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Secretary of Labor Thomas E. Perez
Prohibited Transaction Exemption 2002-20; Grant of Individual Exemptions; Union Bank of California (UBOC [Notices] [03/28/2002]

EBSA (Formerly PWBA) Federal Register Notice

Prohibited Transaction Exemption 2002-20; Grant of Individual Exemptions; Union Bank of California (UBOC [03/28/2002]

[PDF Version]

Volume 67, Number 60, Page 14986-14991

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Exemption Application No. D-10976]

 
Prohibited Transaction Exemption 2002-20; Grant of Individual 
Exemptions; Union Bank of California (UBOC)

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemption.

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SUMMARY: This document contains an exemption issued by the Department 
of Labor (the Department) 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).
    A notice was published in the Federal Register of the pendency 
before the Department of a proposal to grant such exemption. The notice 
set forth a summary of facts and representations contained in the 
application for exemption and referred interested persons to the 
application for a complete statement of the facts and representations. 
The application has been available for public inspection at the 
Department in Washington, DC. The notice also invited interested 
persons to submit comments on the requested exemption to the 
Department. In addition the notice stated that any interested person 
might submit a written request that a public hearing be held (where 
appropriate). The applicant has represented that it has complied with 
the requirements of the notification to interested persons. No requests 
for a hearing were received by the Department. Public comments were 
received by the Department as described in the granted exemption.
    The notice of proposed exemption was issued and the exemption is 
being granted solely by the Department because, effective December 31, 
1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1 
(1996), transferred the authority of the Secretary of the Treasury to 
issue exemptions of the type proposed to the Secretary of Labor.

Statutory Findings

    In accordance with section 408(a) of the Act and/or section 
4975(c)(2) of the Code and the procedures set forth in 29 CFR part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon 
the entire record, the Department makes the following findings:
    (a) The exemption is administratively feasible;
    (b) The exemption is in the interests of the plan and its 
participants and beneficiaries; and
    (c) The exemption is protective of the rights of the participants 
and beneficiaries of the plan.

Union Bank of California (UBOC), Located in San Francisco, 
California

[Prohibited Transaction Exemption 2002-20; Application No. D-10976]

Exemption

Section I--Retroactive and Prospective Exemption for In-Kind Redemption 
of Assets

    The restrictions of section 406(a) and 406(b) of ERISA 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, as of June 15, 2001, to certain in-kind redemptions (the 
Redemptions) by the Union Bank of California Retirement Plan or any 
other employee benefit plan sponsored by UBOC or an affiliate of UBOC 
(an In-house Plan) of shares (the Shares) of proprietary mutual funds 
(the Portfolios) offered by the HighMark Funds or other investment 
companies (the Funds) for which HighMark Capital Management, Inc. or an 
affiliate thereof (the Adviser) provides investment advisory and other 
services, provided that the following conditions are met:
    (A) The In-house Plan pays no sales commissions, redemption fees, 
or other similar fees in connection with the Redemptions (other than 
customary transfer charges paid to parties other than UBOC and 
affiliates of UBOC (UBOC Affiliates));
    (B) The assets transferred to the In-house Plan pursuant to the 
Redemptions consist entirely of cash and Transferable Securities. 
Notwithstanding the foregoing, Transferable Securities which are odd 
lot securities, fractional shares and accruals on such securities may 
be distributed in cash;
    (C) With certain exceptions defined below, the In-house Plan 
receives a pro rata portion of the securities of the

[[Page 14987]]

