Federal Register / Vol. 63, No. 103 / Friday, May 29, 1998 / Notices 29443

1Unless otherwise noted, the Client Plans and the

Bank Plans are collectively referred to as the Plans.

DEPARTMENT OF LABOR

Pension and Welfare Benefits

Administration

[Application No. D–10503, et al.]

Proposed Exemptions; Sanwa Bank

California

AGENCY: Pension and Welfare Benefits

Administration, Labor.

ACTION: Notice of Proposed Exemptions.

SUMMARY: This document contains

notices of pendency before the

Department of Labor (the Department) of

proposed exemptions from certain of the

prohibited transaction restrictions of the

Employee Retirement Income Security

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

Revenue Code of 1986 (the Code).

Written Comments and Hearing

Requests

All interested persons are invited to

submit written comments or request for

a hearing on the pending exemptions,

unless otherwise stated in the Notice of

Proposed Exemption, within 45 days

from the date of publication of this

Federal Register Notice. Comments and

requests for a hearing should state: (1)

the name, address, and telephone

number of the person making the

comment or request, and (2) the nature

of the person’s interest in the exemption

and the manner in which the person

would be adversely affected by the

exemption. A request for a hearing must

also state the issues to be addressed and

include a general description of the

evidence to be presented at the hearing.

ADDRESSES: All written comments and

request for a hearing (at least three

copies) should be sent to the Pension

and Welfare Benefits Administration,

Office of Exemption Determinations,

Room N–5649, U.S. Department of

Labor, 200 Constitution Avenue, N.W.,

Washington, D.C. 20210. Attention:

Application No. , 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.

Sanwa Bank California (Sanwa Bank)

Located in Los Angeles, CA

[Application No. D–10503]

Proposed Exemption

Section I. Proposed Exemption for the

In-Kind Transfers of Assets

If the exemption is granted, the

restrictions of section 406(a) and section

406(b) 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 (F) shall not

apply, effective October 31, 1997, to the

purchase, by an employee benefit plan

established and maintained by parties

other than Sanwa Bank (the Client Plan)

or by Sanwa Bank (the Bank Plan) 1 of

shares of one or more open-end

management investment companies (the

Fund or Funds), registered under the

Investment Company Act of 1940, as

amended (the 1940 Act), in exchange for

assets of the Plan transferred in-kind to

the Fund by a collective investment

fund (the CIF) maintained by Sanwa

Bank, where Sanwa Bank is the

investment adviser and may provide

other services to the Fund (the

Secondary Services), as defined in

Section III(i), and where Sanwa Bank is

also a fiduciary of the Plan, in

connection with the termination of such

CIFs.

This proposed exemption is subject to

the following conditions:

(a) A fiduciary (the Second

Fiduciary), as defined in Section III(h),

which is acting on behalf of each

affected Plan and which is independent

of and unrelated to Sanwa Bank,

receives advance written notice of the

in-kind transfer of assets of the CIFs in

exchange for shares of the Funds and

full written disclosures of information

concerning the Funds which includes

the following:

(1) A current prospectus for each

Fund in which the Client Plan may

invest;

(2) A statement describing the fees for

investment advisory or other similar

services, any fees for Secondary

Services, as defined in Section III(i), and

all other fees to be charged to or paid

by the Client Plan and by such Funds

to Sanwa Bank, including the nature

and extent of any differential between

the rates of such fees;

(3) A statement of the reasons why

Sanwa Bank may consider such

investment to be appropriate for the

Client Plan;

(4) A statement of whether there are

any limitations applicable to Sanwa

Bank with respect to which assets of a

Client Plan may be invested in Fund

shares, and, if so, the nature of such

limitations; and

(5) A copy of the proposed exemption

and/or a copy of the final exemption

upon the request of the Second

Fiduciary.

(b) On the basis of the foregoing

information, the Second Fiduciary gives

prior approval in writing for each

purchase of Fund shares in exchange for

the Plan’s assets transferred from the

CIF, consistent with the responsibilities,

obligations and duties imposed on

fiduciaries by Part 4 of Title I of the Act.

In addition, the Second Fiduciary gives

prior approval in writing of the receipt

of confirmation statements described in

Section I(g) by facsimile or electronic

mail if the Second Fiduciary elects to

receive such statements in that form.

(c) No sales commissions or other fees

are paid by the Plan in connection with

the purchase of Fund shares.

(d) All transferred assets are securities

for which market quotations are readily

available, or cash.

(e) The transferred assets constitute a

pro rata portion of all assets of a Plan

held in the CIF immediately prior to the

transfer. Notwithstanding the foregoing,

the allocation of fixed-income securities

held by a CIF among Plans on the basis

of each Plan’s pro rata share of the

aggregate value of such securities will

not fail to meet the requirements of this

subsection if:
29444 Federal Register / Vol. 63, No. 103 / Friday, May 29, 1998 / Notices

2Sanwa Bank is not requesting an exemption for

investments in the Funds by the Bank Plans. Sanwa

Bank represents that the Bank Plans may acquire or

sell shares of the Funds pursuant to Prohibited

Transaction Exemption (PTE) 77–3 (42 FR 18734,

April 8, 1977). PTE 77–3 permits the acquisition or

sale of shares of a registered, open-end investment

company by an employee benefit plan covering

only employees of such investment company,

employees of the investment adviser or principal

underwriter for such investment company, or

employees of any affiliated person (as defined

therein) of such investment adviser or principal

underwriter, provided certain conditions are met.

The Department expresses no opinion on whether

any transactions with the Funds by the Bank Plans

would be covered by PTE 77–3.

(1) The aggregate value of such

securities does not exceed one (1)

percent of the total value of the assets

held by the CIF immediately prior to the

transfer, in connection with the

termination of such CIF; and

(2) Such securities have the same

coupon rate and maturity, and at the

time of the transfer, the same credit

ratings from nationally recognized

statistical rating agencies.

(f) Each Plan receives Fund shares

that have a total net asset value equal to

the value of the Plan’s transferred assets

on the date of the transfer, as

determined with respect to securities in

a single valuation performed in the

same manner and at the close of

business on the same day in accordance

with Rule 17a–7 (using sources

independent of Sanwa Bank and the

Fund) and the procedures established

by the Funds pursuant to Rule 17a–7.

Such procedures must require that all

securities for which a current market

price cannot be obtained by reference to

the last sale price for transactions

reported on a recognized securities

exchange or NASDAQ be valued based

on an average of the highest current

independent bid and lowest current

independent offer, as of the close of

business on the last business day prior

to the in-kind transfers, determined on

the basis of reasonable inquiry from at

least three sources that are brokerdealers or pricing services independent

of Sanwa Bank.

(g) Sanwa Bank sends by regular mail

or, if applicable, by facsimile or

electronic mail, to the Second Fiduciary

of each affected Plan that purchases

Fund shares in connection with the inkind transfer, the following information:

(1) No later than 30 days after the

completion of the purchase, a written

confirmation which contains—

(A) The identity of each transferred

security that was valued for purposes of

the transaction in accordance with Rule

17a–7(b)(4);

(B) The current market price, as of the

date of the in-kind transfer, of each such

security involved in the transaction; and

(C) The identity of each pricing

service or market-maker consulted in

determining the current market price of

such securities.

(2) No later than 105 days after the

completion of each purchase, a written

confirmation which contains —

(A) The number of CIF units held by

each affected Plan immediately before

the in-kind transfer, the related per unit

value, and the total dollar amount of

such CIF units; and

(C) The number of shares in the Funds

that are held by each affected Plan

immediately following the in-kind

transfer, the related per share net asset

value and the total dollar amount of

such shares.

(h) The conditions set forth in

Sections II(d), (e), (n)(1), (o), (p) and (q)

are satisfied.

Section II. Proposed Exemption for the

Receipt of fees From the Funds

If the exemption is granted, the

restrictions of section 406(a) and section

406(b) 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 (F) of the Code

shall not apply, effective October 31,

1997, to (1) the receipt of fees by Sanwa

Bank from the Funds for investment

advisory services provided to the Funds;

and (2) the receipt or retention of fees

by Sanwa Bank from the Funds for

acting as a custodian or shareholder

serving agent to the Funds, as well as for

providing any other services to the

Funds which are not investment

advisory services (i.e., the Secondary

Services), as defined in Section III(i), in

connection with the investment of

shares in the Funds by the Client Plans

for which Sanwa Bank acts as a

fiduciary,2 provided that the following

conditions are met:

(a) No sales commissions are paid by

the Client Plans in connection with

purchases or redemptions of shares of

the Funds and no redemption fees are

paid in connection with the sale of such

shares by the Client Plans to the Funds.

(b) The price paid or received by the

Client Plans for shares in the Funds is

the net asset value per share, as defined

in Section III(e), at the time of the

transaction and is the same price which

would have been paid or received for

the shares by any other investor at that

time.

(c) Sanwa Bank, any of its affiliates or

their officers or directors do not

purchase from or sell to any of the

Client Plans shares of any of the Funds.

(d) For each Client Plan, the

combined total of all fees received by

Sanwa Bank for the provision of

services to such Plan, and in connection

with the provision of services to any of

the Funds in which the Client Plans

may invest, is not in excess of

‘‘reasonable compensation’’ within the

meaning of section 408(b)(2) of the Act.

(e) Sanwa Bank does not receive any

fees payable, pursuant to Rule 12b–1

(the 12b–1 Fees) under the 1940 Act in

connection with the transactions

involving the Funds.

(f) A Second Fiduciary with respect to

a Client Plan receives in advance of the

investment by the Client Plan in any of

the Funds, a full and detailed written

disclosure of information concerning

such Fund including, but not limited to

the disclosures described above in

Section I(a).

(g) On the basis of the foregoing

information, the Second Fiduciary

authorizes in writing—

(1) The investment of assets of the

Client Plan in shares of the Fund;

(2) The Funds in which the assets of

the Client Plan may be invested; and

(3) The fees received by Sanwa Bank

in connection with investment advisory

services and Secondary Services

provided to the Funds, such

authorization by the Second Fiduciary

to be consistent with the responsibilities

obligations, and duties imposed on

fiduciaries by Part 4 of Title I of the Act.

(h) The authorization, described in

Section II(g) is terminable at will by the

Second Fiduciary of a Client Plan,

without penalty to such Client Plan.

Such termination will be effected by

Sanwa Bank redeeming the shares of the

Funds held by the affected Client Plan

within one business day following

receipt by Sanwa Bank, either by mail,

hand delivery, facsimile, or other

available means at the option of the

Second Fiduciary, of written notice of

termination (the Termination Form), as

defined in Section III(j); provided that if,

due to circumstances beyond the control

of Sanwa Bank, the redemption cannot

be executed within one business day,

Sanwa Bank shall have one additional

business day to complete such

redemption.

(i) The Client Plans do not pay any

Plan-level investment advisory fees to

Sanwa Bank with respect to any of the

assets of such Client Plans which are

invested in shares of the Funds. This

condition does not preclude the

payment of investment advisory fees by

the Funds to Sanwa Bank under the

terms of an investment advisory

agreement adopted in accordance with

section 15 of the 1940 Act or other

agreement between Sanwa Bank and the

Funds or the retention by Sanwa Bank

of fees for Secondary Services paid to

Sanwa Bank by the Funds.
Federal Register / Vol. 63, No. 103 / Friday, May 29, 1998 / Notices 29445

(j) In the event of an increase in the

rate of any fees paid by the Funds to

Sanwa Bank regarding investment

advisory services that Sanwa Bank

provides to the Funds over an existing

rate for such services that had been

authorized by a Second Fiduciary of a

Client Plan, in accordance with Section

II(g), Sanwa Bank will, at least 30 days

in advance of the implementation of

such increase, provide a written notice

(which may take the form of a proxy

statement, letter, or similar

communication that is separate from the

prospectus of the Fund and which

explains the nature and amount of the

increase in fees) to the Second Fiduciary

of each Client Plan invested in a Fund

which is increasing such fees. Such

notice shall be accompanied by the

Termination Form, as defined in Section

III(j).

(k) In the event of an (1) addition of

a Secondary Service, as defined in

Section III(i), provided by Sanwa Bank

to the Funds for which a fee is charged

or (2) an increase in the rate of any fee

paid by the Funds to Sanwa Bank for

any Secondary Service that results

either from an increase in the rate of

such fee or from the decrease in the

number or kind of services performed

by Sanwa Bank for such fee over an

existing rate for such Secondary Service

which had been authorized by the

Secondary Fiduciary in accordance with

Section II(g), Sanwa Bank will, at least

30 days in advance of the

implementation of such Secondary

Service or fee increase, provide a

written notice (which may take the form

of a proxy statement, letter, or similar

communication that is separate from the

prospectus of the Funds and which

explains the nature and amount of the

additional Secondary Service for which

a fee is charged or the nature and

amount of the increase in fees) to the

Second Fiduciary of each of the Client

Plans invested in a Fund which is

adding a service or increasing fees. Such

notice shall be accompanied by the

Termination Form, as defined in Section

III(j).

