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Secretary of Labor Thomas E. Perez
Grant of Individual Exemptions; PaineWebber Incorporated [Notices] [07/31/1996]

EBSA (Formerly PWBA) Federal Register Notice

Grant of Individual Exemptions; PaineWebber Incorporated [07/31/1996]

[PDF Version]

Volume 61, Number 148, Page 40000-40005

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DEPARTMENT OF LABOR
[Prohibited Transaction Exemption 96-59; Exemption Application No. D-
09818, et al.]

 
Grant of Individual Exemptions; PaineWebber Incorporated

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 (43 FR 
47713, October 17, 1978) 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 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.

PaineWebber Incorporated (PaineWebber), Located in New York, NY

[Prohibited Transaction Exemption 96-59; Exemption Application No. D-
09818]

EXEMPTION

Section I. Covered Transactions
    The restrictions of section 406(a) of the Act and the sanctions 
resulting from the application of section 4975 of the Code, by reason 
of section 4975(c)(1)(A) through (D) of the Code, shall not apply, 
effective August 18, 1995, to the purchase or redemption of shares by 
an employee benefit plan, a plan described in section 403(b) of the 
Code (the Section 403(b) Plan), an individual retirement account (the 
IRA) or a retirement plan for a self-employed individual (the Keogh 
Plan) (collectively referred to herein as the Plans) in the PaineWebber 
Managed Accounts Services Portfolio Trust (the Trust) established in 
connection with such Plans' participation in the PaineWebber PACE 
Program (the PACE Program).
    In addition, the restrictions of 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)(E) and (F) of the Code, shall not 
apply, effective August 18, 1995, to (a) the provision, by PaineWebber 
Managed Accounts Services (PMAS), a division of PaineWebber, of asset 
allocation and related services to an independent fiduciary of a Plan 
(the Independent Fiduciary) or to a directing participant (the 
Directing Participant) in a Plan that is covered under and permits 
participant selection as contemplated by the provisions of section 
404(c) of the Act (the Section 404(c) Plan), which may result in the 
selection by the Independent Fiduciary or the Directing Participant of 
portfolios of the Trust (the Portfolios) in the PACE Program for the 
investment of Plan assets; and (b) the provision of investment 
management services by Mitchell Hutchins Asset Management, Inc. 
(Mitchell Hutchins) to the PACE Money Market Investments Portfolio of 
the Trust.
    This exemption is subject to the conditions set forth below in 
Section II.
Section II. General Conditions
    (a) The participation of each Plan in the PACE Program is approved 
by an Independent Fiduciary or, if applicable, Directing Participant.
    (b) As to each Plan, the total fees paid to PMAS and its affiliates 
constitute no more than reasonable compensation and do not include the 
receipt of fees pursuant to Rule 12b-1 under the Investment Company Act 
of 1940 (the '40 Act) by PMAS and its affiliates in connection with the 
transactions.
    (c) No Plan pays a fee or commission by reason of the acquisition 
or redemption of shares in the Trust.
    (d) The terms of each purchase or redemption of Trust shares remain 
at least as favorable to an investing Plan as those obtainable in an 
arm's length transaction with an unrelated party.
    (e) PMAS provides written documentation to an Independent Fiduciary 
or a Directing Participant of its recommendations or evaluations based 
upon objective criteria.
    (f) Any recommendation or evaluation made by PMAS to an Independent 
Fiduciary or Directing Participant is implemented only at the express 
direction of such fiduciary or participant.
    (g) PMAS provides investment advice in writing to an Independent 
Fiduciary or Directing Participant with respect to

