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Secretary of Labor Thomas E. Perez
Grant of Individual Exemptions; Wells Fargo Bank, N.A. (Wells Fargo), et al. [Notices] [04/05/1999]

EBSA (Formerly PWBA) Federal Register Notice

Grant of Individual Exemptions; Wells Fargo Bank, N.A. (Wells Fargo), et al. [04/05/1999]

[PDF Version]

Volume 64, Number 64, Page 16493-16500

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 99-13; Exemption Application No. D-
10468, et al.]

 
Grant of Individual Exemptions; Wells Fargo Bank, N.A. (Wells 
Fargo), et al.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of Individual Exemptions.

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

Wells Fargo Bank, N.A. (Wells Fargo) Located in San Francisco, CA

[Prohibited Transaction Exemption (PTE) 99-13; Exemption Application 
No. D-10468]

Exemption

Section I. Exemption for the Conversion of Assets (the Conversion 
Transactions)
    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, 
shall not apply, effective September 16, 1996, to the exchange of the 
assets of various employee benefit plans (the Plans) that are either 
held in certain collective investment funds (the CIF or CIFs) 
maintained by Wells Fargo, or otherwise held by Wells Fargo as trustee, 
investment manager or in any other capacity as fiduciary on behalf of 
the Plans, for shares of any open-end investment company (the Fund or 
Funds) registered under the Investment Company Act of 1940 (the 1940 
Act) to which Wells Fargo or any of its affiliates (collectively, Wells 
Fargo) serves as investment adviser and may provide other services, 
provided the following conditions are met:
    (a) The Plans are not sponsored by Wells Fargo.
    (b) No sales commissions are paid by a Plan in connection with a 
Conversion Transaction.
    (c) All or a pro rata portion of the assets of a CIF or all or a 
pro rata portion of the assets of the Plans or any separate portfolio 
thereof held by Wells Fargo in any capacity as fiduciary on behalf of 
such Plans are transferred in-kind to the Funds in exchange for shares 
of such Funds. Notwithstanding the foregoing, the allocation of fixed-
income securities held by a CIF among Plans on the basis of each Plan's 
pro rata share of the aggregate value of such securities will not fail 
to meet the requirements of this subsection if--
    (1) The aggregate value of such securities does not exceed one (1) 
percent of the total value of the assets held by the CIF immediately 
prior to the transfer; and
    (2) Such securities have the same coupon rate and maturity, and at 
the time of the transfer, the same credit ratings from nationally 
recognized statistical rating agencies.
    (d) The Plans or the CIFs receive shares of the Funds that have a 
total net asset value equal in value to the assets of the Plans or the 
CIFs exchanged for such shares on the date of transfer.
    (e) The current market value of the assets of a Plan or the CIF is 
determined in a single valuation performed in the same manner as of the 
close of the same business day with respect to all such Plans 
participating in the transaction on such day, using independent sources 
in accordance with the procedures set forth in Rule 17a-7b (Rule 17a-7) 
under the Investment Company Act of 1940 (the 1940 Act), as amended, 
and the procedures established by the Funds pursuant to Rule 17a-7 for 
the valuation of such assets.
    (f) A second fiduciary (the Second Fiduciary) who is acting on 
behalf of each affected Plan and who is independent of and unrelated to 
Wells Fargo, as defined in paragraph (g) of Section III below, receives 
advance written notice of the Conversion Transaction and the 
disclosures described in paragraph (f) of Section II below.
    (g) On the basis of the information described in paragraph (f) of 
Section II below, the Second Fiduciary authorizes in writing the 
Conversion Transaction, the investment of such assets in corresponding 
Funds and the fees received by Wells Fargo in connection with its 
services to the Funds. Such authorization by the Second Fiduciary is 
consistent with the responsibilities, obligations, and duties imposed 
on fiduciaries by Part 4 of Title I of the Act. In addition, the Second 
Fiduciary must give prior approval, in writing, for the receipt of 
confirmation statements described below in paragraph (h)(2) and (i) by 
facsimile or electronic mail if the Second Fiduciary elects to receive 
such statements in that form.
    (h)(1) For the Conversion Transaction which occurred on September 
16, 1996, the written confirmation described below in paragraph (h)(2) 
was made by Wells Fargo to all Second Fiduciaries of the appropriate 
Plans within 38 business days of the transaction.
    (2) Not later than 30 days after completion of each Conversion 
Transaction (except for the transaction described in paragraph (h)(1) 
above),

[[Page 16494]]

