[Federal Register Volume 66, Number 32 (Thursday, February 15, 2001)]
[Notices]
[Pages 10514-10534]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-3688]


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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10584, et al.]


Proposed Exemptions; New York Life Insurance Company (NYLIC)

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

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SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the prohibited transaction restrictions of the Employee 
Retirement Income Security Act of 1974 (the Act) and/or the Internal 
Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

    All interested persons are invited to submit written comments or 
request 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 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 request for a hearing (at least 
three copies) should be sent to the Pension and Welfare Benefits 
Administration, Office of Exemption Determinations, Room N-1513, U.S. 
Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210. Attention: Application No. ______, stated in each Notice of 
Proposed Exemption. The applications for exemption and the comments 
received will be available for public inspection in the Public 
Documents Room of the Pension and Welfare Benefits Administration, U.S. 
Department of Labor, Room N-5638, 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.

New York Life Insurance Company (NYLIC), Located In New York, NY

[Application No. D-10584]

Proposed Exemption

    The Department of Labor 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 C.F.R. 
part 2570, subpart B (55 FR 32836, 32847, August 10, 1990).\1\
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    \1\ For purposes of this exemption, references to specific 
provisions of Title I of the Act unless otherwise specified, refer 
to the corresponding provisions of the Code.
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I. Transactions
    If the exemption is granted, the restrictions of section 
406(a)(1)(A) through (D) and 406(b) of the Act and the sanctions 
resulting from the application of section 4975 of the Code, by reason 
of section 4975(c)(1)(A) through (F) of the Code shall not apply to the 
following transactions, if the conditions set forth in Section II and 
Section III, below, are satisfied:
    (a) The receipt, directly or indirectly, by a sales agent (Sales 
Agent or Sales Agents), as defined in Section IV(l) below, of a sales 
commission from NYLIC in connection with the purchase, with plan 
assets, of an insurance contract (the Insurance Contract or Insurance 
Contracts), as defined in Section IV(h) below;
    (b) The receipt of a sales commission by NYLIC, as principal 
underwriter for a mutual fund registered under the Investment Company 
Act of 1940, in connection with the purchase, with plan assets, of 
securities issued by such mutual fund (the NYLife Fund or NYLife 
Funds), as defined in Section IV(c) below;
    (c) The effecting by NYLIC, as principal underwriter, of a 
transaction for the purchase, with plan assets, of securities issued by 
a NYLife Fund, and the effecting by a Sales Agent of a transaction for 
the purchase, with plan assets, of an Insurance Contract; and
    (d) The purchase, with plan assets, of an Insurance Contract from 
NYLIC.
II. General Conditions
    (a) The transactions are effected by NYLIC in the ordinary course 
of NYLIC's business as an insurance company, or as a principal 
underwriter to a NYLife Fund, or in the case of a Sales Agent, in the 
ordinary course of the Sales Agent's business as a Sales Agent.
    (b) The transactions are on terms at least as favorable to the plan 
as an arm's length transaction with an unrelated party would be.
    (c) The combined total of all fees, sales commissions, and other 
consideration received by NYLIC or a Sales Agent: (1) For the provision 
of services to the plan, and (2) in connection with a purchase of an 
Insurance Contract or securities issued by a NYLife Fund, is not in 
excess of ``reasonable compensation'' within the contemplation of 
section 408(b)(2) and (c)(2) of the Act and section 4975(d)(2) and 
(d)(10) of the Code. If such total is in excess of ``reasonable 
compensation'' the ``amount involved'' for purposes of the civil 
penalties of section 502(i) of the Act and excise taxes imposed by 
section 4975(a) and (b) of the Code is the amount of compensation in 
excess of ``reasonable compensation.''
III. Specific Conditions
    (a) NYLIC or the Sales Agent is not--
    (1) A trustee of the plan (other than a non-discretionary trustee 
who does not render investment advice with respect to any assets of the 
plan or a trustee to a pooled trust (the Pooled Trust), as defined in 
Section IV(g)

[[Page 10515]]

below, which will not purchase Insurance Contracts or securities issued 
by a NYLife Fund pursuant to this exemption);
    (2) A plan administrator (within the meaning of section 3(16)(A) of 
the Act and section 414(g) of the Code;
    (3) A fiduciary who is expressly authorized in writing to manage, 
acquire, or dispose of, on a discretionary basis, those assets of the 
plan that are or could be invested in Insurance Contracts, securities 
issued by a NYLife Fund, or units of a Pooled Trust; or
    (4) An employer any of whose employees are covered by the plan.
    (b) (1) Prior to the execution of a transaction involving the 
receipt of sales commissions by a Sales Agent in connection with the 
plan's purchase of an Insurance Contract, NYLIC or the Sales Agent 
provides to an independent plan fiduciary (the Independent Plan 
Fiduciary), as defined in Section IV(f) below, disclosures of the 
following information concerning the Insurance Contract in writing and 
in a form calculated to be understood by a plan fiduciary who has no 
special expertise in insurance or investment matters:
    (A) An explanation of: (i) The nature of the affiliation or 
relationship between NYLIC and the Sales Agent recommending the 
Insurance Contract; and, (ii) the nature of any limitations that such 
affiliation or relationship, or any agreement between the Sales Agent 
and NYLIC places on the Sales Agent's ability to recommend Insurance 
Contracts;
    (B) The sales commission, expressed as a percentage of gross annual 
premium payments for the first year and for each of the succeeding 
renewal years, that will be paid by NYLIC to the Sales Agent in 
connection with the purchase of the recommended Insurance Contract, 
together with a description of any factors that may affect the 
commission; and
    (C) A full and detailed description of any charges, fees, 
discounts, penalties, or adjustments which may be paid by the plan 
under the recommended Insurance Contract in connection with the plan's 
purchase, holding, exchange, termination, or sale of the Insurance 
Contract, including a description of any factors that may affect the 
level of charges, fees, discounts, or penalties paid by the plan.
    (2) Following receipt of the information required to be provided to 
the Independent Plan Fiduciary, as described in Section III(b)(1) 
above, and before execution of the transaction, the Independent Plan 
Fiduciary acknowledges in writing receipt of such information, and 
approves the transaction on behalf of the plan. The Independent Plan 
Fiduciary may be an employer of employees covered by the plan but may 
not be a Sales Agent involved in the transaction. The Independent Plan 
Fiduciary may not receive, directly or indirectly (e.g. through an 
affiliate), any compensation or other consideration for his or her own 
personal account from any party dealing with the plan in connection 
with the transaction.
    (3) With respect to additional purchases of Insurance Contracts, 
the written disclosure required under Section III(b)(1) need not be 
repeated, unless--
    (A) More than three years have passed since such disclosure was 
made with respect to the same kind of Insurance Contract, or
    (B) The Insurance Contract being recommended for purchase or the 
commission with respect thereto is materially different from that for 
which the approval described under Section III(b)(2) was obtained.
    (c)(1) With respect to purchases with plan assets of securities 
issued by a NYLife Fund, or receipt of sales commissions by NYLIC in 
connection with such purchases, NYLIC provides to an Independent Plan 
Fiduciary, prior to the execution of the transaction, the following 
information concerning the recommended NYLife Fund in writing and in a 
form calculated to be understood by a plan fiduciary who has no special 
expertise in insurance or investment matters:
    (A) A description of: (i) The investment objectives and policies of 
the NYLife Fund, (ii) the principal investment strategies that the 
NYLife Fund may use to obtain its investment objectives, (iii) the 
principal risk factors associated with investing in the NYLife Fund, 
(iv) historical investment return information for the NYLife Fund, (v) 
fees and expenses of the NYLife Fund, including annual operating 
expenses (e.g., management fees, distribution fees, service fees, and 
other expenses) and fees paid by shareholders (e.g., sales charges and 
redemption fees), (vi) the identity of the NYLife Fund adviser, and 
(vii) the procedures for purchases of securities issued by the NYLife 
Fund (including any applicable minimum investment requirements and 
sales charges);
    (B) A description of: (i) The expenses of the recommended NYLife 
Fund, including investment management, investment advisory, or similar 
services, any fees for secondary services (e.g., for services other 
than investment management, investment advisory, or similar services, 
including but not limited to custodial, administrative, or other 
services), and (ii) any charges, fees, discounts, penalties, or 
adjustments that may be paid by the plan in connection with the 
purchase, holding, exchange, termination, or sale of shares of the 
recommended NYLife Fund securities, together with a description of any 
factors that may affect the level of charges, fees, discounts, or 
penalties paid by the plan or the NYLife Fund;
    (C) An explanation of (i) The nature of the affiliation or 
relationship between NYLIC, the NYLife Fund, and (ii) the limitation, 
if any, that such affiliation, relationship, or any agreement between 
NYLIC and the NYLife Fund places on NYLIC's ability to recommend 
securities issued by other investment companies;
    (D) The sales commission, if any, that NYLIC will receive in 
connection with the purchase of securities of the recommended NYLife 
Fund, expressed either as: (i) A percentage of the dollar amount of the 
plan's gross payments and the amount actually invested, (ii) an annual 
percentage of average daily net asset value of securities issued by the 
NYLife Fund, or (iii) both if applicable, with a description of any 
factors that may affect the commission; and
    (E) A description of the procedure or procedures for redeeming the 
NYLife Fund securities.
    The disclosures required under section III(c)(1) above shall be 
deemed to be completed only if, with respect to fees and expenses of 
NYLife Fund, the type of each fee or expense (e.g., management fees, 
administrative fees, fund operating expenses, and other fees, including 
but not limited to fees payable for marketing and distribution services 
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the 
12b-1 Fees)) and the rate or amount charged for a specified period 
(e.g., annually) is provided in a written document separate from the 
prospectus of such NYLife Fund.
    (2) Following receipt of the information required to be provided to 
the Independent Plan Fiduciary, as described in Section III(c)(1) 
above, and before execution of the transaction, the Independent Plan 
Fiduciary approves the specific transaction on behalf of the plan. 
Unless facts and circumstances would indicate the contrary, such 
approval may be presumed if the Independent Plan Fiduciary directs the 
transaction to proceed after NYLIC has delivered the written 
disclosures to the Independent Plan Fiduciary. The Independent Plan 
Fiduciary may be an employer of employees covered by the plan but may 
not be NYLIC. The Independent Plan Fiduciary may not

[[Page 10516]]

receive, directly or indirectly (e.g. through an affiliate), any 
compensation or other consideration for his or her own personal account 
from any party dealing with the plan in connection with the 
transaction.
    (3) With respect to additional purchases of NYLife Fund securities, 
NYLIC:
    (A) Provides reasonable advance notice of any material change with 
respect to the NYLife Fund securities being purchased or the commission 
with respect thereto, and
    (B) Repeats the written disclosure required under Section 
III(c)(1)(A), (C), (D), and (E) once every three years. (d)(1) NYLIC 
shall retain or cause to be retained for a period of six (6) years from 
the date of any transaction covered by this exemption the following:
    (A) The information disclosed with respect to such transaction 
pursuant to Section III(b), and (c) above; and
    (B) Any additional information or documents provided to the 
Independent Plan Fiduciary with respect to the transaction; and
    (C) The written acknowledgments described in Section III(b)(2) 
above.
    (2) A prohibited transaction shall not be deemed to have occurred 
if, due to circumstances beyond the control of NYLIC, such records are 
lost or destroyed before the end of such six-year period.
    (3) Notwithstanding anything to the contrary in sections 504(a)(2) 
and (b) of the Act, such records shall be unconditionally available for 
examination during normal business hours by duly authorized employees 
or representatives of the Department of Labor, the Internal Revenue 
Service, plan participants and beneficiaries, any employer of plan 
participants and beneficiaries, and any employee organization any of 
whose members are covered by the plan.
    (e) Neither NYLIC nor a Sales Agent renders investment advice 
(within the meaning of 29 CFR 2510.3-21(c)) with respect to the assets 
involved in the transaction in connection with a formal advice program 
under which specific/individualized asset allocation recommendations 
are made available to participants based on their responses to 
questionnaires.
IV. Definitions
    For purposes of this exemption--
    (a) ``NYLTC'' means the New York Life Trust Company, or any other 
financial institution supervised under state or federal laws and 
affiliated with NYLIC;
    (b) ``NYLIC'' means the New York Life Insurance Company and any of 
its affiliates, including but not limited to NYLTC, as defined in 
Section IV(a) above;
    (c) ``NYLife Fund or NYLife Funds'' mean any investment company 
registered under the Investment Company Act of 1940 for which NYLIC 
serves as investment advisor and as principal underwriter (as that term 
is defined in section 2(a)(29) of the Investment Company Act of 1940, 
15 U.S.C. 80a-2(a)(29));
    (d) An ``affiliate'' of a person means: (1) Any person directly or 
indirectly controlling, controlled by, or under common control with 
such person, (2) any officer, director, employee, or relative of any 
such person, or any partner in such person, and (3) any corporation or 
partnership of which such person is an officer, director, or employee, 
or in which such person is a partner. For purposes of this definition, 
an ``employee'' includes: (A) any registered representative of NYLIC, 
where NYLIC or an affiliate is principal underwriter, and (B) any 
insurance agent or broker or pension consultant acting under a written 
agreement as NYLIC's agent in connection with the sale of an Insurance 
Contract, whether or not such registered representative or insurance 
agent or broker or pension consultant is a common law employee of 
NYLIC;
    (e) The term, ``control,'' means the power to exercise a 
controlling influence over the management or policies of a person other 
than an individual;
    (f) ``Independent Plan Fiduciary'' means a fiduciary with respect 
to a plan, which fiduciary has no relationship to or interest in NYLIC 
that might affect the exercise of such fiduciary's best judgment as a 
fiduciary;
    (g) ``Pooled Trust'' means any collective investment fund or group 
trust maintained by NYLTC, provided that, NYLTC its successor or 
affiliate does not have discretionary authority or responsibility with 
respect to the management and administration of or provide investment 
advice with respect to, any assets of the plan that are or could be 
invested in Insurance Contracts, securities issued by a NYLife Fund, or 
units of a Pooled Trust;
    (h) ``Insurance Contract or Insurance Contacts'' mean an insurance 
or annuity contract issued by NYLIC; \2\
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    \2\ The Department expresses no opinion as to whether any so-
called ``synthetic guaranteed insurance contracts'' offered by NYLIC 
constitute an Insurance Contract within the meaning of this 
exemption. The Department further notes that this exemption provides 
relief from the self-dealing and conflict of interest provisions of 
the Act in connection with the sale of Insurance Contracts to plans 
by fiduciaries. It does not provide relief from any acts of self-
dealing that do not arise directly in connection with the purchase 
of specific insurance products. Thus, for example, no relief is 
provided under this exemption for any act of self-dealing that may 
arise in connection with the ongoing operation or administration of 
an Insurance Contract.
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    (i) A ``nondiscretionary trustee'' of a plan is a trustee whose 
powers and duties with respect to any assets of the plan are limited 
to: (1) The provision of nondiscretionary trust services, as defined in 
Section IV(j) below, to such plan, and (2) the duties imposed on the 
trustee by any provision or provisions of the Act or the Code;
    (j) ``Nondiscretionary trust services'' mean custodial services and 
services ancillary to custodial services, none of which services are 
discretionary;
    (k) A ``relative'' means a ``relative'' as that term is defined in 
section 3(15) of the Act (or a ``member of the family'' as that term is 
defined in Code section 4975(e)(6), or a brother, a sister, or a spouse 
of a brother or a sister;
    (l) ``Sales Agent or Sales Agents'' mean any insurance agent, 
broker, or pension consultant or any affiliate thereof that is 
affiliated with NYLIC; and
    (m) ``Principal underwriter'' is defined in the same manner as that 
term is defined in section 2(a)(29) of the Investment Company Act of 
1940 (15 U.S.C. 8a-2(a)(29)).

EFFECTIVE DATE: If granted, this proposed exemption will be effective, 
as of February 12, 1998, the date of the filing of the application for 
exemption.

