Grant of Individual Exemptions; New York Life Insurance Company
(NYLIC) et al. [Notices] [05/04/2001]
Grant of Individual Exemptions; New York Life Insurance Company
(NYLIC) et al. [05/04/2001]
Volume 66, Number 87, Page 22607-22617
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 2001-16; Exemption Application No. D-
10584, et al.]
Grant of Individual Exemptions; New York Life Insurance Company
(NYLIC) 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, 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 22608]]
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.
New York Life Insurance Company (NYLIC) Located In New York, NY
[Prohibited Transaction Exemption 2001-16 Exemption Application No.: D-
10584]
Exemption
I. Transactions
The restrictions of section 406(a)(1)(A) through (D) and 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 to the following transactions, if the conditions
set forth in Section II and Section III, below, are satisfied:
(a) The receipt, directly or indirectly, by a sales agent (Sales
Agent or Sales Agents), as defined in Section IV(l) below, of a sales
commission from NYLIC in connection with the purchase, with plan
assets, of an insurance contract (the Insurance Contract or Insurance
Contracts), as defined in Section IV(h) below;
(b) The receipt of a sales commission by NYLIC, as principal
underwriter for a mutual fund registered under the Investment Company
Act of 1940, in connection with the purchase, with plan assets, of
securities issued by such mutual fund (the NYLife Fund or NYLife
Funds), as defined in Section IV(c) below;
(c) The effecting by NYLIC, as principal underwriter, of a
transaction for the purchase, with plan assets, of securities issued by
a NYLife Fund, and the effecting by a Sales Agent of a transaction for
the purchase, with plan assets, of an Insurance Contract; and
(d) The purchase, with plan assets, of an Insurance Contract from
NYLIC.
II. General Conditions
(a) The transactions are effected by NYLIC in the ordinary course
of NYLIC's business as an insurance company, or as a principal
underwriter to an NYLife Fund, or in the case of a Sales Agent, in the
ordinary course of the Sales Agent's business as a Sales Agent.
(b) The transactions are on terms at least as favorable to the plan
as an arm's length transaction with an unrelated party would be.
(c) The combined total of all fees, sales commissions, and other
consideration received by NYLIC or a Sales Agent: (1) For the provision
of services to the plan, and (2) in connection with a purchase of an
Insurance Contract or securities issued by a NYLife Fund, is not in
excess of ``reasonable compensation'' within the contemplation of
section 408(b)(2) and (c)(2) of the Act and section 4975(d)(2) and
(d)(10) of the Code. If such total is in excess of ``reasonable
compensation'' the ``amount involved'' for purposes of the civil
penalties of section 502(i) of the Act and excise taxes imposed by
section 4975(a) and (b) of the Code is the amount of compensation in
excess of ``reasonable compensation.''
III. Specific Conditions
(a) NYLIC or the Sales Agent is not--
(1) A trustee of the plan (other than a non-discretionary trustee
who does not render investment advice with respect to any assets of the
plan or a trustee to a pooled trust (the Pooled Trust), as defined in
Section IV(g) below, which will not purchase Insurance Contracts or
securities issued by a NYLife Fund pursuant to this exemption);
(2) A plan administrator (within the meaning of section 3(16)(A) of
the Act and section 414(g) of the Code;
(3) A fiduciary who is expressly authorized in writing to manage,
acquire, or dispose of, on a discretionary basis, those assets of the
plan that are or could be invested in Insurance Contracts, securities
issued by a NYLife Fund, or units of a Pooled Trust; or
(4) An employer any of whose employees are covered by the plan.
(b) (1) Prior to the execution of a transaction involving the
receipt of sales commissions by a Sales Agent in connection with the
plan's purchase of an Insurance Contract, NYLIC or the Sales Agent
provides to an independent plan fiduciary (the Independent Plan
Fiduciary), as defined in Section IV(f) below, disclosures of the
following information concerning the Insurance Contract in writing and
in a form calculated to be understood by a plan fiduciary who has no
special expertise in insurance or investment matters:
(A) An explanation of: (i) the nature of the affiliation or
relationship between NYLIC and the Sales Agent recommending the
Insurance Contract; and, (ii) the nature of any limitations that such
affiliation or relationship, or any agreement between the Sales Agent
and NYLIC places on the Sales Agent's ability to recommend Insurance
Contracts;
(B) The sales commission, expressed as a percentage of gross annual
premium payments for the first year and for each of the succeeding
renewal years, that will be paid by NYLIC to the Sales Agent in
connection with the purchase of the recommended Insurance Contract,
together with a description of any factors that may affect the
commission; and
(C) A full and detailed description of any charges, fees,
discounts, penalties, or adjustments which may be paid by the plan
under the recommended Insurance Contract in connection with the plan's
purchase, holding, exchange, termination, or sale of the Insurance
Contract, including a description of any factors that may affect the
level of charges, fees, discounts, or penalties paid by the plan.
(2) Following receipt of the information required to be provided to
the Independent Plan Fiduciary, as described in Section III(b)(1)
above, and before execution of the transaction, the Independent Plan
Fiduciary acknowledges in writing receipt of such information, and
approves the transaction on behalf of the plan. The Independent Plan
Fiduciary may be an employer of employees covered by the plan but may
not be a Sales Agent involved in the transaction. The Independent Plan
Fiduciary may not receive, directly or indirectly (e.g. through an
affiliate), any compensation or other consideration for his or her own
personal account from any party dealing with the plan in connection
with the transaction.
(3) With respect to additional purchases of Insurance Contracts,
the written disclosure required under Section III(b)(1) need not be
repeated, unless--
(A) More than three years have passed since such disclosure was
made with respect to the same kind of Insurance Contract, or
(B) The Insurance Contract being recommended for purchase or the
commission with respect thereto is materially different from that for
which the approval described under Section III(b)(2) was obtained.
(c)(1) With respect to purchases with plan assets of securities
issued by a NYLife Fund, or receipt of sales commissions by NYLIC in
connection with such purchases, NYLIC provides to an Independent Plan
Fiduciary, prior to the execution of the transaction, the following
information concerning the
[[Page 22609]]
recommended NYLife Fund in writing and in a form calculated to be
understood by a plan fiduciary who has no special expertise in
insurance or investment matters:
(A) A description of: (i) the investment objectives and policies of
the NYLife Fund, (ii) the principal investment strategies that the
NYLife Fund may use to obtain its investment objectives, (iii) the
principal risk factors associated with investing in the NYLife Fund,
(iv) historical investment return information for the NYLife Fund, (v)
fees and expenses of the NYLife Fund, including annual operating
expenses (e.g., management fees, distribution fees, service fees, and
other expenses) and fees paid by shareholders (e.g., sales charges and
redemption fees), (vi) the identity of the NYLife Fund adviser, and
(vii) the procedures for purchases of securities issued by the NYLife
Fund (including any applicable minimum investment requirements and
sales charges);
(B) A description of: (i) the expenses of the recommended NYLife
Fund, including investment management, investment advisory, or similar
services, any fees for secondary services (e.g., for services other
than investment management, investment advisory, or similar services,
including but not limited to custodial, administrative, or other
services), and (ii) any charges, fees, discounts, penalties, or
adjustments that may be paid by the plan in connection with the
purchase, holding, exchange, termination, or sale of shares of the
recommended NYLife Fund securities, together with a description of any
factors that may affect the level of charges, fees, discounts, or
penalties paid by the plan or the NYLife Fund;
(C) An explanation of (i) the nature of the affiliation or
relationship between NYLIC, the NYLife Fund, and (ii) the limitation,
if any, that such affiliation, relationship, or any agreement between
NYLIC and the NYLife Fund places on NYLIC's ability to recommend
securities issued by other investment companies;
(D) The sales commission, if any, that NYLIC will receive in
connection with the purchase of securities of the recommended NYLife
Fund, expressed either as: (i) a percentage of the dollar amount of the
plan's gross payments and the amount actually invested, (ii) an annual
percentage of average daily net asset value of securities issued by the
NYLife Fund, or (iii) both if applicable, with a description of any
factors that may affect the commission; and
(E) A description of the procedure or procedures for redeeming the
NYLife Fund securities.
