Proposed Exemptions; Harris Nesbitt Corporation (Harris Nesbitt) and Its Affiliates (the Affiliates), 7628-7654 [06-1220]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 71, Number 29 (Monday, February 13, 2006)]
[Notices]
[Pages 7628-7654]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-1220]



[[Page 7627]]

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Part II





Department of Labor





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Employee Benefits Security Administration



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Proposed Exemptions; Harris Nesbitt Corporation (Harris Nesbitt) and 
Its Affiliates (the Affiliates); Notice

Federal Register / Vol. 71, No. 29 / Monday, February 13, 2006 / 
Notices

[[Page 7628]]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Application No. D-11281, et al.]


Proposed Exemptions; Harris Nesbitt Corporation (Harris Nesbitt) 
and Its Affiliates (the Affiliates)

AGENCY: Employee Benefits Security 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

    All interested persons are invited to submit written comments or 
requests for a hearing on the pending exemptions, unless otherwise 
stated in the Notice of Proposed Exemption, 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 requests for a hearing (at least 
three copies) should be sent to the Employee Benefits Security 
Administration (EBSA), 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. Interested persons are also invited to submit 
comments and/or hearing requests to EBSA via e-mail or FAX. Any such 
comments or requests should be sent either by e-mail to: 
``moffitt.betty@dol.gov'', or by FAX to (202) 219-0204 by the end of 
the scheduled comment period. The applications for exemption and the 
comments received will be available for public inspection in the Public 
Documents Room of the Employee Benefits Security Administration, U.S. 
Department of Labor, Room N-1513, 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, 5 U.S.C. App. 1 (1996), 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.

Harris Nesbitt Corporation (Harris Nesbitt) and Its Affiliates (the 
Affiliates) (collectively, the Applicant) Located in New York, NY

[Application No. D-11281]

Proposed Exemption

    Based on the facts and representations set forth in the 
application, 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, August 10, 1990).\1\
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    \1\ For purposes of this proposed exemption, references to 
provisions of Title I of the Act, unless otherwise specified, refer 
also to the corresponding provisions of the Code.
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Section I. Covered Transactions

    A. Effective for transactions occurring on or after October 15, 
2004, the restrictions of sections 406(a) and 407(a) of the Act and the 
taxes imposed by sections 4975(a) and (b) of the Code, by reason of 
section 4975(c)(1)(A) through (D) of the Code, shall not apply to the 
following transactions involving issuers (Issuers) and securities 
(Securities) evidencing interests therein:
    (1) The direct or indirect sale, exchange or transfer of Securities 
in the initial issuance of Securities between the sponsor (Sponsor) or 
underwriter (Underwriter) and an employee benefit plan when the 
Sponsor, servicer (Servicer), trustee (Trustee) or insurer (Insurer) of 
an Issuer, the Underwriter of the Securities representing an interest 
in the Issuer, or an obligor (Obligor) is a party in interest with 
respect to such plan.
    (2) The direct or indirect acquisition or disposition of Securities 
by a plan in the secondary market for such Securities; and
    (3) The continued holding of Securities acquired by a plan pursuant 
to subsection I.A.(1) or (2).
    Notwithstanding the foregoing, Section I.A. does not provide an 
exemption from the restrictions of sections 406(a)(1)(E), 406(a)(2) and 
407 of the Act for the acquisition or holding of a Security on behalf 
of an excluded plan (the Excluded Plan), by any person who has 
discretionary authority or renders investment advice with respect to 
the assets of that Excluded Plan.\2\
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    \2\ Section I.A. provides no relief from sections 406(a)(1)(E), 
406(a)(2) and 407 of the Act for any person rendering investment 
advice to an Excluded Plan within the meaning of section 
3(21)(A)(ii) of the Act and regulation 29 CFR 2510.3-21(c).
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    B. Effective for transactions occurring on or after, October 15, 
2004, the restrictions of section 406(b)(1) and 406(b)(2) of the Act 
and the taxes imposed by sections 4975(a) and (b) of the Code, by 
reason of section 4975(c)(1)(E) of the Code shall not apply to:
    (1) The direct or indirect sale, exchange or transfer of Securities 
in the initial issuance of Securities between the Sponsor or 
Underwriter and a plan when the person who has discretionary authority 
or renders investment advice with respect to the investment of plan 
assets in the Securities is (a) an Obligor with respect to 5 percent or 
less of the fair market value of obligations or receivables contained 
in the Issuer, or (b) an Affiliate of a person described in (a); if
    (i) The plan is not an Excluded Plan;
    (ii) Solely in the case of an acquisition of Securities in 
connection with the initial issuance of the Securities, at least 50 
percent of each class of Securities in which plans have invested is 
acquired by persons independent of the members of the restricted group 
(Restricted Group), and at least 50 percent of the aggregate interest 
in the Issuer is

[[Page 7629]]

