[Federal Register Volume 65, Number 114 (Tuesday, June 13, 2000)]
[Notices]
[Pages 37165-37175]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-14809]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 2000-30; Exemption Application No. D-
10188, et al.
Grant of Individual Exemptions; Barclays Bank PLC and Its
Affiliates (Collectively, Barclays)
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, DC. The notices also
invited interested persons to submit comments on the requested
exemptions to the Department. In addition the notices stated that any
interested person might submit a written request that a public hearing
be held (where appropriate). The applicants have represented that they
have complied with the requirements of the notification to interested
persons. No public comments and no requests for a hearing, unless
otherwise stated, were received by the Department.
The notices of proposed exemption were issued and the exemptions
are being granted solely by the Department because, effective December
31, 1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C.
App. 1 (1996), transferred the authority of the Secretary of the
Treasury to issue exemptions of the type proposed to the Secretary of
Labor.
[[Page 37166]]
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.
Barclays Bank PLC and its Affiliates (Collectively, Barclays),
Located in London, England;
[Prohibited Transaction Exemption 2000-30; Application No. D-10188]
Exemption
Section I--Retroactive Exemption for the Acquisition, Holding and
Disposition of Barclays PLC Stock
The restrictions of sections 406(a)(1)(D), 406(b)(1) and 406(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)(D) and (E) of the
Code, shall not apply, as of December 31, 1995 until June 13, 2000, to
the acquisition, holding and disposition of the common stock of
Barclays PLC (the Barclays PLC Stock) by Index and Model-Driven Funds
managed by Barclays, provided that the following conditions and the
general conditions in Section III are met:
(a) The acquisition or disposition of the Barclays PLC Stock is for
the sole purpose of maintaining strict quantitative conformity with the
relevant index upon which the Index or Model-Driven Fund is based, and
does not involve any agreement, arrangement or understanding regarding
the design or operation of the Fund acquiring the Barclays PLC Stock
which is intended to benefit Barclays or any party in which Barclays
may have an interest.
(b) All aggregate daily purchases of Barclays PLC Stock by the
Funds do not exceed on any particular day the greater of:
(1) 15 percent of the average daily trading volume for the Barclays
PLC Stock occurring on the applicable exchange and automated trading
system (as described in paragraph (c) below) for the previous five (5)
business days, or
(2) 15 percent of the trading volume for Barclays PLC Stock
occurring on the applicable exchange and automated trading system on
the date of the transaction, as determined by the best available
information for the trades occurring on that date.
(c) All purchases and sales of Barclays PLC Stock occur either (i)
on the London Stock Exchange, a recognized securities exchange as
defined in Section IV(k) below, (ii) through an automated trading
system (as defined in Section IV(j) below) operated by a broker-dealer
independent of Barclays that is subject to regulation and supervision
by the Securities and Futures Authority of the United Kingdom (pursuant
to the applicable securities laws) that provides a mechanism for
customer orders to be matched on an anonymous basis without the
participation of a broker-dealer, or (iii) in a direct, arms-length
transaction entered into on a principal basis with a broker-dealer, in
the ordinary course of its business, where such broker-dealer is
independent of Barclays and is either registered under the Securities
Exchange Act of 1934 (the ``34 Act), and thereby subject to regulation
by the U.S. Securities and Exchange Commission (SEC), or subject to
regulation and supervision by the Securities and Futures Authority of
the United Kingdom (UK).
(d) No transactions by a Fund involve purchases from, or sales to,
Barclays (including officers, directors, or employees thereof), or any
party in interest that is a fiduciary with discretion to invest plan
assets into the Fund (unless the transaction by the Fund with such
party in interest would otherwise be subject to an exemption).
(e) No more than five (5) percent of the total amount of Barclays
PLC Stock issued and outstanding at any time is held in the aggregate
by Index and Model-Driven Funds managed by Barclays.
(f) Barclays PLC Stock constitutes no more than three (3) percent
of any independent third party index on which the investments of an
Index or Model-Driven Fund are based.
(g) A plan fiduciary independent of Barclays authorizes the
investment of such plan's assets in an Index or Model-Driven Fund which
purchases and/or holds Barclays PLC Stock, pursuant to the procedures
described in the notice of proposed exemption published on March 14,
2000 \1\ (see Paragraph 11 of the Summary of Facts and Representations
regarding portfolio management services provided for particular plans),
other than in the case of an employee benefit plan sponsored or
maintained by Barclays PLC and/or an Affiliate for its own employees (a
Barclays Plan).
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\1\ See 65 FR 13836.
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(h) A fiduciary independent of Barclays directs the voting of the
Barclays PLC Stock held by an Index or Model-Driven Fund on any matter
in which shareholders of Barclays PLC Stock are required or permitted
to vote.
(i) No more than ten (10) percent of the assets of any Fund that
acquires and holds Barclays PLC Stock is comprised of assets of any
Barclays Plan(s) for which Barclays exercises investment discretion.
Section II--Prospective Exemption for the Acquisition, Holding and
Disposition of Barclays Stock
The restrictions of sections 406(a)(1)(D), 406(b)(1) and 406(b)(2)
of the Act, section 8477(c)(2)(A) and (B) of FERSA, and the sanctions
resulting from the application of section 4975 of the Code by reason of
section 4975(c)(1)(D) and (E) of the Code, shall not apply to the
acquisition, holding and disposition of Barclays PLC Stock or the
common stock of an Affiliate of Barclays PLC (Barclays PLC Affiliate
Stock) by Index and Model-Driven Funds managed by Barclays, provided
that the following conditions and the general conditions in Section III
are met:
(a) The acquisition or disposition of Barclays PLC Stock or
Barclays PLC Affiliate Stock (collectively, Barclays Stock) is for the
sole purpose of maintaining strict quantitative conformity with the
relevant index upon which the Index or Model-Driven Fund is based, and
does not involve any agreement, arrangement or understanding regarding
the design or operation of the Fund acquiring the Barclays Stock which
is intended to benefit Barclays or any party in which Barclays may have
an interest.