The disclosures required under Section III(c)(1) above shall be
deemed to be completed only if, with respect to fees and expenses of
NYLife Fund, the type of each fee or expense (e.g., management fees,
administrative fees, fund operating expenses, and other fees, including
but not limited to fees payable for marketing and distribution services
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
12b-1 Fees)) and the rate or amount charged for a specified period
(e.g., annually) is provided in a written document separate from the
prospectus of such NYLife Fund.
(2) Following receipt of the information required to be provided to
the Independent Plan Fiduciary, as described in Section III(c)(1)
above, and before execution of the transaction, the Independent Plan
Fiduciary approves the specific transaction on behalf of the plan.
Unless facts and circumstances would indicate the contrary, such
approval may be presumed if the Independent Plan Fiduciary directs the
transaction to proceed after NYLIC has delivered the written
disclosures to the Independent Plan Fiduciary. The Independent Plan
Fiduciary may be an employer of employees covered by the plan but may
not be NYLIC. The Independent Plan Fiduciary may not receive, directly
or indirectly (e.g. through an affiliate), any compensation or other
consideration for his or her own personal account from any party
dealing with the plan in connection with the transaction.
(3) With respect to additional purchases of NYLife Fund securities,
NYLIC:
(A) Provides reasonable advance notice of any material change with
respect to the NYLife Fund securities being purchased or the commission
with respect thereto, and
(B) Repeats the written disclosure required under Section
III(c)(1)(A), (C), (D), and (E) once every three years.
(d)(1) NYLIC shall retain or cause to be retained for a period of
six (6) years from the date of any transaction covered by this
exemption the following:
(A) The information disclosed with respect to such transaction
pursuant to Section III(b), and (c) above; and
(B) Any additional information or documents provided to the
Independent Plan Fiduciary with respect to the transaction; and
(C) The written acknowledgments described in Section III(b)(2)
above.
(2) A prohibited transaction shall not be deemed to have occurred
if, due to circumstances beyond the control of NYLIC, such records are
lost or destroyed before the end of such six-year period.
(3) Notwithstanding anything to the contrary in sections 504(a)(2)
and (b) of the Act, such records shall be unconditionally available for
examination during normal business hours by duly authorized employees
or representatives of the Department of Labor, the Internal Revenue
Service, plan participants and beneficiaries, any employer of plan
participants and beneficiaries, and any employee organization any of
whose members are covered by the plan.
(e) Neither NYLIC nor a Sales Agent renders investment advice
(within the meaning of 29 CFR 2510.3-21(c)) with respect to the assets
involved in the transaction in connection with a formal advice program
under which specific/individualized asset allocation recommendations
are made available to participants based on their responses to
questionnaires.
IV. Definitions
For purposes of this exemption--
(a) ``NYLTC'' means the New York Life Trust Company, or any other
financial institution supervised under state or federal laws and
affiliated with NYLIC;
(b) ``NYLIC'' means the New York Life Insurance Company and any of
its affiliates, including but not limited to NYLTC, as defined in
Section IV(a) above;
(c) ``NYLife Fund or NYLife Funds'' mean any investment company
registered under the Investment Company Act of 1940 for which NYLIC
serves as investment advisor and as principal underwriter (as that term
is defined in section 2(a)(29) of the Investment Company Act of 1940,
15 U.S.C. Sec. 80a-2(a)(29));
(d) An ``affiliate'' of a person means: (1) any person directly or
indirectly controlling, controlled by, or under common control with
such person, (2) any officer, director, employee, or relative of any
such person, or any partner in such person, and (3) any corporation or
partnership of which such person is an officer, director, or employee,
or in which such person is a partner. For purposes of this definition,
an ``employee'' includes: (A) any registered representative of NYLIC,
where NYLIC or an affiliate is principal underwriter, and (B) any
insurance agent or broker or pension consultant acting under a written
agreement as NYLIC's agent in connection with the sale of an Insurance
Contract, whether or not such registered representative or insurance
agent or broker or pension
[[Page 22610]]
consultant is a common law employee of NYLIC;
(e) The term, ``control,'' means the power to exercise a
controlling influence over the management or policies of a person other
than an individual;
(f) ``Independent Plan Fiduciary'' means a fiduciary with respect
to a plan, which fiduciary has no relationship to or interest in NYLIC
that might affect the exercise of such fiduciary's best judgment as a
fiduciary;
(g) ``Pooled Trust'' means any collective investment fund or group
trust maintained by NYLTC, provided that, NYLTC its successor or
affiliate does not have discretionary authority or responsibility with
respect to the management and administration of or provide investment
advice with respect to, any assets of the plan that are or could be
invested in Insurance Contracts, securities issued by a NYLife Fund, or
units of a Pooled Trust;
(h) ``Insurance Contract or Insurance Contacts'' mean an insurance
or annuity contract issued by NYLIC;\1\
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\1\ The Department expresses no opinion as to whether any so-
called ``synthetic guaranteed insurance contracts'' offered by NYLIC
constitute an Insurance Contract within the meaning of this
exemption. The Department further notes that this exemption provides
relief from the self-dealing and conflict of interest provisions of
the Act in connection with the sale of Insurance Contracts to plans
by fiduciaries. It does not provide relief from any acts of self-
dealing that do not arise directly in connection with the purchase
of specific insurance products. Thus, for example, no relief is
provided under this exemption for any act of self-dealing that may
arise in connection with the ongoing operation or administration of
an Insurance Contract.
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(i) A ``nondiscretionary trustee'' of a plan is a trustee whose
powers and duties with respect to any assets of the plan are limited
to: (1) The provision of nondiscretionary trust services, as defined in
Section IV(j) below, to such plan, and (2) the duties imposed on the
trustee by any provision or provisions of the Act or the Code;
(j) ``Nondiscretionary trust services'' mean custodial services and
services ancillary to custodial services, none of which services are
discretionary;
(k) A ``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 Code section 4975(e)(6), or a brother, a sister, or a spouse
of a brother or a sister;
(l) ``Sales Agent or Sales Agents'' mean any insurance agent,
broker, or pension consultant or any affiliate thereof that is
affiliated with NYLIC; and
(m) ``Principal underwriter'' is defined in the same manner as that
term is defined in section 2(a)(29) of the Investment Company Act of
1940 (15 U.S.C. 8a-2(a)(29)).
