Federal Register / Vol. 62, No. 244 / Friday, December 19, 1997 / Notices 66669

OK970017 (Feb. 14, 1997)

OK970018 (Feb. 14, 1997)

OK970028 (Feb. 14, 1997)

OK970030 (Feb. 14, 1997)

OK970031 (Feb. 14, 1997)

OK970032 (Feb. 14, 1997)

OK970034 (Feb. 14, 1997)

OK970035 (Feb. 14, 1997)

OK970036 (Feb. 14, 1997)

OK970037 (Feb. 14, 1997)

OK970038 (Feb. 14, 1997)

OK970043 (Feb. 14, 1997)

Volume VI

Colorado

CO970005 (Feb. 14, 1997)

Volume VII

Nevada

NV970001 (Feb. 14, 1997)

NV970003 (Feb. 14, 1997)

NV970004 (Feb. 14, 1997)

NV970005 (Feb. 14, 1997)

NV970007 (Feb. 14, 1997)

General wage determinations issued

under the Davis-Bacon and related Acts,

including those noted above, may be

found in the Government Printing Office

(GPO) document entitled ‘‘General Wage

Determinations Issued Under The DavisBacon and Related Acts’’. This

publication is available at each of the 50

Regional Government Depository

Libraries and many of the 1,400

Government Depository Libraries across

the country.

The general wage determinations

issued under the Davis-Bacon and

related Acts are available electronically

by subscription to the FedWorld

Bulletin Board System of the National

Technical Information Service (NTIS) of

the U.S. Department of Commerce at

(703) 487–4630.

Hard-copy subscriptions may be

purchased from: Superintendent of

Documents, U.S. Government Printing

Office, Washington, DC 20402, (202)

512–1800.

When ordering hard-copy

subscription(s), be sure to specify the

State(s) of interest, since subscriptions

may be ordered for any or all of the

seven separate volumes, arranged by

State. Subscriptions including an

annual edition (issued in January or

February) which includes all current

general wage determinations for the

States covered by each volume.

Throughout the remainder of the year,

regular weekly updates are distributed

to subscribers.

Signed at Washington, D.C. this 12th day

of December 1997.

Carl J. Poleskey,

Chief, Branch of Construction Wage

Determinations.

[FR Doc. 97–32873 Filed 12–18–97; 8:45 am]

BILLING CODE 4510–27–M

DEPARTMENT OF LABOR

Pension and Welfare Benefits

Administration

[Application No. D–10236, et al.]

Proposed Exemptions; Equitable Life

Assurance Society of the United States

AGENCY: Pension and Welfare Benefits

Administration, Labor.

ACTION: Notice of Proposed Exemptions.

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 request 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

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, N.W.,

Washington, D.C. 20210. Attention:

Application No. llll, 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, N.W.,

Washington, D.C. 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.

The Equitable Life Assurance Society of

the United States (Equitable) Located in

New York, New York; Proposed

Exemption

[Exemption Application No. D–10236]

The Department of Labor (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 32847, August 10, 1990). If the

exemption is granted, the restrictions of

sections 406(a), 406(b)(1) and (b)(2) of

the Act and the sanctions resulting from

the application of section 4975 of the

Code, by reason of section 4975(c)(1)(A)

through (E) of the Code shall not apply

to: (1) the leasing of 13,086 square feet

of office space and 6,650 square feet of

parking space by Equitable Real Estate

Investment Management, Inc. (ERE)

until June 30, 2002 (the Tower 1 Lease);

and (2) the leasing of 5,821 square feet

of office space and 3584 square feet of

parking space by ERE’s subsidiary,

Compass Management and Leasing, Inc.

(Compass) until August 31, 1999 (the

Tower 2 Leases), in office buildings

located in Orange County, California,

that will be held by the Equitable

Separate Account No. 8, also known as

the Prime Property Fund (the PPF) and

to the 1996 renewal of the original

leases provided the following

conditions are satisfied: (a) the renewal
66670 Federal Register / Vol. 62, No. 244 / Friday, December 19, 1997 / Notices

1The Applicant represents that Brin-Mar is a real

estate operating company (REOC) within the

meaning of the Department’s ‘‘plan asset’’

regulation 20 CFR 2510.3–101(e) and that the assets

of the partnership are not plan assets for purposes

of the prohibited transaction provisions of the Act

and the Code. Further, as an entity predating the

plan asset regulation, Brin-Mar achieved REOC

status as of January 1, 1987. The Department

expresses no opinion herein as to whether Brin-Mar

is a REOC or whether the partnership’s assets

constitute plan assets.

2At the time of the transaction, Banque Paribas

was unrelated to Equitable. As a result of a change

in Equitable’s structure in 1992, Banque Paribas is

now related to Equitable but with respect to Plans

invested in PPF, it is not a party in interest as

defined under section 3(14) of the Act by virtue of

any relationship to Equitable. Specifically, AXA

Mutual Companies currently holds a 62.1 percent

interest in Finaxa, an entity in which Banque

Paribas holds a 26.5 percent interest. Finaxa owns

60 percent of Midi-Participations, which in turn

owns 42.3 percent of AXA SA. AXA SA owns 60.46

percent of Equitable Companies, Inc., which in turn

holds 100 percent ownership of Equitable.

Equitable represents that Banque Paribas would be

deemed to have, at most, a 4 percent interest in

Equitable and that this de minimis interest in no

way affected the terms of any of the transactions

described in the Equitable application.

of the leases and the terms of the leases

were reviewed, negotiated and approved

by a qualified independent fiduciary to

PPF; (b) the qualified independent

fiduciary determined that the terms of

the transactions reflect fair market value

and are at least as favorable to PPF as

the terms would have been in arm’s

length transactions between unrelated

parties; and (c) the independent

fiduciary will continue to monitor the

leases on behalf of the PPF.

EFFECTIVE DATE OF EXEMPTION: This

exemption, if granted, will have an

effective date of March 15, 1996. This

exemption would expire for the Tower

2 Leases, on August 31, 1999 and for the

Tower 1 Lease, on June 30, 2002.

Summary of Facts and Representations

1. Equitable (the Applicant) is a life

insurance company organized under the

laws of the State of New York and

subject to supervision and examination

by the Superintendent of Insurance of

the State of New York. Equitable is one

of the largest insurance companies in

the United States. Among the variety of

insurance products and services it

offers, Equitable provides funding, asset

management and other services for

several thousand employee benefit

plans subject to the provisions of Title

I of ERISA.

Equitable maintains several pooled

separate accounts (including PPF) in

which pension, profit-sharing, and thrift

plans participate. Equitable also has

several single customer separate

accounts and investment management

accounts pursuant to which Equitable

manages all or a portion of the assets of

a number of large plans.

2. The Applicant represents that PPF

is an insurance company separate

account as defined in section 3(17) of

the Act. PPF was established on August

20, 1973. Equitable maintains PPF for

the investment of corporate qualified

and governmental pension plan assets

in real estate and real estate related

investments. As of December 31, 1995,

PPF held 171 investments in whollyowned properties or equity interests in

real estate partnerships with an

aggregate net value of $3.1 billion. In

addition, as of December 31, 1995, PPF

had eight investments in mortgage loans

with an aggregate value of $311 million,

or 9.2 percent of PPF’s total net asset

value. PPF’s portfolio is diversified by

property type and by geographic region.

As of December 31, 1995,

approximately 206 plans participated in

PPF (collectively, the Plans). No plan

holds more than a 20 percent interest in

PPF. The Equitable Retirement Plan for

Employees, Managers and Agents (the

Plan), a defined benefit plan,

participates in PPF. As of December 31,

1995, 2.2 percent of the fair market

value of the assets of PPF were

represented by the Plan’s investment,

and the Plan had invested 4.36 percent

of its assets in PPF.

3. ERE provides real estate investment

advisory services to Equitable and,

through its Compass and Compass

Retail, Inc. subsidiaries, property

management services with respect to

certain properties held by Equitable

accounts. ERE provides real estate

investment advisory services with

respect to the real property assets of PPF

and the Compass companies manage

numerous PPF properties.

The Applicant provides that until

1997, ERE was an indirect whollyowned subsidiary of Equitable. All of

the outstanding stock of ERE was held

by Equitable Holding Corporation

(EHC), a Delaware corporation whollyowned by Equitable. However, Equitable

has entered into a purchase agreement

dated April 19, 1997 whereby EHC

transferred all of its interests in ERE to

Neptune Real Estate, Inc., a Delaware

corporation wholly-owned by Lend

Lease Corporation, an Australian

corporation. As a result, ERE is no

longer an affiliate of Equitable as of the

sale closing date on June 10, 1997.

However, the Applicant represents that

the responsibilities of ERE with respect

to Equitable’s accounts remain

substantially unchanged and that the

exemptive relief requested is still

required because ERE will continue to

be a fiduciary of PPF.

Equitable and ERE have substantial

experience in managing real estate

investments. Of the more than $69

billion in total assets held by Equitable

at year-end 1995, Equitable’s general

account held $6.5 billion in real estate

mortgage loans and approximately $5.3

billion in equity investments in real

property and interests in real estate joint

ventures. Additionally, more than $11

billion of real property investments

were held in Equitable’s real estate

separate accounts.

4. Equitable represents that the first of

the transactions subject to this proposed

exemption originated in 1985, when

Equitable, on behalf of PPF, entered into

a joint venture agreement with

Brinderson Towers I (Brinderson), for

the purpose of developing a parcel of

real estate in Orange County, California.

PPF provided construction financing

and Brinderson, an entity unrelated to

Equitable, was the developer and

managing partner of the joint venture,

Brin-Mar I, L.P., succeeded by Brin-Mar

II, L.P. on December 24, 1991 (BrinMar).1 One of the two buildings in the

Newport Gateway complex in Orange

County was completed in 1987 and is a

14 story office tower with a total of

286,132 square feet of rentable space

(Tower 1). On August 24, 1988, after

completion of Tower 1, Banque Paribas 2

provided permanent financing to fully

repay the PPF construction loan for

approximately $64 million.

In July, 1987, Brin-Mar leased office

space in Tower 1 to ERE as its regional

headquarters. The terms of the 10 year

lease were negotiated between ERE and

Brinderson, acting as managing partner

on behalf of Brin-Mar, and reviewed by

Cushman and Wakefield, to assure that

the terms reflected then-market rates.

The lease commenced on July 1, 1987

and terminated on June 30, 1997 and

includes subleases by ERE for additional

space. The Tower 1 Lease now covers a

total of 13,086 square feet of office space

at a monthly rental rate of $1.88 per

square feet. The Applicant represents

that the original ERE lease did not

constitute a prohibited transaction

because of Brin-Mar’s status as a REOC.

5. The Applicant provides that the

second transaction subject to the

proposed exemption arose out of the

development of a building adjacent to

Tower 1 (Tower 2). On October 18,

1988, Equitable (on behalf of PPF) and

Brinderson began development of

Tower 2 under a second amendment to

the Brin-Mar joint venture agreement.

PPF provided the joint venture with

construction financing in the amount of

$61 million. However, deterioration of

the rental market in Orange County led

the parties to restructure ownership of

Towers 1 and 2 on December 24, 1991.
Federal Register / Vol. 62, No. 244 / Friday, December 19, 1997 / Notices 66671

3The Applicant represents that Equitable is a

QPAM as that term is defined in PTE 84–14. The

Department expresses no opinion herein as to

whether Equitable is a QPAM or whether the

original Tower 2 Leases complied with the

requirements of Part III of PTE 84–14.

Equitable, on behalf of PPF, foreclosed

on Tower 2 and took title to Tower 2 in

fee simple absolute. As a result, PPF

holds 100 percent of the ownership

interest in Tower 2. With the

improvement of the economy in Orange

County, Tower 2 is now 98 percent

leased, and is valued at approximately

$38.5 million.

