[Federal Register Volume 60, Number 122 (Monday, June 26, 1995)]
[Notices]
[Pages 32992-33010]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-15521]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 95-46;
Exemption Application No. D-09519, et al.]
Grant of Individual Exemptions; Westinghouse Pension Plan, et al.
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Grant of individual exemptions.
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SUMMARY: This document contains exemptions issued by the Department of
Labor (the Department) from certain of the prohibited transaction
restrictions of the Employee Retirement Income Security Act of 1974
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
Notices were published in the Federal Register of the pendency
before the Department of proposals to grant such exemptions. The
notices set forth a summary of facts and representations contained in
each application for exemption and referred interested persons to the
respective applications for a complete statement of the facts and
representations. The applications have been available for public
inspection at the Department in Washington, D.C. The notices also
invited interested persons to submit comments on the requested
exemptions to the Department. In addition the notices stated that any
interested person might submit a written request that a public hearing
be held (where appropriate). The applicants have represented that they
have complied with the requirements of the notification to interested
persons. No public comments and no requests for a hearing, unless
otherwise stated, were received by the Department.
The notices of proposed exemption were issued and the exemptions
are being granted solely by the Department because, effective December
31, 1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR
47713, October 17, 1978) transferred the authority of the Secretary of
the Treasury to issue exemptions of the type proposed to the Secretary
of Labor.
Statutory Findings
In accordance with section 408(a) of the Act and/or section
4975(c)(2) of the Code and the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon
the entire record, the Department makes the following findings:
(a) The exemptions are administratively feasible;
(b) They are in the interests of the plans and their participants
and beneficiaries; and
(c) They are protective of the rights of the participants and
beneficiaries of the plans.
Westinghouse Pension Plan (the Plan)
Located in Pittsburgh, Pennsylvania [Prohibited Transaction
Exemption 95-46; Application No. D-09519]
Exemption
The restrictions of sections 406(a)(1)(A) through (D), 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 contribution of certain
securities (the Securities) to the Plan on September 14, 1993 and
October 29, 1993 by Westinghouse Electric Corporation (WEC), the Plan's
sponsor and as such a party in interest with respect to the Plan,
provided the following conditions are met:
(a) The Securities were valued at an amount which was no greater
than their fair market value at the time of contribution, as
established by an independent, qualified appraiser;
(b) The terms and conditions of the contributions were at least as
favorable to the Plan as terms and conditions which the Plan could have
obtained in a purchase of similar securities from an unrelated party;
[[Page 32993]]
(c) The Plan did not pay any commissions or other expenses with
respect to the contributions;
(d) The fair market value of the Securities represents at all times
an amount of the Plan's total assets which is consistent with the
Plan's investment guidelines and objectives;
(e) Additional Plan assets are not used to purchase any new
securities which are considered ``alternative investments'' to the
extent that such purchases, when added to the outstanding fair market
value of the Securities owned by the Plan, would cause more than 5.2
percent of the Plan's total assets to be invested in ``alternative
investments'' (other than as may be occasioned merely by an increase in
value);\1\
1Alternative investments generally are relatively illiquid
investments in an asset class other than traditional classes of
cash, stock, fixed income securities and real estate.
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(f) Mellon Bank N.A. (Mellon), as an independent, qualified
fiduciary for the Plan, determined that each contribution of the
Securities to the Plan was in the best interests and protective of the
Plan and its participants and beneficiaries at the time of the
transactions;
(g) Mellon monitored each contribution made to the Plan and took
all appropriate actions necessary to protect the interests of the Plan
and its participants and beneficiaries;
(h) Mellon monitors the performance of the Securities as an
investment for the Plan and takes whatever action is necessary to
protect the interests of the Plan and its participants and
beneficiaries;
(i) On the date on which the Plan no longer holds any of the
Securities contributed by WEC on September 14 and October 29, 1993 (the
Exercise Date), WEC shall contribute to the Plan the difference between
the following:
(1) the sum of (i) the sales proceeds received by the Plan on the
disposition of all of the Securities, plus (ii) interest accrued and
interest and dividends received on the Securities; and
(2) the aggregate value of the Securities on the date that they
were originally contributed to the Plan (i.e. $188,882,694), plus any
adjustments to such aggregate value requested by Mellon to reflect
changes in the Consumer Price Index (CPI) during the period that the
Securities were held by the Plan, upon demand by Mellon as the Plan's
independent fiduciary under the terms of a ``makewhole agreement'' with
the Plan (the Makewhole Agreement). Mellon shall have sole authority to
determine the amount due to the Plan under the Makewhole Agreement (the
Makewhole Amount) at the time of the transaction;2
2The Department notes that any decision made by Mellon as the
Plan's independent fiduciary with respect to the exercise of the
Plan's rights under the Makewhole Agreement shall be fully subject
to the fiduciary responsibility provisions of the Act. However, by
granting this exemption, the Department is not expressing an opinion
regarding whether any actions taken by Mellon would be consistent
with its fiduciary obligations under Part 4 of Title I of the Act.
In this regard, section 404(a) of the Act requires, among other
things, that a plan fiduciary act prudently, solely in the interest
of the plan's participants and beneficiaries, and for the exclusive
purpose of providing benefits to participants and beneficiaries when
making decisions on behalf of a plan.
(j) On December 30, 1994, WEC made a cash contribution to the Plan
in the amount of $25 million to support any amounts that may become due
under the Makewhole Agreement, provided that this cash contribution is
held as a separate credit balance in the Plan's funding standard
account until the termination date of the Makewhole Agreement (as
amended pursuant to paragraph (i) above) and is not used to offset any
other funding obligation owed by WEC to the Plan until such date.
Mellon, as the Plan's independent fiduciary, shall be responsible for
investing the $25 million and ensuring that the Plan receives all
interest and other income earned on the $25 million; and
(l) Mellon monitors the compliance by all parties with the terms
and conditions of the exemption.
EFFECTIVE DATE: The exemption is effective for each contribution as of
September 14 and October 29, 1993, respectively.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption (the Proposal) published on November
14, 1994, at 59 FR 56537.
WRITTEN COMMENTS AND MODIFICATIONS: The Department received over 160
comment letters from interested persons. The matters raised in the
comment letters concern: (1) Sufficiency of the notice to interested
persons regarding the Proposal; (2) the decision made by WEC to
contribute the Securities to the Plan rather than sell the Securities
on the open market; (3) the effect of the contribution of the
Securities on the Plan's funding status; (4) the investment performance
of the Tops Securities since the Plan's acquisition of such Securities
and the potential for losses by the Plan after the period covered by
the Makewhole Agreement; and (5) the role of Mellon as the independent
fiduciary for the Plan, particularly with respect to its obligations to
enforce the terms and conditions of the Makewhole Agreement.
The Department notes that in a letter dated December 27, 1994, the
International Brotherhood of Electrical Workers (IBEW) expressed
particular concerns regarding: (i) The apparent discretionary nature of
Mellon's obligations to enforce the terms of the Makewhole Agreement on
behalf of the Plan; (ii) the need to extend the period covered by the
Makewhole Agreement beyond September 14, 1996 for the Tops Securities
owned by the Plan to prevent losses during the 8-10 year period when
the Plan cannot dispose of all of the Tops Securities as a result of
the timing and volume restrictions of SEC Rule 144; (iii) the need for
an overall limitation on total Plan assets that can be committed to
``alternative investments'', including the Securities, which should not
exceed 5.2 percent (other than as may be occasioned merely by an
increase in value); and (iv) the need for the Proposal, if granted, to
clarify that Mellon's decisions regarding whether to exercise the
Plan's rights under the Makewhole Agreement will be fully subject to
the fiduciary responsibility rules of the Act, and that the Department,
by granting the exemption, would not be expressing an opinion regarding
whether any actions taken by Mellon are consistent with its fiduciary
obligations under the Act. Notwithstanding these concerns, the IBEW
stated that it favored the granting of the exemption if modifications
were made to address these issues.
By letter dated February 9, 1995, WEC responded to the issues
raised by the comment letters.
With respect to the sufficiency of the notice to interested persons
regarding the Proposal, WEC states that it provided the broadest
possible notice to Plan participants. Notice to active employees was
provided through either posting in workplaces, inter-office mail, or
both. Notice was sent to retirees and vested separated participants at
the most current address available to the Plan. WEC states that in the
case of a benefit program as large as the Plan, it is not unusual for
some participants to fail to keep current addresses on file with the
Plan, especially where a plant closing has resulted in the dispersal of
the local workforce. Although some of the commenters indicated that
adequate and timely notice was not provided in every instance, WEC
represents that it acted in good faith by taking all practicable steps
to provide the required notice, as prescribed by the Department's
regulations (see 29 CFR [[Page 32994]] 2570.43), and that all
participants were provided with a copy of the Proposal as published in
the Federal Register. In this regard, WEC states that the success of
its notification efforts was demonstrated by the fact that the
Department received over 160 comment letters, most of which raised
substantive issues regarding the Proposal.
With respect to the decision made by WEC to contribute the
Securities to the Plan rather than sell the Securities on the open
market, WEC states that the contribution enabled the Plan to satisfy a
pre-existing, independently developed investment target for
``alternative investments'' without incurring significant transaction
costs. As noted in Paragraph 2 of the Summary of Facts and
Representations in the Proposal (the Summary), the Plan developed
investment allocation guidelines in conjunction with the Frank Russell
Company in 1990. These guidelines established an allocation target of
approximately 5 percent for ``alternative investments''. WEC states
that such an allocation appropriately reflects the role of such
investments in a prudently diversified portfolio. In addition, WEC
represents that there is no intention to increase this allocation of
Plan assets to ``alternative investments'' above the current 5.2
percent.
In order to address the concerns raised by the commenters, WEC has
agreed to adding a new condition to the Proposal which requires that
additional Plan assets will not be used to purchase new ``alternative
investments'' to the extent that such purchases would cause more than
5.2 percent of the Plan's total assets to be invested in ``alternative
investments'' (see condition (e) above). Paragraph 2 of the Summary
states that ``alternative investments'' typically include venture
capital, buyout funds, distressed companies, mezzanine financing, oil
and gas programs, timberland or farmland, and economically targeted
investments addressing certain social policies.
With respect to the effect of the contribution of the Securities on
the Plan's funding status, WEC states that five factors indicate that
this transaction has had a positive effect on the Plan's funding.
First, WEC did not satisfy any current funding obligation through the
contribution of the Securities. The Plan has not had to forego any
legally required cash contribution; rather, the contribution of the
Securities was above and beyond what WEC was legally required to
contribute to the Plan at the time of the transactions.
Second, the Securities issued by Tele-Media Company of Western
Connecticut (the Tele-Media Securities), representing one-third of the
original value of the Securities contributed by WEC, have already been
sold at a profit (see Paragraph 6 of the Summary). The Plan, by
realizing the proceeds of this sale, has received $4,050,000 in
additional cash as the result of the contribution of the Tele-Media
Securities.
Third, the Securities issued by First Britannia Mezzanine N.V. (the
First Britannia Securities), while remaining stable in asset value,
have generated significant income for the Plan. The Plan has thus far
received approximately $2.4 million in interest on the debt portion and
approximately $9.3 million in cash dividends on the equity portion of
the First Britannia Securities. All of this income accrues to the
benefit of the Plan and improves the Plan's funding situation.
Fourth, the Plan is protected from diminutions in the value of the
Securities through the operation of the Makewhole Agreement. Such
support for the value of the Securities would be non-existent if the
Plan had purchased the Securities on the open market. Therefore, WEC
states that the Plan is better protected in accomplishing its
previously described goals for ``alternative investments'' as the
result of the contribution of the Securities than had a cash
contribution been used by the Plan to invest in such securities on the
open market.
Finally, in support of the Makewhole Agreement, WEC has contributed
an additional $25 million in cash to the Plan. This amount is above and
beyond WEC's other contribution obligations to the Plan. WEC states
that this $25 million contribution was made along with a $200 million
cash contribution on December 30, 1994 as part of WEC's program to
improve Plan funding, even though such amounts were not legally
required to satisfy any current minimum funding obligations. Under the
terms of the Makewhole Agreement, the additional $25 million will not
be used to reduce WEC's future contribution obligations until the end
of the term of the Makewhole Agreement.
Thus, WEC represents that the Plan has benefitted from, and the
Plan's funding has been improved by, the contribution of the
Securities.
With respect to the investment performance of the Tops Securities
and the potential for losses by the Plan after the period covered by
the Makewhole Agreement, WEC states that the publicly-traded price of
these Securities has fluctuated widely and is currently trading at a
price significantly below the price that existed on the date that the
Securities were contributed to the Plan. Because of the trading
restrictions on the Tops Securities, the Plan will be able to dispose
of only a small portion of the shares each year. Many of the commenters
suggested that WEC extend the period covered by Makewhole Agreement
regarding the Tops Securities. In addition, the Department expressed
concerns to WEC regarding the absence of additional guarantees for
potential losses by the Plan in connection with the continued holding
of both the First Britannia Securities and the Securities issued by
Federated Investors (the Federated Securities), as well as for the Tops
Securities, once the three-year period covered under the Makewhole
Agreement expires on September 14, 1996.