Summary of Facts and Representations

    1. The plans which are expected to participate in the proposed 
transactions are employee benefit plans, which are subject to the 
provisions of the Act and are tax-qualified under section 401(a) of the 
Code.\3\ Due to the nature of the requested exemption, the applicants 
maintain that they are unable to provide any of the following specific 
identifying information about the plans that may engage in the proposed 
transactions: (1) The number of participants; (2) an estimate of the 
percentage of assets of each plan affected by the requested exemption 
or transactions; or (3) the approximate aggregate fair market value of 
the total assets of each affected plan.
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    \3\ The applicants have not requested an exemption, and no 
relief is provided, herein, for any plan covering employees of NYLIC 
or its affiliates.
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    It is represented that there is no minimum investment or minimum 
plan size required in order for a plan to participate in the proposed 
transactions. However, it is anticipated that such plans will primarily 
be participant-directed defined contribution pensions

[[Page 10517]]

plans, and that, in particular, such plans will be too small to 
participate in single customer guaranteed interest contracts (GICs or 
GIC) or a synthetic GIC product. In this regard, plans covered by the 
exemption may include plans intended to satisfy the requirements of 
section 404(c) of the Act and the regulations thereunder (a Section 
404(c) Plan).\4\
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    \4\ In relevant part, section 404(c) of the Act and the 
regulations promulgated thereunder at 57 FR 46906 (October 13, 1992) 
provide that where a participant or beneficiary of a section 404(c) 
plan exercises control over the assets in his or her account, then: 
(i) the participant or beneficiary shall not be deemed to be a 
fiduciary by reason of his exercise of control; and (ii) no person 
who is otherwise a fiduciary shall be liable under the fiduciary 
responsibility provisions of the Act for any loss, or by reason of 
any breach, which results from such participant's or beneficiary's 
exercise of control.
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    Because section 404(c) of the Act applies only to the provisions of 
Part 4 of Title I, there is no provision in the Code corresponding to 
section 404(c). Thus, there is no statutory exemption from the excise 
taxes imposed under section 4975 of the Code with respect to prohibited 
transactions involving a Section 404(c) Plan. In this regard, the 
Department notes that the authority to grant administrative exemptions 
for such prohibited transactions remains with the Treasury Department 
pursuant to the Reorganization Plan No. 4 of 1978 (43 FR 47713, October 
17, 1978). Accordingly, the Department has no authority to provide 
relief from section 4975 of the Code with respect to a transaction that 
results from a participant's or a beneficiary's exercise of control 
within the meaning of section 404(c) and applicable regulations. The 
applicants have represented that they are aware of the limitation on 
the jurisdiction of the Department under the Reorganization Plan. 
However, the applicants maintain that the transactions for which relief 
is requested, herein, should not be viewed as ``participant-directed,'' 
because the fiduciaries of plans (not the participants of such plans) 
will be responsible for selecting and purchasing an Insurance Contract 
for a plan and selecting the NYLife Funds offered under a plan. 
Accordingly, the applicants have requested relief from the provisions 
of both the Act and the Code.
    2. The application was filed on behalf of NYLIC and its direct or 
indirect wholly-owned subsidiaries, New York Life Trust Company 
(NYLTC), New York Life Benefit Services (NYLBS), NYLIFE Distributors 
Inc. (NYLIFE Distributors), MacKay-Shields Financial Corporation 
(MacKay-Shields), Monitor Capital Advisors, Inc. (Monitor Capital), and 
NYLIFE Securities Inc. (NYLIFE Securities).
    3. NYLIC is an insurance company organized and operated under the 
laws of the State of New York. As of December 31, 1996, NYLIC had total 
consolidated assets of approximately $78.8 billion and net policy 
reserves of $74.8 billion. It is represented that NYLIC offers to 
employee benefit plans covered by Title I of the Act a variety of 
insurance products, including e.g., group fixed and variable annuities 
and GICs. Group annuities serve primarily as funding vehicles for 
retirement plan benefits. It is represented that all insurance products 
offered by NYLIC are reviewed and approved by the New York Insurance 
Department under New York insurance laws and under the applicable 
insurance laws of any other state where such products are marketed and 
sold. It is represented that all such insurance contracts are sold by 
sales agents, which include licensed sales employees, agents, and 
brokers of NYLIC. In connection with sales of insurance contracts, such 
sales agents may receive commissions or other compensation.
    4. NYLTC, an affiliate of NYLIC and a trust company chartered and 
operating under the banking laws of the State of New York, provides a 
variety of fiduciary services for individuals, institutions, and plan 
accounts covered by the Act. In this regard, it is represented that 
NYLTC already serves as a nondiscretionary trustee to employee benefit 
plans. Certain plans may also obtain directed trustee services provided 
by NYLTC.
    5. NYLBS, another affiliate of NYLIC, provides administrative 
services to NYLIC, to NYLTC, and to plans covered by the Act. Such 
services include actuarial consulting, daily-valued record-keeping, and 
other plan administrative services. In this regard, it is represented 
that NYLBS offers ``401 (k) Complete,'' a bundled services program to 
participant-directed defined contribution plans which combines plan 
administration, record-keeping services, and a selection of investment 
options, including insurance contracts and mutual funds, such as the 
NYLife Funds. Further, these services include providing participants 
with required plan information (e.g., summary plan descriptions) and 
investment education, including asset allocation ``tools.'' It is 
represented that investment education materials provided by NYLBS, 
including asset allocation tools, comply with the safe harbor for 
investment information and education, as described in Interpretive 
Bulletin 96-1. NYLBS does not charge a separate fee for the asset 
allocation tools and does not provide any specific/individualized asset 
allocation recommendations to participants. In addition to materials 
provided by NYLBS to participants, it is represented that NYLBS may in 
the future enter an arrangement under which one or more third party 
assets allocation service providers would provide a formal asset 
allocation program to participants of plans receiving services from 
NYLBS. If such a program were made available to plans, the asset 
allocation services would be provided solely by a third party service 
provider that is a registered investment adviser and wholly independent 
of NYLIC and its affiliates. The asset allocation program would be 
available only if a plan fiduciary (independent of NYLIC) elects to 
offer the program to participants; and no employee or other person 
representing NYLIC or any of its affiliates (including NYLBS) would 
have any role in reviewing, approving, or providing asset allocations 
to participants in connection with the program.\5\
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    \5\ The applicants do not believe that the limited investment 
education and assets allocation tools that NYLIC may provide give 
rise to any transaction that would require exemptive relief, and 
NYLIC is not seeking any relief for these activities. The Department 
is offering no relief, herein, for transactions other than those 
proposed, nor is the Department expressing an opinion, herein, as to 
the applicability of Interpretive Bulletin 96-1 to the facts of this 
case.
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    6. The NYLife Funds are open-end investment companies registered 
with the Securities and Exchange Commission (SEC) under the Investment 
Company Act of 1940. The NYLife Funds are offered to plans directly and 
through variable life and annuity contracts issued by NYLIC. Currently, 
the NYLife Funds include the MainStay Funds, which are available to 
retail and institutional investors (including defined contribution 
plans) and the MainStay Institutional Funds Inc., which are only 
available to institutional investors and to group individual retirement 
account customers. The MainStay Funds, organized as a Massachusetts 
business trust, currently include fourteen (14) separate funds, each of 
which has its own investment objectives and policies. MainStay 
Institutional Funds Inc. currently include eleven (11) separate funds.
    NYLIC provides a broad range of services to NYLife Funds. 
Specifically, the NYLife Funds are managed by MacKay-Shields or Monitor 
Capital, both of which are registered investment advisers and indirect 
wholly-owned subsidiaries of NYLIC. NYLIC is the administrator to each 
of the NYLife Funds and provides various services,

[[Page 10518]]

including administration, accounting, and other similar services and 
shareholder administration and sub-accounting for which NYLIC and/or 
its affiliates may receive management fees, administrative fees, and/or 
shareholder services fees.
    7. NYLIFE Distributors, the principal underwriter and distributor 
of the NYLife Funds, is responsible for distributing shares of NYLife 
Funds, as agent or as principal. NYLIFE Distributors receives sales 
commissions, including 12b-1 Fees for sales of some classes of shares 
issued by NYLife Funds paid under a plan of distribution, pursuant to 
Rule 12b-1 under the Investment Company Act of 1940.\6\
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    \6\ The Department notes that the relief provided by this 
exemption does not preclude the receipt of 12b-1 Fees by NYLIC or 
its affiliates to the extent that the payment of such 12b-1 Fees 
cannot be functionally distinguished from the payment of a sales 
commission in connection with the purchase, with plan assets, of 
securities issued by a NYLife Fund.
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    8. The NYLife Funds are sold to plans by NYLIFE Securities, an 
affiliate of NYLIC and a registered broker-dealer and a member of the 
National Association of Securities Dealers. Subject to applicable SEC 
regulations, NYLIFE Securities may act as broker for the NYLife Funds 
for which it receives fees for brokerage services. It is further 
represented that in connection with the sales of NYLife Funds to plans, 
certain sales agents that are registered representatives of NYLIFE 
Securities may receive sales commission. It is represented that these 
payments may be made by NYLIFE Distributors from amounts it receives as 
sales commissions, or by NYLIC from its general assets. It is 
represented that the prospectus materials for each of the NYLife Funds 
fully disclose the fees and expenses charged against the assets of each 
of the NYLife Funds, including fees paid to NYLIC.
    9. The applicants have requested an exemption which would permit 
under certain conditions NYLIC and Sales Agents to receive sales 
commissions in connection with purchases by plans of Insurance 
Contracts issued by NYLIC and shares of NYLife Funds underwritten by 
NYLIC, in situations where such plans also participate in a collective 
or group trust maintained by NYLTC. In this regard, NYLIC intends to 
establish such a collective trust (the Collective Trust) to serve as an 
investment vehicle for contract holders under benefit responsive 
synthetic or traditional GICs.
    The assets of the Collective Trust will be selected and actively 
managed by NYLTC. In this regard, it is represented that NYLIC will 
advise NYLTC in connection with the management of the Collective Trust, 
although NYLTC will have final decision making authority. Subject to 
certain investment guidelines, the assets of the Collective Trust will 
consist of a portfolio of fixed income securities. It is represented 
that generally the value of the assets held in the Collective Trust 
will be based upon readily attainable market valuations published by 
independent sources. If no market value of an asset is readily 
available, NYLIC represents that it will obtain a fair value in 
accordance with commercially acceptable practices and applicable laws 
and regulations.
    The investment guidelines of the Collective Trust also incorporate 
procedures for identifying and liquidating impaired securities and 
procedures for establishing priorities for the liquidation of portfolio 
securities. It is further represented that the guidelines of the 
Collective Trust prohibit the transfer, purchase, or sale of Collective 
Trust portfolio assets from or to NYLIC or any affiliate or to any 
account for which NYLIC or any affiliate has discretionary management 
authority.
    All of the assets of the Collective Trust will be held in a 
custodial account (the Custodial Account) by a financial institution 
unrelated to NYLIC. The Custodial Account will be owned by NYLTC, as 
trustee for the participants in the Collective Trust. It is represented 
that the participants in the Collective Trust, not NYLIC, will be the 
beneficial owners of a pro rata share of the assets in the Custodial 
Account.
    It is anticipated that initially there will only be two (2) 
investors in the Collective Trust.\7\ In this regard, the Collective 
Trust will serve as a funding vehicle: (1) For contributions made under 
the Anchor Retirement Trust Synthetic GIC Participating Group Annuity 
Contract (the Anchor Synthetic GIC), a group annuity contract approved 
by the New York State Insurance Department; \8\ and (2) For 
contributions made under certain other guaranteed investment contracts 
(the SA 25 GICs) which have also been approved by the New York State 
Insurance Department.
---------------------------------------------------------------------------

    \7\ NYLIC represents that it is possible certain tax-qualified 
plans or a trust or other entity holding qualified plan assets could 
participate in the Collective Trust sometime in the future.
    \8\ See footnote 2.
---------------------------------------------------------------------------

    10. It is represented that the SA 25 GICs have already been issued 
by NYLIC to various employee benefit plans (the SA 25 Plans) which 
participate in a pooled separate account (Separate Account 25) and may 
in the future be offered to other plans.\9\ Separate Account 25 is a 
book value separate account established under Section 4240(a)(5)(ii) of 
the New York Insurance Law and valued on an amortized cost basis in 
accordance with Section 4240(a)(10) of the New York Insurance Law. 
NYLTC, as trustee for participating plans, is the group contract holder 
for the pooled group annuity contract issued in connection with 
Separate Account 25. In this regard, it is represented that NYLTC does 
not have any discretionary responsibility or authority with respect to 
the administration or management of the assets invested under such 
group contract.
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    \9\ The applicants believe that the initial purchase of a SA 25 
GIC by an SA 25 Plan before Separate Account 25 begins participating 
in the Collective Trust should be exempted by Section III(d) of 
Class Exemption 84-24 (PTCE 84-24), because NYLTC will not at the 
time of the initial purchase be a trustee (other than a 
nondiscretionary trustee) with respect to the purchasing plans. The 
Department, herein, is offering no view as to the applicability of 
PTCE 84-24 under the circumstances described above.
---------------------------------------------------------------------------

    NYLIC is the investment manager of Separate Account 25. As such, 
NYLIC decided to invest the Separate Account 25 assets in the 
Collective Trust, because Separate Account 25 had the same investment 
objectives as the Collective Trust and because NYLIC believes that 
increasing the size of the asset portfolio would provide a more stable, 
less volatile, daily interest rate on amounts contributed under the SA 
25 GICs. In addition, no SA 25 Plan paid or will pay any additional 
management fees in connection with the investment of assets of Separate 
Account 25 into the Collective Trust.\10\
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    \10\ The Department, herein, is offering no view as to whether 
any of the relevant provisions of Part 4, subpart B, of Title I have 
been violated, regarding the investment of the assets of the 
Separate Account 25 in the Collective Trust.
---------------------------------------------------------------------------

    11. As mentioned above, the Collective Trust will also serve as a 
funding vehicle for contributions made under the Anchor Synthetic GIC. 
In this regard, NYLIC represents that it may offer the Anchor Synthetic 
GIC to any employee benefit plan subject to Title I of the Act (the 
Anchor Plans).\11\ Specifically, NYLIC intends to market the Anchor 
Synthetic GIC primarily to participant-directed defined contribution 
plans that participate in the bundled services program offered by 
NYLBS.\12\ It is represented that an

[[Page 10519]]

Independent Plan Fiduciary will determine whether or not a plan will 
invest in the Anchor Synthetic GIC, including whether the Anchor 
Synthetic GIC is appropriate as an investment option under the plan.
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    \11\ It is represented that plans sponsored by NYLIC or any of 
its affiliates will not invest in the Anchor Synthetic GIC.
    \12\ The applicants have not requested administrative exemptive 
relief for the initial purchase by plans of the Anchor Synthetic GIC 
in reliance on PTCE 84-24, because at the time of the initial 
purchase of such contract, NYLTC will not yet be a trustee (other 
than a nondiscretionary trustee) with respect to the purchasing 
plans. The Department, herein, is offering no view as to the 
applicability of PTCE 84-24 under the circumstances described above.
---------------------------------------------------------------------------

