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Secretary of Labor Hilda L. Solis
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EBSA Notices

Application Nos. and Proposed Exemptions: D-11336, Camino Medical Group, Inc. Employee Retirement Plan (the Retirement Plan); D-11458, The Bank of New York Mellon Corporation (the Applicant); and D-11465, United States Steel and Carnegie Pension Fund (the Applicant), et al.   [12/24/2008]
[PDF]
FR Doc E8-30513
[Federal Register: December 24, 2008 (Volume 73, Number 248)]
[Notices]               
[Page 79168-79194]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24de08-122]                         


[[Page 79168]]

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

 
Application Nos. and Proposed Exemptions: D-11336, Camino Medical 
Group, Inc. Employee Retirement Plan (the Retirement Plan); D-11458, 
The Bank of New York Mellon Corporation (the Applicant); and D-11465, 
United States Steel and Carnegie Pension Fund (the Applicant), et al.

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of Proposed Exemptions.

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SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the prohibited transaction restrictions of the Employee 
Retirement Income Security Act of 1974 (ERISA or the Act) and/or the 
Internal Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

    All interested persons are invited to submit written comments or 
requests for a hearing on the pending exemptions, unless otherwise 
stated in the Notice of Proposed Exemption, within 45 days from the 
date of publication of this Federal Register Notice. Comments and 
requests for a hearing should state: (1) the name, address, and 
telephone number of the person making the comment or request, and (2) 
the nature of the person's interest in the exemption and the manner in 
which the person would be adversely affected by the exemption. A 
request for a hearing must also state the issues to be addressed and 
include a general description of the evidence to be presented at the 
hearing.

ADDRESSES: All written comments and requests for a hearing (at least 
three copies) should be sent to the Employee Benefits Security 
Administration (EBSA), Office of Exemption Determinations, Room N-5700, 
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210. Attention: Application No. ------, stated in each Notice of 
Proposed Exemption. Interested persons are also invited to submit 
comments and/or hearing requests to EBSA via e-mail or FAX. Any such 
comments or requests should be sent either by e-mail to: 
moffitt.betty@dol.gov, or by FAX to (202) 219-0204 by the end of the 
scheduled comment period. The applications for exemption and the 
comments received will be available for public inspection in the Public 
Documents Room of the Employee Benefits Security Administration, U.S. 
Department of Labor, Room N-1513, 200 Constitution Avenue, NW., 
Washington, DC 20210.

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all 
interested persons in the manner agreed upon by the applicant and the 
Department within 15 days of the date of publication in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and to request a hearing 
(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in 
applications filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990). 
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 requested to 
the Secretary of Labor. Therefore, these notices of proposed exemption 
are issued solely by the Department.
    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

Camino Medical Group, Inc. Employee Retirement Plan (the Retirement 
Plan)

Located in Sunnyvale, CA
[Application No. D-11336]

Proposed Exemption

    Based on the facts and representations set forth in the 
application, the Department is considering granting an exemption under 
the authority of section 408(a) of the Act (or ERISA) and section 
4975(c)(2) of the Code and in accordance with the procedures set forth 
in 29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 
1990).\1\ If the exemption is granted, the restrictions of sections 
406(a), 406(b)(1) and (b)(2) of the Act and the sanctions resulting 
from the application of section 4975 of the Code, by reason of section 
4975(c)(1)(A) through (E) of the Code, shall not apply, effective July 
1, 2003 until December 14, 2007, to (1) the leasing (the 2003 Leases) 
of a medical facility (the Urgent Care Facility) and a single family 
residence converted to an office (the Residence) by the Retirement Plan 
to CMG, the sponsor of the Retirement Plan and a party in interest with 
respect to such plan; and (2) the exercise, by CMG, of options to renew 
the 2003 Lease with respect to the Residence for one year and the 2003 
Lease with respect to the Urgent Care Facility for three years, 
provided that the following conditions were or will be met:
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    \1\ For purposes of this proposed exemption, references to 
provisions of Title I of the Act, unless otherwise specified, refer 
also to corresponding provisions of the Code.
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    (a) The terms and conditions of each 2003 Lease were no less 
favorable to the Retirement Plan than those obtainable by the 
Retirement Plan under similar circumstances when negotiated at arm's 
length with unrelated third parties.
    (b) The Retirement Plan was represented for all purposes under the 
2003 Leases, and during each renewal term, by a qualified, independent 
fiduciary.
    (c) The independent fiduciary negotiated, reviewed, and approved 
the terms and conditions of the 2003 Leases and the options to renew 
such leases on behalf of the Retirement Plan and determined that the 
transactions were appropriate investments for the Retirement Plan and 
were in the best interests of the Retirement Plan and its participants 
and beneficiaries.
    (d) The rent paid to the Retirement Plan under each 2003 Lease, and 
during each renewal term, was no less than the fair market rental value 
of the Urgent Care Facility and the Residence, as established by a 
qualified, independent appraiser.
    (e) The rent was subject to adjustment at the commencement of the 
second year of each 2003 Lease and each year thereafter by way of an 
independent appraisal. A qualified, independent appraiser was selected 
by the independent fiduciary to conduct the appraisal. If the appraised 
fair market rent of the Urgent Care Facility or the Residence was 
greater than that of the current base rent, then the base rent was 
revised to reflect the appraised increase in fair market rent. If the 
appraised fair market rent of the Urgent Care Facility or the Residence 
was less than or equal to the current base rent, then the base rent 
remained the same.
    (f) Each 2003 Lease was triple net, requiring all expenses for 
maintenance, taxes, utilities and insurance to be paid by CMG, as 
lessee.
    (g) The independent fiduciary --

[[Page 79169]]

    (1) Monitored CMG's compliance with the terms of each 2003 Lease 
and the conditions of the exemption throughout the duration of such 
leases and the renewal terms, and was responsible for legally enforcing 
the payment of the rent and the proper performance of all other 
obligations of CMG under the terms of such leases.
    (2) Expressly approved the renewals of the 2003 Leases beyond their 
initial terms.
    (3) Determined whether the rent had been paid on a monthly basis 
and in a timely manner based on documentation provided by CMG.
    (4) Determined whether CMG owed the Camino Medical Group, Inc. 
Matching 401(k) Plan (the 401(k) Plan) or the Retirement Plan \2\ 
additional rent by reason of CMG's leasing of the Urgent Care Facility 
and/or the Residence from such plans prior to July 1, 2003 and ensured 
that CMG made such payments to the Plans, including reasonable 
interest.
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    \2\ The Retirement Plan and the 401(k) Plan are together 
referred to herein as the ``Plans.''
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    (h) At all times throughout the duration of each 2003 Lease and 
each respective renewal term, the fair market value of the Urgent Care 
Facility and the Residence did not exceed 25 percent of the value of 
the total assets of the Retirement Plan.
    (i) Within 90 days of the publication of the grant notice in the 
Federal Register, Palo Alto Medical Foundation (PAMF), the successor in 
interest to CMG, files a Form 5330 with the Internal Revenue Service 
(the Service) and pays all applicable excise taxes that are due with 
respect to the leasing of the Urgent Care Facility and the Residence to 
CMG by the 401(k) Plan and/or the Retirement Plan prior to July 1, 
2003.

DATES: Effective Date: If granted, this proposed exemption will be 
effective from July 1, 2003 until December 14, 2007.

Summary of Facts and Representations

CMG

    1. CMG, formerly known as the ``Sunnyvale Medical Clinic, Inc.'' 
(Sunnyvale), was one of northern California's largest physician-
governed multi-specialty medical groups, with more than 190 primary 
care and specialist physicians, nurse practitioners and physician 
assistants. CMG was a for-profit, community-based organization that 
contracted with most leading Health Maintenance Organization and 
Preferred Provider Organization insurance plans. While maintaining 12 
California patient care sites in Cupertino, San Jose, Los Altos, 
Mountain View, Santa Clara and Sunnyvale, CMG was focused on the 
delivery of health care services, patient education and health care 
research, and it offered 28 medical specialties.
    2. In June 2000, CMG signed an agreement (the Agreement) providing 
that PAMF, a not-for-profit organization and an unrelated party, would 
become the legal operating entity of CMG's facilities. Under the 
Agreement, CMG agreed to provide medical services to patients at these 
facilities for an amount to be negotiated with PAMF on an annual basis. 
CMG maintained and operated the facilities as it had prior to the 
Agreement, including hiring its own medical and non-medical staff and 
administering its own retirement plans and benefits system. Under this 
arrangement, PAMF negotiated contracts with insurance companies on 
behalf of CMG. Because PAMF had a similar arrangement with another 
medical group, PAMF patients could choose to receive their care from 
CMG physicians or from physicians in the other group.
    The Agreement between CMG and PAMF related to the business 
relationship between these entities only rather than to an ``ownership 
or control'' relationship. In this regard, PAMF had no ownership 
interest in CMG, which was physician-owned. Similarly, CMG had no 
ownership interest in PAMF, although several CMG employees were members 
of PAMF's Board of Directors over the years. The CMG members 
constituted a small minority and they did not have a controlling vote. 
Of the 50 members of PAMF's Board of Directors, 8 were CMG 
representatives. Essentially, CMG and PAMF remained separate and 
independent entities with separate employee benefit plans. Also, PAMF 
and CMG were not parties in interest with respect to the other's 
respective plans.
    3. On October 17, 2007, the Executive Committee of the PAMF Board 
of Directors voted on the issue of purchasing the Residence and the 
Urgent Care Facility (together, the Buildings) from the Retirement 
Plan. The Executive Committee had 14 members of which 2 were CMG 
employees. Both CMG employee/members recused themselves from the vote 
on the purchase of the Buildings. At no time did PAMF or CMG exercise 
any indirect or direct control over each other.
    On December 14, 2007, the Retirement Plan sold the Residence to 
PAMF for $725,000 and the Urgent Care Facility for $5,400,000.\3\ The 
fair market value of the Buildings was established on the basis of an 
independent appraisal of the properties as of October 1, 2007 in an 
October 2, 2007 appraisal report that was prepared by Walter D. Carney, 
MAI and Larry W. Hulberg, Certified-General Appraiser. Messrs. Carney 
and Hulberg are qualified, independent appraisers who are affiliated 
with real estate appraisal firm Hulberg & Associates of San Jose, 
California. In addition, Thomas Nault of Northwest Fiduciary Services, 
Inc. of Redmond, Washington, the independent fiduciary for the 
Retirement Plan, reviewed the Purchase Agreement, discussed the 
offering price and valuation with Mr. Hulberg and others, and concluded 
that it would be in the best interest of the Retirement Plan to sell 
the Buildings to PAMF in accordance with the Purchase Agreement.\4\
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    \3\ PAMF also purchased a medical treatment center (the 
Treatment Center) from the Retirement Plan for $2,030,000. The 
Treatment Center was the subject of Prohibited Transaction Exemption 
(PTE) 2004-21, 69 FR 68401 (November 24, 2004). This exemption 
permitted the leasing of the Treatment Center by the Retirement Plan 
to CMG. PTE 2004-21 also allowed CMG to exercise options to renew 
the lease for two additional terms.
    \4\ For a further discussion of the appraisal credentials of 
Messrs. Carney and Hulberg, see Representation 10 of this proposed 
exemption. For a further discussion of Mr. Nault's independent 
fiduciary qualifications see Representation 12 of this proposed 
exemption.
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    Just prior to the sale, the appraisers indicated that there had 
been no change in the fair market value of the Buildings. Thus, on the 
date of the sale, PAMF paid the consideration for the Buildings in 
cash. The Retirement Plan did not pay any real estate fees or 
commissions in connection with such transaction. As a result of the 
sale, the 2003 Leases between the Retirement Plan and CMG were 
terminated, including the Treatment Center lease between the Retirement 
Plan and CMG that was covered by PTE 2004-21.
    On January 1, 2008, all non-physician employees of CMG became 
employees of PAMF and CMG physicians joined with two other physician 
groups to form a new physician entity. The primary reason for the 
merger was to centralize operations. CMG and PAMF decided that it would 
be appropriate to have all non-physician employees in one organization 
and all physicians in another organization. The new physician entity 
currently negotiates with PAMF for physician services required by PAMF 
to service its health care contracts, as CMG did in the past. The 
significant difference is that in the past, CMG provided PAMF with all 
personnel needed to run the CMG-designated facilities, not just 
physicians.

[[Page 79170]]

Plan History

    4. Following the January 2008 merger, CMG ceased to exist. The two 
defined contribution plans CMG sponsored, the Retirement Plan, a money 
purchase pension plan, and the 401(k) Plan, a profit sharing plan, are 
currently in the process of being liquidated. CMG made no contributions 
to either Plan after December 31, 2007. Once liquidated, the accounts 
of Plan participants in the Retirement Plan who were hired by PAMF were 
transferred to a PAMF qualified plan. The remaining physician accounts 
were transferred to a plan sponsored by a new physician group. With 
respect to the 401(k) Plan, for those participant accounts that were 
not distributed, the residual assets in such plan were also rolled into 
PAMF qualified plans.
    5. The history of CMG's Plans is characterized by many mergers and 
restatements. Originally, in the mid-1970s, CMG established the 
Sunnyvale Medical Clinic, Inc. Employee Retirement and Profit Sharing 
Plan (the ERPS Plan), which was a single plan with two trusts. The 
retirement portion of the ERPS Plan was a money purchase pension plan 
and the profit sharing portion of the ERPS Plan was a profit sharing 
plan. Each portion of the ERPS Plan had its own separate trust.
    On or about December 31, 1989, the ERPS Plan was restated as two 
separate plans, the ``Sunnyvale Medical Clinic, Inc. Employee Profit 
Sharing Plan'' (the Sunnyvale Profit Sharing Plan) for the profit 
sharing portion of the ERPS Plan and the ``Sunnyvale Medical Clinic, 
Inc. Retirement Plan'' (the Sunnyvale Retirement Plan) for the money 
purchase pension portion of the ERPS Plan. The Sunnyvale Retirement 
Plan subsequently became the Retirement Plan that is the subject of 
this exemption request.
    On January 1, 1992, the Sunnyvale Profit Sharing Plan was merged 
into the Camino Medical Group, Inc. Matching 401(k) Plan (the 401(k) 
Plan), which had been established effective January 1, 1989 for 
employees of CMG who were ineligible to participate in the ERPS Plan as 
well as for certain CMG physicians. As a result of the merger, the 
401(k) Plan received the Sunnyvale Profit Sharing Plan's assets and the 
flow of income deriving from those assets. The Retirement Plan and the 
401(k) Plan are not parties in interest with respect to each other.
    6. As of November 30, 2007, the Retirement Plan had total assets 
having a fair market value of $82,099,079. As of December 14, 2007, the 
Retirement Plan had 1,100 participants. As of December 31, 2007, the 
401(k) Plan had net assets totaling $80,656,857 and 1,320 participants. 
The directed trustee of the Retirement Plan was Wells Fargo Bank, N.A. 
(Wells Fargo). The directed trustee of the 401(k) Plan was the T. Rowe 
Price Trust Company (T. Rowe Price), which succeeded Wells Fargo as the 
directed trustee for this plan in 1999. The administration of the 
Retirement Plan and the 401(k) Plan was carried out by the 
Administrative Committee, whose physician members were shareholders of 
CMG.

Acquisition of the Buildings

    7. Formerly included among the assets of the Retirement Plan were 
the Residence and the Urgent Care Facility.\5\ The ERPS Plan purchased 
these properties in February 1987 for $3.4 million from the Sunnyvale 
Medical Building Company, Inc. (SMBC), a California corporation and a 
party in interest with respect to the ERPS Plan under the terms and 
conditions of PTE 87-13 (52 FR 2630, January 23, 1987. The Urgent Care 
Facility, which is located at 201 Old San Francisco Road, Sunnyvale, 
California, was designed as a standalone medical office building with 
two stories and a finished basement. The Residence is located at 558 
South Sunnyvale Avenue, Sunnyvale, California. It was formerly a 
single-family residence, but presently serves as an office. The 
Residence is situated on 8,000 square feet of property and has gross 
building area of approximately 1,230 square feet. The Urgent Care 
Facility is contiguous to the Residence and the Treatment Center. In 
addition, the Urgent Care Facility and the Residence are located in 
close proximity to certain real property that is owned by CMG.
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    \5\ As stated previously, the Treatment Center, which was also 
included among the Retirement Plan's assets, is described in PTE 
2004-21.
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    Of the purchase price paid for the Urgent Care Facility and the 
Residence, 76.5 percent came from the trust established for the profit 
sharing portion of the ERPS Plan and the other 23.5 percent came from 
the trust setup for the money purchase pension plan portion of the ERPS 
Plan.

PTE 87-13 and the Department's Information Letter

    8. PTE 87-13 permitted the ERPS Plan to lease the Urgent Care 
Facility and the Residence to Sunnyvale (including its successors) 
under the provisions of separate, but identical written triple net 
leases (the 1987 Leases). Each 1987 Lease was for an initial term of 
ten years, commencing on February 2, 1987 and ending on December 31, 
1996. Each 1987 Lease contained two renewal extensions, both of which 
were of five years' duration. The 1987 Leases were signed on behalf of 
the ERPS Plan by Barclays Bank of California (Barclays), in the 
capacity as directed trustee and landlord.
    The combined initial rental under the 1987 Leases, as determined by 
qualified, independent appraisers, was $28,216 per month. Such rental 
income from the properties was allocated between the two trusts 
comprising the ERPS Plan in accordance with the proportions described 
above.
    Moreover, each 1987 Lease provided for an annual rental increase 
based on the fair market rental value of the Urgent Care Facility and 
the Residence as determined by an independent real estate appraiser 
appointed by Barclays. The qualified, independent appraiser was also 
required to have at least five years full-time commercial real estate 
experience. To represent the interests of the ERPS Plan with respect to 
the 1987 Leases, Barclays reviewed, approved, and agreed to monitor 
such transactions as the independent fiduciary.
    In an information letter dated May 29, 1996, the Department 
concluded that PTE 87-13 was still effective. The letter was requested 
as a result of (a) the merger of the Sunnyvale Profit Sharing Plan into 
the 401(k) Plan and the 401(k) Plan's receipt of rent; (b) the renaming 
of Sunnyvale to CMG; and (c) the substitution of Barclays with Wells 
Fargo, as the new directed trustee, into which Barclays had merged. 
Thus, the 401(k) Plan and the Retirement Plan were the owners of 
proportionate interests in the Urgent Care Facility and the Residence 
of 76.5 percent and 23.5 percent, respectively.

The 1997 Leases

    9. In March 1999, Wells Fargo, the successor directed trustee for 
the Plans signed new leases for the Urgent Care Facility and the 
Residence for the period commencing January 1, 1997 and ending December 
31, 2006 (the 1997 Leases). Wells Fargo signed the 1997 Leases as 
directed trustee for both the 401(k) Plan and the Retirement Plan. The 
base rent for the Urgent Care Facility was established at $32,417 per 
month and $2,069 for the Residence. At the expiration of the initial 
term, each 1997 Lease granted CMG the option to extend such lease for 
two additional five year terms. The 1997 Leases also contained a 
provision stating that the 401(k) Plan would sell its 76.5 percent 
interest in the Urgent Care Facility and the Residence to the 
Retirement Plan

[[Page 79171]]

and that the same lease terms would continue to apply after the sale.
    Like the 1987 Leases, the 1997 Leases continued to provide that the 
rent for each succeeding year would be determined on the basis of an 
independent appraisal. However, a new provision was added to each 1997 
Lease which stated that if the independent appraiser determined that 
the fair rental value of the Residence or the Urgent Care Facility was 
less than the existing annual rent, the rent would not be lowered, but 
would remain the same as the rent then in effect.

