[Federal Register Volume 62, Number 21 (Friday, January 31, 1997)]
[Notices]
[Pages 4802-4810]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-2387]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-10341, et al.]
Proposed Exemptions; Orders Distributing Co., Inc. Profit Sharing
Plan and 401(k) Retirement Savings Plan (the Plan)
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Notice of proposed exemptions.
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SUMMARY: This document contains notices of pendency before the
Department of Labor (the Department) of proposed exemptions from
certain of the prohibited transaction restriction of the Employee
Retirement Income Security Act of 1974 (the Act) and/or the Internal
Revenue Code of 1986 (the Code).
Written Comments and Hearing Requests
Unless otherwise stated in the Notice of Proposed Exemption, all
interested persons are invited to submit written comments, and with
respect to exemptions involving the fiduciary prohibitions of section
406(b) of the Act, requests for hearing within 45 days from the date of
publication of this Federal Register Notice. Comments and request for a
hearing should state: (1) the name, address, and telephone number of
the person making the comment or request, and (2) the nature of the
person's interest in the exemption and the manner in which the person
would be adversely affected by the exemption. A request for a hearing
must also state the issues to be addressed and include a general
description of the evidence to be presented at the hearing. A request
for a hearing must also state the issues to be addressed and include a
general description of the evidence to be presented at the hearing.
ADDRESSES: All written comments and request for a hearing (at least
three copies) should be sent to the Pension and Welfare Benefits
Administration, Office of Exemption Determinations, Room N-5649, U.S.
Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C.
20210. Attention: Application No. stated in each Notice of Proposed
Exemption. The applications for exemption and the comments received
will be available for public inspection in the Public Documents Room of
Pension and Welfare Benefits Administration, U.S. Department of Labor,
Room N-5507, 200 Constitution Avenue, N.W., Washington, D.C. 20210.
Notice to Interested Persons
Notice of the proposed exemptions will be provided to all
interested persons in the manner agreed upon by the applicant and the
Department within 15 days of the date of publication in the Federal
Register. Such notice shall include a copy of the notice of proposed
exemption as published in the Federal Register and shall inform
interested persons of their right to comment and to request a hearing
(where appropriate).
SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in
applications filed pursuant to section 408(a) of the Act and/or section
4975(c)(2) of the Code, and in accordance with procedures set forth in
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990).
Effective December 31, 1978, section 102 of Reorganization Plan No. 4
of 1978 (43 FR 47713,
October 17, 1978) transferred the authority of the Secretary of the
Treasury to issue exemptions of the type requested to the Secretary of
Labor. Therefore, these notices of proposed exemption are issued solely
by the Department.
The applications contain representations with regard to the
proposed exemptions which are summarized below. Interested persons are
referred to the applications on file with the Department for a complete
statement of the facts and representations.
Orders Distributing Co., Inc. Profit Sharing Plan and 401(k) Retirement
Savings Plan (the Plan) Located in Greenville, South Carolina
[Application No. D-10341]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption
is granted, the restrictions of section 406(a), 406(b)(1) and (b)(2) of
the Act and the sanctions resulting from the application of section
4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the
Code, shall not apply to the past sale by the Plan of certain units of
limited partnership interests (the Units) to Orders Distributing Co.,
Inc. (the Employer), a party in interest with respect to the Plan,
provided that the following conditions are satisfied:
(1) The terms of the sale were at least as favorable to the Plan as
those the Plan could have obtained in a comparable arm's length
transaction with an unrelated party; (2) the sale was a one-time
transaction for cash; (3) the Plan paid no commissions nor other
expenses relating to the sale; (4) the Plan received an amount no less
than the fair market value of the Units as of the date of the sale, as
determined by an independent appraisal; and (5) within 30 days of
publication in the Federal Register of the notice of the grant of this
exemption, the Employer makes an additional cash contribution to the
Plan to make up for opportunity costs attributable to the Units.
EFFECTIVE DATE: The proposed exemption, if granted, will be effective
as of January 1, 1995.
Summary of Facts and Representations
1. The Plan is a profit sharing/401(k) plan sponsored by the
Employer. The Employer, a South Carolina corporation, is engaged in the
business of marketing and selling products for the floor covering
industry, including carpeting, vinyl, wood and tile flooring, and
installation materials, and is located in Greenville, South Carolina.
As of September 5, 1996, the Plan had approximately 155 participants
and beneficiaries and total assets of approximately $3,525,785. The
trustees of the Plan are William H. Orders, the chairman of the board
of directors and a shareholder of the Employer, and C. Michael Smith,
an officer, director, and shareholder of the Employer.
2. Among the assets of the Plan were the Units, which were two
shares in GolfSouth 1994, L.P. (GolfSouth) purchased in May 1994 by the
Plan directly from GolfSouth in a private offering (the Offering) for a
total of $95,000. 1 GolfSouth is a limited partnership that owns
and operates three golf courses. On January 1, 1995,
[[Page 4803]]
the Employer purchased the Units from the Plan for $95,000, their cost
to the Plan.
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1 The Department expresses no opinion herein as to whether
the acquisition of the Units by the Plan violated any of the
provisions of Part 4 of Title I in the Act.
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3. As documented by the minutes of the Plan's Administrative
Committee (the Committee) dated December 15, 1994, the decision to sell
the Units was made in anticipation of a proposed modification to the
Plan. Effective as of April 1, 1995, the Plan permitted participants to
direct the investment of their respective individual accounts. The
applicant was a convenient and willing buyer, and Messrs. Orders and
Smith, who comprise the members of the Committee, approved a sale of
the Units to the Employer.
4. The applicant represents that the Employer's purchase price of
$95,000 was not less than the fair market value of the Units as of the
date of the sale, as determined by an independent appraisal. By letter
dated December 29, 1994, GolfSouth Capital, Inc., the General Partner
of GolfSouth, opined that the fair market value of the Units on or near
December 31, 1994 remained at $95,000, the price paid for the Units.
The Offering for GolfSouth was still in progress at that time. After
the First and Second Closings for the Offering had transpired, a Third
and Final Closing made investments in GolfSouth available at the same
per unit price at which the Units held by the Plan were acquired. The
letter dated December 29, 1994 states, ``[T]here is no apparent
diminution in value of the investment at this time, but it is too early
to assign any increase in value.'' The applicant maintains, therefore,
that the terms of the sale were at least as favorable to the Plan as
those the Plan could have obtained in a comparable arm's length
transaction with an unrelated party. The sale was a one-time
transaction for cash, and the Plan paid no commissions nor other
expenses relating to the sale.
