[Federal Register Volume 59, Number 100 (Wednesday, May 25, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-12716]
[[Page Unknown]]
[Federal Register: May 25, 1994]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-9661, et al.]
Proposed Exemptions; Novo Nordisk Bioindustrials, Inc. 401(k)
Thrift Plan, et al.
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Notice of proposed exemptions.
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SUMMARY: This document contains notices of pendency before the
Department of Labor (the Department) of proposed exemptions from
certain of the prohibited transaction restrictions of the Employee
Retirement Income Security Act of 1974 (the Act) and/or the Internal
Revenue Code of 1986 (the Code).
Written Comments and Hearing Requests
Unless otherwise stated in the Notice of Proposed Exemption, all
interested persons are invited to submit written comments, and with
respect to exemptions involving the fiduciary prohibitions of section
406(b) of the Act, requests for hearing 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, NW., Washington, DC
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, NW., Washington, DC 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.
Novo Nordisk Bioindustrials, Inc. 401(k) Thrift Plan (the Plan) Located
in Danbury, Connecticut; Proposed Exemption
[Application No. D-9661]
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), 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 (1) the proposed interest-free loan to the Plan
(the Loan) by Novo Nordisk Bioindustrials, Inc. (the Employer), a party
in interest with respect to the Plan, and (2) the Plan's potential
repayment of the Loan upon the receipt by the Plan of payments under
Guaranteed Investment Contract No. GA-4607 (the GIC) issued by Mutual
Benefit Life Insurance Company (MBL); provided the following conditions
are satisfied:
(A) No interest or expenses are paid by the Plan in connection with
the proposed transaction;
(B) The Loan is made to reimburse the Plan for amounts invested
with MBL under the terms of the GIC;
(C) The Loan will be repaid only out of amounts paid to the Plan by
MBL, its successors, or any other responsible third parties; and
(D) Repayment of the Loan is waived with respect to the amount by
which the Loan exceeds GIC proceeds.
Summary of Facts and Representations
1. The Employer, a New York corporation with its corporate
headquarters in Danbury, Connecticut, is a wholly owned subsidiary of
Novo Nordisk A/S, a Danish Corporation. The Plan is a profit sharing
plan which includes a cash or deferred arrangement under section 401(k)
of the Code, and which provides for Employer matching contributions and
additional Employer discretionary profit sharing contributions. The
Plan provides for participant direction with respect to employee
contributions and Employer matching contributions to the Plan. The Plan
participants have the option of investing in any of five investment
funds: the GIC Fund, the First Union Managed Bond Portfolio, the First
Union Balanced Portfolio, The Diversified Equity Fund, and the Novo
American Depository Receipt Fund. Participants have the right to change
their investments within and among the funds on a daily basis, except
that participants may no longer transfer amounts into or out of the GIC
Fund to the extent that their account balance in that Fund is
attributable to the GIC issued by MBL. As of December 31, 1993, the
Plan had approximately 225 participants and total assets of
approximately $5,600,000. The Plan's trustee is First Union Bank of
North Carolina.
2. The applicant represents that the GIC acquired from MBL was
effective with respect to amounts deposited during 1987. The terms of
the GIC provided for interest to be credited at the rate of 8.10% per
annum until December 31, 1988, and thereafter at the rate of 7.55% per
annum until the maturity date of December 31, 1991.
3. On July 16, 1991, MBL was placed into rehabilitation proceedings
by the New Jersey Commissioner of Insurance. Consequently, MBL has
suspended payments on its guaranteed investment contracts, including
the GIC held by the Plan. This situation has prevented participants
from exercising their rights under the Plan to request distributions,
loans, and investment transfers with respect to amounts currently
invested in the GIC.1 As of December 31, 1991, the GIC had a total
accumulated book value of $578,916.34.2 The Employer seeks an
exemption to permit the Employer to make the Loan to the Plan in the
amount due the Plan under the GIC, plus interest through the date of
the Loan. The Loan will be made pursuant to a written agreement between
the Employer and the Plan (the Agreement) incorporating the terms of
the extension of credit and its repayment. The Employer represents that
it wishes to enter into the proposed transaction in order to protect
the Plan participants from the effects of a prolonged rehabilitation
process and from any potential loss resulting from MBL's inability to
meet its obligations under the GIC. The Employer further represents
that the Loan will enable the Plan to make timely payments under the
GIC and, therefore, enable the Plan participants to exercise their
rights under the Plan to request distributions, loans, and investment
transfers with respect to amounts currently invested in the GIC. The
Employer also represents that the Loan will be non-interest bearing and
the Plan will not incur any expenses in connection with the proposed
transaction.
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\1\The Department notes that the decisions to acquire and hold
the GIC are governed by the fiduciary responsibility requirements of
Part 4, Subtitle B, Title I of the Act. In this regard, the
Department is not herein proposing relief for any violations of Part
4 which may have arisen as a result of the acquisition and holding
of the GIC issued by MBL.
\2\Total accumulated book value is defined as the amount
deposited under the GIC, plus interest at the guaranteed interest
rate.
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4. The proposed Loan will be made in one lump-sum payment equal to
the amounts deposited under the GIC, adjusted as follows: (1) Interest
is calculated at the guaranteed interest rate under the terms of the
GIC until December 31, 1991, the maturity date; and (2) the post-
maturity interest rates will be calculated as follows:
------------------------------------------------------------------------
On first
$300,000 of7/ On amount over
16/91 value $300,000
------------------------------------------------------------------------
1992.................................... 5.75 4.00
1993.................................... 5.25 3.50
1/1/94-Loan Date\3\..................... 5.10 3.50
------------------------------------------------------------------------
\3\The Employer represents that the Loan will be made as soon as
administratively practicable following the publication in the Federal
Register of the final Grant and the execution by the Internal Revenue
Service of a favorable closing agreement covering the tax and
qualified plan issues involved in the proposed extension of credit to
the Plan.
It is represented that the proposed rate of interest for periods after
the maturity date are the rates that would apply to the GIC for those
periods according to the proposed plan of rehabilitation set forth by
the Superior Court of New Jersey. Any proceeds paid from the GIC and
received by the Plan on or before the Loan date will be subtracted from
the book value.
5. Repayment of the Loan under the Agreement is limited to payments
made to the Plan by or on behalf of MBL or its successor. No other Plan
assets will be available for repayment of the Loan. If the payments by
or on behalf of MBL are not sufficient to fully repay the Loan, the
Agreement provides that the Employer will have no recourse against the
Plan, or against any participants or beneficiaries of the Plan, for the
unpaid amount.
6. In summary, the applicant represents that the proposed
transaction satisfies the criteria of section 408(a) of the Act
because: (1) The Loan will enable the Plan to recover the total
accumulated book value of the GIC as of the date of maturity, plus
interest thereafter; (2) The Plan will pay no interest nor incur any
expenses with respect to the Loan; (3) Repayment of the Loan will be
restricted to payments made by or on behalf of MBL and no other Plan
assets will be involved; and (4) Repayment of the Loan will be waived
to the extent the Plan recoups less from the payments by or on behalf
of MBL than the total amount of the Loan.
FOR FURTHER INFORMATION CONTACT: Ms. Virginia J. Miller of the
Department, telephone (202) 219-8971. (This is not a toll-free number.)
Hollingsworth & Vose Company Savings Plan (the Plan) Located in East
Walpole, Massachusetts; Proposed Exemption
[Application No. D-9677]
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), 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 August 26, 1992 loan (the Loan) of
$188,000 to the Plan by Hollingsworth & Vose Company (H&V), provided
the following conditions were satisfied: (a) No interest or expense was
incurred by the Plan with respect to the Loan; (b) the Loan enabled the
Plan to effect the transfer of amounts held in participant accounts to
new investments made available under the Plan; (c) accounts transferred
from the Plan's GIC Fund were credited with amounts representing the
allocable principal deposit in the GIC Fund plus accrued interest at
the GIC Fund rate; (d) accounts which remained invested in the GIC Fund
continued to receive interest at the same rate; and (e) repayment of
the Loan was restricted to amounts held in or allocated to the GIC
Fund, and no other plan assets were used for that purpose. Effective
Dates: If the proposed exemption is granted, the exemption will be
effective from August 26, 1992 through November 10, 1992.
Summary of Facts and Representations
1. H&V is a corporation organized under the laws of the
Commonwealth of Massachusetts engaged in the manufacture of technical
and industrial papers and nonwoven fabrics. The Plan is a profit
sharing plan which contains a cash or deferred arrangement under
section 401(k) of the Code. The Plan is administered by the Savings
Plan Committee (the Committee) of H&V. Under the Plan, participating
employees make elective contributions pursuant to salary reduction
agreements. H&V makes matching contributions not in excess of 6% of the
participant's compensation. The Plan had approximately 47 participants
who were affected by the subject transaction, and at the time of the
transaction had assets with an approximate aggregate fair market value
of $2,767,369. The Plan currently has assets of approximately
$4,361,700.
