Proposed Exemptions; Operating Engineers Local 150 Apprenticeship Fund (the Fund)

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. L-10280, et al.]

Proposed Exemptions; Operating Engineers Local 150 Apprenticeship

Fund (the Fund)

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

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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 restriction of the Employee

Retirement Income Security Act of 1974 (the Act) and/or the Internal

Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

Unless otherwise stated in the Notice of Proposed Exemption, all

interested persons are invited to submit written comments, and with

respect to exemptions involving the fiduciary prohibitions of section

406(b) of the Act, requests for hearing within 45 days from the date of

publication of this Federal Register Notice. Comments and request for a

hearing should state: (1) the name, address, and telephone number of

the person making the comment or request, and (2) the nature of the

person's interest in the exemption and the manner in which the person

would be adversely affected by the exemption. A request for a hearing

must also state the issues to be addressed and include a general

description of the evidence to be presented at the hearing. A request

for a hearing must also state the issues to be addressed and include a

general description of the evidence to be presented at the hearing.

ADDRESSES: All written comments and request for a hearing (at least

three copies) should be sent to the Pension and Welfare Benefits

Administration, Office of Exemption Determinations, Room N-5649, U.S.

Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C.

20210. Attention: Application No. stated in each Notice of Proposed

Exemption. The applications for exemption and the comments received

will be available for public inspection in the Public Documents Room of

Pension and Welfare Benefits Administration, U.S. Department of Labor,

Room N-5507, 200 Constitution Avenue, N.W., Washington, D.C. 20210.

Notice to Interested Persons

Notice of the proposed exemptions will be provided to all

interested persons in the manner agreed upon by the applicant and the

Department within 15 days of the date of publication in the Federal

Register. Such notice shall include a copy of the notice of proposed

exemption as published in the Federal Register and shall inform

interested persons of their right to comment and to request a hearing

(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in

applications filed pursuant to section 408(a) of the Act and/or section

4975(c)(2) of the Code, and in accordance with procedures set forth in

29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990).

Effective December 31, 1978, section 102 of Reorganization Plan No. 4

of 1978 (43 FR 47713, October 17, 1978) transferred the authority of

the Secretary of the Treasury to issue exemptions of the type requested

to the Secretary of Labor. Therefore, these notices of proposed

exemption are issued solely by the Department.

The applications contain representations with regard to the

proposed exemptions which are summarized below. Interested persons are

referred to the applications on file with the Department for a complete

statement of the facts and representations.

Operating Engineers Local 150 Apprenticeship Fund (the Fund), Located

in Plainfield, Illinois

[Exemption Application No. L-10280]

Proposed Exemption

The Department is considering granting an exemption under the

authority of section 408(a) of the Act and in accordance with the

procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32826,

32847, August 10, 1990). If the exemption is granted the restrictions

of section 406(a) and 406(b)(1) and (2) shall not apply to the proposed

sale (the Sale) of a certain parcel of improved real property (the

Property) from the Fund to International Union of Operating Engineers,

Local 150 (Local 150), a party in interest with respect to the Plan

provided that the following conditions are met:

(1) The fair market value of the Property is established by a

qualified and independent real estate appraiser;

(2) Local 150 pays the greater of $180,000 or the current fair

market value of the Property as of the date of the transaction;

(3) The Sale is a one time transaction for cash; and

(4) The Fund pays no fees or commissions related to the Sale.

Summary of Facts and Representations

1. The Fund is a welfare plan which is an apprenticeship and

training plan with approximately 600 apprentices and 5,494 journeymen.

The Fund was established on June 1, 1967. As of December 31, 1995, the

fair market value of the Fund's assets was $6,492,242. The Fund

sponsors include the Local 150 and other employer associations.

2. The Fund acquired the Property as part of a merger with the

Operating Engineers Local 537 Apprenticeship and Re-training Fund on or

about October 28, 1992. During this time, the Operating Engineers Local

537 terminated and transferred all of its assets to the Fund. The

Property is located in Rock Island, Illinois and consists of an office

building on approximately 53 acres of land. The applicant represents

that the Property has been leased by the Fund to Local 150 pursuant to

Prohibited Transaction Class Exemption 76-1 (41 FR 1270, March 26,

1976).1 Since 1992, the Fund has received net income from the

Property in the amount of $33,461.

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\1\ The Department is making no determination with respect to

whether or not the Lease met the conditions of PTE 76-1.

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3. In March 1993, the Property was appraised at a value of $180,000

by Baecke Appraisers, a qualified independent real estate appraisal

firm. The value of the Property was determined by using the market

value approach which is defined in the appraisal as the most probable

price a property should bring on requisite to a fair sale, the buyer

and seller each acting prudently and assuming the price is not affected

by undue stimulus. In April 15, 1996, Mr. Robert Baecke of Baecke

Appraisers, updated the appraisal and recertified the value of the

Property to be $180,000. Mr. Baecke researched sales of comparable

properties in the Property's market area that have occurred since the

time of the original appraisal. His analysis consisted of research of

data from the multiple listing service, county records, exterior

inspections of the properties and conversations with individuals

[[Page 18804]]

involved in the transactions. Additionally, Mr. Baecke analyzed the

valuation approaches used in the original appraisal, taking into

consideration all current data. Mr. Baecke concluded that the

Property's appraised value remains $180,000. In this regard, Mr. Baecke

represented that the value of the Property at time the Fund acquired

the Property was $180,000. The Fund will pay no commissions or fees

associated with the Sale.

4. The Fund proposes to sell the Property to Local 150. The

Trustees of the Fund have determined that the Fund no longer needs the

Property, and wish to sell the Property. Local 150 has offered to

purchase the Property for cash at the appraised value of $180,000.

6. In summary, the applicant represents that the proposed

transaction satisfies the criteria of section 408(a) of the Act

because: (1) The Sale is a one-time transaction for cash, and no

commissions will be paid upon the Sale; (2) the Fund will be receiving

at least fair market value for the Property as determined by an

independent qualified real estate appraiser; and (3) the Fund pays no

commissions or fees associated with the Sale.

For Further Information Contact: Allison Padams of the Department,

telephone (202)219-8971. (This is not a toll-free number.)

Joint Apprenticeship Committee of Plumbers Local No. 27 (the Plan),

Located in Pittsburgh, Pennsylvania

[Application No. L-10366]

Proposed Exemption

The Department is considering granting an exemption under the

authority of section 408(a) of the Act and section 4975(c)(2) of the

Code and in accordance with the procedures set forth in 29 C.F.R. Part

2570, Subpart B (55 F.R. 32836, 32847, August 10, 1990). If the

exemption is granted the restrictions of sections 406(a), 406(b)(1) and

(b)(2) of the Act shall not apply to the proposed sale by the Plan of

certain improved real property located in Allegheny County,

Pennsylvania (the Property) to the Local Union No. 27 (the Plumbers

Local) of the United Association of Journeymen and Apprentices of the

Plumbing and Pipe Fitting Industry of the United States and Canada, a

party in interest with respect to the Plan; provided that the following

conditions are met:

(A) The Plan does not incur any expenses or suffer any loss with

respect to the transaction; and

(B) The Plan receives a cash purchase price for the Property of no

less than the greater of (1) the Plan's cost basis in the Property as

of the date of the sale, or (2) the fair market value of the Property

as of the date of the sale, as determined by an independent, qualified

appraiser, and in no event less than $265,597.

Summary of Facts and Representations

Introduction

The Plan's operations are conducted in the Pipe Trades Training

Center (the Property), which is owned by the Plan. The Trustees of the

Plan have determined that it is no longer economically feasible for the

Plan to maintain and operate its own facility, and that the Plan can be

operated more efficiently as a tenant in the Property. The Trustees

propose to sell the Property to the Union, the members of which are

participants in the Plan, and to arrange for the Plan to lease space in

the Property from the Union. An exemption is requested to allow the

sale transaction under the terms and conditions described herein.

1. The Plan is an apprenticeship training plan providing

educational and occupational training for apprentices and journeymen

plumbers who are members of the Union. The Plan was created and is

maintained pursuant to collective bargaining agreements between the

Union and the Mechanical Contractors Association of Western

Pennsylvania (the Association), which represents employers of plumbers

who are members of the Union. The Plan is administered by a board of

six trustees (the Trustees), three of whom are representatives of the

Union and three of whom are representatives of the Association and

other employers in signed agreements with the Union. As of October 1,

1996, approximately 610 members of the Union were participants in the

Plan, which had total assets of approximately $360,080 as of December

31, 1995.

2. Among the assets of the Plan is the Property, a parcel of

improved real property located at 104 Montour West Industrial Park in

North Fayette Township near Pittsburgh in Allegheny County,

Pennsylvania. The Property consists of 1.29 acres of land improved with

a one-story structure (the Building) occupied by the Plan and operated

by the Trustees as the Pipe Trades Training Center and ancillary office

facility. The Building, which is constructed of cement block on

reinforced concrete slab, has a total interior area of 6,948 square

feet, consisting of 984 square feet of office space (the Office Space)

and the remainder utilized as classrooms, shop, computer, and file room

areas. The Office Space is occupied by the Union, which has leased the

Office Space from the Plan since 1987 (the Union Lease). The Trustees

and the Union represent that the Union Lease satisfies the requirements

of Prohibited Transaction Class Exemption 76-1 (PTE 76-1, 41, FR 12740,

March 26, 1976) and Prohibited Transaction Class Exemption 77-10 (PTE

77-10, 42 FR 33918, July 1, 1977), relating to, among other things, a

lease of office space by a multiemployer plan to a participating

employee organization.2

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\2\ The Department expresses no opinion as to whether the Union

Lease satisfied the conditions of PTE 76-1 or PTE 77-10, or whether

such lease of office space by the Plan to the Union was exempt from

the prohibitions of section 406 of the Act.

