Federal Register / Vol. 74, No. 36 / Wednesday, February 25, 2009 / Notices 8571 

Proposed Exemption published on 

November 20, 2008 at 73 FR 70372. 

For Further Information Contact: Mr. 

Mark Judge of the Department, 

telephone (202) 693–8339. (This is not 

a toll-free number.) 

Brewster Dairy, Inc. 401(k) Profit 

Sharing Plan (the Plan), Located in 

Brewster, OH 

[Prohibited Transaction Exemption 2009–05; 

Exemption Application No. D–11450] 

Exemption 

The restrictions of sections 

406(a)(1)(A) and (D), 406(b)(1) and (b)(2) 

of the Act, and the sanctions resulting 

from the application of section 4975(a) 

and (b) of the Code, by reason of section 

4975(c)(1)(A), (D) and (E) of the Code, 

shall not apply to the November 18, 

2008 sale (the Sale) by the Plan of 2.5 

limited partnership units (the Units) in 

the Heartland California Clayton 

Limited Partnership (the Partnership) to 

Brewster Dairy, Inc. (Brewster), the 

Plan’s sponsor and a party in interest 

with respect to the Plan, for the greater 

of: (1) $57,000; (2) the net proceeds for 

the Units in the event the Partnership 

sells its real estate (the Property) to a 

third party; or (3) the net proceeds from 

foreclosure for the Units in the event the 

Property is foreclosed to pay back real 

estate taxes, provided the following 

conditions are satisfied: 

(a) The Sale of the Units was a onetime transaction for cash; 

(b) The Plan paid no commissions, 

fees or other expenses in connection 

with the Sale; 

(c) The terms of the transaction were 

at least as favorable to the Plan as those 

the Plan could obtain in a similar 

transaction with an unrelated party; 

(d) The fair market value of the Units 

on the date of the Sale was determined 

by a qualified independent appraiser; 

(e) The Plan fiduciaries determined 

whether it was in the best interest of the 

Plan to go forward with the Sale, 

reviewed and approved the 

methodology used in the appraisal that 

was relied upon, and ensured that the 

methodology was applied by a qualified, 

independent appraiser in determining 

the fair market value of the Units as of 

the date of the Sale; and 

(f) The proceeds from the Sale of the 

Units to Brewster will be allocated only 

to the participants who are defined in 

the Consent Order and Judgment (File 

No. 5:98CV744, July 1, 1999) entered by 

the United States District Court for the 

Northern District of Ohio Eastern 

Division (the Court). 

For a more complete statement of the 

facts and representations supporting the 

Department’s decision to grant this 

exemption, refer to the notice of 

proposed exemption (the Notice) 

published on November 20, 2008 at 73 

FR 70375. 

Effective Date: This exemption is 

effective November 18, 2008. 

Written Comments and Hearing 

Requests: The Department received one 

written comment and no hearing 

requests with respect to the Notice. The 

one comment letter was submitted by 

Brewster. In its letter, Brewster 

informed the Department that the 

subject Sale of the 2.5 Units was 

consummated on November 18, 2008, 

and Brewster requested that the 

exemption be made retroactive to that 

date. The Sale price was $57,000. 

Brewster represented that the 

transaction had to be completed prior to 

the granting of the exemption by the 

Department to facilitate the sale of the 

Property by the Partnership’s General 

Partners prior to the county filing a 

foreclosure action for real estate taxes 

unpaid by the Partnership. Brewster 

further represented that it will follow 

the terms of the Notice in all matters 

including allocation and adjustment of 

the purchase price if the Units 

previously owned by the Plan are sold 

by Brewster for more than $57,000 (or 

bring more than $57,000 in proceeds 

from foreclosure). 

The Department has considered, the 

entire record, including the comment 

letter submitted by Brewster and has 

determined that the subject transaction 

satisfied the criteria of section 408(a) of 

the Act on the date of the transaction. 

Accordingly, the Department herein 

grants the exemption, effective 

November 18, 2008. 

For Further Information Contact: Gary 

H. Lefkowitz of the Department, 

telephone (202) 693–8546. (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 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) This exemption is 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 this exemption 

is subject to the express condition that 

the material facts and representations 

contained in the application accurately 

describes all material terms of the 

transaction which is the subject of the 

exemption. 

Signed at Washington, DC, this 19th day of 

February, 2009. 

Ivan Strasfeld, 

Director of Exemption Determinations, 

Employee Benefits Security Administration, 

U.S. Department of Labor. 

[FR Doc. E9–3998 Filed 2–24–09; 8:45 am] 

BILLING CODE 4510–29–P 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

[Application Nos. and Proposed 

Exemptions; D–11447, Verizon 

Investment Management Company; D– 

11470, M&T Bank Corporation Pension 

Plan; D–11493, Schloer Enterprises, 

Inc. 401(k) Profit Sharing Plan (the 

Plan); and D–11501, Morgan Stanley & 

Co. Incorporated, et al.] 

AGENCY: Employee Benefits Security 

Administration, Labor. 

ACTION: Notice of Proposed Exemptions. 

SUMMARY: This document contains 

notices of pendency before the 

Department of Labor (the Department) of 

proposed exemptions from certain of the 

prohibited transaction restrictions of the 

Employee Retirement Income Security 

Act of 1974 (ERISA or the Act) and/or 

the Internal Revenue Code of 1986 (the 

Code). 

Written Comments and Hearing 

Requests 

All interested persons are invited to 

submit written comments or requests for 

a hearing on the pending exemptions, 

unless otherwise stated in the Notice of 

Proposed Exemption, within 45 days 

from the date of publication of this 

Federal Register Notice. Comments and 

requests for a hearing should state: (1) 

The name, address, and telephone 


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8572 Federal Register / Vol. 74, No. 36 / Wednesday, February 25, 2009 / Notices 

1For purposes of this proposed exemption, 

references to specific provisions of Title I of the 

Act, unless otherwise specified, refer also to the 

corresponding provisions of the Code. 

2The Department, herein, is not providing any 

retroactive or prospective relief for a transaction 

between a plan (a Verizon Plan or Verizon Plans), 

as defined, below, in section III(h) of this proposed 

exemption, and a party in interest with respect to 

such Verizon Plan, if such transaction was entered 

into or is entered into in years other than 2001 and 

2003, nor is the Department, herein, providing any 

retroactive or prospective relief for any continuing 

transaction, or for any subsequent renewal or 

modification of a transaction that required or 

requires the consent of Verizon Investment 

Management Company (VIMCO), if entry into such 

continuing transaction, or entry into such renewal 

or modification occurred or occurs in years other 

than 2001 and 2003. In order to obtain relief for the 

entry into a transaction, or the entry into a 

continuing transaction or a subsequent renewal or 

modification of a transaction, as the case may be, 

VIMCO must have satisfied or must satisfy at the 

time of each such transaction, the terms and 

conditions as set forth in PTE 96–23 or, if 

applicable, the terms and conditions of PTE 96–23 

as hereafter amended. 

3 61 FR 15975, April 10, 1996. 

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. 

ADDRESSES: All written comments and 

requests for a hearing (at least three 

copies) should be sent to the Employee 

Benefits Security Administration 

(EBSA), Office of Exemption 

Determinations, Room N–5700, U.S. 

Department of Labor, 200 Constitution 

Avenue, NW., Washington, DC 20210. 

Attention: Application No. lll, 

stated in each Notice of Proposed 

Exemption. Interested persons are also 

invited to submit comments and/or 

hearing requests to EBSA via e-mail or 

FAX. Any such comments or requests 

should be sent either by e-mail to: 

‘‘moffitt.betty@dol.gov’’, or by FAX to 

(202) 219–0204 by the end of the 

scheduled comment period. The 

applications for exemption and the 

comments received will be available for 

public inspection in the Public 

Documents Room of the Employee 

Benefits Security Administration, U.S. 

Department of Labor, Room N–1513, 

200 Constitution Avenue, NW., 

Washington, DC 20210. 

Notice to Interested Persons 

Notice of the proposed exemptions 

will be provided to all interested 

persons in the manner agreed upon by 

the applicant and the Department 

within 15 days of the date of publication 

in the Federal Register. Such notice 

shall include a copy of the notice of 

proposed exemption as published in the 

Federal Register and shall inform 

interested persons of their right to 

comment and to request a hearing 

(where appropriate). 

SUPPLEMENTARY INFORMATION: The 

proposed exemptions were requested in 

applications filed pursuant to section 

408(a) of the Act and/or section 

4975(c)(2) of the Code, and in 

accordance with procedures set forth in 

29 CFR Part 2570, Subpart B (55 FR 

32836, 32847, August 10, 1990). 

Effective December 31, 1978, section 

102 of Reorganization Plan No. 4 of 

1978, 5 U.S.C. App. 1 (1996), 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. 

Verizon Investment Management 

Company, Located in Basking Ridge, 

New Jersey 

[Application No. D–11447] 

Proposed Exemption 

The Department of Labor (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).1

Section I—Transaction(s) 

If the proposed exemption is granted 

the restrictions of section 406(a)(1)(A) 

through (D) of the Act and the taxes 

imposed by section 4975(a) and (b) of 

the Code, by reason of section 

4975(c)(1)(A) through (D) of the Code,2

shall not apply, effective for the period 

January 1, through December 31, 2001, 

and for the period January 1, through 

December 31, 2003, to any transaction, 

as described in Part I of Prohibited 

Transaction Exemption 96–23 (PTE 96– 

23),3 between a Verizon Plan or Verizon 

Plans, as defined, below, in section 

III(h) of this proposed exemption, and a 

party in interest, as defined, below, in 

section III(c) of this proposed 

exemption, with respect to such Verizon 

Plan; provided that: VIMCO satisfied the 

definition of an in-house asset manager 

(INHAM), as defined, below, in section 

III(a) of this proposed exemption, and 

had discretionary authority or control 

with respect to the assets of such 

Verizon Plan involved in each such 

transaction; and the conditions, as set 

forth, below, in sections I(a) through (c) 

and section II of this proposed 

exemption were satisfied; 

(a) all the requirements of PTE 96–23 

were satisfied for the period January 1, 

through December 31, 2001, and the 

period January 1, through December 31, 

2003, except with respect to the annual 

audit requirement, as set forth in section 

I(h) of PTE 96–23; 

(b) an exemption audit, as defined, in 

Part IV(f) of PTE 96–23, for the period 

January 1, through December 31, 2001, 

must have been completed by no later 

than December 31, 2003, and an 

exemption audit for the period January 

1, through December 31, 2003, must 

have been completed by no later than 

December 31, 2005; and 

(c) For the period beginning on the 

date of the publication in the Federal 

Register of the final exemption for 

application D–11447 and ending on the 

effective date of a final amendment to 

PTE 96–23, an independent auditor, 

who has appropriate technical training 

or experience and proficiency with the 

fiduciary responsibility provisions of 

the Act and who so represents in 

writing, conducts an exemption audit, 

as defined, below, in section III(f) of this 

proposed exemption, on an annual 

basis. Following completion of such 

exemption audit, the auditor shall issue 

a written report to the Verizon Plan or 

Verizon Plans that engage in 

transactions, described in section I of 

this proposed exemption, presenting 

such auditor’s specific findings 

regarding the level of compliance: (1) 

With the policies and procedures 

adopted by VIMCO in accordance with 

Part I(g) of PTE 96–23; and (2) with the 

objective requirements of PTE 96–23. 

The written report shall also contain the 

auditor’s overall opinion regarding 

whether VIMCO’s program complied: 

(1) With the policies and procedures 

adopted by VIMCO; and (2) with the 

objective requirements of PTE 96–23. 

The exemption audit and the written 

report must be completed within six (6) 

months following the end of the year to 

which the audit relates. 