[[Page 40001]]

all Portfolios made available under the Plan.
    (h) With the exception of the PACE Money Market Investments 
Portfolio, any sub-adviser (the Sub-Adviser) appointed by Mitchell 
Hutchins to exercise investment discretion with respect to a Portfolio 
is independent of PaineWebber and its affiliates.
    (i) The quarterly fee that is paid by a Plan to PMAS for asset 
allocation and related services rendered to such Plan under the PACE 
Program (i.e., the outside fee) is offset by such amount as is 
necessary to assure that Mitchell Hutchins retains 20 basis points as a 
management fee from any Portfolio (with the exception of the PACE Money 
Market Investments Portfolio from which Mitchell Hutchins retains an 
investment management fee of 15 basis points) containing investments 
attributable to the Plan investor. However, the quarterly fee of 20 
basis points that is paid to Mitchell Hutchins for administrative 
services is retained by Mitchell Hutchins and is not offset against the 
outside fee.
    (j) With respect to its participation in the PACE Program prior to 
purchasing Trust shares,
    (1) Each Independent Fiduciary receives the following written or 
oral disclosures from PaineWebber:
    (A) A copy of the prospectus (the Prospectus) for the Trust 
discussing the investment objectives of the Portfolios comprising the 
Trust; the policies employed to achieve these objectives; the corporate 
affiliation existing between PaineWebber, PMAS, Mitchell Hutchins and 
their affiliates; the compensation paid to such entities; any 
additional information explaining the risks of investing in the Trust; 
and sufficient and understandable disclosures relating to rebalancing 
of investor accounts.
    (B) Upon written or oral request to PaineWebber, a Statement of 
Additional Information supplementing the Prospectus, which describes 
the types of securities and other instruments in which the Portfolios 
may invest, the investment policies and strategies that the Portfolios 
may utilize and certain risks attendant to those investments, policies 
and strategies.
    (C) An investor questionnaire.
    (D) A written analysis of PMAS's asset allocation recommendation of 
specific Portfolios.
    (E) A copy of the agreement between PMAS and such Plan relating to 
participation in the PACE Program.
    (F) Upon written request to Mitchell Hutchins, a copy of the 
respective investment advisory agreements between Mitchell Hutchins and 
the Sub-Advisers.
    (G) Copies of the proposed exemption and grant notice describing 
the exemptive relief provided herein.
    (2) In the case of a Section 404(c) Plan, the Independent Fiduciary 
will--
    (A) Make copies of the foregoing documents available to Directing 
Participants.
    (B) Allow Directing Participants to interact with PaineWebber 
Investment Executives and receive information relative to the services 
offered under the PACE Program, including the rebalancing feature, and 
the operation and objectives of the Portfolios.
    (3) If accepted as an investor in the PACE Program, an Independent 
Fiduciary of a Section 403(b) Plan, an IRA or a Keogh Plan, is required 
to acknowledge, in writing to PMAS, prior to purchasing Trust shares 
that such fiduciary has received copies of the documents described in 
paragraph (j)(1) of this Section II.
    (4) With respect to a Section 404(c) Plan, written acknowledgement 
of the receipt of such documents is provided by the Independent 
Fiduciary (i.e., the Plan administrator, trustee, investment manager or 
named fiduciary). Such Independent Fiduciary will be required to 
represent in writing to PMAS that such fiduciary is--
    (A) Independent of PaineWebber and its affiliates;
    (B) Knowledgeable with respect to the Plan in administrative 
matters and funding matters related thereto, and;
    (C) Able to make an informed decision concerning participation in 
the PACE Program.
    (5) With respect to a Plan that is covered under Title I of the 
Act, where investment decisions are made by a trustee, investment 
manager or a named fiduciary, such Independent Fiduciary is required to 
acknowledge, in writing, receipt of such documents and represent to 
PMAS that such fiduciary is
    (A) Independent of PMAS and its affiliates;
    (B) Capable of making an independent decision regarding the 
investment of Plan assets;
    (C) Knowledgeable with respect to the Plan in administrative 
matters and funding matters related thereto; and
    (D) Able to make an informed decision concerning participation in 
the PACE Program.
    (k) As applicable, subsequent to its participation in the PACE 
Program, each Independent Fiduciary receives the following written or 
oral disclosures with respect to its ongoing participation in the PACE 
Program:
    (1) Written confirmations of each purchase or redemption 
transaction by the Plan with respect to a Portfolio.
    (2) Telephone access to quotations from PaineWebber of such Plan's 
account balance.
    (3) A monthly statement of account from PaineWebber specifying the 
net asset value of the Plan's investment in such account. Such 
statement is also anticipated to include cash flow and transaction 
activity during the month, unrealized gains or losses on Portfolio 
shares held; and a summary of total earnings and capital returns on the 
Plan's PACE Portfolio for the month and year-to-date.
    (4) The Trust's semi-annual and annual report which will include 
financial statements for the Trust and investment management fees paid 
by each Portfolio.
    (5) A written quarterly monitoring report that includes (a) a 
record of the Plan's PACE Program portfolio for the quarter and since 
inception, showing the rates of return relative to comparative market 
indices (illustrated in a manner that reflects the effect of any fees 
for participation in the PACE Program actually incurred during the 
period); (b) an investment outlook summary containing market 
commentary; and (c) the Plan's actual PACE Program portfolio with a 
breakdown, in both dollars and percentages, of the holdings in each 
portfolio. The quarterly monitoring report will also contain an 
analysis and an evaluation of a Plan investor's account to assist the 
investor to ascertain whether the Plan's investment objectives have 
been met and recommending, if required, changes in Portfolio 
allocations.
    (6) A statement, furnished at least quarterly or annually, 
specifying--
    (A) The total, expressed in dollars, of each Portfolio's brokerage 
commissions that are paid to PaineWebber and its affiliates;
    (B) The total, expressed in dollars, of each Portfolio's brokerage 
commissions that are paid to unrelated brokerage firms;
    (C) The average brokerage commissions per share that are paid by 
the Trust to brokers affiliated with PaineWebber, expressed as cents 
per share; and
    (D) The average brokerage commissions per share that are paid by 
the Trust to brokers unrelated to PaineWebber and its affiliates, 
expressed as cents per share for any year in which brokerage 
commissions are paid to PaineWebber by the Trust Portfolios in which a 
Plan's assets are invested.

