Federal Register / Vol. 62, No. 74 / Thursday, April 17, 1997 / Notices 18803

1The Department is making no determination

with respect to whether or not the Lease met the

conditions of PTE 76–1.

Signed at Washington, DC, this 14th day of

April, 1997.

Ivan Strasfeld,

Director of Exemption Determinations,

Pension and Welfare Benefits Administration,

Department of Labor.

[FR Doc. 97–9975 Filed 4–16–97; 8:45 am]

BILLING CODE 4510–29–P

DEPARTMENT OF LABOR

Pension and Welfare Benefits

Administration

[Application No. L–10280, et al.]

Proposed Exemptions; Operating

Engineers Local 150 Apprenticeship

Fund (the Fund)

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 restriction of the

Employee Retirement Income Security

Act of 1974 (the Act) and/or the Internal

Revenue Code of 1986 (the Code).

Written Comments and Hearing

Requests

Unless otherwise stated in the Notice

of Proposed Exemption, all interested

persons are invited to submit written

comments, and with respect to

exemptions involving the fiduciary

prohibitions of section 406(b) of the Act,

requests for hearing within 45 days from

the date of publication of this Federal

Register Notice. Comments and request

for a hearing should state: (1) the name,

address, and telephone number of the

person making the comment or request,

and (2) the nature of the person’s

interest in the exemption and the

manner in which the person would be

adversely affected by the exemption. A

request for a hearing must also state the

issues to be addressed and include a

general description of the evidence to be

presented at the hearing. A request for

a hearing must also state the issues to

be addressed and include a general

description of the evidence to be

presented at the hearing.

ADDRESSES: All written comments and

request for a hearing (at least three

copies) should be sent to the Pension

and Welfare Benefits Administration,

Office of Exemption Determinations,

Room N–5649, U.S. Department of

Labor, 200 Constitution Avenue, N.W.,

Washington, D.C. 20210. Attention:

Application No. stated in each Notice of

Proposed Exemption. The applications

for exemption and the comments

received will be available for public

inspection in the Public Documents

Room of Pension and Welfare Benefits

Administration, U.S. Department of

Labor, Room N–5507, 200 Constitution

Avenue, 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.

Operating Engineers Local 150

Apprenticeship Fund (the Fund),

Located in Plainfield, Illinois

[Exemption Application No. L–10280]

Proposed Exemption

The Department is considering

granting an exemption under the

authority of section 408(a) of the Act

and in accordance with the procedures

set forth in 29 CFR Part 2570, Subpart

B (55 FR 32826, 32847, August 10,

1990). If the exemption is granted the

restrictions of section 406(a) and

406(b)(1) and (2) shall not apply to the

proposed sale (the Sale) of a certain

parcel of improved real property (the

Property) from the Fund to International

Union of Operating Engineers, Local 150

(Local 150), a party in interest with

respect to the Plan provided that the

following conditions are met:

(1) The fair market value of the

Property is established by a qualified

and independent real estate appraiser;

(2) Local 150 pays the greater of

$180,000 or the current fair market

value of the Property as of the date of

the transaction;

(3) The Sale is a one time transaction

for cash; and

(4) The Fund pays no fees or

commissions related to the Sale.

Summary of Facts and Representations

1. The Fund is a welfare plan which

is an apprenticeship and training plan

with approximately 600 apprentices and

5,494 journeymen. The Fund was

established on June 1, 1967. As of

December 31, 1995, the fair market

value of the Fund’s assets was

$6,492,242. The Fund sponsors include

the Local 150 and other employer

associations.

2. The Fund acquired the Property as

part of a merger with the Operating

Engineers Local 537 Apprenticeship and

Re-training Fund on or about October

28, 1992. During this time, the

Operating Engineers Local 537

terminated and transferred all of its

assets to the Fund. The Property is

located in Rock Island, Illinois and

consists of an office building on

approximately 53 acres of land. The

applicant represents that the Property

has been leased by the Fund to Local

150 pursuant to Prohibited Transaction

Class Exemption 76–1 (41 FR 1270,

March 26, 1976).1 Since 1992, the Fund

has received net income from the

Property in the amount of $33,461.

3. In March 1993, the Property was

appraised at a value of $180,000 by

Baecke Appraisers, a qualified

independent real estate appraisal firm.

The value of the Property was

determined by using the market value

approach which is defined in the

appraisal as the most probable price a

property should bring on requisite to a

fair sale, the buyer and seller each

acting prudently and assuming the price

is not affected by undue stimulus. In

April 15, 1996, Mr. Robert Baecke of

Baecke Appraisers, updated the

appraisal and recertified the value of the

Property to be $180,000. Mr. Baecke

researched sales of comparable

properties in the Property’s market area

that have occurred since the time of the

original appraisal. His analysis

consisted of research of data from the

multiple listing service, county records,

exterior inspections of the properties

and conversations with individuals
18804 Federal Register / Vol. 62, No. 74 / Thursday, April 17, 1997 / Notices

2The Department expresses no opinion as to

whether the Union Lease satisfied the conditions of

PTE 76–1 or PTE 77–10, or whether such lease of

office space by the Plan to the Union was exempt

from the prohibitions of section 406 of the Act.

involved in the transactions.

Additionally, Mr. Baecke analyzed the

valuation approaches used in the

original appraisal, taking into

consideration all current data. Mr.

Baecke concluded that the Property’s

appraised value remains $180,000. In

this regard, Mr. Baecke represented that

the value of the Property at time the

Fund acquired the Property was

$180,000. The Fund will pay no

commissions or fees associated with the

Sale.

4. The Fund proposes to sell the

Property to Local 150. The Trustees of

the Fund have determined that the Fund

no longer needs the Property, and wish

to sell the Property. Local 150 has

offered to purchase the Property for cash

at the appraised value of $180,000.

6. In summary, the applicant

represents that the proposed transaction

satisfies the criteria of section 408(a) of

the Act because: (1) The Sale is a onetime transaction for cash, and no

commissions will be paid upon the Sale;

(2) the Fund will be receiving at least

fair market value for the Property as

determined by an independent qualified

real estate appraiser; and (3) the Fund

pays no commissions or fees associated

with the Sale.

For Further Information Contact:

Allison Padams of the Department,

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

toll-free number.)

Joint Apprenticeship Committee of

Plumbers Local No. 27 (the Plan),

Located in Pittsburgh, Pennsylvania

[Application No. L–10366]

Proposed Exemption

The Department is considering

granting an exemption under the

authority of section 408(a) of the Act

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

in accordance with the procedures set

forth in 29 C.F.R. Part 2570, Subpart B

(55 F.R. 32836, 32847, August 10, 1990).

If the exemption is granted the

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

and (b)(2) of the Act shall not apply to

the proposed sale by the Plan of certain

improved real property located in

Allegheny County, Pennsylvania (the

Property) to the Local Union No. 27 (the

Plumbers Local) of the United

Association of Journeymen and

Apprentices of the Plumbing and Pipe

Fitting Industry of the United States and

Canada, a party in interest with respect

to the Plan; provided that the following

conditions are met:

(A) The Plan does not incur any

expenses or suffer any loss with respect

to the transaction; and

(B) The Plan receives a cash purchase

price for the Property of no less than the

greater of (1) the Plan’s cost basis in the

Property as of the date of the sale, or (2)

the fair market value of the Property as

of the date of the sale, as determined by

an independent, qualified appraiser,

and in no event less than $265,597.

Summary of Facts and Representations

Introduction

The Plan’s operations are conducted

in the Pipe Trades Training Center (the

Property), which is owned by the Plan.

The Trustees of the Plan have

determined that it is no longer

economically feasible for the Plan to

maintain and operate its own facility,

and that the Plan can be operated more

efficiently as a tenant in the Property.

