Grant of Individual Exemptions; Deutsche Bank AG (DB), Located in
Germany, with Affiliates in New York, New York and Other Locations; and
JPMorgan Chase Bank, Located in New York, New York; (collectively, with
their Affiliates, the Applicants)
[08/14/2003]
Volume 68, Number 157, Page 48637-48642
[[Page 48637]]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Prohibited Transaction Exemption 2003-24; Exemption Application No. D-
11004]
Grant of Individual Exemptions; Deutsche Bank AG (DB), Located in
Germany, with Affiliates in New York, New York and Other Locations; and
JPMorgan Chase Bank, Located in New York, New York; (collectively, with
their Affiliates, the Applicants)
AGENCY: Employee Benefits Security Administrator, Labor.
ACTION: Grant of individual exemption.
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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 applicant 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.
Deutsche Bank AG (DB), Located in Germany, with Affiliates in New York,
New York and Other Locations; and JPMorgan Chase Bank, Located in New
York, New York; (collectively, with their Affiliates, the Applicants)
[Prohibited Transaction Exemption 2003-24; Exemption Application
Nos. D-11004 and D-11106]
Exemption
Under the authority of section 408(a) of the Employees Retirement
Income Security Act of 1974 (the Act) and section 4975(c)(2) of the
Internal Revenue Code of 1986 (the Code) and in accordance with the
procedures set forth in 29 CFR part 2570, subpart B (55 FR 32,836,
32,847, August 10, 1990), the Department amends the following
individual prohibited transaction exemptions (PTEs) and authorization
made pursuant to PTE 96-62 (61 FR 39988, July 31, 1996--referred to
herein as ``EXPRO''): PTE 2000-25 (65 FR 35129, June 1, 2000), issued
to Morgan Guaranty Trust Company of New York and J.P. Morgan Investment
Management, Inc., and PTE 2000-27, issued to the Chase Manhattan Bank
(65 FR 35129, June 1, 2000), and Final Authorization Number (FAN) 2001-
19E, issued to DB and its Affiliates (June 23, 2001).\1\ Such PTEs and
EXPRO authorization are hereby replaced by the following exemption.
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\1\ See also PTE 2000-26 (65 FR 35129, June 1, 2000), issued to
Goldman, Sachs & Co., and its Affiliates; PTE 2000-28, (65 FR 35129,
June 1, 2000), issued to Citigroup, Inc. and its Affiliates; PTE
2000-29 (65 FR 35129, June 1, 2000), issued to Morgan Stanley Dean
Witter & Co. and its Affiliates; FAN 2001-24E (October 6, 2001),
issued to Barclays Global Investors N.A., Barclays Capital, Inc. and
their Affiliates; and FAN 2002-09E (September 14, 2002), issued to
The TCS Group, Inc., and its Affiliates. The Department will
separately consider similar amendments to those exemptions and
authorizations upon the receipt of applications or submissions
relating thereto from such entities.
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Section I--Transactions
The restrictions of section 406 of the Act and the sanctions
resulting from the application of section 4975 of the Code, by reason
of section 4975(c)(1) of the Code, shall not apply to the purchase of
any securities by the Asset Manager (as defined in Section II(a)) on
behalf of employee benefit plans (Client Plans), including Client Plans
investing in a pooled fund (Pooled Fund), for which the Asset Manager
acts as a fiduciary, from any person other than the Asset Manager or an
affiliate thereof, during the existence of an underwriting or selling
syndicate with respect to such securities, where the Affiliated Broker-
Dealer is a manager or member of such syndicate (an ``affiliated
underwriter transaction'' (AUT)), and/or where an Affiliated Trustee
serves as trustee of a trust that issued the securities (whether or not
debt securities) or serves as indenture trustee of securities that are
debt securities (an ``affiliated trustee transaction'' (ATT)), provided
that the following conditions are satisfied:
(a) The securities to be purchased are--
(1) either:
(i) Part of an issue registered under the Securities Act of 1933
(the 1933 Act) (15 U.S.C. 77a et seq.) or, if exempt from such
registration requirement, are (A) issued or guaranteed by the United
States or by any person controlled or supervised by and acting as an
instrumentality of the United States pursuant to authority granted by
the Congress of the United States, (B) issued by a bank, (C) exempt
from such registration requirement pursuant to a federal statute other
than the 1933 Act, or (D) are the subject of a distribution and are of
a class which is required to be registered under section 12 of the
