[Federal Register Volume 59, Number 78 (Friday, April 22, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-9829]
[[Page Unknown]]
[Federal Register: April 22, 1994]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 94-34; Exemption Application No. D-
8896, et al.]
Grant of Individual Exemptions; American Express Company and
Affiliates, et. al.
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Grant of individual exemptions.
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SUMMARY: This document contains exemptions 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).
Notices were published in the Federal Register of the pendency
before the Department of proposals to grant such exemptions. The
notices set forth a summary of facts and representations contained in
each application for exemption and referred interested persons to the
respective applications for a complete statement of the facts and
representations. The applications have been available for public
inspection at the Department in Washington, DC. The notices also
invited interested persons to submit comments on the requested
exemptions to the Department. In addition the notices stated that any
interested person might submit a written request that a public hearing
be held (where appropriate). The applicants have represented that they
have complied with the requirements of the notification to interested
persons. No public comments and no requests for a hearing, unless
otherwise stated, were received by the Department.
The notices of proposed exemption were issued and the exemptions
are being granted solely by the Department because, 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 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 exemptions are administratively feasible;
(b) They are in the interests of the plans and their
participants and beneficiaries; and
(c) They are protective of the rights of the participants and
beneficiaries of the plans.
American Express Company and Affiliates Located in New York, New
York
[Prohibited Transaction Exemption 94-34; Exemption Application No.
D-8896]
Exemption
American Express Company and each of its wholly-owned subsidiaries
shall not be precluded from functioning as a ``qualified professional
asset manager'' pursuant to Prohibited Transaction 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 affiliation with E.F.
Hutton & Company, Inc. (Hutton) and Shearson Lehman Brothers, Inc.
(Shearson), formerly Shearson Lehman Hutton, Inc.
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 July 20, 1993 at 58 FR
38788.
EFFECTIVE DATE: This exemption is effective as of January 13, 1988, the
date on which Hutton was acquired by Shearson.
WRITTEN COMMENTS: The Department received two written comments, one of
which included a request for a hearing. The comments, and the
applicant's responses to the comments, are summarized as follows:
1. One comment letter, which included a request for a hearing,
was submitted on behalf of the New York State Teamsters Conference
Pension and Retirement Fund and the New York State Teamsters Council
Health and Hospital Fund (the Teamsters Funds). The comment
expressed objection to the proposed exemption because a civil
lawsuit (the Teamsters Lawsuit) relating to the activities of
Shearson and the Inserras remained unresolved, and because of those
activities involved allegations of violations of the prohibited
transactions provisions of the Act. In reply to this comment, the
Applicant has informed the Department that the Teamsters Lawsuit has
been settled. The resolution of the Teamsters Lawsuit has been
confirmed by a representative of the Teamsters Funds. The Department
notes that litigation resulting from a complaint filed by the
Department charging Shearson with violations of sections 404 and 406
of the Act, with respect to Shearson's activities involving the
Inserras, was settled in 1992.
After careful consideration of the entire record, the Department
has determined that no issues have been raised which would require the
convening of a hearing, and it has determined that the factual issues
identified have been fully explored through written submissions.
Accordingly, the Department has determined not to hold a public
hearing.
2. Another comment letter was submitted on behalf of the
International Brotherhood of Painters and Allied Trades Industry
Pension Fund (the Painters Fund). The Painters Fund objects to the
proposed exemption because of allegations against Shearson and two
individuals, William Duvall and Kent Kitchel (collectively, the
Defendants), that their conduct with respect to the Painters Fund
constituted violations of the Act, including prohibited transactions
and breaches of fiduciary duties, and violations of the Investment
Advisers Act of 1940. The Painters Fund notes that a civil lawsuit (the
Painters Fund Lawsuit) filed against the Defendants by the Painters
Fund on May 8, 1992 remains unresolved. The Painters Fund maintains
that the proposed exemption should not be granted until the allegations
involving Shearson's conduct with respect to the Painters Fund are
resolved.