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3. The Property is described legally as lot 113R of the Montour

West Industrial Park (the Industrial Park) as recorded with the

Recorder's Office of Allegheny County, and it consists of a parcel

originally described in the county legal records as lot 113 and one

third of an adjacent parcel originally described as lot 112. The

Trustees represent that the Plan purchased the original lot 113 from an

unrelated party on August 22, 1974, and on December 17, 1975 the Plan

sold a one-half interest in original lot 113 to the Joint

Apprenticeship Committee of Steamfitters Local Union No. 449 (the

Steamfitters Plan), an apprenticeship training plan providing benefits

to members of the United Association of Journeymen and Apprentices of

the Plumbing and Pipe Fitting Industry of the United States and Canada,

Local Union No. 449 (the Steamfitters Local). Thereafter, the original

lot 112 was acquired jointly by the Plan and the Steamfitters Plan from

an unrelated party on December 29, 1991. Although the Plumbers Local

and the Steamfitters Local are components of the United Association of

Journeymen and Apprentices of the Plumbing and Pipe Fitting Industry of

the United States and Canada, the Trustees represent that the

Steamfitters Local and the Steamfitters Plan are not parties in

interest with respect to the Plan, within the meaning of section 3(14)

of the Act, and that the trustees of each plan are independent of and

unrelated to each other. The Trustees explain that in many

jurisdictions plumbers and steamfitters are members of the same local

union, with referrals for work based on a determination of whether

water or steam pipes are involved. In the Pittsburgh/Western

Pennsylvania area, however, the Trustees maintain that there was

historically substantial employment in the steel mills and factories

for steamfitters, and consequently, two separate local unions

[[Page 18805]]

emerged, one representing steamfitters and one representing plumbers.

Because the training for apprentices in each local union is similar,

and because each local union had similar needs in a training facility,

the trustees of the apprenticeship plans of each local union agreed to

share the same training facility for their apprenticeship programs. In

this context, the two plans jointly owned the original lot 113, on

which the Building is situated, and the adjacent original lot 112, an

unimproved lot utilized for parking space.

In 1987, the trustees of the Steamfitters Plan determined to

commence arrangements for a movement of the operations of that plan to

a separate training facility in Pittsburgh. The trustees of the

Steamfitters Plan then transferred that plan's one-half interest in

lots 113 and 112 to the Plan, by deed dated January 9, 1987. (The

Steamfitters Plan continued to utilize facilities on the Property as a

tenant until that plan acquired its own building in 1993.)

Subsequently, on June 1990, the legal records for the Industrial Park

were revised to provide that two thirds of lot 112 was redesignated as

lot 111R and the remaining one third of lot 112 was combined with lot

113 and redesignated as lot 113R. The Trustees sold lot 111R to an

unrelated party in 1990, and lot 113R remains the legal designation of

the Property. According to Daniel F. Smith, IFA (Smith), a professional

independent real estate appraiser in Pittsburgh, Pennsylvania, the

Property had a fair market value of $246,000 as of June 13, 1996. The

Plan's actual cost basis in the Property is $265,597, as determined as

of May 14, 1996 by the certified public accounting firm of R.S.

Cumberledge & Associates (Cumberledge) in Pittsburgh, Pennsylvania.

4. The Trustees represent that it is not economically feasible for

the Plan to continue maintaining the Property while continuing to

provide a quality training program for the Union's members. The

Trustees state that recent financial statements indicate a declining

balance of reserves in the assets of the Plan, which is operating at a

deficit due to increasing Building maintenance and related expenses.

The Trustees represent that employer contributions to the Plan and

rents paid by the Union to the Plan are not sufficient to cover

escalating costs of maintaining the Property, even though such employer

contributions have increased pursuant to collective bargaining and the

Trustees represent that the rentals paid by the Union are in excess of

the Building's fair market rental value as indicated by Smith's

appraisal. The Trustees are concerned that the Plan's continued

ownership of the Property will threaten the availability of funds for

instructor salaries, equipment, and training program operations. The

Trustees represent that they have determined that the Plan would be

able to operate its training program more economically as a tenant,

rather than an owner, in the Property.

5. Accordingly, the Trustees and representatives of the Union

propose that the Union purchase the Property from the Plan and are

requesting an exemption for such transaction under the terms and

conditions described herein. The Union will pay the Plan a cash

purchase price for the Property in the amount of no less than the

greater of (a) the Plan's cost basis in the Property as of the date of

the sale, or (b) the Property's fair market value as of the sale date

as determined by Smith in an update of his appraisal of June 13, 1996,

and in no event less than $265,597, which was the Plan's cost basis in

the Property as determined by Cumberledge as of May 14, 1996. The Plan

will incur no costs related to the transaction.

6. Commencing with the Union's purchase of the Property, it is

proposed that the Plan will continue to utilize the Property as its

training facility by leasing from the Union the same space in the

Property which the Plan has utilized prior to the purchase transaction.

The Union and the Trustees represent that this lease of space in the

Property from the Union (the Plan Lease) will meet the requirements of

Prohibited Transaction Class Exemption 78-6 (PTE 78-6, 43 FR 23024, May

30, 1978), relating to, among other things, a lease of real property by

an employee organization to a related apprenticeship training

plan.3 In addition to other requirements, the conditions of PTE

78-6 require the Plan Lease to be on terms at least as favorable to the

plan as an arm's-length transaction with an unrelated party would be,

and the Plan Lease must be appropriate and helpful in carrying out the

purposes for which the plan is established or maintained. The Trustees

represent that the Plan Lease will satisfy these and all other

conditions of PTE 78-6 and that the Plan Lease will enable the Plan to

terminate the lease arrangement with sixty days written notice to the

Union. The Trustees represent that if the exemption is granted, the

Plan Lease will be executed between the Plan and the Union immediately

after the sale transaction is consummated and the Plan's use of the

Property will continue uninterrupted.

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\3\ In this proposed exemption the Department expresses no

opinion as to whether the Plan Lease will meet the requirements of

PTE 78-6.

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7. In summary, the applicants represent that the proposed

transaction satisfies the criteria of section 408(a) of the Act for the

following reasons: (1) The transaction will be a one-time transaction

for cash; (2) The Plan will receive a purchase price for the Property

which is no less than the greater of the Plan's cost basis in the

Property or the Property's fair market value as of the date of the

transaction; (3) The Plan will incur no expenses with respect to the

transaction; and (4) The transaction will enable the Plan to reduce its

total expenses and to operate more efficiently.

For Further Information Contact: Ronald Willett of the Department,

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

Howes Leather Company, Inc. Employee Stock Ownership Plan (the Plan),

Located in Curwensville, Pennsylvania

[Application No. D-10385]

Proposed Exemption

The Department is considering granting an exemption under the

authority of section 408(a) of the Act and section 4975(c)(2) of the

Code and in accordance with the procedures set forth in 29 CFR Part

2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption

is granted the restrictions of sections 406(a), 406 (b)(1) and (b)(2)

of the Act and the sanctions resulting from the application of section

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

the Code, shall not apply to the proposed sale by the Plan of an

individual life insurance policy (the Policy) to the Howes Leather

Company, Inc. (the Employer), the sponsor of the Plan; provided that

the following conditions are satisfied:

(A) All terms and conditions of the transaction are at least as

favorable to the Plan as those which the Plan could obtain in arm's-

length transactions with unrelated parties;

(B) The Plan receives a purchase price for the Policy of no less

than the greater of (1) the fair market value of the Policy as of the

sale date, or (2) Policy's cash surrender value (as described below) as

of the sale date;

(C) The Plan does not incur any expenses or suffer any loss with

respect to the transaction; and

(D) In the event the Employer recovers with respect to the Policy a

total amount in excess of the purchase price paid to the Plan for the

Policy, such excess

[[Page 18806]]

amount shall be distributed prorata among the participants of the Plan.

Summary of Facts and Representations

1. The Plan is a defined contribution employee stock ownership plan

with 32 participants and total assets of approximately $465,168 as of

February 16, 1996. The Plan is sponsored by the Employer, Howes Leather

Company, Inc., a Delaware corporation engaged in the business of

leather processing in the city of Curwensville, Pennsylvania. The

trustees of the Plan are James M. Fitzgibbons and Barry I. Getto, each

of whom is an officer, director and shareholder of the Employer. The

Plan invests primarily in common stock of the Employer, which

constituted approximately 92 percent of the Plan's assets as of

February 16, 1996.

2. The Employer represents that the Plan has been terminated and

that distribution of Plan assets was completed in April 1996. Although

the Plan is an individual-account employee stock ownership plan, at the

time of the Plan's termination date there remained in the Plan one

general asset in which all Plan participants held undivided pro-rata

interests: the Policy. The Policy is an individual life insurance

policy issued by the Fidelity Mutual Life Insurance Company (the

Insurer) on the life of Harry J. Widney, a former participant in the

Plan who had terminated participation in the Plan and received full

payment of Plan benefits many years prior to the Plan termination. The

Employer represents that Mr. Widney had been a shareholder of the

Employer and that the Plan had acquired the Policy to provide the Plan

with assets to purchase Employer stock from his estate in the event of

his death. When Mr. Widney left the Employer's business and terminated

his participation in the Plan during the Plan year commencing July 1,

1982, his account balance in the Plan was distributed to him in the

form of Employer stock. The Employer represents that Mr. Widney was

offered the Policy but refused to accept it. As a result, the Policy

was retained as a general asset of the Plan.

With an original face value of $50,000 and paid-up additions

totaling $7,998, the Policy has a total face value of $57,998. The

Employer represents that upon termination of the Plan, the Trustees

were unable to liquidate the Policy, by surrendering it for its cash

surrender value, because the Insurer is in rehabilitation proceedings

(the Rehabilitation) which have rendered the Policy frozen and

inaccessible. The Employer represents that it is uncertain when the

Rehabilitation will be resolved to enable the cash surrender of the

Policy by the Plan and that, due to the current status of the Insurer,

the ability of the Insurer to pay the full value of the Policy is in

question.

3. The Employer represents that upon termination of the Plan, the

Trustees undertook to make prompt distributions to all Plan

participants of their respective benefits from the Plan, and that they

did not wish to delay distribution until resolution of the

Rehabilitation. Accordingly, in order to enable the Plan to proceed

with complete distributions, the Employer represents that it made an

interest-free loan to the Plan (the Loan) in the amount of cash which

the Plan would have realized from a cash surrender of the Policy on the

Termination Date. The Loan proceeds were distributed pro rata among all

participants in the Plan as of the Termination Date. The Loan was in

the amount of $34,044.77, which was the cash surrender value of the

Policy upon the termination of the Plan as determined by the Insurer.