Wells Fargo sends by regular mail or personal delivery or, if 
applicable, by facsimile or electronic mail to the Second Fiduciary, a 
confirmation that contains the following information:
    (A) The identity of each of the assets that was valued for purposes 
of the transaction in accordance with Rule 17a-7(b)(4) under the 1940 
Act;
    (B) The price of each of the assets involved in the transaction; 
and
    (C) The identity of each pricing service or market maker consulted 
in determining the value of such assets.
    (i) No later than 90 days after completion of each Conversion 
Transaction, Wells Fargo sends by regular mail or personal delivery or, 
if applicable, by facsimile or electronic mail to the Second Fiduciary, 
a confirmation that contains the following information:
    (1) The number of CIF units held by such affected Plan immediately 
before the conversion (and the related per unit value and the aggregate 
dollar value of the units transferred); and
    (2) The number of shares in the Funds that are held by such 
affected Plan following the conversion (and the related per share net 
asset value and the aggregate dollar value of the shares received).
    (j) The conditions set forth in paragraphs (d), (e), (f), (n), (o), 
(p), and (q) of Section II below are satisfied.
Section II. Exemption for Receipt of Fees From Funds (transactions 
involving the receipt of Fees)
    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)(D) through (F) of the Code, shall 
not apply to the receipt of fees by Wells Fargo from the Funds for 
acting as the investment adviser, as well as for acting as the 
custodian, sub-administrator, or for providing any ``secondary 
service'' (the Secondary Service) to the Funds [as defined in Section 
III(h)], in connection with the investment in the Funds by the Plans 
for which Wells Fargo acts as a fiduciary, provided that:
    (a) No sales commissions are paid by the Plans in connection with 
purchase or sale of shares of the Funds through a Conversion 
Transaction, and no redemption fees are paid in connection with the 
sale of such shares by the Plans to the Funds.
    (b) The price paid or received by the Plans for shares of the 
Funds, in connection with a Conversion Transaction is the net asset 
value per share, as defined in paragraph (e) of Section III, at the 
time of the transaction and is the same price which would have been 
paid or received for the shares by any other investor at that time.
    (c) Neither Wells Fargo nor an affiliate, including any officer or 
director purchases from or sells to any of the Plans shares of any of 
the Funds.
    (d) As to each individual Plan, the combined total of all Plan-
level and Fund-level fees received by Wells Fargo for the provision of 
services to such Plan and to the Funds (with respect to the Plan's 
assets invested in the Funds), respectively, are not in excess of 
``reasonable compensation'' within the meaning of section 408(b)(2) of 
the Act.
    (e) Wells Fargo does not receive any fees payable pursuant to Rule 
12b-1 under the 1940 Act (the 12b-1 Fees) in connection with the 
transactions.
    (f) The Second Fiduciary receives, in advance of the investment by 
the Plan in a Fund, a full and detailed written disclosure of 
information concerning such Fund (including, but not limited to--
    (1) A current prospectus for each Fund in which a Plan is 
considering investing;
    (2) A statement describing the fees for investment advisory or 
similar services, any Secondary Services, and all other fees to be 
charged to or paid by the Plan and by the Funds, including the nature 
and extent of any differential between the rates of such fees;
    (3) The reasons why Wells Fargo may consider such investment to be 
appropriate for the Plan;
    (4) A statement describing whether there are any limitations 
applicable to Wells Fargo with respect to which assets of a Plan may be 
invested in the Funds, and if so, the nature of such limitations; and
    (5) Upon request of the Second Fiduciary, a copy of the proposed 
exemption and/or a copy of the final exemption, once such documents are 
published in the Federal Register.
    (g) On the basis of the prospectus and disclosure referred to in 
paragraph (f) of this Section II, the Second Fiduciary gives prior 
approval for such purchases, holdings and sales of Fund shares through 
Conversion Transactions that is consistent with the responsibilities 
obligations, and duties imposed on fiduciaries by Part 4 of Title I of 
the Act. Such approval must be in accordance with the provisions of PTE 
77-4 (42 FR 18732, April 8, 1977) or its successor, as it may be 
amended from time to time.
    (h) The authorization, described in paragraph (g) of this Section 
II, is terminable at will by the Second Fiduciary of a Plan, without 
penalty to such Plan. Such termination will be effected by Wells Fargo 
redeeming the shares of the Fund held by the affected Plan by the close 
of the business day following the date of receipt by Wells Fargo, 
either by mail, hand delivery, facsimile, or other available means of 
written communication at the option of the Second Fiduciary, of the 
termination form (the Termination Form), as defined in paragraph (i) of 
Section III below, or any other written notice of termination; provided 
that if, due to circumstances beyond the control of Wells Fargo, the 
sale cannot be executed within one business day, Wells Fargo shall have 
one additional business day to complete such redemption.
    (i) Each Plan satisfies either (but not both) of the following:
    (1) For a Plan for which Wells Fargo serves as a non-discretionary 
trustee, the Plan does not pay any Plan-level investment management 
fees, investment advisory fees, or similar fees to Wells Fargo with 
respect to Plan assets invested in the Funds. (This condition does not 
preclude the payment of investment advisory fees or similar fees by a 
Fund to Wells Fargo under the terms of its investment advisory 
agreement adopted in accordance with section 15 of the 1940 Act, nor 
does it preclude the payment of fees for Secondary Services to Wells 
Fargo pursuant to a duly adopted agreement between Wells Fargo and the 
Funds.)
    (2) For a Plan for which Wells Fargo serves as a discretionary 
fiduciary (i.e., a trustee or investment manager), such Plan pays Wells 
Fargo an investment advisory fee based on total Plan assets from which 
a credit has been subtracted representing such Plan's pro rata share of 
investment advisory fees paid by the Funds. (This condition also does 
not preclude the payment of fees for Secondary Services to Wells Fargo 
pursuant to a duly adopted agreement between Wells Fargo and the 
Funds.)
    (j) In the event of an increase in the rate of any fees paid by the 
Funds to Wells Fargo regarding any investment management services, 
investment advisory services, or fees for similar services that Wells 
Fargo provides to the Funds over an existing rate for such services 
that had been authorized by a Second Fiduciary, in accordance with 
paragraph (g) of this Section II, Wells Fargo will, at least 30 days in 
advance of the implementation of such increase, provide a written 
notice (which may take the form of a proxy statement, letter, or 
similar communication that is separate from the prospectus of the Fund 
and which explains the nature and amount of the increase in fees) to 
the Second Fiduciary of each of the Plans invested in a Fund which is