In reply to this comment, the Applicant relates that on July 31,
1993, it sold the Shearson retail brokerage business to Primerica, and
that Primerica's new wholly-owned subsidiary, Smith Barney Shearson
(SBS), is solely responsible for that retail brokerage business. The
Applicant represents that pursuant to the terms of that sale, the
responsibility for the Painters Fund Lawsuit was transferred to SBS,
including exclusive control of the defense and authority to settle the
case without prior notice to or approval of Lehman, which is the
American Express subsidiary remaining after the transfer of the
Shearson retail brokerage business to SBS. The Applicant maintains that
this transfer of responsibility and control occurred because the
parties to the sale agreed that SBS should assume the liability for the
Painters Fund Lawsuit, in addition to other litigation, and that a $50
million balance sheet reserve was established to cover the liabilities
arising out of the transferred litigation. The Applicant states that
this agreement provides that Lehman will be liable for 50 percent of
any liabilities which in the aggregate exceed the balance sheet reserve
in connection with the transferred litigation, without any right on the
part of Lehman to control the conduct or outcome of such litigation.
The Applicant states that there no longer exists any nexus between
American Express Company, its affiliates, and the allegations against
the Defendants in the Painters Fund Lawsuit, and that the pendency of
the Painters Fund Lawsuit, involving a business which the Applicant no
longer owns or controls, should not prevent the granting of the
proposed exemption.
After consideration of the entire record, including the comments
and responses thereto, the Department has determined to grant the
exemption.
For further information contact: Ronald Willett of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Reliance Group Holdings, Inc. Plan, (the RGH Plan), Located in New
York, New York; Commonwealth Pension Plan (the Commonwealth Plan),
Located in Philadelphia, Pennsylvania; RIC Employee Pension Plan (the
RIC Plans); (together, the Plans) Located in Philadelphia, Pennsylvania
[Prohibited Transaction Exemption 94-35; Exemption Application Nos. D-
9159, D-9160 and D-9161, respectively]
Exemption
The restrictions of sections 406(a), 406(b) (1) and (2) and 407(a)
of the Act and the sanctions resulting from the application of section
4975 of the Code, by reason of section 4975(c)(1) (A) through (E) of
the Code, shall not apply to (1) the continued holding by the Plans
after December 31, 1992, of shares of common stock (the Stock) of
Reliance Group Holdings, Inc. (RGH); (2) the cash payment by RGH to the
Plans pursuant to an irrevocable shortfall agreement (the Shortfall
Agreement) between the Plans and RGH whereby RGH will reimburse the
Plans by the amount by which the fair market value of shares of the
Stock on December 31, 1992 exceeds the fair market value of the Stock
sold by the Plans; (3) the prior acquisition and holding by the Plans
of warrants (the Warrants) from RGH which entitle the Plans to acquire
additional shares of the Stock; (4) the exercise of the Warrants by the
Plans and the holding of the Stock acquired pursuant to the Warrants;
and (5) the sale of any unexercised Warrants by the Plans to RGH upon
the Warrants' expiration provided that the following conditions are
satisfied:
(A) The Plans' interests for all purposes with respect to the Stock
and the Warrants are represented by an independent fiduciary for the
duration of the Plans' holding of any of the Stock or the Warrants;
(B) The independent fiduciary will take whatever action is
necessary to protect the Plans' rights, including but not limited to,
selling the Stock and taking the appropriate action to enable the Plans
to receive amounts due pursuant to the Shortfall Agreement;
(C) The independent fiduciary shall have 90 days to reduce the
value of the Plans' holding of the Stock to 10 percent if: (1) the
independent fiduciary exercises the Warrants to acquire additional
shares of the Stock, and (2) immediately following such acquisition,
the value of the total shares of the Stock held by any Plan exceeds 10
percent of the fair market value of such Plan's assets; and
(D) RGH's obligations under the Shortfall Agreement remain secured
by an escrow account (the Escrow) containing cash or U.S. Government
securities equal to at least 25% of the fair market value of the Stock
on December 31, 1992, and if any Plan acquires additional shares of the
Stock pursuant to the Warrants, RGH shall deposit in the escrow account
an amount equal to 25% of the total acquisition price.
Effective Dates: The effective date with respect to all
transactions arising from the acquisition of the Warrants is January
28, 1992; and with respect to the holding of the Stock, the execution
and the exercise of the Shortfall Agreement, the effective date is
January 1, 1993.
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 (the Notice) published June 2, 1993,
at 58 FR 31427.