(b) Whenever Barclays Stock is initially added to an index on which
an Index or Model-Driven Fund is based, or initially added to the
portfolio of an Index or Model-Driven Fund, all acquisitions of
Barclays Stock necessary to bring the Fund's holdings of such Stock
either to its capitalization-weighted or other specified composition in
the relevant index, as determined by the independent organization
maintaining such index, or to its correct weighting as determined by
the model which has been used to transform the index, occur in the
following manner:
(1) Purchases are from, or through, only one broker or dealer on a
single trading day;
(2) Based on the best available information, purchases are not the
opening transaction for the trading day;
[[Page 37167]]
(3) Purchases are not effected in the last half hour before the
scheduled close of the trading day;
(4) Purchases are at a price that is not higher than the lowest
current independent offer quotation, determined on the basis of
reasonable inquiry from non-affiliated brokers;
(5) Aggregate daily purchases do not exceed 15 percent of the
average daily trading volume for the security, as determined by the
greater of either (i) the trading volume for the security occurring on
the applicable exchange and automated trading system on the date of the
transaction, or (ii) an aggregate average daily trading volume for the
security occurring on the applicable exchange and automated trading
system for the previous five (5) business days, both based on the best
information reasonably available at the time of the transaction;
(6) All purchases and sales of Barclays Stock occur either (i) on a
recognized securities exchange (as defined in Section IV(k) below),
(ii) through an automated trading system (as defined in Section IV(j)
below) operated by a broker-dealer independent of Barclays that is
either registered under the '34 Act, and thereby subject to regulation
by the SEC, or subject to regulation and supervision by the Securities
and Futures Authority of the UK or another applicable regulatory
authority, which provides a mechanism for customer orders to be matched
on an anonymous basis without the participation of a broker-dealer, or
(iii) through an automated trading system (as defined in Section IV(j)
below) that is operated by a recognized securities exchange (as defined
in Section IV(k) below), pursuant to the applicable securities laws,
and provides a mechanism for customer orders to be matched on an
anonymous basis without the participation of a broker-dealer; and
(7) If the necessary number of shares of Barclays Stock cannot be
acquired within 10 business days from the date of the event which
causes the particular Fund to require Barclays Stock, Barclays appoints
a fiduciary which is independent of Barclays to design acquisition
procedures and monitor Barclays' compliance with such procedures.
(c) Subsequent to acquisitions necessary to bring a Fund's holdings
of Barclays Stock to its specified weighting in the index or model
pursuant to the restrictions described in paragraph (b) above, all
aggregate daily purchases of Barclays Stock by the Funds do not exceed
on any particular day the greater of:
(1) 15 percent of the average daily trading volume for the Barclays
Stock occurring on the applicable exchange and automated trading system
(as defined below) for the previous five (5) business days, or
(2) 15 percent of the trading volume for Barclays Stock occurring
on the applicable exchange and automated trading system (as defined
below) on the date of the transaction, as determined by the best
available information for the trades that occurred on such date.
(d) All transactions in Barclays Stock not otherwise described in
paragraph (b) above are either: (i) Entered into on a principal basis
in a direct, arms-length transaction with a broker-dealer, in the
ordinary course of its business, where such broker-dealer is
independent of Barclays and is either registered under the '34 Act, and
thereby subject to regulation by the SEC, or subject to regulation and
supervision by the Securities and Futures Authority of the UK (SFA-UK)
or another applicable regulatory authority, (ii) effected on an
automated trading system (as defined in Section IV(j) below) operated
by a broker-dealer independent of Barclays that is subject to
regulation by either the SEC, SFA-UK, or another applicable regulatory
authority, or an automated trading system operated by a recognized
securities exchange (as defined in Section IV(k) below) which, in
either case, provides a mechanism for customer orders to be matched on
an anonymous basis without the participation of a broker-dealer, or
(iii) effected through a recognized securities exchange (as defined in
Section IV(k) below) so long as the broker is acting on an agency
basis.
(e) No transactions by a Fund involve purchases from, or sales to,
Barclays (including officers, directors, or employees thereof), or any
party in interest that is a fiduciary with discretion to invest plan
assets into the Fund (unless the transaction by the Fund with such
party in interest would otherwise be subject to an exemption).
(f) No more than five (5) percent of the total amount of either
Barclays PLC Stock or any Barclays PLC Affiliate Stock, that is issued
and outstanding at any time, is held in the aggregate by Index and
Model-Driven Funds managed by Barclays.
(g) Barclays Stock constitutes no more than five (5) percent of any
independent third party index on which the investments of an Index or
Model-Driven Fund are based.
(h) A plan fiduciary independent of Barclays authorizes the
investment of such plan's assets in an Index or Model-Driven Fund which
purchases and/or holds Barclays Stock, pursuant to the procedures
described in the notice of proposed exemption published on March 14,
2000 (see Paragraph 11 of the Summary of Facts and Representations
regarding portfolio management services provided for particular plans),
other than in the case of a Barclays Plan.
(i) A fiduciary independent of Barclays directs the voting of the
Barclays Stock held by an Index or Model-Driven Fund on any matter in
which shareholders of Barclays Stock are required or permitted to vote.
(j) No more than ten (10) percent of the assets of any Fund that
acquires and holds Barclays Stock is comprised of assets of any
Barclays Plan(s) for which Barclays exercises investment discretion.
Section III--General Conditions
(a) Barclays maintains or causes to be maintained for a period of
six years from the date of the transaction the records necessary to
enable the persons described in paragraph (b) of this Section 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 Barclays, the
records are lost or destroyed prior to the end of the six-year period,
and (2) no party in interest other than Barclays 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 (b) below.
(b)(1) Except as provided in paragraph (b)(2) and notwithstanding
any provisions of section 504(a)(2) and (b) of the Act, the records
referred to in paragraph (a) of this Section are unconditionally
available at their customary location for examination during normal
business hours by--
(A) Any duly authorized employee or representative of the
Department or the Internal Revenue Service,
(B) Any fiduciary of a plan participating in an Index or Model-
Driven Fund who has authority to acquire or dispose of the interests of
the plan, or any duly authorized employee or representative of such
fiduciary,
(C) Any contributing employer to any plan participating in an Index
or Model-Driven Fund or any duly authorized employee or representative
of such employer, and
(D) Any participant or beneficiary of any plan participating in an
Index or Model-Driven Fund, or a representative of such participant or
beneficiary.
[[Page 37168]]
(2) None of the persons described in subparagraphs (B) through (D)
of this paragraph (b) shall be authorized to examine trade secrets of
Barclays or commercial or financial information which is considered
confidential.
Section IV--Definitions
(a) The term ``Index Fund'' means any investment fund, account or
portfolio sponsored, maintained, trusteed, or managed by Barclays, in
which one or more investors invest, and--
(1) which is designed to track the rate of return, risk profile and
other characteristics of an independently maintained securities Index,
as described in Section IV(c) below, by either (i) replicating the same
combination of securities which compose such Index or (ii) sampling the
securities which compose such Index based on objective criteria and
data;
(2) for which Barclays does not use its discretion, or data within
its control, to affect the identity or amount of securities to be
purchased or sold;
(3) that contains ``plan assets'' subject to the Act, pursuant to
the Department's regulations (see 29 CFR 2510.3-101, Definition of
``plan assets''--plan investments); and,
(4) that involves no agreement, arrangement, or understanding
regarding the design or operation of the Fund which is intended to
benefit Barclays or any party in which Barclays may have an interest.
(b) The term ``Model-Driven Fund'' means any investment fund,
account or portfolio sponsored, maintained, trusteed, or managed by
Barclays, in which one or more investors invest, and--
(1) which is composed of securities the identity of which and the
amount of which are selected by a computer model that is based on
prescribed objective criteria using independent third party data, not
within the control of Barclays, to transform an independently
maintained Index, as described in Section IV(c) below;
(2) which contains ``plan assets'' subject to the Act, pursuant to
the Department's regulations (see 29 CFR 2510.3-101, Definition of
``plan assets''--plan investments); and
(3) that involves no agreement, arrangement, or understanding
regarding the design or operation of the Fund or the utilization of any
specific objective criteria which is intended to benefit Barclays or
any party in which Barclays may have an interest.