In 1992, Compass began leasing office

space in Tower 2. The applicant states

that the total square footage now

occupied by Compass through the

Tower 2 Leases is 5821 square feet of

office space (including 1,500 square feet

of space used as the Compass property

management office) and 3584 square

feet of parking space. The applicant

represents that the original Tower 2

Leases complied with the requirements

of Part III of PTE 84–14 which permits

a qualified professional asset manager

(QPAM) to lease not in excess of the

greater of 7500 square feet or 1 percent

of the rentable space of the office

building in which the investment fund

managed by the QPAM (or an affiliate)

has the investment.3

Furthermore, the Applicant represents

that in 1992, when the original Tower

2 Leases were entered, PPF had two

different investments in the two

buildings. First, PPF, through Equitable,

owned 100 percent of Tower 2. Second,

PPF held a limited partnership interest

in Brin-Mar II, L.P., the successor to

Brin-Mar the original joint venture, and

the owner of Tower 1. The Applicant

states that because of this difference in

ownership, the leased spaces in Tower

1 and Tower 2 were treated separately

for the purposes of determining

compliance with the space limitations

in Part III of PTE 84–14. The original

Tower 2 Leases expired but continued

on a month-to-month basis while the

parties negotiated new lease terms.

6. Compass manages Towers 1 and 2

pursuant to PTE 91–8, granted to

Equitable by the Department on January

14, 1991 (56 Fed. Reg. 1411). PTE 91–

8 permits the provision of property

management, leasing and other services

by Equitable affiliates with respect to

properties held by Equitable separate

accounts in which plans invest. Such

provision of services is fully disclosed

to plans participating in the separate

accounts and is approved by plan

fiduciaries independent of Equitable.

Management fees and leasing

commissions payable to Compass are

also reviewed and approved by an

independent fiduciary and may not

exceed those fees charged by

comparable firms for similar services.

The applicant states that, aside from the

lease agreements provided to the

Department and described in the

exemption application and the

Independent Fiduciary’s reports, and

the property management agreement

discussed above, there are no other

separate agreements between the parties

governing the leased properties.

7. The Applicant represents that with

respect to Tower 1, Banque Paribas

insisted on the December 24, 1991

restructuring of Brin-Mar so that

Equitable, on behalf of PPF, would

obtain a 70 percent partnership interest.

As a result, Equitable became the

managing partner of Brin-Mar. On

September 1, 1995, Banque Paribas sold

the note on Tower 1 to Equitable, on

PPF’s behalf, for $38.5 million.

Equitable had first offered the

opportunity to purchase the note to

Brin-Mar but Brinderson refused. Thus,

as of September 1, 1995, PPF held a 70

percent interest in the Brin-Mar

partnership owning Tower 1, as well as

a $65 million (par value) note secured

by Tower 1 which was, at that time,

technically in default. Equitable

determined that it would be in PPF’s

best interests to foreclose on Tower 1

because the Brin-Mar partnership had

negative equity in Tower 1 (the building

was worth $41 million but was subject

to a $65 million mortgage). In

Equitable’s view, any actions taken to

revive the partnership would only have

the net effect of providing an additional

return to Brinderson without any

additional benefit to PPF. The

foreclosure would result in the

termination of the Brin-Mar partnership

and consolidation of ownership in PPF.

It would also clear title to Tower 1

because the outstanding note

encumbered title to Tower 1.

8. The applicant states that on March

15, 1996, Equitable, on behalf of PPF,

foreclosed on the note secured by Tower

1. As a result, Tower 1 is now held 100

percent by PPF. Equitable states that the

most immediate effect of a Tower 1

foreclosure was to terminate the status

of Brin-Mar as a REOC because the

foreclosure eliminated all of Brin-Mar’s

interest in Tower 1. A 100 percent

ownership interest in Tower 1 was

vested directly in Equitable, on behalf of

PPF. The continuing Towers 1 and 2

Lease arrangements involving ERE and

Compass were then subject to the

restrictions of sections 406(a), 406(b)(1)

and (b)(2) of the Act and the sanctions

of section 4975 of the Code.

Regulation 29 CFR 2510.3–101(h)(iii)

provides that, notwithstanding any

other provision of the plan asset

regulation, assets held in an insurance

company separate account (such as PPF)

in which plans invest constitute plan

assets. Tower 1 became a plan asset

upon foreclosure and the Tower 1 Lease

to ERE then constituted a lease between

a plan and a party in interest prohibited

by section 406(a)(1)(A) of the Act.

Furthermore, because ERE is a fiduciary

with respect to PPF and an affiliate of

Equitable, the Tower 1 Lease may be a

violation of sections 406(b)(1) and (b)(2).

Thus, March 15, 1996 is the requested

effective date of this proposed

exemption for the Tower 1 Lease.

9. The Tower 2 Leases with Compass,

an affiliate of ERE, were also affected by

the foreclosure on Tower 1. Tower 1 and

Tower 2 are now both owned by PPF.

The Applicant represents that, while

before the foreclosure it had relied upon

Part III(a) of PTE 84–14 for relief from

the lease of Tower 2 to Compass,

following foreclosure the aggregate

space leased by ERE and Compass in

both Towers 1 and 2 exceeded the

limitations in Part III of PTE 84–14. The

Applicant interprets Part III(a) of PTE

84–14 to provide that the amount of

leased space in different buildings in an

integrated office park or commercial

center in which the investment fund has

the investment shall be aggregated for

purposes of determining compliance

with the space limitations in Part III.

Therefore, the Applicant is also seeking

relief for the Tower 2 leasing

arrangements as of March 15, 1996.

10. Robert A. Alleborn Properties, Inc.

(Alleborn) will act as Independent

Fiduciary for PPF with regard to the

transactions that are subject to the

requested exemptions. Alleborn

currently manages more than 10 million

square feet of commercial, office,

industrial and mixed-use property in

the western United States. Alleborn is

experienced in and familiar with the

real estate market in Southern

California. Alleborn is also directly

familiar with the Newport Gateway

Towers through the provision of

consulting services to Banque Paribas

during the bank’s investment in these

projects. The Applicant states that

Alleborn currently receives no fee

income from Equitable, and anticipates

that in the future it will not receive

more than 3 percent of its annual

income from Equitable and its affiliates,

including fees for its services as

independent fiduciary.

The responsibilities of Alleborn with

respect to the transactions are set forth

in a letter agreement between Alleborn

and Equitable signed on March 6, 1996

(the Agreement). Under the Agreement,

Alleborn assumed responsibility as
66672 Federal Register / Vol. 62, No. 244 / Friday, December 19, 1997 / Notices

4 In a November 17, 1997 letter to the

Department, Alleborn stated that between the dates

of March 15, 1996 and May 16, 1996, there were

no changes to the circumstances surrounding the

transactions subject to the requested exemptions

that in any way adversely affected Alleborn’s May

16, 1996 conclusion.

independent fiduciary on behalf of PPF

to: review the existing ERE and

Compass leases; negotiate the ERE and

Compass lease extensions, renewals or

modifications and prepare for delivery

to Equitable, one or more reports

regarding these activities; and annually

monitor the compliance of ERE and

Compass with the terms of the leases.

The Agreement provides that

Alleborn’s fees may only be changed by

written agreement among Alleborn and

a majority in interest of the plans

participating in PPF. Alleborn may

resign as independent fiduciary at any

time on no less than 90 days prior

written notice to Equitable and will be

deemed to have resigned in the event

that it no longer meets the requirements

for an independent fiduciary. In no

event shall Equitable or any affiliate

have the authority to terminate

Alleborn’s service as independent

fiduciary. Alleborn may be removed

only by a vote of a majority in interest

of the plans participating in PPF.

Specifically, the Agreement provides

that Alleborn has been authorized by

Equitable to determine on behalf of PPF

whether it was in the best interests of

PPF to continue the Tower 1 and Tower

2 Leases after the foreclosure date of

March 15, 1996 under the existing

terms. This entailed a determination

that the existing leases provides PPF

with a market-level return or better.

Further, Alleborn was authorized to

represent PPF in negotiations regarding

the extension, renewal or modification

of the Tower 1 and Tower 2 Leases.

Alleborn has the authority to determine

whether and on what terms PPF will

continue the transactions. Upon

completion of the negotiations, Alleborn

was required to determine whether the

lease terms as negotiated were in the

best interests of PPF and to submit a

report summarizing Alleborn’s

activities.

Additionally, Alleborn will continue

to monitor both the Tower 1 and Tower

2 Leases to assure compliance with the

lease terms. Compliance with lease

terms will be reviewed at least annually

either directly by Alleborn or by an

independent contractor reporting to

Alleborn. Based on this review,

Alleborn will have the authority to take

any steps it deems necessary to assure

lease compliance.

On March 12, 1996, Alleborn

submitted an interim report to Equitable

that stated that Alleborn had evaluated

the Towers 1 and 2 current leases and

preliminarily concluded that the leases

provided PPF with above market

returns. Alleborn submitted a more

detailed review of the current lease

terms in the Towers 1 and 2 Leases, and

informed Equitable of its conclusion in

the May 16, 1996 Independent

Fiduciary Review and Opinion of

Existing Leases (Review) 4 that the leases

in both Tower 1 and Tower 2 provide

PPF with above market returns and it

was in the best interests of PPF to

continue the existing leases pending

renegotiation and extension of the

leasing relationships. The Review,

submitted by the Applicant, compared

eight office complexes that would

compete and compare favorably with

Towers 1 and 2 for tenants and were

used in comparing the existing tenancy

for rate and term leases.

Alleborn has completed the

renegotiation process for the leases to

Compass in Tower 2. The application

for exemption contained copies of the

executed leases and the Independent

Fiduciary’s report dated September 2,

1996 (Report 1) approving the leases

between Equitable and Compass for a

three year term commencing September

1, 1996 and terminating August 31,

1999. Report 1 states that the Compass

leases are market rates for comparable

projects for Tower 1 and Tower 2 and

concludes that it is in the best interests

of PPF to consummate the Compass

leases.

Alleborn has also completed the

renegotiation process for the lease to

ERE in Tower 1. The application for

exemption contained the Independent

Fiduciary’s report dated October 1, 1996

(Report 2) approving the new lease term

between Equitable and ERE for 69

months, commencing October 1, 1996

and terminating June 30, 2002. Report 2

states that concurrent with the

execution of a new lease, a Termination

and Surrender Agreement for the

original lease, dated April 1, 1987, was

executed by ERE. An unrelated tenant in

Tower 1 has requested a lease extension

and at the same time desires to

relinquish 231 square feet of space.

Effective January 1, 1997, ERE will

incorporate the additional 231 square

feet into their base lease, allowing their

total occupancy for the remaining

months on the lease to be 13,086 square

feet. Additionally, Alleborn required

ERE to pay in their new lease, the

unamortized portion of the above

market rate that remained in their old

lease dated April 1, 1987. This allowed

Tower 1 to recapture the potential of

lost income between the new lease and

the old lease. Report 2 concludes that

the lease is a market rate lease

comparable to buildings described in

the Review and that it is in the best

interests of PPF to enter the renegotiated

lease.

11. In summary, the applicant

represents that the requested exemption

will satisfy the criteria of section 408(a)

of the Act for the following reasons: (a)

the Towers 1 and 2 Leases and the

renewals of the original leases are for a

limited term; (b) the terms of the Tower

1 and 2 Leases as of March 15, 1996,

and the renewal of the leases have been

reviewed, negotiated and approved by

Alleborn, a qualified independent

fiduciary to PPF, who has determined

that the terms of the transactions reflect

fair market value and are at least as

favorable to PPF as the terms would

have been in arm’s length transactions

between unrelated parties; and (c)

Alleborn will continue to monitor the

leases on behalf of PPF.

For Further Information Contact: Ms.

Wendy McColough of the Department,

telephone (202) 219–8971. (This is not

a toll-free number.)

PNC Capital Markets, Inc. (PNC)

Located in Pittsburgh, Pennsylvania;

Proposed Exemption

[Application No. D–10521]

I. Transactions

A. Effective October 21, 1997, the

restrictions of sections 406(a) and 407(a)

of the Act and the taxes imposed by

section 4975(a) and (b) of the Code by

reason of section 4975(c)(1) (A) through

(D) of the Code shall not apply to the

following transactions involving trusts

and certificates evidencing interests

therein:

(1) The direct or indirect sale,

exchange or transfer of certificates in the

initial issuance of certificates between

the sponsor or underwriter and an

employee benefit plan when the

sponsor, servicer, trustee or insurer of a

trust, the underwriter of the certificates

representing an interest in the trust, or

an obligor is a party in interest with

respect to such plan;

(2) The direct or indirect acquisition

or disposition of certificates by a plan in

the secondary market for such

certificates; and

(3) The continued holding of

certificates acquired by a plan pursuant

to subsection I.A. (1) or (2).