Comments
In the Notice, the Department invited interested persons to submit
written comments and requests for a hearing on the exemption. Nineteen
comments from interested persons were received by the Department.
The commenters' concerns and the Plans' independent fiduciary's
response to the comments are summarized below.
1. Some commenters questioned generally whether the granting of the
exemption would risk the security of their pensions. LaSalle National
Trust, N. A. (LaSalle), the independent fiduciary representing the
Plans' for purposes of the exemption, explained that the granting of
the exemption in and of itself does not affect the security of the
participants pensions. First, the holding of the Stock by each Plan
represents only 5% to 5.5% of the total assets of each of the Plans as
of March 31, 1992. In addition, the Shortfall Agreement and the Escrow
arrangement provide the Plans with downside protection. Such downside
protection, LaSalle stated, is not typically available with respect to
an equity investment. LaSalle noted that these factors, together with
the expected reasonable growth potential of the Stock, would not lead
to an adverse effect on pension benefits should the exemption be
granted.
2. A commenter suggested that the Stock should be sold because the
assets of the Plans are not sufficiently diversified. LaSalle responded
by stating that because only 5 to 5.5% of each of the Plans' assets are
invested in the Stock, there is adequate diversification of the Plans'
assets.
3. One commenter was concerned that the Plans' assets were used to
purchase Warrants that may involve Stock purchase prices which are
higher than the Stock's price at the time the Warrants were issued.
LaSalle stated that the Plans received the Warrants at no cost, and
they will not exercise the Warrants unless the Stock's price increases
so that such exercise is advantageous to the Plans.
4. Some commenters questioned whether the granting of the exemption
would adversely effect the calculation or vesting of their pension
benefits. LaSalle noted that because the transaction is not related to
the calculation or the vesting of participant benefits and only
pertains to the holding of the Stock by the Plans, the granting of the
exemption cannot have this adverse effect.
5. Several commenters inquired as to whether the Plans should
invest in a different stock that would pay higher dividends. LaSalle
explained that RGH currently pays a dividend of $0.32 per share which
represents a 4.7% annual yield. LaSalle stated that according to
Barron's, as of February 3, 1994, the S&P 500 had an average annual
dividend yield of 2.72%. When coupled with the Stock's reasonable
growth potential and the downside protection provided by the Shortfall
Payment Agreement and the Escrow Account, LaSalle considered the
dividend yield to favor an investment in the Stock.
6. One commenter expressed concern that the granting of the
exemption would permit the removal of Plan assets and the disbanding of
the Plan. LaSalle stated that the exemption affects only whether the
Stock may be held as an asset of the Plans and does not permit the
disbanding of the Plans.
7. One commenter objected to the transaction because Saul Steinberg
owned 77% of the Stock. Another commenter objected that RGH was no
longer publicly traded. LaSalle explained that these comments are not
accurate. After RGH completed a capital enhancement program in November
1993, Saul Steinberg and his family owned slightly less than 50% of the
Stock. Moreover, the Stock is publicly traded on the New York Stock
Exchange.
8. One comment suggested that the Stock held by the Plans could
have been sold to third parties without depressing its market value.
Thus, the commenter implied that the Stock should have been sold.
LaSalle noted that while it is presumably true that the Stock could
have been sold over a reasonable period of time without depressing the
market price, this fact in and of itself is not dispositive as to
whether the Stock should have been sold. LaSalle stated that as
independent fiduciary, they have concluded, after extensive analysis,
that it is in the best interest of the Plans' participants and
beneficiaries for the Plans to continue to hold the Stock.
In light of some of the concerns expressed by the commenters, the
Department also asked LaSalle to address various issues relating to
RGH's ability to fulfill its obligations under the Shortfall Agreement.
In its response, LaSalle noted that on November 15, 1993, RGH completed
a capital enhancement plan which refinanced substantially all of its $1
billion in outstanding debt. The capital enhancement plan extinguished
the $340 million debt which was due in 1993/1994 by replacing it with
Senior Notes which are not due until November 15, 2000 and Senior
Subordinated Debentures which are not due until November 15, 2003. The
new notes and debentures carry lower interest rates than the debt which
has been extinguished. According to LaSalle, this is a positive factor
in evaluating RGH's future financial prospects, including its earnings
and dividend capabilities. Moreover, the completion of the common stock
offering generated substantial additional shareholder equity to RGH.