    The applicants maintain that the Anchor Synthetic GIC has features 
that will be advantageous to a plan and its participants. Such features 
include: (a) A fully benefit-responsive book value guarantee protecting 
participants against loss of the principal amount of contributions and 
accumulated interest, and (b) an opportunity to fully participate in 
the return on a portfolio of fixed income securities.
    The Anchor Synthetic GIC does not prospectively guarantee the rate 
at which interest will be credited on balances held under the contract. 
In this regard, the credited interest rate is objectively determined 
under a formula that takes investment performance into account and is 
disclosed to plans. Under the terms of the Anchor Synthetic GIC, the 
interest rate will reflect the investment experience of the Anchor 
Trust and will be at variable rates, calculated daily by NYLIC as the 
weighted average of book yields \13\ on the portfolio of assets held in 
the Collective Trust, adjusted for realized capital gains and losses, 
but not less than zero.
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    \13\ It is represented that the ``weighted average of book 
yields'' would be determined as the ratio of: (a) the aggregate 
interest income (``book value'' times ``book yield'') for all 
securities in the Collective Trust; to (b) the aggregate ``book 
value'' for all such securities. For this purpose, ``book yield'' is 
the yield that equates the present value of future cash flows to the 
cost of the security, assuming that the security is held to 
maturity. ``Book value'' is the cost of a security plus interest 
accruals, plus or minus amortization of a discount or premium, minus 
repayment of principal and interest payments.
---------------------------------------------------------------------------

    Under the contract terms, amounts credited as interest are subject 
to the guarantee as soon as the interest is actually credited on the 
contract balance. The daily crediting interest rate will be available 
to plan fiduciaries and participants through participant communication 
services provided by NYLBS. Plan participants will receive benefit 
distributions or may transfer amounts allocated to the Anchor Synthetic 
GIC investment option to another investment option at ``book value'' on 
any day (subject to certain limits on transfers to competing options 
and employer-initiated events). Plans will be able to withdraw their 
investment in the Anchor Synthetic GIC at ``book value'' on twelve (12) 
months'' notice without any penalty, or on any business day without 
notice at the lesser of ``book value'' or market value. The investment 
guidelines for the Anchor Synthetic GIC specify: (a) The type and 
minimum standards for portfolio securities, (b) objective procedures 
for liquidating securities to fund withdrawals or in the case of 
impaired securities, and (c) procedures for valuing assets based on 
independent sources.
    It is represented that contributions under the Anchor Synthetic GIC 
will be maintained separately from the assets of NYLIC through a two-
layer structure. Specifically, contributions will be credited first to 
the Anchor Retirement Trust (the Anchor Trust), a bank collective trust 
that qualifies as a group trust under Revenue Ruling 81-100, maintained 
exclusively for the Anchor Plans by NYLTC. Thereafter, all of the 
assets of the Anchor Trust will be invested and held in the Collective 
Trust, in accordance with the provisions of the Anchor Synthetic 
GIC.\14\ It is represented that all investments from Anchor Trust into 
the Collective Trust will be in cash.
---------------------------------------------------------------------------

    \14\ The applicants believe that investments by the Anchor Plans 
in the Anchor Trust and in the Collective Trust do not appear to 
involve any non-exempt prohibited transactions, and accordingly have 
not requested individual administrative exemptive relief. In this 
regard, the applicants believe that the Anchor Trust should not be 
deemed to be a party in interest with respect to plans that purchase 
the Anchor Synthetic GIC. However, if the investments by Anchor 
Plans in the Anchor Trust are deemed to involve a prohibited 
transactions, the applicants believe that a statutory exemption 
would be available under section 408(b)(8) of the Act. The 
Department, herein, is offering no view as to whether any of the 
relevant provisions of Part 4, subpart B, of Title I have been 
violated regarding the investment by the Anchor Plan in the Anchor 
Trust and in the Collective Trust, nor is the Department expressing 
an opinion as to the applicability of statutory exemptive relief 
under section 408(b)(8) of the Act.
---------------------------------------------------------------------------

    NYLTC will be trustee with investment management responsibility for 
both the Anchor Trust and the Collective Trust. It is represented that 
an Independent Plan Fiduciary to each Anchor Plan will approve the 
investment of plan assets in the Anchor Trust and the Collective Trust 
by virtue of accepting the terms of the Anchor Synthetic GIC. The terms 
of the Anchor Synthetic GIC will specifically describe the Anchor Trust 
and the Collective Trust and all fees and other charges that would be 
paid from plan assets (including amounts payable to NYLIC and NYLTC) in 
connection with the two trusts.
    12. NYLTC would be a party in interest and fiduciary with respect 
to the Anchor Plans and the SA 25 Plans by virtue of being a 
discretionary trustee to the Collective Trust and the Anchor Trust in 
which the Anchor Plans invest. Similarly, NYLIC would be a fiduciary 
and a party in interest to the Anchor Plans and SA 25 Plans by virtue 
of providing investment advisory services to the Collective Trust. 
Further, NYLIC would be a fiduciary and a party in interest with 
respect to SA 25 Plans, as investment manager of Separate Account 25. 
Finally, in connection with one or more of the other products and 
services that NYLIC and its affiliates offer to employee benefit plans 
in the ordinary course of business, NYLIC or one of its affiliates, as 
a service provider to plans, may already be a fiduciary and/or party in 
interest to plans that may participate in the proposed transactions.
    13. It is represented that where NYLIC and/or its affiliates are 
parties in interest with respect to a plan, the applicants generally 
rely on the class exemption provided under PTCE 84-24 in effecting such 
plan's purchases of insurance contracts and shares of NYLife Funds and 
for the receipt of commissions and other fees by NYLIC and its sales 
employees and agents in connection with such transactions. In this 
regard, PTCE 84-24, subject to certain conditions, provides relief from 
the prohibitions of sections 406(a)(1)(A) through (D) and 406(b) of the 
Act, and from the taxes imposed by section 4975 of the Code for certain 
classes of transactions involving purchases by plans of insurance or 
annuity contracts and purchases by plans of securities issued by 
registered investment companies, and the receipt of sales commissions 
in connection therewith by an insurance agent, broker, pension 
consultant, or investment company principal underwriter. However, PTCE 
84-24 is not available, if an insurance agent, broker, pension 
consultant, or an investment company principal underwriter or its 
affiliate is a plan trustee, other than a non-discretionary trustee who 
does not render investment advice with respect to any assets of the 
plan.
    According to the applicant, no exemptive relief is needed or 
requested for a plan's initial purchases of the Anchor Synthetic GIC or 
the SA 25 GICs, because at the time of such purchases, NYLTC is not yet 
a trustee (other than a non-discretionary trustee) with respect to the 
purchasing plans. In this regard, NYLIC represents that it has complied 
with the applicable disclosures and other conditions of

[[Page 10520]]

PTCE 84-24.\15\ However, the applicants are uncertain as to whether 
PTCE 84-24 would be available for subsequent purchases by the Anchor 
Plans and/or the SA 25 Plans of Insurance Contracts or shares of NYLife 
Funds, where NYLTC is a discretionary trustee for plan assets in the 
Collective Trust, even though NYLTC would not provide investment advice 
(as described by section 3(21) of the Act), or exercise or have any 
discretionary authority or control over plans' purchases of such 
insurance products or shares of a NYLife Fund. Accordingly, the 
applicants have requested individual relief from section 406(a) and (b) 
of the Act for the proposed transactions under conditions similar to 
those provided by PTCE 84-24.
---------------------------------------------------------------------------

    \15\ The Department, herein, is offering no view as to: (a) The 
applicability of PTCE 84-24 under the circumstances described above, 
or (b) whether NYLIC has satisfied or will satisfy all of the terms 
and conditions, as set forth in PTCE 84-24.
---------------------------------------------------------------------------

    14. As of the filing of the application, NYLIC had not yet 
established the Collective Trust nor offered the Anchor Synthetic GIC 
to the Anchor Plans. However, it is represented that on or after the 
date of the filing of the application, NYLIC and NYLTC intend to 
establish the Collective Trust, to invest Separate Account 25 assets in 
the Collective Trust, and to offer the Anchor Synthetic GIC to plans. 
Accordingly, the applicants have requested retroactive relief, 
effective as of February 12, 1998, the date of the filing of the 
application for exemption.
    15. In support of their request for individual exemption, the 
applicants represent that the transactions are on terms which are at 
least as favorable to each plan that participates, as those negotiated 
at arm's length with an unrelated party. It is further represented that 
such transactions are effected by NYLIC or a Sales Agent in the 
ordinary course of business. With respect to the receipt of sales 
commissions by NYLIC or a Sales Agent for the provision of services to 
a plan, and in connection with a purchase of an Insurance Contract or 
securities issued by an NYLife Fund, the combined total of all fees, 
sales commissions, and other consideration received by NYLIC or a Sales 
Agent will not be in excess of ``reasonable compensation'' within the 
contemplation of section 408(b)(2) and (c)(2) of the Act and section 
4975(d)(2) and (d)(10) of the Code.
    16. The requested exemption is administratively feasible, because 
compliance with the terms of the exemption will be monitored by an 
Independent Plan Fiduciary of each plan that participates in the 
proposed transactions, so that the level of oversight required by the 
Department is minimal. Further, NYLIC will maintain records necessary 
to verify compliance with the conditions of this exemption.
    17. The applicants believe that the requested exemption provides 
adequate safeguards for the protection of plan participants in that the 
proposed transactions do not appear to involve the types of abuse that 
the Department intended to address by limiting the availability of PTCE 
84-24 where a party in interest or its affiliate is a trustee to a 
plan. With regard to the terms of the proposed exemption, the influence 
of NYLTC will be limited by conditions comparable to those set forth in 
PTCE 84-24, such that NYLTC would not have an opportunity to use its 
position as trustee to the Anchor Trust or the Collective Trust to 
improperly influence or control a plan's purchase of Insurance 
Contracts or shares of NYLife Funds. Moreover, it is represented that 
NYLTC will not provide any investment advice or have or exercise any 
discretionary authority or control with respect to plan assets involved 
in the purchase of Insurance Contracts or NYLife Funds. In this regard, 
an Independent Plan Fiduciary of each Plan that purchases an Anchor 
Synthetic GIC or holds or participated in a SA 25 GIC will receive 
written disclosures before the plan purchases an Insurance Contract or 
purchases shares of the NYLife Funds. Further, prior to entering a 
transaction, the Independent Plan Fiduciary will review and approve 
such transactions on behalf of the plan.
    18. The applicants maintain that the proposed exemption is in the 
interest of the plans which participate in the subject transactions, 
because such plans will be able to take advantage of the full range of 
insurance and investment products offered by NYLIC. Moreover, NYLIC 
anticipates that the investment of assets in the Collective Trust will 
benefit the plans participating in Separate Account 25, as well as 
those plans that participate under the Anchor Synthetic GIC, by 
obtaining economies and efficiencies of scale and, more importantly, by 
increasing the size of the asset portfolio. In this regard, a larger 
portfolio size should result in a more stable, less volatile, daily 
interest rate on amounts contributed under the SA 25 GICs and the 
Anchor Synthetic GIC, because of the lesser impact of a withdrawals on 
a larger pool of assets.
    Further, the proposed investment structure will not involve any 
doubling of fees. In this regard, no additional management fees will be 
charged by NYLTC or NYLIC for managing the Collective Trust assets. 
Instead, the plans will only pay the management and other fees 
specified by the Anchor Synthetic GIC and the SA 25 GICs, respectively. 
Management fees under all of the contracts will be determined based on 
the stable value account, not the market value of Collective Trust 
assets held in connection with the contracts.
    19. In summary, the applicants represent that the proposed 
transactions meet the statutory criteria for an exemption under section 
408(a) of the Act and 4975(c)(2) of the Code because:
    (a) Plans can take advantage of the full range of insurance and 
investment products offered by NYLIC and its affiliates;
    (b) The transactions are effected by NYLIC or by a Sales Agent in 
the ordinary course of business;
    (c) The transactions are on terms at least as favorable to a plan 
as an arm's length transaction with an unrelated party;
    (d) The combined total of all fees, sales commissions, and other 
consideration received by NYLIC or a Sales Agent for the provision of 
services to a plan, and in connection with the proposed transactions is 
not in excess of ``reasonable compensation'' within the contemplation 
of section 408(b)(2) and (c)(2) of the Act and section 4975(d)(2) and 
(d)(10) of the Code;
    (e) Neither NYLIC nor the Sales Agent is a trustee of a plan (other 
than a non-discretionary trustee who does not render investment advice 
with respect to any assets of the plan or a trustee to a Pooled Trust);
    (f) With respect to the proposed transactions, NYLIC provides each 
Independent Plan Fiduciary with certain disclosures in writing and in a 
form calculated to be understood by a plan fiduciary who has no special 
expertise in insurance or investment matters; and provides disclosure 
in a written document separate from the prospectus of information 
regarding specific types of fees or expenses paid from the assets of a 
NYLife Fund and the rate or amount of each fee or expense charged for a 
specified period;
    (g) Following receipt of the required disclosures and prior to 
entering the transaction, an Independent Plan Fiduciary approves the 
transaction on behalf of a plan; and
    (h) NYLIC shall retain or cause to be retained certain records for 
a period of six (6) years from the date of any transaction covered by 
this exemption.

Notice to Interested Persons

    Because of the large number of potentially interested persons, the 
applicants maintain that it is not

[[Page 10521]]

possible to provide a separate copy of the Notice of Proposed Exemption 
(the Proposed Exemption) to each plan eligible to engage in the 
transactions covered by the requested exemption. In this regard 
however, NYLIC intends to provide notice in writing (by first-class 
mail or another method reasonably calculated to ensure that the notice 
is received) to an Independent Plan Fiduciary of each plan that 
participates in the Anchor Synthetic GIC or any of the SA 25 GICs 
within fifteen (15) days of the date of publication of the Notice in 
the Federal Register, a copy of the Proposed Exemption, as published in 
the Federal Register, and a copy of the supplemental statement, as 
required, pursuant to 29 CFR 2570.43(b)(2). The notification will 
inform such interested persons of their right to comment and/or request 
a hearing within thirty (30) days of receipt of a copy of the Proposed 
Exemption.
    Apart from the notification described in the paragraph above, the 
applicants represent that the only practical form of providing notice 
to interested persons is by means of publication of the Proposed 
Exemption in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the 
Department, telephone (202) 219-8883 (This is not a toll-free number.)

