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Secretary of Labor Thomas E. Perez
Proposed Exemptions; Equitable Life Assurance Society of the United States [Notices] [12/19/1997]

EBSA (Formerly PWBA) Federal Register Notice

Proposed Exemptions; Equitable Life Assurance Society of the United States [12/19/1997]

[PDF Version]

Volume 62, Number 244, Page 66669-66685

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Application No. D-10236, et al.]

 
Proposed Exemptions; Equitable Life Assurance Society of the 
United States

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of Proposed Exemptions.

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

Written Comments and Hearing Requests

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

ADDRESSES: All written comments and request for a hearing (at least 
three copies) should be sent to the Pension and Welfare Benefits 
Administration, Office of Exemption Determinations, Room N-5649, U.S. 
Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C. 
20210. Attention: Application No. ________, stated in each Notice of 
Proposed Exemption. The applications for exemption and the comments 
received will be available for public inspection in the Public 
Documents Room of Pension and Welfare Benefits Administration, U.S. 
Department of Labor, Room N-5507, 200 Constitution Avenue, N.W., 
Washington, D.C. 20210.

Notice to Interested Persons

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

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in 
applications filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990). 
Effective December 31, 1978, section 102 of Reorganization Plan No. 4 
of 1978 (43 FR 47713, October 17, 1978) transferred the authority of 
the Secretary of the Treasury to issue exemptions of the type requested 
to the Secretary of Labor. Therefore, these notices of proposed 
exemption are issued solely by the Department.
    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

The Equitable Life Assurance Society of the United States 
(Equitable) Located in New York, New York; Proposed Exemption

[Exemption Application No. D-10236]

    The Department of Labor (the Department) is considering granting an 
exemption under the authority of section 408(a) of the Act and section 
4975(c)(2) of the Code and in accordance with the procedures set forth 
in 29 CFR, part 2570, subpart B (55 FR 32847, August 10, 1990). If the 
exemption is granted, the restrictions of sections 406(a), 406(b)(1) 
and (b)(2) of the Act and the sanctions resulting from the application 
of section 4975 of the Code, by reason of section 4975(c)(1)(A) through 
(E) of the Code shall not apply to: (1) the leasing of 13,086 square 
feet of office space and 6,650 square feet of parking space by 
Equitable Real Estate Investment Management, Inc. (ERE) until June 30, 
2002 (the Tower 1 Lease); and (2) the leasing of 5,821 square feet of 
office space and 3584 square feet of parking space by ERE's subsidiary, 
Compass Management and Leasing, Inc. (Compass) until August 31, 1999 
(the Tower 2 Leases), in office buildings located in Orange County, 
California, that will be held by the Equitable Separate Account No. 8, 
also known as the Prime Property Fund (the PPF) and to the 1996 renewal 
of the original leases provided the following conditions are satisfied: 
(a) the renewal

[[Page 66670]]

of the leases and the terms of the leases were reviewed, negotiated and 
approved by a qualified independent fiduciary to PPF; (b) the qualified 
independent fiduciary determined that the terms of the transactions 
reflect fair market value and are at least as favorable to PPF as the 
terms would have been in arm's length transactions between unrelated 
parties; and (c) the independent fiduciary will continue to monitor the 
leases on behalf of the PPF.

EFFECTIVE DATE OF EXEMPTION: This exemption, if granted, will have an 
effective date of March 15, 1996. This exemption would expire for the 
Tower 2 Leases, on August 31, 1999 and for the Tower 1 Lease, on June 
30, 2002.

Summary of Facts and Representations

    1. Equitable (the Applicant) is a life insurance company organized 
under the laws of the State of New York and subject to supervision and 
examination by the Superintendent of Insurance of the State of New 
York. Equitable is one of the largest insurance companies in the United 
States. Among the variety of insurance products and services it offers, 
Equitable provides funding, asset management and other services for 
several thousand employee benefit plans subject to the provisions of 
Title I of ERISA.
    Equitable maintains several pooled separate accounts (including 
PPF) in which pension, profit-sharing, and thrift plans participate. 
Equitable also has several single customer separate accounts and 
investment management accounts pursuant to which Equitable manages all 
or a portion of the assets of a number of large plans.
    2. The Applicant represents that PPF is an insurance company 
separate account as defined in section 3(17) of the Act. PPF was 
established on August 20, 1973. Equitable maintains PPF for the 
investment of corporate qualified and governmental pension plan assets 
in real estate and real estate related investments. As of December 31, 
1995, PPF held 171 investments in wholly-owned properties or equity 
interests in real estate partnerships with an aggregate net value of 
$3.1 billion. In addition, as of December 31, 1995, PPF had eight 
investments in mortgage loans with an aggregate value of $311 million, 
or 9.2 percent of PPF's total net asset value. PPF's portfolio is 
diversified by property type and by geographic region.
    As of December 31, 1995, approximately 206 plans participated in 
PPF (collectively, the Plans). No plan holds more than a 20 percent 
interest in PPF. The Equitable Retirement Plan for Employees, Managers 
and Agents (the Plan), a defined benefit plan, participates in PPF. As 
of December 31, 1995, 2.2 percent of the fair market value of the 
assets of PPF were represented by the Plan's investment, and the Plan 
had invested 4.36 percent of its assets in PPF.
    3. ERE provides real estate investment advisory services to 
Equitable and, through its Compass and Compass Retail, Inc. 
subsidiaries, property management services with respect to certain 
properties held by Equitable accounts. ERE provides real estate 
investment advisory services with respect to the real property assets 
of PPF and the Compass companies manage numerous PPF properties.
    The Applicant provides that until 1997, ERE was an indirect wholly-
owned subsidiary of Equitable. All of the outstanding stock of ERE was 
held by Equitable Holding Corporation (EHC), a Delaware corporation 
wholly-owned by Equitable. However, Equitable has entered into a 
purchase agreement dated April 19, 1997 whereby EHC transferred all of 
its interests in ERE to Neptune Real Estate, Inc., a Delaware 
corporation wholly-owned by Lend Lease Corporation, an Australian 
corporation. As a result, ERE is no longer an affiliate of Equitable as 
of the sale closing date on June 10, 1997. However, the Applicant 
represents that the responsibilities of ERE with respect to Equitable's 
accounts remain substantially unchanged and that the exemptive relief 
requested is still required because ERE will continue to be a fiduciary 
of PPF.
    Equitable and ERE have substantial experience in managing real 
estate investments. Of the more than $69 billion in total assets held 
by Equitable at year-end 1995, Equitable's general account held $6.5 
billion in real estate mortgage loans and approximately $5.3 billion in 
equity investments in real property and interests in real estate joint 
ventures. Additionally, more than $11 billion of real property 
investments were held in Equitable's real estate separate accounts.
    4. Equitable represents that the first of the transactions subject 
to this proposed exemption originated in 1985, when Equitable, on 
behalf of PPF, entered into a joint venture agreement with Brinderson 
Towers I (Brinderson), for the purpose of developing a parcel of real 
estate in Orange County, California. PPF provided construction 
financing and Brinderson, an entity unrelated to Equitable, was the 
developer and managing partner of the joint venture, Brin-Mar I, L.P., 
succeeded by Brin-Mar II, L.P. on December 24, 1991 (Brin-
Mar).<SUP>1</SUP> One of the two buildings in the Newport Gateway 
complex in Orange County was completed in 1987 and is a 14 story office 
tower with a total of 286,132 square feet of rentable space (Tower 1). 
On August 24, 1988, after completion of Tower 1, Banque Paribas 
<SUP>2</SUP> provided permanent financing to fully repay the PPF 
construction loan for approximately $64 million.
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    \1\ The Applicant represents that Brin-Mar is a real estate 
operating company (REOC) within the meaning of the Department's 
``plan asset'' regulation 20 CFR 2510.3-101(e) and that the assets 
of the partnership are not plan assets for purposes of the 
prohibited transaction provisions of the Act and the Code. Further, 
as an entity predating the plan asset regulation, Brin-Mar achieved 
REOC status as of January 1, 1987. The Department expresses no 
opinion herein as to whether Brin-Mar is a REOC or whether the 
partnership's assets constitute plan assets.
    \2\ At the time of the transaction, Banque Paribas was unrelated 
to Equitable. As a result of a change in Equitable's structure in 
1992, Banque Paribas is now related to Equitable but with respect to 
Plans invested in PPF, it is not a party in interest as defined 
under section 3(14) of the Act by virtue of any relationship to 
Equitable. Specifically, AXA Mutual Companies currently holds a 62.1 
percent interest in Finaxa, an entity in which Banque Paribas holds 
a 26.5 percent interest. Finaxa owns 60 percent of Midi-
Participations, which in turn owns 42.3 percent of AXA SA. AXA SA 
owns 60.46 percent of Equitable Companies, Inc., which in turn holds 
100 percent ownership of Equitable. Equitable represents that Banque 
Paribas would be deemed to have, at most, a 4 percent interest in 
Equitable and that this de minimis interest in no way affected the 
terms of any of the transactions described in the Equitable 
application.
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    In July, 1987, Brin-Mar leased office space in Tower 1 to ERE as 
its regional headquarters. The terms of the 10 year lease were 
negotiated between ERE and Brinderson, acting as managing partner on 
behalf of Brin-Mar, and reviewed by Cushman and Wakefield, to assure 
that the terms reflected then-market rates. The lease commenced on July 
1, 1987 and terminated on June 30, 1997 and includes subleases by ERE 
for additional space. The Tower 1 Lease now covers a total of 13,086 
square feet of office space at a monthly rental rate of $1.88 per 
square feet. The Applicant represents that the original ERE lease did 
not constitute a prohibited transaction because of Brin-Mar's status as 
a REOC.
    5. The Applicant provides that the second transaction subject to 
the proposed exemption arose out of the development of a building 
adjacent to Tower 1 (Tower 2). On October 18, 1988, Equitable (on 
behalf of PPF) and Brinderson began development of Tower 2 under a 
second amendment to the Brin-Mar joint venture agreement. PPF provided 
the joint venture with construction financing in the amount of $61 
million. However, deterioration of the rental market in Orange County 
led the parties to restructure ownership of Towers 1 and 2 on December 
24, 1991.

[[Page 66671]]

