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Secretary of Labor Thomas E. Perez
Grant of Individual Exemptions; New York Life Insurance Company (NYLIC) et al. [Notices] [05/04/2001]

EBSA (Formerly PWBA) Federal Register Notice

Grant of Individual Exemptions; New York Life Insurance Company (NYLIC) et al. [05/04/2001]

[PDF Version]

Volume 66, Number 87, Page 22607-22617


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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Prohibited Transaction Exemption 2001-16; Exemption Application No. D-
10584, et al.]

 
Grant of Individual Exemptions; New York Life Insurance Company 
(NYLIC) et al.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemptions.

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SUMMARY: This document contains exemptions issued by the Department of 
Labor (the Department) from certain of the prohibited transaction 
restrictions of the Employee Retirement Income Security Act of 1974 
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
    Notices were published in the Federal Register of the pendency 
before the Department of proposals to grant such exemptions. The 
notices set forth a summary of facts and representations contained in 
each application for exemption and referred interested persons to the 
respective applications for a complete statement of the facts and 
representations. The applications have been available for public 
inspection at the Department in Washington, D.C. The notices also 
invited interested persons to submit comments on the requested 
exemptions to the Department. In addition the notices stated that any 
interested person might submit a written request that a public hearing 
be held (where appropriate). The applicants have represented that they 
have complied with the requirements of the notification to interested 
persons. No public comments and no requests for a hearing, unless 
otherwise stated, were received by the Department.
    The notices of proposed exemption were issued and the exemptions 
are being granted solely by the Department because, effective December 
31, 1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. 
App. 1 (1996), transferred the authority of the Secretary of the 
Treasury to issue exemptions of the type proposed to the Secretary of 
Labor.

[[Page 22608]]

Statutory Findings

    In accordance with section 408(a) of the Act and/or section 
4975(c)(2) of the Code and the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon 
the entire record, the Department makes the following findings:
    (a) The exemptions are administratively feasible;
    (b) They are in the interests of the plans and their participants 
and beneficiaries; and
    (c) They are protective of the rights of the participants and 
beneficiaries of the plans.

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

[Prohibited Transaction Exemption 2001-16 Exemption Application No.: D-
10584]

Exemption

I. Transactions

    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 an 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) 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

[[Page 22609]]

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 receive, directly 
or indirectly (e.g. through an affiliate), any compensation or other 
consideration for his or her own personal account from any party 
dealing with the plan in connection with the transaction.
    (3) With respect to additional purchases of NYLife Fund securities, 
NYLIC:
    (A) Provides reasonable advance notice of any material change with 
respect to the NYLife Fund securities being purchased or the commission 
with respect thereto, and
    (B) Repeats the written disclosure required under Section 
III(c)(1)(A), (C), (D), and (E) once every three years.
    (d)(1) NYLIC shall retain or cause to be retained for a period of 
six (6) years from the date of any transaction covered by this 
exemption the following:
    (A) The information disclosed with respect to such transaction 
pursuant to Section III(b), and (c) above; and
    (B) Any additional information or documents provided to the 
Independent Plan Fiduciary with respect to the transaction; and
    (C) The written acknowledgments described in Section III(b)(2) 
above.
    (2) A prohibited transaction shall not be deemed to have occurred 
if, due to circumstances beyond the control of NYLIC, such records are 
lost or destroyed before the end of such six-year period.
    (3) Notwithstanding anything to the contrary in sections 504(a)(2) 
and (b) of the Act, such records shall be unconditionally available for 
examination during normal business hours by duly authorized employees 
or representatives of the Department of Labor, the Internal Revenue 
Service, plan participants and beneficiaries, any employer of plan 
participants and beneficiaries, and any employee organization any of 
whose members are covered by the plan.
    (e) Neither NYLIC nor a Sales Agent renders investment advice 
(within the meaning of 29 CFR 2510.3-21(c)) with respect to the assets 
involved in the transaction in connection with a formal advice program 
under which specific/individualized asset allocation recommendations 
are made available to participants based on their responses to 
questionnaires.

IV. Definitions

    For purposes of this exemption--
    (a) ``NYLTC'' means the New York Life Trust Company, or any other 
financial institution supervised under state or federal laws and 
affiliated with NYLIC;
    (b) ``NYLIC'' means the New York Life Insurance Company and any of 
its affiliates, including but not limited to NYLTC, as defined in 
Section IV(a) above;
    (c) ``NYLife Fund or NYLife Funds'' mean any investment company 
registered under the Investment Company Act of 1940 for which NYLIC 
serves as investment advisor and as principal underwriter (as that term 
is defined in section 2(a)(29) of the Investment Company Act of 1940, 
15 U.S.C. Sec. 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

[[Page 22610]]

