[Federal Register Volume 64, Number 122 (Friday, June 25, 1999)]
[Notices]
[Pages 34293-34296]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-16214]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 99-23; Exemption Application No. D-
10021, et al.]
Grant of Individual Exemptions; First Security Corporation (FSC),
et al.
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Grant of Individual Exemptions.
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SUMMARY: This document contains exemptions issued by the Department of
Labor (the Department) from certain of the prohibited transaction
restrictions of the Employee Retirement Income Security Act of 1974
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
Notices were published in the Federal Register of the pendency
before the Department of proposals to grant such exemptions. The
notices set forth a summary of facts and representations contained in
each application for exemption and referred interested persons to the
respective applications for a complete statement of the facts and
representations. The applications have been available for public
inspection at the Department in Washington, DC The notices also invited
interested persons to submit comments on the requested exemptions to
the Department. In addition the notices stated that any interested
person might submit a written request that a public hearing be held
(where appropriate). The applicants have represented that they have
complied with the requirements of the notification to interested
persons. No public comments and no requests for a hearing, unless
otherwise stated, were received by the Department.
The notices of proposed exemption were issued and the exemptions
are being granted solely by the Department because, effective December
31, 1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR
47713, October 17, 1978) transferred the authority of the Secretary of
the Treasury to issue exemptions of the type proposed to the Secretary
of Labor.
Statutory Findings
In accordance with section 408(a) of the Act and/or section
4975(c)(2) of the Code and the procedures set forth in 29 CFR part
2570, subpart B (55 FR 32836, 32847, August 10, 1990) and based upon
the entire record, the Department makes the following findings:
(a) The exemptions are administratively feasible;
(b) They are in the interests of the plans and their participants
and beneficiaries; and
(c) They are protective of the rights of the participants and
beneficiaries of the plans.
First Security Corporation (FSC), Located in Salt Lake City, UT
[Prohibited Transaction Exemption 99-23; Exemption Application No. D-
10021]
Exemption
Section I. Exemption for the IN-KIND Transfer of Assets
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
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section 4975(c)(1)(A) through (F) shall not apply to the in-kind
transfers, that occurred on December 28, 1994, to any open-end
investment company (the Fund or Funds) registered under the Investment
Company Act of 1940 (the Investment Company Act) to which FSC or any of
its affiliates (collectively, First Security) serves as investment
adviser and/or may provide other services, of the assets of various
employee benefit plans (the Plan or Plans) that are held in certain
collective investment funds (the CIF or CIFs) maintained by First
Security, in exchange for shares of such Funds, provided that the
following conditions were met:
(a) A fiduciary (the Second Fiduciary) which was acting on behalf
of each affected Plan and which was independent of and unrelated to
First Security, as defined in paragraph (g) of Section II below,
received advance written notice of the in-kind transfer of assets of
the CIFs in exchange for shares of the Funds, a full and detailed
written disclosure of information concerning any such Fund including,
but not limited to--
(1) A current prospectus for each of the Funds in which such Plan
considered investing;
(2) A statement describing the fees for investment management,
investment advisory, or other similar services, any fees for secondary
services (Secondary Services), as defined in paragraph (h) of Section
II below, and all other fees charged to or paid by the Plan and by the
Funds to First Security, including the nature and extent of any
differential between the rates of such fees;
(3) The reasons why First Security considered such investment to be
appropriate for the Plan;
(4) A statement describing whether there were any limitations
applicable to First Security with respect to which assets of a Plan may
be invested in the Funds, and, if so, the nature of such limitations;
and
(5) When available, upon request of the Second Fiduciary, a copy of
the proposed exemption and/or a copy of the final exemption.
(b) On the basis of the information described above in paragraph
(a) of this Section I, the Second Fiduciary authorized in writing--
(1) The investment of assets of the Plans in shares of the Fund, in
connection with the transactions set forth in Section I;
(2) The investment portfolios of the Funds in which the assets of
the Plans were invested; and
(3) The fees received by First Security in connection with its
services to the Funds. Such authorization by the Second Fiduciary was
consistent with the responsibilities, obligations and duties imposed on
fiduciaries by Part 4 of Title I of the Act.
(c) All transferred assets were securities for which market
quotations were readily available, or cash.
(d) No sales commissions or redemption fees, including fees that
are payable pursuant to Rule 12b-1 of the Investment Company Act, were
paid by the Plans in connection with the in-kind transfers of the
assets of the CIFs in exchange for shares of the Funds.
(e) Neither First Security nor its affiliates, including any
officers or directors, would be permitted to purchase from or sell to
any of the Plans shares of any of the Funds.
(f) The Plans were not sponsored or maintained by First Security.
(g) The transferred assets in exchange for shares of such Funds
constituted the Plan's pro rata portion of all assets that were held by
the CIFs prior to the transfer. A Plan not electing to invest in the
Fund received a cash payment representing a pro rata portion of the
assets of the terminating CIF before the final liquidation took place.
(h) The CIFs received shares of the Funds that had a total net
asset value equal to the value of the transferred assets of the CIFs
exchanged for such shares on the date of transfer.