Equitable, on behalf of PPF, foreclosed on Tower 2 and took title to 
Tower 2 in fee simple absolute. As a result, PPF holds 100 percent of 
the ownership interest in Tower 2. With the improvement of the economy 
in Orange County, Tower 2 is now 98 percent leased, and is valued at 
approximately $38.5 million.
    In 1992, Compass began leasing office space in Tower 2. The 
applicant states that the total square footage now occupied by Compass 
through the Tower 2 Leases is 5821 square feet of office space 
(including 1,500 square feet of space used as the Compass property 
management office) and 3584 square feet of parking space. The applicant 
represents that the original Tower 2 Leases complied with the 
requirements of Part III of PTE 84-14 which permits a qualified 
professional asset manager (QPAM) to lease not in excess of the greater 
of 7500 square feet or 1 percent of the rentable space of the office 
building in which the investment fund managed by the QPAM (or an 
affiliate) has the investment.<SUP>3</SUP>
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    \3\ The Applicant represents that Equitable is a QPAM as that 
term is defined in PTE 84-14. The Department expresses no opinion 
herein as to whether Equitable is a QPAM or whether the original 
Tower 2 Leases complied with the requirements of Part III of PTE 84-
14.
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    Furthermore, the Applicant represents that in 1992, when the 
original Tower 2 Leases were entered, PPF had two different investments 
in the two buildings. First, PPF, through Equitable, owned 100 percent 
of Tower 2. Second, PPF held a limited partnership interest in Brin-Mar 
II, L.P., the successor to Brin-Mar the original joint venture, and the 
owner of Tower 1. The Applicant states that because of this difference 
in ownership, the leased spaces in Tower 1 and Tower 2 were treated 
separately for the purposes of determining compliance with the space 
limitations in Part III of PTE 84-14. The original Tower 2 Leases 
expired but continued on a month-to-month basis while the parties 
negotiated new lease terms.
    6. Compass manages Towers 1 and 2 pursuant to PTE 91-8, granted to 
Equitable by the Department on January 14, 1991 (56 Fed. Reg. 1411). 
PTE 91-8 permits the provision of property management, leasing and 
other services by Equitable affiliates with respect to properties held 
by Equitable separate accounts in which plans invest. Such provision of 
services is fully disclosed to plans participating in the separate 
accounts and is approved by plan fiduciaries independent of Equitable. 
Management fees and leasing commissions payable to Compass are also 
reviewed and approved by an independent fiduciary and may not exceed 
those fees charged by comparable firms for similar services. The 
applicant states that, aside from the lease agreements provided to the 
Department and described in the exemption application and the 
Independent Fiduciary's reports, and the property management agreement 
discussed above, there are no other separate agreements between the 
parties governing the leased properties.
    7. The Applicant represents that with respect to Tower 1, Banque 
Paribas insisted on the December 24, 1991 restructuring of Brin-Mar so 
that Equitable, on behalf of PPF, would obtain a 70 percent partnership 
interest. As a result, Equitable became the managing partner of Brin-
Mar. On September 1, 1995, Banque Paribas sold the note on Tower 1 to 
Equitable, on PPF's behalf, for $38.5 million. Equitable had first 
offered the opportunity to purchase the note to Brin-Mar but Brinderson 
refused. Thus, as of September 1, 1995, PPF held a 70 percent interest 
in the Brin-Mar partnership owning Tower 1, as well as a $65 million 
(par value) note secured by Tower 1 which was, at that time, 
technically in default. Equitable determined that it would be in PPF's 
best interests to foreclose on Tower 1 because the Brin-Mar partnership 
had negative equity in Tower 1 (the building was worth $41 million but 
was subject to a $65 million mortgage). In Equitable's view, any 
actions taken to revive the partnership would only have the net effect 
of providing an additional return to Brinderson without any additional 
benefit to PPF. The foreclosure would result in the termination of the 
Brin-Mar partnership and consolidation of ownership in PPF. It would 
also clear title to Tower 1 because the outstanding note encumbered 
title to Tower 1.
    8. The applicant states that on March 15, 1996, Equitable, on 
behalf of PPF, foreclosed on the note secured by Tower 1. As a result, 
Tower 1 is now held 100 percent by PPF. Equitable states that the most 
immediate effect of a Tower 1 foreclosure was to terminate the status 
of Brin-Mar as a REOC because the foreclosure eliminated all of Brin-
Mar's interest in Tower 1. A 100 percent ownership interest in Tower 1 
was vested directly in Equitable, on behalf of PPF. The continuing 
Towers 1 and 2 Lease arrangements involving ERE and Compass were then 
subject to the restrictions of sections 406(a), 406(b)(1) and (b)(2) of 
the Act and the sanctions of section 4975 of the Code.
    Regulation 29 CFR 2510.3-101(h)(iii) provides that, notwithstanding 
any other provision of the plan asset regulation, assets held in an 
insurance company separate account (such as PPF) in which plans invest 
constitute plan assets. Tower 1 became a plan asset upon foreclosure 
and the Tower 1 Lease to ERE then constituted a lease between a plan 
and a party in interest prohibited by section 406(a)(1)(A) of the Act. 
Furthermore, because ERE is a fiduciary with respect to PPF and an 
affiliate of Equitable, the Tower 1 Lease may be a violation of 
sections 406(b)(1) and (b)(2). Thus, March 15, 1996 is the requested 
effective date of this proposed exemption for the Tower 1 Lease.
    9. The Tower 2 Leases with Compass, an affiliate of ERE, were also 
affected by the foreclosure on Tower 1. Tower 1 and Tower 2 are now 
both owned by PPF. The Applicant represents that, while before the 
foreclosure it had relied upon Part III(a) of PTE 84-14 for relief from 
the lease of Tower 2 to Compass, following foreclosure the aggregate 
space leased by ERE and Compass in both Towers 1 and 2 exceeded the 
limitations in Part III of PTE 84-14. The Applicant interprets Part 
III(a) of PTE 84-14 to provide that the amount of leased space in 
different buildings in an integrated office park or commercial center 
in which the investment fund has the investment shall be aggregated for 
purposes of determining compliance with the space limitations in Part 
III. Therefore, the Applicant is also seeking relief for the Tower 2 
leasing arrangements as of March 15, 1996.
    10. Robert A. Alleborn Properties, Inc. (Alleborn) will act as 
Independent Fiduciary for PPF with regard to the transactions that are 
subject to the requested exemptions. Alleborn currently manages more 
than 10 million square feet of commercial, office, industrial and 
mixed-use property in the western United States. Alleborn is 
experienced in and familiar with the real estate market in Southern 
California. Alleborn is also directly familiar with the Newport Gateway 
Towers through the provision of consulting services to Banque Paribas 
during the bank's investment in these projects. The Applicant states 
that Alleborn currently receives no fee income from Equitable, and 
anticipates that in the future it will not receive more than 3 percent 
of its annual income from Equitable and its affiliates, including fees 
for its services as independent fiduciary.
    The responsibilities of Alleborn with respect to the transactions 
are set forth in a letter agreement between Alleborn and Equitable 
signed on March 6, 1996 (the Agreement). Under the Agreement, Alleborn 
assumed responsibility as

[[Page 66672]]

independent fiduciary on behalf of PPF to: review the existing ERE and 
Compass leases; negotiate the ERE and Compass lease extensions, 
renewals or modifications and prepare for delivery to Equitable, one or 
more reports regarding these activities; and annually monitor the 
compliance of ERE and Compass with the terms of the leases.
    The Agreement provides that Alleborn's fees may only be changed by 
written agreement among Alleborn and a majority in interest of the 
plans participating in PPF. Alleborn may resign as independent 
fiduciary at any time on no less than 90 days prior written notice to 
Equitable and will be deemed to have resigned in the event that it no 
longer meets the requirements for an independent fiduciary. In no event 
shall Equitable or any affiliate have the authority to terminate 
Alleborn's service as independent fiduciary. Alleborn may be removed 
only by a vote of a majority in interest of the plans participating in 
PPF.
    Specifically, the Agreement provides that Alleborn has been 
authorized by Equitable to determine on behalf of PPF whether it was in 
the best interests of PPF to continue the Tower 1 and Tower 2 Leases 
after the foreclosure date of March 15, 1996 under the existing terms. 
This entailed a determination that the existing leases provides PPF 
with a market-level return or better. Further, Alleborn was authorized 
to represent PPF in negotiations regarding the extension, renewal or 
modification of the Tower 1 and Tower 2 Leases. Alleborn has the 
authority to determine whether and on what terms PPF will continue the 
transactions. Upon completion of the negotiations, Alleborn was 
required to determine whether the lease terms as negotiated were in the 
best interests of PPF and to submit a report summarizing Alleborn's 
activities.
    Additionally, Alleborn will continue to monitor both the Tower 1 
and Tower 2 Leases to assure compliance with the lease terms. 
Compliance with lease terms will be reviewed at least annually either 
directly by Alleborn or by an independent contractor reporting to 
Alleborn. Based on this review, Alleborn will have the authority to 
take any steps it deems necessary to assure lease compliance.
    On March 12, 1996, Alleborn submitted an interim report to 
Equitable that stated that Alleborn had evaluated the Towers 1 and 2 
current leases and preliminarily concluded that the leases provided PPF 
with above market returns. Alleborn submitted a more detailed review of 
the current lease terms in the Towers 1 and 2 Leases, and informed 
Equitable of its conclusion in the May 16, 1996 Independent Fiduciary 
Review and Opinion of Existing Leases (Review) <SUP>4</SUP> that the 
leases in both Tower 1 and Tower 2 provide PPF with above market 
returns and it was in the best interests of PPF to continue the 
existing leases pending renegotiation and extension of the leasing 
relationships. The Review, submitted by the Applicant, compared eight 
office complexes that would compete and compare favorably with Towers 1 
and 2 for tenants and were used in comparing the existing tenancy for 
rate and term leases.
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    \4\  In a November 17, 1997 letter to the Department, Alleborn 
stated that between the dates of March 15, 1996 and May 16, 1996, 
there were no changes to the circumstances surrounding the 
transactions subject to the requested exemptions that in any way 
adversely affected Alleborn's May 16, 1996 conclusion.
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    Alleborn has completed the renegotiation process for the leases to 
Compass in Tower 2. The application for exemption contained copies of 
the executed leases and the Independent Fiduciary's report dated 
September 2, 1996 (Report 1) approving the leases between Equitable and 
Compass for a three year term commencing September 1, 1996 and 
terminating August 31, 1999. Report 1 states that the Compass leases 
are market rates for comparable projects for Tower 1 and Tower 2 and 
concludes that it is in the best interests of PPF to consummate the 
Compass leases.
    Alleborn has also completed the renegotiation process for the lease 
to ERE in Tower 1. The application for exemption contained the 
Independent Fiduciary's report dated October 1, 1996 (Report 2) 
approving the new lease term between Equitable and ERE for 69 months, 
commencing October 1, 1996 and terminating June 30, 2002. Report 2 
states that concurrent with the execution of a new lease, a Termination 
and Surrender Agreement for the original lease, dated April 1, 1987, 
was executed by ERE. An unrelated tenant in Tower 1 has requested a 
lease extension and at the same time desires to relinquish 231 square 
feet of space. Effective January 1, 1997, ERE will incorporate the 
additional 231 square feet into their base lease, allowing their total 
occupancy for the remaining months on the lease to be 13,086 square 
feet. Additionally, Alleborn required ERE to pay in their new lease, 
the unamortized portion of the above market rate that remained in their 
old lease dated April 1, 1987. This allowed Tower 1 to recapture the 
potential of lost income between the new lease and the old lease. 
Report 2 concludes that the lease is a market rate lease comparable to 
buildings described in the Review and that it is in the best interests 
of PPF to enter the renegotiated lease.
    11. In summary, the applicant represents that the requested 
exemption will satisfy the criteria of section 408(a) of the Act for 
the following reasons: (a) the Towers 1 and 2 Leases and the renewals 
of the original leases are for a limited term; (b) the terms of the 
Tower 1 and 2 Leases as of March 15, 1996, and the renewal of the 
leases have been reviewed, negotiated and approved by Alleborn, a 
qualified independent fiduciary to PPF, who has determined that the 
terms of the transactions reflect fair market value and are at least as 
favorable to PPF as the terms would have been in arm's length 
transactions between unrelated parties; and (c) Alleborn will continue 
to monitor the leases on behalf of PPF.
For Further Information Contact: Ms. Wendy McColough of the Department, 
telephone (202) 219-8971. (This is not a toll-free number.)

