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Secretary of Labor Thomas E. Perez
Proposed Exemptions; GE Capital Investment Advisors, Inc [Notices] [11/25/1996]

EBSA (Formerly PWBA) Federal Register Notice

Proposed Exemptions; GE Capital Investment Advisors, Inc [11/25/1996]

[PDF Version]

Volume 61, Number 228, Page 59912-59916

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Application No. D-10318, et al.]

 
Proposed Exemptions; GE Capital Investment Advisors, 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 restriction of the Employee 
Retirement Income Security Act of 1974 (the Act) and/or the Internal 
Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

    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 
request for a hearing should state: (1) The name, address, and 
telephone number of the person making the comment or request, and (2) 
the nature of the person's interest in the exemption and the manner in 
which the person would be adversely affected by the exemption. A 
request for a hearing must also state the issues to be addressed and 
include a general description of the evidence to be presented at the 
hearing. A request for a hearing must also state the issues to be 
addressed and include a general description of the evidence to be 
presented at the hearing.

ADDRESSES: All written comments and request for a hearing (at least 
three copies) should be sent to the Pension and Welfare Benefits 
Administration, Office of Exemption Determinations, Room N-5649, U.S. 
Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C. 
20210. Attention: Application No. stated in each Notice of Proposed 
Exemption. The applications for exemption and the comments received 
will be available for public inspection in the Public Documents Room of 
Pension and Welfare Benefits Administration, U.S. Department of Labor, 
Room N-5507, 200 Constitution Avenue, N.W., Washington, D.C. 20210.

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all 
interested persons in the manner agreed upon by the applicant and the 
Department within 15 days of the date of publication in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and to request a hearing 
(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in 
applications filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990). 
Effective December 31, 1978, section 102 of Reorganization Plan No. 4 
of 1978 (43 FR 47713, October 17, 1978) transferred the authority of 
the Secretary of the Treasury to issue exemptions of the type requested 
to the Secretary of Labor. Therefore, these notices of proposed 
exemption are issued solely by the Department.
    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

GE Capital Investment Advisors, Inc., Located in New York, New York

[Application No. D-10318]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 C.F.R. Part 
2570, Subpart B (55 F.R. 32836, 32847, August 10, 1990). If the 
exemption is granted, GE Capital Investment Advisors, Inc. (GECIA) and 
GECIA Holdings, Inc. (Holdings) shall not be precluded from functioning 
as a ``qualified professional asset manager'' pursuant to Prohibited 
Transaction Class Exemption 84-14 (PTE 84-14, 49 FR 9494, March 13, 
1984) solely because of a failure to satisfy section I(g) of PTE 84-14, 
as a result of General Electric Company's ownership interest in them, 
including any of their subsidiaries or successors which provides 
investment advisory, management or related services and is registered 
under the Securities and Exchange Act of 1934, as amended, or the 
Investment Advisors Act of 1940, as amended; provided the following 
conditions are satisfied:

    (A) This exemption is not applicable to any affiliation by GECIA 
or Holdings with any person or entity convicted of any of the 
felonies described in part I(g) of PTE 84-14, other than General 
Electric Company; and
    (B) This exemption is not applicable with respect to any 
convictions of General Electric Company for felonies described in 
part I(g) of PTE 84-14 other than those involved in the G.E. 
Felonies, described below.

    Effective Date: This exemption, if granted, will be effective as of 
January 29, 1996.

Summary of Facts and Representations

    Introduction: General Electric Company (G.E.), an indirect 100 
percent owner of GECIA Holdings, Inc. (Holdings), has been convicted 
during the past ten years of certain felonies relating to G.E.'s 
government contracts operations. In 1995-1996, Holdings created a 
subsidiary, GE Capital Investment Advisors, Inc. (GECIA), solely to 
purchase an unrelated investment advisory and management business. 
G.E.'s felony convictions could bar GECIA from acting as a ``qualified 
professional asset manager'' (QPAM) under Prohibited Transaction Class 
Exemption 84-14 (PTE 84-14, 49 FR 9494, March 13, 1984). Part I(g) of 
PTE 84-14 requires that no person owning, directly or indirectly, 5 
percent or more of the QPAM has been