(c) The term ``Index'' means a securities index that represents the
investment performance of a specific segment of the public market for
equity or debt securities in the United States and/or foreign
countries, but only if--
(1) the organization creating and maintaining the index is--
(A) engaged in the business of providing financial information,
evaluation, advice or securities brokerage services to institutional
clients,
(B) a publisher of financial news or information, or
(C) a public stock exchange or association of securities dealers;
and,
(2) the index is created and maintained by an organization
independent of Barclays; and,
(3) the index is a generally accepted standardized index of
securities which is not specifically tailored for the use of Barclays.
(d) The term ``opening date'' means the date on which investments
in or withdrawals from an Index or Model-Driven Fund may be made.
(e) The term ``Buy-up'' means an acquisition of Barclays Stock by
an Index or Model-Driven Fund in connection with the initial addition
of such Stock to an independently maintained index upon which the Fund
is based or the initial investment of a Fund in such Stock.
(f) The term ``Barclays'' refers to Barclays PLC and its
Affiliates, as defined below in paragraph (g), including Barclays
Global Investors, N.A. (BGI), Barclays Global Fund Advisors, Barclays
Global Investors Services, Barclays Global Investors International,
Inc., Barclays Global Investors Asset Risk Management Limited, Barclays
Bank PLC (London), Barclays Bank of Canada, Barclays Bank Zimbabwe,
Barclays Bank of Kenya, and Barclays Bank of Botswana, Ltd.
(g) The term ``Affiliate'' means, with respect to Barclays PLC, an
entity which, directly or indirectly, through one or more
intermediaries, is controlled by Barclays PLC;
(h) An ``affiliate'' of Barclays includes:
(1) Any person, directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with
the person;
(2) Any officer, director, employee or relative of such person, or
partner of any such person; and
(3) Any corporation or partnership of which such person is an
officer, director, partner or employee.
(i) The term ``control'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.
(j) The term ``automated trading system'' means an electronic
trading system that functions in a manner intended to simulate a
securities exchange by electronically matching orders on an agency
basis from multiple buyers and sellers, such as an ``alternative
trading system'' within the meaning of the SEC's Reg. ATS [17 CFR part
242.300], as such definition may be amended from time to time, or an
``automated quotation system'' as described in Section 3(a)(51)(A)(ii)
of the '34 Act [15 USC 78c(a)(51)(A)(ii)].
(k) The term ``recognized securities exchange'' means a U.S.
securities exchange that is registered as a ``national securities
exchange'' under Section 6 of the '34 Act (15 USC 78f), or a designated
offshore securities market, as defined in Regulation S of the SEC [17
CFR part 230.902(b)], as such definition may be amended from time to
time, which performs with respect to securities the functions commonly
performed by a stock exchange within the meaning of definitions under
the applicable securities laws (e.g., 17 CFR part 240.3b-16).
Effective Date: This exemption is effective as of December 31, 1995,
for those transactions described in Section I above, and as of the date
the exemption is published in the Federal Register for those
transactions described in Section II above.
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 March 14, 2000, at 65 FR
13836.
Written Comments:
The applicant (i.e., Barclays) submitted written comments with
respect to the notice of proposed exemption (the Proposal). These
comments, and the Department's responses thereto, are summarized below.
1. Volume Limitations. With respect to the percentage limitations
on the volume of trading that aggregate daily purchases of Barclays
Stock by the Funds may represent, sections I(b), II(b)(5), and II(c) of
the Proposal state that such purchases may not exceed 15 percent of the
average daily trading volume ``* * * occurring on the applicable
exchange or automated trading system.'' The Applicant stated that the
volume limitation should refer to the aggregate trading volume in
Barclays Stock, rather than the trading volume on a particular trading
system on which the Barclays Stock may have been traded. Barclays noted
that the language of the Proposal may prove overly restrictive and
present difficulties in gathering the required daily volume data for a
particular
[[Page 37169]]
automated trading system. Therefore, Barclays requested that the
conditions relating to the volume limitation be modified to state that
aggregate daily purchases not exceed 15% of the total trading volume of
the Barclays Stock (regardless of where it is traded).
In consideration of this comment, the Department has revised the
language of sections I(b)(1) and (2), II(b)(5), and II(c)(1) and (2) of
the exemption by deleting the word ``or'' and substituting the word
``and'' in its place, so that the operative phrase in each of the
subsections now reads ``* * * occurring on the applicable exchange and
automated trading system.'' [emphasis added]
2. Investments by Affiliated Plans. The applicant represented that
certain employee benefit plans established or maintained by an
Affiliate of Barclays PLC for its own employees (i.e., a Barclays Plan)
have invested, and may continue to invest, in Index Funds or Model-
Driven Funds that invest in Barclays Stock. Since December 31, 1995,
and currently, three of these Barclays Plans have invested in a Fund
which held or holds Barclays PLC Stock. These three Barclays Plans are:
(i) The Barclays Global Investors 401(k) Savings Plan; (ii) the
Barclays Global Investors Retirement Plan; and (iii) the Barclays Bank
PLC USA Pension Trust. The applicant stated that at all times since
December 31, 1995, the holdings of these three Barclays Plans together
have comprised less than ten (10) percent of the assets of the Fund. In
this regard, Barclays stated that a Barclays Plan should not be
required to have an independent fiduciary authorize the investment of
such a Plan's assets in an Index or Model-Driven Fund that includes
Barclays Stock in its portfolio, especially since such Stock may only
represent a small portion of the index on which the investments of the
Fund are based. Therefore, the applicant requested that the
requirements contained in section I(g) and II(h) of the Proposal be
modified accordingly.
In consideration of the applicant's comment, the Department has
modified sections I(g) and II(h) herein by inserting the phrases `` * *
* other than in the case of an employee benefit plan sponsored or
maintained by Barclays PLC and/or an Affiliate for its own employees (a
Barclays Plan)'' and ``* * * other than in the case of a Barclays
Plan'' respectively at the end of those subsections.
In addition, with the applicant's consent, the Department has added
a condition (see sections I(i) and II(j) above) which requires that no
more than ten (10) percent of the assets of any Fund that acquires and
holds Barclays Stock shall be comprised of assets of any Barclays
Plan(s) for which Barclays exercises investment discretion.
3. Changes in Names and Status of Certain Entities. The Applicant
noted that in section III(f) of the Proposal, and in Paragraph 1 of the
Summary of Facts and Representations in the Proposal (the Summary),
reference is made to several entities whose name has changed since the
date the exemption application was filed. In this regard, the Applicant
represented the following: BZW Barclays Global Investors, N.A., is now
Barclays Global Investors, N.A.; BZW Barclays Global Fund Advisors is
now Barclays Global Fund Advisors; BZW Barclays Global Investors
Services is now Barclays Global Investors Services; BZW Investment
Management, Inc. is now Barclays Global Investors International Inc.;
and BZW Asset Risk Management Limited is now Barclays Global Investors
Asset Risk Management Limited. The Applicant noted further that
Barclays Global Investors Asset Risk Management Limited is no longer
registered as an investment adviser under the Investment Advisers Act
of 1940.