PNC Capital Markets, Inc. (PNC) Located in Pittsburgh, Pennsylvania; 
Proposed Exemption

[Application No. D-10521]

I. Transactions

    A. Effective October 21, 1997, the restrictions of sections 406(a) 
and 407(a) of the Act and the taxes imposed by section 4975(a) and (b) 
of the Code by reason of section 4975(c)(1) (A) through (D) of the Code 
shall not apply to the following transactions involving trusts and 
certificates evidencing interests therein:
    (1) The direct or indirect sale, exchange or transfer of 
certificates in the initial issuance of certificates between the 
sponsor or underwriter and an employee benefit plan when the sponsor, 
servicer, trustee or insurer of a trust, the underwriter of the 
certificates representing an interest in the trust, or an obligor is a 
party in interest with respect to such plan;
    (2) The direct or indirect acquisition or disposition of 
certificates by a plan in the secondary market for such certificates; 
and
    (3) The continued holding of certificates acquired by a plan 
pursuant to subsection I.A. (1) or (2).
    Notwithstanding the foregoing, section I.A. does not provide an 
exemption from the restrictions of sections 406(a)(1)(E), 406(a)(2) and 
407 for the acquisition or holding of a certificate on behalf of an 
Excluded Plan by any person who has discretionary authority or renders 
investment advice

[[Page 66673]]

with respect to the assets of that Excluded Plan.<SUP>5</SUP>
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    \5\ Section I.A. provides no relief from sections 406(a)(1)(E), 
406(a)(2) and 407 for any person rendering investment advice to an 
Excluded Plan within the meaning of section 3(21)(A)(ii) and 
regulation 29 CFR 2510.3-21(c).
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    B. Effective October 21, 1997, the restrictions of sections 
406(b)(1) and 406(b)(2) of the Act and the taxes imposed by section 
4975(a) and (b) of the Code by reason of section 4975(c)(1)(E) of the 
Code shall not apply to:
    (1) The direct or indirect sale, exchange or transfer of 
certificates in the initial issuance of certificates between the 
sponsor or underwriter and a plan when the person who has discretionary 
authority or renders investment advice with respect to the investment 
of plan assets in the certificates is (a) an obligor with respect to 5 
percent or less of the fair market value of obligations or receivables 
contained in the trust, or (b) an affiliate of a person described in 
(a); if:
    (i) the plan is not an Excluded Plan;
    (ii) solely in the case of an acquisition of certificates in 
connection with the initial issuance of the certificates, at least 50 
percent of each class of certificates in which plans have invested is 
acquired by persons independent of the members of the Restricted Group 
and at least 50 percent of the aggregate interest in the trust is 
acquired by persons independent of the Restricted Group;
    (iii) a plan's investment in each class of certificates does not 
exceed 25 percent of all of the certificates of that class outstanding 
at the time of the acquisition; and
    (iv) immediately after the acquisition of the certificates, no more 
than 25 percent of the assets of a plan with respect to which the 
person has discretionary authority or renders investment advice are 
invested in certificates representing an interest in a trust containing 
assets sold or serviced by the same entity.<SUP>6</SUP> 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;
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    \6\ For purposes of this exemption, each plan participating in a 
commingled fund (such as a bank collective trust fund or insurance 
company pooled separate account) shall be considered to own the same 
proportionate undivided interest in each asset of the commingled 
fund as its proportionate interest in the total assets of the 
commingled fund as calculated on the most recent preceding valuation 
date of the fund.
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    (2) The direct or indirect acquisition or disposition of 
certificates by a plan in the secondary market for such certificates, 
provided that the conditions set forth in paragraphs B.(1)(i), (iii) 
and (iv) are met; and
    (3) The continued holding of certificates acquired by a plan 
pursuant to subsection I.B.(1) or (2).
    C. Effective October 21, 1997, the restrictions of sections 406(a), 
406(b) and 407(a) of the Act, and the taxes imposed by section 4975(a) 
and (b) of the Code by reason of section 4975(c) of the Code, shall not 
apply to transactions in connection with the servicing, management and 
operation of a trust, provided:
    (1) such transactions are carried out in accordance with the terms 
of a binding pooling and servicing arrangement; and
    (2) the pooling and servicing agreement is provided to, or 
described in all material respects in the prospectus or private 
placement memorandum provided to, investing plans before they purchase 
certificates issued by the trust.<SUP>7</SUP>
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    \7\ In the case of a private placement memorandum, such 
memorandum must contain substantially the same information that 
would be disclosed in a prospectus if the offering of the 
certificates were made in a registered public offering under the 
Securities Act of 1933. In the Department's view, the private 
placement memorandum must contain sufficient information to permit 
plan fiduciaries to make informed investment decisions.
---------------------------------------------------------------------------

    Notwithstanding the foregoing, section I.C. does not provide an 
exemption from the restrictions of section 406(b) of the Act or from 
the taxes imposed by reason of section 4975(c) of the Code for the 
receipt of a fee by a servicer of the trust from a person other than 
the trustee or sponsor, unless such fee constitutes a ``qualified 
administrative fee'' as defined in section III.S.
    D. Effective October 21, 1997, the restrictions of sections 406(a) 
and 407(a) of the Act, and the taxes imposed by sections 4975(a) and 
(b) of the Code by reason of sections 4975(c)(1)(A) through (D) of the 
Code, shall not apply to any transactions to which those restrictions 
or taxes would otherwise apply merely because a person is deemed to be 
a party in interest or disqualified person (including a fiduciary) with 
respect to a plan by virtue of providing services to the plan (or by 
virtue of having a relationship to such service provider described in 
section 3(14)(F), (G), (H) or (I) of the Act or section 4975(e)(2)(F), 
(G), (H) or (I) of the Code), solely because of the plan's ownership of 
certificates.

II. General Conditions

    A. The relief provided under Part I is available only if the 
following conditions are met:
    (1) The acquisition of certificates by a plan is on terms 
(including the certificate price) that are at least as favorable to the 
plan as they would be in an arm's-length transaction with an unrelated 
party;
    (2) The rights and interests evidenced by the certificates are not 
subordinated to the rights and interests evidenced by other 
certificates of the same trust;
    (3) The certificates acquired by the plan have received a rating 
from a rating agency (as defined in section III.W.) at the time of such 
acquisition that is in one of the three highest generic rating 
categories;
    (4) The trustee is not an affiliate of any member of the Restricted 
Group. However, the trustee shall not be considered to be an affiliate 
of a servicer solely because the trustee has succeeded to the rights 
and responsibilities of the servicer pursuant to the terms of a pooling 
and servicing agreement providing for such succession upon the 
occurrence of one or more events of default by the servicer;
    (5) The sum of all payments made to and retained by the 
underwriters in connection with the distribution or placement of 
certificates represents not more than reasonable compensation for 
underwriting or placing the certificates; the sum of all payments made 
to and retained by the sponsor pursuant to the assignment of 
obligations (or interests therein) to the trust represents not more 
than the fair market value of such obligations (or interests); and the 
sum of all payments made to and retained by the servicer represents not 
more than reasonable compensation for the servicer's services under the 
pooling and servicing agreement and reimbursement of the servicer's 
reasonable expenses in connection therewith; and
    (6) The plan investing in such certificates is an ``accredited 
investor'' as defined in Rule 501(a)(1) of Regulation D of the 
Securities and Exchange Commission under the Securities Act of 1933.
    (7) In the event that the obligations used to fund a trust have not 
all been transferred to the trust on the closing date, additional 
obligations as specified in subsection III.B(1) may be transferred to 
the trust during the pre-funding period (as defined in section III.BB.) 
in exchange for amounts credited to the pre-funding account (as defined 
in section III.Z.), provided that:
    (a) The pre-funding limit (as defined in section III.AA.) is not 
exceeded;
    (b) All such additional obligations meet the same terms and 
conditions for eligibility as those of the original obligations used to 
create the trust corpus (as described in the prospectus or private 
placement memorandum and/

[[Page 66674]]

 or pooling and servicing agreement for such certificates), which terms 
and conditions have been approved by a rating agency. Notwithstanding 
the foregoing, the terms and conditions for determining the eligibility 
of an obligation may be changed if such changes receive prior approval 
either by a majority of the outstanding certificateholders or by a 
rating agency;
    (c) The transfer of such additional obligations to the trust during 
the pre-funding period does not result in the certificates receiving a 
lower credit rating from a rating agency upon termination of the pre-
funding period than the rating that was obtained at the time of the 
initial issuance of the certificates by the trust;
    (d) The weighted average annual percentage interest rate (the 
average interest rate) for all of the obligations in the trust at the 
end of the pre-funding period will not be more than 100 basis points 
lower than the average interest rate for the obligations which were 
transferred to the trust on the closing date;
    (e) In order to ensure that the characteristics of the receivables 
actually acquired during the pre-funding period are substantially 
similar to those which were acquired as of the closing date, the 
characteristics of the additional obligations will either be monitored 
by a credit support provider or other insurance provider which is 
independent of the sponsor, or an independent accountant retained by 
the sponsor will provide the sponsor with a letter (with copies 
provided to the rating agency, the underwriter and the trustees) 
stating whether or not the characteristics of the additional 
obligations conform to the characteristics of such obligations 
described in the prospectus, private placement memorandum and/or 
pooling and servicing agreement. In preparing such letter, the 
independent accountant will use the same type of procedures as were 
applicable to the obligations which were transferred as of the closing 
date;
    (f) The pre-funding period shall be described in the prospectus or 
private placement memorandum provided to investing plans;
    (g) The trustee of the trust (or any agent with which the trustee 
contracts to provide trust services) will be a substantial financial 
institution or trust company experienced in trust activities and 
familiar with its duties, responsibilities and liabilities as a 
fiduciary under the Act. The trustee, as the legal owner of the 
obligations in the trust, will enforce all the rights created in favor 
of certificateholders of such trust, including employee benefit plans 
subject to the Act.
    B. Neither any underwriter, sponsor, trustee, servicer, insurer, 
nor any obligor, unless it or any of its affiliates has discretionary 
authority or renders investment advice with respect to the plan assets 
used by a plan to acquire certificates, shall be denied the relief 
provided under Part I, if the provision of subsection II.A.(6) above is 
not satisfied with respect to acquisition or holding by a plan of such 
certificates, provided that (1) such condition is disclosed in the 
prospectus or private placement memorandum; and (2) in the case of a 
private placement of certificates, the trustee obtains a representation 
from each initial purchaser which is a plan that it is in compliance 
with such condition, and obtains a covenant from each initial purchaser 
to the effect that, so long as such initial purchaser (or any 
transferee of such initial purchaser's certificates) is required to 
obtain from its transferee a representation regarding compliance with 
the Securities Act of 1933, any such transferees will be required to 
make a written representation regarding compliance with the condition 
set forth in subsection II.A.(6) above.

III. Definitions

    For purposes of this exemption:
    A. Certificate means:
    (1) a certificate--
    (a) that represents a beneficial ownership interest in the assets 
of a trust; and
    (b) that entitles the holder to pass-through payments of principal, 
interest, and/or other payments made with respect to the assets of such 
trust; or
    (2) a certificate denominated as a debt instrument--
    (a) that represents an interest in a Real Estate Mortgage 
Investment Conduit (REMIC) or a Financial Asset Securitization 
Investment Trust (FASIT) within the meaning of section 860D(a) or 
section 860L, respectively, of the Internal Revenue Code of 1986; and
    (b) that is issued by and is an obligation of a trust; with respect 
to certificates defined in (1) and (2) above for which PNC or any of 
its affiliates is either (i) the sole underwriter or the manager or co-
manager of the underwriting syndicate, or (ii) a selling or placement 
agent.
    For purposes of this exemption, references to ``certificates 
representing an interest in a trust'' include certificates denominated 
as debt which are issued by a trust.
    B. Trust means an investment pool, the corpus of which is held in 
trust and consists solely of:
    (1)(a) secured consumer receivables that bear interest or are 
purchased at a discount (including, but not limited to, home equity 
loans and obligations secured by shares issued by a cooperative housing 
association); and/or
    (b) secured credit instruments that bear interest or are purchased 
at a discount in transactions by or between business entities 
(including, but not limited to, qualified equipment notes secured by 
leases, as defined in section III.T); and/or
    (c) obligations that bear interest or are purchased at a discount 
and which are secured by single-family residential, multi-family 
residential and commercial real property (including obligations secured 
by leasehold interests on commercial real property); and/or
    (d) obligations that bear interest or are purchased at a discount 
and which are secured by motor vehicles or equipment, or qualified 
motor vehicle leases (as defined in section III.U); and/or
    (e) guaranteed governmental mortgage pool certificates, as defined 
in 29 CFR 2510.3-101(i)(2); and/or
    (f) fractional undivided interests in any of the obligations 
described in clauses (a)-(e) of this section B.(1);
    (2) property which had secured any of the obligations described in 
subsection B.(1);
    (3) (a) undistributed cash or temporary investments made therewith 
maturing no later than the next date on which distributions are to be 
made to certificateholders; and/or
    (b) cash or investments made therewith which are credited to an 
account to provide payments to certificateholders pursuant to any yield 
supplement agreement or similar yield maintenance arrangement to 
supplement the interest rates otherwise payable on obligations 
described in subsection III.B.(1) held in the trust, provided that such 
arrangements do not involve swap agreements or other notional principal 
contracts; and/or
    (c) cash transferred to the trust on the closing date and permitted 
investments made therewith which:
    (i) are credited to a pre-funding account established to purchase 
additional obligations with respect to which the conditions set forth 
in clauses (a)-(g) of subsection II.A.(7) are met and/or;
    (ii) are credited to a capitalized interest account (as defined in 
section III.X.); and
    (iii) are held in the trust for a period ending no later than the 
first distribution date to certificate holders occurring after the end 
of the pre-funding period.

