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Secretary of Labor Hilda L. Solis
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EBSA Notices

Written Comments and Hearing Requests   [2/25/2009]
[PDF]
FR Doc E9-3997
[Federal Register: February 25, 2009 (Volume 74, Number 36)]
[Notices]               
[Page 8571-8584]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25fe09-93]                         

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

 
[Application Nos. and Proposed Exemptions; D-11447, Verizon 
Investment Management Company; D-11470, M&T Bank Corporation Pension 
Plan; D-11493, Schloer Enterprises, Inc. 401(k) Profit Sharing Plan 
(the Plan); and D-11501, Morgan Stanley & Co. Incorporated, 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

[[Page 8572]]

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.

Verizon Investment Management Company, Located in Basking Ridge, New 
Jersey

[Application No. D-11447]

Proposed Exemption

    The Department of Labor (the Department) 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 
in 29 CFR, Part 2570, subpart B (55 FR 32836, 32847, August 10, 
1990).\1\
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    \1\ For purposes of this proposed exemption, references to 
specific provisions of Title I of the Act, unless otherwise 
specified, refer also to the corresponding provisions of the Code.
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Section I--Transaction(s)
    If the proposed exemption is granted the restrictions of section 
406(a)(1)(A) through (D) of the Act and the taxes imposed by section 
4975(a) and (b) of the Code, by reason of section 4975(c)(1)(A) through 
(D) of the Code,\2\ shall not apply, effective for the period January 
1, through December 31, 2001, and for the period January 1, through 
December 31, 2003, to any transaction, as described in Part I of 
Prohibited Transaction Exemption 96-23 (PTE 96-23),\3\ between a 
Verizon Plan or Verizon Plans, as defined, below, in section III(h) of 
this proposed exemption, and a party in interest, as defined, below, in 
section III(c) of this proposed exemption, with respect to such Verizon 
Plan; provided that: VIMCO satisfied the definition of an in-house 
asset manager (INHAM), as defined, below, in section III(a) of this 
proposed exemption, and had discretionary authority or control with 
respect to the assets of such Verizon Plan involved in each such 
transaction; and the conditions, as set forth, below, in sections I(a) 
through (c) and section II of this proposed exemption were satisfied;
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    \2\ The Department, herein, is not providing any retroactive or 
prospective relief for a transaction between a plan (a Verizon Plan 
or Verizon Plans), as defined, below, in section III(h) of this 
proposed exemption, and a party in interest with respect to such 
Verizon Plan, if such transaction was entered into or is entered 
into in years other than 2001 and 2003, nor is the Department, 
herein, providing any retroactive or prospective relief for any 
continuing transaction, or for any subsequent renewal or 
modification of a transaction that required or requires the consent 
of Verizon Investment Management Company (VIMCO), if entry into such 
continuing transaction, or entry into such renewal or modification 
occurred or occurs in years other than 2001 and 2003. In order to 
obtain relief for the entry into a transaction, or the entry into a 
continuing transaction or a subsequent renewal or modification of a 
transaction, as the case may be, VIMCO must have satisfied or must 
satisfy at the time of each such transaction, the terms and 
conditions as set forth in PTE 96-23 or, if applicable, the terms 
and conditions of PTE 96-23 as hereafter amended.
    \3\ 61 FR 15975, April 10, 1996.
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    (a) all the requirements of PTE 96-23 were satisfied for the period 
January 1, through December 31, 2001, and the period January 1, through 
December 31, 2003, except with respect to the annual audit requirement, 
as set forth in section I(h) of PTE 96-23;
    (b) an exemption audit, as defined, in Part IV(f) of PTE 96-23, for 
the period January 1, through December 31, 2001, must have been 
completed by no later than December 31, 2003, and an exemption audit 
for the period January 1, through December 31, 2003, must have been 
completed by no later than December 31, 2005; and
    (c) For the period beginning on the date of the publication in the 
Federal Register of the final exemption for application D-11447 and 
ending on the effective date of a final amendment to PTE 96-23, 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 III(f) of this proposed exemption, 
on an annual basis. Following completion of such exemption audit, the 
auditor shall issue a written report to the Verizon Plan or Verizon 
Plans that engage in transactions, described in section I of this 
proposed exemption, presenting such auditor's specific findings 
regarding the level of compliance: (1) With the policies and procedures 
adopted by VIMCO in accordance with Part I(g) of PTE 96-23; and (2) 
with the objective requirements of PTE 96-23. The written report shall 
also contain the auditor's overall opinion regarding whether VIMCO's 
program complied: (1) With the policies and procedures adopted by 
VIMCO; and (2) with the objective requirements of PTE 96-23. The 
exemption audit and the written report must be completed within six (6) 
months following the end of the year to which the audit relates.
Section II--General Conditions
    (a) VIMCO must maintain or cause to be maintained, for a period of 
six (6) years, such records as are necessary to enable the persons 
described, below, in section II(b) of this proposed exemption, to 
determine whether the conditions of this proposed exemption have been 
met, except that:

[[Page 8573]]

    (1) A prohibited transaction shall not be considered to have 
occurred solely because, due to circumstances beyond the control of 
VIMCO, such records are lost or destroyed prior to the end of the six-
year period, and
    (2) no party in interest with respect to a Verizon Plan which 
engages in a transaction, described in section I of this proposed 
exemption, other than VIMCO, shall be subject to a civil penalty under 
section 502(i) of the Act or to the taxes imposed by section 4975(a) 
and (b) of the Code, if such records are not maintained, or are not 
available for examination, as required, below, by section II(b) of this 
proposed exemption.
    (b)(1) Except as provided, below, in section II(b)(2) of this 
proposed exemption, and notwithstanding any provisions of section 
504(a)(2) of the Act, the records referred to, above, in section II(a) 
of this proposed exemption, are unconditionally available at their 
customary location for examination during normal business hours by--
    (i) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service,
    (ii) Any fiduciary of a Verizon Plan that engages in a transaction, 
described in section I of this proposed exemption, or any duly 
authorized employee or representative of such fiduciary, and
    (iii) Any participant or beneficiary of a Verizon Plan or duly 
authorized employee or representative of such participant or 
beneficiary.
    (2) None of the persons described, above, in section II(b)(1)(ii) 
and (iii) of this proposed exemption, shall be authorized to examine 
trade secrets of VIMCO, or commercial or financial information which is 
privileged or confidential.
Section III--Definitions
    For the purposes of this proposed exemption:
    (a) The term ``in-house asset manager'' or ``INHAM,'' means VIMCO, 
provided that VIMCO on January 1, 2001, was and continued thereafter to 
be:
    (1) either (A) a direct or indirect wholly-owned subsidiary of 
Verizon, or a direct or indirect wholly-owned subsidiary of a parent 
organization of Verizon, or (B) a membership non-profit corporation a 
majority of whose members are officers or directors of such an employer 
or parent organization; and
    (2) an investment adviser registered under the Investment Advisers 
Act of 1940 that, as of the last day of its most recent fiscal year, 
had and continued thereafter to have under its management and control 
total assets attributable to Verizon Plans maintained by affiliates of 
VIMCO, as defined, below, in section III(b) of this proposed exemption, 
in excess of $50 million; and provided that if VIMCO had no prior 
fiscal year as a separate legal entity as a result of its constituting 
a division or group within Verizon's organizational structure, then 
this requirement is deemed to have been met as of the date during 
VIMCO's initial fiscal year as a separate legal entity that 
responsibility for the management of such assets in excess of $50 
million was transferred to it from Verizon.
    In addition, Verizon Plans maintained by affiliates of VIMCO and/or 
by VIMCO, had, as of January 1, 2001, and continued thereafter to have, 
aggregate assets of at least $250 million, calculated as of the last 
day of each such Verizon Plan's reporting year.
    (b) For purposes of sections III(a) and III(h) of this proposed 
exemption, an ``affiliate'' of VIMCO means a member of either:
    (1) A controlled group of corporations, as defined in section 
414(b) of the Code, of which VIMCO 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 VIMCO 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 Code 
or the rules thereunder.
    (c) 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.
    (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) For purposes of this proposed exemption, the time as of which 
any transaction occurred is the date upon which the transaction was 
entered into. In addition, the time as of which any renewal or 
modification of any transaction occurred is the date upon which the 
renewal or the modification of the transaction was entered into. For 
any transaction that required the consent of VIMCO that was entered 
into, renewed, or modified, as the case may be, during the period from 
January 1, through December 31, 2001, or during the period from January 
1, through December 31, 2003, the requirements of this proposed 
exemption must have been satisfied at the time such transaction was 
entered into, or was renewed, or was modified, as the case may be. In 
addition, in the case of a transaction that is continuing, the 
transaction is deemed to occur until it is terminated.
    Nothing in this paragraph shall be construed as exempting a 
transaction entered into by a Verizon Plan which becomes a transaction 
described in section 406 of the Act or section 4975 of the Code, while 
the transaction is continuing, unless the conditions of PTE 96-23 were 
met at the time the transaction was entered into, or at the time the 
transaction would have become prohibited but for PTE 96-23. In 
determining compliance with the conditions of PTE 96-23 at the time 
that the transaction was entered into for purposes of the preceding 
sentence, Part I(e) of PTE 96-23, will be deemed satisfied if the 
transaction was entered into between a Verizon Plan and a person who 
was not then a party in interest.
    (f) Exemption Audit. An ``exemption audit'' of a Verizon Plan must 
consist of the following:
    (1) A review by an independent auditor of the written policies and 
procedures adopted by VIMCO, pursuant to Part I(g) of PTE 96-23, for 
consistency with each of the objective requirements of PTE 96-23, as 
described, below, in section III(g) of this proposed exemption.
    (2) A test of a sample of VIMCO'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 VIMCO 
is in compliance with (i) the written policies and procedures adopted 
by VIMCO, pursuant to Part I(g) of PTE 96-23 and (ii) the objective 
requirements of PTE 96-23, as described, below, in section III(g) of 
this proposed exemption and (B) to render an overall opinion regarding 
the level of compliance of VIMCO's program with section III(f)(2)(A)(i) 
and (ii) of this proposed exemption.
    (3) A determination as to whether VIMCO satisfied the definition of 
an INHAM, as defined, above, in section III(a), of this proposed 
exemption; and
    (4) Issuance of a written report describing the steps performed by 
the auditor during the course of its review and the auditor's findings.
    (g) For purposes of section III(f), above, of this proposed 
exemption, the written policies and procedures must describe the 
following objective requirements of the exemption and the steps adopted 
by VIMCO to assure compliance with each of these requirements:
    (1) The definition of an INHAM in section III(a) of this proposed 
exemption.

