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Michael A. Lawson, Esq.
Skadden, Arps, Slate, Meagher & Flom, LLP
300 South Grand Avenue
Los Angeles, California 90071-3144
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1999-11A
PTE 84-14
49 FR 9494, 03/13/84
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Re: LaSalle Advisors Capital Management, Inc. (LACM),
Identification Number C-09164
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Dear Mr. Lawson:
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This is in response to your letter requesting an advisory opinion concerning
Prohibited Transaction Exemption 84-14 (“PTE”) (49 FR 9494, Mar. 13,
1984). Your letter concerns whether your client, LaSalle Advisors Limited
Partnership (LaSalle Advisors), which previously satisfied the financial
requirements of a “qualified professional asset manager” (QPAM) as set
forth in section V(a)(4) of PTE 84-14, continues to satisfy those
requirements after merging with and into a newly formed corporation.
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You represent that in 1988, LaSalle Partners Limited Partnership (LPL) and
LaSalle Partners Management Limited Partnership (LPML) (collectively the
Partnerships), each a Delaware limited partnership, were formed to provide
real estate services to clients including leasing, brokerage, construction
and development management, real property asset management and real estate
investment management advice. Both of the Partnerships had several
subsidiary partnerships engaged in various businesses similar to that
performed by LPL and LPML. LaSalle Advisors, a subsidiary of LPL, is a
Delaware limited partnership which provides investment advice and asset
management services to institutional investors, including pension plans
covered by the Employee Retirement Income Security Act of 1974(ERISA). You
represent that, from 1989 to 1997 LaSalle Advisors met the definition of a
QPAM as defined in section V (a)(4) of PTE 84-14.
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You state that in July 1997, LPL and LPML participated in a capital
reorganization whereby the partners of LPL and LPML contributed all of their
partnership interests therein to LaSalle Partners Incorporated (LPI), a
newly formed Maryland corporation. This contribution resulted in LPI holding
all of the Partnerships’ interests in LPL and LPML. Subsequently, LPI
created several corporate subsidiaries and caused most of its partnership
subsidiaries to assign their assets to or merge with and into newly formed,
100% owned corporate subsidiaries pursuant to Maryland Corporate Law. As a
result of the reorganization, LaSalle Advisors was merged with and into its
newly formed corporate counterpart, LACM. Prior to this merger, LACM
conducted no business and thus had no prior fiscal year.
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You state that after the merger, LACM succeeded to 100% of the business of
LaSalle Advisors and intends to continue to provide the same investment
management and investment advisory services as those provided by LaSalle
Advisors.(1) You further indicate that
pursuant to the merger, LaSalle Advisors transferred its rights, title and
interests in all of its assets, obligations and liabilities (legal or
otherwise) to LACM. You explain that the merger of LaSalle Advisors with and
into LACM was accounted for in the same manner as a “pooling of
interests” pursuant to Generally Accepted Accounting Principles (GAAP).
You state that because the merger qualifies for pooling of interests
accounting treatment, LACM will incorporate LaSalle Advisors’ assets,
liabilities, and net worth at the same book values represented on LaSalle
Advisors’ financial statements. Accordingly, you explain that for GAAP
purposes, the financial statements of LACM will incorporate the historical
financial statements of LaSalle Advisors, resulting in LACM having a fiscal
year for accounting purposes that ended prior to its date of incorporation
(i.e., the fiscal year ending December 31, 1996). Additionally, you note
that, immediately following the merger, 100% of the employees of LaSalle
Advisors became employees of LACM. Finally, you stress that, immediately
prior to the merger, 99% of LaSalle Advisors was owned by LPI and was 1%
owned by a director of LPI. Since the merger, 100% of the equity interest of
LACM has been owned by LPI.
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You ask whether LACM may use the prior year of LaSalle Advisors (i.e. the
fiscal year ending December 31, 1996) for purposes of satisfying the
financial requirements in section V(a)(4) of PTE 84-14. Specifically, you
seek an opinion that LACM may reference the prior fiscal year of LaSalle
Advisors, in order to meet the condition set forth in section V(a)(4) of PTE
84-14 which requires that an investment advisor meet the financial threshold
in the class exemption “as of the last day of its most recent fiscal
year.”
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PTE 84-14 generally provides an exemption from the prohibited transaction
restrictions of §406(a)(1)(A)-(D) of ERISA and from certain excise taxes
imposed by section 4975 of the Internal Revenue Code for certain
transactions between an employee benefit plan and a party in interest with
respect to that plan provided that the plan’s assets are managed by a QPAM
as defined in the class exemption. Such a QPAM must be unrelated to the
parties in interest and must satisfy certain enumerated financial standards.
Subsection (a)(4) of Part V of PTE 84-14 provides that an investment advisor
registered under the Investment Advisers Act of 1940 may qualify as a QPAM
if it has, as of the last day of its most recent fiscal year, total assets
under its management and control in excess of $50,000,000, and
shareholders’ or partners’ equity in excess of $750,000.
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The preamble to the proposed exemption states that “[t]he minimum capital
and funds-under- management standards of the proposed exemption are intended
to assure that the eligible fiduciaries managing the accounts or funds...are
established institutions which are large enough to discourage the exercise
of undue influence upon their decision-making processes by parties in
interest.” 47 FR 56945, 56947 (Dec. 21, 1982). The Department reiterated
this position in the preamble to the final class exemption, where it
explained that the premise of the assets-under- management and
shareholders’ or partners’ equity requirements “was that basic
financial standards must be required for every entity or person investing
plan assets pursuant to the relief provided ... to assure some degree of
financial accountability to plans in the event of breaches of fiduciary
obligations and to discourage the exercise of undue influence upon the
QPAM’s decision-making processes.” 49 FR 9494, 9502 (Mar. 13, 1984).
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According to the documents you submitted, LaSalle Advisors had partners’
equity exceeding $750,000 and total client assets in excess of $15.2
billion. As such, you represent that LaSalle Advisors had significant
finances to assure accountability in the event of fiduciary breaches and had
the assets under management necessary to discourage the exercise of undue
influence upon its decision making processes. Because you state that LACM is
merely a different business form of its predecessor partnership, LaSalle
Advisors, you believe that LACM had the requisite financial strength to
assure financial accountability to plans in the event of fiduciary breaches
and to deter the exercise of undue influence upon its decision making
processes by parties in interest.
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The Department is of the view that LACM may use the prior financial year of
its predecessor LaSalle Advisors for purposes of determining whether LACM
meets the requirements set forth in subsection (a)(4) of Part V of PTE
84-14. This determination is based on your representations that: (1) LaSalle
Advisors has met the definition of a QPAM since 1989; (2) LaSalle Advisors
transferred its rights, title and interest in all of its assets to LACM, a
newly formed corporation, pursuant to the merger; (3) LACM has succeeded to
100% of the business of LaSalle Advisors since the merger; (4) immediately
following the merger the employees of LaSalle Advisors became the employees
of LACM; and (5) the ownership group of LACM is 99% of that which owned
LaSalle Advisors. The Department is not addressing any issues relating to
whether LACM meets the other requirements or conditions in PTE 84-14.
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This letter constitutes an Advisory Opinion under ERISA Procedure 76-1, and
is issued subject to the provisions of the procedure, including section 10
thereof relating to the effect of Advisory Opinions. This opinion relates
only to the specific issue addressed herein.
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Sincerely,
Ivan L. Strasfeld
Director, Office of Exemption Determinations
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You represent that LACM filed a Form
ADV with the Securities and Exchange Commission in order to insure
that it was registered as an investment adviser under the Investment
Advisers Act of 1940 (as of the effective date of the merger).
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