(l) The Second Fiduciary is supplied

with a Termination Form at the times

specified in Sections II(j),(k) and (m),

which expressly provides an election to

terminate the authorization, described

above Section II(g), with instructions

regarding the use of such Termination

Form including statements that—

(1) The authorization is terminable at

will by any of the Client Plans, without

penalty to such Plans. The termination

will be effected by Sanwa Bank

redeeming shares of the Funds held by

the Client Plans requesting termination

within the period of time specified by

the Client Plan, but not later than one

business day following receipt by

Sanwa Bank from the Second Fiduciary

of the Termination Form or any written

notice of termination; provided that if,

due to circumstances beyond the control

of Sanwa Bank, the redemption of

shares of such Client Plan cannot be

executed within one business day,

Sanwa Bank shall have one additional

business day to complete such

redemption; and

(2) Failure by the Second Fiduciary to

return the Termination Form on behalf

of the Client Plan will be deemed to be

an approval of the additional Secondary

Service for which a fee is charged or an

increase in the rate of any fees and will

result in the continuation of the

authorization, as described in Section

II(g), of Sanwa Bank to engage in the

transactions on behalf of the Client Plan;

(m) The Second Fiduciary is supplied

with a Termination Form at least once

in each calendar year, beginning with

the calendar year that begins after the

grant of this proposed exemption is

published in the Federal Register and

continuing for each calendar year

thereafter, provided that the

Termination Form need not be supplied

to the Second Fiduciary, pursuant to

this paragraph, sooner than six months

after such Termination Form is supplied

pursuant to Sections II(j) and (k), except

to the extent required by Sections II(j)

and (k) to disclose an additional

Secondary Service for which a fee is

charged or an increase in fees.

(n)(1) With respect to each of the

Funds in which a Client Plan invests,

Sanwa Bank will provide the Second

Fiduciary of such Plan the following

information:

(A) At least annually, a copy of an

updated prospectus of such Fund; and

(B) Upon the request of the Second

Fiduciary, a report or statement (which

may take the form of the most recent

financial report, the current statement of

additional information, or some other

written statement) which contains a

description of all fees paid by the Fund

to Sanwa Bank.

(2) With respect to each of the Funds

in which a Client Plan invests, in the

event such Fund places brokerage

transactions with Sanwa Bank, Sanwa

Bank will provide the Second Fiduciary

of such Client Plan at least annually

with a statement specifying—

(A) The total, expressed in dollars,

brokerage commissions of each Fund

that are paid to Sanwa Bank by such

Fund;

(B) The total, expressed in dollars,

brokerage commissions of each Fund

that are paid by such Fund to brokerage

firms unrelated to Sanwa Bank;

(C) The average brokerage

commissions per share, expressed as

cents per share, paid to Sanwa Bank by

each Fund; and

(D) The average brokerage

commissions per share, expressed as

cents per share, paid by each Fund to

brokerage firms unrelated to Sanwa

Bank.

(o) All dealings between the Client

Plans and any of the Funds are on a

basis no less favorable to such Client

Plans than dealings between the Funds

and other non-Plan shareholders

holding the same class of shares as the

Client Plans.

(p) Sanwa Bank maintains for a period

of 6 years, in a manner that is accessible

for audit and examination, the records

necessary to enable the persons,

described in Section II(q), to determine

whether the conditions of this

exemption have been met, except that—

(1) A prohibited transaction will not

be considered to have occurred if, due

to circumstances beyond the control of

Sanwa Bank, the records are lost or

destroyed prior to the end of the 6 year

period; and

(2) No party in interest, other than

Sanwa Bank, shall be subject to the civil

penalty that may be assessed under

section 502(i) of the Act, or to the taxes

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

the Code, if the records are not

maintained, or are not available for

examination as required by Section II(q).

(q)(1) Except as provided in paragraph

(q)(2) of this Section II and

notwithstanding any provisions of

subsection (a)(2) and (b) of section 504

of the Act, the records referred to in

Section II(p) are unconditionally

available at their customary location for

examination during normal business

hours by—

(A) Any duly authorized employee or

representative of the Department, the

Internal Revenue Service (the Service)

or the Securities and Exchange

Commission (the SEC);

(B) Any fiduciary of each of the Client

Plans who has authority to acquire or

dispose of shares of any of the Funds

owned by such Client Plan, or any duly

authorized employee or representative

of such fiduciary; and

(C) Any participant or beneficiary of

the Plans or duly authorized employee

or representative of such participant or

beneficiary.

(2) None of the persons described in

paragraph (q)(1)(B) and (q)(1)(C) of

Section II shall be authorized to

examine trade secrets of Sanwa Bank, or

commercial or financial information

which is privileged or confidential.
29446 Federal Register / Vol. 63, No. 103 / Friday, May 29, 1998 / Notices

Section III. Definitions

For purposes of this proposed

exemption,

(a) The term ‘‘Sanwa Bank’’ means

Sanwa Bank California and any affiliate

of Sanwa Bank, as defined in Section

III(b).

(b) An ‘‘affiliate’’ of a person includes:

(1) Any person directly or indirectly

through one or more intermediaries,

controlling, controlled by, or under

common control with the person;

(2) Any officer, director, employee,

relative, or partner in any such person;

and

(3) Any corporation or partnership of

which such person is an officer,

director, partner, or employee.

(c) The term ‘‘control’’ means the

power to exercise a controlling

influence over the management or

policies of a person other than an

individual;

(d) The terms ‘‘Fund or Funds’’ mean

any open-end management investment

company or companies registered under

the 1940 Act for which Sanwa Bank

serves as investment adviser and may

also provide custodial or other services,

such as Secondary Services, as

approved by such Funds.

(e) The term ‘‘net asset value’’ means

the amount for purposes of pricing all

purchases and redemptions calculated

by dividing the value of all securities,

determined by a method as set forth in

a Fund’s prospectus and statement of

additional information, and other assets

belonging to each of the portfolios in

such Fund, less the liabilities charged to

each portfolio, by the number of

outstanding shares.

(f) The term ‘‘Plan’’ means a welfare

plan described in 29 CFR 2510.3–1, as

amended; a pension plan described in

29 CFR 2510.3–2, as amended; a plan

described in section 4975(e)(1) of the

Code; and a retirement plan qualified

under section 401(a) of the Code with

respect to which Sanwa Bank serves or

will serve as trustee, investment

manager or custodian, and which

constitutes an ‘‘employee benefit plan’’

under section 3(3) of the Act. The term

‘‘Client Plan’’ includes a Plan

maintained by an entity other than

Sanwa Bank. The term ‘‘Bank Plan’’

includes a Plan maintained by Sanwa

Bank, including, but not limited to, the

Sanwa Bank California Retirement Plan

(the SBC Retirement Plan) and the

Sanwa Bank California Premiere

Savings Plan (the SBC Savings Plan).

(g) The term ‘‘relative’’ means a

‘‘relative’’ as that term is defined in

section 3(15) of the Act (or a ‘‘member

of the family’’ as that term is defined in

section 4975(e)(6) of the Code), or a

brother, a sister, or a spouse of a brother

or a sister.

(h) The term ‘‘Second Fiduciary’’

means a fiduciary of a plan who is

independent of and unrelated to Sanwa

Bank. For purposes of this exemption,

the Second Fiduciary will not be

deemed to be independent of and

unrelated to Sanwa Bank if—

(1) Such Second Fiduciary directly or

indirectly controls, is controlled by or is

under common control with Sanwa

Bank;

(2) Such Second Fiduciary, or any

officer, director, partner, employee or

relative of such Second Fiduciary is an

officer, director, partner or employee of

Sanwa Bank (or is a relative of such

persons); and

(3) Such Second Fiduciary directly or

indirectly receives any compensation or

other consideration in connection with

any transaction described in this

exemption; provided, however, that,

with respect to the Bank Plans, the

Second Fiduciary may receive

compensation from Sanwa Bank in

connection with the transactions

contemplated herein, but the amount or

payment of such compensation may not

be contingent upon or in any way

affected by the Second Fiduciary’s

ultimate decision regarding whether the

Bank Plans participate in the

transactions and may not exceed 5

percent of such Second Fiduciary’s

gross annual revenues.

With respect to the Client Plans, if an

officer, director, partner, or employee of

Sanwa Bank (or a relative of such

persons), is a director of such Second

Fiduciary, and if he or she abstains from

participation in the choice of the Plan’s

investment manager/adviser, the

approval of any purchase or redemption

by the Plan of shares of the Funds, and

the approval of any increase of fees, in

connection with any of the transactions

described in Sections I and II, then

Section III(h)(2) shall not apply.

(i) The term ‘‘Secondary Service’’

means a service, other than an

investment advisory or similar service,

which is provided by Sanwa Bank to the

Funds, including but not limited to,

accounting, administrative, brokerage or

custodial services.

(j) The term ‘‘Termination Form’’

means the form supplied to the Second

Fiduciary of a Client Plan, at the times

specified in Section II(j), (k), and (m),

which expressly provides an election to

the Second Fiduciary to terminate on

behalf of the Plans the authorization,

described in Section II(g). Such

Termination Form may be used at will

by the Second Fiduciary to terminate

such authorization without penalty to

the Client Plan and to notify Sanwa

Bank in writing to effect such

termination by redeeming shares of the

Fund held by the Plans requesting

termination not later than one business

day following receipt by Sanwa Bank of

written notice, either by mail, hand

delivery, facsimile or other available

means at the option of the Second

Fiduciary, of such request for

termination; provided that if, due to

circumstances beyond the control of

Sanwa Bank, the redemption cannot be

executed within one business day,

Sanwa Bank shall have one additional

business day to complete such

redemption.

(k) The term ‘‘fixed-income security’’

means any interest-bearing or

discounted government or corporate

security with a face amount of $1,000 or

more that obligates the issuer to pay the

holder a specified sum of money, at

specific intervals, and to repay the

principal amount of the loan at

maturity.

(l) The term ‘‘security’’ shall have the

same meaning as defined in section

2(36) of the 1940 Act, as amended, 15

USC 80a–2(36) (1996).

(m) The term ‘‘business day’’ means a

banking day as defined by federal or

state banking regulations.

EFFECTIVE DATE: If granted, this proposed

exemption will be effective as of

October 31, 1997.

Summary of Facts and Representations

1. Description of the Parties

The parties involved in the subject

transactions are described as follows:

(a) Sanwa Bank, a Californiachartered bank, is a wholly owned

subsidiary of The Sanwa Bank, Limited,

which is headquartered in Japan. Sanwa

Bank provides trust and banking

services to individuals, corporations

and institutions, both nationally and

internationally. Sanwa Bank serves as

trustee, investment manager or

custodian to the Plans described herein

and will serve as investment adviser to

the Funds described more fully below.

As of December 31, 1997, Sanwa Bank

held total trust and fiduciary assets of

approximately $10.2 billion.

(b) The Plans include welfare plans

described in 29 CFR 2510.3–1, as

amended; pension plans described in 29

CFR 2510.3–2, as amended; plans

described in section 4975(e)(1) of the

Code; and retirement plans qualified

under section 401(a) of the Code with

respect to which Sanwa Bank serves or

will serve as trustee, investment

manager or custodian, and which

constitute ‘‘employee benefit plans’’

under section 3(3) of the Act. As of

December 31, 1997, Sanwa Bank served
Federal Register / Vol. 63, No. 103 / Friday, May 29, 1998 / Notices 29447

3The Department is not proposing exemptive

relief herein for transactions afforded relief by

section 404(c) of the Act.

4Sanwa Bank maintains CIFs other than those

involved in the subject transactions. Some of these

CIFs, which were converted contemporaneously

with the CIFs, do not hold Plan assets while others

do. As such, it is proposed that those CIFs holding

plan assets be covered by the requested exemption

if and when they are converted in the future.

5The U.S. Treasury Obligations Fund was not

involved in the conversion transaction described in

this proposed exemption. However, this Fund

would be covered by the requested exemption to

the extent that a converting CIF were to transfer its

assets to such Fund or a Plan or Plans were to invest

in this Fund in the future.

6As previously noted, Sanwa Bank is not

requesting an exemption for investments in the

Funds by the Bank Plans. Sanwa Bank represents

that the Bank Plans may acquire or sell shares of

the Funds pursuant to PTE 77–3.

as trustee, investment manager or

custodian for approximately 856 Client

Plans with total assets of approximately

$1.7 billion. In addition, Sanwa Bank

had investment responsibility with

respect to approximately $95 million in

Client Plan assets, of which

approximately $25 million represented

assets invested in converting CIFs.

Whether any Client Plan will participate

in a conversion transaction will depend

solely on the decision of a fiduciary

which is independent of Sanwa Bank

(i.e., a Second Fiduciary).3

The Plans also include certain Bank

Plans that are maintained by Sanwa

Bank. Specifically, the Bank Plans

presently include the SBC Retirement

Plan and SBC Savings Plan. As of

December 31, 1997, the SBC Retirement

Plan and the SBC Savings Plan had total

assets of approximately $175 million

and $68 million, respectively. As of

August 28, 1997, the SBC Retirement

Plan had 4,500 participants and the SBC

Savings Plan had 3,500 participants.

Whether a Bank Plan may participate in

a conversion transaction will also be

determined by a Second Fiduciary

which has been appointed to represent

the interests of the Bank Plans.

(c) The CIFs are separate investment

funds maintained under a trust known

as ‘‘The Sanwa Bank California

Common Trust Fund.’’ The CIFs that

were converted in the initial conversion

transaction were the following: 4

• ITS Asset Allocation Investment

Fund, also known as Balanced Fund J

(the Asset Allocation Fund)

• ITS Common Stock Investment

Fund, also known as Equity Fund D (the

Equity Fund)

• ITS Bond Investment Fund, also

known as Fixed Income Fund C (the

Fixed Income Fund)

• ITS International Common Stock

Fund, also known as International

Equity Fund G (the International Equity

Fund)

• ITS Money Market Investment

Fund, also known as Money Market

Fund E (the Money Market Fund)

The general investment policy and

objective of these CIFs correspond

substantially to the Funds described

below.

(d) The Funds, otherwise referred to

as ‘‘The Eureka Funds,’’ constitute an

open-end management investment

company registered under the 1940 Act,

as amended. The Funds are and will be

separate investment portfolios or

‘‘series’’ of The Eureka Funds that will

be offered to investors at ‘‘no-load.’’