Notwithstanding the foregoing,

section I.A. does not provide an

exemption from the restrictions of

sections 406(a)(1)(E), 406(a)(2) and 407

for the acquisition or holding of a

certificate on behalf of an Excluded Plan

by any person who has discretionary

authority or renders investment advice
Federal Register / Vol. 62, No. 244 / Friday, December 19, 1997 / Notices 66673

5Section 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).

6For 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.

7 In the case of a private placement memorandum,

such memorandum must contain substantially the

same information that would be disclosed in a

prospectus if the offering of the 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.

with respect to the assets of that

Excluded Plan.5

B. Effective October 21, 1997, the

restrictions of sections 406(b)(1) and

406(b)(2) of the Act and the taxes

imposed by section 4975(a) and (b) of

the Code by reason of section

4975(c)(1)(E) of the Code shall not apply

to:

(1) The direct or indirect sale,

exchange or transfer of certificates in the

initial issuance of certificates between

the sponsor or underwriter and a plan

when the person who has discretionary

authority or renders investment advice

with respect to the investment of plan

assets in the certificates is (a) an obligor

with respect to 5 percent or less of the

fair market value of obligations or

receivables contained in the trust, or (b)

an affiliate of a person described in (a);

if:

(i) the plan is not an Excluded Plan;

(ii) solely in the case of an acquisition

of certificates in connection with the

initial issuance of the certificates, at

least 50 percent of each class of

certificates in which plans have

invested is acquired by persons

independent of the members of the

Restricted Group and at least 50 percent

of the aggregate interest in the trust is

acquired by persons independent of the

Restricted Group;

(iii) a plan’s investment in each class

of certificates does not exceed 25

percent of all of the certificates of that

class outstanding at the time of the

acquisition; and

(iv) immediately after the acquisition

of the certificates, no more than 25

percent of the assets of a plan with

respect to which the person has

discretionary authority or renders

investment advice are invested in

certificates representing an interest in a

trust containing assets sold or serviced

by the same entity.6 For purposes of this

paragraph B.(1)(iv) only, an entity will

not be considered to service assets

contained in a trust if it is merely a

subservicer of that trust;

(2) The direct or indirect acquisition

or disposition of certificates by a plan in

the secondary market for such

certificates, provided that the conditions

set forth in paragraphs B.(1)(i), (iii) and

(iv) are met; and

(3) The continued holding of

certificates acquired by a plan pursuant

to subsection I.B.(1) or (2).

C. Effective October 21, 1997, the

restrictions of sections 406(a), 406(b)

and 407(a) of the Act, and the taxes

imposed by section 4975(a) and (b) of

the Code by reason of section 4975(c) of

the Code, shall not apply to transactions

in connection with the servicing,

management and operation of a trust,

provided:

(1) such transactions are carried out in

accordance with the terms of a binding

pooling and servicing arrangement; and

(2) the pooling and servicing

agreement is provided to, or described

in all material respects in the prospectus

or private placement memorandum

provided to, investing plans before they

purchase certificates issued by the

trust.7

Notwithstanding the foregoing,

section I.C. does not provide an

exemption from the restrictions of

section 406(b) of the Act or from the

taxes imposed by reason of section

4975(c) of the Code for the receipt of a

fee by a servicer of the trust from a

person other than the trustee or sponsor,

unless such fee constitutes a ‘‘qualified

administrative fee’’ as defined in section

III.S.

D. Effective October 21, 1997, the

restrictions of sections 406(a) and 407(a)

of the Act, and the taxes imposed by

sections 4975(a) and (b) of the Code by

reason of sections 4975(c)(1)(A) through

(D) of the Code, shall not apply to any

transactions to which those restrictions

or taxes would otherwise apply merely

because a person is deemed to be a party

in interest or disqualified person

(including a fiduciary) with respect to a

plan by virtue of providing services to

the plan (or by virtue of having a

relationship to such service provider

described in section 3(14)(F), (G), (H) or

(I) of the Act or section 4975(e)(2)(F),

(G), (H) or (I) of the Code), solely

because of the plan’s ownership of

certificates.

II. General Conditions

A. The relief provided under Part I is

available only if the following

conditions are met:

(1) The acquisition of certificates by a

plan is on terms (including the

certificate price) that are at least as

favorable to the plan as they would be

in an arm’s-length transaction with an

unrelated party;

(2) The rights and interests evidenced

by the certificates are not subordinated

to the rights and interests evidenced by

other certificates of the same trust;

(3) The certificates acquired by the

plan have received a rating from a rating

agency (as defined in section III.W.) at

the time of such acquisition that is in

one of the three highest generic rating

categories;

(4) The trustee is not an affiliate of

any member of the Restricted Group.

However, the trustee shall not be

considered to be an affiliate of a servicer

solely because the trustee has succeeded

to the rights and responsibilities of the

servicer pursuant to the terms of a

pooling and servicing agreement

providing for such succession upon the

occurrence of one or more events of

default by the servicer;

(5) The sum of all payments made to

and retained by the underwriters in

connection with the distribution or

placement of certificates represents not

more than reasonable compensation for

underwriting or placing the certificates;

the sum of all payments made to and

retained by the sponsor pursuant to the

assignment of obligations (or interests

therein) to the trust represents not more

than the fair market value of such

obligations (or interests); and the sum of

all payments made to and retained by

the servicer represents not more than

reasonable compensation for the

servicer’s services under the pooling

and servicing agreement and

reimbursement of the servicer’s

reasonable expenses in connection

therewith; and

(6) The plan investing in such

certificates is an ‘‘accredited investor’’

as defined in Rule 501(a)(1) of

Regulation D of the Securities and

Exchange Commission under the

Securities Act of 1933.

(7) In the event that the obligations

used to fund a trust have not all been

transferred to the trust on the closing

date, additional obligations as specified

in subsection III.B(1) may be transferred

to the trust during the pre-funding

period (as defined in section III.BB.) in

exchange for amounts credited to the

pre-funding account (as defined in

section III.Z.), provided that:

(a) The pre-funding limit (as defined

in section III.AA.) is not exceeded;

(b) All such additional obligations

meet the same terms and conditions for

eligibility as those of the original

obligations used to create the trust

corpus (as described in the prospectus

or private placement memorandum and/
66674 Federal Register / Vol. 62, No. 244 / Friday, December 19, 1997 / Notices

or pooling and servicing agreement for

such certificates), 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 of the outstanding

certificateholders or by a rating agency;

(c) The transfer of such additional

obligations to the trust during the prefunding period does not result in the

certificates 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

certificates by the trust;

(d) The weighted average annual

percentage interest rate (the average

interest rate) for all of the obligations in

the trust 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 trust on the closing

date;

(e) In order to ensure that the

characteristics of the receivables

actually acquired during the prefunding 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

trustees) stating whether or not the

characteristics of the additional

obligations conform to the

characteristics of such obligations

described in the prospectus, private

placement memorandum and/or pooling

and servicing agreement. In preparing

such letter, the independent accountant

will use the same type of procedures as

were applicable to the obligations which

were transferred as of the closing date;

(f) The pre-funding period shall be

described in the prospectus or private

placement memorandum provided to

investing plans;

(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 certificateholders of such

trust, including employee benefit plans

subject to the Act.

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 Part I, if the provision

of subsection II.A.(6) above is not

satisfied with respect to acquisition or

holding by a plan of such certificates,

provided that (1) such condition is

disclosed in the prospectus or private

placement memorandum; and (2) in the

case of a private placement of

certificates, the trustee obtains a

representation from each initial

purchaser which is a plan that it is in

compliance with such condition, and

obtains a covenant from each initial

purchaser to the effect that, so long as

such initial purchaser (or any transferee

of such initial purchaser’s certificates) is

required to obtain from its transferee a

representation regarding compliance

with the Securities Act of 1933, any

such transferees will be required to

make a written representation regarding

compliance with the condition set forth

in subsection II.A.(6) above.

III. Definitions

For purposes of this exemption:

A. Certificate means:

(1) a certificate—

(a) that represents a beneficial

ownership interest in the assets of a

trust; and

(b) that entitles the holder to passthrough payments of principal, interest,

and/or other payments made with

respect to the assets of such trust; or

(2) a certificate denominated as a debt

instrument—

(a) that represents an interest in a Real

Estate Mortgage Investment Conduit

(REMIC) or a Financial Asset

Securitization Investment Trust (FASIT)

within the meaning of section 860D(a)

or section 860L, respectively, of the

Internal Revenue Code of 1986; and

(b) that is issued by and is an

obligation of a trust; with respect to

certificates defined in (1) and (2) above

for which PNC or any of its affiliates is

either (i) the sole underwriter or the

manager or co-manager of the

underwriting syndicate, or (ii) a selling

or placement agent.

For purposes of this exemption,

references to ‘‘certificates representing

an interest in a trust’’ include

certificates denominated as debt which

are issued by a trust.

B. Trust means an investment pool,

the corpus of which is held in trust and

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, as defined in section

III.T); and/or

(c) obligations that bear interest or are

purchased at a discount and which are

secured by single-family residential,

multi-family residential and commercial

real property (including obligations

secured by leasehold interests on

commercial real property); 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 (as defined in section III.U); and/

or

(e) guaranteed governmental mortgage

pool certificates, as defined in 29 CFR

2510.3–101(i)(2); and/or

(f) fractional undivided interests in

any of the obligations described in

clauses (a)–(e) of this section B.(1);

(2) property which had secured any of

the obligations described in subsection

B.(1);

(3) (a) undistributed cash or

temporary investments made therewith

maturing no later than the next date on

which distributions are to be made to

certificateholders; and/or

(b) cash or investments made

therewith which are credited to an

account to provide payments to

certificateholders pursuant to any yield

supplement agreement or similar yield

maintenance arrangement to

supplement the interest rates otherwise

payable on obligations described in

subsection III.B.(1) held in the trust,

provided that such arrangements do not

involve swap agreements or other

notional principal contracts; and/or

(c) cash transferred to the trust 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 clauses

(a)–(g) of subsection II.A.(7) are met

and/or;

(ii) are credited to a capitalized

interest account (as defined in section

III.X.); and

(iii) are held in the trust for a period

ending no later than the first

distribution date to certificate holders

occurring after the end of the prefunding period.
Federal Register / Vol. 62, No. 244 / Friday, December 19, 1997 / Notices 66675

For purposes of this clause (c) of

subsection III.B.(3), the term permitted

investments means investments which

are either: (i) 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

(ii) 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.

(4) rights of the trustee under the

pooling and servicing agreement, and

rights under any insurance policies,

third-party guarantees, contracts of

suretyship, yield supplement

agreements described in clause (b) of

subsection III.B.(3) and other credit

support arrangements with respect to

any obligations described in subsection

III.B.(1).

Notwithstanding the foregoing, the

term trust does not include any

investment pool unless: (i) the

investment pool consists only of assets

of the type described in clauses (a)

through (f) of subsection III.B.(1) which

have been included in other investment

pools, (ii) certificates evidencing

interests in such other investment pools

have been rated in one of the three

highest generic rating categories by a

rating agency for at least one year prior

to the plan’s acquisition of certificates

pursuant to this exemption, and (iii)

certificates evidencing interests in such

other investment pools have been

purchased by investors other than plans

for at least one year prior to the plan’s

acquisition of certificates pursuant to

this exemption.

C. Underwriter means:

(1) PNC;

(2) any person directly or indirectly,

through one or more intermediaries,

controlling, controlled by or under

common control with PNC; or

(3) any member of an underwriting

syndicate or selling group of which PNC

or a person described in (2) is a manager

or co-manager with respect to the

certificates.

D. Sponsor means the entity that

organizes a trust by depositing

obligations therein in exchange for

certificates.

