at the 
close of business on the fourth-to-last business day of each month 
and ending at the close of business on the fourth-to-last business 
day of the immediately following month.
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    As previously noted, the requirement that Citibank maintain 
Principal Receivables in an amount at least equal to the Required 
Minimum Principal Balance is one mandated by the Rating Agencies. The 
purpose of the Required Minimum Principal Balance is to ensure that 
Citibank's interest in the Trust is large enough to absorb dilution 
caused by obligors returning merchandise originally charged under their 
Account (``Returns'') and possible seasonal fluctuations in the 
Receivables. In assessing the size of the Required Minimum Principal 
Balance, Rating Agencies generally consider a number of factors 
including historical portfolio dilution, the timing of Returns, the 
portfolio composition, rebate programs and the structural provisions 
designed to ensure that a minimum amount of Principal Receivables is 
maintained. The Rating Agencies must affirmatively confirm by written 
notice to the Trustee that any reduction in the Required Minimum 
Principal Balance will not result in the reduction or withdrawal of the 
rating assigned to any outstanding Series or class of investor 
certificates.
    Conveyance of additional receivables (i.e. a Lump Sum Addition) may 
consist of:
    (a) Receivables arising in additional Eligible Accounts from the 
Portfolio;
    (b) Receivables arising in portfolios of revolving credit card 
accounts acquired

[[Page 4061]]

by the Banks from other credit card issuers;
    (c) Receivables arising from certain non-premium and premium 
MasterCard and VISA credit card accounts previously transferred by 
Citibank to certain trusts in securitization transactions that have 
matured or terminated;
    (d) Receivables arising in any other revolving credit card accounts 
of a type which have not been previously included in the Accounts; 
30 and/or
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    \30\  Because additional Accounts may not be accounts of the 
same type as previously included in the Trust, Citibank states that 
there can be no assurance that such additional Accounts will be of 
the same credit quality as the initial Accounts or the additional 
Accounts currently included in the Trust. In addition, such 
additional Accounts may consist of credit card accounts which have 
different terms than the initial Accounts, including lower periodic 
finance charges, which may have the effect of reducing the average 
yield on the portfolio of Accounts. However, as with any removal of 
any Accounts, the designation of additional Accounts will be subject 
to the satisfaction of certain conditions required by the Rating 
Agencies, including that (i) such addition will not result in a 
Ratings Effect (i.e. a lower credit rating for the certificates), 
and (ii) Citibank must deliver to the Trustee and any provider of 
credit enhancement for the Series a certificate of an authorized 
officer to the effect that, in the reasonable belief of Citibank, 
such addition will not at the time of such addition or at a future 
date cause an early amortization event or adversely affect the 
timing or amount of payments to certificateholders (referred to in 
the Series prospectus as an ``Adverse Effect''--see Paragraph 8 
regarding the Reassignment of Receivables for further discussion of 
an Adverse Effect).
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    (e) Participations in a pool of receivables.
    After giving effect to a Lump Sum Addition, the total amount of 
Principal Receivables in the Trust will at least equal the Required 
Minimum Principal Balance. In addition, subject to the conditions 
contained in the Pooling Agreement, Citibank may from time to time, at 
its sole discretion, voluntarily make a Lump Sum Addition to the Trust.
    Subject to limitations and conditions in the Pooling Agreement, 
Citibank from time to time may also designate, at its sole discretion, 
Receivables in newly originated Eligible Accounts to be included as 
Accounts (New Accounts). By adding Receivables in New Accounts, the 
Seller's interest will be increased, but the Seller and the investors 
will share interests in all of the Receivables, including all those 
arising in New Accounts and in Accounts previously assigned to the 
Trust. Citibank has designated New Accounts (the Receivables in which 
have been added to the Trust) since the creation of the Trust, and 
Citibank may continue to do so in the future. To protect the Trust from 
dramatic changes in composition, the number of New Accounts Citibank 
may designate with respect to any specified three month period may not 
exceed 15 percent of the number of Accounts as of the first day of such 
period, and the number of New Accounts designated during any calendar 
year may not exceed 20 percent of the number of Accounts as of the 
first day of such calendar year. The Pooling Agreement also requires 
Citibank to deliver an opinion of counsel semi-annually with respect to 
the New Accounts included as Accounts, confirming the validity of each 
transfer of Receivables in such New Accounts.
    8. Reassignment of Receivables. Citibank has the right to require 
the reassignment to Citibank of the Receivables with respect to certain 
Accounts. Citibank represents that it may desire such a reassignment, 
for example, to set up a new master trust or other securitization 
vehicle. However, such a reassignment may only occur upon satisfaction 
of certain conditions in the Pooling Agreement under guidelines 
established by the Rating Agencies, which are described in the Series 
prospectus. Citibank states that in order to satisfy such conditions, 
the Rating Agencies must confirm in advance that such reassignment will 
not cause the rating assigned to any outstanding Series or class of 
investor certificates to be withdrawn or reduced. In addition, Citibank 
must deliver an officers' certificate to the effect that Citibank 
reasonably believes that such reassignment will not, at the time of its 
occurrence or a future date: (a) Cause an early amortization event; (b) 
cause a reduction of the amounts of surplus finance charge collections 
with respect to any Series of investor certificates below the level 
required by the Rating Agencies; or (c) adversely affect the amount or 
timing of payments to investor certificateholders of any Series.
    Only after satisfaction of these and other conditions set forth in 
the Series prospectus 31 for the removal of Accounts from 
the Trust will the Trustee execute and deliver to Citibank a written 
reassignment to reconvey to Citibank, without recourse, the Receivables 
arising in Removed Accounts (Removed Accounts).
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    \31\ The complete conditions specified by the Series prospectus 
for the removal of Accounts from the Trust are as follows:
    (a) on or before the fifth business day immediately preceding 
the date upon which such Accounts are to be removed, Citibank will 
give the Trustee, the Servicer, the Rating Agency and any provider 
of credit support (i.e., Series Enhancement) written notice of such 
removal specifying the date for removal of the Removed Accounts (the 
Removal Date);
    (b) on or prior to the date that is five business days after the 
Removal Date, Citibank will deliver to the Trustee a list of the 
Removed Accounts specifying for each such Account, as of the removal 
notice date, its account number, the aggregate amount outstanding in 
such Account and the aggregate amount of Principal Receivables 
outstanding in such Account;
    (c) Citibank will represent and warrant as of each Removal Date 
that the list of Removed Accounts delivered pursuant to (b) above, 
as of the Removal Date, is true and complete in all material 
respects;
    (d) the Trustee shall have received advance confirmation from 
the Rating Agency that such removal will not result in a Ratings 
Effect;
    (e) Citibank will deliver to the Trustee and any provider of 
Series Enhancement a certificate of an authorized officer, dated as 
of the Removal Date, to the effect that Citibank reasonably believes 
that such removal will not at the time of its occurrence or at a 
future date cause an Adverse Effect (i.e., the occurrence of an 
early amortization event for any Series or a reduction of the amount 
of surplus finance charge collections below the level required by 
the Rating Agencies, or an event which adversely affects in any 
manner the timing or amount of payments to investor 
certificateholders of any Series or any enhancement invested 
amounts); and
    (f) Citibank will deliver to the Trustee, the Rating Agency and 
any provider of Series Enhancement an opinion of counsel acceptable 
to the Trustee that for federal and state tax law purposes: (i) 
Following such removal the Trust will not be an association (or 
publicly traded partnership) taxable as a corporation, and (ii) such 
removal will not adversely affect the characterization of the 
investor certificates of any Series as debt and will not cause a 
taxable event to holders of any such investor certificates.
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    9. Modification to the Underlying Terms of the Accounts. Each 
cardholder is subject to an agreement governing the terms and 
conditions of such cardholder's Account. Pursuant to such agreement, 
Citibank (South Dakota), as owner of the Accounts, has the right to 
change or terminate any terms, conditions, services or features of the 
Accounts (including increasing or decreasing periodic finance charges 
or minimum payments). Citibank has covenanted in the Pooling Agreement 
that, except as otherwise required by any requirement of law or as is 
deemed necessary by Citibank to maintain its credit card business on a 
competitive basis, it will not take actions which would reduce the net 
portfolio yield on the Receivables (after subtracting therefrom the 
amount of Principal Receivables that were written off as uncollectible) 
to be less than the sum of: (a) the weighted average certificate rate 
of each class of investor certificates of each Series; and (b) the 
weighted average of the net servicing fee rate allocable to each class 
of investor certificates of each Series. In addition, Citibank has 
agreed in the Pooling Agreement that, unless required by law, it will 
not reduce such net portfolio yield to less than the highest 
certificate rate for any outstanding Series or class. Citibank also has 
covenanted in the Pooling Agreement that it will change