Inter-Plan Sale of Interests in the Buildings and the Treatment Center

    10. In 1998, the Administrative Committee decided that it was in 
the best interests of the 401(k) Plan and its participants and 
beneficiaries to switch the 401(k) Plan's investment program and plan 
administration to a family of mutual funds, and to allow the 
participants and beneficiaries to make their own portfolio selections 
from a ``menu'' offered by the mutual fund provider. The Administrative 
Committee determined that savings would be realized if the same 
provider provided the investment options, the administrative services 
and the trustee services. After examination and consideration was 
given, the Administrative Committee chose T. Rowe Price as the provider 
for all such services.
    11. Because T. Rowe Price would only serve as the trustee of mutual 
fund assets, the firm decided it would not serve as the trustee for the 
401(k) Plan's real estate interests, which included its 76.5 percent 
interests in the Urgent Care Facility, the Residence, as well as its 
100 percent ownership interest in the Treatment Center. In order to 
maintain the efficiency and cost effectiveness of the ``one-stop 
shop,'' and thus avoid a second trustee for the 401(k) Plan to hold 
only the real estate assets, the Administrative Committee determined 
that the 401(k) Plan should dispose of its interests in the real 
estate. On the other hand, since the real estate interests had proven 
to be a good source of income and a good vehicle for investment 
diversification for the Plans, the Administrative Committee chose to 
transfer the 401(k) Plan's interests to the Retirement Plan rather than 
dispose of them entirely.
    On the erroneous advice of the Plans' legal counsel, who indicated 
that the transaction would not be prohibited under the Act, the 
Administrative Committee determined to cause the 401(k) Plan to sell 
its 76.5 percent interest in the Urgent Care Facility, its 23.5 percent 
interest in the Residence, and its 100 percent interest in the 
Treatment Center to the Retirement Plan.
    In advance of the sale, CMG commissioned Messrs. Carney and Hulberg 
to perform an appraisal of the fair market value and the fair market 
rental value of the Buildings, including the Treatment Center. Mr. 
Carney, a Principal and Executive Vice President, who has been 
associated with Hulberg & Associates since November 1984 and Mr. 
Hulberg, an appraiser with the firm since 1997, stated that they had 
extensive experience in conducting commercial, industrial, residential 
and agricultural appraisals. Both appraisers also certified that they 
had no present or contemplated future interest in the Buildings and 
that they had no personal interest or bias with respect to such 
properties or the parties involved. In addition, the appraisers 
certified that their compensation was not contingent upon the reporting 
of a predetermined value or direction in value that favors the cause of 
the client, the amount of the value estimate, the attainment of a 
stipulated result, or the occurrence of a subsequent event.
    In an appraisal report dated December 20, 1998, Messrs. Carney and 
Hulberg placed the combined fair market value of the Residence, the 
Urgent Care Facility and the Treatment Center at $4,965,000 as of 
November 24, 1998. The combined figure represented a fair market value 
of $3,430,000 for the Urgent Care Facility, $1,210,000 for the 
Treatment Center and $325,000 for the Residence. Of the combined 
figure, the 401(k) Plan's ownership interest in the Buildings and the 
Treatment Center totaled $4,082,575. This amount represented 
approximately 8.97 percent of the 401(k) Plan's assets and 
approximately 14.16 percent of the Retirement Plan's assets.
    On June 17, 1999, in an all cash transaction, the 401(k) Plan sold 
its real estate interests to the Retirement Plan for $4,081,471.\6\ The 
401(k) Plan received $2,622,942 for the Urgent Care Facility, $248,529 
for the Residence and $1,210,000 for the Treatment Center. No fees or 
commissions were paid by either the 401(k) Plan or the Retirement Plan 
and the expenses associated with the transaction were borne exclusively 
by CMG.
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    \6\ The $1,104 difference between the total amount of the 401(k) 
Plan's interest in the Buildings and the amount paid by the 
Retirement Plan is due to rounding the 401(k) Plan's ownership 
percentage interest upward to 76.5%. For example, both the Residence 
and the Urgent Care Facility represented 76.470461% of the 401(k) 
Plan's ownership interest before rounding.
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    The Plans' legal counsel also advised the Administrative Committee 
that PTE 87-13 would continue to apply to any leasing of the Urgent 
Care Facility and the Residence by the Retirement Plan to CMG. 
Nevertheless, the Plan's legal counsel informed CMG that a prohibited 
transaction exemption would be required in connection with any leasing 
of the Treatment Center to CMG. Therefore, on November 24, 2004, the 
Department granted PTE 2004-21, which provided retroactive exemptive 
relief to permit Retirement Plan to lease the Treatment Center to CMG 
under the provisions of a new lease (the New Lease). PTE 2004-21 also 
allowed CMG to exercise options to renew the New Lease for two 
additional five year terms.

Prohibited Transactions

    12. In the view of the Department, the leasing arrangements between 
CMG and the Plans under the 1987 Leases and the 1997 Leases reflected a 
lack of continuous oversight by qualified, independent fiduciaries with 
full investment discretion to review, approve and monitor the terms of 
such leases. In addition, there were no contemporaneous independent 
appraisals (or other objective means) to establish the fair market 
value or the fair market rental value of the Residence and the Urgent 
Care Facility at the inception of each lease, at the time the rent was 
adjusted annually, or at the time of the sale of the 401(k) Plan's 
interests in the Residence, the Urgent Care Facility, and the Treatment 
Center to the Retirement Plan.\7\ Because of these failures, the 
Department is of the opinion that the exemptive relief originally 
provided under PTE 87-13 would no longer be available. The Department 
is also not prepared to provide retroactive exemptive relief with 
respect to such past leases and the June 17, 1999 sale transaction. 
Therefore, within 90 days of the publication in the Federal Register of 
the notice granting this exemption, PAMF, as successor in interest to 
CMG, will file a Form 5330 with the Service

[[Page 79172]]

and pay all applicable excise taxes that are due prior to July 1, 2003.
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    \7\ According to the exemption application, both the Retirement 
Plan and the 401(k) Plan had independent fiduciaries in 1998 and 
1999 that had full discretion to review, approve and monitor the 
leasing arrangements between the Plans. The independent fiduciaries 
selected Messrs. Carney and Hulberg to determine the fair market 
rental value of the Buildings under the 1997 Leases and the fair 
market value of the Buildings and the Treatment Center for purposes 
of the June 17, 1999 sale. However, the appraisal reports were not 
prepared during the same time period as the 1997 Leases or the sale. 
The independent fiduciaries were not engaged after 1999.
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Independent Fiduciary for the Retirement Plan

    13. On March 3, 2003, Mr. Nault was appointed to serve as the 
Retirement Plan's independent fiduciary. He served in this capacity 
until his resignation on January 1, 2008. At this time of his 
appointment, Mr. Nault replaced Wells Fargo, the Retirement Plan's 
directed trustee, as the independent fiduciary. Mr. Nault represented 
that he was qualified to act as an independent fiduciary for the 
Retirement Plan because he had considerable experience in managing 
assets of all types, including performing settlement work for the 
Department, intellectual property, limited partnerships, raw land 
development, joint venture agreements, asset recovery and liquidation, 
assigning and evaluating asset managers, and ESOP, profit sharing and 
401(k) plans. Mr. Nault further represented that he had been acting as 
a court-appointed trustee of tax-qualified plans since 1994, that he 
had replaced trustees who were removed in connection with ERISA 
violations, and that in two recent cases he had been responsible for 
evaluating and deciding the disposition of real estate assets. In his 
statement, Mr. Nault confirmed that he had no prior contact or any past 
or current relationship with any interested party in this matter. Mr. 
Nault also confirmed that he was never related to CMG or its principals 
in any way, and that he derived less than 3 percent of his gross annual 
income (base upon each preceding calendar year) from CMG during the 
time he served as independent fiduciary for the Retirement Plan. 
Moreover, Mr. Nault acknowledged and accepted his fiduciary 
responsibilities and liabilities in acting as an independent fiduciary 
on behalf of the Retirement Plan.
    As the Retirement Plan's independent fiduciary, Mr. Nault agreed, 
in pertinent part, to (a) determine whether the lease provisions 
between the 401(k) Plan and CMG were reasonable under the 1997 Leases 
and whether the 401(k) Plan had received fair market value rent; (b) 
determine if the 401(k) Plan received fair market value from the 
Retirement Plan upon the sale of the 401(k) Plan's interests in the 
Residence and the Urgent Care Facility in 1999; (c) analyze the 1997 
Leases of the Urgent Care Facility and the Residence after the transfer 
of these properties to the Retirement Plan from the 401(k) Plan to 
determine if the provisions of such leases were reasonable and if the 
rental was at, or better than, market value; (d) examine the Retirement 
Plan's investment portfolio and investment policy to determine if the 
ownership of the Urgent Care Facility and the Residence was prudent and 
in compliance with such investment policy; and (e) negotiate and/or 
monitor the 2003 Leases on behalf of the Retirement Plan.

The 2003 Leases/Request for Exemptive Relief

    14. On or about July 1, 2003 and after receiving approval from Mr. 
Nault, Wells Fargo signed separate new leases in order to continue the 
Retirement Plan's leasing arrangement with CMG for the Urgent Care 
Facility and the Residence. The Buildings represented 11.83% of the 
Retirement Plan's assets. Both 2003 Leases were triple net and required 
CMG to pay all real estate taxes with respect to the Urgent Care 
Facility and the Residence on behalf of the Retirement Plan, as well as 
all expenses that were associated with insurance, maintenance and 
utilities.
    The initial term of each 2003 Lease commenced on July 1, 2003 and 
expired on December 31, 2006. The base rent for the Urgent Care 
Facility was set at $38,325 per month and was $2,069 per month for the 
Residence. Although each 2003 Lease allowed CMG the option to extend 
such lease for two additional five year terms, the renewal provisions 
were subsequently modified. In this regard, the 2003 Lease of the 
Residence could be extended by CMG for one year or until December 31, 
2007. With respect to leasing of the Urgent Care Facility, that 2003 
Lease could be extended for three years or until December 31, 2009. The 
2003 Leases also provided that the annual rent would be the greater of 
the rent provided in the lease or the fair market value rental of the 
real estate as determined by an independent appraiser and required that 
CMG provide Mr. Nault with documentation that the rent had been paid on 
a monthly basis.
    15. PAMF requests an administrative exemption from the Department, 
with respect to the leasing of the Urgent Care Facility and the 
Residence to CMG from the Retirement Plan under the 2003 Leases. In 
addition, PAMF requests exemptive relief with respect to the exercise 
of the renewal options under the 2003 Leases. If granted, the exemption 
would be effective from July 1, 2003 until December 14, 2007.

Independent Appraisals of the Buildings

    16. On October 18, 2002, Messrs. Carney and Hulberg prepared a 
formal appraisal report of the subject properties. The appraisers used 
the Income Approach to valuation because of that methodology's 
reasonable support of rent, overall capitalization data, widespread use 
and understandability to investors. As of October 15, 2002, the 
appraisers placed the fair market rental value of the Urgent Care 
Facility at $28,676 per month and the Residence at $1,845 per month. 
The appraisers also noted that the rent CMG was paying to the 
Retirement Plan was well above the market rate.\8\ The appraisers 
further determined that the Urgent Care Facility and the Residence were 
of no unique or special value to CMG by reason of their proximity to 
other real property owned by CMG.
---------------------------------------------------------------------------

    \8\ The applicant represents that, to the best of its knowledge, 
to the extent that the rent paid by CMG to the Retirement Plan under 
the 2003 Leases exceeded fair market rental value, such excess rent 
(if treated as an employer contribution) did not cause the annual 
additions to the Retirement Plan to exceed the limitations 
prescribed by section 415 of the Code.
---------------------------------------------------------------------------

    17. Because the appraisers did not update the 2002 appraisal until 
October 1, 2003, there was no contemporaneous appraisal of the 
Buildings at the inception of the 2003 Leases. So, Mr. Nault stated 
that he relied on ``other objective means'' to establish the fair 
market rental value of the Residence and the Urgent Care Facility and 
to ensure that adequate independent safeguards were in place when the 
2003 Leases became effective. The objective means that were undertaken 
by Mr. Nault included his having discussions primarily with Mr. Hulberg 
to ascertain the fair market rental value of the Buildings and 
conducting due diligence from the time of his independent fiduciary 
appointment onward. Mr. Nault explained that during his discussions 
with Mr. Hulberg, he reviewed rental statistics for the Sunnyvale-San 
Jose area showing that the rent being paid for the Buildings was above 
market. Further, as part of his due diligence, Mr. Nault stated that he 
physically inspected the vacancy information he received from Mr. 
Hulberg, conducted an online analysis of rents and market conditions to 
determine rental levels in the area, and researched the effect of the 
2001 implosion of Dot-Com businesses on the office vacancy rate in the 
area. Mr. Nault stated that his findings at the time the 2003 Leases 
were executed indicated that CMG was paying above market rent. He noted 
that the rental amounts paid by CMG under the 2003 Leases would be 
changed only if such amounts fell below market value.
    With respect to annual adjustments to the rent under the 2003 
Leases, each year, as of October 1, Messrs. Carney

[[Page 79173]]

and Hulberg determined the fair market rental value of the Buildings. 
Three months later, on January 1, Mr. Nault would determine the fair 
market rental value of the Buildings for that year.\9\ In making his 
rental determinations, Mr. Nault frequently visited the San Jose, 
California area and maintained close ties with real estate 
professionals, besides Mr. Hulberg, who were familiar with real estate 
values in that area. Each year, he inquired about the fair market 
rental value of the Buildings with these professionals prior to 
determining whether the fair market rental value of the Buildings had 
not increased and whether the rent would remain at the existing level.
---------------------------------------------------------------------------

    \9\ The 2003 Leases provided in a Lease Addendum (paragraph 2, 
Rent Escalation) for an independent appraisal of the Buildings prior 
to the end of the ``lease year.'' The Lease Addendum further 
provided that if the appraisal was not completed before the end of 
the lease year, an upward adjustment in rent would commence 
immediately upon completion of the appraisal.
    Each year, Mr. Nault used three data points to determine the 
fair market rental value of the Buildings: (1) The independent 
appraisal in October of the lease year, (2) an analysis in January 
of that lease year, and (3) the independent appraisal in October of 
the next lease year. This allowed him to analyze market trends as 
well as specific valuations on a given date. If the appraisal in 
October of the lease year or the evaluation in January of the lease 
year had shown that the market value had increased to equal or 
greater than the valuations of such properties in 2001 (when such 
valuations were at their peak), Mr. Nault would have immediately 
adjusted the rent upward and pro-rated the rent over the lease 
period to reflect the higher value. The independent appraisal in 
October of the following lease year was used by Mr. Nault to confirm 
whether the fair market rental value for the duration of the prior 
the lease year had exceeded 2001 values. It is represented that 
neither the market trends nor the valuations ever showed an increase 
over the 2001 market values for the duration of the 2003 Leases.
---------------------------------------------------------------------------

Other Determinations Made by the Independent Fiduciary

    18. Following his analysis of the transactions, Mr. Nault concluded 
that the 401(k) Plan had received fair market value on the sale of its 
interests in the Residence and the Urgent Care Facility to the 
Retirement Plan. After reviewing the Purchase and Sale Agreement and 
comparing it to the appraisals between 1998 and 1999, Mr. Nault noted 
that the selling price appeared to be slightly above market value, but 
that the difference in value was not significant. Due to the lack of a 
contemporaneous appraisal at the time of the actual sale, Mr. Nault 
stated that it was possible that the value was exactly correct on the 
date of the sale. Further, Mr. Nault advised that it would have been 
more appropriate to have updated the appraisal to occur much closer to 
the date of the actual transfer of the interests in the Buildings and 
if another appraisal had been conducted on the exact date of the sale, 
the outcome would not be any different.
    In addition, Mr. Nault explained that he had reviewed the real 
estate valuations beginning with the 1998 appraisal of the Buildings by 
Messrs. Carney and Hulberg. He indicated that this objective was to 
identify the relative differences from year to year in between the 
various appraisals to understand the trend and volatility of the 
market. Mr. Nault stated that he was trying to determine whether the 
Retirement Plan had been receiving lower than market rental 
compensation at any time since 1998. He further explained that he 
checked current rental prices in the Sunnyvale area to see if they were 
consistent with the appraisals. He said he also compared a list of the 
rents paid by CMG during May 2003 for sixteen buildings within its 
medical group that included the subject Buildings, with Collier 
International Published rates, to see how the Urgent Care Facility (at 
$2.46 per square foot) and the Residence (at $1.69 per square foot) 
compared with other rents paid by CMG to unrelated parties. According 
to Mr. Nault, the analysis of average rents corroborated his previous 
finding that CMG was paying above average rent for the Urgent Care 
Facility, while CMG was paying below average rent with respect to the 
Residence when compared in the same group. Mr. Nault indicated that the 
Residence was not comparable to other properties on the list because it 
is a converted residence in somewhat average to below average 
condition, and is not desirable as a residence. However, when compared 
to other converted residences, the rental amount paid by CMG for the 
Residence was above average rent for the market.
    19. With respect to the 2003 Leases, Mr. Nault confirmed that the 
terms and conditions of such leases were more favorable to the 
Retirement Plan than those obtainable by the Retirement Plan in an 
arm's length transaction with unrelated third parties.
    Mr. Nault attributed this observation to the timing of the 2003 
Leases and the decline in the real estate market at the contemplated 
inception of such leases. In reaching this conclusion, Mr. Nault stated 
that he considered the terms of similar leases between unrelated 
parties, the Retirement Plan's overall investment portfolio, the 
Retirement Plan's liquidity and diversification requirements.
    In addition, Mr. Nault certified that the exemption transactions 
were appropriate investments for the Retirement Plan and were in the 
best interests of the Retirement Plan and its participants and 
beneficiaries. Mr. Nault based his statement on all data at his 
disposal, discussions with Messrs. Carney and Hulberg, as well as 
reviews of the performance of the Urgent Care Facility and the 
Residence.
    Further, Mr. Nault represented that he monitored, on behalf of the 
Retirement Plan, compliance with the terms of each 2003 Lease 
throughout the duration of such lease, and each extension, and, if 
necessary, he indicated that he would take appropriate actions to 
enforce the payment of the rent and the proper performance of all other 
obligations of CMG under the terms of each 2003 Lease.
    Finally, Mr. Nault indicated that he expressly approved the renewal 
of each 2003 Lease beyond the initial term. He explained that he 
ensured that the rent paid to the Retirement Plan under the 2003 Leases 
and during each renewal term was no less than the fair market rental 
value of the Urgent Care Facility and the Residence and that such 
rentals were adjusted annually according to an annual independent 
appraisal, if required.

Department's Investigation

    20. In a letter to CMG dated March 17, 2005, the San Francisco 
Regional Office (SFRO) of the Department concluded its investigation of 
the Retirement Plan and the 401(k) Plan. Based on the facts gathered 
during the investigation, the SFRO noted that the fiduciaries of the 
Plans may have violated several provisions of the Act with respect to 
the leasing of the Treatment Center by the Plans to CMG and the sale of 
the 401(k) Plan's ownership interests in the Buildings and Treatment 
Center to the Retirement Plan. Because the fiduciaries of the Plans had 
obtained exemptive relief from the Department with respect to the 
leasing of the Treatment Center (PTE 2004-21), the SFRO said it would 
take no further action with regard to these issues.
    21. In summary, it is represented that the transactions satisfied 
or will satisfy the statutory criteria for an exemption under section 
408(a) of the Act because:
    (a) The terms and conditions of each 2003 Lease were no less 
favorable to the Retirement Plan than those obtainable by the 
Retirement Plan under similar circumstances when negotiated at arm's 
length with unrelated third parties.
    (b) The Retirement Plan was represented for all purposes under the 
2003 Leases, and during each renewal term, by a qualified, independent 
fiduciary.
    (c) The independent fiduciary negotiated, reviewed, and approved 
the terms and conditions of the 2003 Leases and the options to renew 
such leases on

[[Page 79174]]

behalf of the Retirement Plan and has determined that the transactions 
were appropriate investments for the Retirement Plan and are in the 
best interests of the Retirement Plan and its participants and 
beneficiaries.
    (d) The rent paid to the Retirement Plan under each 2003 Lease, and 
during each renewal term, was no less than the fair market rental value 
of the Urgent Care Facility and the Residence, as established by a 
qualified, independent appraiser.
    (e) The rent was subject to adjustment at the commencement of the 
second year of each 2003 Lease and each year thereafter by way of an 
independent appraisal. A qualified, independent appraiser was selected 
by the independent fiduciary to conduct the appraisal. If the appraised 
fair market rent of the Urgent Care Facility or the Residence was 
greater than that of the current base rent, then the base rent was 
revised to reflect the appraised increase in fair market rent. If the 
appraised fair market rent of the Urgent Care Facility or the Residence 
was less than or equal to the current base rent, then the base rent 
remained the same.
    (f) Each 2003 Lease was triple net, requiring all expenses for 
maintenance, taxes, utilities and insurance to be paid by CMG, as 
lessee.
    (g) The independent fiduciary (1) monitored CMG's compliance with 
the terms of each 2003 Lease and the conditions of the exemption 
throughout the duration of such leases and the renewal terms, and was 
responsible for legally enforcing the payment of the rent and the 
proper performance of all other obligations of CMG under the terms of 
such leases; (2) expressly approved the renewals of the 2003 Leases 
beyond their initial terms;
    (3) determined whether the rent was paid in a timely manner based 
on documentation provided by CMG; and (4) determined whether CMG owed 
the 401(k) Plan or the Retirement Plan additional rent by reason of the 
past leasing of the Urgent Care Facility and/or the Residence, 
including the payment of reasonable interest.
    (h) At all times throughout the duration of each 2003 Lease and 
each respective renewal term, the fair market value of the Urgent Care 
Facility and the Residence did not exceed 25 percent of the value of 
the total assets of the Retirement Plan.
    (i) Within 90 days of the publication of the grant notice in the 
Federal Register, PAMF will file a Form 5330 with the Service and pay 
all applicable excise taxes that are due with respect to the leasing of 
the Urgent Care Facility and the Residence to CMG by the 401(k) Plan 
and/or the Retirement Plan prior to July 1, 2003.