The Employer represents that the Loan satisfied the requirements of

Prohibited Transaction Class Exemption 80-26 (PTE 80-26, 45 FR 35040,

May 23, 1980), relating to interest-free loans to a plan for, among

other things, the payment of benefits.4 The Policy remains an

asset in the Plan's trust even though distribution to Plan participants

has been completed.

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\4\ The Department expresses no opinion as to whether the Loan

satisfied the conditions of class exemption PTE 80-26.

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4. In order to complete the liquidation of the Plan, the Employer

now proposes to purchase the Policy from the Plan so that the last

remaining Plan asset may be liquidated and the Plan's trust may be

dissolved, and the Employer is requesting an exemption for such

transaction under the terms and conditions described herein. The

Employer proposes to purchase the Policy from the Plan for a purchase

price in the amount of the Loan, and to consummate the purchase

transaction by means of canceling the Loan in exchange for the Policy.

Accordingly, the purchase price for the Policy will be $34,044.77, the

Policy's cash surrender value as of the date of Plan termination, which

was the same amount of cash which the Plan would have realized from a

cash surrender of the Policy if the Rehabilitation proceedings had not

prevented the cash surrender of the Policy upon the Plan termination.

The Plan will not incur any expenses with respect to the transaction.

5. Upon cancellation of the Loan, the Policy will be transferred to

the Employer, and thereafter the Employer will be entitled to amounts

due the holder of the Policy under its terms and conditions. The

Employer represents that due to the Rehabilitation and the financial

condition of the Insurer, it is questionable whether the Employer will

ever recover the cash surrender value of the Policy, and it is unlikely

the Employer will ever recover any amounts in excess of the amount the

Employer is paying the Plan for the Policy. Nonetheless, the Employer

has agreed that in the event it receives total proceeds from the Policy

in excess of the amounts paid the Plan as purchase price for the

Policy, such additional amounts will be distributed pro rata among Plan

participants with active accounts in the Plan as of the date of the

Plan termination.

6. In summary, the applicant represents that the proposed

transaction satisfies the criteria of section 408(a) of the Act for the

following reasons: (a) The transaction will enable the completed

termination of the Plan and dissolution of the Plan trust; (b) The Plan

will not incur any expenses with respect to the transaction; (c) The

purchase price of the Policy will be its cash surrender value as of the

date of Plan termination as determined by the Insurer; (d) The

transaction will include the Employer's cancellation of the Plan's

obligations under the Loan; and (e) Any proceeds from the Policy

received by the Employer in excess of the purchase price will be

distributed among the Plan's participants with active accounts as of

the Termination Date.

For Further Information Contact: Ronald Willett of the Department,

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

The Roquette America, Inc. Pension Plan for Salaried Employees (the

Plan), Located in Keokuk, Iowa

[Application No. D-10390]

Proposed Exemption

The Department is considering granting an exemption under the

authority of section 408(a) of the Act and section 4975(c)(2) of the

Code and in accordance with the procedures set forth in 29 CFR Part

2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption

is granted, the restrictions of section 406(a) of the Act and the

sanctions resulting from the application of section 4975 of the Code,

by reason of section 4975(c)(1) (A) through (D) of the Code, shall not

apply to (1) the proposed loan to the Plan by Aon Consulting, Inc. (Aon

Consulting), in connection with certain excess

[[Page 18807]]

distributions (the Overpayments) that Aon Consulting inadvertently

caused to be made under the Plan, and (2) the potential repayment of

the loan by the Plan to Aon Consulting.

This proposed exemption is subject to the following conditions:

(1) The Plan pays no interest nor incurs any other expense relating

to the loan;

(2) The loan amount covers the Overpayments, plus lost opportunity

costs attributable to the Overpayments;

(3) Any repayment of the loan is restricted solely to the amount,

if any, recovered by the Plan with respect to the Overpayments in

litigation or otherwise; and

(4) A qualified, independent fiduciary for the Plan has reviewed

the terms and conditions of the loan on behalf of the Plan and

determined that such terms and conditions are in the best interests of

and appropriate for the Plan.

Summary of Facts and Representations

1. The Plan is a defined benefit pension plan sponsored by Roquette

America, Inc. (the Employer). The Employer, a Delaware corporation, is

engaged in the production of corn sweeteners for use in foods. As of

December 29, 1995, the Plan had total assets of approximately

$14,203,379.29. As of July 18, 1996, the Plan had approximately 334

participants and beneficiaries. The trustee of the Plan is the Northern

Trust Company (Northern Trust).

2. Aon Consulting, a Pennsylvania corporation, performs actuarial

and recordkeeping services for the Plan and other services for the

Employer. In 1994, Aon Consulting actuaries miscalculated the value of

the accrued benefits of two Plan participants (the Participants), both

former officers of the Employer, and, as a consequence, caused the Plan

to overpay the Participants upon the termination of their employment.

One Participant's lump sum payment was calculated at $412,719.32

instead of $238,843.17 (overstated by $173,876.15). The other

Participant's lump sum payment was calculated at $222,722.31 instead of

$127,419.26 (overstated by $95,303.05). The applicant represents that

the Plan's benefit formula was one of extraordinary complexity and that

the errors were not noticed before the inflated benefit payments were

made to the Participants on March 18, 1994.

Aon Consulting discovered the errors in May, 1994, and reported

them to Northern Trust in June, 1994. In August, 1994, the Employer

informed each of the Participants of the errors by registered mail and

requested immediate return of the Overpayments. Separately, each

Participant has refused.

Repeated subsequent requests, both in writing and by telephone, for

return of the Overpayments have yielded no result.

3. Aon Consulting proposes to make the Plan whole by making an

interest-free loan to the Plan for $269,179, the amount of the

Overpayments, plus lost opportunity costs attributable to the

Overpayments. Among other reasons, because the loan is to be secured by

the possible recovery of the Overpayments by the Plan, the loan is

outside the scope of relief provided by Prohibited Transaction Class

Exemption 80-26 (PTCE 80-26, 45 FR 28545, April 29, 1980).5

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5 PTCE 80-26 provides an exemption, under certain conditions,

from section 406(a)(1) (B) and (D) and section 406(b)(2) of the Act

and the taxes imposed by section 4975 of the Code, by reason of

section 4975(c)(1) (B) and (D) of the Code, for interest-free loans

by a party in interest or disqualified person to an employee benefit

plan.

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The loan amount will include an additional $50,640 to make up for

the Plan's lost opportunity costs for the period from March 18, 1994,

the date of occurrence of the Overpayments, to December 31, 1995, for a

subtotal of $319,819.6 The loan amount will also include an amount

yet to be determined to provide the Plan with a rate of investment

return on the $319,819, for the period from January 1, 1996 to the

effective date of this exemption.7 The loan will be evidenced by a

promissory note and the loan proceeds paid to the Plan within 30 days

of publication in the Federal Register of the notice of the grant of

this exemption.

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6 The Department notes the applicant's representation that

the figure of $50,640 is based upon an assumed 18.8% return, which

was the Plan's actual investment experience for the period from

March 18, 1994 to December 31, 1995.

7 The Department notes the applicant's representation that

the Plan's lost opportunity costs for the period from January 1,

1996 to the effective date of this exemption will be calculated

based upon an assumed rate of return which is equal to the Plan's

actual investment experience for that period.

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The loan will be repaid only to the extent of any amount recovered

by the Plan with respect to the Overpayments. Northern Trust will

continue to cooperate with Aon Consulting in pursuing recovery of the

Overpayments, including, if necessary, the commencement of litigation

against the Participants and their respective heirs, estates,

executors, administrators, or other personal representatives, in the

name of the Plan. Aon Consulting will fund all activities relating to

recovery of the Overpayments. In consideration for the loan, the

Employer, Northern Trust, and the Plan will release Aon Consulting from

any further claims that they may have arising from the Overpayments.

The costs of this exemption application will be borne by Aon

Consulting.

5. The interests of the Plan with respect to the loan are

represented by Northern Trust, acting as an independent fiduciary for

the Plan. In a letter from Richard W. Long, Trust Officer, dated March

17, 1997, Northern Trust represents that it is unrelated to and

independent of both Aon Consulting and the Employer. Northern Trust

further represents that it has extensive experience as a fiduciary

under the Act, that it is knowledgeable as to the subject transactions,

and that it has reviewed the terms and conditions of the loan on behalf

of the Plan and determined that such terms and conditions are in the

best interests of and appropriate for the Plan. Specifically, Northern

Trust notes that the Plan is guaranteed to be made whole by Aon

Consulting by virtue of the interest-free loan (which covers the full

amount of the Overpayments, plus interest), and is thus able to avoid

the legal costs and uncertainties associated with recouping the

Overpayments through alternate means. The potential repayment

obligation on the part of the Plan serves the legitimate purpose of

preventing a ``double recovery'' by the Plan.

6. In summary, the applicant represents that the proposed

transactions satisfy the statutory criteria for an exemption under

section 408(a) of the Act for the following reasons: (1) The Plan will

pay no interest nor incur any other expense relating to the loan; (2)

the loan will enable the Plan to immediately recover the amount of the

Overpayments, including appropriate interest; (3) any repayment of the

loan will be restricted solely to the amount, if any, recovered by the

Plan with respect to the Overpayments in litigation or otherwise; and

(4) Northern Trust, acting as an independent fiduciary for the Plan,

has reviewed the terms and conditions of the loan on behalf of the Plan

and determined that such terms and conditions are in the best interests

of and appropriate for the Plan.