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;\1\
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    \1\ The Department expresses no opinion as to whether any so-
called ``synthetic guaranteed insurance contracts'' offered by NYLIC 
constitute an Insurance Contract within the meaning of this 
exemption. The Department further notes that this exemption provides 
relief from the self-dealing and conflict of interest provisions of 
the Act in connection with the sale of Insurance Contracts to plans 
by fiduciaries. It does not provide relief from any acts of self-
dealing that do not arise directly in connection with the purchase 
of specific insurance products. Thus, for example, no relief is 
provided under this exemption for any act of self-dealing that may 
arise in connection with the ongoing operation or administration of 
an Insurance Contract.
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    (i) A ``nondiscretionary trustee'' of a plan is a trustee whose 
powers and duties with respect to any assets of the plan are limited 
to: (1) The provision of nondiscretionary trust services, as defined in 
Section IV(j) below, to such plan, and (2) the duties imposed on the 
trustee by any provision or provisions of the Act or the Code;
    (j) ``Nondiscretionary trust services'' mean custodial services and 
services ancillary to custodial services, none of which services are 
discretionary;
    (k) A ``relative'' means a ``relative'' as that term is defined in 
section 3(15) of the Act (or a ``member of the family'' as that term is 
defined in Code section 4975(e)(6), or a brother, a sister, or a spouse 
of a brother or a sister;
    (l) ``Sales Agent or Sales Agents'' mean any insurance agent, 
broker, or pension consultant or any affiliate thereof that is 
affiliated with NYLIC; and
    (m) ``Principal underwriter'' is defined in the same manner as that 
term is defined in section 2(a)(29) of the Investment Company Act of 
1940 (15 U.S.C. 8a-2(a)(29)).
Effective Date
    This exemption is effective, as of February 12, 1998, the date of 
the filing of the application for exemption.

Written Comments

    In the Notice of Proposed Exemption (the Notice), the Department of 
Labor (the Department) invited all interested persons to submit written 
comments and requests for a hearing on the proposed exemption within 
thirty (30) days of the date of the publication of the Notice in the 
Federal Register on February 15, 2001. All comments and requests for a 
hearing were due by April 6, 2001.
    During the comment period, the Department received no requests for 
a hearing. However, the Department did receive a comment letter from 
the applicant. In this regard, in a letter dated April 6, 2001, the 
applicant requested certain amendments to the language of the Summary 
of Facts and Representations (the SFR), as published in the Notice. The 
applicant believes that none of the changes described below involve 
material changes in any facts or representation made by NYLIC in its 
application to the Department.
    A discussion of each of the applicant's comments and the 
Department's responses, thereto, are set forth in the numbered 
paragraphs below. In the language below, words that have been stricken 
from the text of the SFR appear in the closed brackets, and additions 
to the SFR appear in bold italics.
    1. Representation 2. The applicant has informed the Department that 
NYLIC recently organized a new wholly-owned investment management 
subsidiary, New York Life Investment Management LLC (NYLIM), and has 
made other changes to the names or organization of one or more of its 
subsidiaries. The applicant requests that the Department substitute the 
language, as set forth in the paragraph below, for the text of 
Representation 2, as it appeared in the SFR.
    The Department concurs. Accordingly, the language, as set forth in 
the Notice at 66 FR at 10517, column 1, lines 49 to 57 and column 2, 
lines 1-2 should have read as follows:

    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 LLC (NYLBS), NYLIFE 
Distributors Inc. (NYLIFE Distributors), New York Life Investment 
Management LLC (NYLIM), MacKay-Shields LLC [Financial Corporation] 
(MacKay-Shields), [Monitor Capital Advisors, Inc. (Monitor 
Capital)], and NYLIFE Securities Inc. (NYLIFE Securities).

    2. Representation 3. The applicant wishes to update the total 
consolidated assets information, as published in the SFR. In this 
regard, the applicant represents that the revised numbers, as set forth 
below, are based on NYLIC's annual report, as of December 31, 2000. It 
is further represented that this report includes condensed, 
consolidated financial information for NYLIC and its domestic, wholly-
owned life insurance subsidiaries, New York Life Insurance and Annuity 
Corporation and NYLIC Insurance Company of Arizona.
    The Department concurs. Accordingly, the language, as set forth in 
the Notice at 66 FR at 10517, column 2, lines 5-9 should have read, as 
follows:

    As of December 31, [1996] 2000, NYLIC had approximately $97.1 
billion in total consolidated assets [of approximately $78.8 billion 
and net] (including policy reserves) and $88.4 billion in total 
liabilities [of $74.8 billion].

    In addition, the applicant wishes to clarify the following 
statement that appeared in Representation 3 in the Notice at 66 FR at 
10517, column 2, lines 16-23:

    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.

The applicant notes that insurance products offered by NYLIC are 
reviewed and approved by the New York State Insurance Department under 
New York laws or under the applicable insurance laws of another state 
where such products are marketed and sold. In this regard, NYLIC may 
not obtain New York State Insurance Department approval for insurance 
products marketed and sold in states other than New York, although such 
products are filed with the New York State Insurance Department. In 
addition, insurance products offered by certain subsidiaries of NYLIC 
that are organized and supervised by another state are not approved by 
the New York State Insurance Department but are filed with the New York 
State Insurance Department if marketed in New York.
    The Department acknowledges the clarification as submitted by the 
applicant.
    3. Representation 6. The applicant has informed the Department of 
certain changes with respect to the NYLife Funds, including the 
renaming of the MainStay Institutional Funds Inc. on

[[Page 22611]]

December 29, 2000. Therefore, the applicant requests that the 
Department substitute the language, as set forth in the paragraph 
below, for the text of Representation 6, as it appeared in the SFR.
    The Department concurs. Accordingly, the language, as set forth in 
the Notice at 66 FR at 10517, column 3, lines 29 to 60 and at 10518, 
column 1, lines 1-7 should have read as follows:

    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] The 
MainStay Funds, which are available to retail and institutional 
investors (including defined contribution plans) and the [MainStay 
Institutional] Eclipse Funds Inc., and Eclipse Funds, which are 
[only] available to institutional investors, [and to] group 
individual retirement account customers, and retail investors. The 
MainStay Funds, organized as a Massachusetts business trust, 
currently include [fourteen (14)] twenty-five (25) separate funds, 
each of which has its own investment objectives and policies. 
Eclipse Funds Inc., a Maryland corporation, currently offers 
thirteen (13)separate funds, and the Eclipse Funds, a Massachusetts 
business trust, currently offers four (4) separate funds. Both the 
Eclipse Funds Inc. and the Eclipse Funds are marketed under a 
combined prospectus. [MainStay Institutional Funds Inc. currently 
include eleven (11) separate funds].
    Affiliates of NYLIC provide [provides] a broad range of services 
to NYLife Funds. Specifically, the NYLife Funds are managed by 
NYLIM. MacKay-Shields is a sub-advisor to one or more of the NYLife 
Funds. [or Monitor Capital, both of which] Both are registered 
investment advisers and indirect wholly-owned subsidiaries of NYLIC. 
NYLIM [NYLIC] is the administrator to each of the NYLife Funds and 
provides various services, including administration, accounting, and 
other similar services and shareholder administration and sub-
accounting for which NYLIM [NYLIC] and/or its affiliates may receive 
management fees, administrative fees, and/or shareholder services 
fees.

    4. Representation 9. The applicant wishes to clarify the following 
statement that appeared in Representation 9 in the Notice at 66 FR at 
10518, column 2, line 1:

    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.

    The applicant has informed the Department that NYLIC has engaged 
NYLIM to advise it in providing investment management services to all 
of its clients, including services provided by NYLIC to NYLTC for the 
Collective Trust. However, it is represented that NYLIC remains fully 
responsible for providing advice and other services under the terms and 
conditions of the documents governing the Collective Trust, described 
in Representation 9, as published in the SFR.
    The Department acknowledges the clarification as submitted by the 
applicant.
    After giving full consideration to the entire record, including the 
written comment from the applicant, the Department has decided to grant 
the exemption, as described, amended, clarified, and concurred in 
above. In this regard, the comment letter submitted by the applicant to 
the Department has been included as part of the public record of the 
exemption application. The complete application file, including all 
supplemental submissions received by the Department, is made available 
for public inspection in the Public Documents Room of the Pension 
Welfare Benefits Administration, Room N-1513, U.S. Department of Labor, 
200 Constitution Avenue, N.W., Washington, D.C. 20210.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption refer to 
the Notice published on February 15, 2001, at 66 FR 10514.
For Further Information Contact
    Angelena C. Le Blanc of the Department, telephone (202) 219-8883. 
(This is not a toll-free number.)

Indianapolis Life Insurance Company (Indianapolis Life) and AmerUs 
Group Co. (AmerUs Group) Located in Indianapolis, IN

[Prohibited Transaction Exemption 2001-17; Exemption Application No. D-
10930]

Exemption

Section I. Covered Transactions

    The restrictions of section 406(a) of the Act (or ERISA) 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 receipt of common stock (Common Stock) issued by 
AmerUs Group, which will become the parent of Indianapolis Life, or (2) 
the receipt of cash (Cash) or policy credits (Policy Credits), by or on 
behalf of a policyowner of Indianapolis Life who is an eligible member, 
as defined in Section III (the Eligible Member), which is an employee 
benefit Plan, including an employee benefit plan that is sponsored by 
Indianapolis Life and its affiliates for their own employees (the 
Indianapolis Life Plans; collectively, the Plans), in exchange for such 
Eligible Member's membership interest in Indianapolis Life, in 
accordance with the terms of a plan of conversion (the Plan of 
Conversion), implemented under Indiana law.\2\
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    \2\ Unless otherwise noted, all references to Indianapolis Life 
and its affiliates are deemed to include references to AmerUs Group 
and its affiliates.
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    In addition, the restrictions of section 406(a)(1)(E) and (a)(2) 
and section 407(a)(2) of the Act shall not apply to the receipt or 
holding, by the Indianapolis Life Insurance Company Group Term Life 
Insurance Plan for Employees, Plan No. 505 (the IL Group Term Life 
Insurance Plan), of employer securities in the form of excess AmerUs 
Group Common Stock, in accordance with the terms of the Plan of 
Conversion.
    This exemption is subject to the following conditions set forth 
below in Section II.

Section II. General Conditions

    (a) The Plan of Conversion is subject to approval, review and 
supervision by the Commissioner of Insurance of the Indiana Department 
of Insurance (the Commissioner) and is implemented in accordance with 
procedural and substantive safeguards imposed under Indiana law.
    (b) The Commissioner reviews the terms and options that are 
provided to Eligible Members as part of such Commissioner's review of 
the Plan of Conversion, and the Commissioner approves the Plan of 
Conversion following a determination that such Plan is fair, reasonable 
and equitable to Eligible Members.
    (c) Each Eligible Member has an opportunity to vote to approve the 
Plan of Conversion after full written disclosure is given to the 
Eligible Member by Indianapolis Life.
    (d) Any determination to receive Common Stock, Cash or Policy 
Credits by an Eligible Member which is a Plan, pursuant to the terms of 
the Plan of Conversion, is made by one or more Plan fiduciaries which 
are independent of Indianapolis Life and its affiliates and neither 
Indianapolis Life nor any of its affiliates exercises any discretion or 
provides ``investment advice'' within the meaning of 29 CFR 2510.3-
21(c), with respect to such decisions.
    (e) After each Eligible Member entitled to receive shares of AmerUs 
Group Common Stock is allocated at least 12 shares, additional 
consideration is allocated to Eligible Members who own participating 
policies based on actuarial formulas that take into account