[[Page 8574]]

    (2) The requirements of Part I and Part I(a) of PTE 96-23 regarding 
the discretionary authority or control of VIMCO with respect to the 
assets of a Verizon Plan involved in the transaction, in negotiating 
the terms of the transaction, and with regard to the decision on behalf 
of such Verizon Plan to enter into the transaction.
    (3) That any procedure for approval or veto of the transaction 
meets the requirements of Part I(a) of PTE 96-23.
    (4) For a transaction described in Part I of PTE 96-23:
    (A) that the transaction is not entered into with any person who is 
excluded from relief under Part I(e)(1), Part I(e)(2) of PTE 96-23, to 
the extent such person has discretionary authority or control over the 
plan assets involved in the transaction, or Part I(f) of PTE 96-23, and
    (B) that the transaction is not described in any of the class 
exemptions listed in Part I(b) of PTE 96-23.
    (h) The term, ``Verizon Plan(s),'' means a plan or plans maintained 
by VIMCO or an affiliate of VIMCO.

DATES: Effective Date: If, granted, this proposed exemption will be 
effective for the period from January 1, through December 31, 2001, and 
from January 1, through December 31, 2003.

Summary of Facts and Representations

    1. VIMCO is a wholly-owned subsidiary of GTE Corporation, which in 
turn is a wholly-owned subsidiary of Verizon Communications Inc. 
(Verizon). VIMCO is registered as an investment adviser under the 
Investment Advisers Act of 1940. VIMCO has been delegated the authority 
for the investment of the assets of the employee benefit trusts of 
Verizon and of most of Verizon's domestic subsidiaries (excluding 
Verizon Wireless). In this capacity, VIMCO's primary function is to act 
as investment manager or adviser for these employee benefit trusts, 
although VIMCO also performs investment management or advisory services 
for other entities related to Verizon.
    As of June 30, 2007, VIMCO had in excess of $68.2 billion in assets 
under management. The assets of the Bell Atlantic Master Trust (the 
BAMT) comprise 63.3 percent (63.3%) of this amount. The BAMT holds the 
assets of seventeen (17) Verizon pension plans (the Verizon Pension 
Plans) \4\ and a portion of the assets of two (2) of the Verizon 
savings plans (the Verizon Savings Plans).\5\ The Verizon Master 
Savings Trust (MST) holds the assets of five (5) Verizon Savings Plans, 
representing 26.3 percent (26.3%) of VIMCO's assets under management. 
In addition, VIMCO manages $5.5 billion in assets for fourteen (14) 
Voluntary Employees Beneficiary Associations (VEBAs), which are 
employee benefit trusts that hold the assets of various health, dental, 
life, and long-term disability plans.\6\ A VIMCO subsidiary acts as a 
general partner to two (2) limited partnerships established by VIMCO in 
which two (2) VEBAs and seven (7) VEBAs, respectively, invest.
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    \4\ The Verizon Corporate Services Group Inc. et.al. Pension 
Plans Report covers the following defined benefit plans: (1) GTE 
California Incorporated Plan for Hourly-Paid Employees' Pensions; 
(2) GTE Florida Incorporated Plan for Hourly-Paid Employees' 
Pension; (3) GTE South Incorporated (Kentucky) Plan for Hourly-Paid 
Employees' Pensions; (4) GTE Northwest Incorporated Plan for Hourly-
Paid Employees' Pensions; (5) GTE South Incorporated (Southeast) 
Plan for Hourly-Paid Employees' Pensions; (6) GTE Southwest 
Incorporated Plan for Hourly-Paid Employees' Pensions; (7) GTE North 
Incorporated Pension Plan for Hourly-Plan Employees of Illinois; (8) 
GTE North Incorporated Pension Plan for Hourly-Paid Employees of 
Michigan; (9) GTE North Incorporated Pension Plan for Hourly-Paid 
Employees of Ohio; (10) GTE North Incorporated Pension Plan for 
Hourly-Paid Empoyees of Pennsylvania; (11) GTE North Incorporated 
Pension Plan for Hourly-Paid Employees of Wisconsin; (12) Hourly 
Employees Retirement System of GTE Hawaiian Telephone Company 
Incorporated; (13) GTE Supply Pension Plan for Union Represented 
Employees; (14) Verizon Pension Plan for New York and New England 
Associates; (15) Verizon Pension Plan for Mid-Atlantic Associates; 
(16) Verizon Enterprizes Management Pension Plan; and (17) Verizon 
Management Pension Plan.
    \5\ The Verizon Savings Plans are: (1) Verizon Savings Plan for 
Management Employees; (2) Verizon Savings and Security Plan for West 
Region Hourly Employees; (3) Verizon Savings and Security Plan for 
Mid-Atlantic Associates; (4) Verizon Savings and Security Plan for 
New York and New England Associates.
    \6\ The Verizon health and welfare plans are: (1) Verizon Group 
Life Insurance Plan for New York & New England Associates Plan for 
Group Insurance; (2) Verizon Plan 550; (3) Verizon Post--1995 
Collectively Bargained Retiree Health Plan--(Pre 1993 Retirees); (4) 
Verizon Post--1995 Collectively Bargained Retiree Health Plan --
(Post 1992 Retirees).
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    VIMCO manages these assets in part by selecting third-party 
investment managers. In addition, VIMCO directly manages eleven (11) 
accounts for the Verizon Pension Plans within the BAMT. The assets in 
these accounts total $8.8 billion and include actively-managed stock 
funds, passively-managed stock funds (i.e. , index funds), an 
international futures fund, and a short term fixed income fund. VIMCO 
also selects private placement fund investments (usually investment 
limited partnerships offered by venture capital and buy-out funds) and 
real estate fund and natural resources investments for the Verizon 
Pension Plans, which currently total $6.7 billion.
    2. Mellon Bank, N.A. (Mellon) acts as trustee of the BAMT and the 
fourteen (14) Verizon VEBA trusts and as custodian for the two (2) VEBA 
investment limited partnerships. Fidelity Management Trust Company acts 
as trustee of the MST.
    3. Since 1996, VIMCO has relied on Prohibited Transaction Exemption 
96-23 (PTE 96-23) which provides exemptive relief for that portion of 
the assets of an employee benefit plan that is managed by an INHAM, 
provided that the conditions of the class exemption are met, including 
the completion of an annual exemption audit. Prior to 2004, VIMCO 
relied on an independent accounting firm to conduct the annual 
exemption audits. However, in 2004, VIMCO learned that the accounting 
firm would no longer provide PTE 96-23 exemption audit services.
    In a letter to VIMCO dated October 31, 2006, the Director of the 
New York Regional Office of the Employee Benefits Security 
Administration (the Regional Office), informed VIMCO that performance 
of the audit did not comply with the requirements of the class 
exemption and that VIMCO could not rely on PTE 96-23 for exemptive 
relief. As a result of discussions between the Regional Office and 
VIMCO, it was concluded that VIMCO would seek an individual 
administrative exemption for the 2003 transactions.
    VIMCO subsequently notified the Regional Office that based upon 
their good faith understanding of the audit requirement, the 2001 INHAM 
audit was not begun until the 2002 audit was started in July 2003, and 
that both audits were completed in October 2003. This delay was 
attributable to the merger of Bell Atlantic and GTE to form Verizon 
which occurred in June 2000, and which led to consolidation of the 
companies' respective investment management firms in late 2000 and 
2001. The plan trusts also were merged at the same time, and the 
investment options for the savings plans were extensively redesigned. 
Accordingly, VIMCO included relief for 2001 in its request for an 
individual administrative exemption.
    VIMCO seeks a retroactive individual administrative exemption from 
the restrictions of section 406(a)(1)(A) through (D) of the Act and 
section 4975(c)(1)(A) through (D) of the Code, effective for the period 
from January 1, through December 31, 2001, and the period from January 
1, through December 31, 2003. In this regard, VIMCO requests an 
individual administrative exemption which would provide relief 
substantially identical to that provided under Part I of PTE 96-23, 
subject to appropriate terms and conditions.