Because the Plan did not receive a rate of return on its investment
in the Units, the Employer will make, within 30 days of publication in
the Federal Register of the notice of the grant of this exemption, an
additional payment of $3,163 to the Plan for opportunity costs
attributable to the Units for the period from May to December, 1994.
2 The costs of this exemption application will be borne by the
Employer.
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2 The Department notes the applicant's representation
that the figure of $3,163 was calculated based upon the short-term
applicable federal rate (AFR) for May 1994, or 4.95%. The AFR is
used by the Internal Revenue Service for determining reasonable
rates of interest. The applicant represents, therefore, that the AFR
is an appropriate measure for calculating opportunity costs
attributable to the Units.
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5. The applicant represents that selling the Units to the Employer
was in the interests of the Plan because the sale enabled the Plan to
divest itself of illiquid and indivisible assets that were difficult to
value, thus facilitating the implementation of participant-directed
accounts.
The applicant represents they were not aware that the sale would
constitute a violation of the prohibited transaction provisions of the
Act until July 1996, after Ernst and Young, L.L.P., the Employer's
accountants, had conducted the annual audit of the Plan. Upon the
recommendation of legal counsel, the Employer expeditiously filed an
application for a retroactive exemption with the Department.
6. In summary, the applicant represents that the subject
transaction satisfied the statutory criteria for an exemption under
section 408(a) of the Act for the following reasons:
(1) The terms of the sale were at least as favorable to the Plan as
those the Plan could have obtained in a comparable arm's length
transaction with an unrelated party; (2) the sale was a one-time
transaction for cash; (3) the Plan paid no commissions nor other
expenses relating to the sale; (4) the Plan received an amount no less
than the fair market value of the Units as of the date of the sale, as
determined by the General Partner of GolfSouth; and (5) within 30 days
of publication in the Federal Register of the notice of the grant of
this exemption, the Employer will make an additional cash contribution
to the Plan to make up for opportunity costs attributable to the Units.
Tax Consequences of Transaction
The Department of the Treasury has determined that if a transaction
between a qualified employee benefit plan and its sponsoring employer
(or affiliate thereof) results in the plan either paying less than or
receiving more than fair market value, such excess may be considered to
be a contribution by the sponsoring employer to the plan and therefore
must be examined under applicable provisions of the Code, including
sections 401(a)(4), 404 and 415.
Notice to Interested Persons
Notice of the proposed exemption shall be given to all interested
persons by first-class mail within 15 days of the date of publication
of the notice of pendency in the Federal Register. Such notice shall
include a copy of the notice of proposed exemption as published in the
Federal Register and shall inform interested persons of their right to
comment and/or request a hearing with respect to the proposed
exemption. Comments and requests for a hearing are due within 45 days
of the date of publication of this notice in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Thompson, Siegel and Walmsley, Inc. (TS&W) Located in Richmond,
Virginia
[Application No. D-10369]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990).
Section I--Transactions
If the exemption is granted, 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 to the following transactions which
occurred between April 16, 1996 and August 26, 1996, provided that the
conditions set forth in Section II below were met:
(a) The acquisition by the Lewis-Gale Clinic, Inc. Profit Sharing
Plan (the Plan) on April 16, 1996, of shares of the TS&W Equity
Portfolio and Fixed Income Portfolio (the TS&W Portfolios), each a
series of the UAM Funds, Inc. (the UAM Funds), an open-end investment
company registered under the Investment Company Act of 1940 (the '40
Act), with respect to which TS&W serves as the investment adviser,
through the in-kind transfer of assets of a separate account known as
``Fund E'' managed by TS&W as a fiduciary for the Plan;
(b) The subsequent sale of shares of the TS&W Portfolios by Fund E
of the Plan on a cash basis;
(c) The acquisition and sale of shares of the DSI Money Market
Portfolio (the DSI Portfolio), another series of the UAM Funds whose
investment adviser--Dewey Square Investors Corporation (DSI)--is an
affiliate of TS&W, by Fund E of the Plan on a cash basis;
(d) The receipt of fees from the TS&W Portfolios and the DSI
Portfolio (collectively, the Portfolios) by TS&W and DSI, respectively,
for acting as an investment adviser for the Portfolios; and
[[Page 4804]]
(e) The receipt of fees from the Portfolios by UAM Fund Services,
Inc. (UAM Fund Services), an affiliate of TS&W and DSI, for performing
secondary services for the Portfolios (e.g. administrative, fund
accounting, dividend disbursing and transfer agent services).
Section II--Conditions
(a) The Plan's in-kind acquisition of shares of the TS&W Portfolios
were one-time transactions; the initial cash acquisition of shares of
the DSI Portfolio was a one-time transaction; and all subsequent cash
acquisitions and sales of the Portfolios were the result of routine
contributions and withdrawals by Plan participants and beneficiaries
which were not subject to the control or influence of TS&W and the
routine reallocation of assets of Fund E by TS&W pursuant to its
responsibility to allocate assets of Fund E between the TS&W
Portfolios, the TS&W International Portfolio and the DSI Portfolio.
(b) No sales commissions or other fees were paid by the Plan in
connection with the acquisition of shares of the Portfolios and no
redemption fees were paid by the Plan in connection with the sale by
the Plan of such shares.
(c) A fiduciary of the Plan who was independent of and unrelated to
TS&W (the Second Fiduciary) received advance notice of the transactions
and full disclosure of information concerning the Portfolios which
included, but was not limited to, the following:
(1) A current prospectus for each Portfolio;
(2) The fees for investment advisory and other services charged to
and paid by the Plan (and by the Portfolios) to TS&W, DSI, UAM Fund
Services or an affiliate, including the nature and extent of any
differential between the rates of the fees; and
(3) The reasons why TS&W considered investments in the Portfolios
to be appropriate for the Plan.
(d) On the basis of the information described in paragraph (c)
above, the Second Fiduciary approved the transactions, including the
initial in-kind transfer of Fund E's assets to the TS&W Portfolios in
exchange for shares of such Portfolios, prior to the transactions.
(e) The Second Fiduciary acknowledged in a writing dated August 26,
1996, that it received the information described in paragraph (c) above
prior to the transactions and that it approved all of the subject
transactions involving the Portfolios in advance. In addition, the
Second Fiduciary adopted resolutions approving, ratifying and affirming
the in-kind transfer of assets of Fund E to the TS&W Equity and Fixed
Income Portfolios (in exchange for shares of such Portfolios) and the
cash purchases of the shares of the DSI Portfolio as of April 15, 1996.