2. Contributions under the Plan are allocated to the accounts of
individual participants (the Accounts). The Accounts are invested at
the direction of participants in one or more of the investment options
available under the Plan. Investment directions may be made or changed
as of January 1 and July 1 of each Plan year and remain in effect until
changed by the participant.
3. Prior to July, 1992, two investment funds were available to
participants, the Guaranteed Investment Contract Fund (the GIC Fund)
and the Fidelity Equity Income Fund. The investments held in the GIC
Fund at that time consisted of four contracts: (i) Fidelity Group
Trust, at 8.33%, maturing on March 31, 1993; (ii) Vanguard Fixed Rate
GIC Trust II-90, at 8.17%, maturing March 31, 1993; (iii) Vanguard
Fixed Rate GIC Trust II-91, at 7.45%, maturing on March 31, 1994; and
(iv) Principal Group Annuity Contract No. GA 4-3031, at 6.53%, maturing
on March 31, 1995. Participants who invested in the GIC Fund received
interest at a combined rate calculated as the average of the rates on
open GICs held in the Fund, weighted in proportion to the amounts
allocated to each such GIC.
4. In September, 1991, the Committee began discussing the
possibility of expanding investment options under the Plan in order to
give participants greater flexibility and diversity of choice among
investments with respect to appropriate levels of risk and return. On
April 16, 1992, the Committee resolved to offer four investment
options, effective as of July 1, 1992. These were to be the GIC Fund,
the Fidelity Equity Income Fund and two additional options, the
Fidelity Growth and Income Fund and the Value Line U.S. Government
Securities Fund. Participants were informed of the additional options
by notice from the Committee on May 26, 1992.
5. The Committee subsequently received and processed directions
from participants for changes in investments as of the July 1, 1992
change date. The new investment directions required the transfer of
$258,572 held in the GIC Fund, or approximately 10% of Plan assets, to
other investment options.
6. Because of restrictions under the GICs, however, the Plan was
unable to redeem its interest in the contracts to effect the transfer
of amounts to other investments as directed by participants.
Specifically, under the Principal Group GIC, Principal could terminate
the contract if withdrawals were made prior to the maturity date. H&V
understood that similar restrictions applied under the other GICs held
in the GIC Fund (although in fact there were no comparable restrictions
on the Vanguard GICs).
7. To enable participants whose Accounts were invested in the GIC
Fund to make use of the new investment options and to protect
participants from incurring penalties for premature withdrawals from
the GICs, the Committee resolved to advance funds to the Plan. On
August 26, 1992, $188,000 was wire transferred by H&V to the Plan. The
$188,000 was invested in equity funds in accordance with the directions
of those participants whose account balances in the GIC Fund could not
otherwise be transferred.
8. Subsequent to the advance of funds, H&V was advised that the
transaction might constitute a prohibited transaction under section 406
of the Act and section 4975 of the Code. H&V therefore took immediate
action in an attempt to put the Plan in the position in which it would
have been had the transaction not occurred. The Committee determined
that under the Vanguard GICs, funds could be transferred at that time
without penalties to participants. Allocations to the GIC Fund made by
participants in September and October, 1992 were applied, together with
a partial liquidation principally of the Vanguard Fixed Rate Trust II-
91, to repay to H&V the amount that had been advanced to the Plan.
Specifically, $163,548 was repaid to H&V on November 10, 1992, and
$24,452 was retained by the Plan and used as an offset for
contributions which would have otherwise been made by H&V.
9. Under the terms of the Plan, the amounts repaid to H&V would
have been invested in the open GICs held in the GIC Fund, had the Loan
not been made. The money that was in the GIC Fund prior to the Loan
remained in the GIC Fund because it could not be transferred out
without penalty. Thus, the subsequent allocations could be used to
repay the Loan to H&V, and the GIC Fund remained in the same position
it would have been in had the Loan by H&V not been made. The entire
effect of the Loan and repayment to H&V was thus to provide liquidity
to the GIC Fund in order to make transfers to other investment funds as
directed by participants. The transaction was corrected within 90 days.
No interest or other expense was paid by the Plan. Participants who did
not transfer amounts from the GIC Fund as of the July 1, 1992 change
date continued to receive the same return on their investment in the
Fund. Participants who later invested in the GIC Fund received the same
return they would have received if the subject transaction had not
occurred.
10. In summary, the applicant represents that the subject
transaction satisfied the criteria contained in section 408(a) of the
Act for the following reasons: (a) The Loan enabled the Plan to effect
the transfer of amounts held in participant Accounts without penalty to
new investments made available under the Plan; (b) Accounts transferred
from the GIC Fund were credited with amounts representing the allocable
principal deposit in the fund plus accrued interest at the Fund rate;
(c) Accounts which remained invested in the GIC Fund continued to
receive interest at the same rate; (d) no interest or other expense was
incurred by the Plan with respect to the Loan; (e) the applicant undid
the Loan as soon as it realized that the Loan constituted a prohibited
transaction, with repayment of the loan taking place within 90 days of
the making of the Loan; and (f) repayment of the loan was restricted to
amounts held in or allocated to the GIC Fund, and no other Plan assets
were used for that purpose.
FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Western Capital Investment Corporation Employees' Retirement Fund (the
Plan) Located in Denver, CO ; Proposed Exemption
[Application No. D-9489]
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), 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 cash sale by the Plan, on December 27,
1990, of certain of its assets (the Assets) to Bank Western, a Federal
Savings Bank (Bank Western), the principal subsidiary of the Plan's
former sponsor and a party in interest with respect to the Plan.
The proposed exemption is conditioned on the following
requirements: (1) The sale represented a one-time transaction for cash;
(2) the sales price for each Asset was based upon its fair market value
as determined by a qualified, independent appraisal; (3) the Plan did
not pay any fees or commissions in connection with the sale; and (4)
CNB files a Form 5330 with the Internal Revenue Service (the Service)
and pays any applicable excise taxes that may be due on any of the
Assets within 90 days of the publication in the Federal Register of the
notice granting the exemptive relief herein.
EFFECTIVE DATE: If granted, this proposed exemption will be effective
December 27, 1990.
Summary of Facts and Representations
1. The Plan is a profit sharing plan with section 401(k) features.
As of December 31, 1990, the Plan had net assets available for benefits
of $13,393,318 and 709 participants. The trustees of the Plan (the
Trustees) and the decisionmakers with respect to Plan investments as of
December 31, 1990 were David G. Brewick, Robert P. Easterly, James C.
Ford, Robert B. Stailey and Deloris P. Wolf.4
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\4\The Plan's current trustee and decisionmaker with respect to
Plan investments is First Trust National Association.
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2. The Plan was formerly sponsored by Western Capital Investment
Corporation (WCIC) of Denver, Colorado and its affiliated companies.
WCIC was a unitary savings and loan holding company whose primary asset
was the sole ownership of Bank Western. On December 18, 1992, WCIC was
merged into CNB, a wholly owned subsidiary of First Bank System, Inc.
(First Bank System) of Minneapolis, Minnesota. As a result of the
merger, the employees of Bank Western currently participate in the
First Bank System employee benefit plans, including its retirement
plans. It is anticipated that when First Bank System receives a
favorable determination letter with respect to amendments to the Plan,
it will be merged into the First Bank System 401(k) Plan.
3. Formerly included in the investment portfolio of the Plan were
the following Assets having an aggregate cost in excess of $5.7
million:
a. A $2,537,594 Investment in Government National Mortgage
Association Pools (the GNMA Pools).
----------------------------------------------------------------------------------------------------------------
Amount of Income Servicing
Pool No. Investment received fees Sellers
----------------------------------------------------------------------------------------------------------------
A
058683........................... $53,063 ........... ...........
126677........................... 13,512 ........... ...........
128606........................... 44,280 $22,213 $0 Merrill Lynch Govt. Securities Inc.
B
1131............................. 250,000 169,421 0 Bosworth Sullivan & Co., Inc.
C
1326............................. 1,000,000 84,025 0 Bank of New York.
D
103497........................... 118,302 31,998 ...........
131756........................... 48,244 11,201 ...........
000460........................... 557,576 194,777 ........... Drexel, Burnham, Lambert.
000479........................... 452,617 171,783 0
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Totals..................... $2,537,594 $685,418 $0
----------------------------------------------------------------------------------------------------------------
The Plan acquired its interests in the GNMA Pools between 1972 and
1986 from unrelated parties for a total purchase price of $2,537,594.
Each of the GNMA Pool certificates featured monthly pass-throughs of
principal and interest. Such investments had interest rates ranging
from 6\1/2\ percent to 12 percent and were to mature between January 1,
2002 and December 20, 2019. Through December 31, 1990, the Plan
received total income of $685,417 with respect to its interests in the
GNMA Pools. In addition, the Plan paid no servicing fees in connection
with these investments nor were any restrictions placed on their sale
or transfer.
b. A $75,000 Investment in a Merrill Lynch Collateralized Mortgage
Obligation III-A (the CMO).