Consequently, WEC has agreed to extend the term of the Makewhole
Agreement until such time as the Plan's holdings of all of the
Securities are totally liquidated. Thus, the new Exercise Date under
the Makewhole Agreement, as amended, will be the date on which the
Plan's holdings of all of the Securities contributed by WEC on
September 14 and October 29, 1993, are liquidated. WEC states that the
remaining provisions of the Makewhole Agreement relating to, among
other things, the calculation of the Makewhole Amount will remain
unchanged, except that such calculation will no longer need to be based
on any appraisals of the fair market value of the Securities remaining
in the Plan because all of the Securities will have been liquidated at
that time. Further, the duration of the $25 million credit balance
provision, which is being used to ensure payment of the Makewhole
Amount to the Plan, will also be extended until the new Exercise Date
under the Makewhole Agreement.
Therefore, in response to WEC's additional representations
regarding the extension of the Makewhole Agreement, the Department has
modified the language of the previous condition (h) in the Proposal
(which has been redesignated as condition (i) above) by deleting the
reference in the opening clause to `` * * * the third anniversary of
the date of the first contribution made to the Plan * * *'' and
substituting therefor the phrase ``* * * the date on which the Plan no
longer holds any of the Securities contributed by WEC on September 14
and October 29, 1993 (the Exercise Date) * * *'' in order to redefine
the end of the Makewhole Period and create a new Exercise Date. The
Department has also deleted the phrase in the previous condition (h)(2)
of the Proposal and other phrases thereafter in such condition
referring to the fair market value of the Securities
[[Page 32995]] remaining in the Plan, and the appointment of one or
more independent appraisers to determine fair market value, for
purposes of establishing the Makewhole Amount.
In addition, the Department has amended the language of the
previous condition (i) in the Proposal (which has been redesignated as
condition (j) above) to reflect the fact that the duration of the $25
million credit balance provision, which is being used to ensure payment
of the Makewhole Amount to the Plan, will be extended until the new
Exercise Date under the Makewhole Agreement.
With respect to the role of Mellon as the independent fiduciary for
the Plan and its obligations to enforce the terms of the Makewhole
Agreement, WEC states that it was always WEC's understanding that
Mellon, whether acting as a Plan trustee, an independent fiduciary or
an investment manager, would be a Plan fiduciary fully subject to the
fiduciary responsibility rules of the Act. In this regard, WEC notes
that some commenters, including the IBEW, have questioned the provision
in the Makewhole Agreement committing exercise of the Plan's rights
under the Agreement to Mellon's discretion. WEC states that the sole
purpose of this provision was to make clear that Mellon, not WEC, would
be representing the Plan with regard to the operation of the Makewhole
Agreement, including the calculation of the Makewhole Amount and the
triggering of the necessary payment to the Plan.
In a separate letter submitted by Mellon in response to the
concerns raised by the comment letters, Mellon represents that any
actions taken by Mellon on behalf of the Plan in its role as
independent fiduciary will be subject to the provisions of Part 4 of
Title I of the Act. With respect to Mellon's authority under the
Makewhole Agreement, as amended by WEC and Mellon in response to
concerns raised by the IBEW and other commenters, the Agreement
requires the following:
(i) that WEC shall contribute the Makewhole Amount to the Plan upon
demand from Mellon in its role as ``the Independent Investment
Manager'' for the Plan;
(ii) that Mellon shall make such a demand in the event that a
Makewhole Amount is due to the Plan;
(iii) that the Makewhole Amount must be equal to the amount
determined by Mellon; and
(iv) that Mellon, in its role as ``the Independent Investment
Manager'' for the Plan, shall (rather than ``may'' as stated previously
in the Agreement prior to the amendment) exercise the rights under this
Agreement on behalf of the Plan by the delivery of a notice (the
``Notice of Exercise'') to WEC no later than the sixtieth (60th) day
after the Exercise Date.
Mellon states that these provisions are intended to set forth a
specific procedure for the determination and payment of the Makewhole
Amount (if any), and to make it clear that Mellon, not WEC, would be
acting on behalf of the Plan with regard to the Makewhole Agreement.
Thus, Mellon represents that if a payment is due under the Makewhole
Agreement, Mellon will, on behalf of the Plan, require WEC to make such
payment.
Accordingly, upon consideration of the entire exemption application
file and record, the Department has determined to grant the proposed
exemption as modified.
FOR FURTHER INFORMATION CONTACT: Mr. E.F. Williams of the Department,
telephone (202) 219-8194. (This is not a toll-free number.)
Mellon Bank, N.A. Located in Pittsburgh, Pennsylvania
[Prohibited Transaction Exemption 95-47; Application No. D-9523]
Section I--Exemption for In-Kind Transfer of CIF Assets
The restrictions of sections 406(a) and 406(b) of the Act and the
sanctions resulting from the application of section 4975 of the Code,
by reason of section 4975(c)(1)(A) through (F) of the Code, shall not
apply, as of November 5, 1993, to the in-kind transfer of assets of
plans for which Mellon Bank, N.A. or any of its affiliates (Mellon)
acts as a fiduciary (the Client Plans), other than plans established or
maintained by Mellon for its own employees, that are held in certain
collective investment funds maintained by Mellon (CIFs), in exchange
for shares of the Laurel Funds [a/k/a Dreyfus or Premier Funds] (the
Funds),\3\ open-end investment companies registered under the
Investment Company Act of 1940 (the 1940 Act), in situations where
Mellon acts as investment advisor for the Fund as well as custodian,
dividend disbursing agent, shareholder servicing agent, transfer agent,
and/or Fund accountant, or provides some other ``secondary service'' to
the Funds as defined in Section V(h), in connection with the
termination or partial termination of such CIFs, provided that the
following conditions and the general conditions of Section IV are met:
\3\The applicant represents that effective October 1994, the
Laurel Funds changed their name to either ``Dreyfus'' or ``Premier''
as a result of Mellon's acquisition of the Dreyfus Corporation, the
sponsor of the Dreyfus Funds.
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(a) No sales commissions or other fees are paid by the Client Plans
in connection with the purchase of Fund shares through the in-kind
transfer of CIF assets and no redemption fees are paid in connection
with the sale of such shares by the Client Plans to the Funds.
(b) Each Client Plan receives shares of a Fund which have a total
net asset value that is equal to the value of the Client Plan's pro
rata share of the assets of the CIF on the date of the in-kind
transfer, based on the current market value of the CIF's assets as
determined in a single valuation performed in the same manner at the
close of the same business day using independent sources in accordance
with Rule 17a-7 of the Securities and Exchange Commission under the
1940 Act (see 17 CFR 270.17a-7) and the procedures established by the
Funds pursuant to Rule 17a-7 for the valuation of such assets. Such
procedures must require that all securities for which a current market
price cannot be obtained by reference to the last sale price for
transactions reported on a recognized securities exchange or NASDAQ be
valued based on an average of the highest current independent bid and
lowest current independent offer, as of the close of business on the
Friday preceding the weekend of the CIF transfers (or, in the case of
any weekday CIF transfers, the day of the transfer), determined on the
basis of reasonable inquiry from at least three sources that are
broker-dealers or pricing services independent of Mellon.
(c) All or a pro rata portion of the assets of a Client Plan held
in a CIF are transferred in-kind to the Funds in exchange for shares of
such Funds.
(d) A second fiduciary which is independent of and unrelated to
Mellon (the Second Fiduciary) receives advance written notice of the
in-kind transfer of assets of the CIFs and full written disclosure of
information concerning the Funds (including a current prospectus for
each of the Funds and a statement describing the fee structure) and, on
the basis of such information, authorizes in writing the in-kind
transfer of the Client Plan's assets to a corresponding Fund in
exchange for shares of the Fund.
(e) For all transfers of CIF assets to a Fund following the
publication of the proposed exemption in the Federal Register (i.e.
January 30, 1995), Mellon sends by regular mail to each affected Client
Plan the following information:
(1) Within 30 days after completion of the transaction, a written
confirmation containing: [[Page 32996]]
(i) The identity of each security that was valued for purposes of
the transaction in accordance with Rule 17a-7(b)(4);
(ii) The price of each such security involved in the transaction;
(iii) The identity of each pricing service or market maker
consulted in determining the value of such securities; and
(2) Within 90 days after completion of each transfer, a written
confirmation that contains:
(i) The number of CIF units held by the Client Plan immediately
before the transfer, the related per unit value, and the total dollar
amount of such CIF units; and
(ii) The number of shares in the Funds that are held by the Client
Plan immediately following the transfer, the related per share net
asset value, and the total dollar amount of such shares.
(f) The conditions set forth in paragraphs (e), (f), and (n) of
Section II below are satisfied.
Section I--Exemption for Receipt of Fees
The restrictions of section 406(a) and 406(b) of the Act and the
sanctions resulting from the application of section 4975 of the Code,
by reason of section 4975(c)(1) (A) through (F) of the Code, shall not
apply, as of November 5, 1993, to the receipt of fees by Mellon from
the Funds for acting as an investment advisor for the Funds as well as
for providing other services to the Funds which are ``secondary
services'' as defined in Section V(h), in connection with the
investment by the Client Plans in shares of the Funds, provided that
the following conditions and the general conditions of Section IV are
met:
(a) Each Client Plan receives a cash credit of such Plan's
proportionate share of all fees charged to the Funds by Mellon for
investment advisory services and ``secondary services'', including any
investment advisory fees paid by Mellon to third party sub-advisers, no
later than the same day as the receipt of such fees by Mellon. The
crediting of all such fees to the Client Plans by Mellon is audited by
an independent accounting firm on at least an annual basis to verify
the proper crediting of the fees to each Client Plan.
(b) The price paid or received by a Client Plan for shares in a
Fund is the net asset value per share at the time of the transaction,
as defined in Section V(e), and is the same price which would have been
paid or received for the shares by any other investor at that time.
(c) Mellon, including any officer or director of Mellon, does not
purchase or sell shares of the Funds from or to any Client Plan.
(d) No sales commissions are paid by the Client Plans in connection
with the purchase or sale of shares of the Funds and no redemption fees
are paid in connection with the sale of shares by the Client Plans to
the Funds.
(e) The combined total of all fees received by Mellon for the
provision of services to a Client Plan, and in connection with the
provision of services to the Funds in which the Client Plan may invest,
are not in excess of ``reasonable compensation'' within the meaning of
section 408(b)(2) of the Act.
(f) Mellon does not receive any fees payable pursuant to Rule 12b-1
under the 1940 Act in connection with the transactions.
(g) The Client Plans are not employee benefit plans sponsored or
maintained by Mellon (other than master or prototype plans sponsored by
Mellon that are adopted by employers other than Mellon).
(h) The Second Fiduciary receives full and detailed written
disclosure of information concerning the Funds (including a current
prospectus for each of the Funds and a statement describing the fee
structure) in advance of any investment by the Client Plan in a Fund.
(i) On the basis of the information described above in paragraph
(h), the Second Fiduciary authorizes in writing the investment of
assets of the Client Plan in each particular Fund and the fees to be
paid by such Funds to Mellon.
(j) All authorizations made by a Second Fiduciary regarding
investments in a Fund and the fees paid to Mellon are subject to an
annual reauthorization wherein any such prior authorization referred to
in paragraph (i) shall be terminable at will by the Client Plan,
without penalty to the Client Plan, upon receipt by Mellon of written
notice of termination. A form expressly providing an election to
terminate the authorization described in paragraph (i) above (the
Termination Form) with instructions on the use of the form must be
supplied to the Second Fiduciary no less than annually. The
instructions for the Termination Form must include the following
information:
(1) The authorization is terminable at will by the Client Plan,
without penalty to the Client Plan, upon receipt by Mellon of written
notice from the Second Fiduciary; and
(2) Failure to return the Termination Form will result in continued
authorization of Mellon to engage in the transactions described in
paragraph (i) on behalf of the Client Plan.
(k) The Second Fiduciary of each Client Plan invested in a
particular Fund receives full written disclosure in a Fund prospectus
or otherwise of any increases in the rates of fees charged by Mellon to
the Funds for investment advisory services or other services (i.e.
``secondary services'') even though such fees will be credited to the
Client Plan as required by paragraph (a) above.
(l) On an annual basis, Mellon provides the Second Fiduciary of a
Client Plan investing in the Funds with:
(1) A copy of the current prospectus for the Funds and, upon such
fiduciary's request, a copy of the Statement of Additional Information
for such Funds which contains a description of all fees paid by the
Funds to Mellon;
(2) A copy of the annual financial disclosure report prepared by
Mellon which includes information about the Fund portfolios as well as
audit findings of an independent auditor within 60 days of the
preparation of the report; and
(3) Oral or written responses to inquiries of the Second Fiduciary
as they arise.
(m) With respect to each of the Funds in which a Client Plan
invests, in the event such Fund places brokerage transactions with
Mellon or an affiliate, Mellon will provide the Second Fiduciary of
such Client Plan at least annually with a statement specifying:
(1) The total, expressed in dollars, brokerage commissions of each
Fund's portfolio that are paid to Mellon by such Fund;
(2) The total, expressed in dollars, of brokerage commissions of
each Fund's portfolio that are paid by such Fund to brokerage firms
unrelated to Mellon;
(3) The average brokerage commissions per share, expressed as cents
per share, paid to Mellon by each Fund portfolio; and
(4) The average brokerage commissions per share, expressed as cents
per share, paid by each Fund portfolio to brokerage firms unrelated to
Mellon.