(f) With respect to the in-kind transfer of securities from Fund E
to the TS&W Portfolios, the Plan received shares of each of the
Portfolios which had a total net asset value equal to the value of all
of the Plan's assets transferred in-kind to such Portfolio on the date
of the transfer (i.e. April 16, 1996).
(g) The assets of the Plan transferred to the TS&W Portfolios were
publicly-traded securities that were valued at their closing prices on
the day they were accepted by the Portfolios (i.e. April 16, 1996), as
determined by independent market sources in accordance with Rule 17a-
7(b), issued by the Securities and Exchange Commission (SEC) under the
'40 Act, by a party unrelated to TS&W and its affiliates.
(h) The terms of the transactions were no less favorable to the
Plan than those which were obtainable in an arm's-length transaction
with an unrelated party at the time of such transactions.
(i) TS&W sent by regular mail to the Second Fiduciary, not more
than seven (7) days after the completion of the in-kind transfers to
the TS&W Portfolios, a written confirmation which contained the
following information: (1) Date of the transfers, (2) the number of
shares of each Portfolio acquired by the Plan, (3) the price paid per
share in each Portfolio, and (4) the total dollar amount involved in
each transfer.
(j) Cash acquisitions and sales of shares of the Portfolios were
reported to the Second Fiduciary in the normal course by means of
regular transaction statements issued by the UAM Funds.
(k) The combined total of all fees received by TS&W and its
affiliates for the provision of services to the Plan, and in connection
with the provision of services to the Portfolios in which the Plan
invested, was not in excess of ``reasonable compensation'' within the
meaning of section 408(b)(2) of the Act.
(l) The Plan did not pay any plan-level investment management fees,
investment advisory fees, or similar fees to TS&W or an affiliate with
respect to any of the assets of such Plan which were invested in shares
of any of the Portfolios. This condition does not preclude the payment
of investment advisory fees or similar fees by the Portfolios to TS&W
or an affiliate under the terms of an investment advisory agreement
adopted in accordance with section 15 of the '40 Act.
(m) Within 10 days of the date that this proposed exemption is
granted, TS&W pays the Plan an amount equal to the additional net fees
attributable to Fund E which TS&W and its affiliates received during
the period covered by this proposed exemption (i.e., April 17, 1996
until August 26, 1996) as a result of the investment of Fund E's assets
in the Portfolios, plus a reasonable rate of interest on such amount
which is at least equal to the rate of return such assets would have
earned as assets held in Fund E during this period.
(n) Neither TS&W, DSI nor any affiliate thereof received fees
payable pursuant to Rule 12b-1 under the '40 Act in connection with the
transactions involving the Portfolios.
(o) All dealings between the Plan and the Portfolios were on a
basis no less favorable to the Plan than dealings with other
shareholders of the Portfolios.
(p) TS&W provides the Second Fiduciary of the Plan with the
following:
(1) A copy of the proposed exemption and/or the final exemption, if
granted, when such documents become available;
(2) A copy of an updated prospectus of each Portfolio at least
annually; and
(3) A report or statement (which may take the form of the most
recent financial report, the current Statement of Additional
Information, or some other written statement) which contains a
description of all fees paid by the Portfolios to TS&W, DSI or any
affiliate thereof, upon the request of the Second Fiduciary.
(q) All acquisitions and sales of shares of the Portfolios on and
after August 26, 1996 are made in compliance with the terms and
conditions of Prohibited Transaction Exemption (PTE) 77-4 (42 FR 18732,
April 8, 1977).3
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3 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
certain conditions are met.
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(r) TS&W and its affiliates maintain for a period of six years the
records necessary to enable the persons described below in paragraph
(s) 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 TS&W or an
affiliate, the records are lost or destroyed prior to the end of the
six-year period, and (2) no party in interest other than TS&W or an
affiliate 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
[[Page 4805]]
4975(a) and (b) of the Code if the records are not maintained or are
not available for examination as required by paragraph (s) below.
(s) (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 (r) 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 Plan who has authority to acquire or
dispose of shares of the Portfolios owned by the Plan, or any duly
authorized employee or representative of such fiduciary, and
(iii) Any participant or beneficiary of the Plan or duly authorized
employee or representative of such participant or beneficiary.
(2) None of the persons described in paragraph (s)(1)(ii) and (iii)
shall be authorized to examine trade secrets of TS&W or its affiliates,
or commercial or financial information which is privileged or
confidential.
Section III--Definitions
For purposes of this proposed exemption:
(a) The term ``TS&W'' means Thompson, Siegel and Walmsley, Inc. 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 ``Portfolios'' means the TS&W Equity and Fixed Income
Portfolios and the DSI Money Market Portfolio, each a series of the UAM
Funds, Inc., an open-end series investment company registered under the
'40 Act, with respect to which TS&W and DSI, respectively serve as the
investment adviser and for which UAM Fund Services provides certain
``secondary services'' as defined below in paragraph (h).
(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 Portfolio's
prospectus and statement of additional information, and other assets
belonging to the Portfolio, less the liabilities charged to each such
Portfolio, by the number of outstanding shares.
(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 acting for the
Plan who is independent of and unrelated to TS&W and its affiliates.
4 For purposes of this proposed exemption, the Second Fiduciary
will not be deemed to be independent of and unrelated to TS&W if:
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4 The Second Fiduciary which acted for the Plan was the
Lewis-Gale Clinic, Inc. (the Plan Sponsor) and the individuals who
acted for the Plan Sponsor in carrying out its responsibilities as
the named fiduciary for the Plan.
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(1) Such fiduciary directly or indirectly controls, is controlled
by, or is under common control with TS&W or an affiliate;
(2) Such fiduciary, or any officer, director, partner, employee, or
relative of the fiduciary is an officer, director, partner or employee
of TS&W or an affiliate (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 proposed exemption.
(h) The term ``Secondary Service'' means a service other than an
investment management, investment advisory, or similar service, which
was provided by TS&W's affiliate, UAM Fund Services, to the Portfolios.
EFFECTIVE DATE: The proposed exemption, if granted, will be effective
for the subject transactions from April 16, 1996 until August 26, 1996.
Summary of Facts and Representations
1. TS&W is an investment adviser registered under the Investment
Advisers Act of 1940. TS&W is a wholly-owned subsidiary of United Asset
Management Corporation (UAM). Several of UAM's wholly-owned
subsidiaries, including TS&W, serve as investment advisers to series of
UAM Funds, Inc. (the UAM Funds),5 an open-end, series management
investment company registered under the '40 Act. Another wholly-owned
subsidiary of UAM Funds, UAM Fund Distributors, Inc. (UAM Distributors)
serves as sole distributor of shares of the UAM Funds.