Therefore, the Department has modified the information contained in
the definition of the term ``Barclays'' in section IV(f) of the
exemption to refer to these entities as stated above.
4. Exclusion of Barclays Stock from Certain Funds. The Applicant
noted that in Paragraph 5 of the Summary, reference is made to the
exclusion of Barclays Stock, since December 31, 1995, from the
portfolios of any new Index or Model-Driven Funds established by
Barclays, even though such Stock is included in indexes upon which such
Funds are based. Barclays wished to clarify that there have been Index
and Model-Driven Funds established since December 31, 1995, that have
purchased Barclays Stock. However, Barclays represented that these
Funds were not subject to the fiduciary responsibility provisions of
the Act at the time the ``buy-up'' of Barclays Stock by the Funds
occurred.
The Department acknowledges the applicant's clarification to the
information contained in Paragraph 5 of the Summary.
5. Weight of Barclays PLC Stock in Certain Indexes. The applicant
noted that in Paragraph 10 of the Summary, reference is made to the
weight of Barclays PLC Stock in certain indexes. In this regard,
Barclays represented that as of April 25, 2000, Barclays PLC Stock
represented 2.05% of the MSCI UK Index and 1.75% of the FTSE 100 Index.
The Department acknowledges the applicant's additional information
and notes that the data provided is consistent with the requirements of
the exemption (see section I(f) above).
6. Transactions with Parties in Interest. The applicant noted that
in Sections I(d) and II(e) of the Proposal, Barclays Stock cannot be
acquired from, or sold to, a Barclays entity (including officers,
directors or employees thereof) or any party in interest that is a
fiduciary with discretion to invest plan assets into the Fund. With
respect to the latter portion of these restrictions, the applicant
requested that the Department clarify that principal transactions by a
Fund with such parties in interest should be permitted, if such
transactions would otherwise be subject to an applicable exemption.
In such transactions, Barclays Stock would be acquired or sold by
the Fund along with a ``basket'' of other securities. The Fund would
enter into a principal transaction with a party in interest that is a
broker-dealer that is either registered under the '34 Act, and thereby
subject to regulation by the SEC, or subject to regulation and
supervision by the SFA-UK or another applicable regulatory authority
(see Section II(d)(i) of the exemption). The applicant stated that such
a transaction could be exempt under another exemption, if the
applicable conditions of that exemption were met. For example,
Prohibited Transaction Exemption (PTE) 91-38, 56 FR 31966 (July 12,
1991) permits bank collective investment funds, in which employee
benefit plans have an interest, to engage in certain transactions with
parties in interest (including fiduciaries of investing plans),
provided that the specified conditions required therein are met.
However, Section I(a) of PTE 91-38 does not provide an exemption for
any violations of section 406(b)(1) of the Act which may occur as a
result of such transactions. Section 406(b)(1) states, in pertinent
part, that a fiduciary for a plan shall not deal with the assets of the
plan in his own interest or for his own account.
In consideration of these comments, the Department has modified the
language of Sections I(d) and II(e) of the exemption by adding the
following parenthetical phrase at the end of those subsections:
``* * * (unless the transaction by the Fund with such party in
interest would otherwise be subject to an exemption).''
In this regard, the Department is providing no opinion as to
whether such principal transactions would be covered by any existing
exemptions.
[[Page 37170]]
Finally, the applicant stated that there is a pending merger of the
London Stock Exchange and the German Bourse, a recognized securities
exchange as defined in Section IV(k) above. Therefore, the applicant
requested that Section II(b)(6) and II(d)(i) and (ii) be amended to
refer to applicable foreign regulatory authorities other than the SFA-
UK.
In response to this comment, the Department has modified Section
II(b)(6) and II(d)(i) and (ii) by adding the phrase ``* * * or another
applicable regulatory authority'' following the reference to the SFA-UK
in those subsections.
No other comments, and no requests for a hearing, were received by
the Department. Accordingly, the Department has determined to grant the
exemption as modified herein.
FOR FURTHER INFORMATION CONTACT: Mr. E.F. Williams of the Department,
telephone (202) 219-8194. (This is not a toll-free number.)
H. Ray McPhail (Mr. McPhail) and the H. Ray McPhail Profit Sharing
Plan (the Plan), Located in Atlanta, Georgia
[Prohibited Transaction Exemption 2000-31; Exemption Application No. D-
10678]
Exemption
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 sale (the Sale) of four parcels of unimproved real
property (the Property) and loan (the Loan) from the Plan to Mr.
McPhail,\2\ a disqualified person with respect to the Plan, provided
that the following conditions are met:
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\2\ Since Mr. McPhail is the only participant in the Plan, there
is no jurisdiction under Title I of the Act pursuant to 29 CFR
2510.3-3(b). However, there is jurisdiction under Title II of the
Act pursuant to section 4975 of the Code.
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(1) With respect to the Sale:
(A) The terms and conditions of the Sale will be at least as
favorable to the Plan as those obtainable in an arm's length
transaction with an unrelated party;
(B) The Sale will occur at a price (the Sale Price) which includes
the greater of $270,000 or the Property's fair market value as
established by a qualified, independent appraiser;
(C) In addition, the Sale Price will include a premium of $30,000
(the Assemblage Value) due to Mr. McPhail's ownership of unimproved
real property located adjacent to the Property;
(D) The Plan will pay no fees or commissions with respect to the
Sale; and
(E) Mr. McPhail will pay $60,000 or 20% of the Sale Price in cash
with the balance paid for by the Loan; and
(2) With Respect to the Loan:
(A) The interest rate on the Loan (the Interest Rate) will be 7%, a
rate set by the Macon Bank for a real estate loan having terms similar
to the Loan;
(B) The Loan terms are at least as favorable to the Plan as those
obtainable in an arm's length transaction with an unrelated party;
(C) The Loan is secured by a first security interest on certain
real property, which has been appraised by a qualified, independent
appraiser to have a fair market value not less than 150% of the
principal amount of the Loan;
(D) The outstanding balance of the Loan will never exceed 20% of
the assets of the Plan throughout the duration of the Loan; and
(E) The fair market value of the collateral remains at least equal
to 150% of the outstanding principal balance plus accrued but not
unpaid interest, throughout the duration of the Loan; and
(3) Should any employee of the Plan Sponsor become eligible for
Plan participation, the new participant will be enrolled in another
qualified retirement plan or the Loan will be immediately repaid.
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 April 7, 2000 at 65 FR
18354.
FOR FURTHER INFORMATION CONTACT: Mr. J. Martin Jara of the Department,
telephone (202) 219-8883 (this is not a toll free number).
Triumph Capital Group, Inc., Located in Boston, MA;
[Prohibited Transaction Exemption 2000-32; Exemption Application No. D-
10708]
Exemption
The restrictions of sections 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 July 22, 1997, to the making, by an employee benefit plan
subject to the Act (the Plan), of capital contributions to any private
equity fund (the Triumph Fund) that is organized, sponsored and/or
managed by Triumph Capital Group, Inc. and/or any of its affiliates
(collectively, Triumph) pursuant to a contractual obligation by a Plan
having an interest in the Triumph Fund.\3\
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\3\ Triumph Funds are generally expected to be organized as
venture capital operating companies that are managed by Triumph.
