EBSA (Formerly PWBA) Federal Register Notice
Prohibited Transaction Exemption 2002-20; Grant of Individual Exemptions; Union Bank of California (UBOC [03/28/2002]
[PDF Version]
Volume 67, Number 60, Page 14986-14991
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Exemption Application No. D-10976]
Prohibited Transaction Exemption 2002-20; Grant of Individual
Exemptions; Union Bank of California (UBOC)
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Grant of individual exemption.
-----------------------------------------------------------------------
SUMMARY: This document contains an exemption 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).
A notice was published in the Federal Register of the pendency
before the Department of a proposal to grant such exemption. The notice
set forth a summary of facts and representations contained in the
application for exemption and referred interested persons to the
application for a complete statement of the facts and representations.
The application has been available for public inspection at the
Department in Washington, DC. The notice also invited interested
persons to submit comments on the requested exemption to the
Department. In addition the notice stated that any interested person
might submit a written request that a public hearing be held (where
appropriate). The applicant has represented that it has complied with
the requirements of the notification to interested persons. No requests
for a hearing were received by the Department. Public comments were
received by the Department as described in the granted exemption.
The notice of proposed exemption was issued and the exemption is
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.
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 exemption is administratively feasible;
(b) The exemption is in the interests of the plan and its
participants and beneficiaries; and
(c) The exemption is protective of the rights of the participants
and beneficiaries of the plan.
Union Bank of California (UBOC), Located in San Francisco,
California
[Prohibited Transaction Exemption 2002-20; Application No. D-10976]
Exemption
Section I--Retroactive and Prospective Exemption for In-Kind Redemption
of Assets
The restrictions of section 406(a) and 406(b) of ERISA 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, as of June 15, 2001, to certain in-kind redemptions (the
Redemptions) by the Union Bank of California Retirement Plan or any
other employee benefit plan sponsored by UBOC or an affiliate of UBOC
(an In-house Plan) of shares (the Shares) of proprietary mutual funds
(the Portfolios) offered by the HighMark Funds or other investment
companies (the Funds) for which HighMark Capital Management, Inc. or an
affiliate thereof (the Adviser) provides investment advisory and other
services, provided that the following conditions are met:
(A) The In-house Plan pays no sales commissions, redemption fees,
or other similar fees in connection with the Redemptions (other than
customary transfer charges paid to parties other than UBOC and
affiliates of UBOC (UBOC Affiliates));
(B) The assets transferred to the In-house Plan pursuant to the
Redemptions consist entirely of cash and Transferable Securities.
Notwithstanding the foregoing, Transferable Securities which are odd
lot securities, fractional shares and accruals on such securities may
be distributed in cash;
(C) With certain exceptions defined below, the In-house Plan
receives a pro rata portion of the securities of the
[[Page 14987]]
Portfolio upon a Redemption 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 and as of the close of business
on the same day in accordance with the procedures established by the
Funds pursuant to Rule 2a-4 under the Investment Company Act of 1940,
as amended from time to time (the 1940 Act), (using sources independent
of UBOC and UBOC Affiliates);
(D) UBOC, the Adviser, or any affiliate thereof, does not receive
any fees, including any fees payable pursuant to Rule 12b-1 under the
1940 Act in connection with any redemption of the Shares;
(E) Prior to a Redemption, UBOC provides in writing to an
independent fiduciary, as such term is defined in Section II (an
Independent Fiduciary), a full and detailed written disclosure of
information regarding the Redemption;
(F) Prior to a Redemption, the Independent Fiduciary provides
written approval for such Redemption to UBOC, such approval being
terminable at any time prior to the date of the Redemption without
penalty to the In-house Plan, and such termination being effectuated by
the close of business following the date of receipt by UBOC of written
or electronic notice regarding such termination (unless circumstances
beyond the control of UBOC delay termination for no more than one
additional business day);
(G) Before approving a Redemption, based on the disclosures
provided by the Portfolios to the Independent Fiduciary and discussions