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\5\ The UAM Funds were formerly known as ``The Regis Fund,
Inc.''
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TS&W serves as an investment adviser to several individual and
institutional clients, including employee benefit plans covered under
the Act. Another of UAM's wholly-owned subsidiaries, Dewey Square
Investors Corporation (i.e. DSI), is the investment adviser for
additional series of the UAM Funds. As discussed further below, the
transactions which are the subject of this proposed exemption involve
the acquisition and sale of shares of a series of the UAM Funds by a
single employee benefit plan--the Lewis-Gale Clinic, Inc. Profit
Sharing Plan (i.e. the Plan)--for which TS&W serves as a fiduciary
under the Act.
2. The UAM Funds, for which TS&W acts as an investment adviser,
that are involved in the transactions covered by this proposed
exemption, are the TS&W Equity Portfolio, the TS&W Fixed Income
Portfolio, and the TS&W International Equity Portfolio (referred to
hereafter collectively as ``the Portfolios'' or individually as a
``TS&W Portfolio'').
TS&W is paid an asset-based annual fee for its investment advisory
services to each of the Portfolios. These fees, which are a specified
percentage of the net asset value of the particular Portfolio, are as
follows: (i) 0.75 percent for the TS&W Equity Portfolio; (ii) 1.00
percent for the TS&W International Equity Portfolio; and (iii) 0.45
percent for the TS&W Fixed Income Portfolio.
Each TS&W Portfolio is sold on a completely no-load basis. The
applicant states that there are no redemption fees or exchange fees,
and no distribution costs or ``12b-1 fees'' (fees payable pursuant to a
distribution plan described in SEC Rule 12b-1 under the '40 Act)
incurred by the Portfolios.
Each TS&W Portfolio may issue shares to investors in exchange for
securities--i.e. on an in-kind basis--if such securities are eligible
for acquisition by that Portfolio. Securities acquired by a TS&W
Portfolio on an in-kind basis must be valued at the closing price for
such securities as determined by independent market sources on the day
on which they are accepted by the Portfolio. All valuations of such
securities must be made in accordance with SEC Rule 17a-7(b).
DSI also acts as the investment adviser to a series of the UAM
Funds known as the DSI Money Market Portfolio (i.e. the DSI Portfolio).
DSI is paid an asset-based annual fee for its investment advisory
services to the DSI Portfolio. This fee is currently 0.18 percent of
the net asset value of the DSI
[[Page 4806]]
Portfolio.6 The DSI Portfolio is also sold on a no-load basis, and
there are no redemption fees or exchange fees, and no distribution
costs or ``12b-1 fees'' incurred for the Portfolio.
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\6\ As disclosed in the prospectus for the DSI Portfolio, DSI's
gross fee is actually 0.40 percent. However, since July 1, 1995 and
until further notice, DSI has voluntarily agreed to waive a portion
of its fee such that its actual fee, taking into account the waiver,
is only 0.18 percent.
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3. Prior to April 15, 1996, the administrator of the UAM Funds was
Chase Global Funds Service Company (Chase Global), a subsidiary of
Chase Manhattan Bank, the UAM Funds' custodian. Chase Global and Chase
Manhattan Bank are not related to TS&W or UAM. In its capacity as
administrator, Chase Global provided administrative, fund accounting,
dividend disbursing and transfer agent services to the UAM Funds. Since
April 15, 1996, UAM Fund Services, Inc. (i.e. UAM Fund Services), a
wholly-owned subsidiary of UAM, has been responsible for performing and
overseeing these ``secondary services'' for the UAM Funds. UAM Fund
Services has subcontracted the performance of certain of the
``secondary services'' to Chase Global. TS&W states that the decision
to engage UAM Fund Services to provide these ``secondary services'' to
the UAM Funds, including the Portfolios, as well as the decision to
subcontract certain of such services to Chase Global, was made by the
Board of Directors of the UAM Funds--the majority of whose members are
independent of TS&W.
Each TS&W Portfolio pays a fee for administrative services to UAM
Fund Services which is comprised of two parts: (i) A Portfolio-specific
asset-based fee which is retained by UAM Fund Services, and (ii) a sub-
administration asset-based fee which UAM Fund Services pays to Chase
Global. The Portfolio-specific fees which are retained by UAM Fund
Services are .06 percent for the TS&W Equity and International Equity
Portfolios and .04 percent for the TS&W Fixed Income Portfolio. Chase
Global's fee is based on a sliding scale that is applied to the total
assets of the UAM Funds, which is allocated to the various series of
the UAM Funds, including the Portfolios, on the basis of their relative
assets.
The applicant represents that the combined total of all fees
received by TS&W and its affiliates for the provision of services to
the Plan, and in connection with the provision of services to the
Portfolios in which the Plan invests, is not in excess of ``reasonable
compensation'' within the meaning of section 408(b)(2) of the
Act.7
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\7\ The Department is not providing any opinion in this proposed
exemption as to whether the fees received by TS&W and its affiliates
were reasonable in connection with the services provided to the
Plan, during the period covered by the proposed exemption, nor
whether the conditions of section 408(b)(2) of the Act and the
regulations thereunder were met (see 29 CFR 2550.408b-2).
---------------------------------------------------------------------------
4. The Plan is a defined contribution, profit sharing plan
maintained by the Lewis-Gale Clinic, Inc. (the Plan Sponsor). The Plan
Sponsor is a provider of medical services located at 1802 Braeburn
Drive in Salem, Virginia. As of September 1, 1996, there were
approximately 935 Plan participants, 555 of whom were invested in Fund
E through their Plan accounts. The value of the Plan's assets was
approximately $69,442,775, as of April 1, 1996. Approximately 30.8
percent of the value of the Plan's total assets (i.e. $21,368,628) was
held in Fund E as of such date. The Plan's trustee and custodian was
and continues to be First Union National Bank of North Carolina (First
Union).