[[Page 8575]]

    4. VIMCO maintains that it has satisfied the Department's 
requirements for retroactive relief. At the time of the 2001 and 2003 
transactions, VIMCO maintains that it reasonably believed in good faith 
that it was acting in full compliance with the requirements of PTE 96-
23. In scheduling the 2001 and 2003 audits, VIMCO relied on the fact 
that, in the more than ten (10) years since the Department granted PTE 
96-23, there has been no guidance from the Department as to the 
interpretation of the audit requirement. Furthermore, VIMCO points out 
that there is no indication in the class exemption itself or the 
notices of proposed and final exemptions for PTE 96-23 that there is a 
deadline for performing the audits, nor has there been any similar 
public pronouncement from the Department to this effect.
    5. The requested individual administrative exemption would cover 
transactions entered into by VIMCO, acting as an INHAM on behalf of the 
Verizon Plans with persons who were parties in interest with respect to 
such Verizon Plans solely by reason of providing services to such 
Verizon 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, for 
the periods from January 1, through December 31, 2001, and January 1, 
through December 31, 2003. The proposed exemption, if granted, would be 
conditioned on the following:
    (a) The requirements of PTE 96-23 were met for the relevant 
periods, except with respect to the annual audit requirement of PTE 96-
23, Part I(h), and
    (b) An independent auditor, who had appropriate technical training 
or experience and proficiency with the fiduciary responsibility 
provisions of the Act and who so represented in writing, conducted an 
exemption audit for each such plan year no later than, respectively, 
December 31, 2003, (for plan year 2001) and December 31, 2005, (for 
plan year 2003). Following completion of the exemption audits, the 
auditor issued a written report for each audit to the Verizon Plans 
presenting its specific findings regarding the level of compliance with 
the policies and procedures adopted by VIMCO, which reports contained 
no adverse findings. Further, VIMCO represents that it has maintained 
records sufficient to permit the Department and others to determine 
whether the conditions of this proposed exemption have been met. In 
addition, the retroactive relief provided by this proposed exemption is 
subject to VIMCO complying with the conditions of this proposed 
exemption at all times during the period beginning on the date of the 
publication in the Federal Register of the final exemption for 
application D-11447 and ending on the effective date of a final 
amendment to PTE 96-23.
    6. It is represented that the proposed exemption is 
administratively feasible, because the Department would not have to 
monitor implementation or enforcement. In this regard, VIMCO in 
managing the assets of the Verizon Plans during the years 2001 and 
2003, represented that it at all times acted in good faith compliance 
with the terms of PTE 96-23. This included obtaining after year-end the 
required independent exemption audit, which found that VIMCO had been 
operating as an INHAM during 2001 and 2003 in accordance with the 
objective requirements of PTE 96-23.
    7. VIMCO represents that the proposed exemption is in the interests 
of Verizon Plans and the participants and beneficiaries of such Verizon 
Plans. Like many corporations, Verizon utilizes an INHAM for its 
employee benefit plans, to reduce costs while retaining high-quality 
management devoted largely to its plans' asset management activities. 
In carrying out its responsibilities, VIMCO, acting as an INHAM, relied 
on PTE 96-23. Apart from the issue raised by the audit timing 
requirement, VIMCO was in full compliance with the requirements of PTE 
96-23, which compliance was in the interests of the Verizon Plans and 
the participants and beneficiaries of such Verizon Plans.
    8. VIMCO represents that the proposed exemption is protective of 
the rights of participants and beneficiaries of the Verizon Plans. In 
this regard, PTE 96-23 was designed to apply to transactions that have 
little, if any, potential for abuse and that would constitute only 
technical prohibited transactions. VIMCO maintains that the proposed 
exemption, which is substantially modeled on PTE 96-23, would, 
therefore, be protective of the rights of the participants and 
beneficiaries of the Verizon Plans, because: (a) The timing of the 2001 
and 2003 audits caused no harm to any of the Verizon Plans that 
participated in the investment transactions for which VIMCO has claimed 
a retroactive individual administrative exemption; and (b) VIMCO was 
otherwise fully compliant with the requirements of PTE 96-23. In 
addition, VIMCO maintains that sufficient protections were in place 
during the effective dates of this proposed exemption, given that the 
2001 annual audit completed in October 2003, and the 2003 annual audit 
completed in December 2005, indicated no adverse findings.
    Further, it is represented that only a small percentage of the fair 
market value of the total assets of each affected Verizon Plan was 
involved in transactions covered by the proposed exemption. In this 
regard, approximately 3.7 percent (3.7%) of the value of the assets in 
the BAMT were involved in 2001 in transactions covered by the proposed 
exemption and approximately 5.6 percent (5.6%) of the value of the 
assets in the BAMT were involved in 2003 in transactions covered by the 
proposed exemption.
    9. In summary, VIMCO represents that the proposed exemption 
satisfies the statutory requirements for relief under section 408(a) of 
the Act because:
    (a) VIMCO has acted in reasonable, good faith compliance with PTE 
96-23 at all relevant times;
    (b) The 2001 annual audit, which was completed in October 2003, and 
the 2003 annual audit, which was completed in December 2005, were 
performed by an independent auditor who had appropriate technical 
training or experience and proficiency in the fiduciary responsibility 
provisions of the Act;
    (c) The 2001 and 2003 annual audits indicated no adverse findings; 
and
    (d) VIMCO will maintain or cause to be maintained for a period of 
six (6) years the records necessary to enable the Department and others 
to determine whether the conditions of this proposed exemption are met.

Notice to Interested Persons

    Those persons who may be interested in the pendency of the proposed 
exemption include the named fiduciary of each of the Verizon Plans that 
utilized VIMCO's investment management or advisory services for the 
2001 and/or 2003 plan year. It is represented that the named fiduciary 
of each of these Verizon Plans will be provided with a copy of the 
notice of this proposed exemption (the Notice), plus a copy of the 
supplemental statement (the Supplemental Statement), as required, 
pursuant to 29 CFR 2570.43(b)(2) of the Department's regulations, which 
will advise such named fiduciaries of the right to comment and to 
request a hearing. The Notice and the Supplemental Statement will be 
provided to all such named fiduciaries within fifteen (15) days of the 
publication of the Notice in the Federal Register. The Notice and the 
Supplemental Statement will be sent by first class mail to such named 
fiduciaries. The Department must receive written comments and requests

[[Page 8576]]

for a hearing no later than forty-five (45) days from the date of the 
publication of the Notice in the Federal Register .

For Further Information Contact: Angelena C. Le Blanc of the 
Department, telephone (202) 693-8540 (This is not a toll-free number).

M&T Bank Corporation Pension Plan, Located in Buffalo, NY 14203-2309

[Application No. D-11470]

Proposed Exemption

    The Department is considering granting an exemption as set forth 
below 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 
in 29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 1990).
Section I--Exemption for In-Kind Redemption of Assets
    Effective January 18, 2007, the restrictions of sections 
406(a)(1)(A) through (D) and 406(b)(1) and (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 to the in-kind redemptions (the Redemptions) of shares (the 
Shares) held by the M&T Bank Corporation Pension Plan (the Plan) of the 
MTB Mid Cap Growth Fund and the MTB Large Cap Stock Fund (the Fund(s)) 
for which affiliates of Manufacturers and Traders Trust Company (M&T) 
provide investment advisory services and other services.
Section II. Conditions
    This proposed exemption is subject to the following conditions:
    (a) The Plan paid no sales commissions, redemption fees, or other 
similar fees in connection with the Redemptions (other than customary 
transfer charges paid to parties other than M&T and affiliates of M&T 
(M&T Affiliates).
    (b) The assets transferable to the Plan consisted of only cash and 
Transferable Securities, as defined in Section III;
    (c) With certain exceptions explained in Representation 6 below, 
the Plan received a pro rata portion of the Transferable Securities, 
pursuant to the Redemptions that, when added to the cash received, was 
equal in value to the number of Shares redeemed for such Transferable 
Securities, as determined in a single valuation (using sources 
independent of M&T and M&T affiliates) performed in the same manner and 
as of the close of business on the same day as the day of receipt of 
the Transferable Securities, in accordance with Rule 2a-4 under the 
Investment Company Act of 1940, as amended from time to time (the 1940 
Act), and the then-existing procedures established by the Fund that are 
in compliance the 1940 Act;
    (d) Neither M&T or any M&T Affiliate received any fees, including 
any fees payable pursuant to Rule 12b-1 under the 1940 Act, in 
connection with the Redemptions;
    (e) M&T retained an Independent Fiduciary, as such term is defined 
in Section III. The Independent Fiduciary determined that the terms of 
the Redemptions were fair to the participants of the Plan and 
comparable to and no less favorable than terms obtainable at arm's 
length between unaffiliated parties, and that the Redemptions were in 
the best interest of the Plan and its participants and beneficiaries;
    (f) M&T or the relevant Fund provided to the Independent Fiduciary 
a written confirmation regarding such Redemptions containing:
    (1) The number of Shares held by the Plan immediately before the 
Redemptions (and the related per Share net asset value and the total 
dollar value of the Shares held),
    (2) the identity (and related aggregate dollar value) of each 
Transferable Security provided to the Plan at the time of the 
Redemptions, including each Transferable Security valued in accordance 
with Rule 2a-4 under the 1940 Act and the then-existing procedures 
established by the Fund (using sources independent of M&T and M&T 
Affiliates) for obtaining prices from independent pricing services or 
market-makers,
    (3) the market price of each Transferable Security received by the 
Plan at the time of the Redemptions, and
    (4) the identity of each pricing service or market-marker consulted 
in determining the value of each Transferable Security at the time of 
the Redemptions.
    (g) The value of the Transferable Securities and cash received by 
the Plan for each redeemed Share equaled the net asset value of such 
Share at the time of the transaction, and such value equaled the value 
that would have been received by any other investor for shares of the 
same class of the Fund at the time;
    (h) For a period of six months following the Redemptions, MTB 
Investment Advisors (MTBIA), an M&T Affiliate and the investment 
advisor to the MTB Group of Funds (MTB Funds) reimbursed the Plan for 
commissions and fees incurred in connection with Transferable 
Securities received as a result of the Redemptions and subsequently 
sold;
    (i) Following the Redemptions, M&T, on behalf of the Plan, has paid 
and will continue to pay total annual expenses, including investment 
management fees for the Plan's investment in the separate accounts;
    (j) Subsequent to the Redemptions, the Independent Fiduciary 
performs a post-transaction review that includes, among other things, 
testing a sampling of material aspects of the Redemptions deemed in its 
judgment to be representative, including pricing;
    (k) M&T maintains, or causes to be maintained, for a period of six 
years from the date the Redemptions, such records as are necessary to 
enable the person described in paragraph (l)(1) below to determine 
whether the conditions of this exemption have been met, except that
    (1) If the records necessary to enable the persons described in 
Section II(l)(1) to determine whether the conditions of this exemption 
have been met are lost, or destroyed, due to circumstances beyond the 
control of M&T, then no prohibited transaction will be considered to 
have occurred solely on the basis of the unavailability of those 
records; and
    (2) no party in interest with respect to the Plan other than M&T 
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 such records are not maintained or are not 
available for examination as required by Section II(k).
    (l)(1) Except as provided in this Section II(l)(2) and 
notwithstanding any provision of section 504(a)(2) and (b) of the act, 
the records referred to in Section II(k) are unconditionally available 
at their customary locations for examination during normal business 
hours by:
    (i) any duly authorized employee or representative of the United 
States Department of Labor, the Internal Revenue Service, or the 
Securities and Exchange Commission,
    (ii) any fiduciary of the Plan or any duly authorized 
representative of such participant or beneficiary,
    (iii) any participant or beneficiary of the Plan or duly authorized 
representative of such participant or beneficiary,
    (iv) any employer whose employees are covered by the Plan, and
    (v) any employee organization whose members are covered by such 
Plan;
    (2) None of the persons described in Section II(l)(1)(ii) through 
(v) shall be authorized to examine trade secrets of M&T, the Funds, or 
the investment