Securities Exchange Act of 1934 (the 1934 Act) (15 U.S.C. 781), and the
issuer of which has been subject to the reporting requirements of
section 13 of that Act (15 U.S.C. 78m) for a period of at least 90 days
immediately preceding the sale of securities and has filed all reports
required to be filed thereunder with the Securities and Exchange
Commission (SEC) during the preceding 12 months; or
(ii) part of an issue that is an ``Eligible Rule 144A Offering,''
as defined in SEC Rule 10f-3 (17 CFR 270.10f-3(a)(4)). Where the
Eligible Rule 144A Offering is of equity securities, the offering
syndicate shall obtain a legal opinion regarding the adequacy of the
disclosure in the offering memorandum;
(2) purchased prior to the end of the first day on which any sales
are made, at a price that is not more than the price paid by each other
purchaser of securities in that offering or in any concurrent offering
of the securities, except that--
(i) If such securities are offered for subscription upon exercise
of rights, they may be purchased on or before the
[[Page 48638]]
fourth day preceding the day on which the rights offering terminates;
or
(ii) if such securities are debt securities, they may be purchased
at a price that is not more than the price paid by each other purchaser
of securities in that offering or in any concurrent offering of the
securities and may be purchased on a day subsequent to the end of the
first day on which any sales are made, provided that the interest rates
on comparable debt securities offered to the public subsequent to the
first day and prior to the purchase are less than the interest rate of
the debt securities being purchased; and
(3) offered pursuant to an underwriting or selling agreement under
which the members of the syndicate are committed to purchase all of the
securities being offered, except if--
(i) Such securities are purchased by others pursuant to a rights
offering; or
(ii) such securities are offered pursuant to an over-allotment
option.
(b) The issuer of such securities has been in continuous operation
for not less than three years, including the operation of any
predecessors, unless--
(1) Such securities are non-convertible debt securities rated in
one of the four highest rating categories by at least one nationally
recognized statistical rating organization, i.e., Standard & Poor's
Rating Services, Moody's Investors Service, Inc., Duff & Phelps Credit
Rating Co., or Fitch IBCA, Inc., or their successors (collectively, the
Rating Organizations); or
(2) such securities are issued or fully guaranteed by a person
described in paragraph (a)(1)(i)(A) of this exemption; or
(3) Such securities are fully guaranteed by a person who has issued
securities described in (a)(1)(i)(B), (C), or (D), and who has been in
continuous operation for not less than three years, including the
operation of any predecessors.
(c) The amount of such securities to be purchased by the Asset
Manager on behalf of a Client Plan does not exceed three percent of the
total amount of the securities being offered. Notwithstanding the
foregoing, the aggregate amount of any securities purchased with assets
of all Client Plans (including Polled Funds) managed by the Asset
Manager (or with respect to which the Asset Manager renders investment
advice within the meaning of 29 CFR 2510.3-21(c)) does not exceed:
(1) 10 percent of the total amount of any equity securities being
offered;
(2) 35 percent of the total amount of any debt securities being
offered that are rated in one of the four highest rating categories by
at least one of the Rating Organizations; or
(3) 25 percent of the total amount of any debt securities being
offered that are rated in the fifth or sixth highest rating categories
by at least one of the Rating Organizations; and
(4) if purchased in an Eligible Rule 144A Offering, the total
amount of the securities being offered for purposes of determining the
percentages for (1)-(3) above is the total of:
(i) The principal amount of the offering of such class sold by
underwriters or members of the selling syndicate to ``qualified
institutional buyers'' (QIBs), as defined in SEC Rule 144A (17 CFR
230.144A(a)(1)); plus
(ii) the principal amount of the offering of such class in any
concurrent public offering.
(d) The consideration to be paid by the Client Plan in purchasing
such securities does not exceed three percent of the fair market value
of the total net assets of the Client Plan, as of the last day of the
most recent fiscal quarter of the Client Plan prior to such
transaction.
(e) The transaction is not part of an agreement, arrangement, or
understanding designed to benefit the Asset Manager or an affiliate.