Portfolio upon a Redemption that is equal in value to the number of 
Shares redeemed for such securities, as determined in a single 
valuation performed in the same manner and as of the close of business 
on the same day in accordance with the procedures established by the 
Funds pursuant to Rule 2a-4 under the Investment Company Act of 1940, 
as amended from time to time (the 1940 Act), (using sources independent 
of UBOC and UBOC Affiliates);
    (D) UBOC, the Adviser, or any affiliate thereof, does not receive 
any fees, including any fees payable pursuant to Rule 12b-1 under the 
1940 Act in connection with any redemption of the Shares;
    (E) Prior to a Redemption, UBOC provides in writing to an 
independent fiduciary, as such term is defined in Section II (an 
Independent Fiduciary), a full and detailed written disclosure of 
information regarding the Redemption;
    (F) Prior to a Redemption, the Independent Fiduciary provides 
written approval for such Redemption to UBOC, such approval being 
terminable at any time prior to the date of the Redemption without 
penalty to the In-house Plan, and such termination being effectuated by 
the close of business following the date of receipt by UBOC of written 
or electronic notice regarding such termination (unless circumstances 
beyond the control of UBOC delay termination for no more than one 
additional business day);
    (G) Before approving a Redemption, based on the disclosures 
provided by the Portfolios to the Independent Fiduciary and discussions 
with appropriate operational personnel of the In-house Plan, UBOC, and 
the Adviser as necessary to form a basis for making the following 
determinations, the Independent Fiduciary determines that the terms of 
the Redemption are fair to the participants of the In-house Plan and 
comparable to and no less favorable than terms obtainable at arms-
length between unaffiliated parties;
    (H) Not later than thirty (30) business days after the completion 
of a Redemption, UBOC or the relevant Fund provides to the Independent 
Fiduciary a written confirmation regarding such Redemption containing:
    (i) the number of Shares held by the In-house Plan immediately 
before the Redemption (and the related per Share net asset value and 
the total dollar value of the Shares held),
    (ii) the identity (and related aggregate dollar value) of each 
security provided to the In-house Plan pursuant to the Redemption, 
including any security valued in accordance with the Funds' procedures 
for obtaining current prices from independent market-makers,
    (iii) the current market price of each security received by the In-
house Plan pursuant to the Redemption, and
    (iv) the identity of each pricing service or market-maker consulted 
in determining the value of such securities;
    (I) The value of the securities received by the In-house Plan for 
each redeemed Share equals the net asset value of such Share at the 
time of the transaction, and such value equals the value that would 
have been received by any other investor for shares of the same class 
of the Portfolio at that time;
    (J) Subsequent to a Redemption, the Independent Fiduciary performs 
a post-transaction review which will include, among other things, 
testing a sampling of material aspects of the Redemption deemed in its 
judgment to be representative, including pricing. For Redemptions 
occurring on June 15, 2001, the Independent Fiduciary's review included 
testing a limited sampling of certain material aspects of the 
Redemption deemed in its judgment to be representative;\1\
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    \1\ The reason for this difference is to conform to the language 
used in the initial independent fiduciary agreement that U.S. Trust 
and UBOC entered into with respect to the June 15, 2001 
transactions.
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    (K) Each of the In-house Plan's dealings with: the Funds, the 
Adviser, the principal underwriter for the Funds, or any affiliated 
person thereof, are on a basis no less favorable to the In-house Plan 
than dealings between the Funds and other shareholders holding shares 
of the same class as the Shares;
    (L) UBOC maintains, or causes to be maintained, for a period of six 
years from the date of any covered transaction such records as are 
necessary to enable the persons described in paragraph (M) below to 
determine whether the conditions of this exemption have been met, 
except that (i) a prohibited transaction will not be considered to have 
occurred if, due to circumstances beyond the control of UBOC, the 
records are lost or destroyed prior to the end of the six-year period, 
(ii) no party in interest with respect to the In-house Plan other than 
UBOC 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 such records are not maintained or are not 
available for examination as required by paragraph (M) below.
    (M)(1) Except as provided in subparagraph (2) of this paragraph 
(M), and notwithstanding any provisions of section 504(a)(2) and (b) of 
the Act, the records referred to in paragraph (L) above are 
unconditionally available at their customary locations for examination 
during normal business hours by (i) any duly authorized employee or 
representative of the Department of Labor, the Internal Revenue 
Service, or the Securities and Exchange Commission, (ii) any fiduciary 
of the In-house Plan or any duly authorized representative of such 
fiduciary, (iii) any participant or beneficiary of the In-house Plan or 
duly authorized representative of such participant or beneficiary, (iv) 
any employer with respect to the In-house Plan, and (v) any employee 
organization whose members are covered by such In-house Plan.
    (2) None of the persons described in paragraphs (M)(1)(ii) through 
(v) shall be authorized to examine trade secrets of UBOC, the Funds, or 
the Adviser, or commercial or financial information which is privileged 
or confidential.
    (3) Should UBOC, the Funds, or the Adviser refuse to disclose 
information on the basis that such information is exempt from 
disclosure pursuant to paragraph (M)(2) above, UBOC, the Funds, or the 
Adviser shall, by the close of the 30th day following the request, 
provide a written notice advising that person of the reasons for the 
refusal and that the Department may request such information.

