38854 Federal Register / Vol. 63, No. 138 / Monday, July 20, 1998 / Notices

(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 this

exemption, 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.

For a more complete statement of the

facts and representations supporting the

Department’s decision to grant this

exemption, refer to the notice of

proposed exemption published on May

29, 1998 at 63 FR 29456.

FOR FURTHER INFORMATION CONTACT: Ms.

Karin Weng of the Department,

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

a toll-free number.)

McClain’s R.V., Inc. 401(k) Profit

Sharing Plan (the Plan), Located in

Lake Dallas, Texas

[Prohibited Transaction Exemption 98–37;

Exemption Application No. D–10583]

Exemption

The restrictions of sections 406(a),

406(b)(1) and (b)(2) of the Act and the

sanctions resulting from the application

of section 4975 of the Code, by reason

of section 4975(c)(1)(A) through (E) of

the Code, shall not apply to the sale of

certain unimproved real property (the

Land) by the Plan to Larry McClain, the

sole shareholder of McClain’s R.V. Inc.,

the sponsor of the Plan, and a party in

interest with respect to the Plan,

provided that the following conditions

are satisfied:

(a) The sale will be a one-time cash

transaction;

(b) The Plan will receive the greater

of: (1) The original acquisition cost of

the Land plus the aggregate holding

costs incurred by the Plan; or (2) the

current fair market value of the Land

(plus an appropriate premium related to

the adjacency of the Land to other real

property owned by McClain’s R.V. Inc.),

as established by an independent

qualified appraiser at the time of the

sale; and

(c) The Plan will pay no commissions

or other expenses associated with the

sale.

For a more complete statement of the

facts and representations supporting the

Department’s decision to grant this

exemption, refer to the notice of

proposed exemption published on May

18, 1998 at 63 FR 27330.

FOR FURTHER INFORMATION CONTACT:

Ekaterina A. Uzlyan of the Department

at (202) 219–8883. (This is not a toll-free

number.)

General Information

The attention of interested persons is

directed to the following:

(1) The fact that a transaction is the

subject of an exemption under section

408(a) of the Act and/or section

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

a fiduciary or other party in interest or

disqualified person from certain other

provisions to which the exemptions

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) These exemptions are

supplemental to and not in derogation

of, any other provisions of the Act and/

or the Code, including statutory or

administrative exemptions and

transactional 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

(3) The availability of these

exemptions is subject to the express

condition that the material facts and

representations contained in each

application accurately describes all

material terms of the transaction which

is the subject of the exemption.

Signed at Washington, D.C., this 15th day

of July, 1998.

Ivan Strasfeld,

Director of Exemption Determinations,

Pension and Welfare Benefits Administration,

U.S. Department of Labor.

[FR Doc. 98–19233 Filed 7–17–98; 8:45 am]

BILLING CODE 4510–29–P

DEPARTMENT OF LABOR

Pension and Welfare Benefits

Administration

[Application No. D–10324, et al.]

Proposed Exemptions; Pacific Income

Advisers, Inc.

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
Federal Register / Vol. 63, No. 138 / Monday, July 20, 1998 / Notices 38855

1A fiduciary will not be deemed independent of

PIA if: (1) Such fiduciary is directly or indirectly

controlled by PIA or an affiliate thereof; (2) such

fiduciary or any officer, director, partner, highly

compensated employee, or the relative of such

fiduciary is an officer, director, partner, or highly

compensated employee, of PIA or an affiliate of

PIA; and (3) such fiduciary directly or indirectly

receives any compensation or other consideration

for that fiduciary’s own personal account in

connection with any transaction described in this

proposed exemption.

2A MEWA is defined in section 3(40)(A) of the

Act and provides benefits described in section 3(1)

of the Act for employees of two or more employers.

Although the term ‘‘MET’’ is not used or defined

in title I of the Act, a MET may be covered by title

I of the Act, to the extent that it provides benefits

described in section 3(1) of the Act and it is

established or maintained by an employer, an

employee organization, or both. A VEBA is defined

in section 501(c)(9) of the Code and is subject to

title I to the extent that it provides benefits

described in section 3(1) of the Act and it is

established or maintained by an employer, an

employee organization, or both.

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. lll, 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.

Pacific Income Advisers, Inc. (PIA),

Located in Santa Monica, CA

[Application No. D–10324]

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 32847, August 10, 1990).

Section I—Proposed Exemption

Involving Plans Where PIA Is Both a

Fiduciary or Other Party in Interest With

Respect to the Plan and Investment

Adviser of Certain Trusts in Which the

Plans Invest

If the exemption is granted, the

restrictions of sections 406(a) and 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 to: (1) The acquisition,

sale or redemption of trust units (the

Units) in the Pacific Income Advisers

Fixed-Income Group Investment Trust

(Fixed Income Trust), the Pacific

Income Advisers Short-Term Group

Investment Trust (Short-Term Trust),

the Pacific Income Advisers Equity

Group Investment Trust (Equity Trust),

and the Pacific Income Advisers

International Group Investment Trust

(International Trust; each a Trust and

collectively, the Trusts), by employee

plans, and Individual Retirement

Accounts (IRA’s; collectively, the

Plan(s)); and (2) the payment of fees by

a Trust to Pacific Income Advisers (PIA)

where PIA is a fiduciary or other party

in interest with respect to a Plan

investing in a Trust and the investment

adviser to each of the Trusts, provided

the conditions of Section II are satisfied.

