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Employee Benefits Security Administration

EBSA Federal Register Notice

Proposed Exemptions; Frank D. May, D.M.D., P.A. 401(k) Profit Sharing Plan and Trust (the Plan) [09/27/2006]

[PDF Version]

Volume 71, Number 187, Page 56559-56567

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Application No. D-11375, et al.]

 
Proposed Exemptions; Frank D. May, D.M.D., P.A. 401(k) Profit 
Sharing Plan and Trust (the Plan)

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of Proposed Exemptions.

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

Written Comments and Hearing Requests

    All interested persons are invited to submit written comments or 
requests for a hearing on the pending exemptions, unless otherwise 
stated in the Notice of Proposed Exemption, within 45 days from the 
date of publication of this Federal Register Notice. Comments and 
requests for a hearing should state: (1) The name, address, and 
telephone number of the person making the comment or request, and (2) 
the nature of the person's interest in the exemption and the manner in 
which the person would be adversely affected by the exemption. A 
request for a hearing must also state the issues to be addressed and 
include a general description of the evidence to be presented at the 
hearing.

ADDRESSES: All written comments and requests for a hearing (at least 
three copies) should be sent to the Employee Benefits Security 
Administration (EBSA), Office of Exemption Determinations, Room N-5649, 
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210. Attention: Application No. ------, stated in each Notice of 
Proposed Exemption. Interested persons are also invited to submit 
comments and/or hearing requests to EBSA via e-mail or fax. Any such 
comments or requests should be sent either by e-mail to: 
Amoffitt.betty@dol.gov, or by fax to (202) 219-0204 by the end of the 

scheduled comment period. The applications for exemption and the 
comments received will be available for public inspection in the Public 
Documents Room of the Employee Benefits Security Administration, U.S. 
Department of Labor, Room N-1513, 200 Constitution Avenue, NW., 
Washington, DC 20210.

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all 
interested persons in the manner agreed upon by the applicant and the 
Department within 15 days of the date of publication in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and to request a hearing 
(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in 
applications filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 1990).

[[Page 56560]]

Effective December 31, 1978, section 102 of Reorganization Plan No. 4 
of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of the 
Secretary of the Treasury to issue exemptions of the type requested to 
the Secretary of Labor. Therefore, these notices of proposed exemption 
are issued solely by the Department.
    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

Frank D. May, D.M.D., P.A., 401(k) Profit Sharing Plan and Trust (the 
Plan), Located in Port St. Joe, Florida

[Exemption Application No. D-11375]

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 
406(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 \1\ shall not apply to the proposed sale of shares of 
stock (the Stock) in Diente Y Clavo, S.A. (DyC) from the individually 
directed account in the Plan of Frank D. May, D.M.D. (the Account) to 
Frank D. May, D.M.D. (Dr. May), a party in interest with respect to the 
Account, provided the following conditions are satisfied:
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    \1\ For purposes of this exemption, references to specific 
provisions of Title I of the Act, unless other specified, refer also 
to the corresponding provisions of the Code.
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    a. The sale of the Stock to Dr. May is a one-time transaction for 
cash;
    b. Dr. May purchases the Stock for a purchase price that reflects 
the fair market value of the underlying assets of DyC;
    c. The fair market value of the underlying assets of DyC is 
determined by an independent, qualified appraiser, as of the date the 
transaction is entered;
    d. The Account is not responsible for and does not pay any fees, 
commissions, or other costs, or expenses associated with the sale of 
the Stock, including the cost of filing the application and notifying 
interested persons;
    e. Dr. May is the only participant in the Plan whose Account is 
affected by the transaction, and the sales proceeds from the 
transaction will be credited to such Account simultaneously with the 
transfer of title to the Stock to Dr. May; and
    f. The terms and conditions of the sale of the Stock are at least 
as favorable to the Account as terms and conditions obtainable under 
similar circumstances negotiated at arm's length with an unrelated 
third party.

Summary of Facts and Representations

    1. Dr. May is a dentist who is the sole practitioner in the firm of 
Frank D. May, D.M.D., P.A. (the Employer), the sponsor of the Plan. Dr. 
May is the President, sole director, and an employee of the Employer. 
Dr. May's dental practice is located in Port St. Joe, Florida.
    2. The Plan is a 401(k) profit sharing plan that was established by 
the Employer, effective January 1, 2004, for the benefit of the 
employees of the Employer. Dr. May is a party in interest with respect 
to the Plan, pursuant to 3(14)(E) of the Act, as the sole owner of the 
Employer whose employees are covered by the Plan.
    The trustee of the Plan is Dr. May. As such, Dr. May is a fiduciary 
to the Plan, pursuant to 3(14)(A) of the Act.
    Pursuant to the provisions of the Plan, each participant has the 
right to direct investments for his or her own respective account. In 
such instances, the investments are earmarked for the accounts of the 
participants directing such investments. Dr. May is a fiduciary, 
pursuant to 3(14)(A) of the Act with respect to directing the 
investment for his Account.
    3. As of April 25, 2006, the date of the application for exemption, 
the estimated number of participants and beneficiaries covered by the 
Plan is nine (9). As of the same date, the number of participants and 
beneficiaries affected by the proposed exemption is one (1), as the 
subject transaction involves only the individually directed Account of 
Dr. May. It is represented that no funds have been expended by the 
accounts of any participants of the Plan, other than Dr. May's Account, 
with regard to the acquisition and holding of the Stock and its 
underlying real and personal property.
    4. As of April 25, 2006, the approximate aggregate fair market 
value of the total assets of the Plan held in trust is $476,870.98. As 
of the same date, the approximate aggregate fair market value of the 
assets of Dr. May's Account is $304,607.63. It is represented that the 
funds in Dr. May's Account were originally contributed to the Plan by 
use of a rollover which was authorized under Section 3.7 of the Plan.
    5. DyC is a Panamanian company formerly known as Auckland Business, 
S.A. (Auckland). Dr. May, his wife, Carla Andra May, (Mrs. May) and 
Morris and Theresa Palmer (Mr. and Mrs. Palmer, or collectively, the 
Palmers) are officers and directors of DyC. The Palmers are friends and 
business partners of Dr. and Mrs. May. In this regard, it is 
represented that Dr. May invests in several real estate properties in 
Panama jointly with the Palmers.
    DyC was incorporated on July 2, 2004, to acquire and hold title to 
real property (the Property) located approximately 455 kilometers (some 
284.2 miles) from Panama City, in the Republic of Panama.
    Prior to the time DyC acquired title to the Property, a bank had 
foreclosed upon a holding corporation which owned the Property, it 
being represented that the owner of the holding company was in jail. It 
is represented that a local Panamanian real estate agent, showed the 
Property to Dr. May and the Palmers. The real estate agent through his 
own company's wholly-owned subsidiary, Auckland, acquired title to the 
Property by purchasing the holding company from the bank's foreclosure 
company.
    It is represented that Dr. May and the Palmers retained counsel in 
Panama in order to begin the process of buying the Property on behalf 
of Dr. May's Account and on behalf of the Palmers by acquiring the 
stock of Auckland. It is represented that Panamanian counsel drew up 
the contract for sale with numerous conditions designed to protect the 
purchasers through the closing period and beyond. It is represented 
that when all the conditions of the contract were met, and the contract 
was closed, Dr. May's Account and the Palmers each received bearer 
stock in Auckland. Subsequently, when Auckland's name was changed to 
DyC, Dr. May's Account and the Palmers received the Stock which is the 
subject of this exemption request in exchange for the bearer stock in 
Auckland.
    6. It is represented that DyC has 100 shares of Stock issued, 
authorized, and outstanding. Between July 20, 2004, and November 24, 
2004, it is represented that the Account paid in installments $142,500 
in cash to acquire fifty (50) shares of Stock in DyC, representing a 50 
percent (50%) interest in DyC.\2\ In

