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Secretary of Labor Thomas E. Perez
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EBSA Notices

Notice of Proposed Exemptions   [12/22/2009]
[PDF]
FR Doc E9-30262
[Federal Register: December 22, 2009 (Volume 74, Number 244)]
[Notices]               
[Page 68101-68129]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22de09-91]                         


[[Page 68101]]

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Part II





Department of Labor





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Employee Benefits Security Administration



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Notice of Proposed Exemptions; Notice


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[D-11509; D-11532; D-11555; D-11556; L-11558; et al.]

 
Notice of Proposed Exemptions

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of Proposed Exemptions.

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Application Nos. and Proposed Exemptions: D-11509, Goldman, Sachs & 
Co. and its Affiliates (Goldman or the Applicant); D-11532, Louis B. 
Chaykin, M.D., P.A.; D-11555, The Coca-Cola Company (TCCC, or the 
Applicant); D-11556, Columbia Management Advisors, LLC (Columtia, or 
the Applicant) and its Current and Future Affiliates (collectively, 
the Applicants); and L-11558, Boston Carpenters Apprenticeship and 
Training Fund (the Fund); et al.

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

Written Comments and Hearing Requests

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

ADDRESSES: All written comments and requests for a hearing (at least 
three copies) should be sent to the Employee Benefits Security 
Administration (EBSA), Office of Exemption Determinations, Room N-5700, 
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210. Attention: Application No. ----, stated in each Notice of 
Proposed Exemption. Interested persons are also invited to submit 
comments and/or hearing requests to EBSA via e-mail or FAX. Any such 
comments or requests should be sent either by e-mail to: 
moffitt.betty@dol.gov, or by FAX to (202) 219-0204 by the end of the 
scheduled comment period. The applications for exemption and the 
comments received will be available for public inspection in the Public 
Documents Room of the Employee Benefits Security Administration, U.S. 
Department of Labor, Room N-1513, 200 Constitution Avenue, NW., 
Washington, DC 20210.
    Warning: If you submit written comments or hearing requests, do not 
include any personally-identifiable or confidential business 
information that you do not want to be publicly-disclosed. All comments 
and hearing requests are posted on the Internet exactly as they are 
received, and they can be retrieved by most Internet search engines. 
The Department will make no deletions, modifications or redactions to 
the comments or hearing requests received, as they are public records.

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.

Goldman, Sachs & Co. and Its Affiliates (Goldman or the Applicant), 
Located in New York, New York.
[Application No. D-11509.]

Proposed Exemption

    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 
section 406 of the Act should be read to refer as well to the 
corresponding provisions of section 4975 of the Code.
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Section I. Sales of Auction Rate Securities From Plans to Goldman: 
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 Goldman, 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 Goldman to the Plan;
    (b) The last auction for the Auction Rate Security was 
unsuccessful;
    (c) Except in the case of a Plan sponsored by Goldman for its own 
employees (a Goldman Plan), the Unrelated Sale is made pursuant to a 
written offer by Goldman (the Offer) containing all of the material 
terms of the Unrelated Sale. Either the Offer or other materials 
available to the Plan provide: (1) The identity and par value of the 
Auction Rate Security; (2) the interest or dividend amounts that are 
due and unpaid 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 Goldman, this condition shall 
be deemed met to the extent each Plan invested in the pooled fund 
(other than a Goldman Plan) receives written notice regarding the 
Unrelated Sale, where such notice contains the material terms of the 
Unrelated Sale;

[[Page 68103]]

    (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 Goldman. 
Notwithstanding the foregoing: (1) In the case of an IRA (as defined in 
Section V(e)) which is beneficially owned by an employee, officer, 
director or partner of Goldman, 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 Goldman Plan or a pooled 
fund maintained or advised by Goldman, the decision to accept the Offer 
may be made by Goldman after Goldman has determined that such purchase 
is in the best interest of the Goldman Plan or pooled fund; \2\
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    \2\ 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 of the Act 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 Goldman for the par value of the 
Auction Rate Security, plus unpaid interest and dividends. 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 Goldman of all relevant information.
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    (h) Except in the case of a Goldman Plan or a pooled fund 
maintained or advised by Goldman, neither Goldman 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) Goldman 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)(1), to determine whether the 
conditions of this exemption, if granted, have been met, except that:
    (1) No party in interest with respect to a Plan which engages in an 
Unrelated Sale, other than Goldman 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)(1); and
    (2) A separate prohibited transaction shall not be considered to 
have occurred solely because, due to circumstances beyond the control 
of Goldman or its affiliates, as applicable, such records are lost or 
destroyed prior to the end of the six-year period;
    (l)(1) Except as provided below in paragraph (l)(2), 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;
    (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;
    (2) None of the persons described above in paragraphs (l)(1)(B)-(C) 
shall be authorized to examine trade secrets of Goldman, or commercial 
or financial information which is privileged or confidential; and
    (3) Should Goldman refuse to disclose information on the basis that 
such information is exempt from disclosure, Goldman 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.

