10514 Federal Register / Vol. 66, No. 32 / Thursday, February 15, 2001 / Notices

1For 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.

Dated: February 6, 2001.

Gerald B. Lindrew,

Deputy Director, Office of Policy and

Research, Pension and Welfare Benefits

Administration.

[FR Doc. 01–3833 Filed 2–14–01; 8:45 am]

BILLING CODE 4510–29–M

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.

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. lll, 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

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)

Federal Register / Vol. 66, No. 32 / Thursday, February 15, 2001 / Notices 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

10516 Federal Register / Vol. 66, No. 32 / Thursday, February 15, 2001 / Notices

2The 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.

3The applicants have not requested an

exemption, and no relief is provided, herein, for

any plan covering employees of NYLIC or its

affiliates.

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 sixyear 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

(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.

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 participantdirected defined contribution pensions

Federal Register / Vol. 66, No. 32 / Thursday, February 15, 2001 / Notices 10517

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.

5The 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.

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

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

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,

10518 Federal Register / Vol. 66, No. 32 / Thursday, February 15, 2001 / Notices

6The 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.

7NYLIC represents that it is possible certain taxqualified plans or a trust or other entity holding

qualified plan assets could participate in the

Collective Trust sometime in the future.

8See footnote 2.

9The 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.

10The 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 It is represented that plans sponsored by NYLIC

or any of its affiliates will not invest in the Anchor

Synthetic GIC.

12The 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

including administration, accounting,

and other similar services and

shareholder administration and subaccounting 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

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.

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.

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

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

Federal Register / Vol. 66, No. 32 / Thursday, February 15, 2001 / Notices 10519

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.

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.

14The applicants believe that investments by the

Anchor Plans in the Anchor Trust and in the

Collective Trust do not appear to involve any nonexempt 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.

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.

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.

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.

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

10520 Federal Register / Vol. 66, No. 32 / Thursday, February 15, 2001 / Notices

15The 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.

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.

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 nondiscretionary 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

Federal Register / Vol. 66, No. 32 / Thursday, February 15, 2001 / Notices 10521

16For purposes of this proposed exemption,

references to Title I of the Act, unless otherwise

noted herein, refer also to corresponding provisions

of the Code.

17The 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.

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

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

(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 nationallyrecognized 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

10522 Federal Register / Vol. 66, No. 32 / Thursday, February 15, 2001 / Notices

18For 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.

19The 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).

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 generallyaccepted Index of securities; or

(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

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 highquality, publicly-offered debt securities

Federal Register / Vol. 66, No. 32 / Thursday, February 15, 2001 / Notices 10523

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 brokerdealer of debt securities issued by the brokerdealer’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.

22The 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.

23PTCE 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.

24PTCE 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.

(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, SECregistered 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 selfregulatory 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

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 brokerdealer 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

The Applicants note that some

independent Plan fiduciaries have

expressed concern regarding the

application of PTCE 75–1 to brokerdealer 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.

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.

10524 Federal Register / Vol. 66, No. 32 / Thursday, February 15, 2001 / Notices

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 participantdirected account).’’

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.

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

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 selfregulatory 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:

• A statement to the effect that the

return calculated for the Debt Securities

will be denominated in U.S. dollars;

Federal Register / Vol. 66, No. 32 / Thursday, February 15, 2001 / Notices 10525

26For 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.

27The 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:

• 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;

• 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

• 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.

• The specified Index or Indexes on

which the rate of return on the Debt

Securities is based;

• 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;

• The date on which the Debt

Securities will be issued;

• The date on which the Debt

Securities will mature and the

conditions of such maturity;

• The initial date on which the value

of the Index is calculated;

• Any adjustment factor or other

numerical methodology that would

affect the rate of return, if applicable;

• The ending date on which interest

will be determined, calculated and paid;

• 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);

• All details regarding the

methodology for measuring

performance;

• The terms under which the Debt

Securities may be redeemed;

• The exchange or market where the

Debt Securities are traded or

maintained; and

• 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

(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 selfregulatory 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 onehalf 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.

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

10526 Federal Register / Vol. 66, No. 32 / Thursday, February 15, 2001 / Notices

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 nationallyrecognized 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 generallyaccepted 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 publiclytraded 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 publiclydisseminated 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

Federal Register / Vol. 66, No. 32 / Thursday, February 15, 2001 / Notices 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 × 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

10528 Federal Register / Vol. 66, No. 32 / Thursday, February 15, 2001 / Notices

28The 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.

29The 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.

(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

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

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;

Federal Register / Vol. 66, No. 32 / Thursday, February 15, 2001 / Notices 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 inkind 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 inkind 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

10530 Federal Register / Vol. 66, No. 32 / Thursday, February 15, 2001 / Notices

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 sixyear 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:

Federal Register / Vol. 66, No. 32 / Thursday, February 15, 2001 / Notices 10531

30The 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

Continued

(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

10532 Federal Register / Vol. 66, No. 32 / Thursday, February 15, 2001 / Notices

by an employee benefit plan of shares of an openend 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 openend 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.

31Rule 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.

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).

In an Acquisition Transaction, a Plan

that is advised by a Fund Adviser will

acquire Shares of a UAM Fund on an inkind 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

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 inkind 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

Federal Register / Vol. 66, No. 32 / Thursday, February 15, 2001 / Notices 10533

32As 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.

33The 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.