Section II—General Conditions 

(a) VIMCO must maintain or cause to 

be maintained, for a period of six (6) 

years, such records as are necessary to 

enable the persons described, below, in 

section II(b) of this proposed exemption, 

to determine whether the conditions of 

this proposed exemption have been met, 

except that: 


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(1) A prohibited transaction shall not 

be considered to have occurred solely 

because, due to circumstances beyond 

the control of VIMCO, such records are 

lost or destroyed prior to the end of the 

six-year period, and 

(2) no party in interest with respect to 

a Verizon Plan which engages in a 

transaction, described in section I of this 

proposed exemption, other than 

VIMCO, shall be subject to a civil 

penalty under section 502(i) of the Act 

or to the taxes imposed by section 

4975(a) and (b) of the Code, if such 

records are not maintained, or are not 

available for examination, as required, 

below, by section II(b) of this proposed 

exemption. 

(b)(1) Except as provided, below, in 

section II(b)(2) of this proposed 

exemption, and notwithstanding any 

provisions of section 504(a)(2) of the 

Act, the records referred to, above, in 

section II(a) of this proposed exemption, 

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 a Verizon Plan 

that engages in a transaction, described 

in section I of this proposed exemption, 

or any duly authorized employee or 

representative of such fiduciary, and 

(iii) Any participant or beneficiary of 

a Verizon Plan or duly authorized 

employee or representative of such 

participant or beneficiary. 

(2) None of the persons described, 

above, in section II(b)(1)(ii) and (iii) of 

this proposed exemption, shall be 

authorized to examine trade secrets of 

VIMCO, or commercial or financial 

information which is privileged or 

confidential. 

Section III—Definitions 

For the purposes of this proposed 

exemption: 

(a) The term ‘‘in-house asset manager’’ 

or ‘‘INHAM,’’ means VIMCO, provided 

that VIMCO on January 1, 2001, was and 

continued thereafter to be: 

(1) either (A) a direct or indirect 

wholly-owned subsidiary of Verizon, or 

a direct or indirect wholly-owned 

subsidiary of a parent organization of 

Verizon, or (B) a membership non-profit 

corporation a majority of whose 

members are officers or directors of such 

an employer or parent organization; and 

(2) an investment adviser registered 

under the Investment Advisers Act of 

1940 that, as of the last day of its most 

recent fiscal year, had and continued 

thereafter to have under its management 

and control total assets attributable to 

Verizon Plans maintained by affiliates of 

VIMCO, as defined, below, in section 

III(b) of this proposed exemption, in 

excess of $50 million; and provided that 

if VIMCO had no prior fiscal year as a 

separate legal entity as a result of its 

constituting a division or group within 

Verizon’s organizational structure, then 

this requirement is deemed to have been 

met as of the date during VIMCO’s 

initial fiscal year as a separate legal 

entity that responsibility for the 

management of such assets in excess of 

$50 million was transferred to it from 

Verizon. 

In addition, Verizon Plans maintained 

by affiliates of VIMCO and/or by 

VIMCO, had, as of January 1, 2001, and 

continued thereafter to have, aggregate 

assets of at least $250 million, 

calculated as of the last day of each such 

Verizon Plan’s reporting year. 

(b) For purposes of sections III(a) and 

III(h) of this proposed exemption, an 

‘‘affiliate’’ of VIMCO means a member of 

either: 

(1) A controlled group of 

corporations, as defined in section 

414(b) of the Code, of which VIMCO is 

a member, or 

(2) a group of trades or businesses 

under common control, as defined in 

section 414(c) of the Code, of which 

VIMCO is a member; provided that ‘‘50 

percent’’ shall be substituted for ‘‘80 

percent’’ wherever ‘‘80 percent’’ appears 

in section 414(b) or 414(c) of the Code 

or the rules thereunder. 

(c) The term, ‘‘party in interest,’’ 

means a person described in section 

3(14) of the Act and includes a 

‘‘disqualified person,’’ as defined in 

section 4975(e)(2) of the Code. 

(d) The term, ‘‘control,’’ means the 

power to exercise a controlling 

influence over the management or 

policies of a person other than an 

individual. 

(e) For purposes of this proposed 

exemption, the time as of which any 

transaction occurred is the date upon 

which the transaction was entered into. 

In addition, the time as of which any 

renewal or modification of any 

transaction occurred is the date upon 

which the renewal or the modification 

of the transaction was entered into. For 

any transaction that required the 

consent of VIMCO that was entered into, 

renewed, or modified, as the case may 

be, during the period from January 1, 

through December 31, 2001, or during 

the period from January 1, through 

December 31, 2003, the requirements of 

this proposed exemption must have 

been satisfied at the time such 

transaction was entered into, or was 

renewed, or was modified, as the case 

may be. In addition, in the case of a 

transaction that is continuing, the 

transaction is deemed to occur until it 

is terminated. 

Nothing in this paragraph shall be 

construed as exempting a transaction 

entered into by a Verizon Plan which 

becomes a transaction described in 

section 406 of the Act or section 4975 

of the Code, while the transaction is 

continuing, unless the conditions of 

PTE 96–23 were met at the time the 

transaction was entered into, or at the 

time the transaction would have become 

prohibited but for PTE 96–23. In 

determining compliance with the 

conditions of PTE 96–23 at the time that 

the transaction was entered into for 

purposes of the preceding sentence, Part 

I(e) of PTE 96–23, will be deemed 

satisfied if the transaction was entered 

into between a Verizon Plan and a 

person who was not then a party in 

interest. 

(f) Exemption Audit. An ‘‘exemption 

audit’’ of a Verizon Plan must consist of 

the following: 

(1) A review by an independent 

auditor of the written policies and 

procedures adopted by VIMCO, 

pursuant to Part I(g) of PTE 96–23, for 

consistency with each of the objective 

requirements of PTE 96–23, as 

described, below, in section III(g) of this 

proposed exemption. 

(2) A test of a sample of VIMCO’s 

transactions during the audit period that 

is sufficient in size and nature to afford 

the auditor a reasonable basis: (A) To 

make specific findings regarding 

whether VIMCO is in compliance with 

(i) the written policies and procedures 

adopted by VIMCO, pursuant to Part I(g) 

of PTE 96–23 and (ii) the objective 

requirements of PTE 96–23, as 

described, below, in section III(g) of this 

proposed exemption and (B) to render 

an overall opinion regarding the level of 

compliance of VIMCO’s program with 

section III(f)(2)(A)(i) and (ii) of this 

proposed exemption. 

(3) A determination as to whether 

VIMCO satisfied the definition of an 

INHAM, as defined, above, in section 

III(a), of this proposed exemption; and 

(4) Issuance of a written report 

describing the steps performed by the 

auditor during the course of its review 

and the auditor’s findings. 

(g) For purposes of section III(f), 

above, of this proposed exemption, the 

written policies and procedures must 

describe the following objective 

requirements of the exemption and the 

steps adopted by VIMCO to assure 

compliance with each of these 

requirements: 

(1) The definition of an INHAM in 

section III(a) of this proposed 

exemption. 


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4The Verizon Corporate Services Group Inc. et.al. 

Pension Plans Report covers the following defined 

benefit plans: (1) GTE California Incorporated Plan 

for Hourly-Paid Employees’ Pensions; (2) GTE 

Florida Incorporated Plan for Hourly-Paid 

Employees’ Pension; (3) GTE South Incorporated 

(Kentucky) Plan for Hourly-Paid Employees’ 

Pensions; (4) GTE Northwest Incorporated Plan for 

Hourly-Paid Employees’ Pensions; (5) GTE South 

Incorporated (Southeast) Plan for Hourly-Paid 

Employees’ Pensions; (6) GTE Southwest 

Incorporated Plan for Hourly-Paid Employees’ 

Pensions; (7) GTE North Incorporated Pension Plan 

for Hourly-Plan Employees of Illinois; (8) GTE 

North Incorporated Pension Plan for Hourly-Paid 

Employees of Michigan; (9) GTE North Incorporated 

Pension Plan for Hourly-Paid Employees of Ohio; 

(10) GTE North Incorporated Pension Plan for 

Hourly-Paid Empoyees of Pennsylvania; (11) GTE 

North Incorporated Pension Plan for Hourly-Paid 

Employees of Wisconsin; (12) Hourly Employees 

Retirement System of GTE Hawaiian Telephone 

Company Incorporated; (13) GTE Supply Pension 

Plan for Union Represented Employees; (14) 

Verizon Pension Plan for New York and New 

England Associates; (15) Verizon Pension Plan for 

Mid-Atlantic Associates; (16) Verizon Enterprizes 

Management Pension Plan; and (17) Verizon 

Management Pension Plan. 

5The Verizon Savings Plans are: (1) Verizon 

Savings Plan for Management Employees; (2) 

Verizon Savings and Security Plan for West Region 

Hourly Employees; (3) Verizon Savings and 

Security Plan for Mid-Atlantic Associates; (4) 

Verizon Savings and Security Plan for New York 

and New England Associates. 

6The Verizon health and welfare plans are: (1) 

Verizon Group Life Insurance Plan for New York & 

New England Associates Plan for Group Insurance; 

(2) Verizon Plan 550; (3) Verizon Post—1995 

Collectively Bargained Retiree Health Plan—(Pre 

1993 Retirees); (4) Verizon Post—1995 Collectively 

Bargained Retiree Health Plan —(Post 1992 

Retirees). 

(2) The requirements of Part I and Part 

I(a) of PTE 96–23 regarding the 

discretionary authority or control of 

VIMCO with respect to the assets of a 

Verizon Plan involved in the 

transaction, in negotiating the terms of 

the transaction, and with regard to the 

decision on behalf of such Verizon Plan 

to enter into the transaction. 

(3) That any procedure for approval or 

veto of the transaction meets the 

requirements of Part I(a) of PTE 96–23. 

(4) For a transaction described in Part 

I of PTE 96–23: 

(A) that the transaction is not entered 

into with any person who is excluded 

from relief under Part I(e)(1), Part I(e)(2) 

of PTE 96–23, to the extent such person 

has discretionary authority or control 

over the plan assets involved in the 

transaction, or Part I(f) of PTE 96–23, 

and 

(B) that the transaction is not 

described in any of the class exemptions 

listed in Part I(b) of PTE 96–23. 

(h) The term, ‘‘Verizon Plan(s),’’ 

means a plan or plans maintained by 

VIMCO or an affiliate of VIMCO. 

DATES: Effective Date: If, granted, this 

proposed exemption will be effective for 

the period from January 1, through 

December 31, 2001, and from January 1, 

through December 31, 2003. 

Summary of Facts and Representations 

1. VIMCO is a wholly-owned 

subsidiary of GTE Corporation, which in 

turn is a wholly-owned subsidiary of 

Verizon Communications Inc. (Verizon). 

VIMCO is registered as an investment 

adviser under the Investment Advisers 

Act of 1940. VIMCO has been delegated 

the authority for the investment of the 

assets of the employee benefit trusts of 

Verizon and of most of Verizon’s 

domestic subsidiaries (excluding 

Verizon Wireless). In this capacity, 

VIMCO’s primary function is to act as 

investment manager or adviser for these 

employee benefit trusts, although 

VIMCO also performs investment 

management or advisory services for 

other entities related to Verizon. 

As of June 30, 2007, VIMCO had in 

excess of $68.2 billion in assets under 

management. The assets of the Bell 

Atlantic Master Trust (the BAMT) 

comprise 63.3 percent (63.3%) of this 

amount. The BAMT holds the assets of 

seventeen (17) Verizon pension plans 

(the Verizon Pension Plans) 4 and a 

portion of the assets of two (2) of the 

Verizon savings plans (the Verizon 

Savings Plans).5 The Verizon Master 

Savings Trust (MST) holds the assets of 

five (5) Verizon Savings Plans, 

representing 26.3 percent (26.3%) of 

VIMCO’s assets under management. In 

addition, VIMCO manages $5.5 billion 

in assets for fourteen (14) Voluntary 

Employees Beneficiary Associations 

(VEBAs), which are employee benefit 

trusts that hold the assets of various 

health, dental, life, and long-term 

disability plans.6 A VIMCO subsidiary 

acts as a general partner to two (2) 

limited partnerships established by 

VIMCO in which two (2) VEBAs and 

seven (7) VEBAs, respectively, invest. 