(n) All dealings between the Client Plans and the Funds are on a
basis no less favorable to the Client Plans than dealings with other
shareholders of the Funds.
Section III--Exemption for Transfers of Client Plan Securities From
Individual Portfolios
The restrictions of sections 406(a) and 406(b) of the Act and the
sanctions resulting from the application of section 4975 of the Code,
by reason of section 4975(c)(1) (A) through (F) of the Code, shall not
apply to an exchange (the [[Page 32997]] Exchange) by a Client Plan of
securities for shares of the Funds (other than an exchange covered by
Section I above), and to the receipt of fees by Mellon from the Funds
for acting as investment adviser for the Funds as well as providing
other services to the Funds which are ``secondary services'' as defined
in Section V(h), in connection with such an investment by a Client Plan
in the Funds, provided that the following conditions and the general
conditions in Section IV are met:
(a) The terms of the transaction are at least as favorable to the
Client Plan as those obtainable in an arm's-length transaction between
unrelated parties.
(b) Each Exchange is a one-time transaction between a Client Plan
and the Fund.
(c) All or a pro rata portion of the assets of a Client Plan held
by Mellon in an investment account or portfolio that is selected by the
Second Fiduciary of such Client Plan for an Exchange are transferred
in-kind to the Funds in exchange for shares of such Funds.
(d) No sales commission or dealer mark-up is paid by the Client
Plan in connection with the transaction.
(e) The Exchange meets the requirements of the particular Fund for
an in-kind purchase of shares of the Fund.
(f) One of the following conditions is met:
(1) The Client Plan receives a cash credit of such Plan's
proportionate share of all fees (including all investment advisory fees
and all secondary service fees) charged to the Funds by Mellon, less
any fees paid by Mellon to parties unrelated to Mellon for services
other than investment advisory services provided to the Funds, no later
than the same day as the receipt of such fees by Mellon;
(2) The assets of the Client Plan invested in the Funds are
excluded from the assets on which the investment management fees paid
by the Client Plan to Mellon are determined; or
(3) The Client Plan pays an investment management fee to Mellon
based on total Plan assets from which a credit is subtracted
representing only the Client Plan's pro rata share of the investment
advisory fees paid by the Funds to Mellon.
(g) For purposes of the Exchange, the price of securities is
established as of the close of business on the date for the Exchange
specified in the written authorization by the Second Fiduciary, as
follows:
(1) If the security is described in subparagraphs (b) (1) through
(3) of Rule 17a-7 under the 1940 Act (see 17 CFR 270.17a-7(b) (1)-(3)),
in accordance with the valuation procedures described in those
paragraphs; or
(2) If the security is not described in paragraph (g)(1) above, by
the recognized, independent pricing service or services disclosed to
the Second Fiduciary described in paragraph (j) below prior to its
written authorization of the Exchange. If no price is available from a
recognized, independent pricing service for such date, or from a
sufficient number of pricing services if more than one is to be used,
Mellon will determine the price by averaging the mean of the closing
bid and asked quotations from each of two or more recognized,
independent market markers and/or pricing services for such securities
on that date.
(h) For purposes of the Exchange, the price paid or received by a
Client Plan for Fund shares is the net asset value per share at the
time of the transaction, as defined in Section V(e), and Mellon
determines the value of the securities exchanged and the net asset
value of the Funds as of the close of business on the same day.
(i) Within 30 days after the authorization of the Exchange, the
Second Fiduciary receives a written confirmation that reflects the
price of each of the securities involved in the Exchange. For those
securities described in paragraph (g)(2) above, the confirmation will
include a written disclosure of the identity of the pricing service or
market markers consulted in determining the value of the securities.
(j) The Second Fiduciary acting for the Client Plan--
(1) receives advance written disclosure of information concerning
the Funds (including current prospectuses for the Funds and a statement
describing the fee structure to be used to comply with paragraph (f)
above) and, prior to the Exchange, receives in writing (A) the reasons
why Mellon may consider such Exchanges to be appropriate for the Client
Plan and a list of the securities held by the Client Plan that would be
accepted by one or more Funds with respect to the Exchange, (B) the
date the Exchange is to occur, and (C) an explanation of the procedures
that would be followed for valuing the securities for purposes of the
Exchange, including the identity of the recognized, independent pricing
service or services that will value any of the securities described in
paragraph (g)(2) above; and
(2) on the basis of such information, authorizes in writing the
investment of assets of the Client Plan in the Funds through the
Exchange and the fees to be paid by the Funds to Mellon.
(k) The authorization referred to in paragraph (j) is terminable at
will by the Client Plan, without penalty to the Client Plan, upon
receipt by Mellon of written notice of termination. A Termination Form
expressly providing an election to terminate the authorization
described in paragraph (j) with instructions on the use of the form
must be supplied to the Second Fiduciary no less than annually. The
instructions for the Termination Form must include the following
information:
(1) The authorization is terminable at will by the Client Plan,
without penalty to the Client Plan, upon receipt by Mellon of written
notice from the Second Fiduciary; and
(2) Failure to return the form will result in continued
authorization of the investment by the Client Plan in the Funds and the
payment of fees by the Funds to Mellon.
(l) If the fee structure described in paragraph (f)(2) or (f)(3)
above is followed, the Second Fiduciary is notified of any change in
any of the rates of the fees payable to Mellon for investment advisory
services or secondary services, that had been disclosed to the Second
Fiduciary as described in paragraph (j) above, at least 30 days prior
to the effective date of such change, and approves in writing the
continued holding of any Fund shares acquired by the Client Plan prior
to such change which are still held by the Plan. Such approval may be
limited solely to the investment advisory and other fees paid by the
Funds in relation to the fees paid by the Client Plan and need not
relate to any other aspect of such investment.
(m) The conditions set forth in paragraphs (c), (e), (f), (g), (l),
(m) and (n) of Section II above are satisfied.
Section IV--General Conditions
(a) Mellon maintains for a period of six years the records
necessary to enable the persons described below in paragraph (b) to
determine whether the conditions of this exemption have been met,
except that: (1) A prohibited transaction will not be considered to
have occurred if, due to circumstances beyond the control of Mellon,
the records are lost or destroyed prior to the end of the six-year
period, and (2) no party in interest other than Mellon shall be subject
to the civil penalty that may be assessed under section 502(i) of the
Act or to the taxes imposed by section 4975 (a) and (b) of the Code if
the records are not maintained or are not available for examination as
required by paragraph (b) below.
(b) (1) Except as provided below in paragraph (b)(2) and
notwithstanding [[Page 32998]] any provisions of section 504(a)(2) of
the Act, the records referred to in paragraph (a) are unconditionally
available at their customary location for examination during normal
business hours by--
(i) Any duly authorized employee or representative of the
Department or the Internal Revenue Service,
(ii) Any fiduciary of the Client Plans who has authority to acquire
or dispose of shares of the Funds owned by the Client Plans, or any
duly authorized employee or representative of such fiduciary, and
(iii) Any participant or beneficiary of the Client Plans or duly
authorized employee or representative of such participant or
beneficiary;
(2) None of the persons described in paragraph (b)(1) (ii) and
(iii) shall be authorized to examine trade secrets of Mellon, or
commercial or financial information which is privileged or
confidential.
Section V--Definitions
For purposes of this exemption:
(a) The term ``Mellon'' means the Mellon Bank, N.A. and any
affiliate thereof as defined below in paragraph (b) of this section.
(b) An ``affiliate'' of a person includes:
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with the person;
(2) Any officer, director, employee, relative, or partner in any
such person; and
(3) Any corporation or partnership of which such person is an
officer, director, partner, or employee.
(c) The term ``control'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.
(d) The term ``Fund'' or ``Funds'' shall include the Laurel Funds,
Inc. [a/k/a the Dreyfus Funds or the Premier Funds], or any other
diversified open-end investment company or companies registered under
the 1940 Act for which Mellon serves as an investment adviser and may
also serve as a custodian, dividend disbursing agent, shareholder
servicing agent, transfer agent, Fund accountant, or provide some other
``secondary service'' (as defined below in paragraph (h) of this
Section) which has been approved by such Funds.
(e) The term ``net asset value'' means the amount for purposes of
pricing all purchases and sales calculated by dividing the value of all
securities, determined by a method as set forth in the Fund's
prospectus and statement of additional information, and other assets
belonging to the Fund or portfolio of the Fund, less the liabilities
charged to each such portfolio or Fund, by the number of outstanding
shares.
(f) The term ``relative'' means a ``relative'' as that term is
defined in section 3(15) of the Act (or a ``member of the family'' as
that term is defined in section 4975(e)(6) of the Code), or a brother,
a sister, or a spouse of a brother or a sister.
(g) The term ``Second Fiduciary'' means a fiduciary of a Client
Plan who is independent of and unrelated to Mellon. For purposes of
this exemption, the Second Fiduciary will not be deemed to be
independent of and unrelated to Mellon if:
(1) Such fiduciary directly or indirectly controls, is controlled
by, or is under common control with Mellon;
(2) Such fiduciary, or any officer, director, partner, employee, or
relative of the fiduciary is an officer, director, partner or employee
of Mellon (or is a relative of such persons);
(3) Such fiduciary directly or indirectly receives any compensation
or other consideration for his or her own personal account in
connection with any transaction described in this exemption.
If an officer, director, partner or employee of Mellon (or relative
of such persons), is a director of such Second Fiduciary, and if he or
she abstains from participation in (i) the choice of the Client Plan's
investment adviser, (ii) the approval of any such purchase or sale
between the Client Plan and the Funds, and (iii) the approval of any
change in fees charged to or paid by the Client Plan in connection with
any of the transactions described in Sections I, II and III above, then
paragraph (g)(2) of this section shall not apply.
(h) The term ``secondary service'' means a service other than an
investment management, investment advisory, or similar service, which
is provided by Mellon to the Funds. However, for purposes of Sections
II(a) and III(f)(1) this exemption, the term ``secondary service'' will
not include any brokerage services provided to the Funds by Mellon for
the execution of securities transactions engaged in by the Funds.
(i) The term ``Termination Form'' means the form supplied to the
Second Fiduciary which expressly provides an election to the Second
Fiduciary to terminate on behalf of a Client Plan the authorization
described in paragraph (j) of Section II and paragraph (k) of Section
III. Such Termination Form may be used at will by the Second Fiduciary
to terminate an authorization without penalty to the Client Plan and to
notify Mellon in writing to effect a termination by selling the shares
of the Funds held by the Client Plan requesting such termination within
one business day following receipt by Mellon of the form; provided that
if, due to circumstances beyond the control of Mellon, the sale cannot
be executed within one business day, Mellon shall have one additional
business day to complete such sale.
EFFECTIVE DATE: The exemption is effective November 5, 1993, for those
transactions described in Sections I and II above.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on January 30, 1995, at 60
FR 5704.
NOTICE TO INTERESTED PERSONS: The applicant represents that it was
unable to notify interested persons within the time period specified in
the Federal Register notice published on January 30, 1995. The
applicant states that interested persons were notified, in the manner
agreed upon between the applicant and the Department, by March 22,
1995. Interested persons were advised that they had until April 21,
1995 to comment on the proposed exemption.
WRITTEN COMMENTS AND MODIFICATIONS: The applicant submitted the
following comments and requests for modifications regarding the notice
of proposed exemption (the Proposal).
With respect to the use of the term ``affiliate'', the applicant
states that both the beginning of Sections I and V(a) define the term
``Mellon'' to include its affiliates. Therefore, the applicant notes
that references in the body of the Proposal to affiliates of Mellon
would appear to be unnecessary, and their presence would raise the
question of whether particular conditions are intended to apply to
affiliates of Mellon's affiliates. In this regard, the applicant
requests that Section II(c) of the Proposal be revised to read as
follows:
``* * * Mellon, including any officer or director of Mellon,
does not purchase or sell shares of the Funds from or to any Client
Plan.''
This revision would clarify that the condition does not extend to
all affiliates of Mellon's affiliates, but does extend to Mellon and
its ``affiliates'' as that term is defined in Section V(a) of the
Proposal. In addition, the applicant requests that the statement ``* *
* or an affiliate'', which appears after the first mention of Mellon in
subparagraphs (1) and (3) of Section II(m), relating to the provision
of brokerage services, is [[Page 32999]] unnecessary and should be
deleted. The Department concurs with the applicant's requested
clarifications and has so modified the language of the Proposal.
With respect to the use of the term ``Client Plans'' in Section
II(g) of the Proposal, the applicant states that this section, which
also is incorporated by reference into Section III, excludes from the
term ``Client Plans'' any employee benefit plans sponsored or
maintained by Mellon. Mellon's understanding of this condition is that
it is meant to exclude ``in-house plans'' of Mellon (i.e. plans
maintained by Mellon for its own employees) from relief under the
requested exemption. However, the applicant notes that Mellon is also
the sponsor of master and prototype plans that are adopted by third
parties. The applicant wishes to clarify that such plans were not meant
to be excluded from relief under the exemption. Therefore, the
applicant proposes the following change to Section II(g):
``* * * The Client Plans are not employee benefit plans
sponsored or maintained by Mellon (other than master or prototype
plans sponsored by Mellon that are adopted by employers other than
Mellon). [emphasis added]
The applicant requests that the same parenthetical language
referred to above be added to the opening paragraph of Section I,
following the phrase ``* * * other than plans established or maintained
by Mellon''. In this regard, the Department concurs with the
applicant's requested clarifications, but for the opening paragraph of
Section I has added the phrase ``* * * for its own employees'' instead
of the parenthetical language used in Section II(g).