with appropriate operational personnel of the In-house Plan, UBOC, and
the Adviser as necessary to form a basis for making the following
determinations, the Independent Fiduciary determines that the terms of
the Redemption are fair to the participants of the In-house Plan and
comparable to and no less favorable than terms obtainable at arms-
length between unaffiliated parties;
(H) Not later than thirty (30) business days after the completion
of a Redemption, UBOC or the relevant Fund provides to the Independent
Fiduciary a written confirmation regarding such Redemption containing:
(i) the number of Shares held by the In-house Plan immediately
before the Redemption (and the related per Share net asset value and
the total dollar value of the Shares held),
(ii) the identity (and related aggregate dollar value) of each
security provided to the In-house Plan pursuant to the Redemption,
including any security valued in accordance with the Funds' procedures
for obtaining current prices from independent market-makers,
(iii) the current market price of each security received by the In-
house Plan pursuant to the Redemption, and
(iv) the identity of each pricing service or market-maker consulted
in determining the value of such securities;
(I) The value of the securities received by the In-house Plan for
each redeemed Share equals the net asset value of such Share at the
time of the transaction, and such value equals the value that would
have been received by any other investor for shares of the same class
of the Portfolio at that time;
(J) Subsequent to a Redemption, the Independent Fiduciary performs
a post-transaction review which will include, among other things,
testing a sampling of material aspects of the Redemption deemed in its
judgment to be representative, including pricing. For Redemptions
occurring on June 15, 2001, the Independent Fiduciary's review included
testing a limited sampling of certain material aspects of the
Redemption deemed in its judgment to be representative;\1\
---------------------------------------------------------------------------
\1\ The reason for this difference is to conform to the language
used in the initial independent fiduciary agreement that U.S. Trust
and UBOC entered into with respect to the June 15, 2001
transactions.
---------------------------------------------------------------------------
(K) Each of the In-house Plan's dealings with: the Funds, the
Adviser, the principal underwriter for the Funds, or any affiliated
person thereof, are on a basis no less favorable to the In-house Plan
than dealings between the Funds and other shareholders holding shares
of the same class as the Shares;
(L) UBOC maintains, or causes to be maintained, for a period of six
years from the date of any covered transaction such records as are
necessary to enable the persons described in paragraph (M) 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 UBOC, the
records are lost or destroyed prior to the end of the six-year period,
(ii) no party in interest with respect to the In-house Plan other than
UBOC shall be subject to the civil penalty that may be assessed under
section 502(i) of the Act or to the taxes imposed by section 4975(a)
and (b) of the Code if such records are not maintained or are not
available for examination as required by paragraph (M) below.
(M)(1) Except as provided in subparagraph (2) of this paragraph
(M), and notwithstanding any provisions of section 504(a)(2) and (b) of
the Act, the records referred to in paragraph (L) 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, the Internal Revenue
Service, or the Securities and Exchange Commission, (ii) any fiduciary
of the In-house Plan or any duly authorized representative of such
fiduciary, (iii) any participant or beneficiary of the In-house Plan or
duly authorized representative of such participant or beneficiary, (iv)
any employer with respect to the In-house Plan, and (v) any employee
organization whose members are covered by such In-house Plan.
(2) None of the persons described in paragraphs (M)(1)(ii) through
(v) shall be authorized to examine trade secrets of UBOC, the Funds, or
the Adviser, or commercial or financial information which is privileged
or confidential.
(3) Should UBOC, the Funds, or the Adviser refuse to disclose
information on the basis that such information is exempt from
disclosure pursuant to paragraph (M)(2) above, UBOC, the Funds, or the
Adviser shall, by the close of the 30th day following the request,
provide a written notice advising that person of the reasons for the
refusal and that the Department may request such information.
Section II--Definitions
For purposes of this proposed exemption,
(A) The term ``affiliate'' means:
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with the person;
(2) Any officer, director, employee, relative, or partner in any
such person; and
(3) Any corporation or partnership of which such person is an
officer, director, partner, or employee.