Section II—Conditions

(1)(a) The investment of a Plan’s

assets in each of the Trusts and the fees

to be paid by a Trust to PIA are

authorized in writing by a Plan

fiduciary who is independent of PIA

(Independent Fiduciary).1 Such

authorization shall be consistent with

the responsibilities, obligations and

duties imposed on fiduciaries by Part 4

of Title I of the Act. In addition, such

authorization shall be either: (1) Set

forth in the investment management

agreement between the Plan and PIA; (2)

indicated in writing prior to each

purchase or sale; or (3) indicated in

writing prior to the commencement of a

specified purchase or sale program in

the Units of the Trusts.

(b) PIA does not provide investment

advice to a Plan’s Independent

Fiduciary within the meaning of 29 CFR

2510.3–21(c)(1)(ii) with respect to a

Plan’s acquisition of Units of a Trust.

(2) Prior to making an initial

investment in the Units, each Plan’s

Independent Fiduciary shall receive the

following written disclosures from PIA:

(a) The proposed exemption and grant

notice describing the exemptive relief

provided herein;

(b) The applicable Trust’s Offering

Memorandum, outlining the investment

objective(s) of the Trust and the policies

employed to achieve these objectives

and a description of all fees associated

with investment in the Trust; and

(c) The applicable Trust’s Agreement

and Declaration of Trust, disclosing the

structure and manner of operation of the

Trust.

(d) A statement describing the

relationship between PIA and the

Trusts.

(3) The Independent Fiduciary shall

acknowledge in writing that the Plan is

an ‘‘accredited investor’’ as defined in

Rule 501 of Regulation D of the

Securities Act of 1933 (1933 Act). In

addition, the Independent Fiduciary

shall acknowledge in writing that it has

not relied upon the advice of PIA with

respect to the acquisition, sale or

redemption of the Units.

(4) No Plan shall pay a sales

commission or redemption fee, in

connection with the acquisition, sale or

redemption of the Units of the Trusts.

(5)(a) No participating Plan may

invest more than 25% of its total assets

in the International Trust.

(b) No Plan, other than a multiple

employer welfare arrangement (MEWA),

a multiple employer trust (MET), or

voluntary employee benefit association

(VEBA), may acquire or hold Units

representing more than 20% of the

assets of a Trust.2 A MEWA, MET, or

VEBA may acquire and hold Units

representing up to 35% of the assets of

either the Short-Term Trust or Fixed

Income Trust only. As to investment in

any other Trust, a MEWA, MET, or
38856 Federal Register / Vol. 63, No. 138 / Monday, July 20, 1998 / Notices

VEBA may not acquire or hold Units

representing more than 20% of the

assets of such Trust.

(c) For purposes of determining the

percentage of the assets of a Trust being

held by a single Plan, PIA shall first

make the calculation 90 days after the

first Unit of a Trust is sold to such Plan.

(6)(a) At the time the transactions are

entered into, the terms of the

transactions shall be at least as favorable

to the Plans as those obtainable in arm’s

length transactions between unrelated

parties.

(b) PIA, including any officer or

director of PIA, does not purchase or

sell shares of the Trusts from or to any

Plan Client.

(c) The price paid or received by a

Plan Client for Units of a Trust is the net

asset value per Unit at the time of the

transaction and it is the same price

which would have been paid or

received for the Units of a Trust by any

other investor at that time. For purposes

of this paragraph, the term net asset

value means the amount for purposes of

pricing all purchases and sales

calculated by dividing the value of all

securities, determined by an objective

method as set forth in each Trust’s

relevant Trust documents and Trust

Offering Memorandum, and other assets

belonging the Trust, less the liabilities

charged to such Trust, by the total

number of Units of the Trust.

(7) The combined total of all fees paid

by a participating Plan shall constitute

no more than reasonable compensation

within the meaning of section

408(b)(2)of the Act.

(8) The Plan does not pay any Planlevel investment management fees,

investment advisory fees or similar fees

to PIA with respect to any of the assets

of such Plan which are invested in Units

of a Trust. This condition does not

preclude the payment of investment

advisory or similar fees by the Trusts to

PIA under the terms of investment

management agreements between PIA

and each of the Trusts.

(9) All authorizations and approvals

made by the Independent Fiduciary

regarding investment in a Trust and the

fees paid to PIA are subject to an annual

reauthorization wherein any such prior

authorization shall be terminable at will

by the Plan, without penalty to the Plan,

upon written notice of termination. A

form expressly providing an election to

terminate the authorization (the

Termination Form) with instructions on

the use of the form must be supplied to

the Independent Fiduciary no less than

annually; provided that the Termination

Form need not be supplied sooner

pursuant to paragraph (10) below. The

Termination Form must include the

following information:

(a) The authorization is terminable at

will by the Plan, without penalty to the

Plan, upon receipt by PIA of written

notice from the Independent Fiduciary;

and

(b) Failure of the Independent

Fiduciary to return the Termination

Form will result in continued

authorization of PIA to continue to

engage in the transactions described in

Sections I.