Effective Date
This exemption is effective, as of February 12, 1998, the date of
the filing of the application for exemption.
Written Comments
In the Notice of Proposed Exemption (the Notice), the Department of
Labor (the Department) invited all interested persons to submit written
comments and requests for a hearing on the proposed exemption within
thirty (30) days of the date of the publication of the Notice in the
Federal Register on February 15, 2001. All comments and requests for a
hearing were due by April 6, 2001.
During the comment period, the Department received no requests for
a hearing. However, the Department did receive a comment letter from
the applicant. In this regard, in a letter dated April 6, 2001, the
applicant requested certain amendments to the language of the Summary
of Facts and Representations (the SFR), as published in the Notice. The
applicant believes that none of the changes described below involve
material changes in any facts or representation made by NYLIC in its
application to the Department.
A discussion of each of the applicant's comments and the
Department's responses, thereto, are set forth in the numbered
paragraphs below. In the language below, words that have been stricken
from the text of the SFR appear in the closed brackets, and additions
to the SFR appear in bold italics.
1. Representation 2. The applicant has informed the Department that
NYLIC recently organized a new wholly-owned investment management
subsidiary, New York Life Investment Management LLC (NYLIM), and has
made other changes to the names or organization of one or more of its
subsidiaries. The applicant requests that the Department substitute the
language, as set forth in the paragraph below, for the text of
Representation 2, as it appeared in the SFR.
The Department concurs. Accordingly, the language, as set forth in
the Notice at 66 FR at 10517, column 1, lines 49 to 57 and column 2,
lines 1-2 should have read as follows:
The application was filed on behalf of NYLIC and its direct or
indirect wholly-owned subsidiaries, New York Life Trust Company
(NYLTC), New York Life Benefit Services LLC (NYLBS), NYLIFE
Distributors Inc. (NYLIFE Distributors), New York Life Investment
Management LLC (NYLIM), MacKay-Shields LLC [Financial Corporation]
(MacKay-Shields), [Monitor Capital Advisors, Inc. (Monitor
Capital)], and NYLIFE Securities Inc. (NYLIFE Securities).
2. Representation 3. The applicant wishes to update the total
consolidated assets information, as published in the SFR. In this
regard, the applicant represents that the revised numbers, as set forth
below, are based on NYLIC's annual report, as of December 31, 2000. It
is further represented that this report includes condensed,
consolidated financial information for NYLIC and its domestic, wholly-
owned life insurance subsidiaries, New York Life Insurance and Annuity
Corporation and NYLIC Insurance Company of Arizona.
The Department concurs. Accordingly, the language, as set forth in
the Notice at 66 FR at 10517, column 2, lines 5-9 should have read, as
follows:
As of December 31, [1996] 2000, NYLIC had approximately $97.1
billion in total consolidated assets [of approximately $78.8 billion
and net] (including policy reserves) and $88.4 billion in total
liabilities [of $74.8 billion].
In addition, the applicant wishes to clarify the following
statement that appeared in Representation 3 in the Notice at 66 FR at
10517, column 2, lines 16-23:
It is represented that all insurance products offered by NYLIC
are reviewed and approved by the New York Insurance Department under
New York insurance laws and under the applicable insurance laws of
any other state where such products are marketed and sold.
The applicant notes that insurance products offered by NYLIC are
reviewed and approved by the New York State Insurance Department under
New York laws or under the applicable insurance laws of another state
where such products are marketed and sold. In this regard, NYLIC may
not obtain New York State Insurance Department approval for insurance
products marketed and sold in states other than New York, although such
products are filed with the New York State Insurance Department. In
addition, insurance products offered by certain subsidiaries of NYLIC
that are organized and supervised by another state are not approved by
the New York State Insurance Department but are filed with the New York
State Insurance Department if marketed in New York.
The Department acknowledges the clarification as submitted by the
applicant.
3. Representation 6. The applicant has informed the Department of
certain changes with respect to the NYLife Funds, including the
renaming of the MainStay Institutional Funds Inc. on
[[Page 22611]]
December 29, 2000. Therefore, the applicant requests that the
Department substitute the language, as set forth in the paragraph
below, for the text of Representation 6, as it appeared in the SFR.
The Department concurs. Accordingly, the language, as set forth in
the Notice at 66 FR at 10517, column 3, lines 29 to 60 and at 10518,
column 1, lines 1-7 should have read as follows:
The NYLife Funds are open-end investment companies registered
with the Securities and Exchange Commission (SEC) under the
Investment Company Act of 1940. The NYLife Funds are offered to
plans directly and through variable life and annuity contracts
issued by NYLIC. Currently, the NYLife Funds include [the] The
MainStay Funds, which are available to retail and institutional
investors (including defined contribution plans) and the [MainStay
Institutional] Eclipse Funds Inc., and Eclipse Funds, which are
[only] available to institutional investors, [and to] group
individual retirement account customers, and retail investors. The
MainStay Funds, organized as a Massachusetts business trust,
currently include [fourteen (14)] twenty-five (25) separate funds,
each of which has its own investment objectives and policies.
Eclipse Funds Inc., a Maryland corporation, currently offers
thirteen (13)separate funds, and the Eclipse Funds, a Massachusetts
business trust, currently offers four (4) separate funds. Both the
Eclipse Funds Inc. and the Eclipse Funds are marketed under a
combined prospectus. [MainStay Institutional Funds Inc. currently
include eleven (11) separate funds].
Affiliates of NYLIC provide [provides] a broad range of services
to NYLife Funds. Specifically, the NYLife Funds are managed by
NYLIM. MacKay-Shields is a sub-advisor to one or more of the NYLife
Funds. [or Monitor Capital, both of which] Both are registered
investment advisers and indirect wholly-owned subsidiaries of NYLIC.
NYLIM [NYLIC] is the administrator to each of the NYLife Funds and
provides various services, including administration, accounting, and
other similar services and shareholder administration and sub-
accounting for which NYLIM [NYLIC] and/or its affiliates may receive
management fees, administrative fees, and/or shareholder services
fees.
4. Representation 9. The applicant wishes to clarify the following
statement that appeared in Representation 9 in the Notice at 66 FR at
10518, column 2, line 1:
In this regard, it is represented that NYLIC will advise NYLTC
in connection with the management of the Collective Trust, although
NYLTC will have final decision making authority.
The applicant has informed the Department that NYLIC has engaged
NYLIM to advise it in providing investment management services to all
of its clients, including services provided by NYLIC to NYLTC for the
Collective Trust. However, it is represented that NYLIC remains fully
responsible for providing advice and other services under the terms and
conditions of the documents governing the Collective Trust, described
in Representation 9, as published in the SFR.
The Department acknowledges the clarification as submitted by the
applicant.
After giving full consideration to the entire record, including the
written comment from the applicant, the Department has decided to grant
the exemption, as described, amended, clarified, and concurred in
above. In this regard, the comment letter submitted by the applicant to
the Department has been included as part of the public record of the
exemption application. The complete application file, including all
supplemental submissions received by the Department, is made available
for public inspection in the Public Documents Room of the Pension
Welfare Benefits Administration, Room N-1513, U.S. Department of Labor,
200 Constitution Avenue, N.W., Washington, D.C. 20210.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption refer to
the Notice published on February 15, 2001, at 66 FR 10514.