Therefore, Sanwa Bank requests that the

exemption apply both retroactively to

the existing Funds and prospectively to

any similar Fund with respect to which

Sanwa Bank or its affiliates may provide

services.

The Eureka Funds initially will

consist of five Funds, each to be offered

and sold in compliance with SEC rules

and regulations. These five Funds are

listed as follows:

• The Eureka Global Asset Allocation

Fund

• The Eureka Equity Fund

• The Eureka Investment Grade Bond

Fund

• The Eureka Prime Money Market

Fund

• The Eureka U.S. Treasury

Obligations Fund 5

Sanwa Bank serves as investment

adviser to the Funds. For such services

performed, Sanwa Bank will receive

annualized investment advisory fees

currently ranging from 0.10 percent for

the U.S. Treasury Obligations Fund to

0.80 percent for the Global Asset

Allocation Fund. Although parties

unrelated to Sanwa Bank will typically

provide custody, transfer agent,

recordkeeping and other services (i.e.,

Secondary Services) to the Funds, it is

possible that Sanwa Bank or an affiliate

may undertake to provide such services

to a Fund in the future.

(f) Actuarial Sciences Associates, Inc.

(ASA) has been retained temporarily by

Sanwa Bank to serve as the Second

Fiduciary for Bank Plans investing in

the Funds. ASA, which is located in

Somerset, New Jersey, is an affiliate of

AT&T Investment Management

Corporation (ATTIMCO). ATTIMCO is a

wholly owned subsidiary of AT&T and

is a registered investment adviser under

the 1940 Act. As of November 1997,

ATTIMCO exercised discretionary

authority with respect to over

approximately $40 billion in assets.

ASA, ATTIMCO and their affiliates are

independent of and unrelated to Sanwa

Bank and its affiliates. The fees received

by ASA from Sanwa Bank currently

represent less than one-tenth of one

percent of the gross revenues of ASA

and are not likely to exceed 5 percent

of ASA’s gross revenues in the

foreseeable future.

Description of the Transactions

2. Sanwa Bank requests exemptive

relief with respect to the in-kind

transfer, of all or a pro rata portion of

a Plan’s assets that were invested in the

terminating CIFs (identified above) to

the Funds, in exchange for shares of the

Funds. In addition, Sanwa Bank

requests exemptive relief for the receipt

of fees from the Funds, in connection

with the investment of assets of Client

Plans for which Sanwa Bank acts as a

trustee, investment manager, or

custodian, in shares of the Funds in

instances where Sanwa Bank is an

investment adviser, custodian, and

shareholder servicing agent for the

Funds.6 The exemptive relief provided

for the receipt of fees would cover

Client Plans of Sanwa Bank only. If

granted, the exemption would be

effective as of October 31, 1997 and

would apply to similar transactions that

may arise in the future.

In-Kind Transfers by the Plans

3. Sanwa Bank decided to terminate

the aforementioned CIFs and offer to the

Plans participating therein the

opportunity to acquire shares in their

corresponding Funds as alternative

investments. Because the interests in

CIFs generally must be liquidated or

withdrawn to effect distributions,

Sanwa Bank believes that the interests

of the Plans participating in the CIFs

(and similar CIFs that may convert in

the future) would be better served by

investment in shares of the Funds,

which can be distributed in-kind.

In addition, Sanwa Bank believes that

the Funds may offer advantages over the

CIFs such as pooled investment vehicles

in that Plans, as shareholders of a Fund,

will have the opportunity to exercise

voting and other shareholder rights.

Plans, as shareholders of the Funds, also

will receive periodic disclosures

concerning the Funds, as mandated by

the SEC, including a prospectus, which

is updated at least annually, an annual

report containing audited financial

statements of the Funds and information

regarding such Funds’ performance

(unless such performance information is

included in the prospectus of such

Funds), and a semiannual report

containing unaudited financial

statements. Further, the Plans will be

able to monitor the net asset value of the
29448 Federal Register / Vol. 63, No. 103 / Friday, May 29, 1998 / Notices

7 In response to the Department’s inquiry as to

why the SBC Savings Plan’s interest in the CIF was

liquidated and reinvested in a third party fund or

in another investment option offered under the

Plan, ASA states that none of the Funds offered to

the SBC Savings Plan had the same investment

policies and objectives that had been offered to

participants of such Plan. In this regard, it was

determined that in light of the termination of the

International Equity CIF, it would be in the interest

of participants in the SBC Savings Plan to have

monies previously invested in such CIF transferred

to a third-party, international equity fund managed

by Vanguard, which had objectives similar to the

International Equity CIF, rather than to the Global

Asset Allocation Fund. According to ASA, the

Global Asset Allocation Fund is not solely an

international equity fund. Instead, it is a balanced

fund with a portion of its assets invested in United

States investments. ASA states that the fiduciary of

the SBC Savings Plan thought it more appropriate

to invest that Plan’s assets in an exclusively

international equity fund instead of in a balanced

fund having some United States investments. ASA

further represents that it concurs with the

fiduciary’s investment decision.

8 It is represented that Sanwa Bank was of the

view that the Global Asset Allocation Fund would

be advantageous to current participants in the

International Equity CIF in that the Fund would

offer enhanced liquidity and economies of scale

resulting from a larger fund and an efficient method

of diversifying among domestic and international

asset classes and reducing risks for participants in

the SBC Retirement Plan. In this regard, ASA states

that the fiduciary of the SBC Retirement Plan had

rebalanced other portions of that Plan’s portfolio to

reflect the United States and non-equity

investments found in the Global Asset Allocation

Fund, thereby making the conversion to the Global

Asset Allocation Fund for the SBC Retirement Plan

an appropriate investment decision. ASA represents

that it concurs with this investment decision.

9Although different CIFs may be converted by

Sanwa Bank in the future on different dates, similar

procedures will apply.

Funds daily from information available

in newspapers of general circulation.

Sanwa Bank believes that if the assets

of a terminating CIF are transferred inkind to a corresponding Fund in

exchange for shares of such Fund,

potentially large brokerage expenses can

be avoided. These consist mainly of

expenses that otherwise would be

incurred if the CIF assets were

liquidated and the proceeds used to

purchase Fund shares that are

substantially identical to the CIFs. No

brokerage commissions or other fees

(other than customary transfer charges

paid to parties other than Sanwa Bank

or its affiliates) have been charged or

will be charged to the Plans or the CIFs

with respect to the conversions or in

connection with any other acquisition

or redemption of Fund shares by the

Plans. In addition, no Fund has paid or

will pay any 12b–1 Fees to Sanwa Bank

or its affiliates.

It is represented that the in-kind

transfers of CIF assets in exchange for

shares of the Funds are ministerial

transactions performed in accordance

with pre-established objective

procedures approved by the Funds’

board of trustees. Such procedures

require that assets transferred to a

corresponding Fund (a) be consistent

with the investment objectives, policies

and restrictions of the Fund, (b) satisfy

the applicable requirements of the 1940

Act and the Code and, (c) have a readily

ascertainable market value.

4. Except as indicated below with

respect to the International Equity CIF,

on October 31, 1997, Sanwa Bank

transferred Plan assets held in the

affected CIFs to the corresponding

Funds as shown in the table.

CIF portfolio Corresponding fund

portfolio

Asset Allocation Fund Global Asset Allocation Fund.

Equity Fund ............... Equity Fund.

Fixed Income Fund ... Investment Grade

Bond Fund.

International Equity

Fund.

Global Asset Allocation Fund.

Money Market Fund .. Prime Money Market

Fund.

With regard to the International

Equity CIF, the participants, of which

include the SBC Retirement Plan, the

SBC Savings Plan and a number of

Client Plans, the conversion of the CIF

was processed as follows:

(a) The SBC Savings Plan’s interest in

the International Equity CIF was

liquidated and reinvested in shares of a

mutual fund investing primarily in

foreign securities sponsored and

advised by a third party unrelated to

Sanwa Bank, which replaced the CIF as

an investment option under the SBC

Savings Plan. SBC Savings Plan

participants who did not wish to invest

in a new mutual fund were given the

option of electing instead to have their

interest in the International Equity CIF

reinvested in another option under the

Plan.7

(b) Subject to approval of the

appropriate Second Fiduciaries, the SBC

Retirement Plan and the Client Plan

participated in the conversion of the

International Equity CIF to Global Asset

Allocation Fund, to the extent of their

respective interests therein.8

5. The initial conversion was

completed in a single transaction

occurring after the close of business on

October 31, 1997 and prior to the

opening of business on November 3,

1997. The initial conversion was

accomplished by an in-kind transfer of

all of the assets of the converting CIF to

the corresponding Fund, in exchange for

an appropriate number of shares of that

Fund. The affected CIF was then

terminated and its assets, consisting of

Fund shares, were distributed in-kind to

the Plans formerly participating in the

CIF based on each Plan’s pro rata share

of the CIF’s assets on the date of the

conversion.9

6. Prior to the conversion, the assets

of each converting CIF were reviewed to

confirm that they were appropriate

investments for the receiving Fund. If

any of the assets of a CIF were not

appropriate for its corresponding Fund,

such assets were sold in the open

market through a brokerage firm

unaffiliated with Sanwa Bank prior to

the date of the conversion.

7. Sanwa Bank provided to each

affected Plan disclosures that

announced the termination of the CIF,

summarized the transaction and

otherwise complied with the provisions

of Section I of this proposed exemption.

Based on these disclosures, the Second

Fiduciary for each affected Plan

approved, in writing, the conversion

transaction, including the fees that were

to be paid by the Funds to Sanwa Bank

and its affiliates. A Plan electing not to

participate in the conversion transaction

received a cash payment representing

the Plan’s pro rata share of the assets of

the converting CIF before the

transaction occurred.

8. In the case of the Bank Plans, ASA

was required to make an independent

determination in its fiduciary capacity

that participation in the conversion

transaction was in the best interest of

the Bank Plans, including the decision

whether to participate therein. As part

of its written report setting out the

conclusions discussed in Representation

12 below, ASA was required to confirm

both its independence from Sanwa Bank

and its qualifications to serve as the

Second Fiduciary for the Bank Plans. In

addition, ASA represented that it would

not derive more than 5 percent of its

gross annual revenues from Sanwa Bank

in connection with such in-kind

transfers.

9. The assets transferred by a

converting CIF to its corresponding

Fund consisted entirely of cash and

securities for which market quotations

were readily available. For this purpose,

the value of the CIF’s securities was

determined based on the market value

as of the close of business on the

business day prior to the in-kind

transfer of such securities to the

corresponding Fund (the Valuation

Date). The value of the CIF assets on the

Valuation Date was determined using

the valuation procedures described in

SEC Rule 17a–7 under the 1940 Act. In

this regard, the ‘‘current market price’’

for specific types of securities was

determined as follows:
Federal Register / Vol. 63, No. 103 / Friday, May 29, 1998 / Notices 29449

10Securities of non-U.S. issuers may be traded on

U.S. exchanges or NASDAQ, directly or in the form

of ADRs, or may be traded on foreign exchanges or

foreign over-the-counter markets. In the latter case,

valuation was performed in accordance with (d)

above.

11The securities subject to valuation under Rule

17(a)–7(b)(4) include all securities other than

‘‘reported securities,’’ as the term is defined in Rule

11Aa3–1 under the Securities Exchange Act of

1934, or those quoted on the NASDAQ system or

for which the principal market is an exchange.

12Although not contemplated by the initial

conversion transaction, the requested exemption

includes certain procedures that are consistent with

PTE 97–41 (62 FR 42830, August 8, 1997), PTE 97–

41 permits a client plan to purchase shares of a

mutual fund for which a bank or an investment

adviser serves as a fiduciary to the client plan, in

exchange for plan assets transferred in-kind from a

CIF. Specifically, the procedures relate to the

methods of communicating the confirmations

described above by personal delivery, facsimile or

electronic mail (see Section I(b) and (g) of this

proposed exemption).

13Although the Bank Plans represent a larger

portion of the CIFs that were terminated as well as

a larger portion of the Funds, ASA does not believe

the Bank Plans’ percentage ownership of the Funds

immediately after the conversion is determinative

of whether the conversion was proper.

(a) If the security was a ‘‘reported security’’

as the term is defined in Rule 11Aa3–1 under

the Securities Exchange Act of 1934 (1934

Act), the last sale price with respect to such

security reported in the consolidated

transaction reporting system (the

Consolidated System) for the Valuation Date;

or if there were no reported transactions in

the Consolidated System that day, the

average of the highest current independent

bid and the lowest current independent offer

for such security (reported pursuant to Rule

11Ac1–1 under the 1934 Act), as of the close

of business on the Valuation Date.

(b) If the security was not a reported

security, and the principal market for such

security was an exchange, then the last sale

on such exchange on the Valuation Date; or

if there were no reported transactions on

such exchange that day, the average of the

highest current independent bid and lowest

current independent offer on such exchange

as of the close of business on the Valuation

Date.

(c) If the security was not a reported

security and was quoted in the NASDAQ

system, then the average of the highest

current independent bid and lowest current

independent offer reported on NASDAQ as of

the close of business on the Valuation Date.