VIMCO manages these assets in part 

by selecting third-party investment 

managers. In addition, VIMCO directly 

manages eleven (11) accounts for the 

Verizon Pension Plans within the 

BAMT. The assets in these accounts 

total $8.8 billion and include activelymanaged stock funds, passivelymanaged stock funds (i.e. , index funds), 

an international futures fund, and a 

short term fixed income fund. VIMCO 

also selects private placement fund 

investments (usually investment limited 

partnerships offered by venture capital 

and buy-out funds) and real estate fund 

and natural resources investments for 

the Verizon Pension Plans, which 

currently total $6.7 billion. 

2. Mellon Bank, N.A. (Mellon) acts as 

trustee of the BAMT and the fourteen 

(14) Verizon VEBA trusts and as 

custodian for the two (2) VEBA 

investment limited partnerships. 

Fidelity Management Trust Company 

acts as trustee of the MST. 

3. Since 1996, VIMCO has relied on 

Prohibited Transaction Exemption 96– 

23 (PTE 96–23) which provides 

exemptive relief for that portion of the 

assets of an employee benefit plan that 

is managed by an INHAM, provided that 

the conditions of the class exemption 

are met, including the completion of an 

annual exemption audit. Prior to 2004, 

VIMCO relied on an independent 

accounting firm to conduct the annual 

exemption audits. However, in 2004, 

VIMCO learned that the accounting firm 

would no longer provide PTE 96–23 

exemption audit services. 

In a letter to VIMCO dated October 31, 

2006, the Director of the New York 

Regional Office of the Employee 

Benefits Security Administration (the 

Regional Office), informed VIMCO that 

performance of the audit did not comply 

with the requirements of the class 

exemption and that VIMCO could not 

rely on PTE 96–23 for exemptive relief. 

As a result of discussions between the 

Regional Office and VIMCO, it was 

concluded that VIMCO would seek an 

individual administrative exemption for 

the 2003 transactions. 

VIMCO subsequently notified the 

Regional Office that based upon their 

good faith understanding of the audit 

requirement, the 2001 INHAM audit 

was not begun until the 2002 audit was 

started in July 2003, and that both 

audits were completed in October 2003. 

This delay was attributable to the 

merger of Bell Atlantic and GTE to form 

Verizon which occurred in June 2000, 

and which led to consolidation of the 

companies’ respective investment 

management firms in late 2000 and 

2001. The plan trusts also were merged 

at the same time, and the investment 

options for the savings plans were 

extensively redesigned. Accordingly, 

VIMCO included relief for 2001 in its 

request for an individual administrative 

exemption. 

VIMCO seeks a retroactive individual 

administrative exemption from the 

restrictions of section 406(a)(1)(A) 

through (D) of the Act and section 

4975(c)(1)(A) through (D) of the Code, 

effective for the period from January 1, 

through December 31, 2001, and the 

period from January 1, through 

December 31, 2003. In this regard, 

VIMCO requests an individual 

administrative exemption which would 

provide relief substantially identical to 

that provided under Part I of PTE 96– 

23, subject to appropriate terms and 

conditions. 


pwalker on PROD1PC71 with NOTICES
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4. VIMCO maintains that it has 

satisfied the Department’s requirements 

for retroactive relief. At the time of the 

2001 and 2003 transactions, VIMCO 

maintains that it reasonably believed in 

good faith that it was acting in full 

compliance with the requirements of 

PTE 96–23. In scheduling the 2001 and 

2003 audits, VIMCO relied on the fact 

that, in the more than ten (10) years 

since the Department granted PTE 96– 

23, there has been no guidance from the 

Department as to the interpretation of 

the audit requirement. Furthermore, 

VIMCO points out that there is no 

indication in the class exemption itself 

or the notices of proposed and final 

exemptions for PTE 96–23 that there is 

a deadline for performing the audits, nor 

has there been any similar public 

pronouncement from the Department to 

this effect. 

5. The requested individual 

administrative exemption would cover 

transactions entered into by VIMCO, 

acting as an INHAM on behalf of the 

Verizon Plans with persons who were 

parties in interest with respect to such 

Verizon Plans solely by reason of 

providing services to such Verizon 

Plans, or solely by reason of a 

relationship to a service provider 

described in section 3(14)(F), (G), (H) or 

(I) of the Act, for the periods from 

January 1, through December 31, 2001, 

and January 1, through December 31, 

2003. The proposed exemption, if 

granted, would be conditioned on the 

following: 

(a) The requirements of PTE 96–23 

were met for the relevant periods, 

except with respect to the annual audit 

requirement of PTE 96–23, Part I(h), and 

(b) An independent auditor, who had 

appropriate technical training or 

experience and proficiency with the 

fiduciary responsibility provisions of 

the Act and who so represented in 

writing, conducted an exemption audit 

for each such plan year no later than, 

respectively, December 31, 2003, (for 

plan year 2001) and December 31, 2005, 

(for plan year 2003). Following 

completion of the exemption audits, the 

auditor issued a written report for each 

audit to the Verizon Plans presenting its 

specific findings regarding the level of 

compliance with the policies and 

procedures adopted by VIMCO, which 

reports contained no adverse findings. 

Further, VIMCO represents that it has 

maintained records sufficient to permit 

the Department and others to determine 

whether the conditions of this proposed 

exemption have been met. In addition, 

the retroactive relief provided by this 

proposed exemption is subject to 

VIMCO complying with the conditions 

of this proposed exemption at all times 

during the period beginning on the date 

of the publication in the Federal 

Register of the final exemption for 

application D–11447 and ending on the 

effective date of a final amendment to 

PTE 96–23. 

6. It is represented that the proposed 

exemption is administratively feasible, 

because the Department would not have 

to monitor implementation or 

enforcement. In this regard, VIMCO in 

managing the assets of the Verizon Plans 

during the years 2001 and 2003, 

represented that it at all times acted in 

good faith compliance with the terms of 

PTE 96–23. This included obtaining 

after year-end the required independent 

exemption audit, which found that 

VIMCO had been operating as an 

INHAM during 2001 and 2003 in 

accordance with the objective 

requirements of PTE 96–23. 

7. VIMCO represents that the 

proposed exemption is in the interests 

of Verizon Plans and the participants 

and beneficiaries of such Verizon Plans. 

Like many corporations, Verizon 

utilizes an INHAM for its employee 

benefit plans, to reduce costs while 

retaining high-quality management 

devoted largely to its plans’ asset 

management activities. In carrying out 

its responsibilities, VIMCO, acting as an 

INHAM, relied on PTE 96–23. Apart 

from the issue raised by the audit timing 

requirement, VIMCO was in full 

compliance with the requirements of 

PTE 96–23, which compliance was in 

the interests of the Verizon Plans and 

the participants and beneficiaries of 

such Verizon Plans. 

8. VIMCO represents that the 

proposed exemption is protective of the 

rights of participants and beneficiaries 

of the Verizon Plans. In this regard, PTE 

96–23 was designed to apply to 

transactions that have little, if any, 

potential for abuse and that would 

constitute only technical prohibited 

transactions. VIMCO maintains that the 

proposed exemption, which is 

substantially modeled on PTE 96–23, 

would, therefore, be protective of the 

rights of the participants and 

beneficiaries of the Verizon Plans, 

because: (a) The timing of the 2001 and 

2003 audits caused no harm to any of 

the Verizon Plans that participated in 

the investment transactions for which 

VIMCO has claimed a retroactive 

individual administrative exemption; 

and (b) VIMCO was otherwise fully 

compliant with the requirements of PTE 

96–23. In addition, VIMCO maintains 

that sufficient protections were in place 

during the effective dates of this 

proposed exemption, given that the 

2001 annual audit completed in October 

2003, and the 2003 annual audit 

completed in December 2005, indicated 

no adverse findings. 

Further, it is represented that only a 

small percentage of the fair market value 

of the total assets of each affected 

Verizon Plan was involved in 

transactions covered by the proposed 

exemption. In this regard, 

approximately 3.7 percent (3.7%) of the 

value of the assets in the BAMT were 

involved in 2001 in transactions 

covered by the proposed exemption and 

approximately 5.6 percent (5.6%) of the 

value of the assets in the BAMT were 

involved in 2003 in transactions 

covered by the proposed exemption. 

9. In summary, VIMCO represents that 

the proposed exemption satisfies the 

statutory requirements for relief under 

section 408(a) of the Act because: 

(a) VIMCO has acted in reasonable, 

good faith compliance with PTE 96–23 

at all relevant times; 

(b) The 2001 annual audit, which was 

completed in October 2003, and the 

2003 annual audit, which was 

completed in December 2005, were 

performed by an independent auditor 

who had appropriate technical training 

or experience and proficiency in the 

fiduciary responsibility provisions of 

the Act; 

(c) The 2001 and 2003 annual audits 

indicated no adverse findings; and 

(d) VIMCO will maintain or cause to 

be maintained for a period of six (6) 

years the records necessary to enable the 

Department and others to determine 

whether the conditions of this proposed 

exemption are met. 

Notice to Interested Persons 

Those persons who may be interested 

in the pendency of the proposed 

exemption include the named fiduciary 

of each of the Verizon Plans that 

utilized VIMCO’s investment 

management or advisory services for the 

2001 and/or 2003 plan year. It is 

represented that the named fiduciary of 

each of these Verizon Plans will be 

provided with a copy of the notice of 

this proposed exemption (the Notice), 

plus a copy of the supplemental 

statement (the Supplemental 

Statement), as required, pursuant to 29 

CFR 2570.43(b)(2) of the Department’s 

regulations, which will advise such 

named fiduciaries of the right to 

comment and to request a hearing. The 

Notice and the Supplemental Statement 

will be provided to all such named 

fiduciaries within fifteen (15) days of 

the publication of the Notice in the 

Federal Register. The Notice and the 

Supplemental Statement will be sent by 

first class mail to such named 

fiduciaries. The Department must 

receive written comments and requests 


pwalker on PROD1PC71 with NOTICES
8576 Federal Register / Vol. 74, No. 36 / Wednesday, February 25, 2009 / Notices 

for a hearing no later than forty-five (45) 

days from the date of the publication of 

the Notice in the Federal Register . 

FOR FURTHER INFORMATION CONTACT: 

Angelena C. Le Blanc of the Department, 

telephone (202) 693–8540 (This is not a 

toll-free number). 

M&T Bank Corporation Pension Plan, 

Located in Buffalo, NY 14203–2309 

[Application No. D–11470] 

Proposed Exemption 

The Department is considering 

granting an exemption as set forth below 

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—Exemption for In-Kind 

Redemption of Assets 

Effective January 18, 2007, the 

restrictions of sections 406(a)(1)(A) 

through (D) and 406(b)(1) and (2) of the 

Act and the sanctions resulting from the 

application of section 4975 of the Code, 

by reason of section 4975(c)(1)(A) 

through (E) of the Code, shall not apply 

to the in-kind redemptions (the 

Redemptions) of shares (the Shares) 

held by the M&T Bank Corporation 

Pension Plan (the Plan) of the MTB Mid 

Cap Growth Fund and the MTB Large 

Cap Stock Fund (the Fund(s)) for which 

affiliates of Manufacturers and Traders 

Trust Company (M&T) provide 

investment advisory services and other 

services. 