(B) The term ``control'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.
(C) The term ``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 Portfolio's
prospectus and statement of additional information, and other assets
belonging to the Portfolio, less the liabilities charged to each such
Portfolio, by the number of outstanding shares.
(D) The term ``Independent Fiduciary'' means a fiduciary who is:
(i) Independent of and unrelated to UBOC
[[Page 14988]]
and its affiliates, and (ii) appointed to act on behalf of the In-house
Plan with respect to the in-kind transfer of assets from one or more
Portfolios to or for the benefit of the In-house Plan. For purposes of
this exemption, a fiduciary will not be deemed to be independent of and
unrelated to UBOC if: (i) Such fiduciary directly or indirectly
controls, is controlled by or is under common control with UBOC; (ii)
such fiduciary directly or indirectly receives any compensation or
other consideration in connection with any transaction described in
this exemption; (except that an Independent Fiduciary may receive
compensation from UBOC in connection with the transactions contemplated
herein if the amount or payment of such compensation is not contingent
upon or in any way affected by the Independent Fiduciary's ultimate
decision); and (iii) more than 1 percent (1%) of such fiduciary's gross
income, for federal income tax purposes, in its prior tax year, will be
paid by UBOC and its affiliates in the fiduciary's current tax year.
(E) The term Transferable Securities shall mean securities (1) for
which market quotations are readily available as determined pursuant to
procedures established by the Funds under Rule 2a-4 of the 1940 Act;
and (2) which are not: (i) Securities which may not be publicly offered
or sold without registration under the Securities Act of 1933; (ii)
securities issued by entities in countries which (a) restrict or
prohibit the holding of securities by non-nationals other than through
qualified investment vehicles, such as the Funds, or (b) permit
transfers of ownership of securities to be effected only by
transactions conducted on a local stock exchange; (iii) certain
portfolio positions (such as forward foreign currency contracts,
futures and options contracts, swap transactions, certificates of
deposit and repurchase agreements) that, although they may be liquid
and marketable, involve the assumption of contractual obligations,
require special trading facilities or can only be traded with the
counter-party to the transaction to effect a change in beneficial
ownership; (iv) cash equivalents (such as certificates of deposit,
commercial paper and repurchase agreements) and that of the high none
was the package together for this; and (v) other assets which are not
readily distributable (including receivables and prepaid expenses), net
of all liabilities (including accounts payable).
(F) The term ``relative'' means a ``relative'' as that term is
defined in section 3(15) of ERISA (or a ``member of the family,'' as
that term is defined in section 4975(e)(6) of the Code), or a brother,
sister, or a spouse of a brother or a sister.
Written Comments
The Department received three written comments with respect to the
proposed exemption. Two comments sought clarification as to the terms
of the proposed exemption, the remaining comment was submitted by UBOC.
In its letter, UBOC stated the following:
(1) Footnote 14 of the Summary of Facts and Representations states
that certain HighMark portfolios were redeemed on Dec. 14, 2001. The
correct date was Dec. 12, 2001.
(2) Footnote in 19 indicates that UBOC agreed to make a cash
payment sufficient to make the Retirement Plan whole with respect to
the in-kind redemption of shares from the HighMark International Fund.
As indicated its post transaction report dated January 25, 2002, U.S.
Trust concluded that, based on its analysis of data from the actual
transaction, the in-kind redemption was more favorable to the
Retirement Plan than a hypothetical redemption in cash. Therefore, UBOC
was not requested to, and did not, make a cash contribution to the
Retirement Plan in connection with this redemption.
Accordingly, after giving full consideration to the entire record,
including the written comment, the Department has decided to grant the
exemption subject to the clarifications described above.
For further information regarding the comment and other matters
discussed herein, interested persons are encouraged to obtain copies of
the exemption application file (Exemption Application No. D-10976) 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 Disclosure Room of
the Pension and Welfare Benefits Administration, Room N-1513, U.S.