Section II--Definitions

    For purposes of this proposed exemption,
    (A) The term ``affiliate'' means:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person;
    (2) Any officer, director, employee, relative, or partner in any 
such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (B) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (C) 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 a method as set forth in the Portfolio's 
prospectus and statement of additional information, and other assets 
belonging to the Portfolio, less the liabilities charged to each such 
Portfolio, by the number of outstanding shares.
    (D) The term ``Independent Fiduciary'' means a fiduciary who is: 
(i) Independent of and unrelated to UBOC

[[Page 14988]]

and its affiliates, and (ii) appointed to act on behalf of the In-house 
Plan with respect to the in-kind transfer of assets from one or more 
Portfolios to or for the benefit of the In-house Plan. For purposes of 
this exemption, a fiduciary will not be deemed to be independent of and 
unrelated to UBOC if: (i) Such fiduciary directly or indirectly 
controls, is controlled by or is under common control with UBOC; (ii) 
such fiduciary directly or indirectly receives any compensation or 
other consideration in connection with any transaction described in 
this exemption; (except that an Independent Fiduciary may receive 
compensation from UBOC in connection with the transactions contemplated 
herein if the amount or payment of such compensation is not contingent 
upon or in any way affected by the Independent Fiduciary's ultimate 
decision); and (iii) more than 1 percent (1%) of such fiduciary's gross 
income, for federal income tax purposes, in its prior tax year, will be 
paid by UBOC and its affiliates in the fiduciary's current tax year.
    (E) The term Transferable Securities shall mean securities (1) for 
which market quotations are readily available as determined pursuant to 
procedures established by the Funds under Rule 2a-4 of the 1940 Act; 
and (2) which are not: (i) Securities which may not be publicly offered 
or sold without registration under the Securities Act of 1933; (ii) 
securities issued by entities in countries which (a) restrict or 
prohibit the holding of securities by non-nationals other than through 
qualified investment vehicles, such as the Funds, or (b) permit 
transfers of ownership of securities to be effected only by 
transactions conducted on a local stock exchange; (iii) certain 
portfolio positions (such as forward foreign currency contracts, 
futures and options contracts, swap transactions, certificates of 
deposit and repurchase agreements) that, although they may be liquid 
and marketable, involve the assumption of contractual obligations, 
require special trading facilities or can only be traded with the 
counter-party to the transaction to effect a change in beneficial 
ownership; (iv) cash equivalents (such as certificates of deposit, 
commercial paper and repurchase agreements) and that of the high none 
was the package together for this; and (v) other assets which are not 
readily distributable (including receivables and prepaid expenses), net 
of all liabilities (including accounts payable).
    (F) The term ``relative'' means a ``relative'' as that term is 
defined in section 3(15) of ERISA (or a ``member of the family,'' as 
that term is defined in section 4975(e)(6) of the Code), or a brother, 
sister, or a spouse of a brother or a sister.
Written Comments
    The Department received three written comments with respect to the 
proposed exemption. Two comments sought clarification as to the terms 
of the proposed exemption, the remaining comment was submitted by UBOC. 
In its letter, UBOC stated the following:
    (1) Footnote 14 of the Summary of Facts and Representations states 
that certain HighMark portfolios were redeemed on Dec. 14, 2001. The 
correct date was Dec. 12, 2001.
    (2) Footnote in 19 indicates that UBOC agreed to make a cash 
payment sufficient to make the Retirement Plan whole with respect to 
the in-kind redemption of shares from the HighMark International Fund. 
As indicated its post transaction report dated January 25, 2002, U.S. 
Trust concluded that, based on its analysis of data from the actual 
transaction, the in-kind redemption was more favorable to the 
Retirement Plan than a hypothetical redemption in cash. Therefore, UBOC 
was not requested to, and did not, make a cash contribution to the 
Retirement Plan in connection with this redemption.
    Accordingly, after giving full consideration to the entire record, 
including the written comment, the Department has decided to grant the 
exemption subject to the clarifications described above.
    For further information regarding the comment and other matters 
discussed herein, interested persons are encouraged to obtain copies of 
the exemption application file (Exemption Application No. D-10976) the 
Department is maintaining in this case. The complete application file, 
as well as all supplemental submissions received by the Department, are 
made available for public inspection in the Public Disclosure Room of 
the Pension and Welfare Benefits Administration, Room N-1513, U.S. 
Department Labor, 200 Constitution Avenue, NW., Washington, DC 20210.