(f) If the transaction is an AUT, the Affiliated Broker-Dealer does
not receive, either directly, indirectly, or through designation, any
selling concession or other consideration that is based upon the amount
of securities purchased by Client Plans pursuant to this exemption. In
this regard, the Affiliated Broker-Dealer may not receive, either
directly or indirectly, any compensation that is attributable to the
fixed designations generated by purchases of securities by the Asset
Manager on behalf of its client Plans.
(g) If the transaction is an AUT,
(1) the amount the Affiliated Broker-Dealer receives in management,
underwriting or other compensation is not increased through an
agreement, arrangement, or understanding for the purpose of
compensating the Affiliated Broker-Dealer for foregoing any selling
concessions for those securities sold pursuant to this exemption.
Except as described above, nothing in this paragraph shall be construed
as precluding the Affiliated Broker-Dealer from receiving management
fees for serving as manager of the underwriting or selling syndicate,
underwriting fees for assuming the responsibilities of an underwriter
in the underwriting or selling syndicate, or other consideration that
is not based upon the amount of securities purchased by the Asset
Manager on behalf of Client Plans pursuant to this exemption; and
(2) the Affiliated Broker-Dealer shall provide to the Asset Manager
a written certification, signed by an officer of the Affiliated Broker-
Dealer, stating the amount that the Affiliated Broker-Dealer received
in compensation during the past quarter, in connection with any
offerings covered by this exemption, was not adjusted in a manner
inconsistent with Section I, paragraphs (e), (f), or (g), of this
exemption.
(h) In the case of a single Client Plan, the covered transaction is
performed under a written authorization executed in advance by an
independent fiduciary (Independent Fiduciary) of the Client Plan. In
the case of a single Client Plan on behalf of which an Independent
Fiduciary executed a written authorization in respect of AUTs, as
required under another prohibited transaction exemption covering the
same Asset Manager, prior to publication of this exemption in the
Federal Register, the written authorization requirement of this
paragraph (h) shall be deemed satisfied with respect to ATTs and AUTs
if the Asset Manager provides to the same Independent Fiduciary the
materials described in paragraph (i) below, together with a termination
form expressly providing an election for the Independent Fiduciary to
terminate the authorization with respect to AUTs or ATTs, or both, and
a statement to the effect that the Asset Manager proposes to engage in
ATTs on a specified date (that shall be not less than 45 days after the
notice is sent to the Independent Fiduciary) unless the Independent
Fiduciary signs and returns the termination form to the Asset Manager
prior to such date.
(i) Prior to the execution of the written authorization described
in paragraph (h) above, the following information and materials (which
may be provided electronically) must be provided by the Asset Manager
to the Independent Fiduciary of each single Client Plan:
(1) A copy of the notice of proposed exemption and of the final
exemption as published in the Federal Register; and
(2) any other reasonably available information regarding the
covered transactions that the Independent Fiduciary requests.
(j) Subsequent to an Independent Fiduciary's initial authorization
permitting the Asset Manager to engage in the covered transactions on
behalf of a single Client Plan, the Asset Manager will continue to be
subject to the requirement to provide any reasonably available
information regarding the
[[Page 48639]]
covered transactions that the Independent Fiduciary requests.
(k) In the case of existing plan investors in a Pooled Fund, such
Pooled Fund may not engage in any covered transactions pursuant to this
exemption, unless the Asset Manager has provided the written
information described below to the Independent Fiduciary of each plan
participating in the Pooled Fund. The following information and
materials (which may be provided electronically shall be provided not
less than 45 days prior to the Asset Manager's engaging in the covered
transactions on behalf of the Pooled Fund pursuant to the exemption:
(1) A notice of the Pooled Fund's intent to purchase securities
pursuant to this exemption and a copy of the notice of proposed
exemption and of the final exemption as published in the Federal
Register;
(2) any other reasonably available information regarding the
covered transactions that the Independent Fiduciary requests; and
(3) a termination form expressly provided an election for the
Independent Fiduciary to terminate the plan's investment in the Pooled
Fund without penalty to the plan. Such form shall include instructions
specifying how to use the form. Specifically, the instructions will
explain that the plan has an opportunity to withdraw its assets from
the Pooled Fund for a period at least 30 days after the plan's receipt
of the initial notice described in subparagraph (1) above and that the
failure of the Independent Fiduciary to return the termination form by
the specified date shall be deemed to be an approval by the plan of its
participation in covered transactions as a Pooled Fund investor.