The Trustees propose to sell the

Property to the Union, the members of

which are participants in the Plan, and

to arrange for the Plan to lease space in

the Property from the Union. An

exemption is requested to allow the sale

transaction under the terms and

conditions described herein.

1. The Plan is an apprenticeship

training plan providing educational and

occupational training for apprentices

and journeymen plumbers who are

members of the Union. The Plan was

created and is maintained pursuant to

collective bargaining agreements

between the Union and the Mechanical

Contractors Association of Western

Pennsylvania (the Association), which

represents employers of plumbers who

are members of the Union. The Plan is

administered by a board of six trustees

(the Trustees), three of whom are

representatives of the Union and three

of whom are representatives of the

Association and other employers in

signed agreements with the Union. As of

October 1, 1996, approximately 610

members of the Union were participants

in the Plan, which had total assets of

approximately $360,080 as of December

31, 1995.

2. Among the assets of the Plan is the

Property, a parcel of improved real

property located at 104 Montour West

Industrial Park in North Fayette

Township near Pittsburgh in Allegheny

County, Pennsylvania. The Property

consists of 1.29 acres of land improved

with a one-story structure (the Building)

occupied by the Plan and operated by

the Trustees as the Pipe Trades Training

Center and ancillary office facility. The

Building, which is constructed of

cement block on reinforced concrete

slab, has a total interior area of 6,948

square feet, consisting of 984 square feet

of office space (the Office Space) and

the remainder utilized as classrooms,

shop, computer, and file room areas.

The Office Space is occupied by the

Union, which has leased the Office

Space from the Plan since 1987 (the

Union Lease). The Trustees and the

Union represent that the Union Lease

satisfies the requirements of Prohibited

Transaction Class Exemption 76–1 (PTE

76–1, 41, FR 12740, March 26, 1976)

and Prohibited Transaction Class

Exemption 77–10 (PTE 77–10, 42 FR

33918, July 1, 1977), relating to, among

other things, a lease of office space by

a multiemployer plan to a participating

employee organization.2

3. The Property is described legally as

lot 113R of the Montour West Industrial

Park (the Industrial Park) as recorded

with the Recorder’s Office of Allegheny

County, and it consists of a parcel

originally described in the county legal

records as lot 113 and one third of an

adjacent parcel originally described as

lot 112. The Trustees represent that the

Plan purchased the original lot 113 from

an unrelated party on August 22, 1974,

and on December 17, 1975 the Plan sold

a one-half interest in original lot 113 to

the Joint Apprenticeship Committee of

Steamfitters Local Union No. 449 (the

Steamfitters Plan), an apprenticeship

training plan providing benefits to

members of the United Association of

Journeymen and Apprentices of the

Plumbing and Pipe Fitting Industry of

the United States and Canada, Local

Union No. 449 (the Steamfitters Local).

Thereafter, the original lot 112 was

acquired jointly by the Plan and the

Steamfitters Plan from an unrelated

party on December 29, 1991. Although

the Plumbers Local and the Steamfitters

Local are components of the United

Association of Journeymen and

Apprentices of the Plumbing and Pipe

Fitting Industry of the United States and

Canada, the Trustees represent that the

Steamfitters Local and the Steamfitters

Plan are not parties in interest with

respect to the Plan, within the meaning

of section 3(14) of the Act, and that the

trustees of each plan are independent of

and unrelated to each other. The

Trustees explain that in many

jurisdictions plumbers and steamfitters

are members of the same local union,

with referrals for work based on a

determination of whether water or

steam pipes are involved. In the

Pittsburgh/Western Pennsylvania area,

however, the Trustees maintain that

there was historically substantial

employment in the steel mills and

factories for steamfitters, and

consequently, two separate local unions
Federal Register / Vol. 62, No. 74 / Thursday, April 17, 1997 / Notices 18805

3 In this proposed exemption the Department

expresses no opinion as to whether the Plan Lease

will meet the requirements of PTE 78–6.

emerged, one representing steamfitters

and one representing plumbers. Because

the training for apprentices in each local

union is similar, and because each local

union had similar needs in a training

facility, the trustees of the

apprenticeship plans of each local

union agreed to share the same training

facility for their apprenticeship

programs. In this context, the two plans

jointly owned the original lot 113, on

which the Building is situated, and the

adjacent original lot 112, an

unimproved lot utilized for parking

space.

In 1987, the trustees of the

Steamfitters Plan determined to

commence arrangements for a

movement of the operations of that plan

to a separate training facility in

Pittsburgh. The trustees of the

Steamfitters Plan then transferred that

plan’s one-half interest in lots 113 and

112 to the Plan, by deed dated January

9, 1987. (The Steamfitters Plan

continued to utilize facilities on the

Property as a tenant until that plan

acquired its own building in 1993.)

Subsequently, on June 1990, the legal

records for the Industrial Park were

revised to provide that two thirds of lot

112 was redesignated as lot 111R and

the remaining one third of lot 112 was

combined with lot 113 and redesignated

as lot 113R. The Trustees sold lot 111R

to an unrelated party in 1990, and lot

113R remains the legal designation of

the Property. According to Daniel F.

Smith, IFA (Smith), a professional

independent real estate appraiser in

Pittsburgh, Pennsylvania, the Property

had a fair market value of $246,000 as

of June 13, 1996. The Plan’s actual cost

basis in the Property is $265,597, as

determined as of May 14, 1996 by the

certified public accounting firm of R.S.

Cumberledge & Associates

(Cumberledge) in Pittsburgh,

Pennsylvania.

4. The Trustees represent that it is not

economically feasible for the Plan to

continue maintaining the Property

while continuing to provide a quality

training program for the Union’s

members. The Trustees state that recent

financial statements indicate a declining

balance of reserves in the assets of the

Plan, which is operating at a deficit due

to increasing Building maintenance and

related expenses. The Trustees represent

that employer contributions to the Plan

and rents paid by the Union to the Plan

are not sufficient to cover escalating

costs of maintaining the Property, even

though such employer contributions

have increased pursuant to collective

bargaining and the Trustees represent

that the rentals paid by the Union are in

excess of the Building’s fair market

rental value as indicated by Smith’s

appraisal. The Trustees are concerned

that the Plan’s continued ownership of

the Property will threaten the

availability of funds for instructor

salaries, equipment, and training

program operations. The Trustees

represent that they have determined that

the Plan would be able to operate its

training program more economically as

a tenant, rather than an owner, in the

Property.

5. Accordingly, the Trustees and

representatives of the Union propose

that the Union purchase the Property

from the Plan and are requesting an

exemption for such transaction under

the terms and conditions described

herein. The Union will pay the Plan a

cash purchase price for the Property in

the amount of no less than the greater

of (a) the Plan’s cost basis in the

Property as of the date of the sale, or (b)

the Property’s fair market value as of the

sale date as determined by Smith in an

update of his appraisal of June 13, 1996,

and in no event less than $265,597,

which was the Plan’s cost basis in the

Property as determined by Cumberledge

as of May 14, 1996. The Plan will incur

no costs related to the transaction.

6. Commencing with the Union’s

purchase of the Property, it is proposed

that the Plan will continue to utilize the

Property as its training facility by

leasing from the Union the same space

in the Property which the Plan has

utilized prior to the purchase

transaction. The Union and the Trustees

represent that this lease of space in the

Property from the Union (the Plan

Lease) will meet the requirements of

Prohibited Transaction Class Exemption

78–6 (PTE 78–6, 43 FR 23024, May 30,

1978), relating to, among other things, a

lease of real property by an employee

organization to a related apprenticeship

training plan.3 In addition to other

requirements, the conditions of PTE 78–

6 require the Plan Lease to be on terms

at least as favorable to the plan as an

arm’s-length transaction with an

unrelated party would be, and the Plan

Lease must be appropriate and helpful

in carrying out the purposes for which

the plan is established or maintained.