Salomon Smith Barney Inc. (SSB), Citigroup Inc. (Citigroup) and 
Their Affiliates, (Collectively, the Applicants) Located in New 
York, New York

[Application Number D-10760]

Proposed Exemption

    Based on the facts and representations set forth in the 
application, 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).\16\
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    \16\ For purposes of this proposed exemption, references to 
Title I of the Act, unless otherwise noted herein, refer also to 
corresponding provisions of the Code.
---------------------------------------------------------------------------

Section I. Covered Transactions
    If the exemption is granted, the restrictions of section 
406(a)(1)(A) through (D) of the Act and the sanctions resulting from 
the application of section 4975 of the Code, by reason of section 
4975(c)(1)(A) through (D) of the Code, shall not apply to: (1) The 
proposed purchase or sale by employee benefit plans (the Plans), other 
than Plans sponsored and maintained by the Applicants, of publicly-
traded debt securities (the Debt Securities) issued by the Applicants; 
and (2) the extension of credit by the Plans to the Applicants in 
connection with the holding of the Debt Securities.
    This proposed exemption is subject to the general conditions that 
are set forth below in Section II.
Section II. General Conditions
    (a) The Debt Securities are made available by the Applicants in the 
ordinary course of their business to Plans as well as to customers 
which are not Plans.
    (b) The decision to invest in the Debt Securities is made by a Plan 
fiduciary (the Independent Plan Fiduciary) or a participant in a Plan 
that provides for participant-directed investments (the Plan 
Participant), which is independent of the Applicants.
    (c) The Applicants do not have any discretionary authority or 
control or provide any investment advice, within the meaning of 29 CFR 
2510.3-21(c), with respect to the Plan assets involved in the 
transactions.
    (d) The Plans pay no fees or commissions to the Applicants in 
connection with the transactions covered by the requested exemption, 
other than the mark-up for a principal transaction permissible under 
Part II of Prohibited Transaction Class Exemption (PTCE) 75-1 (40 FR 
50845, October 31, 1975).\17\
---------------------------------------------------------------------------

    \17\ The Department is providing no opinion herein as to whether 
any principal transactions involving debt securities would be 
covered by PTCE 75-1, or whether any particular mark-up by a broker-
dealer for such transaction would be permissible under Part II of 
PTCE 75-1.
---------------------------------------------------------------------------

    (e) Citigroup agrees to notify Plan investors in the prospectus 
(the Prospectus) for the Debt Securities that, at the time of 
acquisition, no more than 15 percent of a Plan's assets should be 
invested in any of the Debt Securities.
    (f) The Debt Securities do not have a duration which exceeds 9 
years from the date of issuance.
    (g) Prior to a Plan's acquisition of any of the Debt Securities, 
the Applicants fully disclose, in the Prospectus, to the Independent 
Plan Fiduciary or Plan Participant, all of the terms and conditions of 
such Debt Securities, including, but not limited to, the following:
    (1) A statement to the effect that the return calculated for the 
Debt Securities will be denominated in U.S. dollars;
    (2) The specified index (the Index) or Indexes on which the rate of 
return on the Debt Securities is based;
    (3) A numerical example, designed to be understood by the average 
investor, which explains the calculation of the return on the Debt 
Securities at maturity and reflects, among other things, (i) a 
hypothetical initial value and closing value of the applicable Index, 
and (ii) the effect of any adjustment factor on the percentage change 
in the applicable Index;
    (4) The date on which the Debt Securities are issued;
    (5) The date on which the Debt Securities will mature and the 
conditions of such maturity;
    (6) The initial date on which the value of the Index is calculated;
    (7) Any adjustment factor or other numerical methodology that would 
affect the rate of return, if applicable;
    (8) The ending date on which interest is determined, calculated and 
paid;
    (9) Information relating to the calculation of payments of 
principal and interest, including a representation to the effect that, 
at maturity, the beneficial owner of the Debt Securities is entitled to 
receive the entire principal amount, plus an amount derived directly 
from the growth in the Index (but in no event less than zero);
    (10) All details regarding the methodology for measuring 
performance;
    (11) The terms under which the Debt Securities may be redeemed;
    (12) The exchange or market where the Debt Securities are traded or 
maintained; and
    (13) Copies of the proposed and final exemptions relating to the 
exemptive relief provided herein, upon request.
    (h) The terms of a Plan's investment in the Debt Securities are at 
least as favorable to the Plan as those available to an unrelated non-
Plan investor in a comparable arm's length transaction at the time of 
such acquisition.
    (i) In the event the Debt Securities are delisted from any 
nationally-recognized securities exchange, Citigroup will apply for 
trading through the National Association of Securities Dealers 
Automated Quotations System (NASDAQ), which requires that there be 
independent market-makers establishing a market for such securities in 
addition to Citigroup. If there are no independent market-makers, the 
exemption will no longer be considered effective.
    (j) The Debt Securities are rated in one of the three highest 
generic rating categories by at least one nationally-recognized 
statistical rating service at the time of their acquisition.
    (k) The rate of return for the Debt Securities is objectively 
determined and, following issuance, the Applicants retain no authority 
to affect the determination of the return for such security, other than 
in connection with a ``market disruption event'' (the Market

[[Page 10522]]

Disruption Event) that is described in the Prospectus for the Debt 
Securities.
    (l) The Debt Securities are based on an Index that is--
    (1) Created and maintained \18\ by an entity that is unrelated to 
the Applicants and is a standardized and generally-accepted Index of 
securities; or
---------------------------------------------------------------------------

    \18\ For purposes of this exemption, the term ``maintain'' means 
that all calculations relating to the securities in the Index, as 
well as the rate of return of the Index, are made by an entity that 
is unrelated to the Applicants.
---------------------------------------------------------------------------

    (2) Created by the Applicants, but maintained by an entity that is 
unrelated to the Applicants,
    (i) Consists either of standardized and generally-accepted Indexes 
or an Index comprised of publicly-traded securities that are not issued 
by the Applicants, are designated in advance and listed in the 
Prospectus for the Debt Securities (Under either circumstance, the 
Applicants may not unilaterally modify the composition of the Index, 
including the methodology comprising the rate of return.),
    (ii) Meets the requirements for an Index in Rule 19b-4 (Rule 19b-4) 
under the Securities Exchange Act of 1934 (the 1934 Securities Act), 
and
    (iii) The index value (the Index Value) for the Index is publicly-
disseminated through an independent pricing service, such as Reuters 
Group, PLC (Reuters) or Bloomberg L.P. (Bloomberg), or through a 
national securities exchange.
    (m) The Applicants do not trade in any way intended to affect the 
value of the Debt Securities through holding or trading in the 
securities which comprise an Index.
    (n) The Applicants maintain, for a period of six years, the records 
necessary to enable the persons described in paragraph (o) of this 
section to determine whether the conditions of this proposed exemption 
have been met, except that--
    (1) A prohibited transaction will not be considered to have 
occurred if, due to circumstances beyond the control of the Applicants, 
the records are lost or destroyed prior to the end of the six year 
period; and
    (2) No party in interest other than the Applicants shall be subject 
to the civil penalty that may be assessed under section 502(i) of the 
Act, or to the taxes imposed by section 4975(a) and (b) of the Code, if 
the records are not maintained, or are not available for examination as 
required by paragraph (o) below.
    (o)(1) Except as provided in section (o)(2) of this paragraph and 
notwithstanding any provisions of subsections (a)(2) and (b) of section 
504 of the Act, the records referred to in paragraph (n) are 
unconditionally available at their customary location during normal 
business hours by:
    (A) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service or the Securities and Exchange 
Commission (the SEC);
    (B) Any fiduciary of a participating Plan or any duly authorized 
representative of such fiduciary;
    (C) Any contributing employer to any participating Plan or any duly 
authorized employee representative of such employer; and
    (D) Any Plan Participant or beneficiary of any participating Plan, 
or any duly authorized representative of such Plan Participant or 
beneficiary.
    (o)(2) None of the persons described above in subparagraphs (B)-(D) 
of paragraph (o)(1) are authorized to examine the trade secrets of the 
Applicants or commercial or financial information which is privileged 
or confidential.

Summary of Facts and Representations

    1. Citigroup is a diversified holding company whose businesses 
provide a broad range of financial services to consumer and corporate 
customers around the world. Citigroup's activities are conducted 
through Global Consumer, Global Corporate and Investment Bank, Global 
Investment Management and Private Banking, and Investment Activities. 
As of December 31, 1999, Citigroup and its subsidiaries had total 
consolidated assets of approximately $717 billion.
    2. Citigroup's Global Consumer segment includes a global, full-
service consumer franchise encompassing, among other things, branch and 
electronic banking, consumer lending services, investment services, 
credit and charge card services, and life, auto and homeowner 
insurance. The businesses included in Citigroup's Global Corporate and 
Investment Bank segment serve corporations, financial institutions, 
governments, and other participants in developed and emerging markets 
throughout the world. These businesses provide, among other things, 
investment banking retail brokerage, corporate banking, cash management 
products and services, and commercial insurance. Global Investment 
Management and Private Banking includes asset management services 
provided to mutual funds, institutional and individual investors, and 
personalized wealth management services for high net worth clients. The 
Investment Activities segment includes Citigroup's venture capital 
activities, the realized investment gains and losses related to certain 
corporate- and insurance-related investments and the results of certain 
investments in countries that refinanced debt under the 1989 Brady Plan 
or plans of a similar nature.
    3. Salomon Smith Barney Holdings Inc. (Holdings) operates through 
its subsidiaries in two business segments, Investment Services and 
Asset Management. It provides investment banking, securities and 
commodities trading, capital raising, asset management, advisory, 
research and brokerage services to its customers, and executes 
proprietary trading strategies on its own behalf. Holdings is a global, 
full-service investment banking and securities brokerage firm with more 
than 11,300 Financial Consultants in 476 offices across the United 
States. Holdings provides a full range of financial advisory, research 
and capital raising services to corporations, governments and 
individuals. Its Financial Consultants in the United States service 
approximately 6.6 million client accounts, representing approximately 
$965 billion in assets. The primary broker-dealer subsidiaries of 
Holdings include SSB and The Robinson-Humphrey Company, LLC.
    4. The Plans will consist of employee benefit plans that are 
covered under the provisions of Title I of the Act, as amended, and 
subject to section 4975 of the Code. For purposes of this proposed 
exemption, the Plans will not consist of plans that are sponsored and 
maintained by the Applicants for their own employees. In the case of 
the Applicants' in-house plans, Citigroup represents that the 
acquisition and holding of the Debt Securities by such plans would be 
covered under the statutory exemption that is provided under section 
408(e) of the Act.\19\
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    \19\ The Department expresses no opinion herein on whether the 
acquisition and holding of the Debt Securities by the Applicants' 
in-house plans are covered under the provisions of section 408(e) of 
the Act. In this regard, interested persons should refer to the 
conditions contained in section 408(e), as well as the definitions 
of the terms ``qualifying employer security'' (see section 407(d)(5) 
of the Act) and ``marketable obligations'' (see section 407(e) of 
the Act).
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    5. The Applicants represent that broker-dealers routinely need 
additional capital in order to maintain inventories of securities for 
their market-making and other business activities. As a result, the 
Applicants maintain a continuous need to borrow funds from various 
institutional and individual investors for use in their business 
operations. In response to this need, certain of the Applicants may 
from time to time issue (the Issuers) various high-quality, publicly-
offered debt securities

[[Page 10523]]

(i.e., the Debt Securities), rated in one of the three highest generic 
rating categories by nationally recognized rating firms, offering 
varying levels of risk and potential return. Among the debt securities 
offered by the Applicants are publicly-offered, unsecured, SEC-
registered Debt Securities, with terms that are no longer in duration 
than nine (9) years. The Debt Securities will be U.S. dollar-
denominated so that no foreign currency conversions will be required in 
the calculation of the rate of return. Further, the Debt Securities 
will offer varying levels of risk and rates of return. The Debt 
Securities would be listed on at least one major stock exchange, and 
they would be issued in denominations of $10 per principal unit, with 
the minimum purchase being one unit.
    The Debt Securities may be offered on a variety of terms and 
formulas under which rates of return are objectively determined in 
accordance with certain Indexes by the calculation agent. A registered 
broker-dealer Applicant would act as calculation agent. The Applicants 
represent that since small Plans will likely invest in the Debt 
Securities, the formulas used to calculate the rates of return will be 
designed to be understood by the average investor and clearly described 
in the ``plain English'' summary of the Debt Securities in the 
Applicants'' prospectus.
    6. The Applicants represent that their activities are subject to 
various levels of oversight and regulation. In this regard, SSB 
represents that, as a registered broker-dealer and investment adviser, 
its activities are subject to the oversight and regulation of the 
Securities and Exchange Commission (SEC), the Commodities Futures 
Trading Commission (CFTC), and other federal and state regulatory 
agencies. The Applicants represent that their activities are also 
subject to the oversight of self-regulatory organizations (SROs) such 
as the New York Stock Exchange (NYSE), other principal United States 
securities exchanges, and the National Association of Securities 
Dealers, Inc. The Applicants represent that SSB, as a registered 
broker-dealer and member of the NYSE, is additionally subject to both 
the Net Capital Rule 15c3-1 of the 1934 Securities Act (which specifies 
the minimum net capital requirements of a broker-dealer), and the net 
capital requirements of the CFTC and other commodity exchanges.
    7. Due to the affiliation between an Issuer and SSB or its 
Affiliates, as a service provider to the Plans, the Applicants 
represent that they are likely to be parties in interest, as defined in 
section 3(14)(B) or (H) of the Act, with respect to a high percentage 
of Plans that purchase, sell, or hold these Debt Securities regardless 
of whether the Debt Securities are purchased directly from the 
Applicants.\20\ Thus, the Applicants represent that an Issuer may be a 
party in interest to a Plan solely because of its affiliation with a 
service provider to the Plan, and as the counterparty to the Plan in a 
transaction where the Plan holds a Debt Security issued by an 
Affiliate. Further, other Affiliates may be service providers to Plans 
on account of their roles as trustees, custodians, investment advisors, 
or broker-dealers for such Plans. These relationships would make an 
Issuer a party in interest to those Plans and would create potential 
prohibited transactions in the event such Plans acquire and hold the 
Debt Securities.\21\
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    \20\ In this regard, the Applicants represent that PTCE 75-1 
does not directly address transactions where, as here, there is a 
continuing extension of credit as a result of a sale to a plan by a 
broker-dealer of debt securities issued by the broker-dealer's 
affiliates.
    \21\ In ERISA Advisory Opinion 88-09A (April 15, 1988), a bank 
that sponsored self-directed master and prototype IRAs requested an 
opinion from the Department as to whether purchases of stock issued 
by the parent corporation of the bank directly from such parent by 
the self-directed IRAs would violate section 4975 of the Code.
    Section 4975 of the Code prohibits, in part, the sale or 
exchange of property between a plan and a party in interest 
(4975(c)(1)(A)) and the use by or for the benefit of a disqualified 
person of the income or assets of a plan (4975(c)(1)(D)). Section 
4975(e)(2) of the Code defines the term ``disqualified person'' to 
include a plan fiduciary and a person providing services to a plan.
    ERISA Advisory Opinion 88-09A concluded that, although the bank 
is a disqualified person with respect to the IRAs by reason of the 
provision of services, the corporate parent of the bank is not a 
disqualified person with respect to the IRAs solely by reason of its 
ownership of the bank. In this regard, interested persons should 
contrast section 3(14)(H) of the Act with section 4975(e)(2)(H) of 
the Code. The question of whether the corporate parent is a 
disqualified person under any other provision of section 4975(e)(2) 
of the Code would require an examination of the particular facts and 
circumstances. The Advisory Opinion further concluded that, to the 
extent that the corporate parent is not a disqualified person with 
respect to the IRAs, purchases of stock from the parent by the bank 
on behalf of the IRAs, at the direction of the IRA participant, 
would not involve transactions described in section 4975(c)(1)(A) of 
the Code. However, while the corporate parent of such bank may not 
be a disqualified person with respect to the IRAs, purchases of 
parent stock by the IRAs would raise issues under section 
4975(c)(1)(D) of the Code if a transaction was part of a broader 
overall agreement, arrangement or understanding designed to benefit 
disqualified persons.
---------------------------------------------------------------------------

    The Applicants are requesting an administrative exemption to enable 
Plans to invest in the Debt Securities, under the terms and conditions 
described herein, and to avoid liability for prohibited transactions 
resulting from investment by Plans in the Debt Securities.
    8. The Applicants believe that while Part II of PTCE 75-1 provides 
relief for principal transactions between a broker-dealer and a Plan, 
and would cover a purchase of the broker-dealer affiliates' securities 
by such Plans (if the conditions required therein were met), it is 
questionable whether that class exemption would cover the continuing 
extension of credit related to the holding of any Debt Securities by a 
Plan.\22\
---------------------------------------------------------------------------

    \22\ The Department is providing no opinion herein as to whether 
any principal transaction involving Debt Securities would be covered 
by PTCE 75-1, or whether any particular mark-up by a broker-dealer 
for such transaction would be permissible under Part II of PTCE 75-
1.
---------------------------------------------------------------------------

    The Applicants note that some independent Plan fiduciaries have 
expressed concern regarding the application of PTCE 75-1 to broker-
dealer sales of broker-affiliated debt to Plans either as a part of an 
original issue of the securities or in the secondary market. Moreover, 
the Applicants represent that PTCE 96-23 (61 FR 15975, April 10, 1996) 
\23\ is unavailable to participant-directed, defined contribution Plans 
and other small Plans because these Plans, due to their size, are 
unlikely to have INHAMs responsible for making investment decisions 
relating to the acquisition, holding and disposition of securities in 
which the Plans invest.
---------------------------------------------------------------------------

    \23\ PTCE 96-23 permits various transactions involving employee 
benefit plans whose assets are managed by an in-house asset manager 
(the INHAM). An INHAM is an entity which is generally a subsidiary 
of an employer sponsoring the plan. It is also a registered 
investment adviser with management and control of total assets 
attributable to plans maintained by the employer and its affiliates 
which are in excess of $50 million.
---------------------------------------------------------------------------

    Similarly, the Applicants note that while PTCE 84-14 \24\ minimizes 
the risk of inadvertent prohibited transactions for Plans whose assets 
are managed by a QPAM, they believe it is unlikely that participant-
directed, defined contribution Plans or small Plans would incur the 
expense of a QPAM for the purchase and continued holding of the Debt 
Securities. The Applicants also believe that the additional cost of a 
QPAM for a small Plan with a small investment would not be cost-
effective.