[[Page 8577]]

advisor for the Funds, or commercial or financial information which is 
privileged or confidential; and
    (3) Should M&T, the Funds, or the investment advisor for the Funds 
refuse to disclose information on the basis that such information is 
exempt from disclosure pursuant to Section II(l)(2) above, M&T, the 
Funds, or the investment advisor shall, by the close of the 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.
Section III--Definitions
    For purposes of this proposed exemption,
    (a) The term ``M & T'' means Manufacturers and Traders Trust 
Company which is a wholly-owned subsidiary of the M&T Bank Corporation.
    (b) The term ``affiliate'' means:
    (1) Any person (including a corporation or partnership) directly or 
indirectly through one or more intermediaries, controlling, controlled 
by, or under common control with the person;
    (2) Any officer, director, employee, or partner in any such person; 
and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (c) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (d) The term ``net asset value'' means the amount for purposes of 
pricing all purchases and sales calculated by dividing the value of 
securities, determined by a method as set forth in the Fund's 
prospectus and statement of additional information, and other assets 
belonging to the Fund, less the liabilities charged to each such 
Portfolio, by the number of outstanding shares.
    (e) The term ``Independent Fiduciary'' means a fiduciary who is:
    (1) Independent of and unrelated to M&T and its affiliates, and
    (2) appointed to act on behalf of the Plan with respect to the 
Redemptions.
    For purposes of this exemption, a fiduciary will not be deemed to 
be independent of and unrelated to M&T if:
    (3) Such fiduciary directly or indirectly controls, is controlled 
by or is under common control with M&T;
    (4) Such fiduciary, directly or indirectly receives any 
compensation or other consideration in connection with any transaction 
described in this exemption (except that an independent fiduciary may 
receive compensation from M&T in connection with the transactions 
discussed herein if the amount or payment of such compensation is not 
contingent upon or in any way affected by the independent fiduciary's 
ultimate decision); or
    (5) such fiduciary receives, in its current fiscal year, from M&T 
or its affiliates, an amount that would have exceeded one percent (1%) 
of such fiduciary's gross income in the prior fiscal year.
    (f) the term ``Transferable Securities'' shall mean securities
    (1) for which market quotations are readily available from persons 
independent of M&T as determined pursuant to procedures established by 
the Funds under Rule 2a-4 of the 1940 Act; and
    (2) which are not
    (i) Securities which, if publicly offered or sold, would require 
registration under the Securities Act of 1933;
    (ii) Securities issued by entities in countries which (A) restrict 
or prohibit the holding of securities by non-nationals other than 
through qualified investment vehicles, such as the Funds, or (B) permit 
transfers of ownership of securities to be effected only by 
transactions conducted on a local stock exchange;
    (iii) Certain portfolio positions (such as forward foreign currency 
contracts, futures and options contracts, swap transactions, 
certificates of deposit and repurchase agreements) that, although they 
may be liquid and marketable, involve the assumption of contractual 
obligations, require trading facilities or can only be traded with the 
counter-party to the transaction to effect a change in beneficial 
ownership;
    (iv) Cash equivalents (such as certificates of deposit, commercial 
paper and repurchase agreements);
    (v) Other assets which are not readily distributable (including 
receivables and prepaid expenses), net of all liabilities (including 
accounts payable); and
    (vi) Securities subject to ``stop transfer'' instructions or 
similar contractual restrictions on transfer.

Summary of Facts and Representations

    1. M&T is a New York state chartered bank headquartered in Buffalo, 
New York. M&T is a wholly-owned subsidiary of M&T Bank Corporation, a 
regulated bank holding company and financial holding company under the 
Bank Holding Company Act of 1956, as amended, and is subject to the 
supervision of the Governors of the Federal Reserve System.
    2. M&T sponsors the Plan which is a defined benefit plan maintained 
by M&T to provide retirement benefits to eligible employees of M&T and 
its subsidiaries, and is intended to satisfy the qualification 
requirements of section 401(a) of the Code. As of January 1, 2007, the 
number of participants, beneficiaries and others entitled to benefits 
under the Plan total 22,837. Based on unaudited financial statements, 
as of December 31, 2007, the Plan had total assets of $617,811,222. M&T 
makes contributions to the Plan as required by government regulation or 
deemed appropriate by management after considering the fair value of 
Plan assets, expected returns on such assets, and the present value of 
the Plan's benefit obligations. Contributions under the Plan are 
deductible to the extent permitted by section 404 of the Code. 
Participants are not permitted to make contributions to the Plan or to 
direct investments under the Plan. M&T serves as trustee of the Plan 
and manages the Plan.
    3. Effective April 1, 2003, M&T acquired Allfirst Financial, Inc. 
(Allfirst). Allfirst's defined benefit plan merged into the Plan. The 
Allfirst defined benefit plan had been invested in Allfirst's 
proprietary mutual fund (the Ark Funds), open-end investment companies 
registered under the 1940 Act, pursuant to the terms and conditions of 
Prohibited Transaction Exemption 77-3, 42 FR 18734 (1977). In August 
2003, M&T merged the Ark Funds and its own Vision Group of Funds into a 
new proprietary mutual fund family called the MTB Group of Funds, as a 
result of which the Plan investments in the Ark Funds were transferred 
to the MTB Funds.\7\ As of September 30, 2006, the Plan held 
approximately $486 million in investments, of which approximately 30% 
was invested in the MTB Funds.
---------------------------------------------------------------------------

    \7\ M&T represents that no exemptive relief was necessary for 
the merger itself because the merger was conducted between the Ark 
Funds and the Vision Group of Funds--which as investment companies 
registered under the 1940 Act were not subject to the Act pursuant 
to Section 401(b)(1) of the Act. M&T also represents that the Plan's 
continued investment in the MTF funds following the merger was 
covered by PTE 77-3. The Department is offering no view as to 
whether the merger was not subject to the Act pursuant to section 
401(b)(1) of the Act and whether the Plan's continued investment in 
the MTB Funds satisfied the conditions of PTE 77-3.

---------------------------------------------------------------------------

[[Page 8578]]

    4. The Plan was invested in several MTB Fund portfolios described 
graphically as follows showing the Plan's investments in the MTB Funds 
before and after the Redemptions on January 18, 2007:

------------------------------------------------------------------------
                                         The plan's        The plan's
                                        investment in     investment in
          The MTB fund name             the MTB fund      the MTB fund
                                       before 1/17/07     after 1/19/07
                                          (million)         (million)
------------------------------------------------------------------------
Small Cap Growth....................             $17.6             $17.5
Small Cap Stock.....................             $24.2             $24.1
Equity Income.......................              $3.8              $3.9
Large Cap Value.....................             $11.1             $11.2
Multi Cap Growth....................              $5.1              $5.1
Intl Equity Inst I..................             $60.8             $61.2
Mid Cap Growth......................             $12.3                $0
Large Cap Stock.....................             $19.8                $0
                                     -----------------------------------
    Total MTB Investment............            $154.8            $122.8
------------------------------------------------------------------------

    In 2006, M&T began considering redemptions of the Plan's 
investments in the Small Cap Growth Fund, the Multi Cap Growth Fund, 
the Mid Cap Growth Fund and the Large Cap Stock Fund in order to reduce 
investment fees for asset classes that the Plan could manage through 
separately managed accounts.
    5. The board of the MTB Funds exercised its right, as stated in the 
prospectus, to make payments in securities rather than cash. M&T 
determined that the Plan's investments in the Funds were large enough 
so that an all-cash redemption would adversely impact the Funds and to 
proceed with the Redemptions. On January 18, 2007, the Plan's 
investment in the MTB Mid Cap Growth Fund and the Large Cap Stock Fund, 
which are the subject of this proposed exemption, were redeemed for 
approximately $32 million. M&T represents that the Small Cap Redemption 
will occur pursuant to a prospective exemption from the Department at a 
later date. The Plan's Multi Cap Growth Fund was redeemed for 
approximately $5,505,000 in cash in July 2007.\8\
---------------------------------------------------------------------------

    \8\ M&T represents that to the extent exemptive relief may have 
been necessary, PTE 77-3 would have provided such relief because the 
transaction involved an in-house plan of the Funds' investment 
advisor and its affiliates. The Department is offering no view as to 
whether the in-kind cash redemption satisfied the conditions of PTE 
77-3.
---------------------------------------------------------------------------

