[Federal Register Volume 62, Number 43 (Wednesday, March 5, 1997)]
[Notices]
[Pages 10078-10085]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-5431]
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DEPARTMENT OF LABOR
[Prohibited Transaction Exemption 97-15; Exemption Application No. D-
10172, et al.]
Grant of Individual Exemptions; The Chicago Corporation (TCC), 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
[[Page 10079]]
the prohibited transaction restrictions of the Employee Retirement
Income Security Act of 1974 (the Act) and/or the Internal Revenue Code
of 1986 (the Code).
Notices were published in the Federal Register of the pendency
before the Department of proposals to grant such exemptions. The
notices set forth a summary of facts and representations contained in
each application for exemption and referred interested persons to the
respective applications for a complete statement of the facts and
representations. The applications have been available for public
inspection at the Department in Washington, DC. The notices also
invited interested persons to submit comments on the requested
exemptions to the Department. In addition the notices stated that any
interested person might submit a written request that a public hearing
be held (where appropriate). The applicants have represented that they
have complied with the requirements of the notification to interested
persons. No public comments and no requests for a hearing, unless
otherwise stated, were received by the Department.
The notices of proposed exemption were issued and the exemptions
are being granted solely by the Department because, effective December
31, 1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR
47713, October 17, 1978) transferred the authority of the Secretary of
the Treasury to issue exemptions of the type proposed to the Secretary
of Labor.
Statutory Findings
In accordance with section 408(a) of the Act and/or
section 4975(c)(2) of the Code and the procedures set forth in 29 CFR
part 2570, subpart B (55 FR 32836, 32847, August 10, 1990) and based
upon the entire record, the Department makes the following findings:
(a) The exemptions are administratively feasible;
(b) They are in the interests of the plans and their participants
and beneficiaries; and
(c) They are protective of the rights of the participants and
beneficiaries of the plans.
The Chicago Corporation (TCC), Located in Chicago, IL
(Prohibited Transaction Exemption 97-15; Application No. D-10172)
Exemption
Section I. Covered Transactions
The restrictions of section 406(a) of the Act and the sanctions
resulting from the application of section 4975 of the Code, by reason
of section 4975(c)(1) (A) through (D) of the Code, shall not apply to
the proposed sale, for cash or other consideration, by the Midwest Banc
Fund IV Group Trust (the BF IV Group Trust) in which employee benefit
plans (the Plans) invest, of certain securities (the Securities) that
are held in the BF IV Group Trust Portfolio, to a party in interest
with respect to a participating Plan, where the part in interest
proposes to acquire or merge with a bank company (the Bank Company) or
a financial services company (the Financial Services Company) that
issued such securities.
In addition, the restrictions of section 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)(E) of the Code, shall
not apply to the payment of a performance fee (the Performance Fee) by
Plans investing in the BF IV Group Trust to TCC.
This exemption is subject to the following conditions as set forth
below in Section II.
Section II. General Conditions
(a) Prior to a Plan's investment in the BF IV Group Trust, a Plan
fiduciary which is independent of TCC and its affiliates (the
Independent Fiduciary) approves such investment on behalf of the Plan.
(b) Each Plan investing in the BF IV Group Trust has total assets
that are in excess of $50 million.
(c) No Plan invests more than 10 percent of its assets in
beneficial interests (the Beneficial Interests) in the BF IV Group
Trust and such Beneficial Interests held by the Plan may not exceed 25
percent of the Group Trust.
(d) No Plan may invest more than 25 percent of its assets in
investment vehicles (i.e., collective investment funds or separate
accounts) managed or sponsored by TCC and/or its affiliates.
(e) Prior to investing in the BF IV Group Trust,
(1) Each Independent Fiduciary receives a Private Placement
Memorandum and its supplement containing description of all material
facts concerning the purpose, structure and the operation of the BF IV
Group Trust.
(2) An Independent Fiduciary who expresses further interest in the
BF IV Group Trust receives--
(A) A copy of the Group Trust Agreement outlining the
organizational principles, investment objectives and administration of
the BF IV Group Trust, the manner in which Beneficial Interests may be
redeemed, the duties of the parties retained to administer the BF IV
Group Trust and the manner in which BF IV Group Trust assets will be
valued;
(B) A copy of the Investment Management Agreement describing the
duties and responsibilities of TCC, as investment manager of the BF IV
Group Trust, the rate of compensation that it will be paid and
conditions under which TCC may be terminated; and
(C) Copies of the proposed exemption and grant notice covering the
exemptive relief provided herein.