[[Page 10524]]

The Applicants further explain that this cost would be uneconomical 
here because the QPAM would be required to continue its services for 
the entire period during which the Debt Securities are held by the Plan 
since the potential prohibited transaction is not just a sale or 
exchange under section 406(a)(1)(A) of the Act, but is also an 
extension of credit under section 406(b) of the Act. Accordingly, the 
Applicants state that the absence of a QPAM would preclude small Plans 
from being able to purchase the Debt Securities without creating the 
risk of a prohibited transaction.
---------------------------------------------------------------------------

    \24\ PTCE 84-14 provides a class exemption for transactions 
between a party in interest with respect to an employee benefit plan 
and an investment fund (including either a single customer or pooled 
separate account) in which the plan has an interest, and which is 
managed by a qualified professional asset manager (the QPAM), 
provided certain conditions are met. QPAMs (e.g., banks, insurance 
companies, registered investment advisers with total client assets 
under management in excess of $50 million) are considered to be 
experienced investment managers for plan investors that are aware of 
their fiduciary duties under the Act.
---------------------------------------------------------------------------

    9. The Applicants propose to offer the Debt Securities to non-Plan 
investors and maintain that these investors will continue to constitute 
a substantial market for such securities. However, for each Plan 
investor, the Applicants represent that the terms of the Plan's 
investment in the Debt Securities will be at least as favorable to the 
Plan as those available to an unrelated non-Plan investor in a 
comparable arm's length transaction at the time the Debt Securities are 
acquired by the Plan. Additionally, the Applicants represent that no 
Plan will pay the Applicants any fees or commissions in connection with 
transactions involving the Debt Securities, except for the mark-up for 
a principal transaction permitted under PTCE 75-1.
    In addition to the aforementioned requirements, the Applicants 
represent that a Plan's investment in the Debt Securities will be 
restricted to those Plans for which the Applicants have no 
discretionary authority and do not provide investment advice with 
respect to the investment in the Debt Securities. In this regard, the 
decision to invest in the Debt Securities will be made by an 
Independent Plan Fiduciary or a Plan Participant, which is independent 
of the Applicants. Moreover, the Applicants represent that the 
Prospectus for each of the Debt Securities that are offered to the 
Plans will contain a recommendation that no more than 15 percent of a 
Plan's assets should be invested in the Debt Securities at the time 
such security is acquired by a Plan.\25\
---------------------------------------------------------------------------

    \25\ In this regard, the Applicants propose to include 
substantially the following statement in the Prospectus for each of 
the Debt Securities, under a heading entitled ``Employer-Sponsored 
Plan Considerations'': ``These [Debt Securities] Securities are 
being sold to Plans pursuant to an exemption issued by the 
Department of Labor. In accordance with the terms of that exemption, 
the Issuer is required to inform such Plans that no more than 15 
percent of plan (or individual participant) assets, at the time of 
acquisition, should be invested in the Debt Securities. Please note, 
however, that it is the responsibility of the person making the 
investment decision to determine whether the purchase is a prudent 
investment for the plan (or participant-directed account).''
---------------------------------------------------------------------------

    10. The Debt Securities will be rated in one of the three highest 
generic rating categories by a nationally-recognized rating firm at the 
time of acquisition by a Plan. There will be no triggering events or 
early amortization events if the Applicants' credit rating drops below 
a certain level established by a rating agency. Throughout the term of 
any of the Debt Securities, the Plans will be able to access the latest 
bid and asked price quotations for all of the Applicants' Debt 
Securities by calling a broker or any electronic service with a 
recognized price quotation delivery system. If a Plan wishes to 
terminate any Debt Securities investment prior to maturity, such 
investor may do so by selling the Debt Security on the open market at 
the prevailing market price. However, the Issuer may not unilaterally 
terminate the Debt Securities prior to maturity unless the Debt 
Securities are callable at a specific price which will be disclosed in 
the Prospectus. Assuming the Debt Securities are callable, the 
Applicants represent that there will be no loss of principal.
    11. The rate of return for the Debt Securities may be fixed or 
variable. The prospectus or prospectus supplement covering the Debt 
Securities would set forth the annual interest rate for fixed rate 
Securities, and, for variable rate Securities, the formula to be 
applied to determine the interest payable at maturity. The formula will 
include identification of the specified Index for the Debt Securities. 
Such Index may be either (a) created and maintained by an entity that 
is unrelated to the Applicants or (b) created by the Applicants, but 
maintained by an unrelated entity.
    (a) Index created and maintained by an entity unrelated to the 
applicants. This Index, which will be created by an entity that is 
unrelated to the Applicants, will consist of a standardized and 
generally-accepted index of securities, such as the Nikkei 225 Index 
Tokyo Stock Exchange or the Standard & Poor's 500 Index. In addition, 
this Index will be maintained by such unrelated entity. In other words, 
all calculations relating to the securities in the Index, as well as 
the rate of return of the Index, will be made by an entity other than 
the Applicants.
    (b) Index created by the applicants, but maintained by an unrelated 
entity. This Index will be created by the Applicants. However, it must 
be maintained by an entity that is unrelated to the Applicants, such as 
the stock exchange on which the Debt Security is listed. In addition, 
the Index will consist either of standardized and generally-accepted 
Indexes or it will be an Index comprised of publicly-traded securities 
that are not issued by the Applicants, are designated in advance and 
listed in the Prospectus for the Debt Securities. Under either 
circumstance, the Applicants will not be permitted to make any 
modifications to the composition of the Index, including the 
methodology comprising the rate of return, unilaterally.
    Further, the Index will meet the requirements for an Index in 
accordance with Rule 19b-4 of the 1934 Securities Act, which imposes 
regulatory standards on the entity maintaining the Index. Under Rule 
19b-4, a self-regulatory organization, such as a securities exchange, 
is required to adopt trading rules, procedures and listing standards 
for the product classes relating to any security that the exchange 
proposes to list. In addition, the self-regulatory organization must 
maintain a surveillance program for a class of securities. If the SEC 
has not approved the self-regulatory organization's rules, procedures 
and standards, the self-regulatory organization must make a filing with 
the SEC prior to listing the security. According to the Applicants, 
this procedure provides adequate safeguards so that any Debt Securities 
that are created by the Applicants will meet the listing and trading 
standards approved by the self-regulatory organization.
    Finally, the Index Value of the Index will be publicly-disseminated 
through an independent pricing service, such as Reuters or Bloomberg, 
or through a national securities exchange.
    12. Price quotations with respect to the Debt Securities will be 
available on a daily basis from market reporting services, such as 
Bloomberg or Reuters, and the daily financial press, such as The Wall 
Street Journal. In the event the Debt Securities are delisted, the 
Issuer(s) will apply for trading through the NASDAQ, which requires 
that there be independent market-makers establishing a market for the 
securities in addition to the Issuer(s). In the event there are no 
independent market-makers, the Applicants represent that the exemption 
will no longer be considered effective.
    13. The terms of each of the Debt Securities will be set forth with 
specificity. Therefore, in addition to the description of the formula 
for computing the rate of return, the Prospectus will include, but will 
not be limited to, the following information:
    <bullet> A statement to the effect that the return calculated for 
the Debt Securities will be denominated in U.S. dollars;

[[Page 10525]]

    <bullet> The specified Index or Indexes on which the rate of return 
on the Debt Securities is based;
    <bullet> A numerical example, designed to be understood by the 
average investor, which explains the calculation of the return on the 
Debt Securities at maturity and reflects, among other things, (i) a 
hypothetical initial value and closing value of the applicable Index, 
and (ii) the effect of any adjustment factor on the percentage change 
in the applicable Index;
    <bullet> The date on which the Debt Securities will be issued;
    <bullet> The date on which the Debt Securities will mature and the 
conditions of such maturity;
    <bullet> The initial date on which the value of the Index is 
calculated;
    <bullet> Any adjustment factor or other numerical methodology that 
would affect the rate of return, if applicable;
    <bullet> The ending date on which interest will be determined, 
calculated and paid;
    <bullet> Information relating to the calculation of payments of 
principal and interest, including a representation to the effect that, 
at maturity, the beneficial owner of the Debt Securities will be 
entitled to receive the entire principal amount, plus an amount derived 
directly from the growth in the Index (but in no event less than zero);
    <bullet> All details regarding the methodology for measuring 
performance;
    <bullet> The terms under which the Debt Securities may be redeemed;
    <bullet> The exchange or market where the Debt Securities are 
traded or maintained; and
    <bullet> Copies of the proposed and final exemptions relating to 
the exemptive relief provided herein, upon request.
    Aside from the Prospectus, the Applicants do not contemplate making 
any ongoing communications to the investors in the Debt Securities 
except to the extent required under applicable securities laws.
    14. With respect to variable rate Debt Securities, the Applicants 
represent that the interest rate will be objectively determined. Where 
SSB or an Affiliate acts as ``Calculation Agent'' for determining 
applicable rates of return, such calculation will be made using a 
formula fully disclosed in the prospectus or prospectus supplement 
relating to the Debt Security. Following the issuance of such Debt 
Security, SSB will retain no authority to affect the determination of 
such interest rate absent a Market Disruption Event. The determination 
that a Market Disruption Event may have occurred can have the effect of 
eliminating the affected trading day from calculation of the value of 
the underlying Index. The Calculation Agent is responsible for 
determining whether such Event has, in fact, occurred. Where the 
variable rate of a Debt Security is tied to a basket of equity 
securities, for example, a ``Market Disruption Event'' is typically 
defined as any of the following events, with certain exceptions:\26\
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    \26\ For purposes of determining whether a Market Disruption 
Event has occurred, a limitation on the hours in a trading day and/
or number of days of trading will not constitute a Market Disruption 
Event if it results from an announced change in the regular business 
hours of the relevant exchange.
---------------------------------------------------------------------------

    (a) the suspension or material limitation of trading in 20% or more 
of the underlying stocks which then comprise the Index, in each case, 
for more than two hours of trading or during the one-half hour period 
preceding the close of trading on the NYSE or any other applicable 
organized U.S. exchange. For purposes of this definition, limitations 
on trading during significant market fluctuations imposed pursuant to 
NYSE Rule 80B (or any applicable successor or similar rule or 
regulation promulgated by any self-regulatory organization or the SEC) 
shall be considered ``material.''
    (b) the suspension or material limitation, in each case, for more 
than two hours of trading or during the one-half hour period preceding 
the close of trading (whether by reason of movements in price otherwise 
exceeding levels permitted by the relevant exchange or otherwise) in 
(A) futures contracts related to the Index which are traded on the 
Chicago Mercantile Exchange or any other major U.S. exchange, or (B) 
options contracts related to the Index which are traded on any major 
U.S. exchange.
    (c) the unavailability, through a recognized system of public 
dissemination of transaction information, for more than two hours of 
trading or during the one-half hour period preceding the close of 
trading, of accurate price, volume or related information in respect of 
20% or more of the underlying stocks which then comprise the Index or 
in respect of futures contracts related to the Index, options on such 
futures contracts or options contracts related to the Index, in each 
case traded on any major U.S. exchange.
    15. The Applicants represent that the principal amount of the Debt 
Securities that are the subject of this exemption, if granted, will be 
protected regardless of the performance of the applicable Index. 
Although the return on a Debt Security may go up or down in the same 
direction as the performance of the applicable Index, the interest rate 
floor is set at zero. Thus, even where the value of the applicable 
Index decreases, there will be no invasion of principal if the Debt 
Securities are held until maturity.\27\ However, if a Plan must sell 
the Debt Securities on the open market prior to their maturity, the 
market price will reflect the market's perception of the potential 
yield on such securities based on the current yield and interest rates 
for other debt securities of the same duration. This market price may 
result in a loss of principal value of the investment in the Debt 
Securities in the same fashion as would occur for other debt 
securities.
---------------------------------------------------------------------------

    \27\ The Applicants have provided the following example to 
illustrate this principle by describing the return at maturity on 
each $10 principal investment in the Debt Securities that are the 
subject of this proposed exemption:
    <bullet> Where the value of the applicable Index increases by 50 
percent, the Plan is entitled to receive $15 at maturity ($10 
principal plus $5 interest) because the rate of return moves in the 
same direction as the growth in the applicable Index;
    <bullet> Where the value of the applicable Index remains 
unchanged during the applicable period, the Plan is entitled to 
receive $10 at maturity ($10 principal plus $0 interest) because the 
rate of return moves in the same direction as the growth in the 
applicable Index; and
    <bullet> Where the value of the applicable Index decreases by 50 
percent, the Plan is entitled to receive $10 at maturity ($10 
principal and $0 interest) because the rate of return moves in the 
same direction as the growth in the applicable Index but in no event 
drops below zero.
    While the foregoing examples are simplistic, it should be noted 
that for some of the Debt Securities, such as those tied to the 
Standard & Poor's 500 Index, the interest payments shown above may 
be reduced on a daily basis by an adjustment factor (the Adjustment 
Factor), equal to a stated percent per year. On the maturity date of 
the Debt Securities, the annual application of the Adjustment Factor 
will reduce the Plan investor's overall interest payments. This 
information will be disclosed prominently in the Prospectus.
---------------------------------------------------------------------------

    16. The Applicants represent that they will exercise no discretion 
with respect to the Indexes. Further, the Applicants represent that 
they will not trade in any way intended to affect the value of the Debt 
Securities through holding or trading in the securities which comprise 
these Indexes. The securities of the Applicants may comprise part of 
the Index (e.g., Citigroup's common stock is included in the S&P 500 
Index, which is one of the Indexes that may be used in the Applicants' 
variable rate Debt Securities). In addition, the Applicants may reserve 
the right to purchase or sell positions in the Index, or in all or 
certain of the assets by reference to which the Index is calculated 
(Underlying Assets), or derivatives relating to the Index. The 
Applicants do not believe, however, that their hedging activity will 
have a material impact on the value of the Index, the Underlying 
Assets, or any derivative or synthetic

[[Page 10526]]

instrument relating to the Index. The Applicants will maintain written 
records of all of the Debt Securities transactions for a period of six 
years.
    17. In summary, the Applicants represent that the proposed 
transactions will satisfy the statutory criteria for an exemption under 
section 408(a) of the Act for the following reasons:
    (a) The Debt Securities will be made available by the Applicants in 
the ordinary course of their business to customers which are not Plans.
    (b) The Applicants will not have any discretionary authority or 
control, or provide any ``investment advice,'' within the meaning of 29 
CFR 2510.3-21(c), with respect to the assets of Plans which are 
invested in the Debt Securities.
    (c) The Plans will pay no fees or commissions to the Applicants in 
connection with the transactions covered by the requested exemption, 
other than the mark-up for a principal transaction permissible under 
PTCE 75-1.
    (d) The decision to invest in the Debt Securities will be made by 
an Independent Plan Fiduciary or a Plan Participant, which is 
independent of the Applicants.
    (e) In connection with a Plan's acquisition of any of the Debt 
Securities, the Applicants will disclose to the Independent Plan 
Fiduciary, or, if applicable, the Plan Participant, in the Prospectus, 
all of the material terms and conditions concerning the Debt 
Securities.
    (f) A Plan will acquire the Debt Securities on terms that are at 
least as favorable to the Plan as those available to an unrelated non-
Plan investor in a comparable arm's length transaction.
    (g) The Debt Securities will be rated in one of the three highest 
generic rating categories by at least one nationally-recognized 
statistical rating service at the time of such security's acquisition 
by the Plan.
    (h) The rate of return for the Debt Securities will be objectively 
determined and the Applicants will retain no authority to affect the 
determination of such return, other than in connection with a Market 
Disruption Event that is described in the Prospectus for the Debt 
Securities.
    (i) The Index will be: (1) Created and maintained by an entity that 
is unrelated to the Applicants and consist of a standardized and 
generally-accepted Index; or (2) created by the Applicants, but 
maintained by an entity that is unrelated to the Applicants, and (i) 
will consist either of standardized and generally-accepted Indexes or 
will be an Index comprised of publicly-traded securities that are not 
issued by the Applicants, are designated in advance, and listed in the 
Prospectus for the Debt Securities, (ii) will meet the requirements for 
an Index as set forth in SEC Rule 19b-4, and (iii) the Index Value for 
such Index will be publicly-disseminated through an independent pricing 
service or a national securities exchange.