[[Page 4062]]

the terms relating to the Accounts designated to the Trust only if such 
change is made applicable to the comparable segment of the portfolio of 
Accounts owned or serviced by Citibank which are part of the same 
program or which have the same or substantially similar 
characteristics. The ability of Citibank to change the terms of the 
Accounts is necessary to meet the competitive demands of the 
marketplace.
    Citibank states that it offers a variety of different underwriting 
standards and terms on its credit card accounts. For example, Citibank 
offers Gold Visa cards and Regular Classic Visa cards. Citibank also 
offers ``co-branded'' cardholder programs, in conjunction with, among 
others, American Airlines, under which cardholders can earn frequent 
flyer miles or credits to be applied to the purchase price of goods or 
services. With respect to such programs, some Accounts are designated 
to the Trust and some are not. If Citibank determines to change an 
underwriting standard or cardholder agreement terms under one of these 
programs, Citibank does so without distinguishing those affected 
Accounts designated to the Trust from those affected Accounts which are 
not designated to the Trust. This failure to distinguish is mandated by 
the Pooling Agreement and the Rating Agencies. Citibank's decisions are 
fundamentally decisions with respect to how to operate its business in 
a competitive manner and will not treat Accounts designated to a Trust 
any differently than other Accounts.
    Citibank states that if changes to underwriting standards or 
cardholder agreement terms were to adversely affect the performance of 
the Receivables in the Trust (e.g. cause an increase in charge-offs or 
defaults, or a lower yield on the Receivables), investors are protected 
by the early amortization event triggers (as discussed further in 
Paragraphs 13 and 14 below) and credit enhancement. In order for 
certificates issued by the Trust to obtain a high credit rating, there 
must be sufficient credit enhancement to meet the Rating Agency's 
``high stress'' scenarios to ensure full and timely payment of 
principal and interest. In this regard, an ``economic early 
amortization event'' occurs immediately upon the occurrence of either 
of the two events specified in Paragraph 14 below, without any notice 
or other action on the part of the Trustee or the certificateholders.
Pass-Through of Cardholder Payments
    10. Cardholder payments for each month are separated into principal 
collections and finance charge collections, both of which, as well as 
defaults on Principal Receivables, are allocated to each Series and to 
Citibank pro rata based on the relative interest of each in the Trust. 
Investors will, however, receive a fixed allocation of principal 
collections during the Accumulation or Amortization Period. Citibank's 
interest in the Trust represents the portion of the Principal 
Receivables in the Trust that is not represented by investor 
certificates. Finance charge collections are used to pay the coupon on 
the investor certificates of each Series, as well as to pay the 
servicing costs and cover defaults on principal payments due from 
cardholders. Principal collections are typically reinvested in new 
Receivables and/or allowed to accumulate for a period of time, rather 
than distributed immediately to investors, so that the investor 
certificates' payment characteristics will mirror those of comparable 
long-term debt instruments. However, the Pooling Agreement specifies 
Early Amortization Events following the occurrence of which all 
principal collections will commence being distributed to investors.
    11. Principal Collections. If principal collections that were 
allocated to a Series were immediately distributed to the investors, 
the investors would be quickly repaid. For example, Citibank states 
that in 1996 the average monthly cardholder principal payment rate was 
18.46 percent, which means all investors would be repaid over a six-
month period assuming all Series in the Trust simultaneously amortize. 
To structure the investor certificates so as to perform as if they were 
long-term debt instruments, principal collections allocated to a Series 
are reinvested in newly generated Receivables arising in the Accounts 
for a period of time specified in the Series Supplement (i.e., the 
Revolving Period). Reinvestment in Receivables during the Revolving 
Period maintains the principal amount of the Series invested in the 
Trust for such period. At the end of the Revolving Period, shortly 
before the expected maturity date, a portion of the principal 
collections allocated to a Series either will commence to be paid to 
the investor certificateholders of such Series in monthly installments 
(a Controlled Amortization Period) or will be deposited in an account 
to be distributed to such certificateholders in a lump sum on the 
expected maturity date (an Accumulation Period), depending on the terms 
specified in the related Series Supplement. Generally, each of the 
recently issued Series has: (i) an eleven-month Accumulation Period for 
the Class A Certificates, which may be shortened (and the Revolving 
Period extended) according to an objective formula used to project the 
level of principal collections in the Trust; and (ii) a one-month 
accumulation period for the Class B Certificates.
    12. Finance Charge Collections. Finance charge collections that are 
allocated to Series belonging to the same Group are pooled together and 
then shared among all Series in the Group based on the amount of total 
expenses of each Series for coupon, losses and servicing fees. 
32 All Series issued to date have been designated as 
belonging to Group One. As a result of this reallocation of finance 
charges, those Series that have higher coupons will receive a 
proportionately larger share of the finance charge income and thus may 
avoid suffering a shortfall which might occur if finance charge income 
were allocated based on the relative interest (based on aggregate 
principal amounts) of such Series in the Trust. However, if finance 
charge income is not sufficient to cover total expenses in Group One, 
all Series within Group One will share proportionately in the shortfall 
regardless of the interest rate of the investor certificates of an 
individual Series. Finance charge collections allocable to a Series 
belonging to one Group will not impact finance charge collections 
allocable to any Series belonging to a different Group.
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    \32\  In addition, Citibank states that in some instances 
principal collections on receivables allocated to a particular 
Series may be shared with other Series within the same Group, 
provided that the minimum principal receivable balances required by 
the Rating Agencies for all Series within the Group are maintained. 
However, Citibank states further that under its current payment 
structure, principal collections on receivables allocated to a 
particular Series are usually not shared.
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    All Series issued under the MTC Program will be designated as 
belonging to Group Two. Finance charge collections that are allocated 
to Series belonging to Group Two will be pooled together and then 
shared the same way as the Series which are included in Group One.
Early Amortization Events
    13. Citibank represents that an earlier than scheduled payout of 
principal to investor certificateholders of a Series will occur under 
certain circumstances specified in the Pooling Agreement (each 
condition is described as an Early Amortization Event).
    Generally, Early Amortization Events include:

[[Page 4063]]