Tax Consequences Of The Transactions

    The Department of the Treasury has determined that if a transaction 
between a qualified employee benefit plan and its sponsoring employer 
(or affiliate thereof) results in the plan either paying less than or 
receiving more than fair market value, such excess may be considered to 
be a contribution by the sponsoring employer to the plan and, 
therefore, must be examined under applicable provisions of the Internal 
Revenue Code, including sections 401(a)(4), 404 and 415.

FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department, 
telephone (202) 693-8556. (This is not a toll-free number.)

The Bank of New York Mellon Corporation (the Applicant), Located in New 
York, New York [Exemption Application Number: D-11458]

Proposed Exemption

    The Department of Labor (the Department) is considering granting an 
exemption under the authority of section 408(a) of the Employee 
Retirement Income Security Act of 1974 (ERISA, or the Act) and section 
4975(c)(2) of the Internal Revenue Code of 1986 (the Code) and in 
accordance with the procedures set forth in 29 CFR Part 2570 Subpart B 
(55 FR 32836, 32847, August 10, 1990).

Section I--Transactions

    If the proposed exemption is granted, effective as of the date of 
issuance of this proposed exemption, the restrictions of section 406 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 purchase of certain securities (the 
Securities), as defined below in Section III(h), by an asset management 
affiliate of The Bank of New York Mellon Corporation (BNYMC), as 
``affiliate'' is defined below in Section III(c), from any person other 
than such asset management affiliate of BNYMC or any affiliate thereof, 
during the existence of an underwriting or selling syndicate with 
respect to such Securities, where a broker-dealer affiliated with BNYMC 
(the Affiliated Broker-Dealer), as defined below in Section III(b), is 
a manager or member of such syndicate (an ``affiliated underwriter 
transaction'' (AUT \10\)) and/or where an Affiliated Trustee, as 
defined below in Section III(m), serves as trustee of a trust that 
issued the Securities (whether or not debt securities) or serves as 
indenture trustee of Securities that are debt Securities (an 
``affiliated trustee transaction'' (ATT \11\)) and the asset management 
affiliate of BNYMC, as a fiduciary, purchases such Securities:
---------------------------------------------------------------------------

    \10\ For purposes of this proposed exemption, an In-House Plan 
may engage in AUTs only through investment in a Pooled Fund.
    \11\ For purposes of this proposed exemption, an In-House Plan 
may engage in ATTs only through investment in a Pooled Fund.
---------------------------------------------------------------------------

    (a) On behalf of an employee benefit plan or employee benefit plans 
(Client Plan(s)), as defined below in Section III(e); or
    (b) On behalf of Client Plans, and/or In-House Plans, as defined 
below in Section III(l), which are invested in a pooled fund or in 
pooled funds (Pooled Fund(s)), as defined below in Section III(f).

Section II--Conditions

    The proposed exemption, if granted, is conditioned upon adherence 
to the facts and representations described herein and upon satisfaction 
of the following conditions:
    (a)(1) The Securities to be purchased are either--
    (i) Part of an issue registered under the Securities Act of 1933 
(the 1933 Act) (15 U.S.C. 77a et seq.) or, if the Securities to be 
purchased are part of an issue that is exempt from such registration 
requirement, such Securities:
    (A) Are issued or guaranteed by the United States or by any person 
controlled or supervised by and acting as an instrumentality of the 
United States pursuant to authority granted by the Congress of the 
United States,
    (B) Are issued by a bank,
    (C) Are exempt from such registration requirement pursuant to a 
federal statute other than the 1933 Act, or
    (D) Are the subject of a distribution and are of a class which is 
required to be registered under section 12 of the Securities Exchange 
Act of 1934 (the 1934 Act) (15 U.S.C. 781), and are issued by an issuer 
that has been subject to the reporting requirements of section 13 of 
the 1934 Act (15 U.S.C. 78m) for a period of at least ninety (90) days 
immediately preceding the sale of such Securities and that has filed 
all reports required to be filed thereunder with the Securities and 
Exchange Commission (SEC) during the preceding twelve (12) months; or
    (ii) Part of an issue that is an Eligible Rule 144A Offering, as 
defined in SEC Rule 10f-3 (17 CFR 270.10f-3(a)(4)). Where the Eligible 
Rule 144A Offering of the Securities is of equity securities,

[[Page 79175]]

the offering syndicate shall obtain a legal opinion regarding the 
adequacy of the disclosure in the offering memorandum;
    (2) The Securities to be purchased are purchased prior to the end 
of the first day on which any sales are made, pursuant to that 
offering, at a price that is not more than the price paid by each other 
purchaser of the Securities in that offering or in any concurrent 
offering of the Securities, except that--
    (i) If such Securities are offered for subscription upon exercise 
of rights, they may be purchased on or before the fourth day preceding 
the day on which the rights offering terminates; or
    (ii) If such Securities are debt securities, they may be purchased 
at a price that is not more than the price paid by each other purchaser 
of the Securities in that offering or in any concurrent offering of the 
Securities and may be purchased on a day subsequent to the end of the 
first day on which any sales are made, pursuant to that offering, 
provided that the interest rates, as of the date of such purchase, on 
comparable debt securities offered to the public subsequent to the end 
of the first day on which any sales are made and prior to the purchase 
date are less than the interest rate of the debt Securities being 
purchased; and
    (3) The Securities to be purchased are offered pursuant to an 
underwriting or selling agreement under which the members of the 
syndicate are committed to purchase all of the Securities being 
offered, except if--
    (i) Such Securities are purchased by others pursuant to a rights 
offering; or
    (ii) Such Securities are offered pursuant to an over-allotment 
option.
    (b) The issuer of the Securities to be purchased pursuant to this 
proposed exemption must have been in continuous operation for not less 
than three years, including the operation of any predecessors, unless 
the Securities to be purchased--
    (1) Are non-convertible debt securities rated in one of the four 
highest rating categories by Standard Poor's Rating Services, Moody's 
Investors Service, Inc., FitchRatings, Inc., Dominion Bond Rating 
Service Limited, Dominion Bond Rating Service, Inc., or any successors 
thereto (collectively, the Rating Organizations), provided that none of 
the Rating Organizations rates such securities in a category lower than 
the fourth highest rating category; or
    (2) Are debt securities issued or fully guaranteed by the United 
States or by any person controlled or supervised by and acting as an 
instrumentality of the United States pursuant to authority granted by 
the Congress of the United States; or
    (3) Are debt securities which are fully guaranteed by a person (the 
Guarantor) that has been in continuous operation for not less than 
three years, including the operation of any predecessors, provided that 
such Guarantor has issued other securities registered under the 1933 
Act; or if such Guarantor has issued other securities which are exempt 
from such registration requirement, such Guarantor has been in 
continuous operation for not less than three years, including the 
operation of any predecessors, and such Guarantor is:
    (i) A bank; or
    (ii) An issuer of securities which are exempt from such 
registration requirement, pursuant to a Federal statute other than the 
1933 Act; or
    (iii) An issuer of securities that are the subject of a 
distribution and are of a class which is required to be registered 
under Section 12 of the Securities Exchange Act of 1934 (the 1934 Act) 
(15 U.S.C. 781), and are issued by an issuer that has been subject to 
the reporting requirements of section 13 of the 1934 Act (15 U.S.C. 
78m) for a period of at least ninety (90) days immediately preceding 
the sale of such securities and that has filed all reports required to 
be filed thereunder with the Securities and Exchange Commission (SEC) 
during the preceding twelve (12) months.
    (c) The aggregate amount of Securities of an issue purchased, 
pursuant to this exemption, by the asset management affiliate of BNYMC 
with: (i) The assets of all Client Plans; (ii) The assets, calculated 
on a pro-rata basis, of all Client Plans and In-House Plans investing 
in Pooled Funds managed by the asset management affiliate of BNYMC; and 
(iii) The assets of plans to which the asset management affiliate of 
BNYMC renders investment advice within the meaning of 29 CFR 2510.3-
21(c)) does not exceed:
    (1) Ten percent (10%) of the total amount of the Securities being 
offered in an issue, if such Securities are equity securities;
    (2) Thirty-five percent (35%) of the total amount of the Securities 
being offered in an issue, if such Securities are debt securities rated 
in one of the four highest rating categories by at least one of the 
Rating Organizations, provided that none of the Rating Organizations 
rates such Securities in a category lower than the fourth highest 
rating category; or
    (3) Twenty-five percent (25%) of the total amount of the Securities 
being offered in an issue, if such Securities are debt securities rated 
in the fifth or sixth highest rating categories by at least one of the 
Rating Organizations, provided that none of the Rating Organizations 
rates such Securities in a category lower than the sixth highest rating 
category; and
    (4) The assets of any single Client Plan (and the assets of any 
Client Plans and any In-House Plans investing in Pooled Funds) may not 
be used to purchase any debt securities being offered, if such 
securities are rated lower than the sixth highest rating category by 
any of the Rating Organizations;
    (5) Notwithstanding the percentage of Securities of an issue 
permitted to be acquired, as set forth in Section II(c)(1), (2), and 
(3) above of this proposed exemption, the amount of Securities in any 
issue (whether equity or debt securities) purchased, pursuant to this 
proposed exemption, by the asset management affiliate of BNYMC on 
behalf of any single Client Plan, either individually or through 
investment, calculated on a pro-rata basis, in a Pooled Fund may not 
exceed three percent (3%) of the total amount of such Securities being 
offered in such issue; and
    (6) If purchased in an Eligible Rule 144A Offering, the total 
amount of the Securities being offered for purposes of determining the 
percentages, described above in Section II(c)(1)-(3) and (5), is the 
total of:
    (i) The principal amount of the offering of such class of 
Securities sold by underwriters or members of the selling syndicate to 
``qualified institutional buyers'' (QIBs), as defined in SEC Rule 144A 
(17 CFR 230.144A(a)(1)); plus
    (ii) The principal amount of the offering of such class of 
Securities in any concurrent public offering.
    (d) The aggregate amount to be paid by any single Client Plan in 
purchasing any Securities which are the subject of this proposed 
exemption, including any amounts paid by any Client Plan or In-House 
Plan in purchasing such Securities through a Pooled Fund, calculated on 
a pro-rata basis, does not exceed three percent (3%) of the fair market 
value of the net assets of such Client Plan or In-House Plan, as of the 
last day of the most recent fiscal quarter of such Client Plan or In-
House Plan prior to such transaction.
    (e) The covered transactions are not part of an agreement, 
arrangement, or understanding designed to benefit the asset management 
affiliate of BNYMC or an affiliate.
    (f) If the transaction is an AUT, the Affiliated Broker-Dealer does 
not receive, either directly, indirectly, or

[[Page 79176]]

through designation, any selling concession, or other compensation or 
consideration that is based upon the amount of Securities purchased by 
any single Client Plan, or that is based on the amount of Securities 
purchased by Client Plans or In-House Plans through Pooled Funds, 
pursuant to this proposed exemption. In this regard, the Affiliated 
Broker-Dealer may not receive, either directly or indirectly, any 
compensation or consideration that is attributable to the fixed 
designations generated by purchases of the Securities by the asset 
management affiliate of BNYMC on behalf of any single Client Plan or 
any Client Plan or In-House Plan in Pooled Funds.
    (g) If the transaction is an AUT,
    (1) The amount the Affiliated Broker-Dealer receives in management, 
underwriting, or other compensation or consideration is not increased 
through an agreement, arrangement, or understanding for the purpose of 
compensating the Affiliated Broker-Dealer for foregoing any selling 
concessions for those Securities sold pursuant to this proposed 
exemption. Except as described above, nothing in this Section II(g)(1) 
shall be construed as precluding the Affiliated Broker-Dealer from 
receiving management fees for serving as manager of the underwriting or 
selling syndicate, underwriting fees for assuming the responsibilities 
of an underwriter in the underwriting or selling syndicate, or other 
compensation or consideration that is not based upon the amount of 
Securities purchased by the asset management affiliate of BNYMC on 
behalf of any single Client Plan, or on behalf of any Client Plan or 
In-House Plan participating in Pooled Funds, pursuant to this proposed 
exemption; and
    (2) The Affiliated Broker-Dealer shall provide, on a quarterly 
basis, to the asset management affiliate of BNYMC a written 
certification, signed by an officer of the Affiliated Broker-Dealer, 
stating that the amount that the Affiliated Broker-Dealer received in 
compensation or consideration during the past quarter, in connection 
with any offerings covered by this exemption, was not adjusted in a 
manner inconsistent with Section II(e), (f), or (g) of this proposed 
exemption.
    (h) The covered transactions are performed under a written 
authorization executed in advance by an independent fiduciary of each 
single Client Plan (the Independent Fiduciary), as defined below in 
Section III(g).
    (i) Prior to the execution by an Independent Fiduciary of a single 
Client Plan of the written authorization described above in Section 
II(h), the following information and materials (which may be provided 
electronically) must be provided by the asset management affiliate of 
BNYMC to such Independent Fiduciary;
    (1) A copy of the Notice of Proposed Exemption (the Notice) and, if 
the requested exemption is granted, a copy of the final exemption as 
published in the Federal Register; and
    (2) Any other reasonable available information regarding the 
covered transactions that such Independent Fiduciary requests the asset 
management affiliate of BNYMC to provide.
    (j) Subsequent to the initial authorization by an Independent 
Fiduciary of a single Client Plan permitting the asset management 
affiliate of BNYMC to engage in the covered transactions on behalf of 
such single Client Plan, the asset management affiliate of BNYMC will 
continue to be subject to the requirement to provide within a 
reasonable period of time any reasonably available information 
regarding the covered transactions that the Independent Fiduciary 
requests the asset management affiliate of BNYMC to provide.
    (k)(1) In the case of an existing employee benefit plan investor 
(or existing In-House Plan investor, as the case may be) in a Pooled 
Fund, such Pooled Fund may not engage in any covered transactions 
pursuant to this proposed exemption, unless the asset management 
affiliate of BNYMC provides the written information, as described below 
and within the time period described below in this Section II(k)(2), to 
the Independent Fiduciary of each such plan participating in such 
Pooled Fund (and to the fiduciary of each such In-House Plan 
participating in such Pooled Fund).
    (2) The following information and materials (which may be provided 
electronically) shall be provided by the asset management affiliate of 
BNYMC not less than 45 days prior to such asset management affiliate of 
BNYMC engaging in the covered transactions on behalf of a Pooled Fund, 
pursuant to this proposed exemption, and provided further that the 
information described below in this section II(k)(2)(i) and (iii) is 
supplied simultaneously:
    (i) A notice of the intent of such Pooled Fund to purchase 
Securities pursuant to this exemption, a copy of this Notice, and, if 
the requested exemption is granted, a copy of the final exemption, as 
published in the Federal Register;
    (ii) Any other reasonably available information regarding the 
covered transaction that the Independent Fiduciary of a plan (or 
fiduciary of an In-House Plan) participating in a Pooled Fund requests 
the asset management affiliate of BNYMC to provide; and
    (iii) A termination form expressly providing an election for the 
Independent Fiduciary of a plan (or fiduciary of an In-House Plan) 
participating in a Pooled Fund to terminate such plan's (or In-House 
Plan's) investment in such Pooled Fund without penalty to such plan (or 
In-House Plan). Such form shall include instructions specifying how to 
use the form. Specifically, the instructions must explain that such 
plan (or such In-House Plan) has an opportunity to withdraw its assets 
from a Pooled Fund for a period of no more than 30 days after such 
plan's (or such In-House Plan's) receipt of the initial notice of 
intent, described above in Section II(k)(2)(i), and that the failure of 
the Independent Fiduciary of such plan (or fiduciary of such In-House 
Plan) to return the termination form to the asset management affiliate 
of BNYMC in the case of a plan (or In-House Plan) participating in a 
Pooled Fund by the specified date shall be considered as an approval by 
such plan (or such In-House Plan) of its participation in the covered 
transactions as an investor in such Pooled Fund.
    Further, the instructions will identify BNYMC, the asset management 
affiliate of BNYMC, the Affiliated Broker-Dealer and/or Affiliated 
Trustee and will provide the address of the asset management affiliate 
of BNYMC. The instructions will state that the exemption will not be 
available, unless the fiduciary of each plan participating in the 
covered transactions as an investor in a Pooled Fund is, in fact, 
independent of BNYMC, the asset management affiliate of BNYMC, the 
Affiliated Broker-Dealer, and the Affiliated Trustee. The instructions 
will also state that the fiduciary of each such plan must advise the 
asset management affiliate of BNYMC, in writing, if it is not an 
``Independent Fiduciary,'' as that term is defined below in Section 
III(g) of this proposed exemption.
    For purposes of this Section II(k)(1) and (2), the requirement that 
the fiduciary responsible for the decision to authorize the 
transactions described, above, in Section I of this proposed exemption 
for each plan be independent of the asset management affiliate of BNYMC 
shall not apply in the case of an In-House Plan.
    (3) Notwithstanding the requirement described in Section II(h), the 
written authorization requirement for an existing single Client Plan 
shall be

[[Page 79177]]

satisfied solely with respect to covered ATT transactions (where the 
asset management affiliate of BNYMC or any affiliate thereof is not a 
manager or member of an underwriting or selling syndicate) if the asset 
management affiliate provides to the Independent Fiduciary of such 
existing single Client Plan the written information and materials 
described below in Section II(k)(4), and the Independent Fiduciary does 
not return the termination form required to be provided by Section 
II(k)(4)(iii) within the time period specified therein.
    (4) The following information and materials (which may be provided 
electronically) shall be provided by the asset management affiliate of 
BNYMC not less than 45 days prior to such asset management affiliate of 
BNYMC engaging in the covered ATT transactions on behalf of such 
existing single Client Plan pursuant to this proposed exemption:
    (i) A notice of the intent of such asset management affiliate to 
purchase Securities pursuant to this exemption, a copy of this Notice, 
and, if the requested exemption is granted, a copy of the final 
exemption, as published in the Federal Register;
    (ii) Any other reasonably available information regarding the 
covered ATT transactions that the Independent Fiduciary of such 
existing single Client Plan requests the asset management affiliate of 
BNYMC to provide; and
    (iii) A termination form expressly providing an election for the 
Independent Fiduciary of an existing single Client Plan to deny the 
asset management affiliate of BNYMC from engaging in covered ATT 
transactions on behalf of such Client Plan. Such form shall include 
instructions specifying how to use the form. Specifically, the 
instructions must explain that the existing single Client Plan has an 
opportunity to deny the asset management affiliate of BNYMC from 
engaging in covered ATT transactions of behalf of such Client Plan for 
a period of no more than 30 days after such Client Plan's receipt of 
the initial notice of intent, described above in Section II(k)(4)(i), 
and that the failure of the Independent Fiduciary of such existing 
single Client Plan to return the form to the asset management affiliate 
of BNYMC by the specified date shall be considered an approval by such 
Client Plan of its participation in the covered ATT transactions.
    Further, the instructions will identify BNYMC, the asset management 
affiliate of BNYMC, the Affiliated Broker-Dealer and/or Affiliated 
Trustee and will provide the address of the asset management affiliate 
of BNYMC. The instructions will state that the exemption will not be 
available, unless the Independent Fiduciary of such existing single 
Client Plan is, in fact, independent of BNYMC, the asset management 
affiliate of BNYMC, the Affiliated Broker-Dealer, and the Affiliated 
Trustee. The instructions will also state that the fiduciary of each 
such existing single Client Plan must advise the asset management 
affiliate of BNYMC, in writing, if it is not an ``Independent 
Fiduciary,'' as that term is defined, below, in Section III(g).
    (l)(1) In the case of each plan (and in the case of each In-House 
Plan) whose assets are proposed to be invested in a Pooled Fund after 
such Pooled Fund has satisfied the conditions set forth in this 
proposed exemption to engage in the covered transactions, the 
investment by such plan (or by such In-House Plan) in the Pooled Fund 
is subject to the prior written authorization of an Independent 
Fiduciary representing such plan (or the prior written authorization by 
the fiduciary of such In-House Plan, as the case may be), following the 
receipt by such Independent Fiduciary of such plan (or by the fiduciary 
of such In-House Plan, as the case may be) of the written information 
described above in Section II(k)(2)(i) and (ii).
    (2) For purposes of this Section II(l), the requirement that the 
fiduciary responsible for the decision to authorize the transactions 
described, above, in Section I of this exemption for each plan 
proposing to invest in a Pooled Fund be independent of BNYMC and its 
affiliates shall not apply in the case of an In-House Plan.
    (m) Subsequent to the initial authorization by an Independent 
Fiduciary of a plan (or by a fiduciary of an In-House Plan) to invest 
in a Pooled Fund that engages in the covered transactions, the asset 
management affiliate of BNYMC will continue to be subject to the 
requirement to provide within a reasonable period of time any 
reasonably available information regarding the covered transactions 
that the Independent Fiduciary of such plan (or the fiduciary of such 
In-House Plan, as the case may be) request the asset management 
affiliate of BNYMC to provide.
    (n) At least once every three months, and not later than 45 days 
following the period to which such information relates, the asset 
management affiliate of BNYMC shall furnish:
    (1) In the case of each single Client Plan that engages in the 
covered transactions, the information described below in this Section 
II(n)(3)-(7), to the Independent Fiduciary of each such single Client 
Plan;
    (2) In the case of each Pooled Fund in which a Client Plan (or in 
which an In-House Plan) invests, the information described below in 
this Section (II)(n)(3)-(6) and (8), to the Independent Fiduciary of 
each such Client Plan (and to the fiduciary of each such In-House Plan) 
invested in such Pooled Fund;
    (3) A quarterly report (the Quarterly Report) (which may be 
provided electronically) which discloses all the Securities purchased 
pursuant to the proposed exemption during the period to which such 
report relates on behalf of the Client Plan, In-House Plan or Pooled 
Fund to which such report relates, and which discloses the terms of 
each of the transactions described in such report, including:
    (i) The type of Securities (including the rating of any Securities 
which are debt securities) involved in each transaction;
    (ii) The price at which the Securities were purchased in each 
transaction;
    (iii) The first day on which any sale was made during the offering 
of the Securities;
    (iv) The size of the issue of the Securities involved in each 
transaction, so that the Independent Fiduciary may verify compliance 
with section II(c);
    (v) The number of Securities purchased by the asset management 
affiliate of BNYMC for the Client Plan, In-House Plan or Pooled Fund to 
which the transaction relates;
    (vi) The identity of the underwriter from whom the Securities were 
purchased for each transaction;
    (vii) In the case of an AUT, the underwriting spread in each 
transaction (i.e., the difference between the price at which the 
underwriter purchases the Securities from the issuer and the price at 
which the Securities are sold to the public);
    (viii) In the case of an ATT, the basis upon which the Affiliated 
Trustee is compensated in each transaction;
    (ix) The price at which any of the Securities purchased during the 
period to which such report relates were sold; and
    (x) The market value at the end of the period to which such report 
relates of the Securities purchased during such period and not sold;
    (4) The Quarterly Report contains:
    (i) In the case of AUTs, a representation that the asset management 
affiliate of BNYMC has received a written certification signed by an 
officer of the Affiliated Broker-Dealer, as described above in Section 
II(g)(2), affirming that, as to each AUT covered by this exemption 
during the