[[Page 22612]]

the actuarial contribution, if any, that each Eligible Member's policy 
has made (and is expected to make) to Indianapolis Life's statutory 
surplus, which formulas are subject to review and approval by the 
Commissioner.
    (f) In the case of the Indianapolis Life Plans, the independent 
fiduciary--
    (1) Votes on whether to approve or not to approve the proposed 
restructuring process (the Restructuring);
    (2) Elects between consideration in the form of AmerUs Group Common 
Stock or Cash;
    (3) Determines how to apply the Cash or AmerUs Group Common Stock 
received for the benefit of the participants and beneficiaries of the 
Indianapolis Life Plans;
    (4) Votes shares of AmerUs Group Common Stock held by all 
Indianapolis Life Plans, including the IL Group Term Life Insurance 
Plan, and disposes of such stock held by the IL Group Term Life 
Insurance Plan exceeding the limitation of section 407(a)(2) of the Act 
as soon as reasonably practicable, but in no event later than six 
months after the effective date of the Plan of Conversion.
    (5) Provides the Department with a complete and detailed final 
report as it relates to the Indianapolis Life Plans prior to the 
effective date of the Restructuring; and
    (6) Takes all actions that are necessary and appropriate to 
safeguard the interests of the Indianapolis Life Plans and their 
participants and beneficiaries.
    (g) All Eligible Members that are Plans participate in the 
transactions on the same basis as all Eligible Members that are not 
Plans.
    (h) No Eligible Member pays any brokerage commissions or fees in 
connection with their receipt of AmerUs Group Common Stock or Policy 
Credits or in connection with the implementation of the commission-free 
purchase and sale program.
    (i) All of Indianapolis Life's policyholder obligations remain in 
force and are not affected by the Plan of Conversion.

Section III. Definitions

    For purposes of this exemption,
    (a) The term ``Indianapolis Life'' means Indianapolis Life 
Insurance Company and AmerUs Group Co., unless otherwise noted.
    (b) An ``affiliate'' of Indianapolis Life includes --
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with Indianapolis Life. (For purposes of this paragraph, the term 
``control'' means the power to exercise a controlling influence over 
the management or policies of a person other than an individual.)
    (2) Any officer, director or partner in such person, and
    (3) Any corporation or partnership of which such person is an 
officer, director or a 5 percent partner or owner.
    (c) A ``policy'' is defined as (1) any contract of insurance, 
annuity contract, or supplemental contract in each case, that has been 
issued by Indianapolis Life; (2) each certificate issued under any of 
Indianapolis Life's group annuity contracts as part of a custodial 
403(b) or IRA arrangement, or as part of a non-ERISA 403(b) arrangement 
(the custodian or employer-sponsor holding such group annuity contracts 
shall not be considered the Eligible Member or owner); and (3) each 
certificate issued under the group plan established as a convenience by 
Indianapolis Life to provide life insurance to self-employed agents. 
The following policies and contracts are deemed not to be policies for 
purposes of the Plan of Conversion: (1) a certificate issued to an 
individual pursuant to a group life insurance policy (except as set 
forth in the preceding sentence); (2) a certificate issued under a 
group annuity contract (except as set forth in the preceding sentence); 
and (3) any reinsurance assumed on an indemnity basis (but certificates 
of assumption constitute policies).
    (d) The term ``Eligible Member'' means a policyholder whose name 
appears on Indianapolis Life's records as the owner of one or more 
policies issued by Indianapolis Life on both the date the Board of 
Directors adopts the Plan of Conversion and the effective date of the 
Plan of Conversion.
    (e) A ``supplemental contract'' is a policy or contract that has 
been issued pursuant to a Plan, qualified under section 401(a) of the 
Code, directly to a Plan participant.
    (f) ``Policy Credits'' will consist of an increase in the dividend 
accumulation on an Indianapolis Life policy or contract (to which no 
sales, surrender, or similar charges will be applied), an increase in 
the accumulation account value of the Indianapolis Life policy or 
contract (to which no sales, surrender, or similar charge will be 
applied), an increase in the premium deposit fund under the 
Indianapolis Life policy or contract, an increase in the amount of the 
payments distributed under an Indianapolis Life policy or contract that 
is a supplemental contract, or an extension of the expiry date on an 
Indianapolis Life policy or contract that is in force as extended term 
life insurance pursuant to a non-forfeiture provision of a life 
insurance policy.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on January 25, 2001 at 66 FR 
7802.
Written Comments
    The Department received four written comments with respect to the 
proposed exemption. Two comments were submitted by Plan policyholders 
of Indianapolis Life. Of these comments, one policyholder said he was 
in favor of the Department's granting the proposed exemption while the 
other policyholder said he was opposed to the demutualization and 
preferred that Indianapolis Life's surplus earnings remain with the 
insurer in order to enhance the policyholder's existing insurance 
policies with Indianapolis Life. The third and fourth comments, which 
were submitted under separate cover by AmerUs Group and Indianapolis 
Life, expressed specific concerns about the proposed exemption in a 
number of areas.
    The dissenting policyholder's comment, as well as the comments 
submitted by AmerUs Group and Indianapolis Life, are discussed below. 
Also discussed below are Indianapolis Life's response to the 
policyholder comment and the Department's responses to the areas of 
concern raised by both AmerUs Group and Indianapolis Life.
Policyholder Comment
    As stated briefly above, one commenter states that he is opposed to 
Indianapolis Life's contemplated demutualization and maintains that 
Indianapolis Life should retain its current status as a mutual 
insurance company. The commenter indicates that he does not believe the 
exemption is in his best interest as grounds for his opposition. The 
commenter explains that he would prefer that Indianapolis Life's 
surplus remain with the insurer in order to make the policyholder's 
insurance contracts stronger.
    In response, Indianapolis Life disagrees with the commenter's 
position. As explained in the exemption application, Indianapolis Life 
emphasizes that the demutualization will not in any way reduce the 
benefits, values, guarantees, or dividend eligibility of existing 
policies or contracts that it has issued. Instead, the Restructuring 
will result in significant benefits to Indianapolis Life policyholders. 
In this regard, Indianapolis Life states that the