(3) If accepted as an investor in the Group Trust, the Independent
Fiduciary is--
(A) Furnished with the names and addresses of all other
participating Plans;
(B) Required to acknowledge, in writing, prior to purchasing a
Beneficial Interest in the BF IV Group Trust that such Independent
Fiduciary has received copies of such documents; and
(C) Required to acknowledge, in writing, to TCC that such fiduciary
is independent of TCC and its affiliates, capable of making an
independent decision regarding the investment of Plan assets,
knowledgeable with respect to the Plan in administrative matters and
funding matters related thereto, and able to make an informed decision
concerning participation in the BF IV Group Trust.
(f) Each Plan, including the trustee (the Trustee) of the BF IV
Group Trust, receives the following written disclosures from TCC with
respect to its ongoing participation in the BF IV Group Trust:
(1) Within 120 days after the end of each fiscal year of the BF IV
Group Trust as well as at the time of termination, an annual financial
report containing a balance sheet for the BF IV Group Trust as of the
end of such fiscal year and a statement of changes in the financial
position for the fiscal year, as audited and reported upon by
independent, certified public accountants. The annual report will also
disclose the fees paid or accrued to TCC.
(2) Within 60 days after the end of each quarter (except in the
last quarter) of each fiscal year of the BF IV Group Trust, an
unaudited quarterly financial report consisting of at least a balance
sheet for the BF IV Group Trust as of the end of such quarter and a
profit and loss statement for such quarter. The quarterly report will
also specify the fees that are actually paid to or accrued to TCC.
(3) Such other information as may be reasonably requested by the
Plans or the Trustee (e.g., certain trading activity and portfolio
status reports provided to the Trustee as required by Prohibited
Transaction Exemption 86-128 (51 FR
[[Page 10080]]
41686, November 16, 1986) in order to comply with the reporting
requirements of the Act and the Code.
(g) At least annually, TCC holds a meeting of the participating
Plans at which time the Independent Fiduciaries of investing Plans are
given the opportunity to decide on whether the BF IV Group Trust, the
Trustee or TCC should be terminated as well as to discuss any aspect of
the BF IV Group Trust and the agreements promulgated thereunder with
TCC.
(h) During each year of the BF IV Group Trust's existence, TCC
representatives are available to confer by telephone or in person with
Independent Fiduciaries on matters concerning such Group Trust.
(i) The terms of all transactions that are entered into on behalf
of the BF IV Group Trust by TCC remain at least as favorable to an
investing Plan as those obtainable in arm's length transactions with
unrelated parties. In this regard, the valuation of assets in the BF IV
Group Trust that is done in connection with the payment of Performance
Fees is based upon independent market quotations or (where the same are
unavailable) determinations made by an independent appraiser.
(j) In the case of the sale by the BF IV Group Trust of Securities
to a party in interest with respect to a participating Plan, the party
in interest is not TCC, any employer of a participating Plan, or any
affiliated thereof, and the BF IV Group Trust receives the same terms
as is offered to other shareholders of a Bank Company or a Financial
Services Company.
(k) As to each Plan, the total fees paid to TCC and its affiliates
constitute no more than ``reasonable compensation'' within the meaning
of section 408(b)(2) of the Act.
(l) TCC's Performance Fee is based upon a predetermined percentage
of net realized gains minus net unrealized losses. In this regard.
(1) The Performance Fee is not to be paid before December 31, 2001,
which represents the completion of the projected acquisition phase of
the BF IV Group Trust, and not until all participating Plans have
received distributions equal to 100 percent of their capital
contributions made to the BF IV Group Trust.
(2) Prior to the termination of the BF IV Group Trust, no more than
75 percent of the Performance Fee credited to TCC is withdrawn from
such Group Trust.
(3) The Performance Fee account established for TCC is credited
with realized gains and losses and charged for net unrealized losses
and fee payments.
(4) No portion of the Performance Fee is withdrawn if the
Performance Fee Account is in a deficit position.
(5) TCC repays all deficits in its Performance Fee account and it
maintains a 25 percent cushion in such account before receiving any
further fee payment.
(m) Either TCC or the Trustee, on behalf of Plans participating in
the BF IV Group Trust, may terminate the Investment Management
Agreement at any time pursuant to the provisions in such agreement.
(n) TCC maintains, for a period of six years, the records necessary
to enable the persons described in paragraph (o) of this 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 TCC and/or its
affiliates, the records are lost or destroyed prior to the end of the
six year period; and
(2) No party in interest other than TCC shall be subject to the
civil penalty that may be assessed under section 502(i) or 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 (o) below.