[[Page 59913]]

convicted of certain felonies within ten years preceding the 
transaction for which the QPAM intends to utilize PTE 84-14. GECIA and 
Holdings are requesting an exemption to enable GECIA to qualify as a 
QPAM without regard to any failure to satisfy part I(g) of PTE 84-14 by 
reason of G.E.'s ownership of GECIA, under the terms and conditions 
described herein.
    1. GECIA is a real estate investment advisory and management 
business located in San Francisco, California. GECIA is a wholly-owned 
subsidiary of Holdings, a wholly-owned subsidiary of GE Capital 
Services, Inc. (GECS), which is entirely owned by G.E. GECIA and 
Holdings (the Applicants) were organized and established by GECS solely 
to acquire and continue the real estate investment advisory and 
management business of MacFarlane Partners (MacFarlane), which was 
unrelated to G.E. and its affiliates. MacFarlane obtained consent from 
each of its existing clients to the transfer of MacFarlane client 
accounts to GECIA, and GECIA commenced operations on January 29, 1996 
immediately following completion of the acquisition of MacFarlane. As 
part of the acquisition, GECIA has hired all of the investment 
professionals and other employees of MacFarlane, including Victor 
MacFarlane as the chief executive officer of GECIA.
    The Applicants represent that the clientele served by GECIA's 
operations include large employee benefit plans subject to the Act. 
They maintain that, given the size and number of the plans which GECIA 
represents, the large number of financial service providers engaged by 
such plans, the breadth of the definition of ``party in interest'' 
under the Act, and the array of services offered by GECIA, it would not 
be uncommon for GECIA to propose a transaction involving a party in 
interest with respect to a plan for which GECIA is acting in a 
fiduciary capacity. The Applicants represent that the proposing of such 
transactions is occasionally necessary to offer plan clients adequate 
investment diversification opportunities, and that such opportunities 
will be missed if GECIA is not permitted to function as a QPAM pursuant 
to PTE 84-14.
    2. The Applicants represent that prior to January 29, 1996, G.E. 
did not have any ownership interests in any of the operations of 
MacFarlane, which are now the operations of GECIA. They represent that 
Holdings and GECIA were established solely to acquire, operate and 
expand the business of MacFarlane, and that GECIA and Holdings do not 
engage in any of the business to which the G.E. Felonies, described 
below, pertain. The Applicants further represents that GECIA and 
Holdings are intended and structured to be operated and maintained 
separately and independently from the G.E. business operations to which 
the G.E. Felonies pertain, which did not involve any investment 
advisory, management or related services.
    3. On three occasions from 1986 through 1992, G.E. pled guilty or 
was convicted of felonies relating to the government contract 
activities of G.E. and its subsidiaries (the G.E. Felonies). The 
Applicants represent that the G.E. Felonies did not in any way relate 
to any employee benefit plan or any person's authority with respect to 
an employee benefit plan. The Applicants describe the G.E. Felonies 
more specifically as follows:
    (a) On May 13, 1986, G.E. pled guilty to four counts of filing 
false claims with the United States Air Force and 104 counts of filing 
false statements with the United States Air Force in connection with 
work performed in 1980 by G.E.'s Re-Entry Systems Operation. The 
Applicants represent that these counts primarily related to individual 
time cards that were improperly charged to certain government 
contracts.
    (b) On February 2, 1990, G.E. was convicted of mail fraud and 
violations of the False Claims Act relating to the conduct in 1983 of 
two contract employees of a G.E. subsidiary, Management and Technical 
Services Co., involving failure to notify the United States Army that 
subcontractors had agreed to prices lower than those contained in 
projections for the project. The Applicants represent that neither G.E. 
nor any officer or employee of G.E. was accused of having knowledge of 
the discrepancy and withholding it from the United States Army.
    (c) On July 22, 1992 G.E. pled guilty to violations of 18 U.S.C. 
287 (submitting false claims against the United States), 18 U.S.C. 1957 
(engaging in monetary transactions in criminally derived property), 15 
U.S.C. 78m(b)(2)(A) and 78ff(a) (inaccurate books and records), and 18 
U.S.C. 371 (conspiracy to defraud and commit offenses against the 
United States). The Applicants represent that these violations related 
to a series of events between 1984 and 1990, involving false statements 
made by employees of G.E. Aircraft Engines Division to a foreign 
government that led such foreign government to submit false claims to 
the United States relating to the purchase of weapons.
    4. The Applicants represent that the G.E. Felonies did not relate 
in any way to the conduct or business of MacFarlane, or any investment 
advisor or fiduciary of an employee benefit plan. The Applicants 
maintain, however, that although none of the unlawful conduct involve 
MacFarlane's or GECIA's investment management activities or any plans 
covered by the Act, the criminal activities described above could 
preclude GECIA, as an affiliate of G.E., from serving as a ``qualified 
professional asset manager'' (QPAM), due to the provisions of sections 
I(g) and V(d) of PTE 84-14. Section I(g) of PTE 84-14 precludes a 
person who otherwise qualifies as a QPAM from serving as a QPAM if such 
person or an affiliate thereof has within the 10 years immediately 
preceding the transaction been either convicted or released from 
imprisonment as a result of certain criminal activity, including any 
crime described in section 411 of the Act. Because the G.E. Felonies 
involved crimes described in section 411 of the Act and monies 
transferred to or claimed by G.E., the Applicants represent that GECIA 
may be barred from qualifying as a QPAM.
    5. Accordingly, the Applicants request an exemption to enable GECIA 
to function as a QPAM despite the failure to satisfy section I(g) of 
PTE 84-14 solely because of the G.E. Felonies and GECIA's affiliation 
with G.E. The Applicants request that the exemption apply not only to 
GECIA but to Holdings as well, in order to enable flexibility in the 
growth and development of GECIA's operations and to enable potential 
corporate reorganizations. The Applicants state that they intend that 
GECIA's relationships with employee benefit plans will be developed by 
increasing the types and amounts of services provided, or by extending 
the relationships into new areas. GECIA may prefer, for example, to 
establish a related registered investment advisor to service a 
particular niche of the market. However, the Applicants represent that 
GECIA is structured such that subsidiaries will not be established 
under GECIA, and any new coporate entities needed to accomodate 
expanded operations of GECIA will be subsidiaries of Holdings. The 
Applicants further maintain that inclusion of Holdings in the requested 
exemption is also necessary to allow GECIA or Holdings to participate 
in any reorganization which might eliminate one of them or change their 
relative position with respect to GECS, or they may be repositioned for 
reasons unrelated to their activities, such as a public offering of 
their stock. For these reasons, the Applicants are requesting that the 
exemption be