    6. M&T represents that the Redemptions were done pursuant to all 
applicable regulatory requirements and M&T and its affiliates were not 
able to use their influence or control with respect to the Redemptions. 
The Redemptions were carried out on a pro rata basis as to the number 
and kind of Transferable Securities transferred to the Plan. The 
Transferable Securities transferred in-kind from the mutual funds were 
a pro rata portion of the Funds' holdings to the extent possible, 
subject to adjustments for odd lots and securities that could not be 
transferred including fractional shares, as determined in accordance 
with the Funds' valuation and in-kind redemption procedures that are 
designed to be objective and to comply with the requirements of the 
1940 Act.
    7. M&T represents that the board of the MTB Funds adopted 
procedures for the fulfillment of in-kind redemptions requests in 
conformity with the Securities and Exchange Commission (SEC) no-action 
letter to Signature Financial Group.\9\ Pursuant to these procedures, 
the value of each Transferable Security was determined as of the close 
of trading on the New York Stock Exchange for a particular day,\10\ 
using market prices such as the last sale price or the most recent bid 
and asked quotations. Following completion of the Redemptions, the 
Funds confirmed in writing:
---------------------------------------------------------------------------

    \9\ In the no action letter to Signature Financial Group, Inc. 
(Dec. 28, 1999), the Division of Investment Management of the SEC 
states that it will not recommend enforcement action pursuant to 
section 17(a) of the 1940 Act for certain in-kind distributions of 
portfolio securities to an affiliate of a mutual fund. Funds seeking 
to use this ``safe harbor'' must value the securities to be 
distributed to an affiliate in an in-kind distribution ``in the same 
manner as they are valued for purposes of computing the distributing 
fund's net asset value.'' M&T represents that it has adopted 
procedures in accordance with the Signature Financial Letter for use 
in affiliated transactions, and those procedures must be followed 
for transactions with the Plan, as the Plan is treated as an 
affiliate under the 1940 Act of the funds whose shares are being 
redeemed. Those procedures are reflected in the terms and conditions 
of the requested exemption.
    The Signature Financial letter does not address the 
marketability of the securities distributed in-kind. The range of 
securities distributed pursuant to this safe harbor may therefore be 
broader than that range of securities covered by SEC Rule 17a-7, 17 
CFR 270.17a-7. In granting past exemptive relief with respect to in-
kind transactions involving mutual funds, the Department has 
required that the securities being distributed in-kind fall within 
Rule 17a-7. One of the requirements of Rule 17a-7 is that the 
securities are those for which ``market quotations are readily 
available.'' Under the requested exemption, exemptive relief also 
would be limited to in-kind distribution of securities for which 
market quotations were readily available. The value of any other 
security would be paid to the plan in cash. In addition, consistent 
with the Signature Financial letter, the procedures adopted by the 
MTB Funds require pro rata distribution for any in-kind redemptions.
    \10\ A common point in time each day is needed for valuing the 
Fund shares, (i.e., for determining the value of all the securities 
held by the Fund to arrive at the Funds' net asset value for the 
day. Even if the Funds hold Transferable Securities that are traded 
on exchanges that close at different times, or remain open 24 hours, 
their values are determined as of the close of trading on the New 
York Stock Exchange (normally 4 p.m. Eastern Standard Time) for 
purposes of calculating Fund share value as of that time, and that 
value is then used for processing all orders to purchase and redeem 
shares of the Funds that were received before that time.
---------------------------------------------------------------------------

    (a) The number of Fund shares held by the Plan immediately before 
the Redemptions (and the related per share net asset value and the 
aggregate dollar value of the shares held);
    (b) the identity (and related aggregate dollar value) of each 
Transferable Security provided to the Plan at the time of the 
Redemptions, including each Transferable Security valued in accordance 
with Rule 2a-4 under the 1940 Act and the then-existing procedures 
established by the board of the MTB Fund (using sources independent of 
M&T and M&T Affiliates) for obtaining current prices from independent 
pricing services and market-makers;
    (c) the price of such Transferable Security at the time of such 
Redemptions; and
    (d) the identity of each pricing service or market-maker consulted 
in determining the value of such Transferable Securities.
    8. M&T represents that at the time of the Redemptions, it was 
unaware that they had engaged in a prohibited transaction. Shortly 
thereafter, the Redemptions came to the attention of M&T's internal 
counsel, who consulted

[[Page 8579]]

outside counsel. After further discussions and review of the details of 
the Redemptions, M&T decided to pursue a request for a retroactive 
individual exemption and retain an independent fiduciary.
    9. In an engagement letter dated May 25, 2007, U.S. Trust Company, 
N.A. (U.S. Trust), a national bank, agreed to serve as the Independent 
Fiduciary for purposes of this exemption. U.S. Trust confirmed to M&T 
its qualifications to serve as a fiduciary and acknowledged it is a 
fiduciary to the Plan, as defined in section 3(21) of Act, and it has 
represented to M&T that it understands and accepts the duties, 
responsibilities and liabilities in acting as a fiduciary under the Act 
for the Plan. U.S. Trust confirmed it is independent from M&T because 
it is not controlled by or under common control with M&T, does not 
control M&T, and that U.S. Trust receives, in its current fiscal year, 
from M&T or its affiliates, an amount that would not have exceeded one 
percent (1%) of such fiduciary's gross income in the prior fiscal year.
    10. In its report dated February 1, 2008, U.S. Trust compared a 
hypothetical cash redemption with the Redemptions. U.S. Trust found 
that because of the size of the Plan's investment in the Funds, a large 
cash redemption would be time consuming. This time lag would impose 
opportunity costs on the Plan because the Plan would not be invested in 
Transferable Securities that have the potential to match the Plan's 
stated objectives for this portion of the Plan's assets. Therefore, 
U.S. Trust represents that an in kind redemption would avoid such 
problems.
    11. U.S. Trust was provided the Pre-Trade Analysis which detailed 
the holdings of each of the Funds and the calculation of the pro rata 
portion of the securities and cash due to the Plan for the Redemptions. 
U.S. Trust found that the Pre-Trade Analysis was consistent with the 
proposed transfer methodology. The pro rata share of the Funds due to 
the Plan was calculated by multiplying the Plan's ownership interest in 
each of the Funds by the total market value of each of the Funds. 
Securities that were excluded from the pro rata distribution included 
restricted securities, odd lots, fractional shares, and securities that 
traded in markets that restrict in-kind redemptions (Ineligible 
Securities). Ineligible Securities were identified and offsetting 
adjustments were made to the Plan's pro rata share of the Fund's cash 
position.
    U.S. Trust reviewed a sample of the securities listed in the Pre-
Trade Analysis. The sample was randomly selected and represented 
approximately 20% of the securities within each of the Funds. In 
addition, U.S. Trust confirmed that the pro rata share due to the Plan 
and the offsetting adjustments for Ineligible Securities were 
calculated properly for this sample.
    12. According to U.S. Trust, for a period of six months immediately 
commencing after the Redemptions, MTBIA agreed to reimburse the Plan 
for commissions and fees incurred in connection with Transferable 
Securities received as a result of the Redemptions and subsequently 
sold. Accordingly, the Plan was reimbursed $9,832 for brokerage and SEC 
fees from sales of Transferable Securities in the separate accounts 
over this period.
    13. U.S. Trust represents that the Redemptions resulted in 
significant savings for the Plan. Prior to the Redemptions, the Plan 
paid the on-going investment management fees and other expenses charged 
by the Funds. According to U.S. Trust, the investment management fees 
and other expenses for the Mid Cap Growth Fund and Large Cap Stock Fund 
were 113 and 109 basis points respectively. As a result of the 
Redemptions, the Plan will no longer be paying these fees.
    Further, the separate accounts have annual operating expenses 
including investment management fees and other expenses of 40 basis 
points per annum charged internally to M&T. Because M&T will pay for 
these annual operating expenses generated by the separate accounts, the 
Plan will no longer pay any operating expenses.
    14. U.S. Trust has determined that:
    (a) The Redemptions were fair to participants of the Plan and no 
less favorable than the terms that would be reached at arm's length 
between unaffiliated parties;
    (b) the method used to conduct the Redemptions was comparable to, 
and no less favorable than, a similar in-kind redemption reached at 
arm's length between unaffiliated parties;
    (c) the Plan did not pay any commissions or fees in connection with 
the Redemptions; and
    (d) The Plan will no longer pay annual operating expenses including 
investment fees with respect to its investment in the separate 
accounts.
    15. In summary, the M&T represents that the transaction satisfies 
the statutory criteria for an exemption under section 408(a) of the Act 
for the following reasons: (a) The Independent Fiduciary reviewed the 
Redemptions and determined that the Redemptions were in the best 
interest of the Plan's participants and beneficiaries; (b) The 
Independent Fiduciary reviewed the Redemptions and comparing them to a 
hypothetical cash-only redemption determined the Redemptions were more 
favorable than a cash-only redemption; (c) Subsequent to the 
Redemptions, the Independent Fiduciary performed a post-transaction 
sampling of the material aspects of the Redemption including pricing; 
(d) For a period of six months following the Redemptions, MTBIA 
reimbursed the Plan for commissions and fees incurred in connection 
with Transferable Securities received as a result of the Redemptions 
and subsequently sold; and (e) M&T, on behalf of the Plan, has paid and 
will continue to pay the total annual expenses including investment 
management fees for the separate accounts.

Notice to Interested Persons

    Notice of the proposed exemption will be given to interested 
persons within 30 days of the publication of the notice of proposed 
exemption in the Federal Register. The notice will be given to 
interested persons by first class mail. Such notice will contain a copy 
of the notice of proposed exemption, as published in the Federal 
Register, and a supplemental statement, as required pursuant to 29 CFR 
2570.43(b)(2). The supplemental statement will inform interested 
persons of their right to comment on and/or to request a hearing with 
respect to the pending exemption. Written comments and hearing requests 
are due within 15 days of the publication of the notice of proposed 
exemption in the Federal Register.
    For Further Information Contact: Mr. Anh-Viet Ly of the Department, 
telephone 202-693-8648. (This is not a toll-free number.)