Department Labor, 200 Constitution Avenue, NW., Washington, DC 20210.
FOR FURTHER INFORMATION CONTACT: Ms. Andrea W. Selvaggio of the
Department, telephone (202) 693-8547. (This is not a toll-free number.)
Pacific Investment Management Company LLC (PIMCO) Located in
Newport Beach, CA
[Prohibited Transaction Exemption 2002-21; Exemption Application No. D-
11005]
Exemption
Section I. Exemption for the Purchase of Fund Shares With Assets
Transferred in Kind From a Plan Account
The restrictions of section 406(a) and section 406(b) of the Act
and the sanctions resulting from the application of section 4975 of the
Code, by reason of section 4975(c)(1)(A) through (F) of the Code,\2\
shall not apply, effective February 5, 2002, to the purchase of shares
of one or more open-end management investment companies (the PIMCO
Mutual Funds) registered under the Investment Company Act of 1940 (the
ICA), to which PIMCO or any affiliate of PIMCO (the PIMCO Affiliate)
\3\ serves as investment adviser and may provide other services, by an
employee benefit plan (the Plan or Plans), whose assets are held by
PIMCO, as trustee, investment manager or discretionary fiduciary, in
exchange for securities held by the Plan in an account (the Account) or
sub-Account with PIMCO (the Purchase Transaction), provided that the
following conditions are met:
---------------------------------------------------------------------------
\2\ For purposes of this exemption, references to provisions of
Title I of the Act, unless otherwise specified, refer also to
corresponding provisions of the Code.
\3\ Unless otherwise noted, ``PIMCO'' refers to ``PIMCO'' and to
any ``PIMCO Affiliates'' and the term ``PIMCO Mutual Funds'' refers
to any registered investment funds that are managed or advised by
PIMCO or a PIMCO Affiliate.
---------------------------------------------------------------------------
(a) A fiduciary who is acting on behalf of each affected Plan and
who is independent of and unrelated to PIMCO, as defined in paragraph
(g) of Section III below (the Second Fiduciary), provides, prior to the
first Purchase Transaction, the written approval described in paragraph
(b) or (c) of this Section I, as applicable, following the disclosure
of written information concerning the PIMCO Mutual Funds, which
includes the following:
(1) A current prospectus or offering memorandum for each PIMCO
Mutual Fund which has been approved by the Second Fiduciary for that
Plan's Account;\4\
---------------------------------------------------------------------------
\4\ In the case of a private placement memorandum, such
memorandum must contain substantially the same information that
would be disclosed in a prospectus if the offering of the securities
were made in a registered public offering under the Securities
Exchange Act of 1933. In the Department's view, the private
placement memorandum must contain sufficient information to permit
Second Fiduciaries to make informed investment decisions.
---------------------------------------------------------------------------
[[Page 14989]]
(2) A statement describing the fees to be charged to, or paid by,
the Plan and the PIMCO Mutual Funds to PIMCO, including the nature and
extent of any differential between the rates of the fees paid by the
PIMCO Mutual Fund and the rates of the fees otherwise payable by the
Plan to PIMCO;
(3) A statement of the reasons why PIMCO considers Purchase
Transactions to be appropriate for the Plan;
(4) A statement on whether there are any limitations on PIMCO with
respect to which Plan assets may be invested in the PIMCO Funds, and if
so, the nature of such limitations;
(5) In the case of a Plan having total assets that are less than
$200 million, in connection with obtaining the advance written approval
described in paragraph (c)(2) of this Section I, the identity of all
securities that are deemed suitable by PIMCO for transfer to the PIMCO
Mutual Funds; and
(6) Upon such Second Fiduciary's request, copies of the proposed
and final exemptions pertaining to the exemptive relief provided herein
for Purchase Transactions occurring after the date of the final
exemption.