------------------------------------------------------------------------
Income Servicing
Amount of investment received fees
------------------------------------------------------------------------
$75,000....................................... $7,688 $0
------------------------------------------------------------------------
In January 1987, the Plan acquired an interest in the CMO for
$75,000. The CMO was secured by single family residential mortgage
loans, carried a stated interest rate of 7 percent per annum and had a
maturity date of September 20, 2016. Through December 31, 1990, the
Plan received total income of $7,688 with respect to the CMO
investment. In addition, the Plan paid no servicing fees in connection
with this investment nor were there any restrictions placed on the sale
or transfer of the CMO.
c. A $29,027 Investment in Two Mobile Home Loans (the Mobile Home
Loans).
------------------------------------------------------------------------
Income Servicing
Loan Investment received fees
------------------------------------------------------------------------
Lorenzo.......................... $11,067 ........... ...........
Gruber........................... 17,960 ........... ...........
--------------------------------------
Total...................... $29,027 $14,423 $1,571
------------------------------------------------------------------------
The Plan acquired its first Mobile Home Loan from Shelter America
Corporation (SAC), a party in interest, on April 25, 1985. The
acquisition price paid by the Plan was $11,067. This amount reflected
the outstanding principal balance of the loan. The borrowers, Andrew
and Katherine Lorenzo, were not parties in interest. When purchased by
the Plan, the Lorenzo Mobile Home Loan carried an interest rate of 13
percent per annum and a maturity of 144 months. The collateral for the
Lorenzo Mobile Home Loan was a first lien on a 1977 Liberty, Liberator
(14 x 60 foot) mobile home. No restrictions were placed on the sale or
transfer of this loan.
The Plan acquired its second Mobile Home Loan from SAC on July 8,
1986 for $17,960, which represented the outstanding principal balance
of such loan. The borrowers, James and Lauretta Gruber, were unrelated
parties. At the time of purchase by the Plan, the Gruber Mobile Home
Loan had an outstanding balance of $17,960 and bore interest at the
coupon rate of 12.95 percent. The loan had a maturity of 180 months and
was secured by a first lien interest on a Central Homes (26 x 44 foot)
double-wide mobile home. The Plan could sell or transfer this loan
without any restrictions.5
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\5\The applicant states that no documentation exists which would
define the investment criteria used by the Plan's Trustees in
selecting the Mobile Home Loans as Plan investments. The applicant
represents that at the time these investments were made, both Bank
Western and SAC were actively investing in mobile home loans such
that the Trustees thought these loans would be sound investments for
the Plan due to their high rates of return.
Accordingly, the Department notes that the decisions by the
Trustees to have the Plan acquire and hold the Mobile Home Loans are
governed by the fiduciary responsibility requirements of part 4,
Subtitle B, Title I of the Act. In this regard, the Department is
not proposing, nor is the applicant requesting exemptive relief for
any violations of part 4 which may have arisen as a result of the
Plan's acquisition and holding of the Mobile Home Loans (see
Representation 7).
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The applicant notes that while the Plan held the Mobile Home Loans,
the Lorenzos and the Grubers were occasionally delinquent. However, the
applicant explains that, in all instances, the borrowers quickly
corrected these delinquencies and the loans were current at the time of
the sale transaction described herein.
The Plan received total investment income of $14,423 in connection
with its investment in the Mobile Home Loans. The Plan also paid
servicing fees to SAC with respect to the administration of the Mobile
Home Loans. Such servicing fees were based on the receipt of a flat 11
percent interest rate. Income received above that rate was retained by
SAC. Through December 31, 1988, the Plan recorded servicing fees of
$1,571. Following this date, the reporting system was changed and the
only entries that appeared were recordings of net interest income
received by the Plan. No other fees were paid by the Plan in connection
with this investment.
d. A $1,003,958 Investment in a Package of Residential Mortgage
Loans (the Residential Mortgage Loans).
------------------------------------------------------------------------
Amount of Income Servicing
Loan investment received fees
------------------------------------------------------------------------
20 Loans......................... $1,003,958 $265,837 $11,090
------------------------------------------------------------------------
On March 5, 1987, the Plan purchased 20 residential mortgage loans
from an unrelated party, Capitol Federal Savings of Denver, Colorado
(Capitol Federal), for an aggregate cost of $1,003,958. Each of the
Residential Mortgage Loans bore interest at the rate of 9.25 percent
and had maturities of 360 months. The collateral for the Residential
Mortgage Loans was a first lien on residential property. None of the
borrowers were parties in interest. Although occasional delinquencies
occurred with respect to the Residential Mortgage Loans, none ever went
into foreclosure. In addition, there were no restrictions placed on the
Plan's sale or transfer of these loans.
Capitol Federal serviced the Residential Mortgage Loans on behalf
of the Plan for a total servicing fee of $11,090. The total income
received by the Plan with respect to this investment was $265,837.
e. A $2,089,978 Investment in Four Pools of ``Whole'' Loans (the
Whole Loans)6.
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\6\The applicant represents that the acquisition of a Whole Loan
by an investor (a mortgage loan in this exemption request) involves
the purchase of the loan with all of the underlying benefits and
risks. The applicant explains that the purchaser receives all
principal and interest payments as the borrower makes the payments.
The applicant further explains that a Whole Loan is not part of a
larger pool of loans nor does it contain special guarantees as do
GNMA investments.
------------------------------------------------------------------------
Amount of Income Servicing
Loan No. investment received fees
------------------------------------------------------------------------
Block 1.......................... $152,578 $134,783 $0
Block 2.......................... 818,719 514,372 34,495
Block 3.......................... 686,318 557,675 83,010
Block 4.......................... 432,363 281,961 4,785
--------------------------------------
Total...................... $2,089,978 $1,488,791 $122,290
------------------------------------------------------------------------
The Plan acquired the Whole Loans in four blocks for an aggregate
purchase price of $2,089,978. The Plan earned $1,488,791 in income with
respect to this investment and it paid total servicing fees of
$122,290. The loans underlying the Whole Loan Blocks represented first
lien interests on residential property and had coupon rates ranging
from 6.375 percent to 9 percent. None of the individual borrowers was a
party in interest with respect to the Plan. No delinquencies, other
than occasional late payments, were ever documented with respect to the
Whole Loans. Further, no restrictions were ever placed on the sale of
transfer of this investment.
(1) Whole Loan Block #1 consisted of nine loans which the Plan
purchased from the Mellon National Mortgage Corporation of Colorado
Profit Sharing Plan Trust, an unrelated entity, on November 16, 1979
for $152,578. The total income received by the Plan with respect to
this investment was $134,783. Whole Loan Block #1 was serviced by Bank
Western, without the receipt of compensation.
(2) Whole Loan Block #2 represented a 90 percent interest in
thirteen loans which the Plan purchased for $818,719 on July 8, 1977
from Midland Federal Savings and Loan Association (Midland Federal) of
Denver, located in Denver, Colorado. Midland Federal, which was not a
party in interest at the time of the investment, retained a 10 percent
remainder interest in Whole Loan Block #2 and it also serviced such
loans on behalf of the Plan until its merger with Bank Western in 1984.
Servicing fees totaling $34,495 were paid to Midland Federal and Bank
Western in connection with this investment.\7\ In addition, the Plan
received total income of $514,372.
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\7\The Department is not proposing any exemptive relief herein
beyond that provided in section 408(b)(2) of the Act with respect to
the servicing of Whole Loan Block #2 by Bank Western. The applicant
states that the agreement between the Plan and Midland Federal at
the time these Whole Loans were purchased stipulated that the Plan
would earn 8.75 percent and that the servicer would retain the full
coupon rate. According to the applicant, the coupon rates ranged
from 9 percent to 9.5 percent. When Midland Federal merged with Bank
Western, applicant explains that the Plan continued to receive the
agreed upon 8.75 percent and Bank Western continued to receive the
full coupon rate.
---------------------------------------------------------------------------
(3) Whole Loan Block #3 represented a 90 percent interest in
seventeen loans which were acquired by the Plan on January 27, 1978
from an unrelated party, First Federal Savings and Loan Association of
Denver (First Federal), located in Denver, Colorado. The total cost of
the Plan's investment in Whole Loan Block #3 was $686,318. First
Federal retained the 10 percent remainder interest of such investment
and serviced Whole Loan Block #3 on behalf of the Plan in return for an
aggregate servicing fee of $83,010. The total income received by the
Plan over the life of this investment was $557,675.