[[Page 59914]]

applicable to GECIA and Holdings and any subsidiary or successor which 
provides investment advisory, management or related services and is 
registered under the Investment Advisors Act of 1940, as amended.
    The transactions covered by the proposed exemption would include 
the full range of transactions that can be executed by investment 
managers who qualify as QPAMs pursuant to PTE 84-14. If granted, the 
exemption will enable GECIA to qualify as a QPAM by satisfying all 
conditions of PTE 84-14, except that G.E.'s convictions and guilty 
pleas in connection with the G.E. Felonies shall not prevent 
satisfaction of the condition stated in section I(g) of PTE 84-14 
because of affiliation with G.E. The exemption, if granted, will relate 
only to the Applicants' affiliation with G.E. and not to any 
affiliation with any other persons or entities.<SUP>1
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     1  For example, any affiliation of the Applicants with any 
company or individual convicted of any of the felonies described in 
section 411 of the Act, other than G.E. with respect to the G.E. 
Felonies described herein, is not within the scope of the exemption 
proposed herein. Furthermore, any future convictions of or guilty 
pleas by G.E. for felonies described in part I(g) of PTCE 84-14 are 
not within the scope of the exemption proposed herein.
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    6. The Applicants represent that the G.E. Felonies do not create 
any concern that they will endanger employee benefit plans for which 
GECIA proposes to serve as a QPAM. The Applicants note that all of the 
G.E. Felonies occurred before the creation of GECIA and its acquisition 
of the MacFarlane business, and that all of the G.E. Felonies involved 
areas of business unrelated to employee benefit plans and the 
activities of GECIA. The Applicants represent that prior to its 
incorporation, substantial efforts were devoted to identifying possible 
relationships between its proposed provision of real estate management 
services to plans and the existing business activities of G.E. and its 
affiliates, and understanding the potential legal issues related 
thereto. As a result, the Applicants represent that care has been taken 
to situate GECIA and Holdings separate from other unrelated business 
activities of G.E. and its affiliates, particularly those involved with 
the G.E. Felonies, and that GECIA and Holdings are isolated 
organizationally from the G.E. operations and entities formerly 
involved in the G.E. Felonies.
    Furthermore, the Applicants represent that they are committed to a 
strong legal compliance program, developing their own policies and 
procedures to promote compliance with applicable laws including the 
Act. In this regard, the Applicants note that GECIA has established its 
own general counsel, independent of G.E., with responsibility for 
supervising legal compliance. Under the general counsel's direction, 
GECIA has adopted written compliance policies designed to ensure 
compliance with the Act, and written materials relating to such 
policies have been provided to applicable employees. The Applicants 
represent that GECIA conducts employee training programs, including on-
site seminars by outside counsel, on the requirements of the Act. The 
Applicants conclude that the efforts in these compliance measures 
constitute substantial amounts of time, effort and resources to avoid 
any failure by GECIA to comply with the Act and other applicable laws.
    7. In summary, the Applicants represent that the criteria of 
section 408(a) of the Act are satisfied for the following reasons: (a) 
The G.E. Felonies occurred prior to any affiliation between G.E. and 
GECIA, and did not involve any conduct on the part of GECIA; (b) GECIA 
constitutes a continuation of the operations of MacFarlane, which was 
not involved in any of the G.E. Felonies and which was unrelated to 
G.E. prior to acquisition by GECIA; (c) GECIA has committed to a legal 
compliance program featuring written policies and procedures to prevent 
illegal activity; and (d) The exemption will permit the Applicants to 
engage in a broader variety of investments and services on behalf of 
client employee benefit plans which demand diverse investment 
opportunities.
    For Further Information Contact: Ronald Willett of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