Notice to Interested Persons

    The Applicants represent that because those potentially interested 
Plans proposing to engage in the covered transactions cannot all be 
identified, the only practical means of notifying Independent Plan 
Fiduciaries or Plan Participants of such affected Plans is by 
publication of the proposed exemption in the Federal Register. 
Therefore, any comments from interested persons must be received by the 
Department no later than 30 days from the publication of this notice of 
proposed exemption in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Mr. Gary H. Lefkowitz of the 
Department, telephone (202) 219-8881. (This is not a toll-free number.)

The Joliet Medical Group, Ltd. Employees Retirement Plan & Trust 
(the Plan), Located in Joliet, Illinois

[Application D-10888]

Proposed Exemption
    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2) 
of the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the 
Code, will not apply effective November 1, 1999 to the past and 
continued leasing of a medical clinic (the Property) located at 2100 
Glenwood Ave., Joliet, Illinois, from the Plan to Joliet Medical Group 
Investment Partnership (the Employer), provided that the following 
conditions have been and will be met:
    (a) The independent fiduciary has determined that the transaction 
is feasible, in the interest of, and protective of the Plan;
    (b) The fair market value of the Property has not exceeded and will 
not exceed twenty-five percent (25%) of the value of the total assets 
of the Plan;
    (c) The independent fiduciary has negotiated, reviewed, and 
approved the terms of the lease of the Property with the Employer;
    (d) The terms and conditions of the lease of the Property with the 
Employer have been and will continue to be no less favorable to the 
Plan than those obtainable by the Plan under similar circumstances when 
negotiated at arm's length with unrelated third parties;
    (e) An independent qualified appraiser has determined the fair 
market rental value of the Property;
    (f) The independent fiduciary has monitored and will continue to 
monitor compliance with the terms of the lease of the Property to the 
Employer throughout the duration of such lease and is responsible for 
legally enforcing the payment of the rent and the proper performance of 
all other obligations of the Employer under the terms of the lease on 
the Property; and
    (g) The Plan has not incurred and will not incur any fees, costs, 
commissions, or other charges or expenses as a result of its 
participation in the proposed transaction, other than the fee payable 
to the independent fiduciary.

EFFECTIVE DATE: This exemption is effective as of November 1, 1999.
Summary of Facts and Representations
    1. The Plan is a profit sharing plan which was created effective 
January 1, 1975. As of August 29, 2000, the Plan had net assets valued 
at approximately $20,075,282 and 165 participants.
    2. The Employer is a general partnership organized and operating 
under the laws of the State of Illinois, whose principal place of 
business is Joliet, Illinois. The Employer's principal place of 
business is the Property. The Employer is engaged in the general 
practice of medicine.
    3. The Property consists of a two story medical building located at 
2100 Glenwood Avenue, Joliet Illinois. The Property contains 
approximately 10,583 square feet on each floor for a total square 
footage (above ground) of approximately 21,166 square feet. In 
addition, there is a full basement which is finished and contains an 
additional approximately 10,583 square feet. The fair market value of 
the Property represents 15.94% of the total assets in the Plan.
    The Plan initially leased the Property to the Employer for an 
initial term of 18 years, which ended November 1, 1999. In response to 
an exemption application filed by the Employer, the Department granted 
an exemption covering the initial lease (the Initial Lease): Prohibited 
Transaction Exemption 81-96 (PTE 81-96), 46 FR 53816 (October 30, 
1981). It is represented that since the inception of the Initial Lease, 
the

[[Page 10527]]

Employer has always paid its rent on time and otherwise complied with 
all of the terms and conditions of the Initial Lease and PTE 81-96. 
Furthermore, the independent fiduciary has continued to monitor and 
oversee compliance with the conditions of the exemption after the 
expiration of the lease because the parties determined to continue the 
arrangement after November 1, 1999.
    An independent party, the First Midwest Trust Company (the Bank) 
has served and continues to serve as the independent fiduciary. The 
Bank represents that since the inception of the Initial Lease, the 
Employer has complied with all of the terms and conditions of the 
Initial Lease and PTE 81-96. The Bank certifies that the transaction is 
appropriate and in the best interests of the Plan and that the terms 
and conditions of the proposed transactions are at least equal to what 
the Plan would receive from an unrelated party in similar transaction. 
In addition, the Bank will monitor the transaction and will have the 
responsibility for exercising the Plan's rights in the proposed 
transaction.
    4. Joseph E. Batis, (Mr. Batis), an accredited appraiser with 
Edward J. Batis & Associates, Inc., located in Joliet, Illinois, 
appraised the Property on October 24, 2000. Mr. Batis states that he is 
a full time qualified, independent appraiser, as demonstrated by his 
status as a State Certified General Real Estate Appraiser licensed by 
the State of Illinois. In addition, Mr. Batis represents that both he 
and his firm are independent of the Employer.
    In his appraisal, Mr. Batis relied primarily on the ``Appraisal 
Process''. Included within the steps of this process are three 
approaches to a value estimate: the Cost Approach, the Direct Sales 
Comparison Approach and the Income Approach. According to Mr. Batis, 
these methods best represent the actions of buyers and sellers in the 
market place. After Mr. Batis independently applies each approach to 
value, the three resultant value estimates are reconciled into an 
overall estimate of value. In the reconciliation process, the appraiser 
analyzes each approach with respect to its applicability to the 
property being appraised. Also considered in the reconciliation process 
is the strength and weakness of each approach with regards to 
supporting market data. After inspecting the Property and analyzing all 
relevant data, Mr. Batis determined that a fee simple interest in the 
Property had a fair market value of approximately $3,200,000.
    The Employer will enter into a five year, ``triple net'' lease with 
the Plan leasing the Property to the Employer for a ``floating'' 
monthly rental of 1.5% of the current appraised value of the subject 
realty ($3,200,000  x  1.5%= $480,000). A new appraisal by an 
independent, qualified appraiser would be performed every other year to 
update the rent. The minimum guaranteed rent (regardless of any 
possible decrease in the appraisal) is $480,000. The terms of the lease 
provide for a primary term of five years with an option to renew and 
extend for two additional successive terms of five years each subject 
to the approval of the independent fiduciary. In the event of a 
default, the Employer is required to reimburse the Plan on demand for 
all costs reasonably incurred by the Plan in connection therewith, 
including attorney's fees, court costs and related costs plus a 
reasonable rate of return on the amount of accrued but unpaid rent due 
the Plan, as determined by an appropriate third party source.
    Since the Initial Lease, the Employer has continued to pay rent to 
the Plan in a timely manner without default or rental delinquencies. 
However, the Employer is aware of the fact that a prohibited 
transaction occurred in violation of the Act subsequent to the 
expiration of the lease under PTE 81-96 (November 1, 1999). Therefore, 
the Employer has requested exemptive relief with respect to the past 
and continued leasing of the Property by the Plan to the Employer. If 
granted, the proposed exemption will be retroactive to November 1, 
1999.
    In summary, the applicant represents that the proposed transaction 
meets the statutory criteria of section 408(a) of the Act because:
    (a) The independent fiduciary has determined that the transaction 
is feasible, in the interest of, and protective of the Plan;
    (b) The fair market value of the Property has not exceeded and will 
not exceed twenty-five percent (25%) of the value of the total assets 
of the Plan;
    (c) The independent fiduciary has negotiated, reviewed, and 
approved the terms of the lease with the Employer on the Property;
    (d) The terms and conditions of the lease with the Employer on the 
Property have been and will continue to be no less favorable to the 
Plan than those obtainable by the Plan under similar circumstances when 
negotiated at arm's length with unrelated third parties;
    (e) An independent qualified appraiser has determined the fair 
market rental value of the Property;
    (f) The independent fiduciary has monitored and will continue to 
monitor compliance with the terms of the lease of the Property to the 
Employer throughout the duration of such lease and is responsible for 
legally enforcing the payment of the rent and the proper performance of 
all other obligations of the Employer under the terms of the lease; and
    (g) The Plan has not incurred and will not incur any fees, costs, 
commissions, or other charges or expenses as a result of its 
participation in the proposed transactions, other than the fee payable 
to the independent fiduciary.
    Notice to Interested Persons: Notice of the proposed exemption 
shall be given to all interested persons in the manner agreed upon by 
the applicant and Department within 15 days of the date of publication 
in the Federal Register. Comments and requests for a hearing are due 
forty-five (45) days after publication of the notice in the Federal 
Register.

FOR FURTHER INFORMATION CONTACT: Khalif Ford of the Department, 
telephone (202) 219-8883 (this is not a toll-free number).

Texas Instruments Employees Pension Plan (the Plan), Located in 
Dallas, Texas

[Application No. D-10918]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted, the restrictions of sections 406(a), 406(b)(1), and 
406(b)(2) of the Act and the sanctions resulting from the application 
of section 4975 of the Code, by reason of section 4975(c)(1) (A) 
through (E) of the Code, shall not apply to the sale (the Sale) by the 
Plan to Texas Instruments, Inc. (the Employer) of a parcel of improved 
real property (the Property) located in Dallas, Texas. This exemption 
is conditioned upon adherence to the material facts and representations 
described herein and upon the satisfaction of the following 
requirements:
    (a) All terms and conditions of the Sale are at least as favorable 
to the Plan as those which the Plan could obtain in an arm's-length 
transaction with an unrelated party;
    (b) The Sales price is the greater of $9,400,000 or the fair market 
value of the Property as of the date of the Sale;
    (c) The fair market value of the Property has been determined by an 
independent, qualified appraiser;
    (d) The Sale is a one-time transaction for cash; and

[[Page 10528]]

    (e) The Plan does not pay any commissions, costs or other expenses 
in connection with the Sale.

Summary of Facts and Representations

    1. The Employer, the sponsor of the Plan, is a Delaware corporation 
with offices at 13500 North Central Expressway, Dallas, Texas. The 
Employer is engaged in the manufacture and sale of a variety of 
products in the electrical and electronic industry for industrial, 
consumer, and government markets. It is represented that the Employer 
employs over 19,000 individuals and sponsors several employee benefit 
plans.
    2. The Plan is a defined benefit pension plan which, as of January 
1, 1999, had participants and beneficiaries totaling approximately 
19,377. The administrator of the Plan is a retirement committee 
composed of three members who are officers of the Employer. As of July 
21, 2000, the Plan's assets had an aggregate fair market value of 
$637,999,647.
    All the assets of the Plan are held in a single trust (the Trust) 
for which the Northern Trust Company, an Illinois corporation, serves 
as trustee (the Trustee). The assets of the Plan held in the Trust 
consist of various securities and real property. Pursuant to a Subtrust 
Agreement, dated November 1, 1990, Bank of America, N.A., was appointed 
as subtrustee (the Subtrustee) to manage the Property and certain other 
real property held by the Plan. The Subtrustee, who is the applicant 
for the proposed transaction, has complete and full investment 
discretion and authority with respect to the Sale of the Property in 
the subtrust. Hence, the Trustee makes no representations in connection 
with this proposed exemption transaction.
    3. The Plan's real property holdings in the Trust include the 
Property. The Property has an estimated value of $9,400,000 and 
constitutes approximately 1.5% of the total value of the Plan's assets.
    The lease of the Property was executed pursuant to an exemption 
((Prohibited Transaction Exemption (PTE) 93-83 (58 FR 68964, December 
29, 1993)) which granted relief for the lease of two parcels (the 
Dallas Parcels) of improved real property to the Employer by the Plan 
and the lease to the Employer by the Plan of another parcel located in 
a suburb of Detroit, Michigan (the Michigan Parcel). The Michigan 
Parcel, comprising a 16.5 acres of commercial property located in 
Farmington Hills, a suburb of Detroit, contained a single building used 
as an office facility. The Michigan parcel was sold on March 1, 1994 to 
Wayne State University, a unrelated third party.
    The Dallas Parcels consist of the Property and another parcel (the 
Second Parcel). The Second Parcel is located on Lemmon Avenue in 
Dallas, Texas, and consists of two adjacent tracts aggregating 
approximately 14.4 acres with an office and industrial building. The 
Second Parcel was assigned by the Employer to the Raytheon Company, a 
unrelated third party, on July 11, 1997.\28\
---------------------------------------------------------------------------

    \28\ The Department expresses no opinion herein regarding the 
application of Title I of the Act as to the assignment of the Second 
Parcel to the Raytheon Company.
---------------------------------------------------------------------------

    4. The Property consists of a tract of approximately 13.2 acres of 
land which is improved by an office/industrial facility, situated at 
the intersection of Walnut Lane and Floyd Road in the northern portion 
of Dallas, Texas. The Plan acquired the Property on July 23, 1979, from 
the Royal Gorge Company, an unrelated third party, and completed 
construction of the office/industrial facility on March 18, 1981, at a 
total cost for the land and building of approximately $6 million.\29\
---------------------------------------------------------------------------

    \29\ The 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 of the Act.
---------------------------------------------------------------------------

    The Property was appraised (the Appraisal) on January 14, 2000, by 
Jan Whatley (Ms. Whatley), a Certified Residential Real Estate 
Appraiser. Ms. Whatley is independent of the Employer and is an 
appraiser with the Pyles Whatley Corporation located in Dallas, Texas.
    Ms. Whatley determined the best use and highest value of the 
Property was associated with valuing the Property with the so-called 
direct sales comparison method. In this method, sales of similar use 
land in the market area are compared to the subject to arrive at an 
indication of value. In arriving at value conclusions the tracts are 
compared as to the rights conveyed, financing terms, sale conditions, 
market conditions, location, and physical characteristics. Therefore, 
based on the valuation procedure, Ms. Whatley concluded that the fair 
market value of the Property is $9,400,000 as of August 22, 2000.
    The Property is leased to the Employer, pursuant to a lease 
agreement which provided for an initial lease term of ten (10) years, 
commencing on March 18, 1981, and expiring on March 17, 1991. During 
the initial ten year term of the lease, the monthly lease rentals of 
$61,904.32 provided the Plan with an annual return equal to 
approximately 12.25% of the Plan's total investment in the Property. 
Pursuant to the lease agreement, the lease has been renewed for two of 
the three additional five year terms, the second of which will expire 
on March 17, 2001, and the third of which will commence on March 18, 
2001 and expire on March 17, 2006. At the commencement of each 
additional five (5) year extended term, rent was determined by 
reference to prevailing market rates at the beginning of each 
subsequent five (5) year term, but such reference in no instance caused 
a decrease in rent. During the first extended five year term, beginning 
on March 18, 1991, the monthly lease rental of $61,904.32 provided the 
Plan with an annual net return equal to approximately 12.25% of the 
Plan's total investment in the Property. During the second extended 
five year term, beginning on March 18, 1996, the monthly lease rental 
of $68,186.05 provided the Plan with an annual net return equal to 
approximately 13.49% of the Plan's total investment in the Property.
    5. The applicant represents that the proposed exemption is in the 
interest of the Plan, and its participants and beneficiaries. The 
proposed exemption is designed to allow the Plan, and thus its 
participants and their beneficiaries, to receive maximum value for the 
Property due to the current favorable real estate market in the locale 
of the Property. The Plan fiduciaries, other than the Subtrustee, also 
recently have established new investment guidelines for the Plan under 
which the Plan's real property holdings will be sold and the resulting 
proceeds re-invested in other more liquid forms of investment. These 
guidelines were formulated, in part, because the Property and the 
remaining real property in the Plan are now in one geographic locale, 
in or near Dallas, Texas. The sale of the Property will promote 
diversification, maximize investment return for the Plan and improve 
the Plan's liquidity. The resulting diversification and improved 
liquidity will benefit and protect the Plan participants and their 
beneficiaries. Furthermore, the Plan will not pay any commissions, 
costs or other expenses in connection with the Sale.
    6. In summary, the applicant represents that the subject 
transaction satisfies the statutory criteria contained in section 
408(a) of the Act and section 4975(c)(2) of the Code for the following 
reasons:
    (a) All terms and conditions of the Sale will be at least as 
favorable to the Plan as those which the Plan could obtain in an arms-
length transaction with an unrelated party;

[[Page 10529]]

    (b) The fair market value for the Property has been determined by 
an independent, qualified appraiser;
    (c) The Sale will be a one-time transaction for cash;
    (d) The Plan will not pay any commissions, costs or other expenses 
in connection with the Sale;
    (e) The Plan will receive an amount equal to the greater of:
    (i) $9,400,000; or
    (ii) The fair market value of the Property, as of the date of the 
Sale.
    Notice to Interested Persons: Notice of the proposed exemption 
shall be given to all interested persons in the manner agreed upon by 
the applicant and Department within 15 days of the date of publication 
in the Federal Register. Comments and requests for a hearing are due 
forty-five (45) days after publication of the notice in the Federal 
Register.