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

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 perShare 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 inkind 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 inkind 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 Planlevel 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

10534 Federal Register / Vol. 66, No. 32 / Thursday, February 15, 2001 / Notices

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

NATIONAL EDUCATION GOALS

PANEL

Meeting

AGENCY: National Education Goals

Panel.

ACTION: Notice of meeting.

SUMMARY: This notice sets forth the date

and location of a forthcoming meeting of

the National Education Goals Panel

(NEGP). This notice also describes the

functions of the Panel.

DATE AND TIME: Saturday, February 24,

2001 from 9:30 a.m. to 11 a.m.

ADDRESSES: National Press Club, 529

14th Street, NW., Holeman Lounge, 13th

Floor, Washington, DC 20005.

FOR FURTHER INFORMATION CONTACT:

Emily Wurtz, Acting Executive Director,

1255 22nd Street, NW., Suite 502,

Washington, DC 20037, Telephone:

(202) 724–0015.

SUMMARY: The National Education Goals

Panel was established to monitor,

measure and report state and national

progress toward achieving the eight

National Education Goals, and report to

the states and the Nation on the

progress.

Agenda Items: The agenda items will

focus upon recommendations made by

NEGP’s Measuring Success Task Force.

Governor John R. McKernan, Task Force

Chair, will report recommendations of

new data in student academic

achievement, adult literacy, teacher

education and professional

development, and early childhood

education. In addition, the incoming

NEGP Chair, Governor Frank O’Bannon,

will announce upcoming Panel

initiatives for 2001.

Dated: February 9, 2001.

Emily Wurtz,

Acting Executive Director, National

Education Goals Panel.

[FR Doc. 01–3798 Filed 2–14–01; 8:45 am]

BILLING CODE 4010–01–M

NUCLEAR REGULATORY

COMMISSION

Agency Information Collection

Activities: Submission for the Office of

Management and Budget (OMB)

Review; Comment Request

AGENCY: U.S. Nuclear Regulatory

Commission (NRC).

ACTION: Notice of the OMB review of

information collection and solicitation

of public comment.

SUMMARY: The NRC has recently

submitted to OMB for review of

continued approval of information

collections under the provisions of the

Paperwork Reduction Act of 1995 (44

U.S.C. Chapter 35).

Information pertaining to the

requirement to be submitted:

1. The title of the information

collection: 10 CFR Part 25—Access

Authorization for Licensee Personnel.

2. Current OMB approval number:

3150–0046.

3. How often the collection is

required: On occasion.

4. Who is required or asked to report:

NRC-regulated facilities and other

organizations requiring access to NRCclassified information.

5. The number of annual respondents:

20.

6. The number of hours needed

annually to complete the requirement or

request: 257 hours (197 hours reporting

and 60 hours recordkeeping) or

approximately.5 hours per response.

7. Abstract: NRC-regulated facilities

and other organizations are required to

provide information and maintain

records to ensure that an adequate level

of protection is provided NRC-classified

information and material.

A copy of the final supporting

statement may be viewed free of charge

at the NRC Public Document Room, One

White Flint North, 11555 Rockville

Pike, Room O–1F23, Rockville, MD

20852. OMB clearance requests are

available at the NRC worldwide web site

http://www.nrc.gov/NRC/Public/OMB/

index.html. The document will be

available on the NRC home page site for

60 days after the signature date to this

notice.

Comments and questions should be

directed to the OMB reviewer listed

below by March 19, 2001. Comments

received after this date will be

considered if it is practical to do so, but

assurance of consideration cannot be

given to comments received after this

date.

Amy Farrell, Office of Information

and Regulatory Affairs (3150–0046),

NEOB–10202, Office of Management

and Budget, Washington, DC 20503.

Comments can also be submitted by

telephone at (202) 395–7318.

The NRC Clearance Officer is Brenda

Jo. Shelton, 301–415–7233.

Dated at Rockville, Maryland, this 7th day

of February, 2001.

For the Nuclear Regulatory Commission.

Brenda Jo. Shelton,

NRC Clearance Officer, Office of the Chief

Information Officer.

[FR Doc. 01–3828 Filed 2–14–01; 8:45 am]

BILLING CODE 7590–01–P

NUCLEAR REGULATORY

COMMISSION

[Docket No. 50–305]

Nuclear Management Company, LLC;

Kewaunee Nuclear Power Plant

Environmental Assessment and

Finding of No Significant Impact

The U.S. Nuclear Regulatory

Commission (NRC) is considering

issuance of an amendment to Facility

Operating License No. DPR–43, issued

to Nuclear Management Company, LLC

(NMC or the licensee) for operation of

the Kewaunee Nuclear Power Plant

(KNPP), located in Kewaunee County,

Wisconsin.

Environmental Assessment

Identification of the Proposed Action

The proposed action would revise

Technical Specification (TS) Section

1.0, ‘‘Definitions,’’ to incorporate a line

item improvement to provide additional

clarification on channel calibration; TS

Section 6.4, ‘‘Training,’’ to remove the

title of director for the KNPP training

program and relocate the title reference

to the Operational Quality Assurance

Program Description (OQAPD); TS

Section 6.10, ‘‘Record Retention,’’ to

revise the off-site review committee

title; and correct typographical errors in

the TS Table of Contents.

The proposed action is in accordance

with the licensee’s application for

amendment dated November 10, 2000.

The Need for the Proposed Action

The proposed action would provide

clarity to the TSs and remove an