(10) PIA will provide, at least 30 days

in advance of the implementation of an

additional service to a Trust by PIA or

a fee increase for investment

management, investment advisory or

similar services, a written notice to the

Independent Fiduciary of the Plan

Client explaining the nature and amount

of the additional service for which a fee

is charged or the increase in fees.

(11) Each Plan shall receive the

following:

(a) A monthly report disclosing the

performance and the value of the Plan’s

investment in each of the Trusts. Such

monthly report shall disclose the extent

to which assets of a Plan have been

shifted between the Trusts by PIA and

any fee differential resulting from such

shifting between the Trusts;

(b) An audited financial statement of

each of the Trusts in which a Plan is

invested, prepared annually by a

independent, certified public

accountant, including a list of

investments of each Trust and their

valuations, provided to the Plan not

later than 45 days after the end of the

period to which the report relates; and

(b) An annual statement of a Plan’s

percentage interest in each Trust and

the value of the Plan’s Units, provided

to the Plan not later than 45 days after

the end of the period to which the

report relates. Such report shall also

include the total fees paid to PIA by

each Trust. Further, such report shall

also include the brokerage fees paid by

each Trust to unrelated broker-dealers,

as well as the total of all fees and

expenses paid by PIA to third parties.

(12) Brokerage transactions for the

Trusts are performed by entities

unrelated to PIA for no more than

reasonable compensation within the

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

(13) PIA shall maintain, for a period

of six years, the records necessary to

enable the persons described in

paragraph (14) of this section to

determine whether the conditions of

this exemption have been satisfied,

except that (a) prohibited transaction

will not be considered to have occurred

if, due to circumstances beyond the

control of PIA, the records are lost or

destroyed prior to the end of the six year

period, and (b) no party in interest other

than PIA 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 paragraph

(13) below.

(14)(a) Except as provided in section

(b) of this paragraph and

notwithstanding any provisions of

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

of the Act, the records referred to in

paragraph (13) of this section shall be

unconditionally available at their

customary location during normal

business hours by:

(1) Any duly authorized employee or

representative of the Department or the

Internal Revenue Service (the Service);

(2) Any Independent Fiduciary of a

Plan investing in a Trust, or any duly

authorized representative of such

fiduciary;

(3) Any contributing employer to any

Plan investing in a Trust, or any duly

authorized employee representative of

such employer;

(4) Any participant or beneficiary of

any participating Plan investing in a

Trust, or any duly authorized

representative of such participant or

beneficiary; and

(5) Any other person or entity

investing in a Trust.

(b) None of the persons described

above in subparagraphs (2)–(5) of this

paragraph (14) shall be authorized to

examine the trade secrets of PIA or

commercial or financial information

which is privileged.

Effective Date: If granted, this

proposed exemption will be effective

August 29, 1997.

Summary of Facts and Representations

1. PIA, which maintains its

headquarters in Santa Monica,

California, is an investment adviser

registered under the Investment

Advisers Act of 1940, as amended. As

of January 1, 1997, PIA rendered

investment advisory services with

respect to $3.1 billion in client’s assets.

2. It is represented that in order to

offer both lower fees relative to the fees

charged by PIA for separate account

management, and to provide an

investment vehicle that will facilitate

effective diversification and

management of investor assets, PIA

organized each Trust as a business trust

under the laws of the Commonwealth of

Massachusetts. The Trusts were

organized on August 29, 1997. PIA is

the investment adviser for each Trust

and Imperial Trust Company (Imperial)
Federal Register / Vol. 63, No. 138 / Monday, July 20, 1998 / Notices 38857

3PIA represents that the equity participation by

all Plans investing in Units of a Trust is expected

to exceed 25% of the value of all Units of each of

the Trusts and it has not been established that the

Trusts are operating companies. Accordingly, it is

anticipated that the underlying assets of the Trusts

will constitute ‘‘plan assets’’ within the meaning of

29 CFR 2510.3–101.

4To the extent that in the ordinary course of

business, PIA provides investment advice to a Plan

within the meaning of regulation 29 CFR 2510.3–

21(c)(1)(ii)(B) and recommends an investment of the

Plan’s assets in a Trust, the presence of an

independent fiduciary acting on the investment

adviser’s recommendations on behalf of the Plan is

not sufficient to insulate the adviser from fiduciary

liability under section 406(b) of the Act. (See

Advisory Opinions 84–03A and 84–04A, issued by

the Department on January 4, 1984.) No relief is

being provided herein for the provisions of

investment advice in connection with the Plan’s

investment in the Trusts.

serves as trustee and custodian of each

Trust. Imperial is a wholly owned

subsidiary of Imperial Bank, N.A., and

is not affiliated with PIA.