FOR FURTHER INFORMATION CONTACT: Ms. Andrea W. Selvaggio of the 
Department, telephone (202) 693-8547. (This is not a toll-free number.)

Pacific Investment Management Company LLC (PIMCO) Located in 
Newport Beach, CA

[Prohibited Transaction Exemption 2002-21; Exemption Application No. D-
11005]

Exemption

Section I. Exemption for the Purchase of Fund Shares With Assets 
Transferred in Kind From a Plan Account

    The restrictions of section 406(a) and section 406(b) of the Act 
and the sanctions resulting from the application of section 4975 of the 
Code, by reason of section 4975(c)(1)(A) through (F) of the Code,\2\ 
shall not apply, effective February 5, 2002, to the purchase of shares 
of one or more open-end management investment companies (the PIMCO 
Mutual Funds) registered under the Investment Company Act of 1940 (the 
ICA), to which PIMCO or any affiliate of PIMCO (the PIMCO Affiliate) 
\3\ serves as investment adviser and may provide other services, by an 
employee benefit plan (the Plan or Plans), whose assets are held by 
PIMCO, as trustee, investment manager or discretionary fiduciary, in 
exchange for securities held by the Plan in an account (the Account) or 
sub-Account with PIMCO (the Purchase Transaction), provided that the 
following conditions are met:
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    \2\ For purposes of this exemption, references to provisions of 
Title I of the Act, unless otherwise specified, refer also to 
corresponding provisions of the Code.
    \3\ Unless otherwise noted, ``PIMCO'' refers to ``PIMCO'' and to 
any ``PIMCO Affiliates'' and the term ``PIMCO Mutual Funds'' refers 
to any registered investment funds that are managed or advised by 
PIMCO or a PIMCO Affiliate.
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    (a) A fiduciary who is acting on behalf of each affected Plan and 
who is independent of and unrelated to PIMCO, as defined in paragraph 
(g) of Section III below (the Second Fiduciary), provides, prior to the 
first Purchase Transaction, the written approval described in paragraph 
(b) or (c) of this Section I, as applicable, following the disclosure 
of written information concerning the PIMCO Mutual Funds, which 
includes the following:
    (1) A current prospectus or offering memorandum for each PIMCO 
Mutual Fund which has been approved by the Second Fiduciary for that 
Plan's Account;\4\
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    \4\ In the case of a private placement memorandum, such 
memorandum must contain substantially the same information that 
would be disclosed in a prospectus if the offering of the securities 
were made in a registered public offering under the Securities 
Exchange Act of 1933. In the Department's view, the private 
placement memorandum must contain sufficient information to permit 
Second Fiduciaries to make informed investment decisions.