[[Page 16495]]

increasing such fees. Such notice shall be accompanied by the 
Termination Form, as defined in paragraph (i) of Section III below.
    (k) In the event of an addition of a Secondary Service, as defined 
in paragraph (g) of Section III below, provided by Wells Fargo to the 
Fund for which a fee is charged or an increase in the rate of any fee 
paid by the Funds to Wells Fargo for any Secondary Service, as defined 
in paragraph (h) of Section III below, that results either from an 
increase in the rate of such fee or from the decrease in the number or 
kind of services performed by Wells Fargo for such fee over an existing 
rate for such Secondary Service which had been authorized by the Second 
Fiduciary of a Plan, in accordance with paragraph (g) of this Section 
II, Wells Fargo will, at least 30 days in advance of the implementation 
of such additional service for which a fee is charged or fee increase, 
provide a written notice (which may take the form of a proxy statement, 
letter, or similar communication that is separate from the prospectus 
of the Fund and which explains the nature and amount of the additional 
service for which a fee is charged or the nature and amount of the 
increase in fees) to the Second Fiduciary of each of the Plans invested 
in a Fund which is adding a service or increasing fees. Such notice 
shall be accompanied by the Termination Form, as defined in paragraph 
(i) of Section III below.
    (l) The Second Fiduciary is supplied with a Termination Form at the 
times specified in paragraphs (j), (k) and (m) of this Section II with 
instructions regarding the use of such Termination Form including the 
following information--
    (1) The authorization is terminable at will by any of the Plans, 
without penalty to such Plans. Such termination will be effected by 
Wells Fargo redeeming shares of the Fund held by the Plans requesting 
termination within one business day following the date of receipt by 
Wells Fargo, either by mail, hand delivery, facsimile, or other 
available means at the option of the Second Fiduciary, of the 
Termination Form or any other written notice of termination; provided 
that if, due to circumstances beyond the control of Wells Fargo, the 
redemption of shares of such Plans cannot be executed within one 
business day, Wells Fargo shall have one additional business day to 
complete such redemption; and
    (2) Failure by the Second Fiduciary to return the Termination Form 
on behalf of a Plan will be deemed to be an approval of the additional 
Secondary Service for which a fee is charged or increase in the rate of 
any fees, if such Termination Form is supplied pursuant to paragraphs 
(j) and (k) of this Section II, and will result in the continuation of 
the authorization, as described in paragraph (h) of this Section II, of 
Wells Fargo to engage in the transactions on behalf of such Plan.
    (m) The Second Fiduciary is supplied with a Termination Form, 
annually during the first quarter of each calendar year, beginning with 
the first quarter of the calendar year that begins after the date the 
notice granting this proposed exemption is published in the Federal 
Register and continuing for each calendar year thereafter; provided 
that the Termination Form need not be supplied to the Second Fiduciary, 
pursuant to paragraph (m) of this Section II, sooner than six months 
after such Termination Form is supplied pursuant to paragraphs (j) and 
(k) of this Section II, except to the extent required by said 
paragraphs (j) and (k) of this Section II to disclose an additional 
Secondary Service for which a fee is charged or an increase in fees.
    (n)(1) With respect to each of the Funds in which a Plan invests, 
Wells Fargo will provide the Second Fiduciary of such Plan:
    (A) At least annually with a copy of an updated prospectus of such 
Fund;
    (B) Upon the request of such Second Fiduciary, with a report or 
statement (which may take the form of the most recent financial report, 
the current statement of additional information, or some other written 
statement) which contains a description of all fees paid by the Fund to 
Wells Fargo; and
    (2) With respect to each of the Funds in which a Plan invests, in 
the event such Fund places brokerage transactions with Wells Fargo, 
Wells Fargo will provide the Second Fiduciary of such Plan at least 
annually with a statement specifying:
    (A) The total, expressed in dollars, brokerage commissions of each 
Fund's investment portfolio that are paid to Wells Fargo by such Fund;
    (B) The total, expressed in dollars, of brokerage commissions of 
each Fund's investment portfolio that are paid by such Fund to 
brokerage firms unrelated to Wells Fargo;
    (C) The average brokerage commissions per share, expressed as cents 
per share, paid to Wells Fargo by each portfolio of a Fund; and
    (D) The average brokerage commissions per share, expressed as cents 
per share, paid by each portfolio of a Fund to brokerage firms 
unrelated to Wells Fargo.
    (o) All dealings between the Plans and any of the Funds are on a 
basis no less favorable to such Plans than dealings between the Funds 
and other shareholders holding the same class of shares as the Plans.
    (p) Wells Fargo maintains, for a period of six years, in a manner 
that is convenient and accessible for audit and examination, the 
records necessary to enable the persons, described in paragraph (q) of 
Section II below, 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 Wells Fargo, 
the records are lost or destroyed prior to the end of the 6 year 
period; and
    (2) No party in interest, other than Wells Fargo, shall be subject 
to the civil penalty that may be assessed under section 502(i) of the 
Act, or to the taxes imposed by section 4975(a) and (b) of the Code, if 
the records are not maintained, or are not available for examination as 
required by paragraph (q) of Section II below;
    (q)(1) Except as provided in paragraph (q)(2) of this Section II 
and notwithstanding any provisions of subsection (a)(2) and (b) of 
section 504 of the Act, the records referred to in paragraph (p) of 
Section II 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 (the SEC);
    (B) Any fiduciary of each of the Plans who has authority to acquire 
or dispose of shares of any of the 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 (q)(1)(B) and 
(q)(1)(C) of Section II shall be authorized to examine trade secrets of 
Wells Fargo, or commercial or financial information which is privileged 
or confidential.
Section III. Definitions
    For purposes of this exemption, (a) The term ``Wells Fargo'' means 
Wells Fargo Bank, N.A. and any of its affiliates, as defined in 
paragraph (b) of this Section III.
    (b) An ``affiliate'' of a person includes:
    (1) Any person directly or indirectly through one or more 
intermediaries,