[[Page 56561]]

addition to the purchase price, the expenses paid by the Account with 
respect to its ownership of a fifty percent (50%) interest in DyC has 
been a $3,500 payment to Panamanian counsel for legal expenses relating 
to the acquisition and $2,080 for security and caretaker services. The 
remaining fifty (50) outstanding shares of Stock in DyC, representing a 
fifty percent (50%) interest in DyC, is owned by Mr. and Mrs. Palmer.
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    \2\ Dr. May maintains that the acquisition and holding by his 
Account of Panamanian real property through an interest in a 
Panamanian company does not violate section 404(b) of the Act, so 
long as stock in such company was held in the United States. Section 
404(b) of the Act provides in pertinent part that: ``no fiduciary 
may maintain the indicia of ownership of any assets of a plan 
outside the jurisdiction of the district courts of the United 
States,''
    In this regard, it is represented that on March 3, 3005, stock 
certificate 3, representing fifty (50) shares of DyC was 
issued to the Account by signature of Mr. and Mrs. Palmer. It is 
represented that such stock certificate is presently in the 
possession of Dr. May, acting as trustee on behalf of his Account, 
and is physically present in Port St. Joe, Florida. Dr. May 
represents that such stock certificate has been physically present 
in the United States and in Dr. May's continuous possession and 
control from at least as early as April 3, 2005, (thirty days after 
its issue date). Prior to April 3, 2005, Dr. May represents that the 
Account's interest was at all times protected by Panamanian counsel 
which held the bearer stock in Auckland (subsequently, the DyC 
Stock) from the time the Account's funds were invested in Auckland 
on or about July 20, 2004.
    The Department, herein, is providing no relief from any 
violation of the ``indicia of ownership provisions,'' as set forth 
section 404(b) of the Act that may have arisen as a result of the 
acquisition and holding by the Account of the bearer stock in 
Auckland, the Stock in DyC, or the acquisition and holding of an 
Interest in the Property through ownership by Auckland or DyC.
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    It is represented that the purchase of the Stock by the Account was 
made with the expectation that the Stock would be held for long term 
appreciation for a period of approximately ten (10) years or more.
    7. The applicant represents that an appraisal of the Property was 
not obtained when DyC acquired title to such Property. In this regard, 
it is represented that Dr. May has significant experience with the 
acquisition and ownership of coastal real estate, including other 
properties in Florida and Panama. Dr. May represents that he has relied 
on his own ability, investigation, and research in acquiring real 
property and has never secured an appraisal, unless one was required 
for financing.\3\
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    \3\ The Department notes that the acquisition and holding by the 
Account of the bearer stock in Auckland, the Stock in DyC, and the 
underlying Property is subject to the general fiduciary 
responsibility provisions of part 4 of the Title I of the Act. 
Section 404(a) of the Act requires, among other things, that a 
fiduciary of a plan act prudently and solely in the interest of the 
participants and beneficiaries of a plan, when making investment 
decisions on behalf of such plan. The Department, herein, is 
providing no relief from any violation of section 404 of the Act 
that may have arisen as a result of the acquisition and holding by 
the Account of the bearer stock in Auckland, the Stock in DyC, or 
the acquisition and holding of an interest in the Property through 
ownership of Auckland or DyC.
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    8. Allen E. Candanedo (Mr. Candanedo), Vice President of Comivensa, 
S.A., an appraisal firm located in Panama, did prepare an appraisal 
report, dated March 14, 2006, of the fair market value of the Property 
underlying DyC, as of December 31, 2004, and, as of March 2, 2006.
    It is represented that Mr. Candanedo is qualified to appraise the 
Property in that he has been an officer and General Manager since 1980 
of a corporation specializing in private and commercial real estate 
appraisals and agricultural or cattle appraisals.
    Mr. Candanedo represents that he is independent in that he has no 
past, present, or contemplated interest in the Property and has no 
personal interest in the parties involved. Further, Mr. Candanedo 
represents that he has no bias with respect to the Property that is the 
subject of his appraisal report or with respect to the parties involved 
in his assignment. Mr. Candanedo's fee for preparing the appraisal was 
not contingent upon the reporting of a predetermined value or direction 
in value that favors the cause of the client, the amount of the value 
opinion, the attainment of a stipulated result, or the occurrence of a 
subsequent event related to the intended use of such appraisal.
    In his appraisal report, Mr. Candanedo indicates that when acquired 
by DyC the Property consisted of approximately 437.367 acres (177 
hectares) held in four separate parcels (Parcels 1, 2, 3, and 4) in the 
area known as ``Los Buzos,'' County of Guanico, District of Tonosi, 
Province of Los Santos, in the Republic of Panama. The area surrounding 
the Property is predominately rural with some agricultural activity in 
the lowlands. No public utilities, including water works, telephone 
service, or electricity, are available to the Property.
    Parcels 1, 2, and 3 consist of adjoining lots of pastureland 
located in the hills and lowlands of the community of Salamin. There 
are no visible improvements on Parcel 1, 2, or 3, except for some 
barbed wire and live posts which comprise the internal divisions in the 
parcels. The only access to Parcel 1, 2, and 3 is by foot or on 
horseback. It is represented that Parcel 1, 2, and 3 are best suited 
for cattle ranching.
    Parcel 4 is a beachfront property. There are some palm-roofed beach 
huts used by the caretaker and visitors to the beach area. The closest 
transportation service available is a dirt road that divides Parcel 4 
into two lots (Lot A and B), one by the beach and the other described 
as undulating pastureland. It is represented that Parcel 4 is best 
suited for recreational activities.
    In his appraisal report of March 14, 2006, Mr. Candanedo identifies 
the property number, the description, the approximate area, and the 
fair market value of Parcels 1, 2, 3, and 4 included in the Property, 
as of December 31, 2004, and as of March 2, 2006, as follows:

----------------------------------------------------------------------------------------------------------------
                                                                                     Value in        Value in
      Parcel No./Lot No.  (Property No.) and  description       Approximate area   dollars as of   dollars as of
                                                                  (in hectares)      12/31/04         3/2/06
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Parcel 1 (12,989) Pastureland........................             120.6     $102,541.62      $91,328.86
Parcel 2 (17,771) Pastureland........................              22.4       26,908.31       24,095.99
Parcel 3 (17,963) Pastureland........................               7.0       10,554.33       13,724.30
Parcel 4 (7,139) Lot A: Beachfront...................            Lot A:          Lot A:          Lot A:
                                                                             5.4      122,400.00      125,120.00
Lot B: Pastureland............................................            Lot B:          Lot B:          Lot B:
                                                                            21.8       32,640.00       33,728.00
                                                               -------------------------------------------------
    Totals....................................................  ................      295,044.26      287,997.15
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    According to Mr. Candanedo, the aggregate adjusted commercial value 
of the Property (177.2 hectares) on December 31, 2004, was 
approximately $295,000, and the aggregate adjusted commercial value of 
the Property (155

[[Page 56562]]

hectares), as of March 2, 2006, is approximately $288,000. It is 
represented that the decrease in the March 2, 2006, adjusted commercial 
value of the Property reflects the net loss of approximately 56.5 acres 
(22.2 hectares) of land due to a boundary dispute with the former 
owner, which according to the applicant is presently the subject of 
legal proceedings.
    In his appraisal report, Mr. Candanedo states that the registered 
owner of the Property is Auckland. However, the applicant represents 
that listing the registered owner of the Property as Auckland is a 
matter of appraiser error, as Auckland's name was changed to DyC in the 
fall of 2004.
    9. In addition to the Property, DyC also owns 100 percent (100%) 
interest or 100 shares of the issued and outstanding stock in a 
Panamanian company known as Damy Resources Corporation (Damy). It is 
represented that Damy was incorporated for the purpose of acquiring 
title to a boat in Panama. As the Account and the Palmers each own a 50 
percent (50%) interest in DyC, the Account and the Palmers currently 
are the indirect owners of all of the stock of Damy.
    It is represented that a titling error occurred when the stock in 
Damy was issued. Title was inadvertently taken in the name of DyC, 
because at the time of the purchase of the boat, DyC was the only 
company that had established an adequate banking relationship in Panama 
through which funds could be transferred to make the purchase. It is 
represented that instead of 100 shares being issued to DyC, 50 shares 
of stock in Damy (a 50% interest) should have been issued to Mr. Palmer 
and 50 shares of stock in Damy (a 50% interest) should have been issued 
to Dr. May, individually.
    Damy purchased the boat for a cost of $28,500 of which $14,250 of 
the acquisition price was paid by Mr. Palmer and $14,250 of the 
acquisition price was paid by Dr. May, individually. It is represented 
that $2,975 in maintenance and $745 in insurance premiums on the boat 
were paid from a joint account which Dr. May and the Palmers maintain 
in Panama for dealing with several investments in Panama which Dr. May 
and the Palmers own jointly. It is represented that the records of 
expenses for these investments were not kept separately in this joint 
account. Accordingly, detailed documentation or records on payments for 
maintenance and insurance on the boat are not readily available. When 
funds were required to keep up the balance in this joint account, it is 
represented that Dr. May would make a wire transfer from his personal, 
individual funds into this joint account for his share of the expenses. 
It is represented that none of the cost to acquire the boat or to 
maintain or insure the boat were paid by Dr. May's Account in the Plan.
    It is represented that Dr. May has on occasion made personal use of 
the boat. It is represented that Dr. May was investigating the 
procedure to correct the titling error when in June of 2006, eighteen 
months after its purchase, the boat was destroyed in a storm. Insurance 
adjustments on the boat are still pending.\4\
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    \4\ The Department is not providing retroactive relief, herein, 
with respect to any violations of section 406 of the Act that may 
have risen from the past use of the boat by Dr. May or any payment 
by Dr. May, involving the acquisition price of the boat or the 
maintenance and insurance expenses of the boat. In this regard, Dr. 
May does not concede that the boat was ever an asset of the Account, 
due to the titling error and due to the fact that the funds of the 
Account were not spent to acquire, maintain, operate, or insure the 
boat. However, Dr. May has represented that within 30 days of the 
date of the granting of this proposed exemption, he will file the 
FORM 5330 with the Internal Revenue Service (IRS), and pay any 
excise tax, plus interest to the IRS, and any correction amount 
deemed to be due and owing.
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    10. On the basis of Mr. Candanedo's appraisal of the value of the 
Property underlying DyC (but not including the value of the boat), it 
is represented that, as of March 2, 2006, the value of the Stock in DyC 
owned by Dr. May's Account is $144,000. The Stock in Dr. May's Account 
constitutes approximately 47.27 percent (47.27%) of the value of such 
Account.\5\
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    \5\ The Department notes that the value of the DyC Stock 
constitutes a substantial percentage of the assets of the Account. 
In this regard, the fact that the Stock in DyC is the subject of an 
administrative exemption under section 408(a) of the Act does not 
relieve fiduciaries of the general standards of fiduciary conduct 
under section 404 of the Act, nor does such an exemption insulate a 
fiduciary from potential liability under section 404 of the Act. 
Section 404(a)(1)(C) of the Act requires, among other things, that a 
fiduciary diversify the investment of a plan so as to minimize the 
risk of large losses, unless under the circumstances it is clearly 
prudent not to go so. It is the responsibility of the fiduciary of 
the plan to determine whether the diversification requirements of 
section 404(a)(1)(C) have been satisfied.
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    11. From the time DyC acquired title to the Property through the 
date of this application request, it is represented that Dr. May has 
never used the Account's Property in Panama. However, Dr. May visited 
the Property prior to the acquisition by the Account to evaluate 
whether to invest in the Property and to assist the appraiser. In 
addition, Dr. May has been on the Property to assist with issues 
relating to fencing the Property and securing the Property against 
trespassers, squatters, and intruders.
    12. It is represented that the investment by the Account in the 
Property through its interest in DyC has resulted in continuing, 
unanticipated expenses required to protect the Property from 
trespassers, squatters, and intruders. These expenses include hiring 
security, the salaries for two full-time caretakers, legal expenses, 
the cost of securing permits and building shelters to house the 
caretakers, and obtaining vehicles to enable caretakers to protect the 
Property. It is represented that the Account does not have adequate 
resources to pay these continuing expenses and at the same time provide 
for the retirement needs of Dr. May. Accordingly, it is represented 
that Dr. May has individually paid a total of $72,360, as of July 14, 
2006, in expenses of the Account, as follows: (1) $23,500 in legal 
fees, (2) $46,350 in construction expenses relating to caretakers 
quarters, fencing, grounds maintenance, and labor, and (3) $2,510 for 
security. It is represented that there was never any formal agreement 
that the Plan would repay to Dr. May the funds he advanced to the 
Account.\6\ It is further represented that the funds were expended by 
Dr. May to protect the Property, were never intended to be 
contributions to the Plan, and were not treated as contributions to the 
Plan. As such, the contribution limits, as set forth in section 415 of 
the Code, were not violated.
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    \6\ The Department is not providing retroactive relief, herein, 
with respect to any violations of section 406 of the Act that may 
have arisen from any payments by Dr. May of the expenses incurred by 
the Account. Dr. May represent that within 30 days of the date of 
the granting of this proposed exemption, he will file the FORM 5330 
with the IRS, and pay any excise tax, plus interest, to the IRS, and 
any correction amount deemed to be due and owing with regard to any 
such payments of expenses.
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    13. In order to relieve the Account from the prospect of continuing 
to incur the considerable expenses, described above, the applicant has 
requested an exemption for the sale of the Stock by the Account to Dr. 
May for cash at a price equal to the current fair market value of the 
Account's undivided 50 percent (50%) interest in DyC, established at 
the time of the sale by an independent, qualified appraiser. It is 
represented that the sale of the Stock to Dr. May is the only viable 
option, as the Palmers have no interest in investing more funds to 
acquire the Account's Stock or to assume more responsibility for the 
expenses and costs of maintaining and defending the Property. Further, 
Dr. May maintains that finding an unrelated third party purchaser would 
be difficult and time consuming, even if the Palmers were willing to 
accept an unrelated third party co-investor.