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This exemption is subject to the following conditions:
a. At the time the Plan undertakes the obligation to make such
capital contributions (the Determination Date), the Triumph Fund is not
a party in interest with respect to the Plan.
b. The decision to make a capital contribution to a Triumph Fund is
made on behalf of the Plan by a Plan fiduciary which is independent of
and unrelated to Triumph and the portfolio company whose interest is
acquired by the Triumph Fund.
c. Triumph does not otherwise provide investment advice as a
fiduciary to the Plan, within the meaning of the Department's
regulations at 29 CFR 2510.3-21(c), with respect to such Plan's assets
that are invested in the Triumph Fund.
d. At the Determination Date, the Plan has aggregate assets that
are in excess of $50 million; provided, however, that in the case of:
(1) Two or more Plans which are not maintained by the same
employer, controlled group of corporations or employee organization
(the Unrelated Plans), whose assets are invested in a Triumph Fund
through a group trust, an insurance company pooled separate account or
any other form of entity the assets of which are ``plan assets'' under
the Department's regulations at 29 CFR 2510.3-101 (the Plan Asset
Regulation), the foregoing $50 million requirement shall be satisfied
if such trust, separate account, or other entity has aggregate assets
which are in excess of $50 million, provided further that the fiduciary
responsible for making the investment decision on behalf of such group
trust, insurance company pooled separate account, or other entity has--
i. Full investment responsibility \4\ with respect to the plan
assets invested therein; and
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\4\ For purposes of this exemption, the term ``full investment
responsibility'' means that the fiduciary responsible for making the
investment decision has and exercises discretionary management
authority over all of the assets of the group trust or other plan
assets entity.
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ii. Total assets under its management and control, exclusive of the
assets invested in the Triumph Fund, which are in excess of $100
million, for Triumph Funds established after April 7, 2000 (i.e., the
date the notice of proposed exemption was published in the Federal
Register).
(2) Two or more Plans which are maintained by the same employer,
[[Page 37171]]
controlled group of corporations or employee organization (the Related
Plans), whose assets are invested in a Triumph Fund through a master
trust or any other entity the assets of which are ``plan assets'' under
the Plan Asset Regulation, the $50 million requirement shall in any
event be satisfied if such trust or other entity has aggregate assets
which are in excess of $50 million, provided, further, that, in the
case of a Triumph Fund established after the date the notice granting
the exemption is published in the Federal Register, in addition to the
$50 million requirement, if the fiduciary responsible for making the
investment decision on behalf of such master trust or other entity is
not the employer or an affiliate of the employer, then such fiduciary
has total assets under its management and control, exclusive of the
assets invested in the Triumph Fund, which are in excess of $100
million.
e. The Triumph Fund is a party in interest with respect to the Plan
solely by reason of a relationship to a portfolio company which is a
service provider to a Plan, as described in Section 3(14)(H) or (I) of
the Act, including a fiduciary with respect to such Plan.
f. The capital commitment of the Plan (together with the capital
commitments of any other Plans maintained by the same employer,
controlled group of corporations or employee organization) with respect
to the Triumph Fund, does not exceed 15 percent of the total capital
commitments made by all investors with respect to such Triumph Fund,
determined at the later of (i) the Determination Date or (ii) the date
on which the Triumph Fund first becomes a party in interest with
respect to such Plan.
g. At the Determination Date, the percentage of the Plan's assets
committed to be invested in the Triumph Fund does not exceed 5 percent
of the Plan's total assets.
h. At the Determination Date, a Plan's aggregate capital commitment
to all Triumph Funds does not exceed 25 percent of the Plan's total
assets.
i. The Plan receives the following initial and ongoing disclosures
with respect to the Triumph Fund:
(1) A copy of the private placement memorandum applicable to the
Triumph Fund or another comparable document containing substantially
the same information;
(2) A copy of the limited partnership or other agreement
establishing the Triumph Fund;
(3) A copy of the subscription agreement applicable to the Triumph
Fund, if any;
(4) Copies of the proposed and final exemption, once such documents
are published in the Federal Register; and
(5) Periodic, but no less frequently than annually, reports
relating to the overall financial position and operational results of
the Triumph Fund, including copies of the Triumph Fund's annual
financial statements.
j. With respect to capital contributions made to a Triumph Fund by
a Plan after the date this exemption is published in the Federal
Register, Triumph maintains or causes to be maintained, for a period of
six (6) years from the date of the transaction, the records necessary
to enable the persons described in paragraph (k) to determine whether
the conditions of the 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 Triumph, the
records are lost or destroyed prior to the end of the six year period;
and
(2) No party in interest, other than Triumph, 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 (k).
k. (1) Except as provided in paragraph (k)(2) and notwithstanding
any provisions of subsection (a) (2) and (b) of section 504 of the Act,
the records referred to in paragraph (j) are unconditionally available
at their customary location for examination during normal business
hours by--
(A) Any duly authorized employee or representative of the
Department or the Internal Revenue Service;
(B) Any fiduciary of a Plan which has an interest in the Triumph
Fund and has the authority to acquire or dispose of the interest of the
Plan in the Triumph Fund, or any duly authorized employee or
representative of such fiduciary; and
(C) Any participant or beneficiary of any Plan which has an
interest in the Triumph Fund, or duly authorized representative of such
participant or beneficiary.
(2) None of the persons described in paragraph (k)(1)(B) and
(k)(1)(C) shall be authorized to examine trade secrets of Triumph or
commercial or financial information which is privileged or
confidential.
Effective Date: This exemption is effective as of July 22, 1997.
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 April 7, 2000, at 65 FR
18356.
FOR FURTHER INFORMATION CONTACT: Mr. Gary Lefkowitz of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
McDonald Investments Inc. (McDonald), Located in Cleveland, Ohio
[Prohibited Transaction Exemption 2000-33; Exemption Application No. D-
10857]
Exemption
I. Transactions
A. Effective January 4, 2000, the restrictions of sections 406(a)
and 407(a) of the Act, and the taxes imposed by section 4975(a) and (b)
of the Code by reason of section 4975(c)(1)(A) through (D) of the Code,
shall not apply to the following transactions involving trusts and
certificates evidencing interests therein:
(1) The direct or indirect sale, exchange or transfer of
certificates in the initial issuance of certificates between the
sponsor or underwriter and an employee benefit plan when the sponsor,
servicer, trustee or insurer of a trust, the underwriter of the
certificates representing an interest in the trust, or an obligor is a
party in interest with respect to such plan;
(2) The direct or indirect acquisition or disposition of
certificates by a plan in the secondary market for such certificates;
and
(3) The continued holding of certificates acquired by a plan
pursuant to subsection I.A.(1) or (2).