Notice to Interested Persons

Notice of the proposed exemption shall be given to all interested

persons, and all employee organizations in which any Plan participant

is a member, by mail or by posting in the Employer's offices within 30

days of the date of publication of this notice of pendency in the

Federal Register. Such notice shall include a copy of this notice of

[[Page 18808]]

pendency as published in the Federal Register and shall inform

interested persons of their right to comment and/or request a hearing

with respect to the proposed exemption. Comments and requests for a

hearing are due within 60 days of the date of publication of this

notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the Department,

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

Norwest Investment Services, Inc. (NISI), Located in Minneapolis,

Minnesota

[Application No. D-10430]

Proposed Exemption

I. Transactions

A. Effective February 12, 1997, the restrictions of sections 406(a)

and 407(a) of the Act and the taxes imposed by section 4975(a) and (b)

of the Code by reason of section 4975(c)(1) (A) through (D) of the Code

shall not apply to the following transactions involving trusts and

certificates evidencing interests therein:

(1) The direct or indirect sale, exchange or transfer of

certificates in the initial issuance of certificates between the

sponsor or underwriter and an employee benefit plan when the sponsor,

servicer, trustee or insurer of a trust, the underwriter of the

certificates representing an interest in the trust, or an obligor is a

party in interest with respect to such plan;

(2) The direct or indirect acquisition or disposition of

certificates by a plan in the secondary market for such certificates;

and

(3) The continued holding of certificates acquired by a plan

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

Notwithstanding the foregoing, section I.A. does not provide an

exemption from the restrictions of sections 406(a)(1)(E), 406(a)(2) and

407 for the acquisition or holding of a certificate on behalf of an

Excluded Plan by any person who has discretionary authority or renders

investment advice with respect to the assets of that Excluded

Plan.8

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\8\ 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 February 12, 1997, the restrictions of sections

406(b)(1) and 406(b)(2) of the Act and the taxes imposed by section

4975(a) and (b) of the Code by reason of section 4975(c)(1)(E) of the

Code shall not apply to:

(1) The direct or indirect sale, exchange or transfer of

certificates in the initial issuance of certificates between the

sponsor or underwriter and a plan when the person who has discretionary

authority or renders investment advice with respect to the investment

of plan assets in the certificates is (a) an obligor with respect to 5

percent or less of the fair market value of obligations or receivables

contained in the trust, or (b) an affiliate of a person described in

(a); if:

(i) the plan is not an Excluded Plan;

(ii) solely in the case of an acquisition of certificates in

connection with the initial issuance of the certificates, at least 50

percent of each class of certificates in which plans have invested is

acquired by persons independent of the members of the Restricted Group

and at least 50 percent of the aggregate interest in the trust is

acquired by persons independent of the Restricted Group;

(iii) a plan's investment in each class of certificates does not

exceed 25 percent of all of the certificates of that class outstanding

at the time of the acquisition; and

(iv) immediately after the acquisition of the certificates, no more

than 25 percent of the assets of a plan with respect to which the

person has discretionary authority or renders investment advice are

invested in certificates representing an interest in a trust containing

assets sold or serviced by the same entity.9 For purposes of this

paragraph B.(1)(iv) only, an entity will not be considered to service

assets contained in a trust if it is merely a subservicer of that

trust;

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\9\ 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 February 12, 1997, the restrictions of sections

406(a), 406(b) and 407(a) of the Act, and the taxes imposed by section

4975(a) and (b) of the Code by reason of section 4975(c) of the Code,

shall not apply to transactions in connection with the servicing,

management and operation of a trust, provided:

(1) such transactions are carried out in accordance with the terms

of a binding pooling and servicing arrangement; and

(2) the pooling and servicing agreement is provided to, or

described in all material respects in the prospectus or private

placement memorandum provided to, investing plans before they purchase

certificates issued by the trust.10

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\10\ In the case of a private placement memorandum, such

memorandum must contain substantially the same information that

would be disclosed in a prospectus if the offering of the

certificates were made in a registered public offering under the

Securities Act of 1933. In the Department's view, the private

placement memorandum must contain sufficient information to permit

plan fiduciaries to make informed investment decisions.

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Notwithstanding the foregoing, section I.C. does not provide an

exemption from the restrictions of section 406(b) of the Act or from

the taxes imposed by reason of section 4975(c) of the Code for the

receipt of a fee by a servicer of the trust from a person other than

the trustee or sponsor, unless such fee constitutes a ``qualified

administrative fee'' as defined in section III.S.

D. Effective February 12, 1997, the restrictions of sections 406(a)

and 407(a) of the Act, and the taxes imposed by sections 4975(a) and

(b) of the Code by reason of sections 4975(c)(1)(A) through (D) of the

Code, shall not apply to any transactions to which those restrictions

or taxes would otherwise apply merely because a person is deemed to be

a party in interest or disqualified person (including a fiduciary) with

respect to a plan by virtue of providing services to the plan (or by

virtue of having a relationship to such service provider described in

section 3(14)(F), (G), (H) or (I) of the Act or section 4975(e)(2)(F),

(G), (H) or (I) of the Code), solely because of the plan's ownership of

certificates.

II. General Conditions

A. The relief provided under Part I is available only if the

following conditions are met:

(1) The acquisition of certificates by a plan is on terms

(including the certificate price) that are at least as favorable to the

plan as they would be in an arm's-length transaction with an unrelated

party;

(2) The rights and interests evidenced by the certificates are not

subordinated to the rights and interests evidenced by other

certificates of the same trust;

(3) The certificates acquired by the plan have received a rating at

the time of such acquisition that is in one of the three highest

generic rating categories from either Standard & Poor's

[[Page 18809]]

Structured Rating Group (S&P's), Moody's Investors Service, Inc.

(Moody's), Duff & Phelps Credit Rating Co. (D & P) or Fitch Investors

Service, L.P. (Fitch);

(4) The trustee is not an affiliate of any member of the Restricted

Group. However, the trustee shall not be considered to be an affiliate

of a servicer solely because the trustee has succeeded to the rights

and responsibilities of the servicer pursuant to the terms of a pooling

and servicing agreement providing for such succession upon the

occurrence of one or more events of default by the servicer;

(5) The sum of all payments made to and retained by the

underwriters in connection with the distribution or placement of

certificates represents not more than reasonable compensation for

underwriting or placing the certificates; the sum of all payments made

to and retained by the sponsor pursuant to the assignment of

obligations (or interests therein) to the trust represents not more

than the fair market value of such obligations (or interests); and the

sum of all payments made to and retained by the servicer represents not

more than reasonable compensation for the servicer's services under the

pooling and servicing agreement and reimbursement of the servicer's

reasonable expenses in connection therewith; and

(6) The plan investing in such certificates is an ``accredited

investor'' as defined in Rule 501(a)(1) of Regulation D of the

Securities and Exchange Commission under the Securities Act of 1933.

B. Neither any underwriter, sponsor, trustee, servicer, insurer,

nor any obligor, unless it or any of its affiliates has discretionary

authority or renders investment advice with respect to the plan assets

used by a plan to acquire certificates, shall be denied the relief

provided under Part I, if the provision of subsection II.A.(6) above is

not satisfied with respect to acquisition or holding by a plan of such

certificates, provided that (1) such condition is disclosed in the

prospectus or private placement memorandum; and (2) in the case of a

private placement of certificates, the trustee obtains a representation

from each initial purchaser which is a plan that it is in compliance

with such condition, and obtains a covenant from each initial purchaser

to the effect that, so long as such initial purchaser (or any

transferee of such initial purchaser's certificates) is required to

obtain from its transferee a representation regarding compliance with

the Securities Act of 1933, any such transferees will be required to

make a written representation regarding compliance with the condition

set forth in subsection II.A.(6) above.

III. Definitions

For purposes of this exemption:

A. Certificate means:

(1) a certificate--

(a) that represents a beneficial ownership interest in the assets

of a trust; and

(b) that entitles the holder to 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) within the meaning of section 860D(a) of the

Internal Revenue Code of 1986; and

(b) that is issued by and is an obligation of a trust; with respect

to certificates defined in (1) and (2) above for which NISI or any of

its affiliates is either (i) the sole underwriter or the manager or co-

manager of the underwriting syndicate, or (ii) a selling or placement

agent.

For purposes of this exemption, references to ``certificates

representing an interest in a trust'' include certificates denominated

as debt which are issued by a trust.

B. Trust means an investment pool, the corpus of which is held in

trust and consists solely of:

(1) either

(a) secured consumer receivables that bear interest or are

purchased at a discount (including, but not limited to, home equity

loans and obligations secured by shares issued by a cooperative housing

association);

(b) secured credit instruments that bear interest or are purchased

at a discount in transactions by or between business entities

(including, but not limited to, qualified equipment notes secured by

leases, as defined in section III.T);

(c) obligations that bear interest or are purchased at a discount

and which are secured by single-family residential, multi-family

residential and commercial real property (including obligations secured

by leasehold interests on commercial real property);

(d) obligations that bear interest or are purchased at a discount

and which are secured by motor vehicles or equipment, or qualified

motor vehicle leases (as defined in section III.U);

(e) guaranteed governmental mortgage pool certificates, as defined

in 29 CFR 2510.3-101(i)(2);

(f) fractional undivided interests in any of the obligations

described in clauses (a)-(e) of this section B.(1);11

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\11\ It is the Department's view that the definition of

``trust'' contained in III.B. includes a two-tier structure under

which certificates issued by the first trust, which contains a pool

of receivables described above, are transferred to a second trust

which issues securities that are sold to plans. However, the

Department is of the further view that, since the exemption provides

relief for the direct or indirect acquisition or disposition of

certificates that are not subordinated, no relief would be available

if the certificates held by the second trust were subordinated to

the rights and interests evidenced by other certificates issued by

the first trust.

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(2) property which had secured any of the obligations described in

subsection B.(1);

(3) undistributed cash or temporary investments made therewith

maturing no later than the next date on which distributions are to made

to certificateholders; and

(4) rights of the trustee under the pooling and servicing

agreement, and rights under any insurance policies, third-party

guarantees, contracts of suretyship and other credit support

arrangements with respect to any obligations described in subsection

B.(1).

Notwithstanding the foregoing, the term ``trust'' does not include

any investment pool unless: (i) the investment pool consists only of

assets of the type which have been included in other investment pools,

(ii) certificates evidencing interests in such other investment pools

have been rated in one of the three highest generic rating categories

by S&P's, Moody's, D & P, or Fitch for at least one year prior to the

plan's acquisition of certificates pursuant to this exemption, and

(iii) certificates evidencing interests in such other investment pools

have been purchased by investors other than plans for at least one year

prior to the plan's acquisition of certificates pursuant to this

exemption.