5. The applicant represents that since 1979 TS&W has been retained
by the Plan Sponsor to manage a balanced portfolio of Plan assets on a
separate account basis, known as ``Fund E'' for Plan administration
purposes, consisting of a mix of equity and fixed income securities and
cash equivalents. The most recent version of the investment management
agreement between the Plan Sponsor and TS&W was executed on March 23,
1992 (the Management Agreement). Pursuant to the Management Agreement,
TS&W has full power to supervise and direct the investment of the
assets comprising Fund E, in its discretion, in accordance with such
objectives as the Plan Sponsor may, from time to time, furnish TS&W in
writing. Consistent with the Plan Sponsor's objectives, TS&W invested
the assets of Fund E in a mix of equity and fixed income securities and
cash equivalents. TS&W has met and continues to meet with the Plan
Sponsor twice a year to report on the performance of Fund E and other
matters relating to its administration, and to discuss the Plan
Sponsor's objectives for Fund E and any changes thereto.
Pursuant to the Management Agreement, TS&W receives an asset-based
annual fee from the Plan that is based on a sliding scale. This fee
schedule is as follows:
------------------------------------------------------------------------
Fee
Assets under management (percent)
------------------------------------------------------------------------
first $500,000............................................. 1.00
next $500,000.............................................. 0.75
next $4,000,000............................................ 0.60
next $10,000,000........................................... 0.50
next $15,000,000........................................... 0.40
next $20,000,000........................................... 0.30
next $50,000,000........................................... 0.25
------------------------------------------------------------------------
Pursuant to a letter agreement dated September 13, 1993 (the Letter
Agreement), the Plan Sponsor authorized TS&W to invest a portion of the
assets of Fund E in shares of the TS&W International Equity Portfolio.
The applicant states that it was the intention of the parties that by
executing the Letter Agreement, and by the disclosures made by TS&W
relating thereto, that the subsequent investments of Fund E assets in
the TS&W International Equity Portfolio would comply with the
conditions of PTE 77-4.8 Since September 13, 1993, various cash
purchases and sales of shares of the TS&W International Equity
Portfolio have been made on behalf of the Plan. TS&W represents that
these transactions have been made in compliance with the terms and
conditions of PTE 77-4. Therefore, the applicant is not requesting an
individual exemption for such transactions.9
---------------------------------------------------------------------------
\8\ As noted in footnote 1 above, PTE 77-4 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 certain conditions are met. Such conditions require,
among other things, that the plan may 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. However, 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 '40 Act. In
addition, 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.
\9\ The Department is expressing no opinion in this proposed
exemption regarding whether any transactions with the TS&W
International Equity Portfolio under the circumstances described
herein were covered by PTE 77-4.
---------------------------------------------------------------------------
6. The applicant states that at all times relevant to the
transactions by the Plan to which this proposed exemption relates, the
Plan permitted participants to self-direct the investment of their
respective account balances among various investment choices made
available by the Plan Sponsor, one of which is Fund E. The Plan Sponsor
is the named fiduciary responsible for designating the investment
options made available to participants and beneficiaries and for hiring
and firing
[[Page 4807]]
the Plan's investment managers. The applicant states further that
neither TS&W, DSI, the UAM Funds, nor any of their affiliates, is
related to the Plan Sponsor and its affiliates. Therefore, for purposes
of the conditions of this proposed exemption, the applicant maintains
that the Plan Sponsor acted as a Second Fiduciary which was independent
of and unrelated to TS&W and its affiliates (see Section III(g) and
footnote 2 above).
7. The circumstances which prompted the prohibited transactions
that would be covered by the requested exemption, if granted, are
described in the following paragraphs.
In June 1995, the Plan Sponsor informed TS&W that it was
considering a change in the self-direction feature of the Plan whereby
participants would be able to make investment elections and changes
thereto on a daily basis, in lieu of the quarterly election procedures
then in place, and that it wished to retain Fund E as an investment
option after the shift to a daily election format was achieved.
Specifically, the Plan Sponsor wished to retain TS&W to continue to
manage a balanced investment fund which would be made available to
participants as an investment option, provided that such investment
fund could be structured to accommodate daily transactions by
participants into and out of that Fund. TS&W agreed to work with First
Union to structure Fund E so that it could accommodate daily
transactions during 1996.
During the early part of 1996, TS&W met with the Plan Sponsor to
propose a restructuring of Fund E to accommodate the Plan's daily
transaction format. The essence of the proposal was that this
accommodation would be achieved by converting the individual equity and
fixed income securities held by Fund E to shares of the TS&W Equity and
Fixed Income Portfolios. The applicant states that the primary basis
for this proposal was that the TS&W Equity and Fixed Income Portfolios
(as well as the TS&W International Equity Portfolio, shares of which
were already held by Fund E) were already subject to daily valuation
requirements under the '40 Act, and that nearly all of the securities
held by Fund E were held by the TS&W Equity and Fixed Income
Portfolios. In addition, TS&W proposed that the conversion of the
equity and fixed income securities held by Fund E to shares of the TS&W
Equity and Fixed Income Portfolios would be accomplished by
transferring those securities to such Portfolios on an in-kind basis.
The in-kind transfer was proposed in order to avoid the brokerage costs
and market risk 10 that would result if the securities in Fund E
were sold for cash and the cash used to purchase shares of the
Portfolios, which cash would then be used by the Portfolios to purchase
additional securities.
---------------------------------------------------------------------------
\10\ The applicant states that the ``market'' risk is the risk
that the securities would appreciate in value during the
approximately three-day period following their sale by the Plan and
ending upon the purchase of comparable securities by the TS&W
Portfolios. In that event, the value of Fund E and each
participant's interest in Fund E would drop by an amount roughly
equal to the amount by which it would have increased had the
securities not been sold.
---------------------------------------------------------------------------
The applicant states that after further discussions between TS&W,
First Union and Chase Global over the following two months (i.e.
February and March 1996), TS&W also proposed that the cash equivalent
holdings of Fund E, which had been invested in the Federated Treasury
Obligation Fund, should be invested in the DSI Portfolio upon the
conversion of Fund E's equity and fixed income holdings as described
above. The rationale for this aspect of TS&W's proposal was that the
use of the DSI Portfolio would facilitate the daily valuation of Fund E
necessitated by the Plan's daily valuation structure, as well as Fund
E's cash management. Such transactions would involve the investment of
new money coming into Fund E, the transfer of cash out of Fund E in
connection with investments by participants in other Plan investment
options or Plan distributions, and the shifting of Fund E's holdings
between the Portfolios. These goals would be facilitated in this manner
because the TS&W Portfolios and the DSI Portfolio, all being series of
the UAM Funds, shared a single mutual fund custodian (i.e. Chase
Manhattan Bank) and a single mutual fund administrator (i.e. UAM Fund
Services).