[[Page 22613]]

Restructuring is designed to enhance its financial strength in access 
to capital through an affiliation with AmerUs Group that will result in 
a larger combined organization. Moreover, Indianapolis Life explains 
that access to capital markets will enable it to invest in new 
technology, improve customer service, develop new products and channels 
of distribution, and obtain more financial flexibility with which to 
maintain its ratings and financial stability. Finally, Indianapolis 
Life explains that the combination with AmerUs Group will create an 
opportunity to leverage its corporate capacity and strength and reduce 
expenses through economies of scale.
    In addition, Indianapolis Life notes that, at the special 
policyholders meeting held earlier this week, over 96 percent of the 
policyholders who voted on the Restructuring voted to approve it. 
Because of the overwhelming policyholder vote and the reasons cited for 
the Restructuring, Indianapolis Life maintains that the view expressed 
by the commenter should not preclude the Department from granting the 
final exemption.
AmerUs Group's Comment
    In its comment, AmerUs Group notes that the proposed Restructuring 
will involve both the combination of Indianapolis Life and AmerUs Group 
and the sponsored demutualization of Indianapolis Life. At the time the 
demutualization consideration is provided to Indianapolis Life 
policyholders, AmerUs Group explains that Indianapolis Life will become 
a second tier subsidiary of AmerUs Group. For this reason, AmerUs Group 
states that it is important that the exemption cover AmerUs Group and 
its affiliates as well as Indianapolis Life and its affiliates. 
However, AmerUs Group notes that the proposed exemption has been issued 
only under the name of Indianapolis Life. Therefore, AmerUs Group 
requests that the final exemption be issued in the names of both 
entities and that the final exemption contain a statement to the effect 
that the exemption covers the affiliates of both entities.
    In response, the Department has modified the title of the exemption 
to include a reference to AmerUs Group to show that the exemption has 
been issued to AmerUs Group and Indianapolis Life, jointly. In 
addition, the Department has inserted a new footnote in the operative 
language which states that ``[f]or purposes of this exemption, all 
references to Indianapolis Life and its affiliates are deemed to 
include references to AmerUs Group and its affiliates.'' Further, the 
Department has revised Section III(a) of the final exemption by 
including a reference to AmerUs Group, the future parent of 
Indianapolis Life. Section III(a) of the final exemption now reads as 
follows:

    The term ``Indianapolis Life'' means Indianapolis Life Insurance 
Company and AmerUs Group Co., unless otherwise noted.

Indianapolis Life's Comments
    Indianapolis Life had three major comments to the proposed 
exemption and a couple of minor comments that were in the nature of 
technical clarifications designed to enhance the accuracy of the 
description of the subject transactions and update factual information.
    1. Definition of Indianapolis Life. Section III(a) of the proposed 
exemption defines ``Indianapolis Life'' to include ``any affiliate of 
Indianapolis Life, as defined in paragraph (b) of this Section III.'' 
Indianapolis Life requests that the reference to any affiliate be 
deleted from the definition and that the term ``affiliate'' as defined 
in paragraph (b) of Section III be added where needed throughout the 
exemption. Indianapolis Life notes that it is important to exclude 
affiliates from the definition of Indianapolis Life because the phrase 
``Indianapolis Life and its affiliates'' is referred to separately in 
the exemption application, and many of the provisions from the 
application have been incorporated into the exemption. By lumping 
Indianapolis Life and its affiliates together in one defined term 
changes the meanings of many of those provisions, according to 
Indianapolis Life and may lead to an incongruous result.\3\
---------------------------------------------------------------------------

    \3\ For example, Indianapolis Life refers to the definition of 
``Eligible Member'' in paragraph (d) of Section III. Without 
distinguishing between it and its affiliates, Indianapolis Life 
explains that this definition would incorrectly include persons with 
policies issued by the affiliates as members of Indianapolis Life. 
Policyholders of Indianapolis Life's affiliates are not members of 
Indianapolis Life, according to Indianapolis Life.
---------------------------------------------------------------------------