    (a) The failure of the Bank to either (i) make any payment or 
deposit required under the Pooling Agreement or any Series Supplement 
within five (5) business days after such payment or deposit was 
required to be made, or (ii) observe or perform any of its other 
covenants or agreements set forth in the Pooling Agreement or any 
Series Supplement, which failure has a material adverse effect on 
investors and continues unremedied for 60 days;
    (b) A breach of any representation or warranty made by Citibank in 
the Pooling Agreement or any Series Supplement which continues to be 
uncorrected in any material respect for 60 days;
    (c) The occurrence of certain bankruptcy events relating to either 
Bank (an Insolvency Event);
    (d) The failure by the Banks to make a Lump Sum Addition;
    (e) The occurrence of any servicer default by Citibank;
    (f) If a class of investor certificates is in an Accumulation 
Period, the amount on deposit in the accumulation account in any month 
is less than the amount required to be on deposit therein;
    (g) The failure to pay in full amounts owing to investors on the 
expected maturity date; and
    (h) The Economic Early Amortization Event described below.
    Each Series Supplement may contain other Early Amortization Events 
for the related Series in addition to those specified in the Pooling 
Agreement. To date, no Early Amortization Event has occurred with 
respect to any Series of investor certificates issued by the Trust.
    Citibank has no discretion with respect to the determination 
whether an Early Amortization Event has occurred. However, certain 
Early Amortization Events, such as the breach of a representation or 
warranty, are qualified by materiality and may be declared at the 
option of the Trustee. Citibank states that in light of the complexity 
of these securitization transactions, such flexibility is intended to 
permit the Trustee to act in the best interests of investor 
certificateholders, which may be to forego early amortization by reason 
of a mere technical violation. Other Early Amortization Events, such as 
the Economic Early Amortization Event, are not qualified by materiality 
and operate automatically. In effect, such events are always material.
    The occurrence of an Early Amortization Event will cause the 
Revolving Period, Controlled Amortization Period or Accumulation 
Period, as may be applicable, to end and principal collections will be 
used thereafter to make monthly payments of principal to the investor 
certificateholders of such Series (i.e. an Early Amortization Period) 
until the earlier of payment in full of the outstanding principal 
amount of the certificates of such Series or the legal final maturity 
date for such Series specified in the related Series Supplement. If an 
Accumulation Period has already begun for a Series, then all monies 
that have been previously deposited in an accumulation account for such 
Series will be withdrawn upon the occurrence of an Early Amortization 
Event and paid to the investor certificateholders of such Series.
    In addition to the foregoing consequences of an Early Amortization 
Event described above, if an Insolvency Event occurs, Citibank will 
immediately cease to transfer Receivables to the Trust. Thereafter, 
unless the requisite number of investor certificateholders instruct 
otherwise, the Trustee will sell or otherwise liquidate the Receivables 
in the Trust in a commercially reasonable manner and on commercially 
reasonable terms. The proceeds of such sale or liquidation will be 
applied first to payments on the Class A Certificates, then to the 
Class B Certificates.
    14. Economic Early Amortization Events. Citibank represents that 
all outstanding Series include an Economic Early Amortization Event, 
which is triggered if finance charge collections averaged over three 
consecutive months are less than the total amounts payable with respect 
to the Class A and Class B Certificates (including amounts payable with 
respect to interest, servicing fees, defaults, charge-offs and any 
credit enhancement fee).\33\ Upon the occurrence of an Economic Early 
Amortization Event, monies on deposit in the CCA will be used to make 
payments of principal to the Class A Certificateholders and Class B 
Certificateholders. However, Citibank states that because the amount on 
deposit in a CCA is likely to be insufficient to pay outstanding 
principal amounts in full, additional collections with respect to the 
Receivables will be required to fully pay down the certificates. Thus, 
the Trust generally will depend on several forms of credit enhancement 
[e.g. ``excess spread'' between the Receivables and the certificate 
rate, subordination of the Class B Certificates, letters of credit or 
other third party credit enhancement], as well as any interest rate 
swap transactions (as discussed in Paragraph 16 below) and the 
maintenance of the ``required minimum principal balance'' for the 
Receivables under guidelines set by the Rating Agencies, to ensure 
timely repayment of principal and interest to the certificateholders.
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    \33\ The Series to which an Accumulation Period applies contain 
an additional Economic Early Amortization Event which is triggered 
if, during the Accumulation Period, the yield on the Receivables in 
the Trust is less than the weighted average of the certificate rates 
of all Series included in the Group.
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Utilization of Credit Support--The Role of the Master Servicer and the 
Role of the Trustee
    15. The servicer of Citibank's credit card ABS does not supply 
credit support. Further, if the servicer fails to call upon a credit 
support mechanism to produce needed funds, the Trustee may exercise its 
rights as beneficiary of the credit support to obtain the funds under 
the credit support mechanism. Therefore, in all cases, the Trustee will 
be ultimately responsible for deciding when to exercise its rights as 
beneficiary of the credit support.
    In some cases, the servicer or an affiliate will be required under 
the terms of the Pooling Agreement to provide liquidity (but not 
credit) advances to the Trust. In these cases, the servicer will 
advance funds to cover shortfalls and will be reimbursed on the 
following distribution date from collections on the Receivables or 
Series credit support. The servicer will not be required to make any 
such liquidity advance unless there is sufficient Series credit support 
available to ensure repayment of the liquidity advance on the following 
distribution date. If the servicer fails to advance funds in respect of 
a shortfall when obligated to do so, the Trustee will exercise its 
rights under any available credit support on the following distribution 
date to obtain the necessary funds under the credit support mechanism.
    The servicer has servicing guidelines which include a general 
policy as to the allowable delinquency period after which Receivables 
ordinarily are deemed uncollectible. The Pooling Agreement requires the 
servicer to follow its normal servicing guidelines and also sets forth 
in the definition of Defaulted Receivables the servicer's general 
policy as to the period of time after which delinquent Receivables will 
be considered uncollectible.
    On a monthly basis the servicer is required to report to the 
Trustee the amount of all past-due payments along with other current 
information as to collections on the Receivables and draws upon, or 
payments to be made from, the credit support. Further, the servicer is 
required to deliver to the Trustee annually a certificate of an officer 
of the servicer stating that a review of the servicing activities has 
been made under such officer's

[[Page 4064]]

supervision, and either stating that the servicer has fulfilled all of 
its obligations under the Pooling Agreement or, if the servicer has 
defaulted under any of its obligations, specifying any such default. 
The servicer's reports are reviewed annually by independent accountants 
to ensure that the servicer is following its normal servicing standards 
and that the servicer's reports conform to the servicer's internal 
accounting records. The results of the independent accountant's review 
are delivered to the Trustee.
Interest Rate Swap Agreements by the Trust
    16. For certain Series of certificates, the Trust will have the 
benefit of interest rate swap agreements for the exclusive benefit of 
the Class A Certificateholders (the Class A Interest Rate Swap) and/or 
interest rate swap agreements for the exclusive benefit of the Class B 
Certificateholders (the Class B Interest Rate Swap). Citibank (South 
Dakota) and Citibank (Nevada) may be the counterparties to the Trust 
for these Interest Rate Swaps.\34\
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    \34\ Banks or financial institutions other than Citibank may be 
swap counterparties to the Trust on other interest rate swaps. In 
addition, an interest rate ``cap'' could be used where the Trust 
issues floating rate certificates. In such instances, a counterparty 
would be paid a premium in advance by Citibank (from its own funds). 
Under the interest rate cap agreement, if the floating rate on the 
certificates were to rise above a specified rate (i.e. the cap 
rate), the counterparty would be required to provide the Trust with 
the amounts in excess of the cap rate necessary to pay the balance 
of the interest on the certificates.
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    Pursuant to the terms and conditions of the Interest Rate Swaps, 
the Trust will be obligated to make certain payments periodically to 
the swap counterparty based on either a fixed or floating interest 
rate. In turn, the swap counterparty will be obligated to make payments 
periodically to the Trust based on either a fixed or floating interest 
rate. Payments received by the Trust pursuant to the Class A Interest 
Rate Swaps will be available to pay interest due on the Class A 
Certificates on each Class A interest payment date and payments 
received by the Trust pursuant to the Class B Interest Rate Swaps will 
be available to pay interest due on the Class B Certificates on each 
Class B interest payment date. The Trust will also have the benefit of 
funds on deposit in a CCA or other applicable credit support.
    As an example, Citibank has submitted information for the Series of 
certificates issued by the Trust on August 29, 1996 (known as 
$750,000,000 Floating Rate Class A Credit Card Participation 
Certificates, Series 1996-5 and $48,000,000 Floating Rate Class B 
Credit Card Participation Certificates, Series 1996-5). On the Series 
issuance date (August 29, 1996), the Trustee of the Trust, for the 
exclusive benefit of the Class A Certificateholders, entered into two 
Class A Interest Rate Swaps with Citibank (South Dakota) and Citibank 
(Nevada), respectively, which together had a combined notional amount 
as of any swap payment date equal to the outstanding principal amount 
of the Class A Certificates as of the close of business on the 
preceding distribution date.
    Interest with respect to the investor certificates accrues from 
August 29, 1996 and is payable quarterly on the fifteenth day of March, 
June, September and December, commencing December 15, 1996. Pursuant to 
the Class A Interest Rate Swaps, on the business day preceding each 
distribution date, payments are made by the Trust to Citibank (if the 
following is a positive number), or by Citibank to the Trust (if the 
following is a negative number) of an amount in the aggregate equal to: 
\35\
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    \35\ If such amount is positive, it will be referred to as the 
``Class A Net Swap Payment'', and if such amount is negative, it 
will be referred to as the ``Class A Net Swap Receipt'.
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    (i) one quarter of the product of
    (A) the Class A Notional Amount; and
    (B) 6.8691 percent (the Class A Swap Rate); minus
    (ii) the product of
    (A) a fraction, the numerator of which is the actual number of days 
from and including the prior distribution date (excluding the related 
distribution date), and the denominator of which is 360; \36\
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    \36\ The day count fraction used in any swap would correspond to 
the day count fraction used in the related Series of certificates. 
For example, industry convention is that fixed rate securities bear 
interest on a 30/360 day count fraction while floating rate 
securities often bear interest on an actual/360 day count fraction. 
Accordingly, any floating payments made by a swap counterparty to 
the Trust which relate to a floating rate Series of certificates 
with an actual/360 day count fraction would also have an actual/360 
day count fraction and any fixed payments made by a swap 
counterparty to a Trust which relate to a fixed rate Series of 
certificates with a 30/360 day count fraction would also have a 30/
360 day count fraction.
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    (B) the Class A Notional Amount; and
    (C) The Class A Certificate Rate.
    The Class A Certificate Rate for each interest period is a per 
annum rate equal to the arithmetic mean of London interbank offered 
quotations for United States dollar deposits (i.e. LIBOR) for the 
applicable three month period, plus .105 percent.\37\
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    \37\ It should be noted that a substantial portion of the 
Receivables in the Trust bear interest at the prime rate plus a 
margin, while the investor certificates will bear interest at one or 
more fixed or floating rates specified in the related prospectus. If 
there is a decline in the prime rate, the amount of Finance Charge 
Receivables in the Trust may be reduced and, even if there is a 
similar reduction in any floating rate or other rates applicable to 
the investor certificates, there will not be a similar reduction in 
the other amounts (e.g. servicing fees or expenses for operating the 
Trust) required to be funded out of such Receivables. The subject 
Series prospectus notes that this mismatch between the various 
cashflows into and out of the Trust results in ``basis risk'' which 
is partially mitigated by the presence of the Interest Rate Swaps. 
Thus, as noted in more detail above, payment of the Class A 
Certificate Rate and the credit rating for such certificates may be 
dependent, in part, on the swap agreements and the creditworthiness 
of the swap counterparty.
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    The principal on the Class A and Class B Certificates issued on 
August 29, 1996, is scheduled to be paid on the September 2003 payment 
date, but principal and interest for such certificates may be paid 
earlier under the circumstances described herein (e.g. an economic 
early amortization event). Principal payments will not be made to Class 
B Certificateholders until the final principal payment has been made 
for the Class A Certificates. Unless an early amortization event has 
occurred, the Revolving Period will end and the Accumulation Period 
(i.e. for principal payments to certificateholders) will commence at 
the close of business on the fourth-to-last business day of August 
2002. However, Citibank, as Servicer, may shorten the length of the 
Accumulation Period and extend by an equivalent period the length of 
the Revolving Period based on the amount of principal available to the 
investor certificates of all Series determined based on the principal 
payment rate on the Receivables and the amount of principal 
distributable to certificateholders of all outstanding Series.
    The Series prospectus for these certificates indicates that the CCA 
was funded by an initial deposit of $55,860,000, of which $39,900,000 
was for the benefit of both the Class A and Class B Certificates, and 
$15,960,000 was for the exclusive benefit of the Class B Certificates. 
In the event of an economic early amortization event, the available 
shared enhancement amount (after giving affect to other withdrawals 
from the CCA on the distribution date) will be applied to pay principal 
of the Class A Certificates and the remainder of the available CCA will 
be applied to pay principal of the Class B Certificates.
    The Series prospectus states that it was a condition to the 
issuance of the Class A Certificates on August 29, 1996, that they be 
rated in the highest rating category by at least one Rating Agency. 
Under this proposed exemption, employee benefit plan investors are able