[[Page 79178]]

past quarter, the Affiliated Broker-Dealer acted in compliance with 
Section II(e), (f) and (g) of this proposed exemption;
    (ii) In the case of ATTs, a representation by the asset management 
affiliate of BNYMC affirming that, as to each ATT, the transaction was 
not part of an agreement, arrangement of understanding designed to 
benefit the Affiliated Trustee; and
    (iii) A statement that copies of such certifications will be 
provided upon request;
    (5) A disclosure in the Quarterly Report that states that any other 
reasonably available information regarding a covered transaction that 
an Independent Fiduciary (or fiduciary of an In-House Plan) requests 
will be provided, including but not limited to:
    (i) The date on which the Securities were purchased on behalf of 
the Client Plan (or the In-House Plan) to which the disclosure relates 
(including Securities purchased by the Pooled Funds in which such 
Client Plan (or such In-House Plan) invests);
    (ii) The percentage of the offering purchase on behalf of all 
Client Plans (and the pro-rata percentage purchased on behalf of Client 
Plans and In-House Plans investing in Pooled Funds); and
    (iii) The identity of all members of the underwriting syndicate;
    (6) The Quarterly Report discloses any instance during the past 
quarter where the asset management affiliate of BNYMC was precluded for 
any period of time from selling Securities purchased under this 
proposed exemption in that quarter because of its status as an 
affiliate of an Affiliated Broker-Dealer or an Affiliated Trustee and 
the reason for this restriction;
    (7) Explicit notification, prominently displayed in each Quarterly 
Report sent to the Independent Fiduciary of each single Client Plan 
that engages in the covered transactions, that the authorization to 
engage in such covered transactions may be terminated, without penalty 
to such single Client Plan, within five (5) days after the date that 
the Independent Fiduciary of such single Client Plan informs the person 
identified in such notification that the authorization to engage in the 
covered transactions is terminated; and
    (8) Explicit notification, prominently displayed in each Quarterly 
Report sent to the Independent Fiduciary of each Client Plan (and to 
the fiduciary of each In-House Plan) that engages in the covered 
transactions through a Pooled Fund, that the investment in such Pooled 
Fund may be terminated without penalty to such Client Plan (or such In-
House Plan), within such time as may be necessary to effect the 
withdrawal in an orderly manner that is equitable to all withdrawing 
plans and to the non-withdrawing plans, after the date that the 
Independent Fiduciary of such Client Plan (or the fiduciary of such In-
House Plan, as the case may be) informs the person identified in such 
notification that the investment in such Pooled Fund is terminated.
    (o) For purposes of engaging in covered transactions, each Client 
Plan (and each In-House Plan) shall have total net assets with a value 
of at least $50 million (the $50 Million Net Asset Requirement). For 
purposes of engaging in covered transactions involving an Eligible Rule 
144A Offering,\12\ each Client Plan (and each In-House Plan) shall have 
total net assets of at least $100 million in securities of issuers that 
are not affiliated with such Client Plan (or such In-House Plan, as the 
case may be) (the $100 Million Net Asset Requirement).
---------------------------------------------------------------------------

    \12\ SEC Rule 10f-3(a)(4), 17 CFR 270.10f-3(a)(4), states that 
the term ``Eligible Rule 144A Offering'' means an offering of 
securities that meets the following conditions:
    (i) The securities are offered or sold in transactions exempt 
from registration under section 4(2) of the Securities Act of 1933 
[15 U.S.C. 77d(d)], rule 144A thereunder [Sec. 230.144A of this 
chapter], or rules 501-508 thereunder [Sec. 230.501-230-508 of this 
chapter];
    (ii) The securities are sold to persons that the seller and any 
person acting on behalf of the seller reasonable believe to include 
qualified institutional buyers, as defined in Sec. 230.144A(a)(1) of 
this chapter; and
    (iii) The seller and any person acting on behalf of the seller 
reasonably believe that the securities are eligible for resale to 
other qualified institutional buyers pursuant to Sec. 230.144A of 
this chapter.
---------------------------------------------------------------------------

    For purposes of a Pooled Fund engaging in covered transactions, 
each Client Plan (and each In-House Plan) in such Pooled Fund shall 
have total net assets with a value of at least $50 million. 
Notwithstanding the foregoing, if each such Client Plan (and each such 
In-House Plan) in such Pooled Fund does not have total net assets with 
a value of at least $50 million, the $50 Million Net Asset Requirement 
will be met if fifty percent (50%) or more of the units of beneficial 
interest in such Pooled Fund are held by Client Plans (or by In-House 
Plans) each of which has total net assets with a value of at least $50 
million.
    For purposes of a Pooled Fund engaging in covered transactions 
involving an Eligible Rule 144A Offering, each Client Plan (and each 
In-House Plan) in such Pooled Fund shall have total net assets of at 
least $100 million in securities of issuers that are not affiliated 
with such Client Plan (or such In-House Plan, as the case may be). 
Notwithstanding the foregoing, if each such Client Plan (and each such 
In-House Plan) in such Pooled Fund does not have total net assets of at 
least $100 million in securities of issuers that are not affiliated 
with such Client Plan (or In-House Plan, as the case may be), the $100 
Million Net Asset Requirement will be met if fifty percent (50%) or 
more of the units of beneficial interest in such Pooled Fund are held 
by Client Plans (or by In-House Plans) each of which have total net 
assets of at least $100 million in securities of issuers that are not 
affiliated with such Client Plan (or such In-House Plan, as the case 
may be), and the Pooled Fund itself qualifies as a QIB, as determined 
pursuant to SEC Rule 144A (17 CFR 230.144A(a)(F)).
    For purposes of the net asset requirements described above in this 
Section II(o), where a group of Client Plans is maintained by a single 
employer or controlled group of employers, as defined in section 
407(d)(7) of the Act, the $50 Million Net Asset Requirement (or in the 
case of and Eligible Rule 144A Offering, the $100 Million Net Asset 
Requirement) may be met by aggregating the assets of such Client Plans, 
if the assets of such Client Plans are pooled for investment purposes 
in a single master trust.
    (p) The asset management affiliate of BNYMC is a ``qualified 
professional asset manager'' (QPAM), as that term is defined under Part 
V(a) of PTE 84-14, as amended from time to time, or any successor 
exemption thereto. In addition to satisfying the requirements for a 
QPAM under Section V(a) of PTE 84-14, the asset management affiliate of 
BNYMC also must have total client assets under its management and 
control in excess of $5 billion as of the last day of its most recent 
fiscal year, and shareholders' or partners' equity in excess of $1 
million.
    (q) No more than twenty percent (20%) of the assets of a Pooled 
Fund at the time of a covered transaction are comprised of assets of 
In-House Plans for which BNYMC, the asset management affiliate of 
BNYMC, the Affiliated Broker-Dealer, the Affiliated Trustee or an 
affiliate exercises investment discretion.
    (r) The asset management affiliate of BNYMC, the Affiliated Broker-
Dealer, and the Affiliated Trustee, as applicable, maintain, or cause 
to be maintained, for a period of six (6) years from the date of any 
covered transaction such records as are necessary to enable the 
persons, described below in Section II(s), to determine whether the 
conditions of this exemption have been met, except that--
    (1) No party in interest with respect to a plan which engages in 
the covered

[[Page 79179]]

transactions, other than BNYMC, the asset management affiliate of 
BNYMC, the Affiliated Broker-Dealer or the Affiliated Trustee, as 
applicable, shall be subject to a civil penalty under section 502(i) of 
the Act or the taxes imposed by section 4975(a) and (b) of the Code, if 
such records are not maintained, or not available for examination, as 
required below by Section II(s); and
    (2) A separate prohibited transaction shall not be considered to 
have occurred if, due to circumstances beyond the control of the asset 
management affiliate of BNYMC, the Affiliated Broker-Dealer, or the 
Affiliated Trustee, as applicable, such records are lost or destroyed 
prior to the end of the six-year period.
    (s) (1) Except as provided below in Section II(s)(2), and 
notwithstanding any provisions of subsections (a)(2) and (b) of section 
504 of the Act, the records referred to above in Section II(r) are 
unconditionally available at their customary location for examination 
during normal business hours by--
    (i) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service, or the SEC; or
    (ii) Any fiduciary of any plan that engages in the covered 
transactions, or any duly authorized employee or representative of such 
fiduciary; or
    (iii) Any employer of participants and beneficiaries and any 
employee organization whose members are covered by a plan that engages 
in the covered transactions, or any authorized employee or 
representative of these entities; or
    (iv) Any participant or beneficiary of a plan that engages in the 
covered transactions, or duly authorized employee or representative of 
such participant or beneficiary;
    (2) None of the persons described above in Section II(s)(1)(ii)-
(iv) shall be authorized to examine trade secrets of the asset 
management affiliate of BNYMC, the Affiliated Broker-Dealer, or the 
Affiliated Trustee, or commercial or financial information which is 
privileged or confidential; and
    (3) Should the asset management affiliate of BNYMC, the Affiliated 
Broker-Dealer, or the Affiliated Trustee refuse to disclose information 
on the basis that such information is exempt from disclosure, pursuant 
to Section II(s)(2) above, the asset management affiliate of BNYMC 
shall, by the close of the thirtieth (30th) day following the request, 
provide a written notice advising that person of the reasons for the 
refusal and that the Department may request such information.
    (t) An indenture trustee whose affiliate has, within the prior 12 
months, underwritten any Securities for an obligor of the indenture 
Securities must resign as indenture trustee if a default occurs upon 
the indenture Securities within a reasonable amount of time of such 
default.
SECTION III--DEFINITIONS
    (a) The term, ``the Applicant,'' means BNYMC and its current and 
future affiliates.
    (b) The term, ``Affiliated Broker-Dealer,'' means any broker-dealer 
affiliate, as ``affiliate'' is defined below in Section III(c), of the 
Applicant, as ``Applicant'' is defined above in Section III(a), that 
meets the requirements of this proposed exemption. Such Affiliated 
Broker-Dealer may participate in an underwriting or selling syndicate 
as a manager or member. The term, ``manager,'' means any member of an 
underwriting or selling syndicate who, either alone or together with 
other members of the syndicate, is authorized to act on behalf of the 
members of the syndicate in connection with the sale and distribution 
of the Securities, as defined below in Section III(h), being offered or 
who receives compensation from the members of the syndicate for its 
services as a manager of the syndicate.
    (c) The term ``affiliate'' of a person includes:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with such person;
    (2) Any officer, director, partner, employee, or relative, as 
defined in section 3(15) of the Act, of such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (d) The term, ``control,'' means the power to exercise a 
controlling influence over the management or policies of a person other 
than an individual.
    (e) The term, ``Client Plan(s),'' means an employee benefit plan(s) 
that is subject to the Act and/or the Code, and for which plan(s) an 
asset management affiliate of BNYMC exercises discretionary authority 
or discretionary control respecting management or disposition of some 
or all of the assets of such plan(s), but excludes In-House Plans, as 
defined below in Section III(l).
    (f) The term, ``Pooled Fund(s),'' means a common of collective 
trust funds(s) or a pooled investment fund(s): (i) In which employee 
benefit plan(s) subject to the Act and/or Code invest; (ii) Which is 
maintained by an asset management affiliate of BNYMC, (as the term, 
``affiliate'' is defined above in Section III(c)); and (iii) For which 
such asset management affiliate of BNYMC exercises discretionary 
authority or discretionary control respecting the management or 
disposition of the assets of such fund(s).
    (g) (1) The term, ``Independent Fiduciary,'' means a fiduciary of a 
plan who is unrelated to, and independent of, BNYMC, the asset 
management affiliate of BNYMC, the Affiliated Broker-Dealer and the 
Affiliated Trustee. For purposes of this exemption, a fiduciary of a 
plan will be deemed to be unrelated to, and independent of, BNYMC, the 
asset management affiliate of BNYMC, the Affiliated Broker-Dealer and 
the Affiliated Trustee, if such fiduciary represents in writing that 
neither such fiduciary, nor any individual responsible for the decision 
to authorize or terminate authorization for the transactions described 
above in Section I of this exemption, is an officer, director, or 
highly compensated employee (within the meaning of section 
4975(e)(2)(H) of the Code) of BNYMC, the asset management affiliate of 
BNYMC, the Affiliated Broker-Dealer or the Affiliated Trustee and 
represents that such fiduciary shall advise the asset management 
affiliate of BNYMC within a reasonable period of time after any change 
in such facts occur.
    (2) Notwithstanding anything to the contrary in this Section 
III(g), a fiduciary of a plan is not independent:
    (i) If such fiduciary directly or indirectly controls, is 
controlled by, or is under common control with BNYMC, the asset 
management affiliate of BNYMC, the Affiliated Broker-Dealer or the 
Affiliated Trustee;
    (ii) If such fiduciary directly or indirectly receives any 
compensation or other consideration from BNYMC, the asset management 
affiliate of BNYMC, the Affiliated Broker-Dealer or the Affiliated 
Trustee for his or her own personal account in connection with any 
transaction described in this exemption;
    (iii) If any officer, director, or highly compensated employee 
(within the meaning of section 4975(e)(2)(H) of the Code) of the asset 
management affiliate of BNYMC responsible for the transactions 
described above in Section I of this exemption, is an officer, director 
or highly compensated employee (within the meaning of section 
4975(e)(2)(H) of the Code) of the sponsor of the plan or of the 
fiduciary responsible for the decision to authorize or terminate 
authorization for the transactions described in Section I. However, if 
such individual is a director of the sponsor of the plan or of the 
responsible fiduciary, and if he or she

[[Page 79180]]

abstains from participation in: (A) The choice of the plan's investment 
manager/adviser; and (B) The decision to authorize or terminate 
authorization for transactions described above in Section I, then 
Section III(g)(2)(iii) shall not apply.
    (3) The term, ``officer'' means a president, any vice president in 
charge of a principal business unit, division, or function (such as 
sales, administration, or finance), or any other officer who performs a 
policy-making function for BNYMC or any affiliate thereof.
    (h) The term, ``Securities,'' shall have the same meaning as 
defined in section 2(36) of the Investment Company Act of 1940 (the 
1940 Act), as amended (15 U.S.C. 80a-2(36)). For purposes of this 
exemption, mortgage-backed or other asset-backed securities rated by 
one of the Rating Organizations, as defined, below, in Section III(k), 
will be treated as debt securities.
    (i) The term, ``Eligible Rule 144A Offering,'' shall have the same 
meaning as defined in SEC Rule 10f-3(a)(4) (17 CFR 270.10f-3(a)(4)) 
under the 1940 Act.
    (j) The term, ``qualified institutional buyer,'' or the term, 
``QIB,'' shall have the same meaning as defined in SEC Rule 144A (17 
CFR 230.144A(a)(1)) under the 1933 Act.
    (k) The term, ``Rating Organizations,'' means Standard & Poor's 
Rating Services, Moody's Investors Service, Inc., FitchRatings, Inc., 
Dominion Bond Rating Service Limited, and Dominion Bond Rating Service, 
Inc.; or any successors thereto.
    (l) The term, ``In-House Plan(s),'' means an employee benefit 
plan(s) that is subject to the Act and/or the Code, and that is, 
respectively, sponsored by the Applicant as defined above in Section 
III(a) or by any affiliate, as defined above in Section III(b), of the 
Applicant, for its own employees.
    (m) The term, ``Affiliated Trustee,'' means the Applicant and any 
bank or trust company affiliate of the Applicant (as ``affiliate'' is 
defined above in Section III(c)(1)), that serves as trustee of a trust 
that issues Securities which are asset-backed securities or as 
indenture trustee of Securities which are either asset-backed 
securities or other debt securities that meet the requirements of this 
proposed exemption. For purposes of this proposed exemption, other than 
Section II(t), performing services as custodian, paying agent, 
registrar or in similar ministerial capacities is, in each case, also 
considered serving as trustee or indenture trustee.
    This proposed exemption is available to BNYMC for as long as the 
terms and conditions of the exemption are satisfied with respect to 
each Client Plan.

Summary of Facts and Representations

    1. The Applicant is the The Bank of New York Mellon Corporation 
(``BNYMC'', or the ``Applicant''), which is headquartered in New York, 
New York. The Applicant is a bank holding company within the meaning of 
the Bank Holding Company Act of 1956, as amended (the ``BHC Act''), and 
is incorporated under the laws of the state of Delaware. BNYMC was 
established as a result of the July 2, 2007 merger of The Bank of New 
York Company, Inc. and Mellon Financial Corporation. As a bank holding 
company, the Applicant is subject to regulation and oversight by the 
Board of Governors of the Federal Reserve System. The Applicant is also 
a financial holding company within the meaning of the BHC Act.
    2. The Applicant has a number of affiliates that are involved in 
the asset management business and may in the future have additional 
such affiliates (collectively, the ``asset management affiliates''). In 
some cases, the asset management affiliate is an investment adviser 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). Each such registered asset management affiliate would be 
subject to regulation and oversight by the Securities and Exchange 
Commission (the ``SEC'') pursuant to the ``Advisers Act''. In other 
cases, the asset management affiliate is a bank, trust company or 
broker-dealer. Each such other asset management affiliate would be 
subject to regulation and oversight by the applicable Federal and/or 
state banking regulator, in the case of a bank or trust company, or the 
SEC, in the case of a broker-dealer. As of September 30, 2007, the 
aggregate assets under the management of the asset management 
affiliates were in excess of $1 trillion, of which more than $400 
billion consisted of plan assets subject to the Act.
    In addition, the Applicant has a number of affiliates that are 
broker-dealers involved in the underwriting of securities and may in 
the future have additional broker-dealer affiliates (collectively, the 
``Affiliated Broker-Dealers''). Each such Affiliated Broker-Dealer is 
registered under Section 15 of the Securities Exchange Act of 1934 (the 
``1934 Act'') and is subject to regulation and oversight by the SEC.
    The Applicant also has a number of affiliates that are involved in 
the provision of (i) trustee and indenture trustee services as well as 
(ii) custodian, paying agent, registrar and similar ministerial 
services, in each case to issuers of securities and may in the future 
have additional such affiliates.
    3. The Applicant seeks an exemption permitting an asset management 
affiliate of BNYMC to purchase securities as a fiduciary on behalf of 
Client Plans and In-House Plans (collectively, ``Plans'', including 
those Plans invested in pooled funds maintained by the asset manager or 
an affiliate) from any person other than the asset manager or an 
affiliate during the existence of an underwriting or selling syndicate 
with respect to such securities: (i) Where the asset manager's broker-
dealer affiliate participates as a manager or syndicate member of the 
underwriting syndicate for such securities (AUT transactions); and/or 
(ii) Where an affiliate of BNYMC serves as trustee (including custodian 
or similar functionary) of a trust that issued the securities (whether 
or not debt securities) or serves as indenture trustee (including 
custodian or similar functionary) of securities that are debt 
securities (ATT transactions). The Affiliated Broker-Dealer will 
receive no selling concessions with respect to the securities sold to 
Plans in connection with the transactions described in this paragraph.
    4. The Applicant represents that in accordance with Prohibited 
Transaction Class Exemption 75-1, 40 FR 50845 (October 31, 1975) (PTE 
75-1), an asset management affiliate of BNYMC may purchase underwritten 
securities for Plans, where an Affiliated Broker-Dealer is a member of 
an underwriting or selling syndicate. In this regard, Part III of PTE 
75-1 provides limited relief from the prohibited transaction provisions 
of the Act for plan fiduciaries that purchase securities from an 
underwriting or selling syndicate of which the fiduciary or an 
affiliate is a member. However, such relief is not available if the 
Affiliated Broker-Dealer manages the underwriting or selling syndicate.
    5. Further, the Applicant notes that PTE 75-1 does not provide 
relief for the purchase of unregistered securities. This includes those 
securities purchased by an underwriter for resale to a ``qualified 
institutional buyer'' (QIB) pursuant to the SEC's Rule 144A under the 
Securities Act of 1933 (the ``1933 Act''). It is represented that, for 
example, Rule 144A is commonly utilized in connection with sales of 
securities issued by foreign corporations to U.S. investors that are 
QIBs. Notwithstanding the unregistered nature of such shares, it is 
represented that syndicates selling securities under Rule 144A (Rule 
144A Securities) are the functional equivalent of those selling 
registered securities.