Notwithstanding the foregoing, section I.A. does not provide an
exemption from the restrictions of sections 406(a)(1)(E), 406(a)(2) and
407 for the acquisition or holding of a certificate on behalf of an
Excluded Plan by any person who has discretionary authority or renders
investment advice with respect to the assets of that Excluded Plan.\5\
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\5\ Section I.A. provides no relief from sections 406(a)(1)(E),
406(a)(2) and 407 for any person rendering investment advice to an
Excluded Plan within the meaning of section 3(21)(A)(ii) and
regulation 29 CFR 2510.3-21(c).
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B. Effective January 4, 2000, the restrictions of sections
406(b)(1) and 406(b)(2) of the Act, and the taxes imposed by section
4975(a) and (b) of the Code by reason of section 4975(c)(1)(E) of the
Code, shall not apply to:
(1) The direct or indirect sale, exchange or transfer of
certificates in the initial issuance of certificates between the
sponsor or underwriter and a plan
[[Page 37172]]
when the person who has discretionary authority or renders investment
advice with respect to the investment of plan assets in the
certificates is (a) an obligor with respect to 5 percent or less of the
fair market value of obligations or receivables contained in the trust,
or (b) an affiliate of a person described in (a); if:
(i) the plan is not an Excluded Plan;
(ii) solely in the case of an acquisition of certificates in
connection with the initial issuance of the certificates, at least 50
percent of each class of certificates in which plans have invested is
acquired by persons independent of the members of the Restricted Group
and at least 50 percent of the aggregate interest in the trust is
acquired by persons independent of the Restricted Group;
(iii) a plan's investment in each class of certificates does not
exceed 25 percent of all of the certificates of that class outstanding
at the time of the acquisition; and
(iv) immediately after the acquisition of the certificates, no more
than 25 percent of the assets of a plan with respect to which the
person has discretionary authority or renders investment advice are
invested in certificates representing an interest in a trust containing
assets sold or serviced by the same entity.\6\ For purposes of this
paragraph B.(1)(iv) only, an entity will not be considered to service
assets contained in a trust if it is merely a subservicer of that
trust;
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\6\ For purposes of this exemption, each plan participating in a
commingled fund (such as a bank collective trust fund or insurance
company pooled separate account) shall be considered to own the same
proportionate undivided interest in each asset of the commingled
fund as its proportionate interest in the total assets of the
commingled fund as calculated on the most recent preceding valuation
date of the fund.
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(2) The direct or indirect acquisition or disposition of
certificates by a plan in the secondary market for such certificates,
provided that the conditions set forth in paragraphs B.(1)(i), (iii)
and (iv) are met; and
(3) The continued holding of certificates acquired by a plan
pursuant to subsection I.B.(1) or (2).
C. Effective January 4, 2000, the restrictions of sections 406(a),
406(b) and 407(a) of the Act, and the taxes imposed by section 4975(a)
and (b) of the Code by reason of section 4975(c) of the Code, shall not
apply to transactions in connection with the servicing, management and
operation of a trust, provided:
(1) Such transactions are carried out in accordance with the terms
of a binding pooling and servicing agreement; and
(2) The pooling and servicing agreement is provided to, or
described in all material respects in, the prospectus or private
placement memorandum provided to investing plans before they purchase
certificates issued by the trust.\7\
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\7\ In the case of a private placement memorandum, such
memorandum must contain substantially the same information that
would be disclosed in a prospectus if the offering of the
certificates were made in a registered public offering under the
Securities Act of 1933. In the Department's view, the private
placement memorandum must contain sufficient information to permit
plan fiduciaries to make informed investment decisions. For purposes
of this exemption, references to ``prospectus'' include any related
prospectus supplement thereto, pursuant to which certificates are
offered to investors.
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Notwithstanding the foregoing, section I.C. does not provide an
exemption from the restrictions of section 406(b) of the Act, or from
the taxes imposed by reason of section 4975(c) of the Code, for the
receipt of a fee by a servicer of the trust from a person other than
the trustee or sponsor, unless such fee constitutes a ``qualified
administrative fee'' as defined in section III.S.
D. Effective January 4, 2000, the restrictions of sections 406(a)
and 407(a) of the Act, and the taxes imposed by sections 4975(a) and
(b) of the Code by reason of sections 4975(c)(1)(A) through (D) of the
Code, shall not apply to any transactions to which those restrictions
or taxes would otherwise apply merely because a person is deemed to be
a party in interest or disqualified person (including a fiduciary) with
respect to a plan by virtue of providing services to the plan (or by
virtue of having a relationship to such service provider described in
section 3(14)(F), (G), (H) or (I) of the Act or section 4975(e)(2)(F),
(G), (H) or (I) of the Code), solely because of the plan's ownership of
certificates.
II. General Conditions
A. The relief provided under Part I is available only if the
following conditions are met:
(1) The acquisition of certificates by a plan is on terms
(including the certificate price) that are at least as favorable to the
plan as they would be in an arm's-length transaction with an unrelated
party;
(2) The rights and interests evidenced by the certificates are not
subordinated to the rights and interests evidenced by other
certificates of the same trust;
(3) The certificates acquired by the plan have received a rating
from a Rating Agency (as defined in section III.W.) at the time of such
acquisition that is in one of the three highest generic rating
categories;
(4) The trustee is not an affiliate of any other member of the
Restricted Group. However, the trustee shall not be considered to be an
affiliate of a servicer solely because the trustee has succeeded to the
rights and responsibilities of the servicer pursuant to the terms of a
pooling and servicing agreement providing for such succession upon the
occurrence of one or more events of default by the servicer;
(5) The sum of all payments made to and retained by the
underwriters in connection with the distribution or placement of
certificates represents not more than reasonable compensation for
underwriting or placing the certificates; the sum of all payments made
to and retained by the sponsor pursuant to the assignment of
obligations (or interests therein) to the trust represents not more
than the fair market value of such obligations (or interests); and the
sum of all payments made to and retained by the servicer represents not
more than reasonable compensation for the servicer's services under the
pooling and servicing agreement and reimbursement of the servicer's
reasonable expenses in connection therewith;
(6) The plan investing in such certificates is an ``accredited
investor'' as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of 1933;
and
(7) In the event that the obligations used to fund a trust have not
all been transferred to the trust on the closing date, additional
obligations as specified in subsection III.B.(1) may be transferred to
the trust during the pre-funding period (as defined in section III.BB.)