[[Page 4065]]

to acquire only the Class A Certificates. The rating of the Class A 
Certificates was based primarily on the value of the Receivables (see 
Rating Agency Analysis in Paragraph 17 below), the extent of the 
initial shared enhancement amount (i.e. the CCA, etc.), the 
circumstances in which funds may be withdrawn from the CCA for the 
benefit of the investor certificateholders, the terms of the Class B 
Certificates and the Interest Rate Swaps and the credit ratings of the 
swap counterparties [e.g., Citibank (South Dakota) and Citibank 
(Nevada)]. In the event the short-term debt rating of either swap 
counterparty is withdrawn or reduced below A-1+ by Standard & Poor's 
Ratings Group or its long-term debt rating is withdrawn or reduced 
below Aa3 by Moody's Investors Service, the Servicer will (as agent for 
the Trustee),\38\ within 30 days after such rating withdrawal or 
reduction, use reasonable efforts to (i) obtain a replacement interest 
rate swap agreement with terms substantially the same as the respective 
Interest Rate Swap, or (ii) establish any other arrangement 
satisfactory to the applicable Rating Agency, such that the ratings of 
the investor certificates by the applicable Rating Agency will not be 
withdrawn or reduced. In the event no such replacement interest rate 
swap agreement is obtained, or no other arrangement satisfactory to the 
Rating Agency is established within such period, an early amortization 
event will occur. The Series prospectus states that there can be no 
assurance that the ratings of the investor certificates will remain for 
any given period of time or that such ratings will not be lowered or 
withdrawn entirely by the Rating Agency if in its judgment 
circumstances in the future so warrant.\39\
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    \38\ In this regard, the Department notes that the Trustee would 
be obligated, as a fiduciary for ``plan assets'' held by the Trust, 
to ensure that the Servicer uses reasonable efforts to take whatever 
actions are necessary to satisfy the Rating Agency so as to avoid a 
reduction or withdrawal of the current rating for certificates of a 
particular Series following any reduction or withdrawal of the swap 
counterparty's rating.
    \39\ The Department cautions plan fiduciaries to fully 
understand the risks and benefits associated with investments made 
in asset-backed securities, such as credit card receivable ABS, or 
any other fixed-income security. In this regard, section 404(a) of 
the Act requires, among other things, that a plan fiduciary act 
prudently when making investment decisions on behalf of a plan. The 
Department also cautions plan fiduciaries that if the assets of a 
trust which issues certificates is deemed to be ``plan assets'' 
under the Department's regulations (see 29 CFR 2510.3-101), the 
plan's assets would include not only the certificates purchased but 
also an undivided interest in each of the underlying assets of the 
trust, including any interest rate swap agreement between the trust 
and a bank. For a current statement of the Department's views on the 
use of ``derivatives'' by pension plans, see DOL Letter from Olena 
Berg, Assistant Secretary for Pension and Welfare Benefits, to The 
Honorable Eugene A. Ludwig, Comptroller of the Currency, dated March 
21, 1996.
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    The Series prospectus states that delivery of these investor 
certificates was made in book-entry form through the facilities of the 
Depository Trust Company (DTC), Cedel Bank and the Euroclear System on 
August 29, 1996. The underwriters for the Class A Certificates were 
Citibank, Goldman, Sachs & Co., Merrill Lynch & Co. and Salomon 
Brothers Inc. An application was made by Citibank to list the 
certificates on the Luxembourg Stock Exchange. The Trust had previously 
issued thirty (30) other Series of investor certificates which evidence 
undivided interests in the Trust which were still outstanding at that 
time.\40\ The Series prospectus states that additional Series are 
expected to be issued from time to time by the Trust and that 
additional credit enhancement will be provided for each additional 
Series issued.
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    \40\ The Series prospectus states that the aggregate amount of 
Receivables in the Accounts included in the Trust as of July 7, 1996 
was $31,796,288,366, of which $31,414,439,867 were Principal 
Receivables and $381,848,499 were Finance Charge Receivables.
---------------------------------------------------------------------------

    Citibank represents that the credit rating provided to a particular 
Series or class of certificates by the relevant Rating Agency may or 
may not be dependent upon the existence of a swap agreement. Thus, in 
some instances, the terms and conditions of a swap agreement entered 
into by the Trust will not effect the credit rating of the Series or 
class of certificates to which the swap relates (i.e. a ``Non-Ratings 
Dependent'' Swap). Citibank states that typically when a swap agreement 
is entered into by the Trust, the credit rating established by the 
Rating Agency for the particular Series of certificates to which the 
swap relates will be dependent upon the existence of the swap (i.e. a 
``Ratings Dependent'' Swap).
    Citibank represents further that each particular swap transaction 
entered into by the Trust will be an ``Eligible Swap'' (as defined in 
Section III.HH. above). In addition, each swap transaction will be with 
an ``Eligible Swap Counterparty'', which shall be a bank or other 
financial institution with a rating at the date of issuance of the 
certificates by the trust which is in one of the three highest long-
term credit rating categories, and/or one of the two highest short-term 
credit rating categories, utilized by the Rating Agencies rating the 
certificates. However, if a swap counterparty is relying on its short-
term rating to establish its eligibility, such counterparty must either 
have a long-term rating in one of the three highest long-term rating 
categories or not have a long-term rating from the applicable Rating 
Agency. If the rating of a particular Series or class of certificates 
is dependent upon the terms and conditions of an Eligible Swap entered 
into by the Trust (i.e., a ``Ratings Dependent'' Swap), the swap 
counterparty will be subject to certain collateralization or other 
arrangements satisfactory to the Rating Agencies in the event of a 
rating downgrade of the swap counterparty below a level specified by 
the Rating Agency, which would be no lower than the level that would 
make such counterparty ``eligible'' under this proposed exemption (see 
Section III.II above). If these arrangements are not established within 
a specified period, as described in the Pooling Agreement, there will 
be an early amortization event causing certificateholders to receive an 
earlier than expected payout of principal on their certificates for the 
series to which the swap relates. However, with respect to a Non-
Ratings Dependent Swap, the Pooling Agreement will not specify that 
there be an early amortization event for the series to which the swap 
relates if the credit rating of the swap counterparty falls below the 
level required for it to be considered an Eligible Swap Counterparty 
(as described in Section III.II. above). In such instances, in order to 
protect the interests of the trust as a swap counterparty, the servicer 
(as agent for the trustee of the trust) will be required to either:
    (i) Obtain a replacement swap agreement with an Eligible Swap 
Counterparty, the terms of which are substantially the same as the 
current swap agreement (at which time the earlier swap agreement will 
terminate);
    (ii) Cause the swap counterparty to post collateral with the 
trustee of the trust in an amount equal to all payments owed by the 
counterparty if the swap transaction were terminated; or
    (iii) Terminate the swap agreement in accordance with its terms.
    Under any termination of a swap, the trust will not be required to 
make any termination payments to the swap counterparty (other than a 
currently scheduled payment under the swap agreement) except from 
``excess finance charge collections'' or other amounts that would 
otherwise be payable to the servicer or the seller (i.e. Citibank). In 
this regard, ``excess finance charge collections'' will be, as of any 
day funds are distributed from the trust, the amounts by which finance 
charge collections allocated to certificates of a