[[Page 79181]]

    6. The Applicant represents that the Affiliated Broker-Dealer may 
regularly serve as a manager of underwriting or selling syndicates for 
registered securities, and as a manager or a member of underwriting or 
selling syndicates for Rule 144A Securities. Accordingly, the asset 
management affiliate of BNYMC is currently unable to purchase on behalf 
of Plans securities sold in a Rule 144A Offering (defined below), 
resulting in such Plans being unable to participate in significant 
investment opportunities.
    7. The Applicant represents that there has been considerable 
consolidation in the nation's financial services industry since 1975, 
resulting in more situations where a plan fiduciary may be affiliated 
with the manager of an underwriting syndicate. In addition, many plans 
have expanded their investment portfolios in recent years to include 
foreign securities. As a result, the exemption provided in PTE 75-1, 
Part III, is often unavailable for purchases of certain securities that 
may be appropriate plan investments.
    8. The Applicant states that PTE 2000-25, PTE 2000-27, PTE 2007-03 
and FAN 2001-19E expanded the relief afforded under PTE 75-1 to, among 
other things, situations where the Affiliated Broker-Dealer is a 
manager of the underwriting or selling syndicate. In addition, the 
Applicant notes that PTE 2003-24 and FAN 05-09E expanded the relief 
afforded under PTEs 2000-25 and 2000-27 and FAN 2001-19E to those 
situations where a fiduciary or its affiliate serves as trustee with 
respect to a trust that is the issuer of the securities. Such trusts 
are frequently associated with so-called asset-backed securities (ABS). 
ABS are usually issued as certificates representing an undivided 
interest in a trust which holds a portfolio of assets (e.g., secured 
consumer receivables or credit instruments that bear interest). These 
exemptions generally cover situations where an affiliate of the asset 
management affiliate also may serve as a (i) trustee or indenture 
trustee, or (ii) custodian, paying agent, registrar or other similar 
ministerial capacities.
    9. The Applicant represents that the asset management affiliate of 
BNYMC makes its investment decisions on behalf of, or renders 
investment advice to, Plans pursuant to the governing document of the 
particular Plan or Pooled Fund and the investment guidelines and 
objectives set forth in the management or advisory agreement. Because 
the Plans are covered by Title I of the Act, such investment decisions 
are subject to the fiduciary responsibility provisions of the Act.\13\
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    \13\ By proposing this exemption, the Department is not 
expressing an opinion regarding whether any investment decisions or 
other actions taken by an asset manager regarding the acquisition or 
holding of ABS or other securities in an ATT would be consistent 
with its fiduciary obligations under part 4 of Title I of the Act. 
In this regard, section 404 of the Act requires, among other things, 
that a Plan fiduciary act prudently, solely in the interest of the 
Plan's participants and beneficiaries, and for the exclusive purpose 
of providing benefits to participants and beneficiaries when making 
decisions on behalf of a Plan.
---------------------------------------------------------------------------

    10. The Applicant states, therefore, that the decision to invest in 
a particular offering is made on the basis of price, value, and a 
Plan's investment criteria, not on whether the securities are currently 
being sold through an underwriting or selling syndicate. The Applicant 
further states that, because the compensation paid to the asset 
management affiliate of BNYMC for its services is generally based upon 
assets under management, the asset management affiliate of BNYMC has 
little incentive to purchase securities in an offering in which the 
Affiliated Broker-Dealer is an underwriter unless such a purchase is in 
the interests of Plans. If the assets under management do not perform 
well, the asset management affiliate of BNYMC will receive less 
compensation and could lose clients, costs which far outweigh any gains 
from the purchase of underwritten securities. The Applicant points out 
that under the terms of the proposed exemption, the Affiliated Broker-
Dealer would receive no compensation or other consideration, direct or 
indirect, in connection with any transaction that would be permitted 
under the proposed exemption.
    11. The Applicant states that the asset management affiliates 
generally purchase securities in large blocks because the same 
investments will be made across several of their Client accounts. If 
there is a new offering of an equity or fixed income security that an 
asset management affiliate had otherwise intended to purchase, it may 
be able to purchase the security through the offering syndicate at a 
lower price than it would pay in the open market, without transaction 
costs and with a reduced market impact if it is buying a relatively 
large quantity. This is because a large purchase in the open market can 
cause an increase in the market price and, consequently, result in an 
increase in the cost of the securities. Purchasing from an offering 
syndicate can thus reduce the costs to the Plans.
    12. The Applicant represents that, absent an individual exemption, 
if an Affiliated Broker-Dealer is a manager of the syndicate 
underwriting the offering, the asset management affiliates are 
currently foreclosed from purchasing any securities from that 
underwriting syndicate. The Applicant maintains that, if an asset 
management affiliate then purchases the same securities in the 
secondary market, the Plans may incur greater costs because the market 
price is often higher than the offering price, and because of 
transaction and market impact costs. The Applicant also represents 
that, due to the reluctance of many purchasers of such securities to 
sell them on the secondary market, the Plans may be foreclosed from 
purchasing any such securities if those securities are not purchased 
directly from an underwriting syndicate. Alternatively, the asset 
management affiliate may have foregone other investment opportunities 
because of its decision to purchase in the offering, and these 
opportunities, if still available, may have become more expensive.
    13. The Applicant represents that the Affiliated Broker-Dealers may 
manage and participate in firm commitment underwriting syndicates for 
registered offerings of both equity and debt securities. While equity 
and debt underwritings may operate differently with regard to the 
actual sales process, the basic structures are the same. In a firm 
commitment underwriting, the underwriting syndicate acquires the 
securities from the issuer and then sells the securities to investors.
    14. The Applicant represents that while, as a legal matter, the 
syndicate assumes the risk that the securities might not be 
distributable, as a practical matter, this risk is reduced, in marketed 
deals, through ``building a book'' (i.e., taking indications of 
interest, as further described below at Representation 19) prior to 
pricing the securities. The Applicant asserts that, consequently, there 
is little incentive for the underwriters to use their discretionary 
accounts (or the discretionary accounts of their affiliates) to buy up 
the securities as a way to avoid underwriting liabilities.
    15. The Applicant represents that each syndicate has a ``book-
running lead manager'', who is the principal contact between the 
syndicate and the issuer and who is responsible for organizing and 
coordinating the syndicate. The Applicant further represents that the 
book-running lead manager (also called the managing underwriter or 
syndicate manager) works with an issuer to prepare a new issue of 
securities and, if necessary, register that issue with the Securities 
and Exchange Commission. The book-running lead manager manages all 
aspects of the transaction,

[[Page 79182]]

such as pricing, sales distribution, allocation of orders, and other 
administrative functions, such as making appropriate filings and hiring 
outside counsel to assist all syndicate members in meeting their due 
diligence obligations. The book-running lead manager maintains the 
central record (or ``book'') of all orders to purchase in the offering. 
The syndicate may also have co-leads or co-managers, who generally 
assist the book-running lead manager in working with the issuer to 
prepare the registration statement to be filed with the SEC and in 
distributing the underwritten securities.
    16. The Applicant represents that where more than one underwriter 
is involved, the book-running lead manager, who has been selected by 
the issuer, contacts other underwriters, and the underwriters enter 
into, or have previously entered into, an Agreement Among Underwriters. 
Most book-running lead managers have a form of agreement. This document 
is then supplemented for the particular deal by sending an ``invitation 
telex'' setting forth particular terms to the other underwriters.
    17. The Applicant represents that the arrangement between the 
syndicate and the issuer is embodied in an underwriting agreement, 
which is signed on behalf of the underwriters by one or more of the 
managers. The underwriting agreement provides, subject to certain 
closing conditions, that the underwriters are obligated to purchase the 
underwritten securities from the issuer in accordance with their 
respective commitments. The Applicant states that this obligation is 
met by using the proceeds received from the buyers of the securities in 
the offering, although there is a risk that the underwriters will have 
to pay for a portion of the securities, in the event that not all of 
the securities are sold.
    18. However, the Applicant represents that, generally, the risk 
that the securities will not be sold is small because the underwriting 
agreement is not executed until after the underwriters have obtained 
indications of interest in purchasing the securities from a sufficient 
number of investors to acquire all the securities being offered. Once 
the underwriting agreement is executed, the underwriters immediately 
begin contacting the investors to confirm the sales, first orally and 
then by written confirmation, and sales are finalized within hours and 
sometimes minutes. The Applicant states that the underwriters are 
anxious to complete the sales as soon as possible because until they 
``break syndicate,'' they cannot enter the market. In many cases, the 
underwriters will act as market-makers for the security. A market-maker 
holds itself out as willing to buy or sell the security for its own 
account on a regular basis.
    19. The Applicant represents that the process of ``building a 
book'' or soliciting interest occurs as follows. In an equity offering, 
after a registration statement is filed with the SEC and while it is 
under review by the SEC staff, representatives of the issuer and the 
managers conduct meetings with potential investors, who learn about the 
company and the securities and receive a preliminary prospectus. The 
underwriters cannot make any firm sales until the registration 
statement is declared effective by the SEC. Prior to the effective 
date, while the investors cannot become legally obligated to make a 
purchase, they indicate whether they have an interest in buying, and 
the managers compile a ``book'' of investors who are willing to 
``circle'' a particular portion of the issue. These indications of 
interest are sometimes referred to as a ``soft circle'' because 
investors are not legally bound to buy the securities until the 
registration statement is effective. However, the Applicant represents 
that investors generally follow through on their indications of 
interest, and would be expected to do so, barring any sudden adverse 
developments (in which case it is likely that the offering would be 
withdrawn), because if they do not follow through, the underwriters 
will be reluctant to sell to them in future offerings.
    20. Assuming that the meetings have produced sufficient indications 
of interest, the Applicant represents that the issuer and the book-
running lead manager together will set the price of the securities and 
ask the SEC to declare the registration effective. After the 
registration statement becomes effective and the underwriting agreement 
is executed, the underwriters contact those investors who have 
indicated an interest in purchasing securities in the offering to 
execute the sales. The Applicant represents that offerings are often 
oversubscribed, and many have an over-allotment option that the 
underwriters can exercise to acquire additional shares from the issuer. 
Where an offering is oversubscribed, the underwriters decide how to 
allocate the securities among the potential purchasers. However, rules 
administered by the Financial Industry Regulatory Authority (FINRA) 
\14\ mandate that certain IPO shares may not be sold to the personal 
accounts of those responsible for investing for others, such as 
officers of banks, insurance companies, mutual funds, and investment 
advisers.
---------------------------------------------------------------------------

    \14\ FINRA was created in July, 2007 through the consolidation 
of the National Association of Securities Dealers (NASD) and the 
member regulation, enforcement and arbitration functions of the New 
York Stock Exchange (NYSE). The purpose of FINRA is to promote 
investor protection and market integrity through effective and 
efficient regulation and complementary compliance and technology-
based services.
---------------------------------------------------------------------------

    21. The Applicant represents that debt offerings may be 
``negotiated'' offerings, ``competitive bid'' offerings, or ``bought 
deals.'' ``Negotiated'' offerings are conducted in the same manner as 
an equity offering with regard to when the underwriting agreement is 
executed and how the securities are offered. ``Competitive bid'' 
offerings are ones in which the issuer determines the price for the 
securities through competitive bidding rather than negotiating the 
price with the underwriting syndicate.
    22. The Applicant represents that in a competitive bid offering, 
prospective lead underwriters will bid against one another to purchase 
debt securities, based upon their determinations of the degree of 
investor interest in the securities. Depending on the level of investor 
interest and the size of the offering, the Applicant states that a 
bidding lead underwriter may bring in co-managers to assist in the 
sales process. Most of the securities are frequently sold within hours, 
or sometimes even less than an hour, after the securities are made 
available for purchase.
    23. Occasionally, in highly-rated debt issues, the Applicant 
represents that underwriters ``buy'' the entire deal off of a ``shelf 
registration'' before obtaining indications of interest. These 
``bought'' deals involve issuers whose securities enjoy a deep and 
liquid secondary market, such that an underwriter has confidence 
without pre-marketing that it can identify purchasers for the bonds.
    24. The Applicant represents that there are internal policies in 
place that restrict contact and the flow of information between 
investment management personnel and non-investment management 
personnel. These policies are designed to protect against ``insider 
trading,'' i.e., trading on information not available to the general 
public that may affect the market price of the securities. Diversified 
financial services firms are concerned about insider trading problems 
because one part of the firm--e.g., the mergers and acquisitions 
group--could come into possession of non-public information regarding 
an upcoming transaction involving a particular issuer, while another 
part of the firm--e.g., the investment management group--could

[[Page 79183]]

be trading in the securities of that issuer for its clients.
    25. The Applicant states that its business separation policies and 
procedures are also designed to restrict the flow of any information to 
or from the asset management affiliates that could limit their 
flexibility in managing client assets, and of information obtained or 
developed by the asset management affiliates that could be used by 
other parts of the organization, to the detriment of the asset 
management affiliates' clients.
    26. The Applicant states that the asset management affiliates deal 
on a regular basis with broker-dealers that compete with the Affiliated 
Broker-Dealers. If special consideration were shown to an affiliate, 
such conduct would likely adversely affect the relationships of the 
Affiliated Broker-Dealers and of the asset management affiliates with 
firms that compete with that affiliate. Therefore, a goal of the 
Applicant's business separation policy or policies is to avoid any 
possible perception of improper flows of information between the 
Affiliated Broker-Dealers and the asset management affiliates, in order 
to prevent any adverse impact on client and business relationships.
    27. The applicant represents that the underwriters are compensated 
through the ``spread,'' or difference, between the price at which the 
underwriters buy the securities from the issuer and the price at which 
the securities are sold to the public. The Applicant represents that 
this spread is comprised of three components: the management fee, the 
underwriting fee, and the selling concession.
    28. The first component of the spread includes the management fee, 
which, according to the Applicant, generally represents an agreed upon 
percentage of the overall spread and is allocated among the book-
running lead manager and co-managers. Where there is more than one 
managing underwriter, they way the management fee will be allocated 
among the managers is generally agreed upon prior to soliciting 
indications of interest (the process of ``building a book''). Thus, 
according to the Applicant, such management fee allocations are not 
reflective of the amount of securities that particular manager sell in 
an offering.
    29. The second component of the spread is the underwriting fee, 
which, according to the Applicant, represents compensation to the 
underwriters (including the non-managers, if any) for the risks they 
assume in connection with the offering and for the use of their 
capital. This component of the spread is also used to cover the 
expenses of the underwriting that are not otherwise reimbursed by the 
issuer. The first and second components are received without regard to 
how the underwritten securities are allocated for sales purposes or to 
whom the securities are sold.
    30. The third component of the spread is the selling concession, 
which, according to the Applicant, generally constitutes 60 percent or 
more of the spread. The selling concession compensates the underwriters 
for their actual selling efforts. The Applicant represents that the 
allocation of selling concessions among the underwriters follows the 
allocation of the securities for sales purposes, except to the extent 
that buyers designate other broker-dealers (who may be other 
underwriters as well as broker-dealers outside the syndicate) to 
receive the selling concessions from the securities they purchase.
    31. According to the Applicant, securities are allocated for sales 
purposes into two categories. The first (and larger) category is the 
``institutional pot,'' which is the pool of securities from which sales 
are made to institutional investors. Selling concessions for securities 
sold from the institutional pot are generally designated by the 
purchaser for particular underwriters or broker-dealers. When 
securities are sold from the institutional pot, the managers sometimes 
receive a portion of the selling concessions, referred to as a ``fixed 
designation,'' attributable to securities sold in this category, 
without regard to who sold the securities or to whom they were sold. 
For securities covered by this proposed exemption, however, the 
Affiliated Broker-Dealers may not receive, either directly or 
indirectly, any compensation that is attributable to the fixed 
designation generated by purchases of securities by the asset 
management affiliates on behalf of their Plans.
    32. The second category of allocated securities is ``retail,'' 
which, according to the Applicant, are the securities retained by the 
underwriters for sale to their retail customers. The Applicant 
represents that the underwriters receive the selling concessions from 
their respective retail retention allocations. Securities may be 
shifted between the two categories based upon whether either category 
is oversold or undersold during the course of the offering.
    33. The Applicant represents that the Affiliated Broker-Dealers' 
inability to receive any selling concessions, or any compensation 
attributable to the fixed designations, generated by purchases of 
securities by the asset management affiliates' Plans, removes the 
primary economic incentive for the asset management affiliates to make 
purchases that are not in the interests of their Plans from offerings 
for which an Affiliated Broker-Dealer is an underwriter. The reason is 
that the Affiliated Broker-Dealer will not receive any additional fees 
as a result of such purchases by the asset management affiliates.
    34. The Applicant represents that a number of the offerings of Rule 
144A Securities in which the Affiliated Broker-Dealers may participate 
represent good investment opportunities for the asset management 
affiliates' Plans. Particularly with respect to foreign securities, a 
Rule 144A offering may provide the least expensive and most accessible 
means for obtaining the securities. However, as discussed above, PTE 
75-1, Part III, does not cover Rule 144A Securities. Therefore, absent 
an individual exemption, the asset management affiliates are foreclosed 
from purchasing such securities for their Plans in offerings in which 
an Affiliated Broker-Dealer participates.
    35. The Applicant states that Rule 144A, which was adopted in 1990, 
acts as a ``safe harbor'' exemption from the registration provisions of 
the 1933 Act for sales of certain types of securities to QIBs. QIBs 
include several types of institutional entities, such as employee 
benefit plans and commingled trust funds holding assets of such plans, 
which own and invest on a discretionary basis at least $100 million in 
securities of unaffiliated issuers.
    36. The Applicant represents that any securities may be sold 
pursuant to Rule 144A except for those of the same class or similar to 
a class that is publicly traded in the United States, or certain types 
of investment company securities. This limitation is designed to 
prevent side-by-side public and private markets developing for the same 
class of securities.
    37. The Applicant states that buyers of Rule 144A Securities must 
be able to obtain, upon request, basic information concerning the 
business of the issuer and the issuer's financial statements, much of 
the same information as would be furnished if the offering were 
registered. The Applicant represents that this condition does not 
apply, however, to an issuer filing reports with the SEC under the 1934 
Act, for which reports are publicly available. The condition also does 
not apply to a ``foreign private issuer'' for whom reports are 
furnished to the SEC under Rule 12g3-2(b) of the 1934 Act (17 CFR 
240.12g3-2(b)), or to issuers who are foreign governments or political