acquired by persons independent of the Restricted Group;
    (iii) A plan's investment in each class of Security does not exceed 
25 percent of all of the Securities of that class outstanding at the 
time of the acquisition; and
    (iv) Immediately after the acquisition of the Securities, no more 
than 25 percent of the assets of a plan with respect to which the 
person has discretionary authority or renders investment advice are 
invested in Securities representing an interest in an Issuer containing 
assets sold or serviced by the same entity.\3\ For purposes of this 
paragraph B.(1)(iv) only, an entity will not be considered to service 
assets contained in an Issuer if it is merely a Subservicer of that 
Issuer;
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    \3\ For purposes of this exemption, each plan participating in a 
commingled fund (such as a bank collective trust fund or insurance 
company pooled separate account) shall be considered to own the same 
proportionate undivided interest in each asset of the commingled 
fund as its proportionate interest in the total assets of the 
commingled fund as calculated on the most recent preceding valuation 
date of the fund.
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    (2) The direct or indirect acquisition or disposition of Securities 
by a plan in the secondary market for such Securities, provided that 
conditions set forth in paragraphs (i), (iii) and (iv) of subsection 
I.B.(1) are met; and
    (3) The continued holding of Securities acquired by a plan pursuant 
to subsection I.B.(1) or (2).
    C. Effective for transactions occurring on or after October 15, 
2004, the restrictions of sections 406(a), 406(b), and 407(a) of the 
Act and the taxes imposed by sections 4975(a) and (b) of the Code by 
reason of Code section 4975(c), shall not apply to the transactions in 
connection with the servicing, management and operation of an Issuer, 
including the use of the any eligible swap transaction (the Eligible 
Swap Transaction); or the defeasance of a mortgage obligation held as 
an asset of the Issuer through the substitution of a new mortgage 
obligation in a commercial mortgage-backed designated transaction (the 
Designated Transaction), provided:
    (1) Such transactions are carried out in accordance with the terms 
of a binding pooling and servicing agreement (the Pooling and Servicing 
Agreement);
    (2) The Pooling and Servicing Agreement is provided to, or 
described in all material respects in the prospectus or private 
placement memorandum provided to, investing plans before they purchase 
Securities issued by the Issuer; \4\ and
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    \4\ In the case of a private placement memorandum, such 
memorandum must contain substantially the same information that 
would be disclosed in a prospectus if the offering of the securities 
were made in a registered public offering under the Securities Act 
of 1933. In the Department's view, the private placement memorandum 
must contain sufficient information to permit plan fiduciaries to 
make informed investment decisions. For purposes of this proposed 
exemption, references to ``prospectus'' include any related 
prospectus supplement thereto, pursuant to which Securities are 
offered to investors.
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    (3) The defeasance of a mortgage obligation and the substitution of 
a new mortgage obligation in a commercial mortgage-backed Designated 
Transaction meet the terms and conditions for such defeasance and 
substitution as are described in the prospectus or private placement 
memorandum for such Securities, which terms and conditions have been 
approved by a rating agency (the Rating Agency) and does not result in 
the Securities receiving a lower credit rating from the Rating Agency 
than the current rating of the Securities.
    Notwithstanding the foregoing, Section I.C. does not provide an 
exemption from the restrictions of section 406(b) of the Act or from 
the taxes imposed by reason of section 4975(c) of the Code for the 
receipt of a fee by a Servicer of the Issuer from a person other than 
the Trustee or Sponsor, unless such fee constitutes a qualified 
administrative fee (Qualified Administrative Fee).
    D. Effective for transactions occurring after October 15, 2004, 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 Code 
section 4975(c)(1)(A) through (D) of the Code shall not apply to any 
transactions to which those restrictions or taxes would otherwise apply 
merely because a person is deemed to be a party in interest or 
disqualified person (including a fiduciary), with respect to the plan 
(or by virtue of having a relationship to such service provider 
described in section 3(14)(F), (G), (H) or (I) of the Act or section 
4975(e)(2)(F), (G), (H) or (I) of the Code), solely because of the 
plan's ownership of Securities.

Section II. General Conditions

    A. The relief provided under Section I. is available only if the 
following conditions are met:
    (1) The acquisition of Securities by a plan is on terms (including 
the Security price) that are at least as favorable to the plan as such 
terms would be in an arm's length transaction with an unrelated party;
    (2) The rights and interests evidenced by the Securities are not 
subordinated to the rights and interests evidenced by other Securities 
of the same Issuer unless the Securities are issued in a Designated 
Transaction;
    (3) The Securities acquired by the plan have received a rating from 
Rating Agency at the time of such acquisition that is in one of the 
three (or in the case of Designated Transactions, four) highest generic 
rating categories.
    (4) The Trustee is not an Affiliate of any member of the Restricted 
Group, other than an Underwriter. For purposes of this requirement:
    (a) The Trustee shall not be considered to be an Affiliate of a 
Servicer solely because the Trustee has succeeded to the rights and 
responsibilities of the Servicer pursuant to the terms of a Pooling and 
Servicing Agreement providing for such succession upon the occurrence 
of one or more events of default by the Servicer; and
    (b) Subsection II.A.(4) will be deemed satisfied notwithstanding a 
Servicer becoming an Affiliate of the Trustee as a result of a merger 
or acquisition involving the Trustee, such Servicer and/or their 
Affiliates which occurs after the initial issuance of the Securities 
provided that:
    (i) Such Servicer ceases to be an Affiliate of the Trustee no later 
than six months after the date such Servicer became an Affiliate of the 
Trustee; and
    (ii) Such Servicer did not breach any of its obligations under the 
Pooling and Servicing Agreement, unless such breach was immaterial and 
timely cured in accordance with the terms of such agreement, during the 
period from the closing date (the Closing Date) of such merger or 
acquisition transaction through the date the Servicer ceased to be an 
Affiliate of the Trustee;
    (5) The sum of all payments made to and retained by the 
Underwriters in connection with the distribution or placement of 
Securities represents not more than reasonable compensation (Reasonable 
Compensation) for underwriting or placing the Securities; the sum of 
all payments made to and retained by the Sponsor pursuant to the 
assignment of obligations (or interests therein) to the Issuer 
represents not more than the fair market value of such obligations (or 
interests); and the sum of all payments made to and retained by the 
Servicer represents not more than Reasonable Compensation for the 
Servicer's services under the Pooling and Servicing Agreement and 
reimbursement of the Servicer's reasonable expenses in connection 
therewith;
    (6) The plan investing in such Securities is an ``accredited 
investor'' as defined in Rule 501(a)(1) of Regulation

[[Page 7630]]