With respect to the definition of the term ``Second Fiduciary'' in
Section V(g) of the Proposal, the applicant notes that the language
following subparagraph (3) describes an exception for when a fiduciary
is considered ``independent'' for purposes of the exemption. Part (iii)
of this exception refers to approvals by a ``Second Fiduciary'' as
described in Sections I and II. The applicant states that this sentence
in Part (iii) should also refer to Section III because that section
contains an approval requirement for a ``Second Fiduciary'' as well.
The Department concurs with this clarification and has so modified the
language of the Proposal.
With respect to the definition of the term ``secondary service'' in
Section V(h) of the Proposal, the current definition excludes from the
scope of that term any brokerage services provided to the Funds by
Mellon for the execution of securities transactions engaged in by the
Funds. In this regard, the applicant notes that this exclusion should
not prohibit Mellon from providing brokerage services to the Funds
because, to the contrary, Section II(m) of the Proposal requires
certain disclosures to be made based on the fact that such services may
be provided. However, the applicant states that Sections II(a) and
III(f)(1) require Mellon to credit to the Client Plans all fees for the
``secondary services'' it provides to the Funds. Thus, the applicant
wishes to clarify that brokerage services should be specifically
excluded from treatment as a ``secondary service'' under these
sections, so that, consistent with the purpose behind the disclosures
required in Section II(m), Mellon is not required to credit its fees
for brokerage services in the same manner that it is required to credit
its fees for other secondary services. Therefore, the applicant
requests that the second sentence in Section V(h) of the Proposal
should read as follows:
``* * * However, for purposes of Sections II(a) and III(f)(1) of
this exemption, the term ``secondary service'' will not include any
brokerage services provided to the Funds by Mellon for the execution
of securities transactions engaged in by the Funds.'' [emphasis
added]
The Department concurs with this clarification and has so modified
the language of the Proposal.
With respect to the definition of the term ``Termination Form'' in
Section V(i) of the Proposal, the current definition refers to the
condition describing that form in Section II(j). However, the applicant
notes that the ``Termination Form'' is also described in Section III(k)
of the Proposal, so that Section V(i) should refer specifically to
``paragraph (k) of Section III'' following the reference to Section
II(j). The Department concurs with the applicant's requested
clarification and has so modified the language of the Proposal.
Finally, the applicant states that Section III of the Proposal,
dealing with transfers of Client Plan securities from individual
portfolios, provides relief for both the ``credit'' fee structure
described in Section II (which provides a full cash credit of all Fund-
level fees) and the two fee structures described in Prohibited
Transaction Exemption (PTE) 77-4 (42 FR 18732, April 8, 1977).\4\ With
regard to the fee structures described in PTE 77-4 (the PTE 77-4 Fee
Structures), any change in fees received by Mellon from a Fund must be
disclosed at least 30 days prior to the effective date of the change
and be approved in writing. Mellon represents that the use of an
``affirmative'' approval requirement for the PTE 77-4 Fee Structures
creates a number of problems. Mellon states that the Department has
previously recognized the administrative difficulties caused by an
affirmative approval requirement for increases in Fund-level fees.
Mellon notes that the Department has allowed, through recent individual
exemptions, the use of a ``passive'' approval condition under which the
independent fiduciaries of Client Plans receive notice of any increase
in Fund fees at least 30 days in advance of the effective date of such
increase and a ``Termination Form'' which allows a Client Plan to
withdraw from the Fund.\5\ If the bank does not receive a ``Termination
Form'' from a Client Plan prior to the effective date of the fee
increase, the independent fiduciary of the Client Plan is deemed to
have approved the fee increase.\6\
\4\PTE 77-4, in pertinent part, permits the purchase and sale by
an employee benefit plan of shares of a registered, open-end
investment company when a fiduciary with respect to the plan is also
the investment adviser for the investment company, provided that,
among other things, the plan does not pay an investment management,
investment advisory or similar fee with respect to the plan assets
invested in such shares for the entire period of such investment.
Section II(c) of PTE 77-4 states that this condition does not
preclude the payment of investment advisory fees by the investment
company under the terms of an investment advisory agreement adopted
in accordance with section 15 of the Investment Company Act of 1940.
Section II(c) states further that this condition does not preclude
payment of an investment advisory fee by the plan based on total
plan assets from which a credit has been subtracted representing the
plan's pro rata share of investment advisory fees paid by the
investment company.
\5\The Department notes that this approval process for increases
in Fund-level fees with the use of a ``Termination Form'' by Client
Plans would be similar to the arrangement previously described by
Mellon, and included in Section II of the Proposal, for annual
reauthorizations of Fund investments by Client Plans where credits
of all Fund-level fees are made. The Department notes further that
the latter arrangement involving a full credit of Fund-level fees
was the particular fee structure which Mellon designed at the time
of the initial in-kind transfers of CIF assets to the Funds in order
to be able to represent to the affected Client Plans that no
increases in fees paid by such Plans would result from the transfer
of such assets to the Funds.
\6\See PTE 94-86 (Bank of California, N.A.), 59 FR 65403,
December 19, 1994; PTE 95-33 (BankSouth, N.A.), 60 FR 20773, April
27, 1995.
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Therefore, Mellon requests that the final exemption contain a
``passive'' approval condition that would apply to both in-kind and
cash investments in a Fund where any PTE 77-4 Fee Structure is used.
In this regard, the Department is not prepared, at this time, to
include such a material change to the conditions of the Proposal as
part of the final exemption for the transactions described herein. Upon
the receipt of a [[Page 33000]] new exemption request pertaining to
this issue, the Department is willing to consider the merits of such a
change in the conditions pertaining to the PTE 77-4 Fee Structures used
by Mellon. Such request, when received, would be processed as an
amendment to the final exemption for the subject transactions involving
the Funds.
No other comments, and no requests for a hearing, were received by
the Department during the comment period, as extended pursuant to the
applicant's notification of interested persons as discussed herein.
Accordingly, the Department has determined to grant the proposed
exemption as modified.
FOR FURTHER INFORMATION CONTACT: Mr. E. F. Williams of the Department,
telephone (202) 219-8194. (This is not a toll-free number.)
Norwest Bank Minnesota, N.A., Located in Minneapolis, MN
[Prohibited Transaction Exemption 95-48; Exemption Application No.
D-09595]
Exemption
Section I. Exemption for the In-Kind Transfer of Assets
The restrictions of sections 406(a) and 406(b) of the Act and the
sanctions resulting from the application of section 4975 of the Code,
by reason of section 4975(c) of the Code, shall not apply, as of
September 30, 1994, to the in-kind transfer of assets of plans for
which Norwest Bank Minnesota, N.A. or any of its affiliates
(collectively, the Bank) serves as a fiduciary (the Client Plans),
including plans established or maintained by the Bank (the Bank Plans;
collectively, the Plans), that are held in certain collective
investment funds (the CIFs) maintained by the Bank, in exchange for
shares of the Norwest Funds (the Funds), an open-end investment company
registered under the Investment Company Act of 1940 (the '40 Act), as
amended, for which the Bank acts as investment adviser, custodian, and
shareholder servicing agent, in connection with the termination of such
CIFs provided that the following conditions are met:
(a) No sales commissions or other fees are paid by a Bank Plan or a
Client Plan in connection with the purchase of shares of the Funds
through the in-kind transfer of CIF assets and no redemption fees are
paid in connection with the sale of such shares of the Funds.
(b) All of the assets of a Bank Plan or a Client Plan that are held
in the CIFs are transferred in-kind to the Funds in exchange for shares
of such Funds. A Plan not electing to participate in the Funds receives
a cash payment representing a pro rata portion of the assets of the
terminating CIF before the final liquidation takes place.
(c) Each Bank Plan and each Client Plan receives shares of the
Funds which have a total net asset value that is equal to the value of
such Plan's pro rata share of the assets of the CIF on the date of the
transfer, based on the current market value of the CIF's assets, as
determined in a single valuation performed in the same manner at the
close of the same business day, using independent sources in accordance
with the procedures set forth in Rule 17a-7(b) (Rule 17a-7) under the
'40 Act and the procedures established by the Funds pursuant to Rule
17a-7 for the valuation of such assets. Such procedures must require
that all securities for which a current market price cannot be obtained
by reference to the last sale price for transactions reported on a
recognized securities exchange or NASDAQ be valued based on an average
of the highest current independent bid and lowest current independent
offer, as of the close of business on the Friday preceding the weekend
of the CIF transfers, determined on the basis of reasonable inquiry
from at least three sources that are broker-dealers or pricing services
independent of the Bank.
(d) A second fiduciary who is independent of and unrelated to the
Bank (the Second Fiduciary) receives advance written notice of the in-
kind transfer of assets of the CIFs and full written disclosure, which
includes but is not limited to, the following information concerning
the Funds:
(1) A current prospectus for each portfolio of the Funds in which a
Bank Plan or a Client Plan is considering investing;
(2) A statement describing (i) the fees for investment advisory or
similar services that are to be credited back to a Client Plan, (ii)
the fees retained by the Bank for Secondary Services, as defined in
paragraph (g) of Section III below, and (iii) all other fees to be
charged to or paid by the Bank Plan or the Client Plan and by such
Funds to the Bank or to unrelated third parties. Such statement also
includes the nature and extent of any differential between the rates of
the fees.
(3) The reasons why the Bank considers such investment to be
appropriate for the Bank Plan or the Client Plan;
(4) A statement describing whether there are any limitations
applicable to the Bank with respect to which assets of a Bank Plan or a
Client Plan may be invested in the relevant Funds, and, if so, the
nature of such limitations; and
(5) Upon request of the Second Fiduciary, a copy of the proposed
exemption and/or a copy of the final exemption.
(e) On the basis of the foregoing information, the Second Fiduciary
authorizes in writing the in-kind transfer of the Bank Plan's or the
Client Plan's CIF assets to a Fund in exchange for shares of the Funds,
the investment of such assets in corresponding portfolios of the Funds,
the fees received by the Bank in connection with its services to the
Funds and, in the case of a Client Plan only, the purchase by such
Client Plan of additional shares of the corresponding Funds with the
fees credited back to the Client Plan by the Bank. Such authorization
by the Second Fiduciary will be consistent with the responsibilities,
obligations and duties imposed on fiduciaries under Part 4 of Title I
of the Act.
(f) For all subsequent transfers of CIF assets to a Fund following
the publication of the proposed exemption in the Federal Register, the
Bank sends by regular mail to each affected Bank Plan and Client Plan a
written confirmation, not later than 30 days after the completion of
the transaction, containing the following information:
(1) The identity of each security that was valued for purposes of
the transaction in accordance with Rule 17a-7(b)(4) of the '40 Act;
(2) The price of each such security involved in the transaction;
and
(3) The identity of each pricing service or market maker consulted
in determining the value of such securities.
(g) For all subsequent transfers of CIF assets to a Fund following
the publication of the proposed exemption in the Federal Register, the
Bank sends by regular mail, no later than 90 days after completion of
each transfer, a written confirmation that contains the following
information:
(1) The number of CIF units held by the Plan immediately before the
transfer, the related per unit value and the total dollar amount of
such CIF units;
(2) The number of shares in the Funds that are held by the Plan
following the conversion, the related per share net asset value and the
total dollar amount of such shares.
(h) The conditions set forth in paragraphs (c), (d), (e), (o) and
(p) of Section II below as they would relate to all Plans are
satisfied. [[Page 33001]]
Section II. Exemption for the Receipt of Fees
The restrictions of sections 406(a) and 406(b) of the Act and the
sanctions resulting from the application of section 4975 of the Code,
by reason of section 4975(c) of the Code, shall not apply, as of
November 11, 1994, to: (1) The receipt of fees by the Bank from the
Funds for acting as an investment adviser to the Funds; and (2) the
receipt and proposed retention of fees by the Bank from the Funds for
acting as custodian or shareholder servicing agent to the Funds, as
well as for any other services provided to the Funds which are not
investment advisory services (i.e., the Secondary Services), in
connection with the investment in shares of the Funds by the Client
Plans, other than the Bank Plans, for which the Bank serves as
fiduciary.
The aforementioned transactions are subject to the following
conditions:
(a) No sales commissions are paid by the Client Plans in connection
with the purchase or sale of shares of the Funds and no redemption fees
are paid in connection with the sale of shares by the Client Plans to
the Funds.
(b) The price paid or received by the Client Plans for shares in
the Funds is the net asset value per share, as defined in paragraph (d)
of Section III, at the time of the transaction and is the same price
which would have been paid or received for the shares by any other
investor at that time.
(c) Neither the Bank nor an affiliate, including any officer or
director, purchases from or sells to any of the Client Plans shares of
any of the Funds.
(d) The combined total of all fees received by the Bank for the
provision of services to the Client Plans, and in connection with the
provision of services to any of the Funds in which the Client Plans
invest, are not in excess of ``reasonable compensation'' within the
meaning of section 408(b)(2) of the Act.
(e) The Bank does not receive any fees payable, pursuant to Rule
12b-1 of the 1940 Act in connection with the transactions involving the
Funds.