[[Page 79184]]

subdivisions thereof and are eligible to use Schedule B under the 1933 
Act (which describes the information and documents required to be 
contained in a registration statement filed by such issuers).
    38. The Applicant represents that sales under Rule 144A, like sales 
in a registered offering, remain subject to the protections of the 
anti-fraud rules of federal and state securities laws. These rules 
include Section 10(b) of the 1934 Act and Rule 10b-5 thereunder (17 CFR 
240.10b-5) and Section 17(a) of the 1933 Act (15 U.S.C. 77a). Through 
these and other provisions, the SEC may use its full range of 
enforcement powers to exercise its regulatory authority over the market 
for Rule 144A Securities, in the event that it detects improper 
practices.
    39. The Applicant represents that this potential liability for 
fraud provides a considerable incentive to the issuer and offering 
syndicate to ensure that the information contained in a Rule 144A 
offering memorandum is complete and accurate in all material respects. 
Among other things, the book-running lead manager typically obtains an 
opinion from a law firm, commonly referred to as a ``10b-5'' opinion, 
stating that the law firm has no reason to believe that the offering 
memorandum contains any untrue statement of material fact or omits any 
material fact necessary to conclude that, under the circumstances, the 
statements made are not misleading.
    40. The Applicant represents that Rule 144A offerings generally are 
structured in the same manner as underwritten registered offerings. The 
major difference is that a Rule 144A offering uses an offering 
memorandum rather than a prospectus that is filed with the SEC. The 
marketing process is the same in most respects, except that the selling 
efforts are generally limited to contacting QIBs and there are no 
general solicitations for buyers (e.g., no general advertising). While, 
generally, there are no non-manager members in the syndicate, the 
Applicant also requests relief for situations where an Affiliated 
Broker-Dealer acts only as a syndicate member, not as a manager.
    41. With respect to ATTs and the types of trustees that would be 
covered by the proposed exemption, the Applicant states that in asset-
backed securities transactions (ABS) there is generally a trustee who 
is the legal owner of the receivables held by the trust. In more 
traditional public debt offerings, there is generally only an indenture 
trustee, who holds the debt obligation of the obligor, holds any assets 
pledged as collateral to secure payment of the debt obligation, makes 
required payments and keeps records, and in the event of a default, 
acts for the note holders. The Applicant represents that the functions 
and obligations of an indenture trustee are aligned with the interests 
of the note holders because such a trustee is generally appointed only 
to perform ministerial functions (i.e., hold collateral, maintain 
records, and make payments when due). In this regard, the proposed 
exemption would also cover situations where the affiliate of the asset 
management affiliate serves as a custodian, paying agent, registrar or 
other similar ministerial capacities.
    42. The Applicant states that the Affiliated Broker-Dealer is 
frequently involved in underwriting offerings of ABS and other 
securities where an affiliate of the asset management affiliate serves 
as a trustee for the trust which issues such securities. The inability 
of the asset management affiliate to purchase ABS or other securities 
for its Plans in such cases can be detrimental to those accounts 
because the accounts can lose important fixed income investment 
opportunities that are relatively less expensive or qualitatively 
better than other available opportunities in such securities.
    43. The Applicant represents that the frequency of such offerings 
of ABS or other securities results from consolidation in the bank 
industry and the attendant reduction in the number of banks 
participating in the corporate trust business. Many factors that have 
made participation in the trust business less attractive to banks have 
contributed to this trend. On the income side, these factors include 
competitive pressure on pricing corporate trust services and loss of 
transactional fees and traditional ``float'' income due to the growth 
in book entry securities. On the expense side, the Applicant represents 
that the cost of entry into the corporate trust business and the cost 
of remaining competitive in the business have dramatically increased. 
This increase includes both technological and personnel costs which are 
necessary to remain competitive. The cost increase is particularly 
acute in the structured finance sector of the corporate trust business, 
where both systems and staff need to have the capability of supporting 
increasingly complex transactions.
    44. The Applicant states that the trustee in a structured finance 
transaction for ABS, while involved in complex calculations and 
reporting, typically does not perform any discretionary functions. Such 
a trustee operates as a stakeholder and strictly in accordance with the 
explicit terms of the governing agreements, so that the intent of the 
crafters of the transaction may be honored. These functions are 
essentially ministerial and include establishing accounts, receiving 
funds, making payments, and issuing reports, all in a predetermined 
manner. Unlike trustees for corporate or municipal debt, trustees in 
structured finance transactions for ABS need not assume discretionary 
functions to protect the interests of debt holders in the event of 
default or bankruptcy because structured finance entities are designed 
to be bankruptcy remote vehicles. The Applicant represents that there 
is no ``issuer'' outside the structured transaction to pursue for 
repayment of the debt. The trustee's role is defined by a contract-
explicit structure that spells out the actions to be taken upon the 
happening of specified events. The Applicant states that there is no 
opportunity (or incentive) for the trustee in a structured finance 
transaction, by reason of its affiliation with an underwriter, asset 
manager, or otherwise, to take or not to take actions that might 
benefit the underwriter or asset manager to the detriment of plan 
investors.
    With respect to offerings of more traditional public debt 
securities that are not part of a structured finance transaction, the 
Applicant states that an indenture trustee may have more discretion 
when the issuer of the securities is not bankruptcy remote.\15\ In such 
instances, indenture trustees generally exercise meaningful discretion 
only in the context of a default, at which time the indenture trustee 
has the duty to act for the bondholders, in a manner consistent with 
the interests of investing plans (and other investors) and not with the 
interests of the issuer. In such situations, an indenture trustee may 
be an affiliate of an underwriter for the securities. In the event of a 
default, the duty of an indenture trustee in pursuing the bondholders' 
rights against the issuer might conflict with the indenture trustee's 
other business interests. However, the Applicant represents that under 
the Trust Indenture Act of 1939 (the ``Trust Indenture Act''), which 
applies to many, but not all, trust debt offerings,\16\ an indenture 
trustee whose

[[Page 79185]]

affiliate has, within the prior 12 months, underwritten any securities 
for an obligor of the indenture securities generally must resign as 
indenture trustee if a default occurs upon the indenture securities. 
Thus, the Applicant maintains that this requirement and other 
provisions of the Trust Indenture Act are designed to protect 
bondholders from conflicts of interest to which an indenture trustee 
may be subject.
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    \15\ The Applicant represents that the amount of discretion 
possessed by an indenture trustee will depend on the terms of the 
particular indenture, and factual issues, such as whether a default 
has occurred.
    \16\ In connection with the applicability of the Trust Indenture 
Act to trust debt offerings, the Applicant further represents that 
market practice with respect to certain types of non-registered 
securities offerings is to structure the offering to include both an 
indenture and an indenture trustee, despite the fact that such 
offerings are not required to use the indenture structure mandated 
by the Trust Indenture Act. In such instances, the Applicant 
represents, it is typically the case that the various requirements 
of the Trust Indenture Act (including the default provision 
references in Representation 44) will be incorporated (either 
expressly or by reference) in the trust indenture.
---------------------------------------------------------------------------

    45. According to the Applicant, the role of the underwriter in a 
structured financing for a series of ABS involves, among other things, 
assisting the sponsor or originator of the applicable receivables or 
other assets in structuring the contemplated transaction. The trustee 
becomes involved later in the process, after the principal parties have 
agreed on the essential components, to review the proposed transaction 
from the limited standpoints of technical workability and potential 
trustee liability. After the issuance of securities to plan investors 
in a structured financing, while the trustee performs its role as 
trustee over the life of the transaction, the underwriter of the 
securities has no further role in the transaction (unless it is a 
continuous offering, such as for a commercial paper conduit).\17\ In 
addition, the trustee has no opportunity to take or not take action, or 
to use information in ways that might advantage the underwriter to the 
detriment of plan investors. The Applicant states that an underwriter, 
in order to protect its reputation, clearly wants the transaction to 
succeed as it was structured, which includes the trustee performing in 
a manner independent of the underwriter.
---------------------------------------------------------------------------

    \17\ The Applicant further represents that, in a limited number 
of situations where the offering of the security is ongoing or 
continuous, the underwriter will have a continuing role in selling 
the additional securities that are sold over time.
---------------------------------------------------------------------------

    46. The Applicant represents that, in many offerings of ABS or 
other securities, the trustee's fee is a fixed dollar amount that does 
not depend on the size of the offering. In such cases, the asset 
management affiliate has no conflict of interest because it cannot 
increase the trustee's fee by causing Plans to participate in the 
offering. Where the trustee's fee is a portion of the principal amount 
of outstanding securities to be offered, the asset management affiliate 
could conceivably cause Plans to participate to affect the size of the 
offering and thus the trustee's fee.\18\ The Applicant further 
represents that the protective conditions of the requested exemption 
(e.g., the requirement of advance approval by an independent fiduciary 
and reporting of the basis for the trustee's fee) render this 
possibility remote.
---------------------------------------------------------------------------

    \18\ The Applicant represents that this theoretical conflict is 
directly addressed by the protective conditions in the so-called 
``Underwriter Exemption'' listed in PTE 2002-41 and in this proposed 
exemption. In this regard, the Applicant states that the exemption 
(if granted) will apply only to firm commitment underwritings, 
where, by definition, the entire issue of securities will be 
purchased, either by the public or the underwriters. Thus, where the 
trustee's fee would be a fixed percentage of the total dollar amount 
of the securities issued in the offering, the amount of the 
trustee's fee would be, in fact, a fixed dollar amount that would be 
known to plan investors as part of disclosures made relating to the 
offering (e.g., the prospectus or private placement memorandum). In 
this connection, the Department notes that plan fiduciaries would 
have a duty to adequately review, and effectively monitor, all fees 
paid to service providers, including those paid to parties 
affiliated with an asset management affiliate.
---------------------------------------------------------------------------

    In this regard, the Applicant states that the conditions of the 
proposed exemption, which are based on the prior individual exemptions 
granted by the Department for an ''AUT'', impose adequate safeguards as 
well for an ''ATT'' in order to prevent possible abuse. First, there 
are significant limitations on the quantity of securities that an asset 
management affiliate may acquire for Plans, meaning not only that there 
will be significant limitations on the ability of the asset management 
affiliate to affect the fees of its affiliate, but also insuring that 
significant numbers of independent investors also decided that the 
securities were an appropriate purchase. Second, the asset management 
affiliate must obtain the consent of an independent fiduciary to engage 
in these transactions. Third, regular reporting of the subject 
transactions to an independent fiduciary will take place. Fourth, an 
independent fiduciary must be provided information on how securities 
purchased actually performed. Finally, the consent of the independent 
fiduciary may be revoked if, for example, it suspects that purchases by 
the asset management affiliate have been motivated by a desire to 
generate fees for its affiliate.
    47. In summary, the Applicant represents that the proposed 
transactions will satisfy the statutory criteria for an exemption under 
section 408(a) of the Act because:
    (a) The Plans will gain access to desirable investment 
opportunities;
    (b) In each offering, the asset management affiliate(s) will 
purchase the securities for its Plans from an underwriter or broker-
dealer other than an Affiliated Broker-Dealer;
    (c) Conditions similar to those of PTE 75-1, part III, will 
restrict the types of securities that my be purchased, the types of 
underwriting or selling syndicates and issuers involved, and the price 
and timing of the purchases;
    (d) The amount of securities that the asset management affiliates 
may purchase on behalf of Plans will be subject to percentage 
limitations;
    (e) The Affiliated Broker-Dealers will not be permitted to receive, 
either directly or indirectly, any compensation attributable to fixed 
designation, or through any selling concessions with respect to the 
securities sold to the Plans;
    (f) Prior to engaging in any of the covered transactions, an 
Independent Fiduciary of each of the Plans (or the fiduciary of each 
In-House Plan) will receive certain disclosures and will be given an 
opportunity to consent to the covered transactions, either through 
affirmative or negative consent;
    (g) The asset management affiliate will provide regular reporting 
to an Independent Fiduciary of each Plan with respect to all securities 
purchased pursuant to the exemption, if granted;
    (h) Each Plan participating in these transactions will be subject 
to a minimum size requirement of at least $50 million ($100 million for 
``Eligible Rule 144A Offerings''), with certain exceptions for Pooled 
Funds;
    (i) The asset management affiliate must have total assets under 
management in excess of $5 billion and shareholders' or partners' 
equity in excess of $1 million; and
    (j) The Affiliated Trustee will be unable to subordinate the 
interests of the Client Plans to those of the asset manager or its 
affiliates.
    Notice To Interested Persons: The Applicant represents that the 
class of persons interested in this exemption is comprised of the 
relevant independent fiduciaries of the existing Client Plans 
(including those Client Plans that are invested solely in Pooled Funds) 
that are served by those asset management affiliates of BNYMC that 
currently intend to rely upon the exemption. Accordingly, the Applicant 
represents that it shall ensure that the foregoing asset management 
affiliates provide such interested persons with a copy of this Notice 
of Proposed Exemption (the Notice), accompanied by a copy of the 
supplemental statement (the Supplemental Statement) required pursuant 
to 29 CFR 2570.43(b)(2), within fifteen (15) days of the date of the 
publication of the Notice in the Federal Register.
    In this connection, the relevant independent fiduciaries of the 
existing

[[Page 79186]]

Client Plans shall receive copies of the Notice and the Supplemental 
Statement from the following asset management affiliates of BNYMC: (1) 
Alcentra Inc.; (2) Mellon Capital Management Corporation; (3) Newton 
Capital Management Limited; (4) Standish Mellon Asset Management 
Company LLC; and (5) The Bank of New York Mellon. The Department must 
receive all written comments and requests for a hearing no later than 
forty-five (45) days after publication of the Notice in the Federal 
Register.

FOR FURTHER INFORMATION CONTACT: Mr. Mark Judge of the Department, 
telephone (202) 693-8339. (This is not a toll-free number).

United States Steel and Carnegie Pension Fund (the Applicant)

Located in New York, NY

[Exemption Application No. D-11465]

Proposed Exemption

    The Department of Labor is considering granting an exemption under 
the authority of section 408(a) of the Act and section 4975(c)(2) of 
the Code and in accordance with the procedures set forth 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990).\19\
---------------------------------------------------------------------------

    \9\ For purposes of this exemption, references to specific 
provisions of Title I of the Act unless otherwise specified, refer 
to the corresponding provisions of the Code.
---------------------------------------------------------------------------

I. Retroactive Relief

    If the exemption is granted, the restrictions of section 
406(a)(1)(A) through (D) and the sanctions resulting from the 
application of section 4975 of the Code by reason of section 
4975(c)(1)(A) through (D), shall not apply, for the period beginning 
February 15, 2003 through December 31, 2007, to a transaction between a 
party in interest with respect to the Former U.S. Steel Related Plans, 
as defined in Section IV(e), below, and an investment fund in which 
such plans have an interest (the Investment Fund), as defined in 
Section IV(l), below, provided that United States Steel and Carnegie 
Pension Fund or its successor (collectively, UCF) has discretionary 
authority or control with respect to the plan assets involved in the 
transaction, and the following conditions are satisfied:
    (a) UCF is an investment adviser registered under the Investment 
Advisers Act of 1940 that has, as of the last day of its most recent 
fiscal year, total client assets, including in-house assets (In-house 
Plan Assets), as defined in Section IV(h), below, under its management 
and control in excess of $100,000,000 and equity, as defined in Section 
IV(k), below, in excess of $750,000;
    (b) At the time of the transaction, as defined in Section IV(n), 
below, the party in interest or its affiliate, as defined in Section 
IV(a), below, does not have, and during the immediately preceding one 
(1) year has not exercised, the authority to--
    (1) Appoint or terminate UCF as a manager of any of the Former U.S. 
Steel Related Plans' assets, or
    (2) Negotiate the terms of the management agreement with UCF 
(including renewals or modifications thereof) on behalf of the Former 
U.S. Steel Related Plans;
    (c) The transaction is not described in--
    (1) Prohibited Transaction Exemption 81-6 (PTE 81-6) \20\, relating 
to securities lending arrangements, (as amended or superseded);
---------------------------------------------------------------------------

    \20\ FR 7527, January 23, 1981. PTE 81-6 was amended and 
replaced by PTE 2006-16 (71 FR 63786, October 31, 2006). The 
effective date of PTE 2006-16 was January 2, 2007, and PTE 81-6 was 
revoked as of that date.
---------------------------------------------------------------------------

    (2) Prohibited Transaction Exemption 83-1 (PTE 83-1) \21\, relating 
to acquisitions by plans of interests in mortgage pools, (as amended or 
superseded), or
---------------------------------------------------------------------------

    \21\ FR 895, January 7, 1983.
---------------------------------------------------------------------------

    (3) Prohibited Transaction Exemption 88-59 (PTE 88-59) \22\, 
relating to certain mortgage financing arrangements, (as amended or 
superseded);
---------------------------------------------------------------------------

    \22\ FR 24811, June 30, 1988.
---------------------------------------------------------------------------

    (d) The terms of the transaction are negotiated on behalf of the 
Investment Fund by, or under the authority and general direction of 
UCF, and either UCF, or (so long as UCF retains full fiduciary 
responsibility with respect to the transaction) a property manager 
acting in accordance with written guidelines established and 
administered by UCF, makes the decision on behalf of the Investment 
Fund to enter into the transaction;
    (e) At the time the transaction is entered into, and at the time of 
any subsequent renewal or modification thereof that requires the 
consent of UCF, the terms of the transaction are at least as favorable 
to the Investment Fund as the terms generally available in arm's-length 
transactions between unrelated parties;
    (f) Neither UCF nor any affiliate thereof, as defined in Section 
IV(b), below, nor any owner, direct or indirect, of a 5 percent (5%) or 
more interest in UCF is a person who, within the ten (10) years 
immediately preceding the transaction has been either convicted or 
released from imprisonment, whichever is later, as a result of:
    (1) Any felony involving abuse or misuse of such person's employee 
benefit plan position or employment, or position or employment with a 
labor organization;
    (2) any felony arising out of the conduct of the business of a 
broker, dealer, investment adviser, bank, insurance company, or 
fiduciary;
    (3) income tax evasion;
    (4) any felony involving the larceny, theft, robbery, extortion, 
forgery, counterfeiting, fraudulent concealment, embezzlement, 
fraudulent conversion, or misappropriation of funds or securities; 
conspiracy or attempt to commit any such crimes or a crime in which any 
of the foregoing crimes is an element; or
    (5) any other crimes described in section 411 of the Act.
    For purposes of this Section I(f), a person shall be deemed to have 
been ``convicted'' from the date of the judgment of the trial court, 
regardless of whether the judgment remains under appeal;
    (g) The transaction is not part of an agreement, arrangement, or 
understanding designed to benefit a party in interest;
    (h) The party in interest dealing with the Investment Fund:
    (1) Is a party in interest with respect to the Former U.S. Steel 
Related Plans (including a fiduciary) solely by reason of providing 
services to the Former U.S. Steel Related Plans, or solely by reason of 
a relationship to a service provider described in section 
3(14)(F),(G),(H), or (I) of the Act;
    (2) Does not have discretionary authority or control with respect 
to the investment of plan assets involved in the transaction and does 
not render investment advice (within the meaning of 29 CFR Sec.  
2510.3-21(c)) with respect to those assets; and
    (3) Is neither UCF nor a person related to UCF, as defined in 
Section IV(j), below;
    (i) UCF adopts written policies and procedures that are designed to 
assure compliance with the conditions of the proposed exemption;
    (j) An independent auditor, who has appropriate technical training 
or experience and proficiency with the fiduciary responsibility 
provisions of the Act and who so represents in writing, conducts an 
exemption audit, as defined in Section IV(f), below, on an annual 
basis. Following completion of the exemption audit, the auditor shall 
issue a written report to the Former U.S. Steel Related Plans 
presenting its specific findings regarding the level of

[[Page 79187]]

compliance: (1) with the policies and procedures adopted by UCF in 
accordance with Section I(i), above, of this proposed exemption; and 
(2) with the objective requirements of this proposed exemption.
    (k)(1) UCF or an affiliate maintains or causes to be maintained 
within the United States, for a period of six (6) years from the date 
of each transaction, the records necessary to enable the persons 
described in Section I(k)(2) to determine whether the conditions of 
this proposed exemption have been met, except that (A) a separate 
prohibited transaction will not be considered to have occurred if, due 
to circumstances beyond the control of UCF and/or its affiliates, the 
records are lost or destroyed prior to the end of the six (6) year 
period, and (B) no party in interest or disqualified person other than 
UCF 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 have not been maintained or are not 
maintained, or have not been available or are not available for 
examination as required by Section I(k)(2), below, of this proposed 
exemption.
    (2) Except as provided in Section I(k)(3),below, and 
notwithstanding any provisions of subsections (a)(2) and (b) of section 
504 of the Act, the records referred to in Section I(k)(1), above, of 
this proposed exemption are unconditionally available for examination 
at their customary location during normal business hours by:
    (A) any duly authorized employee or representative of the 
Department or of the Internal Revenue Service;
    (B) any fiduciary of any of the Former U.S. Steel Related Plans 
investing in the Investment Fund or any duly authorized representative 
of such fiduciary;
    (C) any contributing employer to any of the Former U.S. Steel 
Related Plans investing in the Investment Fund or any duly authorized 
employee representative of such employer;
    (D) any participant or beneficiary of any of the Former U.S. Steel 
Related Plans investing in the Investment Fund, or any duly authorized 
representative of such participant or beneficiary; and,
    (E) any employee organization whose members are covered by such 
Former U.S. Steel Related Plans;
    (3) None of the persons described in Section I(k)(2)(B) through 
(E), above, of this proposed exemption shall be authorized to examine 
trade secrets of UCF or its affiliates or commercial or financial 
information which is privileged or confidential; and
    (l) With respect to the transactions described in Section II and 
Section III of this proposed exemption, the conditions contained in 
those Sections are satisfied.