(o)(1) Except as provided in section (o)(2) of this paragraph and
notwithstanding any provisions of subsections (a)(2) and (b) of section
504 of the Act, the records referred to in paragraph (n) of this
Section II shall be unconditionally available at their customary
location during normal business hours by:
(A) Any duly authorized employee or representative of the
Department or the Internal Revenue Service;
(B) Any Independent Fiduciary of a participating Plan or any duly
authorized representative of such Independent Fudiciary;
(C) Any contributing employer to any participating Plan or any duly
authorized employee representative of such employer; and
(D) Any participant or beneficiary of any participating Plan, or
any duly authorized representative of such participant or beneficiary.
(o)(2) None of the persons described above in subparagraphs (B)-(D)
of this paragraph shall be authorized to examine the trade secrets of
TCC or commercial or financial information which is privileged or
confidential.
Section III. Definitions
For purposes of this exemption,
(a) the term ``TCC'' means The Chicago Corporation and any
affiliate of TCC as defined in paragraph (b) of Section III.
(b) An ``affiliate'' of TCC includes--
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with TCC.
(2) Any officer, director or partner in such person, and
(3) Any corporation or partnership of which such person is an
officer, director or a 5 percent partner or owner.
(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) An ``Independent Fiduciary'' is Plan fiduciary who is
independent of TCC and its affiliates and is either a Plan
administrator, trustee, named fiduciary, as the recordholder of
Beneficial Interests in the BF IV Group Trust or an investment manager.
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 on January 14, 1997 at 62 FR 1913.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
United States Trust Company of New York and Certain of Its Affiliates,
Located in New York, New York
(Prohibited Transaction Exemption 97-17; Application Nos. D-10234 and
D-10235)
Section I--Exemption for In-Kind Transfers of Assets
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, effective as of May 31, 1996, to the in-kind transfer to any
diversified open-end investment company (the Fund or Funds) registered
under the Investment Company Act of 1940 (the ICA) to which the United
States Trust Company of New York or any of its affiliates
(collectively, US Trust) serves as investment adviser and may provide
other services (i.e. ``Secondary Services'' as defined in Section
III(h) below, of the assets of various employee benefit plans (the Plan
or Plans) that are either held in certain collective investment funds
(the CIF or CIFs) maintained by US Trust or
[[Page 10081]]
otherwise held by US Trust as trustee, investment manager, or in any
other capacity as fiduciary on behalf of the Plans, in exchange for
shares of such Funds; provide that the following conditions are met:
(a) A fiduciary (the Second Fiduciary) who is acting on behalf of
each affected Plan and who is independent of and unrelated to US Trust,
as defined in Section III(g) below, receives advance written notice of
the in-kind transfer of assets of the Plans or the CIFs in exchange for
shares of the Fund and the disclosures described in Section II(f)
below.
(b) On the basis of the information described in Section II(f)
below, the Second Fiduciary authorizes in writing the in-kind transfer
of CIF or Plan assets in exchange for shares of the Funds, the
investment of such assets in corresponding portfolios of the Funds, and
the fees received by US Trust in connection with its services to the
Fund. Such authorization by the Second Fiduciary is to be consistent
with the responsibilities, obligations, and duties imposed on
fiduciaries by Part 4 of Title I of the Act.
(c) No sales commissions are paid by the Plans in connection with
the in-kind transfers of CIF or Plan assets in exchange for shares of
the Funds.
(d) All or a pro rata portion of the assets of the Plans held in
the CIFs or all or a pro rata portion of the assets of the Plans held
by US Trust in any capacities as fiduciary on behalf of such Plans are
transferred in-kind to the Funds in exchange for shares of such Funds.
Notwithstanding the foregoing, solely for purposes of this paragraph
(d), assets of the 401(k) Plan and ESOP of United States Trust Company
of New York and Affiliated Companies (the UST DC Plan) held by US Trust
as trustee and allocated to the U.S. Government Short/Intermediate Term
Investment Fund shall be treated as assets held in a CIF.
(e) The Plans or the CIFs receive shares of the Funds that have a
total net asset value equal in value to the assets of the Plans or the
CIFs exchanged for such shares on the date of transfer.
(f) With respect to any in-kind transfer of CIF assets to a Fund,
each Plan receives shares of a Fund which have a total net asset value
that is equal to the value of the Plan's pro rata share of the assets
of the corresponding 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 as of the close of the same
business day with respect to all such Plans participating in the
transaction on such day, using independent sources in accordance with
the procedures set forth in Rule 17a-7(b) under the ICA (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 last business day prior to
the in-kind transfers, determined on the basis of reasonable inquiry
from at least three sources that are broker-dealers or pricing services
independent of US Trust.