[[Page 66675]]

    For purposes of this clause (c) of subsection III.B.(3), the term 
permitted investments means investments which are either: (i) direct 
obligations of, or obligations fully guaranteed as to timely payment of 
principal and interest by the United States, or any agency or 
instrumentality thereof, provided that such obligations are backed by 
the full faith and credit of the United States or (ii) have been rated 
(or the obligor has been rated) in one of the three highest generic 
rating categories by a rating agency; are described in the pooling and 
servicing agreement; and are permitted by the rating agency.
    (4) rights of the trustee under the pooling and servicing 
agreement, and rights under any insurance policies, third-party 
guarantees, contracts of suretyship, yield supplement agreements 
described in clause (b) of subsection III.B.(3) and other credit 
support arrangements with respect to any obligations described in 
subsection III.B.(1).
    Notwithstanding the foregoing, the term trust does not include any 
investment pool unless: (i) the investment pool consists only of assets 
of the type described in clauses (a) through (f) of subsection 
III.B.(1) which have been included in other investment pools, (ii) 
certificates evidencing interests in such other investment pools have 
been rated in one of the three highest generic rating categories by a 
rating agency for at least one year prior to the plan's acquisition of 
certificates pursuant to this exemption, and (iii) certificates 
evidencing interests in such other investment pools have been purchased 
by investors other than plans for at least one year prior to the plan's 
acquisition of certificates pursuant to this exemption.
    C. Underwriter means:
    (1) PNC;
    (2) any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by or under common control with 
PNC; or
    (3) any member of an underwriting syndicate or selling group of 
which PNC or a person described in (2) is a manager or co-manager with 
respect to the certificates.
    D. Sponsor means the entity that organizes a trust by depositing 
obligations therein in exchange for certificates.
    E. Master Servicer means the entity that is a party to the pooling 
and servicing agreement relating to trust assets and is fully 
responsible for servicing, directly or through subservicers, the assets 
of the trust.
    F. Subservicer means an entity which, under the supervision of and 
on behalf of the master servicer, services loans contained in the 
trust, but is not a party to the pooling and servicing agreement.
    G. Servicer means any entity which services loans contained in the 
trust, including the master servicer and any subservicer.
    H. Trustee means the trustee of the trust, and in the case of 
certificates which are denominated as debt instruments, also means the 
trustee of the indenture trust.
    I. Insurer means the insurer or guarantor of, or provider of other 
credit support for, a trust. Notwithstanding the foregoing, a person is 
not an insurer solely because it holds securities representing an 
interest in a trust which are of a class subordinated to certificates 
representing an interest in the same trust.
    J. Obligor means any person, other than the insurer, that is 
obligated to make payments with respect to any obligation or receivable 
included in the trust. Where a trust contains qualified motor vehicle 
leases or qualified equipment notes secured by leases, ``obligor'' 
shall also include any owner of property subject to any lease included 
in the trust, or subject to any lease securing an obligation included 
in the trust.
    K. Excluded Plan means any plan with respect to which any member of 
the Restricted Group is a ``plan sponsor'' within the meaning of 
section 3(16)(B) of the Act.
    L. Restricted Group with respect to a class of certificates means:
    (1) each underwriter;
    (2) each insurer;
    (3) the sponsor;
    (4) the trustee;
    (5) each servicer;
    (6) any obligor with respect to obligations or receivables included 
in the trust constituting more than 5 percent of the aggregate 
unamortized principal balance of the assets in the trust, determined on 
the date of the initial issuance of certificates by the trust; or
    (7) any affiliate of a person described in (1)-(6) above.
    M. Affiliate of another person includes:
    (1) Any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with such other person;
    (2) Any officer, director, partner, employee, relative (as defined 
in section 3(15) of the Act), a brother, a sister, or a spouse of a 
brother or sister of such other person; and
    (3) Any corporation or partnership of which such other person is an 
officer, director or partner.
    N. Control means the power to exercise a controlling influence over 
the management or policies of a person other than an individual.
    O. A person will be independent of another person only if:
    (1) such person is not an affiliate of that other person; and
    (2) the other person, or an affiliate thereof, is not a fiduciary 
who has investment management authority or renders investment advice 
with respect to any assets of such person.
    P. Sale includes the entrance into a forward delivery commitment 
(as defined in section Q below), provided:
    (1) The terms of the forward delivery commitment (including any fee 
paid to the investing plan) are no less favorable to the plan than they 
would be in an arm's-length transaction with an unrelated party;
    (2) The prospectus or private placement memorandum is provided to 
an investing plan prior to the time the plan enters into the forward 
delivery commitment; and
    (3) At the time of the delivery, all conditions of this exemption 
applicable to sales are met.
    Q. Forward delivery commitment means a contract for the purchase or 
sale of one or more certificates to be delivered at an agreed future 
settlement date. The term includes both mandatory contracts (which 
contemplate obligatory delivery and acceptance of the certificates) and 
optional contracts (which give one party the right but not the 
obligation to deliver certificates to, or demand delivery of 
certificates from, the other party).
    R. Reasonable compensation has the same meaning as that term is 
defined in 29 CFR 2550.408c-2.
    S. Qualified Administrative Fee means a fee which meets the 
following criteria:
    (1) the fee is triggered by an act or failure to act by the obligor 
other than the normal timely payment of amounts owing in respect of the 
obligations;
    (2) the servicer may not charge the fee absent the act or failure 
to act referred to in (1);
    (3) the ability to charge the fee, the circumstances in which the 
fee may be charged, and an explanation of how the fee is calculated are 
set forth in the pooling and servicing agreement; and
    (4) the amount paid to investors in the trust will not be reduced 
by the amount of any such fee waived by the servicer.
    T. Qualified Equipment Note Secured By A Lease means an equipment 
note:
    (1) which is secured by equipment which is leased;
    (2) which is secured by the obligation of the lessee to pay rent 
under the equipment lease; and

[[Page 66676]]

    (3) with respect to which the trust's security interest in the 
equipment is at least as protective of the rights of the trust as would 
be the case if the equipment note were secured only by the equipment 
and not the lease.
    U. Qualified Motor Vehicle Lease means a lease of a motor vehicle 
where:
    (1) the trust owns or holds a security interest in the lease;
    (2) the trust holds a security interest in the leased motor 
vehicle; and
    (3) the trust's security interest in the leased motor vehicle is at 
least as protective of the trust's rights as would be the case if the 
trust consisted of motor vehicle installment loan contracts.
    V. Pooling and Servicing Agreement means the agreement or 
agreements among a sponsor, a servicer and the trustee establishing a 
trust. In the case of certificates which are denominated as debt 
instruments, ``Pooling and Servicing Agreement'' also includes the 
indenture entered into by the trustee of the trust issuing such 
certificates and the indenture trustee.
    W. Rating Agency means Standard & Poor's Structured Rating Group 
(S&P's), Moody's Investors Service, Inc. (Moody's), Duff & Phelps 
Credit Rating Co. (D & P) or Fitch Investors Service, L.P. (Fitch);
    X. Capitalized Interest Account means a trust account: (i) Which is 
established to compensate certificateholders for shortfalls, if any, 
between investment earnings on the pre-funding account and the pass-
through rate payable under the certificates; and (ii) which meets the 
requirements of clause (c) of subsection III.B.(3).
    Y. Closing Date means the date the trust is formed, the 
certificates are first issued and the trust's assets (other than those 
additional obligations which are to be funded from the pre-funding 
account pursuant to subsection II.A.(7)) are transferred to the trust.
    Z. Pre-Funding Account means a trust account: (i) which is 
established to purchase additional obligations, which obligations meet 
the conditions set forth in clauses (a)-(g) of subsection II.A.(7); and 
(ii) which meets the requirements of clause (c) of subsection 
III.B.(3).
    AA. Pre-Funding Limit means a percentage or ratio of the amount 
allocated to the pre-funding account, as compared to the total 
principal amount of the certificates being offered which is less than 
or equal to 25 percent.
    BB. Pre-Funding Period means the period commencing on the closing 
date and ending no later than the earliest to occur of: (i) the date 
the amount on deposit in the pre-funding account is less than the 
minimum dollar amount specified in the pooling and servicing agreement; 
(ii) the date on which an event of default occurs under the pooling and 
servicing agreement; or (iii) the date which is the later of three 
months or 90 days after the closing date.
    CC. PNC means PNC Capital Markets, Inc. and its affiliates.
    The Department notes that this proposed exemption is included 
within the meaning of the term ``Underwriter Exemption'' as it is 
defined in section V(h) of Prohibited Transaction Exemption 95-60 (60 
FR 35925, July 12, 1995), the Class Exemption for Certain Transactions 
Involving Insurance Company General Accounts at 35932.

Summary of Facts and Representations

    1. PNC is an indirect, wholly-owned, separately capitalized 
investment banking and registered broker-dealer subsidiary of PNC Bank 
Corp. (the Corporation). As of September 30, 1997, PNC's capitalization 
was approximately $54.9 million. The Corporation is a diversified 
financial services company incorporated under the laws of the 
Commonwealth of Pennsylvania and a multi-bank holding company 
registered under the Bank Holding Act of 1956, as amended. As of 
September 30, 1997, the Corporation's consolidated assets were 
approximately $71.8 billion. The principal executive offices of the 
Corporation are located in Pittsburgh, Pennsylvania. As of September 
30, 1997, the Corporation had indirectly-held subsidiary banks located 
in seven states. In addition, indirectly-held non-bank subsidiaries of 
the Corporation offer a wide range of insurance, securities brokerage, 
investment banking, venture capital investment, mortgage banking and 
consumer finance products and services.
    PNC Mortgage Corp. of America (PNC Mortgage), an Ohio corporation 
having its principal place of business in Vernon Hills, Illinois, is 
one of the largest mortgage banking originators in the United States, 
with offices in all 50 states.
    PNC Bank, National Association (the Bank), an indirect, wholly-
owned subsidiary of the Corporation, is a national banking association 
engaged in banking and related activities and is the largest bank in 
the Corporation's banking group. The Bank is the sole shareholder of 
PNC Mortgage. As of September 30, 1997, the Bank had total assets of 
approximately $57.5 billion. The principal executive offices of the 
Bank are located in Pittsburgh, Pennsylvania. Six other commercial 
banks and one federal savings bank, located in six states, had 
aggregated assets slightly exceeding $13.2 billion as of September 30, 
1997.
    PNC was incorporated in 1984 as a Pennsylvania corporation. PNC 
maintains its principal place of business in Pittsburgh, Pennsylvania 
and has branch offices in Pennsylvania, New Jersey, Ohio, and Kentucky.
    In 1987, PNC received Federal Reserve Board authorization to 
underwrite and deal in commercial paper, municipal revenue bonds, 
residential mortgage-related securities and consumer receivable-related 
securities. This order is currently subject to the condition that PNC 
does not derive more than 25% of its total gross revenues from such 
activities. In addition, PNC's affiliates have the power to sell 
interests in their own assets in the form of asset-backed securities.
    PNC is a member of the National Association of Securities Dealers 
and the Securities Investor Protection Corporation and underwrites and 
deals in corporate debt securities, commercial paper, municipal 
securities, high-yield securities and asset-backed securities, provides 
private placement and corporate finance advisory services, including 
merger and acquisition advisory services, publishes research on a wide 
range of securities and issuers, and engages in the syndication and 
arranging and trading of bank loans.
    PNC has significant experience in asset securitizations. PNC's 
participation in securitization transactions includes the underwriting 
of public offerings and serving as private placement agent or 
commercial paper conduit agent/dealer for transactions backed by retail 
auto receivables and bank and retail credit card receivables.