C. Underwriter means:

(1) NISI;

(2) any person directly or indirectly, through one or more

intermediaries, controlling, controlled by or under common control with

NISI; or

(3) any member of an underwriting syndicate or selling group of

which NISI or a person described in (2) is a manager or co-manager with

respect to the certificates.

D. Sponsor means the entity that organizes a trust by depositing

obligations therein in exchange for certificates.

E. Master Servicer means the entity that is a party to the pooling

and servicing agreement relating to trust

[[Page 18810]]

assets and is fully responsible for servicing, directly or through

subservicers, the assets of the trust.

F. Subservicer means an entity which, under the supervision of and

on behalf of the master servicer, services loans contained in the

trust, but is not a party to the pooling and servicing agreement.

G. Servicer means any entity which services loans contained in the

trust, including the master servicer and any subservicer.

H. Trustee means the trustee of the trust, and in the case of

certificates which are denominated as debt instruments, also means the

trustee of the indenture trust.

I. Insurer means the insurer or guarantor of, or provider of other

credit support for, a trust. Notwithstanding the foregoing, a person is

not an insurer solely because it holds securities representing an

interest in a trust which are of a class subordinated to certificates

representing an interest in the same trust.

J. Obligor means any person, other than the insurer, that is

obligated to make payments with respect to any obligation or receivable

included in the trust. Where a trust contains qualified motor vehicle

leases or qualified equipment notes secured by leases, ``obligor''

shall also include any owner of property subject to any lease included

in the trust, or subject to any lease securing an obligation included

in the trust.

K. Excluded Plan means any plan with respect to which any member of

the Restricted Group is a ``plan sponsor'' within the meaning of

section 3(16)(B) of the Act.

L. Restricted Group with respect to a class of certificates means:

(1) each underwriter;

(2) each insurer;

(3) the sponsor;

(4) the trustee;

(5) each servicer;

(6) any obligor with respect to obligations or receivables included

in the trust constituting more than 5 percent of the aggregate

unamortized principal balance of the assets in the trust, determined on

the date of the initial issuance of certificates by the trust; or

(7) any affiliate of a person described in (1)-(6) above.

M. Affiliate of another person includes:

(1) Any person directly or indirectly, through one or more

intermediaries, controlling, controlled by, or under common control

with such other person;

(2) Any officer, director, partner, employee, relative (as defined

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

brother or sister of such other person; and

(3) Any corporation or partnership of which such other person is an

officer, director or partner.

N. Control means the power to exercise a controlling influence over

the management or policies of a person other than an individual.

O. A person will be ``independent'' of another person only if:

(1) such person is not an affiliate of that other person; and

(2) the other person, or an affiliate thereof, is not a fiduciary

who has investment management authority or renders investment advice

with respect to any assets of such person.

P. Sale includes the entrance into a forward delivery commitment

(as defined in section Q below), provided:

(1) The terms of the forward delivery commitment (including any fee

paid to the investing plan) are no less favorable to the plan than they

would be in an arm's-length transaction with an unrelated party;

(2) The prospectus or private placement memorandum is provided to

an investing plan prior to the time the plan enters into the forward

delivery commitment; and

(3) At the time of the delivery, all conditions of this exemption

applicable to sales are met.

Q. Forward delivery commitment means a contract for the purchase or

sale of one or more certificates to be delivered at an agreed future

settlement date. The term includes both mandatory contracts (which

contemplate obligatory delivery and acceptance of the certificates) and

optional contracts (which give one party the right but not the

obligation to deliver certificates to, or demand delivery of

certificates from, the other party).

R. Reasonable compensation has the same meaning as that term is

defined in 29 CFR 2550.408c-2.

S. Qualified Administrative Fee means a fee which meets the

following criteria:

(1) the fee is triggered by an act or failure to act by the obligor

other than the normal timely payment of amounts owing in respect of the

obligations;

(2) the servicer may not charge the fee absent the act or failure

to act referred to in (1);

(3) the ability to charge the fee, the circumstances in which the

fee may be charged, and an explanation of how the fee is calculated are

set forth in the pooling and servicing agreement; and

(4) the amount paid to investors in the trust will not be reduced

by the amount of any such fee waived by the servicer.

T. Qualified Equipment Note Secured By A Lease means an equipment

note:

(1) which is secured by equipment which is leased;

(2) which is secured by the obligation of the lessee to pay rent

under the equipment lease; and

(3) with respect to which the trust's security interest in the

equipment is at least as protective of the rights of the trust as would

be the case if the equipment note were secured only by the equipment

and not the lease.

U. Qualified Motor Vehicle Lease means a lease of a motor vehicle

where:

(1) The trust holds a security interest in the lease;

(2) The trust holds a security interest in the leased motor

vehicle; and

(3) The trust's security interest in the leased motor vehicle is at

least as protective of the trust's rights as would be the case if the

trust consisted of motor vehicle installment loan contracts.

V. Pooling and Servicing Agreement means the agreement or

agreements among a sponsor, a servicer and the trustee establishing a

trust. In the case of certificates which are denominated as debt

instruments, ``Pooling and Servicing Agreement'' also includes the

indenture entered into by the trustee of the trust issuing such

certificates and the indenture trustee.

W. NISI means Norwest Investment Services, Inc. and its affiliates.

The Department notes that this proposed exemption is included

within the meaning of the term ``Underwriter Exemption'' as it is

defined in section V(h) of Prohibited Transaction Exemption 95-60 (60

FR 35925, July 12, 1995), the Class Exemption for Certain Transactions

Involving Insurance Company General Accounts at 35932.

Summary of Facts and Representations

1. NISI is the wholly-owned, separately capitalized investment

banking subsidiary of Norwest Corporation (Norwest), a diversified

financial services company which was incorporated in Delaware and

registered under the Bank Holding Company Act of 1956, as amended. On

September 30, 1996 Norwest's consolidated assets were approximately $78

billion. The principal executive offices of Norwest are located in

Minneapolis, Minnesota. As of September 30, 1996, Norwest had

subsidiary banks located in 16 states. In addition, non-bank

subsidiaries of Norwest offer insurance, securities brokerage services,

investment banking and venture capital investment, and mortgage banking

and consumer finance.

[[Page 18811]]

Norwest Mortgage, Inc., an indirect wholly-owned subsidiary of

Norwest headquartered in Des Moines, Iowa, is one of the largest

mortgage banking originators in the United States, with offices in all

50 states. Norwest Financial Services, Inc. (NFI) and its subsidiaries

engage in consumer finance activities in each of the 50 states, the

Caribbean and Central America and Canada. NFI is also an indirect

wholly-owned subsidiary of Norwest. Subsidiaries of NFI also engage in

data processing activities for other consumer finance companies.

Norwest Bank Minnesota, N.A. (the Bank), a separate wholly-owned

subsidiary of Norwest, is engaged in banking and related activities and

is the largest bank in the banking group. At September 30, 1996, the

Bank had total assets of $17.1 billion. The principal executive offices

of the Bank are located in Minneapolis, Minnesota. The banking group

also includes ten other commercial banks and one federal savings bank,

located in 10 states, exceeded $2 billion dollars in total assets as of

September 30, 1996.

NISI was incorporated in 1984. It maintains its principal place of

business in Minneapolis, Minnesota, and has branches in Arizona,

Colorado, Iowa, Illinois, Indiana, Montana, North Dakota, Nebraska, New

Mexico, South Dakota, Texas, Washington, Wisconsin and Wyoming, as well

as the Twin Cities Metropolitan Area.

NISI is a member of the National Association of Securities Dealers

and a primary dealer in U.S. Treasury securities. NISI underwrites and

deals in corporate debt securities, municipal securities, high-yield

securities and asset-backed securities, provides private placement and

corporate finance advisory services, including merger and acquisition

advisory services, publishes research on a wide range of securities and

issuers, and engages in syndication, arranging and trading of bank

loans.

NISI has experience in asset securitizations. NISI's participation

in securitization transactions includes the underwriting of public

offerings and serving as private placement agent or commercial paper

conduit agent/dealer for transactions backed by retail auto receivables

and bank and retail credit cards receivables.

NISI represents that in 1989 it received Federal Reserve Board

authorization to underwrite and deal in commercial paper, municipal

revenue bonds, residential mortgage-related securities and consumer

receivable-related securities. This order is currently subject to the

condition that NISI does not derive more than 10% of its total gross

revenues from such activities. In addition, NISI's affiliates have the

power to sell interests in their own assets in the form of asset-backed

securities.

Trust Assets

2. NISI seeks exemptive relief to permit plans to invest in pass-

through certificates representing undivided interests in the following

categories of trusts: (1) Single and multi-family residential or

commercial mortgage investment trusts; 12 (2) motor vehicle

receivable investment trusts; (3) consumer or commercial receivables

investment trusts; and (4) guaranteed governmental mortgage pool

certificate investment trusts. 13

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\12\ 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 83-1 are

met. NISI requests relief for single-family residential mortgages in

this exemption because it would prefer one exemption for all trusts

of similar structure. However, NISI has stated that it may still

avail itself of the exemptive relief provided by PTE 83-1.

\13\ Guaranteed governmental mortgage pool certificates are

mortgage-backed securities with respect to which interest and

principal payable is guaranteed by the Government National Mortgage

Association (GNMA), the Federal Home Loan Mortgage Corporation

(FHLMC), or the Federal National Mortgage Association (FNMA). The

Department's regulation relating to the definition of plan assets

(29 CFR 2510.3-101(i)) provides that where a plan acquires a

guaranteed governmental mortgage pool certificate, the plan's assets

include the certificate and all of its rights with respect to such

certificate under applicable law, but do not, solely by reason of

the plan's holding of such certificate, include any of the mortgages

underlying such certificate. The applicant is requesting exemptive

relief for trusts containing guaranteed governmental mortgage pool

certificates because the certificates in the trusts may be plan

assets.