(4) Whole Loan Block #4 represented a 90 percent interest in
seventeen loans which the Plan acquired from an unrelated party,
Littleton National Bank (Littleton) of Littleton, Colorado on December
1, 1976. The total cost of the Plan's investment in Whole Loan Block #4
was $432,363. Littleton retained a 10 percent interest in Whole Loan
Block #4 and serviced such investment on behalf of the Plan for a total
servicing fee of $4,785. The total income paid to the Plan in
connection with Whole Loan Block #4 was $281,961.
4. On July 23, 1990, the Board of Directors of WCIC adopted a
Restated Employees' Retirement Fund Agreement which covered employees
of WCIC and its related companies. The Plan then became a section
401(k) cash or deferred compensation plan effective January 1, 1991. In
the process of converting the Plan, the Trustees determined that they
should seek outside investment expertise and provide participants with
a choice of investment vehicles. Therefore, in October 1990, the
Trustees selected Brinson Partners, Inc. (Brinson) of Chicago, Illinois
to manage the alternative investment vehicles to be offered to
participants. In addition, an existing block of WCIC stock was
delivered to Brinson to dispose of at its discretion.\8\ Other than the
WCIC stock, the goal of the Trustees was to liquidate all of the Plan's
other assets and to deliver cash to Brinson which would be invested at
the direction of the participants.
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\8\The applicant represents that such stock constitutes
qualifying employer securities within the meaning of section
407(d)(5) of the Act. However, the Department expresses no opinion,
herein, on whether the stock satisfied the terms and conditions of
section 407(d)(5) of the Act.
---------------------------------------------------------------------------
From October 1990 through the end of 1990, the Trustees proceeded
to liquidate the Plan's investments. The bulk of the liquidations took
place in December 1990. However, certain of the Plan's assets,
including the subject Assets, were difficult to sell, primarily due to
their small investment size and high servicing costs. Therefore, the
Trustees believed their only alternative was to sell the Assets to Bank
Western. Thus, the trades were arranged on December 27, 1990. The Plan
paid no fees or commissions to Bank Western in connection with the
sale.
5. The following Asset Summary Table reflects, in pertinent part,
the status of the Assets at the time of the December 1990 sale. In
addition, the table shows the Asset sales that have been exempted by
the Department and discussed further herein in Representation 7.
Presented below are descriptions of the Assets as summarized in the
table.
Asset Summary Table
--------------------------------------------------------------------------------------------------------------------------------------------------------
Servicing Return of Gross
Investment Income fees principle Balance FMV return Net gain
--------------------------------------------------------------------------------------------------------------------------------------------------------
GNMA Pools...................................... $2,537,594 $685,418 $0 $1,090,061 $1,447,533 $1,459,094 $3,234,573 $696,979
CMO............................................. 75,000 7,688 0 48,828 26,172 24,519 81,035 6,035
Mobile Home Loans............................... 29,027 14,423 1,571 4,428 24,599 23,143 40,423 11,396
Res. Mtge. Loans................................ 1,003,958 265,837 11,090 497,032 506,926 488,497 1,240,276 236,318
Whole Loans..................................... 2,089,978 1,488,791 122,290 1,559,696 530,282 507,698 3,433,895 1,343,917
Subtotals....................................... 5,735,557 2,456,157 134,951 3,200,045 2,535,512 2,502,951 8,031,773 2,294,645
Less Mobile Home Loans.......................... 29,027 14,423 1,571 4,428 24,499 23,143 40,423 11,396
-------------------------------------------------------------------------------------------------------
Totals.................................... 5,706,530 2,441,734 133,380 3,195,617 2,510,913 2,479,808 7,991,350 2,283,249
--------------------------------------------------------------------------------------------------------------------------------------------------------
(1) Return of Principal is determined by subtracting the Principal Balance as of 12/21/90 from the amount of the Investment. (2) Gross Return includes
the sum of Return of Principal, Income and the FMV of the Investment as of 12/31/90 less Servicing Fees. (3) Net Gain is determined by subtracting
Gross Return from the Investment amount.
a. The GNMA Pools
As the Asset Summary Table shows, the Plan received $685,418 in
income with respect to its investment of $2,537,594 in the GNMA Pools
as well as a return of principal of $1,090,061. At the time of the
December sale, the GNMA Pools had an outstanding principal balance of
$1,447,533. Bank Western paid the Plan $1,459,094. Thus, the gross
return to the Plan with respect to the GNMA Pools was $3,234,573 and
the net gain realized for this investment was $696,979.
In valuing the GNMA Pools, it is represented that the Trustees
obtained estimated fair market prices by telephone from several
unrelated appraisers. However, the applicant states that none of these
dealers was willing to buy the securities at the prices quoted to due
to their small aggregate balance. Bank Western ultimately purchased the
interests held by the Plan in GNMA Pools A, C and D for a total cash
acquisition price of $1,409,709 based upon market quotations that were
obtained by the Trustees on December 27, 1990 from an unrelated source,
``Bloomberg Financial Markets, Commodity News'' (the Bloomberg
System).9 The Plan's investment in GNMA Pool B was valued at
$49,385 on or about December 20, 1990 by the Denver, Colorado office of
Prudential Securities, Inc. (formerly, Prudential-Bache Securities,
Inc.), another unrelated appraiser.
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\9\According to the applicant, the Bloomberg System is a
national information and pricing data-based system which provides
current market analysis and pricing information on most financial
markets and instruments, including GNMA Pools.
---------------------------------------------------------------------------
b. The CMO
As of December 1990, the Plan had received interest income of
$7,688 with respect to its $75,000 investment in the CMO as well as a
return of principal of $48,428. Also as of December 1990, the CMO had a
remaining balance plus accrued interest of $26,172. Thus, the gross
return to the Plan with respect to this investment was $81,035. In
addition, the Plan realized a net gain of $6,035.
According to the applicant, the Denver office of Merrill Lynch, an
unrelated party, determined that, as of December 19, 1990, the CMO
would trade for 93 percent of its outstanding balance and it attempted
to sell the CMO for that price but to no avail. Therefore, Bank Western
purchased the asset for 93.6875 percent of its par value of $26,172 or
$24,519.
c. The Mobile Home Loans
As of December 28, 1990, the Plan had received $14,423 in income
with respect to its $29,027 investment in the two Mobile Home Loans and
a return of principal of $4,428. The Plan also had paid total servicing
fees of $1,571 with respect to such investment. At the time of the
December sale, the Mobile Home Loans had an outstanding principal
balance of $24,599 and Bank Western paid the Plan a total sales price
of $23,143. Thus, the Plan received a gross return of $40,423 for this
investment and it realized a net gain of $11,396.
According to the applicant, there was no independent appraisal of
the Mobile Home Loans in order to determine their fair market value.
Instead, SAC, Bank Western's affiliate, calculated the fair market
value of the Mobile Home Loans by discounting them to yield a market
rate of return equal to the current quoted rate for new mobile home
loans.
d. The Residential Mortgage Loans
Of its investment of $1,003,958 in the Residential Mortgage Loans,
the Plan received net income of $254,747 and a return of principal of
$497,032. The Plan also paid servicing fees totaling $11,090. On
December 27, 1990, Bank Western paid the Plan $488,497 for the
Residential Mortgage Loans which had, at that time, an outstanding
principal balance plus accrued interest of $506,926. Thus, the Plan
received a gross return of $1,240,276 with respect to this investment
and a net gain of $236,318.
According to the applicant, the method for computing the sales
price for the Residential Mortgage Loans required that the Plan
administrator obtain the current market yield for Federal Home Loan
Mortgage Corporation (FHLMC) purchases from Telerate, an independent
information and pricing service regularly used by Bank Western in
establishing quoted rates for new loan obligations. The Plan
administrator then obtained pricing information from the Financial
Publishing Company tables using a twelve year prepayment assumption.
The price in the Financial Publishing tables resulted from discounting
the net yield on the loans at the required FHLMC whole loan market
yield.
e. The Whole Loans
With respect to the Whole Loans in which the Plan had made a total
investment of $2,089,978, $1,488,791 represented total income received
and $122,290 represented the amount paid in servicing fees. The Plan
also received a return of principal of $1,559,696 for this investment.
At the time of the December 1990 sale, the Whole Loans had an
outstanding principal balance plus accrued interest of $530,282. On the
date of the sale, Bank Western paid the Plan $507,698 for the Whole
Loans. Thus, the gross return to the Plan with respect to the Whole
Loans was $3,433,895 and the net gain realized was $1,343,917.
According to the applicant, the method established for calculating
the selling price for the Whole Loans was similar to that utilized to
value the Residential Mortgage Loans except that due to the age of the
Whole Loans, current market yields were not used. Therefore, the Plan
administrator valued the Whole Loans by referring to the yield on GNMA
9.5 percent securities as reported in the Wall Street Journal because
such securities were believed to be representative of the age of the
loans in these pools. The Plan administrator then discounted the net
yield on the Whole Loans and determined the price for the Whole Loans
from the Financial Publishing Company tables.