Trust Assets

    2. PNC seeks exemptive relief to permit plans to invest in pass-
through certificates representing undivided interests in the following 
categories of trusts: (1) single and multi-family residential or 
commercial mortgage investment trusts;<SUP>8</SUP> (2) motor vehicle 
receivable investment trusts; (3) consumer or commercial receivables 
investment trusts; and (4) guaranteed

[[Page 66677]]

governmental mortgage pool certificate investment trusts.<SUP>9</SUP>
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    \8\ The Department notes that PTE 83-1 [48 FR 895, January 7, 
1983], a class exemption for mortgage pool investment trusts, would 
generally apply to trusts containing single-family residential 
mortgages, provided that the applicable conditions of PTE 83-l are 
met. PNC requests relief for single-family residential mortgages in 
this exemption because it would prefer one exemption for all trusts 
of similar structure. However, PNC has stated that it may still 
avail itself of the exemptive relief provided by PTE 83-1.
    \9\ Guaranteed governmental mortgage pool certificates are 
mortgage-backed securities with respect to which interest and 
principal payable is guaranteed by the Government National Mortgage 
Association (GNMA), the Federal Home Loan Mortgage Corporation 
(FHLMC), or the Federal National Mortgage Association (FNMA). The 
Department's regulation relating to the definition of plan assets 
(29 CFR 2510.3-101(i)) provides that where a plan acquires a 
guaranteed governmental mortgage pool certificate, the plan's assets 
include the certificate and all of its rights with respect to such 
certificate under applicable law, but do not, solely by reason of 
the plan's holding of such certificate, include any of the mortgages 
underlying such certificate. The applicant is requesting exemptive 
relief for trusts containing guaranteed governmental mortgage pool 
certificates because the certificates in the trusts may be plan 
assets.
---------------------------------------------------------------------------

    3. Commercial mortgage investment trusts may include mortgages on 
ground leases of real property. Commercial mort gages are frequently 
secured by ground leases on the underlying property, rather than by fee 
simple interests. The separation of the fee simple interest and the 
ground lease interest is generally done for tax reasons. Properly 
structured, the pledge of the ground lease to secure a mortgage 
provides a lender with the same level of security as would be provided 
by a pledge of the related fee simple interest. The terms of the ground 
leases pledged to secure leasehold mortgages will in all cases be at 
least ten years longer than the term of such mortgages.<SUP>10</SUP>
---------------------------------------------------------------------------

    \10\ Trust assets may also include obligations that are secured 
by leasehold interests on residential real property. See PTE 90-32 
involving Prudential-Bache Securities, Inc. (55 FR 23147, June 6, 
1990 at 23150).
---------------------------------------------------------------------------

Trust Structure

    4. Each trust is established under a pooling and servicing 
agreement between a sponsor, a servicer and a trustee.<SUP>11</SUP> The 
sponsor or servicer of a trust selects assets to be included in the 
trust.<SUP>12</SUP> 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.<SUP>13</SUP>
---------------------------------------------------------------------------

    \11\ The Department is of the view that the term ``trust'' 
includes a trust: (a) the assets of which, although all specifically 
identified by the sponsor or the originator as of the closing date, 
are not all transferred to the trust on the closing date for 
administrative or other reasons but will be transferred to the trust 
shortly after the closing date, or (b) with respect to which 
certificates are not purchased by plans until after the end of the 
pre-funding period at which time all receivables are contained in 
the trust.
    \12\ It is the Department's view that the definition of 
``trust'' contained in III.B. includes a two-tier structure under 
which certificates issued by the first trust, which contains a pool 
of receivables described above, are transferred to a second trust 
which issues securities that are sold to plans. However, the 
Department is of the further view that, since the exemption provides 
relief for the direct or indirect acquisition or disposition of 
certificates that are not subordinated, no relief would be available 
if the certificates held by the second trust were subordinated to 
the rights and interests evidenced by other certificates issued by 
the first trust.
    \13\ It is the view of the Department that section III.B.(4) 
includes within the definition of the term ``trust'' rights under 
any yield supplement or similar arrangement which obligates the 
sponsor or master servicer, or another party specified in the 
relevant pooling and servicing agreement, to supplement the interest 
rates otherwise payable on the obligations described in section 
III.B.(1), in accordance with the terms of a yield supplement 
arrangement described in the pooling and servicing agreement, 
provided that such arrangements do not involve swap agreement or 
other notional principal contracts.
---------------------------------------------------------------------------

    Typically, on or prior to the closing date, the sponsor acquires 
legal title to all assets selected for the trust, establishes the trust 
and designates an independent entity as trustee. On the closing date, 
the sponsor conveys to the trust legal title to the assets, and the 
trustee issues certificates representing fractional undivided interests 
in the trust assets. Typically, all receivables to be held in the trust 
are transferred as of the closing date, but in some transactions, as 
described more fully below, a limited percentage of the receivables to 
be held in the trust may be transferred during a limited period of time 
following the closing date, through the use of a pre-funding account.
    PNC, alone or together with other broker-dealers, acts as 
underwriter or placement agent with respect to the sale of the 
certificates. All of the public offerings of certificates presently 
contemplated are to be underwritten by PNC on a firm commitment basis. 
In addition, PNC anticipates that it may privately place certificates 
on both a firm commitment and an agency basis. PNC may also act as the 
lead underwriter for a syndicate of securities underwriters.
    Certificateholders will be entitled to receive monthly, quarterly 
or semi-annual installments of principal and/or interest, or lease 
payments due on the receivables, adjusted, in the case of payments of 
interest, to a specified rate--the pass-through rate--which may be 
fixed or variable.
    When installments or payments are made on a semi-annual basis, 
funds are not permitted to be commingled with the servicer's assets for 
longer than would be permitted for a monthly-pay security. A segregated 
account is established in the name of the trustee (on behalf of 
certificateholders) to hold funds received between distribution dates. 
The account is under the sole control of the trustee, who invests the 
account's assets in short-term securities which have received a rating 
comparable to the rating assigned to the certificates. In some cases, 
the servicer may be permitted to make a single deposit into the account 
once a month. When the servicer makes such monthly deposits, payments 
received from obligors by the servicer may be commingled with the 
servicer's assets during the month prior to deposit. Usually, the 
period of time between receipt of funds by the servicer and deposit of 
these funds in a segregated account does not exceed one month. 
Furthermore, in those cases where distributions are made semi-annually, 
the servicer will furnish a report on the operation of the trust to the 
trustee on a monthly basis. At or about the time this report is 
delivered to the trustee, it will be made available to 
certificateholders and delivered to or made available to each rating 
agency that has rated the certificates.
    5. Some of the certificates will be multi-class certificates. PNC 
requests exemptive relief for two types of multi-class certificates: 
``strip'' certificates and ``fast-pay/ slow-pay'' certificates. Strip 
certificates are a type of security in which the stream of interest 
payments on receivables is split from the flow of principal payments 
and separate classes of certificates are established, each representing 
rights to disproportionate payments of principal and interest.\14\
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    \14\ It is the Department's understanding that where a plan 
invests in REMIC ``residual'' interest certificates to which this 
exemption applies, some of the income received by the plan as a 
result of such investment may be considered unrelated business 
taxable income to the plan, which is subject to income tax under the 
Code. The Department emphasizes that the prudence requirement of 
section 404(a)(l)(B) of the Act would require plan fiduciaries to 
carefully consider this and other tax consequences prior to causing 
plan assets to be invested in certificates pursuant to this 
exemption.
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    ``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 
pass-through arrangement and a single-class

[[Page 66678]]

pass-through arrangement is the order in which distributions are made 
to certificateholders. In each case, certificateholders will have a 
beneficial ownership interest in the underlying assets. In neither case 
will the rights of a plan purchasing a certificate be subordinated to 
the rights of another certificateholder in the event of default on any 
of the underlying obligations. In particular, if the amount available 
for distribution to certificateholders is less than the amount required 
to be so distributed, all senior certificateholders then entitled to 
receive distributions will share in the amount distributed on a pro 
rata basis.\15\
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    \15\ If a trust issues subordinated certificates, holders of 
such subordinated certificates may not share in the amount 
distributed on a pro rata basis with the senior certificateholders. 
The Department notes that the exemption does not provide relief for 
plan investment in such subordinated certificates.
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    6. The trust will be maintained as an essentially passive entity. 
Therefore, both the sponsor's discretion and the servicer's discretion 
with respect to assets included in a trust are severely limited. 
Pooling and servicing agreements provide for the substitution of 
receivables by the sponsor only in the event of defects in 
documentation discovered within a short time after the issuance of 
trust certificates (within 120 days, except in the case of obligations 
having an original term of 30 years, in which case the period will not 
exceed two years). Any receivable so substituted is required to have 
characteristics substantially similar to the replaced receivable and 
will be at least as creditworthy as the replaced receivable.
    In some cases, the affected receivable would be repurchased, with 
the purchase price applied as a payment on the affected receivable and 
passed through to certificateholders.
    In some cases the trust will be maintained as a Financial Asset 
Securitization Investment Trust (``FASIT''), a statutory entity created 
by the Small Business Job Protection Act of 1996, adding sections 860H, 
860J, 860K and 860L to the Code. In general, a FASIT is designed to 
facilitate the securitization of debt obligations, such as credit card 
receivables, home equity loans, and auto loans, and thus, allows 
certain features such as revolving pools of assets, trusts containing 
unsecured receivables and certain hedging types of investments. A FASIT 
is not a taxable entity and debt instruments issued by such trusts, 
which might otherwise be recharacterized as equity, will be treated as 
debt in the hands of the holder for tax purposes. However, a trust 
which is the subject of the proposed exemption will be maintained as a 
FASIT only where the assets held by the FASIT will be comprised of 
secured debt; revolving pools of assets or hedging investments will not 
be allowed unless specifically authorized by the exemption, if granted, 
so that a trust maintained as a FASIT will be maintained as an 
essentially passive entity.