[[Page 56563]]

    The proposed transaction would constitute a prohibited sale or 
exchange between the Account and a party in interest and would violate 
the provisions of the Act against a fiduciary engaging in self-dealing 
and conflicts of interest. Accordingly, Dr. May has requested relief 
from sections 406(a), 406(b)(1) and 406(b)(2) of the Act.
    14. It is represented that the proposed transaction is in the best 
interest of the Account because the sale of the Stock will relieve the 
Account of the continued expense of protecting the Property from 
trespassers, squatters, and intruders and other expenses. In addition, 
the sale of the Stock will divest the Account of an illiquid, non-
income producing asset, will increase the liquidity of the Account's 
portfolio, and will facilitate diversification of the Account's assets.
    15. It is represented that the proposed transaction is feasible in 
that the sale will be a one-time cash transaction.
    16. It is represented that the proposed transaction is protective 
of the Account, because the fair market value of the Property 
underlying the Stock will be updated on the date of the transaction by 
an independent, qualified appraiser. Further, the Account will not be 
required to pay any real estate fees or commissions or other expenses 
or costs in connection with the subject transaction.
    17. In summary, the applicant represents that the proposed 
transaction will satisfy the statutory requirements for an exemption 
under section 408 (a) of the Act because:
    a. The sale of the Stock to Dr. May will be a one-time transaction 
for cash;
    b. Dr. May will purchase the Stock for a purchase price that 
reflects the fair market value of the underlying assets of DyC;
    c. The fair market value of the Property will be determined by an 
independent qualified appraiser, as of the date the transaction is 
entered;
    d. The Account will not be responsible for and will not pay any 
fees, commissions, or other costs, or expenses associated with the sale 
of the Stock, including the cost of filing the application and 
notifying interested persons;
    e. Dr. May is the only participant in the Plan whose Account is 
affected by the transaction, and the sales proceeds from the 
transaction will be credited to such Account simultaneously with the 
transfer of title to the Stock to Dr. May; and
    f. The terms and conditions of the sale of the Stock will be at 
least as favorable to the Account, as terms and conditions obtainable 
under similar circumstances negotiated at arm's length with an 
unrelated third party.

Notice to Interested Persons

    Because Dr. May is the only participant in the Plan whose Account 
will be affected by the proposed transaction, it has been determined 
that there is no need to distribute the notice of proposed exemption to 
interested persons. Accordingly, comments and requests for a hearing 
are due 30 days after publication of the Notice of Proposed Exemption 
in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the 
Department, telephone (202) 693-8540 (This is not a toll-free number.)