6. Upon realizing that the aforementioned transactions were
prohibited transactions in violation of the Act, Bank Western offered
to sell all of the Assets back to the Plan. However, the Trustees
determined that because of the limited liquidity of the Assets and
their investment performance, the Plan would only repurchase those
Assets which it could sell at a higher price than that paid by Bank
Western. Consequently, the Plan repurchased GNMA Pool C for $965,181,
which was the same price that Bank Western had paid.10 This Asset
was subsequently sold by the Trustees to an unrelated party for
$996,154.
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\1\0The applicant represents that the repurchase by the Plan of
its interest in GNMA Pool C from Bank Western constitutes
``correction'' within the meaning of section 4941 of the Code.
Whether the subject repurchase by the Plan represents actual
correction of the prior prohibited transaction is a determination
that is within the jurisdiction of the Service.
---------------------------------------------------------------------------
7. CNB, as successor in interest to Bank Western, requests an
administrative exemption from the Department with respect to Bank
Western's past purchase from the Plan of interests in the GNMA Pools,
the CMO, the Residential Mortgage Loans and the Whole Loans for an
aggregate cost of $2,479,808 as shown in the Asset Summary Table. CNB
acknowledges that the (a) the Plan's acquisition of the Mobile Home
Loans which were obtained from SAC, (b) the servicing of the Mobile
Home Loans by SAC for a fee, and (c) the subsequent sale of the Mobile
Home Loans by the Plan to Bank Western resulted in prohibited
transactions in violation of the Act. Therefore, CNB is not requesting
exemptive relief with respect to any transactions involving the Mobile
Home Loans nor is the Department granting exemptive relief with respect
to such loans. To the extent the resale by Bank Western of its interest
in GNMA Pool C constituted a correction within the meaning of the Code,
CNB is not requesting exemptive relief.
8. Bank Western represents that on October 28, 1992, it filed a
Form 5330 with the Service and it paid total excise taxes of $126,776
that were assessed on the Assets it acquired from the Plan. CNB, as
successor in interest to Bank Western, states that it will pay any
additional excise taxes that may be owed to the Service within 90 days
of the publication in the Federal Register of the notice granting the
exemptive relief herein.
9. In summary, it is represented that the transaction satisfies the
statutory criteria for an exemption under section 408(a) of the Act
because: (a) The sale represented a one-time transaction for cash; (b)
the sales price for each Asset was based upon its fair market value as
determined by a qualified, independent appraisal; (c) the Plan did not
pay any fees or commissions in connection with the sale; and (d) CNB
will file a Form 5330 with the Service and pay any applicable excise
taxes that may be due on any of the Assets within 90 days of the
publication in the Federal Register of the notice granting the
exemptive relief herein.
Notice to Interested Persons
Notice of the proposed exemption will be given to all interested
persons within 30 days of the publication of the notice of pendency in
the Federal Register. Such notice will be given to interested persons
by first class mail and will include a copy of the notice of proposed
exemption as published in the Federal Register. The notice will also
inform interested persons of their right to comment on and/or to
request a public hearing with respect to the proposed exemption.
Comments with respect to the proposed exemption are due within 60 days
after the date of publication of this exemption in the Federal
Register.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,
telephone (202) 219-8881. This is not a toll-free number.
Batterymarch Financial Management (BFM) Located in Boston,
Massachusetts; Proposed Exemption
[Application No. D-9230]
The Department is considering granting an exemption under the
authority of section 408(a) of the Act 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 section 406(b)(2) of the Act shall not apply to the proposed cross-
trading of equity securities between various accounts managed by BFM
(the Accounts) where at least one Account involved in any cross-trade
is an employee benefit plan account (Plan Account) for which BFM acts
as a fiduciary.
Conditions and Definitions
This proposed exemption is subject to the following conditions:
1. (a) Each Plan Account's participation in the cross-trade program
is subject to BFM's receipt of a written authorization executed in
advance by a qualified Plan fiduciary, which is independent of BFM and
its Affiliates (the Independent Fiduciary).
(b) The authorization referred to in paragraph (a) is terminable at
will, without penalty to the Plan Account, upon receipt by BFM of
written notice of termination.
(c) Before an authorization is made for any Account, an independent
account representative, which must be an Independent Fiduciary in the
case of a Plan Account (collectively, an Independent Account
Representative) must be furnished with any reasonable available
information necessary for the Independent Account Representative to
determine whether the authorization should be made, including (but not
limited to) a copy of the proposed and final exemption, an explanation
of how the authorization may be terminated, a description of BFM's
cross-trade practices, and any other information requested by the
Independent Account Representative.
2. Each cross-trade transaction must satisfy the following:
(a) The cross-trade opportunity must be triggered as a result of an
Account participating in the program experiencing a need to sell equity
securities arising from one of the following three circumstances:
(i) the Independent Account Representative specifically directs
that all of the assets in the Account be liquidated;
(ii) the Independent Account Representative specifically directs
that a portion of the Account be liquidated and the selection of the
particular equity securities to be sold is made either by the
Independent Account Representative or by an optimization program used
by BFM (the Optimization Program) which operates, pursuant to certain
prescribed objective criteria, to automatically generate an optimal
portfolio for such Accounts; or
(iii) the application of the Optimization Program to the specific
investment objectives and restrictions established by the Independent
Account Representative requires the sale of a security which is
otherwise ranked by BFM as a buy or a hold for all relevant Accounts
under the Stock Evaluation Process.
(b) With respect to each cross-trade opportunity triggered under
paragraph 2(a), the Optimization Program used by BFM must determine, in
the ordinary course of its considering all available equity securities
in the applicable universe, that another Account or Accounts
participating in the program should purchase some or all of the
available equity securities.
(c) The cross-trade transaction must take place within three
business days of the ``triggering event'' giving rise to the cross-
trade opportunity described in paragraph 2(a) above.
(d) The cross-trade transaction must be effected through a broker
which is unaffiliated with BFM and its Affiliates.
(e) The Independent Account Representative of each Account engaging
in a cross-trade transaction must be provided with a written
confirmation of the cross-trade transaction within 10 days after the
completion of the transaction. The confirmation must set forth:
(i) The particular equity securities involved;
(ii) The number of shares involved;
(iii) The price at which the transaction was executed; and
(iv) The specific triggering event, identified above in paragraph
2(a), which caused the cross-trade transaction to occur.
3. (a) Each cross-trade must be effected at the closing price for
the equity securities involved on the date of the transaction, as
quoted by the exchange on which such securities are principally traded
or by the NASDAQ National Market System (NASDAQ). In the case of
domestic equity securities traded over-the-counter, other than those
traded on NASDAQ, the price must be the mean between the closing daily
``bid'' and ``asked'' prices on the date of the transactions, obtained
from recognized independent sources, unless such securities have
actually traded within 24 hours of the cross-trade transaction in which
case the price must be the last sale price for the securities. If more
than one source is used by BFM to price a particular domestic equity
security traded over-the-counter, then the price must be equal to the
average of the highest current independent bid and lowest current
independent offer obtained from such sources. No foreign equity
securities, other than those traded on a recognized foreign securities
exchange for which market quotations are readily available, shall be
cross-traded by the Accounts.
(b) The equity securities involved in the cross-trade are those for
which there is a generally recognized market with adequate pricing
information to enable BFM to use the Optimization Program for the
Accounts in the transaction.
(c) The cross-trade must involve less than 5 percent of the
aggregate average daily trading volume of the equity securities which
are the subject of the transaction for the week immediately preceding
the completion of the transaction.
4. For any cross-trade opportunity where equity securities
available for sale from a Selling Account may be sold to more than one
Buying Account, each cross-trade opportunity shall be allocated first
to the Buying Account which is ranked by the Optimization Program as
being furthest from optimality, measured on a numerical basis at the
time of the transaction, until such Account is brought up to par with
the Account which is next furthest from optimality. Such Accounts shall
then be allocated cross-trade opportunities on a pro rata basis until
the Accounts are brought up to the level of the next Account which is
furthest from optimality. This allocation process shall continue until
all cross-trade opportunities involving the equity securities in
question are exhausted.
5. (a) BFM furnishes the Independent Fiduciary for each Plan
Account participating in the cross-trade program at least once every
three months, and not later than 45 days following the period to which
it related, a report disclosing:
(i) A list of all cross-trade transactions engaged in on behalf of
the Plan Account during the period; and
(ii) With respect to each cross-trade transaction, the actual price
used to effect the transaction and the identity of the pricing source,
as well as the highest and lowest reported prices at which the equity
securities involved in the transaction were traded on the date of such
transaction.