(g)(1) Not later than thirty (30) days after completion of each in-
kind transfer of CIF or Plan assets in exchange for shares of the Funds
(except for certain transactions described in paragraph (g)(2) below),
US Trust sends by regular mail to the Second Fiduciary, a written
confirmation containing:
(i) the identity of each of the assets that are valued for purposes
of the transaction in accordance with Rule 17a-7(b)(4) under the ICA;
(ii) the price of each of the assets involved in the transaction;
and
(iii) the identity of each pricing service or market maker
consulted in determining the value of such assets;
(2) For the in-kind transfer of CIF assets to the Funds which
occurred on June 28 and July 31, 1996, the written confirmations
described above in paragraph (g)(1) were made by US Trust to all Second
Fiduciaries of the appropriate Plans by October 15, 1996.
(h) For all in-kind transfer of CIF assets, US Trust sends by
regular mail to the Second Fiduciary, no later than ninety (90) days
after completion of the asset transfer made in exchange for shares of
the Funds, a written confirmation containing:
(1) the number of CIF units held by each affected Plan immediately
before the in-kind transfer, the related per unit value, and the
aggregate dollar value of the units transferred; and
(2) the number of shares in the Funds that are held by each
affected Plan following the in-kind transfer, the related per share net
asset value, and the aggregate dollar value of the shares received.
(i) The conditions set forth in paragraphs (d), (e), (f), (o), (p),
and (q) of Section II below are satisfied.
Section II--Exemption for Receipt of Fees From Funds
The restrictions of section 406(a) and section 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, effective as of June 30, 1996, to the receipt of fees by US
Trust from the Funds for acting as the investment adviser for the Funds
as well as for acting as the custodian, transfer agent, sub-
administrator or for providing other ``Secondary Services'' (as defined
in Section III(h) below) to the Funds in connection with the investment
in the Funds by Plans for which US Trust acts as a fiduciary (Client
Plans), other than Plans established and maintained by US Trust for the
benefit of its employees and their beneficiaries (Bank Plans), provided
that the following conditions are met:
(a) No sales commissions are paid by the Client Plans in connection
with purchases or sales of shares of the Funds and no redemption fees
are paid in connection with the sale of such shares by the 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 Section
III(e), 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 US Trust nor any affiliate (including officers,
directors and other persons, as defined in Section III(b) below)
purchases from or sells to the Client Plans any shares of the Funds.
(d) For each Client Plan, the combined total of all fees received
by US Trust for the provision of services to the Client Plan, and in
connection with the provision of services to any of the Funds in which
the Plan may invest, are not in excess of ``reasonable compensation''
within the meaning of section 408(b)(2) of the Act.
(e) US Trust or an affiliate does not receive any fees payable,
pursuant to Rule 12b-1 under the ICA (the 12b-1 Fees) in connection
with the transactions.
(f) The Second Fiduciary who is acting on behalf of a Client Plan
receives in advance of the investment by a Plan in any of the Funds a
full and detailed written disclosure of information concerning such
Fund including, but not limited to:
(1) a current prospectus for each portfolio of each of the Funds in
which such Client Plan is considering investing;
(2) a statement describing the fees for investment management,
investment advisory, or other similar services, any fees for Secondary
Services, as defined in Section III(h) below, and all other fees to be
charged to or paid by the
[[Page 10082]]
Client Plan and by such Funds to US Trust, including the nature and
extent of any differential between the rates of such fees;
(3) the reasons why US Trust may consider such investment to be
appropriate for the Client Plan;
(4) a statement describing whether there are any limitations
applicable to US Trust 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).
(g) On the basis of the information described in Section II(f)
above, the Second Fiduciary authorizes in writing the investment of
assets of the Client Plan in shares of the Fund and the fees to be paid
to US Trust in connection with its services to the Funds. The
authorization may be the Second Fiduciary must be consistent with the
duties, responsibilities and obligations imposed on fiduciaries by Part
4 of Title I of the Act.
(h) The authorization described above in Section II(g) is
terminable at will by the Second Fiduciary of a Client Plan, without
penalty to such Plan, upon receipt by US Trust of written notice of
termination. Such termination will be effected by US Trust selling the
shares of the Fund held by the affected Client Plan within one business
day following receipt by US Trust of the termination form (the
Termination Form), as defined in Section III(i) below, or any other
written notice of termination; provided that if, due to circumstances
beyond the control of US Trust, the sale cannot be executed within one
business day, US Trust shall have one additional business day to
complete such sale.