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3. Commercial mortgage investment trusts may include mortgages on

ground leases of real property. Commercial mortgages are frequently

secured by ground leases on the underlying property, rather than by fee

simple interests. The separation of the fee simple interest and the

ground lease interest is generally done for tax reasons. Properly

structured, the pledge of the ground lease to secure a mortgage

provides a lender with the same level of security as would be provided

by a pledge of the related fee simple interest. The terms of the ground

leases pledged to secure leasehold mortgages will in all cases be at

least ten years longer than the term of such mortgages.14

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\14\ 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).

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Trust Structure

4. Each trust is established under a pooling and servicing

agreement between a sponsor, a servicer and a trustee. The sponsor or

servicer of a trust selects assets to be included in the trust. These

assets are receivables which may have been originated by a sponsor or

servicer of the trust, an affiliate of the sponsor or servicer, or by

an unrelated lender and subsequently acquired by the trust sponsor or

servicer.15

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\15\ It is the view of the Department that section III.B.(4)

includes within the definition of the term ``trust'' rights under

any yield supplement or similar arrangement which obligates the

sponsor or master servicer, or another party specified in the

relevant pooling and servicing agreement, to supplement the interest

rates otherwise payable on the obligations described in section

III.B.(1), in accordance with the terms of a yield supplement

arrangement described in the pooling and servicing agreement,

provided that such arrangements do not involve swap agreement or

other notional principal contracts.

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On or prior to the closing date, the sponsor acquires legal title

to all assets selected for the trust, establishes the trust and

designates an independent entity as trustee. On the closing date, the

sponsor conveys to the trust legal title to the assets, and the trustee

issues certificates representing fractional undivided interests in the

trust assets. NISI, alone or together with other broker-dealers, acts

as underwriter or placement agent with respect to the sale of the

certificates. All of the public offerings of certificates presently

contemplated are to be underwritten by NISI on a firm commitment basis.

In addition, NISI anticipates that it may privately place certificates

on both a firm commitment and an agency basis. NISI may also act as the

lead underwriter for a syndicate of securities underwriters.

Certificateholders will be entitled to receive monthly, quarterly

or 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

[[Page 18812]]

may be permitted to make a single deposit into the account once a

month. When the servicer makes such monthly deposits, payments received

from obligors by the servicer may be commingled with the servicer's

assets during the month prior to deposit. Usually, the period of time

between receipt of funds by the servicer and deposit of these funds in

a segregated account does not exceed one month. Furthermore, in those

cases where distributions are made semi-annually, the servicer will

furnish a report on the operation of the trust to the trustee on a

monthly basis. At or about the time this report is delivered to the

trustee, it will be made available to certificateholders and delivered

to or made available to each rating agency that has rated the

certificates.

5. Some of the certificates will be multi-class certificates. NISI

requests exemptive relief for two types of 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.16

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\16\ It is the Department's understanding that where a plan

invests in REMIC ``residual'' interest certificates to which this

exemption applies, some of the income received by the plan as a

result of such investment may be considered unrelated business

taxable income to the plan, which is subject to income tax under the

Code. The Department emphasizes that the prudence requirement of

section 404(a)(l)(B) of the Act would require plan fiduciaries to

carefully consider this and other tax consequences prior to causing

plan assets to be invested in certificates pursuant to this

exemption.

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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 pass-through arrangement is

the order in which distributions are made to certificateholders. In

each case, certificateholders will have a beneficial ownership interest

in the underlying assets. In neither case will the rights of a plan

purchasing a certificate be subordinated to the rights of another

certificateholder in the event of default on any of the underlying

obligations. In particular, if the amount available for distribution to

certificateholders is less than the amount required to be so

distributed, all senior certificateholders then entitled to receive

distributions will share in the amount distributed on a pro rata

basis.17

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\17\ If a trust issues subordinated certificates, holders of

such subordinated certificates may not share in the amount

distributed on a pro rata basis with the senior certificateholders.

The Department notes that the exemption does not provide relief for

plan investment in such subordinated certificates.

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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.

Parties to Transactions

7. The originator of a receivable is the entity that initially

lends money to a borrower (obligor), such as a home owner or automobile

purchaser, or leases property to a lessee. The originator may either

retain a receivable in its portfolio or sell it to a purchaser, such as

a trust sponsor.

Originators of receivables included in the trusts will be entities

that originate receivables in the ordinary course of their business,

including finance companies for whom such origination constitutes the

bulk of their operations, financial institutions for whom such

origination constitutes a substantial part of their operations, and any

kind of manufacturer, merchant, or service enterprise for whom such

origination is an incidental part of its operations. Each trust may

contain assets of one or more originators. The originator of the

receivables may also function as the trust sponsor or servicer.

8. The sponsor will be one of three entities: (i) A special-purpose

or other corporation unaffiliated with the servicer, (ii) a special-

purpose or other corporation affiliated with the servicer, or (iii) the

servicer itself. Where the sponsor is not also the servicer, the

sponsor's role will generally be limited to acquiring the receivables

to be included in the trust, establishing the trust, designating the

trustee, and assigning the receivables to the trust.

9. The trustee of a trust is the legal owner of the obligations in

the trust. The trustee is also a party to or beneficiary of all the

documents and instruments deposited in the trust, and as such is

responsible for enforcing all the rights created thereby in favor of

certificateholders.

The trustee will be an independent entity, and therefore will be

unrelated to NISI, the trust sponsor or the servicer. NISI represents

that the trustee will be a substantial financial institution or trust

company experienced in trust activities. The trustee receives a fee for

its services, which will be paid by the servicer or sponsor. The method

of compensating the trustee which is specified in the pooling and

servicing agreement will be disclosed in the prospectus or private

placement memorandum relating to the offering of the certificates.

10. The servicer of a trust administers the receivables on behalf

of the certificateholders. The servicer's functions typically involve,

among other things, notifying borrowers of amounts due on receivables,

maintaining records of payments received on receivables and instituting

foreclosure or similar proceedings in the event of default. In cases

where a pool of receivables has been purchased from a number of

different originators and deposited in a trust, the receivables may be

``subserviced'' by their respective originators and a single entity may

``master service'' the pool of receivables on behalf of the owners of

the related series of certificates. Where this arrangement is adopted,

a receivable continues to be serviced from the perspective of the

borrower by the local subservicer, while the investor's perspective is

that the entire pool of receivables is serviced by a single, central

master servicer who collects payments from the local subservicers and

passes them through to certificateholders.

Receivables of the type suitable for inclusion in a trust

invariably are serviced with the assistance of a computer. After the

sale, the servicer

[[Page 18813]]

keeps the sold receivables on the computer system in order to continue

monitoring the accounts. Although the records relating to sold

receivables are kept in the same master file as receivables retained by

the originator, the sold receivables are flagged as having been sold.

To protect the investor's interest, the servicer ordinarily covenants

that this ``sold flag'' will be included in all records relating to the

sold receivables, including the master file, archives, tape extracts

and printouts.

The sold flags are invisible to the obligor and do not affect the

manner in which the servicer performs the billing, posting and

collection procedures related to the sold receivables. However, the

servicer uses the sold flag to identify the receivables for the purpose

of reporting all activity on those receivables after their sale to

investors.

Depending on the type of receivable and the details of the

servicer's computer system, in some cases the servicer's internal

reports can be adapted for investor reporting with little or no

modification. In other cases, the servicer may have to perform special

calculations to fulfill the investor reporting responsibilities. These

calculations can be performed on the servicer's main computer, or on a

small computer with data supplied by the main system. In all cases, the

numbers produced for the investors are reconciled to the servicer's

books and reviewed by public accountants.

The underwriter will be a registered broker-dealer that acts as

underwriter or placement agent with respect to the sale of the

certificates. Public offerings of certificates are generally made on a

firm commitment basis. Private placement of certificates may be made on

a firm commitment or agency basis. It is anticipated that the lead and

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 NISI. In other cases,

however, affiliates of NISI may originate or service receivables

included in a trust or may sponsor a trust.

Certificate Price, Pass-Through Rate and Fees

11. In some cases, the sponsor will obtain the receivables from

various originators pursuant to existing contracts with such

originators under which the sponsor continually buys receivables. In

other cases, the sponsor will purchase the receivables at fair market

value from the originator or a third party pursuant to a purchase and

sale agreement related to the specific offering of certificates. In

other cases, the sponsor will originate the receivables itself.

As compensation for the receivables transferred to the trust, the

sponsor receives certificates representing the entire beneficial

interest in the trust, or the cash proceeds of the sale of such

certificates. If the sponsor receives certificates from the trust, the

sponsor sells all or a portion of these certificates for cash to

investors or securities underwriters.

12. The price of the certificates, both in the initial offering and

in the secondary market, is affected by market forces, including

investor demand, the pass-through interest rate on the certificates in

relation to the rate payable on investments of similar types and

quality, expectations as to the effect on yield resulting from

prepayment of underlying receivables, and expectations as to the

likelihood of timely payment.

The pass-through rate for certificates is equal to the interest

rate on receivables included in the trust minus a specified servicing

fee.18 This rate is generally determined by the same market forces

that determine the price of a certificate. The price of a certificate

and its pass-through, or coupon, rate together determine the yield to

investors. If an investor purchases a certificate at less than par,

that discount augments the stated pass-through rate; conversely, a

certificate purchased at a premium yields less than the stated coupon.

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18 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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13. As compensation for performing its servicing duties, the

servicer (who may also be the sponsor or an affiliate thereof, and

receive fees for acting in that capacity) will retain the difference

between payments received on the receivables in the trust and payments

payable (at the pass-through rate) to certificateholders, except that

in some cases a portion of the payments on receivables may be paid to a

third party, such as a fee paid to a provider of credit support. The

servicer may receive additional compensation by having the use of the

amounts paid on the receivables between the time they are received by

the servicer and the time they are due to the trust (which time is set

forth in the pooling and servicing agreement). The servicer typically

will be required to pay the administrative expenses of servicing the

trust, including in some cases the trustee's fee, out of its servicing

compensation.