(b) The authorizing Independent Fiduciary for each Plan Account
participating in the program is furnished with a summary report at
least once per year. The summary must be furnished within 45 days after
the end of the period to which it relates, and must contain the
following:
(i) A description of the total amount of the Plan Account's assets,
by type of equity security, involved in cross-trade transactions during
the period;
(ii) A description of BFM's cross-trade practices, if such
practices have changed materially during the period covered by the
summary;
(iii) A statement that the Independent Fiduciary's authorization of
cross-trade transactions may be terminated upon receipt by BFM of the
Independent Fiduciary's written notice to that effect; and
(iv) A statement that the Independent Fiduciary's authorization of
the Plan Account's participation in the cross-trade program will
continue in effect unless it is terminated.
6. The cross-trade transaction does not involve assets of any
employee benefit plan established or maintained by BFM or any of its
Affiliates (Batterymarch Plan).
7. Each employee benefit plan comprising a Plan Account that
participates in the cross-trading program must have total assets equal
to at least $25 million. In the case of multiple employee benefit plans
maintained by a single employer or controlled group of employers, the
$25 million requirement may be met by aggregating the assets of such
plans if the assets are commingled for investment purposes in a single
master trust.
8. BFM receives no fee or other compensation (other than its agreed
investment management fee) with respect to any cross-trade transaction.
9. BFM is a discretionary investment manager with respect to Plan
Accounts participating in the cross-trade program and does not cause
any Plan Account to purchase or sell equity securities with another
Account in order to merely track or replicate the portfolio of an
independently maintained third party index.
10. For purposes of this proposed exemption:
(a) ``Account'' means a Plan Account or a Non-Plan Account;
(b) ``Affiliate'' means any person directly or indirectly through
one or more intermediaries, controlling, controlled by, or under common
control with Batterymarch;
(c) ``Buying Account'' means the Account which seeks to purchase
equity securities in a cross-trade transaction;
(d) ``Cross-trade transaction'' means a purchase and sale of equity
securities between Accounts for which BFM or an Affiliate is acting as
a trustee or investment manager;
(e) ``Plan Account'' means an Account managed by BFM consisting of
assets of one or more employee benefit plans which are subject to the
Act;
(f) ``Independent Account Representative'' means the authorized
representative of the Account. In the case of a Plan Account, the
Independent Account Representative must be an Independent Fiduciary
authorized to act for the Plan Account;
(g) ``Non-Plan Account'' means an Account managed by BFM consisting
of assets of clients which are not employee benefit plans subject to
the Act;
(h) ``Selling Account'' means the Account which seeks to sell its
equity securities in a cross-trade transaction; and
(i) The ``Optimization Program'' means a computer program developed
by a third party, independent of BFM and its Affiliates, which BFM uses
pursuant to a license agreement and which utilizes objective
mathematical formulas to construct ``optimal'' portfolios for each
Account.
Summary of Facts and Representations
1. BFM is a business trust organized under the laws of the
Commonwealth of Massachusetts and registered as an investment adviser
pursuant to the Investment Advisers Act of 1940, as amended. BFM
currently manages on a discretionary basis approximately $7 billion in
assets, of which approximately $4 billion consists of assets of Plan
Accounts.
2. BFM represents that there are certain circumstances when it is
required to liquidate all or a portion of the equity securities in an
Account for which it acts as an investment manager. BFM proposes to
cross-trade equity securities between the Accounts in situations where
the decision to sell equity securities from the Selling Account is made
either directly by the Independent Account Representative or by
operation of a pre-established contractual obligation established by
the Independent Account Representative. In the case of a Plan Account,
the Independent Account Representative must be an authorized
Independent Fiduciary. In all cross-trade situations, the decision as
to the particular equity securities to be sold at the time of the
transaction will be made either by the Independent Account
Representative or by operation of the Optimization Program utilized by
BFM. In the case of all Accounts, the Independent Account
Representative will be a person which is unrelated to BFM and its
Affiliates. Cross-trade transactions will not involve assets of any
Batterymarch Plan.
3. BFM states that a cross-trade opportunity, pursuant to the
requested exemption, will arise only if the need to sell equity
securities from a Selling Account occurs as a result of one of the
following ``trigger events''.
(a) The Independent Account Representative directs that all of the
assets in the Account be liquidated. In such cases, both the decision
to sell equity securities from the Selling Account and the decision
regarding the particular equity securities to be sold will be made by
the Independent Account Representative.
(b) The Independent Account Representative directs that a portion
of the Account be liquidated. In such instances, the decision to sell
equity securities from the Selling Account will be made by the
Independent Account Representative. However, the determination of the
particular equity securities to be sold by the Selling Account will be
made either by the Independent Account Representative or by the
Optimization Program (as described below).
(c) The investment restrictions and objectives established by the
Independent Account Representative for the Selling Account require that
a particular security or a particular type of security be sold.
Whenever a choice must be made as to particular equity securities to be
sold, the Optimization Program will select the equity securities from
the Account's holdings in a manner calculated to best bring the Account
into compliance with the applicable investment restrictions.
BFM states that for all ``trigger events'' described above the
selection of the specific equity securities to be sold by the Selling
Account through the operation of the Optimization Program will involve
an automatic mechanical process, pursuant to certain prescribed
investment restrictions and objectives from an Independent Account
Representative, and will not involve any exercise of investment
discretion by BFM.
With respect to each potential cross-trade transaction, the
Optimization Program will determine, in the ordinary course of its
considering all available equity securities in the applicable universe,
that another Account or Accounts participating in the program should
purchase some or all of the available equity securities. In addition,
each cross-trade transaction will occur within three business days from
the occurrence of the triggering event which establishes the cross-
trade opportunity.
4. BFM represents that there are two fundamental components to its
investment process--the Stock Evaluation Process and the Portfolio
Construction Process.
With respect to the Stock Evaluation Process, BFM evaluates all of
the equity securities in the applicable universe by applying a variety
of objective criteria and mathematical computations to rank the equity
securities and characterize each security with a ``buy'', a ``hold'',
or a ``sell'' classification. BFM states that it does exercise some
degree of discretion in the Stock Evaluation Process portion of the
investment process. For example, BFM selects the particular strategic
themes that are utilized from time to time in this process.11
However, BFM states that the Stock Evaluation Process and the strategic
themes used at a particular time are applied in exactly the same
fashion for all Accounts which have directed BFM to invest in a
particular universe of securities. Thus, the exact same stock rankings
and buy-hold-sell classifications are applied uniformly for each
security in every Account within such universe. The Stock Evaluation
Process will never, in and of itself, give rise to direct cross-trade
opportunities because the results of the Stock Evaluation Process will
be the same for every Account in the particular universe. BFM states
that it is only in the second part of the overall investment process
(i.e. the Portfolio Construction Process), when the specific investment
objectives and restrictions which have been established by the
Independent Account Representative for the Account are overlaid against
the results of the Stock Evaluation Process, that differences appear
for the various Accounts within a particular universe.
---------------------------------------------------------------------------
\1\1Some of the strategic themes which have been utilized by BFM
include the following: (a) Acid Cash--stocks of companies with high
cash flow, measured by changes in corporate liquidity relative to
market price; (b) Buybacks--stocks of companies that have announced
intentions of buying back a meaningful percentage of their own
stock; (c) High Yield--stocks of companies with above average yields
relative to the overall market and within their own industries; (d)
Low-Priced Growth--stocks of companies with below average price-to-
earnings ratios and above average growth; and (e) Insiders--stocks
of companies where corporate insiders have purchased the company's
stock on the open market.
---------------------------------------------------------------------------
With respect to the Portfolio Construction Process, BFM represents
that the results of the Stock Evaluation Process are brought together
with the particular facts applicable to each Account to generate the
optimal portfolio for that Account and suggested trades to arrive at
that optimal portfolio. The Portfolio Construction Process is driven by
the Optimization Program. The Optimization Program receives the
relevant information and automatically generates the optimal portfolio
and the suggested buy and sell decisions that are designed to move a
particular Account toward ``optimality'' (i.e. maximum expected return
for a prescribed level of risk). The information utilized in the
Portfolio Construction Process consists of (i) the existing make-up of
the portfolio of the particular Account, (ii) the investment objectives
and restrictions which have been established by the Independent Account
Representative for the Account, and (iii) objective economic data (such
as existing market prices for equity securities, price-earnings ratios
for such securities, etc.) which is obtained by BFM from independent
sources.
BFM represents that the results of its investment process will
create cross-trade opportunities for the Accounts under the following
circumstances: (1) When the Independent Account Representative for an
Account directs a liquidation of all or a portion of the equity
securities in the Account, as described in condition 2(a) (i) and (ii)
above; or (2) when the application of the Optimization Program in the
Portfolio Construction Process requires the sale of a security which is
ranked as a ``buy'' or ``hold'' under the Stock Evaluation Process. In
the latter instance, the sale of the security results from the
investment objectives and restrictions applicable to the Account which
are established by the Independent Account Representative, as described
in condition 2(a)(iii) above.