For Further Information Contact
Angelena C. Le Blanc of the Department, telephone (202) 219-8883.
(This is not a toll-free number.)
Indianapolis Life Insurance Company (Indianapolis Life) and AmerUs
Group Co. (AmerUs Group) Located in Indianapolis, IN
[Prohibited Transaction Exemption 2001-17; Exemption Application No. D-
10930]
Exemption
Section I. Covered Transactions
The restrictions of section 406(a) of the Act (or ERISA) 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 to (1) the receipt of common stock (Common Stock) issued by
AmerUs Group, which will become the parent of Indianapolis Life, or (2)
the receipt of cash (Cash) or policy credits (Policy Credits), by or on
behalf of a policyowner of Indianapolis Life who is an eligible member,
as defined in Section III (the Eligible Member), which is an employee
benefit Plan, including an employee benefit plan that is sponsored by
Indianapolis Life and its affiliates for their own employees (the
Indianapolis Life Plans; collectively, the Plans), in exchange for such
Eligible Member's membership interest in Indianapolis Life, in
accordance with the terms of a plan of conversion (the Plan of
Conversion), implemented under Indiana law.\2\
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\2\ Unless otherwise noted, all references to Indianapolis Life
and its affiliates are deemed to include references to AmerUs Group
and its affiliates.
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In addition, the restrictions of section 406(a)(1)(E) and (a)(2)
and section 407(a)(2) of the Act shall not apply to the receipt or
holding, by the Indianapolis Life Insurance Company Group Term Life
Insurance Plan for Employees, Plan No. 505 (the IL Group Term Life
Insurance Plan), of employer securities in the form of excess AmerUs
Group Common Stock, in accordance with the terms of the Plan of
Conversion.
This exemption is subject to the following conditions set forth
below in Section II.
Section II. General Conditions
(a) The Plan of Conversion is subject to approval, review and
supervision by the Commissioner of Insurance of the Indiana Department
of Insurance (the Commissioner) and is implemented in accordance with
procedural and substantive safeguards imposed under Indiana law.
(b) The Commissioner reviews the terms and options that are
provided to Eligible Members as part of such Commissioner's review of
the Plan of Conversion, and the Commissioner approves the Plan of
Conversion following a determination that such Plan is fair, reasonable
and equitable to Eligible Members.
(c) Each Eligible Member has an opportunity to vote to approve the
Plan of Conversion after full written disclosure is given to the
Eligible Member by Indianapolis Life.
(d) Any determination to receive Common Stock, Cash or Policy
Credits by an Eligible Member which is a Plan, pursuant to the terms of
the Plan of Conversion, is made by one or more Plan fiduciaries which
are independent of Indianapolis Life and its affiliates and neither
Indianapolis Life nor any of its affiliates exercises any discretion or
provides ``investment advice'' within the meaning of 29 CFR 2510.3-
21(c), with respect to such decisions.
(e) After each Eligible Member entitled to receive shares of AmerUs
Group Common Stock is allocated at least 12 shares, additional
consideration is allocated to Eligible Members who own participating
policies based on actuarial formulas that take into account
[[Page 22612]]
the actuarial contribution, if any, that each Eligible Member's policy
has made (and is expected to make) to Indianapolis Life's statutory
surplus, which formulas are subject to review and approval by the
Commissioner.
(f) In the case of the Indianapolis Life Plans, the independent
fiduciary--
(1) Votes on whether to approve or not to approve the proposed
restructuring process (the Restructuring);
(2) Elects between consideration in the form of AmerUs Group Common
Stock or Cash;
(3) Determines how to apply the Cash or AmerUs Group Common Stock
received for the benefit of the participants and beneficiaries of the
Indianapolis Life Plans;
(4) Votes shares of AmerUs Group Common Stock held by all
Indianapolis Life Plans, including the IL Group Term Life Insurance
Plan, and disposes of such stock held by the IL Group Term Life
Insurance Plan exceeding the limitation of section 407(a)(2) of the Act
as soon as reasonably practicable, but in no event later than six
months after the effective date of the Plan of Conversion.
(5) Provides the Department with a complete and detailed final
report as it relates to the Indianapolis Life Plans prior to the
effective date of the Restructuring; and
(6) Takes all actions that are necessary and appropriate to
safeguard the interests of the Indianapolis Life Plans and their
participants and beneficiaries.
(g) All Eligible Members that are Plans participate in the
transactions on the same basis as all Eligible Members that are not
Plans.
(h) No Eligible Member pays any brokerage commissions or fees in
connection with their receipt of AmerUs Group Common Stock or Policy
Credits or in connection with the implementation of the commission-free
purchase and sale program.
(i) All of Indianapolis Life's policyholder obligations remain in
force and are not affected by the Plan of Conversion.
Section III. Definitions
For purposes of this exemption,
(a) The term ``Indianapolis Life'' means Indianapolis Life
Insurance Company and AmerUs Group Co., unless otherwise noted.
(b) An ``affiliate'' of Indianapolis Life includes --
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with Indianapolis Life. (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) A ``policy'' is defined as (1) any contract of insurance,
annuity contract, or supplemental contract in each case, that has been
issued by Indianapolis Life; (2) each certificate issued under any of
Indianapolis Life's group annuity contracts as part of a custodial
403(b) or IRA arrangement, or as part of a non-ERISA 403(b) arrangement
(the custodian or employer-sponsor holding such group annuity contracts
shall not be considered the Eligible Member or owner); and (3) each
certificate issued under the group plan established as a convenience by
Indianapolis Life to provide life insurance to self-employed agents.
The following policies and contracts are deemed not to be policies for
purposes of the Plan of Conversion: (1) a certificate issued to an
individual pursuant to a group life insurance policy (except as set
forth in the preceding sentence); (2) a certificate issued under a
group annuity contract (except as set forth in the preceding sentence);
and (3) any reinsurance assumed on an indemnity basis (but certificates
of assumption constitute policies).
(d) The term ``Eligible Member'' means a policyholder whose name
appears on Indianapolis Life's records as the owner of one or more
policies issued by Indianapolis Life on both the date the Board of
Directors adopts the Plan of Conversion and the effective date of the
Plan of Conversion.
(e) A ``supplemental contract'' is a policy or contract that has
been issued pursuant to a Plan, qualified under section 401(a) of the
Code, directly to a Plan participant.
(f) ``Policy Credits'' will consist of an increase in the dividend
accumulation on an Indianapolis Life policy or contract (to which no
sales, surrender, or similar charges will be applied), an increase in
the accumulation account value of the Indianapolis Life policy or
contract (to which no sales, surrender, or similar charge will be
applied), an increase in the premium deposit fund under the
Indianapolis Life policy or contract, an increase in the amount of the
payments distributed under an Indianapolis Life policy or contract that
is a supplemental contract, or an extension of the expiry date on an
Indianapolis Life policy or contract that is in force as extended term
life insurance pursuant to a non-forfeiture provision of a life
insurance policy.