Proposed Amendment to Prohibited Transaction Exemption (PTE) 2001-32 
Involving Development Company Funding Corporation Located in the 
District of Columbia

[Application No. D-11392]

Proposed Exemption

    Based on the facts and representations set forth in the 
Application, under the authority of section 408(a) of the Act and 
section 4975(c)(2) of the Code and in accordance with the procedures 
set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, August 10, 
1990), the Department proposes to modify PTE 2001-32 as set forth 
below:
    Section II. D. of PTE 2001-32 is amended to read: ``The Trustee is 
not an affiliate of any other member of the Restricted Group, other 
than, effective on or after October 1, 2006, the Central Servicing 
Agent.''
    If granted, the amendment will be effective as of October 1, 2006.

Summary of Facts and Representations

    1. The Small Business Administration (SBA), through its agent, the 
Development Company Funding Corporation (DCFC or the Applicant), 
requests that the Department amend PTE 2001-32, 66 FR 46823 (September 
7, 2001) (PTE 2001-32). This exemption provides relief from certain of 
the prohibited transaction restrictions of sections 406(a), 406(b) and 
407(a) of the Act and from the taxes imposed by section 4975(a) and (b) 
of the Code, by reason of certain provisions of section 4975(c)(1) of 
the Code. PTE 2001-32 was granted to DCFC and involves an SBA program 
to provide financing for small businesses through the sale of 
certificates representing a beneficial ownership interest in a pool of 
debentures held in trust. The debentures are issued by certified 
development companies (CDCs) to fund loans to small businesses. The 
proposed amendment, if granted, would revise the condition in Section 
II.D. of PTE 2001-32, which currently requires that the Trustee not be 
an affiliate of any other member of the Restricted Group, in order to 
permit the Trustee and the Central Servicing Agent to be related.
    2. The SBA is an agency established pursuant to the Small Business 
Act, which authorized the SBA to establish a program to provide 
financing to small businesses for projects that further one or more 
economic development objectives (the 504 Program) and meet certain 
eligibility criteria specified in the 504 Program regulations. Under 
the 504 Program, financing is provided to small businesses by the CDCs. 
A small business applies for 504 Program assistance to the CDC serving 
the area in which the project is located. If the SBA approves the 
project, permanent financing is arranged. The CDC's contribution to the 
project financing is raised by the CDC's issuance of a debenture. Under 
authority granted in 15 U.S.C. 697(a), the SBA guarantees the timely 
payment of all principal and interest as scheduled on this debenture; 
the full faith and credit of the United States is pledged to the 
payment of these guaranteed amounts. The interest rates of the loan and 
of the debenture are set by the SBA and approved by the Secretary of 
the Treasury.
    3. Regulations issued under the Small Business Investment Act (the 
SBIA) require the SBA and CDC to appoint a selling agent to select 
underwriters, negotiate the terms of debenture offerings with the 
underwriters, and direct and coordinate debenture sales. The selling 
agent agrees to sell a specified amount of SBA-guaranteed debentures 
(the debenture pool) to the underwriters under a Debenture Purchase, 
Pooling and Exchange Agreement. All debentures within a debenture pool 
have identical stated interest rates, payment dates, and terms to 
maturity. The underwriters assign the debenture pool to the trustee in 
exchange for participation certificates. The trustee issues the 
participation certificates as a series of the trust established by a 
1986 trust agreement (the Trust). The SBA agrees to issue its guarantee 
on the certificates. The Department of the Treasury approves the 
negotiated sale price and coupon on the certificates. The underwriters 
sell the certificates to investors and the proceeds, less an 
underwriting commission, are distributed to the CDC's selling agent, 
acting through a servicing agent, which transfers the funds to the CDC 
to fund the 504 Program loans.

[[Page 56564]]