Trust Structure with Pre-Funding Account

Pre-Funding Accounts
    7. As described briefly above, some transactions may be structured 
using a pre-funding account or a capitalized interest account. If pre-
funding is used, cash sufficient to purchase the receivables to be 
transferred after the closing date will be transferred to the trust by 
the sponsor or originator on the closing date. During the pre-funding 
period, such cash and temporary investments, if any, made therewith 
will be held in a pre-funding account and used to purchase the 
additional receivables, the characteristics of which will be 
substantially similar to the characteristics of the receivables 
transferred to the trust on the closing date. The pre-funding period 
for any trust will be defined as the period beginning on the closing 
date and ending on the earliest to occur of (i) the date on which the 
amount on deposit in the pre-funding account is less than a specified 
dollar amount, (ii) the date on which an event of default occurs under 
the related pooling and servicing agreement or (iii) the date which is 
the later of three months or ninety days after the closing date. 
Certain specificity and monitoring requirements described below will be 
met and will be disclosed in the pooling and servicing agreement and/or 
the prospectus or private placement memorandum.
    For transactions involving a trust using pre-funding, on the 
closing date, a portion of the offering proceeds will be allocated to 
the pre-funding account generally in an amount equal to the excess of 
(i) the principal amount of certificates being issued over (ii) the 
principal balance of the receivables being transferred to the trust on 
such closing date. In certain transactions, the aggregate principal 
balance of the receivables intended to be transferred to the trust may 
be larger than the total principal balance of the certificates being 
issued. In these cases, the cash deposited in the pre-funding account 
will equal the excess of the principal balance of the total receivables 
intended to be transferred to the trust over the principal balance of 
the receivables being transferred on the closing date.
    On the closing date, the sponsor transfers the assets to the trust 
in exchange for the certificates. The certificates are then sold to PNC 
for cash or to the certificateholders directly if the certificates are 
sold through PNC as a placement agent. The cash received by the sponsor 
from the certificateholders (or PNC) from the sale of the certificates 
issued by the trust in excess of the purchase price for the receivables 
and certain other trust expenses such as underwriting or placement 
agent fees and legal and accounting fees, constitutes the cash to be 
deposited in the pre-funding account. Such funds are either held in the 
trust and accounted for separately, or are held in a sub-trust. In 
either event, these funds are not part of assets of the sponsor.
    Generally, the receivables are transferred at par value, unless the 
interest rate payable on the receivables is not sufficient to service 
both the interest rates to be paid on the certificates and the 
transaction fees (i.e., servicing fees, trustee fees and fees to credit 
support providers). In such cases, the receivables are sold to the 
trust at a discount, based on an objective, written, mechanical formula 
which is set forth in the pooling and servicing agreement and agreed 
upon in advance between the sponsor, the rating agency and any credit 
support provider or other insurer. The proceeds payable to the sponsor 
from the sale of the receivables transferred to the trust may also be 
reduced to the extent they are used to pay transaction costs (which 
typically include underwriting or placement agent fees and legal and 
accounting fees). In addition, in certain cases, the sponsor may be 
required by the rating agencies or credit support providers to set up 
trust reserve accounts to protect the certificateholders against credit 
losses.
    The pre-funding account of any trust will be limited so that the 
percentage or ratio of the amount allocated to the pre-funding account, 
as compared to the total principal amount of the certificates being 
offered (the pre-funding limit) will not exceed 25%. The pre-funding 
limit (which may be expressed as a ratio or as a stated percentage or a 
combination thereof) will be specified in the prospectus or the private 
placement memorandum.
    Any amounts paid out of the pre-funding account are used solely to 
purchase receivables and to support the certificate pass-through rate 
(as explained below). Amounts used to support the pass-through rate are 
payable only from investment earnings and are not payable from 
principal. However, in the event that, after all of

[[Page 66679]]

the requisite receivables have been transferred into the trust, any 
funds remain in the pre-funding account, such funds will be paid to the 
certificateholders as principal prepayments. Upon termination of the 
trust, if no receivables remain in the trust and all amounts payable to 
certificateholders have been distributed, any amounts remaining in the 
trust would be returned to the sponsor.
    A dramatic change in interest rates on the receivables held in a 
trust using a pre-funding account would be handled as follows. If the 
receivables (other than those with adjustable or variable rates) had 
already been originated prior to the closing date, no action would be 
required as the fluctuations in the market interest rates would not 
affect the receivables transferred to the trust after the closing date. 
In contrast, if interest rates fall after the closing date, loans 
originated after the closing date will tend to be originated at lower 
rates, with the possible result that the receivables will not support 
the certificate pass-through rate. In a situation where interest rates 
drop dramatically and the sponsor is unable to provide sufficient 
receivables at the requisite interest rates, the pool of receivables 
would be closed. In this latter event, under the terms of the pooling 
and servicing agreement, the certificateholders would receive a 
repayment of principal from the unused cash held in the pre-funding 
account. In transactions where the certificate pass-through rates are 
variable or adjustable, the effects of market interest rate 
fluctuations are mitigated. In no event will fluctuations in interest 
rates payable on the receivable affect the pass-through rate for fixed 
rate certificates.
    The cash deposited into the trust and allocated to the pre-funding 
account is invested in certain permitted investments (see below), which 
may be commingled with other accounts of the trust. The allocation of 
investment earnings to each trust account is made periodically as 
earned in proportion to each account's allocable share of the 
investment returns. As pre-funding account investment earnings are 
required to be used to support (to the extent authorized in the 
particular transaction) the pass-through amounts payable to the 
certificateholders with respect to a periodic distribution date, the 
trustee is necessarily required to make periodic, separate allocations 
of the trust's earning to each trust account, thus ensuring that all 
allocable commingled investment earnings are properly credited to the 
pre-funding account on a timely basis.
The Capitalized Interest Account
    8. In certain transactions where a pre-funding account is used, the 
sponsor and/or originator may also transfer to the trust additional 
cash on the closing date, which is deposited in a capitalized interest 
account and used during the pre-funding period to compensate the 
certificateholders for any shortfall between the investment earnings on 
the pre-funding account and the pass-through interest rate payable 
under the certificates.
    The capitalized interest account is needed in certain transactions 
since the certificates are supported by the receivables and the 
earnings on the pre-funding account, and it is unlikely that the 
investment earnings on the pre-funding account will equal the interest 
rates on the certificates (although such investment earnings will be 
available to pay interest on the certificates). The capitalized 
interest account funds are paid out periodically to the 
certificateholders as needed on distribution dates to support the pass-
through rate. In addition, a portion of such funds may be returned to 
the sponsor from time to time as the receivables are transferred into 
the trust and the need for the capitalized interest account diminishes. 
Any amounts held in the capitalized interest account generally will be 
returned to the sponsor and/or originator either at the end of the pre-
funding period or periodically as receivables are transferred and the 
proportionate amount of funds in the capitalized interest account can 
be reduced. Generally, the capitalized interest account terminates no 
later than the end of the pre-funding period. However, there may be 
some cases where the capitalized interest account remains open until 
the first date distributions are made to certificateholders following 
the end of the pre-funding period.
    In other transactions, a capitalized interest account is not 
necessary because the interest paid on the receivables exceeds the 
interest payable on the certificates at the applicable pass-through 
rate and the fees of the trust. Such excess is sufficient to make up 
any shortfall resulting from the pre-funding account earning less than 
the certificate pass-through rate. In certain of these transactions, 
this occurs because the aggregate principal amount of receivables 
exceeds the aggregate principal amount of certificates.
Pre-Funding Account and Capitalized Interest Account Payments and 
Investments
    9. Pending the acquisition of additional receivables during the 
pre-funding period, it is expected that amounts in the pre-funding 
account and the capitalized interest account will be invested in 
certain permitted investments or will be held uninvested. Pursuant to 
the pooling and servicing agreement, all permitted investments must 
mature prior to the date the actual funds are needed. The permitted 
types of investments in the pre-funding account and capitalized 
interest account are investments which are either: (i) direct 
obligations of, or obligations fully guaranteed as to timely payment of 
principal and interest by, the United States or any agency or 
instrumentality thereof, provided that such obligations are backed by 
the full faith and credit of the United States or (ii) have been rated 
(or the obligor has been rated) in one of the three highest generic 
rating categories by a rating agency, as set forth in the pooling and 
servicing agreement and as required by the rating agencies. The credit 
grade quality of the permitted investments is generally no lower than 
that of the certificates. The types of permitted investments will be 
described in the pooling and servicing agreement.
    The ordering of interest payments to be made from the pre-funding 
and capitalized interest accounts is pre-established and set forth in 
the pooling and servicing agreement. The only principal payments which 
will be made from the pre-funding account are those made to acquire the 
receivables during the pre-funding period and those distributed to the 
certificateholders in the event that the entire amount in the pre-
funding account is not used to acquire receivables. The only principal 
payments which will be made from the capitalized interest account are 
those made to certificateholders if necessary to support the 
certificate pass-through rate or those made to the sponsor either 
periodically as they are no longer needed or at the end of the pre-
funding period when the capitalized interest account is no longer 
necessary.
The Characteristics of the Receivables Transferred During the Pre-
Funding Period
    10. In order to ensure that there is sufficient specificity as to 
the representations and warranties of the sponsor regarding the 
characteristics of the receivables to be transferred after the closing 
date:
    (i) All such receivables will meet the same terms and conditions 
for eligibility

[[Page 66680]]

as those of the original receivables used to create the trust corpus 
(as described in the prospectus or private placement memorandum and/or 
pooling and servicing agreement for such certificates), which terms and 
conditions have been approved by a rating agency. However, the terms 
and conditions for determining the eligibility of a receivable may be 
changed if such changes receive prior approval either by a majority 
vote of the outstanding certificateholders or by a rating agency;
    (ii) The transfer to the trust of the receivables acquired during 
the pre-funding period will not result in the certificates receiving a 
lower credit rating from the rating agency upon termination of the pre-
funding period than the rating that was obtained at the time of the 
initial issuance of the certificates by the trust;
    (iii) The weighted average annual percentage interest rate (the 
average interest rate) for all of the obligations in the trust at the 
end of the pre-funding period will not be more than 100 basis points 
lower than the average interest rate for the obligations which were 
transferred to the trust on the closing date;
    (iv) The trustee of the trust (or any agency with which the trustee 
contracts to provide trust services) will be a substantial financial 
institution or trust company experienced in trust activities and 
familiar with its duties, responsibilities, and liabilities as a 
fiduciary under the Act. The trustee, as the legal owner of the 
obligations in the trust, will enforce all the rights created in favor 
of certificateholders of such trust, including employee benefit plans 
subject to the Act.
    In order to ensure that the characteristics of the receivables 
actually acquired during the pre-funding period are substantially 
similar to receivables that were acquired as of the closing date, the 
characteristics of the additional obligations subsequently acquired 
will either be monitored by a credit support provider or other 
insurance provider which is independent of the sponsor or an 
independent accountant retained by the sponsor will provide the sponsor 
with a letter (with copies provided to the rating agency, PNC and the 
trustee) stating whether or not the characteristics of the additional 
obligations acquired after the closing date conform to the 
characteristics of such obligations described in the prospectus, 
private placement memorandum and/or pooling and servicing agreement. In 
preparing such letter, the independent accountant will use the same 
type of procedures as were applicable to the obligations which were 
transferred as of the closing date.
    Each prospectus, private placement memorandum and/or pooling and 
servicing agreement will set forth the terms and conditions for 
eligibility of the receivables to be included in the trust as of the 
related closing date, as well as those to be acquired during the pre-
funding period, which terms and conditions will have been agreed to by 
the rating agencies which are rating the applicable certificates as of 
the closing date. Also included among these conditions is the 
requirement that the trustee be given prior notice of the receivables 
to be transferred, along with such information concerning those 
receivables as may be requested. Each prospectus or private placement 
memorandum will describe the amount to be deposited in, and the 
mechanics of, the pre-funding account and will describe the pre-funding 
period for the trust.

Parties to Transactions

    11. The originator of a receivable is the entity that initially 
lends money to a borrower (obligor), such as a 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 businesses, 
including finance companies for whom such origination constitutes the 
bulk of their operations, financial institutions for whom such 
origination constitutes a substantial part of their operations, and any 
kind of manufacturer, merchant, or service enterprise for whom such 
origination is an incidental part of its operations. Each trust may 
contain assets of one or more originators. The originator of the 
receivables may also function as the trust sponsor or servicer.
    12. The sponsor will be one of three entities: (i) a special-
purpose or other corporation unaffiliated with the servicer, (ii) a 
special-purpose or other corporation affiliated with the servicer, or 
(iii) the servicer itself. Where the sponsor is not also the servicer, 
the sponsor's role will generally be limited to acquiring the 
receivables to be included in the trust, establishing the trust, 
designating the trustee, and assigning the receivables to the trust.
    13. The trustee  of a trust is the legal owner of the obligations 
in the trust. The trustee is also a party to or beneficiary of all the 
documents and instruments deposited in the trust, and as such is 
responsible for enforcing all the rights created thereby in favor of 
certificateholders.
    The trustee will be an independent entity, and therefore will be 
unrelated to PNC, the trust sponsor, the servicer or any other member 
of the Restricted Group (as defined in section III.L.). PNC represents 
that the trustee will be a substantial financial institution or trust 
company experienced in trust activities. The trustee receives a fee for 
its services, which will be paid by the servicer or sponsor or out of 
the trust assets. The method of compensating the trustee which is 
specified in the pooling and servicing agreement will be disclosed in 
the prospectus or private placement memorandum relating to the offering 
of the certificates.
    14. The servicer of a trust administers the receivables on behalf 
of the certificateholders. The servicer's functions typically involve, 
among other things, notifying borrowers of amounts due on receivables, 
maintaining records of payments received on receivables and instituting 
foreclosure or similar proceedings in the event of default. In cases 
where a pool of receivables has been purchased from a number of 
different originators and deposited in a trust, the receivables may be 
``subserviced'' by their respective originators and a single entity may 
``master service'' the pool of receivables on behalf of the owners of 
the related series of certificates. Where this arrangement is adopted, 
a receivable continues to be serviced from the perspective of the 
borrower by the local subservicer, while the investor's perspective is 
that the entire pool of receivables is serviced by a single, central 
master servicer who collects payments from the local subservicers and 
passes them through to certificateholders.
    Receivables of the type suitable for inclusion in a trust 
invariably are serviced with the assistance of a computer. After the 
sale, the servicer keeps the sold receivables on the computer system in 
order to continue monitoring the accounts. Although the records 
relating to sold receivables are kept in the same master file as 
receivables retained by the originator, the sold receivables are 
flagged as having been sold. To protect the investor's interest, the 
servicer ordinarily covenants that this ``sold flag'' will be included 
in all records relating to the sold receivables, including the master 
file, archives, tape extracts and printouts.
    The sold flags are invisible to the obligor and do not affect the 
manner in which the servicer performs the billing, posting and 
collection procedures

[[Page 66681]]

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 co-managing underwriters will 
make a market in certificates offered to the public.
    In some cases, the originator and servicer of receivables to be 
included in a trust and the sponsor of the trust (although they may 
themselves be related) will be unrelated to PNC. In other cases, 
however, affiliates of PNC may originate or service receivables 
included in a trust or may sponsor a trust.