(i) The current market value of the assets of the CIFs transferred
in-kind in exchange for shares of the Funds was determined in a single
valuation performed in the same manner and at the close of business on
the same day, using independent sources in accordance with the
procedures set forth in Rule 17a-7(b) (Rule 17a-7) under the Investment
Company Act, as amended from time to time or any successor rule,
regulation, or similar pronouncement and the procedures established
pursuant to Rule 17a-7 for the valuation of such assets. Such
procedures required that all securities for which a current market
price could not be obtained by reference to the last sale price for
transactions reported on a recognized securities exchange or NASDAQ
were to 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 preceding the CIF transfers
determined on the basis of reasonable inquiry from at least three
sources that are broker-dealers or pricing services independent of
First Security.
(j) Not later than 30 days after completion of each in-kind
transfer of assets of the CIFs in exchange for shares of the Funds,
First Security sent by regular mail to the Second Fiduciary, which was
acting on behalf of each affected Plan and which was independent of and
unrelated to First Security, as defined in paragraph (g) of Section II
below, a written confirmation that contained the following information:
(1) The identity of each of the assets that was valued for purposes
of the transaction in accordance with Rule 17a-7(b)(4) under the
Investment Company Act;
(2) The current market price, as of the date of the transfer, of
each such security involved in the purchase of Fund shares; and
(3) The identity of each pricing service or market maker consulted
in determining the value of such assets.
(k) Not later than 90 days after completion of each in-kind
transfer of assets of the CIFs in exchange for shares of the Funds,
First Security sent by regular mail to the Second Fiduciary, which was
acting on behalf of each affected Plan and which was independent of and
unrelated to First Security, as defined in paragraph (g) of Section II
below, a written confirmation that contained the following information:
(1) The number of CIF units held by each affected Plan immediately
before the conversion (and the related per unit value and the aggregate
dollar value of the units transferred); and
(2) The number of shares in the Funds that were held by each
affected Plan following the conversion (and the related per share net
asset value and the aggregate dollar value of the shares received).
(l) As to each individual Plan, the combined total of all fees
received by First Security for the provision of services to the Plans,
and in connection with the provision of services to any of the Funds in
which the Plans hold shares acquired in connection with an in-kind
transfer transaction, was not in excess of ``reasonable compensation''
within the meaning of section 408(b)(2) of the Act.
(m) On an ongoing basis, First Security has provided and will
continue to provide a Plan investing in a Fund--
(1) At least annually with a copy of an updated prospectus of such
Fund; and
(2) At least annually 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 First Security, upon the
request of such Second Fiduciary.
[[Page 34295]]
(n) All dealings between the Plans and any of the Funds have been
and will remain on a basis no less favorable to such Plans than
dealings between the Funds and other shareholders holding the same
class of shares as the Plans.
(o) First Security has maintained and will maintain for a period of
6 years the records necessary to enable the persons, as described below
in paragraph (p)(1) of this Section I, 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 First Security,
the records are lost or destroyed prior to the end of the 6 year
period; and
(2) No party in interest, other than First Security, 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 below by paragraph (p) of this Section I.
(p)(1) Except as provided in paragraph (p)(2) of this Section I and
notwithstanding any provisions of subsection (a)(2) and (b) of section
504 of the Act, the records referred to in paragraph (o) of Section II
above are unconditionally available at their customary location for
examination during normal business hours by--
(A) Any duly authorized employee or representative of the
Department, the Internal Revenue Service or the Securities and Exchange
Commission;
(B) 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
(C) 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 (p)(1)(B) and
(p)(1)(C) of this Section I shall be authorized to examine trade
secrets of First Security, or commercial or financial information which
is privileged or confidential.
Section II. Definitions
For purposes of this exemption,
(a) The term ``First Security'' means FSC and any affiliate of FSC,
as defined in paragraph (b) of this Section II.
(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,'' ``Funds'' or ``Affiliated Funds'' means any
open-end management investment company or companies registered under
the Investment Company Act for which First Security serves as
investment adviser and/or provides any Secondary Service as approved by
such Funds. As noted in the Preamble, the Funds are also referred to as
the ``Affiliated Funds'' to distinguish them from certain third party
funds for which First Security and its affiliates provide
subadministrative services and which are not involved in conversion
transactions that are described herein.
(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 First Security. For purposes of this
exemption, the Second Fiduciary will not be deemed to be independent of
and unrelated to First Security if:
(1) Such Second Fiduciary directly or indirectly controls, is
controlled by, or is under common control with First Security;
(2) Such Second Fiduciary, or any officer, director, partner,
employee, or relative of such Second Fiduciary is an officer, director,
partner, or employee of First Security (or is a relative of such
persons); or
(3) Such Second Fiduciary directly or indirectly receives any
compensation or other consideration for his or her own personal account
in connection with the transactions described in this proposed
exemption.