(d) For all other securities, the average of

the highest current independent bid and

lowest current independent offer as of the

close of business on the Valuation Date,

determined on the basis of reasonable

inquiry. (For securities in this category,

Sanwa Bank represents that it obtained

quotations from at least three sources which

were either broker-dealers or pricing services

independent of and unrelated to Sanwa Bank

and, where more than one valid quotation

was available, used the average of the

quotations to value the securities, in

conformance with interpretations by the SEC

and practice under Rule 17a–7.) 10

10. The securities received by a

corresponding Fund were valued by

such Fund for purposes of the in-kind

transfer in the same manner and as of

the same day as such securities were

valued by the CIF. The value of the

shares of each Fund issued to the CIF

was based on the corresponding Fund’s

then-current net asset value. Since the

Funds did not have assets in more than

a nominal amount prior to the

conversion, each Fund’s net asset value

was expected to be equal to the value of

the assets received from the transferring

CIF. Sanwa Bank represents that the

value of a Plan’s investment in shares of

each Fund as of the opening of business

was equal to the value of such Plan’s

investment in each corresponding CIF

as of the close of business on the

business day before the conversion.

11. Following the initial in-kind

transfers, Sanwa Bank sent ASA, as the

Second Fiduciary for the Bank Plans, as

well as the Second Fiduciaries of the

Client Plans, written confirmations of

the transactions. In this regard, no later

than 30 days after the completion of the

conversion, Sanwa Bank sent by regular

mail to the Second Fiduciary written

confirmation which contains (a) the

identity of each transferred security that

was valued for purposes of the

conversion in accordance with Rule

17a–7(b)(4), as described above, (b) the

current market price, as of the Valuation

Date, of each such security involved in

the conversion, and (c) the identity of

each pricing services or market maker

consulted in determining the current

market price of such securities.11 In

addition, no later than 105 days after the

completion of the conversion, Sanwa

Bank sent by regular mail a written

confirmation to the Second Fiduciary of

each affected Plan showing (a) the

number of CIF units held by the Plan

immediately before the conversion, (i)

the related per unit value, (ii) the total

dollar amount of the units transferred;

and (b) the number of shares of the

Funds that are held by such Plan

following the conversion, (i) the related

per share net asset value, and (ii) the

total dollar amount of such shares.

In accordance with the conditions

under Section I of this proposed

exemption, similar procedures will be

adopted upon any future in-kind

exchanges between CIFs maintained by

Sanwa Bank and the Funds.12

Representations of the Second Fiduciary

for the Bank Plans Regarding the InKind Transfers

12. As stated above, Sanwa Bank

retained ASA as the Second Fiduciary

for the limited purpose of overseeing the

initial in-kind transfers of CIF assets to

the Funds as such transactions would

affect the Bank Plans. In such capacity,

ASA represented that it consulted with

its own counsel regarding the fiduciary

provisions of the Act and stated that it

understood and accepted the duties,

responsibilities and liabilities in acting

as a fiduciary under the Act for the Bank

Plans.

In a written report dated September

30, 1997, ASA stated that it considered

the effect of the in-kind transfer

transactions on the Bank Plans and the

implications of such transactions for

Plans invested in the CIFs. Based on its

review of fees to be charged by the

Funds, the investment guidelines for the

Funds and the performance data

available on the CIFs, ASA concluded

that the terms of the in-kind transfers

were fair to the participants of the Bank

Plans and no less favorable than the

terms that would have been reached

among unrelated parties.

13. Based on representations obtained

from officers for Sanwa Bank regarding

the termination of the CIFs as well as

considering the effects of the in-kind

transfers, ASA represented that the

transactions were in the best interest of

the Bank Plans and their participants

and beneficiaries for the following

reasons:

(a) In terms of the investment policies

and objectives pursued, the Funds have

investment objectives comparable to the

CIFs and satisfy the stated investment

policies of the Bank Plans. Thus, in

terms of investment policies and

objectives, the impact of the in-kind

transfer transactions on the Bank Plans

and their participants and beneficiaries

would be de minimus; 13

(b) The Funds will probably continue

to experience relative performance

similar in nature to the CIFs given the

comparability of investment objectives

and policies and the fact that the same

portfolio management personnel will

provide portfolio management

oversight;

(c) The in-kind transfers would not

adversely affect the cash flows, liquidity

or investment diversification of the

Bank Plans; and

(d) By investing in the Funds, the

Bank Plans would receive a larger

investment base, cost savings to

participants over time through

economies of scale, more choices for

participants exercising investment

control, the ability to obtain investment

information through readily available

sources and fees that would be

reasonable and within industry

standards.

14. In forming an opinion as to the

appropriateness of the in-kind transfers,

ASA conducted an overall review of the
29450 Federal Register / Vol. 63, No. 103 / Friday, May 29, 1998 / Notices

14 It should be noted that Sanwa Bank has agreed

to temporarily waive the amount of its investment

advisory fees through the end of the Funds’ initial

fiscal year. Without the waiver, the per annum

investment advisory fees for the U.S. Treasury

Obligations Fund and the Global Asset Allocation

Fund would range from 0.20 percent to 0.90 percent

per annum of the Fund’s daily average assets.

15Sanwa Bank represents that it is relying upon

section 408(b)(2) with respect to its receipt of fees

for such administrative services. The Department

expresses no opinion herein on whether the

provision of such services will satisfy section

408(b)(2) of the Act.

16The fact that certain transactions and fee

arrangements are the subject of an administrative

exemption does not relieve the fiduciaries of the

Client Plans from the general fiduciary

responsibility provisions of section 404 of the Act.

Thus, the Department cautions Second Fiduciaries

of the Client Plans investing in the Funds that they

have an ongoing duty under section 404 of the Act

to monitor the services provided to such Plans to

assure that the fees paid by the Client Plans for such

services are reasonable in relation to the value of

the services provided. These responsibilities would

include determinations that the services provided

are not duplicative and that the fees are reasonable

in light of the level of services provided.

Bank Plans, including the Bank Plan

documents. ASA stated that it also

examined the investment portfolios of

the Bank Plans to ascertain whether or

not the such Plans were in compliance

with their investment objectives and

policies. Further, ASA stated that it

examined the cash flow and liquidity

requirements of the Bank Plans and the

diversification provided by the

investment portfolios of the Bank Plans.

Based on its review and analysis of the

foregoing, ASA represented that the inkind transfer transactions would not

adversely affect the total investment

portfolios of the Bank Plans, compliance

by such Plans with their stated

investment objectives and policies, the

cash flows liquidity or diversification

requirements of the Bank Plans.

15. As Second Fiduciary, ASA

represented that Sanwa Bank would

provide it with any documents it

considered necessary to perform its

duties as Second Fiduciary. In this

regard, ASA was advised that within 30

days following the initial in-kind

transfer transactions, Sanwa Bank

would provide it with the written

confirmation statements described

herein. In addition, ASA stated that it

would supplement its findings

following the review of the confirmation

statements to verify whether the in-kind

transfer transactions had resulted in the

receipt by the Bank Plans of shares in

the Funds that were equal in value to

such Plans’ pro rata share of assets of

the CIFs on the conversion date.

Further, ASA represented that it would

take such actions as it deemed necessary

to safeguard the interests of the Bank

Plans in the event the confirmation

statements did not verify the foregoing.

Finally, ASA explained that it would

maintain, for a period of six years from

the time of the initial conversion

transaction (and make available for

review), all relevant records with

respect to the performance of its duties

as Second Fiduciary for the Bank Plans.

Receipt of Fees by Sanwa Bank

16. Under certain conditions, PTE 77–

4 (42 FR 18732, April 8, 1977) permits

Client Plans of Sanwa Bank to engage in

the purchase and sale of shares of a

registered, open-end investment

company when Sanwa Bank, a fiduciary

with respect to such Client Plans, is also

the investment adviser for the

investment company, provided (a) the

Client Plan does not pay any investment

management, investment advisory or

similar fees for the assets of such Plan

invested in shares of a Fund for the

entire period of the investment; or (b)

where the Client Plan pays investment

management, investment advisory or

similar fees to Sanwa Bank based on the

total assets of such Client Plan from

which a credit has been subtracted

representing such Plan’s pro rata share

of such investment advisory fees paid to

Sanwa Bank by the Fund. As such, with

respect to the Client Plans, there may be

two levels of fees—(a) those fees which

Sanwa Bank may charge to Client Plans

for serving as trustee, investment

manager or custodian for such Plans

(the Plan-level fees); and (b) those fees

which Sanwa Bank may charge to the

Fund (the Fund-level fees) for serving as

an investment adviser for the Fund as

well as for being custodian of the Fund

or for providing other Secondary

Services to the Fund.

17. Since October 31, 1997, Sanwa

Bank no longer charges each Client Plan

a Plan-level fee for its services as

trustee, investment manager or

custodian based on Sanwa Bank’s

standard fee schedules and the terms of

specific agreements negotiated between

each Client Plan and Sanwa Bank. Such

Plan-level fees included asset-based

charges that were expressed as a

percentage of Client Plan assets. Instead,

as permitted by PTE 77–4, for

investment advisory services provided

to the Funds, Sanwa Bank is receiving

Fund-level advisory fees from each of

the Funds. As stated above in

Representation 1(d), these fees, which

are also expressed as a percentage of a

Fund’s assets currently range from 0.10

percent to 0.80 percent per annum of

the daily average assets of the U.S.

Treasury Obligations Fund and the

Global Asset Allocation Fund,

respectively.14

In addition to charging Fund-level

investment advisory fees, Sanwa Bank is

charging Client Plans for Plan-level

recordkeeping, administrative,

accounting and custodial services which

do not involve investment management,

such as custody of plan assets,

maintaining plan records, preparing

periodic reports of plan assets and

participant accounts, effecting

participant investment directions,

processing participant loans and

accounting for contributions, payments

of benefits and other receipts and

distributions. Sanwa Bank’s fees for

such Plan-level services will continue to

be negotiated with each Client Plan and

its fees for such services for Bank Plans

will continue to be limited to the

reimbursement of direct expenses

properly and actually incurred in the

performance of the services.15

At present, all services other than

investment advisory services are

provided to the Funds or their

distributor by unrelated parties.

However, as stated above, Sanwa Bank

represents that the Funds may, in the

future, wish to contract with it or an

affiliate to provide administrative,

custodial, transfer, accounting or similar

services (i.e., Secondary Services) to the

Funds or their distributor.16

Future Fee Changes and Client Plan

Authorization Requirements

18. Sanwa Bank notes that one of the

requirements of PTE 77–4 is that any

change in any of the rates of fees

requires the prior written approval by

the Second Fiduciary of the Plans

participating in the Funds. Where many

Plans participate in a Fund, Sanwa Bank

observes that the addition of a service or

any good faith increase in fees could not

be implemented until written approval

of such change is obtained from every

Second Fiduciary. As an alternative,

Sanwa Bank proposes to follow the

‘‘negative consent’’ procedure which it

believes provides the basic safeguards

for the Plans and is more efficient, cost

effective and administratively feasible

that required by PTE 77–4.

The negative consent procedure

would apply in the following

circumstances: (a) an increase in the rate

of any Fund-level investment

management, investment advisory or

similar fees; (b) a proposal by Sanwa

Bank or an affiliate to provide a

Secondary Service to a Fund for a fee;

and (c) an increase in the fee for a

Secondary Service paid by a Fund to

Sanwa Bank or its affiliates over an

existing rate that had been authorized

by the Second Fiduciary. In this regard,

an increase in fees for Secondary

Services can result either from an

increase in the rate of such fee or from
Federal Register / Vol. 63, No. 103 / Friday, May 29, 1998 / Notices 29451

17The Department notes that an increase in the

amount of a fee for an existing investment advisory

service or a Secondary Service (other than through

an increase in the value of the underlying assets in

the Funds), or the imposition of a fee for a newlyestablished Secondary Service shall be considered

an increase in the rate of such fees. However, in the

event an investment advisory fee or a fee for a

Secondary Service has already been described in

writing to the Second Fiduciary and the Second

Fiduciary has provided authorization for the

amount of such fee, and such fee has been waived,

no further action by Sanwa Bank will be required

in order for Sanwa Bank to receive such fee at a

later time. Thus, for example, no further disclosure

would be necessary if Sanwa Bank has received

authorization for a fee for custodial services from

a Client Plan investor and subsequently determined

to waive the fee for a period of time in order to

attract new investors but later charged the fee.

However, reinstituting the fee at an amount greater

than previously disclosed would necessitate Sanwa

Bank providing notice of the fee increase and a

Termination Form in the manner described above.

a decrease in the number or kind of

services performed by Sanwa Bank or its

affiliates for such fee over that which

had been authorized by the Second

Fiduciary of a Client Plan. Under such

circumstances, Sanwa Bank will

provide at least 30 days advance notice

of the implementation of a proposed fee

increase to Client Plans invested in the

affected Fund. The notice will take the

form of a proxy statement, letter or

similar communication which is

separate from the Fund’s prospectus and

which explains the nature and amount

of the additional service or the nature

and amount of the fee increase.17

19. The written notice of a fee

increase or additional Secondary

Service for which a fee is charged will

be accompanied by a Termination Form.

The Termination Form will enable the

Second Fiduciary to terminate any prior

authorization to invest Client Plan

assets in a Fund or Funds without

penalty to the affected Client Plan. In

addition, each Client Plan will be

supplied with a Termination Form

annually during the first quarter of each

calendar year, regardless of whether

there has been any fee increase or

additional Secondary Service for which

a fee is charged. If, however, the

Termination Form has been provided to

the Client Plan in connection with a fee

increase or an additional Secondary

Service for which a fee is charged, the

Termination Form need not be provided

again to the client Plan until at least six

months have elapsed, unless such

Termination Form is required to be sent

sooner as a result of another fee increase

or an addition of such Secondary

Services.

The Termination Form will be

accompanied by instructions which

state that any relevant authorization

previously given by the Second

Fiduciary is terminable at will be the

Second Fiduciary, without penalty to

the Plan, and that failure to return the

Form will be deemed to be an approval

of the fee increase or the additional

Secondary Service and will result in the

continuation of such authorization.