D of the Securities and Exchange Commission (SEC) under the Securities 
Act of 1933; and
    (7) In the event that the obligations used to fund an Issuer have 
not all been transferred to the Issuer on the Closing Date, additional 
obligations as specified in subsection III.B.(1) may be transferred to 
the Issuer during the pre-funding period (Pre-Funding Period) in 
exchange for amounts credited to the pre-funding account (Pre-Funding 
Account), provided that:
    (a) The pre-funding limit (Pre-Funding Limit) is not exceeded;
    (b) All such additional obligations meet the same terms and 
conditions for eligibility as the original obligations used to create 
the Issuer (as described in the prospectus or private placement 
memorandum and/or Pooling and Servicing Agreement for such Securities), 
which terms and conditions have been approved by a Rating Agency. 
Notwithstanding the foregoing, the terms and conditions for determining 
the eligibility of an obligation may be changed if such changes receive 
prior approval either by a majority vote of the outstanding 
securityholders (Securityholders) or by a Rating Agency;
    (c) The transfer of such additional obligations to the Issuer 
during the Pre-Funding Period does not result in the Securities 
receiving a lower credit rating from a Rating Agency, upon termination 
of the Pre-Funding Period than the rating that was obtained at the time 
of the initial issuance of the Securities by the Issuer;
    (d) The weighted average annual percentage interest rate (the 
average interest rate) for all of the obligations in the Issuer at the 
end of the Pre-Funding Period will not be more than 100 basis points 
lower than the average interest rate for the obligations which were 
transferred to the Issuer on the Closing Date;
    (e) In order to ensure that the characteristics of the receivables 
actually acquired during the Pre-Funding Period are substantially 
similar to those which were acquired as of the Closing Date, the 
characteristics of the additional obligations will either be monitored 
by a credit support provider or other insurance provider which is 
independent of the Sponsor or an independent accountant retained by the 
Sponsor will provide the Sponsor with a letter (with copies provided to 
the Rating Agency, the Underwriter and the Trustee) stating whether or 
not the characteristics of the additional obligations conform to the 
characteristics of such obligations described in the prospectus, 
private placement memorandum and/or Pooling and Servicing Agreement. In 
preparing such letter, the independent accountant will use the same 
type of procedures as were applicable to the obligations which were 
transferred on the Closing Date;
    (f) The Pre-Funding Period shall be described in the prospectus or 
private placement memorandum provided to investing plans; and
    (g) The Trustee of the Trust (or any agent with which the Trustee 
contracts to provide Trust services) will be a substantial financial 
institution or trust company experienced in trust activities and 
familiar with its duties, responsibilities, and liabilities as a 
fiduciary under the Act. The Trustee, as the legal owner of the 
obligations in the Trust, will enforce all the rights created in favor 
of Securityholders of the Issuer, including employee benefit plans 
subject to the Act.
    (8) In order to ensure that the assets of the Issuer may not be 
reached by creditors of the Sponsor in the event of bankruptcy or other 
insolvency of the Sponsor:
    (a) The legal documents establishing the Issuer will contain:
    (i) Restrictions on the Issuer's ability to borrow money or issue 
debt other than in connection with the securitization;
    (ii) Restrictions on the Issuer merging with another entity, 
reorganizing, liquidating or selling assets (other than in connection 
with the securitization);
    (iii) Restrictions limiting the authorized activities of the Issuer 
to activities relating to the securitization;
    (iv) If the Issuer is not a Trust, provisions for the election of 
at least one independent director/partner/member whose affirmative 
consent is required before a voluntary bankruptcy petition can be filed 
by the Issuer; and
    (v) If the Issuer is not a Trust, requirements that each 
independent director/partner/member must be an individual that does not 
have a significant interest in, or other relationships with, the 
Sponsor or any of its Affiliates; and
    (b) The Pooling and Servicing Agreement and/or other agreements 
establishing the contractual relationships between the parties to the 
securitization transaction will contain covenants prohibiting all 
parties thereto from filing an involuntary bankruptcy petition against 
the Issuer or initiating any other form of insolvency proceeding until 
after the Securities have been paid; and
    (c) Prior to the issuance by the Issuer of any Securities, a legal 
opinion is received which states that either:
    (i) A ``true sale'' of the assets being transferred to the Issuer 
by the Sponsor has occurred and that such transfer is not being made 
pursuant to a financing of the assets by the Sponsor; or
    (ii) In the event of insolvency or receivership of the Sponsor, the 
assets transferred to the Issuer will not be part of the estate of the 
Sponsor;
    (9) If a particular class of Securities held by any plan involves a 
ratings dependent swap (the Ratings Dependent Swap) or a non-ratings 
dependent swap (the Non-Ratings Dependent Swap) entered into by the 
Issuer, then each particular swap transaction relating to such 
Security:
    (a) Shall be an eligible swap (the Eligible Swap);
    (b) Shall be with an eligible swap counterparty (the Eligible Swap 
Counterparty);
    (c) In the case of a Ratings Dependent Swap, shall provide that if 
the credit rating of the counterparty is withdrawn or reduced by any 
Rating Agency below a level specified by the Rating Agency, the 
Servicer (as agent for the Trustee) shall, within the period specified 
under the Pooling and Servicing Agreement:
    (i) Obtain a replacement swap agreement with an Eligible Swap 
Counterparty which is acceptable to the Rating Agency and the terms of 
which are substantially the same as the current swap agreement (at 
which time the earlier swap agreement shall terminate); or
    (ii) Cause the swap counterparty to establish any collateralization 
or other arrangement satisfactory to the Rating Agency such that the 
then current rating by the Rating Agency of the particular class of 
Securities will not be withdrawn or reduced.
    In the event that the Servicer fails to meet its obligations under 
this subsection II.A.(9)(c), plan Securityholders will be notified in 
the immediately following Trustee's periodic report which is provided 
to Securityholders, and sixty days after the receipt of such report, 
the exemptive relief provided under section I.C. will prospectively 
cease to be applicable to any class of Securities held by a plan which 
involves such Ratings Dependent Swap; provided that in no event will 
such plan Securityholders be notified any later than the end of the 
second month that begins after the date on which such failure occurs.
    (d) In the case of a Non-Ratings Dependent Swap, shall provide 
that, if the credit rating of the counterparty is withdrawn or reduced 
below the lowest level specified in Section III.GG., the Servicer (as 
agent for the Trustee) shall within a specified period after such 
rating withdrawal or reduction:

[[Page 7631]]

    (i) Obtain a replacement swap agreement with an Eligible Swap 
Counterparty, the terms of which are substantially the same as the 
current swap agreement (at which time the earlier swap agreement shall 
terminate); or
    (ii) Cause the swap counterparty to post collateral with the 
Trustee in an amount equal to all payments owed by the counterparty if 
the swap transaction were terminated; or
    (iii) Terminate the swap agreement in accordance with its terms; 
and
    (e) Shall not require the Issuer to make any termination payments 
to the counterparty (other than a currently scheduled payment under the 
swap agreement) except from excess spread (the Excess Spread) or other 
amounts that would otherwise be payable to the Servicer or the Sponsor;
    (10) Any class of Securities, to which one or more swap agreements 
entered into by the Issuer applies, may be acquired or held in reliance 
upon the underwriter exemptions (the Underwriter Exemptions) only by 
qualified plan investors (Qualified Plan Investors); and
    (11) Prior to the issuance of any debt securities, a legal opinion 
is received which states that the debt holders have a perfected 
security interest in the Issuer's assets.
    B. Neither any Underwriter, Sponsor, Trustee, Servicer, Insurer, 
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 Securities, shall be denied the relief 
provided under Section I., if the provision in subsection II.A.(6) is 
not satisfied with respect to acquisition or holding by a plan of such 
Securities, provided that (1) such condition is disclosed in the 
prospectus or private placement memorandum; and (2) in the case of a 
private placement of Securities, the Trustee obtains a representation 
of each initial purchaser which is a plan that it is in compliance with 
such condition, and obtains a covenant from each initial purchaser to 
the effect that, so long as such initial purchaser (or any transferee 
of such initial purchaser's Securities) is required to obtain from its 
transferee a representation regarding compliance with the Securities 
Act of 1933, any such transferees will be required to make a written 
representation regarding compliance with the condition set forth in 
Section II.A.(6).