    In addition, Indianapolis Life notes that there are several other 
places in the proposed exemption where a distinction between 
Indianapolis Life and its affiliates is important. Rather than identify 
all of those places, Indianapolis Life would prefer to remove 
``affiliates'' from the definition of Indianapolis Life and refer 
separately to affiliates where needed in the proposed exemption. 
Indianapolis Life also explains that it conducted a word search through 
the proposed exemption and found only one instance where the term 
``affiliates'' had been inappropriately used. The sentence in question 
appears in the last sentence in the third paragraph of Representation 
23 of the proposed exemption in the Summary of Facts and 
Representations (the Summary). There, it is stated that ``U.S. Trust * 
* * derives less than one percent of its annual income from 
Indianapolis Life.'' Indianapolis Life believes that the sentence 
should be revised to state that ``U.S. Trust derives less than one 
percent of its annual income from Indianapolis Life and its 
affiliates.''
    In response to Indianapolis Life's comment, the Department has 
already revised Section III(a) of the final exemption (as shown above) 
by deleting the term ``affiliates'' and by including a reference to 
AmerUs Group. The Department also notes Indianapolis Life's revision to 
Representation 23 of the Summary.
    2. Standard of Commissioner's Review. Section II(b) of the proposed 
exemption recites the standard under which the Commissioner will review 
the Plan of Conversion under Indiana law. Indianapolis Life states that 
Indiana law requires the Commissioner to determine that the Plan of 
Conversion is not only fair and equitable but is ``reasonable'' to 
Eligible Members before approving the Plan of Conversion. Accordingly, 
Indianapolis Life requests that ``reasonable'' be added to the standard 
described in this subsection.
    In response to this comment, the Department has revised Section 
II(b) of the final exemption to read as follows:

    The Commissioner reviews the terms and options that are provided 
to Eligible Members as part of such Commissioner's review of the 
Plan of Conversion, and the Commissioner approves the Plan of 
Conversion following a determination that such Plan is fair, 
reasonable and equitable to Eligible Members.

    3. Time Frame for Distributing Notice to Interested Persons. In the 
section of the proposed exemption titled ``Notice to Interested 
Persons,'' Indianapolis Life suggests updating the paragraph contained 
therein to reflect that Indianapolis Life had provided interested 
persons with notice of the proposed exemption as well as to show the 
revised time frame for the comment period. Indianapolis Life states 
that it requested an 8 day extension of time to provide interested 
persons with notice of the proposed exemption in order to allow time 
for mailing its member information statement prior to the dissemination 
of the proposal. Indianapolis Life also notes that, at the Department's 
request, the extension of time was granted, provided an additional 3 
days were factored into the comment period to allow for mailing

[[Page 22614]]

time and to ensure that interested persons would have at least 30 days 
in which to comment. With the increased time, Indianapolis Life 
explains that comments to the proposed exemption were then due to the 
Department by March 21, 2001.
    4. Technical Corrections to Sections I-III of the Proposed 
Exemption. a. Section I. In the operative language of the proposed 
exemption, Section I states that AmerUs Group Co. is the parent of 
Indianapolis Life. However, Indianapolis Life explains that this entity 
will not become Indianapolis Life's parent until the effective date of 
Indianapolis Life's Restructuring. Also, in that same paragraph of the 
operative language, Indianapolis Life states that the reference to the 
term ``Eligible Member'' should refer to the definition of that term, 
as defined in Section III, because not all of Indianapolis Life's 
policyholders are Eligible Members of the insurer.
    In response to this comment, the Department has revised part of the 
operative language of the final exemption to read as follows:

    The restrictions of section 406(a) of the Act (or ERISA) 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 receipt of common stock (Common Stock) 
issued by AmerUs Group, which will become the parent of Indianapolis 
Life, or (2) the receipt of cash (Cash) or policy credits (Policy 
Credits), by or on behalf of a policyowner of Indianapolis Life who 
is an eligible member, as defined in Section III (the Eligible 
Member), which is an employee benefit Plan, including an employee 
benefit plan that is sponsored by Indianapolis Life and its 
affiliates for their own employees (the Indianapolis Life Plans; 
collectively, the Plans), in exchange for such Eligible Member's 
membership interest in Indianapolis Life, in accordance with the 
terms of a plan of conversion (the Plan of Conversion), implemented 
under Indiana law.

    b. Section II(e). Section II(e) of the proposed exemption states 
that after each Eligible Member entitled to receive shares of AmerUs 
Group Common Stock is allocated at least 12 shares, additional 
consideration will be allocated to Eligible Members owning 
participating policies based on actuarial formulas that take into 
account each participating policy's contribution to surplus and asset 
valuation reserve of Indianapolis Life, which formulas have been 
approved by the Commissioner.
    Indianapolis Life requests that Section II(e) be revised to reflect 
the language in the Plan of Conversion and to correspond more closely 
with language used later in the proposed exemption to describe the 
process for determining the amount of additional consideration, if any, 
an Eligible Member will receive after being allocated the fixed 
component of consideration.
    In response to this comment, the Department has revised Section 
II(e) of the final exemption to read as follows:

    After each Eligible Member entitled to receive shares of AmerUs 
Group Common Stock is allocated at least 12 shares, additional 
consideration is allocated to Eligible Members who own participating 
policies based on actuarial formulas that take into account the 
actuarial contribution, if any, that each Eligible Member's policy 
has made (and is expected to make) to Indianapolis Life's statutory 
surplus, which formulas are subject to review and approval by the 
Commissioner.