Further, the instructions will identify the Asset Manager and its
Affiliated Broker-Dealer and/or Affiliated Trustee and state that this
exemption may be unavailable unless the Independent Fiduciary is, in
fact, independent of those persons. Such fiduciary must advise the
Asset Manager, in writing, if it is not an ``independent Fiduciary,''
as that term is defined in Section II(g) of this exemption.
For purposes of this paragraph, the requirement that the
authorizing fiduciary be independent of the Asset Manager shall not
apply in the case of an in-house plan sponsored by the Applicants or an
affiliate thereof. However, in-house plans must notify the Asset
Manager, as provided above.
(1) In the case of a plan whose assets are proposed to be invested
in a Pooled Fund subsequent to implementation of the procedures to
engage in the covered transactions, the plan's investment in the Pooled
Fund is subject to the prior written authorization of an Independent
Fiduciary, following the receipt by the Independent Fiduciary of the
materials described in subparagraphs (1) and (2) of paragraph (k). For
purposes of this paragraph, the requirement that the authorizing
fiduciary be independent of the Asset Manager shall not apply in the
case of an in-house plan sponsored by the Applicants or an affiliate
thereof.
(m) Subsequent to an Independent Fiduciary's initial authorization
of a plan's investment in a Pooled Fund that engages in the covered
transactions, the Asset Manager will continue to be subject to the
requirement to provide any reasonably available information regarding
the covered transactions that the Independent Fiduciary requests.
(n) At least once every three months, and not later than 45 days
following the period to which such information relates, the Asset
Manager shall:
(1) Furnish the Independent Fiduciary of each single Client Plan,
and of each plan investing in a Pooled Fund, with a report (which may
be provided electronically) disclosing all securities purchased on
behalf of that Client Plan or Pooled Fund pursuant to the exemption
during the period to which such report relates, and the terms of the
transactions, including:
(i) The type of security (including the rating of any debt
security);
(ii) the price at which the securities were purchased;
(iii) the first day on which any sale was made during this
offering;
(iv) the size of the issue;
(v) the number of securities purchased by the Asset Manager for the
specific Client Plan or Pooled Fund;
(vi) the identity of the underwriter from whom the securities were
purchased;
(vii) in the case of an AUT, the spread on the underwriting;
(viii) in the case of an ATT, the basis upon which the Affiliated
Trustee is compensated;
(ix) the price at which any such securities purchased during the
period were sold; and
(x) the market value at the end of such period of each security
purchased during the period and not sold;
(2) provide to the Independent Fiduciary in the quarterly report
(i) in the case of AUTs, a representation that the Asset Manager has
received a written certification signed by an officer of the Affiliated
Broker-Dealer, as described in paragraph (g)(2), affirming that, as to
each AUT covered by this exemption during the past quarter, the
Affiliated Broker-Dealer acted in compliance with Section I, paragraphs
(e), (f), and (g) of this exemption, and that copies of such
certifications will be provided to the Independent Fiduciary upon
request, and (ii) in the case of ATTs, a representation of the Asset
Manager affirming that, as to each ATT, the transaction was not part of
an agreement, arrangement or understanding designed to benefit the
Affiliated Trustee;
(3) disclose to the Independent Fiduciary that, upon request, any
other reasonably available information regarding the covered
transaction that the Independent Fiduciary requests will be provided,
including, but not limited to:
(i) The date on which the security were purchased on behalf of the
plan;
(ii) the percentage of the offering purchased on behalf of all
Client Plans and Pooled Funds; and
(iii) the identify of all members of the underwriting syndicate;
(4) disclose to the Independent Fiduciary in the quarterly report,
any instance during the past quarter where the Asset Manager was
precluded for any period of time from selling a security purchased
under this exemption in that quarter because of its status as an
affiliate of the Affiliated Broker-Dealer or of an Affiliated Trustee
and the reason for this restriction;
(5) provide explicit notification, prominently displayed in each
quarterly report, to the Independent Fiduciary of a single Client Plan,
that the authorization to engage in the covered transaction may be
terminated, without penalty, by the Independent Fiduciary on more than
five days' notice by contacting an identified person; and
(6) provide explicit notification, prominently displayed in each
quarterly report, to the Independent Fiduciary of a Client Plan
invested in a Pooled Fund, that the Independent Fiduciary may terminate
investment in the Pooled Fund, without penalty, by contacting an
identified person.