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 January 25, 2001 at 66 FR
7802.
Written Comments
The Department received four written comments with respect to the
proposed exemption. Two comments were submitted by Plan policyholders
of Indianapolis Life. Of these comments, one policyholder said he was
in favor of the Department's granting the proposed exemption while the
other policyholder said he was opposed to the demutualization and
preferred that Indianapolis Life's surplus earnings remain with the
insurer in order to enhance the policyholder's existing insurance
policies with Indianapolis Life. The third and fourth comments, which
were submitted under separate cover by AmerUs Group and Indianapolis
Life, expressed specific concerns about the proposed exemption in a
number of areas.
The dissenting policyholder's comment, as well as the comments
submitted by AmerUs Group and Indianapolis Life, are discussed below.
Also discussed below are Indianapolis Life's response to the
policyholder comment and the Department's responses to the areas of
concern raised by both AmerUs Group and Indianapolis Life.
Policyholder Comment
As stated briefly above, one commenter states that he is opposed to
Indianapolis Life's contemplated demutualization and maintains that
Indianapolis Life should retain its current status as a mutual
insurance company. The commenter indicates that he does not believe the
exemption is in his best interest as grounds for his opposition. The
commenter explains that he would prefer that Indianapolis Life's
surplus remain with the insurer in order to make the policyholder's
insurance contracts stronger.
In response, Indianapolis Life disagrees with the commenter's
position. As explained in the exemption application, Indianapolis Life
emphasizes that the demutualization will not in any way reduce the
benefits, values, guarantees, or dividend eligibility of existing
policies or contracts that it has issued. Instead, the Restructuring
will result in significant benefits to Indianapolis Life policyholders.
In this regard, Indianapolis Life states that the
[[Page 22613]]
Restructuring is designed to enhance its financial strength in access
to capital through an affiliation with AmerUs Group that will result in
a larger combined organization. Moreover, Indianapolis Life explains
that access to capital markets will enable it to invest in new
technology, improve customer service, develop new products and channels
of distribution, and obtain more financial flexibility with which to
maintain its ratings and financial stability. Finally, Indianapolis
Life explains that the combination with AmerUs Group will create an
opportunity to leverage its corporate capacity and strength and reduce
expenses through economies of scale.
In addition, Indianapolis Life notes that, at the special
policyholders meeting held earlier this week, over 96 percent of the
policyholders who voted on the Restructuring voted to approve it.
Because of the overwhelming policyholder vote and the reasons cited for
the Restructuring, Indianapolis Life maintains that the view expressed
by the commenter should not preclude the Department from granting the
final exemption.
AmerUs Group's Comment
In its comment, AmerUs Group notes that the proposed Restructuring
will involve both the combination of Indianapolis Life and AmerUs Group
and the sponsored demutualization of Indianapolis Life. At the time the
demutualization consideration is provided to Indianapolis Life
policyholders, AmerUs Group explains that Indianapolis Life will become
a second tier subsidiary of AmerUs Group. For this reason, AmerUs Group
states that it is important that the exemption cover AmerUs Group and
its affiliates as well as Indianapolis Life and its affiliates.
However, AmerUs Group notes that the proposed exemption has been issued
only under the name of Indianapolis Life. Therefore, AmerUs Group
requests that the final exemption be issued in the names of both
entities and that the final exemption contain a statement to the effect
that the exemption covers the affiliates of both entities.
In response, the Department has modified the title of the exemption
to include a reference to AmerUs Group to show that the exemption has
been issued to AmerUs Group and Indianapolis Life, jointly. In
addition, the Department has inserted a new footnote in the operative
language which states that ``[f]or purposes of this exemption, all
references to Indianapolis Life and its affiliates are deemed to
include references to AmerUs Group and its affiliates.'' Further, the
Department has revised Section III(a) of the final exemption by
including a reference to AmerUs Group, the future parent of
Indianapolis Life. Section III(a) of the final exemption now reads as
follows:
The term ``Indianapolis Life'' means Indianapolis Life Insurance
Company and AmerUs Group Co., unless otherwise noted.
Indianapolis Life's Comments
Indianapolis Life had three major comments to the proposed
exemption and a couple of minor comments that were in the nature of
technical clarifications designed to enhance the accuracy of the
description of the subject transactions and update factual information.
1. Definition of Indianapolis Life. Section III(a) of the proposed
exemption defines ``Indianapolis Life'' to include ``any affiliate of
Indianapolis Life, as defined in paragraph (b) of this Section III.''
Indianapolis Life requests that the reference to any affiliate be
deleted from the definition and that the term ``affiliate'' as defined
in paragraph (b) of Section III be added where needed throughout the
exemption. Indianapolis Life notes that it is important to exclude
affiliates from the definition of Indianapolis Life because the phrase
``Indianapolis Life and its affiliates'' is referred to separately in
the exemption application, and many of the provisions from the
application have been incorporated into the exemption. By lumping
Indianapolis Life and its affiliates together in one defined term
changes the meanings of many of those provisions, according to
Indianapolis Life and may lead to an incongruous result.\3\
---------------------------------------------------------------------------
\3\ For example, Indianapolis Life refers to the definition of
``Eligible Member'' in paragraph (d) of Section III. Without
distinguishing between it and its affiliates, Indianapolis Life
explains that this definition would incorrectly include persons with
policies issued by the affiliates as members of Indianapolis Life.
Policyholders of Indianapolis Life's affiliates are not members of
Indianapolis Life, according to Indianapolis Life.
---------------------------------------------------------------------------
In addition, Indianapolis Life notes that there are several other
places in the proposed exemption where a distinction between
Indianapolis Life and its affiliates is important. Rather than identify
all of those places, Indianapolis Life would prefer to remove
``affiliates'' from the definition of Indianapolis Life and refer
separately to affiliates where needed in the proposed exemption.
Indianapolis Life also explains that it conducted a word search through
the proposed exemption and found only one instance where the term
``affiliates'' had been inappropriately used. The sentence in question
appears in the last sentence in the third paragraph of Representation
23 of the proposed exemption in the Summary of Facts and
Representations (the Summary). There, it is stated that ``U.S. Trust *
* * derives less than one percent of its annual income from
Indianapolis Life.'' Indianapolis Life believes that the sentence
should be revised to state that ``U.S. Trust derives less than one
percent of its annual income from Indianapolis Life and its
affiliates.''
In response to Indianapolis Life's comment, the Department has
already revised Section III(a) of the final exemption (as shown above)
by deleting the term ``affiliates'' and by including a reference to
AmerUs Group. The Department also notes Indianapolis Life's revision to
Representation 23 of the Summary.
2. Standard of Commissioner's Review. Section II(b) of the proposed
exemption recites the standard under which the Commissioner will review
the Plan of Conversion under Indiana law. Indianapolis Life states that
Indiana law requires the Commissioner to determine that the Plan of
Conversion is not only fair and equitable but is ``reasonable'' to
Eligible Members before approving the Plan of Conversion. Accordingly,
Indianapolis Life requests that ``reasonable'' be added to the standard
described in this subsection.