The Trustees represent that the Plan

Lease will satisfy these and all other

conditions of PTE 78–6 and that the

Plan Lease will enable the Plan to

terminate the lease arrangement with

sixty days written notice to the Union.

The Trustees represent that if the

exemption is granted, the Plan Lease

will be executed between the Plan and

the Union immediately after the sale

transaction is consummated and the

Plan’s use of the Property will continue

uninterrupted.

7. In summary, the applicants

represent that the proposed transaction

satisfies the criteria of section 408(a) of

the Act for the following reasons: (1)

The transaction will be a one-time

transaction for cash; (2) The Plan will

receive a purchase price for the Property

which is no less than the greater of the

Plan’s cost basis in the Property or the

Property’s fair market value as of the

date of the transaction; (3) The Plan will

incur no expenses with respect to the

transaction; and (4) The transaction will

enable the Plan to reduce its total

expenses and to operate more

efficiently.

For Further Information Contact:

Ronald Willett of the Department,

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

a toll-free number.)

Howes Leather Company, Inc.

Employee Stock Ownership Plan (the

Plan), Located in Curwensville,

Pennsylvania

[Application No. D–10385]

Proposed Exemption

The Department is considering

granting an exemption under the

authority of section 408(a) of the Act

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

in accordance with the procedures set

forth in 29 CFR Part 2570, Subpart B (55

FR 32836, 32847, August 10, 1990). 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 the proposed sale by the Plan

of an individual life insurance policy

(the Policy) to the Howes Leather

Company, Inc. (the Employer), the

sponsor of the Plan; provided that the

following conditions are satisfied:

(A) All terms and conditions of the

transaction are at least as favorable to

the Plan as those which the Plan could

obtain in arm’s-length transactions with

unrelated parties;

(B) The Plan receives a purchase price

for the Policy of no less than the greater

of (1) the fair market value of the Policy

as of the sale date, or (2) Policy’s cash

surrender value (as described below) as

of the sale date;

(C) The Plan does not incur any

expenses or suffer any loss with respect

to the transaction; and

(D) In the event the Employer recovers

with respect to the Policy a total amount

in excess of the purchase price paid to

the Plan for the Policy, such excess
18806 Federal Register / Vol. 62, No. 74 / Thursday, April 17, 1997 / Notices

4The Department expresses no opinion as to

whether the Loan satisfied the conditions of class

exemption PTE 80–26.

amount shall be distributed prorata

among the participants of the Plan.

Summary of Facts and Representations

1. The Plan is a defined contribution

employee stock ownership plan with 32

participants and total assets of

approximately $465,168 as of February

16, 1996. The Plan is sponsored by the

Employer, Howes Leather Company,

Inc., a Delaware corporation engaged in

the business of leather processing in the

city of Curwensville, Pennsylvania. The

trustees of the Plan are James M.

Fitzgibbons and Barry I. Getto, each of

whom is an officer, director and

shareholder of the Employer. The Plan

invests primarily in common stock of

the Employer, which constituted

approximately 92 percent of the Plan’s

assets as of February 16, 1996.

2. The Employer represents that the

Plan has been terminated and that

distribution of Plan assets was

completed in April 1996. Although the

Plan is an individual-account employee

stock ownership plan, at the time of the

Plan’s termination date there remained

in the Plan one general asset in which

all Plan participants held undivided

pro-rata interests: the Policy. The Policy

is an individual life insurance policy

issued by the Fidelity Mutual Life

Insurance Company (the Insurer) on the

life of Harry J. Widney, a former

participant in the Plan who had

terminated participation in the Plan and

received full payment of Plan benefits

many years prior to the Plan

termination. The Employer represents

that Mr. Widney had been a shareholder

of the Employer and that the Plan had

acquired the Policy to provide the Plan

with assets to purchase Employer stock

from his estate in the event of his death.

When Mr. Widney left the Employer’s

business and terminated his

participation in the Plan during the Plan

year commencing July 1, 1982, his

account balance in the Plan was

distributed to him in the form of

Employer stock. The Employer

represents that Mr. Widney was offered

the Policy but refused to accept it. As a

result, the Policy was retained as a

general asset of the Plan.

With an original face value of $50,000

and paid-up additions totaling $7,998,

the Policy has a total face value of

$57,998. The Employer represents that

upon termination of the Plan, the

Trustees were unable to liquidate the

Policy, by surrendering it for its cash

surrender value, because the Insurer is

in rehabilitation proceedings (the

Rehabilitation) which have rendered the

Policy frozen and inaccessible. The

Employer represents that it is uncertain

when the Rehabilitation will be resolved

to enable the cash surrender of the

Policy by the Plan and that, due to the

current status of the Insurer, the ability

of the Insurer to pay the full value of the

Policy is in question.

3. The Employer represents that upon

termination of the Plan, the Trustees

undertook to make prompt distributions

to all Plan participants of their

respective benefits from the Plan, and

that they did not wish to delay

distribution until resolution of the

Rehabilitation. Accordingly, in order to

enable the Plan to proceed with

complete distributions, the Employer

represents that it made an interest-free

loan to the Plan (the Loan) in the

amount of cash which the Plan would

have realized from a cash surrender of

the Policy on the Termination Date. The

Loan proceeds were distributed pro rata

among all participants in the Plan as of

the Termination Date. The Loan was in

the amount of $34,044.77, which was

the cash surrender value of the Policy

upon the termination of the Plan as

determined by the Insurer. The

Employer represents that the Loan

satisfied the requirements of Prohibited

Transaction Class Exemption 80–26

(PTE 80–26, 45 FR 35040, May 23,

1980), relating to interest-free loans to a

plan for, among other things, the

payment of benefits.4 The Policy

remains an asset in the Plan’s trust even

though distribution to Plan participants

has been completed.

4. In order to complete the liquidation

of the Plan, the Employer now proposes

to purchase the Policy from the Plan so

that the last remaining Plan asset may

be liquidated and the Plan’s trust may

be dissolved, and the Employer is

requesting an exemption for such

transaction under the terms and

conditions described herein. The

Employer proposes to purchase the

Policy from the Plan for a purchase

price in the amount of the Loan, and to

consummate the purchase transaction

by means of canceling the Loan in

exchange for the Policy. Accordingly,

the purchase price for the Policy will be

$34,044.77, the Policy’s cash surrender

value as of the date of Plan termination,

which was the same amount of cash

which the Plan would have realized

from a cash surrender of the Policy if

the Rehabilitation proceedings had not

prevented the cash surrender of the

Policy upon the Plan termination. The

Plan will not incur any expenses with

respect to the transaction.

5. Upon cancellation of the Loan, the

Policy will be transferred to the

Employer, and thereafter the Employer

will be entitled to amounts due the

holder of the Policy under its terms and

conditions. The Employer represents

that due to the Rehabilitation and the

financial condition of the Insurer, it is

questionable whether the Employer will

ever recover the cash surrender value of

the Policy, and it is unlikely the

Employer will ever recover any amounts

in excess of the amount the Employer is

paying the Plan for the Policy.

Nonetheless, the Employer has agreed

that in the event it receives total

proceeds from the Policy in excess of

the amounts paid the Plan as purchase

price for the Policy, such additional

amounts will be distributed pro rata

among Plan participants with active

accounts in the Plan as of the date of the

Plan termination.

6. In summary, the applicant

represents that the proposed transaction

satisfies the criteria of section 408(a) of

the Act for the following reasons: (a)

The transaction will enable the

completed termination of the Plan and

dissolution of the Plan trust; (b) The

Plan will not incur any expenses with

respect to the transaction; (c) The

purchase price of the Policy will be its

cash surrender value as of the date of

Plan termination as determined by the

Insurer; (d) The transaction will include

the Employer’s cancellation of the

Plan’s obligations under the Loan; and

(e) Any proceeds from the Policy

received by the Employer in excess of

the purchase price will be distributed

among the Plan’s participants with

active accounts as of the Termination

Date.