II. Interim Relief

    If the exemption is granted, the restrictions of section 
406(a)(1)(A) through (D) and the sanctions resulting from the 
application of section 4975 of the Code by reason of section 
4975(c)(1)(A) through (D), shall not apply, for the period beginning 
January 1, 2008 through the date of the publication of this proposed 
exemption in the Federal Register, to a transaction between a party in 
interest with respect to the Former U.S. Steel Related Plans, as 
defined in Section IV(e), below, and the Investment Fund, as defined in 
Section IV(l), below, provided that UCF has discretionary authority or 
control with respect to the plan assets involved in the transaction, 
and the following conditions are satisfied:
    (a) Each of the conditions contained in paragraphs (a) through (l) 
of Section I are met; and
    (b) With respect to the exemption audit and written report by the 
independent auditor described in Section I(j), the independent auditor 
must complete each such exemption audit and must issue such written 
report to the administrators, or other appropriate fiduciary of the 
Former U.S. Steel Related Plans within six (6) months following the end 
of the year to which each such exemption audit and report relates.

III. Prospective Relief

    If the exemption is granted, the restrictions of section 
406(a)(1)(A) through (D) and the sanctions resulting from the 
application of section 4975 of the Code by reason of section 
4975(c)(1)(A) through (D), shall not apply, for the period beginning 
with the date of the publication of the final exemption in the Federal 
Register, and expiring five years from that date, to a transaction 
between a party in interest with respect to the Former U.S. Steel 
Related Plans, as defined in Section IV(e), below, and the Investment 
Fund, as defined in Section IV(l), below, provided that UCF has 
discretionary authority or control with respect to the plan assets 
involved in the transaction, and the following conditions are 
satisfied:
    (a) UCF is an investment adviser registered under the Investment 
Advisers Act of 1940 that has, as of the last day of its most recent 
fiscal year, total client assets, including In-house Plan Assets, under 
its management and control in excess of $100,000,000 and equity, as 
defined in Section IV(k), below, in excess of $1,000,000 (as measured 
yearly on UCF's most recent balance sheet prepared in accordance with 
generally accepted accounting principles);
    (b) Each of the conditions contained in paragraphs (b) through (i), 
and (k) of Section I are met; and
    (c) An independent auditor, who has appropriate technical training, 
or experience and proficiency with the fiduciary responsibility 
provisions of the Act, and who so represents in writing, conducts an 
exemption audit, as defined, below, in Section IV(g) of this proposed 
exemption, on an annual basis. In conjunction with the completion of 
each such exemption audit, the independent auditor must issue a written 
report to the Former U.S. Steel Related Plans that engaged in such 
transactions, presenting its specific findings with respect to the 
audited sample regarding the level of compliance with the policies and 
procedures adopted by UCF, pursuant to Section I(i) of this proposed 
exemption, and with the objective requirements of the proposed 
exemption. The written report also shall contain the auditor's overall 
opinion regarding whether UCF's program as a whole complied with the 
policies and procedures adopted by UCF and with the objective 
requirements of this proposed exemption. The independent auditor must 
complete each such exemption audit and must issue such written report 
to the administrators, or other appropriate fiduciary of the Former 
U.S. Steel Related Plans within six (6) months following the end of the 
year to which each such exemption audit and report relates.

IV. Definitions

    (a) For purposes of Section I(b) of this proposed exemption, an 
``affiliate'' of a person means--
    (1) Any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person,
    (2) Any corporation, partnership, trust, or unincorporated 
enterprise of which such person is an officer, director, 5 percent (5%) 
or more partner, or employee (but only if the employer of such employee 
is the plan sponsor), and
    (3) Any director of the person or any employee of the person who is 
highly compensated employee, as defined in section 4975(e)(2)(H) of the 
Code, or who has direct or indirect authority, responsibility, or 
control regarding the

[[Page 79188]]

custody, management, or disposition of plan assets.
    A named fiduciary (within the meaning of section 402(a)(2) of the 
Act) of a plan, and an employer any of whose employees are covered by 
the plan will also be considered affiliates with respect to each other 
for purposes of Section I(b), above, if such employer or an affiliate 
of such employer has the authority, alone or shared with others, to 
appoint or terminate the named fiduciary or otherwise negotiate the 
terms of the named fiduciary's employment agreement.
    (b) For purposes of Section I(f), above, of this proposed 
exemption, an ``affiliate'' of a person means--
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person,
    (2) Any director of, relative of, or partner in, any such person,
    (3) Any corporation, partnership, trust, or unincorporated 
enterprise of which such person is an officer, director, or a 5 percent 
(5%) or more partner or owner, and
    (4) Any employee or officer of the person who--
    (A) Is a highly compensated employee (as defined in section 
4975(e)(2)(H) of the Code) or officer (earning 10 percent (10%) or more 
of the yearly wages of such person) or
    (B) Has direct or indirect authority, responsibility or control 
regarding the custody, management, or disposition of plan assets.
    (c) For purposes of Section IV(e) and (h), below, of this proposed 
exemption, an ``affiliate'' of UCF includes a member of either:
    (1) a controlled group of corporations, as defined in section 
414(b) of the Code, of which United States Steel Corporation or its 
successor (collectively, U.S. Steel) is a member, or
    (2) a group of trades or businesses under common control, as 
defined in section 414(c) of the Code, of which U.S. Steel is a member; 
provided that ``50 percent'' shall be substituted for ``80 percent'' 
wherever ``80 percent'' appears in section 414(b) or 414(c) of the 
rules thereunder.
    (d) The term, ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (e) ``Former U.S. Steel Related Plans'' mean:
    (1) Retirement Plan of Marathon Oil Company, Marathon Petroleum LLC 
Retirement Plan and the Speedway SuperAmerica LLC Retirement Plan (the 
Marathon Plans);
    (2) Pension Plan of RMI Titanium Company (RMI), Pension Plan of 
Eligible Employees of RMI Titanium Company, Pension Plan for Eligible 
Salaried Employees of RMI Titanium Company, and Tradco Pension Plan 
(the RTI Plans);
    (3) Any plan the assets of which include or have included assets 
that were managed by UCF as an in-house asset manager (INHAM) pursuant 
to Prohibited Transaction Class Exemption 96-23 (PTE 96-23) \23\ but as 
to which PTE 96-23 is no longer available because such assets are not 
held under a plan maintained by an affiliate of UCF (as defined in 
Section IV(c) of this proposed exemption); and
---------------------------------------------------------------------------

    \23\ 61 FR 15975, April 10, 1996.
---------------------------------------------------------------------------

    (4) Any plan (an Add-On Plan) that is sponsored or becomes 
sponsored by an entity that was, but has ceased to be, an affiliate of 
UCF, (as defined in Section IV(c), above, of this proposed exemption); 
provided that:
    (A) the assets of the Add-On Plan are invested in a commingled fund 
(the Commingled Fund), as defined in Section IV(o) of this proposed 
exemption, with the assets of a plan or plans (the Commingled Plans), 
described in Section IV(e)(1)-(3), above; and
    (B) the assets of the Add-On Plan in the Commingled Fund do not 
comprise more than 25 percent (25%) of the value of the aggregate 
assets of such fund, as measured on the day immediately following the 
initial commingling of their assets (the 25% Test).
    For purposes of the 25% Test, as set forth in Section IV(e)(4):
    (i) in the event that less than all of the assets of an Add-On Plan 
are invested in a Commingled Fund on the date of the initial transfer 
of such Add-On Plan's assets to such fund, and if such Add-On Plan 
subsequently transfers to such Commingled Fund some or all of the 
assets that remain in such plan, then for purposes of compliance with 
the 25% Test, the sum of the value of the initial and each additional 
transfer of assets of such Add-On Plan shall not exceed 25 percent 
(25%) of the value of the aggregate assets in such Commingled Fund, as 
measured on the day immediately following the addition of each 
subsequent transfer of such Add-On Plan's assets to such Commingled 
Fund;
    (ii) where the assets of more than one Add-On Plan are invested in 
a Commingled Fund with the assets of plans described in Section 
IV(e)(1)-(3), above, of the proposed exemption, the 25% Test will be 
satisfied, if the aggregate amount of the assets of such Add-On Plans 
invested in such Commingled Fund do not represent more than 25 percent 
(25%) of the value of all of the assets of such Commingled Fund, as 
measured on the day immediately following each addition of Add-On Plan 
assets to such Commingled Fund;
    (iii) if the 25% Test is satisfied at the time of the initial and 
any subsequent transfer of an Add-On Plan's assets to a Commingled 
Fund, as provided in Section IV(e), above, this requirement shall 
continue to be satisfied notwithstanding that the assets of such Add-On 
Plan in the Commingled Fund exceed 25 percent (25%) of the value of the 
aggregate assets of such fund solely as a result of:
    (AA) a distribution to a participant in a Former U.S. Steel Related 
Plan;
    (BB) periodic employer or employee contributions made in accordance 
with the terms of the governing plan documents;
    (CC) the exercise of discretion by a Former U.S. Steel Related Plan 
participant to re-allocate an existing account balance in a Commingled 
Fund managed by UCF or to withdraw assets from a Commingled Fund; or
    (DD) an increase in the value of the assets of the Add-On Plan held 
in such Commingled Fund due to investment earnings or appreciation;
    (iv) if, as a result of a decision by an employer or a sponsor of a 
plan described in Section IV(e)(1)-(3) of the proposed exemption to 
withdraw some or all of the assets of such plan from a Commingled Fund, 
the 25% Test is no longer satisfied with respect to any Add-On Plan in 
such Commingled Fund, then the proposed exemption will immediately 
cease to apply to all of the Add-On Plans invested in such Commingled 
Fund; and
    (v) where the assets of a Commingled Fund include assets of plans 
other than Former U.S. Steel Related Plans, as defined in Section 
IV(e), above, of this proposed exemption, the 25% Test will be 
determined without regard to the assets of such other plans in such 
Commingled Fund.
    (f) For purposes of Sections I and II of this proposed exemption, 
``Exemption Audit'' of any of the Former U.S. Steel Related Plans must 
consist of the following:
    (1) A review by an independent auditor of the written policies and 
procedures adopted by UCF, pursuant to Section I(i) of this proposed 
exemption, for consistency with each of the objective requirements of 
this proposed exemption, as described, below, in Section IV(f)(5) of 
this proposed exemption; and

[[Page 79189]]

    (2)(i) A test by an independent auditor of a representative sample 
of the Plan's transactions in order to make findings regarding whether 
UCF is in compliance with:
    (I) the written policies and procedures adopted by UCF pursuant to 
Section I(i) of this proposed exemption, and
    (II) the objective requirements described in Section I of this 
proposed exemption;
    (3) A determination as to whether UCF has satisfied the 
requirements of Section I(a), above, of this proposed exemption;
    (4) The issuance by an independent auditor of a written report 
describing the steps performed by such independent auditor during the 
course of its review and such independent auditor's findings.
    (5) For purposes of Section IV(f) of this proposed exemption, the 
written policies and procedures must describe the following objective 
requirements of the exemption and the steps adopted by UCF to assure 
compliance with each of these requirements:
    (A) The requirements of Section I(a), above, of this proposed 
exemption regarding registration under the Investment Advisers Act of 
1940, total assets under management, and equity;
    (B) The requirements of Section I of this proposed exemption, 
regarding the discretionary authority or control of UCF with respect to 
the assets of the Former U.S. Steel Related Plans involved in the 
transaction, in negotiating the terms of the transaction, and with 
regard to the decision on behalf of the Former U.S. Steel Related Plans 
to enter into the transaction;
    (C) The transaction is not entered into with any person who is 
excluded from relief under Section I(h)(1), above, of this proposed 
exemption, or Section I(h)(2) to the extent that such person has 
discretionary authority or control over the plan assets involved in the 
transaction, or Section I(h)(3); and
    (D) The transaction is not described in any of the class exemptions 
listed in Section I(c), above, of this proposed exemption.
    (g) For purposes of Section III of this proposed exemption, 
``Exemption Audit'' of any of the Former U.S. Steel Related Plans must 
consist of the following:
    (1) A review by an independent auditor of the written policies and 
procedures adopted by UCF pursuant to section I(i) for consistency with 
each of the objective requirements of this proposed exemption (as 
described in section IV(f)(5)(A)-(D).
    (2) A test of a sample of UCF's transactions during the audit 
period that is sufficient in size and nature to afford the auditor a 
reasonable basis: (A) to make specific findings regarding whether UCF 
is in compliance with (i) the written policies and procedures adopted 
by UCF pursuant to section I(i) of the proposed exemption and (ii) the 
objective requirements of the exemption; and (B) to render an overall 
opinion regarding the level of compliance of UCF's program with this 
section IV(g)(2)(A)(i) and (ii) of the proposed exemption;
    (3) A determination as to whether UCF has satisfied the 
requirements of Section III(a), above, of this proposed exemption;
    (4) Issuance of a written report describing the steps performed by 
the auditor during the course of its review and the auditor's findings; 
and
    (5) For purposes of this section IV(g), the written policies and 
procedures must describe the following objective requirements of the 
exemption and the steps adopted by UCF to assure compliance with each 
of these requirements:
    (A) The requirements of Section III(a), above, of this proposed 
exemption regarding registration under the Investment Advisers Act of 
1940, total assets under management, and equity;
    (B) The requirements of Section I(d) of this proposed exemption, 
regarding the discretionary authority or control of UCF with respect to 
the assets of the Former U.S. Steel Related Plans involved in the 
transaction, in negotiating the terms of the transaction, and with 
regard to the decision on behalf of the Former U.S. Steel Related Plans 
to enter into the transaction;
    (C) The transaction is not entered into with any person who is 
excluded from relief under Section I(h)(1), above, of this proposed 
exemption, or Section I(h)(2) to the extent that such person has 
discretionary authority or control over the plan assets involved in the 
transaction, or Section I(h)(3); and
    (D) The transaction is not described in any of the class exemptions 
listed in Section I(c), above, of this proposed exemption.
    (h) ``In-house Plan Assets'' means the assets of any plan 
maintained by an affiliate of UCF, as defined in Section IV(c), above, 
of this proposed exemption and with respect to which UCF has 
discretionary authority or control.
    (i) The term, ``party in interest,'' means a person described in 
section 3(14) of the Act and includes a ``disqualified person,'' as 
defined in section 4975(e)(2) of the Code.
    (j) UCF is ``related'' to a party in interest for purposes of 
Section I(h)(3) of this proposed exemption, if the party in interest 
(or a person controlling, or controlled by, the party in interest) owns 
a 5 percent (5%) or more interest in U.S. Steel, or if UCF (or a person 
controlling, or controlled by UCF) owns a 5 percent (5%) or more 
interest in the party in interest. For purposes of this definition:
    (1) the term, ``interest,'' means with respect to ownership of an 
entity--
    (A) The combined voting power of all classes of stock entitled to 
vote or the total value of the shares of all classes of stock of the 
entity if the entity is a corporation,
    (B) The capital interest or the profits interest of the entity if 
the entity is a partnership; or
    (C) The beneficial interest of the entity if the entity is a trust 
or unincorporated enterprise; and
    (2) A person is considered to own an interest held in any capacity 
if the person has or shares the authority--
    (A) To exercise any voting rights or to direct some other person to 
exercise the voting rights relating to such interest, or
    (B) To dispose or to direct the disposition of such interest.
    (k) For purposes of Section I(a) of this proposed exemption, the 
term, ``equity'' means the equity shown on the most recent balance 
sheet prepared within the two (2) years immediately preceding a 
transaction undertaken pursuant to this proposed exemption, in 
accordance with generally accepted accounting principles.
    (l) ``Investment Fund'' includes single customer and pooled 
separate accounts maintained by an insurance company, individual trust 
and common collective or group trusts maintained by a bank, and any 
other account or fund to the extent that the disposition of its assets 
(whether or not in the custody of UCF) is subject to the discretionary 
authority of UCF.
    (m) The term, ``relative,'' means a relative as that term is 
defined in section 3(15) of the Act, or a brother, sister, or a spouse 
of a brother or sister.
    (n) The ``time'' as of which any transaction occurs is the date 
upon which the transaction is entered into. In addition, in the case of 
a transaction that is continuing, the transaction shall be deemed to 
occur until it is terminated. If any transaction is entered into on or 
after the date when the grant of this proposed exemption is published 
in the Federal Register or a renewal that requires the consent of UCF 
occurs on or after such publication date and the requirements of this 
proposed exemption are satisfied at the time the transaction is entered 
into or renewed, respectively, the requirements will continue to be 
satisfied thereafter with

[[Page 79190]]

respect to the transaction. Nothing in this subsection shall be 
construed as exempting a transaction entered into by an Investment Fund 
which becomes a transaction described in section 406(a) of the Act or 
section 4975(c)(1)(A) through (D) of the Code while the transaction is 
continuing, unless the conditions of this proposed exemption were met 
either at the time the transaction was entered into or at the time the 
transaction would have become prohibited but for this proposed 
exemption. In determining compliance with the conditions of the 
exemption at the time that the transaction was entered into for 
purposes of the preceding sentence, Section I(h) of this proposed 
exemption will be deemed satisfied if the transaction was entered into 
between a plan and a person who was not then a party in interest.
    (o) ``Commingled Fund'' means a trust fund managed by UCF 
containing assets of some or all of the plans described in Section 
IV(e)(1)-(3) of this proposed exemption, plans other than Former U.S. 
Steel Related Plans, and if applicable, any Add-On Plan, as to which 
the 25% Test provided in Section IV(e)(4) of this proposed exemption 
have been satisfied; provided that:
    (1) where UCF manages a single sub-fund or investment portfolio 
within such trust, the sub-fund or portfolio will be treated as a 
single Commingled Fund; and
    (2) where UCF manages more than one sub-fund or investment 
portfolio within such trust, the aggregate value of the assets of such 
sub-funds or portfolios managed by UCF within such trust will be 
treated as though such aggregate assets were invested in a single 
Commingled Fund.
    If granted, the proposed exemption is applicable to a particular 
transaction only if the transaction satisfies the conditions specified 
herein.

Temporary Nature of Exemption

    The Department has determined that the relief provided by this 
proposed exemption is temporary in nature. The exemption, if granted, 
will be effective February 15, 2003, and will expire on the day which 
is five (5) years from the date of the publication of the final 
exemption in the Federal Register. Accordingly, the relief provided by 
this proposed exemption will not be available upon the expiration of 
such five-year period for any new or additional transactions, as 
described herein, after such date, but would continue to apply beyond 
the expiration of such five-year period for continuing transactions 
entered into before the expiration of the five-year period. Should the 
Applicant wish to extend, beyond the expiration of such five-year 
period, the relief provided by this proposed exemption to new or 
additional transactions, the Applicant may submit another application 
for exemption.