in exchange for amounts credited to the pre-funding account (as defined
in section III.Z.), provided that:
(a) The pre-funding limit (as defined in section III.AA.) is not
exceeded;
(b) All such additional obligations meet the same terms and
conditions for eligibility as those of the original obligations used to
create the trust corpus (as described in the prospectus or private
placement memorandum and/or pooling and servicing agreement for such
certificates), which terms and conditions have been approved by a
Rating Agency. Notwithstanding the foregoing, the terms and conditions
for determining the eligibility of an obligation may be changed if such
changes receive prior approval either by a majority of the outstanding
certificateholders or by a Rating Agency;
(c) The transfer of such additional obligations to the trust during
the pre-funding period does not result in the certificates receiving a
lower credit
[[Page 37173]]
rating from a rating agency upon termination of the pre-funding period
than the rating that was obtained at the time of the initial issuance
of the certificates by the trust;
(d) The weighted average annual percentage interest rate (the
average interest rate) for all of the obligations in the trust at the
end of the pre-funding period will not be more than 100 basis points
lower than the average interest rate for the obligations which were
transferred to the trust on the closing date;
(e) In order to ensure that the characteristics of the receivables
actually acquired during the pre-funding period are substantially
similar to those which were acquired as of the closing date, the
characteristics of the additional obligations will be either monitored
by a credit support provider or other insurance provider which is
independent of the sponsor, or an independent accountant retained by
the sponsor will provide the sponsor with a letter (with copies
provided to the Rating Agency, the underwriter and the trustees)
stating whether or not the characteristics of the additional
obligations conform to the characteristics of such obligations
described in the prospectus, private placement memorandum and/or
pooling and servicing agreement. In preparing such letter, the
independent accountant will use the same type of procedures as were
applicable to the obligations which were transferred as of the closing
date;
(f) The pre-funding period shall be described in the prospectus or
private placement memorandum provided to investing plans; and
(g) The trustee of the trust (or any agent with which the trustee
contracts to provide trust services) will be a substantial financial
institution or trust company experienced in trust activities and
familiar with its duties, responsibilities and liabilities as a
fiduciary under the Act. The trustee, as the legal owner of the
obligations in the trust, will enforce all the rights created in favor
of certificateholders of such trust, including employee benefit plans
subject to the Act.
B. Neither any underwriter, sponsor, trustee, servicer, insurer,
nor any obligor, unless it or any of its affiliates has discretionary
authority or renders investment advice with respect to the plan assets
used by a plan to acquire certificates, shall be denied the relief
provided under Part I, if the provision of subsection II.A.(6) above is
not satisfied with respect to acquisition or holding by a plan of such
certificates, provided that (1) such condition is disclosed in the
prospectus or private placement memorandum; and (2) in the case of a
private placement of certificates, the trustee obtains a representation
from each initial purchaser which is a plan that it is in compliance
with such condition, and obtains a covenant from each initial purchaser
to the effect that, so long as such initial purchaser (or any
transferee of such initial purchaser's certificates) is required to
obtain from its transferee a representation regarding compliance with
the Securities Act of 1933, any such transferees will be required to
make a written representation regarding compliance with the condition
set forth in subsection II.A.(6) above.
III. Definitions
For purposes of this exemption:
A. ``Certificate'' means:
(1) a certificate--
(a) that represents a beneficial ownership interest in the assets
of a trust; and
(b) that entitles the holder to pass-through payments of principal,
interest, and/or other payments made with respect to the assets of such
trust; or
(2) a certificate denominated as a debt instrument--
(a) that represents an interest in a Real Estate Mortgage
Investment Conduit (REMIC) or a Financial Asset Securitization
Investment Trust (FASIT) within the meaning of section 860D(a) or
section 860L, respectively, of the Code; and
(b) that is issued by, and is an obligation of, a trust; with
respect to certificates defined in (1) and (2) above for which McDonald
or any of its affiliates is either (i) the sole underwriter or the
manager or co-manager of the underwriting syndicate, or (ii) a selling
or placement agent.
For purposes of this exemption, references to ``certificates
representing an interest in a trust'' include certificates denominated
as debt which are issued by a trust.
B. ``Trust'' means an investment pool, the corpus of which is held
in trust and consists solely of:
(1) (a) Secured consumer receivables that bear interest or are
purchased at a discount (including, but not limited to, home equity
loans and obligations secured by shares issued by a cooperative housing
association); and/or
(b) Secured credit instruments that bear interest or are purchased
at a discount in transactions by or between business entities
(including, but not limited to, qualified equipment notes secured by
leases, as defined in section III.T); and/or
(c) Obligations that bear interest or are purchased at a discount
and which are secured by single-family residential, multi-family
residential and commercial real property (including obligations secured
by leasehold interests on commercial real property); and/or
(d) Obligations that bear interest or are purchased at a discount
and which are secured by motor vehicles or equipment, or qualified
motor vehicle leases (as defined in section III.U); and/or
(e) ``Guaranteed governmental mortgage pool certificates,'' as
defined in 29 CFR 2510.3-101(i)(2); and/or
(f) Fractional undivided interests in any of the obligations
described in clauses (a)-(e) of this section B.(1);
(2) property which had secured any of the obligations described in
subsection B.(1);
(3)(a) Undistributed cash or temporary investments made therewith
maturing no later than the next date on which distributions are to be
made to certificateholders; and/or
(b) Cash or investments made therewith which are credited to an
account to provide payments to certificateholders pursuant to any yield
supplement agreement or similar yield maintenance arrangement to
supplement the interest rates otherwise payable on obligations
described in subsection III.B.(1) held in the trust, provided that such
arrangements do not involve swap agreements or other notional principal
contracts; and/or
(c) Cash transferred to the trust on the closing date and permitted
investments made therewith which:
(i) are credited to a pre-funding account established to purchase
additional obligations with respect to which the conditions set forth
in clauses (a)-(g) of subsection II.A.(7) are met and/or;
(ii) are credited to a capitalized interest account (as defined in
section III.X.); and
(iii) are held in the trust for a period ending no later than the
first distribution date to certificateholders occurring after the end
of the pre-funding period.
For purposes of this clause (c) of subsection III.B.(3), the term
``permitted investments'' means investments which are either: (i)
Direct obligations of, or obligations fully guaranteed as to timely
payment of principal and interest by the United States, or any agency
or instrumentality thereof, provided that such obligations are backed
by the full faith and credit of the United States or (ii) have been
rated (or the obligor has been rated) in one of the three highest
generic rating categories by a rating agency; are described in the
pooling and
[[Page 37174]]
servicing agreement; and are permitted by the rating agency; and
(4) Rights of the trustee under the pooling and servicing
agreement, and rights under any insurance policies, third-party
guarantees, contracts of suretyship, yield supplement agreements
described in clause (b) of subsection III.B.(3) and other credit
support arrangements with respect to any obligations described in
subsection III.B.(1).
Notwithstanding the foregoing, the term ``trust'' does not include
any investment pool unless: (i) The investment pool consists only of
assets of the type described in clauses (a) through (f) of subsection
III.B.(1) which have been included in other investment pools, (ii)
certificates evidencing interests in such other investment pools have
been rated in one of the three highest generic rating categories by a
Rating Agency for at least one year prior to the plan's acquisition of
certificates pursuant to this exemption, and (iii) certificates
evidencing interests in such other investment pools have been purchased
by investors other than plans for at least one year prior to the plan's
acquisition of certificates pursuant to this exemption.
C. ``Underwriter'' means:
(1) McDonald;
(2) Any person directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with
McDonald; or
(3) Any member of an underwriting syndicate or selling group of
which McDonald or a person described in (2) is a manager or co-manager
with respect to the certificates.
D. ``Sponsor'' means the entity that organizes a trust by
depositing obligations therein in exchange for certificates.
E. ``Master Servicer'' means the entity that is a party to the
pooling and servicing agreement relating to trust assets and is fully
responsible for servicing, directly or through subservicers, the assets
of the trust.