Therefore, LaSalle concluded that RGH will be able to fulfill its
obligations under the Shortfall Agreement.
LaSalle believes that as a result of the capital enhancement
program (as discussed above), the Stock has reasonable growth
potential. LaSalle's financial advisor, LaSalle Street Capital
Management, Ltd. has advised them that the property and casualty
insurance industry is currently rebounding, and it is expected that RGH
will participate in this industry growth trend. Secondly, the Shortfall
Agreement and the Escrow arrangement that have been adopted in
connection with the Plans' holding of the Stock, provide the Plans with
valuable downside protection that is not normally available with
respect to an equity investment.
Finally, the applicants submitted a comment letter asking the
Department to clarify certain items contained in the Notice.
1. In order to describe specifically the condition which limits the
value of the Plans' holding in the Stock in the event the Plans acquire
additional shares of the Stock pursuant to the Warrants, the applicants
request that the phrase ``immediately following such acquisition'' be
added to section (C)(2) of the exemption so it would read: ``(2)
Immediately following such acquisition, the value of the total shares
of the Stock held by any Plan exceeds 10 percent of the fair market
value of such Plan's assets.''
2. With respect to the Shortfall Agreement described in
Representation (Rep.) 7 of the Notice, the applicants wish to add the
following sentences after the last sentence in Rep. 7: ``Under the
terms of the Shortfall Agreement, the Shortfall Agreement shall remain
in effect for as long as any shares of the Stock are held by the plans.
However, upon thirty days written notice to the Plans, RGH may
terminate the Shortfall Agreement with respect to shares of the Stock
to be acquired pursuant to the Warrants. Any such termination would
result in the Plans' acquiring no additional shares of the Stock unless
such acquisition does not constitute a prohibited transaction. Thus,
any such termination by RGH would not affect in any way RGH's
obligations with respect to the Shortfall Agreement for shares of the
Stock held by the Plans as of the termination date or acquired
thereafter pursuant to a Warrant exercised or a binding contract
entered into prior to such termination date.''
3. The applicants wish to clarify that no stock will be acquired by
the Plans due to the exercise of the Warrants unless RGH agrees in
writing. Thus, the following sentence should be inserted after the last
sentence in Rep. 6: ``No shares of the Stock will be acquired through
the exercise of the Warrants unless RGH agrees in writing, prior to
their acquisition, to the application of the Shortfall Agreement to the
shares of the Stock acquired pursuant to the Warrants.''
4. The applicants have requested that the fourth sentence of Rep. 8
read: ``The Escrow shall be maintained at a minimum value of 25 percent
of the value of the Stock as of December 31, 1993 and 25 percent of the
acquisition price of any Stock acquired pursuant to the Warrants.''
5. Lastly, the applicants represent that the Plans' rights to the
amount held in the Escrow do not arise as a result of ``a lien'' in
favor of the Plans. Rather, the Plans' rights arise from the Escrow
agreement, and the assets of the Escrow account are not considered to
be assets of RGH. Consequently, under the terms of the Escrow
agreement, creditors of RGH do not have a claim on the assets of the
Escrow. Thus, the applicants would like ``first claim'' to replace
``first lien'' in the fourth sentence of Rep. 8.
The Department has reviewed the clarifications as described above,
and concurs with these changes. Accordingly, upon consideration of the
entire record, including the written comments received, the Department
has determined to grant the exemption subject to the aforementioned
changes.
For Further Information Contact: Allison K. Padams of the
Department, telephone (202) 219-8971. (This is not a toll-free number.)
The Northern Trust Company (Northern Trust) Located in Chicago,
Illinois
[Prohibited Transaction Exemption 94-36; Application No. D-9176]
Exemption
The restrictions of sections 406(a)(1)(A) and 406(b)(2) of the Act
and the sanctions resulting from the application of section 4975 of the
Code, by reason of section 4975(c)(1)(A) of the Code, shall not apply
to:
(1) The purchase and sale of stocks between Index Funds and/or
Model-Driven Funds (collectively, the Funds); and
(2) The purchase and sale of stocks between the Funds and various
Large pension plans or other large accounts (collectively, the Large
Accounts) pursuant to portfolio restructuring programs of the large
Accounts, provided that the following conditions are met:
(a) The Index or Model-Driven Fund is based on an index which
represents the investment performance of a specific segment of the
public market for equity securities in the United States and/or foreign
countries. The organization creating and maintaining the index must be
(1) Engaged in the business of providing financial information,
evaluation, advice or securities brokerage services to institutional
clients,
(2) A publisher of financial news of information, or
(3) A public stock exchange or association of securities dealers.