[[Page 16496]]

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 ``Fund'' or ``Funds'' means any diversified open-end 
investment company or companies registered under the 1940 Act for which 
Wells Fargo serves as investment adviser (including sub-adviser), and 
may also provide custodial or other services as approved by such Funds.
    (e) The term ``net asset value'' means the amount for purposes of 
pricing all purchases and redemptions through the Conversion 
Transactions, calculated by dividing the value of all securities, 
determined by a method adopted by the Fund's board of directors in 
accordance with the 1940 Act, and other assets belonging to each of the 
portfolios in such 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 Wells Fargo. For purposes of this 
exemption, the Second Fiduciary will not be deemed to be independent of 
and unrelated to Wells Fargo if--
    (1) Such Second Fiduciary directly or indirectly controls, is 
controlled by, or is under common control with Wells Fargo;
    (2) Such Second Fiduciary, or any officer, director, partner, 
employee, or relative of such Second Fiduciary is an officer, director, 
partner, or employee of Wells Fargo (or is a relative of such persons);
    (3) Such Second Fiduciary directly or indirectly receives any 
compensation or other consideration from Wells Fargo for his or her own 
personal account in connection with any transaction described in this 
exemption.
    If an officer, director, partner, or employee of Wells Fargo (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 approval of any purchase or 
redemption by the Plan of shares of the Funds through a Conversion 
Transaction, and (C) the approval of any change of fees charged to or 
paid by the Plan, in connection with any of the transactions described 
in Sections I and II above, then paragraph (g)(2) of Section III above, 
shall not apply.
    (h) The term ``Secondary Service'' means a service, other than an 
investment management, investment advisory, or similar service, which 
is provided by Wells Fargo to the Funds, including but not limited to 
custodial, accounting, brokerage, administrative, or any other service.
    (i) The term ``Termination Form'' means the form supplied to the 
Second Fiduciary, at the times specified in paragraphs (j), (k) and (m) 
of Section II above, which expressly provides an election to the Second 
Fiduciary to terminate on behalf of the Plans the authorization, 
described in paragraph (g) of Section II. Such Termination Form may be 
used at will by the Second Fiduciary to terminate such authorization 
without penalty to the Plans and to notify Wells Fargo in writing to 
effect such termination by redeeming the shares of the Fund held by the 
Plans requesting termination by the close of the business day following 
the date of receipt by Wells Fargo, either by mail, hand delivery, 
facsimile or other available means at the option of the Second 
Fiduciary, of written notice of such request for termination; provided 
that if, due to circumstances beyond the control of Wells Fargo, the 
redemption cannot be executed within one business day, Wells Fargo 
shall have one additional business day to complete such redemption.

EFFECTIVE DATE: This exemption is effective as of September 16, 1996 
with respect to the Conversion Transactions described in Section I and 
effective as of the date of the grant with respect to Transactions 
Involving the Receipt of Fees, as described in Section II.
    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 January 27, 
1999 at 64 FR 4132.

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 Wells Fargo and suggested several modifications to the conditional 
language of the Notice and the Summary of Facts and Representations 
(the Summary). Presented below are a discussion of Wells Fargo's 
comments and the Department's responses to such comments.
    1. Section I(c) of the Notice. On page 4133 of the Notice, Section 
I(c) states that all or a pro rata portion of the assets of a CIF or 
all or a pro rata portion of the assets of the Plans that are held by 
Wells Fargo in any capacity as fiduciary on behalf of such Plans are 
transferred in-kind to the Funds in exchange for shares of such Funds. 
Wells Fargo requests that the Department amend Section I(c) of the 
Notice by inserting the phrase ``or any separate portfolio thereof'' 
after the phrase ``all or a pro rata portion of the assets of the 
Plan.'' Wells Fargo states that it may serve as the directed trustee of 
a Plan which has a variety of investment portfolios that are managed by 
different investment managers. Under such circumstances, Wells Fargo 
notes that the Plan fiduciaries may exchange one or more, but less than 
all, of such portfolios. Wells Fargo believes the foregoing change to 
Section I(c) would clarify that the Plan can make the change without 
exchanging all shares that are held in a portfolio and managed by the 
other investment manager.
    In addition, Wells Fargo notes that on page 42835 of PTE 97-41 (62 
FR 42830, August 8, 1997), Section II(c) contains an exception to the 
requirement that assets transferred in a Conversion Transaction must 
constitute a pro rata portion of the CIF assets. Under this exception, 
which is applicable for Conversion Transactions occurring after August 
8, 1997, if the CIF holds small positions that are not easily 
divisible, the securities will be allocated such that the transfer will 
include a pro rata share in the value of all such securities in the 
aggregate rather than in each security individually.
    Specifically, Section II(c) of PTE 97-41 permits this type of 
allocation to be made for fixed-income securities if the following 
conditions are met:
    <bullet> The aggregate value of such securities does not exceed one 
(1) percent of the total value of the CIF assets immediately prior to 
the transfer; and
    <bullet> The securities have the same coupon rate and maturity and, 
at the time of the transfer, the same ratings from nationally 
recognized statistical ratings agencies.
    Consistent with Section II(c) of PTE 97-41, Wells Fargo requests 
that the following sentence be added to Section I(c) of the Notice in 
order to allow a CIF (or, for that matter, a Plan) to avoid transaction 
costs associated with