(b) On the basis of the foregoing information, in paragraph (a) of
this Section I, the Second Fiduciary of a Plan having total assets that
are at least $200 million, gives PIMCO a standing written approval
(subject to unilateral revocation by the Second Fiduciary at any time)
for --
(1) The Purchase Transactions, consistent with the
responsibilities, obligations, and duties imposed on fiduciaries by
Part 4 of Title I of the Act;
(2) The investment guidelines for the Account (the Strategy) and
the management, by PIMCO, of client Plan assets in separate Accounts in
the implementation of the Strategy;
(3) The investment of a certain portion (or portions) of the
Accounts in specified PIMCO Mutual Funds, as part of PIMCO's ongoing
implementation of the Strategy;
(4) The acquisition of shares of PIMCO Mutual Funds in cash or in
kind, from time to time; and
(5) The receipt of confirmation statements with respect to the
Purchase Transactions in the form of written reports to the Second
Fiduciary.
(c) On the basis of the foregoing information in paragraph (a) of
this Section I, the Second Fiduciary of a Plan having total assets that
are less than $200 million, gives PIMCO--
(1) A standing written approval (subject to unilateral revocation
by the Second Fiduciary at any time) for--
(i) The Strategy and the management, by PIMCO, of client Plan
assets in separate Accounts in the implementation of the Strategy;
(ii) The investment of a certain portion (or portions) of the
Accounts in specified PIMCO Mutual Funds, as part of PIMCO's ongoing
implementation of the Strategy; and
(iii) The acquisition of shares of PIMCO Mutual Funds in cash or in
kind, from time to time.
(2) Advance written approval for--
(i) Each Purchase Transaction, consistent with the
responsibilities, obligations and duties imposed on fiduciaries by Part
4 of Title I of the Act; and
(ii) The receipt of confirmation statements with respect to
Purchase Transactions in the form of written reports to the Second
Fiduciary.
(d) No sales commissions or other fees are paid by a Plan in
connection with a Purchase Transaction.
(e) All transferred assets are securities for which market
quotations are readily available.
(f) The transferred assets consist of assets transferred to the
Plan's Account at the direction of the Second Fiduciary, and any
securities which have been acquired through the investment and
reinvestment of such securities in the implementation of the Strategy.
(g) With respect to assets transferred in kind, each Plan receives
shares of a PIMCO Mutual Fund which have a total net asset value that
is equal to the value of the assets of the Plan exchanged for such
shares, based on the current market value of such assets at the close
of the business day on which such Purchase Transaction occurs, using
independent sources in accordance with the procedures set forth in Rule
17a-7b under the ICA (Rule 17a-7), as amended from time to time or any
successor rule, regulation or similar pronouncement, and the procedures
established by the PIMCO Mutual Funds pursuant to Rule 17a-7 for the
valuation of such assets. Such procedures must require that all
securities for which a current market price cannot be obtained by
reference to the last sale price for transactions reported on a
recognized securities exchange or NASDAQ be valued based on an average
of the highest current independent bid and lowest current independent
offer, as of the close of business on the day of the Purchase
Transaction determined on the basis of reasonable inquiry from at least
two sources that are market makers or pricing services independent of
PIMCO.
(h) PIMCO sends by regular mail, express mail or personal delivery
or, if applicable, by facsimile or electronic mail to the Second
Fiduciary of each Plan that engages in a Purchase Transaction, a report
containing the following information about each Purchase Transaction:
(1) A list (or lists, if there are multiple Purchase Transactions)
identifying each of the securities that has been valued for purposes of
the Purchase Transaction in accordance with Rule 17a-7(b)(4) of the
ICA;
(2) The current market price, as of the date of the Purchase
Transaction, of each of the securities involved in the Purchase
Transaction;
(3) The identity of each pricing service or market maker consulted
in determining the value of such securities;
(4) The aggregate dollar value of the securities held in the Plan
Account immediately before the Purchase Transaction; and
(5) The number of shares of the PIMCO Mutual Funds that are held by
the Account following the Purchase Transaction (and the related per
share net asset value and the aggregate dollar value of the shares
received) immediately following the Purchase Transaction.