In response to this comment, the Department has revised Section
II(b) of the final exemption to read as follows:
The Commissioner reviews the terms and options that are provided
to Eligible Members as part of such Commissioner's review of the
Plan of Conversion, and the Commissioner approves the Plan of
Conversion following a determination that such Plan is fair,
reasonable and equitable to Eligible Members.
3. Time Frame for Distributing Notice to Interested Persons. In the
section of the proposed exemption titled ``Notice to Interested
Persons,'' Indianapolis Life suggests updating the paragraph contained
therein to reflect that Indianapolis Life had provided interested
persons with notice of the proposed exemption as well as to show the
revised time frame for the comment period. Indianapolis Life states
that it requested an 8 day extension of time to provide interested
persons with notice of the proposed exemption in order to allow time
for mailing its member information statement prior to the dissemination
of the proposal. Indianapolis Life also notes that, at the Department's
request, the extension of time was granted, provided an additional 3
days were factored into the comment period to allow for mailing
[[Page 22614]]
time and to ensure that interested persons would have at least 30 days
in which to comment. With the increased time, Indianapolis Life
explains that comments to the proposed exemption were then due to the
Department by March 21, 2001.
4. Technical Corrections to Sections I-III of the Proposed
Exemption. a. Section I. In the operative language of the proposed
exemption, Section I states that AmerUs Group Co. is the parent of
Indianapolis Life. However, Indianapolis Life explains that this entity
will not become Indianapolis Life's parent until the effective date of
Indianapolis Life's Restructuring. Also, in that same paragraph of the
operative language, Indianapolis Life states that the reference to the
term ``Eligible Member'' should refer to the definition of that term,
as defined in Section III, because not all of Indianapolis Life's
policyholders are Eligible Members of the insurer.
In response to this comment, the Department has revised part of the
operative language of the final exemption to read as follows:
The restrictions of section 406(a) of the Act (or ERISA) 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 to (1) the receipt of common stock (Common Stock)
issued by AmerUs Group, which will become the parent of Indianapolis
Life, or (2) the receipt of cash (Cash) or policy credits (Policy
Credits), by or on behalf of a policyowner of Indianapolis Life who
is an eligible member, as defined in Section III (the Eligible
Member), which is an employee benefit Plan, including an employee
benefit plan that is sponsored by Indianapolis Life and its
affiliates for their own employees (the Indianapolis Life Plans;
collectively, the Plans), in exchange for such Eligible Member's
membership interest in Indianapolis Life, in accordance with the
terms of a plan of conversion (the Plan of Conversion), implemented
under Indiana law.
b. Section II(e). Section II(e) of the proposed exemption states
that after each Eligible Member entitled to receive shares of AmerUs
Group Common Stock is allocated at least 12 shares, additional
consideration will be allocated to Eligible Members owning
participating policies based on actuarial formulas that take into
account each participating policy's contribution to surplus and asset
valuation reserve of Indianapolis Life, which formulas have been
approved by the Commissioner.
Indianapolis Life requests that Section II(e) be revised to reflect
the language in the Plan of Conversion and to correspond more closely
with language used later in the proposed exemption to describe the
process for determining the amount of additional consideration, if any,
an Eligible Member will receive after being allocated the fixed
component of consideration.
In response to this comment, the Department has revised Section
II(e) of the final exemption to read as follows:
After each Eligible Member entitled to receive shares of AmerUs
Group Common Stock is allocated at least 12 shares, additional
consideration is allocated to Eligible Members who own participating
policies based on actuarial formulas that take into account the
actuarial contribution, if any, that each Eligible Member's policy
has made (and is expected to make) to Indianapolis Life's statutory
surplus, which formulas are subject to review and approval by the
Commissioner.
c. Section II(f). Subparagraph 4 of Section II(f) of the proposed
exemption states that U.S. Trust, will vote shares of AmerUs Group
Common Stock that are held by the IL Group Term Life Insurance Plan and
dispose of any stock held by this plan which exceeds the limitation of
section 407(a)(2) of the Act as reasonably as practicable, but in no
event later than six months after the effective date of the plan of
Conversion. The last paragraph of Representation 23 of the Summary
contains a similar provision.
Indianapolis Life wishes to point out that U.S. Trust will vote all
shares of AmerUs Group Common Stock that are held by any of the
Indianapolis Life Plans and not just those held by the IL Group Term
Life Insurance Plan. Therefore, the Department has revised subparagraph
(4) of Section II(f) of the final exemption to read as follows:
Votes shares of AmerUs Group Common Stock held by all
Indianapolis Life Plans, including the IL Group Term Life Insurance
Plan, and disposes of such stock held by the IL Group Term Life
Insurance Plan exceeding the limitation of section 407(a)(2) of the
Act as soon as reasonably practicable, but in no event later than
six months after the effective date of the Plan of Conversion.
In addition, the Department notes a corresponding revision to the last
paragraph of Representation 23 of the Summary.
d. Section III(c). Section III(c) of the proposed exemption defines
the term ``policy,'' to include, in part, a certificate issued under a
group plan established as a convenience by Indianapolis Life to provide
life insurance to self-employed agents and under which all premiums
have been paid by such agents. At the Commissioner's request,
Indianapolis Life states that the Plan of Conversion has been revised
to delete the phrase ``and under which all premiums were paid by such
agents'' from the description of the certificates. Therefore, in
response to this comment, the Department has revised part of Section
III(c) of the final exemption to read as follows:
* * * each certificate issued under the group plan established as a
convenience by Indianapolis Life to provide life insurance to self-
employed agents.
e. Section III(e). Section III(e) of the proposed exemption defines
the term ``supplemental contract'' as a policy or contract that has
been issued pursuant to a Plan participant. Indianapolis Life states
that the definition of ``supplemental contract'' should only include
contracts issued to Plan participants by Plans that are qualified under
section 401(a) of the Code and do not include contracts issued by a
Plan that is not qualified under Code section 401(a). Therefore, the
Department has revised Section III(e) of the final exemption to read as
follows:
A ``supplemental contract'' is a policy or contract that has
been issued pursuant to a Plan, qualified under section section
401(a) of the Code, directly to a Plan participant.
5. Technical Corrections to the Summary. The Department notes the
following clarifications made to the Summary by Indianapolis Life:
a. Representation 1. Representation 1 states that Indianapolis
Life's rating by Fitch is ``AA'' whereas its correct rating is ``AA-.''
b. Representation 3. In the first paragraph, Representation 3
states that Indianapolis Life's principal products include individual
retirement accounts. However, Indianapolis Life wishes to point out
that such products include ``annuities'' rather than ``accounts''
covered under section 408 of the Code.
c. Representation 4(a). Representation 4(a) sets forth the total
assets of the Indianapolis Life Insurance Company Salary Reduction
Plan, Plan No. 007. Indianapolis Life wishes to clarify that the asset
and participants totals for this Plan were reported as of June 30, 2000
rather than June 20, 2000.
For further information regarding the comments and other matters
discussed herein, interested persons are encouraged to obtain copies of
the exemption application file (Exemption Application No. D-10930) 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-1513, U.S.
Department of Labor, 200
[[Page 22615]]
Constitution Avenue, N.W., Washington, D.C. 20210.
Accordingly, after giving full consideration to the entire record,
including the written comments, 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.)