TS&W also proposed that, in accordance with the Management
Agreement, it would continue to exercise authority to maintain the
desired balance of equity, fixed income, international and cash
equivalent holdings for Fund E by making adjustments to Fund E's
holdings of shares of the TS&W Portfolios and the DSI Portfolio, to
take into account fluctuations in the relative net asset values of the
Portfolios and any changes in the Plan Sponsor's stated objectives with
respect to the composition of Fund E. Finally, TS&W proposed that it
would not charge a fee for these allocation services, it would not
charge any Plan-level advisory fee with respect to assets invested in
the TS&W Portfolios or the DSI Portfolio, and it would incur any
additional costs required to value Fund E and units thereof on a daily
basis.
After receiving copies of current prospectuses for the TS&W
Portfolios and the DSI Portfolio, and additional information with
respect to the fee structures of the Portfolios, the Plan Sponsor
agreed orally to all aspects of TS&W's conversion proposal as described
above.11 Therefore, on April 16, 1996, TS&W directed First Union
to transfer the fixed income assets of Fund E to the TS&W Fixed Income
Portfolio in exchange for shares of that Portfolio, and directed First
Union to transfer the equity assets of Fund E to the TS&W Equity
Portfolio in exchange for shares of that Portfolio.
---------------------------------------------------------------------------
\11\ The applicant has submitted a written statement from Horace
Whitworth (Mr. Whitworth), the TS&W investment professional with
primary responsibility for the firm's relationship with the Plan
Sponsor and the Plan, which summarizes the relevant events leading
up to the subject transactions. Mr. Whitworth states that the
appropriate representatives of the Plan Sponsor orally approved all
aspects of the transactions in advance during the course of numerous
telephone conversations and personal meetings with him during
February, March and April 1996. Representatives of the Plan Sponsor
have also confirmed their approval of the transactions, and the
events leading to the transactions, in a separate declaration (see
Paragraph 8 above).
---------------------------------------------------------------------------
Each of TS&W's directions to First Union was confirmed in writing
the next day (April 17, 1996). TS&W's confirming letter to First Union,
and the enclosures thereto, included a listing of all fixed income and
equity securities held by Fund E as of April 16, 1996. The trade date
for the transfers was April 16, 1996. TS&W's instructions were carried
out by First Union on the dates indicated. The value of each security
transferred to the TS&W Equity and Fixed Income Portfolios was
determined in accordance with SEC Rule 17a-7(b) under the '40 Act. In
this regard, the applicant states that the Fund E assets were all
publicly and actively traded stocks and debt securities which were
readily valued by reference to the closing price for such securities as
determined by independent market sources on the date of the
transfer.12 The Plan received shares of each of the TS&W
Portfolios which had a total net asset value equal to the value of all
of the Plan's assets transferred in-kind to such Portfolio on the date
of the transfer (i.e. April 16, 1996). The actual valuation of the
securities and the determination of the number of shares
[[Page 4808]]
of each Portfolio to be issued to Fund E were determined by Chase
Global. TS&W's confirmation of the April 16 transfers was dated April
22, 1996 and was delivered by mail to the Plan Sponsor within seven (7)
days (see Section II(i) above).
---------------------------------------------------------------------------
\12\ The applicant states that for purposes of determining the
``closing price'' for all of the securities on the date of the
transfer, the timing of the valuations was based on the close of the
market for the New York Stock Exchange (i.e. 4:00 pm EST). At this
time, all of the various securities were valued in accordance with
the requirements of Rule 17a-7.
---------------------------------------------------------------------------
The Plan's holding in the Federated Treasury Obligation Fund were
redeemed shortly thereafter. By letter dated April 29, 1996, TS&W
directed First Union to purchase shares of the DSI Portfolio for the
Plan for cash. This transaction occurred the following day (April 30).
A confirmation statement for the transaction dated April 30, 1996, was
delivered by mail to the Plan Sponsor within seven (7) days (see
Section II(i) above).
The applicant represents that the value of Fund E's investment in
the TS&W Equity and Fixed Income Portfolios made on April 16, 1996,
taking into account the reinvestment of dividends, increased by 5.2
percent and 2.1 percent, respectively, through September 30, 1996.
The applicant states that after the initial acquisition of shares
of the TS&W Equity Portfolio, the TS&W Fixed Income Portfolio, and the
DSI Portfolio, TS&W directed certain additional purchases and sales of
shares of the Portfolios in connection with routine Fund E
administration. These transactions were occasioned by additions to and
withdrawals from Fund E attributable to participant-directed
investments or distributions, and by the reallocation of Fund E
holdings between the TS&W Portfolios and the DSI Portfolio.13 TS&W
is requesting that the proposed exemption cover these subsequent
transactions by Fund E with the Portfolios for the period from April
17, 1996 until August 26, 1996, since the Letter Agreement at that time
only covered transactions with the TS&W International Equity Portfolio.
TS&W states that the appropriate TS&W personnel at this time
erroneously believed that all transactions with the Portfolios had been
authorized under the Letter Agreement and were covered under PTE 77-
4.14
---------------------------------------------------------------------------
\13\ Information supplied by TS&W indicates that after the in-
kind transfer of Fund E's assets to TS&W Equity and Fixed Income
Portfolios, there were no subsequent cash purchases of these
Portfolios by Fund E during the period covered by this proposed
exemption. However, there were subsequent sales of shares of the
TS&W Portfolios and there were both purchases and sales of shares of
the DSI Portfolio on a cash basis during this period.
\14\ TS&W represents that its compliance officer reviewed TS&W's
procedural checklist at the time of such transactions and
erroneously assumed that the written authorization required by PTE
77-4 already existed for all of the TS&W Portfolios. In this regard,
TS&W states that although the Letter Agreement only specifically
authorized investments by Fund E in the TS&W International Equity
Portfolio, there was a mutual fund registration form and other
information in TS&W's file for the Plan which appeared to indicate
that authorization had been made by the Plan Sponsor for all three
TS&W Portfolios. Therefore, TS&W states that the transactions were
carried out in good faith.