[[Page 40002]]

    (7) Periodic meetings with a PaineWebber Investment Executive (or 
the appropriate PaineWebber representative) by Independent Fiduciaries 
to discuss the quarterly monitoring report or any other questions that 
may arise.
    (l) In the case of a Section 404(c) Plan where the Independent 
Fiduciary has established an omnibus account in the name of the Plan 
(the Undisclosed Account) with PaineWebber, depending upon the 
arrangement negotiated by the Independent Fiduciary with PMAS, certain 
of the information noted above in subparagraphs (k)(1) through (k)(7) 
of this Section II may be provided by PaineWebber to the Directing 
Participants or to the Independent Fiduciary for dissemination to the 
Directing Participants.
    (m) If previously authorized in writing by the Independent 
Fiduciary, the Plan investor's account is automatically rebalanced on a 
periodic basis to the asset allocation previously prescribed by the 
Plan or participant, as applicable, if the quarterly screening reveals 
that one or more Portfolio allocations deviates from the allocation 
prescribed by the investor by the agreed-upon formula threshold.
    (n) The books and records of the Trust are audited annually by 
independent, certified public accountants and all investors are sent 
copies of an audited financial report no later than 60 days after the 
close of each Trust fiscal year.
    (o) PaineWebber maintains, for a period of six years, the records 
necessary to enable the persons described in paragraph (p) of this 
Section II to determine whether the conditions of this 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 PaineWebber 
and/or its affiliates, the records are lost or destroyed prior to the 
end of the six year period; and
    (2) No party in interest other than PaineWebber 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 (p)(1) of this Section II below.
    (p)(1) Except as provided in subparagraph (p)(2) of this paragraph 
and notwithstanding any provisions of subsections (a)(2) and (b) of 
section 504 of the Act, the records referred to in paragraph (o) of 
this Section II are unconditionally available at their customary 
location during normal business hours by:
    (A) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service (the Service) or the 
Securities and Exchange Commission (the SEC);
    (B) Any fiduciary of a participating Plan or any duly authorized 
representative of such fiduciary;
    (C) Any contributing employer to any participating Plan or any duly 
authorized employee representative of such employer; and
    (D) Any participant or beneficiary of any participating Plan, or 
any duly authorized representative of such participant or beneficiary.
    (p)(2) None of the persons described above in paragraphs (p)(1)(B)-
(p)(1)(D) of this paragraph (p) are authorized to examine the trade 
secrets of PaineWebber or Mitchell Hutchins or commercial or financial 
information which is privileged or confidential.
Section III. Definitions
    For purposes of this exemption:
    (a) The term ``PaineWebber'' means PaineWebber Incorporated and any 
affiliate of PaineWebber, as defined in paragraph (b) of this Section 
III.
    (b) An ``affiliate'' of PaineWebber includes--
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with PaineWebber.
    (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) 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 ``Independent Fiduciary'' means a Plan fiduciary which 
is independent of PaineWebber and its affiliates and is either
    (1) A Plan administrator, trustee, investment manager or named 
fiduciary of a Section 404(c) Plan or a Section 403(b) Plan;
    (2) A participant in a Keogh Plan;
    (3) An individual covered under a self-directed IRA which invests 
in Trust shares;
    (4) An employee, officer or director of PaineWebber and/or its 
affiliates covered by an IRA not subject to Title I of the Act;
    (5) A trustee, Plan administrator, investment manager or named 
fiduciary responsible for investment decisions in the case of a Title I 
Plan that does not permit individual direction as contemplated by 
Section 404(c) of the Act; or
    (e) The term ``Directing Participant'' means a participant in a 
Plan covered under the provisions of section 404(c) of the Act, who is 
permitted under the terms of the Plan to direct, and who elects to so 
direct, the investment of the assets of his or her account in such 
Plan.
    (f) The term ``Plan'' means a pension plan described in 29 CFR 
2510.3-2, a welfare benefit plan described in 29 CFR 2510.3-1, a plan 
described in section 4975(e)(1) of the Code, and in the case of a 
Section 404(c) Plan, the individual account of a Directing Participant.