Certificate Price, Pass-Through Rate and Fees

    15. In some cases, the sponsor will obtain the receivables from 
various originators pursuant to existing contracts with such 
originators under which the sponsor continually buys receivables. In 
other cases, the sponsor will purchase the receivables at fair market 
value from the originator or a third party pursuant to a purchase and 
sale agreement related to the specific offering of certificates. In 
other cases, the sponsor will originate the receivables itself.
    As compensation for the receivables transferred to the trust, the 
sponsor receives certificates representing the entire beneficial 
interest in the trust, or the cash proceeds of the sale of such 
certificates. If the sponsor receives certificates from the trust, the 
sponsor sells all or a portion of these certificates for cash to 
investors or securities underwriters.
    16. The price of the certificates, both in the initial offering and 
in the secondary market, is affected by market forces, including 
investor demand, the pass-through interest rate on the certificates in 
relation to the rate payable on investments of similar types and 
quality, expectations as to the effect on yield resulting from 
prepayment of underlying receivables, and expectations as to the 
likelihood of timely payment.
    The pass-through rate for certificates is equal to the interest 
rate on receivables included in the trust minus a specified servicing 
fee.<SUP>16</SUP> 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.
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    \16\ The 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.
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    17. As compensation for performing its servicing duties, the 
servicer (who may also be the sponsor or an affiliate thereof, and 
receive fees for acting in that capacity) will retain the difference 
between payments received on the receivables in the trust and payments 
payable (at the pass-through rate) to certificateholders, except that 
in some cases a portion of the payments on receivables may be paid to a 
third party, such as a fee paid to a provider of credit support. The 
servicer may receive additional compensation by having the use of the 
amounts paid on the receivables between the time they are received by 
the servicer and the time they are due to the trust (which time is set 
forth in the pooling and servicing agreement). The servicer typically 
will be required to pay the administrative expenses of servicing the 
trust, including in some cases the trustee's fee, out of its servicing 
compensation.
    The servicer is also compensated to the extent it may provide 
credit enhancement to the trust or otherwise arrange to obtain credit 
support from another party. This ``credit support fee'' may be 
aggregated with other servicing fees, and is either paid out of the 
interest income received on the receivables in excess of the pass-
through rate or paid in a lump sum at the time the trust is 
established.
    18. The servicer may be entitled to retain certain administrative 
fees paid by a third party, usually the obligor. These administrative 
fees fall into three categories: (a) prepayment fees; (b) late payment 
and payment extension fees; and (c) expenses, fees and charges 
associated with foreclosure or repossession, or other conversion of a 
secured position into cash proceeds, upon default of an obligation.
    Compensation payable to the servicer will be set forth or referred 
to in the pooling and servicing agreement and described in reasonable 
detail in the prospectus or private placement memorandum relating to 
the certificates.
    19. Payments on receivables may be made by obligors to the servicer 
at various times during the period preceding any date on which pass-
through 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 pass-through date. Commingled payments may not be protected from 
the creditors of the servicer in the event of the servicer's bankruptcy 
or receivership. In those instances when payments on receivables are 
held in non-interest bearing accounts or are commingled with the 
servicer's own funds, the servicer is required to deposit these 
payments by a date specified in the pooling and servicing agreement 
into an account from which the trustee makes payments to 
certificateholders.
    20. The underwriter will receive a fee in connection with the 
securities underwriting or private placement of certificates. In a firm 
commitment underwriting, this fee would consist of the difference 
between what the underwriter receives for the certificates that it 
distributes and what it pays the sponsor for those certificates. In a 
private placement, the fee normally takes the form of an agency 
commission paid by the sponsor. In a best efforts underwriting in which 
the underwriter would sell certificates in a public offering on an 
agency basis, the underwriter would receive an agency commission rather 
than a fee based on the difference between the price at which the 
certificates are sold to the public and what it pays the sponsor. In 
some private placements, the underwriter may buy certificates as 
principal, in which case its compensation would be the difference 
between what it receives for the

[[Page 66682]]

certificates that it sells and what it pays the sponsor for these 
certificates.

Purchase of Receivables by the Servicer

    21. The applicant represents that as the principal amount of the 
receivables in a trust is reduced by payments, the cost of 
administering the trust generally increases, making the servicing of 
the trust prohibitively expensive at some point. Consequently, the 
pooling and servicing agreement generally provides that the servicer 
may purchase the receivables remaining in the trust when the aggregate 
unpaid balance payable on the receivables is reduced to a specified 
percentage (usually 5 to 10 percent) of the initial aggregate unpaid 
balance.
    The purchase price of a receivable is specified in the pooling and 
servicing agreement and will be at least equal to: (1) the unpaid 
principal balance on the receivable plus accrued interest, less any 
unreimbursed advances of principal made by the servicer; or (2) the 
greater of (a) the amount in (1) or (b) the fair market value of such 
obligations in the case of a REMIC, or the fair market value of the 
receivables in the case of a trust that is not a REMIC.

Certificate Ratings

    22. The certificates will have received one of the three highest 
ratings available from a rating agency. Insurance or other credit 
support (such as surety bonds, letters of credit, guarantees, or 
overcollateralization) will be obtained by the trust sponsor to the 
extent necessary for the certificates to attain the desired rating. The 
amount of this credit support is set by the rating agencies at a level 
that is a multiple of the worst historical net credit loss experience 
for the type of obligations included in the issuing trust.

Provision of Credit Support

    23. In some cases, the master servicer, or an affiliate of the 
master servicer, may provide credit support to the trust (i.e. act as 
an insurer). In these cases, the master servicer, in its capacity as 
servicer, will first advance funds to the full extent that it 
determines that such advances will be recoverable (a) out of late 
payments by the obligors, (b) from the credit support provider (which 
may be the master servicer or an affiliate thereof) or, (c) in the case 
of a trust that issues subordinated certificates, from amounts 
otherwise distributable to holders of subordinated certificates, and 
the master servicer will advance such funds in a timely manner. When 
the servicer is the provider of the credit support and provides its own 
funds to cover defaulted payments, it will do so either on the 
initiative of the trustee, or on its own initiative on behalf of the 
trustee, but in either event it will provide such funds to cover 
payments to the full extent of its obligations under the credit support 
mechanism. In some cases, however, the master servicer may not be 
obligated to advance funds but instead would be called upon to provide 
funds to cover defaulted payments to the full extent of its obligations 
as insurer. Moreover, a master servicer typically can recover advances 
either from the provider of credit support or from future payments on 
the affected assets.
    If the master servicer fails to advance funds, fails to call upon 
the credit support mechanism to provide funds to cover delinquent 
payments, or otherwise fails in its duties, the trustee would be 
required and would be able to enforce the certificateholders' rights, 
as both a party to the pooling and servicing agreement and the owner of 
the trust estate, including rights under the credit support mechanism. 
Therefore, the trustee, who is independent of the servicer, will have 
the ultimate right to enforce the credit support arrangement.
    When a master servicer advances funds, the amount so advanced is 
recoverable by the master servicer out of future payments on 
receivables held by the trust to the extent not covered by credit 
support. However, where the master servicer provides credit support to 
the trust, there are protections in place to guard against a delay in 
calling upon the credit support to take advantage of the fact that the 
credit support declines proportionally with the decrease in the 
principal amount of the obligations in the trust as payments on 
receivables are passed through to investors. These safeguards include:
    (a) There is often a disincentive to postponing credit losses 
because the sooner repossession or foreclosure activities are 
commenced, the more value that can be realized on the security for the 
obligation;
    (b) The master servicer has servicing guidelines which include a 
general policy as to the allowable delinquency period after which an 
obligation ordinarily will be deemed uncollectible. The pooling and 
servicing agreement will require the master servicer to follow its 
normal servicing guidelines and will set forth the master servicer's 
general policy as to the period of time after which delinquent 
obligations ordinarily will be considered uncollectible;
    (c) As frequently as payments are due on the receivables included 
in the trust (monthly, quarterly or semi-annually, as set forth in the 
pooling and servicing agreement), the master servicer is required to 
report to the independent trustee the amount of all past-due payments 
and the amount of all servicer advances, along with other current 
information as to collections on the receivables and draws upon the 
credit support. Further, the master servicer is required to deliver to 
the trustee annually a certificate of an executive officer of the 
master servicer stating that a review of the servicing activities has 
been made under such officer's supervision, and either stating that the 
master servicer has fulfilled all of its obligations under the pooling 
and servicing agreement or, if the master servicer has defaulted under 
any of its obligations, specifying any such default. The master 
servicer's reports are reviewed at least annually by independent 
accountants to ensure that the master servicer is following its normal 
servicing standards and that the master servicer's reports conform to 
the master servicer's internal accounting records. The results of the 
independent accountants' review are delivered to the trustee; and
    (d) The credit support has a ``floor'' dollar amount that protects 
investors against the possibility that a large number of credit losses 
might occur towards the end of the life of the trust, whether due to 
servicer advances or any other cause. Once the floor amount has been 
reached, the servicer lacks an incentive to postpone the recognition of 
credit losses because the credit support amount thereafter is subject 
to reduction only for actual draws. From the time that the floor amount 
is effective until the end of the life of the trust, there are no 
proportionate reductions in the credit support amount caused by 
reductions in the pool principal balance. Indeed, since the floor is a 
fixed dollar amount, the amount of credit support ordinarily increases 
as a percentage of the pool principal balance during the period that 
the floor is in effect.