Schloer Enterprises, Inc., 401(k) Profit Sharing Plan (the Plan), 
Located in Pottstown, PA

[Application No. D-11493]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and 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). If the proposed exemption is 
granted, the restrictions in sections 406(a)(1)(A), 406(a)(1)(D), and 
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) and (c)(1)(D) through (E) of the Code, shall not apply to 
the sale of a certain parcel of real property (the Property) by the 
Plan to Craig J. Schloer, a party in

[[Page 8580]]

interest with respect to the Plan, provided that the following 
conditions are satisfied:
    (a) The sale is a one-time transaction for cash;
    (b) The terms and conditions of the sale are at least as favorable 
to the Plan as those that the Plan could obtain in an arm's length 
transaction with an unrelated party;
    (c) The sales price is the greater of $381,991 or the fair market 
value of the Property as of the date of the transaction, as determined 
by a qualified, independent appraiser;
    (d) The Plan pays no commissions, costs, or other expenses in 
connection with the sale; and
    (e) The Plan fiduciary will review and approve the methodology used 
by the qualified, independent appraiser, ensure that such methodology 
is properly applied in determining the Property's fair market value, 
and will also determine whether it is prudent to go forward with the 
proposed transaction.

Summary of Facts and Representations

    1. The Plan is a defined contribution profit sharing plan. Schloer 
Enterprises, Inc. (the Employer), located in Pottstown, Pennsylvania, 
is the Plan sponsor. As of June 30, 2008, the Plan had approximately 20 
participants and total assets of approximately $853,000.
    2. The Property is an 80,000 square foot parcel of real property 
located at 1442 Hollow Road, Collegeville, Pennsylvania 19426. On 
December 30, 1999, the Plan purchased the Property from Fred Olinick, 
the executor of the estate of Stanley P. Olinick, an unrelated third 
party, for the purchase price of $145,000. At that time, the Property 
included a 1,630 square foot, four-bedroom dwelling in fair to poor 
condition, which has since been demolished. It is represented that the 
Property was purchased solely for investment purposes.\11\
---------------------------------------------------------------------------

    \11\ The Department expresses no opinion herein as to whether 
the acquisition and holding of the Property by the Plan violated any 
of the provisions of Part 4 of Title I in the Act.
---------------------------------------------------------------------------

    The Plan has spent $106,352 in connection with renovations to the 
Property since it was acquired by the Plan. The cost of demolishing the 
dwelling was included in the $106,352 spent on renovations. The Plan 
has paid additional holding expenses of approximately $3,000 per annum 
in real estate taxes on the Property. The Property has generated no 
income for the Plan.
    The applicant proposes the sale of the Property by the Plan to Mr. 
Schloer, who serves as the CEO/President of the Employer and the Plan 
fiduciary. The Property is adjacent to Mr. Schloer's current residence 
at 1436 Hollow Road, Collegeville, Pennsylvania 19426. It is 
represented that neither Mr. Schloer, nor his relatives, nor any other 
party in interest have used or benefited from the Property.
    3. The Property was twice recently appraised by Robin S. Bowers, 
RM, SRA, a qualified, independent appraiser with The Appraisal Group, 
located in Lansdale, Pennsylvania. The applicant commissioned the two 
appraisals valuing the Property with and without the dwelling in order 
to demonstrate that demolishing the dwelling maximized the value of the 
Property. Both appraisals were performed after the dwelling was already 
demolished. In the first appraisal, Ms. Bowers valued the Property by 
examining comparable properties with no structures or buildings on 
them. Ms. Bowers determined that the fair market value of the Property 
as of May 12, 2008 was $320,000.
    For purposes of the second appraisal, Ms. Bowers assumed that the 
dwelling had not been demolished and was still in existence. Under this 
assumption, she valued the Property using the Sales Comparison Approach 
and the Cost Approach. Ms. Bowers compared the Property to six other 
similar properties having building improvements, based on style, 
quality, age, and market area. She determined that, as of November 10, 
2008, the fair market value of the Property (assuming that the 
demolished dwelling was still in existence), was $260,000.
    Ms. Bowers also determined that no premium is due to the Plan, as a 
term of the proposed sale of the Property, for any assemblage value 
resulting from the adjacency of Mr. Schloer's residence to the 
Property. The lots are zoned as single dwelling residential lots, and 
Ms. Bowers opined that, because the best use of the Property was to 
demolish the dwelling and to erect a new one, no assemblage value would 
be created even if the Property and the adjacent lot, currently owned 
by Mr. Schloer, are combined into a single lot.
    4. Mr. Schloer proposes to pay the Plan $381,991 for the Property, 
calculated as the sum of the following: (a) $260,000, the fair market 
value of the Property as of November 10, 2008 (assuming the absence of 
renovations), (b) $106,352, the cost of renovations to the Property 
paid by the Plan, and (c) $15,639, for lost earnings attributable to 
the cost of the renovations, using the Department's online VFCP 
(Voluntary Fiduciary Compliance Program) Calculator.
    The Property constitutes approximately 37.5% of the total assets of 
the Plan (based on the May 12, 2008 valuation). The applicant 
represents that the sale of the Property to Mr. Schloer is in the best 
interests of the Plan because it will enable the Plan to recoup its 
initial investment in the Property and the cost of renovations, as well 
as realize a reasonable gain on its investment. It is intended that the 
proceeds be re-invested in other investments yielding a higher rate of 
return. As the Plan fiduciary, Mr. Schloer represents that, in the 
current real estate market, a sale of the Property on the open market 
would yield less than the amount that he is willing to pay to the Plan.
    5. The applicant represents that the sale of the Property will be a 
one-time transaction for cash and that the Plan will incur no fees, 
commissions, or other expenses in connection with the sale. The 
Employer is bearing the costs of the exemption application and of 
notifying interested persons.
    6. In summary, the applicant represents that the proposed 
transaction satisfies the statutory criteria for an exemption under 
section 408(a) of the Act for the following reasons:
    (a) The sale will be a one-time transaction for cash;
    (b) The terms and conditions of the sale will be at least as 
favorable to the Plan as those that the Plan could obtain in an arm's 
length transaction with an unrelated party;
    (c) The sales price will be the greater of $381,991 or the fair 
market value of the Property as of the date of the transaction, as 
determined by a qualified, independent appraiser;
    (d) The Plan will pay no commissions, costs, or other expenses in 
connection with the sale; and
    (e) The Plan fiduciary will review and approve the methodology used 
by the qualified, independent appraiser, ensure that such methodology 
is properly applied in determining the Property's fair market value, 
and will also determine whether it is prudent to go forward with the 
proposed transaction.

FOR FURTHER INFORMATION CONTACT:  Ms. Karin Weng of the Department, 
telephone (202) 693-8557. (This is not a toll-free number.)

Morgan Stanley & Co. Incorporated, Located in New York, New York

[Exemption Application Number D-11501]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Employee Retirement Income Security

[[Page 8581]]

Act of 1974 (ERISA or the Act) and section 4975(c)(2) of the Internal 
Revenue Code of 1986, as amended (the Code), and in accordance with the 
procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 
32847, August 10, 1990).\12\
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    \12\ For purposes of this proposed exemption, references to 
section 406 of ERISA should be read to refer as well to the 
corresponding provisions of section 4975 of the Code.
---------------------------------------------------------------------------

Section I. Sales of Auction Rate Securities from Plans to Morgan 
Stanley: Unrelated to a Settlement Agreement
    If the proposed exemption is granted, the restrictions of section 
406(a)(1)(A) and (D) and section 406(b)(1) and (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), (D), and (E) of the Code, shall not 
apply, effective February 1, 2008, to the sale by a Plan (as defined in 
section V(e)) of an Auction Rate Security (as defined in section V(c)) 
to Morgan Stanley & Co. Incorporated (Morgan Stanley), where such sale 
(an Unrelated Sale) is unrelated to, and not made in connection with, a 
Settlement Agreement (as defined in section V(f)), provided that the 
conditions set forth in section II have been met.
Section II. Conditions Applicable to Transactions Described in Section 
I
    (a) The Plan acquired the Auction Rate Security in connection with 
brokerage or advisory services provided by Morgan Stanley to the Plan;
    (b) The last auction for the Auction Rate Security was 
unsuccessful;
    (c) Except in the case of a Plan sponsored by Morgan Stanley for 
its own employees (a Morgan Stanley Plan), the Unrelated Sale is made 
pursuant to a written offer by Morgan Stanley (the Offer) containing 
all of the material terms of the Unrelated Sale, including, but not 
limited to: (1) The identity and par value of the Auction Rate 
Security; (2) the interest or dividend amounts that are due with 
respect to the Auction Rate Security; and (3) the most recent rate 
information for the Auction Rate Security (if reliable information is 
available). Notwithstanding the foregoing, in the case of a pooled fund 
maintained or advised by Morgan Stanley, this condition shall be deemed 
met to the extent each Plan invested in the pooled fund (other than a 
Morgan Stanley Plan) receives advance written notice regarding the 
Unrelated Sale, where such notice contains all of the material terms of 
the Unrelated Sale, including, but not limited to, the material terms 
described in the preceding sentence;
    (d) The Unrelated Sale is for no consideration other than cash 
payment against prompt delivery of the Auction Rate Security;
    (e) The sales price for the Auction Rate Security is equal to the 
par value of the Auction Rate Security, plus any accrued but unpaid 
interest or dividends;
    (f) The Plan does not waive any rights or claims in connection with 
the Unrelated Sale;
    (g) The decision to accept the Offer or retain the Auction Rate 
Security is made by a Plan fiduciary or Plan participant or IRA owner 
who is Independent (as defined in section V(d)) of Morgan Stanley. 
Notwithstanding the foregoing: (1) In the case of an individual 
retirement account (an IRA, as described in section V(e) below) which 
is beneficially owned by an employee, officer, director or partner of 
Morgan Stanley, the decision to accept the Offer or retain the Auction 
Rate Security may be made by such employee, officer, director or 
partner; or (2) in the case of a Morgan Stanley Plan or a pooled fund 
maintained or advised by Morgan Stanley, the decision to accept the 
Offer may be made by Morgan Stanley after Morgan Stanley has determined 
that such purchase is in the best interest of the Morgan Stanley Plan 
or pooled fund; \13\
---------------------------------------------------------------------------