E. Master Servicer means the entity

that is a party to the pooling and

servicing agreement relating to trust

assets and is fully responsible for

servicing, directly or through

subservicers, the assets of the trust.

F. Subservicer means an entity which,

under the supervision of and on behalf

of the master servicer, services loans

contained in the trust, but is not a party

to the pooling and servicing agreement.

G. Servicer means any entity which

services loans contained in the trust,

including the master servicer and any

subservicer.

H. Trustee means the trustee of the

trust, and in the case of certificates

which are denominated as debt

instruments, also means the trustee of

the indenture trust.

I. Insurer means the insurer or

guarantor of, or provider of other credit

support for, a trust. Notwithstanding the

foregoing, a person is not an insurer

solely because it holds securities

representing an interest in a trust which

are of a class subordinated to certificates

representing an interest in the same

trust.

J. Obligor means any person, other

than the insurer, that is obligated to

make payments with respect to any

obligation or receivable included in the

trust. Where a trust contains qualified

motor vehicle leases or qualified

equipment notes secured by leases,

‘‘obligor’’ shall also include any owner

of property subject to any lease included

in the trust, or subject to any lease

securing an obligation included in the

trust.

K. Excluded Plan means any plan

with respect to which any member of

the Restricted Group is a ‘‘plan sponsor’’

within the meaning of section 3(16)(B)

of the Act.

L. Restricted Group with respect to a

class of certificates means:

(1) each underwriter;

(2) each insurer;

(3) the sponsor;

(4) the trustee;

(5) each servicer;

(6) any obligor with respect to

obligations or receivables included in

the trust constituting more than 5

percent of the aggregate unamortized

principal balance of the assets in the

trust, determined on the date of the

initial issuance of certificates by the

trust; or

(7) any affiliate of a person described

in (1)–(6) above.

M. Affiliate of another person

includes:

(1) Any person directly or indirectly,

through one or more intermediaries,

controlling, controlled by, or under

common control with such other

person;

(2) Any officer, director, partner,

employee, relative (as defined in section

3(15) of the Act), a brother, a sister, or

a spouse of a brother or sister of such

other person; and

(3) Any corporation or partnership of

which such other person is an officer,

director or partner.

N. Control means the power to

exercise a controlling influence over the

management or policies of a person

other than an individual.

O. A person will be independent of

another person only if:

(1) such person is not an affiliate of

that other person; and

(2) the other person, or an affiliate

thereof, is not a fiduciary who has

investment management authority or

renders investment advice with respect

to any assets of such person.

P. Sale includes the entrance into a

forward delivery commitment (as

defined in section Q below), provided:

(1) The terms of the forward delivery

commitment (including any fee paid to

the investing plan) are no less favorable

to the plan than they would be in an

arm’s-length transaction with an

unrelated party;

(2) The prospectus or private

placement memorandum is provided to

an investing plan prior to the time the

plan enters into the forward delivery

commitment; and

(3) At the time of the delivery, all

conditions of this exemption applicable

to sales are met.

Q. Forward delivery commitment

means a contract for the purchase or

sale of one or more certificates to be

delivered at an agreed future settlement

date. The term includes both mandatory

contracts (which contemplate obligatory

delivery and acceptance of the

certificates) and optional contracts

(which give one party the right but not

the obligation to deliver certificates to,

or demand delivery of certificates from,

the other party).

R. Reasonable compensation has the

same meaning as that term is defined in

29 CFR 2550.408c–2.

S. Qualified Administrative Fee

means a fee which meets the following

criteria:

(1) the fee is triggered by an act or

failure to act by the obligor other than

the normal timely payment of amounts

owing in respect of the obligations;

(2) the servicer may not charge the fee

absent the act or failure to act referred

to in (1);

(3) the ability to charge the fee, the

circumstances in which the fee may be

charged, and an explanation of how the

fee is calculated are set forth in the

pooling and servicing agreement; and

(4) the amount paid to investors in the

trust will not be reduced by the amount

of any such fee waived by the servicer.

T. Qualified Equipment Note Secured

By A Lease means an equipment note:

(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
66676 Federal Register / Vol. 62, No. 244 / Friday, December 19, 1997 / Notices

8The Department notes that PTE 83–1 [48 FR 895,

January 7, 1983], a class exemption for mortgage

pool investment trusts, would generally apply to

trusts containing single-family residential

mortgages, provided that the applicable conditions

of PTE 83-l are met. PNC requests relief for singlefamily residential mortgages in this exemption

because it would prefer one exemption for all trusts

of similar structure. However, PNC has stated that

it may still avail itself of the exemptive relief

provided by PTE 83–1.

(3) with respect to which the trust’s

security interest in the equipment is at

least as protective of the rights of the

trust as would be the case if the

equipment note were secured only by

the equipment and not the lease.

U. Qualified Motor Vehicle Lease

means a lease of a motor vehicle where:

(1) the trust owns or holds a security

interest in the lease;

(2) the trust holds a security interest

in the leased motor vehicle; and

(3) the trust’s security interest in the

leased motor vehicle is at least as

protective of the trust’s rights as would

be the case if the trust consisted of

motor vehicle installment loan

contracts.

V. Pooling and Servicing Agreement

means the agreement or agreements

among a sponsor, a servicer and the

trustee establishing a trust. In the case

of certificates which are denominated as

debt instruments, ‘‘Pooling and

Servicing Agreement’’ also includes the

indenture entered into by the trustee of

the trust issuing such certificates and

the indenture trustee.

W. Rating Agency means Standard &

Poor’s Structured Rating Group (S&P’s),

Moody’s Investors Service, Inc.

(Moody’s), Duff & Phelps Credit Rating

Co. (D & P) or Fitch Investors Service,

L.P. (Fitch);

X. Capitalized Interest Account means

a trust account: (i) Which is established

to compensate certificateholders for

shortfalls, if any, between investment

earnings on the pre-funding account and

the pass-through rate payable under the

certificates; and (ii) which meets the

requirements of clause (c) of subsection

III.B.(3).

Y. Closing Date means the date the

trust is formed, the certificates are first

issued and the trust’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 trust.

Z. Pre-Funding Account means a trust

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).

AA. 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 certificates being offered which is

less than or equal to 25 percent.

BB. 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.

CC. PNC means PNC Capital Markets,

Inc. and its affiliates.

The Department notes that this

proposed exemption is included within

the meaning of the term ‘‘Underwriter

Exemption’’ as it is defined in section

V(h) of Prohibited Transaction

Exemption 95–60 (60 FR 35925, July 12,

1995), the Class Exemption for Certain

Transactions Involving Insurance

Company General Accounts at 35932.

Summary of Facts and Representations

1. PNC is an indirect, wholly-owned,

separately capitalized investment

banking and registered broker-dealer

subsidiary of PNC Bank Corp. (the

Corporation). As of September 30, 1997,

PNC’s capitalization was approximately

$54.9 million. The Corporation is a

diversified financial services company

incorporated under the laws of the

Commonwealth of Pennsylvania and a

multi-bank holding company registered

under the Bank Holding Act of 1956, as

amended. As of September 30, 1997, the

Corporation’s consolidated assets were

approximately $71.8 billion. The

principal executive offices of the

Corporation are located in Pittsburgh,

Pennsylvania. As of September 30,

1997, the Corporation had indirectlyheld subsidiary banks located in seven

states. In addition, indirectly-held nonbank subsidiaries of the Corporation

offer a wide range of insurance,

securities brokerage, investment

banking, venture capital investment,

mortgage banking and consumer finance

products and services.

PNC Mortgage Corp. of America (PNC

Mortgage), an Ohio corporation having

its principal place of business in Vernon

Hills, Illinois, is one of the largest

mortgage banking originators in the

United States, with offices in all 50

states.

PNC Bank, National Association (the

Bank), an indirect, wholly-owned

subsidiary of the Corporation, is a

national banking association engaged in

banking and related activities and is the

largest bank in the Corporation’s

banking group. The Bank is the sole

shareholder of PNC Mortgage. As of

September 30, 1997, the Bank had total

assets of approximately $57.5 billion.

The principal executive offices of the

Bank are located in Pittsburgh,

Pennsylvania. Six other commercial

banks and one federal savings bank,

located in six states, had aggregated

assets slightly exceeding $13.2 billion as

of September 30, 1997.

PNC was incorporated in 1984 as a

Pennsylvania corporation. PNC

maintains its principal place of business

in Pittsburgh, Pennsylvania and has

branch offices in Pennsylvania, New

Jersey, Ohio, and Kentucky.

In 1987, PNC received Federal

Reserve Board authorization to

underwrite and deal in commercial

paper, municipal revenue bonds,

residential mortgage-related securities

and consumer receivable-related

securities. This order is currently

subject to the condition that PNC does

not derive more than 25% of its total

gross revenues from such activities. In

addition, PNC’s affiliates have the

power to sell interests in their own

assets in the form of asset-backed

securities.

PNC is a member of the National

Association of Securities Dealers and

the Securities Investor Protection

Corporation and underwrites and deals

in corporate debt securities, commercial

paper, municipal securities, high-yield

securities and asset-backed securities,

provides private placement and

corporate finance advisory services,

including merger and acquisition

advisory services, publishes research on

a wide range of securities and issuers,

and engages in the syndication and

arranging and trading of bank loans.

PNC has significant experience in

asset securitizations. PNC’s

participation in securitization

transactions includes the underwriting

of public offerings and serving as

private placement agent or commercial

paper conduit agent/dealer for

transactions backed by retail auto

receivables and bank and retail credit

card receivables.

Trust Assets

2. PNC seeks exemptive relief to

permit plans to invest in pass-through

certificates representing undivided

interests in the following categories of

trusts: (1) single and multi-family

residential or commercial mortgage

investment trusts;8 (2) motor vehicle

receivable investment trusts; (3)

consumer or commercial receivables

investment trusts; and (4) guaranteed
Federal Register / Vol. 62, No. 244 / Friday, December 19, 1997 / Notices 66677

9 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 the trusts may be plan assets.

10Trust assets may also include obligations that

are secured by leasehold interests on residential

real property. See PTE 90–32 involving PrudentialBache Securities, Inc. (55 FR 23147, June 6, 1990

at 23150).

11The Department is of the view that the term

‘‘trust’’ includes a trust: (a) the assets of which,

although all specifically identified by the sponsor

or the originator as of the closing date, are not all

transferred to the trust on the closing date for

administrative or other reasons but will be

transferred to the trust shortly after the closing date,

or (b) with respect to which certificates are not

purchased by plans until after the end of the prefunding period at which time all receivables are

contained in the trust.

12 It is the Department’s view that the definition

of ‘‘trust’’ contained in III.B. includes a two-tier

structure under which certificates issued by the first

trust, which contains a pool of receivables

described above, are transferred to a second trust

which issues securities that are sold to plans.

However, the Department is of the further view that,

since the exemption provides relief for the direct or

indirect acquisition or disposition of certificates

that are not subordinated, no relief would be

available if the certificates held by the second trust

were subordinated to the rights and interests

evidenced by other certificates issued by the first

trust.

13 It is the view of the Department that section

III.B.(4) includes within the definition of the term

‘‘trust’’ 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 obligations described in section III.B.(1), in

accordance with the terms of a yield supplement

arrangement described in the pooling and servicing

agreement, provided that such arrangements do not

involve swap agreement or other notional principal

contracts.