3. With regard to some Plan clients

(Plan Clients) who invest in the Trusts,

PIA has no pre-existing fiduciary

relationship. Investments in a Trust will

only occur with the express written

consent of an Independent Fiduciary.

PIA notes that in the situation where

Units of a Trust are sold to a Plan Client

with which PIA does not have a preexisting relationship prior to the Plan

Client’s initial purchase, a prohibited

transaction could arise under section

406(a) of the Act upon a subsequent

purchase or redemption of Units of a

Trust. This is because a party in interest

relationship would have been

established by virtue of PIA serving as

investment adviser and fiduciary with

respect to the Plan assets invested in the

Trusts.3

4. Also, in some instances, PIA

explains that a prohibited transaction

may arise under section 406(a) of the

Act if the Plan acquires Units of a Trust

where the Plan Client has previously

entered into a separate account

investment management agreement with

PIA and the Plan Client subsequently

wishes to change the nature of its

relationship with PIA from a separate

account investment to an investment in

a Trust. In such a situation, the Plan

will terminate its separate account

relationship with PIA and invest in the

Trusts. The initial investment in a Trust

may give rise to a prohibited transaction

because of the pre-existing relationship

between PIA and the Plan Client.

5. Further, some Plan Clients may

decide to continue the individual

investment management relationship

with PIA or permit PIA, at its discretion,

to move Plan assets between one or

more Trusts, subsequent to a Plan’s

investment in a Trust. In these

instances, possible violations of sections

406(a) and 406(b) of the Act may occur

with respect to PIA’s sale of Units of a

Trust to such Plans. Also, PIA

represents that the purchase of Units of

a Trust by a Plan Client may give rise

to a prohibited transaction because of

the receipt of fees by PIA from the

Trusts as a result of the investment of

Plan assets in a Trust. In situations

where the Plan Clients decide to

continue the individual investment

management relationships with PIA

following the investment in the Trusts,

PIA represents that it will not receive

duplicate fees (i.e., a Plan-level

investment management fee and a Trustlevel investment management fee) with

respect to the assets of a Plan that are

invested in a Trust. Specifically, PIA

represents that it will forego that portion

of the plan-level investment

management fee to which it would be

entitled to receive under the investment

management agreement with the Plans

where assets subject to that agreement

are also invested in a Trust.

6. PIA represents that it will not act

as an investment adviser, within the

meaning of section 3(21)(A)(ii) of the

Act, to such Plan Clients which propose

to invest in one or more Trusts. PIA

represents that the decision to invest in

a Trust will be made by an Independent

fiduciary on the basis of his or her own

investigation into the advisability of

investing in one or more Trusts.4 PIA

represents that under no circumstances

will it have discretionary authority or

control with respect to an Independent

Fiduciary’s initial authorization or

approval to acquire Units.

7. With respect to subsequent shifting

of assets between the various trusts, PIA

may have the discretionary authority to

effect such transactions. However, PIA

will obtain authorization or approval

from the Plan Client prior to shifting

assets between the various Trusts. Such

authorization or approval by an

Independent Fiduciary shall be either:

(1) Set forth in the investment

management agreement between the

Plan Client and the PIA; (2) indicated in

writing prior to each purchase or sale;

or (3) indicated in writing prior to the

commencement of a specified purchase

or sale program in the Trusts.

8. Each Trust will maintain and

pursue a separate investment objective

by investing in equity and debt

securities. For example, the objective of

the Equity Trust is to provide long-term

growth of capital by investing primarily

in equity securities. PIA represents that

the Equity Trust is expected to invest a

majority of its assets in U.S. securities.

In addition to investing in equity

securities, the Equity Trust may as well

invest in high-grade debt securities. PIA

further represents that the Equity Trust

will not: (1) Invest more than 10% of its

assets in the securities of any one issuer,

excluding obligations of the U.S.

Government and its instrumentalities;

and (2) invest more than 25% of its

assets in any one industry.

The Short-Term Trust’s investment

profile is similar to that of a money

market fund. PIA represents that the

Short-Term Trust will invest its assets

only in investment grade debt securities

the average maturity of which will not

exceed three years, including U.S.

Treasury obligations, U.S. government

agency obligations, collateralized

mortgage obligations (excluding swaps),

corporate bonds, commercial paper and

repurchase agreements. The primary

investment objectives of the Short-Term

Trust are, in order of preference: (1) To

preserve principal; (2) maintain

liquidity; and (3) to maximize the rate

of return available from investments

consistent with these objectives. The

rate of return objective of the ShortTerm Trust is to attain a total rate of

return that exceeds that available for a

Certificate of Deposit and other similar

short-term investment strategies.

The investment objective of the Fixed

Trust is to maximize its total rate of

return on its investment portfolio,

including realized and unrealized

appreciation, and to minimize risk. In

accordance with these investment

objectives, the Fixed Trust will invest

primarily in high quality debt securities

which are rated as investment grade by

at least one of the major credit rating

agencies, or judged to be of comparable

quality, by PIA. It is represented that the

Fixed Trust’s portfolio of securities will

be diversified. Specifically, the Fixed

Trust will not: (1) Invest more than 10%

of its total assets in the securities of one

issuer, excluding obligations of the U.S.

government, its agencies, and

instrumentalities; and (2) invest more

than 25% of its assets in issuers whose

principal business activities are in the

same industry, excluding obligations of

the U.S. Government, its agencies, and

instrumentalities.