The servicer is also compensated to the extent it may provide

credit enhancement to the trust or otherwise arrange to obtain credit

support from another party. This ``credit support fee'' may be

aggregated with other servicing fees, and is either paid out of the

interest income received on the receivables in excess of the pass-

through rate or paid in a lump sum at the time the trust is

established.

14. The servicer may be entitled to retain certain administrative

fees paid by a third party, usually the obligor. These administrative

fees fall into three categories: (a) prepayment fees; (b) late payment

and payment extension fees; and (c) expenses, fees and charges

associated with foreclosure or repossession, or other conversion of a

secured position into cash proceeds, upon default of an obligation.

Compensation payable to the servicer will be set forth or referred

to in the pooling and servicing agreement and described in reasonable

detail in the prospectus or private placement memorandum relating to

the certificates.

15. Payments on receivables may be made by obligors to the servicer

at various times during the period preceding any date on which 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.

16. The underwriter will receive a fee in connection with the

securities underwriting or private placement of certificates. In a firm

commitment underwriting, this fee would consist of the difference

between what the underwriter receives for the certificates that it

distributes and what it pays the sponsor for those certificates. In a

[[Page 18814]]

private placement, the fee normally takes the form of an agency

commission paid by the sponsor. In a best efforts underwriting in which

the underwriter would sell certificates in a public offering on an

agency basis, the underwriter would receive an agency commission rather

than a fee based on the difference between the price at which the

certificates are sold to the public and what it pays the sponsor. In

some private placements, the underwriter may buy certificates as

principal, in which case its compensation would be the difference

between what it receives for the certificates that it sells and what it

pays the sponsor for these certificates.

Purchase of Receivables by the Servicer

17. The applicant represents that as the principal amount of the

receivables in a trust is reduced by payments, the cost of

administering the trust generally increases, making the servicing of

the trust prohibitively expensive at some point.

Consequently, the pooling and servicing agreement generally

provides that the servicer may purchase the receivables remaining in

the trust when the aggregate unpaid balance payable on the receivables

is reduced to a specified percentage (usually 5 to 10 percent) of the

initial aggregate unpaid balance.

The purchase price of a receivable is specified in the pooling and

servicing agreement and will be at least equal to: (1) the unpaid

principal balance on the receivable plus accrued interest, less any

unreimbursed advances of principal made by the servicer; or (2) the

greater of (a) the amount in (1) or (b) the fair market value of such

obligations in the case of a REMIC, or the fair market value of the

receivables in the case of a trust that is not a REMIC.

Certificate Ratings

18. The certificates will have received one of the three highest

ratings available from either S&P's, Moody's, D&P or Fitch. Insurance

or other credit support (such as surety bonds, letters of credit,

guarantees, or overcollateralization) will be obtained by the trust

sponsor to the extent necessary for the certificates to attain the

desired rating. The amount of this credit support is set by the rating

agencies at a level that is a multiple of the worst historical net

credit loss experience for the type of obligations included in the

issuing trust.

Provision of Credit Support

19. In some cases, the master servicer, or an affiliate of the

master servicer, may provide credit support to the trust (i.e. act as

an insurer). In these cases, the master servicer, in its capacity as

servicer, will first advance funds to the full extent that it

determines that such advances will be recoverable (a) Out of late

payments by the obligors, (b) from the credit support provider (which

may be the master servicer or an affiliate thereof) or, (c) in the case

of a trust that issues subordinated certificates, from amounts

otherwise distributable to holders of subordinated certificates, and

the master servicer will advance such funds in a timely manner. When

the servicer is the provider of the credit support and provides its own

funds to cover defaulted payments, it will do so either on the

initiative of the trustee, or on its own initiative on behalf of the

trustee, but in either event it will provide such funds to cover

payments to the full extent of its obligations under the credit support

mechanism. In some cases, however, the master servicer may not be

obligated to advance funds but instead would be called upon to provide

funds to cover defaulted payments to the full extent of its obligations

as insurer. Moreover, a master servicer typically can recover advances

either from the provider of credit support or from future payments on

the affected assets.

If the master servicer fails to advance funds, fails to call upon

the credit support mechanism to provide funds to cover delinquent

payments, or otherwise fails in its duties, the trustee would be

required and would be able to enforce the certificateholders' rights,

as both a party to the pooling and servicing agreement and the owner of

the trust estate, including rights under the credit support mechanism.

Therefore, the trustee, who is independent of the servicer, will have

the ultimate right to enforce the credit support arrangement.

When a master servicer advances funds, the amount so advanced is

recoverable by the master servicer out of future payments on

receivables held by the trust to the extent not covered by credit

support. However, where the master servicer provides credit support to

the trust, there are protections in place to guard against a delay in

calling upon the credit support to take advantage of the fact that the

credit support declines proportionally with the decrease in the

principal amount of the obligations in the trust as payments on

receivables are passed through to investors. These safeguards include:

(a) There is often a disincentive to postponing credit losses

because the sooner repossession or foreclosure activities are

commenced, the more value that can be realized on the security for the

obligation;

(b) The master servicer has servicing guidelines which include a

general policy as to the allowable delinquency period after which an

obligation ordinarily will be deemed uncollectible. The pooling and

servicing agreement will require the master servicer to follow its

normal servicing guidelines and will set forth the master servicer's

general policy as to the period of time after which delinquent

obligations ordinarily will be considered uncollectible;

(c) As frequently as payments are due on the receivables included

in the trust (monthly, quarterly or semi-annually, as set forth in the

pooling and servicing agreement), the master servicer is required to

report to the independent trustee the amount of all past-due payments

and the amount of all servicer advances, along with other current

information as to collections on the receivables and draws upon the

credit support. Further, the master servicer is required to deliver to

the trustee annually a certificate of an executive officer of the

master servicer stating that a review of the servicing activities has

been made under such officer's supervision, and either stating that the

master servicer has fulfilled all of its obligations under the pooling

and servicing agreement or, if the master servicer has defaulted under

any of its obligations, specifying any such default. The master

servicer's reports are reviewed at least annually by independent

accountants to ensure that the master servicer is following its normal

servicing standards and that the master servicer's reports conform to

the master servicer's internal accounting records. The results of the

independent accountants' review are delivered to the trustee; and

(d) The credit support has a ``floor'' dollar amount that protects

investors against the possibility that a large number of credit losses

might occur towards the end of the life of the trust, whether due to

servicer advances or any other cause. Once the floor amount has been

reached, the servicer lacks an incentive to postpone the recognition of

credit losses because the credit support amount thereafter is subject

to reduction only for actual draws. From the time that the floor amount

is effective until the end of the life of the trust, there are no

proportionate reductions in the credit support amount caused by

reductions in the pool principal balance. Indeed, since the floor is a

fixed dollar amount, the amount of credit support ordinarily increases

as a percentage of the pool principal balance during the period that

the floor is in effect.

[[Page 18815]]

Disclosure

20. In connection with the original issuance of certificates, the

prospectus or private placement memorandum will be furnished to

investing plans. The prospectus or private placement memorandum will

contain information material to a fiduciary's decision to invest in the

certificates, including:

(a) Information concerning the payment terms of the certificates,

the rating of the certificates, and any material risk factors with

respect to the certificates;

(b) A description of the trust as a legal entity and a description

of how the trust was formed by the seller/servicer or other sponsor of

the transaction;

(c) Identification of the independent trustee for the trust;

(d) A description of the receivables contained in the trust,

including the types of receivables, the diversification of the

receivables, their principal terms, and their material legal aspects;

(e) A description of the sponsor and servicer;

(f) A description of the pooling and servicing agreement, including

a description of the seller's principal representations and warranties

as to the trust assets and the trustee's remedy for any breach thereof;

a description of the procedures for collection of payments on

receivables and for making distributions to investors, and a

description of the accounts into which such payments are deposited and

from which such distributions are made; identification of the servicing

compensation and any fees for credit enhancement that are deducted from

payments on receivables before distributions are made to investors; a

description of periodic statements provided to the trustee, and

provided to or made available to investors by the trustee; and a

description of the events that constitute events of default under the

pooling and servicing contract and a description of the trustee's and

the investors' remedies incident thereto;

(g) A description of the credit support;

(h) A general discussion of the principal federal income tax

consequences of the purchase, ownership and disposition of the 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.

21. Reports indicating the amount of payments of principal and

interest are provided to certificateholders at least as frequently as

distributions are made to certificateholders. Certificateholders will

also be provided with periodic information statements setting forth

material information concerning the underlying assets, including, where

applicable, information as to the amount and number of delinquent and

defaulted loans or receivables.

22. In the case of a trust that offers and sells certificates in a

registered public offering, the trustee, the servicer or the sponsor

will file such periodic reports as may be required to be filed under

the Securities Exchange Act of 1934. Although some trusts that offer

certificates in a public offering will file quarterly reports on Form

10-Q and Annual Reports on Form 10-K, many trusts obtain, by

application to the Securities and Exchange Commission, a complete

exemption from the requirement to file quarterly reports on Form 10-Q

and a modification of the disclosure requirements for annual reports on

Form 10-K. If such an exemption is obtained, these trusts normally

would continue to have the obligation to file current reports on Form

8-K to report material developments concerning the trust and the

certificates. While the Securities and Exchange Commission's

interpretation of the periodic reporting requirements is subject to

change, periodic reports concerning a trust will be filed to the extent

required under the Securities Exchange Act of 1934.

23. At or about the time distributions are made to

certificateholders, a report will be delivered to the trustee as to the

status of the trust and its assets, including underlying obligations.

Such report will typically contain information regarding the trust's

assets, payments received or collected by the servicer, the amount of

prepayments, delinquencies, servicer advances, defaults and

foreclosures, the amount of any payments made pursuant to any credit

support, and the amount of compensation payable to the servicer. Such

report also will be delivered to or made available to the rating agency

or agencies that have rated the trust's certificates.

In addition, promptly after each distribution date,

certificateholders will receive a statement prepared by the servicer,

paying agent or trustee summarizing information regarding the trust and

its assets. Such statement will include information regarding the trust

and its assets, including underlying receivables. Such statement will

typically contain information regarding payments and prepayments,

delinquencies, the remaining amount of the guaranty or other credit

support and a breakdown of payments between principal and interest.