(f) Each Client Plan receives a credit, either through cash or, if
applicable, the purchase of additional shares of the Funds, pursuant to
an annual election, which may be revoked at any time, made by the
Client Plan, of such Plan's proportionate share of all investment
advisory fees charged to the Funds by the Bank, including any
investment advisory fees paid by the Bank to third party sub-advisers,
within not more than one business day after the receipt of such fees by
the Bank.
(g) The Second Fiduciary receives, in advance of investment by a
Client Plan in the Funds, full and detailed written disclosure of
information concerning the relevant Funds as set forth above in Section
I(d).
(h) On the basis of the information described in paragraph (d) of
Section I, the Second Fiduciary authorizes in writing:
(1) The ongoing investment of assets of the Client Plans in shares
of the Funds, in connection with the transactions set forth in Section
II;
(2) The investment portfolios of the Funds in which the assets of
the Client Plans may be invested; and
(3) The fees to be paid by the Funds in which Client Plans invest
to the Bank and the purchase of additional shares of the Funds by the
Client Plan with the fees credited to the Client Plan by the Bank.
(i) The authorization referred to in paragraph (h) is terminable at
will by the Client Plan, without penalty to the Client Plan. Such
termination will be effected by the Bank selling the shares of the
Funds held by the affected Client Plan within the period of time
specified by the Client Plan but not more than one business day
following receipt by the Bank from the Second Fiduciary, of the
termination form (the Termination Form), as defined in paragraph (h) of
Section III below, or any other written notice of termination; provided
that, if due to circumstances beyond the control of the Bank, the sale
cannot be executed within one business day, the Bank shall have one
additional business day to complete such sale.
(j) In the event of an increase in the contractual rate of any fees
paid by the Funds to the Bank regarding investment advisory services or
fees for similar services that had been authorized by the Second
Fiduciary in accordance with paragraph (h) of this Section II, the Bank
provides written notice to the Second Fiduciary in a prospectus for the
Funds or otherwise, of any increases in the contractual rate of fees
charged by the Bank to the Funds for investment advisory services even
though such fees will be credited to the Client Plans as required by
paragraph (f) of Section II.
(k) In the event of an additional Secondary Service, as defined in
paragraph (g) of Section III below, provided by the Bank to the Funds
for which a fee is charged or an increase in the contractual rate of
any fee due from the Funds to the Bank for any Secondary Service, as
defined in paragraph (g) of Section III below, that results from an
increase in the rate of such fee or from the decrease in the number or
kind of services performed by the Bank for such fee over an existing
rate for such Secondary Service which had been authorized by the Second
Fiduciary of a Client Plan in accordance with paragraph (h) of this
Section II, the Bank will, at least 30 days in advance of the
implementation of such additional service for which a fee is charged or
fee increased, provide written notice to the Second Fiduciary
explaining the nature and amount of the additional service for which a
fee is charged or the nature and amount of the increase in fees of the
affected Fund. Such notice will be accompanied by the Termination Form,
as defined in paragraph (h) of Section III below.
(l) The Second Fiduciary is supplied with a Termination Form at the
times specified in paragraphs (k) and (m) of this Section II, which
expressly provides an election to terminate the authorization,
described above in paragraph (h) of this Section II, with instructions
regarding the use of such Termination Form including statements that:
(1) The authorization is terminable at will by any of the Client
Plans, without penalty to such Plans. The termination will be effected
by the Bank selling the shares of the Funds held by the Client Plans
requesting termination within the period of time specified by the
Client Plan, but not later than one business day following receipt by
the Bank from the Second Fiduciary of the Termination Form or any
written notice of termination; provided that if, due to circumstances
beyond the control of the Bank, the sale of shares of such Client Plans
cannot be executed within one business day, the Bank shall have one
additional business day to complete such sale; and
(2) Failure by the Second Fiduciary to return the form on behalf of
the Plan will be deemed to be an approval of the additional Secondary
Service for which a fee is charged or increase in the rate of any fees
and will result in the continuation of the authorization, as described
in paragraph (h) of this Section II, of the Bank to engage in the
transactions on behalf of the Client Plan.
(m) The Second Fiduciary is supplied with a Termination Form, at
least once in each calendar year, beginning with the calendar year that
begins after the date of the grant of this proposed exemption is
published in the Federal Register and continuing for each calendar year
thereafter; provided that the Termination Form need not be supplied to
the Second Fiduciary, pursuant to paragraph (m) of this Section II,
sooner than six months after such Termination Form is supplied pursuant
to paragraph (k) of this Section [[Page 33002]] II, except to the
extent required by said paragraph (k) of this Section II to disclose an
increase in fees.
(n) On an annual basis, the Bank will provide the Second Fiduciary
of a Client Plan investing in the Funds with:
(1) A copy of the current prospectus for the Funds and upon such
fiduciary's request, a copy of the Statement of Additional Information
which contains a description of all fees paid by the Funds to the Bank.
(2) A copy of the annual financial disclosure report prepared by
the Bank which contains information about the portfolios of the Funds
and includes audit findings of an independent auditor within 60 days of
the preparation of the report.
In addition, the Bank will respond to oral or written responses to
inquiries of the Second Fiduciary as they arise.
(o) All dealings between the Client Plans and the Funds are on a
basis no less favorable to the Client Plans than dealings between the
Funds and other shareholders holding the same class of shares as the
Client Plans.
(p) The Bank maintains for a period of six years the records
necessary to enable the persons described below in paragraph (q) to
determine whether the conditions of this exemption have been met,
except that--
(1) A prohibited transaction will not be considered to have
occurred if, due to circumstances beyond the control of the Bank, the
records are lost or destroyed prior to the end of the six year period,
and
(2) No party in interest shall be subject to the civil penalty that
may be assessed under section 502(i) of the Act or to the taxes imposed
by section 4975(a) and (b) of the Code if the records are not
maintained or are not available for examination as required by
paragraph (q) of Section II below; and
(q)(1) Except as provided in paragraph (p)(2) and notwithstanding
any provisions of section 504(a)(2) and (b) of the Act, the records
referred to in paragraph (p) are unconditionally available at their
customary location for examination during normal business hours by--
(i) Any duly authorized employee or representative of the
Department, the Internal Revenue Service or the Securities and Exchange
Commission;
(ii) Any fiduciary of a Client Plan who has authority to acquire or
dispose of shares of the Funds owned by the Client Plan, or any duly
authorized employee or representative of such fiduciary, and
(iii) Any participant or beneficiary of a Client Plan or duly
authorized employee or representative of such participant or
beneficiary;
(2) None of the persons described in paragraphs (q)(1)(ii) and
(iii) shall be authorized to examine trade secrets of the Bank, or
commercial or financial information which is privileged or
confidential.
Section III. Definitions
For purposes of this exemption:
(a) The term ``Bank'' means Norwest Bank Minnesota, N.A. and any
affiliate of the Bank, as defined in paragraph (b) of this Section III.
(b) An ``affiliate'' of the Bank includes--
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with the Bank. (For purposes of this paragraph, the term ``control''
means the power to exercise a controlling influence over the management
or policies of a person other than an individual.)
(2) Any officer, director, employee, relative or partner in such
person, and
(3) Any corporation or partnership of which such person is an
officer, director, partner or employee.
(c) The term ``Fund'' or ``Funds'' refers to the Norwest Funds or
to any diversified open-end investment company or companies registered
under the '40 Act for which the Bank serves as an investment adviser
and may also serve as a custodian, shareholder servicing agent,
transfer agent or provide some other ``Secondary Service'' (as defined
below in paragraph (g) of this Section IV) which has been approved by
such Funds.
(d) The term ``net asset value'' means the amount for purposes of
pricing all purchases and sales calculated by dividing the value of all
securities, determined by a method as set forth in a Fund's prospectus
and statement of additional information, and other assets belonging to
each of the portfolios in such Fund, less the liabilities chargeable to
each portfolio, by the number of outstanding shares.
(e) The term ``relative'' means a ``relative'' as that term is
defined in section 3(15) of the Act (or member of the ``family'' as
that term is defined in section 4975(e)(6) of the Code), or a brother,
a sister, or a spouse of a brother or a sister.
(f) The term ``Second Fiduciary'' means a fiduciary of a plan who
is independent of and unrelated to the Bank. For purposes of this
exemption, the Second Fiduciary will not be deemed to be independent of
and unrelated to the Bank if:
(1) Such Second Fiduciary directly or indirectly controls, is
controlled by, or is under common control with the Bank;
(2) Such Second Fiduciary, or any officer, director, partner,
affiliate, employee, or relative of such Second Fiduciary is an
officer, director, partner or employee of the Bank (or is a relative of
such persons);
(3) Such Second Fiduciary directly or indirectly receives any
compensation or other consideration for his or her own personal account
in connection with any transaction described in this proposed
exemption; provided, however that with respect to Bank Plans, the
Second Fiduciary may receive compensation from the Bank in connection
with the transactions contemplated herein, but the amount or payment of
such compensation may not be contingent upon or be in any way affected
by the Second Fiduciary's ultimate decision regarding whether the Bank
Plans participate in such transactions.
With the exception of the Bank Plans, if an officer, director,
partner, affiliate or employee of the Bank (or relative of such
persons), is a director of such Second Fiduciary, and if he or she
abstains from participation in: (i) The choice of the Plan's investment
adviser, (ii) the approval of any such purchase or sale between the
Client Plan and the Funds, and (iii) the approval of any change of fees
charged to or paid by the Client Plan, any of the transactions
described in Sections I and II above, then paragraph (f)(2) of this
Section IV, shall not apply.
(g) The term ``Secondary Service'' means a service, other than
investment advisory or similar services which is provided by the Bank
to the Funds, including, but not limited to, custodial or shareholder
services. However, the term ``Secondary Service'' does not include any
brokerage services provided by the Bank to the Funds.
(h) The term ``Termination Form'' means the form supplied to the
Second Fiduciary at the times specified in paragraphs (i), (k), (l) and
(m) of Section II which expressly provides an election to the Second
Fiduciary to terminate on behalf of a Plan the authorization described
in paragraph (h) of Section II. Such Termination Form is to be used at
will by the Second Fiduciary to terminate such authorization without
penalty to the Plan and to notify the Bank in writing to effect such
termination by selling the shares of the Fund held by the Plan
requesting termination not later than one business day following
receipt by the Bank of written notice of such request for termination;
provided that if, due to circumstances beyond the control of the Bank,
the shares of such Client Plans cannot be executed within one business
[[Page 33003]] day, the Bank shall have one additional business day to
complete such sale.
EFFECTIVE DATE: This exemption is effective as of September 30, 1994
with respect to the transactions described in Section I and as of
November 11, 1994 with respect to the transactions described in Section
II.
Written Comments
The Department received two written comments with respect to the
notice of proposed exemption and no requests for a public hearing. Both
comments were submitted by the Bank. The first comment clarifies
Section II(f) of the exemption and the parallel language contained in
the Summary of Facts and Representations (the Summary). In pertinent
part, Section II(f) states the following:
Each Client Plan receives a credit, either through cash or, if
applicable, the purchase of additional shares of the Funds, pursuant
to an annual election, which may be revoked at any time, made by the
Client Plan, of such Plan's proportionate share of all investment
advisory fees charged to the Funds by the Bank, including any
investment advisory fees paid by the Bank to a third party sub-
adviser, within not more than one business day after the receipt of
such fee by the Bank.
The Bank represents that in the future, some of the Funds may hire
a third party sub-adviser directly. In this event, the Bank states that
it will comply with the fee rebate mechanism described in the notice of
proposed exemption with respect to any fees paid by the Funds to the
third party sub-adviser. The Department does not have any objection to
the proposed hiring arrangement, given that the same fee rebate
mechanism will be in place. Accordingly, the Department concurs with
the applicant's clarification of Section II(f) and the corresponding
language in the Summary.
The second comment pertains to notification of interested persons.
In this comment, the Bank represents that it did not comply with the
notice to interested persons requirement for participants in the Bank
Plans within the time frame stated in the exemption application. By
letter dated May 23, 1995, the Bank explains that it reposted the
notice of proposed exemption for an additional 16 days ending June 5,
1995 in each of the major work sites where the notice had been
originally posted. No comments were received by the Department from
Bank Plan participants.