(o) Each single Client Plan shall have total net assets with a
value of at least $50 million. In addition, in the case of a
transaction involving an Eligible Rule 144A Offering on behalf of a
single Client Plan, each such Client Plan shall have at least $100
million in securities, as determined pursuant to SEC Rule 144A (17 CFR
230.144A).\2\ In the case of
[[Page 48640]]
a Pooled Fund, the $50 million requirement will be met if 50 percent or
more of the units of beneficial interest in such Pooled Fund as held by
plans having total net assets with a value of at least $50 million, or
if each such Client Plan in the Pooled Fund has total assets of at
least $50 million. For purchases involving an Eligible Rule 144A
Offering on behalf of a Pooled Fund, the $100 million requirement will
be met if 50 percent or more of the units of beneficial interest in
such Pooled Fund are held by plans having at least $100 million in
assets, or if each such Client Plan in the Pooled fund has total assets
of at least $100 million, and the Pooled Fund itself qualifies as a
QIB, as determined pursuant to SEC Rule 144A (17 CFR 230.144A(a)(F)).
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\2\ SEC Rule 10f-3(a)(4), 17 CFR 270.10f-3(a)(4), states that
the term ``Eligible Rule 144A Offering'' means an offering of
securities that meets the following conditions:
(i) The securities are offered or sold in transactions exempt
from registration under section 4(2) of the Securities Act of 1933
[15 U.S.C. 77d(d)], rule 144A thereunder 230.144A of this chapter],
or rules 501-508 thereunder [Sec. Sec. 230.501-230-508 of this
chapter];
(ii) The securities are sold to persons that the seller and any
person acting on behalf of the seller reasonably believe to include
qualified institutional buyers, as defined in Sec. 230.144A(a)(1)
of this chapter; and
(iii) The seller and any person acting on behalf of the seller
reasonably believe that the securities are eligible for resale to
other qualified institutional buyers pursuant to Sec. 230.144A of
this chapter.
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For purposes of the net assets tests described above, where a group
of Client Plans is maintained by a single employer or controlled groups
of employers, as defined in section 407(d)(7) of the Act, the $50
million net asset requirement or the $100 million net asset requirement
may be met by aggregating the assets of such Client Plans, if the
assets are pooled for investment purposes in a single master trust.
(p) The Asset Manager qualifies as a ``qualified professional asset
manager'' (QPAM), as that term is defined under Part V(a) of Prohibited
Transaction Exemption 84-14 (49 FR 9494, 9506, March 13, 1984) and, in
addition, has, as of the last day of its most recent fiscal year, total
client assets under its management and control in excess of $5 billion
and shareholders' or partners' equity in excess of $1 million.
(q) No more than 20 percent of the assets of a Pooled Fund, at the
time of a covered transaction, are comprised of assets of employee
benefit plans maintained by the Asset Manager, the Affiliated Broker-
Dealer, the Affiliated Trustee or an affiliate thereof for their own
employees, for which the Asset Manager, the Affiliated Broker-Dealer,
or an affiliate exercises investment discretion.
(r) The Asset Manager, and the Affiliated Broker-Dealer, as
applicable, maintain, or cause 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 (s) of this
exemption to determine whether the conditions of this exemption have
been met, except that--
(1) No party in interest with respect to a Client Plan, other than
the Asset Manager and the Affiliated Broker-Dealer or Affiliated
Trustee, as applicable, shall be subject to a civil penalty under
section 502(i) of the Act or the taxes imposed by section 4975(a) and
(b) of the Code, if such records are not maintained, or not available
for examination, as required by paragraph (s); and
(2) this record-keeping condition shall not be deemed to have been
violated if, due to circumstances beyond the control of the Asset
Manager or the Affiliated Broker-Dealer, or Affiliated Trustee, as
applicable, such records are lost or destroyed prior to the end of the
six-year period.