Termination of an authorization to

invest Client Plan assets in the Funds

will result in the redemption of shares

of the Fund held by the Plan by the

close of business on the business day

following the date of receipt by Sanwa

Bank of the Termination Form or any

other written notice of termination,

either by mail, hand delivery, facsimile

or other available means of written

communication at the option of the

Second Fiduciary. If, due to

circumstances beyond the control of

Sanwa Bank, the redemption cannot be

effected within one business day, Sanwa

Bank will have one additional business

day to complete such redemption.

20. Although an investment in the

Funds may result in an overall cost

increase to many of the Client Plans, the

Second Fiduciary will be obligated to

take such impact into account in

determining whether to authorize the

Plans’ investment in the Funds. In any

event, such additional costs will be

consistent with the costs of similar

alternative investments that will be

available to the Plans upon the

termination of the CIFs. In this respect,

Sanwa Bank believes that as to each

Plan, the combined total of all Planlevel and Fund-level fees received by

Sanwa Bank for the provision of

services to the Client Plans and to the

Funds, respectively, will not be in

excess of ‘‘reasonable compensation’’

within the meaning of section 408(b)(2)

of the Act.

21. The requested exemption will be

subject to the satisfaction of certain

general conditions that will further

protect the interests of the Plans. For

example, the transactions will be subject

to the prior authorization of a Second

Fiduciary, acting on behalf of each Plan,

who has been provided with the written

disclosures described above. The

Second Fiduciary generally will be the

administrator, sponsor or a committee

appointed by the sponsor to act as a

named fiduciary for a Client Plan or, in

the case of the Bank Plans, a qualified

party independent of Sanwa Bank.

22. With respect to disclosure, the

Second Fiduciary of each Plan will

receive advance written notice of the inkind transfer of assets of the CIFs and

written disclosure of information

concerning the Funds consistent with

PTE 77–4 and PTE 97–41. Among the

disclosures that will be given to the

Second Fiduciary include, but are not

limited to, the following: (a) a current

prospectus for each portfolio of each of

the Funds in which the Client Plan may

invest; (b) a statement describing the

fees for investment advisory or other

similar services, any fees for Secondary

Services, and all other fees to be charged

to or paid by the Client Plan and by

such Funds to Sanwa Bank, including

the nature and extent of any differential

between the rates of such fees; (c) a

statement of the reasons why Sanwa

Bank may consider such investment to

be appropriate for the Client Plan; (d) a

statement of whether there are any

limitations applicable to Sanwa Bank

with respect to which assets of a Client

Plan may be invested in Fund shares,

and, if so, the nature of such limitations;

and (e) a copy of the proposed

exemption and/or a copy of the final

exemption upon the request of the

Second Fiduciary.

On the basis of the disclosures, the

Second Fiduciary must authorize in

writing the investment of Plan assets in

shares of the Fund in connection with

the transactions described herein as

well as the compensation received by

Sanwa Bank (or its affiliates) in

connection with its services to the

Funds. Such written authorization will

extend to only those Funds with respect

to which the Plan has received the

written disclosures referred to above

and which are specifically mentioned in

such disclosures.

Having obtained the authorization of

the Second Fiduciary, Sanwa Bank will

invest the assets of a Plan among the

Funds, subject to satisfaction of the

other terms and conditions of the

requested exemption. Sanwa Bank will

not, however, invest the assets of a Plan

in any Fund not specifically mentioned

in the written disclosure and

authorization described above. If a new

Fund were established, Sanwa Bank

would invest assets of a Plan in such

new Fund under the requested

exemption only after providing the

required disclosures and obtaining a

separate written authorization from the

Second Fiduciary which specifically

mentions the new Fund.

23. In addition to the disclosures

provided to the Plan prior to investment

in a Fund, Sanwa Bank will provide, at

least annually to the Second Fiduciary

of each Client Plan, an updated

prospectus of each Fund in accordance

with the requirements of the 1940 Act

and applicable SEC rules. Further, the

Second Fiduciary will be supplied,

upon request, with a report or statement

(which may take the form of the most

recent financial report of the Funds, the

current statement of additional

information or some other written

statement) containing a description of
29452 Federal Register / Vol. 63, No. 103 / Friday, May 29, 1998 / Notices

all fees paid by the Funds. Finally, all

dealings by or between the Client Plans

and any Fund will be on a basis which

is no less favorable to such Plans than

dealings between the Fund and other

non-Plan shareholders holding the same

class of shares as the Client Plans.

Although it does not anticipate doing

so initially, Sanwa Bank or an affiliate

may in the future execute securities

brokerage transactions for some or all of

the Funds, as and to the extent

permitted by the 1940 Act and

applicable SEC rules. If and when

Sanwa Bank proposes to provide

brokerage services to any Fund for

compensation, Sanwa Bank will, at least

30 days in advance of the

implementation of such service, provide

written notice to the Client Plans

explaining the nature of such brokerage

services and the amount of the fees to

be paid therefor. Further, with respect to

any Fund for which Sanwa Bank

provides brokerage services, Sanwa

Bank will provide, at least annually to

each Client Plan that invests in such

Fund a written disclosure indicating (a)

the total brokerage commissions paid by

the Fund to Sanwa Bank, expressed in

dollars; (b) the total brokerage

commissions paid by the Fund to

brokerage firms unrelated to Sanwa

Bank, expressed in dollars; (c) the

average brokerage commissions per

share paid by the Fund to Sanwa Bank,

expressed as cents per share; and (d) the

average brokerage commissions per

share paid by the Fund to brokerage

firms unrelated to Sanwa Bank,

expressed as cents per share.

24. In addition to the foregoing, the

requested exemption will be subject to

the following requirements: (a) the Plans

and other investors will purchase or

redeem Fund shares in accordance with

standard procedures described in the

prospectus for each Fund; (b) no Plan

will pay a sales commission or

redemption fee in connection with the

purchase or redemption of Fund shares;

(c) Sanwa Bank will not purchase from

or sell to any Plan shares of the Fund;

(d) the price paid or received by the

Plans for Fund shares will be the net

asset value per share at the time of such

purchase or redemption and will be the

same price as any other investor would

pay or receive for shares of the same

class.

25. In summary, it is represented that

the transactions have satisfied or will

satisfy the statutory criteria for an

exemption under section 408(a) of the

Act because:

(a) With respect to the in-kind transfer

of the assets of a Plan invested in a CIF

in exchange for shares of a Fund, a

Second Fiduciary has authorized or will

authorize in writing, such in-kind

transfer prior to the transaction only

after receiving full written disclosure of

information concerning the Fund.

(b) Each Plan has received or will

receive shares of the Funds in

connection with the transfer of assets of

a terminating CIF which have a total net

asset value that is equal to the value of

such Plan’s pro rata share of the CIF

assets on the date of the transfer as

determined in a single valuation

performed in the same manner and at

the close of the business day, using

independent sources in accordance with

procedures established by the Funds

which comply with Rule 17a–7 of the

1940 Act, as amended, and the

procedures established by the Funds

pursuant to Rule 17a–7 for the valuation

of such assets.

(c) Sanwa Bank has sent or will send

by regular mail or personal delivery, or,

if applicable, by facsimile or electronic

mail, no later than 30 days after

completion of each in-kind transfer of

CIF assets in exchange for shares of the

Funds, a written confirmation

containing the following information:

(1) the identity of each transferred

security that was valued for purposes of

the transaction in accordance with Rule

17a–7(b)(4) of the 1940 Act; (2) the

current market price, as of the date of

the in-kind transfer, of each such

security involved in the transaction; and

(3) the identity of each pricing service

or market maker consulted in

determining the current market price of

such securities.

(d) Sanwa Bank has sent or will send

by regular mail, or personal delivery, or,

if applicable, by facsimile or electronic

mail, no later than 105 days after

completion of each transfer, a written

confirmation that contains the following

information: (1) the number of CIF units

held by a Plan immediately before the

conversion (and the related per unit

value and the total dollar amount of

such CIF units); and (2) the number of

shares in the Funds that are held by the

Plan following the conversion (and the

related per share net asset value and the

total dollar amount of the shares

received).

(e) The price that has been or will be

paid or received by a Plan for shares of

the Funds is the net asset value per

share at the time of the transaction and

is the same price for the shares which

will be paid or received by any other

investor at that time.

(f) No sales commissions or

redemption fees have been or will be

paid by a Plan or a CIF in connection

with the in-kind transfer of assets to the

Fund, in exchange for shares of the

Funds or in connection with the

purchase or redemption of Fund shares

by a Plan.

(g) For each Client Plan, the combined

total of all fees received by Sanwa Bank

for the provision of Plan-level services,

and in connection with the provision of

investment advisory services or

Secondary Services to any of the Funds

in which Plans may invest, is not and

will not be in excess of ‘‘reasonable

compensation’’ within the meaning of

section 408(b)(2) of the Act.

(h) Sanwa Bank has not received and

will not receive any 12b–1 Fees in

connection with the transactions.

(i) Any authorizations made by a

Client Plan regarding investments in the

Funds and the fees paid to Sanwa Bank

(including increases in the contractual

rates of fees for Secondary Services that

are retained by the Sanwa Bank) will be

terminable at will by the Client Plan,

without penalty to the Client Plan and

will be effected within one business day

following receipt by Sanwa Bank, from

the Second Fiduciary, of the

Termination Form or any other written

notice of termination, unless

circumstances beyond the control of

Sanwa Bank delay execution for no

more than one additional business day.

(j) The Second Fiduciary will receive

written notice accompanied by the

Termination Form with instructions on

the use of the form at least 30 days in

advance of the implementation of any

increase in the rate of any fees paid by

the Funds to Sanwa Bank regarding

investment advisory services, fees for

Secondary Services or an additional

Secondary Service for which a fee is

charged which exceed the rates

authorized for Sanwa Bank by the

Second Fiduciary.

(k) All dealings by or between the

Client Plans and any Fund have been

and will remain on a basis which is no

less favorable to such Client Plans than

dealings between the Fund and other

non-Plan shareholders holding the same

class of shares as the Client Plans.

Notice to Interested Persons

Sanwa Bank proposes to provide

notice of the proposed exemption to the

Second Fiduciary of the Bank Plans,

active participants in the Bank Plans

and the Second Fiduciary of each

affected Client Plan. Notice will be

provided to each Second Fiduciary by

first class mail and to active participants

in the Bank Plans by posting at major

job sites. Such notice will be given to

interested persons within 30 days

following the publication of the notice

of pendency in the Federal Register.

The notice will include a copy of the

notice of proposed exemption as

published in the Federal Register as
Federal Register / Vol. 63, No. 103 / Friday, May 29, 1998 / Notices 29453

18For purposes of this exemption, references to

specific provisions of Title I of the Act, unless

otherwise specified, refer also to the corresponding

provisions of the Code.

19 It is represented that the Fund is the successor

to the former Sabine Area Pipefitters Local No. 195

Pension Trust Fund, which was involved in the

correction of a 1988 prohibited transaction that had

occurred before the former Local 195 Pension Fund

merged into the Fund in 1990. It is represented that

the correction of the prohibited transaction did not

involve any assets of the National Pension Fund

except to the extent that the Local 195 Joint

Apprenticeship Committee was assessed first tier

excise taxes under section 4975 of the Code for its

use of assets of the former Local 195 Pension Fund.

well as a supplemental statement, as

required, pursuant to 29 CFR

2570.43(b)(2), which shall inform

interested persons of their right to

comment on and/or to request a hearing.

Comments and requests for a public

hearing are due within 60 days of the

publication of the notice of proposed

exemption in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Ms.

Jan D. Broady of the Department,

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

a toll-free number.)

Plumbers and Pipe Fitters National

Pension Fund (the Fund) Located in

Crofton, MD

[Exemption Application No. D–10514]

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)(1)(A),

406(a)(1)(B), 406(a)(1)(D), 406(b)(1), and

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

resulting from the application of section

4975 of the Code, by reason of section

4975(c)(1)(A) through (E) of the Code 18

shall not apply, effective October 9,

1997, to the transfer to the Fund from

the United Association of Journeymen

and Apprentices of the Plumbing and

Pipe Fitting Industry of the United

States and Canada, AFL–CIO (the

Union), a party in interest with respect

to the Fund, of the Union’s limited

partnership interests in Diplomat

Properties, Limited Partnership, (the

Partnership), the sole asset of which is

a certain resort hotel and country club

complex (the Property); and to the

transfer to the Fund of Union’s holding

of stock in Diplomat Properties, Inc. (the

Stock), the corporate general partner of

such Partnership, in consideration for a

capital contribution by the Fund to the

Partnership in the amount of $40

million dollars, plus reasonable costs

incurred by the Union in purchasing the

Property, and in consideration for the

release of a certain loan obligation (the

Loan) of the Partnership which was

guaranteed by the Union and

collateralized by Union assets; provided

that:

(1) the transaction was a one-time

transaction;

(2) an I/F which has the following

qualifications acted on behalf of the

Fund:

(a) the I/F is an individual, group of

individuals, or a business entity which

has substantial experience and expertise

in the commercial real estate field;

(b) neither the I/F nor any of its

affiliates have any ownership or other

interest in the Union or its affiliates, nor

does the Union or any of its affiliates

have any ownership interest in the I/F

or its affiliates; and

(c) neither the I/F nor its affiliates

engages in any business transactions

with the Union or its affiliates.