    \13\ The Department notes that the Act's general standards of 
fiduciary conduct also would apply to the transactions described 
herein. In this regard, section 404 requires, among other things, 
that a fiduciary discharge his duties respecting a plan solely in 
the interest of the plan's participants and beneficiaries and in a 
prudent manner. Accordingly, a plan fiduciary must act prudently 
with respect to, among other things, the decision to sell the 
Auction Rate Security to Morgan Stanley for the par value of the 
Auction Rate Security. The Department further emphasizes that it 
expects Plan fiduciaries, prior to entering into any of the proposed 
transactions, to fully understand the risks associated with this 
type of transaction following disclosure by Morgan Stanley of all 
relevant information.
---------------------------------------------------------------------------

    (h) Except in the case of a Morgan Stanley Plan or a pooled fund 
maintained or advised by Morgan Stanley, neither Morgan Stanley nor any 
affiliate exercises investment discretion or renders investment advice 
[within the meaning of 29 CFR 2510.3-21(c)] with respect to the 
decision to accept the Offer or retain the Auction Rate Security;
    (i) The Plan does not pay any commissions or transaction costs with 
respect to the Unrelated Sale;
    (j) The Unrelated Sale is not part of an arrangement, agreement or 
understanding designed to benefit a party in interest to the Plan;
    (k) Morgan Stanley and its affiliates, as applicable, maintain, or 
cause to be maintained, for a period of six (6) years from the date of 
the Unrelated Sale, such records as are necessary to enable the persons 
described below in paragraph (l)(i), to determine whether the 
conditions of this exemption, if granted, have been met, except that--
    (i) No party in interest with respect to a Plan which engages in an 
Unrelated Sale, other than Morgan Stanley and its affiliates, 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 paragraph (l)(i); and
    (ii) A separate prohibited transaction shall not be considered to 
have occurred solely because, due to circumstances beyond the control 
of Morgan Stanley or its affiliates, as applicable, such records are 
lost or destroyed prior to the end of the six-year period;
    (l)(i) Except as provided below in paragraph (l)(ii), and 
notwithstanding any provisions of subsections (a)(2) and (b) of section 
504 of the Act, the records referred to above in paragraph (k) are 
unconditionally available at their customary location for examination 
during normal business hours by--
    (A) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service, or the U.S. Securities and 
Exchange Commission; or
    (B) Any fiduciary of any Plan, including any IRA owner, that 
engages in a Sale, or any duly authorized employee or representative of 
such fiduciary; or
    (C) Any employer of participants and beneficiaries and any employee 
organization whose members are covered by a Plan that engages in the 
Unrelated Sale, or any authorized employee or representative of these 
entities;
    (ii) None of the persons described above in paragraph (l)(i)(B)-(C) 
shall be authorized to examine trade secrets of Morgan Stanley, or 
commercial or financial information which is privileged or 
confidential; and
    (iii) Should Morgan Stanley refuse to disclose information on the 
basis that such information is exempt from disclosure, Morgan Stanley 
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.

[[Page 8582]]

Section III. Sales of Auction Rate Securities from Plans to Morgan 
Stanley: Related to a Settlement Agreement
    If the proposed exemption is granted, the restrictions of section 
406(a)(1)(A) and (D) and section 406(b)(1) and (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), (D), and (E) of the Code, shall not 
apply, effective August 1, 2008, to the sale by a Plan of an Auction 
Rate Security to Morgan Stanley, where such sale (a Settlement Sale) is 
related to, and made in connection with, a Settlement Agreement, 
provided that the conditions set forth in section IV have been met.
Section IV. Conditions Applicable to Transactions Described in Section 
III
    (a) The terms and delivery of the Offer are consistent with the 
requirements set forth in the Settlement Agreement;
    (b) The Offer specifically describes, among other things:
    (1) How a Plan may determine: The Auction Rate Securities held by 
the Plan with Morgan Stanley; the number of shares and par value of the 
Auction Rate Securities; the interest or dividend amounts that are due 
with respect to the Auction Rate Securities; purchase dates for the 
Auction Rate Securities; and (if reliable information is available) the 
most recent rate information for the Auction Rate Securities;
    (2) The background of the Offer;
    (3) That neither the tender of Auction Rate Securities nor the 
purchase of any Auction Rate Securities pursuant to the Offer will 
constitute a waiver of any claim of the tendering Plan;
    (4) The methods and timing by which Plans may accept the Offer;
    (5) The purchase dates, or the manner of determining the purchase 
dates, for Auction Rate Securities tendered pursuant to the Offer;
    (6) The timing for acceptance by Morgan Stanley of tendered Auction 
Rate Securities;
    (7) The timing of payment for Auction Rate Securities accepted by 
Morgan Stanley for payment;
    (8) The methods and timing by which a Plan may elect to withdraw 
tendered Auction Rate Securities from the Offer;
    (9) The expiration date of the Offer;
    (10) The fact that Morgan Stanley may make purchases of Auction 
Rate Securities outside of the Offer and may otherwise buy, sell, hold 
or seek to restructure, redeem or otherwise dispose of the Auction Rate 
Securities;
    (11) A description of the risk factors relating to the Offer as 
Morgan Stanley deems appropriate;
    (12) How to obtain additional information concerning the Offer; and
    (13) The manner in which information concerning material amendments 
or changes to the Offer will be communicated to the Plan.
    (c) The terms of the Settlement Sale are consistent with the 
requirements set forth in the Settlement Agreement; and
    (d) All of the conditions in section II have been met.

V. Definitions

    For purposes of this exemption:
    (a) The term ``affiliate'' means: any person directly or 
indirectly, through one or more intermediaries, controlling, controlled 
by, or under common control with such other person;
    (b) The term ``control'' means: the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual;
    (c) The term ``Auction Rate Security'' means a security:
    (1) that is either a debt instrument (generally with a long-term 
nominal maturity) or preferred stock; and
    (2) with an interest rate or dividend that is reset at specific 
intervals through a Dutch auction process;
    (d) A person is ``Independent'' of Morgan Stanley if the person is: 
(1) not Morgan Stanley or an affiliate; and (2) not a relative (as 
defined in ERISA section 3(15)) of the party engaging in the 
transaction;
    (e) The term ``Plan'' means: an individual retirement account or 
similar account described in section 4975(e)(1)(B) through (F) of the 
Code (an IRA); an employee benefit plan as defined in section 3(3) of 
ERISA; or an entity holding plan assets within the meaning of 29 CFR 
2510.3-101, as modified by ERISA section 3(42); and
    (f) The term ``Settlement Agreement'' means: a legal settlement 
involving Morgan Stanley and a U.S. state or federal authority that 
provides for the purchase of an ARS by Morgan Stanley from a Plan.

Summary of Facts and Representations

    1. The Applicant is Morgan Stanley & Co. Incorporated and its 
affiliates (hereinafter, either Morgan Stanley or the Applicant). 
Morgan Stanley is a global financial services firm headquartered in New 
York, New York. Among other things, Morgan Stanley is both a registered 
investment advisor subject to the Investment Advisers Act of 1940 and a 
broker-dealer registered with the U.S. Securities and Exchange 
Commission. In this last regard, Morgan Stanley acts as a broker and 
dealer with respect to the purchase and sale of securities, including 
Auction Rate Securities.
    2. The Applicant describes Auction Rate Securities and the 
arrangement by which ARS are bought and sold as follows. Auction Rate 
Securities (or ARS) are securities (issued as debt or preferred stock) 
with an interest rate or dividend that is reset at periodic intervals 
pursuant to a process called a Dutch Auction. Investors submit orders 
to buy, hold, or sell a specific ARS to a broker-dealer selected by the 
entity that issued the ARS. The broker-dealers, in turn, submit all of 
these orders to an auction agent. The auction agent's functions include 
collecting orders from all participating broker-dealers by the auction 
deadline, determining the amount of securities available for sale, and 
organizing the bids to determine the winning bid. If there are any buy 
orders placed into the auction at a specific rate, the auction agent 
accepts bids with the lowest rate above any applicable minimum rate and 
then successively higher rates up to the maximum applicable rate, until 
all sell orders and orders that are treated as sell orders are filled. 
Bids below any applicable minimum rate or above the applicable maximum 
rate are rejected. After determining the clearing rate for all of the 
securities at auction, the auction agent allocates the ARS available 
for sale to the participating broker-dealers based on the orders they 
submitted. If there are multiple bids at the clearing rate, the auction 
agent will allocate securities among the bidders at such rate on a pro-
rata basis.
    3. The Applicant states that, under a typical Dutch Auction 
process, Morgan Stanley is permitted, but not obligated, to submit 
orders in auctions for its own account either as a bidder or a seller 
and routinely does so in the auction rate securities market in its sole 
discretion. Morgan Stanley may place one or more bids in an auction for 
its own account to acquire ARS for its inventory, to prevent: (1) A 
failed auction (i.e. , an event where there are insufficient clearing 
bids which would result in the auction rate being set at a specified 
rate, resulting in no ARS being sold through the auction process); or 
(2) an auction from clearing at a rate that Morgan Stanley believes 
does not reflect the market for the particular ARS being auctioned.
    4. The Applicant states that for many ARS, Morgan Stanley has been 
appointed by the issuer of the securities to serve as a dealer in the 
auction and is paid by the issuer for its services. Morgan Stanley is 
typically appointed to serve as a dealer in the auctions pursuant to an 
agreement between the