The index must be created and maintained by an organization independent
of Northern Trust and its affiliates. The index must be a generally
accepted standardized index of securities which is not specifically
tailored for the use of Northern Trust or its affiliates.
(b) The price of the stock is set at the closing price for that
stock on the day of trading; unless the stock was added to or deleted
from an index underlying a Fund or Funds after the close of trading, in
which case the price will be the opening price for that stock on the
next business day after the announcement of the addition or deletion.
(c) The transaction takes place within three business days of the
``triggering event'' giving rise to the cross-trade opportunity. A
``triggering event'' is defined as:
(1) A change in the composition or weighing of the index underlying
a Fund by the organization creating and maintaining the index;
(2) A change in the composition or weighting of a portfolio used
for Model-Driven Fund which results from an independent fiduciary's
decision to exclude certain stocks or types of stocks from the Fund
even though such stocks are part of the index used by the Fund;
(3) A change in the overall level of investment in a Fund as a
result of investments and withdrawals made on the Fund's regularly
scheduled ``opening date''; provided, however, that Northern Trust does
not change the level of investment in the Fund through investments or
withdrawals of assets of any employee benefit plan maintained by
Northern Trust or its affiliates (the NTC Plans) for which Northern
Trust has investment discretion; or
(4) A declaration by Northern Trust (recorded on Northern Trust's
records) that a ``triggering event'' has occurred which will be made
upon an accumulation of cash in a Fund attributable to dividends on
and/or tender offers for portfolio securities equal to not more than .5
percent of the Fund's total value.
(d) A Fund does not participate in a direct cross-trade if the
assets of any NTC Plan in the Fund exceed 10 percent of the total
assets of the Fund.
(e) Prior to any proposed cross-trading by a Fund, Northern Trust
provides to each employee benefit plan which invests in a Fund
information which describes the existence of the cross-trading program,
the ``triggering events'' which will create cross-trade opportunities,
the pricing mechanism that will be utilized for stocks purchased or
sold by the Funds, and the allocation methods and other procedures
which will be implemented by Northern Trust for its cross-trading
practices. Any such employee benefit plan which subsequently invests in
a Fund shall be provided the same information prior to or immediately
after the plan's initial investment in a Fund.
(f) With respect to transactions involving a Large Account:
(1) It has assets in excess of $50 million.
(2) Fiduciaries of the Large Account who are independent of
Northern Trust are, prior to any cross-trade transactions, fully
informed in writing of the cross-trade technique and provide advance
written authorization of such transactions.
Such authorization shall be terminable at will by the Large Account
upon receipt by Northern Trust of written notice of termination. A form
expressly providing an election to terminate the authorization, with
instructions on the use of the form, must be supplied to the
authorizing Large Account fiduciary concurrent with the receipt of the
written information describing the cross-trading program. The
instructions for such forms must include the following information:
(i) The authorization is terminable at will by the Large Account,
without penalty to the Large Account, upon receipt by Northern Trust of
written notice from the authorizing Large Account fiduciary; and
(ii) Failure to return the termination form will result in the
continued authorization of Northern Trust to engage in cross-trade
transactions on behalf of the Large Account.
(3) Within 45 days of the completion of the Large Account's
portfolio restructuring program such fiduciaries shall be fully
apprised in writing of the results of such transactions. In addition,
if the restructuring program takes longer than three months to
complete, interim reports of the results of all transactions will be
made within 30 days of the end of each three-month period.
(4) Such Large Account transactions occur only in situations where
Northern Trust has been authorized to restructure all or a portion of
the Large Account's portfolio into an Index or Model-Driven Fund
(including a separate account based on an index or computer model) or
to act as a ``trading adviser'' in carrying out the liquidation or
restructuring of the Large Account's equity portfolio.
(g) Northern Trust receives no additional direct or indirect
compensation as a result of the cross-trade transaction.