    SBIA regulations require the appointment of a fiscal agent to 
assess the financial markets, arrange for the production of documents 
required for offering certificates, and monitor the performance of the 
trustee and the underwriters. DCFC has been appointed as fiscal agent 
for the SBA under a Fiscal Agency Agreement with the SBA and as selling 
agent for CDCs that issue debentures which DCFC sells to underwriters 
pursuant to a Selling Agency Agreement with the SBA. DCFC is a District 
of Columbia not-for-profit corporation that was created to facilitate 
504 Program transactions. Payments to DCFC of its fees as fiscal agent 
and selling agent are made from the master reserve account, described 
below.
    4. The regulations also provide for the designation by the SBA of a 
central servicing agent to support the orderly flow of funds among the 
borrowers, CDCs and SBA. SBA has engaged Colson Services Corp. (Colson 
or Central Servicing Agent) to act as central servicing agent, 
receiving and disbursing funds wired by the underwriters, and servicing 
payments on the debentures. Colson collects a monthly servicing fee 
from the borrower of each 504 Program loan. Colson was awarded the 
contract to act as central servicing agent through a competitive 
bidding process. Colson is required by SBIA regulation to provide a 
fidelity bond or insurance in an amount that fully protects the 
government.
    The master servicing agreement entered into between Colson and the 
SBA, effective September 29, 1988, requires that Colson carry a 
fidelity bond or similar insurance in an amount commensurate with the 
level of funds in its possession, but not less than $10 million. In 
addition, the master servicing agreement requires Colson to maintain a 
standard Banker's Blanket Bond insurance policy in an amount 
``customary and sufficient'' to protect against loss caused by actions 
of Colson, its employees or agents. The master servicing agreement 
requires Colson to maintain certain accounts to hold funds that are in 
Colson's custody in connection with the 504 Program. The master 
servicing agreement specifies the accounts to be maintained and the 
payments to be made, and imposes timing and other performance 
requirements.
    5. Prior to October 1, 2006, Colson maintained accounts required 
under the master servicing agreement at J.P. Morgan Chase & Co., which 
had recently purchased Colson. The master servicing agreement limits 
the investment of funds in these accounts to debt obligations issued or 
guaranteed by the U.S. government and money market funds that hold 
these types of investments. Investment earnings are sufficient to pay 
the trustee and investment management fees charged in connection with 
the account, and a fee to Colson for record-keeping services that 
Colson provides for the accounts. Investment earnings in excess of 
these fees are disbursed semiannually to the CDCs. Colson maintains a 
master reserve account through which all funds related to the 504 
Program loans and the debentures flow.
    The master servicing agreement requires Colson to deliver periodic 
status reports to the SBA, and requires independent audits of Colson's 
financial statements and operations each year. It also provides for a 
contracting officer to administer the contract on behalf of SBA and for 
a contracting officer's technical representative to monitor all 
technical aspects of and to assist in administering the contract. SBA 
and its authorized representatives have the right of access and 
inspection of Colson's facilities and records relating to the 
operations of the 504 Program. Colson may forfeit its right to its fees 
if, in the determination of the SBA, it has not submitted required 
reports or performed required services, unless the failure is beyond 
its control and without its fault. In addition, SBA may terminate the 
contract for default by Colson, including Colson's failure to perform 
its obligations in a timely manner, as well as Colson's insolvency or 
the filing of a petition in bankruptcy by or against Colson if the 
petition is not dismissed or withdrawn within 90 days.
    6. The regulations also require appointment of a trustee to issue 
and transfer the certificates, maintain registries of the debentures 
and the certificates, hold the debentures for the benefit of the SBA 
and the certificateholders, receive payments on the debentures and 
disburse payments on the certificates. None of the administrative fees 
paid by the borrower (including the SBA guarantee fee, funding fee, the 
CDC processing fee, closing costs and the underwriter's fee) are paid 
out of the Trust. The trustee, as holder of a debenture guarantee 
agreement with the SBA with respect to any pool of debentures, has the 
right to enforce the SBA's guarantee for the benefit of the holders of 
the certificates in the related series. Harris Trust Company of New 
York (Harris Trust) was appointed as trustee and entered into a trust 
agreement dated as of December 1, 1986 with the SBA and with DCFC as 
fiscal agent. Effective May 8, 2000, The Bank of New York (The Bank of 
NY or Trustee), a wholly owned subsidiary of the Bank of New York 
Company, Inc. (The Bank of NY Co.), succeeded Harris Trust as trustee. 
Under the 1986 trust agreement, as amended (the 1986 Trust Agreement), 
the trustee is compensated by the SBA from time to time as shall be 
agreed.
    7. PTE 2001-32 provides relief for a plan's purchase of the 
certificates, despite the fact that various entities involved in the 
loan program (e.g., the underwriter or the trustee) may be parties in 
interest with respect to the plan. Specifically, the exemption provides 
relief from: (1) Sections 406(a) and 407(a) of the Act for the sale, 
exchange or transfer of certificates in the initial issuance of such 
certificates between the underwriter and a plan, the plan's acquisition 
or disposition of such certificates in the secondary market, and the 
plan's continued holding of such certificates; (2) sections 406(b)(1) 
and (b)(2) of the Act for the sale, exchange or transfer of 
certificates in the initial issuance of certificates between the 
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 obligated to make payment on a loan 
related to a debenture contained in the Trust, the plan's acquisition 
or disposition of such certificates in the secondary market and the 
continued holding of such certificates by a plan; and (3) sections 
406(a), 406(b) and 407(a) of the Act for transactions in connection 
with the servicing, management and operation of the Trust. For a more 
complete statement of the facts and representations supporting the 
Department's decision to grant PTE 2001-32, refer to the proposed 
exemption at 66 FR 36005 (July 10, 2001) and the grant notice at 66 FR 
46823 (September 7, 2001).
    8. The SBA, through its agent, DCFC, requests that the Department 
amend PTE 2001-32 to permit two parties to the 504 Program 
securitization transactions; Colson, the Central Servicing Agent, and 
The Bank of NY, the Trustee (as these terms are defined in PTE 2001-
32), to be affiliated. The specific relief requested as it relates to 
the text of PTE 2001-32, is to revise the condition in Section II.D., 
which currently requires that the Trustee not be an affiliate of any 
other member of the Restricted Group, in order to permit the Trustee 
and the Central Servicing Agent to be related. The Central Servicing 
Agent is currently a member of the Restricted Group. According to the 
Applicant, the requested relief can be accomplished by amending Section 
II.D. to read: ``The Trustee is not an

[[Page 56565]]