(3) prior to the Fund entering the

transaction, the I/F reviewed and

approved the terms of the transaction,

determined that the transaction was an

appropriate investment for the Fund,

that the amount paid by the Fund to

acquire ownership of the Property

through the Partnership was appropriate

and fair, that the total costs incurred

were necessary for the acquisition of the

Property and were reasonable, and that

the transaction was in the best interest

of the Fund and its participants and

beneficiaries;

(4) the fair market value of the

Property held by the Partnership was

determined by an independent,

qualified appraiser, as of the date of the

transaction;

(5) the Fund paid no fees or

commissions as a result of the

transaction; and

(6) the terms of the transaction were

no less favorable to the Fund than those

it would have received under similar

circumstances when negotiated at arm’s

length with unrelated third parties.

Summary of Facts and Representations

1. The Fund is a Taft-Hartley multiemployer defined benefit pension fund,

as defined in section 3(37) of the Act.19

The Fund is funded solely by employer

contributions negotiated under

collective bargaining agreements with

the Union. As of January 1997, it is

represented that the Fund received

contributions from 5,187 active

employers. As of October 3, 1997, there

were estimated to be 97,988 participants

and beneficiaries of the Fund. As of

June 30, 1997, the Fund had assets of

approximately $3.166 billion. It is

represented that the transaction which

is the subject of this proposed

exemption involved less than 2 percent

(2%) of the total assets of the Fund.

The Fund is administered from its

offices in Crofton, MD by the plan

administrator. Six (6) individuals serve

as members of the Board of Trustees (the

Trustees) of the Fund. Three of the

Trustees are appointed by employers

who contribute to the Fund, and three

of the Trustees are appointed by the

Union. The three Trustees selected by

the Union also serve as officers of the

Union. As fiduciaries to the Fund, the

Trustees are parties in interest with

respect to the Fund within the meaning

of section 3(14)(A) of the Act.

2. The Union is an employee

organization some of whose members

participate in the Fund. As such, the

Union is a party in interest with respect

to the Fund within the meaning of

section 3(14) of the Act.

3. The Property, located in Hollywood

and Hallandale, Florida, was

constructed in the late 1950’s and

consists of several parcels, including a

oceanfront hotel, a vacant parcel of

oceanfront real estate, a motel, a golf

course, a clubhouse with tennis courts,

and a marina. The hotel consists of two

towers containing a total of 655 rooms.

The north tower is the older of the

towers and is in poor condition. The

south tower has 256 rooms, large

convention areas, and a parking garage.

It is represented that the hotel at one

time operated as a premier hotel and

country club catering to the middle

income convention trade, but due to a

decline in the market, the hotel has been

closed since 1992.

The vacant parcel, located on a 2.99-

acre oceanfront site, functions as a

parking lot. The motel, located on the

Intracoastal Waterway and across the

street from the hotel, has approximately

300 rooms, only 150 of which are

operational. The golf course, containing

122.91 acres, is represented to be in

relatively good shape and continues to

function as a low budget operation. It is

represented that the clubhouse and

tennis courts are in need of upgrading.

In the alternative, the real estate

underlying the clubhouse and tennis

courts could be re-zoned for residential

use. The marina, the newest addition to

the Property, provides a 52-slip facility,

offering a number of finger piers, and a

covered gazebo. It is represented that

twelve (12) of the boat slips are under

annual leases, and that the marina is

subject to a long-term lease with a local

yacht club.

4. The Union Labor Life Insurance

Company (ULLICO) acquired, through
29454 Federal Register / Vol. 63, No. 103 / Friday, May 29, 1998 / Notices

20The Department notes that the actions of the

Trustees relying on the advice of the I/F and acting

on behalf of the Fund, in connection with its

consideration of the merits of the acquisition of the

limited partnership interests in the Partnership and

the Stock of the corporate general partner of the

Partnership as an investment for the Fund and the

subsequent acquisition and holding of the Property

are governed by the fiduciary responsibility

foreclosure, ownership of the Property

as a result of a default by an unrelated

third party on a mortgage loan. In this

regard, in May 1991, title to the Property

was transferred to TNDL Limited

(TNDL), a wholly-owned subsidiary of

ULLICO.

Early in 1997, TNDL placed the

Property on the market for sale. It is

represented that as a result of this

public solicitation, TNDL received

seven or eight bids from prospective

purchasers, including the Union and at

least one from a well-known hotel

chain.

It is represented that when the

Property was offered for sale, the

Trustees of the Fund were interested in

acquiring it as an investment for the

Fund. However, a non-negotiable

condition in the sale offer by TNDL

excluded assets of any employee benefit

fund subject to the Act from being used

to purchase the Property.

5. The successful bidder on the

Property was the Union which

purchased the Property on October 1,

1997, for $40 million in cash, plus

expenses incurred by the Union in

acquiring the Property. Upon the advice

of counsel, the Union chose to acquire

and hold title to the Property through its

wholly-owned subsidiary, the

Partnership, in order to avoid state real

property transfer taxes that would

otherwise arise upon any subsequent

sale of the Property.

It is represented that the Partnership

obtained the money to purchase the

Property from the proceeds of the Loan

from the National City Bank of

Cleveland, Ohio (the Bank). It is

represented that repayment of the Loan

by the Partnership was guaranteed by

the Union. The Loan was secured by

cash, cash equivalents, and securities

owned by the Union and held by the

Bank in a custodial account.

The term of the Loan was two (2)

years with no prepayment penalty. The

payment schedule consisted of

payments only of interest for 23 months

with a balloon payment of the principal

amount, plus accrued interest in the

24th month. The interest rate on the

Loan was the Bank’s 7-day money

market rate, adjusted weekly. It is

represented that the $25,000 origination

loan fee charged by the Bank on the

Loan was withheld from the $40 million

dollar Loan made to the Partnership by

the Bank.

6. At the time the Partnership

acquired the Property, an appraisal of

the Property was prepared by Bruce C.

Roe (Mr. Roe), President, and Zillah L.

Tarkoe, Senior Analyst, of Roe Research,

Inc., in Ft. Lauderdale, Florida. It is

represented that the appraisers are

qualified in that each is licensed by the

State of Florida as a state-certified

general real estate appraiser. It is further

represented that Mr. Roe is a Member of

the American Society of Real Estate

Counselors (CRE) and a Member of the

Appraisal Institute (MAI).

It is represented that the appraisers

are independent in that neither has a

present or prospective interest in the

Property, nor has either any personal

interest or bias with respect to the

parties involved. Neither the

employment nor the compensation of

the appraisers was conditioned upon

the reporting of a predetermined value

or direction in value of the Property.

After physically inspecting the

Property and reconciling the values for

the Property established by the cost

approach, income approach, and sales

comparison approach, the appraisers

established a separate value, based on

fee simple interest ‘‘as is,’’ for each of

the parcels which make up the Property,

including the oceanfront hotel, the

vacant oceanfront parcel, the motel, the

golf course and club house, and the

marina. The sum of these separate

values for each of the parcels was

$44,350,000, as of August 8, 1997.

Including a 10 percent (10%) discount

for a bulk sale of all of the parcels of the

Property ‘‘as is’’ to a single purchaser,

the fair market value of the Property,

was determined by the appraisers to be

$40 million, as of August 8, 1997.

7. It is represented that on October 9,

1997, the Union and the Fund closed on

the transaction that is the subject of this

proposed exemption. Accordingly, the

Fund, as applicant, has requested a

retroactive exemption, effective October

9, 1997, to permit the past transfer from

the Union to the Fund of the Union’s

limited partnership interests in the

Partnership and the Stock in the

corporate general partner of the

Partnership which was owned by the

Union. In this regard, it is represented

that the Union owned 100 percent of the

Stock of the corporate general partner of

the Partnership. As general partner, the

corporation owned one percent (1%) of

the outstanding interest in the

Partnership. The other 99 percent (99%)

of the interests in the Partnership were

owned by the Union, as limited partner.

It is represented that at the time of the

sale of the Property to the Partnership,

there existed no agreement pursuant to

which the Partnership was obligated to

sell the Property to any third party or

pursuant to which any third party was

obligated to buy the Property, including

the Fund. Further, at the time of the sale

of the Property to the Partnership, there

existed no agreement pursuant to which

the Union was obligated to sell its

interest in the Partnership to any third

party or pursuant to which a third party

was obligated to buy the Union’s

interest in the Partnership, including

the Fund. Finally, there never existed

any agreement or understanding

between TNDL and the Fund with

respect to the purchase of the Property

by the Fund. In this regard, it is

represented that TNDL’s representatives

were unaware that the Trustees of the

Fund were contemplating purchasing

the Property after it was sold by TNDL

to the Union.

It is represented that in consideration

for the transfer by the Union of the

Stock and the limited partnership

interests, the Fund made a capital

contribution to the Partnership in the

amount of $40 million dollars. In

addition, the Fund agreed to reimburse

the Union for the following

expenditures (totaling $367,605) which

were incurred by the Union in

purchasing the Property: (a) attorney

hourly fees, travel, and other expenses

($215,756) paid to persons unrelated to

the Fund; (b) due diligence fees (e.g.,

geotechnical, evaluation, updated

boundary surveys, appraisal fees)

($42,643); (c) a letter of credit fee

($8,406) paid to the issuer, NationsBank;

and (d) earnest money deposit of

$100,000 paid into escrow and credited

to the Partnership at closing, plus $800

of interest accrued in escrow. It is

represented that the letter of credit fee

resulted from a term in the sale contract

with TNDL, the seller of the Property,

which required that the earnest money

deposit be in the form of a letter of

credit. Further, some due diligence and

other fees not included in the amounts

set forth above were incurred by the

Union prior to the establishment of the

Partnership. It is represented that these

due diligence and other fees include the

following: (a) $647.50 custodian fee

paid to National City Bank; (b) $2,978

paid to CT Corporation for assistance in

establishing the Partnership and the

corporate general partner of the

Partnership; and (c) $75,000 to the I/F

for the initial opinion on the value of

the Property. It is represented that these

amounts were paid by the Partnership

and/or the Fund subsequent to the

closing on the Property and the transfer

of the ownership of the Partnership to

the Fund.20
Federal Register / Vol. 63, No. 103 / Friday, May 29, 1998 / Notices 29455

requirements of part 4, subpart B, of Title I. The

Department expresses no opinion herein, as to

whether any of the relevant provisions of part 4,

subpart B, of Title I have been violated regarding

the Fund’s investment in the Partnership and

subsequent holding of the Property, and no

exemption from such provisions is proposed herein.

Because the Property was the sole

asset of the Partnership, it is represented

that the economic effect of the transfer

which is the subject of this proposed

exemption for all practical purposes was

the same as a sale of the Property by the

Union to the Fund. Subsequent to the

transfer, it is represented that the capital

contribution made by the Fund to the

Partnership was used to retire the Loan

between the Bank and the Partnership.

In this regard, it is represented that on

October 10, 1997, the Fund transferred

directly to the Bank sufficient assets to

pay off the Loan.

8. It is represented that the transaction

which is the subject of this proposed

exemption was in the interest of the

Fund, because it provided a valuable

investment opportunity to the Fund

which it is represented will result in a

superior return.

Further, it is represented that the

cities of Hollywood and Hallandale

support the redevelopment of the

Property. In this regard, it is represented

that additional funding for the

development of the Property is under

consideration by the U.S. Department of

Housing and Urban Development

through a community development loan

guarantee program for projects that

produce full time job opportunities for

low income residents. Additionally, it is

represented that the Fund’s ownership

of the Property through the limited

partnership structure will permit the

Fund to avoid the liabilities associated

with a more direct ownership of real

estate and will not threaten the tax

exempt status of the Fund.

9. In the opinion of the Trustees, an

important safeguard in this proposed

exemption is that an I/F, acting on

behalf of the Fund, reviewed and

approved the subject transaction, and

that such I/F concluded that the

transaction was prudent and in the

interests of the participants and

beneficiaries of the Fund. It is

represented that, as of September 22,

1997, Chadwick, Saylor & Co. Inc. (CSC)

was retained by the Trustees to act as

I/F on behalf of the Fund. As a result,

CSC provided the Trustees with a report

of its opinion of the subject transaction,

dated September 29, 1997, a

supplemental report of the same date, a

subsequent report, dated December 15,

1997, and an additional letter dated,

May 11, 1998.

CSC has acknowledged that as I/F it

was solely responsible to the Fund. In

this regard, it is represented that the fee

of the I/F was paid by the Fund. It is

further represented that CSC is

independent in that there is no

relationship between the Union and

CSC, and that CSC is not related to or

affiliated with the Fund. Further, CSC

represents that it had no conflicts

affecting its ability to serve as the I/F

and to provide an independent

evaluation of the transaction which is

the subject of this proposed exemption.

CSC represents that it is an

investment advisor registered under the

Investment Advisors Act of 1940; that it

possesses substantial expertise in the

area of commercial real estate

investments; and that it is qualified to

provide the independent fiduciary

services required. In this regard, either

CSC or its principals have represented

in excess of forty (40) tax exempt

institutional real estate investors

(private and public pensions,

endowments and foundations) in a

fiduciary capacity.

In fulfilling its role as I/F, CSC

received and reviewed the Fund’s

policy statement and various reports,

schedules, and other material provided

by the Fund’s consultants, real estate

managers, and various professionals.

Included in the information reviewed by

CSC is the following: (a) the sale and

purchase agreement between the Union

and TNDL, and attachments and related

correspondence; (b) documents, plans,

surveys, and maps pertaining to existing

and anticipated improvements on the

Property; (c) documents, maps, and

other correspondence pertaining to the

condition of title of the Property,

including encumbrances, taxes and

other liens, and information on certain

adjacent sites; (d) ordinances and other

information relating to zoning and

building codes; (e) the statement of

value of the Property from the

independent appraisers; and (f)

preliminary feasibility studies, status,

and condition reports related to the

contemplated development and

redevelopment of the Property.