After giving full consideration to the entire record, including the
written comments that were submitted by the Bank, the Department has
decided to grant the exemption as described and revised above. Comment
letters have been included as part of the public record of the
exemption application. The complete application file, including all
supplemental submissions received by the Department, is made available
for public inspection in the Public Documents Room of the Pension and
Welfare Benefits Administration, Room N-5638, U.S. Department of Labor,
200 Constitution Avenue, N.W., Washington, D.C. 20210.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on March 13, 1995 at 60 FR
13457.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Paloma Securities L.P. (Paloma) and Boston Global Advisors, Inc. (BGA)
Located in Boston, Massachusetts
[Prohibited Transaction Exemption 95-49;
Application No. D-09660]
Exemption
The restrictions of sections 406(a)(1)(A) through (D) and 406(b)(1)
and (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 lending of securities to Paloma
by employee benefit plans (including commingled investment funds
holding plan assets) for which BGA, an affiliate of Paloma, acts as
securities lending agent (or sub-agent) and to the receipt of
compensation by BGA in connection with these transactions, provided
that the following conditions are met:
1. Neither BGA, Paloma nor an affiliate of either has discretionary
authority or control with respect to the investment of the plan assets
involved in the transaction, or renders investment advice (within the
meaning of 29 CFR 2510.3-21(c) with respect to those assets;
2. Any arrangement for BGA to lend plan securities to Paloma in
either an agency or sub-agency capacity will be approved in advance by
a plan fiduciary who is independent of Paloma and BGA;
3. A plan may terminate the agency or sub-agency arrangement at any
time without penalty on five business days notice;
4. The plan will receive from Paloma (either by physical delivery
or by book entry in a securities depository, wire transfer or similar
means) by the close of business on or before the day the loaned
securities are delivered to Paloma, collateral consisting of cash,
securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, or irrevocable bank letters of credit issued by a
person other than Paloma or an affiliate thereof, or any combination
thereof, or other collateral permitted under PTE 81-6, having, as of
the close of business on the preceding business day, a market value
initially equal to at least 102 percent of the market value of the
loaned securities and, if the market value of the collateral falls
below 100 percent, Paloma will deliver additional collateral on the
following day such that the market value of the collateral will again
equal 102 percent;
5. All procedures regarding the securities lending activities will
at a minimum conform to the applicable provisions of Prohibited
Transaction Exemptions (PTEs) 81-6 and 82-63;
6. Paloma will indemnify the plan against any losses due to its use
of the borrowed securities;
7. The plan will receive the equivalent of all distributions made
to holders of the borrowed securities during the term of the loan,
including, but not limited to, cash dividends, interest payments,
shares of stock as a result of stock splits and rights to purchase
additional securities, or other distributions;
8. Prior to any plan's approval of the lending of its securities to
Paloma, a copy of this exemption, (and the notice of pendency) will be
provided to the plan; and
9. Only plans with total assets having an aggregate market value of
at least $50 million will be permitted to lend securities to Paloma.
Written Comments
The applicant submitted the following comments regarding the notice
of pendency.
The applicant suggests that the last sentence of paragraph 18 of
the notice of pendency which stated that, ``BGA will lend securities to
requesting borrowers on a first come, first served basis, as a means of
assuring uniformity of treatment among borrowers,'' needs further
clarification. The applicant suggests that this sentence should have
been deleted and the following paragraph should have been inserted in
its place, ``[w]hile BGA will normally lend securities to requesting
borrowers on a first come, first served basis, as a means of assuring
uniformity of treatment among borrowers, it should be recognized that
in some cases it may not be possible to adhere to a first come, first
served allocation. This can occur, [[Page 33004]] for instance, where:
(a) The credit limit established for such borrower by BGA and/or the
client-plan has already been satisfied; (b) the ``first in line''
borrower is not approved as a borrower by the particular client- plan
whose securities are sought to be borrowed; or (c) the ``first in
line'' borrower cannot be ascertained, as an operational matter,
because several borrowers spoke to different BGA representatives at or
about the same time with respect to the same security. In situations
(a) and (b), loans would normally be effected with the ``second in
line.'' In situation (c), securities would be allocated equitably among
all eligible borrowers.'' The Department concurs with this comment.
The applicant further represents that, pursuant to discussions with
the Department subsequent to the publication of the Proposal, it will
make the following commitments with respect to the exempted
transactions. BGA shall make and retain, for six (6) months, tape
recordings evidencing all securities loan transactions with Paloma.
Also, if requested by the lending customer, BGA shall provide daily
confirmations of securities lending transactions; and BGA shall provide
to lending customers monthly account reports, or if requested by the
customer, weekly or daily reports, setting forth for each transaction
made or outstanding during the relevant reporting period, the loaned
securities, the related collateral, rebates and loan premiums and such
other information in such format as shall be agreed to by the parties.
Accordingly, after giving full consideration to the entire record,
including the written comment from the applicant, the Department has
decided to grant the exemption, as described and concurred in above. In
this regard, the comment letter submitted by the applicant to the
Department has been included as part of the public record of the
exemption application. The complete application file, including all
supplemental submissions received by the Department, is made available
for public inspection in the Public Documents Room of the Pension and
Welfare Benefits Administration, Room N-5638, U.S. Department of Labor,
200 Constitution Avenue N.W., Washington, D.C. 20210.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on April 14, 1995, at 60 FR
19086.
For Further Information Contact: Louis Campagna of the Department,
telephone (202) 219-8883. (This is not a toll-free number.)
The First National Bank of Boston and Its Affiliates (Collectively, the
Bank) Located in Boston, Massachusetts
[Prohibited Transaction Exemption 95-50; Application No. D-09682]
Section I--Exemption for Receipt of Fees
The restrictions of sections 406(a) and 406(b) of the Act and the
sanctions resulting from the application of section 4975 of the Code,
by reason of section 4975(c)(1) (A) through (F) of the Code, shall not
apply as of April 1, 1994 to: (1) The receipt by the Bank of fees from
the 1784 Funds (the Funds), investment companies registered under the
Investment Company Act of 1940 (the 1940 Act), for acting as an
investment adviser to the Funds in connection with the investment by
plans for which the Bank serves as a fiduciary (the Client Plans) in
shares of the Funds; and (2) the receipt and retention of fees by the
Bank from the Funds for acting as custodian and accountant to the Funds
as well as for any other services to the Funds which are not investment
advisory services (i.e. ``secondary services'' as defined in Section
III(h) below) in connection with the investment by the Client Plans in
shares of the Funds, provided that the following conditions and the
General Conditions of Section II below are met:
(a) No sales commissions are paid by the Client Plans in connection
with the purchase or sale of shares of the Funds and no redemption fees
are paid in connection with the sale of shares by the Client Plans to
the Funds.
(b) The price paid or received by a Client Plan for shares in a
Fund is the net asset value per share at the time of the transaction,
as defined in Section III(e), and is the same price which would have
been paid or received for the shares by any other investor at that
time.
(c) Neither the Bank nor an affiliate, including any officer or
director of the Bank, purchases or sells shares of the Funds to any
Client Plan.
(d) Each Client Plan receives a credit, through a cash rebate, of
such Plan's proportionate share of all fees charged to the Funds by the
Bank for investment advisory services, including any investment
advisory fees paid by the Bank to third party sub-advisors, no later
than one business day after the receipt of such fees by the Bank. The
crediting of all investment advisory fees to the Client Plans by the
Bank is audited by an independent accounting firm on at least an annual
basis to verify the proper crediting of the fees to each Client Plan.
(e) The combined total of all fees received by the Bank for the
provision of services to a Client Plan, and in connection with the
provision of services to the Funds in which the Client Plan may invest,
are not in excess of ``reasonable compensation'' within the meaning of
section 408(b)(2) of the Act.\7\
\7\In addition, the Department notes that Section 404(a) of the
Act requires, among other things, that a fiduciary of a plan act
prudently, solely in the interest of the plan's participants and
beneficiaries, and for the exclusive purpose of providing benefits
to participants and beneficiaries when making investment decisions
on behalf of a plan. Thus, the Department believes that the Bank
should ensure, prior to any investments made by a Client Plan for
which it acts as a trustee or investment manager, that all fees paid
by the Funds, including fees paid to parties unrelated to the Bank
and its affiliates, are reasonable. In this regard, the Department
is providing no opinion as to whether the total fees to be paid by a
Client Plan to the Bank, its affiliates, and third parties under the
arrangements described herein would be either reasonable or in the
best interests of the participants and beneficiaries of the Client
Plans.
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(f) The Bank does not receive any fees payable pursuant to Rule
12b-1 under the 1940 Act in connection with the transactions.
(g) The Client Plans are not employee benefit plans sponsored or
maintained by the Bank.
(h) A second fiduciary acting for the Client Plan which is
independent of and unrelated to the Bank (the Second Fiduciary)
receives, in advance of any initial investment by the Client Plan in a
Fund, full and detailed written disclosure of information concerning
the Funds, including but not limited to:
(1) A current prospectus for each Fund in which a Client Plan is
considering investing;
(2) A statement describing the fees for investment advisory or
similar services, any secondary services as defined in Section III(h),
and all other fees to be charged to or paid by the Client Plan and by
the Funds, including the nature and extent of any differential between
the rates of such fees;
(3) The reasons why the Bank may consider such investment to be
appropriate for the Client Plan;
(4) A statement describing whether there are any limitations
applicable to the Bank with respect to which assets of a Client Plan
may be invested in the Funds, and if so, the nature of such
limitations; and
(5) Upon request of the Second Fiduciary, a copy of the proposed
exemption and/or a copy of the final exemption, once such documents are
published in the Federal Register.
(i) After consideration of the information described above in
[[Page 33005]] paragraph (h) of Section I, the Second Fiduciary
authorizes in writing the investment of assets of the Client Plan in
each particular Fund, the fees to be paid by such Fund to the Bank, and
the cash rebate to the Client Plan of fees received by the Bank from
the Funds for investment advisory services.
(j) All authorizations made by a Second Fiduciary regarding
investments in a Fund and the fees paid to the Bank are subject to an
annual reauthorization wherein any such prior authorization referred to
in paragraph (i) of Section I shall be terminable at will by the Client
Plan, without penalty to the Client Plan, upon receipt by the Bank of
written notice of termination. A form expressly providing an election
to terminate the authorization described in paragraph (i) above (the
Termination Form) with instructions on the use of the form must be
supplied to the Second Fiduciary no less than annually. The
instructions for the Termination Form must include the following
information:
(1) The authorization is terminable at will by the Client Plan,
without penalty to the Client Plan, upon receipt by the Bank of written
notice from the Second Fiduciary; and
(2) Failure to return the Termination Form will result in continued
authorization of the Bank to engage in the transactions described in
paragraph (i) of Section I on behalf of the Client Plan.
(k) The Second Fiduciary of each Client Plan invested in a
particular Fund receives full written disclosure, in a statement
separate from the Fund prospectus, of any proposed increases in the
rates of fees charged by the Bank to the Funds for secondary services
at least 30 days prior to the effective date of such increase,
accompanied by a copy of the Termination Form, and receives full
written disclosure in a Fund prospectus or otherwise of any increases
in the rates of fees charged by the Bank to the Funds for investment
advisory services even though such fees will be rebated as required by
paragraph (d) of Section I above.
(l) In the event that the Bank provides an additional secondary
service to a Fund for which a fee is charged or there is an increase in
the amount of fees paid by the Funds to the Bank for any secondary
services resulting from a decrease in the number or kind of services
performed by the Bank for such fees in connection with a previously
authorized secondary service, the Bank will, at least thirty days in
advance of the implementation of such additional service or fee
increase, provide written notice to the Second Fiduciary explaining the
nature and the amount of the additional service for which a fee will be
charged or the nature and amount of the increase in fees of the
affected Fund. Such notice shall be accompanied by the Termination
Form, as defined in Section III(i) below. However, if the Termination
Form has been provided to the Second Fiduciary pursuant to this
paragraph or paragraph (k) above, then the Termination Form need not be
provided again for an annual reauthorization pursuant to paragraph (j)
above unless at least six months has elapsed since the form was
provided in connection with the fee increase.
(m) On an annual basis, the Bank provides the Second Fiduciary of a
Client Plan investing in the Funds with:
(1) A copy of the current prospectus for the Funds and, upon such
fiduciary's request, a copy of the Statement of Additional Information
for such Funds which contains a description of all fees paid by the
Funds to the Bank;
(2) A copy of the annual financial disclosure report of the Funds
in which such Client Plan is invested, which includes information about
the Fund portfolios as well as audit findings of an independent
auditor, within 60 days of the preparation of the report; and
(3) Oral or written responses to inquiries of the Second Fiduciary
as they arise.
(n) All dealings between the Client Plans and the Funds are on a
basis no less favorable to the Client Plans than dealings with other
shareholders of the Funds.
Section II--General Conditions
(a) The Bank maintains for a period of six years the records
necessary to enable the persons described below in paragraph (b) of
Section II to determine whether the conditions of this exemption have
been met, except that: (1) A prohibited transaction will not be
considered to have occurred if, due to circumstances beyond the control
of the Bank, the records are lost or destroyed prior to the end of the
six-year period, and (2) no party in interest other than the Bank shall
be subject to the civil penalty that may be assessed under section
502(i) of the Act or to the taxes imposed by section 4975(a) and (b) of
the Code if the records are not maintained or are not available for
examination as required by paragraph (b) below.
(b)(1) Except as provided in paragraph (b)(2) and notwithstanding
any provisions of section 504(a)(2) and (b) of the Act, the records
referred to in paragraph (a) of Section II are unconditionally
available at their customary location for examination during normal
business hours by--
(i) Any duly authorized employee or representative of the
Department or the Internal Revenue Service,
(ii) Any fiduciary of the Client Plans who has authority to acquire
or dispose of shares of the Funds owned by the Client Plans, or any
duly authorized employee or representative of such fiduciary, and
(iii) Any participant or beneficiary of the Client Plans or duly
authorized employee or representative of such participant or
beneficiary;
(2) None of the persons described in paragraph (b)(1)(ii) and (iii)
shall be authorized to examine trade secrets of the Bank, or commercial
or financial information which is privileged or confidential.
Section III--Definitions
For purposes of this exemption:
(a) The term ``Bank'' means The First National Bank of Boston and
any affiliate thereof as defined below in paragraph (b) of Section III.