The applicant believes that the

investment in Units of the Short-Term

Trust and Fixed Trust by a MEWA ,

MET, or VEBA would be an effective

way for such Plans to manage its assets

to meet its regular needs for cash to pay

benefit claims. In this regard, the

applicant believes that it would be in

the interest of a MEWA, MET, or VEBA

to own as much as 35% of the Units of

each of the Short-Term Trust and Fixed

Trust.
38858 Federal Register / Vol. 63, No. 138 / Monday, July 20, 1998 / Notices

5Brady Bonds are the most liquid asset class in

fixed income emerging market securities. These

bonds have been issued in exchange for outstanding

sovereign bank loans in a number of developing

countries as part of debt reduction/restructuring

plans named after former Treasury Secretary

Nicholas Brady. Brady Bonds have been

implemented as a method of restructuring debt in

emerging markets since 1989. All Brady Bonds

carry principal and interest collateral guarantees in

the form of U.S. Treasury securities.

6The Department expresses no opinion herein on

whether the fees charged by PIA satisfies the terms

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

7The Department wishes to note that the Act’s

general standards of fiduciary conduct would apply

to the investments described in this proposed

exemption, and that satisfaction of the conditions

of this proposal should not be viewed as an

endorsement of the investments by the Department.

Section 404 of the Act requires, among other things,

that a fiduciary discharge his duties with respect to

a plan solely in the interest of the plan’s

participants and beneficiaries and in a prudent

fashion. Accordingly, the plan fiduciary must act

prudently with respect to the decision to enter into

an investment transaction. The Department further

emphasizes that it expects the plan fiduciary to

fully understand the benefits and risks associated

with engaging in a specific type of investment,

including any changes in the value of the

investment. Thus, in considering whether to enter

into a transaction, a fiduciary should take into

account its ability to provide adequate oversight

over the particular investment.

The objective of the International

Trust is to achieve growth of capital and

to earn income. The International Trust

will seek to achieve these objectives by

investing, under normal circumstances,

in debt securities issued in emerging

and developed markets located

throughout the world including: (1)

Debt securities issued or guaranteed by

U.S. or foreign governments, their

agencies, instrumentalities or political

subdivisions, or by government owned,

controlled or sponsored entities,

including central banks (collectively,

‘‘Sovereign Debt’’), including Brady

Bonds; 5 (2) interests in issuers

organized and operated for the purpose

of restructuring Sovereign Debt; (3) debt

securities issued by foreign banks and

other foreign business entities; and (4)

debt securities denominated in or

indexed to the currencies of emerging

and developed markets. PIA represents

that under normal circumstances, 75%

or more of the International Trust’s

portfolio will be comprised of debt

instruments of issuers located in global

developed markets, including the

United States. Further, no more than

25% of the International Trust’s assets

will be invested in debt securities of

issuers in emerging markets. While the

International Trust is not restricted in

the portion of its assets that may be

invested in securities of issuers located

in a single region, under normal

conditions the International Trust’s

assets will be invested in the securities

of issuers located in at least three

countries, and the International Trust’s

investments in the securities issued in

any one country, other than the United

States, will not exceed 25% of the

International Trust’s assets.

9. The Trusts will be treated as

partnerships within the meaning of Part

I of Subchapter K of the Code, and PIA

will serve as the sole general partner of

each Trust with full discretion over

management and control of the business

of each Trust. It is represented that PIA

will not beneficially own more than 1%

of the assets of any Trust. PIA will serve

as investment adviser for each Trust.

Under the investment advisory

agreements with each Trust, PIA will

provide certain investment advisory and

management services that will primarily

involve the exercise of investment

discretion with respect to each Trust’s

assets. Beneficial owners of the Units

(Unitholders) are anticipated to include

individuals, corporations, Plans and

other tax-exempt organizations. For its

investment advisory services to the

Equity Trust, Fixed-Income Trusts,

Short-Term Trust, and International

Trust, PIA will be paid an annual fee of

.65%, .45%, .35% and .40%

respectively, of the assets held by each

Trust, payable in quarterly installments.

The fee is a percentage of the value of

each Trust. Such fee is accrued monthly

and is paid to PIA quarterly in arrears.

Each Plan bears a proportionate share of

the fee based upon the value of its Units

in each Trust. Brokerage and custodial

services will be performed by unrelated

third parties and the fees for such

services will be charged in addition to

PIA’s fees. It is represented that the fees

paid by the Plans will constitute no

more than reasonable compensation.6

10. Units in the Trusts will be offered

to Plans pursuant to a Trust Offering

Memorandum (the Memorandum). This

document describes the Trust, the

parties involved and their rights, the

investment objectives, and the fees

charged for investment in each of the

Trusts.7 PIA represents that to the extent

that a Plan acquires Units of one or

more Trusts, that portion of a Plan’s

assets will be diversified because each

Trust constitutes a diversified pool of

securities.