Section III. Definitions

    For purposes of this exemption:
    A. ``Security'' means:
    (1) A pass-through certificate or trust certificate that represents 
a beneficial ownership interest in the assets of an Issuer which is a 
Trust and which entitles the holder to payments of principal, interest 
and/or other payments made with respect to the assets of such Trust; or
    A security which is denominated as a debt instrument that is issued 
by, and is an obligation of, an Issuer; with respect to which the 
Underwriter is either (i) the sole underwriter or the manager or co-
manager of the underwriting syndicate, or (ii) a selling or placement 
agent; or
    (2) A Certificate denominated as a debt instrument that represents 
an interest in either a Real Estate Mortgage Investment Conduit (REMIC) 
or a Financial Asset Securitization Investment Trust (FASIT) within the 
meaning of the section 860D(a) or section 860L of the Internal Revenue 
Code; and that is issued by and is an obligation of a Trust, with 
respect to Certificates defined in Section III.A. (1) and (2) above, 
for which the Underwriter is either (i) the sole Underwriter or the 
manager or co-manager of the Underwriting syndicate, or (ii) a selling 
or placement agent.
    For purposes of this exemption, references to ``Certificates 
representing an interest in a Trust'' include Certificates denominated 
as debt, which are issued by a Trust.
    B. ``Issuer'' means an investment pool, the corpus or assets of 
which are held in trust (including a grantor or owner Trust) or whose 
assets are held by a partnership, special purpose corporation or 
limited liability company (which Issuer may be a Real Estate Mortgage 
Investment Conduit (REMIC) or a Financial Asset Securitization 
Investment Trust (FASIT) within the meaning of section 860D(a) or 
section 860L, respectively, of the Code); and the corpus or assets of 
which consists solely of:
    (1)(a) Secured consumer receivables that bear interest or are 
purchased at a discount (including, but not limited to, home equity 
loans and obligations secured by shares issued by a cooperative housing 
association); and/or
    (b) Secured credit instruments that bear interest or are purchased 
at a discount in transactions by or between business entities 
(including, but not limited to, qualified equipment notes secured by 
leases (Qualified Equipment Notes Secured by Leases)); and/or
    (c) Obligations that bear interest or are purchased at a discount 
and which are secured by single-family residential and commercial real 
property (including obligations secured by leasehold interest on 
residential or commercial real property); and/or
    (d) Obligations that bear interest or are purchased at a discount 
and which are secured by motor vehicles or equipment, or qualified 
motor vehicle leases (Qualified Motor Vehicle Leases; and/or
    (e) Guaranteed governmental mortgage pool certificates, as defined 
in 29 CFR 2510.3-101(1)(2); \5\ and/or
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    \5\ In Advisory Opinion 99-05A (Feb. 22, 1999), the Department 
expressed its view that mortgage pool certificates guaranteed and 
issued by the Federal Agricultural Mortgage Corporation (Farmer Mac) 
meet the definition of a guaranteed governmental mortgage pool 
certificate as defined in 29 CFR 2510.3-101(i)(2).
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    (f) Fractional undivided interests in any of the obligations 
described in clauses (a)-(e) of this subsection B.(1); \6\
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    \6\ It is the Department's view that the definition of 
``Issuer'' contained in Section III.B. includes a two-tier structure 
under which Securities issued by the first Issuer, which contains a 
pool of receivables described above, are transferred to a second 
Issuer which issues Securities that are sold to plans. However, the 
Department is of the further view that, since the Underwriter 
Exemptions generally provide relief for the direct or indirect 
acquisition or disposition of Securities that are not subordinated, 
no relief would be available if the Securities held by the second 
Issuer were subordinated to the rights and interests evidenced by 
other Securities issued by the first Issuer, unless such Securities 
were issued in a Designated Transaction.
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    Notwithstanding the foregoing, residential and home equity loan 
receivables issued in Designated Transactions may be less than fully 
secured, provided that (i) the rights and interests evidenced by 
Securities issued in such Designated Transactions (as defined in 
Section III.DD.) are not subordinated to the rights and interests 
evidenced by Securities of the same Issuer; (ii) such Securities 
acquired by the plan have received a rating from a Rating Agency at the 
time of such acquisition that is in one of the two highest generic 
rating categories; and (iii) any obligation included in the corpus or 
assets of the Issuer must be secured by collateral whose fair market 
value on the Closing Date of the Designated Transaction is at least 
equal to 80% of the sum of: (I) the outstanding principal balance due 
under the obligation which is held by the Trust and (II) the 
outstanding principal balance(s) of any other obligation(s) of higher 
priority (whether or not held by the Issuer) which are secured by the 
same collateral.
    (2) Property which had secured any of the obligations described in 
subsection III.B.(1);
    (3)(a) Undistributed cash or temporary investments made therewith 
maturing no later than the next date on which distributions are to be 
made to Securityholders; and/or

[[Page 7632]]