(b) An ``affiliate'' of a person includes:
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with the person;
(2) Any officer, director, employee, relative, or partner in any
such person; and
(3) Any corporation or partnership of which such person is an
officer, director, partner, or employee.
(c) The term ``control'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.
(d) The term ``Fund'' or ``Funds'' shall include the 1784 Funds,
each series thereof, or any other diversified open-end investment
company registered under the 1940 Act for which the Bank serves as an
investment adviser and may also serve as a custodian, Fund accountant,
transfer agent or provide some other ``secondary service'' (as defined
below in paragraph (h) of this Section) which has been approved by such
Funds.
(e) The term ``net asset value'' means the amount for purposes of
pricing all purchases and sales calculated by dividing the value of all
securities, determined by a method as set forth in the Fund's
prospectus and statement of additional information, and other assets
belonging to the Fund or portfolio of the Fund, less the liabilities
charged to each such portfolio or Fund, by the number of outstanding
shares.
(f) The term ``relative'' means a ``relative'' as that term is
defined in [[Page 33006]] section 3(15) of the Act (or a ``member of
the family'' as that term is defined in section 4975(e)(6) of the
Code), or a brother, a sister, or a spouse of a brother or a sister.
(g) The term ``Second Fiduciary'' means a fiduciary of a Client
Plan who is independent of and unrelated to the Bank. For purposes of
this exemption, the Second Fiduciary will not be deemed to be
independent of and unrelated to the Bank if:
(1) Such fiduciary directly or indirectly controls, is controlled
by, or is under common control with the Bank;
(2) Such fiduciary, or any officer, director, partner, employee, or
relative of the fiduciary is an officer, director, partner, employee or
affiliate of the Bank (or is a relative of such persons);
(3) Such fiduciary directly or indirectly receives any compensation
or other consideration for his or her own personal account in
connection with any transaction described in this exemption.
If an officer, director, partner, affiliate or employee of the Bank
(or relative of such persons), is a director of such Second Fiduciary,
and if he or she abstains from participation in (i) the choice of the
Client Plan's investment adviser, (ii) the approval of any such
purchase or sale between the Client Plan and the Funds, and (iii) the
approval of any change in fees charged to or paid by the Client Plan in
connection with any of the transactions described in Sections I and II
above, then paragraph (g)(2) of Section III shall not apply.
(h) The term ``secondary service'' means a service other than an
investment management, investment advisory, or similar service, which
is provided by the Bank to the Funds. However, for purposes of this
exemption, the term ``secondary service'' will not include any
brokerage services provided to the Funds by the Bank for the execution
of securities transactions engaged in by the Funds.
(i) The term ``Termination Form'' means the form supplied to the
Second Fiduciary which expressly provides an election to the Second
Fiduciary to terminate on behalf of a Client Plan the authorization
described in paragraph (j) of Section II. The Termination Form shall be
used at will by the Second Fiduciary to terminate an authorization
without penalty to the Client Plan and to notify the Bank in writing to
effect a termination by selling the shares of the Funds held by the
Client Plan requesting such termination within one business day
following receipt by the Bank of the form; provided that if, due to
circumstances beyond the control of the Bank, the sale cannot be
executed within one business day, the Bank shall have one additional
business day to complete such sale.
EFFECTIVE DATE: This exemption is effective as of April 1, 1994.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on March 20, 1995 at 60 FR
14786.
WRITTEN COMMENTS AND MODIFICATIONS: The applicant submitted the
following comments and requests for modifications regarding the notice
of proposed exemption (the Proposal).
With respect to Section I(h) of the Proposal, the condition
requires that a Second Fiduciary receive, in advance of any investment
by the Client Plan in a Fund, full and detailed written disclosure of
information concerning the Funds. However, the applicant states that
the condition as written might be construed as requiring the disclosure
of such information before every investment thereafter in the same Fund
(i.e., if one reads ``any investment'' to mean ``each and every
investment''). The applicant requests that, in order to avoid confusion
on this point, the phrase ``* * * in advance of any investment'' be
changed to read ``* * * in advance of any initial investment''
(emphasis added). The Department concurs with the applicant's requested
clarification and has so modified the language of Section I(h) of the
Proposal.
With respect to Section I(i) of the Proposal, the applicant states
that this condition, which in general requires the Second Fiduciary for
each Client Plan to have authorized in writing the investment of assets
of the Client Plan in a particular Fund, begins with the clause ``[o]n
the basis of the information described above in paragraph (h) of
Section I.'' The applicant represents that while the Bank will be
providing the information required by Section I(h), and anticipates
that the Second Fiduciary will take such information into consideration
in determining whether to approve any investment in a Fund, the Bank
will not in every case be able to determine the precise basis on which
a Second Fiduciary has approved use of a Fund as an investment vehicle.
Thus, the applicant requests that this clause be either deleted or
otherwise clarified. In this regard, the Department concurs with the
applicant's requested clarification and has deleted the words ``[o]n
the basis of * * *'' in the opening clause of Section I(i) and has
substituted therefor the words ``[a]fter consideration of * * *''.
With respect to Section I(m)(2) of the Proposal, the condition
requires that the Bank provide the Second Fiduciary of a Client Plan
investing in the Fund with a copy of the ``* * * annual financial
disclosure report prepared by the Bank'' which includes information
about the Fund portfolios. The applicant requests that the information
referred to here should be clarified to mean the annual financial
reports of the Funds which are prepared by the Funds, not by the Bank.
In addition, the applicant requests that the condition be clarified to
require that only the annual reports of the Funds in which a Client
Plan is invested need to be sent to the Second Fiduciary for that
Client Plan. The Department concurs with the applicant's requested
clarification and has modified the language of Section I(m)(2) by
deleting the words ``* * * prepared by the Bank'' and substituting
therefor the words ``* * * of the Funds in which such Client Plan is
invested''.
With respect to Section III(d) of the Proposal, the applicant
states that the 1784 Funds is a Massachusetts business trust with
separate series recognized for tax purposes as a separate corporation,
but which collectively is not recognized as a corporation. Thus, the
applicant requests that the Department delete the word ``Inc.'' after
the reference to the 1784 Funds in the definition contained in Section
III(d). In addition, the applicant notes that references throughout the
Proposal to the ``Fund'' are in fact generally meant as references to
one or more of the separate series of the 1784 Funds. In this regard,
the applicant requests that the definition in Section III(d) indicate
that the term ``Fund'' or ``Funds'' ``* * * shall include the 1784
Fund, each series thereof, or any other * * *'' (emphasis added). The
Department concurs with the applicant's requested clarification and has
so modified the language of Section III(d) of the Proposal.
Finally, pursuant to telephone conversations with representatives
of the Department, the applicant has confirmed in writing that when the
Bank is engaged to provide investment advisory services for a Fund
under the requested exemption, such services will be performed by the
Bank or a third party sub-advisor retained by the Bank. The applicant
represents that no ``sub-advisor'' to the Bank will be retained
directly by a Fund. In this regard, the Bank states that the fees
payable by a Fund ultimately for the account of a sub-advisor to the
Bank will be rebated by the Bank to the Client Plans, as discussed in
the Proposal and required by Section I(d) above. [[Page 33007]]
Accordingly, based on the current exemption application file and
record, the Department has determined to grant the proposed exemption
as modified.
FOR FURTHER INFORMATION CONTACT: Mr. E. F. Williams of the Department,
telephone (202) 219-8194. (This is not a toll-free number.)
AT&T Corporation (AT&T), and AT&T Investment Corporation (ATTIMCO)
Located in New York, New York
[Prohibited Transaction Exemption 95-51; Exemption Application Nos.
D-09716 & D-09717]
Exemption
Part I--Exemption for Payment of Certain Fees to Asset Managers
The restrictions of section 406(b)(1) and (b)(2) of the Act and the
taxes imposed by section 4975 of the Code, by reason of section
4975(c)(1)(E) of the Code, shall not apply to the payment of
Performance Fees by an AT&T Investment Fund to an Asset Manager in
exchange for real estate management or advisory services rendered
pursuant to an Agreement, provided that the conditions set forth in
Parts II and III are satisfied.
Part II--General Conditions
(a) The Asset Manager is not an affiliate of AT&T and the terms of
any Performance Fee are approved in writing by AT&T.
(b) The terms of any Performance Fee shall be at least as favorable
to the AT&T Investment Fund as those obtainable in arm's-length
transactions between unrelated parties.
(c) No AT&T Trust shall allocate, in the aggregate, more than
twenty percent of its total assets to Arrangements which are the
subject of this exemption, determined at the time any such Arrangement
is established and at the time of any subsequent allocation of
additional assets (including the reinvestment of assets) to such an
Arrangement. The foregoing limitation shall not apply to an AT&T Plan
Assets Entity. However, that percentage of the Assets of an AT&T Plan
Assets Entity which is deemed to be ``plan assets'' of an AT&T Trust
invested therein shall be treated as assets of such AT&T Trust for the
purpose of applying the foregoing limitation to the AT&T Trust.
(d) AT&T shall receive the following written information with
respect to assets subject to this exemption (Assets):
(1) annual audited financial statements prepared by independent
certified public accountants approved by AT&T;
(2) quarterly and annual reports prepared by the Asset Manager
relating to the overall financial position of the Assets (Each such
report shall include a statement regarding the amount of fees paid to
the Asset Manager during the period covered by such report); and
(3) annual reports indicating the fair market value of the Assets
determined on the basis of the most recently available Independent
Valuations.
(e) The total fees paid to an Asset Manager shall constitute no
more than reasonable compensation.
(f) The Performance Fee shall be payable after Net Proceeds with
respect to the Assets exceed the Threshold Amount. The Threshold Amount
and the amount of the Performance Fee, expressed as a percentage (or
percentages) of the Net Proceeds in excess of the Threshold Amount (or
Threshold Amounts), shall be established by the Agreement. The
Threshold Amount for any Performance Fee shall include at least a
minimum rate of return to the AT&T Investment Fund, as described in
Part III, Section (q).
(g) The provisions of this paragraph (g) shall apply only where an
Asset Manager has discretion to sell Assets without prior approval of
AT&T. For any sale of an Asset which gives rise to the payment of a
Performance Fee to an Asset Manager prior to the Termination Date, the
sales price of the Asset shall be at least equal to a Target Amount in
order for the Asset Manager to sell the Asset and receive its
Performance Fee without further approval. If the proposed sales price
of the Asset is less than the applicable Target Amount, the proposed
sale shall be disclosed to and subject to the approval of AT&T, in
which event the Asset Manager shall be entitled to sell the Asset and
receive its Performance Fee. If the proposed sales price is less than
the applicable Target Amount and AT&T's approval is not obtained, the
Asset Manager shall retain the authority to sell the Asset, provided
that the Performance Fee that would have been payable to the Asset
Manager by reason of the sale of the Asset shall be paid only at the
termination of the Arrangement.
(h) In the event of termination of the Arrangement upon its
Termination Date, the Asset Manager shall be entitled to receive a
Performance Fee payable on the Termination Date. The amount of the
Performance Fee upon termination shall be determined by assuming a sale
for cash of the remaining Assets at their fair market value (determined
on the basis of Independent Valuations) and no reinvestment of such
cash in Assets subject to the Arrangement.
(i) In the event of the removal or resignation of an Asset Manager
prior to the Termination Date, the Asset Manager shall be entitled to
receive a Performance Fee payable on the Termination Date pursuant to
this paragraph (i). The Performance Fee shall be calculated on a
preliminary basis at the time of such removal or resignation by
assuming a sale for cash of the remaining Assets at their fair market
value (determined on the basis of Independent Valuations) and no
reinvestment of such cash in Assets subject to the Arrangements. As of
the Termination Date, the amount so determined on a preliminary basis
shall be multiplied by a fraction, the numerator of which is the sum
of: (1) The actual sales prices received by the AT&T Investment Fund on
disposition of all Assets sold after the date of the Asset Manager's
removal or resignation and prior to the Termination Date, and (2) in
the case of Assets which have not been sold prior to the Termination
Date, the value of the Assets as of the Termination Date (determined on
the basis of Independent Valuations), and the denominator of which is
the aggregate value of the Assets which was used in connection with the
preliminary determination of the Performance Fee at the time of removal
or resignation, provided that this fraction shall never exceed 1.0. The
resulting amount shall be the Performance Fee payable to the Asset
Manager upon the Termination Date.
(j) AT&T shall maintain or cause to be maintained with respect to
the Assets, for a period of six years, the records necessary to enable
the persons described in paragraph (k) of this Part II to determine
whether the conditions of this exemption have been met, except that (1)
a prohibited transaction will not be considered to have occurred if,
due to circumstances beyond the control of AT&T, the records are lost
or destroyed prior to the end of the six-year period, and (2) no party
in interest, other than AT&T, shall be subject to the civil penalty
that may be assessed under section 502(i) of the Act or to the taxes
imposed by section 4975 (a) and (b) of the Code if the records are not
maintained or are not available for examination as required by Part
III, Section (k) below.