---------------------------------------------------------------------------
8. On August 12, 1996, the Board of Directors of the Plan Sponsor
executed by unanimous consent a resolution approving, ratifying and
affirming the in-kind transfer of assets of Fund E to the TS&W Equity
Portfolio and the TS&W Fixed Income Portfolio, as well as the cash
purchases of shares of the DSI Portfolio as of April 15, 1996. Further,
in a new letter agreement between the parties dated August 26, 1996
(the New Letter Agreement), the Plan Sponsor acknowledged that it had
received the then current prospectuses for the TS&W Equity and Fixed
Income Portfolios and the DSI Portfolio prior to the April 1996
transactions, and that the in-kind transfers of securities to the TS&W
Equity and Fixed Income Portfolios and the cash transfers to the DSI
Portfolio (in exchange for shares of such Portfolios) were carried out
with its knowledge and consent. Pursuant to the New Letter Agreement,
all future purchases and redemptions of shares of the Portfolios will
be effected in accordance with the requirements of PTE 77-4. TS&W
represents in the New Letter Agreement that it will provide advance
notice to the Plan Sponsor of any increase in the investment advisory
or other fees for the Portfolios and, in such event, will attempt to
secure the Plan Sponsor's written authorization to continue the
investment of the Plan's assets in the corresponding Portfolios, as
required by the conditions of PTE 77-4.
9. The applicant represents that the subject transactions for which
an individual exemption is requested occurred without TS&W realizing
that the requirements of PTE 77-4 had not been met at the time of the
transactions. Following the completion of the April 1996 transactions,
the applicant states that in May 1996 First Union suggested to TS&W
that such transactions raised additional prohibited transaction issues
under the Act because the assets of Fund E were transferred in-kind to
the TS&W Equity and Fixed Income Portfolios. TS&W states that this was
the first time that it had any knowledge that additional prohibited
transaction issues were involved with the asset transfers. TS&W
consulted with its present legal counsel who then advised that the
protections of PTE 77-4 were not
applicable for in-kind transfers of assets.\15\
---------------------------------------------------------------------------
\15\ See DOL Opinion Letter 94-35A, n. 3 (November 3, 1994).
---------------------------------------------------------------------------
The applicant states that the subject transactions were carried out
by TS&W in good faith and that TS&W acted in the best interests of the
Plan and its participants and beneficiaries. Specifically, as discussed
above, TS&W caused the Plan to engage in the transactions in order to
accommodate the Plan Sponsor's dual objectives of: (i) Changing the
self-direction feature of the Plan from a quarterly-exchange format to
a daily-exchange format, and (ii) retaining the Plan's assets in the
same type of equity and fixed income securities as had been chosen by
TS&W as the investment manager for Fund E's portfolio. TS&W states that
the most practical option to achieve this result was to convert the
equity and fixed income holdings of Fund E to shares of the TS&W Equity
and Fixed Income Portfolios, an option which the Plan Sponsor endorsed
orally prior to the transaction. In this regard, TS&W informed the Plan
Sponsor that it would cost the Plan an additional $50,000 per year, at
a minimum, to implement a daily valuation and investment format for a
separate account portfolio of a size and type comparable to Fund E.
This amount would have been approximately $158,225 annually (i.e. a
total annual fee of .740 percent), based on the value of Fund E's
assets at that time, whereas the investment advisory fees for managing
the assets through the Portfolios was approximately $131,840 (i.e. a
total annual fee of .617 percent). Moreover, as noted below, virtually
all of the equity and debt securities held by Fund E were already held
by the TS&W Equity and Fixed Income Portfolios, respectively. Thus,
TS&W states that the most efficient and economical method of
accomplishing the Plan Sponsor's objectives was to invest the Fund E
assets in the TS&W Portfolios on an in-kind basis. Similarly, TS&W
believed that daily transfers into and out of, and distributions from
and valuations of, Fund E would be facilitated if Fund E's cash
equivalent holdings were invested in the DSI Portfolio rather than a
non-UAM money market fund.
TS&W represents that by converting Fund E's holdings of individual
equity and fixed income securities to shares of the TS&W Equity and
Fixed Income Portfolios, respectively, Fund E's investment mix and
market exposure were not materially changed. TS&W states that a
comparison of TS&W's April 22, 1996 letter to the Plan Sponsor
confirming the initial in-kind transfers
[[Page 4809]]
to the list of holdings of the TS&W Equity and Fixed Income Portfolios
as of April 12, 1996, reveals that the holdings of Fund E and the TS&W
Portfolios were almost identical. In this regard, 47 out of 50 of the
equity securities transferred in-kind to the TS&W Equity Portfolio,
representing approximately 98 percent of the aggregate value of all
such securities, were held by the TS&W Equity Portfolio as of April 12,
1996. In addition, 23 out of 25 of the fixed income securities
transferred to the TS&W Fixed Income Portfolio, representing
approximately 94 percent of the aggregate value of such securities,
were held by the TS&W Fixed Income Portfolio as of April 12, 1996. TS&W
also notes that the Plan and its participants and beneficiaries have
not suffered a loss as a result of the subject transactions and that
the investment performance of the assets during the period covered by
the proposed exemption was comparable to the performance of the
securities markets in general and to TS&W's performance outside of the
Portfolios.
Within 10 days of the date that this proposed exemption is granted,
TS&W has agreed to pay to the Plan an amount equal to the additional
net fees attributable to Fund E which TS&W and its affiliates (i.e. DSI
and UAM Fund Services) received during the period from April 17, 1996
until August 26, 1996, as a result of the investment of Fund E assets
in the Portfolios. In addition, TS&W has agreed to pay a reasonable
rate of interest on such amount which is at least equal to the rate of
return such assets would have earned as assets held in Fund E during
this period. TS&W estimates that the amount of the additional fees
during this 132-day period was approximately $8,150. This estimate is
based on the following data:
(i) the total investment management fees that would have been
charged by TS&W at the Plan-level (prior to the implementation of a
daily valuation arrangement) on an annual basis for the total assets in
Fund E (i.e. $21,368,628 as of April 16, 1996) was approximately
$108,225;
(ii) the total investment advisory and other fees that would have
been received by TS&W and its affiliates from the Portfolios for such
assets on an annual basis (less the $12,000 which TS&W paid to Chase
Global) was approximately $130,762; and
(iii) the difference between the amounts described above in (i) and
(ii) on an annual basis as adjusted for the 132-day period
involved.16
---------------------------------------------------------------------------
\16\ [132/365] x [$130,762-$108,225] = $8,150.