14 It is the Department’s understanding that where

a plan invests in REMIC ‘‘residual’’ interest

certificates to which this exemption applies, some

of the income received by the plan as a result of

such investment may be considered unrelated

business taxable income to the plan, which is

subject to income tax under the Code. The

Department emphasizes that the prudence

requirement of section 404(a)(l)(B) of the Act would

require plan fiduciaries to carefully consider this

and other tax consequences prior to causing plan

assets to be invested in certificates pursuant to this

exemption.

governmental mortgage pool certificate

investment trusts.9

3. Commercial mortgage investment

trusts may include mortgages on ground

leases of real property. Commercial mort

gages are frequently secured by ground

leases on the underlying property,

rather than by fee simple interests. The

separation of the fee simple interest and

the ground lease interest is generally

done for tax reasons. Properly

structured, the pledge of the ground

lease to secure a mortgage provides a

lender with the same level of security as

would be provided by a pledge of the

related fee simple interest. The terms of

the ground leases pledged to secure

leasehold mortgages will in all cases be

at least ten years longer than the term

of such mortgages.10

Trust Structure

4. Each trust is established under a

pooling and servicing agreement

between a sponsor, a servicer and a

trustee.11 The sponsor or servicer of a

trust selects assets to be included in the

trust.12 These assets are receivables

which may have been originated by a

sponsor or servicer of the trust, an

affiliate of the sponsor or servicer, or by

an unrelated lender and subsequently

acquired by the trust sponsor or

servicer.13

Typically, on or prior to the closing

date, the sponsor acquires legal title to

all assets selected for the trust,

establishes the trust and designates an

independent entity as trustee. On the

closing date, the sponsor conveys to the

trust legal title to the assets, and the

trustee issues certificates representing

fractional undivided interests in the

trust assets. Typically, all receivables to

be held in the trust are transferred as of

the closing date, but in some

transactions, as described more fully

below, a limited percentage of the

receivables to be held in the trust may

be transferred during a limited period of

time following the closing date, through

the use of a pre-funding account.

PNC, alone or together with other

broker-dealers, acts as underwriter or

placement agent with respect to the sale

of the certificates. All of the public

offerings of certificates presently

contemplated are to be underwritten by

PNC on a firm commitment basis. In

addition, PNC anticipates that it may

privately place certificates on both a

firm commitment and an agency basis.

PNC may also act as the lead

underwriter for a syndicate of securities

underwriters.

Certificateholders will be entitled to

receive monthly, quarterly or semiannual installments of principal and/or

interest, or lease payments due on the

receivables, adjusted, in the case of

payments of interest, to a specified

rate—the pass-through rate—which may

be fixed or variable.

When installments or payments are

made on a semi-annual basis, funds are

not permitted to be commingled with

the servicer’s assets for longer than

would be permitted for a monthly-pay

security. A segregated account is

established in the name of the trustee

(on behalf of certificateholders) to hold

funds received between distribution

dates. The account is under the sole

control of the trustee, who invests the

account’s assets in short-term securities

which have received a rating

comparable to the rating assigned to the

certificates. In some cases, the servicer

may be permitted to make a single

deposit into the account once a month.

When the servicer makes such monthly

deposits, payments received from

obligors by the servicer may be

commingled with the servicer’s assets

during the month prior to deposit.

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 semi-annually,

the servicer will furnish a report on the

operation of the trust to the trustee on

a monthly basis. At or about the time

this report is delivered to the trustee, it

will be made available to

certificateholders and delivered to or

made available to each rating agency

that has rated the certificates.

5. Some of the certificates will be

multi-class certificates. PNC requests

exemptive relief for two types of multiclass certificates: ‘‘strip’’ certificates and

‘‘fast-pay/ slow-pay’’ certificates. Strip

certificates are a type of security in

which the stream of interest payments

on receivables is split from the flow of

principal payments and separate classes

of certificates are established, each

representing rights to disproportionate

payments of principal and interest.14

‘‘Fast-pay/slow-pay’’ certificates

involve the issuance of classes of

certificates having different stated

maturities or the same maturities with

different payment schedules. Interest

and/or principal payments received on

the underlying receivables are

distributed first to the class of

certificates having the earliest stated

maturity of principal, and/or earlier

payment schedule, and only when that

class of certificates has been paid in full

(or has received a specified amount)

will distributions be made with respect

to the second class of certificates.

Distributions on certificates having later

stated maturities will proceed in like

manner until all the certificateholders

have been paid in full. The only

difference between this multi-class passthrough arrangement and a single-class
66678 Federal Register / Vol. 62, No. 244 / Friday, December 19, 1997 / Notices

15 If a trust issues subordinated certificates,

holders of such subordinated certificates may not

share in the amount distributed on a pro rata basis

with the senior certificateholders. The Department

notes that the exemption does not provide relief for

plan investment in such subordinated certificates.

pass-through arrangement is the order in

which distributions are made to

certificateholders. In each case,

certificateholders will have a beneficial

ownership interest in the underlying

assets. In neither case will the rights of

a plan purchasing a certificate be

subordinated to the rights of another

certificateholder in the event of default

on any of the underlying obligations. In

particular, if the amount available for

distribution to certificateholders is less

than the amount required to be so

distributed, all senior certificateholders

then entitled to receive distributions

will share in the amount distributed on

a pro rata basis.15

6. The trust will be maintained as an

essentially passive entity. Therefore,

both the sponsor’s discretion and the

servicer’s discretion with respect to

assets included in a trust are severely

limited. Pooling and servicing

agreements provide for the substitution

of receivables by the sponsor only in the

event of defects in documentation

discovered within a short time after the

issuance of trust certificates (within 120

days, except in the case of obligations

having an original term of 30 years, in

which case the period will not exceed

two years). Any receivable so

substituted is required to have

characteristics substantially similar to

the replaced receivable and will be at

least as creditworthy as the replaced

receivable.

In some cases, the affected receivable

would be repurchased, with the

purchase price applied as a payment on

the affected receivable and passed

through to certificateholders.

In some cases the trust will be

maintained as a Financial Asset

Securitization Investment Trust

(‘‘FASIT’’), a statutory entity created by

the Small Business Job Protection Act of

1996, adding sections 860H, 860J, 860K

and 860L to the Code. In general, a

FASIT is designed to facilitate the

securitization of debt obligations, such

as credit card receivables, home equity

loans, and auto loans, and thus, allows

certain features such as revolving pools

of assets, trusts containing unsecured

receivables and certain hedging types of

investments. A FASIT is not a taxable

entity and debt instruments issued by

such trusts, which might otherwise be

recharacterized as equity, will be treated

as debt in the hands of the holder for tax

purposes. However, a trust which is the

subject of the proposed exemption will

be maintained as a FASIT only where

the assets held by the FASIT will be

comprised of secured debt; revolving

pools of assets or hedging investments

will not be allowed unless specifically

authorized by the exemption, if granted,

so that a trust maintained as a FASIT

will be maintained as an essentially

passive entity.

Trust Structure with Pre-Funding

Account

Pre-Funding Accounts

7. As described briefly above, some

transactions may be structured using a

pre-funding account or a capitalized

interest account. If pre-funding is used,

cash sufficient to purchase the

receivables to be transferred after the

closing date will be transferred to the

trust by the sponsor or originator on the

closing date. During the pre-funding

period, such cash and temporary

investments, if any, made therewith will

be held in a pre-funding account and

used to purchase the additional

receivables, the characteristics of which

will be substantially similar to the

characteristics of the receivables

transferred to the trust on the closing

date. The pre-funding period for any

trust will be defined as the period

beginning on the closing date and

ending on the earliest to occur of (i) the

date on which the amount on deposit in

the pre-funding account is less than a

specified dollar amount, (ii) the date on

which an event of default occurs under

the related pooling and servicing

agreement or (iii) the date which is the

later of three months or ninety days

after the closing date. Certain specificity

and monitoring requirements described

below will be met and will be disclosed

in the pooling and servicing agreement

and/or the prospectus or private

placement memorandum.

For transactions involving a trust

using pre-funding, on the closing date,

a portion of the offering proceeds will

be allocated to the pre-funding account

generally in an amount equal to the

excess of (i) the principal amount of

certificates being issued over (ii) the

principal balance of the receivables

being transferred to the trust on such

closing date. In certain transactions, the

aggregate principal balance of the

receivables intended to be transferred to

the trust may be larger than the total

principal balance of the certificates

being issued. In these cases, the cash

deposited in the pre-funding account

will equal the excess of the principal

balance of the total receivables intended

to be transferred to the trust over the

principal balance of the receivables

being transferred on the closing date.

On the closing date, the sponsor

transfers the assets to the trust in

exchange for the certificates. The

certificates are then sold to PNC for cash

or to the certificateholders directly if the

certificates are sold through PNC as a

placement agent. The cash received by

the sponsor from the certificateholders

(or PNC) from the sale of the certificates

issued by the trust in excess of the

purchase price for the receivables and

certain other trust expenses such as

underwriting or placement agent fees

and legal and accounting fees,

constitutes the cash to be deposited in

the pre-funding account. Such funds are

either held in the trust and accounted

for separately, or are held in a sub-trust.

In either event, these funds are not part

of assets of the sponsor.

Generally, the receivables are

transferred at par value, unless the

interest rate payable on the receivables

is not sufficient to service both the

interest rates to be paid on the

certificates and the transaction fees (i.e.,

servicing fees, trustee fees and fees to

credit support providers). In such cases,

the receivables are sold to the trust at a

discount, based on an objective, written,

mechanical formula which is set forth in

the pooling and servicing agreement and

agreed upon in advance between the

sponsor, the rating agency and any

credit support provider or other insurer.

The proceeds payable to the sponsor

from the sale of the receivables

transferred to the trust may also be

reduced to the extent they are used to

pay transaction costs (which typically

include underwriting or placement

agent fees and legal and accounting

fees). In addition, in certain cases, the

sponsor may be required by the rating

agencies or credit support providers to

set up trust reserve accounts to protect

the certificateholders against credit

losses.

The pre-funding account of any trust

will be limited so that the percentage or

ratio of the amount allocated to the prefunding account, as compared to the

total principal amount of the certificates

being offered (the pre-funding limit)

will not exceed 25%. The pre-funding

limit (which may be expressed as a ratio

or as a stated percentage or a

combination thereof) will be specified

in the prospectus or the private

placement memorandum.

Any amounts paid out of the prefunding account are used solely to

purchase receivables and to support the

certificate pass-through rate (as

explained below). Amounts used to

support the pass-through rate are

payable only from investment earnings

and are not payable from principal.

However, in the event that, after all of
Federal Register / Vol. 62, No. 244 / Friday, December 19, 1997 / Notices 66679

the requisite receivables have been

transferred into the trust, any funds

remain in the pre-funding account, such

funds will be paid to the

certificateholders as principal

prepayments. Upon termination of the

trust, if no receivables remain in the

trust and all amounts payable to

certificateholders have been distributed,

any amounts remaining in the trust

would be returned to the sponsor.

A dramatic change in interest rates on

the receivables held in a trust using a

pre-funding account would be handled

as follows. If the receivables (other than

those with adjustable or variable rates)

had already been originated prior to the

closing date, no action would be

required as the fluctuations in the

market interest rates would not affect

the receivables transferred to the trust

after the closing date. In contrast, if

interest rates fall after the closing date,

loans originated after the closing date

will tend to be originated at lower rates,

with the possible result that the

receivables will not support the

certificate pass-through rate. In a

situation where interest rates drop

dramatically and the sponsor is unable

to provide sufficient receivables at the

requisite interest rates, the pool of

receivables would be closed. In this

latter event, under the terms of the

pooling and servicing agreement, the

certificateholders would receive a

repayment of principal from the unused

cash held in the pre-funding account. In

transactions where the certificate passthrough rates are variable or adjustable,

the effects of market interest rate

fluctuations are mitigated. In no event

will fluctuations in interest rates

payable on the receivable affect the

pass-through rate for fixed rate

certificates.

The cash deposited into the trust and

allocated to the pre-funding account is

invested in certain permitted

investments (see below), which may be

commingled with other accounts of the

trust. The allocation of investment

earnings to each trust account is made

periodically as earned in proportion to

each account’s allocable share of the

investment returns. As pre-funding

account investment earnings are

required to be used to support (to the

extent authorized in the particular

transaction) the pass-through amounts

payable to the certificateholders with

respect to a periodic distribution date,

the trustee is necessarily required to

make periodic, separate allocations of

the trust’s earning to each trust account,

thus ensuring that all allocable

commingled investment earnings are

properly credited to the pre-funding

account on a timely basis.

The Capitalized Interest Account

8. In certain transactions where a prefunding account is used, the sponsor

and/or originator may also transfer to

the trust additional cash on the closing

date, which is deposited in a capitalized

interest account and used during the

pre-funding period to compensate the

certificateholders for any shortfall

between the investment earnings on the

pre-funding account and the passthrough interest rate payable under the

certificates.