EFFECTIVE DATE: This exemption will be effective as of August 18, 1995.
    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 (the Notice) published on March 22, 
1996 at 61 FR 11882.

Written Comments

    The Department received one written comment with respect to the 
Notice and no requests for a public hearing. The comment was submitted 
by PaineWebber, PMAS and Mitchell Hutchins (collectively, the 
Applicants). Their comment is broken down into the areas discussed 
below.
    (1) Section 403(b) Plan Participation. In addition to IRAs, Keogh 
Plans, Section 404(c) Plans and other types of employee benefit plans 
that will participate in the PACE Program, the Applicants represent 
that they wish to offer shares in the Trust to Plans that are described 
in section 403(b) of the Code. Therefore, the Applicants have requested 
that the Department include references to Section 403(b) Plans in the 
exemptive language set forth in Section I, in the conditional language 
set forth in Sections II(j)(3) and III(d)(1) and in Representation 6 of 
the Summary of Facts and Representations (the Summary). The Department 
has revised the Notice accordingly.
    (2) Available Portfolios. Section II(g) of the Notice states that 
PMAS will provide investment advice in writing to an Independent 
Fiduciary or a Directing Participant with respect to all available 
Portfolios offered by the Trust. The Applicants note, however, that, in 
the case of a Section 404(c) Plan, an Independent Fiduciary will 
determine the initial array of Portfolios among which the Directing 
Participants may allocate Plan assets, and that such fiduciary may 
decide to include less than all of the Portfolios in that array. 
Therefore, the Applicants have requested that the Department revise 
Section II(g) of the Notice as follows to

[[Page 40003]]

make it clear that ``available'' Portfolios are those that will be 
selected by the Independent Fiduciary under such circumstances:

    (g) PMAS provides investment advice in writing to an Independent 
Fiduciary or Directing Participant with respect to all Portfolios 
made available under the Plan.