11. A Plan fiduciary will determine

how much to invest in a Trust and such

Plan will receive a pro rata interest in

the Trust based upon its capital account

balance as compared to the capital

account balances of other investors. All

investments in the Trust will be paid in

cash.

12. It is represented that prior to

accepting a subscription for Units from

a prospective Plan investor, PIA will

furnish to an Independent Fiduciary

with (a) a copy of the applicable Trust’s

offering Memorandum, which discusses

the investment objective(s) of the Trust,

the policies employed to achieve these

objectives, and the compensation paid

by each Trust to PIA, and fees paid by

PIA and the Trust to third parties; (b)

the fees charged to a Plan by each Trust;

(c) a Subscription Agreement, which is

designed to elicit information about the

Independent Fiduciary and the Plan to

determine whether the Plan qualifies as

an ‘‘accredited’’ investor as set forth in

Rule 501 of Regulation D of the 1933

Act; (d) a copy of the applicable Trust’s

Declaration of Trust; and (e) copies of

the notice of proposed exemption and

notice granting this exemption.

If a Plan is accepted as an investor in

a Trust, the Independent Fiduciary will

be required to acknowledge in

connection with the execution of the

Subscription Agreement that such

fiduciary has received copies of the

above-noted documents. In addition, the

Independent Fiduciary will also be

required to represent to PIA that such

fiduciary is (a) independent of PIA, (b)

knowledgeable with respect to the Plan

in administrative matters and funding

matters related thereto, and (c) capable

of making, and in fact has made, an

independent decision regarding the

investment of Plan assets in the Trust.

PIA represents that no officer, director

or employee of PIA who owns or

controls, directly, or indirectly, five

percent or more of the beneficial

ownership or voting power of PIA will

be accepted as an investor in a Trust. In

addition, PIA will not be a sponsor of

a Plan that invests in Units of a Trust.

13. It is represented that after a Plan

is accepted as a Unitholder, PIA will

provide each Unitholder with a monthly

statement, reflecting the performance of

the Plan’s investment in the Trust, and

a copy of the Trust’s annual audited

report.

14. Each Trust’s Declaration of Trust

provides that Units may not be sold or

transferred to a third party without

PIA’s consent. Because Units will not be

registered under the 1933 Act, they will

be subject to the restrictions on transfers

imposed thereby under applicable state

securities laws. In Each Trust’s

Declaration of Trust, PIA has retained

the right to dissolve a Trust at anytime.

15. Although each Trust’s Declaration

of Trust restricts each Unitholder’s

ability to assign its Units, Unitholders

are allowed to redeem their Units. To

effect a redemption of Units, a Plan

must instruct PIA in writing at least

seven (7) calender days prior to the last

business day of the month, which is the

day on which each Trust’s assets are
Federal Register / Vol. 63, No. 138 / Monday, July 20, 1998 / Notices 38859

8Each Trust’s Declaration of Trust provides that

Imperial, the unrelated Trustee, shall determine the

value of the assets of the Trust on the basis of the

following valuation rules:

(1) Marketable U.S. Government obligations

(including guaranteed obligations) shall be valued

at the dealer bid prices appearing on the Valuation

Date. Such prices will be taken from recognized

pricing services.

(2) Securities listed on a securities exchange for

which market quotations are available will be

valued at the last quoted sales price on the

Valuation Date or, if there has been no such

reported sale, at the mean between the current bid

and ask prices. Price information on listed

securities will generally be taken from a composite

trading tape offered by one of the pricing services.

Unlisted U.S. securities for which market

quotations are readily available will be valued at

the official market price as quoted by the Trustee’s

pricing vendors.

(3) In those instances where there is no readily

ascertainable market value obtainable from any of

the sources specified above, investments shall be

valued on the basis of data obtained from the best

qualified and available independent sources,

including bankers, brokers or dealers who may be

employees of the unrelated Trustee, brokers or

dealers who deal in or are familiar with the type

of investment involved or other qualified

appraisers, or by reference to the market value of

similar investments for which a market value is

readily ascertainable.

9Since the Hoffmanns are the sole owner of the

Employer and the only participants in the Plan,

there is no jurisdiction under Title I of the Act

pursuant to 29 CFR 2510.3–3(b). However, there is

jurisdiction under Title II of the Act pursuant to

section 4975 of the Code.

valued (Valuation Date).8 Redemption

requests received by PIA in proper form

at least seven (7) calendar days prior to

the month’s Valuation Date will result

in the Units being redeemed at the net

asset value per Unit determined on that

month’s Valuation Date, with the cash

redemption proceeds transferred to or

for the benefit of the redeeming

Unitholder within seven (7) days

thereafter. Redemption requests

received by PIA fewer than seven (7)

days prior to the Valuation Date will be

effected at the per Unit price at the close

of business on the next month’s

Valuation Date, with cash proceeds

transferred to or for the benefit of the

redeeming Plan within seven (7) days

after that Valuation Date.