Summary of Facts and Representations

    1. UCF is a Pennsylvania non-profit, non-stock membership 
corporation created in 1914 to manage the pension plan of the United 
States Steel Corporation (US Steel) and an endowment fund created by 
Andrew Carnegie for the benefit of that company's employees.\24\ 
Because UCF is a non-stock membership corporation, UCF has no 
shareholders and is governed by its members a majority of whom are 
employees of U.S. Steel. Currently, UCF has 12 members with any vacancy 
in the membership being filled by the vote of the majority of the 
remaining members. Its principal office is in New York, New York. UCF 
currently serves as the plan administrator and trustee of several 
employee benefit plans sponsored by U.S. Steel, the successor to the 
original United States Steel Corporation (which for many years was USX 
Corporation (USX)), and by U.S. Steel affiliates and joint ventures, as 
well as certain former affiliates of U.S. Steel. It is registered as an 
investment adviser under the Investment Advisers Act of 1940.
---------------------------------------------------------------------------

    \24\ UCF is not itself a pension fund. It is an entity that 
manages pension funds.
---------------------------------------------------------------------------

    2. As of December 31, 2006, UCF had total assets under its 
management with an aggregate market value of approximately $10 billion. 
The majority of these assets, $7.5 billion, was held in a group trust 
for the defined benefit plan for the employees of the steel business of 
U.S. Steel, and another $594 million was managed for funds used to 
provide the steelworkers with welfare benefits. UCF also managed $1.9 
million for the U.S. Steel Foundation, a tax-exempt organization not 
subject to the Act; $97 million for pension plans of RMI; and $1.7 
billion for pension plans of Marathon Oil. Investments managed by UCF 
include domestic and international equities, fixed-income securities, 
real estate, mortgage-backed loans and options and futures.
    3. The current U.S. Steel reflects the remaining businesses after a 
series of spin-offs and divestitures by USX of several of its business 
lines. The major divestitures related to this proposed exemption are:
    (a) RTI International Metals, Inc.
    RMI is a leading U.S. producer of titanium mill and, through its 
affiliates, fabricated metal products for the global market. RMI is a 
subsidiary of RTI International Metals, Inc. (RTI), a publicly-traded 
holding company formed in 1998.
    Prior to 1990, RMI was owned by USX and Millennium Petrochemicals, 
Inc. (Millennium). That year, Millennium's shares of RMI stock were 
sold to the public, while USX retained an approximately 50% interest. 
During the period from 1994 through 2000, USX took steps towards 
disposing of its holdings of RMI stock, publicly offering a series of 
notes in 1996 that were exchangeable in February 2000 for its remaining 
RMI shares. RMI reorganized into the current RTI holding company 
structure in 1998. In 1999, USX terminated its ownership interest in 
RTI by irrevocably depositing its shares of RTI stock with an 
independent trust company, in full satisfaction of its obligations 
under the exchangeable notes; the note holders received the shares in 
exchange for their notes in February 2000.
    UCF began managing the assets of the RTI Plans in 1994. Despite 
USX's divestment of its equity interest in RTI, UCF continued to manage 
the assets of the RTI Plans through a group trust.
    (b) Marathon Oil Company
    Prior to its 2001 reorganization, USX had two principal lines of 
business, divided into two business units. The first was the U.S. Steel 
Group, which was primarily engaged in the production and sale of steel 
mill products, coke and taconite pellets. The second was the Marathon 
Group, which was primarily engaged in the exploration for, and the 
production, transportation and marketing of, crude oil and natural gas 
and the refining transportation and marketing of petroleum products. 
Parallel to this structure, USX had outstanding two classes of common 
stock, each tracking one of its business units.
    The U.S. Steel Group was spun off from USX on December 31, 2001. 
Following the spin-off, the business of the U.S. Steel Group has been 
owned and operated by the new U.S. Steel, which is an independent, 
publicly traded company. The business of the Marathon Group remained 
owned and operated by USX, which changed its name to Marathon Oil 
Corporation (Marathon Oil).
    UCF took over management of the assets of the Marathon Plans in 
1986. Following the December 2001 spin-off, the affiliation that UCF 
had with USX, in the form of majority ownership on the UCF Board, was 
continued through U.S. Steel rather than Marathon Oil. Nevertheless, 
UCF has continued to

[[Page 79191]]

manage the assets of the Marathon Plans.
    4. The assets of both the RTI and Marathon Plans had been managed 
by UCF for several years preceding their respective sponsors' 
separation from the former USX corporate group. Based on their past 
experience with UCF, both companies were familiar and comfortable with 
UCF's management style, and believed it prudent to continue to have 
their plans' assets invested in that manner. In addition, because UCF 
is a non-profit organization, it is able to provide its services at 
relatively low cost. Except with respect to the RTI Plans, UCF charges 
only for the amount of the costs and expenses it incurs in providing 
its services, allocated based on proportionate assets, or where 
appropriate, the direct out-of-pocket costs that relate to the 
particular plan. In the case of the RTI Plans, an additional fee is 
charged to reflect the higher administrative expense of managing the 
assets of a smaller plan.
    5. PTE 96-23 provides an exemption from certain of the prohibited 
transaction rules for transactions involving plans whose assets are 
managed by an INHAM. Section IV(a) of PTE 96-23 specifically 
contemplates that an INHAM may be a membership nonprofit corporation a 
majority of whose members are officers or directors of * * * an 
employer or parent organization [of an employer]. Because a majority of 
the members of UCF were officers or directors of USX, UCF relied upon 
PTE 96-23 in connection with the management of the assets of the plans 
of USX and USX affiliates.
    6. As noted above, following the spin-off of the U.S. Steel Group 
from USX at the end of 2001, the majority of the UCF members are 
employees of U.S. Steel, and not Marathon Oil. Therefore, as Marathon 
Oil is no longer an affiliate of the parent organization whose officers 
and directors constitute a majority of UCF's members, UCF no longer 
qualifies as an INHAM with respect to the Marathon Plans. UCF has not 
been able to qualify as an INHAM with respect to the RTI Plans for the 
same reason.
    7. Prohibited Transaction Exemption 84-14 (PTE 84-14, 70 FR 49305, 
August 23, 2005), as restated to reflect various amendments, provides 
an exemption from transactions involving plan assets, if among other 
conditions, the assets are managed by a qualified professional asset 
manager (QPAM) who is independent of the parties in interest engaging 
in the transactions. The exemptive relief provided by PTE 96-23 for 
transactions involving assets of plans managed by in-house managers is 
similar to the exemptive relief provided by the Department for QPAMs 
under PTE 84-14.
    Except for the diverse clientele standard referred to in Facts and 
Representations No. 8 in this proposed exemption, UCF met all the 
requirements to qualify as a QPAM for certain of its clients through 
December 30, 2006. In this regard, UCF met the capitalization 
requirement, which required an investment adviser seeking to qualify as 
a QPAM to have either (i) equity in excess of $750,000 or (ii) payment 
of all its liabilities unconditionally guaranteed by an affiliate if 
the investment adviser and affiliate together have equity in excess of 
$750,000.\25\ UCF otherwise continues to qualify as a QPAM for certain 
of its clients. It is registered as an investment adviser under the 
Investment Advisers Act of 1940. UCF also meets the assets-under-
management test in Section V(a) of PTE 84-14, which requires an 
investment adviser to have (as of the last day of its most recent 
fiscal year) total client assets under its management and control in 
excess of $85 million. UCF currently manages assets of the Marathon and 
RTI Plans with a value in excess of $1.7 billion, which are in addition 
to the assets of the U.S. Steel-sponsored plans that exceed $7.5 
billion.
---------------------------------------------------------------------------

    \25\ The QPAM capitalization requirement discussed herein was 
amended and was made effective as of the last day of the first 
fiscal year beginning after August 23, 2005. The amendment increased 
the shareholders' or partners' equity requirement from $750,000 to 
$1,000,000. UCF currently has equity above $750,000 but below 
$1,000,000. For purposes of the Applicant's prohibited transaction 
exemption request, the Department is proposing to require that UCF 
meet the $1,000,000 capitalization requirement effective with the 
date of publication of the final exemption in the Federal Register.
    The proposed exemption uses the term ``equity'' rather than the 
term ``shareholders' or partners' equity'' as defined in PTE 84-14, 
because UCF is a non-stock corporation with no shareholders or 
partners. Like shareholders' or partners' equity as defined in 
Section V(m) of PTE 84-14, UCF's equity will be the equity shown on 
its most recent balance sheet, as prepared within the two 
immediately preceding years in accordance with generally accepted 
accounting principles. UCF's equity is held in an account designated 
as Capital-Equity.
    UCF's status as a non-stock corporation also affects the 
definition of ``affiliate'' to the extent it involves ownership 
relationships. The term has been modified herein to be based on 
percentage ownership of U.S. Steel, the corporation whose officers 
and/or directors constitute a majority of the members of UCF, rather 
than of UCF itself.
---------------------------------------------------------------------------

    8. The Applicant has requested the relief proposed herein because 
UCF did not satisfy the diverse clientele test found in Section I(e) of 
PTE 84-14 with respect to the Marathon and the RTI Plans. The diverse 
clientele test provides that a QPAM may not enter into a transaction 
with a party in interest with respect to any plan whose assets managed 
by the QPAM, when combined with the assets of other plans maintained by 
the same employer (or its affiliates), represent more than 20% of the 
total client assets managed by the QPAM at the time of the transaction. 
Although the assets of the Marathon and the RTI Plans managed by UCF 
comprise less than 20% of the assets under its management, the vast 
majority of the remaining assets consist of plan assets for which UCF 
acts as an INHAM. Under the Department's interpretation that the assets 
of U.S. Steel-sponsored plans (the U.S. Steel Assets) are not ``client 
assets'' for purposes of PTE 84-14, the diverse clientele test would be 
based solely on non-US Steel Assets, even though the assets of such 
plans were insignificant in relation to the total assets managed by 
UCF.
    9. Accordingly, UCF requested and received an authorization in 2003 
(Final Authorization Number (FAN) 2003-03E, February 15, 2003) that 
afforded it the relief provided under Part I of PTE 84-14 for 
transactions involving the assets of (i) the Marathon and RTI Plans and 
(ii) any other plan that fails to meet the conditions of Section I(e) 
of PTE 84-14 solely because U.S. Steel Assets are not included as 
client assets under management for the purpose of that section. The 
authorization in FAN 2003-03E was for a five-year period.
    10. FAN 2003-03E required that an exemption audit be conducted on 
an ``annual basis.'' The report for the exemption audit for the year 
2003 was not completed until November 15, 2007, more than three and a 
half years after the period being audited, and because a similar 
question has been raised for the years 2004-2006, the Applicant has 
requested relief retroactive to February 15, 2003. The Applicant 
represents that the exemption audit report for the year 2007 was 
completed and issued on June 27, 2008.
    11. The Applicant represents that it complied with all the 
conditions of FAN 2003-03E, except for the exemption audit condition as 
described above. The Applicant represents that the reason for the delay 
in conducting the audits was the failure of the internal procedure for 
tracking this task, and the failure of the then-current auditor (also 
its independent auditor for reviewing its financial statements) to 
identify the oversight. The Applicant represents that it has now 
implemented additional procedures to assure that the exemption audit is 
conducted in the year after the end of the audit period. For example, 
the Applicant has added the exemption audit requirement to its 
automated reminder system. In early January of

[[Page 79192]]

each year, the system will automatically send an e-mail to the person 
responsible for initiating the audit process and to other individuals 
who work with that person on these audits, indicating the tasks that 
need to be completed as well as their required completion date. After 
the initial reminder to start the process in January, periodic 
reminders are sent to the work group for this task to monitor the 
progress, until the system is informed that the task is complete.
    12. The Applicant has requested an effective date for the exemption 
proposed herein retroactive to February 15, 2003, the effective date of 
FAN 2003-03E. It is noted that the independent auditors, in their audit 
reports for the years 2003 through 2007 did not find any non-compliance 
with the Applicant's policies and procedures or with the objective 
conditions of FAN 2003-03E. Because the Applicant has agreed to meet a 
higher standard with regard to future audit reports, and because no 
incidents of non-compliance for past years were found, the Department 
is proposing that the relief contained in Section I of this proposed 
exemption retroactively apply to the effective date of FAN 2003-03E.
    13. Given the large number of service providers (particularly 
financial institutions) engaged by the Former U.S. Steel Related Plans, 
the breadth of the definition of ``party in interest'' under 3(14) of 
the Act, and the wide array of investment and related services offered 
by UCF, it would not be uncommon for UCF, as investment manager, to 
recommend transactions that involve parties in interest to one or more 
Former U.S. Steel Related Plans.\26\ In this regard, the transactions 
for which the Applicant seeks an exemption include, but are not limited 
to, sale and exchange transactions, leasing and other real estate 
transactions, and foreign currency trading transactions. Without the 
requested relief, UCF would be unable to offer the full range of 
investment opportunities offered to the Former U.S. Steel Related Plans 
by such transactions, which could substantially reduce UCF's overall 
effectiveness and adversely affect the Former U.S. Steel Related Plans' 
investment returns. In the absence of the exemption, it would be 
necessary to examine each transaction to determine whether it might 
involve a party in interest. Such examinations could prove burdensome 
for UCF, because of the myriad of persons that may be parties in 
interest as service providers to large plans, such as the Marathon and 
RTI Plans.
---------------------------------------------------------------------------

    \26\ The Applicant represents that the applicability of the 
statutory exemption contained in section 408(b)(17) of the Act to 
the transactions described in this proposed exemption is problematic 
because there is uncertainty how to value assets other than 
publicly-traded securities or securities not traded on an exchange.
---------------------------------------------------------------------------

    14. UCF represents that the proposed exemption incorporates 
safeguards that the Department has previously found to be protective of 
the rights of the participants and beneficiaries of affected plans, 
because the Applicant would be subject to the requirements of PTE 84-14 
and certain procedural requirements of PTE 96-23. As under PTE 96-23, 
the Applicant would be required to maintain written policies and 
procedures designed to ensure compliance with the exemption proposed 
herein and to retain an independent auditor which would evaluate the 
Applicant's compliance with such policies and procedures and the 
objective requirements of the exemption, and would report its findings 
on an annual basis.
    In addition, the Applicant has agreed to meet a higher standard 
with regard to future audit reports due after the publication in the 
Federal Register of the grant of the exemption proposed herein. It is 
the Department's understanding that the representative sample analyzed 
by the independent auditor will be based on an objective, 
comprehensive, and consistent methodology. The written report issued by 
such independent auditor for each exemption audit will include the 
following items:
    (i) A description of the universe of the Plan's transactions 
(expressed in numbers);
    (ii) A description of the process, methodology, and criteria used 
to select the Plan's transactions which comprise the sample selected 
for review by the independent auditor and an explanation how the sample 
was objectively determined and representative of the Plan's 
transactions consummated during the year;
    (iii) The resultant number of the Plan's transactions which 
comprise the representative sample;
    (iv) A detailed description of the results of the independent 
auditor's findings, without condition, qualification, caveat or 
limitation, identifying each instance where there is a specific finding 
of noncompliance with any of the objective requirements contained in 
Section IV(f)(5) of this proposed exemption;
    (v) An explanation, why the number of transactions comprising the 
sample selected for review by the independent auditor was appropriate, 
taking into account, among other things, each instance where there was 
a specific finding of noncompliance with any of the objective 
requirements of the proposed exemption;
    (vi) An explanation, to the extent that there is any finding of 
non-compliance, of the independent auditor's determination whether 
there is a general failure by UCF to satisfy the requirements of this 
proposed exemption, and a determination on the adequacy of the Plan's 
written policies and procedures, described in Section I(i), and their 
administration by UCF;
    (vii) Where there is any finding of non-compliance, an 
identification of the specific policies, procedures or exemption 
conditions that were not satisfied, as well as the steps taken by UCF, 
if any, to remedy the transactions that did not comply with the 
objective requirements of the proposed exemption; and
    (viii) An explanation how the requirements of Section I(c) are 
satisfied.
    15. Except for the Diverse Clientele Test, UCF represents that it 
will comply with the remaining conditions, as set forth in Part I of 
PTE 84-14. Moreover, UCF, although no longer considered to be an INHAM 
with respect to the assets of the Former U.S. Steel Related Plans, will 
remain subject to the procedural requirements of the INHAM class 
exemption, as set forth in PTE 96-23. In this regard, UCF will be 
required to maintain written policies and procedures designed to ensure 
compliance with the objective requirements of the exemption and to 
retain an independent auditor experienced and proficient with the 
fiduciary provisions of the Act to conduct an exemption audit. It is 
the responsibility of the independent auditor to evaluate UCF's 
compliance with such policies and procedures and to report annually its 
findings to each of the Former U.S. Steel Related Plans.
    16. Furthermore, the proposed exemption contains conditions which 
are designed to ensure the presence of adequate safeguards for the 
Former U.S. Steel Related Plans and their participants and 
beneficiaries. First, the transactions which are the subject of this 
exemption cannot be part of an agreement, arrangement, or understanding 
designed to benefit a party in interest. Second, neither UCF nor a 
person related to UCF may engage in transactions with the Investment 
Fund. Further, a party in interest (including a fiduciary) which deals 
with the Investment Fund, may only be a party in interest by reason of 
providing services to the Former U.S. Steel Related Plans, or by having 
a relationship to a service provider, and such party in interest may 
not have discretionary

[[Page 79193]]

authority or control with respect to the investment of plan assets 
involved in the transaction nor render investment advice with respect 
to those assets.
    17. In summary, the Applicant represents that the transactions 
satisfy the statutory criteria for an exemption under section 408(a) of 
the Act and section 4975(c)2) of the Code for the following reasons:
    With respect to the retroactive relief provided in this proposed 
exemption,
    (a) UCF is an investment adviser registered under the Investment 
Advisers Act of 1940 that had under its management and control total 
client assets in excess of $100,000,000, and had equity in excess of 
$750,000;
    (b) The independent auditors, in their audit reports for the years 
2003 through 2007, did not find any non-compliance with the Applicant's 
policies and procedures or with the objective conditions of FAN 2003-
03E; and
    (c) The Applicant represents that the only reason it needed 
retroactive relief was the lack of timeliness of the independent 
auditor reports. The Applicant has agreed to meet a higher standard 
with regard to future audit reports, and such audit reports will be 
completed and issued within six months following the end of the year to 
which each such exemption audit and report relates. The audit report 
for the year 2007 was completed and issued within six months following 
the end of the year.
    With respect to the prospective relief provided in this proposed 
exemption,
    (a) UCF is an investment adviser registered under the Investment 
Advisers Act of 1940 that has, as of the last day of its most recent 
fiscal year, total client assets, including In-house Plan Assets, under 
its management and control in excess of $100,000,000 and equity, as 
defined in Section IV(i), above, in excess of $1,000,000;
    (b) At the time of the transaction and during the year preceding, 
the party in interest or its affiliate dealing with the Investment 
Fund, does not have and has not exercised, the authority to appoint or 
terminate UCF as a manager of any of the Former U.S. Steel Related 
Plans' assets, or to negotiate the terms on behalf of the Former U.S. 
Steel Related Plans (including renewals or modifications) of the 
management agreement with UCF;
    (c) The transactions that are the subject of the proposed exemption 
are not described in PTE 81-6 (as amended or superseded); PTE 83-1 (as 
amended or superseded); or PTE 88-59 (as amended or superseded);
    (d) The terms of the transaction are negotiated on behalf of the 
Investment Fund by, or under the authority and general direction of, 
UCF, and either UCF, or a property manager acting in accordance with 
written guidelines established and administered by UCF, makes the 
decision on behalf of the Investment Fund to enter into the 
transaction;
    (e) The transaction is not part of an agreement, arrangement, or 
understanding designed to benefit a party in interest;
    (f) At the time the transaction is entered into, renewed, or 
modified, the terms of the transaction are at least as favorable to the 
Investment Fund as the terms generally available in arm's-length 
transactions between unrelated parties;
    (g) Neither UCF nor any affiliate, nor any owner, direct or 
indirect, of a 5 percent (5%) or more interest in UCF is a person who, 
within the ten (10) years immediately preceding the transaction has 
been either convicted or released from imprisonment, whichever is 
later, as a result of any felony, as set forth in Section I(f) of this 
proposed exemption;
    (h) The party in interest with respect to the Former U.S. Steel 
Related Plans that deals with the Investment Fund is a party in 
interest (including a fiduciary) solely by reason of being a service 
provider to the Former U.S. Steel Related Plans, or having a 
relationship to a service provider and such party in interest does not 
have discretionary authority or control with respect to the investment 
of plan assets involved in the transaction and does not render 
investment advice with respect to those assets;
    (i) Neither UCF nor a person related to UCF engages in the 
transactions which are the subject of this exemption;
    (j) UCF adopts written policies and procedures that are designed to 
assure compliance with the conditions of the exemption;
    (k) An independent auditor, who has appropriate technical training 
or experience and proficiency with the fiduciary responsibility 
provisions of the Act and who so represents in writing, conducts an 
exemption audit on an annual basis and issues a written report to the 
Former U.S. Steel Related Plans presenting specific findings regarding 
compliance with the policies and procedures adopted by UCF within six 
(6) months following the end of the year to which the audit relates;
    (l) UCF or an affiliate maintains or causes to be maintained within 
the United States, for a period of six (6) years from the date of each 
transaction, the records necessary to enable the Department, the IRS, 
and other persons to determine whether the conditions of this exemption 
have been met.

Notice To Interested Persons

    UCF will furnish a copy of the Notice of Proposed Exemption (the 
Notice) along with the supplemental statement described at 29 CFR Sec.  
2570.43(b)(2) to the investment committee or trustees of each of the 
Former U.S. Steel Related Plans to inform them of the pendency of the 
exemption, by hand delivery or first class mailing, within fifteen (15) 
days of the publication of the Notice in the Federal Register. Comments 
and requests for a hearing are due on or before 45 days from the date 
of publication of the Notice in the Federal Register. A copy of the 
final exemption, if granted, will also be provided to the Former U.S. 
Steel Related Plans. Further, UCF will furnish a copy of the final 
exemption to any other Former U.S. Steel Related Plans at the time the 
exemption becomes applicable to the management of the assets of such 
plans.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department, 
telephone (202) 693-8546 (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 of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
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) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries, and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative

[[Page 79194]]

exemptions and transitional 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
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete, and that each application 
accurately describes all material terms of the transaction which is the 
subject of the exemption.

    Signed at Washington, DC, this 18th day of December, 2008.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. E8-30513 Filed 12-23-08; 8:45 am]

BILLING CODE 4510-29-P