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[[Page 14989]]

    (2) A statement describing the fees to be charged to, or paid by, 
the Plan and the PIMCO Mutual Funds to PIMCO, including the nature and 
extent of any differential between the rates of the fees paid by the 
PIMCO Mutual Fund and the rates of the fees otherwise payable by the 
Plan to PIMCO;
    (3) A statement of the reasons why PIMCO considers Purchase 
Transactions to be appropriate for the Plan;
    (4) A statement on whether there are any limitations on PIMCO with 
respect to which Plan assets may be invested in the PIMCO Funds, and if 
so, the nature of such limitations;
    (5) In the case of a Plan having total assets that are less than 
$200 million, in connection with obtaining the advance written approval 
described in paragraph (c)(2) of this Section I, the identity of all 
securities that are deemed suitable by PIMCO for transfer to the PIMCO 
Mutual Funds; and
    (6) Upon such Second Fiduciary's request, copies of the proposed 
and final exemptions pertaining to the exemptive relief provided herein 
for Purchase Transactions occurring after the date of the final 
exemption.
    (b) On the basis of the foregoing information, in paragraph (a) of 
this Section I, the Second Fiduciary of a Plan having total assets that 
are at least $200 million, gives PIMCO a standing written approval 
(subject to unilateral revocation by the Second Fiduciary at any time) 
for --
    (1) The Purchase Transactions, consistent with the 
responsibilities, obligations, and duties imposed on fiduciaries by 
Part 4 of Title I of the Act;
    (2) The investment guidelines for the Account (the Strategy) and 
the management, by PIMCO, of client Plan assets in separate Accounts in 
the implementation of the Strategy;
    (3) The investment of a certain portion (or portions) of the 
Accounts in specified PIMCO Mutual Funds, as part of PIMCO's ongoing 
implementation of the Strategy;
    (4) The acquisition of shares of PIMCO Mutual Funds in cash or in 
kind, from time to time; and
    (5) The receipt of confirmation statements with respect to the 
Purchase Transactions in the form of written reports to the Second 
Fiduciary.
    (c) On the basis of the foregoing information in paragraph (a) of 
this Section I, the Second Fiduciary of a Plan having total assets that 
are less than $200 million, gives PIMCO--
    (1) A standing written approval (subject to unilateral revocation 
by the Second Fiduciary at any time) for--
    (i) The Strategy and the management, by PIMCO, of client Plan 
assets in separate Accounts in the implementation of the Strategy;
    (ii) The investment of a certain portion (or portions) of the 
Accounts in specified PIMCO Mutual Funds, as part of PIMCO's ongoing 
implementation of the Strategy; and
    (iii) The acquisition of shares of PIMCO Mutual Funds in cash or in 
kind, from time to time.
    (2) Advance written approval for--
    (i) Each Purchase Transaction, consistent with the 
responsibilities, obligations and duties imposed on fiduciaries by Part 
4 of Title I of the Act; and
    (ii) The receipt of confirmation statements with respect to 
Purchase Transactions in the form of written reports to the Second 
Fiduciary.
    (d) No sales commissions or other fees are paid by a Plan in 
connection with a Purchase Transaction.
    (e) All transferred assets are securities for which market 
quotations are readily available.
    (f) The transferred assets consist of assets transferred to the 
Plan's Account at the direction of the Second Fiduciary, and any 
securities which have been acquired through the investment and 
reinvestment of such securities in the implementation of the Strategy.
    (g) With respect to assets transferred in kind, each Plan receives 
shares of a PIMCO Mutual Fund which have a total net asset value that 
is equal to the value of the assets of the Plan exchanged for such 
shares, based on the current market value of such assets at the close 
of the business day on which such Purchase Transaction occurs, using 
independent sources in accordance with the procedures set forth in Rule 
17a-7b under the ICA (Rule 17a-7), as amended from time to time or any 
successor rule, regulation or similar pronouncement, and the procedures 
established by the PIMCO Mutual Funds pursuant to Rule 17a-7 for the 
valuation of such assets. Such procedures must require that all 
securities for which a current market price cannot be obtained by 
reference to the last sale price for transactions reported on a 
recognized securities exchange or NASDAQ be valued based on an average 
of the highest current independent bid and lowest current independent 
offer, as of the close of business on the day of the Purchase 
Transaction determined on the basis of reasonable inquiry from at least 
two sources that are market makers or pricing services independent of 
PIMCO.
    (h) PIMCO sends by regular mail, express mail or personal delivery 
or, if applicable, by facsimile or electronic mail to the Second 
Fiduciary of each Plan that engages in a Purchase Transaction, a report 
containing the following information about each Purchase Transaction:
    (1) A list (or lists, if there are multiple Purchase Transactions) 
identifying each of the securities that has been valued for purposes of 
the Purchase Transaction in accordance with Rule 17a-7(b)(4) of the 
ICA;
    (2) The current market price, as of the date of the Purchase 
Transaction, of each of the securities involved in the Purchase 
Transaction;
    (3) The identity of each pricing service or market maker consulted 
in determining the value of such securities;
    (4) The aggregate dollar value of the securities held in the Plan 
Account immediately before the Purchase Transaction; and
    (5) The number of shares of the PIMCO Mutual Funds that are held by 
the Account following the Purchase Transaction (and the related per 
share net asset value and the aggregate dollar value of the shares 
received) immediately following the Purchase Transaction.
    (Such report is disseminated by PIMCO to the Second Fiduciary by 
regular mail, express mail or personal delivery, or if applicable, by 
facsimile or electronic mail, no later than 30 business days after the 
Purchase Transaction.)
    (i) With respect to each of the PIMCO Mutual Funds in which a Plan 
continues to hold shares acquired in connection with a Purchase 
Transaction, PIMCO provides the Second Fiduciary with--
    (1) A copy of an updated prospectus or offering memorandum for such 
PIMCO Mutual Fund, at least annually; and
    (2) Upon request of the Second Fiduciary, a report or statement 
(which may take the form of the most recent financial report, the 
current Statement of Additional Information, or some other statement) 
containing a description of all fees paid by the PIMCO Mutual Fund to 
PIMCO.
    (j) As to each Plan, the combined total of all fees received by 
PIMCO for the provision of services to the Plan, and in connection with 
the provision of services to a PIMCO Mutual Fund in which the Plan 
holds shares acquired in connection with a Purchase Transaction, is not 
in excess of ``reasonable compensation'' within the meaning of section 
408(b)(2) of the Act.
    (k) All dealings in connection with a Purchase Transaction between 
a Plan and a PIMCO Mutual Fund are on a basis no less favorable to the 
Plan than dealings between the PIMCO Mutual Fund and other 
shareholders.