For Further Information Contact:

Ronald Willett of the Department,

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

a toll-free number.)

The Roquette America, Inc. Pension

Plan for Salaried Employees (the Plan),

Located in Keokuk, Iowa

[Application No. D–10390]

Proposed Exemption

The Department is considering

granting an exemption under the

authority of section 408(a) of the Act

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

in accordance with the procedures set

forth in 29 CFR Part 2570, Subpart B (55

FR 32836, 32847, August 10, 1990). If

the exemption is granted, the

restrictions of section 406(a) 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 (D) of the Code, shall not apply

to (1) the proposed loan to the Plan by

Aon Consulting, Inc. (Aon Consulting),

in connection with certain excess
Federal Register / Vol. 62, No. 74 / Thursday, April 17, 1997 / Notices 18807

5 PTCE 80–26 provides an exemption, under

certain conditions, from section 406(a)(1) (B) and

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

imposed by section 4975 of the Code, by reason of

section 4975(c)(1) (B) and (D) of the Code, for

interest-free loans by a party in interest or

disqualified person to an employee benefit plan.

6The Department notes the applicant’s

representation that the figure of $50,640 is based

upon an assumed 18.8% return, which was the

Plan’s actual investment experience for the period

from March 18, 1994 to December 31, 1995.

7The Department notes the applicant’s

representation that the Plan’s lost opportunity costs

for the period from January 1, 1996 to the effective

date of this exemption will be calculated based

upon an assumed rate of return which is equal to

the Plan’s actual investment experience for that

period.

distributions (the Overpayments) that

Aon Consulting inadvertently caused to

be made under the Plan, and (2) the

potential repayment of the loan by the

Plan to Aon Consulting.

This proposed exemption is subject to

the following conditions:

(1) The Plan pays no interest nor

incurs any other expense relating to the

loan;

(2) The loan amount covers the

Overpayments, plus lost opportunity

costs attributable to the Overpayments;

(3) Any repayment of the loan is

restricted solely to the amount, if any,

recovered by the Plan with respect to

the Overpayments in litigation or

otherwise; and

(4) A qualified, independent fiduciary

for the Plan has reviewed the terms and

conditions of the loan on behalf of the

Plan and determined that such terms

and conditions are in the best interests

of and appropriate for the Plan.

Summary of Facts and Representations

1. The Plan is a defined benefit

pension plan sponsored by Roquette

America, Inc. (the Employer). The

Employer, a Delaware corporation, is

engaged in the production of corn

sweeteners for use in foods. As of

December 29, 1995, the Plan had total

assets of approximately $14,203,379.29.

As of July 18, 1996, the Plan had

approximately 334 participants and

beneficiaries. The trustee of the Plan is

the Northern Trust Company (Northern

Trust).

2. Aon Consulting, a Pennsylvania

corporation, performs actuarial and

recordkeeping services for the Plan and

other services for the Employer. In 1994,

Aon Consulting actuaries miscalculated

the value of the accrued benefits of two

Plan participants (the Participants), both

former officers of the Employer, and, as

a consequence, caused the Plan to

overpay the Participants upon the

termination of their employment. One

Participant’s lump sum payment was

calculated at $412,719.32 instead of

$238,843.17 (overstated by

$173,876.15). The other Participant’s

lump sum payment was calculated at

$222,722.31 instead of $127,419.26

(overstated by $95,303.05). The

applicant represents that the Plan’s

benefit formula was one of

extraordinary complexity and that the

errors were not noticed before the

inflated benefit payments were made to

the Participants on March 18, 1994.

Aon Consulting discovered the errors

in May, 1994, and reported them to

Northern Trust in June, 1994. In August,

1994, the Employer informed each of

the Participants of the errors by

registered mail and requested

immediate return of the Overpayments.

Separately, each Participant has refused.

Repeated subsequent requests, both in

writing and by telephone, for return of

the Overpayments have yielded no

result.

3. Aon Consulting proposes to make

the Plan whole by making an interestfree loan to the Plan for $269,179, the

amount of the Overpayments, plus lost

opportunity costs attributable to the

Overpayments. Among other reasons,

because the loan is to be secured by the

possible recovery of the Overpayments

by the Plan, the loan is outside the

scope of relief provided by Prohibited

Transaction Class Exemption 80–26

(PTCE 80–26, 45 FR 28545, April 29,

1980).5

The loan amount will include an

additional $50,640 to make up for the

Plan’s lost opportunity costs for the

period from March 18, 1994, the date of

occurrence of the Overpayments, to

December 31, 1995, for a subtotal of

$319,819.6 The loan amount will also

include an amount yet to be determined

to provide the Plan with a rate of

investment return on the $319,819, for

the period from January 1, 1996 to the

effective date of this exemption.7 The

loan will be evidenced by a promissory

note and the loan proceeds paid to the

Plan within 30 days of publication in

the Federal Register of the notice of the

grant of this exemption.

The loan will be repaid only to the

extent of any amount recovered by the

Plan with respect to the Overpayments.

Northern Trust will continue to

cooperate with Aon Consulting in

pursuing recovery of the Overpayments,

including, if necessary, the

commencement of litigation against the

Participants and their respective heirs,

estates, executors, administrators, or

other personal representatives, in the

name of the Plan. Aon Consulting will

fund all activities relating to recovery of

the Overpayments. In consideration for

the loan, the Employer, Northern Trust,

and the Plan will release Aon

Consulting from any further claims that

they may have arising from the

Overpayments. The costs of this

exemption application will be borne by

Aon Consulting.

5. The interests of the Plan with

respect to the loan are represented by

Northern Trust, acting as an

independent fiduciary for the Plan. In a

letter from Richard W. Long, Trust

Officer, dated March 17, 1997, Northern

Trust represents that it is unrelated to

and independent of both Aon

Consulting and the Employer. Northern

Trust further represents that it has

extensive experience as a fiduciary

under the Act, that it is knowledgeable

as to the subject transactions, and that

it has reviewed the terms and

conditions of the loan on behalf of the

Plan and determined that such terms

and conditions are in the best interests

of and appropriate for the Plan.

Specifically, Northern Trust notes that

the Plan is guaranteed to be made whole

by Aon Consulting by virtue of the

interest-free loan (which covers the full

amount of the Overpayments, plus

interest), and is thus able to avoid the

legal costs and uncertainties associated

with recouping the Overpayments

through alternate means. The potential

repayment obligation on the part of the

Plan serves the legitimate purpose of

preventing a ‘‘double recovery’’ by the

Plan.

6. In summary, the applicant

represents that the proposed

transactions satisfy the statutory criteria

for an exemption under section 408(a) of

the Act for the following reasons: (1)

The Plan will pay no interest nor incur

any other expense relating to the loan;

(2) the loan will enable the Plan to

immediately recover the amount of the

Overpayments, including appropriate

interest; (3) any repayment of the loan

will be restricted solely to the amount,

if any, recovered by the Plan with

respect to the Overpayments in

litigation or otherwise; and (4) Northern

Trust, acting as an independent

fiduciary for the Plan, has reviewed the

terms and conditions of the loan on

behalf of the Plan and determined that

such terms and conditions are in the

best interests of and appropriate for the

Plan.

Notice to Interested Persons

Notice of the proposed exemption

shall be given to all interested persons,

and all employee organizations in

which any Plan participant is a member,

by mail or by posting in the Employer’s

offices within 30 days of the date of

publication of this notice of pendency

in the Federal Register. Such notice

shall include a copy of this notice of
18808 Federal Register / Vol. 62, No. 74 / Thursday, April 17, 1997 / Notices

8Section 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).

9For 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.

10 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.

pendency as published in the Federal

Register and shall inform interested

persons of their right to comment and/

or request a hearing with respect to the

proposed exemption. Comments and

requests for a hearing are due within 60

days of the date of publication of this

notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Ms.