(s) (1) Except as provided in subparagraph (2) of this paragraph
(s) and notwithstanding any provisions of subsections (a)(2) and (b) of
section 504 of the Act, the records referred to in paragraph (r) are
unconditionally available at their customary location for examination
during normal business hours by)--
(1) Any duly authorized employee or representative of the
Department, the Internal Revenue Service, or the SEC; or
(ii) any fiduciary of a Client Plan, or any duly authorized
employee or representative of such fiduciary; or
(iii) any employer of participants and beneficiaries and any
employee organizations whose members are covered by a Client Plan, or
any authorized employee or representative of these entities; or
(iv) any participant or beneficiary of a Client Plan, or duly
authorized employee or representative of such participant or
beneficiary;
(2) none of the persons described in paragraphs (s)(1)(ii)-(iv)
shall be authorized to examine trade secrets of the Asset Manager or
the Affiliated Broker-Dealer or the Affiliated Trustee, or commercial
or financial information which is privileged or confidential; and
(3) should the Asset Manager or the Affiliated Broker-Dealer or the
Affiliated Trustee refuse to disclose information on the basis that
such information is exempt from disclosure pursuant to paragraph (s)(2)
above, the Asset Manager shall, by the close of the thirtieth (30th)
day following the request, provide a written notice advising that
person of the reasons for the refusal and that the Department may
request such information.
(t) An indenture trustee whose affiliate has, within the prior 12
months, underwritten any securities for an obligor of the indenture
securities will resign as indenture trustee if a default occurs upon
the indenture securities.
Section II--Definitions
(a) The term ``Asset Manager'' means any asset management affiliate
of the Applicants (as ``affiliate'' is defined in paragraph (c)) that
meets the requirements of this exemption.
(b) The term ``Affiliated Broker-Dealer'' means any broker-dealer
affiliate of the Applicants (as ``affiliate'' is defined in paragraph
(c)) that meets the requirements of this exemption. Such Affiliated
Broker-Dealer may participate in an underwriting or selling syndicate
as a manager or member. The term ``manager'' means any member of an
underwriting or selling syndicate who, either alone or together with
other members of the syndicate, is authorized to act on behalf of the
members of the syndicate in connection with the sale and distribution
of the securities being offered, or who receives compensation from the
members of the syndicate for its services as a manager of the
syndicate.
(c) The term ``affiliate'' of a person includes:
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with such person;
(2) any officer, director, partner, employee, or relative (as
defined in section 3(15) of the Act) of such person; and
(3) any corporation or partnership of which such person is an
officer, director, partner, or employee.
(d) The term ``control'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.
(e) The term ``Client Plan'' means an employee benefit plan that is
subject to the fiduciary responsibility provisions of the Act and whose
assets under the management of the Asset Manager, including a plan
investing in a Pooled Fund (as ``Pooled Fund'' is defined in paragraph
(f) below).
(f) The term ``Pooled Fund'' means a common or collective trust
fund or pooled investment fund maintained by the Asset Manager.
(g)(1) The term ``Independent Fiduciary'' means fiduciary of a
Client Plan who is unrelated to, and independent of, the Asset Manager,
the Affiliated Broker-Dealer and the Affiliated Trustee. For purposes
of this exemption, a Client Plan fiduciary will
[[Page 48641]]
be deemed to be unrelated to, and independent of, the Asset Manager,
the Affiliated Broker-Dealer and the Affiliated Trustee if such
fiduciary represents that neither such fiduciary, nor any individual
responsible for the decision to authorize or terminate authorization
for transactions described in Section I, is an officer, director, or
highly compensated employee (within the meaning of section
4975(e)(2)(H) of the Code) of the Asset Manager, the Affiliated Broker-
Dealer or the Affiliated Trustee and represents that such fiduciary
shall advise the Asset Manager if those facts change.