(h) In the event that the number of shares of a particular stock
which all of the Funds or Large Accounts propose to sell on a given day
is less than the number of shares of such stock which all of the Funds
or the Large Accounts propose to buy, or vice versa, the direct cross-
trade opportunity must be allocated among potential buyers or sellers
on a pro rata basis.
(i) Northern Trust maintains or causes to be maintained for a
period of six years from the date of the transaction the records
necessary to enable the persons described in paragraph (j) to determine
whether the conditions of this exemption have been met, except that a
prohibited transaction will not be considered to have occurred if, due
to circumstances beyond the control of Northern Trust or its
affiliates, the records are lost or destroyed prior to the end of the
six-year period.
(j)(1) Except as provided in paragraph (j)(2) and notwithstanding
any provisions of section 504 (a)(2) and (b) of the Act, the records
referred to in paragraph (i) are unconditionally available at their
customary location for examination during normal business hours by--
(i) Any duly authorized employee or representative of the
Department or the Internal Revenue Service,
(ii) Any fiduciary of a plan participating in an Index or Model-
Driven Fund who has authority to acquire or dispose of the interests of
the plan, or any duly authorized employee or representative of such
fiduciary,
(iii) Any contributing employer to any plans participating in an
Index or Model-Driven Fund or any duly authorized employee or
representative of such employer, and
(iv) Any participant or beneficiary of any plan participating in an
Index or Model-Driven Fund, or any duly authorized employee or
representative of such participant or beneficiary.
(2) None of the persons described in subparagraphs (ii) through
(iv) of this paragraph (j) shall be authorized to examine trade secrets
of Northern Trust, any of its affiliates, or commercial or financial
information which is privileged or confidential.
Definitions
For purpose of this exemption--
(a) The term ``Index Fund'' means any investment fund, account or
portfolio sponsored, maintained and/or trusteed by Northern Trust or an
affiliate in which one or more investors invest which is designed to
replicate the capitalization-weighted composition of a stock index
which satisfies condition (a) above.
(b) The term ``Model-Driven Fund'' means any investment fund,
account or portfolio sponsored, maintained and/or trusteed by Northern
Trust or an affiliate in which one or more investors invest which is
based on computer models using prescribed objective criteria to
transform an independent third-party stock index which satisfies
condition (a) above.
(c) The term ``Large Account'' means a trust or other fund that is
exempt from taxation under section 501 of the Code, and which has
assets of at least $50 million. A trust that is exempt from taxation
under section 501(a) of the Code may aggregate the assets of one or
more employee benefit plans of a single employer or a controlled-group
of employers the assets of which are invested on a commingled basis
(e.g. through a master trust) for purposes of satisfying the $50
million requirement.
(d) The term ``NTC'' means an ``employee pension benefit plan'' (as
defined in section 3(2) of the Act) maintained by Northern Trust or any
of its affiliates.
(e) The term ``opening date'' means the regularly scheduled date on
which investments in or withdrawals from an Index or Model-Driven Fund
may be made.
(f) The term ``trading adviser'' means a person whose role is
limited to arranging a Large Account-initiated liquidation or equity
restructuring within a stated time so as to minimize transaction costs.
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 December 10, 1993 at 58
FR 64974.
Written Comment and Modifications: The Department received one
comment letter from the applicant regarding the notice of proposed
exemption (the notice).
The applicant's letter concerns the language of condition (c)(3) of
the notice. Condition (c)(3) of the notice inadvertently states that a
``triggering event'' will occur due to a change in the overall level of
investment in a Fund as a result of investments and withdrawals made on
the Fund's regularly scheduled opening date which are not directed by
Northern Trust. The applicant requests that the phrase ``* * * which
are not directed by Northern Trust'' be modified to reflect the fact
that a change in the overall level of investment in a Fund cannot be
directed by Northern Trust in connection with the assets of any NTC
Plan for which Northern Trust exercises investment discretion. In this
regard, the Department has agreed to the applicant's requested
modification by deleting the phrase ``* * * which are not directed by
Northern Trust'' and adding the following:
* * * provided, however, that Northern Trust does not change the
level of investment in the Fund through investments or withdrawals
of assets of any employee benefit plan maintained by Northern Trust
or its affiliates (the NTC Plans) for which Northern Trust has
investment discretion.