Section II. Conditions 

This proposed exemption is subject to 

the following conditions: 

(a) The Plan paid no sales 

commissions, redemption fees, or other 

similar fees in connection with the 

Redemptions (other than customary 

transfer charges paid to parties other 

than M&T and affiliates of M&T (M&T 

Affiliates). 

(b) The assets transferable to the Plan 

consisted of only cash and Transferable 

Securities, as defined in Section III; 

(c) With certain exceptions explained 

in Representation 6 below, the Plan 

received a pro rata portion of the 

Transferable Securities, pursuant to the 

Redemptions that, when added to the 

cash received, was equal in value to the 

number of Shares redeemed for such 

Transferable Securities, as determined 

in a single valuation (using sources 

independent of M&T and M&T affiliates) 

performed in the same manner and as of 

the close of business on the same day as 

the day of receipt of the Transferable 

Securities, in accordance with Rule 2a– 

4 under the Investment Company Act of 

1940, as amended from time to time (the 

1940 Act), and the then-existing 

procedures established by the Fund that 

are in compliance the 1940 Act; 

(d) Neither M&T or any M&T Affiliate 

received any fees, including any fees 

payable pursuant to Rule 12b–1 under 

the 1940 Act, in connection with the 

Redemptions; 

(e) M&T retained an Independent 

Fiduciary, as such term is defined in 

Section III. The Independent Fiduciary 

determined that the terms of the 

Redemptions were fair to the 

participants of the Plan and comparable 

to and no less favorable than terms 

obtainable at arm’s length between 

unaffiliated parties, and that the 

Redemptions were in the best interest of 

the Plan and its participants and 

beneficiaries; 

(f) M&T or the relevant Fund provided 

to the Independent Fiduciary a written 

confirmation regarding such 

Redemptions containing: 

(1) The number of Shares held by the 

Plan immediately before the 

Redemptions (and the related per Share 

net asset value and the total dollar value 

of the Shares held), 

(2) the identity (and related aggregate 

dollar value) of each Transferable 

Security provided to the Plan at the time 

of the Redemptions, including each 

Transferable Security valued in 

accordance with Rule 2a–4 under the 

1940 Act and the then-existing 

procedures established by the Fund 

(using sources independent of M&T and 

M&T Affiliates) for obtaining prices 

from independent pricing services or 

market-makers, 

(3) the market price of each 

Transferable Security received by the 

Plan at the time of the Redemptions, 

and 

(4) the identity of each pricing service 

or market-marker consulted in 

determining the value of each 

Transferable Security at the time of the 

Redemptions. 

(g) The value of the Transferable 

Securities and cash received by the Plan 

for each redeemed Share equaled the net 

asset value of such Share at the time of 

the transaction, and such value equaled 

the value that would have been received 

by any other investor for shares of the 

same class of the Fund at the time; 

(h) For a period of six months 

following the Redemptions, MTB 

Investment Advisors (MTBIA), an M&T 

Affiliate and the investment advisor to 

the MTB Group of Funds (MTB Funds) 

reimbursed the Plan for commissions 

and fees incurred in connection with 

Transferable Securities received as a 

result of the Redemptions and 

subsequently sold; 

(i) Following the Redemptions, M&T, 

on behalf of the Plan, has paid and will 

continue to pay total annual expenses, 

including investment management fees 

for the Plan’s investment in the separate 

accounts; 

(j) Subsequent to the Redemptions, 

the Independent Fiduciary performs a 

post-transaction review that includes, 

among other things, testing a sampling 

of material aspects of the Redemptions 

deemed in its judgment to be 

representative, including pricing; 

(k) M&T maintains, or causes to be 

maintained, for a period of six years 

from the date the Redemptions, such 

records as are necessary to enable the 

person described in paragraph (l)(1) 

below to determine whether the 

conditions of this exemption have been 

met, except that 

(1) If the records necessary to enable 

the persons described in Section II(l)(1) 

to determine whether the conditions of 

this exemption have been met are lost, 

or destroyed, due to circumstances 

beyond the control of M&T, then no 

prohibited transaction will be 

considered to have occurred solely on 

the basis of the unavailability of those 

records; and 

(2) no party in interest with respect to 

the Plan other than M&T shall be subject 

to the civil penalty that may be assessed 

under section 502(i) of the Act or to the 

taxes imposed by section 4975(a) and (b) 

of the Code if such records are not 

maintained or are not available for 

examination as required by Section II(k). 

(l)(1) Except as provided in this 

Section II(l)(2) and notwithstanding any 

provision of section 504(a)(2) and (b) of 

the act, the records referred to in 

Section II(k) are unconditionally 

available at their customary locations 

for examination during normal business 

hours by: 

(i) any duly authorized employee or 

representative of the United States 

Department of Labor, the Internal 

Revenue Service, or the Securities and 

Exchange Commission, 

(ii) any fiduciary of the Plan or any 

duly authorized representative of such 

participant or beneficiary, 

(iii) any participant or beneficiary of 

the Plan or duly authorized 

representative of such participant or 

beneficiary, 

(iv) any employer whose employees 

are covered by the Plan, and 

(v) any employee organization whose 

members are covered by such Plan; 

(2) None of the persons described in 

Section II(l)(1)(ii) through (v) shall be 

authorized to examine trade secrets of 

M&T, the Funds, or the investment 


pwalker on PROD1PC71 with NOTICES
Federal Register / Vol. 74, No. 36 / Wednesday, February 25, 2009 / Notices 8577 

7M&T represents that no exemptive relief was 

necessary for the merger itself because the merger 

was conducted between the Ark Funds and the 

Vision Group of Funds—which as investment 

companies registered under the 1940 Act were not 

subject to the Act pursuant to Section 401(b)(1) of 

the Act. M&T also represents that the Plan’s 

continued investment in the MTF funds following 

the merger was covered by PTE 77–3. The 

Department is offering no view as to whether the 

merger was not subject to the Act pursuant to 

section 401(b)(1) of the Act and whether the Plan’s 

continued investment in the MTB Funds satisfied 

the conditions of PTE 77–3. 

advisor for the Funds, or commercial or 

financial information which is 

privileged or confidential; and 

(3) Should M&T, the Funds, or the 

investment advisor for the Funds refuse 

to disclose information on the basis that 

such information is exempt from 

disclosure pursuant to Section II(l)(2) 

above, M&T, the Funds, or the 

investment advisor shall, by the close of 

the 30th day following the request, 

provide a written notice advising that 

person of the reasons for the refusal and 

that the Department may request such 

information. 

Section III—Definitions 

For purposes of this proposed 

exemption, 

(a) The term ‘‘M & T’’ means 

Manufacturers and Traders Trust 

Company which is a wholly-owned 

subsidiary of the M&T Bank 

Corporation. 

(b) The term ‘‘affiliate’’ means: 

(1) Any person (including a 

corporation or partnership) directly or 

indirectly through one or more 

intermediaries, controlling, controlled 

by, or under common control with the 

person; 

(2) Any officer, director, employee, 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 ‘‘net asset value’’ means 

the amount for purposes of pricing all 

purchases and sales calculated by 

dividing the value of securities, 

determined by a method as set forth in 

the Fund’s prospectus and statement of 

additional information, and other assets 

belonging to the Fund, less the 

liabilities charged to each such 

Portfolio, by the number of outstanding 

shares. 

(e) The term ‘‘Independent Fiduciary’’ 

means a fiduciary who is: 

(1) Independent of and unrelated to 

M&T and its affiliates, and 

(2) appointed to act on behalf of the 

Plan with respect to the Redemptions. 

For purposes of this exemption, a 

fiduciary will not be deemed to be 

independent of and unrelated to M&T if: 

(3) Such fiduciary directly or 

indirectly controls, is controlled by or is 

under common control with M&T; 

(4) Such fiduciary, directly or 

indirectly receives any compensation or 

other consideration in connection with 

any transaction described in this 

exemption (except that an independent 

fiduciary may receive compensation 

from M&T in connection with the 

transactions discussed herein if the 

amount or payment of such 

compensation is not contingent upon or 

in any way affected by the independent 

fiduciary’s ultimate decision); or 

(5) such fiduciary receives, in its 

current fiscal year, from M&T or its 

affiliates, an amount that would have 

exceeded one percent (1%) of such 

fiduciary’s gross income in the prior 

fiscal year. 

(f) the term ‘‘Transferable Securities’’ 

shall mean securities 

(1) for which market quotations are 

readily available from persons 

independent of M&T as determined 

pursuant to procedures established by 

the Funds under Rule 2a–4 of the 1940 

Act; and 

(2) which are not 

(i) Securities which, if publicly 

offered or sold, would require 

registration under the Securities Act of 

1933; 

(ii) Securities issued by entities in 

countries which (A) restrict or prohibit 

the holding of securities by nonnationals other than through qualified 

investment vehicles, such as the Funds, 

or (B) permit transfers of ownership of 

securities to be effected only by 

transactions conducted on a local stock 

exchange; 

(iii) Certain portfolio positions (such 

as forward foreign currency contracts, 

futures and options contracts, swap 

transactions, certificates of deposit and 

repurchase agreements) that, although 

they may be liquid and marketable, 

involve the assumption of contractual 

obligations, require trading facilities or 

can only be traded with the counterparty to the transaction to effect a 

change in beneficial ownership; 

(iv) Cash equivalents (such as 

certificates of deposit, commercial paper 

and repurchase agreements); 

(v) Other assets which are not readily 

distributable (including receivables and 

prepaid expenses), net of all liabilities 

(including accounts payable); and 

(vi) Securities subject to ‘‘stop 

transfer’’ instructions or similar 

contractual restrictions on transfer. 

Summary of Facts and Representations 

1. M&T is a New York state chartered 

bank headquartered in Buffalo, New 

York. M&T is a wholly-owned 

subsidiary of M&T Bank Corporation, a 

regulated bank holding company and 

financial holding company under the 

Bank Holding Company Act of 1956, as 

amended, and is subject to the 

supervision of the Governors of the 

Federal Reserve System. 

2. M&T sponsors the Plan which is a 

defined benefit plan maintained by 

M&T to provide retirement benefits to 

eligible employees of M&T and its 

subsidiaries, and is intended to satisfy 

the qualification requirements of section 

401(a) of the Code. As of January 1, 

2007, the number of participants, 

beneficiaries and others entitled to 

benefits under the Plan total 22,837. 

Based on unaudited financial 

statements, as of December 31, 2007, the 

Plan had total assets of $617,811,222. 

M&T makes contributions to the Plan as 

required by government regulation or 

deemed appropriate by management 

after considering the fair value of Plan 

assets, expected returns on such assets, 

and the present value of the Plan’s 

benefit obligations. Contributions under 

the Plan are deductible to the extent 

permitted by section 404 of the Code. 

Participants are not permitted to make 

contributions to the Plan or to direct 

investments under the Plan. M&T serves 

as trustee of the Plan and manages the 

Plan. 

3. Effective April 1, 2003, M&T 

acquired Allfirst Financial, Inc. 

(Allfirst). Allfirst’s defined benefit plan 

merged into the Plan. The Allfirst 

defined benefit plan had been invested 

in Allfirst’s proprietary mutual fund 

(the Ark Funds), open-end investment 

companies registered under the 1940 

Act, pursuant to the terms and 

conditions of Prohibited Transaction 

Exemption 77–3, 42 FR 18734 (1977). In 

August 2003, M&T merged the Ark 

Funds and its own Vision Group of 

Funds into a new proprietary mutual 

fund family called the MTB Group of 

Funds, as a result of which the Plan 

investments in the Ark Funds were 

transferred to the MTB Funds.7 As of 

September 30, 2006, the Plan held 

approximately $486 million in 

investments, of which approximately 

30% was invested in the MTB Funds. 


pwalker on PROD1PC71 with NOTICES
8578 Federal Register / Vol. 74, No. 36 / Wednesday, February 25, 2009 / Notices 

8M&T represents that to the extent exemptive 

relief may have been necessary, PTE 77–3 would 

have provided such relief because the transaction 

involved an in-house plan of the Funds’ investment 

advisor and its affiliates. The Department is offering 

no view as to whether the in-kind cash redemption 

satisfied the conditions of PTE 77–3. 