    c. Section II(f). Subparagraph 4 of Section II(f) of the proposed 
exemption states that U.S. Trust, will vote shares of AmerUs Group 
Common Stock that are held by the IL Group Term Life Insurance Plan and 
dispose of any stock held by this plan which exceeds the limitation of 
section 407(a)(2) of the Act as reasonably as practicable, but in no 
event later than six months after the effective date of the plan of 
Conversion. The last paragraph of Representation 23 of the Summary 
contains a similar provision.
    Indianapolis Life wishes to point out that U.S. Trust will vote all 
shares of AmerUs Group Common Stock that are held by any of the 
Indianapolis Life Plans and not just those held by the IL Group Term 
Life Insurance Plan. Therefore, the Department has revised subparagraph 
(4) of Section II(f) of the final exemption to read as follows:

    Votes shares of AmerUs Group Common Stock held by all 
Indianapolis Life Plans, including the IL Group Term Life Insurance 
Plan, and disposes of such stock held by the IL Group Term Life 
Insurance Plan exceeding the limitation of section 407(a)(2) of the 
Act as soon as reasonably practicable, but in no event later than 
six months after the effective date of the Plan of Conversion.

In addition, the Department notes a corresponding revision to the last 
paragraph of Representation 23 of the Summary.
    d. Section III(c). Section III(c) of the proposed exemption defines 
the term ``policy,'' to include, in part, a certificate issued under a 
group plan established as a convenience by Indianapolis Life to provide 
life insurance to self-employed agents and under which all premiums 
have been paid by such agents. At the Commissioner's request, 
Indianapolis Life states that the Plan of Conversion has been revised 
to delete the phrase ``and under which all premiums were paid by such 
agents'' from the description of the certificates. Therefore, in 
response to this comment, the Department has revised part of Section 
III(c) of the final exemption to read as follows:

* * * each certificate issued under the group plan established as a 
convenience by Indianapolis Life to provide life insurance to self-
employed agents.

    e. Section III(e). Section III(e) of the proposed exemption defines 
the term ``supplemental contract'' as a policy or contract that has 
been issued pursuant to a Plan participant. Indianapolis Life states 
that the definition of ``supplemental contract'' should only include 
contracts issued to Plan participants by Plans that are qualified under 
section 401(a) of the Code and do not include contracts issued by a 
Plan that is not qualified under Code section 401(a). Therefore, the 
Department has revised Section III(e) of the final exemption to read as 
follows:

    A ``supplemental contract'' is a policy or contract that has 
been issued pursuant to a Plan, qualified under section section 
401(a) of the Code, directly to a Plan participant.

    5. Technical Corrections to the Summary. The Department notes the 
following clarifications made to the Summary by Indianapolis Life:
    a. Representation 1. Representation 1 states that Indianapolis 
Life's rating by Fitch is ``AA'' whereas its correct rating is ``AA-.''
    b. Representation 3. In the first paragraph, Representation 3 
states that Indianapolis Life's principal products include individual 
retirement accounts. However, Indianapolis Life wishes to point out 
that such products include ``annuities'' rather than ``accounts'' 
covered under section 408 of the Code.
    c. Representation 4(a). Representation 4(a) sets forth the total 
assets of the Indianapolis Life Insurance Company Salary Reduction 
Plan, Plan No. 007. Indianapolis Life wishes to clarify that the asset 
and participants totals for this Plan were reported as of June 30, 2000 
rather than June 20, 2000.
    For further information regarding the comments and other matters 
discussed herein, interested persons are encouraged to obtain copies of 
the exemption application file (Exemption Application No. D-10930) the 
Department is maintaining in this case. The complete application file, 
as well as all supplemental submissions received by the Department, are 
made available for public inspection in the Public Documents Room of 
the Pension and Welfare Benefits Administration, Room N-1513, U.S. 
Department of Labor, 200

[[Page 22615]]

Constitution Avenue, N.W., Washington, D.C. 20210.
    Accordingly, after giving full consideration to the entire record, 
including the written comments, the Department has decided to grant the 
exemption subject to the modifications and clarifications described 
above.
For Further Information Contact
    Ms. Jan D. Broady of the Department, telephone (202) 219-8881. 
(This is not a toll-free number.)

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

[Prohibited Transaction Exemption 2001-18; Application No. D-10938]

Exemption

Section I. Transactions

    The restrictions of section 406(a) and 406(b) of the Act and the 
sanctions resulting from the application of section 4975 of the Code, 
by reason of section 4975(c)(1)(A) through (F) of the Code, shall not 
apply effective April 30, 2001 to (i) the acquisition of shares of one 
or more of the UAM Funds (Shares) by a Plan for which a Fund Adviser 
serves as investment manager, through the in-kind exchange of the 
Plan's assets held in one or more separate accounts (each, an Account) 
maintained by a Fund Adviser, and (ii) the redemption of Shares by a 
Plan for which a Fund Adviser serves as investment manager, through the 
in-kind exchange of assets from one or more UAM Funds to one or more 
Account(s), provided that the conditions set forth in Section II below 
are met.