[[Page 4066]]

series exceed the amounts necessary to pay certificate interest, 
servicing fees and expenses, to satisfy cardholder defaults or charge-
offs, and to reinstate credit support.
    With respect to Non-Ratings Dependent Swaps, each Rating Agency 
rating the Certificates must confirm, as of the date of issuance of the 
Certificates by the Trust, that entering into the swap transactions 
with the Eligible Swap Counterparty will not affect the rating of the 
Certificates, even if such counterparty is no longer an ``eligible'' 
counterparty and the swap is terminated.41
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    \41\ Representatives from two of the Rating Agencies (RA Reps) 
have indicated to the Department that certain series of certificates 
issued by a trust holding credit card receivables will have 
certificate ratings that are not dependent on the existence of a 
swap transaction entered into by the trust. Therefore, a downgrade 
in the swap counterparty's credit rating would not cause a downgrade 
in the rating established by the Rating Agency for the certificates. 
RA Reps state that in such instances there will be more credit 
enhancements (e.g. ``excess spread'', letters of credit, cash 
collateral accounts) for the series to protect the 
certificateholders than there would be in a comparable series where 
the trust enters into a so-called Ratings Dependent Swap. Non-
Ratings Dependent Swaps are generally used as a convenience to 
enable the trust to pay certain fixed interest rates on a series of 
certificates. However, the receipt of such fixed rates by the trust 
from the counterparty is not a necessity for the trust to be able to 
make its fixed rate payments to the certificateholders.
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    Any Series of certificates which conveys rights with respect to an 
Eligible Swap would only be sold to a Qualified Plan Investor (as 
defined in Section III.JJ. above). Qualified Plan Investors will be 
plan investors represented by an appropriate independent fiduciary that 
is qualified to analyze and understand the terms and conditions of any 
swap transaction used by the Trust and the effect such swap would have 
upon the credit ratings of the certificates. For purposes of the 
proposed exemption, such a qualified independent fiduciary would be 
either: (i) A ``qualified professional asset manager'' (i.e. QPAM), as 
defined under Part V(a) of PTE 84-14; (ii) an ``in-house asset 
manager'' (i.e. INHAM), as defined under Part IV(a) of PTE 96-23; or 
(iii) a plan fiduciary with total assets under management of at least 
$100 million at the time of the acquisition of such certificates.

Rating Agency Analysis

    17. The Applicants state that the rating guidelines and stress 
scenarios used by the Rating Agencies in assigning a rating to a credit 
card receivable ABS take into consideration many factors and are 
determined on a case-by-case basis. The Rating Agencies review three 
principal areas in arriving at a credit enhancement level to support a 
rating for a credit card receivable ABS:
    (i) Quantitative performance of the portfolio, including historical 
yield, loss, delinquency and monthly payment rates, as well as credit 
exposure caused by factors such as geographic concentration of risk;
    (ii) Qualitative portfolio factors, such as the originator's 
underwriting standards, audit and control procedures, collection 
process and marketing strategy; and
    (iii) Legal and structural issues raised by the securitization 
structure, such as priority of security interests, timeliness of cash 
flow and exposures to third party bankruptcy risk (e.g. seller, 
guarantor, obligor, servicer), etc.
    The Applicants represent that each Rating Agency adopts a slightly 
different approach to the determination of credit enhancement levels. 
For example, Moody's Investors Service, Inc. (Moody's) generally uses a 
Monte Carlo simulation model utilizing various possible cases with 
subjectively assigned probabilities. This model then enables Moody's to 
arrive at an estimate of potential lifetime losses which must be 
covered by the credit support for the securitization. Standard and 
Poor's Ratings Group (S&P) looks at a ``worst case'' loss scenario 
based on subjectively assigned multiples of historical loss, portfolio 
yield and payment rates to reflect a severe economic downturn over the 
life of the securities. As with Moody's, this process produces an 
estimate of potential lifetime losses which must be covered by the 
credit support.
    The Applicants state that because the credit card receivables in a 
master trust are unsecured revolving debt obligations, the Rating 
Agencies assume no recoveries on defaulted credit card accounts in 
determining credit enhancement levels for each Series. Stress scenarios 
are run reducing both the portfolio yield (total yield on the 
receivables minus the sum of certificate interest, the servicing fee 
and amounts necessary to satisfy cardholder defaults) and the monthly 
payment rate, in order to test the level of defaults that credit 
enhancement can withstand. Such stress tests assume no recoveries on 
defaulted credit card accounts in the master trust. For example, for 
``AAA'' rated certificates, available enhancement levels are structured 
to enable a Series to withstand the worst case ``AAA'' scenarios, just 
as would be the case with similarly rated transactions involving 
collateralized assets such as mortgage loans or automobile loans or 
leases. The first level of enhancement is typically ``excess spread'' 
(i.e. the amount by which the yield on the credit card receivables 
exceeds amounts necessary to pay certificate interest and servicing 
fees and to satisfy cardholder defaults). 42 Additional 
forms of enhancement for a Series may include cash collateral accounts 
(i.e. a CCA), reserve funds, letters of credit, the use of a senior-
subordinated structure or a combination thereof.
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    \42\  For example, the annual portfolio yield for the Trust in 
1995 was 18.11 percent. The annual certificate rates for each Series 
outstanding at that time varied between approximately 5.50 and 8.8 
percent, depending upon the date of issuance, the expected duration, 
whether the particular Series certificates were Class A or Class B, 
etc. The Series servicing rates (including interchange fees) varied 
between 0.37 and 1.87 percent of the outstanding receivables. The 
annual loss rate for the receivables in the Trust, as a percentage 
of the average principal receivables outstanding was approximately 
3.8 percent during this period. Under the Rating Agencies 
hypothetical ``stress'' scenarios submitted by Citibank, the annual 
loss rate could have been increased to approximately 27.5 percent 
during this period without resulting in a failure of the Trust to 
pay any interest or principal on the AAA rated certificates.
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    Citibank represents that, in addition to the enhancement described 
above, certificates have the benefit of one or more ``economic early 
amortization event'' triggers relating to the receivables performance. 
Breach of such a trigger will cause an early amortization event and an 
early payout of principal to certificateholders, thereby protecting 
certificateholders from any potential future deterioration of credit 
quality of receivables in the master trust portfolio. Citibank states 
that the combination of credit enhancement (sized to satisfy Rating 
Agency ``high stress'' scenarios) and early amortization event triggers 
assures that certificateholders will receive payment in full of 
interest and principal.
    Citibank represents that its credit cards are marketed nationally 
and are held by millions of individuals. The consequent size and 
diversity of Citibank's credit card accounts provide balanced risk 
distribution. For example, as of June 25, 1997, the largest Citibank 
master trust held in excess of $35 billion of receivables, generated by 
more than 28 million accounts, and each individual cardholder had a 
principal balance that averaged approximately $1221. Similarly, 
Citibank states that its portfolios are geographically diverse with no 
more than 15 percent of the receivables in Citibank's largest master 
trust being concentrated in a single state and in only four states did 
the percentage exceed 5 percent. Citibank notes that the loss 
experience for a geographically well diversified portfolio