Summit Sheet Metal, Inc. Defined Benefit Pension Plan (the Plan) 
Located in Anaheim, California

[Application No. D-10330]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted, the restrictions of sections 406(a) and 406(b)(1) and 
(b)(2) of the Act and the sanctions resulting from the application of 
section 4975 of the Code, by reason of section 4975(c)(1) (A) through 
(E) of the Code, shall not apply to the proposed cash sale (the Sale) 
by the Plan of certain real property (the Property) to Messrs. Milton 
J. Chasin, Donald E. Hanson, and Gale N. Searing, parties in interest 
with respect to the Plan; provided that the following conditions are 
satisfied: (a) the Sale is a one-time transaction for a lump sum cash 
payment; (b) the purchase price is the fair market value of the 
Property as determined on the date of the Sale by a qualified, 
independent appraiser; and (c) the Plan will incur no commissions or 
any other expenses from the proposed Sale.

Summary of Facts and Representations

    1. The sponsoring employer of the Plan is the Summit Sheet Metal, 
Inc. (the Employer), a California corporation, which has manufactured 
sheet metal for over 20 years for the construction industry located 
primarily in southern California. The Employer has formerly resolved to 
terminate its business operations and is in the process of dissolution. 
Messrs. Milton J. Chasin, Donald E. Hanson, and Gale N. Searing, who 
each own a one-third interest in the Employer, are its only remaining 
employees.
    2. The Plan is a defined benefit plan with approximately $3.18 
million in total assets, as of October 16, 1996, and three participants 
who are equal owners of the Employer. The trustee and administrator of 
the Plan are the three owners of the Employer. CalTrust, located in 
Costa Mesa, California, is the third-party recordkeeper for the Plan.
    The Employer has formally resolved to terminate the Plan, and has 
received a determination from the Pension Benefit Guaranty Corporation 
that the Plan is no longer insured. In addition, the Plan is currently 
in termination process with the Internal Revenue Service.
    The remaining three participants in the Plan have attained normal 
retirement age and intend to retire within the next few months and 
transfer their respective interests in the Plan to their respective 
Individual Retirement Accounts (IRA).
    3. The Property, acquired solely as an investment in 1988 by the 
Plan from an unrelated person, is an unencumbered, fully developed 
parcel of commercial real estate, which is located at 12707 and 12717 
Los Neitos Road, Santa Fe Springs, California on approximately 1.17 
acres. The applicants represent that the Property is serviced by all 
the necessary public utilities and consists of a single story metal 
building and a single story concrete block building with a mezzanine 
for office space, and has been leased and used only by unrelated third-
parties with respect to the Plan. The Property was determined in 1993 
by the Environmental Protection