Karin Weng of the Department,

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

a toll-free number.)

Norwest Investment Services, Inc.

(NISI), Located in Minneapolis,

Minnesota

[Application No. D–10430]

Proposed Exemption

I. Transactions

A. Effective February 12, 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

with respect to the assets of that

Excluded Plan.8

B. Effective February 12, 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.9 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 February 12, 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.10

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 February 12, 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 at the time

of such acquisition that is in one of the

three highest generic rating categories

from either Standard & Poor’s
Federal Register / Vol. 62, No. 74 / Thursday, April 17, 1997 / Notices 18809

11 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.

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);

(4) The trustee is not an affiliate of

any member of the Restricted Group.

However, the trustee shall not be

considered to be an affiliate of a servicer

solely because the trustee has succeeded

to the rights and responsibilities of the

servicer pursuant to the terms of a

pooling and servicing agreement

providing for such succession upon the

occurrence of one or more events of

default by the servicer;

(5) The sum of all payments made to

and retained by the underwriters in

connection with the distribution or

placement of certificates represents not

more than reasonable compensation for

underwriting or placing the certificates;

the sum of all payments made to and

retained by the sponsor pursuant to the

assignment of obligations (or interests

therein) to the trust represents not more

than the fair market value of such

obligations (or interests); and the sum of

all payments made to and retained by

the servicer represents not more than

reasonable compensation for the

servicer’s services under the pooling

and servicing agreement and

reimbursement of the servicer’s

reasonable expenses in connection

therewith; and

(6) The plan investing in such

certificates is an ‘‘accredited investor’’

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

Regulation D of the Securities and

Exchange Commission under the

Securities Act of 1933.

B. Neither any underwriter, sponsor,

trustee, servicer, insurer, 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) within the meaning of section

860D(a) of the Internal Revenue Code of

1986; and

(b) that is issued by and is an

obligation of a trust; with respect to

certificates defined in (1) and (2) above

for which NISI 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) either

(a) secured consumer receivables that

bear interest or are purchased at a

discount (including, but not limited to,

home equity loans and obligations

secured by shares issued by a

cooperative housing association);

(b) secured credit instruments that

bear interest or are purchased at a

discount in transactions by or between

business entities (including, but not

limited to, qualified equipment notes

secured by leases, as defined in section

III.T);

(c) obligations that bear interest or are

purchased at a discount and which are

secured by single-family residential,

multi-family residential and commercial

real property (including obligations

secured by leasehold interests on

commercial real property);

(d) obligations that bear interest or are

purchased at a discount and which are

secured by motor vehicles or

equipment, or qualified motor vehicle

leases (as defined in section III.U);

(e) guaranteed governmental mortgage

pool certificates, as defined in 29 CFR

2510.3–101(i)(2);

(f) fractional undivided interests in

any of the obligations described in

clauses (a)–(e) of this section B.(1);11

(2) property which had secured any of

the obligations described in subsection

B.(1);

(3) undistributed cash or temporary

investments made therewith maturing

no later than the next date on which

distributions are to made to

certificateholders; and

(4) rights of the trustee under the

pooling and servicing agreement, and

rights under any insurance policies,

third-party guarantees, contracts of

suretyship and other credit support

arrangements with respect to any

obligations described in subsection

B.(1).

Notwithstanding the foregoing, the

term ‘‘trust’’ does not include any

investment pool unless: (i) the

investment pool consists only of assets

of the type which have been included in

other investment pools, (ii) certificates

evidencing interests in such other

investment pools have been rated in one

of the three highest generic rating

categories by S&P’s, Moody’s, D & P, or

Fitch for at least one year prior to the

plan’s acquisition of certificates

pursuant to this exemption, and (iii)

certificates evidencing interests in such

other investment pools have been

purchased by investors other than plans

for at least one year prior to the plan’s

acquisition of certificates pursuant to

this exemption.

C. Underwriter means:

(1) NISI;

(2) any person directly or indirectly,

through one or more intermediaries,

controlling, controlled by or under

common control with NISI; or

(3) any member of an underwriting

syndicate or selling group of which NISI

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
18810 Federal Register / Vol. 62, No. 74 / Thursday, April 17, 1997 / Notices

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

(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 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. NISI means Norwest Investment

Services, 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. NISI is the wholly-owned,

separately capitalized investment

banking subsidiary of Norwest

Corporation (Norwest), a diversified

financial services company which was

incorporated in Delaware and registered

under the Bank Holding Company Act

of 1956, as amended. On September 30,

1996 Norwest’s consolidated assets were

approximately $78 billion. The

principal executive offices of Norwest

are located in Minneapolis, Minnesota.

As of September 30, 1996, Norwest had

subsidiary banks located in 16 states. In

addition, non-bank subsidiaries of

Norwest offer insurance, securities

brokerage services, investment banking

and venture capital investment, and

mortgage banking and consumer

finance.
Federal Register / Vol. 62, No. 74 / Thursday, April 17, 1997 / Notices 18811

12The Department notes that PTE 83–1 [48 FR

895, January 7, 1983], a class exemption for

mortgage pool investment trusts, would generally

apply to trusts containing single-family residential

mortgages, provided that the applicable conditions

of PTE 83-1 are met. NISI requests relief for singlefamily residential mortgages in this exemption

because it would prefer one exemption for all trusts

of similar structure. However, NISI has stated that

it may still avail itself of the exemptive relief

provided by PTE 83–1.

13 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.

14Trust 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).

15 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.

Norwest Mortgage, Inc., an indirect

wholly-owned subsidiary of Norwest

headquartered in Des Moines, Iowa, is

one of the largest mortgage banking

originators in the United States, with

offices in all 50 states. Norwest

Financial Services, Inc. (NFI) and its

subsidiaries engage in consumer finance

activities in each of the 50 states, the

Caribbean and Central America and

Canada. NFI is also an indirect whollyowned subsidiary of Norwest.

Subsidiaries of NFI also engage in data

processing activities for other consumer

finance companies.

Norwest Bank Minnesota, N.A. (the

Bank), a separate wholly-owned

subsidiary of Norwest, is engaged in

banking and related activities and is the

largest bank in the banking group. At

September 30, 1996, the Bank had total

assets of $17.1 billion. The principal

executive offices of the Bank are located

in Minneapolis, Minnesota. The banking

group also includes ten other

commercial banks and one federal

savings bank, located in 10 states,

exceeded $2 billion dollars in total

assets as of September 30, 1996.

NISI was incorporated in 1984. It

maintains its principal place of business

in Minneapolis, Minnesota, and has

branches in Arizona, Colorado, Iowa,

Illinois, Indiana, Montana, North

Dakota, Nebraska, New Mexico, South

Dakota, Texas, Washington, Wisconsin

and Wyoming, as well as the Twin

Cities Metropolitan Area.

NISI is a member of the National

Association of Securities Dealers and a

primary dealer in U.S. Treasury

securities. NISI underwrites and deals

in corporate debt securities, 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 syndication,

arranging and trading of bank loans.

NISI has experience in asset

securitizations. NISI’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

cards receivables.

NISI represents that in 1989 it

received Federal Reserve Board

authorization to underwrite and deal in

commercial paper, municipal revenue

bonds, residential mortgage-related

securities and consumer receivablerelated securities. This order is

currently subject to the condition that

NISI does not derive more than 10% of

its total gross revenues from such

activities. In addition, NISI’s affiliates

have the power to sell interests in their

own assets in the form of asset-backed

securities.

Trust Assets

2. NISI 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; 12 (2) motor vehicle

receivable investment trusts; (3)

consumer or commercial receivables

investment trusts; and (4) guaranteed

governmental mortgage pool certificate

investment trusts. 13

3. Commercial mortgage investment

trusts may include mortgages on ground

leases of real property. Commercial

mortgages are frequently secured by

ground leases on the underlying

property, rather than by fee simple

interests. The separation of the fee

simple interest and the ground lease

interest is generally done for tax

reasons. Properly structured, the pledge

of the ground lease to secure a mortgage

provides a lender with the same level of

security as would be provided by a

pledge of the related fee simple interest.