    (b) Cash or investments made therewith which are credited to an 
account to provide payments to Securityholders pursuant to any eligible 
swap agreement (Eligible Swap Agreement) meeting the conditions of 
subsection II.A.(9) or pursuant to any eligible yield supplement 
agreement (Eligible Yield Supplement Agreement), and/or
    (c) Cash transferred to the Issuer on the Closing Date and 
permitted investments made therewith which:
    (i) Are credited to a Pre-Funding Account established to purchase 
additional obligations with respect to which the conditions set forth 
in paragraph (a)-(g) of subsection II.A.(7) are met; and/or
    (ii) Are credited to a capitalized interest account (the 
Capitalized Interest Account); and
    (iii) Are held by the Issuer for a period ending no later than the 
first distribution date to Securityholders occurring after the end of 
the Pre-Funding Period.
    For purposes of this clause (c) of subsection III.B.(3), the term 
``permitted investments'' means investments which: (i) are either (x) 
direct obligations of, or obligations fully guaranteed as to timely 
payment of principal and interest by, the United States or any agency 
or instrumentality thereof, provided that such obligations are backed 
by the full faith and credit of the United States, or (y) have been 
rated (or the Obligor has been rated) in one of the three highest 
generic rating categories by a Rating Agency; (ii) are described in the 
Pooling and Servicing Agreement; and are permitted by the Rating 
Agency.
    (4) Rights of the Trustee under the Pooling and Servicing 
Agreement, and rights under any insurance policies, third-party 
guarantees, contracts of suretyship, Eligible Yield Supplement 
Agreements, Eligible Swap Agreements meeting the conditions of 
subsection II.A.(9) or other credit support arrangements with respect 
to any obligations described in section III.B.(1).
    Notwithstanding the foregoing, the term ``Issuer'' does not include 
any investment pool unless: (i) The investment pool consists only of 
assets of the type described in paragraph (a)-(f) of subsection 
III.B.(1) which have been included in other investment pools, (ii) 
Securities evidencing interests in such other investment pools have 
been rated in one of the three (or in the case of Designated 
Transactions, four) highest generic rating categories by a Rating 
Agency for at least one year prior to the plan's acquisition of 
Securities pursuant to this exemption, and (iii) Securities evidencing 
interests in such other investment pools have been purchased by 
investors other than plans for at least one year prior to the plan's 
acquisition of Securities pursuant to the Underwriter Exemptions.
    C. ``Underwriter'' means
    (1) Harris Nesbitt;
    (2) Any U.S.-domiciled person directly or indirectly, through one 
or more intermediaries, controlling, controlled by or under common 
control with such investment banking firm; and
    (3) Any member of an underwriting syndicate or selling group of 
which such firm or person described in subsections III.C.(1) or (2) 
above is a manager or co-manager with respect to the Securities.
    D. ``Sponsor'' means the entity that organizes as an Issuer by 
depositing obligations therein in exchange for Securities.
    E. ``Master Servicer'' means the entity that is a party to the 
Pooling and Servicing Agreement relating to assets of the Issuer and is 
fully responsible for servicing, directly or through Subservicers, the 
assets of the Issuer.
    F. ``Subservicer'' means an entity which, under the supervision of 
and on behalf of the Master Servicer, services loans contained in the 
Issuer, but is not a party to the Pooling and Servicing Agreement.
    G. ``Servicer'' means any entity which services loans contained in 
the Issuer, including the Master Servicer and any Subservicer.
    H. ``Trust'' means an Issuer, which is a trust (including an owner 
trust, grantor trust or a REMIC or FASIT which is organized as a 
Trust).
    I. ``Trustee'' means the Trustee of any Trust, which issues 
Securities, and in the case of Securities which are denominated as debt 
instruments, also means the Trustee of an indenture trust (the 
Indenture Trust). ``Indenture Trustee'' means the Trustee appointed 
under the indenture pursuant to which the subject Securities are 
issued, the rights of holders of the Securities are set forth and a 
security interest in the Trust assets in favor of the holders of the 
Securities is created. The Trustee or the Indenture Trustee is also a 
party to or beneficiary of all the documents and instruments 
transferred to the Trust, and as such, has both the authority to, and 
the responsibility for, enforcing all the rights created thereby in 
favor of holders of the Securities, including those rights arising in 
the event of default by the Servicer.
    J. ``Insurer'' means the insurer or guarantor of, or provider of 
other credit support for, an Issuer. Notwithstanding the foregoing, a 
person is not an Insurer solely because it holds Securities 
representing an interest in an Issuer, which are of a class 
subordinated to Securities representing an interest in the same Issuer.
    K. ``Obligor'' means any person, other than the Insurer, that is 
obligated to make payments with respect to any obligation or receivable 
included in the Trust. Where an Issuer contains Qualified Motor Vehicle 
Leases or Qualified Equipment Notes Secured by Leases, ``Obligor'' 
shall also include any owner of property subject to any lease included 
in the Issuer, or subject to any lease securing an obligation included 
in the Issuer.
    L. ``Excluded Plan'' means any plan with respect to which any 
member of the Restricted Group is a ``plan sponsor'' within the meaning 
of Section 3(16)(B) of the Act.
    M. ``Restricted Group'' with respect to a class of Securities 
means:
    (1) Each Underwriter;
    (2) Each Insurer;
    (3) The Sponsor;
    (4) The Trustee;
    (5) Each Servicer;
    (6) Any Obligor with respect to obligations or receivables included 
in the Issuer constituting more than 5 percent of the aggregate 
unamortized principal balance of the assets in the Issuer, determined 
on the date of the initial issuance of Securities by the Issuer; or
    (7) Each counterparty in an Eligible Swap Agreement;
    (8) Any Affiliate of a person described in III.M. (1)-(7) above.
    N. ``Affiliate'' of another person includes:
    (1) Any person, directly or indirectly, through one or more 
intermediaries, controlling, controlled by or under common control with 
such other person;
    (2) Any officer, director, partner, employee, relative (as defined 
in section 3(15) of the Act), a brother, a sister, or a spouse of a 
brother or sister of such other person; and
    (3) Any corporation or partnership of which such other person is an 
officer, director or partner.
    O. ``Control'' means the power to exercise a controlling influence 
over the management or policies of a person other than an individual.
    P. A person will be ``independent'' of another person only if:
    (1) Such person is not an Affiliate of that other person; and
    (2) The other person, or an Affiliate thereof, is not a fiduciary 
who has investment management authority or renders investment advice 
with respect to assets of such person.
    Q. ``Sale'' includes the entrance into a forward delivery 
commitment

[[Page 7633]]