FOR FURTHER INFORMATION CONTACT: Khalif Ford of the Department, 
telephone (202) 219-8883 (this is not a toll-free number).

UAM Fund Services, Inc., Located in Boston, MA

[Application No. D-10938]

Proposed Exemption

    Based on the facts and representations set forth in the 
application, 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, August 10, 1990).
Section I. Transactions
    If the exemption is granted, the restrictions of section 406(a) and 
406(b) of the Act and the sanctions resulting from the application of 
section 4975 of the Code, by reason of section 4975(c)(1)(A) through 
(F) of the Code, shall not apply to (i) the acquisition of shares of 
one or more of the UAM Funds (Shares) by a Plan for which a Fund 
Adviser serves as investment manager, through the in-kind exchange of 
the Plan's assets held in one or more separate accounts (each, an 
Account) maintained by a Fund Adviser, and (ii) the redemption of 
Shares by a Plan for which a Fund Adviser serves as investment manager, 
through the in-kind exchange of assets from one or more UAM Funds to 
one or more Account(s), provided that the conditions set forth in 
Section II below are met.
Section II. Conditions
    (a) The Fund Adviser is not an employer of employees covered by the 
Plan.
    (b) The Plan does not pay sales commissions, redemption fees, or 
other fees in connection with such acquisition or redemption.
    (c) The assets transferred pursuant to such acquisition or 
redemption consist entirely of cash and Transferable Securities.
    (d) In the case of an acquisition, the Plan receives Shares of the 
Funds that have a total Net Asset Value equal to the value of the 
Plan's assets exchanged for such Shares on the date of the transfer, as 
determined (with respect to Transferable Securities) in a single 
valuation performed in the same manner, at the close of the same 
business day, in accordance with the procedures set forth in Rule 17a-7 
under the Investment Company Act of 1940 (the 1940 Act), as amended 
from time to time, or any successor rule, regulation, or similar 
pronouncement (Rule 17a-7) (using sources independent of the UAM Funds 
and the Fund Adviser) and the procedures established by the UAM Funds 
pursuant to Rule 17a-7.
    (e) In the case of a redemption, with respect to Transferable 
Securities, the Plan receives a pro rata portion of the securities of 
the UAM Fund that is equal in value to the number of Shares redeemed 
for such securities, as determined in a single valuation performed in 
the same manner, at the close of the same business day, in accordance 
with the procedures set forth in Rule 17a-7 (using sources independent 
of the UAM Funds and the Fund Adviser). With respect to all other 
assets, the Plan receives cash equal to its pro rata share of the fair 
market value of such assets, determined in accordance with Rule 17a-7 
of the 1940 Act and the valuation policies and procedures of the UAM 
Fund.
    (f) The price that is paid or received by the Plan for Shares is 
the Net Asset Value per Share at the time of the transaction and is the 
same price for the Shares that would have been paid or received by any 
other investor for Shares of the same class at such time.
    (g) Prior to the in-kind acquisition or redemption, an Independent 
Fiduciary with respect to the Plan receives full and detailed written 
disclosure of information regarding the in-kind acquisition or 
redemption, including, without limitation, the following:
    (i) A current prospectus for each UAM Fund to or from which Plan 
assets may be transferred (updated as necessary to reflect the 
investment mix of the UAM Fund at the time of the in-kind acquisition 
or redemption);
    (ii) A statement describing the rate of fees for investment 
advisory and other services to be charged to and paid by the Plan (and 
by the UAM Funds in which the Plan invests) to the Fund Adviser, 
including the nature and extent of any differential between the rates 
of the fees paid by the UAM Funds and the rates of the fees otherwise 
payable by the Plan to the Fund Adviser;
    (iii) A statement of the reasons why the Fund Adviser may consider 
the in-kind acquisition or redemption to be appropriate for the Plan;
    (iv) A statement as to whether there are any limitations on the 
Fund Adviser with respect to which Plan assets may be invested in 
Shares of the UAM Funds and, if so, the nature of such limitations;
    (v) The identity of all securities that are deemed suitable by the 
Fund Adviser for transfer to the UAM Funds (in the case of an 
acquisition) or from the UAM Funds (in the case of a redemption);
    (vi) The identity of all such securities that will be valued in 
accordance with the procedures set forth in Rule 17a-7(b)(4) under the 
1940 Act; and
    (vii) Copies of the proposed and final exemptions pertaining to the 
exemptive relief provided herein for in-kind acquisitions and 
redemptions.
    (h) On the basis of such disclosures, the Independent Fiduciary, 
consistent with the responsibilities, obligations, and duties imposed 
on fiduciaries by Part 4 of Subtitle B of Title I of the Act, (i) makes 
a determination as to whether the terms of the in-kind acquisition or 
redemption are fair to the participants of the Plan and are comparable 
to and no less favorable than terms that would be reached at arms' 
length between unaffiliated parties, and that the in-kind acquisition 
or redemption (as opposed to an acquisition or redemption for cash) is 
in the best interest of the Plan and its participants and 
beneficiaries, and (ii) gives prior written approval for the in-kind 
acquisition or redemption, including agreement as to the date on which 
the in-kind acquisition or redemption will take place.
    (i) The authorization by the Independent Fiduciary is terminable at 
will without penalty to the Plan at any time prior to the date of 
acquisition or redemption, and any such termination will be effected by 
the close of the business day following the date of receipt by the Fund 
Adviser, either by mail, hand delivery, facsimile, or other available 
means of written or electronic communication at the option of the 
Independent Fiduciary, of any written notice of termination.
    (j) In the case of an acquisition, all of the Plan's assets held in 
an Account (other than Shares already held in the Account) are 
transferred in-kind to one

[[Page 10530]]

or more UAM Funds in exchange for Shares, except that any Plan assets 
in the Account which are not suitable for acquisition by the UAM Fund 
shall be liquidated as soon as reasonably practicable, and the cash 
proceeds shall be invested directly in Shares.
    (k) The Fund Adviser sends to the Independent Fiduciary, by regular 
mail or personal delivery, the following information:
    (i) No later than 30 days after the completion of the in-kind 
transfer, a written confirmation which contains:
    (A) The identity of each Transferable Security that was valued for 
purposes of the in-kind transfer in accordance with Rule 17a-7;
    (B) The current market price, as of the date of the in-kind 
transfer, of each such Transferable Security; and
    (C) The identity of each pricing service or market-maker consulted 
in determining the current market price of such Transferable 
Securities.
    (ii) No later than 105 days after each in-kind transfer, a written 
confirmation which contains:
    (A) In the case of an in-kind acquisition, the number of Shares in 
the UAM Funds that are held by the Plan immediately following the 
acquisition, the related per-Share Net Asset Value, and the total 
dollar value of such Shares.
    (B) In the case of an in-kind redemption, the number of Shares in 
the UAM Funds that were held by the Plan immediately prior to the 
redemption, the related per-Share Net Asset Value, and the total dollar 
value of such Shares.
    (l) With respect to each of the UAM Funds in which a Plan continues 
to hold Shares acquired in connection with an in-kind acquisition, the 
Fund Adviser provides the Independent Fiduciary with:
    (i) A copy of an updated prospectus of such UAM Fund, at least 
annually; and
    (ii) Upon request of the Independent Fiduciary, a report or 
statement (which may take the form of the most recent financial report, 
the current statement of additional information, or some other 
statement) containing a description of all fees paid by the UAM Fund to 
the Fund Adviser.
    (m) The combined total of all fees received by the Fund Adviser for 
the provision of services to the Plan, and in connection with the 
provision of services to the UAM Funds in which the Plan holds shares 
purchased in connection with an in-kind exchange, is not in excess of 
``reasonable compensation'' within the meaning of section 408(b)(2) of 
the Act.
    (n) The Fund Adviser does not receive any fees payable pursuant to 
Rule 12b-1 under the 1940 Act in connection with the acquisition or 
redemption.
    (o) All other dealings between the Plan and the UAM Funds are on a 
basis no less favorable to the Plan than dealings between the UAM Funds 
and other shareholders holding the same Shares of the same class as the 
Plan.
    (p) The Fund Adviser maintains for a period of six years the 
records necessary to enable the persons described in paragraph (q) 
below to determine whether the conditions of this exemption have been 
met, except that (i) a prohibited transaction will not be considered to 
have occurred if, due to circumstances beyond the control of the Fund 
Adviser, the records are lost or destroyed prior to the end of the six-
year period, and (ii) no party in interest other than the Fund Adviser 
shall be subject to the civil penalty that may be assessed under 
section 502(i) of the Act or to the taxes imposed by section 4975(a) 
and (b) of the Code if the records are not maintained or are not 
available for examination as required by paragraph (q) below.
    (q)(1) Notwithstanding any provisions of section 504(a)(2) and (b) 
of the Act, the records referred to in paragraph (p) above are 
unconditionally available at their customary locations for examination 
during normal business hours by (i) any duly authorized employee or 
representative of the Department of Labor or the Internal Revenue 
Service; (ii) any fiduciary of the Plan who has authority to acquire or 
dispose of Shares of the UAM Funds owned by the Plan, or any duly 
authorized employee or representative of such fiduciary; and (iii) any 
participant or beneficiary of the Plan or duly authorized employee or 
representative of such participant or beneficiary.
    (2) None of the persons described in paragraph (q)(1)(ii) and (iii) 
above shall be authorized to examine trade secrets of the UAM Funds or 
the Fund Adviser, or commercial or financial information which is 
privileged or confidential.
Section III. Availability of Prohibited Transaction Exemption 77-4 (PTE 
77-4)
    Any in-kind acquisition of Shares of the UAM Funds that complies 
with the conditions of Section II of this exemption shall be treated as 
a ``purchase or sale'' of shares of a registered, open-end investment 
company for purposes of PTE 77-4, 42 FR 18732 (April 8, 1977), and 
shall be deemed to have satisfied paragraphs (a), (d) and (e) of 
section II of that exemption.
Section IV. Definitions
    For purposes of this proposed exemption:
    (a) The term ``UAM'' means United Asset Management Corporation, a 
Delaware corporation with headquarters in Boston, Massachusetts, and 
any affiliate thereof;
    (b) The term ``UAM Funds'' means UAM Funds Inc., UAM Funds, Inc. 
II, and UAM Funds Trust, each of which is an open-end investment 
company registered under the 1940 Act, or any portfolio or group of 
portfolios thereof, for which UAM or a Fund Advisor serves as 
investment advisor and may provide other services.
    (c) The term ``Fund Adviser'' means (i) any affiliate of UAM which 
serves as an investment adviser to a UAM Fund, and (ii) any former 
affiliate of UAM which was divested within 12 months of the acquisition 
of UAM by Old Mutual, and which serves as an investment adviser to a 
UAM Fund pursuant to a contractual relationship with UAM, and (iii) any 
affiliate of an investment adviser identified in subsections (i) or 
(ii).
    (d) An ``affiliate'' of a person includes:
    (i) Any person directly or indirectly through one or more 
intermediaries controlling, controlled by, or under common control with 
the person;
    (ii) Any officer, director, employee, relative, or partner in any 
such person;
    (iii) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (e) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (f) The term ``relative'' means a ``relative'' as that term is 
defined in section 3(15) of the Act (or a ``member of the family'' as 
that term is defined in section 4975(e)(6) of the Code), or a brother, 
sister, or spouse of a brother or a sister.
    (g) The term ``Plan'' includes any pension, profit sharing or stock 
bonus plan qualified under section 401(a) of the Code, individual 
retirement account, simplified employee pension plan, custodial account 
plans as described in section 403(b) of the Code, or savings incentive 
match plans for employees.
    (h) The term ``Independent Fiduciary'' means the Plan sponsor or 
other fiduciary of a Plan who is independent of and unrelated to UAM or 
the Fund Adviser. For purposes of this exemption, the Independent 
Fiduciary will not be deemed to be independent of and unrelated to UAM 
or the Fund Adviser if:

[[Page 10531]]

    (i) Such fiduciary directly or indirectly controls, is controlled 
by, or is under common control with UAM or the Fund Adviser;
    (ii) Such fiduciary, or any officer, director, partner, employee, 
or relative of the fiduciary is an officer, director, partner, or 
employee of UAM or the Fund Adviser (or is a relative of such persons); 
or
    (iii) Such fiduciary directly or indirectly receives compensation 
or other consideration for his or her own personal account in 
connection with any transaction described in this exemption.
    (i) The term ``Transferable Securities'' shall mean securities (1) 
for which market quotations are readily available; and (2) which are 
not in any of the following categories: (i) Securities which may not be 
publicly offered or sold without registration under the Securities Act 
of 1933 (the 1933 Act); (ii) securities issued by entities in foreign 
countries which (A) restrict or prohibit the holding of securities by 
non-nationals other than through qualified investment vehicles, such as 
the UAM Funds, or (B) permit transfers of ownership or 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 special 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); and (v) other 
assets which are not readily distributable (including receivables and 
prepaid expenses), net of all liabilities (including accounts payable).
    (j) The term ``Net Asset Value'' means the amount for purposes of 
pricing all purchases and sales calculated by dividing the value of all 
securities, determined by a method as set forth in the UAM Fund's 
prospectus and statement of additional information, and other assets 
belonging to the UAM Fund less the liabilities charged to such UAM 
Fund, by the number of outstanding Shares.