The terms of the ground leases pledged

to secure leasehold mortgages will in all

cases be at least ten years longer than

the term of such mortgages.14

Trust Structure

4. Each trust is established under a

pooling and servicing agreement

between a sponsor, a servicer and a

trustee. The sponsor or servicer of a

trust selects assets to be included in the

trust. These assets are receivables which

may have been originated by a sponsor

or servicer of the trust, an affiliate of the

sponsor or servicer, or by an unrelated

lender and subsequently acquired by the

trust sponsor or servicer.15

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.

NISI, 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

NISI on a firm commitment basis. In

addition, NISI anticipates that it may

privately place certificates on both a

firm commitment and an agency basis.

NISI 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
18812 Federal Register / Vol. 62, No. 74 / Thursday, April 17, 1997 / Notices

16 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.

17 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.

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. NISI 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.16

‘‘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

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.17

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.

Parties to Transactions

7. The originator of a receivable is the

entity that initially lends money to a

borrower (obligor), such as a home

owner or automobile purchaser, or

leases property to a lessee. The

originator may either retain a receivable

in its portfolio or sell it to a purchaser,

such as a trust sponsor.

Originators of receivables included in

the trusts will be entities that originate

receivables in the ordinary course of

their business, including finance

companies for whom such origination

constitutes the bulk of their operations,

financial institutions for whom such

origination constitutes a substantial part

of their operations, and any kind of

manufacturer, merchant, or service

enterprise for whom such origination is

an incidental part of its operations. Each

trust may contain assets of one or more

originators. The originator of the

receivables may also function as the

trust sponsor or servicer.

8. The sponsor will be one of three

entities: (i) A special-purpose or other

corporation unaffiliated with the

servicer, (ii) a special-purpose or other

corporation affiliated with the servicer,

or (iii) the servicer itself. Where the

sponsor is not also the servicer, the

sponsor’s role will generally be limited

to acquiring the receivables to be

included in the trust, establishing the

trust, designating the trustee, and

assigning the receivables to the trust.

9. The trustee of a trust is the legal

owner of the obligations in the trust.

The trustee is also a party to or

beneficiary of all the documents and

instruments deposited in the trust, and

as such is responsible for enforcing all

the rights created thereby in favor of

certificateholders.

The trustee will be an independent

entity, and therefore will be unrelated to

NISI, the trust sponsor or the servicer.

NISI 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. 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.

10. The servicer of a trust administers

the receivables on behalf of the

certificateholders. The servicer’s

functions typically involve, among other

things, notifying borrowers of amounts

due on receivables, maintaining records

of payments received on receivables and

instituting foreclosure or similar

proceedings in the event of default. In

cases where a pool of receivables has

been purchased from a number of

different originators and deposited in a

trust, 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
Federal Register / Vol. 62, No. 74 / Thursday, April 17, 1997 / Notices 18813

18The 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.

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

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 NISI. In

other cases, however, affiliates of NISI

may originate or service receivables

included in a trust or may sponsor a

trust.

Certificate Price, Pass-Through Rate and

Fees

11. In some cases, the sponsor will

obtain the receivables from various

originators pursuant to existing

contracts with such originators under

which the sponsor 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.

12. The price of the certificates, both

in the initial offering and in the

secondary market, is affected by market

forces, including investor demand, the

pass-through interest rate on the

certificates in relation to the rate

payable on investments of similar types

and quality, expectations as to the effect

on yield resulting from prepayment of

underlying receivables, and

expectations as to the likelihood of

timely payment.

The pass-through rate for certificates

is equal to the interest rate on

receivables included in the trust minus

a specified servicing fee.18 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.

13. As compensation for performing

its servicing duties, the servicer (who

may also be the sponsor or an affiliate

thereof, and receive fees for acting 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.

14. The servicer may be entitled to

retain certain administrative fees paid

by a third party, usually the obligor.

These administrative fees fall into three

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

payment and payment extension fees;

and (c) expenses, fees and charges

associated with foreclosure or

repossession, or other conversion of a

secured position into cash proceeds,

upon default of an obligation.

Compensation payable to the servicer

will be set forth or referred to in the

pooling and servicing agreement and

described in reasonable detail in the

prospectus or private placement

memorandum relating to the certificates.

15. Payments on receivables may be

made by obligors to the servicer at

various times during the period

preceding any date on which 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.

16. 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
18814 Federal Register / Vol. 62, No. 74 / Thursday, April 17, 1997 / Notices

private placement, the fee normally

takes the form of an agency commission

paid by the sponsor. In a best efforts

underwriting in which the underwriter

would sell certificates in a public

offering on an agency basis, the

underwriter would receive an agency

commission rather than a fee based on

the difference between the price at

which the certificates are sold to the

public and what it pays the sponsor. In

some private placements, the

underwriter may buy certificates as

principal, in which case its

compensation would be the difference

between what it receives for the

certificates that it sells and what it pays

the sponsor for these certificates.

Purchase of Receivables by the Servicer

17. The applicant represents that as

the principal amount of the receivables

in a trust is reduced by 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

18. The certificates will have received

one of the three highest ratings available

from either S&P’s, Moody’s, D&P or

Fitch. Insurance or other credit support

(such as 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

19. In some cases, the master servicer,

or an affiliate of the master servicer,

may provide credit support to the trust

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

master servicer, in its capacity as

servicer, will first advance funds to the

full extent that it determines that such

advances will be recoverable (a) Out of

late payments by the obligors, (b) from

the credit support provider (which may

be 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.
Federal Register / Vol. 62, No. 74 / Thursday, April 17, 1997 / Notices 18815

Disclosure

20. In connection with the original

issuance of certificates, the prospectus

or private placement memorandum will

be furnished to investing plans. The

prospectus or private placement

memorandum will contain information

material to a fiduciary’s decision to

invest in the certificates, including:

(a) Information concerning the

payment terms of the certificates, the

rating of the certificates, and any

material risk factors with respect to the

certificates;

(b) A description of the trust as a legal

entity and a description of how the trust

was formed by the seller/servicer or

other sponsor of the transaction;

(c) Identification of the independent

trustee for the trust;

(d) A description of the receivables

contained in the trust, including the

types of receivables, the diversification

of the receivables, their principal terms,

and their material legal aspects;

(e) A description of the sponsor and

servicer;

(f) A description of the pooling and

servicing agreement, including a

description of the seller’s principal

representations and warranties as to the

trust assets and the trustee’s remedy for

any breach thereof; a description of the

procedures for collection of payments

on receivables and for making

distributions to investors, and a

description of the accounts into which

such payments are deposited and from

which such distributions are made;

identification of the servicing

compensation and any fees for credit

enhancement that are deducted from

payments on receivables before

distributions are made to investors; a

description of periodic statements

provided to the trustee, and provided to

or made available to investors by the

trustee; and a description of the events

that constitute events of default under

the pooling and servicing contract and

a description of the trustee’s and the

investors’ remedies incident thereto;

(g) A description of the credit support;

(h) A general discussion of the

principal federal income tax

consequences of the purchase,

ownership and disposition of the 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.

21. Reports indicating the amount of

payments of principal and interest are

provided to certificateholders at least as

frequently as distributions are made to

certificateholders. Certificateholders

will also be provided with periodic

information statements setting forth

material information concerning the

underlying assets, including, where

applicable, information as to the amount

and number of delinquent and defaulted

loans or receivables.