[[Page 14990]]

    (l) No Plan may enter into Purchase Transaction with the PIMCO 
Mutual Funds prior to the date the proposed exemption is published in 
the Federal Register.
    (m) PIMCO maintains for a period of six years, in a manner that is 
accessible for audit and examination, the records necessary to enable 
the persons, as described in paragraph (n) of this Section I, to 
determine whether the conditions of this proposed exemption have been 
met, except that--
    (1) A prohibited transaction will not be considered to have 
occurred if, due to circumstances beyond the control of PIMCO, the 
records are lost or destroyed prior to the end of the six year period; 
and
    (2) No party in interest, other than PIMCO, 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 (m) of this Section I.
    (n)(1) Except as provided in paragraph (n)(2) of this Section I and 
notwithstanding any provisions of subsections (a)(2) and (b) of section 
504 of the Act, the records referred to in paragraph (m) of Section I 
above are unconditionally available at their customary location for 
examination during normal business hours by--
    (A) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service, or the Securities and 
Exchange Commission;
    (B) Any fiduciary of each of the Plans who has authority to acquire 
or dispose of shares of any of the PIMCO Mutual Funds owned by such a 
Plan, or any duly authorized employee or representative of such 
fiduciary; and
    (C) Any participant or beneficiary of the Plans or duly authorized 
employee or representative of such participant or beneficiary.
    (2) None of the persons described in paragraph (n)(1)(B) or (C) of 
this Section I shall be authorized to examine the trade secrets of 
PIMCO or commercial or financial information which is privileged or 
confidential.