affiliate of any other member of the Restricted Group, other than, 
effective on or after October 1, 2006, the Central Servicing Agent.''
    9. The request is made in the context of a pending acquisition by 
The Bank of NY Co. of JPMorgan Chase & Co.'s worldwide corporate trust 
business on October 1, 2006. Pursuant to a purchase and assumption 
agreement dated April 7, 2006, The Bank of NY Co. will acquire JPMorgan 
Chase & Co.'s corporate trust business and JPMorgan Chase & Co. will 
acquire the regional and middle-market banking business owned by The 
Bank of NY Co. through an exchange of such assets and cash (the 
Acquisition). JPMorgan Chase & Co.'s corporate trust business provides 
trust, agency, execution, master servicing, custodial, depository, 
analytics, defeasance, and other related services in more than 40 
locations worldwide to the international, structured finance, municipal 
and corporate debt markets with respect to issues currently totaling $5 
trillion. In the transaction, all of the stock of Colson is among the 
assets being acquired by The Bank of NY Co. The stock of Colson is only 
one of JPMorgan Chase & Co.'s trust business assets being acquired by 
The Bank of NY Co. through the Acquisition.
    Effective as of the Acquisition, Colson will become a wholly owned 
subsidiary of The Bank of NY Co. Since The Bank of NY is also a wholly 
owned subsidiary of The Bank of NY Co., Colson and The Bank of NY will 
become ``brother-sister'' corporate affiliates. Colson will keep its 
current name, Colson Services Corp., and will conduct its business 
operations after the Acquisition in the same manner as it did before. 
Colson will operate as a separate subsidiary under The Bank of NY Co. 
As described above, The Bank of NY is trustee and Colson serves as 
central servicing agent for the 504 Program securitizations granted 
relief in PTE 2001-32. Currently, the Trustee (The Bank of NY) and the 
Central Servicing Agent (Colson) are unaffiliated. Section II. D. of 
PTE 2001-32 prohibits the Trustee from being an affiliate of any other 
member of the Restricted Group. Under Section III. M., the Central 
Servicing Agent is a member of the Restricted Group.
    10. In the absence of an amendment to PTE 2001-32, a violation of 
section 406(a)(1)(A) of the Act could result from the sale of 
participation certificates by the underwriter to a plan. A violation of 
section 406(b) of the Act could occur in connection with the management 
or operation of the Trust. In addition, there may be extensions of 
credit, provisions of services to the Trust and payment of fees by the 
Trust that violate other provisions of section 406. The Applicant is 
seeking the requested relief since PTE 2001-32 would no longer apply to 
any securitization transactions occurring on or after the Acquisition 
on October 1, 2006, unless The Bank of NY or Colson or both of these 
parties were to be replaced or PTE 2001-32 is amended to permit this 
affiliation.
    The Applicant believes that, if the amendment is not granted by the 
Department, it will be extremely difficult and disruptive to the 
administration of the 504 Program securitizations for the SBA to have 
to replace one or both of The Bank of NY and/or Colson. In addition, 
plans that purchased participation certificates offered pursuant to 
these securitizations may be forced to dispose of their certificates if 
the amendment is not granted and/or will not be able to invest in such 
SBA guaranteed certificates in the future. The Applicant requests the 
amendment because it asserts that the prohibition against the Central 
Servicing Agent and the Trustee being related to one another in PTE 
2001-32 is not necessary to protect the interests of employee benefit 
plans investing in the certificates because only the SBA, and not the 
Trustee, has the power to remove, or to take any remedial action 
against, the Central Servicing Agent, and the interests of the Trustee 
and the Central Servicing Agent are not adverse to one another.
    11. The Applicant notes that permitting the Trustee and the Central 
Servicing Agent to be affiliated does not adversely impact in any way 
the interests of employee benefit plans investing in participation 
certificates offered under the 504 Program securitizations because: (i) 
The performance of their respective responsibilities and obligations in 
connection with the securitizations does not place them in any 
situation where their interests are adverse to one another and so will 
not create any conflict of interest; (ii) only the SBA, not the 
Trustee, has the authority to hire or terminate the Central Servicing 
Agent; (iii) if the Central Servicing Agent fails to perform its 
duties, only the SBA, not the Trustee, can take remedial action against 
the Central Servicing Agent; and (iv) the only parties to the 1986 
Trust Agreement are the SBA, DCFC and the Trustee, and the only parties 
to the master servicing agreement are the SBA and the Central Servicing 
Agent. The Applicant asserts that there is no privity of contract 
between the Trustee and the Central Servicing Agent, as the Trustee is 
not a signatory to the master servicing agreement and the Central 
Servicing Agent is not a party to the 1986 Trust Agreement.
    More specifically, the principal duties of the Trustee are to: (i) 
Pay the certificateholders from the funds the Central Servicing Agent 
deposits into the Trust (representing debenture or SBA guarantee 
payments); (ii) send financial reports to the certificateholders; (iii) 
make certain information regarding the debenture pool available; and 
(iv) issue, register, hold and/or transfer the certificates and 
debentures for the benefit of the SBA and/or the certificateholders. 
The Applicant states that while the 1986 Trust Agreement recites some 
of the duties and obligations of the Central Servicing Agent including 
to (i) deposit into the Trust the payments from such debentures and SBA 
guarantee payments, (ii) create certain funding accounts, and (iii) 
notify the SBA if there is an acceleration event and calculate the 
amounts due under the debentures in such case, these recitations do not 
create the legal obligation of the Central Servicing Agent to perform 
these functions or impose a legal obligation upon the Trustee to 
require the Central Servicing Agent to perform these functions. The 
Applicant asserts that such functions of the Central Servicing Agent 
are described in order to put the duties of the Trustee in context of 
these complicated transactions. Instead, the obligations of the Central 
Servicing Agent to perform these functions are legally created under 
the master servicing agreement, not the 1986 Trust Agreement, and these 
obligations are enforceable by the SBA.
    As noted above, the Central Servicing Agent is neither a party, nor 
a signatory, to the 1986 Trust Agreement. No conflicts arise between 
the two parties in the performance of their duties. The Central 
Servicing Agent collects the payments from the debentures, establishes 
collection accounts to do this outside the Trust for this purpose, 
decides if the amounts received are sufficient and to what extent, and 
if they are not, deals with the SBA in collecting upon the guarantee. 
The Applicant asserts that the Trustee has no accountability with 
respect to these matters and, that this fact is stated in the 1986 
Trust Agreement at section 8.03. The Applicant concludes that the 
Trustee's only responsibility that in any way intersects with the 
Central Servicing Agent is to receive funds into the Trust, and pay 
such funds from the Trust to certificateholders and that there cannot 
be any adversity between the parties that would prevent them from being 
affiliated since the Trustee has no

[[Page 56566]]

responsibility for the sufficiency of the amounts and no authority over 
whether the Central Servicing Agent performs its duties.
    12. The Applicant states that the master servicing agreement is the 
legal document governing the obligations of the Central Servicing Agent 
as described above and in the original application. Under the terms of 
the master servicing agreement between the SBA and the Central 
Servicing Agent, the SBA, who is the signatory to the contract, not the 
Trustee, has the power to both hire and terminate the Central Servicing 
Agent and to monitor and enforce all of its duties and obligations 
under the master servicing agreement in the case of a default on the 
part of the Central Servicing Agent. SBA and its authorized 
representatives have the right of access and inspection of Colson's 
facilities and records relating to the operations of the 504 Program. 
The Central Servicing Agent may forfeit its right to its fees if, in 
the determination of SBA, it has not submitted required reports or 
performed required services, unless the failure is beyond its control 
and without its fault. SBA may terminate the contract for a default by 
the Central Servicing Agent, including the Central Servicing Agent's 
failure to perform its obligations in a timely manner, as well as the 
Central Servicing Agent's insolvency or the filing of a petition in 
bankruptcy by or against Central Servicing Agent if the petition is not 
dismissed or withdrawn within 90 days. The Applicant also wishes to 
note that section H-17 of the master servicing agreement provides that 
the Central Servicing Agent is ineligible to bid on the 504 Program 
Trustee contract. While this provision is somewhat ambiguous in its 
precise intent, the SBA and the other parties have chosen to interpret 
it narrowly and are in the process of having it amended prior to the 
date of the Acquisition so that it would not be an impediment to the 
Central Servicing Agent and the Trustee being affiliates.
    13. The Applicant represents that the relationships between the 
four relevant parties to the 504 Program securitization transactions 
(the SBA, DCFC, the Trustee and the Central Servicing Agent) are 
distinguishable from that present in traditional securitizations of 
mortgage-backed securities covered by the ``Underwriter Exemptions'' 
that have been granted heretofore as amended and restated under PTE 
2002-41, 67 FR 54,487 (August 22, 2002).\7\ Specifically, in 504 
Program securitizations, the duties of the Central Servicing Agent and 
the Trustee do not create any conflicts of interest; the two parties 
are not in privity of contract with one another, in contrast to 
traditional securitizations where such conflicts and privity of 
contract could arise between the trustee and the servicers. In the 
mortgage-backed and asset-backed securitizations covered by the 
Underwriter Exemptions, the master servicer, the depositor/sponsor and 
the trustee enter into a three party pooling and servicing agreement 
governing their duties with respect to the operation of the trust and 
its assets. The trustee, as the signatory of all of the documents and 
instruments held by the issuer on behalf of certificateholders, has the 
authority and responsibility to enforce all of their rights against the 
master servicer. In addition, the trustee would become the master 
servicer in the event of a default by the master servicer. For these 
reasons it is necessary for the trustee and the master servicer to 
remain unrelated. The Applicant asserts, however, these circumstances 
do not exist and are distinguishable from those described with respect 
to 504 Program securitizations.
---------------------------------------------------------------------------