(i) 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 US Trust, including any
investment advisory fees paid by US Trust to third party sub-advisers,
within not more than one business day after the receipt of such fees by
US Trust. The crediting of all such fees to the Client Plans by US
Trust 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.
(j) In the event of an increase in the rate of any fees paid by the
Funds to US Trust regarding any investment management services,
investment advisory services, or fees for similar services that US
Trust provides to the Funds over an existing rate for such services
that had been authorized by a Second Fiduciary, in accordance with
Section II(g), US Trust will, at least thirty (30) days in advance of
the implementation of such increase, provide a written notice (separate
from the Fund prospectus) to the Second Fiduciary of each of the Client
Plans invested in a Fund which is increasing such fees.
(k) In the event of an addition of a Secondary Service, as defined
in Section III(h) below, provided by US Trust to the Fund for which a
fee is charged or an increase in the rate of any fee paid by the Funds
to US Trust for any Secondary Service that results either from an
increase in the rate of such fee or from the decrease in the number or
kind of services performed by US Trust 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 Section II(g), US Trust
will at least thirty (30) days in advance of the implementation of such
additional service for which a fee is charged or fee increase, provide
a written notice (separate from the Fund prospectus) to the Second
Fiduciary of each of the Client Plans invested in a Fund which is
adding a service or increasing fees. Such notice shall be accompanied
by the Termination Form, as defined in Section III(i) below.
(l) The Second Fiduciary is supplied with a Termination Form at the
times specified in paragraphs (k), (l), and (m) of this Section II,
which expressly provides an election to terminate the authorization,
described above in Section II(g), 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. Such termination will be effected
by US Trust selling the shares of the Fund held by the Client Plans
requesting termination within one business day following receipt by US
Trust, either by mail, hand delivery, facsimile, or other available
means at the option of the Second Fiduciary, of the Termination Form or
any other written notice of termination; provided that if, due to
circumstances beyond the control of US Trust, the sale of shares of
such Client Plans cannot be executed within one business day, U.S.
shall have one additional business day to complete such sale; and
(2) Failure by the Second Fiduciary to return the Termination Form
on behalf of a Client 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, if such Termination Form is supplied pursuant to
paragraphs (k) and (l) of this section II, and will result in the
continuation of the authorization, as described in Section II(g), of US
Trust to engage in the transactions on behalf of such Client Plan.
(m) The Second Fiduciary is supplied with a Termination Form,
annually during the first quarter of each calendar year, beginning with
the first quarter of the calendar year that begins after the date this
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 this paragraph (m),
sooner than six months after a Termination Form is supplied pursuant to
Section II (k) and (l), except to the extent required by such
paragraphs to disclose an additional Secondary Service for which a fee
is charged or an increase in fees.
(n)(1) With respect to each of the Funds in which a Client Plan
invests, US Trust will provide the Second Fiduciary of such Plan:
(A) at least annually with a copy of an updated prospectus of such
Fund;
(B) upon the request of such Second Fiduciary, with 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 Fund to
US Trust; and
(2) With respect to each of the Funds in which a Client Plan
invests, in the event such Fund places brokerage transactions with US
Trust, US Trust will provide the Second Fiduciary of such Plan at least
annually with a statement specifying:
(A) the total, expressed in dollars, brokerage commissions of each
Fund's investment portfolio that are paid to US Trust by such Fund;
(B) the total, expressed in dollars, of brokerage commissions of
each Fund's investment portfolio that are paid by such Fund to
brokerage firms unrelated to US Trust;
(C) the average brokerage commissions per share, expressed as cents
per share, paid to US Trust by each portfolio of a Fund; and
(D) the average brokerage commissions per share, expressed as cents
per share, paid by each portfolio of a Fund to brokerage firms
unrelated to US Trust.
(o) All dealings between the Client Plans and any of the Funds are
on a
[[Page 10083]]
basis no less favorable to such Plans that dealings between the Funds
and other shareholders holding the same class of shares as the Plans.
(p) US Trust maintains for a period of six (6) years the records
necessary to enable the persons, as described in Section II(q) below,
to determine whether the conditions of the 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 US Trust, the
records are lost or destroyed prior to the end of the six (6) year
period, and
(2) no party in interest, other than US Trust, 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 Section II(q) below.
(q)(1) Except as provided in Section II(q)(2) and notwithstanding
any provisions of Section 504 (a)(2) and (b) of the Act, the records
referred to in Section II(p) above 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 each of the Plans who has authority to
acquire or dispose of shares of any of the Funds owned by such a Plan,
or any duly authorized employee or representative of such fiduciary;
and
(iii) Any participant or beneficiary of the Plans or duly
authorized employee or representative of such participant or
beneficiary;
(2) None of the persons described in paragraph (q)(1)(ii) and
(q)(1)(iii) of Section II shall be authorized to examine trade secrets
of US Trust, or commercial or financial information which is privileged
or confidential.