After reviewing the material listed

above, CSC is of the opinion that the

Fund’s investment in the Partnership

represents a moderate expenditure of

capital (based on the Fund’s overall

investment portfolio) to produce

disproportionately high returns. In this

regard, CSC believes that the probable

internal rate of return to the Fund will

be in excess of 15% from its investment

in the Property and successful

conclusion of development and

redevelopment efforts over the next

several years. It is further represented

that this rate of return is substantially

greater than the overall rate of return

experienced by the Fund from its

current real estate portfolio. Based on

diversification characteristics of the

investment in the Partnership, CSC

believes that the Fund will enjoy a very

competitive risk-adjusted return from its

investment.

With respect to diversification of the

assets of the Fund, CSC represents that

allowing for the subject transaction,

equity real estate represents less than 6

percent (6%) of the Fund’s total

investment portfolio. It is further

represented that the total real estate

commitments of the Fund, including the

6% equity position and non-equity debt

type investments (e.g. loans, bonds,

mortgages, and mortgage-backed

securities), were slightly in excess of 15

percent (15%) of the Fund’s total

investment portfolio, as of June 30,

1997.

CSC recognized the degree of risk

assumed by the acquisition of properties

which are generally unoccupied and are

in need of development or

redevelopment to become occupied and

to generate a positive cash flow. Based

on the risk/reward characteristics of the

subject transaction, CSC is of the

opinion that the acquisition cost (which

represents approximately 1.2 percent

(1.2%) of the Fund’s total investment

portfolio, as of June 30, 1997) is an

appropriate expenditure and does not

represent unwarranted risk.

With respect to the appraisal of the

Property prepared by Roe Research, Inc.,

CSC believes that the $40 million dollar

value ascribed to the Property is

appropriate and fair. However, CSC did

not subscribe to the ‘‘bulk sale

discount’’ for the Property, as set forth

in the appraisal report. In the opinion of

CSC, the value of the unique

characteristics of the Property, offering

a ‘‘self-contained’’ resort complex,

collectively could be greater than the

value determined by individual

transactions on the various parcels

which make up the Property.

In the opinion of CSC, the amount

(approximately $40 million dollars, plus

reasonable costs) paid by the Fund to

acquire the Property does not exceed the

fair market value of such Property at the

time of acquisition, including

consideration for miscellaneous costs,

presuming that such costs when fully

identified are customary and reasonable

and do not exceed the costs incurred by

the Union in its purchase of the

Property from TNDL. With regard to

such costs, CSC in May 1998, after

reviewing the total acquisition cost

schedule, including financing related

costs, legal fees, property specific
29456 Federal Register / Vol. 63, No. 103 / Friday, May 29, 1998 / Notices

related costs, and the cost of the I/F’s

valuation, opined that all enumerated

acquisition costs were reasonable and

that the costs that were incurred were

necessary for making a prudent decision

on the acquisition of the Property.

In the opinion of CSC, it is

appropriate for the Fund to hold title to

the Property through the Partnership

where the Fund owns 100 percent

(100%) of the Stock of the corporate

general partner of such Partnership. In

this regard, it is CSC’s assumption that

the Partnership may be restructured in

the future to accommodate tax or other

issues, to sell a portion of the Property,

or to accommodate co-investor or lender

capital funding. In this regard, it is

represented that such holding by the

Fund will permit the Fund to avoid

liabilities associated with a more direct

ownership of real estate and will not

threaten the tax-exempt status of the

Fund.

CSC recognizes that certain aspects of

the Fund’s investment in the

Partnership could potentially cause

unrelated business income tax (UBTI) to

the Fund. In this regard, CSC has been

advised by counsel to the Fund that the

structuring of the Fund’s ownership,

operations, and sales will be focused on

minimizing any tax consequence to the

Fund. Based on this advice of counsel,

it is CSC’s opinion that the risk-adjusted

returns to the Fund, including

consideration for potential UBTI, fully

justify the acquisition, and

development/redevelopment processes

planned by the Fund for the Property.

In September 1997, when CSC issued

its opinion, certain budgets, cash flows,

or schedules pertaining to the

development, redevelopment, operation

and potential of the various components

of the Property were not available. In

addition, CSC’s opinions as to the

fairness of the transaction were based on

certain assumptions related to functions

yet to be performed or completed and

certain permits and approvals yet to be

received. Notwithstanding these facts,

in the course of its review of materials

with respect to the subject transaction,

it is represented that nothing came to

the attention of CSC that indicated that

these matters could not be favorably

resolved, and in CSC’s opinion, it is

reasonable for the Fund to assume that

such matters will be favorable resolved.

Therefore, based on all of the

information CSC reviewed as of the date

of its initial opinion and affirmed in its

subsequent report, CSC concludes,

solely on behalf of the Fund, that the

acquisition price in the amount of $40

million, plus reasonable costs is

appropriate and fair. Moreover, based

on the foregoing, it is CSC opinion that

the transaction which is the subject of

this exemption represents a prudent

investment for the Fund and is in the

best interest of the participants and

beneficiaries of the Fund.

10. In summary, the applicant,

represents that the proposed transaction

meets the statutory criteria for an

exemption under section 408(a) of the

Act because:

(1) The transaction was a one-time

transaction;

(2) The I/F acted on behalf of the

Fund;

(3) Prior to entering the transaction,

the I/F reviewed approved the terms of

the transaction, determined that the

transaction was an appropriate

investment for the Fund, that the

amount paid by the Fund to acquire

ownership of the Property through the

Partnership was fair and reasonable,

that the total costs incurred were

necessary for the acquisition of the

Property and were reasonable, and that

the transaction was in the best interest

of the Fund and its participants and

beneficiaries;

(4) The fair market value of the

Property held by the Partnership was

determined by an independent,

qualified appraiser;

(5) The Fund paid no fees or

commissions as a result of the

transaction; and

(6) The terms of the transaction were

no less favorable to the Fund than those

it would have received under similar

circumstances when negotiated at arm’s

length with unrelated third parties.

FOR FURTHER INFORMATION CONTACT:

Angelena C. Le Blanc of the Department,

telephone (202) 219–8883 (This is not a

toll-free number.)

Collection Bureau Services Profit

Sharing Plan and Trust (the Plan),

Located in Missoula, MT

[Application No. D–10525]

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 (1) the proposed lease

(the Lease) by the Plan of certain

improved real property (the Property) to

Collection Bureau Services (the

Employer), a party in interest with

respect to the Plan, and (2) the possible

purchase of the Property by the

Employer in the future, pursuant to the

Employer’s option to purchase the

Property under the Lease.

This proposed exemption is subject to

the following conditions:

(1) The Plan is represented for all

purposes under the Lease by a qualified,

independent fiduciary;

(2) The terms and conditions of the

Lease are at least as favorable to the Plan

as those the Plan could obtain in a

comparable arm’s length transaction

with an unrelated party;

(3) The rent paid to the Plan under the

Lease is no less than the fair market

rental value of the Property, as

established by a qualified, independent

appraiser;

(4) The rent is adjusted, at a

minimum, every three years, based

upon an updated independent appraisal

of the Property, but in no event shall

such adjustments result in the rent

being less than the rental amount for the

Property existing for the preceding

period;

(5) The Lease is triple net (with all

expenses for maintenance, taxes, and

insurance to be borne by the Employer

as the tenant);

(6) The independent fiduciary for the

Plan (the I/F) reviews the terms and

conditions of the Lease on behalf of the

Plan and determines that the Lease is in

the best interests of, and appropriate for,

the Plan;

(7) The I/F monitors and enforces

compliance with all of the terms and

conditions of the Lease, and of the

exemption (if granted), throughout the

duration of the Lease;

(8) The I/F expressly approves any

improvements by the Employer to the

Property, any renewal of the Lease

beyond the initial term, and any sale of

the Property to the Employer, pursuant

to the Employer’s option to purchase the

Property under the Lease;

(9) In the event that the Employer

exercises its option to purchase the

Property under the Lease, the Employer

pays the Plan an amount which is the

greater of either (a) the original

acquisition cost of the Property, plus

holding expenses, or (b) the fair market

value of the Property, as of the date of

the sale, as established by a qualified,

independent appraiser; and

(10) At all times throughout the

duration of the Lease, the fair market

value of the Property represents no more

than 25 percent of the total assets of the

Plan.

Summary of Facts and Representations

1. The Plan is a defined contribution

plan sponsored by the Employer. The
Federal Register / Vol. 63, No. 103 / Friday, May 29, 1998 / Notices 29457

21From October 1, 1994 to September 16, 1996,

the Plan leased the Property to the Employer for

commercial use. In an audit of the Plan, the

Department cited the prohibited lease, among other

things, in a letter dated December 17, 1996, as a

violation of the Act. In a letter dated February 26,

1997, the Department noted that the Employer had

taken all corrective action required by the

Department, including the payment, on January 24,

1997, of $2,585.50 in excise taxes assessed by the

Internal Revenue Service. Since that amount

exceeded the amount of the section 502(l) penalty

assessed by the Department, under the

Department’s regulations (see 29 CFR 2570.86), no

further payment was due, and the Department

closed its investigation of the Plan.

22 In this regard, PPMI will confer with legal

counsel having expertise with respect to the

requirements of the Act, as needed.

Employer, a Montana corporation, is

engaged in the collection and credit

reporting business. As of October 13,

1997, the Plan had approximately 26

participants and beneficiaries. As of that

date, the Plan had total assets of

$1,131,567. The trustees of the Plan are

Jeffrey J. Koch and Douglas N. Klein.

2. Among the assets of the Plan is the

Property, which consists of a single

family residence located at 218 East

Spruce, Missoula, Montana, adjacent to

the Employer’s premises. The Property

is a one story, two bedroom, one bath

structure. The Property was acquired by

the Plan in 1982 from an unrelated party

for $32,500 and is not mortgaged or

otherwise subject to any debt. Since

September 16, 1996, the Property has

been leased to an unrelated party at the

rate of $550 per month.21 The Employer

proposes to lease the Property from the

Plan and convert the Property to

commercial office space, at the

Employer’s own expense (at an

estimated cost of approximately $1,000).

3. The Property was appraised in

May, 1997, by Pamela A. Lundt and

Lonnie S. Warner of Professional

Property Management, Inc. (PPMI). Ms.

Lundt and Ms. Warner (the Appraisers),

the partners of PPMI, are both real estate

brokers licensed in the State of

Montana. The applicant represents that

both of the Appraisers are highly

experienced in conducting comparative

rental market analysis for residential

and commercial properties in Missoula,

Montana and the surrounding area. In

addition, PPMI currently manages in

excess of 700 residential and

commercial properties in Missoula and

the surrounding area.

The Appraisers’ valuation of the

Property included an analysis of four

other leases of comparable properties in

the local market area. Based upon this

market data, the Appraisers concluded

that the Property had a fair market

rental value in the range of $575 to $600

per month, if leased on a triple net

basis, as of May 9, 1997.

4. PPMI has also been retained by the

Employer to represent the Plan as an

independent fiduciary for the Plan (i.e.,

the I/F). PPMI represents that it is

unrelated to, and independent of, the

Employer and derives less than 1% of

its annual income from the Employer.

PPMI states that it is knowledgeable as

to the subject transactions. PPMI also

acknowledges and accepts its duties,

responsibilities, and liabilities in acting

as a fiduciary under the Act with

respect to the Plan for purposes of the

Lease.22

5. The Lease provides for a rental rate

of $600 per month and an initial term

of one year, which may be renewed for

additional one year periods, up to a

maximum total of 15 years, upon the

express approval of PPMI, as the I/F for

the Plan. The Lease provides for rent

adjustments, at a minimum, every three

years, based upon an updated

independent appraisal of the fair market

rental value of the Property. However,

in no event shall such adjustments

result in the rent being less than the

rental amount for the Property existing

for the period preceding the adjustment.

The Lease is triple net (with all

expenses for maintenance, taxes, and

insurance to be borne by the Employer

as the tenant). The Lease permits the

Employer to make improvements to the

Property at the Employer’s expense,

upon the express approval by the I/F.

Any such improvements to the Property

will belong to the Plan upon

termination of the Lease. The Employer

will indemnify and hold the Plan

harmless for all claims and demands

arising from or in any way relating to

the Property.

6. The Lease grants the Employer the

option to purchase the Property from

the Plan, subject to approval by PPMI.

In this regard, PPMI, as the I/F for the

Plan, must determine that a sale of the

Property would be in the best interests

of the Plan. Any such sale would be a

one-time transaction for cash, and the

Plan would incur no expenses relating

to the sale.

If the Employer exercises its option,

the Employer will purchase the Property

from the Plan for an amount which is

the greater of either (a) the original

acquisition cost of the Property, plus

holding expenses, or (b) the fair market

value of the Property as of the date of

the sale, as established by a qualified,

independent appraiser. The appraiser

must take into account any possible

special value that the Property may have

to the Employer, as a result of the

Employer’s premises being located

adjacent to the Property.

7. PPMI, acting as the I/F for the Plan,

represents that it has reviewed the terms

and conditions of the Lease on behalf of

the Plan and determined that such terms

and conditions are at least as favorable

to the Plan as those the Plan could

obtain in a comparable arm’s length

transaction with an unrelated party.