[[Page 16497]]

liquidating small positions in fixed-income securities prior to 
maturity:

    * * * Notwithstanding the foregoing, the allocation of fixed-
income securities held by a CIF among Plans on the basis of each 
Plan's pro rata share of the aggregate value of such securities will 
not fail to meet the requirements of this subsection if--
    (1) The aggregate value of such securities does not exceed one 
(1) percent of the total value of the assets held by the CIF 
immediately prior to the transfer; and
    (2) Such securities have the same coupon rate and maturity, and 
at the time of the transfer, the same credit ratings from nationally 
recognized statistical rating agencies.

    In response to these comments, the Department has made the changes 
suggested by Wells Fargo.
    2. Section I(e) of the Notice. On page 4133 of the Notice, Section 
I(e) provides that assets that are transferred by a Plan or a CIF to a 
Fund are to be valued using sources independent of Wells Fargo in 
accordance with Rule 17a-7. In particular, the last sentence of Section 
I(e) describes the procedures currently required under Rule 17a-7 of 
the 1940 Act for the valuation of Plan or CIF assets that are 
transferred in-kind to a Fund.
    Wells Fargo requests that the last sentence of Section I(e) be 
deleted in order to make the condition consistent with PTE 97-41.* 
Wells Fargo believes that the reference to Rule 17a-7 should provide 
flexibility to permit the use of new pricing systems which are approved 
by the SEC by amendment to Rule 17a-7 without having the parties 
request an amendment to the exemption.
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    \*\ On page 58229 of the Preamble to the Notice underlying PTE 
97-41 (61 FR 58224, November 13, 1996), the Department noted that 
the requirement that valuations of plan assets transferred from a 
CIF to a Fund be determined in accordance with Rule 17a-7 under the 
1940 Act to provide flexibility for future transactions. Thus, if 
Rule 17a-7 was subsequently amended by the SEC to accommodate new 
pricing systems, the Department observed that Banks could take 
advantage of the amended Rule without having to request an amendment 
to the class exemption.
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    In response to this comment, the Department concurs with this 
clarification and has made the requested change.
    3. Sections I(g), I(h)(2) and I(i) of the Notice. On page 4133 of 
the Notice, Section I(g) describes the written authorization that is to 
be given by the Second Fiduciary with respect to a Conversion 
Transaction. Also on page 4133 of the Notice, Sections I(h)(2) and I(i) 
provide for the types of confirmation statements that Wells Fargo is to 
send the Second Fiduciary of a Plan by regular mail.
    Wells Fargo requests that these conditions be amended to permit 
personal delivery of the foregoing information and the use of facsimile 
or electronic mail. With respect to Section I(g) of the Notice, Wells 
Fargo suggests that the following new sentence be added as a second 
sentence:

    In addition, the Second Fiduciary must give prior approval, in 
writing, for the receipt of confirmation statements described below 
in paragraph (h)(2) and (i) by facsimile or electronic mail if the 
Second Fiduciary elects to receive such statements in that form.

Further, with respect to Sections I(h)(2) and I(i) of the Notice, Wells 
Fargo suggests that the phrase ``or personal delivery or, if 
applicable, by facsimile or electronic mail'' be added after the term 
``regular mail.''
    In response, the Department concurs with the requested 
clarifications and has made the changes suggested by Wells Fargo.
    4. Representation 1 of the Summary. On page 4136 of the Summary, 
Representation 1 describes Wells Fargo, its parent, Wells Fargo & 
Company (WFC), and their various affiliates. Wells Fargo states that in 
a merger of equals effective November 2, 1998, WFC was merged with and 
into a wholly owned subsidiary of Norwest Corporation. In addition, 
Wells Fargo states that the name of the combined company is ``Wells 
Fargo & Company.''
    To reflect these factual updates, the Department has revised 
Representation 1 by adding the following new, third paragraph:

    Effective as of November 2, 1998, WFC was merged with and into a 
wholly owned subsidiary of Norwest Corporation. The name of the 
combined company is ``Wells Fargo & Company.''