(2) Notwithstanding anything to the contrary in this Section II(g),
a fiduciary is not independent if:
(i) Such fiduciary directly or indirectly controls, is controlled
by, or is under common control with the Asset Manager, the Affiliated
Broker-Dealer or the Affiliated Trustee;
(ii) such fiduciary directly or indirectly receives any
compensation or other consideration from the Asset Manager, the
Affiliated Broker-Dealer or the Affiliated Trustee for his or her own
personal account in connection with any transaction described in this
exemption;
(iii) any officer, director, or highly compensated employee (within
the meaning of section 4975(e)(2)(H) of the Code) of the Asset Manager,
responsible for the transactions described in Section I, is an officer,
director, or highly compensated employee (within the meaning of section
4975(e)(2)(H) of the Code) of the Client Plan sponsor or of the
fiduciary responsible for the decision to authorize or terminate
authorization for transactions described in Section I. However, if such
individual is a director of the Client Plan sponsor or of the
responsible fiduciary, and if he or she abstains from participation in
(A) the choice of the Plan's investment manager/adviser and (B) the
decision to authorize or terminate authorization for transactions
described in Section I, then Section II(g)(2)(iii) shall not apply.
(3) The term ``officer'' means a president, any vice president in
charge of a principal business unit, division or function (such as
sales, administration or finance), or any other officer who performs a
policy-making function for the entity.
(4) In the case of existing Client Plans in a Pooled Fund, at the
time the Asset Manager provides such Client Plans with initial notice
pursuant to this exemption, the Asset Manager will notify the
fiduciaries of such Client Plans that they must advise the Asset
Manager, in writing, if they are not independent, within the meaning of
this Section II(g).
(h) The term ``security'' shall have the same meaning as defined in
section 2(36) of the Investment Company Act of 1940 (the 1940 Act), as
amended (15 U.S.C. 80a-2(36) (1996)). For purposes of this exemption,
mortgage-backed or other asset-baked securities rated by a Rating
Organization will be treated as debt securities.
(i) The term ``Eligible Rule 144A Offering'' shall have the same
meaning as defined in SEC Rule 10f-3(a)(4) (17 CFR 270.10f-3(a)(4))
under the 1940 Act.
(j) The term ``qualified institutional buyer'' or ``QIB'' shall
have the same meaning as defined in SEC Rule 144A (17 CFR
230.144A(a)(1)) under the 1933 Act.
(k) The term ``Rating Organizations'' means Standard & Poor's
Rating Services, Moody's Investors Service, Inc., Duff & Phelps Credit
Rating Co., or Fitch IBCA, Inc., or their successors.
(l) The term ``Affiliated Trustee'' means the Applicants and any
bank or trust company affiliate of the Applicants (as ``affiliate'' is
defined in paragraph (c)(1)) that serves as trustee of a trust that
issues securities which are asset-backed securities or as indenture
trustee of securities which are either asset-backed securities or other
debt securities that meet the requirements of this exemption. For
purposes of this exemption, other than Section I (t), performing
services as custodian, paying agent, registrar or in similar
ministerial capacities is also considered serving as trustee or
indenture trustee.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption,
interested persons should refer to the notice of proposed exemption
published on May 22, 2003 at 68 FR 28018.
Written Comments: The only comments received by the Department with
respect to the notice of proposed exemption (the Notice) were submitted
by the Applicants.
With respect to section I(h), JP Morgan Chase Bank commented that
pursuant to the prior exemptions that are being amended herein (i.e.,
PTE 2000-25 and PTE 2000-27), it had previously solicited written
authorization to engage in AUTs from many of its Client Plans. Because
the transactions provided for in the Notice are substantially similar
to those for which JP Morgan Chase Bank has already given notice and
obtained written consent, because the seeking of written consent is
costly and time-consuming, and because, in the Applicants' view, the
fact that the trustee is affiliated with the Asset Manager (i.e., an
ATT) is of far less consequence than where an Affiliate is a manager of
the underwriting syndicate (i.e., an AUT), the Applicants have
requested that where they already have the written consent of a Client
Plan for AUTs, they need only provide written notice and a termination
form, terminating authorization for the additional ATT relief. The
Department has accepted this comment \3\ and has modified section I(h)
of this exemption accordingly.
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\3\ The Department encourages all appropriate Client Plan
fiduciaries to review the disclosures required herein and take
whatever actions are necessary to protect the interests of the
Client Plan's participants and beneficiaries. In addition, the
Department notes that Client Plan fiduciaries should assess, in a
timely fashion, their ability to monitor and subject transactions
and determine whether the conditions described herein are satisfied.