Section II. Conditions

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

[[Page 22616]]

    (C) The identity of each pricing service or market-maker consulted 
in determining the current market price of such Transferable 
Securities.
    (ii) No later than 105 days after each in-kind transfer, a written 
confirmation which contains:
    (A) In the case of an in-kind acquisition, the number of Shares in 
the UAM Funds that are held by the Plan immediately following the 
acquisition, the related per-Share Net Asset Value, and the total 
dollar value of such Shares.
    (B) In the case of an in-kind redemption, the number of Shares in 
the UAM Funds that were held by the Plan immediately prior to the 
redemption, the related per-Share Net Asset Value, and the total dollar 
value of such Shares.
    (l) With respect to each of the UAM Funds in which a Plan continues 
to hold Shares acquired in connection with an in-kind acquisition, the 
Fund Adviser provides the Independent Fiduciary with:
    (i) A copy of an updated prospectus of such UAM Fund, at least 
annually; and
    (ii) Upon request of the Independent Fiduciary, a report or 
statement (which may take the form of the most recent financial report, 
the current statement of additional information, or some other 
statement) containing a description of all fees paid by the UAM Fund to 
the Fund Adviser.
    (m) The combined total of all fees received by the Fund Adviser for 
the provision of services to the Plan, and in connection with the 
provision of services to the UAM Funds in which the Plan holds shares 
purchased in connection with an in-kind exchange, is not in excess of 
``reasonable compensation'' within the meaning of section 408(b)(2) of 
the Act.
    (n) The Fund Adviser does not receive any fees payable pursuant to 
Rule 12b-1 under the 1940 Act in connection with the acquisition or 
redemption.
    (o) All other dealings between the Plan and the UAM Funds are on a 
basis no less favorable to the Plan than dealings between the UAM Funds 
and other shareholders holding the same Shares of the same class as the 
Plan.
    (p) The Fund Adviser maintains for a period of six years the 
records necessary to enable the persons described in paragraph (q) 
below to determine whether the conditions of this exemption have been 
met, except that (i) a prohibited transaction will not be considered to 
have occurred if, due to circumstances beyond the control of the Fund 
Adviser, the records are lost or destroyed prior to the end of the six-
year period, and (ii) no party in interest other than the Fund Adviser 
shall be subject to the civil penalty that may be assessed under 
section 502(i) of the Act or to the taxes imposed by section 4975(a) 
and (b) of the Code if the records are not maintained or are not 
available for examination as required by paragraph (q) below.
    (q) (1) Notwithstanding any provisions of section 504(a)(2) and (b) 
of the Act, the records referred to in paragraph (p) above are 
unconditionally available at their customary locations for examination 
during normal business hours by (i) any duly authorized employee or 
representative of the Department of Labor or the Internal Revenue 
Service; (ii) any fiduciary of the Plan who has authority to acquire or 
dispose of Shares of the UAM Funds owned by the Plan, or any duly 
authorized employee or representative of such fiduciary; and (iii) any 
participant or beneficiary of the Plan or duly authorized employee or 
representative of such participant or beneficiary.
    (2) None of the persons described in paragraph (q)(1)(ii) and (iii) 
above shall be authorized to examine trade secrets of the UAM Funds or 
the Fund Adviser, or commercial or financial information which is 
privileged or confidential.

Section III. Availability of Prohibited Transaction Exemption 77-4 (PTE 
77-4)

    Any in-kind acquisition of Shares of the UAM Funds that complies 
with the conditions of Section II of this exemption shall be treated as 
a ``purchase or sale'' of shares of a registered, open-end investment 
company for purposes of PTE 77-4, 42 FR 18732 (April 8, 1977), and 
shall be deemed to have satisfied paragraphs (a), (d) and (e) of 
section II of that exemption.

Section IV. Definitions

    For purposes of this 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:
    (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

[[Page 22617]]

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.
Effective Date
    This exemption is effective for transactions occurring on or after 
April 30, 2001.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on February 15, 2001 at 66 
FR 10529.
Modification
    The exemption as proposed contained no specific effective date. In 
this regard, the proposed exemption would have been effective as of the 
date the final exemption was granted and published in the Federal 
Register. However, after the exemption was proposed, the applicant 
requested that the final exemption be made effective as of April 30, 
2001, to cover certain transactions occurring on or after that date. 
Therefore, the final exemption has been modified accordingly.

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 to which the exemptions does not 
apply and the general fiduciary responsibility provisions of section 
404 of the Act, which among other things require a fiduciary to 
discharge his duties respecting the plan solely in the interest of the 
participants and beneficiaries of the plan and in a prudent fashion in 
accordance with section 404(a)(1)(B) of the Act; nor does it affect the 
requirement of section 401(a) of the Code that the plan must operate 
for the exclusive benefit of the employees of the employer maintaining 
the plan and their beneficiaries;
    (2) These exemptions are supplemental to and not in derogation of, 
any other provisions of the Act and/or the Code, including statutory or 
administrative exemptions and transactional rules. Furthermore, the 
fact that a transaction is subject to an administrative or statutory 
exemption is not dispositive of whether the transaction is in fact a 
prohibited transaction; and
    (3) The availability of these exemptions is subject to the express 
condition that the material facts and representations contained in each 
application accurately describes all material terms of the transaction 
which is the subject of the exemption.

    Signed at Washington, D.C., this 1st day of May, 2001.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 01-11305 Filed 5-3-01; 8:45 am]
BILLING CODE 4510-29-P