22. In the case of a trust that offers

and sells certificates in a registered

public offering, the trustee, the servicer

or the sponsor will file such periodic

reports as may be required to be filed

under the Securities Exchange Act of

1934. Although some trusts that offer

certificates in a public offering will file

quarterly reports on Form 10–Q and

Annual Reports on Form 10–K, many

trusts obtain, by application to the

Securities and Exchange Commission, a

complete exemption from the

requirement to file quarterly reports on

Form 10–Q and a modification of the

disclosure requirements for annual

reports on Form 10–K. If such an

exemption is obtained, these trusts

normally would continue to have the

obligation to file current reports on

Form 8–K to report material

developments concerning the trust and

the certificates. While the Securities and

Exchange Commission’s interpretation

of the periodic reporting requirements is

subject to change, periodic reports

concerning a trust will be filed to the

extent required under the Securities

Exchange Act of 1934.

23. At or about the time distributions

are made to certificateholders, a report

will be delivered to the trustee as to the

status of the trust and its assets,

including underlying obligations. Such

report will typically contain information

regarding the trust’s assets, payments

received or collected by the servicer, the

amount of prepayments, delinquencies,

servicer advances, defaults and

foreclosures, the amount of any

payments made pursuant to any credit

support, and the amount of

compensation payable to the servicer.

Such report also will be delivered to or

made available to the rating agency or

agencies that have rated the trust’s

certificates.

In addition, promptly after each

distribution date, certificateholders will

receive a statement prepared by the

servicer, paying agent 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

24. To date, no forward delivery

commitments have been entered into by

NISI in connection with the offering of

any certificates, but NISI 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 NISI may

find it desirable in the future to enter

into such commitments for the purchase

of certificates.

Secondary Market Transactions

25. It is NISI’s normal policy to

attempt to make a market for securities

for which it is lead or co-managing

underwriter. NISI anticipates that it will

make a market in certificates, although

it will have no obligation to do so.

Retroactive Relief

26. NISI represents that it has not

assumed that retroactive relief would be

granted prior to the date of its

application, and therefore has not

engaged in transactions related to

mortgage-backed and asset-backed

securities based on such an assumption.

However, NISI requests the exemptive

relief granted to be retroactive to

February 12, 1997, the date of its

application, and would like to rely on

such retroactive relief for transactions

entered into prior to the date exemptive

relief may be granted.

Summary

27. In summary, the applicant

represents that the transactions for

which exemptive relief is requested

satisfy the statutory criteria of section

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

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

assets. There is little discretion on the

part of the trust sponsor to substitute

receivables contained in the trust once

the trust has been formed;

(b) Certificates in which plans invest

will have been rated in one of the three

highest rating categories by S&P’s,

Moody’s, D&P or Fitch. Credit support

will be obtained to the extent necessary

to attain the desired rating;

(c) All transactions for which NISI

seeks exemptive relief will be governed

by the pooling and servicing agreement,

which is made available to plan

fiduciaries for their review prior to the

plan’s investment in certificates;

(d) Exemptive relief from sections

406(b) and 407 for sales to plans is

substantially limited; and
18816 Federal Register / Vol. 62, No. 74 / Thursday, April 17, 1997 / Notices

19 In referring to different ‘‘types’’ of assetNISIcked securities, the Department means

certificates representing interests in trusts

containing different ‘‘types’’ of receivables, such as

single family residential mortgages, multi-family

residential mortgages, commercial mortgages, home

equity loans, auto loan receivables, installment

obligations for consumer durables secured by

purchase money security interests, etc. The

Department intends this condition to require that

certificates in which a plan invests are of the type

that have been rated (in one of the three highest

generic rating categories by S&P’s, D&P, Fitch or

Moody’s) and purchased by investors other than

plans for at least one year prior to the plan’s

investment pursuant to the proposed exemption. In

this regard, the Department does not intend to

require that the particular assets contained in a trust

must have been ‘‘seasoned’’ (e.g., originated at least

one year prior to the plan’s investment in the trust).

20 In this regard, we note that the exemptive relief

proposed herein is limited to certificates with

respect to which NISI or any of its affiliates is either

(a) the sole underwriter or manager or co-manager

of the underwriting syndicate, or (b) a selling or

placement agent.

21The applicant represents that where a trust

sponsor is an affiliate of NISI, sales to plans by the

sponsor may be exempt under PTE 75–1, Part II

(relating to purchases and sales of securities by

broker-dealers and their affiliates), if NISI is not a

fiduciary with respect to plan assets to be invested

in certificates.

(e) NISI anticipates that it will make

a secondary market in certificates.

Discussion of Proposed Exemption

I. Differences Between Proposed

Exemption and Class Exemption PTE

83–1

The exemptive relief proposed herein

is similar to that provided in PTE 81–

7 [46 FR 7520, January 23, 1981], Class

Exemption for Certain Transactions

Involving Mortgage Pool Investment

Trusts, amended and restated as PTE

83–1 [48 FR 895, January 7, 1983].

PTE 83–1 applies to mortgage pool

investment trusts consisting of interestbearing obligations secured by first or

second mortgages or deeds of trust on

single-family residential property. The

exemption provides relief from sections

406(a) and 407 for the sale, exchange or

transfer in the initial issuance of

mortgage pool certificates between the

trust sponsor and a plan, when the

sponsor, trustee or insurer of the trust is

a party-in-interest with respect to the

plan, and the continued holding of such

certificates, provided that the conditions

set forth in the exemption are met. PTE

83–1 also provides exemptive relief

from section 406(b)(1) and (b)(2) of the

Act for the above-described transactions

when the sponsor, trustee or insurer of

the trust is a fiduciary with respect to

the plan assets invested in such

certificates, provided that additional

conditions set forth in the exemption

are met. In particular, section 406(b)

relief is conditioned upon the approval

of the transaction by an independent

fiduciary. Moreover, the total value of

certificates purchased by a plan must

not exceed 25 percent of the amount of

the issue, and at least 50 percent of the

aggregate amount of the issue must be

acquired by persons independent of the

trust sponsor, trustee or insurer. Finally,

PTE 83–1 provides conditional

exemptive relief from section 406(a) and

(b) of the Act for transactions in

connection with the servicing and

operation of the mortgage trust.

Under PTE 83–1, exemptive relief for

the above transactions is conditioned

upon the sponsor and the trustee of the

mortgage trust maintaining a system for

insuring or otherwise protecting the

pooled mortgage loans and the property

securing such loans, and for

indemnifying certificateholders against

reductions in pass-through payments

due to defaults in loan payments or

property damage. This system must

provide such protection and

indemnification up to an amount not

less than the greater of one percent of

the aggregate principal balance of all

trust mortgages or the principal balance

of the largest mortgage.

The exemptive relief proposed herein

differs from that provided by PTE 83–

1 in the following major respects: (1)

The proposed exemption provides

individual exemptive relief rather than

class relief; (2) The proposed exemption

covers transactions involving trusts

containing a broader range of assets than

single-family residential mortgages; (3)

Instead of requiring a system for

insuring the pooled receivables, the

proposed exemption conditions relief

upon the certificates having received

one of the three highest ratings available

from S&P’s, Moody’s, D&P or Fitch

(insurance or other credit support

would be obtained only to the extent

necessary for the certificates to attain

the desired rating); and (4) The

proposed exemption provides more

limited section 406(b) and section 407

relief for sales transactions.

II. Ratings of Certificates

After consideration of the

representations of the applicant and

information provided by S&P’s,

Moody’s, D&P and Fitch, the

Department has decided to condition

exemptive relief upon the certificates

having attained a rating in one of the

three highest generic rating categories

from S&P’s, Moody’s, D&P or Fitch. The

Department believes that the rating

condition will permit the applicant

flexibility in structuring trusts

containing a variety of mortgages and

other receivables while ensuring that

the interests of plans investing in

certificates are protected. The

Department also believes that the ratings

are indicative of the relative safety of

investments in trusts containing secured

receivables. The Department is

conditioning the proposed exemptive

relief upon each particular type of assetbacked security having been rated in

one of the three highest rating categories

for at least one year and having been

sold to investors other than plans for at

least one year.19

III. Limited Section 406(b) and Section

407(a) Relief for Sales

NISI represents that in some cases a

trust sponsor, trustee, servicer, insurer,

and obligor with respect to receivables

contained in a trust, or an underwriter

of certificates may be a pre-existing

party in interest with respect to an

investing plan.20 In these cases, a direct

or indirect sale of certificates by that

party in interest to the plan would be a

prohibited sale or exchange of property

under section 406(a)(1)(A) of the Act. 21

Likewise, issues are raised under

section 406(a)(1)(D) of the Act where a

plan fiduciary causes a plan to purchase

certificates where trust funds will be

used to benefit a party in interest.