(k) Notwithstanding any provisions of Section 504(a)(2) and 504(b)
of the Act, the records referred to in Section (j) of this Part II
shall be unconditionally available at their customary location for
examination during normal business hours by:
(1) any duly authorized employee or representative of the
Department or the Internal Revenue Service; [[Page 33008]]
(2) any contributing employer to any employee benefit plan the
assets of which are held in the AT&T Investment Fund which has entered
into the Arrangement or any duly authorized employee or representative
of such employer;
(3) any participant or beneficiary of any employee benefit plan the
assets of which are held in the AT&T Investment Fund or any duly
authorized representative of such participant or beneficiary; and
(4) nothing in this paragraph (k) shall authorize any of the
persons described in subsections (2) and (3) to examine any trade
secrets of AT&T or information which is privileged or confidential.
Part III--Definitions
(a) An ``affiliate'' of a person means:
(1) Any person directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control
with the person;
(2) Any officer, director, employee, relative of, or partner of any
such person; and
(3) Any corporation or partnership of which such person is an
officer, director, partner or employee.
(b) The term ``Agreement'' means the investment management, trust
or other agreement entered into between an Asset Manager and AT&T for
the provision of real estate management or advisory services.
(c) The term ``Arrangement'' means a fee arrangement entered into
between AT&T and an Asset Manager pursuant to an Agreement providing
for the payment of Performance Fees to the Asset Manager by an AT&T
Investment Fund in exchange for real estate management or advisory
services.
(d) The term ``Asset Manager'' means any person or entity providing
real estate management or advisory services to an AT&T Investment Fund.
(e) The term ``Assets'' means assets of an AT&T Investment Fund
which are the subject of an Arrangement with an Asset Manager.
(f) The term ``AT&T'' means AT&T Corporation, AT&T Investment
Management Corporation and/or any Subsidiary.
(g) The term ``AT&T Investment Fund'' means an AT&T Trust or an
AT&T Plan Assets Entity.
(h) The term ``AT&T Plan Assets Entity'' means any group trust,
partnership or other entity (including without limitation the Telephone
Real Estate Equity Trust), the assets of which are deemed to be ``plan
assets'' by reason of the application of 29 C.F.R. 2510.3-101, but only
if (1) fifty percent or more of the interests in such entity are held
by one or more AT&T Trusts, and (2) AT&T is the named fiduciary or
manager of the assets of such entity.
(i) The term ``AT&T Trust'' means the AT&T Master Pension Trust or
any other trust (other than an AT&T Plan Assets Entity), one hundred
percent of the assets of which are assets of employee benefit plans
maintained by AT&T.
(j) The term ``control'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.
(k) The term ``Independent Valuations'' means valuations based on
independent and objective third party sources acceptable to AT&T
(including without limitation NASDAQ, newspapers, or other general
publications, or brokers which are independent of the Asset Manager and
its affiliates), or, if such sources are not available with respect to
a particular asset or at the option of AT&T, valuations conducted by an
appraiser independent of the Asset Manager and its affiliates which has
been approved by AT&T; provided, however, that, solely for purposes of
the reports described in Part II, Section (d)(3) above, no such
appraisal will be required with respect to any Asset if AT&T
determines, in its sole discretion, that such an appraisal is
unnecessary.
(l) The term ``Net Proceeds'' means, with respect to an
Arrangement, the aggregate amount of cash and other assets (valued at
fair market value as determined on the basis of Independent Valuations)
which cease to be Assets which are subject to such Arrangement, in
accordance with the terms of the Agreement establishing such
Arrangement.
(m) The term ``Performance Fee'' means a fee which equals a pre-
specified percentage (or several pre-specified percentages) of all Net
Proceeds in excess of the Threshold Amount (or several Threshold
Amounts), subject to such limitations, if any, as AT&T may approve or
impose.
(n) The term ``Subsidiary'' means a corporation, partnership, or
other entity of which (or in which) fifty percent or more of:
(1) The combined voting power of all classes of stock entitled to
vote or the total value of shares of all classes of such corporation,
(2) the capital interest or profits interest of such partnership, or
(3) the beneficial interest of such other entity, is owned directly or
indirectly by AT&T Corporation or AT&T Investment Management
Corporation.
(o) The term ``Target Amount'' means a value assigned to each Asset
either (1) at the time the Asset becomes subject to the Arrangement, by
mutual agreement between the Asset Manager and AT&T, or (2) pursuant to
an objective formula approved by the Asset Manager and AT&T at the time
the Arrangement is established. However, in no event will the value be
less than the value of the Asset at the time the Asset becomes subject
to the Arrangement.
(p) The term ``Termination Date'' means the date, established in
the Agreement, on which the Arrangement will terminate by reason of the
passage of time, as the same may be amended from time to time with the
approval of AT&T.
(q) The term ``Threshold Amount'' means with respect to any
Arrangement an amount which equals one hundred percent of the AT&T
Investment Fund's capital invested in the Assets plus a pre- specified
annual compounded cumulative rate or rates of return, each of which is
at least a minimum rate of return determined as follows:
(1) A non-fixed rate which is a least equal to the rate of change
in the consumer price index (CPI) during the period from the time the
Assets become subject to the Arrangement until Net Proceeds equal or
exceed the applicable Threshold Amount; or
(2) a fixed rate which is at least equal to the average rate of
change in the CPI over some period of time specified in the Agreement,
which shall not exceed ten years.
EFFECTIVE DATE: This exemption is effective as of September 19, 1994,
the date on which the notice of proposed exemption was published in the
Federal Register.
For a more complete statement of the facts and representations
supporting this exemption, refer to the notice of proposed exemption
published on September 19, 1994 at 59 FR 47952.
FOR FURTHER INFORMATION CONTACT: Ronald Willett of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Toyota Motor Sales, U.S.A., Inc. Money Purchase Pension Plan for
Bargaining Unit Employees (the Plan) Located in Torrance, California
Exemption Application No. D-09875 Prohibited Transaction Exemption
95-52;
Exemption
The restrictions of sections 406(a) and 406 (b)(1) and (b)(2) of
the Act and the sanctions resulting from the application of section
4975 of the Code, by reason of section 4975(c)(1) (A) through (E) of
the Code, shall not apply to the cash sale by the Plan (the Sale) of
group annuity contract No. GA-4564 (the [[Page 33009]] GAC) issued by
Mutual Benefit Life Insurance Company (Mutual Benefit), located in
Newark, New Jersey, to Toyota Motor Sales, U.S.A., Inc., a California
corporation, (the Employer), a party in interest with respect to the
Plan; provided that: (1) The Sale is a one-time transaction for cash;
(2) the Plan experiences no loss nor incurs any expense from the Sale;
and (3) the Plan receives as consideration from the Sale the greater of
either the fair market value of the GAC as determined by the trustee of
the Plan on the date of the Sale, or an amount that is equal to the
total funds expended by the Plan in acquiring and holding the GAC, plus
the amount of interest earned and accrued by the Plan on the GAC to the
date of the Sale, less all withdrawals from the Plan to the date of the
Sale, and less all advances made to the Plan by the Employer to the
date of the Sale.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption refer to
the notice of proposed exemption published on April 27, 1995, at 60 FR
20766.
WRITTEN COMMENTS: With respect to the Notice of Proposed Exemption, the
applicant noted that the last sentence in the penultimate paragraph of
Section 4 under the Summary of Facts and Representations represents
that the fair market value of the GAC is $2,349,840, as of September
30, 1994. The applicant believes that the fair market value of the GAC,
if ascertainable, is considerably lower because of the rehabilitation
proceedings affecting Mutual Benefit, which significantly restrict the
withdrawal and payment provisions of the GAC.
The applicant also noted that had the Sale taken place on September
30, 1994, the Plan would have been paid approximately $2,349,840, which
is the amount that would have been determined in accordance with the
terms and provisions of the Proposed Exemption as of that date. Since
the Sale did not take place on September 30, 1994, the Plan will
receive as consideration an amount determined on the date of the Sale
in accordance with the terms and provisions of the Proposed Exemption.
FOR FURTHER INFORMATION CONTACT: Mr. C.E. Beaver of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Bob Murphy, Inc. Proft Sharing Plan (the Plan) Located in Boynton
Beach, FL
[Prohibited Transaction Exemption 95-53; Exemption Application No.
D-09949]
Exemption
The sanctions resulting from the application of section 4975 of the
Code, by reason of section 4975(c)(1) (A) through (E) of the Code,
shall not apply to the proposed sale of certain works of art (the Art
Work) by the Plan to Robert J. Murphy, Jr., a disqualified person with
respect to the Plan.8
8Because Mr. Murphy and his spouse, Gail F. Murphy, are the
only participants in the Plan, there is no jurisdiction under Title
I of the Act pursuant to 29 CFR 2510.3-3(b). However, there is
jurisdiction under Title II of the Act pursuant to section 4975 of
the Code.
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This exemption is conditioned upon the following requirements: (1)
All terms and conditions of the sale are at least as favorable to the
Plan as those obtainable in an arm's length transaction between
unrelated parties; (2) the sale is a one-time cash transaction; (3) the
Plan is not required to pay any commissions, costs or other expenses in
connection with the sale; and (4) the Plan receives a sales price equal
to the fair market value of the Art Work on the date of the sale as
determined by a qualified, independent appraiser.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on May 10, 1995 at 60 FR
24902.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Employees' Thrift Plan of Columbia Gas System (the Plan) Located in
Wilmington, Delaware
[Exemption Application No. D-09959 Prohibited Transaction Exemption
95-54]
Exemption
The restrictions of sections 406(a) and 406 (b)(1) and (b)(2) of
the Act and the sanctions resulting from the application of section
4975 of the Code, by reason of section 4975(c)(1) (A) through (E) of
the Code, shall not apply to: (1) The loan of funds (the Loan) to the
Plan by the Columbia Gas System, Inc., the sponsor of the Plan, and its
wholly-owned subsidiary, Columbia Gas Transmission Corporation, with
respect to the Guaranteed Investment Contract No. 61969 (the GIC)
issued by Confederation Life Insurance Company of Canada
(Confederation); and (2) the potential repayment by the Plan of the
Loan upon the receipt by the Plan of payments under the GIC; provided
the following conditions are satisfied: (a) No interest and/or expenses
are paid by the Plan in connection with the Loan; (b) all the terms and
conditions of the proposed Loan are no less favorable to the Plan than
those which the Plan could obtain in an arm's-length transaction with
an unrelated party; (c) the Loan will be the accumulated book value of
the GIC as of August 12, 1994, less any amounts received by the Plan
from Confederation since August 12, 1994; (d) the repayment of the Loan
will not exceed the total amount of the Loan; (e) the repayment of the
Loan by the Plan will be restricted to funds paid to the Plan under the
GIC by Confederation, or State Guaranty Funds, or other third-party
sources; (f) the repayment of the Loan is waived to the extent the Loan
exceeds the proceeds the Plan receives from the GIC; and (g) any
proceeds or future interest credited under the GIC after August 12,
1994, in accordance with the Rehabilitation Plan by the State of
Michigan, will be allocated and disbursed to the affected participants
of the Plan.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption refer to
the notice of proposed exemption published on April 27, 1995, at 60 FR
20771.
WRITTEN COMMENTS: With respect to the Notice of Proposed Exemption, the
applicant noted that item 2(c) of the first paragraph of the Proposed
Exemption did not take into account amounts received by the Plan since
August 12, 1994, from Confederation prior to the date the Loan is made.
The applicant states that Confederation has paid some limited amounts
on its GICs for certain withdrawal events and may pay some more funds
before the date of the Loan.
The applicant also noted that amounts received by the Plan from
Confederation since August 12, 1994, were not considered in determining
the amount of the Loan as described in the fourth sentence of Section 5
and item 6(c) in Section 6 of the Summary of Facts and Representations.
In consideration of the comments, item 2(c) of the Exemption is
changed to reflect that the Loan will be the accumulated book value of
the GIC as of August 12, 1994, less any amounts received by the Plan
from Confederation since August 12, 1994.
FOR FURTHER INFORMATION CONTACT: Mr. C.E. Beaver of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section [[Page 33010]] 408(a) of the Act and/or section
4975(c)(2) of the Code does not relieve a fiduciary or other party in
interest or disqualified person from certain other provisions to which
the exemptions does not apply and the general fiduciary responsibility
provisions of section 404 of the Act, which among other things require
a fiduciary to discharge his duties respecting the plan solely in the
interest of the participants and beneficiaries of the plan and in a
prudent fashion in accordance with section 404(a)(1)(B) of the Act; nor
does it affect the requirement of section 401(a) of the Code that the
plan must operate for the exclusive benefit of the employees of the
employer maintaining the plan and their beneficiaries;
(2) These exemptions are supplemental to and not in derogation of,
any other provisions of the Act and/or the Code, including statutory or
administrative exemptions and transactional rules. Furthermore, the
fact that a transaction is subject to an administrative or statutory
exemption is not dispositive of whether the transaction is in fact a
prohibited transaction; and
(3) The availability of these exemptions is subject to the express
condition that the material facts and representations contained in each
application are true and complete and accurately describe all material
terms of the transaction which is the subject of the exemption. In the
case of continuing exemption transactions, if any of the material facts
or representations described in the application change after the
exemption is granted, the exemption will cease to apply as of the date
of such change. In the event of any such change, application for a new
exemption may be made to the Department.
Signed at Washington, D.C., this 21st day of June, 1995.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 95-15521 Filed 6-23-95; 8:45 am]
BILLING CODE 4510-29-P