PPMI represents that the Lease would be

in the best interests of, and appropriate

for, the Plan. PPMI states that the Lease

will generate income for the Plan, and

the Employer will be a stable, long-term

tenant. In this regard, PPMI states that

the Employer is capable of meeting its

contractual obligations under the Lease,

based upon an examination of the

Employer’s financial condition. Finally,

PPMI will monitor and enforce

compliance with the terms and

conditions of the Lease, and of the

exemption (if granted), throughout the

duration of the Lease.

8. 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 be represented for all purposes

under the Lease by PPMI, a qualified,

independent fiduciary; (2) the terms and

conditions of the Lease will be at least

as favorable to the Plan as those the Plan

could obtain in a comparable arm’s

length transaction with an unrelated

party; (3) the rent charged by the Plan

under the Lease will be no less than the

fair market rental value of the Property,

as established by a qualified,

independent appraiser; (4) the rent will

be adjusted, at a minimum, every three

years, based upon an updated

independent appraisal of the Property,

but in no event shall such adjustments

result in the rent being less than the

rental amount for the Property existing

for the preceding period; (5) the Lease

will be triple net (with all expenses for

maintenance, taxes, and insurance to be

borne by the Employer as the tenant); (6)

PPMI, as the I/F for the Plan has

reviewed the terms and conditions of

the Lease on behalf of the Plan and

determined the Lease would be in the

best interests of, and appropriate for, the

Plan; (7) PPMI will monitor and enforce

compliance with the terms and

conditions of the Lease, and of the

exemption (if granted), throughout the

duration of the Lease; (8) PPMI will

expressly approve any improvements by

the Employer to the Property, any

renewal of the Lease beyond the initial

term, and any sale of the Property to the

Employer, pursuant to the Employer’s

option to purchase the Property under

the Lease; (9) in the event that the

Employer exercises its option to
29458 Federal Register / Vol. 63, No. 103 / Friday, May 29, 1998 / Notices

23Because Dr. Breland is the only participant in

the Plan, there is no jurisdiction under 29 CFR

2510.3–3(b). However, there is jurisdiction under

Title II of the Act pursuant to section 4975 of the

Code. 24The applicant contacted the Harris Trust Bank

of Arizona, Northern Trust, and Wells Fargo. The

rates obtained were based on the following

information: A loan for commercial real property in

the Phoenix metropolitan area in the amount of

$120,000 to $130,000 payable over a 10 year term,

and secured by the property which has a fair market

value in excess of twice the loan amount. The

following provides the quoted rates:

purchase the Property under the Lease,

the Employer will pay the Plan an

amount which is the greater of either (a)

the original acquisition cost of the

Property, plus holding expenses, or (b)

the fair market value of the Property, as

of the date of the sale, as established by

a qualified, independent appraiser; and

(10) at all times throughout the duration

of the Lease, the fair market value of the

Property will represent no more than 25

percent of the total assets of the Plan.

Notice to Interested Persons

Notice of the proposed exemption

shall be given to all interested persons

by first-class mail or by posting the

required information at the Employer’s

offices within 10 days of the date of

publication of the notice of pendency 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/

or request a hearing with respect to the

proposed exemption. Comments and

requests for a hearing are due within 40

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.)

Breland Investments, Inc. Profit

Sharing Plan and Trust (the Plan),

Located in Phoenix, Arizona

[Exemption Application No: D–10529]

Proposed Exemption

The Department is considering

granting an exemption under the

authority of section 4975(c)(2) of the

Code and in accordance with the

procedures set forth in 29 CFR Part

2570, Subpart B (55 FR 32836, August

10, 1990). If the exemption is granted,

the sanctions resulting from the

application of section 4975 of the Code,

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

through (E) of the Code, shall not apply

to (1) the proposed loan (the Loan) by

the individually directed account (the

Account in the Plan 23 of Dr. Albert E.

Breland (Dr. Breland), to Mesa

Scholastic Enterprises (Mesa), a

disqualified person with respect to the

Plan, and (2) the personal guarantee of

the Loan by Dr. Breland, a disqualified

person with respect to the Plan,

provided the following conditions are

satisfied:

(a) The terms of the Loan are at least

as favorable to the Account as those

obtainable in an arm’s length

transaction with an unrelated party; (b) The amount of the Loan does not

exceed 25% of the assets in the

Account;

(c) The Loan is secured by a first deed

of trust on the commercial real property

(the Property), which has been

appraised by a qualified independent

appraiser to have a fair market value not

less than 150% of the outstanding

balance of the Loan throughout its

duration;

Summary of Facts and Representations

1. The Plan is a profit sharing plan

which provides its participants with the

opportunity to direct the investment of

their individual accounts. Currently it

has one participant, Dr. Breland, and

one beneficiary, Mrs. Nancy V. Breland

(Mrs. Breland), Dr. Breland’s wife. The

aggregate fair market value of the Plan’s,

and the Account’s, assets as of June 30,

1997 was approximately $900,000. The

Plan is sponsored by Breland

Investments, Inc., a corporation wholly

owned by Dr. and Mrs. Breland which

manages various investments in real

estate, securities and other assets. The

trustees of the Plan are Dr. and Mrs.

Breland.

2. Mesa is an Arizona General

Partnership in which Dr. and Mrs.

Breland own a majority interest. Located

in Mesa, Arizona, it is engaged in

leasing the Property to the Mesa

Montessori Preschool. In the past three

years, Mesa has averaged annual

revenues of approximately $48,300,

consisting primarily of the $4,000 per

month received in rent from the Mesa

Montessori Preschool.

3. The Loan involves only the

Account and is described by the

applicant as follows: An amount of

$123,500 will be loaned by the Account

to Mesa for purposes of paying a balloon

payment due on a prior third-party loan

related to the Property. The Loan will be

repaid over a 10 year period, with equal

payments of principal and interest. The

interest rate will be 10% per annum,

which was determined after contacting

three prominent commercial banks in

the Phoenix metropolitan area to survey

the applicable interest rates for a similar

transaction between unrelated parties.

The Loan will be secured by a first deed

of trust on the Property.24

Institution Rate Contact

Harris Trust Bank of Arizona ............................................................... 3% over 10 year Treasury Bill rate, plus an initial charge of 2

points.

Glenn Elstoen.

Northern Trust ..................................................................................... 8.5 to 9%, plus an initial charge of 1⁄2 to 1 point ............................... Harold Dorenbecher.

Wells Fargo ......................................................................................... 8.475, plus an initial charge of 11⁄2 points ......................................... Roy Miller.

Regarding Mesa’s creditworthiness,

the applicant represents that all

payments on past and present debt

obligations have been paid in a timely

manner. In addition, because the

monthly payments on the proposed

Loan will be less than those due under

the current loan related to the Property,

and because two additional loans for

which Mesa pays approximately $1,095

per month will be paid off by September

1998, the applicant believes that Mesa

will have ample income to ensure

payment of the proposed Loan. Finally,

the Brelands, in their individual

capacity, will be responsible for

repayment of the Loan in the event of

default by Mesa because of their status

as general partners in Mesa.

4. The Property consists of a .8469

acre parcel of real property improved

with a 3,243 square foot one-story

preschool building located at 2830

South Carriage Lane in Mesa, Arizona.

The parcel was originally transferred

from the Brelands to Mesa in 1983.

5. On May 1, 1997, Mr. Gary E. Ringel

(Mr. Ringel) and Mr. Carter T. Froelich

(Mr. Froelich), both employees of U.S.L.

Valuation, appraised the Property. Both

Mr. Ringel and Mr. Froelich are State

Certified Real Estate Appraisers in

Arizona, and represent that they have

no present or prospective interest in the

Property, no personal interest or bias

with respect to the parties involved, and

are otherwise independent. After

reviewing and analyzing the data related

to the Property, the appraisers

determined that the Property is worth

$406,000, or 3.29 times the amount of

the Loan.

In their appraisal, Mr. Ringel and Mr.

Froelich relied on both the sales

comparison, or market, approach and
Federal Register / Vol. 63, No. 103 / Friday, May 29, 1998 / Notices 29459

the income approach in reaching their

conclusion as to the value of the

Property. Using the sales comparison

approach, the appraisers analyzed

preschool building sales in the Phoenix

area and compared those to the Property

with adjustments made for property

rights, financing, conditions of sale,

market conditions, location and

physical features, and arrived at a fair

market value of $405,000. With respect

to the income approach, Mr. Ringel and

Mr. Froelich employed the direct

capitalization method, the preferred

technique of preschool investors, and

estimated the value of the subject

property to be $407,000. Giving the two

methods equal weight, the appraisers

concluded the value of the Property to

be $406,000.

7. In summary, the applicant

represents that the proposed transaction

satisfies the criteria of section 4975(c)(2)

of the Code for the following reasons: (a)

the terms of the Loan are at least as

favorable to the Account as those

obtainable in an arm’s length

transaction with an unrelated party; (b)

the amount of the Loan does not exceed

25% of the assets in the Account; and

(c) the Loan is secured by a first deed

of trust on the Property, which has been

appraised by a qualified independent

appraiser to have a fair market value not

less than 150% of the outstanding

balance of the Loan throughout its

duration.

Notice to Interested Persons

Because Dr. Overland is the only

participant to be affected by the

proposed transaction, it has been

determined that there is no need to

distribute the notice of proposed

exemption (the Notice) to interested

persons. Comments and requests for a

hearing are due thirty (30) days after

publication of the Notice in the Federal

Register.

FOR FURTHER INFORMATION CONTACT: Mr.

James Scott Frazier, telephone (202)

219–8881. (This is not a toll-free

number).

General Information

The attention of interested persons is

directed to the following:

(1) The fact that a transaction is the

subject of an exemption under section

408(a) of the Act and/or section

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

a fiduciary or other party in interest of

disqualified person from certain other

provisions of the Act and/or the Code,

including any prohibited transaction

provisions to which the exemption does

not apply and the general fiduciary

responsibility provisions of section 404

of the Act, which among other things

require a fiduciary to discharge his

duties respecting the plan solely in the

interest of the participants and

beneficiaries of the plan and in a

prudent fashion in accordance with

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

it affect the requirement of section

401(a) of the Code that the plan must

operate for the exclusive benefit of the

employees of the employer maintaining

the plan and their beneficiaries;

(2) Before an exemption may be

granted under section 408(a) of the Act

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

the Department must find that the

exemption is administratively feasible,

in the interests of the plan and of its

participants and beneficiaries and

protective of the rights of participants

and beneficiaries of the plan;

(3) The proposed exemptions, if

granted, will be supplemental to, and

not in derogation of, any other

provisions of the Act and/or the Code,

including statutory or administrative

exemptions and transitional rules.

Furthermore, the fact that a transaction

is subject to an administrative or

statutory exemption is not dispositive of

whether the transaction is in fact a

prohibited transaction; and

(4) The proposed exemptions, if

granted, will be subject to the express

condition that the material facts and

representations contained in each

application are true and complete, and

that each application accurately

describes all material terms of the

transaction which is the subject of the

exemption.

Signed at Washington, DC, this 22nd day

of May, 1998.

Ivan Strasfeld,

Director of Exemption Determinations,

Pension and Welfare Benefits Administration,

Department of Labor.

[FR Doc. 98–14196 Filed 5–22–98; 8:45 am]

BILLING CODE 4510–29–P

NATIONAL COMMISSION ON

LIBRARIES AND INFORMATION

SCIENCE

Sunshine Act Meeting

TIME, DATE, AND PLACE: June 25, 1998.

Status: Open.

9:00 a.m.–4:00 p.m. Benton

Foundation, The Richard M. Neustadt

Center for Communications in the

Public Interest, 1634 I Street, NW.,

Washington, DC.

Status: Closed.

4:00 p.m.–5:00 p.m. Discussion,

internal personnel matters.

MATTERS TO BE DISCUSSED: Benton

Foundation programs dealing with

library advocacy and children issues,

Charles Benton; Report, Working Group

on Issues of Journal Pricing, Publishing,

and Copyright; Report, Access to

Government Information; Update,

NCLIS Action Plan; GPO Depository

Library Program; ALA/NCLIS Public

Libraries and the Internet Study; Library

Statistics Program; Survey of

international activities and assessment

of NCLIS’ role(s); Discussion, issues

affecting children and the Internet; and

administrative matters.

Status: Open.

June 26, 1998.

9:00 a.m.–12:00 N—Library of

Congress, James Madison Memorial

Building, West Dining Room,

Washington, DC.

MATTERS TO BE DISCUSSED: Institute of

Museum and Library Services Program

Activities; LSTA Leadership Grants;

Guidelines for State-Based Grants;

Legislation and Library and Information

issues.

To request further information or to

make special arrangements for

physically challenged persons, contact

Barbara Whiteleather (202–606–9200)

no later than one week in advance of the

meeting.

Dated: May 21, 1998.

Robert S. Willard,

Acting Executive Director.

[FR Doc. 98–14338 Filed 5–26–98; 4:02 pm]

BILLING CODE 7527–01–M

NATIONAL CREDIT UNION

ADMINISTRATION

Agency Information Collection

Activities: Submission to OMB for

Review; Comment Request

AGENCY: National Credit Union

Administration (NCUA).

ACTION: Request for comment.

SUMMARY: The NCUA is resubmitting the

following information collections

without change to the Office of

Management and Budget (OMB) for

review and clearance under the

Paperwork Reduction Act of 1995 (Pub.

L. 104–13, 44 U.S.C. Chapter 35). These

information collections are published to

obtain comments from the public.

DATES: Comments will be accepted until

July 28, 1998.

ADDRESSES: Interested parties are

invited to submit written comments to

NCUA Clearance Officer or OMB

Reviewer listed below:

Clearance Officer: Mr. James L.

Baylen (703) 518–6411, National Credit

Union Administration, 1775 Duke

Street, Alexandria, Virginia 22314–