    The Department has made the change requested by the Applicants.
    (3) Independent Fiduciary Role. With respect to a Section 404(c) 
Plan, Section II(j)(4) of the Notice states that written 
acknowledgement of the receipt of initial disclosures from PaineWebber 
will be provided by the Independent Fiduciary who may be the Plan 
administrator, trustee, investment manager or the named fiduciary, as 
the recordholder of Trust shares. The Applicants wish to clarify that 
because the trustee of a trust is generally the legal owner of trust 
assets, the Plan trustee rather than the Independent Fiduciary is the 
actual recordholder of Trust shares. Therefore, the Applicants request 
that the Department revise Section II(j)(4) of the Notice to read as 
follows:

     (4) With respect to a Section 404(c) Plan, written 
acknowledgement of the receipt of such documents is provided by the 
Independent Fiduciary (i.e., the Plan administrator, trustee, 
investment manager or named fiduciary).

    The Department has amended the Notice in this regard.
    (4) Directing Participant Disclosure. Section II(l) of the Notice 
states, in relevant part, that if an Independent Fiduciary of a Section 
404(c) Plan has established an Undisclosed Account with PaineWebber, 
certain disclosures will be provided by PaineWebber to the Directing 
Participants or to the Independent Fiduciary for dissemination to the 
Directing Participants, depending upon the arrangement negotiated with 
PMAS. In an effort to reflect the manner in which that information will 
be distributed or made available to Directing Participants and/or to 
the Independent Fiduciaries of Section 404(c) Plans, the Applicants 
request that the Department modify Section II(l) of the Notice.
    The Department has amended Section II(l) of the Notice to read as 
follows:

    (l) In the case of a Section 404(c) Plan where the Independent 
Fiduciary has established an omnibus account in the name of the Plan 
(the Undisclosed Account) with PaineWebber, depending upon the 
arrangement negotiated by the Independent Fiduciary with PMAS, 
certain of the information noted above in subparagraphs (k)(1) 
through (k)(7) of this Section II may be provided by PaineWebber to 
the Directing Participants or to the Independent Fiduciary for 
dissemination to the Directing Participants.

    (5) Description of Paine Webber Group and PaineWebber. 
Representation 1(a) of the Summary, states, in part, that the Paine 
Webber Group is a member of all principal securities and commodities 
exchanges in the United States and the National Association of 
Securities Dealers, Inc. It is also represented that Paine Webber Group 
holds memberships or associate memberships on several principal foreign 
securities and commodities exchanges. Although the Applicants furnished 
this information to the Department, they wish to clarify that these 
representations pertain to PaineWebber rather than to the Paine Webber 
Group. Therefore, they request that the Department make appropriate 
changes to the Summary.
    The Department has revised the language in Representation 1(b) of 
the Summary as follows:

    PaineWebber is a member of all principal securities and 
commodities exchanges in the United States and the National 
Association of Securities Dealers, Inc. It also holds memberships or 
associate memberships on several principal foreign securities and 
commodities exchanges.

    (6) Net Asset Value Per Share. In pertinent part, Representation 2 
of the Summary states that with the exception of the PACE Money Market 
Investments Portfolio, shares in the Trust were initially offered to 
the public by PaineWebber at a net asset value of $10 per share and 
that shares in the PACE Money Market Investments Portfolio are being 
offered to the public at a net asset value of $1.00 per share. The 
Applicants wish to clarify that with the exception of the PACE Money 
Market Investments Portfolio in which shares are offered to the public 
at a net asset value of $1.00 per share, shares in the other Portfolios 
were initially offered to the public at a net asset value of $12 per 
share.
    Accordingly, the Department has revised the sixth and seventh 
sentences of Representation 2 to read as follows:

    With the exception of the PACE Money Market Investments 
Portfolio, shares in each of the Portfolios were initially offered 
to the public at a net asset value of $12 per share. Shares in the 
PACE Money Market Investments Portfolio are offered to the public at 
a net asset value of $1.00 per share.

    (7) Minimum Investments. The second paragraph of Representation 3 
of the Summary states, in part, that the minimum initial investment for 
a prospective investor in the PACE Program is $10,000. The Applicants 
note, however, that the minimum initial investment threshold for an 
investor is currently $25,000 and not $10,000. For Plan investors and 
Uniform Gift or Transfer to Minors Accounts, the Applicants wish to 
clarify that the minimum initial investment is presently $10,000.
    The Department has revised part of Representation 3 to read as 
follows:

    * * * The minimum initial investment in the PACE Program 
currently is $25,000 (except for Plans and Uniform Gift or Transfer 
to Minors Accounts, for which the minimum initial investment is 
currently $10,000).