(Forward Delivery Commitment), provided:
    (1) The terms of the Forward Delivery Commitment (including any fee 
paid to the investing plan) are no less favorable to the plan than they 
would be in an arm's length transaction with an unrelated party;
    (2) The prospectus or private placement memorandum is provided to 
an investing plan prior to the time the plan enters into the Forward 
Delivery Commitment; and
    (3) At the time of the delivery, all conditions of this exemption 
applicable to sales are met.
    R. ``Forward Delivery Commitment'' means a contact for the purchase 
or sale of one or more Securities to be delivered at an agreed future 
settlement date. The term includes both mandatory contracts (which 
contemplate obligatory delivery and acceptance of the Securities) and 
optional contracts (which give one party the right but not the 
obligation to deliver Securities to, or demand delivery of Securities 
from, the other party).
    S. ``Reasonable Compensation'' has the same meaning as that term is 
defined in 29 CFR 2550.408c-2.
    T. ``Qualified Administrative Fee'' means a fee which meets the 
following criteria:
    (1) The fee is triggered by an act or failure to act by the Obligor 
other than the normal timely payment of amounts owing in respect of the 
obligations;
    (2) The Servicer may not charge the fee absent the act or failure 
to act referred to in subsection III.T.(1);
    (3) The ability to charge the fee, the circumstances in which the 
fee may be charged, and an explanation of how the fee is calculated are 
set forth in the Pooling and Servicing Agreement; and
    (4) The amount paid to investors in the Issuer will not be reduced 
by the amount of any such fee waived by the Servicer.
    U. ``Qualified Equipment Note Secured By a Lease'' means an 
equipment note:
    (1) Which is secured by equipment which is leased;
    (2) Which is secured by the obligation of the lessee to pay rent 
under the equipment lease; and
    (3) With respect to which the Issuer's security interest in the 
equipment is at least as protective of the rights of the Issuer as 
would be the case if the equipment note were secured only by the 
equipment and not the lease.
    V. ``Qualified Motor Vehicle Lease'' means a lease of a motor 
vehicle where:
    (1) The Issuer owns or holds a security interest in the lease;
    (2) The Issuer owns or holds a security interest in the leased 
motor vehicle; and
    (3) The Issuer's interest in the leased motor vehicle is at least 
as protective of the Issuer's rights as the Issuer would receive under 
a motor vehicle installment loan contract.
    W. ``Pooling and Servicing Agreement'' means the agreement or 
agreements among a Sponsor, a Servicer and the Trustee establishing a 
Trust. In the case of Securities which are denominated as debt 
instruments, ``Pooling and Servicing Agreement'' also includes the 
indenture entered into by the Issuer and the Indenture Trustee.
    X. ``Rating Agency'' means Standard & Poor's Ratings Services, a 
division of The McGraw-Hill Companies, Inc., Moody's Investors Service, 
Inc., Fitch, Inc. or any successors thereto.
    Y. ``Capitalized Interest Account'' means an Issuer account:
    (i) which is established to compensate Securityholders for 
shortfalls, if any, between investment earnings on the Pre-Funding 
Account and the pass-through rate payable under the Securities; and 
(ii) which meets the requirements of clause (c) of subsection 
III.B.(3).
    Z. ``Closing Date'' means the date the Issuer is formed, the 
Securities are first issued and the Issue's assets (other than those 
additional obligations which are to be funded from the Pre-Funding 
Account pursuant to subsection II.A.(7)) are transferred to the Issuer.
    AA. ``Pre-Funding Account'' means an Issuer account: (i) which is 
established to purchase additional obligations, which obligations meet 
the conditions set forth in clauses (a)-(g) of subsection II.A.(7); and 
(ii) which meets the requirements of clause (c) of subsection 
III.B.(3).
    BB. ``Pre-Funding Limit'' means a percentage or ratio of the amount 
allocated to the Pre-Funding Account, as compared to the total 
principal amount of the Securities being offered which is less than or 
equal to 25 percent.
    CC. ``Pre-Funding Period'' means the period commencing on the 
Closing Date and ending no later than the earliest to occur of: (i) the 
date the amount on deposit in the Pre-Funding Account is less than the 
minimum dollar amount specified in the Pooling and Servicing Agreement; 
(ii) the date on which an event of default occurs under the Pooling and 
Servicing Agreement; or (iii) the date which is the later of three 
months or 90 days after the Closing Date.
    DD. ``Designated Transaction'' means a securitization transaction 
in which the assets of the Issuer consist of secured consumer 
receivables, secured credit instruments or secured obligations that 
bear interest or are purchased at a discount and are: (i) Motor 
vehicle, home equity and/or manufactured housing consumer receivables; 
and/or (ii) motor vehicle credit instruments in transactions by or 
between business entities; and/or (iii) single-family residential, 
multi-family residential, home equity, manufactured housing and/or 
commercial mortgage obligations that are secured by single-family 
residential, multi-family residential, commercial real property or 
leasehold interests therein. For purposes of this Section III.DD., the 
collateral securing motor vehicle consumer receivables or motor vehicle 
credit instruments may include motor vehicles and/or Qualified Motor 
Vehicle Leases.
    EE. ``Ratings Dependent Swap'' means an interest rate swap, or (if 
purchased by or on behalf of the Issuer) an interest rate cap contract, 
that is part of the structure of a class of Securities where the rating 
assigned by the Rating Agency to any class of Securities held by any 
plan is dependent on the terms and conditions of the swap and the 
rating of the counterparty, and if such Securities rating is not 
dependent on the existence of the swap and rating of the counterparty, 
such swap or cap shall be referred to as a ``Non-Ratings Dependent 
Swap.'' With respect to a Non-Ratings Dependent Swap, each Rating 
Agency rating the Securities must confirm, as of the date of issuance 
of the Securities by the Issuer that entering into an Eligible Swap 
with such counterparty will not affect the rating of the Securities.
    FF. ``Eligible Swap'' means a Ratings Dependent or Non-Ratings 
Dependent Swap:
    (1) Which is denominated in U.S. dollars;
    (2) Pursuant to which the Issuer pays or receives, on or 
immediately prior to the respective payment or distribution date for 
the class of Securities to which the swap relates, a fixed rate of 
interest, or a floating rate of interest based on a publicly available 
index (e.g., LIBOR or the U.S. Federal Reserve's Cost of Funds Index 
(COFI)), with the Issuer receiving such payments on at least a 
quarterly basis and obligated to make separate payments no more 
frequently than the counterparty, with all simultaneous payments being 
netted;
    (3) Which has a notional amount that does not exceed either: (i) 
The principal balance of the class of Securities to which the swap 
relates, or (ii) the portion of the principal balance of such class 
represented solely by those types of corpus or assets of the Issuer 
referred to in subsections III.B.(1), (2) and (3);

[[Page 7634]]