For example, the applicable investment restrictions might provide
that not more than 5 percent of the assets of the Account can be
invested in any one security. If a particular holding appreciates in
value to a point where it exceeds 5 percent of the Account's assets,
the excess shares must be sold by the Account to comply with this
restriction even though the stock is otherwise classified as a ``buy''
or ``hold'' under the Stock Evaluation Process. Alternatively, the
applicable investment restrictions might provide that not more than 10
percent of the assets of the Account can be invested in equity
securities of any one industry. If the aggregate value of all such
equity securities in the Account exceeds 10 percent of the Account's
assets, the excess shares must be sold to comply with this restriction
even though the particular stock is otherwise classified as a ``buy''
or ``hold'' under the Stock Evaluation Process. In the latter case, the
Optimization Program would select the particular equity securities to
be sold from the Account's holdings in that industry so as to bring the
Account into compliance with the applicable investment restriction and
move the Account toward ``optimality''.
BFM represents that none of the Accounts in the proposed cross-
trading program would be index funds that attempt to track or replicate
a particular independently maintained index, such as the Standard &
Poors 500 Index (the S&P 500). Thus, under the proposed exemption, no
Plan Account will purchase or sell equity securities with another
Account in order to merely track such an index. In all cases, BFM will
exercise some degree of investment discretion to determine which
particular equity securities are desirable investments for the
Accounts. As noted above, the rankings of each security are developed
as part of the Stock Evaluation Process and are identical for all
Accounts invested in a particular universe of equity securities. These
rankings and the results of the Stock Evaluation Process will not be
tied to any particular index or to the specific investment objectives
and restrictions established for the Account by its Independent Account
Representative. However, an index may be used as part of the investment
objectives or restrictions established by the Independent Account
Representative, most typically as either a benchmark against which the
Account's performance is to be measured or a further restriction on the
universe of securities available for an Account.
For example, an Account might be subject to an investment objective
that seeks to outperform the S&P 500 Index to the maximum extent,
subject to certain volatility parameters or risk tolerance levels
specified by the Independent Account Representative. In this situation,
the foregoing investment objective would be taken into account by the
Optimization Program in determining the buys and sells for this Account
which could lead to cross-trade opportunities.12 Such an Account
would be an actively managed account, not an index fund, even though
the benchmark against which its performance is measured would be an
index.
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\1\2The applicant has provided the following example: Assume
there are two Accounts. Account A operates pursuant to a relatively
low risk investment objective, in terms of permitted deviation from
the applicable benchmark, and Account B uses the same benchmark but
allows substantially greater risk in the hope of achieving better
performance relative to the benchmark over the long term. In this
case, a particular stock which is viewed as attractive generally by
BFM and therefore is classified as a ``buy'' in the Stock Evaluation
Process, might demonstrate an increased level of volatility to the
point that, as part of the Portfolio Construction Process, the
Optimization Program may determine that this stock should be sold by
conservative Account A because its increased level of volatility is
inconsistent with the risk tolerance of Account A. Nevertheless,
this particular stock might well continue to be attractive to
Account B given that Account's greater level of risk tolerance. The
application of the investment objectives and restrictions
established for Account A would require that this stock, otherwise
ranked as a ``buy'', be sold by Account A which, in turn, would
trigger a direct cross-trade opportunity pursuant to which Account B
would be able to acquire the stock directly from Account A.
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As a further example, an Account might be established which is
subject to an investment restriction providing that the Account may be
invested only in equity securities which constitute the 100 largest
equity securities (by market capitalization) in the S&P 500 Index. This
investment restriction will be incorporated by the Optimization Program
as part of the Portfolio Construction Process for the Account, taking
into account the uniform rankings developed by BFM for all of the
equity securities in the particular universe. If a security ceases to
be one of the 100 largest equity securities in the S&P 500 Index, it
would no longer be eligible to be held by the Account and would have to
be sold. This would be a trigger event that would give rise to a direct
cross-trade opportunity whereby other Accounts which are not so limited
would be able to purchase this security from the Selling Account,
assuming that the Optimization Program indicates that such a purchase
would be desirable for those Accounts in order to move toward
``optimality''.
5. The Optimization Program is a computer program developed by an
independent third party and utilized by BFM pursuant to a license
agreement. Various such programs are commercially available. BFM
represents that the ability to exercise discretion for the operation of
the Optimization Program is limited. BFM selects the Optimization
Program, selects and weighs the strategic themes used at any point in
time in the Stock Evaluation Process, and develops certain mathematical
models used as data for the Optimization Program. Once installed, the
Optimization Program typically remains in place without material change
for a lengthy period of time (2 to 10 years). While the strategic
themes and mathematical models are changed more frequently, they
usually remain unchanged for approximately 12 months. BFM states that
the Optimization Program operates in an automatic fashion and that
actions within BFM's discretionary control (e.g. changing its strategic
themes or changing the mathematical models used in its stock rankings
for the Stock Evaluation Process) will not generate direct cross-trade
transactions.
6. BFM uses the Optimization Program on a daily basis to examine
all equity securities in the applicable universe and to determine the
specific equity securities, if any, to be purchased for each Account in
order to achieve the optimal portfolio for that Account. Each universe
is developed by BFM as part of the Stock Evaluation Process and is
uniform for all Accounts for which that particular universe is
relevant.
For example, in the context of domestic equity securities, BFM
determines the universe of securities to be considered for potential
investment as part of the Stock Evaluation Process. The universe for
domestic equity clients currently consists of all U.S. publicly-traded
common stocks, excluding any such stock which has a market
capitalization of less than $50 million. BFM states that this domestic
equity securities universe, which includes several thousand stocks, is
identical for all of BFM's domestic equity Accounts unless certain
restrictions are imposed by the Independent Account Representative.
In addition to domestic equity Accounts, BFM uses the Optimization
Program to examine data on foreign equity securities for Accounts that
have designated investment objectives which permit such securities for
their portfolios. At the present time, the potential universe of
securities for such Accounts would include equity securities listed on
exchanges in the following countries: Australia; Austria; Belgium;
Canada; Denmark; Finland; France; Germany; Hong Kong; Ireland; Italy;
Japan; Malaysia; Mexico; Netherlands; New Zealand; Norway; Singapore;
Spain; Sweden; Switzerland; and the United Kingdom. BFM states that
these are the countries which today have sufficiently developed
securities markets (including adequate data on the exchange-traded
securities) to permit use of the Optimization Program for the Accounts.
BFM represents that the two-part investment process (i.e. the Stock
Evaluation Process and the Portfolio Construction Process) operates in
substantially the same manner for foreign equity securities as it does
for domestic equity securities. In all cases involving either domestic
or foreign equity securities, the Independent Account Representative
for each Account will determine which universe is relevant for the
Account.
To the extent there are any equity securities available for sale
from a Selling Account by reason of one of the triggering events, the
Optimization Program will include the equity securities in its analysis
of all available equity securities in a particular universe, taking
into account the lower transaction costs available for cross-trade
transactions involving such securities. However, BFM states that the
opportunity for a cross-trade will not influence the Optimization
Program's analysis and determination as to whether such securities
should be bought or sold for an Account except to the extent
transaction costs are lower.
In the event any of the equity securities available for sale in
cross-trade transactions are attractive to more than one Account, the
Optimization Program will automatically allocate such securities among
the Accounts on a consistent, objective basis according to the
allocation methodology described herein (see Item 14 below). The
allocation methodology will be disclosed to, and approved by, the
Independent Account Representatives. Since the determination and
allocation of cross-trade opportunities among potential Buying Accounts
will be performed automatically by the Optimization Program, BFM states
that it will be unable to use any discretion to benefit one Account
over another Account.
7. BFM represents that since particular equity securities which are
sold by a Selling Account in one of the ``trigger events'' described
above are often desirable investments (i.e. classified as a ``buy'' or
a ``hold'' under the Stock Evaluation Process) for BFM's other
Accounts, the opportunity to cross-trade such securities would
significantly reduce the transaction costs incurred by both the Selling
Accounts and the Buying Accounts. BFM states that these savings result
from the fact that the independent broker effecting a cross-trade
transaction will effect the transaction for a lower commission. The
independent broker will effect these transactions for approximately
.5 cents per share. By contrast, if BFM were to effect the same trade
other than by a cross-trade transaction, the commission would be
approximately 2 cents per share. In the context of foreign equity
securities, where brokerage commissions are significantly higher, the
potential savings on commissions would be even greater.
BFM states that cross-trading also avoids the bid/ask differential
that would ordinarily occur in such transactions because the price
received by the Selling Account for a particular equity security will
be the same price paid by the Buying Account. The elimination of any
price differential in equity securities that are cross-traded will
result in savings of approximately 1 cents per share for each Account.