[[Page 4067]]

of a large number of relatively small obligations is more stable and 
predictable than a portfolio of fewer, large individual obligations, 
and/or high geographic concentrations. Citibank represents that because 
of this diversification, a Citibank master trust should be able to 
withstand a recession or similar economic downturn which might affect 
different industries or geographic regions at different times.
    Citibank states that a combination of credit enhancement, early 
amortization triggers and portfolio characteristics are among the 
reasons why no investor has failed to receive payment in full of all 
principal and interest on the over $51 billion of Citibank credit card 
receivable ABS issued from 1988 to the present. Citibank states further 
that no Citibank credit card securitization has ever gone into early 
amortization.43
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    \43\ When the Department was advised by the Rating Agencies 
concerning the ratings of certificates issued by trusts holding 
credit card receivables, the RA Reps noted, among other things, that 
different banks use different underwriting standards and may offer 
cardholders different terms on their accounts. Some banks may be 
willing to accept cardholders with riskier credit histories while 
other banks may not or may offer better terms to cardholders with 
superior payment histories. The result may be that some banks have a 
higher quality portfolio of receivables than other banks. The RA 
Reps stated that if a bank securitizes a portfolio of receivables 
which holds a number of riskier accounts, the Rating Agencies will 
require more credit enhancement measures because different 
assumptions will have to be made about the performance of the 
portfolio--e.g. higher charge-off rates will be assumed and greater 
``excess spread'' will be necessary to avoid losses--in order to 
achieve a Triple A rating. Thus, for example, Bank A's certificates 
may receive a Triple A rating along with Citibank's certificates 
even though Bank A may experience more charge-offs on the credit 
card accounts and may have different payment rates on the 
receivables associated with those accounts.
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Disclosures Available to Investing Plans
    18. In connection with the original issuance of certificates, the 
prospectus or private offering memorandum will be furnished to 
investing plans. The prospectus or private offering memorandum will 
contain information pertinent to a plan's decision to invest in the 
certificates, such as:
    (a) Information concerning the certificates, including payment 
terms, certain tax consequences of owning and selling certificates, the 
legal investment status and rating of the certificates, and any special 
considerations with respect to the certificates;
    (b) Information about the underlying Receivables, including the 
types of Receivables, statistical information relating to the 
Receivables, their payment terms, and the legal aspects of the 
Receivables;
    (c) Information about the servicing of the Receivables, including 
the identity of the servicer and servicing compensation;
    (d) Information about the sponsor of the Trust;
    (e) A full description of the material terms of the Pooling 
Agreement; and
    (f) Information about the scope and nature of the secondary market, 
if any, for such certificates.
    Certificateholders will be provided with information concerning the 
amount of principal and interest to be paid on certificates 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 status of 
the Trust.
    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 (the '34 Act). 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 SEC, 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 SEC's 
interpretation of the periodic reporting requirement is subject to 
change, periodic reports concerning a Trust will be filed to the extent 
required under the '34 Act.
    The applicant states that 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 
Receivables. Such report will typically contain information regarding 
the Trust's assets, payments received or collected by the servicer, the 
amount of delinquencies and defaults, the amount of any payments made 
pursuant to any credit support, and the amount of compensation payable 
to the servicer. Such report will also be delivered or made available 
to the Rating Agencies or Agency that rated the Trust's certificates. 
Such report will be available to investors and its availability will be 
made known to potential investors. In addition, promptly after each 
distribution date, certificateholders will receive a statement 
summarizing information regarding the Trust and its assets, including 
underlying Receivables.

Reasons for Plans To Enter Into the Exemption Transactions

    19. Citibank states that a plan would choose to purchase the 
investor certificates offered by a master trust to diversify its 
portfolio and enhance investment return. During the past 10 years, 
asset-backed securities (including Citibank credit card receivable 
backed certificates) have developed into a very significant sector of 
the U.S. capital markets. Citibank represents that in 1996, public 
issuance of asset-backed securities (i.e. ABS) totaled approximately 
$151.7 billion and almost equaled public issuance of corporate debt, 
which totaled approximately $161.8 billion. Further, Citibank states 
that the vast majority of public ABS issuances is AAA/Aaa-rated and, as 
a result, public issuance of investment grade ABS was greater than the 
public issuance of investment grade rated corporate debt, which totaled 
$135.1 billion.
    Thus, Citibank represents that for many fixed income investors who 
have traditionally invested a significant portion of their portfolios 
in corporate bonds, credit card receivable ABS have become a corporate 
bond substitute. Citibank states that there are several primary 
attributes of credit card receivable ABS that make them corporate bond 
substitutes, including: (i) Very high credit quality (most are AAA/Aaa 
rated); (ii) basic payment terms which can be structured to replicate 
corporate bonds (e.g. bullet maturities or semiannual coupon payments); 
(iii) healthy yield spreads in comparison to U.S. Treasuries; and (iv) 
the issuance of large, liquid transactions that are characterized by 
relatively narrow bid/offer spreads in the secondary market. Citibank 
states that for these reasons, the investor base for credit card 
receivable ABS has expanded in recent years and today includes the 
entire range of institutional investors. Further, given the performance 
to date of the ABS market, the Applicants expect that these 
institutional investors will continue to increase the proportion of 
their portfolio devoted to ABS. The Applicants note that on the supply 
side of the market, given projections of continued growth in the credit 
card business and the growing importance of securitization as a funding 
source for the credit card industry, market participants predict 
further growth in credit card ABS issuance in the near term.
    As a result of these developments, the Applicants believe that 
fixed income

[[Page 4068]]

investment managers seeking liquid, high credit quality fixed income 
securities which provide a fair yield to U.S. Treasuries at relatively 
low risk, are interested in or are already participating in the credit 
card ABS market. The requested exemption would facilitate more 
investment by plans in this market, and would enable the Applicants to 
better structure offerings which plan asset managers would find 
attractive.
    Citibank credit card receivable ABS have been sold to employee 
benefit plans covered by the Act (ERISA plans) without concern 
regarding possible prohibited transactions involving the assets of the 
master trusts, as ``publicly-offered'' securities described in the 
Department's regulations defining ``plan assets'' (see 29 CFR 2510.3-
101(b)(2)). However, Citibank has requested the proposed exemption in 
order to be able to sell such securities to ERISA plans without having 
to sell to one hundred independent investors. Thus, if the proposed 
exemption is granted, the Applicants would have the ability to sell 
credit card receivable ABS which are designed to meet the investment 
prerequisites of more limited groups of investors, including ERISA 
plans.
    20. In summary, the Applicants represent that the proposed 
transactions will meet the statutory criteria of section 408(a) of the 
Act because, among other things:
    (a) The acquisition of investor certificates by a plan will be on 
terms (including certificate price) that are at least as favorable to 
the plan as such terms would be in an arm's-length transaction with an 
unrelated party;
    (b) The rights and interests evidenced by the investor certificates 
will not be subordinated to the rights and interests evidenced by other 
investor certificates of the trust;
    (c) Any investor certificates acquired by a plan will have received 
a rating at the time of such acquisition that is in one of two highest 
generic rating categories from either of the Rating Agencies, and/or 
the highest short-term generic rating category from any one of the 
Rating Agencies;
    (d) The particular class of certificates for each series to which 
this proposed exemption will apply (an Exempt Class) will have credit 
support provided to the Exempt Class through a senior-subordinated 
series structure or other form of third party credit support which, at 
a minimum, will represent five (5) percent of the outstanding principal 
balance of certificates issued by the Exempt Class, so that an investor 
in the Exempt Class will not bear the initial risk of loss;
    (e) The trustee of the trust will not be an affiliate of any other 
member of the Restricted Group;
    (f) The sum of all payments made to and retained by the 
underwriters in connection with the distribution or placement of 
certificates will represent not more than reasonable compensation for 
underwriting or placing the certificates; the consideration received by 
the sponsor as a consequence of the assignment of receivables (or 
interests therein) to the trust will represent not more than the fair 
market value of such receivables (or interests); and the sum of all 
payments made to and retained by the servicer, that are allocable to 
the series of certificates purchased by a plan, will represent 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;
    (g) Any plan investing in such certificates will be an ``accredited 
investor'' as defined in Rule 501(a)(1) of Regulation D of the SEC 
under the Securities Act of 1933;
    (h) The Revolving Period for a Series of investor certificates, and 
the conditions under which Citibank may designate additional Accounts 
or remove previously-designated Accounts, will be described in the 
prospectus or private placement memorandum provided to investing plans;
    (i) The Trustee of the Trust will be a substantial financial 
institution or trust company experienced in trust activities and would 
be familiar with its duties, responsibilities, and liabilities as a 
fiduciary under the Act;
    (j) The Pooling Agreement will include an Economic Early 
Amortization Event triggered by a decline in the performance of the 
Receivables in the Trust;
    (k) The Pooling Agreement will require Citibank to maintain a 
seller interest of not less than the greater of (i) 2 percent of the 
initial aggregate principal balance of investor certificates issued by 
the trust, or (ii) 7 percent of the outstanding aggregate principal 
balance of investor certificates issued by the trust;
    (l) The Pooling Agreement will require that any change in the terms 
of any cardholder agreements also will be made applicable to the 
comparable segment of Accounts owned or serviced by Citibank which are 
part of the same program or which have the same or substantially 
similar characteristics;
    (m) The addition of new Receivables or designation of new Accounts, 
or removal of Receivables or previously-designated Accounts, will meet 
the terms and conditions for such additions, designations, or removals 
as described in the Pooling Agreement as well as the prospectus or 
private placement memorandum for such certificates, which terms and 
conditions will have been affirmatively approved by the Rating 
Agencies, and will not result in the certificates receiving a lower 
credit rating from the Rating Agencies than the then current rating for 
the certificates;
    (n) Any swap transaction relating to senior Certificates that are 
covered by the proposed exemption must satisfy the several investor-
protective conditions applicable to Eligible Swaps and must be entered 
into by the Trust with an Eligible Swap Counterparty; and
    (o) Any Series of certificates which entails one or more swap 
agreements entered into by the Trust will be sold only to Qualified 
Plan Investors.