16. PIA anticipates that each Trust

will incur the following expenses:

organizational expenses, investment

management and administration fees,

fees for necessary professionals, the

costs of regulatory compliance, and the

costs associated with maintaining the

Trust’s legal existence. Such expenses

will be paid by PIA. Each Trust will be

responsible for paying brokerage

commissions of unrelated brokers. No

Trust will impose sales charges,

redemption fees or commissions on the

acquisition, sale or redemption of Units.

17. The books of the Trust will be

audited annually by independent

certified public accountants selected by

PIA. Each Independent Fiduciary will

receive a copy of the audited financial

report of a Trust in which it has

invested Plan assets after the close of

the fiscal year of that Trust. The books

and financial records of a Trust will be

open for inspection by an Independent

Fiduciary of, any contributing employer

to, any participant or beneficiary of, or

any duly authorized representative of

such participant or beneficiary of, a Plan

investing in Units of that Trust as well

as the Department and the Internal

Revenue Service, during regular

business hours.

18. In summary, it is represented that

the proposed transactions will meet the

statutory criteria for an exemption

under section 408(a) of the Act because:

(a) each Independent Fiduciary will be

required to represent that he or she is

both independent of PIA and

sufficiently knowledgeable to make an

informed decision regarding the

transactions described herein; (b) the

Independent Fiduciary will be solely

responsible for making the decision

with respect to that Plan’s initial

acquisition of Units; (c) no Plan will pay

a fee or commission by reason of the

acquisition, sale or redemption of Units;

(d) Unitholders will receive monthly

statements and copies of the annual

report for each Trust in which assets are

invested; (e) at the time the transactions

are entered into, the terms of the

transactions shall be at least as favorable

to the Plans as those obtainable in arm’s

length transactions between unrelated

parties; (f) the fees paid by the Plans

shall constitute no more than reasonable

compensation; and (g) with respect to

assets invested in a Trust, no Plan will

pay an investment management fee at

the Plan level to PIA.

For Further Information Contact: Ms.

Janet L. Schmidt of the Department,

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

a toll-free number.)

R & J Hoffman, Inc. Profit Sharing Plan

(the Plan), Located in Fremont,

California

[Application No. D–10572]

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, 32847,

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) of

$53,240 by the Plan to R & J Hoffmann,

Inc. (the Employer), a disqualified

person with respect to the Plan; and (2)

the personal guarantee of the Loan by

Richard and Angela Hoffmann (the

Hoffmanns), provided the following

conditions are satisfied: (a) The terms of

the Loan are at least as favorable to the

Plan as those obtainable in an arm’slength transaction with an unrelated

party; (b) the Loan does not exceed 25%

of the assets of the Plan; (c) the Loan is

secured by a second mortgage on certain

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

amount of the Loan plus the balance of

the first mortgage which it secures; (d)

the Hoffmanns have also personally

guaranteed the Loan; (e) in the event

that the fair market value of the Property

is no longer adequate to secure all

outstanding loans, additional property

will be pledged to the Plan to secure the

Loan at an amount equal to at least

150% of the outstanding principal

balance of all loans secured by the

Property; and (f) the Hoffmanns are the

only Plan participants to be affected by

the Loan.9

Summary of Facts and Representations

1. The Hoffmanns are the 100%

owners of the Employer, a California

corporation, which is the sponsor of the

Plan. The Employer is involved in the

purchasing of lighting fixtures from

various countries in the Pacific Rim and

then selling the fixtures to United States

retailers. The Hoffmanns are the only

participants in the Plan.

2. The Hoffmanns have requested an

exemption that would permit the

Employer to borrow $53,240 from the

Plan. The Plan had total assets of

$212,963.21 as of June 30, 1997.

Therefore, the principal amount of the

Loan would represent less than 25% of

the value of the Plan. The term of the

Loan will be for a period of five years

at an interest rate equal to the Prime

Rate of Interest of U.S. banks (the Prime

Rate) plus 1.5%, based on the published

Prime Rate in the Western Edition of the

Wall Street Journal, which currently

would be 8.5% per annum. The interest

rate will be adjusted during the term of

the Loan whenever there is a change in

the Prime Rate. The new interest rate

will be effective immediately after such

adjustment and will remain in effect

until the next time the Prime Rate

changes. The Loan will be repaid in

equal monthly installments of principal

and interest using a level amortization

schedule until there is a change in the

Prime Rate, at which time a new

amortization schedule will be put into
38860 Federal Register / Vol. 63, No. 138 / Monday, July 20, 1998 / Notices

place. Mr. Jeffrey Good of Wells Fargo

Bank, N.A. (the Bank), has represented

in a letter dated February 27, 1998, that

the Bank would require a rate of Prime

plus .75% in order to make a similar

loan to the Employer.