Summary of Facts and Representations

    1. UAM Fund Services, Inc. (FSI) is a wholly-owned subsidiary of 
United Asset Management Corporation (UAM), a Delaware corporation which 
is one of the largest investment management organizations in the world, 
providing a broad range of investment management services through a 
diverse group of affiliated firms. As of June 30, 2000, UAM, through 
its affiliates, had approximately $195 billion in assets under 
management, including approximately $119 billion in institutional 
accounts (primarily corporate and governmental accounts), $53 billion 
in mutual funds, and $23 billion in private accounts. Old Mutual plc 
(Old Mutual), a public limited company based in the United Kingdom, 
recently acquired UAM, so that UAM is now a wholly-owned subsidiary of 
Old Mutual.
    FSI serves as administrator to UAM Funds Inc., UAM Funds Inc. II, 
and UAM Funds Trust, each of which is an open-end investment company 
registered under the 1940 Act (the UAM Funds). As administrator, FSI 
provides a wide variety of services to the UAM Funds and their 
shareholders (including employee benefit plans). For example, FSI is 
responsible for: Coordinating and performing legal reviews prior to the 
commencement of various operations by the UAM Funds; handling 
regulatory filings and registrations on behalf of the UAM Funds; 
overseeing compliance with regulatory requirements; preparing financial 
statements and tax reporting; handling trade processing and 
settlements; processing advisory fees; and providing various 
shareholder services to shareholders of the UAM Funds.
    2. The investment advisers to the UAM Funds are comprised of 
directly or indirectly wholly-owned subsidiaries of UAM, as well as 
entities that formerly were affiliated with UAM but which have been 
divested as part of the acquisition by Old Mutual (Fund Advisers). All 
of the Fund Advisers are registered investment advisers under the 
Investment Advisers Act of 1940, as amended (the Advisers Act), with 
the exception of the Pell Rudman Trust Company N.A. (a nationally 
chartered trust company which is exempt from registration under the 
Advisers Act).
    The Fund Advisers also serve as investment managers to pension, 
profit sharing, and stock bonus plans qualified under section 401(a) of 
the Code, individual retirement accounts; simplified employee pension 
plans; custodial account plans as described in section 403(b) of the 
Code; and savings incentive match plans for employees (Plans). None of 
the Fund Advisers serves as plan administrator to any of the Plans, nor 
are any of the Fund Advisers employers of employees covered by a Plan.
    3. In certain cases, Plans will receive investment management 
services directly from a Fund Adviser on a ``separate account'' basis; 
in other cases, Plans will avail themselves of the Fund Adviser's 
expertise through investment in a UAM Fund. Depending on facts and 
circumstances which may change over time, it may be more cost-effective 
for an individual Plan to receive investment management services on a 
separate account basis, or through investment in a UAM Fund. Thus, for 
example, a Plan with a large amount of assets invested in a UAM Fund 
may save investment costs by withdrawing from the UAM Fund and 
negotiating a separate investment agreement with the Fund Adviser. 
Conversely, a smaller Plan that is advised by a Fund Adviser may 
realize cost savings by investing in a UAM Fund. Assuming that the Fund 
Adviser will follow a similar investment strategy whether it is 
investing assets of the Plan directly or is investing assets of the UAM 
Fund in which the Plan invests, the underlying assets are likely to be 
substantially the same in many cases both before and after the 
transaction.
    4. Currently, all acquisition and redemption transactions between 
Plans and the UAM Funds are handled on a cash basis. Thus, if a Plan 
desires to invest assets currently invested in particular securities in 
a UAM Fund which also invests in such securities, the Plan first 
liquidates its securities for cash, uses the cash to purchase UAM Fund 
shares (Shares); the UAM Fund then uses the cash to purchase additional 
securities. Similarly, if a Plan which invests in a UAM Fund wishes to 
withdraw from the UAM Fund but to invest in the same securities as the 
UAM Fund, the UAM Fund liquidates the Plan's pro rata share of the 
underlying securities of the UAM Fund for cash and distributes the cash 
to the Plan in exchange for the redeemed Shares, and the Plan then 
reinvests the cash in the securities. In such situations, both the Plan 
and the UAM Fund could save transaction costs to the extent the 
transaction is handled on an in-kind basis.
    5. The proposed exemption relates to two types of in-kind 
transactions between UAM Funds and Plans: in-kind acquisitions of 
Shares (Acquisition Transactions) \30\ and in-kind redemption

[[Page 10532]]

of Shares (Redemption Transactions). Acquisition and Redemption 
Transactions will be performed in accordance with pre-established 
objective procedures. The types of securities that may be transferred 
on an in-kind basis in an Acquisition or Redemption Transaction 
(Transferable Securities) include securities (1) for which market 
quotations are readily available, and (2) which are not in any of the 
following categories: (i) Securities which may not be publicly offered 
or sold without registration under the Securities Act of 1933, as 
amended (the 1933 Act); (ii) securities issued by entities in foreign 
countries which (A) restrict or prohibit the holding of securities by 
non-nationals other than through qualified investment vehicles, such as 
UAM Funds, or (B) permit transfers of ownership or 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 special 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); and (v) other 
assets which are not readily distributable (including receivables and 
prepaid expenses), net of all liabilities (including accounts payable).
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    \30\ The applicant states that this exemption is being requested 
because Prohibited Transaction Exemption (PTE) 77-4 (42 FR 18732, 
April 8, 1977) would be unavailable for the purchase of shares in 
the UAM Funds other than for cash (see ERISA Adv. Op. 94-35A, n.3 
(Nov. 3, 1994)). In pertinent part, PTE 77-4 permits the cash 
purchase or sale by an employee benefit plan of shares of an open-
end investment company registered under the 1940 Act (i.e., a mutual 
fund) when a fiduciary with respect to the plan is also the 
investment adviser of the investment company but is not an employer 
of employees covered by the plan.
    The Department notes that PTE 97-41 (62 FR 42830, August 8, 
1997) also permits an employee benefit plan to purchase shares of a 
registered open-end management investment company, the investment 
adviser for which is a bank (as defined therein) or plan adviser (as 
defined therein) registered under the Advisers Act, that also serves 
as a fiduciary of the plan, in exchange for plan assets transferred 
in-kind to the investment company from a collective investment fund 
(CIF) maintained by the bank or plan adviser, in connection with a 
complete withdrawal of a plan's assets from the CIF.
---------------------------------------------------------------------------

    In an Acquisition Transaction, a Plan that is advised by a Fund 
Adviser will acquire Shares of a UAM Fund on an in-kind basis by 
transferring Plan assets to the UAM Fund in exchange for the Shares. 
All of the Plan assets held in a separate account (other than Shares 
already held in the account) will be transferred to the UAM Fund in 
exchange for Shares, except that any Plan assets in the Account which 
are not suitable for acquisition by the UAM Fund will be liquidated and 
the cash proceeds invested directly in Shares. The Plan will receive 
Shares that have a total net asset value equal to the value of the 
Plan's transferred assets on the date of the transfer, as determined 
(with respect to Transferable Securities) in a single valuation for 
each asset, with all valuations performed in the same manner, at the 
close on the same business day, in accordance with Securities and 
Exchange Commission Rule 17a-7, as amended from time to time, or any 
successor rule, regulation, or similar pronouncement (Rule 17a-7) 
(using sources independent of the UAM Funds and the Fund Adviser) and 
the procedures established by the UAM Funds pursuant to Rule 17a-7.\31\
---------------------------------------------------------------------------

    \31\ Rule 17a-7 is an exemption from the prohibited transaction 
provisions of section 17(a) of the 1940 Act (15 U.S.C. 80a-17(a)), 
which prohibit, among other things, transactions between an 
investment company and its investment adviser or affiliates of its 
investment adviser. Thus, Rule 17a-7 permits transactions between 
mutual funds and other accounts that use the same or affiliated 
investment advisers, subject to certain conditions that are designed 
to assure fair valuation of the assets involved in the transaction 
and fair treatment of both parties to the transaction. Among the 
conditions of Rule 17a-7 is the requirement that the transaction be 
effected at the ``independent current market price'' as defined 
therein (see Rule 17a-7(b)(1)-(4)) for the security involved.
---------------------------------------------------------------------------

    In a Redemption Transaction, a Plan that invests in Shares of a UAM 
Fund will redeem all or a portion of such Shares on an in-kind basis by 
receiving assets from the UAM Fund in exchange for the redeemed Shares. 
With respect to Transferable Securities, the Plan will receive a pro 
rata portion of the securities of the UAM Fund equal in value to the 
number of Shares redeemed for such securities, as determined in a 
single valuation performed in the same manner, at the close of the same 
business day, in accordance with Rule 17a-7 (using sources independent 
of the UAM Funds and the Fund Adviser). With respect to all other 
assets, the Plan will receive cash equal to its pro rata share of the 
fair market value of such assets, determined in accordance with Section 
17a-7 of the 1940 Act and the valuation policies and procedures of the 
UAM Fund.
    6. The in-kind acquisition or redemption will be approved in 
advance by FSI and by an Independent Fiduciary of the Plan. The 
Independent Fiduciary may be the Plan sponsor or may be another Plan 
fiduciary, but in any event will be independent of and unrelated to UAM 
and the Fund Adviser. If the Independent Fiduciary does not approve the 
transaction, then the Shares will not be purchased or redeemed on an 
in-kind basis.
    Before approving any Acquisition or Redemption Transaction, the 
Independent Fiduciary will receive full and detailed written disclosure 
of information regarding the in-kind acquisition or redemption. On the 
basis of such disclosure, the Independent Fiduciary will (i) make a 
determination as to whether the terms of the in-kind acquisition or 
redemption are fair to the participants of the Plan and are comparable 
to and no less favorable than terms that would be reached at arm's 
length between unaffiliated parties, and that the in-kind acquisition 
or redemption (as opposed to an acquisition or redemption for cash) is 
in the best interest of the Plan and its participants and 
beneficiaries, and (ii) give prior written approval to the in-kind 
acquisition or redemption, including agreement as to the date on which 
the in-kind acquisition or redemption will take place. The 
authorization by the Independent Fiduciary will be terminable at will 
without penalty to the Plan at any time prior to the date of 
acquisition or redemption, and any such termination will be effected by 
the close of the business day following the date of receipt by the Fund 
Adviser, either by mail, hand delivery, facsimile, or other available 
means of written or electronic communication at the option of the 
Independent Fiduciary, of any written notice of termination.
    7. Plan assets transferred pursuant to an Acquisition or Redemption 
Transaction will consist entirely of cash and Transferable Securities. 
The price that is paid or received by the Plan for Shares will be the 
net asset value per Share at the time of the transaction and will be 
the same price for the Shares that would have been paid or received by 
any other investor for Shares of the same class at such time. Plans 
will not pay sales commissions, redemption fees, or other fees in 
connection with the Acquisition and Redemption Transactions.
    8. FSI will review all proposed Acquisition and Redemption 
Transactions for compliance with applicable requirements, including the 
requirements of the proposed exemption. If the Acquisition or 
Redemption Transaction is approved, FSI will coordinate the transaction 
and will ensure that all aspects of the transaction are properly 
documented and that all applicable requirements are satisfied.
    9. Following an Acquisition Transaction, either (i) any Fund-level 
investment management, investment

[[Page 10533]]

advisory or similar fees received by a Fund Adviser as a result of a 
Plan's investment in the UAM Funds will be credited against the Plan-
level fee charged by the Fund Adviser for investment advisory services, 
or (ii) the Plan will not pay a Plan-level investment advisory fee with 
respect to those assets invested in the UAM Funds. In either case, the 
Fund Adviser will comply with the requirements regarding such fees set 
forth in PTE 77-4.\32\ The Fund Adviser will not receive any fees 
payable pursuant to Rule 12b--1 under the 1940 Act in connection with 
the acquisition or redemption. The combined total of all fees received 
by the Fund Adviser for the provision of services to the Plan, and in 
connection with the provision of services to the UAM Funds in which the 
Plan holds shares purchased in connection with an in-kind transfer, 
will not exceed ``reasonable compensation'' within the meaning of 
section 408(b)(2) of the Act.\33\
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    \32\ As noted previously, PTE 77-4 permits the cash purchase or 
sale by an employee benefit plan of shares of a registered, open-end 
investment company where a fiduciary with respect to the plan is 
also the investment adviser for the investment company, provided 
that, among other things, the plan does not pay an investment 
management, investment advisory or similar fee with respect to the 
plan assets invested in such shares for the entire period of such 
investment. Section II(c) of PTE 77-4 states that this condition 
does not preclude the payment of investment advisory fees by the 
investment company under the terms of an investment advisory 
agreement adopted in accordance with section 15 of the 1940 Act. 
Section II(c) states further that this condition does not preclude 
payment of an investment advisory fee by the plan based on total 
plan assets from which a credit has been subtracted representing the 
plan's pro rata share of investment advisory fees paid by the 
investment company.
    \33\ The Department is providing no opinion in this proposed 
exemption as to whether the total fees to be paid by any Plan would 
be considered ``reasonable'' under section 408(b)(2) of the Act. 
Such a determination must be made by the appropriate plan 
fiduciaries who are independent of UAM and the Fund Adviser (i.e., 
the Independent Fiduciaries of the Plans) upon review of the 
information concerning such fees which must be disclosed to such 
fiduciaries.
---------------------------------------------------------------------------

    10. Not later than 30 days after completion of the Acquisition or 
Redemption Transaction, the Fund Adviser will provide a written 
confirmation to the Independent Fiduciary that will contain: (i) The 
identity of each Transferable Security that was valued in accordance 
with Rule 17a-7, as described above; (ii) the current market price, as 
of the date of the in-kind transfer, of each such Transferable 
Security; and (iii) the identity of each pricing service or market-
maker consulted in determining the current market price of such 
Transferable Securities.
    11. Not later than 105 days after each Acquisition or Redemption 
Transaction, the Fund Adviser will provide a written confirmation to 
the Independent Fiduciary that will contain: (i) In the case of an 
Acquisition Transaction, the number of Shares in the UAM Funds that are 
held by the Plan immediately following the acquisition, the related 
per-Share net asset value, and the total dollar value of such Shares; 
and (ii) in the case of a Redemption Transaction, the number of Shares 
in the UAM Funds that were held by the Plan immediately prior to the 
redemption, the related per-Share net asset value, and the total dollar 
value of such Shares.
    12. With respect to each of the UAM Funds in which a Plan continues 
to hold Shares in connection with an in-kind acquisition, the Fund 
Adviser will provide the Independent Fiduciary with: (i) A copy of an 
updated prospectus of such UAM Fund, at least annually; and (ii) upon 
request of the Independent Fiduciary, a report or statement (which may 
take the form of the most recent financial report, the current 
statement of additional information, or some other statement) 
containing a description of all fees paid by the UAM Fund to the 
Investment Adviser.
    13. All other dealings between the Plan and the UAM Funds will be 
on a basis no less favorable to the Plan than dealings between the UAM 
Funds and other shareholders holding the same Shares of the same class 
as the Plan.
    14. In summary, it is represented that the proposed transactions 
satisfy the statutory criteria for an exemption under section 408(a) of 
the Act because:
    (a) The proposed exemption is administratively feasible because it 
establishes objective criteria for its application, and compliance with 
such criteria may be readily determined and audited.
    (b) The proposed exemption is in the interests of the Plans and 
their participants and beneficiaries because it will reduce the amount 
of brokerage commissions and other transaction costs paid by the Plans. 
Additionally, the in-kind transactions will eliminate the market risks 
associated with having Plan assets uninvested, even if for only a short 
time.
    (c) The proposed exemption will be protective of Plan participants 
and beneficiaries because (i) an Independent Fiduciary will retain 
ultimate discretion as to whether an in-kind acquisition or redemption 
occurs; (ii) the affiliation among the UAM Funds, the Fund Advisers, 
and FSI, and the fees received from the UAM Funds by the Fund Advisers 
and FSI, will be fully disclosed to the Independent Fiduciary; (iii) 
the in-kind acquisition or redemption of Shares will not result in any 
Plan paying multiple fees for the same or similar services because 
either (A) any investment advisory Fund-level fees received by a Fund 
Adviser as a result of a Plan's investment in the UAM Funds will be 
credited against the Plan-level fee charged by the Fund Adviser for 
investment advisory services, or (B) the Plan will not pay a Plan-level 
investment advisory fee with respect to assets invested in the UAM 
Funds, in either case in accordance with the requirements of PTE 77-4; 
(iv) the UAM Funds are subject to the protections offered investors 
under the 1940 Act, including the 1940 Act's regulation of fees paid to 
investment advisers; and (v) no Plan will pay sales loads or 
commissions or redemption fees in connection with the acquisition or 
redemption of Shares.

FOR FURTHER INFORMATION CONTACT: Karen Lloyd of the Department, 
telephone (202) 219-8194. (This is not a toll-free number).

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest 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

[[Page 10534]]

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 8th day of February, 2001.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 01-3688 Filed 2-14-01; 8:45 am]
BILLING CODE 4510-29-P