(Such report is disseminated by PIMCO to the Second Fiduciary by
regular mail, express mail or personal delivery, or if applicable, by
facsimile or electronic mail, no later than 30 business days after the
Purchase Transaction.)
(i) With respect to each of the PIMCO Mutual Funds in which a Plan
continues to hold shares acquired in connection with a Purchase
Transaction, PIMCO provides the Second Fiduciary with--
(1) A copy of an updated prospectus or offering memorandum for such
PIMCO Mutual Fund, at least annually; and
(2) Upon request of the Second 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 PIMCO Mutual Fund to
PIMCO.
(j) As to each Plan, the combined total of all fees received by
PIMCO for the provision of services to the Plan, and in connection with
the provision of services to a PIMCO Mutual Fund in which the Plan
holds shares acquired in connection with a Purchase Transaction, is not
in excess of ``reasonable compensation'' within the meaning of section
408(b)(2) of the Act.
(k) All dealings in connection with a Purchase Transaction between
a Plan and a PIMCO Mutual Fund are on a basis no less favorable to the
Plan than dealings between the PIMCO Mutual Fund and other
shareholders.
[[Page 14990]]
(l) No Plan may enter into Purchase Transaction with the PIMCO
Mutual Funds prior to the date the proposed exemption is published in
the Federal Register.
(m) PIMCO maintains for a period of six years, in a manner that is
accessible for audit and examination, the records necessary to enable
the persons, as described in paragraph (n) of this Section I, 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 PIMCO, the
records are lost or destroyed prior to the end of the six year period;
and
(2) No party in interest, other than PIMCO, 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 (m) of this Section I.
(n)(1) Except as provided in paragraph (n)(2) of this Section I and
notwithstanding any provisions of subsections (a)(2) and (b) of section
504 of the Act, the records referred to in paragraph (m) of Section I
above are unconditionally available at their customary location for
examination during normal business hours by--
(A) Any duly authorized employee or representative of the
Department, the Internal Revenue Service, or the Securities and
Exchange Commission;
(B) Any fiduciary of each of the Plans who has authority to acquire
or dispose of shares of any of the PIMCO Mutual Funds owned by such a
Plan, or any duly authorized employee or representative of such
fiduciary; and
(C) Any participant or beneficiary of the Plans or duly authorized
employee or representative of such participant or beneficiary.
(2) None of the persons described in paragraph (n)(1)(B) or (C) of
this Section I shall be authorized to examine the trade secrets of
PIMCO or commercial or financial information which is privileged or
confidential.
Section II. Availability of Prohibited Transaction Exemption (PTE) 77-4
\5\
---------------------------------------------------------------------------
\5\ In relevant part, PTE 77-4 (42 FR 18732 (April 8, 1977)
permits the purchase and sale by an employee benefit plan of shares
of a registered open-end investment company when a fiduciary with
respect to such plan is also the investment adviser for the mutual
fund. Section II(a) of PTE 77-4 requires that a plan does not pay a
sales commission in connection with such purchase or sale. Section
II(d) describes the disclosures that are to be received by an
independent plan fiduciary. For example, the plan fiduciary must
receive a current prospectus for the mutual fund as well as full and
detailed written disclosure of the investment advisory and other
fees that are charged to or paid by the plan and the investment
company. Section II(e) requires that the independent plan fiduciary
approve purchases and sales of mutual fund shares on the basis of
the disclosures given.
---------------------------------------------------------------------------
Any purchase of PIMCO Mutual Fund shares by a Plan that complies
with the conditions of Section I of this proposed exemption shall be
treated as a ``purchase or sale'' of shares of an open-end investment
company for purposes of PTE 77-4 and shall be deemed to have satisfied
paragraphs (a), (d) and (e) of Section II of PTE 77-4.