The capitalized interest account is

needed in certain transactions since the

certificates are supported by the

receivables and the earnings on the prefunding account, and it is unlikely that

the investment earnings on the prefunding account will equal the interest

rates on the certificates (although such

investment earnings will be available to

pay interest on the certificates). The

capitalized interest account funds are

paid out periodically to the

certificateholders as needed on

distribution dates to support the passthrough rate. In addition, a portion of

such funds may be returned to the

sponsor from time to time as the

receivables are transferred into the trust

and the need for the capitalized interest

account diminishes. Any amounts held

in the capitalized interest account

generally will be returned to the sponsor

and/or originator either at the end of the

pre-funding period or periodically as

receivables are transferred and the

proportionate amount of funds in the

capitalized interest account can be

reduced. Generally, the capitalized

interest account terminates no later than

the end of the pre-funding period.

However, there may be some cases

where the capitalized interest account

remains open until the first date

distributions are made to

certificateholders following the end of

the pre-funding period.

In other transactions, a capitalized

interest account is not necessary

because the interest paid on the

receivables exceeds the interest payable

on the certificates at the applicable passthrough rate and the fees of the trust.

Such excess is sufficient to make up any

shortfall resulting from the pre-funding

account earning less than the certificate

pass-through rate. In certain of these

transactions, this occurs because the

aggregate principal amount of

receivables exceeds the aggregate

principal amount of certificates.

Pre-Funding Account and Capitalized

Interest Account Payments and

Investments

9. Pending the acquisition of

additional receivables during the prefunding period, it is expected that

amounts in the pre-funding account and

the capitalized interest account will be

invested in certain permitted

investments or will be held uninvested.

Pursuant to the pooling and servicing

agreement, all permitted investments

must mature prior to the date the actual

funds are needed. The permitted types

of investments in the pre-funding

account and capitalized interest account

are investments which are either: (i)

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 (ii) have been

rated (or the obligor has been rated) in

one of the three highest generic rating

categories by a rating agency, as set forth

in the pooling and servicing agreement

and as required by the rating agencies.

The credit grade quality of the permitted

investments is generally no lower than

that of the certificates. The types of

permitted investments will be described

in the pooling and servicing agreement.

The ordering of interest payments to

be made from the pre-funding and

capitalized interest accounts is preestablished and set forth in the pooling

and servicing agreement. The only

principal payments which will be made

from the pre-funding account are those

made to acquire the receivables during

the pre-funding period and those

distributed to the certificateholders in

the event that the entire amount in the

pre-funding account is not used to

acquire receivables. The only principal

payments which will be made from the

capitalized interest account are those

made to certificateholders if necessary

to support the certificate pass-through

rate or those made to the sponsor either

periodically as they are no longer

needed or at the end of the pre-funding

period when the capitalized interest

account is no longer necessary.

The Characteristics of the Receivables

Transferred During the Pre-Funding

Period

10. In order to ensure that there is

sufficient specificity as to the

representations and warranties of the

sponsor regarding the characteristics of

the receivables to be transferred after the

closing date:

(i) All such receivables will meet the

same terms and conditions for eligibility
66680 Federal Register / Vol. 62, No. 244 / Friday, December 19, 1997 / Notices

as those of the original receivables used

to create the trust corpus (as described

in the prospectus or private placement

memorandum and/or pooling and

servicing agreement for such

certificates), which terms and

conditions have been approved by a

rating agency. However, the terms and

conditions for determining the

eligibility of a receivable may be

changed if such changes receive prior

approval either by a majority vote of the

outstanding certificateholders or by a

rating agency;

(ii) The transfer to the trust of the

receivables acquired during the prefunding period will not result in the

certificates receiving a lower credit

rating from the rating agency upon

termination of the pre-funding period

than the rating that was obtained at the

time of the initial issuance of the

certificates by the trust;

(iii) The weighted average annual

percentage interest rate (the average

interest rate) for all of the obligations in

the trust 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 trust on the closing

date;

(iv) The trustee of the trust (or any

agency 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 certificateholders of such

trust, including employee benefit plans

subject to the Act.

In order to ensure that the

characteristics of the receivables

actually acquired during the prefunding period are substantially similar

to receivables that were acquired as of

the closing date, the characteristics of

the additional obligations subsequently

acquired 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, PNC and the trustee) stating

whether or not the characteristics of the

additional obligations acquired after the

closing date conform to the

characteristics of such obligations

described in the prospectus, private

placement memorandum and/or pooling

and servicing agreement. In preparing

such letter, the independent accountant

will use the same type of procedures as

were applicable to the obligations which

were transferred as of the closing date.

Each prospectus, private placement

memorandum and/or pooling and

servicing agreement will set forth the

terms and conditions for eligibility of

the receivables to be included in the

trust as of the related closing date, as

well as those to be acquired during the

pre-funding period, which terms and

conditions will have been agreed to by

the rating agencies which are rating the

applicable certificates as of the closing

date. Also included among these

conditions is the requirement that the

trustee be given prior notice of the

receivables to be transferred, along with

such information concerning those

receivables as may be requested. Each

prospectus or private placement

memorandum will describe the amount

to be deposited in, and the mechanics

of, the pre-funding account and will

describe the pre-funding period for the

trust.

Parties to Transactions

11. The originator of a receivable is

the entity that initially lends money to

a borrower (obligor), such as a homeowner or automobile purchaser, or

leases property to a lessee. The

originator may either retain a receivable

in its portfolio or sell it to a purchaser,

such as a trust sponsor.

Originators of receivables included in

the trusts will be entities that originate

receivables in the ordinary course of

their businesses, including finance

companies for whom such origination

constitutes the bulk of their operations,

financial institutions for whom such

origination constitutes a substantial part

of their operations, and any kind of

manufacturer, merchant, or service

enterprise for whom such origination is

an incidental part of its operations. Each

trust may contain assets of one or more

originators. The originator of the

receivables may also function as the

trust sponsor or servicer.

12. The sponsor will be one of three

entities: (i) a special-purpose or other

corporation unaffiliated with the

servicer, (ii) a special-purpose or other

corporation affiliated with the servicer,

or (iii) the servicer itself. Where the

sponsor is not also the servicer, the

sponsor’s role will generally be limited

to acquiring the receivables to be

included in the trust, establishing the

trust, designating the trustee, and

assigning the receivables to the trust.

13. The trustee of a trust is the legal

owner of the obligations in the trust.

The trustee is also a party to or

beneficiary of all the documents and

instruments deposited in the trust, and

as such is responsible for enforcing all

the rights created thereby in favor of

certificateholders.

The trustee will be an independent

entity, and therefore will be unrelated to

PNC, the trust sponsor, the servicer or

any other member of the Restricted

Group (as defined in section III.L.). PNC

represents that the trustee will be a

substantial financial institution or trust

company experienced in trust activities.

The trustee receives a fee for its

services, which will be paid by the

servicer or sponsor or out of the trust

assets. The method of compensating the

trustee which is specified in the pooling

and servicing agreement will be

disclosed in the prospectus or private

placement memorandum relating to the

offering of the certificates.

14. The servicer of a trust administers

the receivables on behalf of the

certificateholders. The servicer’s

functions typically involve, among other

things, notifying borrowers of amounts

due on receivables, maintaining records

of payments received on receivables and

instituting foreclosure or similar

proceedings in the event of default. In

cases where a pool of receivables has

been purchased from a number of

different originators and deposited in a

trust, the receivables may be

‘‘subserviced’’ by their respective

originators and a single entity may

‘‘master service’’ the pool of receivables

on behalf of the owners of the related

series of certificates. Where this

arrangement is adopted, a receivable

continues to be serviced from the

perspective of the borrower by the local

subservicer, while the investor’s

perspective is that the entire pool of

receivables is serviced by a single,

central master servicer who collects

payments from the local subservicers

and passes them through to

certificateholders.

Receivables of the type suitable for

inclusion in a trust invariably are

serviced with the assistance of a

computer. After the sale, the servicer

keeps the sold receivables on the

computer system in order to continue

monitoring the accounts. Although the

records relating to sold receivables are

kept in the same master file as

receivables retained by the originator,

the sold receivables are flagged as

having been sold. To protect the

investor’s interest, the servicer

ordinarily covenants that this ‘‘sold

flag’’ will be included in all records

relating to the sold receivables,

including the master file, archives, tape

extracts and printouts.

The sold flags are invisible to the

obligor and do not affect the manner in

which the servicer performs the billing,

posting and collection procedures
Federal Register / Vol. 62, No. 244 / Friday, December 19, 1997 / Notices 66681

16The pass-through rate on certificates

representing interests in trusts holding leases is

determined by breaking down lease payments into

‘‘principal’’ and ‘‘interest’’ components based on an

implicit interest rate.

related to the sold receivables. However,

the servicer uses the sold flag to identify

the receivables for the purpose of

reporting all activity on those

receivables after their sale to investors.

Depending on the type of receivable

and the details of the servicer’s

computer system, in some cases the

servicer’s internal reports can be

adapted for investor reporting with little

or no modification. In other cases, the

servicer may have to perform special

calculations to fulfill the investor

reporting responsibilities. These

calculations can be performed on the

servicer’s main computer, or on a small

computer with data supplied by the

main system. In all cases, the numbers

produced for the investors are

reconciled to the servicer’s books and

reviewed by public accountants.

The underwriter will be a registered

broker-dealer that acts as underwriter or

placement agent with respect to the sale

of the certificates. Public offerings of

certificates are generally made on a firm

commitment basis. Private placement of

certificates may be made on a firm

commitment or agency basis.

It is anticipated that the lead and comanaging underwriters will make a

market in certificates offered to the

public.

In some cases, the originator and

servicer of receivables to be included in

a trust and the sponsor of the trust

(although they may themselves be

related) will be unrelated to PNC. In

other cases, however, affiliates of PNC

may originate or service receivables

included in a trust or may sponsor a

trust.

Certificate Price, Pass-Through Rate and

Fees

15. In some cases, the sponsor will

obtain the receivables from various

originators pursuant to existing

contracts with such originators under

which the sponsor continually buys

receivables. In other cases, the sponsor

will purchase the receivables at fair

market value from the originator or a

third party pursuant to a purchase and

sale agreement related to the specific

offering of certificates. In other cases,

the sponsor will originate the

receivables itself.

As compensation for the receivables

transferred to the trust, the sponsor

receives certificates representing the

entire beneficial interest in the trust, or

the cash proceeds of the sale of such

certificates. If the sponsor receives

certificates from the trust, the sponsor

sells all or a portion of these certificates

for cash to investors or securities

underwriters.

16. The price of the certificates, both

in the initial offering and in the

secondary market, is affected by market

forces, including investor demand, the

pass-through interest rate on the

certificates in relation to the rate

payable on investments of similar types

and quality, expectations as to the effect

on yield resulting from prepayment of

underlying receivables, and

expectations as to the likelihood of

timely payment.

The pass-through rate for certificates

is equal to the interest rate on

receivables included in the trust minus

a specified servicing fee.16 This rate is

generally determined by the same

market forces that determine the price of

a certificate. The price of a certificate

and its pass-through, or coupon, rate

together determine the yield to

investors. If an investor purchases a

certificate at less than par, that discount

augments the stated pass-through rate;

conversely, a certificate purchased at a

premium yields less than the stated

coupon.

17. As compensation for performing

its servicing duties, the servicer (who

may also be the sponsor or an affiliate

thereof, and receive fees for acting in

that capacity) will retain the difference

between payments received on the

receivables in the trust and payments

payable (at the pass-through rate) to

certificateholders, except that in some

cases a portion of the payments on

receivables may be paid to a third party,

such as a fee paid to a provider of credit

support. The servicer may receive

additional compensation by having the

use of the amounts paid on the

receivables between the time they are

received by the servicer and the time

they are due to the trust (which time is

set forth in the pooling and servicing

agreement). The servicer typically will

be required to pay the administrative

expenses of servicing the trust,

including in some cases the trustee’s

fee, out of its servicing compensation.