    For further information regarding the Wells Fargo's comment letter 
or other matters discussed herein, interested persons are encouraged to 
obtain copies of the exemption application file (Exemption Application 
No. D-10468) the Department is maintaining in this case. The complete 
application file, as well as all supplemental submissions received by 
the Department, are made available for public inspection in the Public 
Documents Room of the Pension and Welfare Benefits Administration, Room 
N-5638, U.S. Department of Labor, 200 Constitution Avenue, N.W., 
Washington, D.C. 20210.
    Accordingly, after giving full consideration to the entire record, 
including the written comments provided by Wells Fargo, the Department 
has made the aforementioned changes to the Notice and the Summary and 
has decided to grant the exemption subject to the modifications or 
clarifications described above.

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

MONY Life Insurance Company

(MONY)

Located in New York, NY

[Prohibited Transaction Exemption 99-14; Exemption Application No. D-
10661]

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 November 16, 1998, to the (1) receipt of common stock of the 
MONY Group, Inc. (the Holding Company), the parent company of MONY, or 
(2) the receipt of cash or policy credits, by or on behalf of any 
eligible policyholder (the Eligible Policyholder) of MONY which is a 
plan (the Plan), subject to applicable provisions of the Act and/or the 
Code, other than an Eligible Policyholder which is a Plan maintained by 
MONY or an affiliate for its employees, in exchange for such Eligible 
Policyholder's membership interest in MONY, in accordance with the 
terms of a plan of reorganization (the Plan of Reorganization) adopted 
by MONY and implemented pursuant to section 7312 of the New York 
Insurance Law.
    This exemption is subject to the conditions set forth below in 
Section II.
Section II. General Conditions
    (a) The Plan of Reorganization is implemented in accordance with 
procedural and substantive safeguards that are imposed under New York 
Insurance Law and is subject to review and approval by the 
Superintendent of Insurance of the State of New York (the 
Superintendent).
    (b) The Superintendent reviews the terms of the options that are 
provided to Eligible Policyholders of MONY as part of such 
Superintendent's review of the Plan of Reorganization, and the 
Superintendent only approves the Plan of Reorganization following a 
determination that such Plan of Reorganization is fair and equitable to 
all Eligible Policyholders and is not detrimental to the public.
    (c) Each Eligible Policyholder has an opportunity to vote to 
approve the Plan of Reorganization after full written

[[Page 16498]]

disclosure is given to the Eligible Policyholder by MONY.
    (d) One or more independent fiduciaries of a Plan that is an 
Eligible Policyholder receives Holding Company stock, cash or policy 
credits pursuant to the terms of the Plan of Reorganization and neither 
MONY nor any of its affiliates exercises any discretion or provides 
investment advice with respect to such acquisition.
    (e) After each Eligible Policyholder entitled to receive stock is 
allocated at least 7 shares of Holding Company stock, additional 
consideration is allocated to Eligible Policyholders who own 
participating policies based on actuarial formulas that take into 
account each participating policy's contribution to the surplus of MONY 
which formulas have been reviewed by the Superintendent.
    (f) All Eligible Policyholders that are Plans participate in the 
transactions on the same basis within their class groupings as other 
Eligible Policyholders that are not Plans.
    (g) No Eligible Policyholder pays any brokerage commissions or fees 
in connection with their receipt of Holding Company stock or in 
connection with the implementation of the commission-free sales and 
purchase programs.
    (h) All of MONY's policyholder obligations remain in force and are 
not affected by the Plan of Reorganization.
Section III. Definitions
    For purposes of this exemption:
    (a) The term ``MONY'' means ``MONY Life Insurance Company'' and any 
affiliate of MONY as defined in paragraph (b) of this Section III.
    (b) An ``affiliate'' of MONY includes--
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with MONY. (For purposes of this paragraph, the term ``control'' means 
the power to exercise a controlling influence over the management or 
policies of a person other than an individual.)
    (2) Any officer, director or partner in such person, and
    (3) Any corporation or partnership of which such person is an 
officer, director or a 5 percent partner or owner.
    (c) The term ``Eligible Policyholder'' means a policyholder who is 
eligible to vote and to receive consideration under MONY's Plan of 
Reorganization. Such Eligible Policyholder is a policyholder of the 
mutual insurer on the date the Plan of Reorganization is adopted by the 
Board of Trustees of MONY and on the effective date of the 
reorganization.
    (d) The term ``policy credit'' means: (1) Dividend additions under 
an individual participating nonvariable annuity contract, (2) an 
increase in accumulation value of an individual nonparticipating 
nonvariable annuity contract, (3) an increase in the accumulation value 
in the separate investment account under an individual participating 
variable annuity contract, (4) an increase in the accumulation value in 
the general account investment option under an individual 
nonparticipating variable annuity contract or individual 
nonparticipating variable life insurance policy, (5) dividend deposits 
or dividend additions, as appropriate (depending on the selection of 
the underlying policy), (6) an increase in fund value on an individual 
nonparticipating nonvariable life insurance policy, (7) an extension of 
the expiry date on a policy which is in force as extended term life 
insurance pursuant to a non-forfeiture provision of a life insurance 
policy, or (8) an increase in the accumulation account value in the 
general account investment option under a group annuity contract or 
certificate issued thereunder.

EFFECTIVE DATE: This exemption is effective as of November 16, 1998, 
the date of MONY's Plan of Reorganization.
    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) that was published 
December 16, 1998 at 63 FR 69314.