FOR FURTHER INFORMATION CONTACT: Mr. E.F. Williams of the Department, 
telephone (202) 219-8194. (This is not a toll-free number.)

Massachusetts Mutual Life Insurance Company (MassMutual), Located in 
Springfield, Massachusetts

[Application No. D-10436]

Proposed Exemption

    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 proposed mergers of the following 
Connecticut Mutual Life Insurance Company (CML) separate investment 
accounts (SIAs), the assets of which include assets of employee benefit 
plans (the Plans), into the following Massachusetts Mutual Life 
Insurance Company (MassMutual) SIAs: CML Select into MassMutual SIA-A, 
CML Fixed Income into MassMutual SIA-E, CML Basis into MassMutual SIA-
F, CML Money Market into MassMutual SIA-G, and CML Overseas into 
MassMutual SIA-I (the Merger Transactions); (2) the proposed transfer 
of Plan assets from CML Dimensions and CML Converts, after termination 
of those SIAs, into MassMutual SIA-E and MassMutual SIA-A, respectively 
(the Termination Transfers); and (3) the proposed transfer of Plan 
assets from CML Life Style Funds designated as CML Asset Allocation A, 
CML Asset Allocation B, and CML Asset Allocation C, after termination 
of those funds, into MassMutual SIA-BC, MassMutual SIA-BP, and 
MassMutual SIA-BA, respectively (the Life Style Transfers;

[[Page 4069]]

the Termination Transfers and the Life Style Transfers are referred to 
collectively as the Transfer Transactions); provided the following 
conditions are met:
    (A) At least 30 days prior to the effective date of each Merger and 
Transfer Transaction, MassMutual provides to a fiduciary of each Plan 
participating in the CML SIAs (the Plan Fiduciary) affected by the 
Transaction full written disclosure of information concerning the 
proposed Transaction and the affected MassMutual SIAs, including a 
current prospectus and a full and detailed written description of the 
fees charged by the affected MassMutual SIA's and the funds in which 
they invest, the differential between that fee level and the fee level 
applicable to the affected CML SIAs and the reasons why MassMutual 
believes that the investment is appropriate for the Plans. The notice 
will also inform the Plan Fiduciary of the proposed effective date of 
the Transaction;
    (B) As part of the disclosure required under paragraph (A) of this 
exemption, MassMutual notifies the Plan Fiduciary in writing that 
instead of participating in the particular Merger or Transfer 
Transaction proposed by MassMutual, the Plan Fiduciary may direct that 
the assets of the Plan in the affected CML SIA may be transferred, 
without penalty, charge or adjustment, to any other available 
MassMutual SIA or liquidated, without penalty, charge or adjustment, 
for a cash payment to the Plan equal to the fair market value of the 
Plan's interest in the affected SIA in lieu of the Plan's participation 
in the proposed transaction;
    (C) Upon completion of the Merger Transactions, the fair market 
value of the interests of each Plan participating in the MassMutual 
SIAs immediately following such Merger Transactions equals the fair 
market value of such Plan's interest in the affected CML SIAs 
immediately before the transactions;
    (D) Upon completion of the Transfer Transactions, the fair market 
value of the interests of each Plan participating in the MassMutual 
SIAs immediately following such Transfer Transactions equals the fair 
market value of such Plan's interest in the affected CML SIAs 
immediately before the transaction;
    (E) The assets of each of the Plans are invested in the same or 
similar investment type or asset class before and after the Merger and 
Transfer Transactions;
    (F) The assets of the CML SIAs will be valued for purposes of the 
Merger and Transfer Transactions at the ``independent current market 
price'' within the meaning of Rule 17a-7 of the Securities and Exchange 
Commission under the Investment Company Act of 1940. The assets of the 
CML SIAs being merged or transferred and the assets of the MassMutual 
SIAs affected by the merger or transfer will be valued in a single 
valuation using the same methodology by the same custodian at the close 
of the same business day that the Merger and Transfer Transactions are 
effected;
    (G) No later than forty five (45) days after the Merger and 
Transfer Transactions, each Plan Fiduciary will be provided a written 
confirmation of the Transactions which will include a statement of the 
number of units held by each Plan in each affected CML SIA, the unit 
value of each such CML SIA unit and the aggregate dollar value of such 
Plan's CML SIA units, determined immediately prior to the Transactions, 
as well as the number of units held by each Plan in each affected 
MassMutual SIA, the unit value of each such MassMutual SIA unit, and 
the aggregate dollar value of such Plan's MassMutual SIA units, 
determined immediately after the Transactions.
    (H) Neither MassMutual nor any of its affiliates receives any fees 
or commissions in connection with the Merger and Transfer Transactions;
    (I) The Plans pay no sales commissions or fees in connection with 
the Merger and Transfer Transactions;
    (J) The Plans participating in the CML SIAs are not employee 
benefit plans sponsored or maintained by MassMutual or CML; and
    (K) All assets involved in the transactions are securities for 
which market quotations are readily available, or cash.

Summary of Facts and Representations

    1. The Plans involved in this proposed exemption are pension, 
profit sharing and stock bonus plans which are exempt from Federal 
income taxation under section 501(a) of the Code by reason of 
qualifying under section 401(a) of the Code.
    2. The proposed exemption is requested on behalf of the 
Massachusetts Mutual Life Insurance Company (MassMutual), a mutual life 
insurance company organized under Massachusetts law. Another 
previously-unrelated mutual life insurance company, Connecticut Mutual 
Life Insurance Company (CML), merged into MassMutual on February 29, 
1996 (the Company Merger).
    3. MassMutual represents that it performs a wide variety of 
services for employee benefit plans, including opportunities for the 
Plans to invest in group annuity contracts (the GACs), which are 
popular funding vehicles for Plans. The funds invested in the GACs are 
allocated by the Plans' fiduciaries or by individual participants among 
separate investment accounts (SIAs) maintained by MassMutual for 
investment in various types and classes of assets, including the 
MassMutual Institutional Funds and other mutual fund companies 
affiliated with Mass Mutual. For example, funds invested by a Plan in a 
GAC might be allocated among several SIAs, which in turn invest in 
various MassMutual mutual funds. MassMutual represents that prior to 
the Company Merger MassMutual maintained twenty-five SIAs (the 
MassMutual SIAs) and CML maintained twelve SIAs (the CML SIAs). The 
assets of the MassMutual SIAs involved in this proposed exemption are 
invested solely in mutual funds affiliated with MassMutual, whereas the 
assets of the CML SIAs involved in this proposed exemption are invested 
in various marketable equity and debt securities.
    4. MassMutual represents that five of the CML SIAs have investment 
objectives and strategies which are substantially similar to those of 
five MassMutual SIAs, holding assets which are of the same or similar 
class and type. Since the Company Merger, these five CML SIAs have been 
maintained by MassMutual with the same investment advisors and 
portfolio managers as the corresponding MassMutual SIAs. In order to 
eliminate duplicative administrative expenses and take greater 
advantage of economies of scale, and to avoid the adverse consequences 
of declining asset pools in the CML SIAs, MassMutual proposes to merge 
the five CML SIAs (the Merging CML SIAs) into the corresponding 
MassMutual SIAs (the Merger Transactions).
    5. In addition to the Merger Transactions, MassMutual also proposes 
to effect transfer transactions with respect to (a) two other CML SIAs 
(the Terminating CML SIAs) which MassMutual has determined to have 
investment objectives and asset types which are not widely utilized by 
Plans covered by the Act, and, consequently, will not maintain 
sufficient assets to provide an appropriate investment portfolio, and 
(b) three CML master funds, called Life Style Funds.
    The Terminating CML SIAs: MassMutual states that upon the Company 
Merger, it was determined that MassMutual GAC funds would not be 
invested in the Terminating CML SIAs, and that CML GAC investors would 
be allowed to convert their investments to GACs issued by MassMutual. 
Since the Company Merger, the assets in the Terminating

[[Page 4070]]