[[Page 8583]]

issuer and Morgan Stanley. That agreement provides that Morgan Stanley 
will receive from the issuer auction dealer fees based on the principal 
amount of the securities placed through Morgan Stanley.
    5. The Applicant states further that Morgan Stanley may share a 
portion of the auction rate dealer fees it receives from the issuer 
with other broker-dealers that submit orders through Morgan Stanley, 
for those orders that Morgan Stanley successfully places in the 
auctions. Similarly, with respect to ARS for which broker-dealers other 
than Morgan Stanley act as dealer, such other broker-dealers may share 
auction dealer fees with Morgan Stanley for orders submitted by Morgan 
Stanley.
    6. According to the Applicant, since February 2008, only a minority 
of auctions have cleared, particularly involving municipalities. As a 
result, Plans holding ARS may not have sufficient liquidity to make 
benefit payments, mandatory payments and withdrawals and expense 
payments when due.\14\
---------------------------------------------------------------------------

    \14\ The Department notes that Class Exemption 80-26 (45 FR 
28545 (Apr. 29, 1980), as amended at 71 FR 17917 (Apr. 7, 2006)) 
permits interest-free loans or other extensions of credit from a 
party in interest to a plan if, among other things, the proceeds of 
the loan or extension of credit are used only--(1) for the payment 
of ordinary operating expenses of the plan, including the payment of 
benefits in accordance with the terms of the plan and periodic 
premiums under an insurance or annuity contract, or (2) for a 
purpose incidental to the ordinary operation of the plan.
---------------------------------------------------------------------------

    7. The Applicant represents that, in certain instances, Morgan 
Stanley may have previously advised or otherwise caused a Plan to 
acquire and hold an Auction Rate Security.\15\ In connection with 
Morgan Stanley's role in the acquisition and holding of ARS by various 
Morgan Stanley clients, including the Plans, Morgan Stanley entered 
into Settlement Agreements with certain U.S. states and federal 
authorities. Pursuant to these Settlement Agreements, among other 
things, Morgan Stanley was required to send a written offer to certain 
Plans that held ARS in connection with the advice and/or brokerage 
services provided by Morgan Stanley. As described in further detail 
below, eligible Plans that accepted the Offer were permitted to sell 
the ARS to Morgan Stanley for cash equal to the par value of such 
securities, plus any accrued interest and/or dividends. According to 
the Applicant, as of January 28, 2009, approximately $227 million 
dollars in ARS have been sold by Plans to Morgan Stanley in connection 
with Offers issued by Morgan Stanley pursuant to a Settlement 
Agreement. The Applicant states that, prospectively, additional shares 
of ARS may be tendered by Plans to Morgan Stanley pursuant to an Offer 
issued by Morgan Stanley pursuant to a Settlement Agreement. 
Accordingly, the Applicant is requesting retroactive and prospective 
relief for the Settlement Sales. With respect to Unrelated Sales, the 
Applicant states that to the best of its knowledge, as of January 28, 
2009, no Unrelated Sale has occurred. However, the Applicant is 
requesting retroactive relief (and prospective relief) for Unrelated 
Sales in the event that a sale of Auction Rate Securities by a Plan to 
Morgan Stanley has occurred outside the Settlement process.
---------------------------------------------------------------------------

    \15\ The relief contained in this proposed exemption does not 
extend to the fiduciary provisions of section 404 of the Act.
---------------------------------------------------------------------------

    8. The Applicant is requesting relief for the sale of Auction Rate 
Securities under two different circumstances: (1) where Morgan Stanley 
initiates the sale by sending to a Plan a written Offer to acquire the 
ARS (i.e., an Unrelated Sale), notwithstanding that such Offer is not 
required under a Settlement Agreement; and (2) where Morgan Stanley is 
required under a Settlement Agreement to send to Plans a written Offer 
to acquire the ARS (i.e., a Settlement Sale). The Applicant states that 
the Unrelated Sales and Settlement Sales (hereinafter, either, a 
Covered Sale) are in the interests of Plans. In this regard, the 
Applicant states that the Covered Sales would permit Plans to normalize 
Plan investments. The Applicant represents that each Covered Sale will 
be for no consideration other than cash payment against prompt delivery 
of the ARS, and such cash will equal the par value of the ARS, plus any 
accrued but unpaid interest or dividends. The Applicant represents 
further that Plans will not pay any commissions or transaction costs 
with respect to any Covered Sale.
    9. The Applicant represents that the proposed exemption is 
protective of the Plans. The Applicant states that, with very narrowly 
tailored exceptions: Each Covered Sale will be made pursuant to a 
written Offer; and the decision to accept the Offer or retain the ARS 
will be made by a Plan fiduciary or Plan participant or IRA owner who 
is independent of Morgan Stanley. Additionally, each Offer will be 
delivered in a manner designed to alert a Plan fiduciary that Morgan 
Stanley intends to purchase ARS from the Plan. Offers made in 
connection with an Unrelated Sale will include all of the material 
terms of the Unrelated Sale, including: The identity and par value of 
the Auction Rate Security; the interest or dividend amounts that are 
due with respect to the Auction Rate Security; and the most recent rate 
information for the Auction Rate Security (if reliable information is 
available). Offers made in connection with a Settlement Agreement will 
specifically include, among other things: The background of the Offer; 
the method and timing by which a Plan may accept the Offer; the 
expiration date of the Offer; a description of certain risk factors 
relating to the Offer; how to obtain additional information concerning 
the Offer; and the manner in which information concerning material 
amendments or changes to the Offer will be communicated. The Applicant 
states that, with very narrowly tailored exceptions, neither Morgan 
Stanley nor any affiliate will exercise investment discretion or render 
investment advice with respect to a Plan's decision to accept the Offer 
or retain the ARS.\16\ In the case of a Morgan Stanley Plan or a pooled 
fund maintained or advised by Morgan Stanley, the decision to engage in 
a Covered Sale may be made by Morgan Stanley after Morgan Stanley has 
determined that such purchase is in the best interest of the Morgan 
Stanley Plan or pooled fund. The Applicant represents further that 
Plans will not waive any rights or claims in connection with any 
Covered Sale.
---------------------------------------------------------------------------

    \16\ The Applicant states that while there may be communication 
between a Plan and Morgan Stanley subsequent to an Offer, such 
communication will not involve advice regarding whether the Plan 
should accept the Offer.
---------------------------------------------------------------------------

    10. The Applicant represents that the proposed exemption, if 
granted, would be administratively feasible. In this regard, the 
Applicant notes that each Covered Sale will occur at the par value of 
the affected ARS, and such value is readily ascertainable. The 
Applicant represents further that Morgan Stanley will maintain the 
records necessary to enable the Department and Plan fiduciaries, among 
others, to determine whether the conditions of this exemption, if 
granted, have been met.
    11. In summary, the Applicant represents that the transactions 
described herein satisfy the statutory criteria of section 408(a) of 
the Act and section 4975(c)(2) of the Code because, among other things:
    (a) With only very narrow exceptions, each Covered Sale shall be 
made pursuant to a written Offer;
    (b) Each Covered Sale shall be for no consideration other than cash 
payment against prompt delivery of the ARS;
    (c) The amount of each Covered Sale shall equal the par value of 
the ARS, plus any accrued but unpaid interest or dividends;

[[Page 8584]]

    (d) Plans will not waive any rights or claims in connection with 
any Covered Sale;
    (e) With only very narrow exceptions:
    (1) The decision to accept an Offer or retain the ARS shall be made 
by a Plan fiduciary or Plan participant or IRA owner who is Independent 
of Morgan Stanley; and
    (2) Neither Morgan Stanley nor any affiliate shall exercise 
investment discretion or render investment advice [within the meaning 
of 29 CFR 2510.3-21(c)] with respect to the decision to accept the 
Offer or retain the ARS;
    (f) Plans shall not pay any commissions or transaction costs with 
respect to any Covered Sale;
    (g) A Covered Sale shall not be part of an arrangement, agreement 
or understanding designed to benefit a party in interest to the 
affected Plan;
    (h) With respect to any Settlement Sale, the terms and delivery of 
the Offer, and the terms of Settlement Sale, shall be consistent with 
the requirements set forth in the Settlement Agreement;
    (i) Each Offer made in connection with an Unrelated Sale shall 
describe all of the material terms of the Unrelated Sale, including:
    (1) The identity and par value of the Auction Rate Security;
    (2) the interest or dividend amounts that are due with respect to 
the Auction Rate Security; and
    (3) the most recent rate information for the Auction Rate Security 
(if reliable information is available);
    (j) Each Offer made in connection with a Settlement Agreement shall 
describe all of the material terms of the Settlement Sale, including:
    (1) How the Plan can determine: The ARS held by the Plan with 
Morgan Stanley; the number of shares and par value of the ARS; interest 
or dividend amounts; purchase dates for the ARS; and (if reliable 
information is available) the most recent rate information for the ARS;
    (2) The background of the Offer;
    (3) That neither the tender of ARS nor the purchase of ARS pursuant 
to the Offer will constitute a waiver of any claim of the tendering 
Plan;
    (4) The methods and timing by which the Plan may accept the Offer; 
and
    (5) The purchase dates, or the manner of determining the purchase 
dates, for ARS pursuant to the Offer and the timing for acceptance by 
Morgan Stanley of tendered ARS for payment.

Notice To Interested Persons

    The Applicant represents that the potentially interested 
participants and beneficiaries cannot all be identified and therefore 
the only practical means of notifying such participants and 
beneficiaries of this proposed exemption is by the publication of this 
notice in the Federal Register. Comments and requests for a hearing 
must be received by the Department not later than 45 days from the date 
of publication of this notice of proposed exemption in the Federal 
Register.

FOR FURTHER INFORMATION CONTACT: Chris Motta of the Department, 
telephone (202) 693-8540. (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 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 19th day of February 2009.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
 [FR Doc. E9-3997 Filed 2-24-09; 8:45 am]

BILLING CODE 4510-29-P