[[Page 59915]]

Agency (EPA) to be located within a potential toxic waste clean-up 
site.
    The applicants represent that several attempts to sell the Property 
by the Plan to unrelated persons have been unsuccessful, primarily, 
because of the uncertainty of the costs in cleaning up the toxic waste 
found by the EPA.
    Mr. Claude J. Demers, Real Estate Broker with California Real 
Estate Properties, Inc. of Huntington Beach, California, in a letter 
dated September 3, 1996, represented that his listing agreement on the 
Property had expired August 31, 1996, after every major industrial 
broker in Orange County was contacted with little response and no 
serious inquiries received. Mr. Demers further represented that the 
lack of market demand for the Property and the potential liability 
because of the hazardous materials on the Property effects the value of 
the Property. In addition, Mr. Demers represented that several 
financing institutions commented that even if a serious buyer were 
found, financing the Property would still be a major obstacle to 
overcome.
    The Property was appraised as of June 20, 1996, and determined to 
have a fair market value of $410,000. The appraisal was done by the 
Grubb & Ellis Company Appraisal and Consulting Services, Orange, 
California and signed by Paul M. Meade, Vice President, State 
Certification #AG001947, and Donald L. Hoelzel, Independent Review 
Appraiser, State Certification #AG00732. The appraiser represented that 
it had no interest in the Property and was independent of the Employer 
and the participants of the Plan. The appraiser also represented that 
the only impact on the Property of the EPA determination is the stigma 
associated with its proximity to the contained toxic waste and the 
subsequent value reduction.
    4. The applicants represent that the Plan has been unable to 
interest anyone in purchasing the Property because of the EPA 
determination, and the trustees of the Plan are unable to locate an IRA 
custodian willing to accept the Property as an asset of an IRA. 
Therefore, the three remaining participants of the Plan desire to 
purchase the Property so that the Plan may be terminated and its assets 
rolled-over into their respective IRAs.
    The applicants represent that the Sale would be in the best 
interests of the Plan and its participants and beneficiaries because 
the Sale would avoid the risk of future costs of clean-up and the 
anticipated depreciation in value of the Property. Also the parties 
involved expect to terminate as soon as possible the Plan and the 
Employer.
    5. In summary, the applicant represents that the proposed 
transaction will satisfy the criteria of section 408(a) of the Act 
because (a) the Sale of the Property involves a one-time transaction 
for cash; (b) the Plan will not incur any payment of commissions or any 
other expenses from the Sale; (c) the Plan will be able to terminate 
and roll-over its remaining assets into three separate IRAs for the 
benefit of the three remaining participants; (d) the Property has been 
appraised by a qualified, independent appraiser; and (e) the Plan will 
receive as consideration for the Sale no less than the fair market 
value of the Property as of the date of the Sale.
    Notice to Interested Persons: Because Messrs. Chasin, Hanson, and 
Searing, the applicants, are the sole participants of the Plan, it has 
been determined that there is no need to distribute the notice of 
proposed exemption to interested persons. Comments and requests for a 
hearing are due thirty (30) days after publication of this notice in 
the Federal Register.
    For Further Information Contact: Mr. C.E. Beaver of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

Skana Enterprises, Inc. Defined Benefit Pension Plan (the Plan) Located 
in Kodiak, Alaska

[Application No. D-10342]