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In addition, the Applicants requested a clarification with respect
to section I(o) of the Notice. Section I(o) of the Notice requires, in
pertinent part, that each single Client Plan shall have total net
assets with a value of at least $50 million. In the case of a Pooled
Fund, such $50 million requirement will be deemed met if 50 percent or
more of the units of beneficial interest in such Pooled Fund are held
by plans having total net assets with a value of at least $50 million.
The Applicants commented that the ``$50/$100 million'' test of that
section seems to contemplate ``Pooled Funds'' composed mostly or
entirely of investments by plans. However, the Applicant state that
this is not always the case with their Pooled Funds. The Applicants
represent that they and many managers advise or manage commingled
vehicles which have sufficient investments from plans (25% or more) for
the vehicle to be a ``look-through vehicle'' under the Plan Asset
Regulations,\4\ but also have more than 50% of their investments from
non-plan investors. The Applicants note that it is possible to read the
$50/$100 million test as causing the exemptions proposed in the Notice
to be unavailable to a Pooled Fund where, for example, 49% of
investments are from plans which are $50/$100 million in size, and 51%
of investments are from non-plans which are $50/$100 million in size.
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\4\ See the Department's regulation at 29 CFR part 2510.3-101,
Definition of ``plan assets''--plan investments.
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The Applicants request that the Department clarify that the
exemptions, as amended herein, will apply to activity by Pooled Funds
if each plan in the Pooled Fund meets the general requirement of $50/
$100 million, even if
[[Page 48642]]
the Pooled Fund itself technically cannot satisfy the requirement that
at least 50% of the units of beneficial interest in the Pooled Fund be
held by plans having total net assets with a value of at least $50
million.
The Department accepts this comment and has modified the language
of section I(o) of the exemption to clarify that the requirements
therein are satisfied if each plan in the Pooled Fund meets the general
requirement of $50/$100 million, even though 50 percent or more of the
units of beneficial interest in such Pooled Fund are not held by plans.
Accordingly, in consideration of the entire record, including the
comments submitted by the Applicants, the Department has determined to
grant the exemption as proposed, with the modifications and
clarifications described herein.
For Further Information Contact: Gary Lefkowitz of the Department,
telephone (202 693-8546. (This is not a total-free number).
IBEW Local No. 1 Health and Welfare Fund (the Welfare Fund) and IBEW
Local No. 1 Apprenticeship and Training Fund (the Training Fund;
collectively, the Funds) Located in St. Louis, MO
[Prohibited Transaction Exemption 2003-25; Exemption Application
Nos. L-11155 and L-11156, respectively]
Exemption
The restrictions of section 406(a) of the Act shall not apply to
the lease of certain classroom space and supplemental facilities (the
Lease) by the Welfare Fund to the Training Fund.
The exemption is subject to the following conditions:
(1) The terms of the Lease are at least favorable to the Welfare
Fund and the Training Fund as those obtainable in an arm's length
transaction with an unrelated party.
(2) Qualified, independent appraisers have determined the initial
amount of the Lease payments.
(3) A qualified, independent fiduciary, The Philip Company, has
approved the Lease and has agreed to monitor the terms of the
exemption, at all times, on behalf of the Welfare Fund.
(4) The independent fiduciary agrees to take whatever actions are
necessary and proper to enforce the Welfare Fund's rights under the
Lease and to protect the participants and beneficiaries of the Welfare
Fund.
(5) The rental payments under the Lease are adjusted once every
five years by the independent fiduciary to ensure that such Lease
payments are not greater than or less than the fair market rental value
of the leased space.
(6) The fair market rental amount for the leased space, at no time,
will exceed 25 percent of the assets of either Fund, including any
improvements that are constructed thereon.
(7) The independent fiduciary and the Board of Trustees of the
Welfare Fund have determined that the Lease is an appropriate
investment for the Welfare Fund and is in the best interest of the
Welfare Fund's participants and beneficiaries.
(8) The Board of Trustees of the Training Fund has determined that
the Lease transaction is an appropriate investment for the Training
Fund and is in the best interest of the Training Fund's participants
and beneficiaries.
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 May 22, 2003 at 68 FR
28026.
For Further information Contact: Ms. Silvia M. Quezada of the
Department, telephone (202) 693-8553. (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 11th day of August 2003.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, Department of Labor.
[FR Doc. 03-20765 Filed 8-13-03; 8:45 am]
BILLING CODE 4510-29-M
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