CML SIAs have declined steadily due to Plan transfers and withdrawals. 
As a result of these developments, MassMutual represents that it will 
be increasingly difficult for the Terminating CML SIAs to maintain 
well-diversified portfolios and risk and return profiles that are 
appropriate for the remaining Plan investors in the Terminating CML 
SIAs. Accordingly, MassMutual proposes to liquidate the Terminating CML 
SIAs by liquidation of the securities held in the SIAs and transfer of 
the proceeds into the two designated MassMutual SIAs to take greater 
advantage of economies of scale and to avoid the adverse consequences 
of declining asset pools. Thus, Plans previously invested in the 
Terminating CML SIAs would own units in the corresponding transferee 
MassMutual SIAs of an equal value to their units in the Terminating CML 
SIAs immediately prior to the transfer.
    The Life Style Funds: The Life Style Funds are master funds, 
maintained by both CML and MassMutual, which distribute Plans' 
investments in GACs among various SIAs. Each of these Life Style Funds 
offers to Plan asset investors a particular approach to asset mix, 
investment philosophy and overall management, and a Plan asset investor 
is able to designate a Life Style Fund with an approach which is most 
consistent and responsive to the particular needs of the individual 
Plan. After designation of one of the Life Style Funds, those Plan 
assets invested in the GACs of the insurance company are directed into 
the designated Life Style Fund, where such monies are then directed to 
the particular SIAs in which the selected Life Style Fund invests. The 
CML Life Style Funds are designated as CML Asset Allocation A, CML 
Asset Allocation B, and CML Asset Allocation C. The MassMutual Life 
Style Funds are designated as MassMutual SIA-BC, MassMutual SIA-BP, and 
MassMutual SIA-BA.
    MassMutual proposes to transfer the assets from the CML Life Style 
Funds into the three MassMutual Life Style Funds, as follows: The CML 
Life Style Funds are invested in (a) different combinations of the 
Merging CML SIAs, (b) the Terminating CML SIAs, and (c) two other CML 
SIAs (the Unaffected CML SIAs) which will continue to be maintained by 
MassMutual and will not be merged or terminated. Therefore, to the 
extent the CML Life Style Funds include investments in Merging CML 
SIAs, the Life Style Transfers will be accomplished in the same manner 
as the merger of the Merging CML SIAs with the corresponding MassMutual 
SIAs. However, any investments of the CML Life Style Funds which are 
held in one of the Terminating CML SIAs or an Unaffected CML SIA will 
be sold 44 and the proceeds from the sale will be 
transferred to the corresponding MassMutual Life Style Fund.
---------------------------------------------------------------------------

    \44\ The Unaffected CML SIAs will continue to be maintained by 
MassMutual on behalf of investors other than the Life Style Funds, 
and only the Life Style Funds' investments in the Unaffected CML 
SIAs will be liquidated for transfer to the MassMutual Life Style 
Funds. MassMutual chooses not to transfer the CML Life Style Funds' 
interests in the Unaffected CML SIAs to the MassMutual Life Style 
Funds because the Unaffected CML SIAs do not have corresponding 
counterpart MassMutual SIAs.
---------------------------------------------------------------------------

    MassMutual is unable to conclude that the transactions described 
herein do not constitute prohibited transactions under the Act. 
Accordingly, MassMutual is requesting an administrative exemption from 
the prohibitions of sections 406(a) and 406(b)(1) and (b)(2) of the Act 
for the Merger and Transfer Transactions.
    6. No less than thirty days in advance of each Merger and Transfer 
Transaction, MassMutual will provide to a fiduciary of each Plan 
participating in the CML SIA affected by the Transaction (the Plan 
Fiduciary) a written notice of the proposed Transaction (the Notice). 
The Notice will consist of a full written disclosure of information 
concerning the proposed Transaction, the affected MassMutual SIAs, and 
the proposed effective date of the Transaction. The Notice will include 
a current prospectus for each of the mutual funds in which the affected 
MassMutual SIAs invest and will describe the fees charged by the 
affected MassMutual SIAs and the funds in which they invest and the 
differential between that fee level and the fee level applicable to the 
affected CML SIAs. The proposed exemption requires that the Notice 
advise the Plan Fiduciary that in lieu of participating in the proposed 
Transaction, the Plan Fiduciary may direct that the assets of the Plan 
in the affected CML SIA may instead be transferred to any other 
available MassMutual SIA or liquidated for a cash payment to the 
Plan.45 In addition, the Plan Fiduciary will be provided 
with a written confirmation of the subject Transaction.
---------------------------------------------------------------------------

    \45\ MassMutual represents that such a transfer would be 
accomplished first by accessing available cash reserves in the 
affected CML SIA and then, to the extent cash reserves are depleted, 
by liquidating assets in the affected CML SIA.
---------------------------------------------------------------------------

    7. In accordance with the procedures to be utilized by MassMutual 
in effecting the Merger and Transfer Transactions, the fair market 
value of the interests of the Plans participating in the MassMutual 
SIAs immediately following the Transactions will equal the fair market 
value of each participating Plan's interest in the affected CML SIAs 
immediately before the Transactions. MassMutual represents that the 
fair market value of the CML SIAs involved in the Transactions are 
readily ascertainable by reference to external markets, and that each 
underlying security involved in the subject transactions will be valued 
only at the ``independent current market price'' within the meaning of 
Rule 17a-7 of the Securities and Exchange Commission under the 
Investment Company Act of 1940 (the 1940 Act). MassMutual represents 
that Rule 17a-7 constitutes a set of standards for the determination of 
the independently verifiable prices for securities in transactions 
between registered investment companies and their 
affiliates.46 The Merger and Transfer Transactions will be 
effected without payment of commissions or sales charges by the Plans, 
including fees payable in accordance with Rule 12b-1 under the 1940 
Act.
---------------------------------------------------------------------------

    \46\ Rule 17a-7 under the 1940 Act provides a general exception 
from Section 17(a) of the Act for certain securities transactions 
between registered investment companies and certain of their 
affiliates. As a general matter, Section 17(a) of the 1940 Act 
prohibits any ``affiliated person'' of a registered investment 
company from selling any security to the registered investment 
company. Rule 17a-7 permits certain types of affiliate transactions 
if, among other things, the transaction is effected at an 
independently verifiable price, the ``current independent market 
price'' within the meaning of Rule 17a-7. MassMutual states that 
this standard of valuation is appropriate for the proposed exemption 
for purposes of valuing the assets held in the affected CML SIAs, 
which are not investments in registered investment companies, that 
will be merged or transferred into the affected MassMutual SIAs, 
which are solely invested in registered investment companies.
---------------------------------------------------------------------------

    8. In addition to notification of each Plan Fiduciary in advance of 
the Merger and Transfer Transactions, as discussed above, MassMutual 
will also provide to each Plan Fiduciary a written confirmation of the 
Transactions after they have been completed. No later than forty five 
days after the Merger and Transfer Transactions, each Plan Fiduciary 
will be provided a written confirmation of the Transactions which will 
include a statement of the number of units held by each Plan in each 
affected CML SIA, the unit value of each such CML SIA unit and the 
aggregate dollar value of such Plan's CML SIA units, determined 
immediately prior to the Transactions, as well as the number of units 
held by each Plan in each affected MassMutual SIA, the unit value of 
each such MassMutual SIA unit, and the aggregate dollar value of such 
Plan's MassMutual SIA units, determined immediately after the 
Transactions.

[[Page 4071]]

    9. In summary, the applicant represents that the proposed 
transactions satisfy the criteria of section 408(a) of the Act for the 
following reasons:
    (a) Upon completion of the Merger and Transfer Transactions, the 
fair market value of the interests of each Plan participating in the 
MassMutual SIAs immediately following the Transactions will equal the 
fair market value of such Plan's interest in the affected CML SIA 
immediately before the Transaction;
    (b) The assets of each participating Plan will be invested in the 
same or similar investment type or asset class before and after the 
Merger and Transfer Transactions;
    (c) The Plans will not pay, and MassMutual and its affiliates will 
not receive, any fees or commissions in connection with the Merger and 
Transfer Transactions; and
    (d) A fiduciary on behalf of each Plan, who is independent of and 
unrelated to MassMutual or any of its affiliates, will receive advance 
written disclosure of the Merger and Transfer Transactions, including 
notification that the assets of the Plan in the affected CML SIA may 
instead be transferred, without penalty, charge or adjustment, to any 
other available MassMutual SIA or liquidated, without penalty, charge 
or adjustment, for a cash payment to the Plan equal to the fair market 
value of the Plan's interest in the affected SIA in lieu of the Plan's 
participation in the proposed transaction.

FOR FURTHER INFORMATION CONTACT: Ronald Willett 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 21st day of January, 1998.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, Department of Labor.
[FR Doc. 98-1790 Filed 1-26-98; 8:45 am]
BILLING CODE 4510-29-P