Section III--Definitions
For purposes of this exemption,
(a) The term ``US Trust'' means the United States Trust Company of
New York and an affiliate, as defined in Section III(b)(1).
(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'' means any diversified open-end
investment company or companies registered under the ICA for which US
Trust serves as investment adviser, and may also provide custodial or
other services as 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 a Fund's prospectus
and statement of additional information, and other assets belonging to
each of the portfolios in such Fund, less the liabilities charged to
each 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 of a plan who
is independent of and unrelated to US Trust. For purposes of this
exemption, the Second Fiduciary will not be deemed to be independent of
and unrelated to US Trust if:
(1) Such Second Fiduciary directly or indirectly controls, is
controlled by, or is under common control with US Trust;
(2) Such Second Fiduciary, or any officer, director, partner,
employee, or relative of such Second Fiduciary is an officer, director,
partners, or employee of US Trust (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 exemption;
provided, however, that with respect to the Bank Plans, the Second
Fiduciary may receive compensation from US Trust 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 the transactions.
With the exception of the Bank Plans, if an officer, director,
partner, or employee of US Trust (or a 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 manager/
advisor, (ii) the approval of any purchase or sale by the Plan of
shares of the Funds, and (iii) the approval of any change of fees
charged to or paid by the Plan, in connection with any of the
transactions described in sections I and II above, then Section
III(g)(2) above 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 US Trust to the Funds, including but not limited to
custodial, accounting, administrative, or any other service. However,
for purposes of transactions which occurred prior to the date this
exemption is granted, the term ``Secondary Service'' does not include
any brokerage services provided by US Trust to the Funds.
(i) The term ``Termination Form,'' means the form supplied to the
Second Fiduciary, at the times specified in paragraph (k), (l), and (m)
of Section II above, which expressly provides an election to the Second
Fiduciary to terminate on behalf of the Plans the authorization,
described in Section II(g). Such Termination Form may be used at will
by the Second Fiduciary to terminate such authorization without penalty
to the Plans and to notify US Trust in writing to effect such
termination by selling the shares of the Fund held by the Plans
requesting termination within one business day following receipt by US
Trust, either by mail, hand delivery, facsimile, or other available
means at the option of the Second Fiduciary, of written notice of such
request for termination; provided that if, due to circumstances beyond
the control of US Trust, the sale cannot be executed within one
business day, US Trust shall have one additional business day to
complete such sale.
(j) The term ``UST DB Plan'' means the Employees' Retirement Plan
of United States Trust Company of New York and Affiliated Companies.
(k) The term ``UST DC Plan'' means the 401(k) Plan and ESOP of
United States Trust Company of New York and Affiliated Companies.
(l) The term ``Bank Plan'' means the UST DB Plan and the UST DC
Plan.
(m) The term ``Client Plan'' means any ``employee benefit plan''
within the meaning of section 3(3) of the Act and/
[[Page 10084]]
or any ``plan'' within the meaning of Code section 4975 (e)(1).\1\
\1\ For purposes of this exemption, references to Title I of the
Act, unless otherwise specified, refer also to the corresponding
provisions of the Code.
---------------------------------------------------------------------------
EFFECTIVE DATE: This exemption is effective as of May 31, 1996, for
transactions described in Section I, and June 30, 1996, for
transactions described in Section II.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on December 17, 1996, at 61
FR 66320.
WRITTEN COMMENTS AND MODIFICATIONS: US Trust submitted the following
comments and requests for modifications regarding the notice of
proposed exemption (the Proposal).
First, US Trust notes that paragraph 17 of the Summary of Facts and
Representations in the Proposal (the Summary) states that to the extent
that US Trust does not currently execute brokerage services for any
Fund, but proposes to do so in the future, US Trust intends to provide
at least 30 days advance written notice of such additional service. US
Trust represents that pursuant to a proposal adopted by the Funds'
boards of directors prior to the December 17th publication of the
Proposal in the Federal Register, the Funds' retained an affiliate of
US Trust to provide such brokerage services. US Trust states that these
brokerage services commenced on January 3, 1997.
US Trust represents that written notice of this additional service
was provided to each Client Plan that was affected by the in-kind
conversion transactions prior to the commencement of such service by US
Trust. However, due to holiday schedules, the notices were sent late
and were not sent at least 3 days in advance of the commencement of the
brokerage services, as was intended by US Trust. In addition to the
late notices, for all Client Plans, US Trust proposes to include
another copy of the notice in each Client Plan's next account
statement.