    (8) Valuation of Portfolio Shares. Footnote 10 of the Summary 
states, in part, that the net asset value of shares in the PACE Money 
Market Investments Portfolio is determined as of 12 p.m. each business 
day. To indicate that the net asset value of all Portfolio shares, 
including shares of the PACE Money Market Investments Portfolio, is 
being determined as of the close of regular trading on the New York 
Stock Exchange (currently 4 p.m., Eastern Time) each business day, the 
Applicants request that the Department modify Footnote 10 of the 
Summary.
    The Department has modified Footnote 10 to read as follows:

    The net asset value of each Portfolio's shares is determined as 
of the close of regular trading on the New York Stock Exchange (the 
NYSE) (currently, 4 p.m., Eastern Time) each business day. Each 
Portfolio's net asset value per share is determined by dividing the 
value of the securities held by the Portfolio plus any cash or other 
assets minus all liabilities by the total number of Portfolio shares 
outstanding.

    In addition, the Applicants have requested that Footnote 16 of the 
Summary be revised to incorporate the following language:

    * * * The net asset value of each Portfolio's shares is 
determined as of the close of regular trading on the NYSE 
(currently, 4 p.m. Eastern Time) each business day. PaineWebber may, 
in the future, impose a minimum dollar threshold on rebalancing 
transactions in order to avoid de minimus transactions.

    (9) Payment of Redemption Proceeds. Representation 14 of the 
Summary states, in part, that a Portfolio will be required to transmit 
redemption proceeds for credit to an investor's account within 5 
business days after receipt. Similarly, Representation 17 of the 
Summary sets forth the same time frame for the payment of the outside 
fee as well as the applicable fee if additional funds are invested 
during a calendar quarter. Because Federal Securities laws currently 
require PaineWebber to settle its obligations within three business 
days, the Applicants have requested that the

[[Page 40004]]

Department revise the Summary to reflect the current timing of such 
payments.
    The Department does not object to these necessary revisions and has 
deleted references to the five business day requirement and inserted 
the phrase ``three business days'' in the fourth sentence of paragraph 
one of Representation 14, in the first sentence of paragraph two of 
Representation 17 and in the first sentence of paragraph three of 
Representation 17.
    (10) Brokerage Commission Information. Representation 22(i) of the 
Summary states, in part, that on a quarterly and annual basis, 
PaineWebber will provide written disclosures to an Independent 
Fiduciary or, if applicable, a Directing Participant regarding 
brokerage commissions that are paid to PaineWebber and/or its 
affiliates or to unrelated parties. The Applicants have requested that 
the Department revise this representation to reflect that brokerage 
commission information will be provided to the Independent Fiduciary 
and, depending on the arrangement negotiated between the Independent 
Fiduciary of a Section 404(c) Plan and PMAS, to a Directing 
Participant. The Applicants state that the language set forth in the 
Summary appears to indicate that PaineWebber will provide such 
information under all circumstances to Independent Fiduciaries and 
where applicable, to Directing Participants only.
    The Department has revised paragraph (i) of Representation 22 to 
read, in part, as follows:

    (i) On a quarterly and annual basis, PaineWebber will provide 
written disclosures to an Independent Fiduciary and, depending on 
the arrangement negotiated with PMAS, a Directing Participant, with 
respect to (1) the total, expressed in dollars, of each Portfolio's 
brokerage commissions that are paid to PaineWebber and its 
affiliates; * * *

    After giving full consideration to the entire record, the 
Department has decided to grant the exemption subject to the 
modifications or clarifications described above. The Applicants' 
comment letter 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 and 
Welfare Benefits Administration, Room N-5638, U.S. Department of Labor, 
200 Constitution Avenue, NW., Washington, DC 20210.

FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

The Everett Clinic Profit Sharing Plan and 401(k) Employee Savings Plan 
and Trust (the Plan), Located in Everett, Washington

[Prohibited Transaction Exemption 96-60; Exemption Application No. D-
10171]

Exemption

    The restrictions of sections 406(a), 406(b)(1) and (b)(2) of the 
Act and the sanctions resulting from the application of section 4975 of 
the Code, by reason of section 4975(c)(1)(A) through (E) of the Code, 
shall not apply to the following transactions between the Plan and the 
Everett Clinic (the Employer), a party in interest with respect to the 
Plan: (1) The exchange of cash and real property (Parcel B) owned by 
the Plan for other real property (Parcel C) owned by the Employer; (2) 
the grant by the Employer to the Plan of a perpetual easement to run 
with the land on the Plan's Parcel B to be exchanged and on the 
Employer's property (Parcel E); (3) the modification and extension of 
an existing lease (the New Lease) of improved real property by the Plan 
to the Employer, so as to include Parcel C and, effective January 1, 
1997, a parking lot owned by the Employer (Parcel D) to be contributed 
gratuitously <SUP>1 to the Plan; and (4) the potential future purchase 
of the leased premises by the Employer pursuant to the terms of an 
option agreement contained in the New Lease.
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    \1\ The Department notes the Employer's representation that its 
contribution of Parcel D to the Plan will not be a prohibited 
transaction under the Department's regulation at 29 CFR 2509.94-3 
because the contribution will not be made pursuant to any legal 
obligation of the Employer to contribute. The Plan is a profit-
sharing plan which provides for a fully discretionary annual 
contribution by the Employer. It is represented that Parcel D will 
be contributed to the Plan on December 31, 1996 for the 1996 Plan 
Year and that no contribution has been declared for the 1996 Plan 
Year; therefore, the Employer has no existing obligation to 
contribute any amounts to the Plan. However, the Department 
expresses no opinion herein as to whether the Employer's 
contribution of Parcel D to the Plan is fully discretionary.
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    This exemption is subject to the following conditions:
    (1) The Plan is represented in all the transactions by a qualified, 
independent fiduciary;
    (2) The terms and conditions of the transactions are at least as 
favorable to the Plan as those the Plan could obtain in comparable 
arm's length transactions with unrelated parties;
    (3) Under the purchase agreement (the Purchase Agreement) with 
respect to the exchange of Parcel B for Parcel C, the Plan pays to the 
Employer an amount no more than the difference between the fair market 
values of Parcel B and Parcel C as of the date of the exchange, as 
established by a qualified, independent appraiser, with the Plan 
receiving full market value for Parcel B (notwithstanding its being 
transferred subject to an easement);
    (4) The rent paid to the Plan under the New Lease is and continues 
to be no less than the fair market rental value of the leased premises, 
as established by a qualified, independent appraiser;
    (5) The rent is adjusted every three years, based upon an updated 
independent appraisal, but never falls below the fair market rental 
amount initially established;
    (6) The New Lease is a triple net lease under which the Employer as 
the tenant is obligated for all operating expenses, including 
maintenance, repairs, taxes, insurance, and utilities;
    (7) The independent fiduciary expressly approves any improvements 
over $100,000 to the leased premises and any renewal of the New Lease 
beyond the initial term;
    (8) The New Lease contains a two-way option agreement enabling the 
Plan to sell the leased premises to the Employer (or the Employer to 
purchase the leased premises from the Plan), in the event the 
independent fiduciary determines that such a sale is in the best 
interests of the Plan, for cash in an amount which is the greater of: 
(a) the original acquisition cost of the premises to the Plan plus 
expenses, or (b) the fair market value of the premises as of the date 
of the sale, as established by a qualified, independent appraiser 
selected by the independent fiduciary;
    (9) At all times, the fair market value of the leased premises 
represents no more than 25% of the total assets of the Plan;
    (10) The independent fiduciary determines that all of the 
transactions are appropriate for and in the best interests of the Plan 
and its participants and beneficiaries at the time of the transactions;
    (11) At all times, the independent fiduciary monitors and enforces 
compliance with the terms and conditions of the Purchase Agreement, the 
New Lease, and the exemption; and
    (12) The Plan incurs no commissions, costs, fees, nor other 
expenses relating to any of the transactions.