The servicer is also compensated to

the extent it may provide credit

enhancement to the trust or otherwise

arrange to obtain credit support from

another party. This ‘‘credit support fee’’

may be aggregated with other servicing

fees, and is either paid out of the

interest income received on the

receivables in excess of the pass-through

rate or paid in a lump sum at the time

the trust is established.

18. The servicer may be entitled to

retain certain administrative fees paid

by a third party, usually the obligor.

These administrative fees fall into three

categories: (a) prepayment fees; (b) late

payment and payment extension fees;

and (c) expenses, fees and charges

associated with foreclosure or

repossession, or other conversion of a

secured position into cash proceeds,

upon default of an obligation.

Compensation payable to the servicer

will be set forth or referred to in the

pooling and servicing agreement and

described in reasonable detail in the

prospectus or private placement

memorandum relating to the certificates.

19. Payments on receivables may be

made by obligors to the servicer at

various times during the period

preceding any date on which passthrough payments to the trust are due.

In some cases, the pooling and servicing

agreement may permit the servicer to

place these payments in non-interest

bearing accounts maintained with itself

or to commingle such payments with its

own funds prior to the distribution

dates. In these cases, the servicer would

be entitled to the benefit derived from

the use of the funds between the date of

payment on a receivable and the passthrough date. Commingled payments

may not be protected from the creditors

of the servicer in the event of the

servicer’s bankruptcy or receivership. In

those instances when payments on

receivables are held in non-interest

bearing accounts or are commingled

with the servicer’s own funds, the

servicer is required to deposit these

payments by a date specified in the

pooling and servicing agreement into an

account from which the trustee makes

payments to certificateholders.

20. The underwriter will receive a fee

in connection with the securities

underwriting or private placement of

certificates. In a firm commitment

underwriting, this fee would consist of

the difference between what the

underwriter receives for the certificates

that it distributes and what it pays the

sponsor for those certificates. In a

private placement, the fee normally

takes the form of an agency commission

paid by the sponsor. In a best efforts

underwriting in which the underwriter

would sell certificates in a public

offering on an agency basis, the

underwriter would receive an agency

commission rather than a fee based on

the difference between the price at

which the certificates are sold to the

public and what it pays the sponsor. In

some private placements, the

underwriter may buy certificates as

principal, in which case its

compensation would be the difference

between what it receives for the
66682 Federal Register / Vol. 62, No. 244 / Friday, December 19, 1997 / Notices

certificates that it sells and what it pays

the sponsor for these certificates.

Purchase of Receivables by the Servicer

21. The applicant represents that as

the principal amount of the receivables

in a trust is reduced by payments, the

cost of administering the trust generally

increases, making the servicing of the

trust prohibitively expensive at some

point. Consequently, the pooling and

servicing agreement generally provides

that the servicer may purchase the

receivables remaining in the trust when

the aggregate unpaid balance payable on

the receivables is reduced to a specified

percentage (usually 5 to 10 percent) of

the initial aggregate unpaid balance.

The purchase price of a receivable is

specified in the pooling and servicing

agreement and will be at least equal to:

(1) the unpaid principal balance on the

receivable plus accrued interest, less

any unreimbursed advances of principal

made by the servicer; or (2) the greater

of (a) the amount in (1) or (b) the fair

market value of such obligations in the

case of a REMIC, or the fair market value

of the receivables in the case of a trust

that is not a REMIC.

Certificate Ratings

22. The certificates will have received

one of the three highest ratings available

from a rating agency. Insurance or other

credit support (such as surety bonds,

letters of credit, guarantees, or

overcollateralization) will be obtained

by the trust sponsor to the extent

necessary for the certificates to attain

the desired rating. The amount of this

credit support is set by the rating

agencies at a level that is a multiple of

the worst historical net credit loss

experience for the type of obligations

included in the issuing trust.

Provision of Credit Support

23. In some cases, the master servicer,

or an affiliate of the master servicer,

may provide credit support to the trust

(i.e. act as an insurer). In these cases, the

master servicer, in its capacity as

servicer, will first advance funds to the

full extent that it determines that such

advances will be recoverable (a) out of

late payments by the obligors, (b) from

the credit support provider (which may

be the master servicer or an affiliate

thereof) or, (c) in the case of a trust that

issues subordinated certificates, from

amounts otherwise distributable to

holders of subordinated certificates, and

the master servicer will advance such

funds in a timely manner. When the

servicer is the provider of the credit

support and provides its own funds to

cover defaulted payments, it will do so

either on the initiative of the trustee, or

on its own initiative on behalf of the

trustee, but in either event it will

provide such funds to cover payments

to the full extent of its obligations under

the credit support mechanism. In some

cases, however, the master servicer may

not be obligated to advance funds but

instead would be called upon to provide

funds to cover defaulted payments to

the full extent of its obligations as

insurer. Moreover, a master servicer

typically can recover advances either

from the provider of credit support or

from future payments on the affected

assets.

If the master servicer fails to advance

funds, fails to call upon the credit

support mechanism to provide funds to

cover delinquent payments, or

otherwise fails in its duties, the trustee

would be required and would be able to

enforce the certificateholders’ rights, as

both a party to the pooling and servicing

agreement and the owner of the trust

estate, including rights under the credit

support mechanism. Therefore, the

trustee, who is independent of the

servicer, will have the ultimate right to

enforce the credit support arrangement.

When a master servicer advances

funds, the amount so advanced is

recoverable by the master servicer out of

future payments on receivables held by

the trust to the extent not covered by

credit support. However, where the

master servicer provides credit support

to the trust, there are protections in

place to guard against a delay in calling

upon the credit support to take

advantage of the fact that the credit

support declines proportionally with

the decrease in the principal amount of

the obligations in the trust as payments

on receivables are passed through to

investors. These safeguards include:

(a) There is often a disincentive to

postponing credit losses because the

sooner repossession or foreclosure

activities are commenced, the more

value that can be realized on the

security for the obligation;

(b) The master servicer has servicing

guidelines which include a general

policy as to the allowable delinquency

period after which an obligation

ordinarily will be deemed uncollectible.

The pooling and servicing agreement

will require the master servicer to

follow its normal servicing guidelines

and will set forth the master servicer’s

general policy as to the period of time

after which delinquent obligations

ordinarily will be considered

uncollectible;

(c) As frequently as payments are due

on the receivables included in the trust

(monthly, quarterly or semi-annually, as

set forth in the pooling and servicing

agreement), the master servicer is

required to report to the independent

trustee the amount of all past-due

payments and the amount of all servicer

advances, along with other current

information as to collections on the

receivables and draws upon the credit

support. Further, the master servicer is

required to deliver to the trustee

annually a certificate of an executive

officer of the master servicer stating that

a review of the servicing activities has

been made under such officer’s

supervision, and either stating that the

master servicer has fulfilled all of its

obligations under the pooling and

servicing agreement or, if the master

servicer has defaulted under any of its

obligations, specifying any such default.

The master servicer’s reports are

reviewed at least annually by

independent accountants to ensure that

the master servicer is following its

normal servicing standards and that the

master servicer’s reports conform to the

master servicer’s internal accounting

records. The results of the independent

accountants’ review are delivered to the

trustee; and

(d) The credit support has a ‘‘floor’’

dollar amount that protects investors

against the possibility that a large

number of credit losses might occur

towards the end of the life of the trust,

whether due to servicer advances or any

other cause. Once the floor amount has

been reached, the servicer lacks an

incentive to postpone the recognition of

credit losses because the credit support

amount thereafter is subject to reduction

only for actual draws. From the time

that the floor amount is effective until

the end of the life of the trust, there are

no proportionate reductions in the

credit support amount caused by

reductions in the pool principal

balance. Indeed, since the floor is a

fixed dollar amount, the amount of

credit support ordinarily increases as a

percentage of the pool principal balance

during the period that the floor is in

effect.

Disclosure

24. In connection with the original

issuance of certificates, the prospectus

or private placement memorandum will

be furnished to investing plans. The

prospectus or private placement

memorandum will contain information

material to a fiduciary’s decision to

invest in the certificates, including:

(a) Information concerning the

payment terms of the certificates, the

rating of the certificates, and any

material risk factors with respect to the

certificates;

(b) A description of the trust as a legal

entity and a description of how the trust
Federal Register / Vol. 62, No. 244 / Friday, December 19, 1997 / Notices 66683

was formed by the seller/servicer or

other sponsor of the transaction;

(c) Identification of the independent

trustee for the trust;

(d) A description of the receivables

contained in the trust, including the

types of receivables, the diversification

of the receivables, their principal terms,

and their material legal aspects;

(e) A description of the sponsor and

servicer;

(f) A description of the pooling and

servicing agreement, including a

description of the seller’s principal

representations and warranties as to the

trust assets, including the terms and

conditions for eligibility of any

receivables transferred during the prefunding period and the trustee’s remedy

for any breach thereof; a description of

the procedures for collection of

payments on receivables and for making

distributions to investors, and a

description of the accounts into which

such payments are deposited and from

which such distributions are made; a

description of permitted investments for

any pre-funding account or capitalized

interest account; identification of the

servicing compensation and any fees for

credit enhancement that are deducted

from payments on receivables before

distributions are made to investors; a

description of periodic statements

provided to the trustee, and provided to

or made available to investors by the

trustee; and a description of the events

that constitute events of default under

the pooling and servicing contract and

a description of the trustee’s and the

investors’ remedies incident thereto;

(g) A description of the credit support;

(h) A general discussion of the

principal federal income tax

consequences of the purchase,

ownership and disposition of the passthrough securities by a typical investor;

(i) A description of the underwriters’

plan for distributing the pass-through

securities to investors; and

(j) Information about the scope and

nature of the secondary market, if any,

for the certificates.

(k) A statement as to the duration of

any pre-funding period and the prefunding limit for the trust.

25. Reports indicating the amount of

payments of principal and interest are

provided to certificateholders at least as

frequently as distributions are made to

certificateholders. Certificateholders

will also be provided with periodic

information statements setting forth

material information concerning the

underlying assets, including, where

applicable, information as to the amount

and number of delinquent and defaulted

loans or receivables.

26. In the case of a trust that offers

and sells certificates in a registered

public offering, the trustee, the servicer

or the sponsor will file such periodic

reports as may be required to be filed

under the Securities Exchange Act of

1934. Although some trusts that offer

certificates in a public offering will file

quarterly reports on Form 10-Q and

Annual Reports on Form 10-K, many

trusts obtain, by application to the

Securities and Exchange Commission, a

complete exemption from the

requirement to file quarterly reports on

Form 10-Q and a modification of the

disclosure requirements for annual

reports on Form 10-K. If such an

exemption is obtained, these trusts

normally would continue to have the

obligation to file current reports on

Form 8-K to report material

developments concerning the trust and

the certificates and copies of the

statements sent to certificateholders.

While the Securities and Exchange

Commission’s interpretation of the

periodic reporting requirements is

subject to change, periodic reports

concerning a trust will be filed to the

extent required under the Securities

Exchange Act of 1934.

27. At or about the time distributions

are made to certificateholders, a report

will be delivered to the trustee as to the

status of the trust and its assets,

including underlying obligations. Such

report will typically contain information

regarding the trust’s assets (including

those purchased by the trust from any

pre-funding account), payments

received or collected by the servicer, the

amount of prepayments, delinquencies,

servicer advances, defaults and

foreclosures, the amount of any

payments made pursuant to any credit

support, and the amount of

compensation payable to the servicer.

Such report also will be delivered to or

made available to the rating agency or

agencies that have rated the trust’s

certificates.

In addition, promptly after each

distribution date, certificateholders will

receive a statement prepared by the

servicer or trustee summarizing

information regarding the trust and its

assets. Such statement will include

information regarding the trust and its

assets, including underlying receivables.

Such statement will typically contain

information regarding payments and

prepayments, delinquencies, the

remaining amount of the guaranty or

other credit support and a breakdown of

payments between principal and

interest.

Forward Delivery Commitments

28. To date, no forward delivery

commitments have been entered into by

PNC in connection with the offering of

any certificates, but PNC may

contemplate entering into such

commitments. The utility of forward

delivery commitments has been

recognized with respect to offering

similar certificates backed by pools of

residential mortgages, and PNC may

find it desirable in the future to enter

into such commitments for the purchase

of certificates.