US Trust notes that section II(n)(2) of the Proposal requires
certain annual disclosures regarding brokerage services (which US Trust
intends to provide). In addition, the definition of ``Secondary
Service'' in section III(h) expressly exempts brokerage services from
the requirements of section II(k), including the 30-day advance notice
requirement for the addition of a Secondary Service. Accordingly, US
Trust proposes no change in the language of the Proposal and merely
notes for the record this change in the facts from those set out in
paragraph 17 of the Summary.
In this regard, the Department acknowledges that advance notices to
the Client Plans regarding the brokerage services were not sent at
least 30 days prior to the commencement of such services by US Trust,
as previously represented. The Department also acknowledges that an
advance notice requirement of brokerage services was not specifically
set forth in the Proposal. However, the Department believes that prior
notice of an additional ``Secondary Service'' to a Fund for which a fee
will be charged should include notice of any brokerage services to be
provided by US Trust to the Fund. Therefore, the Department has
modified the definition of ``Secondary Service'' contained in section
III(h) of the Proposal by deleting the reference which exempted
brokerage services from the notice requirements of section II(k) and
adding the following language:
``* * * However, for purposes of transactions which occurred prior
to the date this exemption is granted, the term `Secondary Service'
does not include any brokerage services provided by US Trust to the
Funds.'' [emphasis added]
Second, US Trust states that the Proposal does not contain a
definition of the term ``Plan'' or ``Client Plan''. US Trust notes that
in paragraph 2 of the Summary, the Plans to which the exemption would
apply presently consist of Code section 401(a) qualified plans that are
``pension plans'' under section 3(2) of the Act. Paragraph 2 states
that US Trust requests that the exemption apply to any ``employee
benefit plan'' within the meaning of section 3(3) of the Act and/or any
``plan'' within the meaning of Code section 4975(e)(1). Thus, US Trust
suggests that the operative language of the exemption be modified to
specify that all such plans will be covered.
In this regard, the Department has added, as section III(m) above,
a definition of the term ``Client Plan'' (with a footnote regarding
references to Title I of the Act and the corresponding provisions of
the Code) in order to respond to the clarification request made by US
Trust.
Third, US Trust also requests that the Department clarify that the
requirement of section II(f)(5)--that US Trust provide each Client
Plan's Second Fiduciary (upon request) with a copy of the proposed and/
or final exemption in advance of the Plan's investment--does not apply
with respect to any Plan that was already invested in the Funds prior
to the date of the Proposal. US Trust states that it has provided the
Proposal to Client Plans as part of the notice to interested persons
described in the Proposal (see 61 FR at 66331). In addition, US Trust
states that it will continue to provide to any Client Plan's Second
Fiduciary copies of the Proposal, upon request, and will provide copies
of the final exemption after it is published in the Federal Register.
In this regard, the Department acknowledges the comments made by US
Trust and, in an attempt to clarify this matter, has amended section
II(f)(5) by adding the parenthetical phrase ``* * * (once such
documents are published in the Federal Register).''
Fourth, US Trust notes that sections II(1) and III(i) state that a
Second Fiduciary will be supplied with a Termination Form ``* * * at
times specified in paragraphs (k), (l), and (m) of section II''.
However, US Trust wishes to clarify that paragraph (1) of section II
does not specify any time for providing such Form distinct from the
times noted in paragraph (k) and (m) of section II. The Department
acknowledges the accuracy of this comment, but does not believe that
any change to the language of these sections is necessary.
Finally, US Trust states that the correct figures in the example
contained in paragraph 8 of the Summary (at the bottom of the second
column on page 66326 of the Federal Register) used to illustrate the
interests of the Bank Plans and Client Plans in a particular CIF at the
time of the conversion, should be 45 percent and 55 percent,
respectively. In this regard, the example in the Summery had
incorrectly stated these percentages as 45 percent and 65 percent. The
Department acknowledges this correction to the record.
Accordingly, the Department has determined to grant the exemption
as modified.
FOR FURTHER INFORMATION CONTACT: Mr. E.F. Williams of the Department,
telephone (202) 219-8194. (This is not a toll-free number.)