UAM Fund Services, Inc., Located in Boston, MA
[Prohibited Transaction Exemption 2001-18; Application No. D-10938]
Exemption
Section I. Transactions
The restrictions of section 406(a) and 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 April 30, 2001 to (i) the acquisition of shares of one
or more of the UAM Funds (Shares) by a Plan for which a Fund Adviser
serves as investment manager, through the in-kind exchange of the
Plan's assets held in one or more separate accounts (each, an Account)
maintained by a Fund Adviser, and (ii) the redemption of Shares by a
Plan for which a Fund Adviser serves as investment manager, through the
in-kind exchange of assets from one or more UAM Funds to one or more
Account(s), provided that the conditions set forth in Section II below
are met.
Section II. Conditions
(a) The Fund Adviser is not an employer of employees covered by the
Plan.
(b) The Plan does not pay sales commissions, redemption fees, or
other fees in connection with such acquisition or redemption.
(c) The assets transferred pursuant to such acquisition or
redemption consist entirely of cash and Transferable Securities.
(d) In the case of an acquisition, the Plan receives Shares of the
Funds that have a total Net Asset Value equal to the value of the
Plan's assets exchanged for such Shares on the date of the transfer, as
determined (with respect to Transferable Securities) in a single
valuation performed in the same manner, at the close of the same
business day, in accordance with the procedures set forth in Rule 17a-7
under the Investment Company Act of 1940 (the 1940 Act), as amended
from time to time, or any successor rule, regulation, or similar
pronouncement (Rule 17a-7) (using sources independent of the UAM Funds
and the Fund Adviser) and the procedures established by the UAM Funds
pursuant to Rule 17a-7.
(e) In the case of a redemption, with respect to Transferable
Securities, the Plan receives a pro rata portion of the securities of
the UAM Fund that is equal in value to the number of Shares redeemed
for such securities, as determined in a single valuation performed in
the same manner, at the close of the same business day, in accordance
with the procedures set forth in Rule 17a-7 (using sources independent
of the UAM Funds and the Fund Adviser). With respect to all other
assets, the Plan receives cash equal to its pro rata share of the fair
market value of such assets, determined in accordance with Rule 17a-7
of the 1940 Act and the valuation policies and procedures of the UAM
Fund.
(f) The price that is paid or received by the Plan for Shares is
the Net Asset Value per Share at the time of the transaction and is the
same price for the Shares that would have been paid or received by any
other investor for Shares of the same class at such time.
(g) Prior to the in-kind acquisition or redemption, an Independent
Fiduciary with respect to the Plan receives full and detailed written
disclosure of information regarding the in-kind acquisition or
redemption, including, without limitation, the following:
(i) A current prospectus for each UAM Fund to or from which Plan
assets may be transferred (updated as necessary to reflect the
investment mix of the UAM Fund at the time of the in-kind acquisition
or redemption);
(ii) A statement describing the rate of fees for investment
advisory and other services to be charged to and paid by the Plan (and
by the UAM Funds in which the Plan invests) to the Fund Adviser,
including the nature and extent of any differential between the rates
of the fees paid by the UAM Funds and the rates of the fees otherwise
payable by the Plan to the Fund Adviser;
(iii) A statement of the reasons why the Fund Adviser may consider
the in-kind acquisition or redemption to be appropriate for the Plan;
(iv) A statement as to whether there are any limitations on the
Fund Adviser with respect to which Plan assets may be invested in
Shares of the UAM Funds and, if so, the nature of such limitations;
(v) The identity of all securities that are deemed suitable by the
Fund Adviser for transfer to the UAM Funds (in the case of an
acquisition) or from the UAM Funds (in the case of a redemption);
(vi) The identity of all such securities that will be valued in
accordance with the procedures set forth in Rule 17a-7(b)(4) under the
1940 Act; and
(vii) Copies of the proposed and final exemptions pertaining to the
exemptive relief provided herein for in-kind acquisitions and
redemptions.
(h) On the basis of such disclosures, the Independent Fiduciary,
consistent with the responsibilities, obligations, and duties imposed
on fiduciaries by Part 4 of Subtitle B of Title I of the Act, (i) makes
a determination as to whether the terms of the in-kind acquisition or
redemption are fair to the participants of the Plan and are comparable
to and no less favorable than terms that would be reached at arms'
length between unaffiliated parties, and that the in-kind acquisition
or redemption (as opposed to an acquisition or redemption for cash) is
in the best interest of the Plan and its participants and
beneficiaries, and (ii) gives prior written approval for the in-kind
acquisition or redemption, including agreement as to the date on which
the in-kind acquisition or redemption will take place.
(i) The authorization by the Independent Fiduciary is terminable at
will without penalty to the Plan at any time prior to the date of
acquisition or redemption, and any such termination will be effected by
the close of the business day following the date of receipt by the Fund
Adviser, either by mail, hand delivery, facsimile, or other available
means of written or electronic communication at the option of the
Independent Fiduciary, of any written notice of termination.
(j) In the case of an acquisition, all of the Plan's assets held in
an Account (other than Shares already held in the Account) are
transferred in-kind to one or more UAM Funds in exchange for Shares,
except that any Plan assets in the Account which are not suitable for
acquisition by the UAM Fund shall be liquidated as soon as reasonably
practicable, and the cash proceeds shall be invested directly in
Shares.
(k) The Fund Adviser sends to the Independent Fiduciary, by regular
mail or personal delivery, the following information:
(i) No later than 30 days after the completion of the in-kind
transfer, a written confirmation which contains:
(A) The identity of each Transferable Security that was valued for
purposes of the in-kind transfer in accordance with Rule 17a-7;
(B) The current market price, as of the date of the in-kind
transfer, of each such Transferable Security; and
[[Page 22616]]
(C) The identity of each pricing service or market-maker consulted
in determining the current market price of such Transferable
Securities.
(ii) No later than 105 days after each in-kind transfer, a written
confirmation which contains:
(A) In the case of an in-kind acquisition, the number of Shares in
the UAM Funds that are held by the Plan immediately following the
acquisition, the related per-Share Net Asset Value, and the total
dollar value of such Shares.
(B) In the case of an in-kind redemption, the number of Shares in
the UAM Funds that were held by the Plan immediately prior to the
redemption, the related per-Share Net Asset Value, and the total dollar
value of such Shares.
(l) With respect to each of the UAM Funds in which a Plan continues
to hold Shares acquired in connection with an in-kind acquisition, the
Fund Adviser provides the Independent Fiduciary with:
(i) A copy of an updated prospectus of such UAM Fund, at least
annually; and
(ii) Upon request of the Independent Fiduciary, a report or
statement (which may take the form of the most recent financial report,
the current statement of additional information, or some other
statement) containing a description of all fees paid by the UAM Fund to
the Fund Adviser.
(m) The combined total of all fees received by the Fund Adviser for
the provision of services to the Plan, and in connection with the
provision of services to the UAM Funds in which the Plan holds shares
purchased in connection with an in-kind exchange, is not in excess of
``reasonable compensation'' within the meaning of section 408(b)(2) of
the Act.
(n) The Fund Adviser does not receive any fees payable pursuant to
Rule 12b-1 under the 1940 Act in connection with the acquisition or
redemption.