In addition, the ability to use cross-trade transactions to shift
equity securities directly from a Selling Account to a Buying Account
will enable BFM to implement optimal investment strategies for the
Accounts more effectively. First, the allocation of equity securities
necessary to bring Accounts closer to optimality would be easier
because all ``buys'' will be net position buys for the Accounts without
any bid/offer spread. Second, there is a timing efficiency to be
achieved if direct cross-trades are permitted. Under BFM's current
procedures, if an Account has sold a particular security on a
particular day, no other Account is permitted to buy that security on
that day. Rather, all purchases of such security are deferred until the
next day. Similarly, if an Account has bought a particular security on
a given day, other Accounts are not permitted to sell that security on
the same day. Under the requested exemption, BFM would be able to net
these contemporaneous buy and sell orders on the same day.
Finally, the ability to effect direct cross-trades will avoid the
adverse consequences of any market impact which trading in particular
equity securities may generate.
8. BFM represents that each employee benefit plan comprising a Plan
Account that participates in the cross-trading program must have total
assets equal to at least $25 million. In the case of multiple employee
benefit plans maintained by a single employer or controlled group of
employers, the $25 million requirement may be met by aggregating the
assets of such plans if the assets are commingled for investment
purposes in a single master trust.
9. The Independent Fiduciary will provide written authorization
before a Plan Account is permitted to participate in BFM's cross-trade
program. This authorization will be terminable at will upon written
notice by the Independent Fiduciary. BFM will receive no additional fee
or other compensation for providing such cross-trading services. No
penalty or other charge will be made as a result of the termination of
an Account's participation in the cross-trade program. Before any
authorization is made by a Plan Account, BFM will provide the
Independent Fiduciary for the Plan Account with all reasonably
available materials necessary to permit an evaluation of the cross-
trade program by such fiduciary. These materials will include a copy of
the proposed and final exemption, an explanation of how the Plan
Account's authorization may be terminated, a description of BFM's
cross-trade practices, and any other reasonably available information
requested by the Independent Fiduciary.
10. The Independent Account Representative of each Account engaging
in a cross-trade transaction will be provided with a written
confirmation of the cross-trade transaction within 10 days after the
transaction is completed. The confirmation will set forth information
regarding the particular equity securities involved, the number of
shares involved, the price at which the transaction was executed, and
the specific ``trigger event'' (identified in condition 2(a) above)
which caused the cross-trade transaction to occur.
11. BFM will provide the Independent Fiduciary of each Plan Account
participating in the cross-trade program with a report, at least once
every three months and not later than 45 days following the period for
the report, setting forth: (a) A list of all cross-trade transactions
engaged in on behalf of the Plan Account during the previous period;
and (b) with respect to each cross-trade transaction, the actual price
used to effect the transaction and the identity of the pricing source,
as well as the highest and lowest reported prices at which the subject
equity securities were traded on the date of such transaction. In
addition, the Independent Fiduciary of each Plan Account participating
in the cross-trade program will be provided with a summary report at
least once a year, and not later than 45 days after the end of the
period for the report, which will include: (a) A description of the
total amount of Plan Account assets, by type of equity security,
involved in cross-trade transactions completed during the year; (b) a
statement that the Independent Fiduciary's authorization for the Plan
Account to participate in the cross-trade program can be terminated
without penalty upon BFM's receipt of a written notice to that effect;
(c) a statement that the Independent Fiduciary's authorization
regarding the cross-trade program will continue unless it is
terminated; and (d) a description of any material change in BFM's
cross-trade practices during the period covered by the summary report.
BFM states that these reports will provide the Independent
Fiduciary with a mechanism for monitoring the operation of the cross-
trade program. BFM represents that the authorization procedures and the
limited circumstances in which cross-trade transactions will be
considered, in conjunction with BFM's use of the Optimization Program,
will prevent BFM from favoring one Account at the expense of another
Account in a cross-trade transaction.
12. The equity securities involved in any cross-trade transaction
will be only those for which there is a generally recognized market
with adequate pricing information to permit use of the Optimization
Program for the Accounts. All cross-trades will be effected at prices
determined according to an established, fixed methodology which will be
applied uniformly to all Accounts. Under this pricing methodology, each
cross-trade transaction will be effected at the closing price for the
equity securities involved on the date of the transaction, as quoted by
the exchange on which such securities are principally traded or by the
NASDAQ National Market System (NASDAQ). In the case of domestic equity
securities traded over-the-counter, other than those traded on NASDAQ,
the price will be the mean between the closing daily ``bid'' and
``asked'' prices on the date of the transactions, obtained from
recognized independent sources, unless such securities have actually
traded within 24 hours of the cross-trade transaction in which case the
price will be the last sale price for the securities. However, if more
than one source is used by BFM to price a particular domestic equity
security traded over-the-counter, then the price will be equal to the
average of the highest current independent bid and lowest current
independent offer obtained from such sources. BFM states that no
foreign equity securities, other than those traded on a recognized
foreign securities exchange for which market quotations are readily
available, will be cross-traded by the Accounts. The pricing
methodology will be communicated to the Independent Account
Representative at the beginning of the Account's participation in the
cross-trade program. The pricing methodology will apply to all cross-
trade transactions implemented by BFM under the proposed exemption.
BFM states that utilization of an established, fixed pricing
methodology will prevent it from being able to use any discretion to
manipulate cross-trades to benefit one Account over another Account.
Moreover, BFM will in all cases utilize price data obtained from an
independent pricing source.
13. A cross-trade transaction will be effected only where the trade
involves less than 5 percent of the aggregate average daily trading
volume for the equity securities which are the subject of the
transaction for the week immediately preceding the completion of the
transaction. BFM states that this percentage limitation attempts to
address the potential impact which a large trade might have in the sale
of equity securities on the open market. Thus, BFM will only engage in
cross-trade transactions where the size of the trade will ensure that
the price utilized in the cross-trade will not differ materially from
what would have been the market price for the equity securities in an
open market transaction.
14. BFM represents that where equity securities available for sale
from a Selling Account present an attractive investment opportunity for
more than one Buying Account, BFM will make the allocation to that
Buying Account which is ranked by the Optimization Program as being
furthest from optimality.\13\ BFM states that each Account's distance
from optimality can be measured and quantified on a numerical basis at
any point in time. Cross-trade opportunities would continue to be
allocated to such a Buying Account until it is brought up to par with
the Account which is next furthest from optimality. Thereafter, the
cross-trade opportunities would be allocated to both of these Accounts
pro rata until they are brought up to the level of the Account which is
next furthest from optimality, and so on until all cross-trading
opportunities involving the equity securities in question are
exhausted. BFM states that this allocation process will operate in a
mechanical, objective fashion and will not be manipulated in any way by
BFM to benefit particular Accounts during the operation of the cross-
trading program.
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\13\The Department is not proposing, nor is the applicant
requesting, exemptive relief for any violations of Part 4 of Title I
of the Act which may arise from BFM's allocation of investment
opportunities to particular Buying Accounts under the proposed
cross-trading program.
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15. In summary, the applicant represents that the proposed
transactions will satisfy the criteria of section 408(a) of the Act
because, among other things:
(a) An Independent Fiduciary must provide written authorization,
which is terminable at will, to BFM to permit the Account to
participate in the cross-trading program;
(b) All cross-trade transactions will be effected within three
business days of the triggering event creating the cross-trade
opportunity;
(c) All cross-trade transactions will be effected at a price
determined pursuant to a established, fixed methodology using
independent pricing sources and will be applied uniformly to all
Accounts;
(d) All cross-trade opportunities will be subject to an allocation
methodology which is designed to benefit Accounts which are ranked by
the Optimization Program as being furthest from optimality and will not
be manipulated by BFM to benefit particular Accounts;
(e) A cross-trade transaction will be effected only if certain
volume requirements are satisfied;
(f) All equity securities (i.e. either foreign or domestic)
involved in cross-trade transactions will be securities for which there
is a generally recognized market;
(g) BFM will receive no additional fees as a result of the proposed
cross-trade transactions;
(h) BFM will provide periodic reporting of the cross-trade
transactions to the Independent Fiduciaries of the participating Plan
Accounts;
(i) The opportunity to participate in the cross-trade program will
save significant sums of money for the Accounts because cross-trading
reduces brokerage commissions, avoids the bid/ask differential in such
transactions, and provides more efficient implementation of optimal
investment strategies;
(j) Each employee benefit plan comprising a Plan Account which
participates in the cross-trading program must have total assets of at
least $25 million, or must be part of a master trust of plans
maintained by a single employer or controlled group of employers which
has at least $25 million in total assets; and
(k) The cross-trade transactions will not involve the assets of any
Batterymarch Plan.
FOR FURTHER INFORMATION CONTACT: Mr. E. F. Williams of the Department,
telephone (202) 219-8194. (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 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 20th day of May, 1994.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 94-12716 Filed 5-24-94; 8:45 am]
BILLING CODE 4510-29-P