---------------------------------------------------------------------------
10. TS&W represents that the Plan and its participants and
beneficiaries were afforded protections comparable to those provided by
PTE 77-4 and various individual exemptions granted by the Department
for the conversion of collective investment funds maintained by a bank
to a mutual fund for which such bank or an affiliate acts as an
investment adviser.17 Such protections include: (i) No commissions
or 12b-1 fees were paid by the Plan in connection with the
transactions; (ii) TS&W did not collect a Plan-level fee on assets
invested in the TS&W Portfolios or the DSI Portfolio; (iii) advance
disclosures were made to the Plan Sponsor, which was an independent
Plan fiduciary (i.e. a Second Fiduciary); (iv) prior approval was
obtained from the Plan Sponsor, as described herein; (v) the securities
transferred in-kind were valued in accordance with the requirements of
SEC Rule 17a-7(b) under the '40 Act; (vi) the Plan received shares of
each of the TS&W Portfolios which had a total net asset value equal to
the value of all of the Plan's assets transferred in-kind to such
Portfolio on the date of the transfer (i.e. April 16, 1996) and (vii) a
written confirmation of the initial in-kind transfers was delivered by
TS&W within a matter of a few days after those transfers were completed
containing the appropriate information to inform the Plan Sponsor of
the essential details regarding the transactions. In addition, pursuant
to the New Letter Agreement between TS&W and the Plan Sponsor dated
August 26, 1996, all future acquisitions and redemptions of shares of
the Portfolios on behalf of the Plan's Fund E assets will be carried
out in accordance with the requirements of PTE 77-4.
---------------------------------------------------------------------------
\17\ See, for example, PTE 94-82 involving Marshall & Ilsley
Trust Company (59 FR 62422, December 5, 1994); PTE 94-86 involving
The Bank of California, N.A. (59 FR 65403, December 19, 1994); PTE
95-33 involving Bank South, N.A. (60 FR 20773, April 27, 1995); PTE
95-48 involving Mellon Bank, N.A. (60 FR 32995, June 26, 1995); and
PTE 95-49 involving Norwest Bank (60 FR 33000, June 26, 1995). See
also the Proposed Class Exemption for Bank Collective Investment
Fund Conversion Transactions, (61 FR 58224, November 13, 1996),
submitted on behalf of Federated Investors.
---------------------------------------------------------------------------
11. In summary, the applicant represents that the subject
transactions met the statutory criteria of section 408(a) of the Act
because, among other things: (a) No sales commissions or other fees
were paid by the Plan in connection with the acquisition of shares of
the Portfolios and no redemption fees were paid by the Plan in
connection with the sale by the Plan of such shares; (b) the Plan
Sponsor, as an independent Plan fiduciary, received advance notice of
the transactions and full disclosure of information concerning the
Portfolios; (c) on the basis of the information referred to above, the
Plan Sponsor orally approved the transactions, including the initial
in-kind transfer of Fund E's assets to the TS&W Portfolios in exchange
for shares of such Portfolios, prior to the transactions; (d) the Plan
Sponsor has acknowledged and confirmed in writing that it provided
advance oral approval of the transactions; (e) the assets of the Plan
transferred to the TS&W Portfolios were publicly-traded securities that
were valued at their closing prices (determined as of the close of the
New York Stock Exchange on the date of the transfer) in accordance with
independent market sources pursuant to the procedures described under
SEC Rule 17a-7(b); (f) the Plan received shares of each of the TS&W
Portfolios which had a total net asset value equal to the value of all
of the Plan's assets transferred in-kind to such Portfolio on the date
of the transfer; (g) TS&W sent by regular mail to the Plan Sponsor, not
more than seven (7) days after the completion of the in-kind transfers
to the TS&W Portfolios, a written confirmation which contained the
relevant information regarding the transactions; (h) the Plan did not
pay any plan-level investment management fees, investment advisory
fees, or similar fees to TS&W or an affiliate with respect to any of
the assets of such Plan which were invested in shares of any of the
Portfolios; (i) the combined total of all fees received by TS&W and its
affiliates for the provision of services to the Plan, and in connection
with the provision of services to the Portfolios in which the Plan
invested, was not in excess of ``reasonable compensation'' within the
meaning of section 408(b)(2) of the Act; (j) TS&W will pay the Plan an
amount equal to the additional net fees attributable to Fund E which
TS&W and its affiliates received during the period from April 17, 1996
until August 26, 1996, as a result of the investment of Fund E's assets
in the Portfolios, plus a reasonable rate of interest on such amount;
(k) neither TS&W, DSI nor any affiliate thereof received fees payable
pursuant to Rule 12b-1 under the '40 Act in connection with the
transactions involving the Portfolios; and (l) all dealings between the
Plan and the Portfolios were on a basis no less favorable to the Plan
than dealings with other shareholders of the Portfolios.
Notice to Interested Persons
Notice of the proposed exemption shall be given to all interested
persons, including each Plan participant who
[[Page 4810]]
had interests in Fund E during the period covered by the proposed
exemption. Notice to interested persons shall be provided by first
class mail and/or posting in the workplace within sixty (60) days
following the publication of the proposed exemption in the Federal
Register. Such notice shall include a copy of the notice of proposed
exemption as published in the Federal Register and a supplemental
statement (see 29 CFR 2570.43(b)(2)) which informs all interested
persons of their right to comment on and/or request a hearing with
respect to the proposed exemption. Comments and requests for a public
hearing are due within ninety (90) days following the publication of
the proposed exemption in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Mr. E. F. Williams of the Department,
telephone (202) 219-8194. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest of disqualified
person from certain other provisions of the Act and/or the Code,
including any prohibited transaction provisions to which the exemption
does not apply and the general fiduciary responsibility provisions of
section 404 of the Act, which among other things require a fiduciary to
discharge his duties respecting the plan solely in the interest of the
participants and beneficiaries of the plan and in a prudent fashion in
accordance with section 404(a)(1)(b) of the act; nor does it affect the
requirement of section 401(a) of the Code that the plan must operate
for the exclusive benefit of the employees of the employer maintaining
the plan and their beneficiaries;
(2) Before an exemption may be granted under section 408(a) of the
Act and/or section 4975(c)(2) of the Code, the Department must find
that the exemption is administratively feasible, in the interests of
the plan and of its participants and beneficiaries and protective of
the rights of participants and beneficiaries of the plan;
(3) The proposed exemptions, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act and/or the
Code, including statutory or administrative exemptions and transitional
rules. Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction; and
(4) The proposed exemptions, if granted, will be subject to the
express condition that the material facts and representations contained
in each application are true and complete and accurately describe all
material terms of the transaction which is the subject of the
exemption. In the case of continuing exemption transactions, if any of
the material facts or representations described in the application
change after the exemption is granted, the exemption will cease to
apply as of the date of such change. In the event of any such change,
application for a new exemption may be made to the Department.
Signed at Washington, DC, this 28th day of January, 1997.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 97-2387 Filed 1-30-97; 8:45 am]
BILLING CODE 4510-29-P