Secondary Market Transactions

29. It is PNC’s normal policy to

attempt to make a market for securities

for which it is lead or co-managing

underwriter, and it is PNC’s intention to

make a market for any certificates for

which it is lead or co-managing

underwriter, although it is under no

obligation to do so. At times PNC will

facilitate sales by investors who

purchase certificates if PNC has acted as

agent or principal in the original private

placement of the certificates and if such

investors request PNC’s assistance.

Retroactive Relief

30. PNC represents that it has not

engaged in transactions related to

mortgage-backed and asset-backed

securities based on the assumption that

retroactive relief would be granted prior

to the date of their application.

However, PNC requests the exemptive

relief granted to be retroactive to

October 21, 1997, the date of their

application, and would like to rely on

such retroactive relief for transactions

entered into prior to the date exemptive

relief may be granted.

Summary

31. In summary, the applicant

represents that the transactions for

which exemptive relief is requested

satisfy the statutory criteria of section

408(a) of the Act due to the following:

(a) The trusts contain ‘‘fixed pools’’ of

assets. There is little discretion on the

part of the trust sponsor to substitute

receivables contained in the trust once

the trust has been formed;

(b) In the case where a pre-funding

account is used, the characteristics of

the receivables to be transferred to the

trust during the pre-funding period will

be substantially similar to the

characteristics of those transferred to the

trust on the closing date, thereby giving

the sponsor and/or originator little

discretion over the selection process,

and compliance with this requirement

will be assured by the specificity of the

characteristics and the monitoring

mechanisms contemplated under the
66684 Federal Register / Vol. 62, No. 244 / Friday, December 19, 1997 / Notices

proposed exemption. In addition,

certain cash accounts will be

established to support the certificate

pass-through rate and such cash

accounts will be invested in short-term,

conservative investments; the prefunding period will be of a reasonably

short duration; a pre-funding limit will

be imposed; and any Internal Revenue

Service requirements with respect to

pre-funding intended to preserve the

passive income character of the trust

will be met. The fiduciary of the plans

making the decision to invest in

certificates is thus fully apprised of the

nature of the receivables which will be

held in the trust and has sufficient

information to make a prudent

investment decision;

(c) Certificates in which plans invest

will have been rated in one of the three

highest rating categories by a rating

agency. Credit support will be obtained

to the extent necessary to attain the

desired rating;

(d) All transactions for which PNC

seeks exemptive relief will be governed

by the pooling and servicing agreement,

which is made available to plan

fiduciaries for their review prior to the

plan’s investment in certificates;

(e) Exemptive relief from sections

406(b) and 407 for sales to plans is

substantially limited; and

(f) PNC anticipates that it will make

a secondary market in certificates

(although it is under no obligation to do

so).

Notice to Interested Persons

The applicant represents that because

those potentially interested participants

and beneficiaries cannot all be

identified, the only practical means of

notifying such participants and

beneficiaries of this proposed

exemption is by the publication of this

notice in the Federal Register.

Comments and requests for a hearing

must be received by the Department not

later than 30 days from the date of

publication of this notice of proposed

exemption in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Gary

Lefkowitz of the Department, telephone

(202) 219–8881. (This is not a toll-free

number.)

Jeffrey R. Light, M.D., Inc. Profit

Sharing Plan (the Plan) Located in

Garden Grove, CA; Proposed

Exemption

[Application No. D–10530]

The Department of Labor 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). If the exemption is

granted, the restrictions of sections

406(a) and 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 the sale (the Sale) by the individual,

self-directed account of Jeffrey R. Light,

M.D. within the Plan (the Account) of

two parcels of real property (the

Property) to Jeffrey R. Light, M.D. (Dr.

Light), a party in interest with respect to

the Plan; provided the following

conditions are satisfied:

(A) The terms and conditions of the

transaction are no less favorable to the

Plan than those which the Plan would

receive in an arm’s-length transaction

with an unrelated party;

(B) The Sale is a one-time transaction

for cash;

(C) The Plan does not incur any

expenses from the Sale; and

(D) The Plan receives as consideration

from the Sale no less than the fair

market value of the Property as

determined on the date of the Sale by a

qualified, independent appraiser.

Summary of Facts and Representations

1. Jeffrey R. Light, M.D., Inc., located

in Garden Grove, California, a California

corporation for the practice of medicine,

is sponsor of the Plan. Dr. Light is a

medical physician and a pathologist,

whose practice involves tissue analysis,

sample reviews, and providing opinions

regarding such analysis and review.

The Plan is a defined contribution

plan that is intended to qualify under

section 401(a) of the Code. The

applicant represents that on December

31, 1996, the Plan had 26 participants

and total assets of $523,077, and of the

total assets $404,582 was in Dr. Light’s

Account. The applicant represents that

the Plan permits its participants to selfdirect their respective accounts into

various investments. Dr. Light is

represented by the applicant to be the

fiduciary and trustee with respect to the

Plan.

2. The Property consists of two lots of

unimproved land. One of the lots is

located at 370 Ranch Road in Mammoth

Lakes, California, consists of 0.38 of an

acre (16,553 square feet), and is

designated as Ranch at Snowcreek Lot

#14 (Lot #14). The second lot is located

at Majestic Pines Drive in Mammoth,

California, consists of 0.2 of an acre

(8,750 square feet), and is designated as

Mammoth Vista III Lot #34 (Lot #34).

The applicant represents that Lot #14

was purchased on January 29, 1996, for

the sum of $126,892 and Lot #34 was

purchased on January 7, 1991, for the

sum of $127,639.55.

The applicant also represents that the

Property was purchased only for

investment purposes and it has been

held in the Account since the respective

dates of purchase with no

improvements made on or to the

Property. Also, the applicant represents

that the Property has not been used or

leased by anyone since being acquired

by the Account.

The Property was appraised on

October 3, 1997, by Mitch Dunshee,

MAI, AG002575 and Cheryl Bretton,

Appraiser, AG023954, The Dunshee

Appraisal Group, located in Frensno,

California; and Lot #14 was determined

to have a fair market value of $130,000

and Lot #34 was determined to have a

fair market value of $120,000. Also the

appraisal of the Property represented

that the Property is zoned residential

and located in an earthquake zone that

is designated Zone 1: High Risk Damage;

Reference: ISO Earthquake Zones, 1981.

3. Dr. Light proposes to purchase the

Property from the Account for cash with

no expenses incurred by the Plan in a

one-time transaction, paying to the

Account the fair market value of the

Property as determined by a qualified,

independent appraiser on the date of the

Sale.

Dr. Light is prompted to take this

action by Mr. Douglas B. George,

Financial Counsel, Newport Beach,

California, whose services were recently

employed by Dr. Light with respect to

the Plan’s finances. The applicant

represents the need for the Account to

diversify its investments, noting that the

Property represents more than 62

percent of the total value of the assets

in the Account. Also, Mr. George

expressed concern about the lack of

investment diversity in the Account and

the location of the Property being in the

high risk earthquake zone of California.

4. In summary, the applicant

represents that the proposed transaction

satisfies the criteria of section 408(a) of

the Act because (a) the Sale is a onetime transaction for cash; (b) the Plan

and the Account will receive the fair

market value of the Property as

determined by a qualified, independent

appraiser on the date of the transaction;

(c) the transaction will enable the

Account to avoid any risk associated

with the continued holding of the

Property and enable the Dr. Light to

direct Account assets to active and safer

investments; (d) neither the Plan or the

Account will incur any expenses from

the transaction; and (e) other than Dr.

Light, no other participant of the Plan

will be affected by the transaction, and
Federal Register / Vol. 62, No. 244 / Friday, December 19, 1997 / Notices 66685

he desires that the transaction be

consummated.

Notice to Interested Persons

Because the only Plan assets involved

in the proposed transaction are those in

the Account of Dr. Light and he is the

only participant affected by the

proposed transaction, there is no need

to distribute the notice of the proposed

transaction to interested persons.

Comments and requests for a hearing are

due 30 days from the date of publication

of this proposed exemption in the

Federal Register.

FOR FURTHER INFORMATION CONTACT: Mr.

C.E. Beaver of the Department,

telephone (202) 219–8881. (This is not

a toll-free number.)

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

that each application accurately

describes all material terms of the

transaction which is the subject of the

exemption.

Signed at Washington, DC, this 16th day of

December 1997.

Ivan Strasfeld,

Director of Exemption Determinations

Pension and Welfare Benefits Administration,

Department of Labor.

[FR Doc. 97–33179 Filed 12–18–97; 8:45 am]

BILLING CODE 4510–29–P

DEPARTMENT OF LABOR

Pension and Welfare Benefits

Administration

[Application Nos. D–10461, D–10462 and D–

10463]

Notice of Proposed Amendment to

Prohibited Transaction Exemption

(PTE) 93–8 Involving the Fortunoff

Pension Plans (the Plans) Located in

Westbury, NY

AGENCY: Pension and Welfare Benefits

Administration, U.S. Department of

Labor.

ACTION: Notice of proposed amendment

to PTE 93–8.

SUMMARY: This document contains a

notice of pendency before the

Department of Labor (the Department) of

a proposed individual exemption

which, if granted, would amend PTE

93–8 (58 FR 7258, February 5, 1993), a

purchase, leaseback and license

exemption involving Plans sponsored

by Fortunoff Fine Jewelry and

Silverware, Inc. (FFJ) and M. Fortunoff

of Westbury Corporation (M. Fortunoff)

and parties in interest. These

transactions are described in a notice of

pendency that was published in the

Federal Register on May 8, 1992 at 57

FR 19951. The proposed exemption, if

granted, would affect participants and

beneficiaries of, and fiduciaries with

respect to the Plans.

EFFECTIVE DATE: If granted, this proposed

exemption would be effective as of the

date the notice granting the exemption

is published in the Federal Register.

DATES: Written comments and requests

for a public hearing must be received by

the Department on or before February 2,

1998.

ADDRESSES: All written comments and

requests for a public hearing (preferably,

three copies) should be sent to the

Office of Exemption Determinations,

Pension and Welfare Benefits

Administration, Room N–5649, U.S.

Department of Labor, 200 Constitution

Avenue, NW., Washington, DC 20210,

Attention: Application Nos. D–10461,

D–10462 and D–10463. The application

pertaining to the proposed exemption

and the comments received will be

available for public inspection in the

Public Documents Room of the Pension

and Welfare Benefits Administration,

U.S. Department of Labor, Room N–

5507, 200 Constitution Avenue, NW.,

Washington, DC 20210.

FOR FURTHER INFORMATION CONTACT:

Ms. Jan D. Broady, Office of Exemption

Determinations, Pension and Welfare

Benefits Administration, U.S.

Department of Labor, Washington, DC

20210, telephone (202) 219–8881. (This

is not a toll-free number.)

SUPPLEMENTARY INFORMATION: Notice is

hereby given of the pendency before the

Department of proposed exemption that

would amend PTE 93–8. PTE 93–8

provides an exemption from certain

prohibited transaction restrictions of

section 406 of the Employee Retirement

Income Security Act of 1974 (the Act)

and from the sanctions resulting from

the application of section 4975 of the

Internal Revenue Code of 1986 (the

Code), as amended, by reason of section

4975(c)(1) of the Code. The proposed

exemption was requested in an

application filed on behalf of M.

Fortunoff and FFJ (collectively), the

Applicants) pursuant to section 408(a)

of the Act and section 4975(c)(2) of the

Code, and in accordance with the

procedures set forth in 29 CFR part

2570, subpart B (55 FR 32836, 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. Accordingly, this

proposed exemption is being issued

solely by the Department.

I. Background

PTE 93–8 provides prospective

exemptive relief from 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 with respect to

(1) the purchase by the Fortunoff

Pension Plan—Employer Group A Plan

(the Employer Group A Plan), the

Fortunoff Pension Plan—Employer

Group B Plan (the Employer Group B

Plan) and the Fortunoff Fine Jewelry

and Silverware, Inc. Profit Sharing Plan

(the Profit Sharing Plan) of undivided

interests in certain improved real

property (the Property), for the total