Section III. Definitions
For purposes of this exemption,
(a) The term ``PIMCO'' means Pacific Investment Management Company
LLC, any successors thereto, and affiliates of PIMCO (as defined in
paragraph (b) of this Section III), including Nicholas-Applegate
Capital Management, PIMCO Equity Advisers, Cadence Capital Management,
NFJ Investment Group, Value Advisors LLC, Allianz of America, Inc.,
Pacific Specialty Markets LLC, PIMCO/Allianz International Advisors
LLC, OpCap Advisors and Oppenheimer Capital, and their existing and
future affiliates.
(b) An ``affiliate'' of a person includes:
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with the person;
(2) Any officer, director, employee, relative, or partner in any
such person; and
(3) Any corporation or partnership of which such person is an
officer, director, partner, or employee.
(c) The term ``control'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.
(d) The term ``PIMCO Mutual Fund'' or ``PIMCO Mutual Funds'' means
any open-end investment company or companies registered under the ICA
for which PIMCO serves as investment adviser, administrator, or
investment manager. The term is also meant to include a PIMCO Affiliate
Mutual Fund in which a PIMCO Affiliate serves as an investment adviser
or investment manager.
(e) The term ``net asset value'' means the amount for purposes of
pricing all purchases and redemptions calculated by dividing the value
of all securities, determined by a method as set forth in a PIMCO
Mutual Fund's prospectus and statement of additional information, and
other assets belonging to each of the portfolios in such PIMCO Mutual
Fund, less the liabilities charged to each portfolio, by the number of
outstanding shares.
(f) The term ``relative'' means a relative as that term is defined
in section 3(15) of the Act (or a ``member of the family'' as that term
is defined in section 4975(e)(6) of the Code), or a brother, a sister,
or a spouse of a brother or a sister.
(g) The term ``Second Fiduciary'' means a fiduciary of a plan who
is independent of and unrelated to PIMCO. For purposes of this
exemption, the Second Fiduciary will not be deemed to be independent of
and unrelated to PIMCO if--
(1) Such Second Fiduciary directly or indirectly controls, is
controlled by, or is under common control with PIMCO;
(2) Such Second Fiduciary, or any officer, director, partner,
employee, or relative of such Second Fiduciary is an officer, director,
partner, or employee of PIMCO (or is a relative of such persons); or
(3) Such Second Fiduciary directly or indirectly receives any
compensation or other consideration from PIMCO for his or her own
personal account in connection with any transaction described in this
proposed exemption.
If an officer, director, partner, or employee of PIMCO (or a
relative of such persons), is a director of such Second Fiduciary, and
if he or she abstains from participation in (A) the choice of the
Plan's investment manager/adviser; (B) the written authorization
provided to PIMCO for the Purchase Transactions; (C) the Plan's
decision to continue to hold or to redeem shares of the PIMCO Mutual
Funds held by such Plan; and (D) the approval of any change of fees
charged to or paid by the Plan, in connection with the transactions
described above in Section I, then paragraph (g)(2) of this Section
III, shall not apply.
(h) The term ``Strategy'' refers to the set of investment
guidelines that have been established in advance to govern the Account.
The Strategy is created by PIMCO in collaboration with the Second
Fiduciary of a client Plan and may be mutually amended, from time to
time.
EFFECTIVE DATE: This exemption is effective as of February 5, 2002.
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 5, 2002 at 67 FR
5307.
Written Comments
During the comment period, the Department received one written
[[Page 14991]]
comment with respect to the proposed exemption and no requests for a
public hearing. The comment letter was submitted by PIMCO and it
requests that certain clarifications be made to the proposal.
Discussed below are the revisions suggested by PIMCO and the
changes made by the Department to the final exemption in response to
the concerns expressed by PIMCO in its comment letter.