Section II. Availability of Prohibited Transaction Exemption (PTE) 77-4 
\5\
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    \5\ In relevant part, PTE 77-4 (42 FR 18732 (April 8, 1977) 
permits the purchase and sale by an employee benefit plan of shares 
of a registered open-end investment company when a fiduciary with 
respect to such plan is also the investment adviser for the mutual 
fund. Section II(a) of PTE 77-4 requires that a plan does not pay a 
sales commission in connection with such purchase or sale. Section 
II(d) describes the disclosures that are to be received by an 
independent plan fiduciary. For example, the plan fiduciary must 
receive a current prospectus for the mutual fund as well as full and 
detailed written disclosure of the investment advisory and other 
fees that are charged to or paid by the plan and the investment 
company. Section II(e) requires that the independent plan fiduciary 
approve purchases and sales of mutual fund shares on the basis of 
the disclosures given.
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    Any purchase of PIMCO Mutual Fund shares by a Plan that complies 
with the conditions of Section I of this proposed exemption shall be 
treated as a ``purchase or sale'' of shares of an open-end investment 
company for purposes of PTE 77-4 and shall be deemed to have satisfied 
paragraphs (a), (d) and (e) of Section II of PTE 77-4.

Section III. Definitions

    For purposes of this exemption,
    (a) The term ``PIMCO'' means Pacific Investment Management Company 
LLC, any successors thereto, and affiliates of PIMCO (as defined in 
paragraph (b) of this Section III), including Nicholas-Applegate 
Capital Management, PIMCO Equity Advisers, Cadence Capital Management, 
NFJ Investment Group, Value Advisors LLC, Allianz of America, Inc., 
Pacific Specialty Markets LLC, PIMCO/Allianz International Advisors 
LLC, OpCap Advisors and Oppenheimer Capital, and their existing and 
future affiliates.
    (b) An ``affiliate'' of a person includes:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person;
    (2) Any officer, director, employee, relative, or partner in any 
such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (c) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (d) The term ``PIMCO Mutual Fund'' or ``PIMCO Mutual Funds'' means 
any open-end investment company or companies registered under the ICA 
for which PIMCO serves as investment adviser, administrator, or 
investment manager. The term is also meant to include a PIMCO Affiliate 
Mutual Fund in which a PIMCO Affiliate serves as an investment adviser 
or investment manager.
    (e) The term ``net asset value'' means the amount for purposes of 
pricing all purchases and redemptions calculated by dividing the value 
of all securities, determined by a method as set forth in a PIMCO 
Mutual Fund's prospectus and statement of additional information, and 
other assets belonging to each of the portfolios in such PIMCO Mutual 
Fund, less the liabilities charged to each portfolio, by the number of 
outstanding shares.
    (f) The term ``relative'' means a relative as that term is defined 
in section 3(15) of the Act (or a ``member of the family'' as that term 
is defined in section 4975(e)(6) of the Code), or a brother, a sister, 
or a spouse of a brother or a sister.
    (g) The term ``Second Fiduciary'' means a fiduciary of a plan who 
is independent of and unrelated to PIMCO. For purposes of this 
exemption, the Second Fiduciary will not be deemed to be independent of 
and unrelated to PIMCO if--
    (1) Such Second Fiduciary directly or indirectly controls, is 
controlled by, or is under common control with PIMCO;
    (2) Such Second Fiduciary, or any officer, director, partner, 
employee, or relative of such Second Fiduciary is an officer, director, 
partner, or employee of PIMCO (or is a relative of such persons); or
    (3) Such Second Fiduciary directly or indirectly receives any 
compensation or other consideration from PIMCO for his or her own 
personal account in connection with any transaction described in this 
proposed exemption.
    If an officer, director, partner, or employee of PIMCO (or a 
relative of such persons), is a director of such Second Fiduciary, and 
if he or she abstains from participation in (A) the choice of the 
Plan's investment manager/adviser; (B) the written authorization 
provided to PIMCO for the Purchase Transactions; (C) the Plan's 
decision to continue to hold or to redeem shares of the PIMCO Mutual 
Funds held by such Plan; and (D) the approval of any change of fees 
charged to or paid by the Plan, in connection with the transactions 
described above in Section I, then paragraph (g)(2) of this Section 
III, shall not apply.
    (h) The term ``Strategy'' refers to the set of investment 
guidelines that have been established in advance to govern the Account. 
The Strategy is created by PIMCO in collaboration with the Second 
Fiduciary of a client Plan and may be mutually amended, from time to 
time.