    (4) Which is not leveraged (i.e., payments are based on the 
applicable notional amount, the day count fractions, the fixed or 
floating rates designated in subsection III.FF.(2), and the difference 
between the products thereof, calculated on a one to one ratio and not 
on a multiplier of such difference);
    (5) Which has a final termination date that is either the earlier 
of the date on which the Issuer terminates or the related class of 
Securities is fully repaid; and
    (6) Which does not incorporate any provision which could cause a 
unilateral alteration in any provision described in subsections 
III.FF.(1) through (4) without the consent of the Trustee.
    GG. ``Eligible Swap Counterparty'' means a bank or other financial 
institution which has a rating, at the date of issuance of the 
Securities by the Issuer, which is in one of the three highest long-
term credit rating categories, or one of the two highest short-term 
credit rating categories, utilized by at least one of the Rating 
Agencies rating the Securities; provided that, if a swap counterparty 
is relying on its short-term rating to establish eligibility under the 
Underwriter Exemptions, such swap counterparty must either have a long-
term rating in one of the three highest long-term rating categories or 
not have a long-term rating from the applicable Rating Agency, and 
provided further that if the class of Securities with which the swap is 
associated has a final maturity date of more than one year from the 
date of issuance of the Securities, and such swap is a Ratings 
Dependent Swap, the swap counterparty is required by the terms of the 
swap agreement to establish any collateralization or other arrangement 
satisfactory to the Rating Agencies in the event of a ratings downgrade 
of the swap counterparty.
    HH. ``Qualified Plan Investor'' means a plan investor or group of 
plan investors on whose behalf the decision to purchase Securities is 
made by an appropriate independent fiduciary that is qualified to 
analyze and understand the terms and conditions of any swap transaction 
used by the Issuer and the effect such swap would have upon the credit 
ratings of the Securities. For purposes of the Underwriter Exemptions, 
such a fiduciary is either:
    (1) A ``qualified professional asset manager'' (QPAM),\7\ as 
defined under Part V(a) of PTE 84-14, 49 FR 9494, 9506 (March 13, 
1984);
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    \7\ 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 $85 million) are 
considered to be experienced investment managers for plan investors 
that are aware of their fiduciary duties under ERISA.
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    (2) An ``in-house asset manager'' (INHAM),\8\ as defined under Part 
IV(a) of PTE 96-23, 61 FR 15975, 15982 (April 10, 1996); or
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    \8\ 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.
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    (3) A plan fiduciary with total assets under management of at least 
$100 million at the time of the acquisition of such Securities.
    II. ``Excess Spread'' means, as of any day funds are distributed 
from the Issuer, the amount by which the interest allocated to 
Securities exceeds the amount necessary to pay interest to 
Securityholders, servicing fees and expenses.
    JJ. ``Eligible Yield Supplement Agreement'' means any yield 
supplement agreement, similar yield maintenance arrangement or, if 
purchased by or on behalf of the Issuer, an interest rate cap contract 
to supplement the interest rates otherwise payable on obligations 
described in subsection III.B.(1). Such an agreement or arrangement may 
involve a notional principal contract provided that:
    (1) It is denominated in U.S. dollars;
    (2) The Issuer receives on, or immediately prior to the respective 
payment date for the Securities covered by such agreement or 
arrangement, a fixed rate of interest or a floating rate of interest 
based on a publicly available index (e.g., LIBOR or COFI), with the 
Issuer receiving such payments on at least a quarterly basis;
    (3) It is not ``leveraged'' as described in subsection III.FF.(4);
    (4) It does not incorporate any provision which would cause a 
unilateral alteration in any provision described in subsections 
III.JJ.(1)-(3) without the consent of the Trustee;
    (5) It is entered into by the Issuer with an Eligible Swap 
Counterparty; and
    (6) It has a notional amount that does not exceed either: (i) the 
principal balance of the class of Securities to which such agreement or 
arrangement relates, or (ii) the portion of the principal balance of 
such class represented solely by those types of corpus or assets of the 
Issuer referred to in subsections III.B.(1), (2) and (3).
    Effective Date: If granted, this proposed exemption will be 
effective for all transactions described herein which occurred on or 
after October 15, 2004.

Summary of Facts and Representations

    1. Harris Nesbitt (or the Applicant), a Delaware corporation, is an 
indirect, wholly owned subsidiary of the Bank of Montreal. Harris 
Nesbitt maintains its principal office at 3 Times Square, New York, New 
York and it also maintains branch sales offices in seven states. Harris 
Nesbitt is a registered broker-dealer, a registered investment adviser, 
and a member of the New York Stock Exchange, the National Association 
of Securities Dealers, Inc., and other major securities exchanges, as 
well as the Securities Investor Protection Corporation.
    Harris Nesbitt engages in the purchase and sale of securities for 
the account of its customers which include individual and institutional 
accounts. Harris Nesbitt also purchases and sells securities for its 
own proprietary trading accounts and for the accounts of its 
Affiliates. Harris Nesbitt engages in trading mortgage-related and 
other securities, including pass-through certificates issued by GNMA, 
FNMA and FHLMC, callable agency debt, and collateralized mortgage 
obligations for the account of its customers and for its own accounts.

Issuer Assets

    2. Harris Nesbitt seeks exemptive relief to permit employee benefit 
plans to invest in pass-through securities representing undivided 
interests in the following categories of investments, which are held by 
an Issuer: \9\ (a) Single and multi-family residential or commercial 
mortgages; (b) motor vehicle receivables; (c) consumer or commercial 
receivables; and (d) guaranteed governmental mortgage pool 
certificates.\10\
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    \9\ An issuer is an investment pool, the corpus or assets of 
which are held in trust or whose assets are held by a partnership, 
special purpose corporation or limited liability company.
    \10\ Guaranteed governmental mortgage pool certificates are 
mortgage-backed securities with respect to which interest and 
principal payable is guaranteed by the Government National Mortgage 
Association (GNMA), the Federal Home Loan Mortgage Corporation 
(FHLMC), or the Federal National Mortgage Association (FNMA). The 
Department's regulation relating to the definition of plan assets 
(29 CFR 2510.3-101(i)) provides that where a plan acquires a 
guaranteed governmental mortgage pool certificate, the plan's assets 
include the certificate and all of its rights with respect to such 
certificate under applicable law, but do not, solely by reason of 
the plan's holding of such certificate, include any of the mortgages 
underlying such certificate. The Applicant is requesting exemptive 
relief for trusts containing guaranteed governmental mortgage pool 
certificates because the certificates in such trusts may be plan 
assets.

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[[Page 7635]]