    \7\ The Underwriter Exemptions permit plans to purchase certain 
securities representing interests in asset- or mortgage-backed 
investment pools. The securities generally take the form of 
certificates issued by a trust (the Trust). The Underwriter 
Exemptions permit transactions involving a Trust (including the 
servicing, management and operation of the Trust) and certificates 
evidencing interests therein (including the sale, exchange or 
transfer of certificates in the initial issuance of the certificates 
or in the secondary market for such certificates). The entities 
covered include the sponsor of the Trust as well as the underwriter 
for the certificates issued by the Trust when the sponsor, servicer, 
trustee or insurer of the Trust, the underwriter of the certificates 
issued by the Trust, or an obligor of the receivables contained in 
the Trust, is a party in interest with respect to an investing plan.
---------------------------------------------------------------------------

    14. The Applicant believes that the proposed amendment to PTE 2001-
32 would be administratively feasible because it merely allows the 
existing exemption, as modified, to continue. No further action is 
required by the Department once the amendment is granted. The Applicant 
asserts that the amendment to PTE 2001-32 would be in the interest of 
participants and beneficiaries because all of the protections that the 
Department has created in the original exemption as well as the 
protections inherent in the 504 Program will continue to protect 
participants and beneficiaries and will allow the 504 Program 
securitizations to continue to operate undisturbed, thus making these 
continually available to plans. The Applicant believes that the 
requested amendment would be protective of the rights of the 
participants and beneficiaries of affected plans because the sale of 
the certificates will be conducted under all of the safeguards 
contained in the existing exemption.
    The Applicant states that the 504 Program securitizations have 
operated successfully with the current service providers for many years 
and that, in this economic environment of ever increasing mergers and 
acquisitions of corporations in the financial servicing industry, it 
becomes more and more difficult to find suitable institutions to act as 
trustees and/or servicers. The Applicant believes that it will be 
extremely burdensome for the SBA to be required to replace one or both 
of the Trustee and the Central Servicing Agent in order to find two 
qualified parties that are unrelated, and arrange for the transition to 
the new entities, especially given the complex administration of the 
504 Program securitizations and the number of outstanding transactions 
potentially impacted. If the SBA is unable to find suitable 
replacements, any potential employee benefit plan investors desiring to 
invest in certificate offerings or secondary market transactions 
occurring on or after October 1, 2006 would be prohibited from doing 
so.
    15. In conclusion, the Applicant notes that the original 
application for PTE 2001-32 indicated that the participation 
certificates issued under the 504 Program securitizations are an 
extremely high-quality investment, benefit from an SBA guarantee, and 
are backed by the full faith and credit of the United States, on both 
the certificates and on the debentures that constitute the collateral 
for the certificates. As a result, they present a very attractive 
investment opportunity for employee benefit plans which have 
traditionally purchased participation certificates directly or through 
money managers purchasing on behalf of such plans. The Applicant 
represents that the availability of PTE 2001-32 creates a wider 
potential market for the participation certificates thus resulting in 
better pricing and greater liquidity for the participation 
certificates, as well as lowering costs to 504 Program borrowers, in 
furtherance of the policies behind the 504 Program. Without the benefit 
of the relief granted by PTE 2001-32, the Applicant would be 
significantly restricted in its ability to sell participant 
certificates to plans and thus its access to the capital markets would 
be significantly restricted. Accordingly, the Applicant respectfully 
seeks administrative relief that amends PTE 2001-32 effective as of 
October 1, 2006, the date of the Acquisition, to permit the Central 
Servicing Agent to be affiliated with the Trustee.

[[Page 56567]]

Notice to Interested Persons

    All interested persons are invited to submit written comments or 
requests for a hearing on the pending amendment to the address above, 
within the time frame set forth above, after the publication of this 
proposed amendment in the Federal Register. All comments will be made a 
part of the record. Comments received will be available for public 
inspection with the Application at the address set forth above. Written 
comments and requests for a hearing should be received by the 
Department on or before October 27, 2006.

FOR FURTHER INFORMATION CONTACT: Wendy M. McColough of the Department, 
telephone (202) 693-8540. (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 or disqualified 
person from certain other provisions of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
section 404 of the Act, which, among other things, require a fiduciary 
to discharge his duties respecting the plan solely in the interest of 
the participants and beneficiaries of the plan and in a prudent fashion 
in accordance with section 404(a)(1)(b) of the Act; nor does it affect 
the requirement of section 401(a) of the Code that the plan must 
operate for the exclusive benefit of the employees of the employer 
maintaining the plan and their beneficiaries;
    (2) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries, and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete, and that each application 
accurately describes all material terms of the transaction which is the 
subject of the exemption.

Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
 [FR Doc. E6-15789 Filed 9-26-06; 8:45 am]

BILLING CODE 4510-29-P