EFFECTIVE DATE: This exemption is effective as of February 5, 2002.
    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 February 5, 2002 at 67 FR 
5307.
Written Comments
    During the comment period, the Department received one written

[[Page 14991]]

comment with respect to the proposed exemption and no requests for a 
public hearing. The comment letter was submitted by PIMCO and it 
requests that certain clarifications be made to the proposal.
    Discussed below are the revisions suggested by PIMCO and the 
changes made by the Department to the final exemption in response to 
the concerns expressed by PIMCO in its comment letter.
    1. Name of Applicant. On page 5307 of the proposed exemption there 
is a comma in the caption identifying PIMCO by its full name as the 
applicant in this exemption request. Because PIMCO explains that there 
is no comma in its full name, the Department has revised the caption in 
the final exemption to read ``Pacific Investment Management Company LLC 
(PIMCO).''
    2. Timing of Disclosure Regarding Transferrable Securities. On page 
5308 of the proposal, Section I(a)(5) requires that PIMCO disclose, to 
a Second Fiduciary of a Plan having total assets that are less than 
$200 million, all securities PIMCO deems suitable for transfer to the 
PIMCO Mutual Funds. However, PIMCO wishes to clarify the timing of this 
disclosure by adding the following italicized language to Section 
I(a)(5):

    In the case of a Plan having total assets that are less than 
$200 million, in connection with obtaining the advance written 
approval described in paragraph (c)(2) of this Section I, the 
identity of all securities that are deemed suitable by PIMCO for 
transfer to the PIMCO Mutual Funds.

    In response to this comment, the Department has revised Section 
I(a)(5) of the final exemption to reflect the change suggested by 
PIMCO.
    3. Transferred Assets and Ongoing Purchase Transactions. On page 
5308 of the proposed exemption, Section I(f) states that the 
transferred assets will consist of assets transferred to a Plan's 
Account at the direction of the Second Fiduciary. Because the Purchase 
Transactions under the exemption will be permitted on a recurring 
basis, PIMCO wishes to clarify that securities that are transferred to 
an Account by a Second Fiduciary, including those acquired through the 
investment and reinvestment of such securities, may be used to purchase 
additional shares, in-kind. Therefore, PIMCO suggests that the 
following italicized language be added to Section I(f) of the final 
exemption:

    The transferred assets consist of securities transferred to the 
Plan's Account at the direction of the Second Fiduciary, and any 
securities which have been acquired through the investment and 
reinvestment of such securities in the implementation of the 
Strategy.

    The Department has revised Section I(f) of the final exemption, 
accordingly, in response to this comment.
    4. No Minimum Plan Size. On page 5310 of the proposed exemption, 
the last sentence in Representation 2 of the Summary states, in part, 
that each Plan proposing to engage in Purchase Transactions must have 
total assets of at least $100 million. PIMCO notes that although there 
are different rules regarding disclosure and consent based on whether a 
Plan has at least $200 million in assets, there is no minimum asset 
size requirement for investing Plans. Therefore, PIMCO requests that 
this sentence be stricken from Representation 2 and the Department 
notes this revision in the final exemption.
    Accordingly, after giving full consideration to the entire record, 
including the written comment, the Department has decided to grant the 
exemption subject to the clarifications described above. For further 
information regarding the comment and other matters discussed herein, 
interested persons are encouraged to obtain copies of the exemption 
application file (Exemption Application No. D-11005) the Department is 
maintaining in this case. The complete application file, as well as all 
supplemental submissions received by the Department, are made available 
for public inspection in the Public Disclosure Room of the Pension and 
Welfare Benefits Administration, Room N-1513, U.S. Department Labor, 
200 Constitution Avenue, NW., Washington, DC 20210.

FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department, 
telephone (202) 693-8556. (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 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) This exemption is 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 this exemption is subject to the express 
condition that the material facts and representations contained in the 
application accurately describes all material terms of the transaction 
which is the subject of the exemption.

    Signed at Washington, DC, this 25th day of March, 2002.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 02-7519 Filed 3-27-02; 8:45 am]
BILLING CODE 4510-29-P