Disclosure

    24. In connection with the original issuance of certificates, the 
prospectus or private placement memorandum will be furnished to 
investing plans. The prospectus or private placement memorandum will 
contain information material to a fiduciary's decision to invest in the 
certificates, including:
    (a) Information concerning the payment terms of the certificates, 
the rating of the certificates, and any material risk factors with 
respect to the certificates;
    (b) A description of the trust as a legal entity and a description 
of how the trust

[[Page 66683]]

was formed by the seller/servicer or other sponsor of the transaction;
    (c) Identification of the independent trustee for the trust;
    (d) A description of the receivables contained in the trust, 
including the types of receivables, the diversification of the 
receivables, their principal terms, and their material legal aspects;
    (e) A description of the sponsor and servicer;
    (f) A description of the pooling and servicing agreement, including 
a description of the seller's principal representations and warranties 
as to the trust assets, including the terms and conditions for 
eligibility of any receivables transferred during the pre-funding 
period and the trustee's remedy for any breach thereof; a description 
of the procedures for collection of payments on receivables and for 
making distributions to investors, and a description of the accounts 
into which such payments are deposited and from which such 
distributions are made; a description of permitted investments for any 
pre-funding account or capitalized interest account; identification of 
the servicing compensation and any fees for credit enhancement that are 
deducted from payments on receivables before distributions are made to 
investors; a description of periodic statements provided to the 
trustee, and provided to or made available to investors by the trustee; 
and a description of the events that constitute events of default under 
the pooling and servicing contract and a description of the trustee's 
and the investors' remedies incident thereto;
    (g) A description of the credit support;
    (h) A general discussion of the principal federal income tax 
consequences of the purchase, ownership and disposition of the pass-
through securities by a typical investor;
    (i) A description of the underwriters' plan for distributing the 
pass-through securities to investors; and
    (j) Information about the scope and nature of the secondary market, 
if any, for the certificates.
    (k) A statement as to the duration of any pre-funding period and 
the pre-funding limit for the trust.
    25. Reports indicating the amount of payments of principal and 
interest are provided to certificateholders at least as frequently as 
distributions are made to certificateholders. Certificateholders will 
also be provided with periodic information statements setting forth 
material information concerning the underlying assets, including, where 
applicable, information as to the amount and number of delinquent and 
defaulted loans or receivables.
    26. In the case of a trust that offers and sells certificates in a 
registered public offering, the trustee, the servicer or the sponsor 
will file such periodic reports as may be required to be filed under 
the Securities Exchange Act of 1934. Although some trusts that offer 
certificates in a public offering will file quarterly reports on Form 
10-Q and Annual Reports on Form 10-K, many trusts obtain, by 
application to the Securities and Exchange Commission, a complete 
exemption from the requirement to file quarterly reports on Form 10-Q 
and a modification of the disclosure requirements for annual reports on 
Form 10-K. If such an exemption is obtained, these trusts normally 
would continue to have the obligation to file current reports on Form 
8-K to report material developments concerning the trust and the 
certificates and copies of the statements sent to certificateholders. 
While the Securities and Exchange Commission's interpretation of the 
periodic reporting requirements is subject to change, periodic reports 
concerning a trust will be filed to the extent required under the 
Securities Exchange Act of 1934.
    27. At or about the time distributions are made to 
certificateholders, a report will be delivered to the trustee as to the 
status of the trust and its assets, including underlying obligations. 
Such report will typically contain information regarding the trust's 
assets (including those purchased by the trust from any pre-funding 
account), payments received or collected by the servicer, the amount of 
prepayments, delinquencies, servicer advances, defaults and 
foreclosures, the amount of any payments made pursuant to any credit 
support, and the amount of compensation payable to the servicer. Such 
report also will be delivered to or made available to the rating agency 
or agencies that have rated the trust's certificates.
    In addition, promptly after each distribution date, 
certificateholders will receive a statement prepared by the servicer or 
trustee summarizing information regarding the trust and its assets. 
Such statement will include information regarding the trust and its 
assets, including underlying receivables. Such statement will typically 
contain information regarding payments and prepayments, delinquencies, 
the remaining amount of the guaranty or other credit support and a 
breakdown of payments between principal and interest.

Forward Delivery Commitments

    28. To date, no forward delivery commitments have been entered into 
by PNC in connection with the offering of any certificates, but PNC may 
contemplate entering into such commitments. The utility of forward 
delivery commitments has been recognized with respect to offering 
similar certificates backed by pools of residential mortgages, and PNC 
may find it desirable in the future to enter into such commitments for 
the purchase of certificates.

Secondary Market Transactions

    29. It is PNC's normal policy to attempt to make a market for 
securities for which it is lead or co-managing underwriter, and it is 
PNC's intention to make a market for any certificates for which it is 
lead or co-managing underwriter, although it is under no obligation to 
do so. At times PNC will facilitate sales by investors who purchase 
certificates if PNC has acted as agent or principal in the original 
private placement of the certificates and if such investors request 
PNC's assistance.

Retroactive Relief

    30. PNC represents that it has not engaged in transactions related 
to mortgage-backed and asset-backed securities based on the assumption 
that retroactive relief would be granted prior to the date of their 
application. However, PNC requests the exemptive relief granted to be 
retroactive to October 21, 1997, the date of their application, and 
would like to rely on such retroactive relief for transactions entered 
into prior to the date exemptive relief may be granted.

Summary

    31. In summary, the applicant represents that the transactions for 
which exemptive relief is requested satisfy the statutory criteria of 
section 408(a) of the Act due to the following:
    (a) The trusts contain ``fixed pools'' of assets. There is little 
discretion on the part of the trust sponsor to substitute receivables 
contained in the trust once the trust has been formed;
    (b) In the case where a pre-funding account is used, the 
characteristics of the receivables to be transferred to the trust 
during the pre-funding period will be substantially similar to the 
characteristics of those transferred to the trust on the closing date, 
thereby giving the sponsor and/or originator little discretion over the 
selection process, and compliance with this requirement will be assured 
by the specificity of the characteristics and the monitoring mechanisms 
contemplated under the

[[Page 66684]]

proposed exemption. In addition, certain cash accounts will be 
established to support the certificate pass-through rate and such cash 
accounts will be invested in short-term, conservative investments; the 
pre-funding period will be of a reasonably short duration; a pre-
funding limit will be imposed; and any Internal Revenue Service 
requirements with respect to pre-funding intended to preserve the 
passive income character of the trust will be met. The fiduciary of the 
plans making the decision to invest in certificates is thus fully 
apprised of the nature of the receivables which will be held in the 
trust and has sufficient information to make a prudent investment 
decision;
    (c) Certificates in which plans invest will have been rated in one 
of the three highest rating categories by a rating agency. Credit 
support will be obtained to the extent necessary to attain the desired 
rating;
    (d) All transactions for which PNC seeks exemptive relief will be 
governed by the pooling and servicing agreement, which is made 
available to plan fiduciaries for their review prior to the plan's 
investment in certificates;
    (e) Exemptive relief from sections 406(b) and 407 for sales to 
plans is substantially limited; and
    (f) PNC anticipates that it will make a secondary market in 
certificates (although it is under no obligation to do so).

Notice to Interested Persons

    The applicant represents that because those potentially interested 
participants and beneficiaries cannot all be identified, the only 
practical means of notifying such participants and beneficiaries of 
this proposed exemption is by the publication of this notice in the 
Federal Register. Comments and requests for a hearing must be received 
by the Department not later than 30 days from the date of publication 
of this notice of proposed exemption in the Federal Register.

For Further Information Contact: Gary Lefkowitz of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

Jeffrey R. Light, M.D., Inc. Profit Sharing Plan (the Plan) Located 
in Garden Grove, CA; Proposed Exemption

[Application No. D-10530]

    The Department of Labor is considering granting an exemption under 
the authority of section 408(a) of the Act and section 4975(c)(2) of 
the Code and in accordance with the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted, the restrictions of sections 406(a) and 406(b)(1) and 
(b)(2) of the Act and the sanctions resulting from the application of 
section 4975 of the Code, by reason of section 4975(c)(1)(A) through 
(E) of the Code, shall not apply to the sale (the Sale) by the 
individual, self-directed account of Jeffrey R. Light, M.D. within the 
Plan (the Account) of two parcels of real property (the Property) to 
Jeffrey R. Light, M.D. (Dr. Light), a party in interest with respect to 
the Plan; provided the following conditions are satisfied:
    (A) The terms and conditions of the transaction are no less 
favorable to the Plan than those which the Plan would receive in an 
arm's-length transaction with an unrelated party;
    (B) The Sale is a one-time transaction for cash;
    (C) The Plan does not incur any expenses from the Sale; and
    (D) The Plan receives as consideration from the Sale no less than 
the fair market value of the Property as determined on the date of the 
Sale by a qualified, independent appraiser.

Summary of Facts and Representations

    1. Jeffrey R. Light, M.D., Inc., located in Garden Grove, 
California, a California corporation for the practice of medicine, is 
sponsor of the Plan. Dr. Light is a medical physician and a 
pathologist, whose practice involves tissue analysis, sample reviews, 
and providing opinions regarding such analysis and review.
    The Plan is a defined contribution plan that is intended to qualify 
under section 401(a) of the Code. The applicant represents that on 
December 31, 1996, the Plan had 26 participants and total assets of 
$523,077, and of the total assets $404,582 was in Dr. Light's Account. 
The applicant represents that the Plan permits its participants to 
self-direct their respective accounts into various investments. Dr. 
Light is represented by the applicant to be the fiduciary and trustee 
with respect to the Plan.
    2. The Property consists of two lots of unimproved land. One of the 
lots is located at 370 Ranch Road in Mammoth Lakes, California, 
consists of 0.38 of an acre (16,553 square feet), and is designated as 
Ranch at Snowcreek Lot #14 (Lot #14). The second lot is located at 
Majestic Pines Drive in Mammoth, California, consists of 0.2 of an acre 
(8,750 square feet), and is designated as Mammoth Vista III Lot #34 
(Lot #34). The applicant represents that Lot #14 was purchased on 
January 29, 1996, for the sum of $126,892 and Lot #34 was purchased on 
January 7, 1991, for the sum of $127,639.55.
    The applicant also represents that the Property was purchased only 
for investment purposes and it has been held in the Account since the 
respective dates of purchase with no improvements made on or to the 
Property. Also, the applicant represents that the Property has not been 
used or leased by anyone since being acquired by the Account.
    The Property was appraised on October 3, 1997, by Mitch Dunshee, 
MAI, AG002575 and Cheryl Bretton, Appraiser, AG023954, The Dunshee 
Appraisal Group, located in Frensno, California; and Lot #14 was 
determined to have a fair market value of $130,000 and Lot #34 was 
determined to have a fair market value of $120,000. Also the appraisal 
of the Property represented that the Property is zoned residential and 
located in an earthquake zone that is designated Zone 1: High Risk 
Damage; Reference: ISO Earthquake Zones, 1981.
    3. Dr. Light proposes to purchase the Property from the Account for 
cash with no expenses incurred by the Plan in a one-time transaction, 
paying to the Account the fair market value of the Property as 
determined by a qualified, independent appraiser on the date of the 
Sale.
    Dr. Light is prompted to take this action by Mr. Douglas B. George, 
Financial Counsel, Newport Beach, California, whose services were 
recently employed by Dr. Light with respect to the Plan's finances. The 
applicant represents the need for the Account to diversify its 
investments, noting that the Property represents more than 62 percent 
of the total value of the assets in the Account. Also, Mr. George 
expressed concern about the lack of investment diversity in the Account 
and the location of the Property being in the high risk earthquake zone 
of California.
    4. In summary, the applicant represents that the proposed 
transaction satisfies the criteria of section 408(a) of the Act because 
(a) the Sale is a one-time transaction for cash; (b) the Plan and the 
Account will receive the fair market value of the Property as 
determined by a qualified, independent appraiser on the date of the 
transaction; (c) the transaction will enable the Account to avoid any 
risk associated with the continued holding of the Property and enable 
the Dr. Light to direct Account assets to active and safer investments; 
(d) neither the Plan or the Account will incur any expenses from the 
transaction; and (e) other than Dr. Light, no other participant of the 
Plan will be affected by the transaction, and

[[Page 66685]]

he desires that the transaction be consummated.

Notice to Interested Persons

    Because the only Plan assets involved in the proposed transaction 
are those in the Account of Dr. Light and he is the only participant 
affected by the proposed transaction, there is no need to distribute 
the notice of the proposed transaction to interested persons. Comments 
and requests for a hearing are due 30 days from the date of publication 
of this proposed exemption in the Federal Register.

For Further Information Contact: Mr. C.E. Beaver of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

General Information

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

    Signed at Washington, DC, this 16th day of December 1997.
Ivan Strasfeld,
Director of Exemption Determinations Pension and Welfare Benefits 
Administration, Department of Labor.
[FR Doc. 97-33179 Filed 12-18-97; 8:45 am]
BILLING CODE 4510-29-P