Consolidated Lumber Corp. Pension Plan (the Plan), Located in Clifton,
New Jersey
(Prohibited Transaction Exemption 97-17; Exemption Application No. D-
10344)
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 sale for cash (the Sale) by the Plan
to Consolidated Lumber Corp., the sponsor of the Plan, of certain
wholelife
[[Page 10085]]
insurance policies (the Policies) issued by Confederation Life
Insurance Company of Canada provided the following conditions are
satisfied: (a) All terms and conditions of the Sale are at least as
favorable to the Plan as those which the Plan could obtain in arm's-
length transactions with unrelated parties; (b) the Plan receives cash
consideration from each Sale that is no less than the greater of (1)
the fair market value of the Policies as of the date of the Sale, or
(2) each of the Policies' net cash surrender value as of the date of
the Sale; and (C) the Plan does not incur any expenses or suffer any
losses with respect to the transactions.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on December 30, 1996, at 61
FR 68798.
FOR FURTHER INFORMATION CONTACT: Mr. C.E. Beaver of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
The Chase Manhattan Bank, N.A. (Chase), Located in New York, New York
(Prohibited Transaction Exemption 97-18; Exemption Application No. D-
10348)
Exemption
The restrictions of section 406(a) of the Act and the sanctions
resulting from the application of section 4975 of the Code, by reason
of section 4975(c)(1) (A) through (D) of the Code, shall not apply to
(1) the granting to Chase, as the representative of lenders (the
Lenders) participating in a credit facility, of security interests in
limited partnership interests in LF Strategic Real Estate Investors,
L.P. (the Partnership) owned by certain employee benefit plans (the
Plans) with respect to which some of the Lenders are parties in
interest; and (2) the agreements by the Plans to honor capital calls
made by Chase in lieu of the Partnership's general partner; provided
that (a) the grants and agreements are on terms no less favorable to
the Plans than those which the Plans could obtain in arm's-length
transactions with unrelated parties; and (b) the decisions on behalf of
each Plan to invest in the Partnership and to execute such grants and
agreements in favor of Chase are made by a fiduciary which is not
included among, and is independent of, the Lenders and Chase.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on December 30, 1996 at 61
FR 68799.
FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
APA, Inc. 401(k) Profit Sharing Plan (the Plan), Located in Pleasant
Hill, California
(Prohibited Transaction Exemption 97-19; Exemption Application No. D-
10375)
Exemption
The restrictions of sections 406(a), 406 (b)(1) and (b)(2) of the
Act and the sanctions resulting from the application of section 4975 of
the Code, by reason of section 4975(c)(1) (A) through (E) of the Code,
shall not apply to: (1) The loan (the Loan) of $30,000 to Mr. Gary
Petsuch (Mr. Petsuch), a party in interest with respect to the Plan,
from Mr. Petsuch's segregated account (the Account) in the plan, and
(2) the personal guarantee of the Loan by Mr. Petsuch, provided the
following conditions are satisfied: (a) The terms of the Loan are at
least as favorable to the Plan as those obtainable in an arm's-length
transaction with an unrelated party; (b) the loan does not exceed 25%
of the assets of the Account; (c) the Loan is secured by a pledge of
Mr. Petsuch's interest in an investment account which has been
currently valued by an independent party as having a fair market value
approximately 280% of the principal amount of the Loan; (d) the account
collateralizing the Loan will be maintained at a collateral-to-Loan
ratio of not less than 200% throughout the duration of the Loan; (e)
Mr. Petsuch has also personally guaranteed the Loan; and (f) Mr.
Petsuch is the only Plan participant to be affected by the Loan.
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 14, 1997 at 62 FR
1924.
FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions to which the exemptions does not
apply and the general fiduciary responsibility provisions of section
404 of the Act, which among other things require a fiduciary to
discharge his duties respecting the plan solely in the interest of the
participants and beneficiaries of the plan and in a prudent fashion in
accordance with section 404(a)(1)(B) of the Act; nor does it affect the
requirement of section 401(a) of the Code that the plan must operate
for the exclusive benefit of the employees of the employer maintaining
the plan and their beneficiaries;
(2) These exemptions are supplemental to and not in derogation of,
any other provisions of the Act and/or the Code, including statutory or
administrative exemptions and transactional rules. Furthermore, the
fact that a transaction is subject to an administrative or statutory
exemption is not dispositive of whether the transaction is in fact a
prohibited transaction; and
(3) The availability of these exemptions is subject to the express
condition that the material facts and representations contained in each
application are true and complete and accurately describe all material
terms of the transaction which is the subject of the exemption. In the
case of continuing exemption transactions, if any of the material facts
or representations described in the application change after the
exemption is granted, the exemption will cease to apply as of the date
of such change. In the event of any such change, application for a new
exemption may be made to the Department.
Signed at Washington, DC, this 28th day of February, 1997.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 97-5431 Filed 3-4-97; 8:45 am]
BILLING CODE 4516-29-M