9 In the no action letter to Signature Financial 

Group, Inc. (Dec. 28, 1999), the Division of 

Investment Management of the SEC states that it 

will not recommend enforcement action pursuant to 

section 17(a) of the 1940 Act for certain in-kind 

distributions of portfolio securities to an affiliate of 

a mutual fund. Funds seeking to use this ‘‘safe 

harbor’’ must value the securities to be distributed 

to an affiliate in an in-kind distribution ‘‘in the 

same manner as they are valued for purposes of 

computing the distributing fund’s net asset value.’’ 

M&T represents that it has adopted procedures in 

accordance with the Signature Financial Letter for 

use in affiliated transactions, and those procedures 

must be followed for transactions with the Plan, as 

the Plan is treated as an affiliate under the 1940 Act 

of the funds whose shares are being redeemed. 

Those procedures are reflected in the terms and 

conditions of the requested exemption. 

The Signature Financial letter does not address 

the marketability of the securities distributed inkind. The range of securities distributed pursuant 

to this safe harbor may therefore be broader than 

that range of securities covered by SEC Rule 17a– 

7, 17 CFR 270.17a–7. In granting past exemptive 

relief with respect to in-kind transactions involving 

mutual funds, the Department has required that the 

securities being distributed in-kind fall within Rule 

17a–7. One of the requirements of Rule 17a–7 is 

that the securities are those for which ‘‘market 

quotations are readily available.’’ Under the 

requested exemption, exemptive relief also would 

be limited to in-kind distribution of securities for 

which market quotations were readily available. 

The value of any other security would be paid to 

the plan in cash. In addition, consistent with the 

Signature Financial letter, the procedures adopted 

by the MTB Funds require pro rata distribution for 

any in-kind redemptions. 

10A common point in time each day is needed 

for valuing the Fund shares, (i.e., for determining 

the value of all the securities held by the Fund to 

arrive at the Funds’ net asset value for the day. Even 

if the Funds hold Transferable Securities that are 

traded on exchanges that close at different times, or 

remain open 24 hours, their values are determined 

as of the close of trading on the New York Stock 

Exchange (normally 4 p.m. Eastern Standard Time) 

for purposes of calculating Fund share value as of 

that time, and that value is then used for processing 

all orders to purchase and redeem shares of the 

Funds that were received before that time. 

4. The Plan was invested in several 

MTB Fund portfolios described 

graphically as follows showing the 

Plan’s investments in the MTB Funds 

before and after the Redemptions on 

January 18, 2007: 

The MTB fund name 

The plan’s 

investment in 

the MTB fund 

before 1/17/07 

(million) 

The plan’s 

investment in 

the MTB fund 

after 1/19/07 

(million) 

Small Cap Growth ........................................................................................................................................... $17.6 $17.5 

Small Cap Stock .............................................................................................................................................. $24.2 $24.1 

Equity Income .................................................................................................................................................. $3.8 $3.9 

Large Cap Value .............................................................................................................................................. $11.1 $11.2 

Multi Cap Growth ............................................................................................................................................. $5.1 $5.1 

Intl Equity Inst I ................................................................................................................................................ $60.8 $61.2 

Mid Cap Growth ............................................................................................................................................... $12.3 $0 

Large Cap Stock .............................................................................................................................................. $19.8 $0 

Total MTB Investment .............................................................................................................................. $154.8 $122.8 

In 2006, M&T began considering 

redemptions of the Plan’s investments 

in the Small Cap Growth Fund, the 

Multi Cap Growth Fund, the Mid Cap 

Growth Fund and the Large Cap Stock 

Fund in order to reduce investment fees 

for asset classes that the Plan could 

manage through separately managed 

accounts. 

5. The board of the MTB Funds 

exercised its right, as stated in the 

prospectus, to make payments in 

securities rather than cash. M&T 

determined that the Plan’s investments 

in the Funds were large enough so that 

an all-cash redemption would adversely 

impact the Funds and to proceed with 

the Redemptions. On January 18, 2007, 

the Plan’s investment in the MTB Mid 

Cap Growth Fund and the Large Cap 

Stock Fund, which are the subject of 

this proposed exemption, were 

redeemed for approximately $32 

million. M&T represents that the Small 

Cap Redemption will occur pursuant to 

a prospective exemption from the 

Department at a later date. The Plan’s 

Multi Cap Growth Fund was redeemed 

for approximately $5,505,000 in cash in 

July 2007.8

6. M&T represents that the 

Redemptions were done pursuant to all 

applicable regulatory requirements and 

M&T and its affiliates were not able to 

use their influence or control with 

respect to the Redemptions. The 

Redemptions were carried out on a pro 

rata basis as to the number and kind of 

Transferable Securities transferred to 

the Plan. The Transferable Securities 

transferred in-kind from the mutual 

funds were a pro rata portion of the 

Funds’ holdings to the extent possible, 

subject to adjustments for odd lots and 

securities that could not be transferred 

including fractional shares, as 

determined in accordance with the 

Funds’ valuation and in-kind 

redemption procedures that are 

designed to be objective and to comply 

with the requirements of the 1940 Act. 

7. M&T represents that the board of 

the MTB Funds adopted procedures for 

the fulfillment of in-kind redemptions 

requests in conformity with the 

Securities and Exchange Commission 

(SEC) no-action letter to Signature 

Financial Group.9 Pursuant to these 

procedures, the value of each 

Transferable Security was determined as 

of the close of trading on the New York 

Stock Exchange for a particular day,10

using market prices such as the last sale 

price or the most recent bid and asked 

quotations. Following completion of the 

Redemptions, the Funds confirmed in 

writing: 

(a) The number of Fund shares held 

by the Plan immediately before the 

Redemptions (and the related per share 

net asset value and the aggregate dollar 

value of the shares held); 

(b) the identity (and related aggregate 

dollar value) of each Transferable 

Security provided to the Plan at the time 

of the Redemptions, including each 

Transferable Security valued in 

accordance with Rule 2a–4 under the 

1940 Act and the then-existing 

procedures established by the board of 

the MTB Fund (using sources 

independent of M&T and M&T 

Affiliates) for obtaining current prices 

from independent pricing services and 

market-makers; 

(c) the price of such Transferable 

Security at the time of such 

Redemptions; and 

(d) the identity of each pricing service 

or market-maker consulted in 

determining the value of such 

Transferable Securities. 

8. M&T represents that at the time of 

the Redemptions, it was unaware that 

they had engaged in a prohibited 

transaction. Shortly thereafter, the 

Redemptions came to the attention of 

M&T’s internal counsel, who consulted 


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Federal Register / Vol. 74, No. 36 / Wednesday, February 25, 2009 / Notices 8579 

outside counsel. After further 

discussions and review of the details of 

the Redemptions, M&T decided to 

pursue a request for a retroactive 

individual exemption and retain an 

independent fiduciary. 

9. In an engagement letter dated May 

25, 2007, U.S. Trust Company, N.A. 

(U.S. Trust), a national bank, agreed to 

serve as the Independent Fiduciary for 

purposes of this exemption. U.S. Trust 

confirmed to M&T its qualifications to 

serve as a fiduciary and acknowledged 

it is a fiduciary to the Plan, as defined 

in section 3(21) of Act, and it has 

represented to M&T that it understands 

and accepts the duties, responsibilities 

and liabilities in acting as a fiduciary 

under the Act for the Plan. U.S. Trust 

confirmed it is independent from M&T 

because it is not controlled by or under 

common control with M&T, does not 

control M&T, and that U.S. Trust 

receives, in its current fiscal year, from 

M&T or its affiliates, an amount that 

would not have exceeded one percent 

(1%) of such fiduciary’s gross income in 

the prior fiscal year. 

10. In its report dated February 1, 

2008, U.S. Trust compared a 

hypothetical cash redemption with the 

Redemptions. U.S. Trust found that 

because of the size of the Plan’s 

investment in the Funds, a large cash 

redemption would be time consuming. 

This time lag would impose opportunity 

costs on the Plan because the Plan 

would not be invested in Transferable 

Securities that have the potential to 

match the Plan’s stated objectives for 

this portion of the Plan’s assets. 

Therefore, U.S. Trust represents that an 

in kind redemption would avoid such 

problems. 

11. U.S. Trust was provided the PreTrade Analysis which detailed the 

holdings of each of the Funds and the 

calculation of the pro rata portion of the 

securities and cash due to the Plan for 

the Redemptions. U.S. Trust found that 

the Pre-Trade Analysis was consistent 

with the proposed transfer 

methodology. The pro rata share of the 

Funds due to the Plan was calculated by 

multiplying the Plan’s ownership 

interest in each of the Funds by the total 

market value of each of the Funds. 

Securities that were excluded from the 

pro rata distribution included restricted 

securities, odd lots, fractional shares, 

and securities that traded in markets 

that restrict in-kind redemptions 

(Ineligible Securities). Ineligible 

Securities were identified and offsetting 

adjustments were made to the Plan’s pro 

rata share of the Fund’s cash position. 

U.S. Trust reviewed a sample of the 

securities listed in the Pre-Trade 

Analysis. The sample was randomly 

selected and represented approximately 

20% of the securities within each of the 

Funds. In addition, U.S. Trust 

confirmed that the pro rata share due to 

the Plan and the offsetting adjustments 

for Ineligible Securities were calculated 

properly for this sample. 

12. According to U.S. Trust, for a 

period of six months immediately 

commencing after the Redemptions, 

MTBIA agreed to reimburse the Plan for 

commissions and fees incurred in 

connection with Transferable Securities 

received as a result of the Redemptions 

and subsequently sold. Accordingly, the 

Plan was reimbursed $9,832 for 

brokerage and SEC fees from sales of 

Transferable Securities in the separate 

accounts over this period. 

13. U.S. Trust represents that the 

Redemptions resulted in significant 

savings for the Plan. Prior to the 

Redemptions, the Plan paid the ongoing investment management fees and 

other expenses charged by the Funds. 

According to U.S. Trust, the investment 

management fees and other expenses for 

the Mid Cap Growth Fund and Large 

Cap Stock Fund were 113 and 109 basis 

points respectively. As a result of the 

Redemptions, the Plan will no longer be 

paying these fees. 

Further, the separate accounts have 

annual operating expenses including 

investment management fees and other 

expenses of 40 basis points per annum 

charged internally to M&T. Because 

M&T will pay for these annual operating 

expenses generated by the separate 

accounts, the Plan will no longer pay 

any operating expenses. 

14. U.S. Trust has determined that: 

(a) The Redemptions were fair to 

participants of the Plan and no less 

favorable than the terms that would be 

reached at arm’s length between 

unaffiliated parties; 

(b) the method used to conduct the 

Redemptions was comparable to, and no 

less favorable than, a similar in-kind 

redemption reached at arm’s length 

between unaffiliated parties; 

(c) the Plan did not pay any 

commissions or fees in connection with 

the Redemptions; and 

(d) The Plan will no longer pay 

annual operating expenses including 

investment fees with respect to its 

investment in the separate accounts. 

15. In summary, the M&T represents 

that the transaction satisfies the 

statutory criteria for an exemption 

under section 408(a) of the Act for the 

following reasons: (a) The Independent 

Fiduciary reviewed the Redemptions 

and determined that the Redemptions 

were in the best interest of the Plan’s 

participants and beneficiaries; (b) The 

Independent Fiduciary reviewed the 

Redemptions and comparing them to a 

hypothetical cash-only redemption 

determined the Redemptions were more 

favorable than a cash-only redemption; 

(c) Subsequent to the Redemptions, the 

Independent Fiduciary performed a 

post-transaction sampling of the 

material aspects of the Redemption 

including pricing; (d) For a period of six 

months following the Redemptions, 

MTBIA reimbursed the Plan for 

commissions and fees incurred in 

connection with Transferable Securities 

received as a result of the Redemptions 

and subsequently sold; and (e) M&T, on 

behalf of the Plan, has paid and will 

continue to pay the total annual 

expenses including investment 

management fees for the separate 

accounts. 

