Proposed Exemptions; Pacific Income Advisers, Inc.

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.

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SUMMARY: This document contains notices of pendency before the

Department of Labor (the Department) of proposed exemptions from

certain of the prohibited transaction restrictions of the Employee

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

Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

All interested persons are invited to submit written comments or

request for a hearing on the pending exemptions, unless otherwise

stated in the Notice of Proposed Exemption, within 45 days from the

date of publication of this Federal Register Notice. Comments and

requests for a hearing should state: (1) The name, address, and

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

the nature of the person's interest in the exemption and the manner in

which the person would be adversely affected by the

[[Page 38855]]

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.

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.

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\1\ A 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.

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(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

[[Page 38856]]

VEBA may not acquire or hold Units representing more than 20% of the

assets of such Trust.

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\2\ A 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.

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(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 Plan-level 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)

[[Page 38857]]

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 pre-

existing 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

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\3\ PIA 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.

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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

Trust-level 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.

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\4\ To 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.

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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 Short-Term 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.

[[Page 38858]]

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.

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\5\ Brady 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.

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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

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\6\ The Department expresses no opinion herein on whether the

fees charged by PIA satisfies the terms of section 408(b)(2) of the

Act.

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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.

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\7\ The 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.

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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

[[Page 38859]]

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.

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\8\ Each 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.

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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's-length 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

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\9\ Since 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.

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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

[[Page 38860]]

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