F. ``Subservicer'' means an entity which, under the supervision of
and on behalf of the master servicer, services obligations contained in
the trust, but is not a party to the pooling and servicing agreement.
G. ``Servicer'' means any entity which services obligations
contained in the trust, including the master servicer and any
subservicer.
H. ``Trustee'' means the trustee of the trust, and in the case of
certificates which are denominated as debt instruments, also means the
trustee of the indenture trust.
I. ``Insurer'' means the insurer or guarantor of, or provider of
other credit support for, a trust. Notwithstanding the foregoing, a
person is not an insurer solely because it holds securities
representing an interest in a trust which are of a class subordinated
to certificates representing an interest in the same trust.
J. ``Obligor'' means any person, other than the insurer, that is
obligated to make payments with respect to any obligation or receivable
included in the trust. Where a trust contains qualified motor vehicle
leases or qualified equipment notes secured by leases, ``obligor''
shall also include any owner of property subject to any lease included
in the trust, or subject to any lease securing an obligation included
in the trust.
K. ``Excluded Plan'' means any plan with respect to which any
member of the Restricted Group is a ``plan sponsor'' within the meaning
of section 3(16)(B) of the Act.
L. ``Restricted Group'' with respect to a class of certificates
means:
(1) each underwriter;
(2) each insurer;
(3) the sponsor;
(4) the trustee;
(5) each servicer;
(6) any obligor with respect to obligations or receivables included
in the trust constituting more than 5 percent of the aggregate
unamortized principal balance of the assets in the trust, determined on
the date of the initial issuance of certificates by the trust; or
(7) any affiliate of a person described in (1)-(6) above.
M. ``Affiliate'' of another person includes:
(1) Any person directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control
with such other person;
(2) Any officer, director, partner, employee, relative (as defined
in section 3(15) of the Act), a brother, a sister, or a spouse of a
brother or sister of such other person; and
(3) Any corporation or partnership of which such other person is an
officer, director or partner.
N. ``Control'' means the power to exercise a controlling influence
over the management or policies of a person other than an individual.
O. A person will be ``independent'' of another person only if:
(1) such person is not an affiliate of that other person; and
(2) the other person, or an affiliate thereof, is not a fiduciary
who has investment management authority or renders investment advice
with respect to any assets of such person.
P. ``Sale'' includes the entrance into a forward delivery
commitment (as defined in section Q below), provided:
(1) The terms of the forward delivery commitment (including any fee
paid to the investing plan) are no less favorable to the plan than they
would be in an arm's-length transaction with an unrelated party;
(2) The prospectus or private placement memorandum is provided to
an investing plan prior to the time the plan enters into the forward
delivery commitment; and
(3) At the time of the delivery, all conditions of this exemption
applicable to sales are met.
Q. ``Forward delivery commitment'' means a contract for the
purchase or sale of one or more certificates to be delivered at an
agreed future settlement date. The term includes both mandatory
contracts (which contemplate obligatory delivery and acceptance of the
certificates) and optional contracts (which give one party the right
but not the obligation to deliver certificates to, or demand delivery
of certificates from, the other party).
R. ``Reasonable compensation'' has the same meaning as that term is
defined in 29 CFR 2550.408c-2.
S. ``Qualified Administrative Fee'' means a fee which meets the
following criteria:
(1) the fee is triggered by an act or failure to act by the obligor
other than the normal timely payment of amounts owing in respect of the
obligations;
(2) the servicer may not charge the fee absent the act or failure
to act referred to in (1);
(3) the ability to charge the fee, the circumstances in which the
fee may be charged, and an explanation of how the fee is calculated are
set forth in the pooling and servicing agreement; and
(4) the amount paid to investors in the trust will not be reduced
by the amount of any such fee waived by the servicer.
T. ``Qualified Equipment Note Secured By A Lease'' means an
equipment note:
(1) which is secured by equipment which is leased;
(2) which is secured by the obligation of the lessee to pay rent
under the equipment lease; and
(3) with respect to which the trust's security interest in the
equipment is at least as protective of the rights of the trust as would
be the case if the equipment note were secured only by the equipment
and not the lease.
U. ``Qualified Motor Vehicle Lease'' means a lease of a motor
vehicle where:
(1) the trust owns or holds a security interest in the lease;
[[Page 37175]]
(2) the trust owns or holds a security interest in the leased motor
vehicle; and
(3) the trust's security interest in the leased motor vehicle is at
least as protective of the trust's rights as would be the case if the
trust consisted of motor vehicle installment loan contracts.
V. ``Pooling and Servicing Agreement'' means the agreement or
agreements among a sponsor, a servicer and the trustee establishing a
trust. In the case of certificates which are denominated as debt
instruments, ``Pooling and Servicing Agreement'' also includes the
indenture entered into by the trustee of the trust issuing such
certificates and the indenture trustee.
W. ``Rating Agency'' means Standard & Poor's Structured Rating
Group (S&P's), Moody's Investors Service, Inc. (Moody's), Duff & Phelps
Credit Rating Co. (D&P) or Fitch IBCA, Inc. (Fitch) or their
successors;
X. ``Capitalized Interest Account'' means a trust account: (i)
which is established to compensate certificateholders for shortfalls,
if any, between investment earnings on the pre-funding account and the
pass-through rate payable under the certificates; and (ii) which meets
the requirements of clause (c) of subsection III.B.(3).
Y. ``Closing Date'' means the date the trust is formed, the
certificates are first issued and the trust's assets (other than those
additional obligations which are to be funded from the pre-funding
account pursuant to subsection II.A.(7)) are transferred to the trust.
Z. ``Pre-Funding Account'' means a trust account: (i) Which is
established to purchase additional obligations, which obligations meet
the conditions set forth in clauses (a)-(g) of subsection II.A.(7); and
(ii) which meets the requirements of clause (c) of subsection
III.B.(3).
AA. ``Pre-Funding Limit'' means a percentage or ratio of the amount
allocated to the pre-funding account, as compared to the total
principal amount of the certificates being offered which is less than
or equal to 25 percent.
BB. ``Pre-Funding Period'' means the period commencing on the
closing date and ending no later than the earliest to occur of: (i) the
date the amount on deposit in the pre-funding account is less than the
minimum dollar amount specified in the pooling and servicing agreement;
(ii) the date on which an event of default occurs under the pooling and
servicing agreement; or (iii) the date which is the later of three
months or 90 days after the closing date.
CC. ``McDonald'' means McDonald Investments Inc. and its
affiliates.
The Department notes that this exemption is included within the
meaning of the term ``Underwriter Exemption'' as it is defined in
section V(h) of Prohibited Transaction Exemption 95-60 (60 FR 35925,
July 12, 1995), the Class Exemption for Certain Transactions Involving
Insurance Company General Accounts at (see 60 FR 35932).
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 April 7, 2000 at 65 FR
18365.
FOR FURTHER INFORMATION CONTACT: Gary 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, DC, this 7th day of June, 2000.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, Department of Labor.
[FR Doc. 00-14809 Filed 6-12-00; 8:45 am]
BILLING CODE 4510-29-P