1. Name of Applicant. On page 5307 of the proposed exemption there
is a comma in the caption identifying PIMCO by its full name as the
applicant in this exemption request. Because PIMCO explains that there
is no comma in its full name, the Department has revised the caption in
the final exemption to read ``Pacific Investment Management Company LLC
(PIMCO).''
2. Timing of Disclosure Regarding Transferrable Securities. On page
5308 of the proposal, Section I(a)(5) requires that PIMCO disclose, to
a Second Fiduciary of a Plan having total assets that are less than
$200 million, all securities PIMCO deems suitable for transfer to the
PIMCO Mutual Funds. However, PIMCO wishes to clarify the timing of this
disclosure by adding the following italicized language to Section
I(a)(5):
In the case of a Plan having total assets that are less than
$200 million, in connection with obtaining the advance written
approval described in paragraph (c)(2) of this Section I, the
identity of all securities that are deemed suitable by PIMCO for
transfer to the PIMCO Mutual Funds.
In response to this comment, the Department has revised Section
I(a)(5) of the final exemption to reflect the change suggested by
PIMCO.
3. Transferred Assets and Ongoing Purchase Transactions. On page
5308 of the proposed exemption, Section I(f) states that the
transferred assets will consist of assets transferred to a Plan's
Account at the direction of the Second Fiduciary. Because the Purchase
Transactions under the exemption will be permitted on a recurring
basis, PIMCO wishes to clarify that securities that are transferred to
an Account by a Second Fiduciary, including those acquired through the
investment and reinvestment of such securities, may be used to purchase
additional shares, in-kind. Therefore, PIMCO suggests that the
following italicized language be added to Section I(f) of the final
exemption:
The transferred assets consist of securities transferred to the
Plan's Account at the direction of the Second Fiduciary, and any
securities which have been acquired through the investment and
reinvestment of such securities in the implementation of the
Strategy.
The Department has revised Section I(f) of the final exemption,
accordingly, in response to this comment.
4. No Minimum Plan Size. On page 5310 of the proposed exemption,
the last sentence in Representation 2 of the Summary states, in part,
that each Plan proposing to engage in Purchase Transactions must have
total assets of at least $100 million. PIMCO notes that although there
are different rules regarding disclosure and consent based on whether a
Plan has at least $200 million in assets, there is no minimum asset
size requirement for investing Plans. Therefore, PIMCO requests that
this sentence be stricken from Representation 2 and the Department
notes this revision in the final exemption.
Accordingly, after giving full consideration to the entire record,
including the written comment, the Department has decided to grant the
exemption subject to the clarifications described above. For further
information regarding the comment and other matters discussed herein,
interested persons are encouraged to obtain copies of the exemption
application file (Exemption Application No. D-11005) 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 Disclosure Room of the Pension and
Welfare Benefits Administration, Room N-1513, U.S. Department Labor,
200 Constitution Avenue, NW., Washington, DC 20210.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,
telephone (202) 693-8556. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions to which the exemption does not
apply and the general fiduciary responsibility provisions of section
404 of the Act, which among other things require a fiduciary to
discharge his duties respecting the plan solely in the interest of the
participants and beneficiaries of the plan and in a prudent fashion in
accordance with section 404(a)(1)(B) of the Act; nor does it affect the
requirement of section 401(a) of the Code that the plan must operate
for the exclusive benefit of the employees of the employer maintaining
the plan and their beneficiaries;
(2) This exemption is supplemental to and not in derogation of, any
other provisions of the Act and/or the Code, including statutory or
administrative exemptions and transactional rules. Furthermore, the
fact that a transaction is subject to an administrative or statutory
exemption is not dispositive of whether the transaction is in fact a
prohibited transaction; and
(3) The availability of this exemption is subject to the express
condition that the material facts and representations contained in the
application accurately describes all material terms of the transaction
which is the subject of the exemption.
Signed at Washington, DC, this 25th day of March, 2002.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 02-7519 Filed 3-27-02; 8:45 am]
BILLING CODE 4510-29-P