If an officer, director, partner, or employee of First Security (or
a relative of such persons), is a director of such Second Fiduciary,
and if he or she abstains from participation in (A) the choice of the
Plan's investment manager/adviser or (B) the approval of any purchase
or sale by the Plan of shares of the Funds, in connection with the
transactions described in Section I, then paragraph (g)(2) of this
Section II, 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 First Security to the Funds, including but not limited
to custodial, accounting, brokerage, administrative, or any other
service.
EFFECTIVE DATE: This exemption is effective as of December 28, 1994.
For a more complete statement of the facts and representations
supporting this exemption, refer to the notice of proposed exemption
published on April 22, 1999 at 64 FR 19808.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
San Diego Electrical Pension Trust (the Pension Plan); and San
Diego Joint Apprenticeship and Training Trust (the Training Plan;
collectively, the Plans), Located in San Diego, California
[Prohibited Transaction Exemption 99-24; Exemption Application Nos. D-
10581 and L-10582]
Exemption
The restrictions of section 406(b)(2) of the Act shall not apply to
the proposed purchase by the Training Plan from the Pension Plan of a
minority interest (the Minority Interest) in certain improved real
property jointly owned by the Plans, provided that the following
conditions are satisfied:
(1) The purchase is a one-time transaction for cash;
(2) The terms and conditions of the transaction are not less
favorable to either Plan than those each could obtain in a comparable
arm's length transaction with an unrelated party;
(3) The Training Plan pays no more, and the Pension Plan receives
no less, than the fair market value of the Minority Interest, as of the
date of the transaction, as determined by a qualified, independent
appraiser;
(4) Neither the Pension Plan nor the Training Plan pays any
commissions or fees in connection with the transaction;
(5) The trustees of the Plans (other than their common trustees),
the Pension Plan's investment manager, and
[[Page 34296]]
a qualified, independent fiduciary that has been retained to represent
the Training Plan, have reviewed the terms and conditions of the
transaction and determined that such terms and conditions are in the
best interests of, and appropriate for, their respective Plans; and
(6) The independent fiduciary for the Training Plan monitors the
proposed transaction and takes whatever actions necessary to safeguard
the interests of the Training Plan.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on April 22, 1999 at 64 FR
19813.
Written Comments
The Department received no written comments or requests for a
public hearing with respect to the notice of proposed exemption (the
Notice). However, in a letter dated April 19, 1999, the Department was
informed that Washington Capital Management (WCM), an investment
management firm located in San Diego, California, has purchased the
business of AMRESCO Advisors, Inc. (AMRESCO) and succceeded to all of
AMRESCO's rights and obligations under its client contracts. Like
AMRESCO, WCM is a registered investment adviser and ``qualified
professional asset manager'', as defined in Prohibited Transaction
Class Exemption 84-14 (49 FR 9494, March 13, 1984). Therefore, all
duties and responsibilities of AMRESCO as the independent fiduciary for
the Training Plan, which are described in the Summary of Facts and
Representations in the Notice, shall now apply to WCM.
Accordingly, based upon the information contained in the entire
record, the Department has determined to grant the proposed exemption.
FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Daniel N. Cunningham IRA (the Cunningham IRA); Sidney B. Cox IRA
(the Cox IRA) (collectively, the IRAs), Located in Fresno,
California
[Prohibited Transaction Exemption 99-25; Exemption Application Numbers:
D-10723 and D-10724]
Exemption
The sanctions resulting from the application of section 4975 of the
Code, by reason of section 4975(c)(1)(A) through (E) of the Code, shall
not apply to the purchase (the Purchase) by each IRA 1 of
certain shares of Clovis Community Bank common stock (the Stock) from
Mr. Daniel N. Cunningham and Mr. Sidney B. Cox (the Account Holders),
disqualified persons with respect to the IRAs, provided that the
following conditions are met:
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\1\ Because each IRA has only one participant, there is no
jurisdiction under 29 CFR 2510.3-3(b). However, there is
jurisdiction under Title II of the Act pursuant to section 4975 of
the Code.
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(a) The Purchase of the Stock by each IRA is a one-time transaction
for cash;
(b) Each IRA purchases the Stock for a price not exceeding the fair
market value of the Stock at the time of each Purchase;
(c) The terms and conditions of each Purchase are at least as
favorable as those available in an arm's length transaction with an
unrelated third party;
(d) Each IRA does not pay any commissions or other expenses in
connection with each Purchase;
(e) The IRA assets invested in the Stock do not exceed 25% of the
total assets of each IRA at the time of the transaction; and
(f) Each IRA, at all times, will hold less than one percent (1%) of
the outstanding shares of the Stock.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, please
refer to the proposed exemption published on Thursday, May 13, 1999 at
64 FR 25924 (the Prior Notice).
Correction: The Prior Notice was published with an effective date.
Because the applicants represent that each Purchase will take place
only after the grant of this exemption, the effective date has been
removed.
FOR FURTHER INFORMATION CONTACT: Mr. James Scott Frazier, 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, D.C., this 22nd day of June, 1999.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, Department of Labor.
[FR Doc. 99-16214 Filed 6-24-99; 8:45 pm]
BILLING CODE 4510-29-P