3. The Loan will be secured by the

Property, which consists of the

Hoffmanns’ residence, which is located

at 1324 Grosventres Court, Fremont,

California. The Property has been

appraised by Karen J. Mann, SRA of

Mann & Associates, an independent real

estate appraiser in Fremont, California,

to have a fair market value of $540,000

as of March 12, 1998. The Property has

a first mortgage in the amount of

$133,382. The Loan would be secured

by a second mortgage on the Property.

Thus, if the Loan is made, the appraised

fair market value of the Property would

represent approximately 289% of the

total outstanding principal amount of

debt secured by the Property, including

the Loan. The applicant represents that

the mortgage to the Plan will be duly

recorded in the Office of the County

Clerk, Alameda County, California. The

applicant states that in the event the fair

market value of the Property is no

longer adequate to secure all

outstanding loans, additional property

will be pledged to the Plan to secure the

Loan at an amount equal to at least

150% of the outstanding principal

balance of all outstanding loans secured

by the Property. As additional security

to the Plan, the Hoffmanns have agreed

to personally guarantee the Loan. The

applicant has submitted a personal

balance sheet for the Hoffmanns which

demonstrates that they have a total net

worth of $691,804.16 as of March 19,

1998.

4. In summary, the applicant

represents that the proposed transaction

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

of the Code because: (a) The Loan

represents not more than 25% of the

assets of the Plan; (b) the terms of the

Loan will be not less favorable to the

Plan than those required by a third party

lender, the Bank, if it were to make a

similar loan; (c) the Loan will be

secured by the Hoffmanns’ personal

guarantee and by a second mortgage on

the Property, which has been

determined by a qualified, independent

appraiser to have a fair market value of

approximately 289% of the total

principal amount of the loans that it

will secure; (d) in the event the fair

market value of the Property is no

longer adequate to secure all

outstanding loans, additional property

will be pledged to the Plan to secure the

Loan at an amount equal to at least

150% of the outstanding principal

balance of all outstanding loans secured

by the Property; and (e) the Hoffmanns

are the only Plan participants to be

affected by the Loan, and they desire

that the transaction be consummated.

Notice to Interested Persons: Since the

Hoffmanns are the only Plan

participants to be affected by the

proposed transaction, the Department

has determined that there is no need to

distribute the notice of proposed

exemption to interested persons.

Comments and requests for a hearing are

due within 30 days from the date of

publication of this notice of proposed

exemption in the Federal Register.

For Further Information Contact: Gary

H. Lefkowitz of the Department,

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

a toll-free number.)

General Information

The attention of interested persons is

directed to the following:

(1) The fact that a transaction is the

subject of an exemption under section

408(a) of the Act and/or section

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

a fiduciary or other party in interest of

disqualified person from certain other

provisions of the Act and/or the Code,

including any prohibited transaction

provisions to which the exemption does

not apply and the general fiduciary

responsibility provisions of section 404

of the Act, which among other things

require a fiduciary to discharge his

duties respecting the plan solely in the

interest of the participants and

beneficiaries of the plan and in a

prudent fashion in accordance with

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

it affect the requirement of section

401(a) of the Code that the plan must

operate for the exclusive benefit of the

employees of the employer maintaining

the plan and their beneficiaries;

(2) Before an exemption may be

granted under section 408(a) of the Act

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

the Department must find that the

exemption is administratively feasible,

in the interests of the plan and of its

participants and beneficiaries and

protective of the rights of participants

and beneficiaries of the plan;

(3) The proposed exemptions, if

granted, will be supplemental to, and

not in derogation of, any other

provisions of the Act and/or the Code,

including statutory or administrative

exemptions and transitional rules.

Furthermore, the fact that a transaction

is subject to an administrative or

statutory exemption is not dispositive of

whether the transaction is in fact a

prohibited transaction; and

(4) The proposed exemptions, if

granted, will be subject to the express

condition that the material facts and

representations contained in each

application are true and complete, and

that each application accurately

describes all material terms of the

transaction which is the subject of the

exemption.

Signed at Washington, DC, this 15th day of

July, 1998.

Ivan Strasfeld,

Director of Exemption Determinations,

Pension and Welfare Benefits Administration,

U.S. Department of Labor.

[FR Doc. 98–19234 Filed 7–17–98; 8:45 am]

BILLING CODE 4510–29–P

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 plans to submit

the following extension of a currently

approved information collection 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).

This information collection is published

to obtain comments from the public.

DATES: Comments will be accepted until

September 18, 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–

3428, Fax No. 703–518–6433, E-mail:

jbaylen@ncua.gov.

OMB Reviewer: Alexander T. Hunt

(202) 395–7860, Office of Management

and Budget, Room 10226, New

Executive Office Building, Washington,

DC 20503.

FOR FURTHER INFORMATION CONTACT:

Copies of the information collection

requests, with applicable supporting

documentation, may be obtained by

calling the NCUA Clearance Officer,

James L. Baylen, (703) 518–6411.

SUPPLEMENTARY INFORMATION: Proposal

for the following collection of

information:

OMB Number: 3133–0011.

Form Number: NCUA 9600.

Type of Review: Extension of a

currently approved collection.

Title: Application for Insurance of

Accounts State-Chartered Credit

Unions.