In addition, with respect to the allocation of cross-trades by
Northern Trust, the Department has added a new condition (h) to the
Notice which conforms to representations previously made by the
applicant (see Paragraph 10 of the Summary of Facts and Representations
in the notice). As stated above, condition (h) requires that if the
number of shares of a particular stock which all of the Funds or Large
Accounts propose to sell on a given day is less than the number of
shares of such stock which all of the Funds or the Large Accounts
propose to buy, or vice versa, the direct cross-trade opportunity will
be allocated among potential buyers or sellers on a pro rata basis.
This condition ensures that each of the Funds and/or Large Accounts
will have an opportunity to participate on a proportional basis in all
cross-trade transactions during the operation of the cross-trading
program.
The following example illustrates how the pro rata allocation would
work. Suppose there are four Funds that, in order to more accurately
replicate the relevant third-party index, need to purchase shares of
XYZ Corp. stock in the following amounts: 5,000, 10,000, 15,000, and
20,000. Also assume that one of the Large Accounts needs to sell 10,000
shares of XYZ Corp. stock. Under the pro rata system, the cross-trades
would be allocated as follows:
------------------------------------------------------------------------
Amount Amount Percentage
Buyer needed rec'd of need
------------------------------------------------------------------------
1..................................... 5,000 1,000 20
2..................................... 10,000 2,000 20
3..................................... 15,000 3,000 20
4..................................... 20,000 4,000 20
Total:.............................. 50,000 10,000 ..........
------------------------------------------------------------------------
Accordingly, after consideration of the entire record, the
Department has determined to grant the exemption as modified.
For Further Information Contact: Mr. E.F. Williams of the
Department, telephone (202) 219-8194. (This is not a toll-free number.)
Wally L. Morgan IRA (the IRA) Located in Dallas, Texas
[Prohibited Transaction Exemption 94-37; Exemption Application No. D-
9581]
Exemption
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 of three 50% undivided interests
(the Interests) in each of three parcels of unimproved land by the IRA
to Wally L. Morgan (Mr. Morgan), a disqualified person with respect to
the IRA; provided that the following conditions are satisfied\1\:
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\1\Pursuant to 29 CFR 2510.3-2(d), there is no jurisdiction with
respect to the IRA under Title I of the Act. However, there is
jurisdiction under Title II of the Act pursuant to section 4975 of
the Code.
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(a) The proposed sale will be a one-time cash transaction;
(b) The IRA in this transaction will receive the aggregate current
fair market value of the three 50% Interests as established at the time
of the sale by an independent qualified appraiser;
(c) The IRA will pay no expenses associated with the sale; and
(d) Mr. Morgan as the sponsor of the IRA will be the only
individual affected by the transaction.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption refer to
this notice of proposed exemption published on March 8, 1994 at 59 FR
10838/10839.
For Further Information Contact; Ekaterina A. Uzlyan of the
Department at (202) 219-8883. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions to which the exemptions does not
apply and the general fiduciary responsibility provisions of section
404 of the Act, which among other things require a fiduciary to
discharge his duties respecting the plan solely in the interest of the
participants and beneficiaries of the plan and in a prudent fashion in
accordance with section 404(a)(1)(B) of the Act; nor does it affect the
requirement of section 401(a) of the Code that the plan must operate
for the exclusive benefit of the employees of the employer maintaining
the plan and their beneficiaries;
(2) These exemptions are supplemental to and not in derogation of,
any other provisions of the Act and/or the Code, including statutory or
administrative exemptions and transactional rules. Furthermore, the
fact that a transaction is subject to an administrative or statutory
exemption is not dispositive of whether the transaction is in fact a
prohibited transaction; and
(3) The availability of these exemptions is subject to the express
condition that the material facts and representations contained in each
application are true and complete and accurately describe all material
terms of the transaction which is the subject of the exemption. In the
case of continuing exemption transactions, if any of the material facts
or representations described in the application change after the
exemption is granted, the exemption will cease to apply as of the date
of such change. In the event of any such change, application for a new
exemption may be made to the Department.
Signed at Washington, DC, this 19th day of April, 1994.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 94-9829 Filed 4-21-94; 8:45 am]
BILLING CODE 4510-29-P