Notice to Interested Persons 

Notice of the proposed exemption 

will be given to interested persons 

within 30 days of the publication of the 

notice of proposed exemption in the 

Federal Register. The notice will be 

given to interested persons by first class 

mail. Such notice will contain a copy of 

the notice of proposed exemption, as 

published in the Federal Register, and 

a supplemental statement, as required 

pursuant to 29 CFR 2570.43(b)(2). The 

supplemental statement will inform 

interested persons of their right to 

comment on and/or to request a hearing 

with respect to the pending exemption. 

Written comments and hearing requests 

are due within 15 days of the 

publication of the notice of proposed 

exemption in the Federal Register. 

For Further Information Contact: Mr. 

Anh-Viet Ly of the Department, 

telephone 202–693–8648. (This is not a 

toll-free number.) 

Schloer Enterprises, Inc., 401(k) Profit 

Sharing Plan (the Plan), Located in 

Pottstown, PA 

[Application No. D–11493] 

Proposed Exemption 

The Department is considering 

granting an exemption under the 

authority of section 408(a) of the Act 

and 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 proposed exemption is granted, the 

restrictions in sections 406(a)(1)(A), 

406(a)(1)(D), 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) 

and (c)(1)(D) through (E) of the Code, 

shall not apply to the sale of a certain 

parcel of real property (the Property) by 

the Plan to Craig J. Schloer, a party in 


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11The Department expresses no opinion herein as 

to whether the acquisition and holding of the 

Property by the Plan violated any of the provisions 

of Part 4 of Title I in the Act. 

interest with respect to the Plan, 

provided that the following conditions 

are satisfied: 

(a) The sale is a one-time transaction 

for cash; 

(b) The terms and conditions of the 

sale are at least as favorable to the Plan 

as those that the Plan could obtain in an 

arm’s length transaction with an 

unrelated party; 

(c) The sales price is the greater of 

$381,991 or the fair market value of the 

Property as of the date of the 

transaction, as determined by a 

qualified, independent appraiser; 

(d) The Plan pays no commissions, 

costs, or other expenses in connection 

with the sale; and 

(e) The Plan fiduciary will review and 

approve the methodology used by the 

qualified, independent appraiser, ensure 

that such methodology is properly 

applied in determining the Property’s 

fair market value, and will also 

determine whether it is prudent to go 

forward with the proposed transaction. 

Summary of Facts and Representations 

1. The Plan is a defined contribution 

profit sharing plan. Schloer Enterprises, 

Inc. (the Employer), located in 

Pottstown, Pennsylvania, is the Plan 

sponsor. As of June 30, 2008, the Plan 

had approximately 20 participants and 

total assets of approximately $853,000. 

2. The Property is an 80,000 square 

foot parcel of real property located at 

1442 Hollow Road, Collegeville, 

Pennsylvania 19426. On December 30, 

1999, the Plan purchased the Property 

from Fred Olinick, the executor of the 

estate of Stanley P. Olinick, an 

unrelated third party, for the purchase 

price of $145,000. At that time, the 

Property included a 1,630 square foot, 

four-bedroom dwelling in fair to poor 

condition, which has since been 

demolished. It is represented that the 

Property was purchased solely for 

investment purposes.11

The Plan has spent $106,352 in 

connection with renovations to the 

Property since it was acquired by the 

Plan. The cost of demolishing the 

dwelling was included in the $106,352 

spent on renovations. The Plan has paid 

additional holding expenses of 

approximately $3,000 per annum in real 

estate taxes on the Property. The 

Property has generated no income for 

the Plan. 

The applicant proposes the sale of the 

Property by the Plan to Mr. Schloer, 

who serves as the CEO/President of the 

Employer and the Plan fiduciary. The 

Property is adjacent to Mr. Schloer’s 

current residence at 1436 Hollow Road, 

Collegeville, Pennsylvania 19426. It is 

represented that neither Mr. Schloer, 

nor his relatives, nor any other party in 

interest have used or benefited from the 

Property. 

3. The Property was twice recently 

appraised by Robin S. Bowers, RM, 

SRA, a qualified, independent appraiser 

with The Appraisal Group, located in 

Lansdale, Pennsylvania. The applicant 

commissioned the two appraisals 

valuing the Property with and without 

the dwelling in order to demonstrate 

that demolishing the dwelling 

maximized the value of the Property. 

Both appraisals were performed after 

the dwelling was already demolished. In 

the first appraisal, Ms. Bowers valued 

the Property by examining comparable 

properties with no structures or 

buildings on them. Ms. Bowers 

determined that the fair market value of 

the Property as of May 12, 2008 was 

$320,000. 

For purposes of the second appraisal, 

Ms. Bowers assumed that the dwelling 

had not been demolished and was still 

in existence. Under this assumption, she 

valued the Property using the Sales 

Comparison Approach and the Cost 

Approach. Ms. Bowers compared the 

Property to six other similar properties 

having building improvements, based 

on style, quality, age, and market area. 

She determined that, as of November 10, 

2008, the fair market value of the 

Property (assuming that the demolished 

dwelling was still in existence), was 

$260,000. 

Ms. Bowers also determined that no 

premium is due to the Plan, as a term 

of the proposed sale of the Property, for 

any assemblage value resulting from the 

adjacency of Mr. Schloer’s residence to 

the Property. The lots are zoned as 

single dwelling residential lots, and Ms. 

Bowers opined that, because the best 

use of the Property was to demolish the 

dwelling and to erect a new one, no 

assemblage value would be created even 

if the Property and the adjacent lot, 

currently owned by Mr. Schloer, are 

combined into a single lot. 

4. Mr. Schloer proposes to pay the 

Plan $381,991 for the Property, 

calculated as the sum of the following: 

(a) $260,000, the fair market value of the 

Property as of November 10, 2008 

(assuming the absence of renovations), 

(b) $106,352, the cost of renovations to 

the Property paid by the Plan, and (c) 

$15,639, for lost earnings attributable to 

the cost of the renovations, using the 

Department’s online VFCP (Voluntary 

Fiduciary Compliance Program) 

Calculator. 

The Property constitutes 

approximately 37.5% of the total assets 

of the Plan (based on the May 12, 2008 

valuation). The applicant represents that 

the sale of the Property to Mr. Schloer 

is in the best interests of the Plan 

because it will enable the Plan to recoup 

its initial investment in the Property 

and the cost of renovations, as well as 

realize a reasonable gain on its 

investment. It is intended that the 

proceeds be re-invested in other 

investments yielding a higher rate of 

return. As the Plan fiduciary, Mr. 

Schloer represents that, in the current 

real estate market, a sale of the Property 

on the open market would yield less 

than the amount that he is willing to 

pay to the Plan. 

5. The applicant represents that the 

sale of the Property will be a one-time 

transaction for cash and that the Plan 

will incur no fees, commissions, or 

other expenses in connection with the 

sale. The Employer is bearing the costs 

of the exemption application and of 

notifying interested persons. 

6. In summary, the applicant 

represents that the proposed transaction 

satisfies the statutory criteria for an 

exemption under section 408(a) of the 

Act for the following reasons: 

(a) The sale will be a one-time 

transaction for cash; 

(b) The terms and conditions of the 

sale will be at least as favorable to the 

Plan as those that the Plan could obtain 

in an arm’s length transaction with an 

unrelated party; 

(c) The sales price will be the greater 

of $381,991 or the fair market value of 

the Property as of the date of the 

transaction, as determined by a 

qualified, independent appraiser; 

(d) The Plan will pay no 

commissions, costs, or other expenses in 

connection with the sale; and 

(e) The Plan fiduciary will review and 

approve the methodology used by the 

qualified, independent appraiser, ensure 

that such methodology is properly 

applied in determining the Property’s 

fair market value, and will also 

determine whether it is prudent to go 

forward with the proposed transaction. 

FOR FURTHER INFORMATION CONTACT: Ms. 

Karin Weng of the Department, 

telephone (202) 693–8557. (This is not 

a toll-free number.) 

Morgan Stanley & Co. Incorporated, 

Located in New York, New York 

[Exemption Application Number D–11501] 

Proposed Exemption 

The Department is considering 

granting an exemption under the 

authority of section 408(a) of the 

Employee Retirement Income Security 


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12For purposes of this proposed exemption, 

references to section 406 of ERISA should be read 

to refer as well to the corresponding provisions of 

section 4975 of the Code. 

13The Department notes that the Act’s general 

standards of fiduciary conduct also would apply to 

the transactions described herein. In this regard, 

section 404 requires, among other things, that a 

fiduciary discharge his duties respecting a plan 

solely in the interest of the plan’s participants and 

beneficiaries and in a prudent manner. 

Accordingly, a plan fiduciary must act prudently 

with respect to, among other things, the decision to 

sell the Auction Rate Security to Morgan Stanley for 

the par value of the Auction Rate Security. The 

Department further emphasizes that it expects Plan 

fiduciaries, prior to entering into any of the 

proposed transactions, to fully understand the risks 

associated with this type of transaction following 

disclosure by Morgan Stanley of all relevant 

information. 

Act of 1974 (ERISA or the Act) and 

section 4975(c)(2) of the Internal 

Revenue Code of 1986, as amended (the 

Code), and in accordance with the 

procedures set forth in 29 CFR Part 

2570, Subpart B (55 FR 32836, 32847, 

August 10, 1990).12

Section I. Sales of Auction Rate 

Securities from Plans to Morgan 

Stanley: Unrelated to a Settlement 

Agreement 

If the proposed exemption is granted, 

the restrictions of section 406(a)(1)(A) 

and (D) and section 406(b)(1) and (2) of 

the Act and the sanctions resulting from 

the application of section 4975 of the 

Code, by reason of section 4975(c)(1)(A), 

(D), and (E) of the Code, shall not apply, 

effective February 1, 2008, to the sale by 

a Plan (as defined in section V(e)) of an 

Auction Rate Security (as defined in 

section V(c)) to Morgan Stanley & Co. 

Incorporated (Morgan Stanley), where 

such sale (an Unrelated Sale) is 

unrelated to, and not made in 

connection with, a Settlement 

Agreement (as defined in section V(f)), 

provided that the conditions set forth in 

section II have been met. 

Section II. Conditions Applicable to 

Transactions Described in Section I 

(a) The Plan acquired the Auction 

Rate Security in connection with 

brokerage or advisory services provided 

by Morgan Stanley to the Plan; 

(b) The last auction for the Auction 

Rate Security was unsuccessful; 

(c) Except in the case of a Plan 

sponsored by Morgan Stanley for its 

own employees (a Morgan Stanley 

Plan), the Unrelated Sale is made 

pursuant to a written offer by Morgan 

Stanley (the Offer) containing all of the 

material terms of the Unrelated Sale, 

including, but not limited to: (1) The 

identity and par value of the Auction 

Rate Security; (2) the interest or 

dividend amounts that are due with 

respect to the Auction Rate Security; 

and (3) the most recent rate information 

for the Auction Rate Security (if reliable 

information is available). 