Written Comments

    The Department received three written comments with respect to the 
Notice. Two comments were submitted by Plan participants who are 
Eligible Policyholders of MONY. The third comment was submitted by 
MONY.
    The first commenter expressed general approval of the Notice and 
the form of consideration that he would be receiving as a result of 
MONY's Plan of Reorganization. The commenter also endorsed the idea 
that his Plan policy would continue to contribute to the financial 
success of MONY.
    The second commenter indicated that her only concern was that her 
investment account with MONY would remain unaffected by the Plan of 
Reorganization. However, after discussing this matter with a Department 
representative who explained that the exemption was predicated on the 
requirement that all of MONY's policyholder obligations would remain in 
force and would not be affected by the Plan of Reorganization, the 
commenter decided to withdraw her comment.
    The third commenter, MONY, suggested certain technical and 
clarifying changes to the Notice and the Summary of Facts and 
Representations (the Summary). In addition, MONY was provided with 
comments from the New York State Insurance Department (the New York 
Department), whose comments were, in turn, incorporated into the 
comments submitted by MONY.
    Following is a discussion of the comments received from MONY and 
the Department's responses with respect thereto.
    1. Section I. On page 69314 of the Notice, Section I describes MONY 
Group, Inc. as a subsidiary of MONY. MONY notes that while MONY Group 
was a subsidiary of MONY at the time MONY filed its exemption 
application, on the effective date of the reorganization (November 16, 
1998), the MONY Group became the parent company of MONY when MONY 
issued all of its common stock to the MONY Group. In this regard, MONY 
suggests that the phrase ``a subsidiary'' be deleted and replaced with 
``the parent company.''
    The Department concurs with the requested modification and has 
revised Section I, accordingly.
    Also on page 69314 of the Notice, Section I uses the phrase 
``employee benefit plans'' to describe the Plans that are covered by 
the exemption. MONY wishes to clarify that it may be a disqualified 
person with respect to arrangements involving individual retirement 
accounts which are described in section 4975(e)(1) of the Code but 
which may not constitute ``employee benefit plans'' as that term is 
defined under the Act and the Department's regulations. Therefore, MONY 
suggests that the exemption use the phrase ``Plan subject to ERISA or 
section 4975(e) of the Code.''
    The Department has considered this comment and concurs basically 
with MONY's clarification. However, for the sake of consistency in the 
use of defined terms in the Notice as well as for parallelism, the 
Department has decided to revise the phrase to state ``Plan subject to 
applicable provisions of the Act and/or the Code.''
    2. Section II(a). On page 69314 of the Notice, Section II(a) 
states, in pertinent part, that the Plan of Reorganization is subject 
to review and supervision by the Superintendent of Insurance of the 
State of New York (the Superintendent). MONY suggests that the word 
``supervision'' be replaced with the word ``approval'' because the New 
York Department believes the word ``approval'' more accurately reflects 
the

[[Page 16499]]

role of the Superintendent with respect to MONY's Plan of 
Reorganization.
    The Department concurs and has modified Section II(a), accordingly.
    3. Section II(d). On page 69315 of the Notice, Section II(d) states 
that an Eligible Policyholder may elect to receive Holding Company 
stock, cash or policy credits pursuant to the Plan of Reorganization 
provided the decision is made by one or more independent fiduciaries of 
such Plan and that neither MONY nor any of its affiliates exercises any 
discretion or provides investment advice with respect to such election. 
MONY wishes to clarify that the only election provided under its Plan 
of Reorganization is a cash election that is provided to certain 
policyholders that would otherwise receive Holding Company stock. 
Specifically, MONY notes that under its Plan of Reorganization, 
Eligible Policyholders who are allocated 75 shares or less of Holding 
Company stock will be provided the option to elect cash instead of 
stock. However, because the principal thrust of the condition is to 
ensure that an Eligible Policyholder's decision to receive Holding 
Company stock, cash or policy credits is not influenced by MONY or any 
of its affiliates, MONY suggests that the Department revise General 
Condition II(d) of the Notice to read as follows:

    (d) One or more independent fiduciaries of a Plan that is an 
Eligible Policyholder receives Holding Company stock, cash or policy 
credits pursuant to the terms of the Plan of Reorganization and 
neither MONY nor any of its affiliates exercises any discretion or 
provides investment advice with respect to such acquisition.

    The Department concurs and has modified Section II(d), accordingly.
    4. Section II(e). On page 69315 of the Notice, Section II(e) 
provides that the actuarial formulas developed by MONY to determine the 
allocation of stock among Eligible Policyholders have been approved by 
the Superintendent. MONY suggests that the word ``approved'' be 
replaced by the word ``reviewed'' because the New York Department 
believes the word ``reviewed'' more accurately reflects their role with 
respect to the allocation methodology, which the New York Department 
did not specifically approve.
    The Department concurs and has modified Section II(e), accordingly.
    5. Section III(d). On page 69315 of the Notice, Section III(d) 
defines the term ``policy credit'' to mean ``an increase in the 
accumulation account value (to which no surrender or similar charges 
are applied) in the general account or an increase in an dividend 
accumulation on a policy.'' To make the definition more comprehensive, 
MONY suggests the following replacement definition of the term:

    (d) ``Policy credit'' means (1) dividend additions under an 
individual participating nonvariable annuity contract, (2) an 
increase in accumulation value of an individual nonparticipating 
nonvariable annuity contract, (3) an increase in the accumulation 
value in the separate investment account under an individual 
participating variable annuity contract, (4) an increase in the 
accumulation value in the general account investment option under an 
individual nonparticipating variable annuity contract or individual 
nonparticipating variable life insurance policy, (5) dividend 
deposits or dividend additions, as appropriate (depending of the 
selection of the underlying policy), (6) an increase in fund value 
on an individual nonparticipating nonvariable life insurance policy, 
(7) an extension of the expiry date on a policy which is in force as 
extended term life insurance pursuant to a non-forfeiture provision 
of a life insurance policy, or (8) an increase in the accumulation 
account value in the general account investment option under a group 
annuity contract or certificate issued thereunder.*

    In addition, MONY suggests that Footnote 2, which appears on page 
69315 of the Notice, be placed at the end of the revised definition of 
the term ``policy credit'' where the asterisk is shown above.
    The Department concurs with the revisions suggested by MONY and has 
made the requested changes.
    6. Representation 4. On page 69316 of the Summary, the second 
sentence of the fourth paragraph of Representation 4 states that MONY 
hired the actuarial firm of Tillinghast Towers-Perrin (TT-P) to conduct 
the actuarial review of the Plan of Reorganization. MONY wishes to 
clarify that because the Superintendent actually selected the actuarial 
firm of TT-P to assist him in his actuarial review of the Plan of 
Reorganization, the word ``MONY'' should be deleted and replaced with 
the term ``the Superintendent.''
    The Department concurs with this clarification.
    7. Representation 6. On page 69316 of the Summary, the second 
sentence of the second paragraph of Representation 6 states that as a 
result of the reorganization, MONY's charter and by-laws were 
extinguished in accordance with New York Insurance Law. MONY wishes to 
clarify that it was required to amend and restate its charter and by-
laws to reflect the new organizational structure of the company. 
Therefore, it suggests that the word ``extinguished'' be replaced with 
the words ``amended and restated.''
    In response, the Department concurs with the requested 
modification.
    8. Footnote 9. On page 69317 of the Summary, Footnote 9 of 
Representation 8 states that (as a result of MONY's demutualization) 
both the fixed and variable components of an insurance policy will be 
provided in exchange for the policyholder's membership interests. For 
purposes of clarification, MONY requests that the term ``insurance 
policy'' be deleted and replaced with the word ``consideration.''
    In response to this change, the Department concurs that Footnote 9 
should have read as follows:

    \9\ MONY notes that both the fixed and variable components of 
consideration will be provided in exchange for the policyholder's 
membership interests.

    9. Representation 9. On page 69317 of the Summary, the first 
sentence of the first paragraph of Representation 9 states that amounts 
to be distributed to Eligible Policyholders that are Plans will be held 
in an escrow or similar arrangement in the event that the Department 
does not provide exemptive relief prior to the date of the 
reorganization. MONY wishes to point out that its Plan of 
Reorganization and exemption application provide that such amounts 
``may'' be held in an escrow or similar arrangement pending the 
finalization of the exemption and that subsequent text in 
Representation 9 reflects the fact that the escrow arrangement may be 
determined to be unnecessary if the proposed exemption specifies the 
date of reorganization as the effective date of the exemption.
    The Department concurs with this modification.
    MONY also wishes to point out that after the Department issued the 
Notice specifying the date of reorganization as the effective date of 
the exemption, the New York Department did not require that amounts 
distributed to Eligible Policyholders be held in an escrow or similar 
arrangement. As such, MONY represents that the required distributions 
to the Plans have taken place.
    10. Representation 10. On page 69317 of the Summary, the first 
sentence of the first paragraph of Representation 10 states that MONY's 
Plan of Reorganization provides for the establishment of a commission-
free sales program (the Program) whereby Stock Eligible Policyholders 
who receive between 25 and 99 shares of Holding Company stock will be 
given the opportunity to sell their Holding Company stock on the open 
market within 60 days prior to the commencement date of the program. 
While this representation is generally accurate, MONY notes that it, 
subject to

[[Page 16500]]

the New York Department's review, has determined that policyholders who 
receive up to 99 shares may participate in the Program. In addition, 
MONY has determined that the Program will be offered for three months 
commencing August 17, 1999 and ending November 17, 1999, which date may 
be extended by MONY with the approval of the Superintendent.
    For further information regarding the comments or other matters 
discussed herein, interested persons are encouraged to obtain copies of 
the exemption application file (Exemption Application No. D-10661) the 
Department is maintaining in this case. The complete application file, 
as well as all supplemental submissions received by the Department are 
made available for public inspection in the Public Documents Room of 
the Pension and Welfare Benefits Administration, Room N-5638, U.S. 
Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C. 
20210.
    Accordingly, after giving full consideration to the entire record, 
including the written comments received, the Department has decided to 
grant the exemption subject to the modifications and clarifications 
described above.

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

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 are true and complete and accurately describe all material 
terms of the transaction which is the subject of the exemption. In the 
case of continuing exemption transactions, if any of the material facts 
or representations described in the application change after the 
exemption is granted, the exemption will cease to apply as of the date 
of such change. In the event of any such change, application for a new 
exemption may be made to the Department.

    Signed at Washington, D.C., this 30th day of March, 1999.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, Department of Labor.
[FR Doc. 99-8225 Filed 4-2-99; 8:45 am]
BILLING CODE 4510-29-P