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 $157,500 by the Plan to Skana 
Enterprises, Inc. (Skana), the Plan's sponsor and a disqualified person 
with respect to the Plan, and (2) the personal guarantee of the Loan by 
Mr. Ralph Bolton (Mr. Bolton), a disqualified person with respect to 
the Plan, provided the following conditions are satisfied: (a) The 
terms of the Loan are at least as favorable to the 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 first deed of trust on 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; (d) the fair 
market value of the Property remains at least equal to 150% of the 
outstanding balance of the Loan throughout the duration of the Loan; 
(e) the Plan's independent fiduciary has determined that the Loan is 
appropriate for, in the best interest of, and protective of the Plan; 
and (f) the Plan's independent fiduciary will monitor compliance with 
the terms of the Loan and conditions of the exemption throughout the 
duration of the transaction, taking any action necessary to safeguard 
the Plan's interest, including foreclosure on the Property in the event 
of default.<SUP>2
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    \2\ Since Mr. Bolton is the sole owner of Skana and the only 
participant 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. Skana is a corporation located in Kodiak, Alaska, which is 
engaged in the business of commercial fishing for seafood. The Plan is 
a defined benefit plan with one participant, Mr. Bolton. The 
approximate aggregate fair market value of the Plan's assets is 
$670,000.
    2. Skana wishes to borrow $157,500 from the Plan to purchase a 
parcel of real property in Kodiak, Alaska. The Loan will be amortized 
over a 15 year period, with equal semi-annual payments of principal and 
interest over the 15 year term. The interest rate for the Loan will be 
9.25% per annum. The proposed terms of the Loan were submitted to Mr. 
Duane E. Dudley, Vice President of the Bank of America Alaska, N.A. in 
Anchorage, Alaska. Mr. Dudley approved the Loan, but recommended that 
certain of the proposed terms should be amended, such as raising the 
interest rate to 9.25% per annum. Mr. Dudley has represented that the 
terms of the Loan, as amended, are commercially reasonable.
    3. The Loan will be secured by the Property, which consists of land 
and the timber located thereon, situated on East Devils Road in Lincoln 
City, Oregon. Char Brown of The Prudential Taylor & Taylor Realty 
Company in Lincoln City, Oregon, has appraised the land as having a 
fair market value, excluding the timber value, of $200,000 as of 
September 17, 1996. Ms. Brown represents that she is a qualified, 
independent realtor who has worked in the small town of Lincoln City 
for five years and is well acquainted with the values of all the 
properties in the area. The timber on the Property has been valued by 
D.J. Davis Cutting, Inc. of Otis, Oregon as having a fair market value 
of $193,277.75 as of September

[[Page 59916]]

15, 1996. Thus, independent experts have determined that the fair 
market value of the Property is $393,277.75, which is approximately 2.5 
times the principal amount of the Loan. The applicant represents that 
the Plan will have first priority interest in the collateral, and the 
Plan's interest will be perfected under applicable state law. Mr. 
Bolton will also personally guarantee the Loan to the Plan.
    4. The Plan has appointed Drugge & Associates (Drugge), a CPA firm 
in Seattle, Washington, as its independent fiduciary for purposes of 
this transaction. Drugge represents that it performs accounting and tax 
services for Skana, but fees generated from Skana represent less than 
one percent of its annual service revenues. Mr. Jon Krueger of Drugge 
has represented that all terms and conditions of the Loan are at least 
as favorable to the Plan as the Plan could obtain in an arm's-length 
transaction with an unrelated party, and represent fair market value 
terms. Drugge has determined that the Loan is appropriate for the Plan, 
in the Plan's best interests as an investment for its portfolio, and 
protective of the Plan and its participant. Drugge represents that it 
will monitor compliance by Skana with the terms and conditions of the 
Loan and of the exemption proposed herein throughout the term of the 
Loan, taking whatever action is necessary to safeguard the Plan's 
interest, including foreclosure on the collateral in the event of 
default.
    5. In summary, the applicant represents that the proposed 
transaction satisfies the criteria contained in section 4975(c)(2) of 
the Code for the following reasons: (a) The Loan represents less than 
25% of the assets of the Plan; (b) the terms of the Loan will be at 
least as favorable to the Plan as those obtainable in an arm's-length 
transaction with an unrelated party; (c) the Loan will be secured by a 
first deed of trust on the Property, which has been appraised by 
qualified, independent experts to have a fair market value 
approximately 2.5 times the Loan amount; (d) Mr. Bolton will personally 
guarantee the Loan; (e) Drugge, the Plan's independent fiduciary, has 
determined that the transaction is appropriate for the Plan and in its 
best interests; (f) Drugge will monitor the transaction and take 
whatever action is necessary to enforce the Plan's rights under the 
Loan; and (g) Mr. Bolton is the only participant in the Plan to be 
affected by the transaction, and he desires that the transaction be 
consummated.
    Notice to Interested Persons: Since Mr. Bolton is the only Plan 
participant 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 19th day of November 1996.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration.
[FR Doc. 96-29900 Filed 11-22-96; 8:45 am]
BILLING CODE 4510-29-P