(o) All other dealings between the Plan and the UAM Funds are on a
basis no less favorable to the Plan than dealings between the UAM Funds
and other shareholders holding the same Shares of the same class as the
Plan.
(p) The Fund Adviser maintains for a period of six years the
records necessary to enable the persons described in paragraph (q)
below to determine whether the conditions of this exemption have been
met, except that (i) a prohibited transaction will not be considered to
have occurred if, due to circumstances beyond the control of the Fund
Adviser, the records are lost or destroyed prior to the end of the six-
year period, and (ii) no party in interest other than the Fund Adviser
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) below.
(q) (1) Notwithstanding any provisions of section 504(a)(2) and (b)
of the Act, the records referred to in paragraph (p) above are
unconditionally available at their customary locations for examination
during normal business hours by (i) any duly authorized employee or
representative of the Department of Labor or the Internal Revenue
Service; (ii) any fiduciary of the Plan who has authority to acquire or
dispose of Shares of the UAM Funds owned by the Plan, or any duly
authorized employee or representative of such fiduciary; and (iii) any
participant or beneficiary of the Plan or duly authorized employee or
representative of such participant or beneficiary.
(2) None of the persons described in paragraph (q)(1)(ii) and (iii)
above shall be authorized to examine trade secrets of the UAM Funds or
the Fund Adviser, or commercial or financial information which is
privileged or confidential.
Section III. Availability of Prohibited Transaction Exemption 77-4 (PTE
77-4)
Any in-kind acquisition of Shares of the UAM Funds that complies
with the conditions of Section II of this exemption shall be treated as
a ``purchase or sale'' of shares of a registered, open-end investment
company for purposes of PTE 77-4, 42 FR 18732 (April 8, 1977), and
shall be deemed to have satisfied paragraphs (a), (d) and (e) of
section II of that exemption.
Section IV. Definitions
For purposes of this exemption:
(a) The term ``UAM'' means United Asset Management Corporation, a
Delaware corporation with headquarters in Boston, Massachusetts, and
any affiliate thereof;
(b) The term ``UAM Funds'' means UAM Funds Inc., UAM Funds, Inc.
II, and UAM Funds Trust, each of which is an open-end investment
company registered under the 1940 Act, or any portfolio or group of
portfolios thereof, for which UAM or a Fund Advisor serves as
investment advisor and may provide other services.
(c) The term ``Fund Adviser'' means (i) any affiliate of UAM which
serves as an investment adviser to a UAM Fund, and (ii) any former
affiliate of UAM which was divested within 12 months of the acquisition
of UAM by Old Mutual, and which serves as an investment adviser to a
UAM Fund pursuant to a contractual relationship with UAM, and (iii) any
affiliate of an investment adviser identified in subsections (i) or
(ii).
(d) An ``affiliate'' of a person includes:
(i) Any person directly or indirectly through one or more
intermediaries controlling, controlled by, or under common control with
the person;
(ii) Any officer, director, employee, relative, or partner in any
such person;
(iii) Any corporation or partnership of which such person is an
officer, director, partner, or employee.
(e) The term ``control'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.
(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,
sister, or spouse of a brother or a sister.
(g) The term ``Plan'' includes any pension, profit sharing or stock
bonus plan qualified under section 401(a) of the Code, individual
retirement account, simplified employee pension plan, custodial account
plans as described in section 403(b) of the Code, or savings incentive
match plans for employees.
(h) The term ``Independent Fiduciary'' means the Plan sponsor or
other fiduciary of a Plan who is independent of and unrelated to UAM or
the Fund Adviser. For purposes of this exemption, the Independent
Fiduciary will not be deemed to be independent of and unrelated to UAM
or the Fund Adviser if:
(i) Such fiduciary directly or indirectly controls, is controlled
by, or is under common control with UAM or the Fund Adviser;
(ii) Such fiduciary, or any officer, director, partner, employee,
or relative of the fiduciary is an officer, director, partner, or
employee of UAM or the Fund Adviser (or is a relative of such persons);
or
(iii) Such fiduciary directly or indirectly receives compensation
or other consideration for his or her own personal account in
connection with any transaction described in this exemption.
(i) The term ``Transferable Securities'' shall mean securities (1)
for which market quotations are readily available; and (2) which are
not in any of the following categories: (i) securities which may not be
publicly offered or sold
[[Page 22617]]
without registration under the Securities Act of 1933 (the 1933 Act);
(ii) securities issued by entities in foreign countries which (A)
restrict or prohibit the holding of securities by non-nationals other
than through qualified investment vehicles, such as the UAM Funds, or
(B) permit transfers of ownership or securities to be effected only by
transactions conducted on a local stock exchange; (iii) certain
portfolio positions (such as forward foreign currency contracts,
futures and options contracts, swap transactions, certificates of
deposit and repurchase agreements) that, although they may be liquid
and marketable, involve the assumption of contractual obligations,
require special trading facilities, or can only be traded with the
counterparty to the transaction to effect a change in beneficial
ownership; (iv) cash equivalents (such as certificates of deposit,
commercial paper, and repurchase agreements); and (v) other assets
which are not readily distributable (including receivables and prepaid
expenses), net of all liabilities (including accounts payable).
(j) The term ``Net Asset Value'' means the amount for purposes of
pricing all purchases and sales calculated by dividing the value of all
securities, determined by a method as set forth in the UAM Fund's
prospectus and statement of additional information, and other assets
belonging to the UAM Fund less the liabilities charged to such UAM
Fund, by the number of outstanding Shares.
Effective Date
This exemption is effective for transactions occurring on or after
April 30, 2001.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on February 15, 2001 at 66
FR 10529.
Modification
The exemption as proposed contained no specific effective date. In
this regard, the proposed exemption would have been effective as of the
date the final exemption was granted and published in the Federal
Register. However, after the exemption was proposed, the applicant
requested that the final exemption be made effective as of April 30,
2001, to cover certain transactions occurring on or after that date.
Therefore, the final exemption has been modified accordingly.
FOR FURTHER INFORMATION CONTACT Karen Lloyd of the Department,
telephone (202) 219-8194. (This is not a toll-free number).
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions to which the exemptions does not
apply and the general fiduciary responsibility provisions of section
404 of the Act, which among other things require a fiduciary to
discharge his duties respecting the plan solely in the interest of the
participants and beneficiaries of the plan and in a prudent fashion in
accordance with section 404(a)(1)(B) of the Act; nor does it affect the
requirement of section 401(a) of the Code that the plan must operate
for the exclusive benefit of the employees of the employer maintaining
the plan and their beneficiaries;
(2) These exemptions are supplemental to and not in derogation of,
any other provisions of the Act and/or the Code, including statutory or
administrative exemptions and transactional rules. Furthermore, the
fact that a transaction is subject to an administrative or statutory
exemption is not dispositive of whether the transaction is in fact a
prohibited transaction; and
(3) The availability of these exemptions is subject to the express
condition that the material facts and representations contained in each
application accurately describes all material terms of the transaction
which is the subject of the exemption.
Signed at Washington, D.C., this 1st day of May, 2001.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 01-11305 Filed 5-3-01; 8:45 am]
BILLING CODE 4510-29-P
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