Additionally, NISI represents that a

trust sponsor, servicer, trustee, insurer,

and obligor with respect to receivables

contained in a trust, or an underwriter

of certificates representing an interest in

a trust may be a fiduciary with respect

to an investing plan. NISI represents

that the exercise of fiduciary authority

by any of these parties to cause the plan

to invest in certificates representing an

interest in the trust would violate

section 406(b)(1), and in some cases

section 406(b)(2), of the Act.

Moreover, NISI represents that to the

extent there is a plan asset ‘‘look

through’’ to the underlying assets of a

trust, the investment in certificates by a

plan covering employees of an obligor

under receivables contained in a trust

may be prohibited by sections 406(a)

and 407(a) of the Act.

After consideration of the issues

involved, the Department has

determined to provide the limited

sections 406(b) and 407(a) relief as

specified in the proposed exemption.

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
Federal Register / Vol. 62, No. 74 / Thursday, April 17, 1997 / Notices 18817

must be received by the Department not

later than 30 days from the date of

publication of this notice of proposed

exemption in the Federal Register. For Further Information Contact: Gary

Lefkowitz of the Department, telephone

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

number.)

General Information

The attention of interested persons is

directed to the following: (1) The fact that a transaction is the

subject of an exemption under section

408(a) of the Act and/or section

4975(c)(2) of the Code does not relieve

a fiduciary or other party in interest of

disqualified person from certain other

provisions of the Act and/or the Code,

including any prohibited transaction

provisions to which the exemption does

not apply and the general fiduciary

responsibility provisions of section 404

of the Act, which among other things

require a fiduciary to discharge his

duties respecting the plan solely in the

interest of the participants and

beneficiaries of the plan and in a

prudent fashion in accordance with

section 404(a)(1)(b) of the act; nor does

it affect the requirement of section

401(a) of the Code that the plan must

operate for the exclusive benefit of the

employees of the employer maintaining

the plan and their beneficiaries; (2) Before an exemption may be

granted under section 408(a) of the Act

and/or section 4975(c)(2) of the Code,

the Department must find that the

exemption is administratively feasible,

in the interests of the plan and of its

participants and beneficiaries and

protective of the rights of participants

and beneficiaries of the plan; (3) The proposed exemptions, if

granted, will be supplemental to, and

not in derogation of, any other

provisions of the Act and/or the Code,

including statutory or administrative

exemptions and transitional rules.

Furthermore, the fact that a transaction

is subject to an administrative or

statutory exemption is not dispositive of

whether the transaction is in fact a

prohibited transaction; and (4) The proposed exemptions, if

granted, will be subject to the express

condition that the material facts and

representations contained in each

application are true and complete and

accurately describe all material terms of

the transaction which is the subject of

the exemption. In the case of continuing

exemption transactions, if any of the

material facts or representations

described in the application change

after the exemption is granted, the

exemption will cease to apply as of the

date of such change. In the event of any

such change, application for a new

exemption may be made to the

Department.

Signed at Washington, DC, this 14th day of

April, 1997.

Ivan Strasfeld,

Director of Exemption Determinations,

Pension and Welfare Benefits Administration,

U.S. Department of Labor.

[FR Doc. 97–9974 Filed 4–16–97; 8:45 am]

BILLING CODE 4510–29–P

DEPARTMENT OF LABOR

Pension and Welfare Benefits

Administration

[Prohibited Transaction Exemption 97–16]

United States Trust Company of New

York and Affiliated Companies (US

Trust)

AGENCY: Department of Labor.

ACTION: Notice of Technical Correction.

On March 5, 1997, the Department of

Labor (the Department) published in the

Federal Register (62 FR 10080) an

individual exemption which permits:

(1) Effective as of May 31, 1996, the inkind transfer to any diversified openend investment company (the Fund or

Funds) registered under the Investment

Company Act of 1940 to which US Trust

serves as investment adviser and may

provide other services (i.e. ‘‘Secondary

Services’’ as defined in therein), of the

assets of various employee benefit plans

(the Plans) that are either held in certain

collective investment funds (CIFs)

maintained by US Trust or otherwise

held by US Trust as trustee, investment

manager, or in any other capacity as

fiduciary on behalf of the Plans, in

exchange for shares of such Funds; and

(2) effective as of June 30, 1996, the

receipt of fees by US Trust from the

Funds for acting as the investment

adviser for the Funds as well as for

acting as the custodian, transfer agent,

sub-administrator or for providing other

‘‘Secondary Services’’ to the Funds in

connection with the investment in the

Funds by Plans for which US Trust acts

as a fiduciary, other than Plans

established and maintained by US Trust

for the benefit of its employees and their

beneficiaries.

In the March 5th Federal Register

publication, there was an error in the

numerical sequence of the exemptions

published on that date. In this regard,

the subject exemption was erroneously

designated as ‘‘* * * Prohibited

Transaction Exemption 97–17’’, rather

than Prohibited Transaction Exemption

97–16 as intended by the Department.

Therefore, the Department hereby

corrects such error by designating the

exemption as Prohibited Transaction

Exemption 97–16.

FOR FURTHER INFORMATION CONTACT: Mr.

E. F. Williams, of the Department, at

(202) 219–8194.

Signed at Washington, DC, this 14th day of

April, 1997.

Ivan L. Strasfeld,

Director, Office of Exemption Determinations,

Pension and Welfare Benefits Administration.

[FR Doc. 97–9976 Filed 4–16–97; 8:45 am]

BILLING CODE 4510–29–P

NATIONAL COMMISSION ON

LIBRARIES AND INFORMATION

SCIENCE

Sunshine Act Meeting

TIME, DATE, AND PLACE:

• NCLIS Meeting 7 May 1997, 10:00

a.m.–5:00 p.m. 1110 Vermont Avenue,

NW., Suite 810, Washington, DC.

• Joint NCLIS Meeting with National

Museum Services Board 8 May 1997,

9:00 a.m.–4:00 p.m. Old Post Office

Building, Room M–09, 1100

Pennsylvania Avenue, NW.,

Washington, DC.

• NCLIS Meeting 9 May 1997, 9:00

a.m.–1:30 p.m. 1110 Vermont Avenue,

NW., Suite 810, Washington, DC.

MATTERS TO BE DISCUSSED ON 7 MAY AND

9 MAY 1997:

• Reports from NCLIS Commissioners

on meetings of library, information or

other related groups.

• Annual ethics training.

• Update on NCLIS project to assess

standards for the creation,

dissemination, and permanent

accessibility of electronic government

information products.

• Update on NCLIS/ALA 1997 survey

of public libraries and the Internet.

• Library Services and Technology

Act (LSTA): Review of LSTA transition

to the Institute of Museum and Library

Services (IMLS), discussion of draft

regulations for National Leadership

Grants and Contracts, NCLIS process for

advising IMLS, LSTA coordination with

other federal programs.

• NCLIS programs, plans, and

actions—FY 1997–98.

• White House Conference on Library

and Information Services Taskforce

(WHCLIST).

• Library Statistics Program.

• Other matters.

To request further information or to

make special arrangements for

physically challenged persons, contact

Barbara Whiteleather (202–606–9200)

no later than one week in advance of the

meeting.