    Commercial mortgage investment trusts may include mortgages on 
ground leases of real property. Commercial mortgages are frequently 
secured by ground leases on the underlying property, rather than by fee 
simple interests. The separation of the fee simple interest and the 
ground lease interest is generally done for tax reasons. Properly 
structured, the pledge of the ground lease to secure a mortgage 
provides a lender with the same level of security as would be provided 
by a pledge of the related fee simple interest. The terms of the ground 
leases pledged to secure leasehold mortgages will in all cases be at 
least ten years longer than the terms of such mortgages.\11\
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    \11\ Trust assets may also include obligations that are secured 
by leasehold interests on residential real property. But see PTE 90-
32 involving Prudential-Bache Securities, Inc., 55 FR 23147, 23150 
(June 6, 1990). The Department received one comment from an 
affiliate of the applicant with respect to the notice of proposed 
exemption for PTE 90-32. The comment requested clarification that 
the definition of trust in section III.B. would include trusts 
containing certain obligations secured by leasehold interests on 
residential real property (Residential Leasehold Mortgages or RLMs). 
The comment noted that RLMs are originated in jurisdictions such as 
Hawaii in which they are a ``necessary alternative to mortgages 
secured by fee simple interests'' and that these RLMs are ``in 
essence, the same as, and provide substantially the same degree of 
security to investors as, mortgages secured by fee simple 
interests.''
    The comment represented that both the Federal Home Loan Mortgage 
Corporation (Freddie Mac) and the Federal National Mortgage 
Association (Fannie Mae) have purchase programs for these RLMs and 
that such RLMs included in pools underlying mortgage pass-through 
certificates would ``generally conform'' with either Freddie Mac or 
Fannie Mae leasehold guidelines. In this regard, the term of the 
leasehold underlying such RLMs would extend for at least five years 
beyond the term of the RLM. The comment noted that the affiliate of 
the applicant would ``comply with the requirement under the Freddie 
Mac and Fannie Mae leasehold guidelines that such mortgages 
constitute obligations secured by real property or an interest in 
real estate.''
    In PTE 90-32, the Department concurred with the views expressed 
by the affiliate of the applicant that the definition of trust 
includes RLMs as described in the comment.
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    Residential and home equity loan receivables which are issued in 
certain Designated Transactions, may be less than fully secured, 
provided that: (a) The rights and interests evidenced by the Securities 
issued in such Designated Transactions are not subordinated to the 
rights and interests evidenced by the Securities of the same Issuer; 
(b) such Securities acquired by the plan have received a rating from a 
Rating Agency at the time of such acquisition that is in one of the two 
highest generic rating categories; and (c) any obligation included in 
the corpus or assets of the Issuer must be secured by collateral whose 
fair market value on the Closing Date of the Designated Transaction is 
at least equal to 80% of the sum of: (i) The outstanding principal 
balance due under the obligation which is held by the Issuer; and (ii) 
the outstanding principal balance(s) of any other obligation(s) of 
higher priority (whether or not held by the Issuer) which are secured 
by the same collateral. Securitization transactions in which the assets 
of the securitization vehicle reflect the following categories of 
receivables (all of which are also described in more detail below) are 
referred to herein as ``Designated Transactions': (a) Automobile and 
other motor vehicle loans, (b) residential and home equity loans (which 
may have HLTV ratios in excess of 100%), (c) manufactured housing loans 
and (d) commercial mortgages.

Issuer Structure

    3. Each Issuer is established under a Pooling and Servicing 
Agreement between a Sponsor, a Servicer and a Trustee. Prior to the 
Closing Date under the Pooling and Servicing Agreement, the Sponsor or 
Servicer of an Issuer establishes the trust, partnership, the special 
purpose corporation or limited liability company, designates an entity 
as Trustee, and, except to the extent a Pre-Funding Account, as 
described below, will be used, selects assets to be included in the 
Issuer. The assets are receivables, which may have been originated by a 
Sponsor or Servicer of an Issuer, an Affiliate of the Sponsor or 
Servicer, or by an unrelated lender and subsequently acquired by the 
Issuer, Sponsor or Servicer.\12\
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    \12\ It is the Applicant's understanding that the Department has 
indicated that the definition of the term ``trust'' includes rights 
under any yield supplement or similar arrangement which obligates 
the Sponsor or Master Servicer, or another party specified in the 
relevant Pooling and Servicing Agreement, to supplement the interest 
rates otherwise payable on the permissible obligations held in the 
trust, in accordance with the terms of a yield supplement 
arrangement described in the Pooling and Servicing Agreement, 
provided that such arrangements do not involve certain swap 
agreements or other notional principal contracts.
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    Typically, on or prior to the Closing Date, the Sponsor acquires 
legal title to all assets selected for the Issuer. In some cases, legal 
title to some or all of such assets continues to be held by the 
originator of the receivable until the Closing Date. On the Closing 
Date, the Sponsor and/or the originator of the receivables conveys to 
the Issuer legal title to the assets, and the Trustee issues Securities 
representing fractional undivided interests in the Issuer's assets. The 
Applicant, alone or together with other broker-dealers, acts as 
Underwriter or placement agent with respect to the sale of the 
Securities. The Applicant currently anticipates that the public 
offerings of Securities will be underwritten by it on a firm commitment 
basis. In addition, the Applicant anticipates that it may privately 
place Securities on both a firm commitment and an agency basis. The 
Applicant may also act as the lead or co-managing Underwriter for a 
syndicate of securities Underwriters.
    4. Securityholders will be entitled to receive distributions of 
principal and/or interest, or lease payments due on the receivables, 
adjusted, in the case of payments of interest, to a specified rate--the 
pass-through rate--which may be fixed or variable and paid monthly, 
quarterly, or semi-annually as specified in the related prospectus or 
private placement memorandum.
    When installments or payments are made on a semi-annual basis, 
funds are not permitted to be commingled with the Servicer's assets for 
longer than would be permitted for a monthly-pay security. A segregated 
account is established in the name of the Trustee (on behalf of 
Securityholders) to hold funds received between distribution dates. The 
account is under the sole control of the Trustee, who invests the 
account's assets in short-term securities, which have received a rating 
comparable to the rating assigned to the Securities. In some cases, the 
Servicer may be permitted to make a single deposit into the account 
once a month. When the Servicer makes such monthly deposits, payments 
received from Obligors by the Servicer may be commingled with the 
Servicer's assets during the month prior to deposit. Usually, the 
period of time between receipt of funds by the Servicer and deposit of 
these funds in a segregated account does not exceed one month. 
Furthermore, in those cases where distributions are made semiannually, 
the Servicer will furnish a report on the operation of the Trust to the 
Trustee on a monthly basis. At or about the time this report is 
delivered to the Trustee, it will be made available to Securityholders 
and delivered to or made available to each Rating Agency that has rated 
the Securities.
    A Trust may elect to be treated as a real estate mortgage 
investment conduit (REMIC) or a financial asset securitization 
investment trust (FASIT), or may be treated as a grantor trust or a 
partnership, for Federal income tax purposes.
    5. Some of the Securities will be multi-class Securities. Harris 
Nesbitt requests exemptive relief for two types

[[Page 7636]]

of multi-class Securities: ``strip'' Securities and ``senior/
subordinate'' (also sometimes referred to as ``fast pay/slow pay'') 
Securities. Strip Securities are a type of Security in which the stream 
of interest payments on receivables is split from the flow of principal 
payments and separate classes of Securities are established, each 
representing rights to disproportionate payments of principal and 
interest.\13\
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