Notwithstanding the foregoing, in the 

case of a pooled fund maintained or 

advised by Morgan Stanley, this 

condition shall be deemed met to the 

extent each Plan invested in the pooled 

fund (other than a Morgan Stanley Plan) 

receives advance written notice 

regarding the Unrelated Sale, where 

such notice contains all of the material 

terms of the Unrelated Sale, including, 

but not limited to, the material terms 

described in the preceding sentence; 

(d) The Unrelated Sale is for no 

consideration other than cash payment 

against prompt delivery of the Auction 

Rate Security; 

(e) The sales price for the Auction 

Rate Security is equal to the par value 

of the Auction Rate Security, plus any 

accrued but unpaid interest or 

dividends; 

(f) The Plan does not waive any rights 

or claims in connection with the 

Unrelated Sale; 

(g) The decision to accept the Offer or 

retain the Auction Rate Security is made 

by a Plan fiduciary or Plan participant 

or IRA owner who is Independent (as 

defined in section V(d)) of Morgan 

Stanley. Notwithstanding the foregoing: 

(1) In the case of an individual 

retirement account (an IRA, as described 

in section V(e) below) which is 

beneficially owned by an employee, 

officer, director or partner of Morgan 

Stanley, the decision to accept the Offer 

or retain the Auction Rate Security may 

be made by such employee, officer, 

director or partner; or (2) in the case of 

a Morgan Stanley Plan or a pooled fund 

maintained or advised by Morgan 

Stanley, the decision to accept the Offer 

may be made by Morgan Stanley after 

Morgan Stanley has determined that 

such purchase is in the best interest of 

the Morgan Stanley Plan or pooled 

fund; 13

(h) Except in the case of a Morgan 

Stanley Plan or a pooled fund 

maintained or advised by Morgan 

Stanley, neither Morgan Stanley nor any 

affiliate exercises investment discretion 

or renders investment advice [within 

the meaning of 29 CFR 2510.3–21(c)] 

with respect to the decision to accept 

the Offer or retain the Auction Rate 

Security; 

(i) The Plan does not pay any 

commissions or transaction costs with 

respect to the Unrelated Sale; 

(j) The Unrelated Sale is not part of an 

arrangement, agreement or 

understanding designed to benefit a 

party in interest to the Plan; 

(k) Morgan Stanley and its affiliates, 

as applicable, maintain, or cause to be 

maintained, for a period of six (6) years 

from the date of the Unrelated Sale, 

such records as are necessary to enable 

the persons described below in 

paragraph (l)(i), to determine whether 

the conditions of this exemption, if 

granted, have been met, except that— 

(i) No party in interest with respect to 

a Plan which engages in an Unrelated 

Sale, other than Morgan Stanley and its 

affiliates, as applicable, shall be subject 

to a civil penalty under section 502(i) of 

the Act or the taxes imposed by section 

4975(a) and (b) of the Code, if such 

records are not maintained, or not 

available for examination, as required, 

below, by paragraph (l)(i); and 

(ii) A separate prohibited transaction 

shall not be considered to have occurred 

solely because, due to circumstances 

beyond the control of Morgan Stanley or 

its affiliates, as applicable, such records 

are lost or destroyed prior to the end of 

the six-year period; 

(l)(i) Except as provided below in 

paragraph (l)(ii), and notwithstanding 

any provisions of subsections (a)(2) and 

(b) of section 504 of the Act, the records 

referred to above in paragraph (k) 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 U.S. 

Securities and Exchange Commission; 

or 

(B) Any fiduciary of any Plan, 

including any IRA owner, that engages 

in a Sale, or any duly authorized 

employee or representative of such 

fiduciary; or 

(C) Any employer of participants and 

beneficiaries and any employee 

organization whose members are 

covered by a Plan that engages in the 

Unrelated Sale, or any authorized 

employee or representative of these 

entities; 

(ii) None of the persons described 

above in paragraph (l)(i)(B)–(C) shall be 

authorized to examine trade secrets of 

Morgan Stanley, or commercial or 

financial information which is 

privileged or confidential; and 

(iii) Should Morgan Stanley refuse to 

disclose information on the basis that 

such information is exempt from 

disclosure, Morgan Stanley shall, by the 

close of the thirtieth (30th) day 

following the request, provide a written 

notice advising that person of the 

reasons for the refusal and that the 

Department may request such 

information. 


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8582 Federal Register / Vol. 74, No. 36 / Wednesday, February 25, 2009 / Notices 

Section III. Sales of Auction Rate 

Securities from Plans to Morgan 

Stanley: Related to a Settlement 

Agreement 

If the proposed exemption is granted, 

the restrictions of section 406(a)(1)(A) 

and (D) and section 406(b)(1) and (2) of 

the Act and the sanctions resulting from 

the application of section 4975 of the 

Code, by reason of section 4975(c)(1)(A), 

(D), and (E) of the Code, shall not apply, 

effective August 1, 2008, to the sale by 

a Plan of an Auction Rate Security to 

Morgan Stanley, where such sale (a 

Settlement Sale) is related to, and made 

in connection with, a Settlement 

Agreement, provided that the conditions 

set forth in section IV have been met. 

Section IV. Conditions Applicable to 

Transactions Described in Section III 

(a) The terms and delivery of the Offer 

are consistent with the requirements set 

forth in the Settlement Agreement; 

(b) The Offer specifically describes, 

among other things: 

(1) How a Plan may determine: The 

Auction Rate Securities held by the Plan 

with Morgan Stanley; the number of 

shares and par value of the Auction Rate 

Securities; the interest or dividend 

amounts that are due with respect to the 

Auction Rate Securities; purchase dates 

for the Auction Rate Securities; and (if 

reliable information is available) the 

most recent rate information for the 

Auction Rate Securities; 

(2) The background of the Offer; 

(3) That neither the tender of Auction 

Rate Securities nor the purchase of any 

Auction Rate Securities pursuant to the 

Offer will constitute a waiver of any 

claim of the tendering Plan; 

(4) The methods and timing by which 

Plans may accept the Offer; 

(5) The purchase dates, or the manner 

of determining the purchase dates, for 

Auction Rate Securities tendered 

pursuant to the Offer; 

(6) The timing for acceptance by 

Morgan Stanley of tendered Auction 

Rate Securities; 

(7) The timing of payment for Auction 

Rate Securities accepted by Morgan 

Stanley for payment; 

(8) The methods and timing by which 

a Plan may elect to withdraw tendered 

Auction Rate Securities from the Offer; 

(9) The expiration date of the Offer; 

(10) The fact that Morgan Stanley may 

make purchases of Auction Rate 

Securities outside of the Offer and may 

otherwise buy, sell, hold or seek to 

restructure, redeem or otherwise 

dispose of the Auction Rate Securities; 

(11) A description of the risk factors 

relating to the Offer as Morgan Stanley 

deems appropriate; 

(12) How to obtain additional 

information concerning the Offer; and 

(13) The manner in which 

information concerning material 

amendments or changes to the Offer will 

be communicated to the Plan. 

(c) The terms of the Settlement Sale 

are consistent with the requirements set 

forth in the Settlement Agreement; and 

(d) All of the conditions in section II 

have been met. 

V. Definitions 

For purposes of this exemption: 

(a) The term ‘‘affiliate’’ means: any 

person directly or indirectly, through 

one or more intermediaries, controlling, 

controlled by, or under common control 

with such other person; 

(b) The term ‘‘control’’ means: the 

power to exercise a controlling 

influence over the management or 

policies of a person other than an 

individual; 

(c) The term ‘‘Auction Rate Security’’ 

means a security: 

(1) that is either a debt instrument 

(generally with a long-term nominal 

maturity) or preferred stock; and 

(2) with an interest rate or dividend 

that is reset at specific intervals through 

a Dutch auction process; 

(d) A person is ‘‘Independent’’ of 

Morgan Stanley if the person is: (1) not 

Morgan Stanley or an affiliate; and (2) 

not a relative (as defined in ERISA 

section 3(15)) of the party engaging in 

the transaction; 

(e) The term ‘‘Plan’’ means: an 

individual retirement account or similar 

account described in section 

4975(e)(1)(B) through (F) of the Code (an 

IRA); an employee benefit plan as 

defined in section 3(3) of ERISA; or an 

entity holding plan assets within the 

meaning of 29 CFR 2510.3–101, as 

modified by ERISA section 3(42); and 

(f) The term ‘‘Settlement Agreement’’ 

means: a legal settlement involving 

Morgan Stanley and a U.S. state or 

federal authority that provides for the 

purchase of an ARS by Morgan Stanley 

from a Plan. 

Summary of Facts and Representations 

1. The Applicant is Morgan Stanley & 

Co. Incorporated and its affiliates 

(hereinafter, either Morgan Stanley or 

the Applicant). Morgan Stanley is a 

global financial services firm 

headquartered in New York, New York. 

Among other things, Morgan Stanley is 

both a registered investment advisor 

subject to the Investment Advisers Act 

of 1940 and a broker-dealer registered 

with the U.S. Securities and Exchange 

Commission. In this last regard, Morgan 

Stanley acts as a broker and dealer with 

respect to the purchase and sale of 

securities, including Auction Rate 

Securities. 

2. The Applicant describes Auction 

Rate Securities and the arrangement by 

which ARS are bought and sold as 

follows. Auction Rate Securities (or 

ARS) are securities (issued as debt or 

preferred stock) with an interest rate or 

dividend that is reset at periodic 

intervals pursuant to a process called a 

Dutch Auction. Investors submit orders 

to buy, hold, or sell a specific ARS to 

a broker-dealer selected by the entity 

that issued the ARS. The broker-dealers, 

in turn, submit all of these orders to an 

auction agent. The auction agent’s 

functions include collecting orders from 

all participating broker-dealers by the 

auction deadline, determining the 

amount of securities available for sale, 

and organizing the bids to determine the 

winning bid. If there are any buy orders 

placed into the auction at a specific rate, 

the auction agent accepts bids with the 

lowest rate above any applicable 

minimum rate and then successively 

higher rates up to the maximum 

applicable rate, until all sell orders and 

orders that are treated as sell orders are 

filled. Bids below any applicable 

minimum rate or above the applicable 

maximum rate are rejected. After 

determining the clearing rate for all of 

the securities at auction, the auction 

agent allocates the ARS available for 

sale to the participating broker-dealers 

based on the orders they submitted. If 

there are multiple bids at the clearing 

rate, the auction agent will allocate 

securities among the bidders at such 

rate on a pro-rata basis. 

3. The Applicant states that, under a 

typical Dutch Auction process, Morgan 

Stanley is permitted, but not obligated, 

to submit orders in auctions for its own 

account either as a bidder or a seller and 

routinely does so in the auction rate 

securities market in its sole discretion. 

Morgan Stanley may place one or more 

bids in an auction for its own account 

to acquire ARS for its inventory, to 

prevent: (1) A failed auction (i.e. , an 

event where there are insufficient 

clearing bids which would result in the 

auction rate being set at a specified rate, 

resulting in no ARS being sold through 

the auction process); or (2) an auction 

from clearing at a rate that Morgan 

Stanley believes does not reflect the 

market for the particular ARS being 

auctioned. 

4. The Applicant states that for many 

ARS, Morgan Stanley has been 

appointed by the issuer of the securities 

to serve as a dealer in the auction and 

is paid by the issuer for its services. 

Morgan Stanley is typically appointed 

to serve as a dealer in the auctions 

pursuant to an agreement between the 


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Federal Register / Vol. 74, No. 36 / Wednesday, February 25, 2009 / Notices 8583 

14The Department notes that Class Exemption 

80–26 (45 FR 28545 (Apr. 29, 1980), as amended 

at 71 FR 17917 (Apr. 7, 2006)) permits interest-free 

loans or other extensions of credit from a party in 

interest to a plan if, among other things, the 

proceeds of the loan or extension of credit are used 

only—(1) for the payment of ordinary operating 

expenses of the plan, including the payment of 

benefits in accordance with the terms of the plan 

and periodic premiums under an insurance or 

annuity contract, or (2) for a purpose incidental to 

the ordinary operation of the plan. 

15The relief contained in this proposed 

exemption does not extend to the fiduciary 

provisions of section 404 of the Act. 