Forward Delivery Commitments

24. To date, no forward delivery commitments have been entered into

by NISI in connection with the offering of any certificates, but NISI

may contemplate entering into such commitments. The utility of forward

delivery commitments has been recognized with respect to offering

similar certificates backed by pools of residential mortgages, and NISI

may find it desirable in the future to enter into such commitments for

the purchase of certificates.

Secondary Market Transactions

25. It is NISI's normal policy to attempt to make a market for

securities for which it is lead or co-managing underwriter. NISI

anticipates that it will make a market in certificates, although it

will have no obligation to do so.

Retroactive Relief

26. NISI represents that it has not assumed that retroactive relief

would be granted prior to the date of its application, and therefore

has not engaged in transactions related to mortgage-backed and asset-

backed securities based on such an assumption. However, NISI requests

the exemptive relief granted to be retroactive to February 12, 1997,

the date of its application, and would like to rely on such retroactive

relief for transactions entered into prior to the date exemptive relief

may be granted.

Summary

27. In summary, the applicant represents that the transactions for

which exemptive relief is requested satisfy the statutory criteria of

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

(a) The trusts contain ``fixed pools'' of assets. There is little

discretion on the part of the trust sponsor to substitute receivables

contained in the trust once the trust has been formed;

(b) Certificates in which plans invest will have been rated in one

of the three highest rating categories by S&P's, Moody's, D&P or Fitch.

Credit support will be obtained to the extent necessary to attain the

desired rating;

(c) All transactions for which NISI seeks exemptive relief will be

governed by the pooling and servicing agreement, which is made

available to plan fiduciaries for their review prior to the plan's

investment in certificates;

(d) Exemptive relief from sections 406(b) and 407 for sales to

plans is substantially limited; and

[[Page 18816]]

(e) NISI anticipates that it will make a secondary market in

certificates.

Discussion of Proposed Exemption

I. Differences Between Proposed Exemption and Class Exemption PTE 83-1

The exemptive relief proposed herein is similar to that provided in

PTE 81-7 [46 FR 7520, January 23, 1981], Class Exemption for Certain

Transactions Involving Mortgage Pool Investment Trusts, amended and

restated as PTE 83-1 [48 FR 895, January 7, 1983].

PTE 83-1 applies to mortgage pool investment trusts consisting of

interest-bearing obligations secured by first or second mortgages or

deeds of trust on single-family residential property. The exemption

provides relief from sections 406(a) and 407 for the sale, exchange or

transfer in the initial issuance of mortgage pool certificates between

the trust sponsor and a plan, when the sponsor, trustee or insurer of

the trust is a party-in-interest with respect to the plan, and the

continued holding of such certificates, provided that the conditions

set forth in the exemption are met. PTE 83-1 also provides exemptive

relief from section 406(b)(1) and (b)(2) of the Act for the above-

described transactions when the sponsor, trustee or insurer of the

trust is a fiduciary with respect to the plan assets invested in such

certificates, provided that additional conditions set forth in the

exemption are met. In particular, section 406(b) relief is conditioned

upon the approval of the transaction by an independent fiduciary.

Moreover, the total value of certificates purchased by a plan must not

exceed 25 percent of the amount of the issue, and at least 50 percent

of the aggregate amount of the issue must be acquired by persons

independent of the trust sponsor, trustee or insurer. Finally, PTE 83-1

provides conditional exemptive relief from section 406(a) and (b) of

the Act for transactions in connection with the servicing and operation

of the mortgage trust.

Under PTE 83-1, exemptive relief for the above transactions is

conditioned upon the sponsor and the trustee of the mortgage trust

maintaining a system for insuring or otherwise protecting the pooled

mortgage loans and the property securing such loans, and for

indemnifying certificateholders against reductions in pass-through

payments due to defaults in loan payments or property damage. This

system must provide such protection and indemnification up to an amount

not less than the greater of one percent of the aggregate principal

balance of all trust mortgages or the principal balance of the largest

mortgage.

The exemptive relief proposed herein differs from that provided by

PTE 83-1 in the following major respects: (1) The proposed exemption

provides individual exemptive relief rather than class relief; (2) The

proposed exemption covers transactions involving trusts containing a

broader range of assets than single-family residential mortgages; (3)

Instead of requiring a system for insuring the pooled receivables, the

proposed exemption conditions relief upon the certificates having

received one of the three highest ratings available from S&P's,

Moody's, D&P or Fitch (insurance or other credit support would be

obtained only to the extent necessary for the certificates to attain

the desired rating); and (4) The proposed exemption provides more

limited section 406(b) and section 407 relief for sales transactions.

II. Ratings of Certificates

After consideration of the representations of the applicant and

information provided by S&P's, Moody's, D&P and Fitch, the Department

has decided to condition exemptive relief upon the certificates having

attained a rating in one of the three highest generic rating categories

from S&P's, Moody's, D&P or Fitch. The Department believes that the

rating condition will permit the applicant flexibility in structuring

trusts containing a variety of mortgages and other receivables while

ensuring that the interests of plans investing in certificates are

protected. The Department also believes that the ratings are indicative

of the relative safety of investments in trusts containing secured

receivables. The Department is conditioning the proposed exemptive

relief upon each particular type of asset-backed security having been

rated in one of the three highest rating categories for at least one

year and having been sold to investors other than plans for at least

one year.19

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19 In referring to different ``types'' of asset-NISIcked

securities, the Department means certificates representing interests

in trusts containing different ``types'' of receivables, such as

single family residential mortgages, multi-family residential

mortgages, commercial mortgages, home equity loans, auto loan

receivables, installment obligations for consumer durables secured

by purchase money security interests, etc. The Department intends

this condition to require that certificates in which a plan invests

are of the type that have been rated (in one of the three highest

generic rating categories by S&P's, D&P, Fitch or Moody's) and

purchased by investors other than plans for at least one year prior

to the plan's investment pursuant to the proposed exemption. In this

regard, the Department does not intend to require that the

particular assets contained in a trust must have been ``seasoned''

(e.g., originated at least one year prior to the plan's investment

in the trust).

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III. Limited Section 406(b) and Section 407(a) Relief for Sales

NISI represents that in some cases a trust sponsor, trustee,

servicer, insurer, and obligor with respect to receivables contained in

a trust, or an underwriter of certificates may be a pre-existing party

in interest with respect to an investing plan.20 In these cases, a

direct or indirect sale of certificates by that party in interest to

the plan would be a prohibited sale or exchange of property under

section 406(a)(1)(A) of the Act. 21 Likewise, issues are raised

under section 406(a)(1)(D) of the Act where a plan fiduciary causes a

plan to purchase certificates where trust funds will be used to benefit

a party in interest.

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20 In this regard, we note that the exemptive relief

proposed herein is limited to certificates with respect to which

NISI or any of its affiliates is either (a) the sole underwriter or

manager or co-manager of the underwriting syndicate, or (b) a

selling or placement agent.

21 The applicant represents that where a trust sponsor is

an affiliate of NISI, sales to plans by the sponsor may be exempt

under PTE 75-1, Part II (relating to purchases and sales of

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

fiduciary with respect to plan assets to be invested in

certificates.

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Additionally, NISI represents that a trust sponsor, servicer,

trustee, insurer, and obligor with respect to receivables contained in

a trust, or an underwriter of certificates representing an interest in

a trust may be a fiduciary with respect to an investing plan. NISI

represents that the exercise of fiduciary authority by any of these

parties to cause the plan to invest in certificates representing an

interest in the trust would violate section 406(b)(1), and in some

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

Moreover, NISI represents that to the extent there is a plan asset

``look through'' to the underlying assets of a trust, the investment in

certificates by a plan covering employees of an obligor under

receivables contained in a trust may be prohibited by sections 406(a)

and 407(a) of the Act.

After consideration of the issues involved, the Department has

determined to provide the limited sections 406(b) and 407(a) relief as

specified in the proposed exemption.

Notice to Interested Persons

The applicant represents that because those potentially interested

participants and beneficiaries cannot all be identified, the only

practical means of notifying such participants and beneficiaries of

this proposed exemption is by the publication of this notice in the

Federal Register. Comments and requests for a hearing

[[Page 18817]]

must be received by the Department not later than 30 days from the date

of publication of this notice of proposed exemption in the Federal

Register.

For Further Information Contact: Gary Lefkowitz of the Department,

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

General Information

The attention of interested persons is directed to the following:

(1) The fact that a transaction is the subject of an exemption

under section 408(a) of the Act and/or section 4975(c)(2) of the Code

does not relieve a fiduciary or other party in interest of disqualified

person from certain other provisions of the Act and/or the Code,

including any prohibited transaction provisions to which the exemption

does not apply and the general fiduciary responsibility provisions of

section 404 of the Act, which among other things require a fiduciary to

discharge his duties respecting the plan solely in the interest of the

participants and beneficiaries of the plan and in a prudent fashion in

accordance with section 404(a)(1)(b) of the act; nor does it affect the

requirement of section 401(a) of the Code that the plan must operate

for the exclusive benefit of the employees of the employer maintaining

the plan and their beneficiaries;

(2) Before an exemption may be granted under section 408(a) of the

Act and/or section 4975(c)(2) of the Code, the Department must find

that the exemption is administratively feasible, in the interests of

the plan and of its participants and beneficiaries and protective of

the rights of participants and beneficiaries of the plan;

(3) The proposed exemptions, if granted, will be supplemental to,

and not in derogation of, any other provisions of the Act and/or the

Code, including statutory or administrative exemptions and transitional

rules. Furthermore, the fact that a transaction is subject to an

administrative or statutory exemption is not dispositive of whether the

transaction is in fact a prohibited transaction; and

(4) The proposed exemptions, if granted, will be subject to the

express condition that the material facts and representations contained

in each application are true and complete and accurately describe all

material terms of the transaction which is the subject of the

exemption. In the case of continuing exemption transactions, if any of

the material facts or representations described in the application

change after the exemption is granted, the exemption will cease to

apply as of the date of such change. In the event of any such change,

application for a new exemption may be made to the Department.

Signed at Washington, DC, this 14th day of April, 1997.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

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

BILLING CODE 4510-29-P