EFFECTIVE DATE: This exemption is effective as of June 1, 1996.
    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 June 4, 1996 at 61 FR 
28237.

[[Page 40005]]

Written Comments

    The Department received one written comment with respect to the 
notice of proposed exemption and no requests for a public hearing. The 
written comment was submitted by the trustees of the Plan (the 
Trustees) and concerns a clarification of the notice of proposed 
exemption. The Summary of Facts and Representations, Section 9, 
Paragraph 2 (page 28240, column 3) states:

    The income from the Current Lease has provided the Plan with a 
stable and favorable rate of investment return (over 9% per annum 
for the period covering the 1980's and the first half of the 1990's, 
ranking in the top 5% of the Independent Consultants Cooperative 
database).

The Trustees desired to make the observation that this representation 
inaccurately understates the performance of the real estate. A letter 
dated November 16, 1995, from Wurts, Johnson & Company (Wurts, 
Johnson), investment consultants to the First Interstate Bank of 
Washington N.A., the independent fiduciary for the Plan, indicates that 
the rate of return to the Plan of ``over 9% per annum'' is actually for 
the five-year period ending June 30, 1995. Extending the return 
analysis back to January 1, 1983 for a 12-year period ending December 
31, 1994, Wurts, Johnson found that the annual rate of return was 
12.8%. Moreover, the most recent report from Wurts, Johnson shows that 
the annual rate of return for the five-year period ending December 31, 
1995 was 14.1%. This rate is significantly higher than that for the 
five-year period ending June 30, 1995 due to a significant increase in 
the value of the real estate subsequent to June 30, 1995.

FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

The SUP Welfare Plan (the Plan), Located in San Francisco, 
California

[Prohibited Exemption Transaction 96-61; Exemption Application No. L-
10221]

Exemption

    The restrictions of sections 406(a), 406(b)(1) and (b)(2) of the 
Act shall not apply to the sale by the Plan of the remaining term of a 
one-hundred year pre-paid leasehold interest (the Interest) to the 
Sailors' Union of the Pacific Building Corporation, a party in interest 
with respect to the Plan, provided the following conditions are 
satisfied: (a) the sale is a one-time transaction for cash; (b) the 
Plan pays no commissions or other expenses in connection with the sale; 
(c) the Plan receives the greater of $438,000 or the fair market value 
of the Interest as of the date of the sale; and (d) the fair market 
value of the Interest has been determined by a qualified, independent 
appraiser.
    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 June 4, 1996 at 61 FR 
28241.
    Written Comments: The Department received three written comments 
(and no hearing requests) with respect to the proposed exemption. Two 
of the comments were in favor of granting the exemption as proposed. 
The third commentator disagreed with the Plan's trustees' decision to 
eliminate its housing program, and also expressed concern that the 
transaction would have negative impact on the participants' paychecks 
and affect their retirement plan.
    The applicant responded to this comment by stating that the 
trustees' decision to terminate the housing benefit does not involve 
the merits of the subject transaction. Nonetheless, the applicant 
states that the trustees did act prudently and in the best interest of 
all participants and beneficiaries in terminating the housing benefit. 
Over the past 40 years, the number of jobs available for West Coast 
unlicensed deck hands has declined from several thousand to about a 
hundred. There is a substantial possibility that further shrinkage will 
occur if Congress fails to enact a maritime subsidy program. As the 
declining contribution base squeezes the Plan's finances, the applicant 
represents that the Plan's trustees properly chose to marshal the 
Plan's assets to provide benefits to the maximum number of eligible 
participants for as long as possible. The applicant further states that 
the elimination of the housing benefit will have no impact on any 
participant's paycheck, nor will it affect any retirement plan.
    The Department has considered the entire record, including the 
comments submitted and the applicant's response thereto, and has made a 
final determination to grant the exemption as proposed.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department, 
telephone (202) 219-8881. (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 26th day of July, 1996.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, Department of Labor.
[FR Doc. 96-19482 Filed 7-30-96; 8:45 am]
BILLING CODE 4510-29-P