16The Applicant states that while there may be 

communication between a Plan and Morgan Stanley 

subsequent to an Offer, such communication will 

not involve advice regarding whether the Plan 

should accept the Offer. 

issuer and Morgan Stanley. That 

agreement provides that Morgan Stanley 

will receive from the issuer auction 

dealer fees based on the principal 

amount of the securities placed through 

Morgan Stanley. 

5. The Applicant states further that 

Morgan Stanley may share a portion of 

the auction rate dealer fees it receives 

from the issuer with other brokerdealers that submit orders through 

Morgan Stanley, for those orders that 

Morgan Stanley successfully places in 

the auctions. Similarly, with respect to 

ARS for which broker-dealers other than 

Morgan Stanley act as dealer, such other 

broker-dealers may share auction dealer 

fees with Morgan Stanley for orders 

submitted by Morgan Stanley. 

6. According to the Applicant, since 

February 2008, only a minority of 

auctions have cleared, particularly 

involving municipalities. As a result, 

Plans holding ARS may not have 

sufficient liquidity to make benefit 

payments, mandatory payments and 

withdrawals and expense payments 

when due.14

7. The Applicant represents that, in 

certain instances, Morgan Stanley may 

have previously advised or otherwise 

caused a Plan to acquire and hold an 

Auction Rate Security.15 In connection 

with Morgan Stanley’s role in the 

acquisition and holding of ARS by 

various Morgan Stanley clients, 

including the Plans, Morgan Stanley 

entered into Settlement Agreements 

with certain U.S. states and federal 

authorities. Pursuant to these Settlement 

Agreements, among other things, 

Morgan Stanley was required to send a 

written offer to certain Plans that held 

ARS in connection with the advice and/ 

or brokerage services provided by 

Morgan Stanley. As described in further 

detail below, eligible Plans that 

accepted the Offer were permitted to 

sell the ARS to Morgan Stanley for cash 

equal to the par value of such securities, 

plus any accrued interest and/or 

dividends. According to the Applicant, 

as of January 28, 2009, approximately 

$227 million dollars in ARS have been 

sold by Plans to Morgan Stanley in 

connection with Offers issued by 

Morgan Stanley pursuant to a 

Settlement Agreement. The Applicant 

states that, prospectively, additional 

shares of ARS may be tendered by Plans 

to Morgan Stanley pursuant to an Offer 

issued by Morgan Stanley pursuant to a 

Settlement Agreement. Accordingly, the 

Applicant is requesting retroactive and 

prospective relief for the Settlement 

Sales. With respect to Unrelated Sales, 

the Applicant states that to the best of 

its knowledge, as of January 28, 2009, 

no Unrelated Sale has occurred. 

However, the Applicant is requesting 

retroactive relief (and prospective relief) 

for Unrelated Sales in the event that a 

sale of Auction Rate Securities by a Plan 

to Morgan Stanley has occurred outside 

the Settlement process. 

8. The Applicant is requesting relief 

for the sale of Auction Rate Securities 

under two different circumstances: (1) 

where Morgan Stanley initiates the sale 

by sending to a Plan a written Offer to 

acquire the ARS (i.e., an Unrelated 

Sale), notwithstanding that such Offer is 

not required under a Settlement 

Agreement; and (2) where Morgan 

Stanley is required under a Settlement 

Agreement to send to Plans a written 

Offer to acquire the ARS (i.e., a 

Settlement Sale). The Applicant states 

that the Unrelated Sales and Settlement 

Sales (hereinafter, either, a Covered 

Sale) are in the interests of Plans. In this 

regard, the Applicant states that the 

Covered Sales would permit Plans to 

normalize Plan investments. The 

Applicant represents that each Covered 

Sale will be for no consideration other 

than cash payment against prompt 

delivery of the ARS, and such cash will 

equal the par value of the ARS, plus any 

accrued but unpaid interest or 

dividends. The Applicant represents 

further that Plans will not pay any 

commissions or transaction costs with 

respect to any Covered Sale. 

9. The Applicant represents that the 

proposed exemption is protective of the 

Plans. The Applicant states that, with 

very narrowly tailored exceptions: Each 

Covered Sale will be made pursuant to 

a written Offer; and the decision to 

accept the Offer or retain the ARS will 

be made by a Plan fiduciary or Plan 

participant or IRA owner who is 

independent of Morgan Stanley. 

Additionally, each Offer will be 

delivered in a manner designed to alert 

a Plan fiduciary that Morgan Stanley 

intends to purchase ARS from the Plan. 

Offers made in connection with an 

Unrelated Sale will include all of the 

material terms of the Unrelated Sale, 

including: The identity and par value of 

the Auction Rate Security; the interest 

or dividend amounts that are due with 

respect to the Auction Rate Security; 

and the most recent rate information for 

the Auction Rate Security (if reliable 

information is available). Offers made in 

connection with a Settlement 

Agreement will specifically include, 

among other things: The background of 

the Offer; the method and timing by 

which a Plan may accept the Offer; the 

expiration date of the Offer; a 

description of certain risk factors 

relating to the Offer; how to obtain 

additional information concerning the 

Offer; and the manner in which 

information concerning material 

amendments or changes to the Offer will 

be communicated. The Applicant states 

that, with very narrowly tailored 

exceptions, neither Morgan Stanley nor 

any affiliate will exercise investment 

discretion or render investment advice 

with respect to a Plan’s decision to 

accept the Offer or retain the ARS.16 In 

the case of a Morgan Stanley Plan or a 

pooled fund maintained or advised by 

Morgan Stanley, the decision to engage 

in a Covered Sale may be made by 

Morgan Stanley after Morgan Stanley 

has determined that such purchase is in 

the best interest of the Morgan Stanley 

Plan or pooled fund. The Applicant 

represents further that Plans will not 

waive any rights or claims in connection 

with any Covered Sale. 

10. The Applicant represents that the 

proposed exemption, if granted, would 

be administratively feasible. In this 

regard, the Applicant notes that each 

Covered Sale will occur at the par value 

of the affected ARS, and such value is 

readily ascertainable. The Applicant 

represents further that Morgan Stanley 

will maintain the records necessary to 

enable the Department and Plan 

fiduciaries, among others, to determine 

whether the conditions of this 

exemption, if granted, have been met. 

11. In summary, the Applicant 

represents that the transactions 

described herein satisfy the statutory 

criteria of section 408(a) of the Act and 

section 4975(c)(2) of the Code because, 

among other things: 

(a) With only very narrow exceptions, 

each Covered Sale shall be made 

pursuant to a written Offer; 

(b) Each Covered Sale shall be for no 

consideration other than cash payment 

against prompt delivery of the ARS; 

(c) The amount of each Covered Sale 

shall equal the par value of the ARS, 

plus any accrued but unpaid interest or 

dividends; 


pwalker on PROD1PC71 with NOTICES
8584 Federal Register / Vol. 74, No. 36 / Wednesday, February 25, 2009 / Notices 

(d) Plans will not waive any rights or 

claims in connection with any Covered 

Sale; 

(e) With only very narrow exceptions: 

(1) The decision to accept an Offer or 

retain the ARS shall be made by a Plan 

fiduciary or Plan participant or IRA 

owner who is Independent of Morgan 

Stanley; and 

(2) Neither Morgan Stanley nor any 

affiliate shall exercise investment 

discretion or render investment advice 

[within the meaning of 29 CFR 2510.3– 

21(c)] with respect to the decision to 

accept the Offer or retain the ARS; 

(f) Plans shall not pay any 

commissions or transaction costs with 

respect to any Covered Sale; 

(g) A Covered Sale shall not be part 

of an arrangement, agreement or 

understanding designed to benefit a 

party in interest to the affected Plan; 

(h) With respect to any Settlement 

Sale, the terms and delivery of the Offer, 

and the terms of Settlement Sale, shall 

be consistent with the requirements set 

forth in the Settlement Agreement; 

(i) Each Offer made in connection 

with an Unrelated Sale shall describe all 

of the material terms of the Unrelated 

Sale, including: 

(1) The identity and par value of the 

Auction Rate Security; 

(2) the interest or dividend amounts 

that are due with respect to the Auction 

Rate Security; and 

(3) the most recent rate information 

for the Auction Rate Security (if reliable 

information is available); 

(j) Each Offer made in connection 

with a Settlement Agreement shall 

describe all of the material terms of the 

Settlement Sale, including: 

(1) How the Plan can determine: The 

ARS held by the Plan with Morgan 

Stanley; the number of shares and par 

value of the ARS; interest or dividend 

amounts; purchase dates for the ARS; 

and (if reliable information is available) 

the most recent rate information for the 

ARS; 

(2) The background of the Offer; 

(3) That neither the tender of ARS nor 

the purchase of ARS pursuant to the 

Offer will constitute a waiver of any 

claim of the tendering Plan; 

(4) The methods and timing by which 

the Plan may accept the Offer; and 

(5) The purchase dates, or the manner 

of determining the purchase dates, for 

ARS pursuant to the Offer and the 

timing for acceptance by Morgan 

Stanley of tendered ARS for payment. 

Notice To Interested Persons 

The Applicant represents that the 

potentially interested participants and 

beneficiaries cannot all be identified 

and therefore the only practical means 

of notifying such participants and 

beneficiaries of this proposed 

exemption is by the publication of this 

notice in the Federal Register. 

Comments and requests for a hearing 

must be received by the Department not 

later than 45 days from the date of 

publication of this notice of proposed 

exemption in the Federal Register. 

FOR FURTHER INFORMATION CONTACT: 

Chris Motta of the Department, 

telephone (202) 693–8540. (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 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 

that each application accurately 

describes all material terms of the 

transaction which is the subject of the 

exemption. 

Signed at Washington, DC, this 19th day of 

February 2009. 

Ivan Strasfeld, 

Director of Exemption Determinations, 

Employee Benefits Security Administration, 

U.S. Department of Labor. 

[FR Doc. E9–3997 Filed 2–24–09; 8:45 am] 

BILLING CODE 4510–29–P 

DEPARTMENT OF LABOR 

Employment and Training 

Administration 

Notice of a Change in Status of an 

Extended Benefit (EB) Period for 

Washington 

AGENCY: Employment and Training 

Administration, Labor. 

ACTION: Notice. 

SUMMARY: This notice announces a 

change in benefit period eligibility 

under the EB Program for Washington. 

The following change has occurred 

since the publication of the last notice 

regarding the State’s EB status: 

• Based on data reported by the 

Bureau of Labor Statistics on January 27, 

2009, Washington’s 3-month seasonally 

adjusted total unemployment rate was 

6.6 percent and equals or exceeds 110 

percent of the corresponding rate in 

both prior years. This causes 

Washington to be triggered ‘‘on’’ to an 

EB period beginning February 15, 2009. 

Information for Claimants 

The duration of benefits payable in 

the EB Program, and the terms and 

conditions on which they are payable, 

are governed by the Federal-State 

Extended Unemployment Compensation 

Act of 1970, as amended, and the 

operating instructions issued to the 

states by the U.S. Department of Labor. 

In the case of a state beginning an EB 

period, the State Workforce Agency will 

furnish a written notice of potential 

entitlement to each individual who has 

exhausted all rights to regular benefits 

and is potentially eligible for EB (20 

CFR 615.13(c)(1)). 

Persons who believe they may be 

entitled to EB, or who wish to inquire 

about their rights under the program, 

should contact their State Workforce 

Agency. 

FOR FURTHER INFORMATION CONTACT: 

Scott Gibbons, U.S. Department of 

Labor, Employment and Training 

Administration, Office of Workforce 

Security, 200 Constitution Avenue NW., 

Frances Perkins Bldg., Room S–4231, 

Washington, DC 20210, telephone 

number (202) 693–3008 (this is not a 

toll-free number) or by e-mail: 

gibbons.scott@dol.gov. 


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