Section III. Sales of Auction Rate Securities From Plans to Goldman: 
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 February 1, 2008, to the sale by a Plan of an Auction 
Rate Security to Goldman, 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 and acceptance of 
the offer does not constitute a waiver of any claim of the tendering 
Plan;
    (b) The Offer or other documents available to the Plan specifically 
describe, among other things:
    (1) The securities available for purchase under the Offer;
    (2) The background of the Offer;
    (3) The methods and timing by which Plans may accept the Offer;
    (4) The purchase dates, or the manner of determining the purchase 
dates, for Auction Rate Securities tendered pursuant to the Offer, if 
the Offer had any limitation on such dates;
    (5) The timing for acceptance by Goldman of tendered Auction Rate 
Securities, if there were any limitations on such timing;
    (6) The timing of payment for Auction Rate Securities accepted by 
Goldman for payment, if payment was materially delayed beyond the 
acceptance of the Offer;
    (7) The expiration date of the Offer; and
    (8) How to obtain additional information concerning the Offer;
    (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.

Section V. Definitions

    For purposes of this proposed 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;

[[Page 68104]]

    (d) A person is ``independent'' of Goldman if the person is: (1) 
Not Goldman or an affiliate; and (2) not a relative (as defined in 
section 3(15) of the Act) 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 
the Act; or an entity holding plan assets within the meaning of 29 CFR 
2510.3-101, as modified by section 3(42) of the Act; and
    (f) The term ``Settlement Agreement'' means a legal settlement 
involving Goldman and a U.S. State or Federal authority that provides 
for the purchase of an ARS by Goldman from a Plan.
    Effective Date: If granted, this proposed exemption will be 
effective as of February 1, 2008.

Summary of Facts and Representations

    1. The Applicant, Goldman, is a global financial services firm 
headquartered in New York, New York. As of August 29, 2008, Goldman had 
approximately $1 trillion in assets. Among other things, Goldman is 
both a registered investment adviser 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, Goldman 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 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, Goldman 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. Goldman may place one or more bids in an auction for its 
own account to acquire ARS for its inventory, to prevent: (a) 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 (b) an 
auction from clearing at a rate that Goldman believes does not reflect 
the market for the particular ARS being auctioned.
    4. The Applicant states that for many ARS, Goldman 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. Goldman is 
typically appointed to serve as a dealer in the auctions pursuant to an 
agreement between the issuer and Goldman. That agreement provides that 
Goldman will receive from the issuer auction dealer fees based on the 
principal amount of the securities placed through Goldman.
    5. The Applicant states further that Goldman may share a portion of 
the auction rate dealer fees it receives from the issuer with other 
broker-dealers that submit orders through Goldman, for those orders 
that Goldman successfully places in the auctions. Similarly, with 
respect to ARS for which broker-dealers other than Goldman act as 
dealer, such other broker-dealers may share auction dealer fees with 
Goldman for orders submitted by Goldman.
    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.\3\
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    \3\ The Department notes that Prohibited Transaction Exemption 
80-26 (45 FR 28545 (April 29, 1980), as amended at 71 FR 17917 
(April 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.
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    7. The Applicant represents that, in certain instances, Goldman may 
have previously advised or otherwise caused a Plan to acquire and hold 
an Auction Rate Security.\4\ In connection with Goldman's role in the 
acquisition and holding of ARS by various Goldman clients, including 
the Plans, Goldman entered into Settlement Agreements with certain U.S. 
states and Federal authorities. Pursuant to these Settlement 
Agreements, among other things, Goldman was required to send a written 
offer to certain Plans that held ARS in connection with the advice and/
or brokerage services provided by Goldman. As described in further 
detail below, eligible Plans that accepted the Offer were permitted to 
sell the ARS to Goldman for cash equal to the par value of such 
securities, plus any accrued but unpaid interest and/or dividends. 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, 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 Goldman has occurred outside the 
Settlement process. If granted, the proposed exemption will be 
effective February 1, 2008.
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    \4\ The relief contained in this proposed exemption does not 
extend to the fiduciary provisions of section 404 of the Act.
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    8. Specifically, the Applicant is requesting exemptive relief for 
the sale of Auction Rate Securities under two different circumstances: 
(a) Where Goldman 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 (b) 
where Goldman 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

[[Page 68105]]

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: 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 Goldman. Additionally, 
each Offer will be delivered in a manner designed to alert a Plan 
fiduciary that Goldman intends to purchase ARS from the Plan. Offers 
made in connection with an Unrelated Sale will include the material 
terms of the Unrelated Sale and either the Offer or other materials 
available to the Plan describe: 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; and how to obtain additional information 
concerning the Offer. The Applicant states that neither Goldman 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.\5\ In the case of a Goldman Plan or a pooled fund maintained 
or advised by Goldman, the decision to engage in a Covered Sale may be 
made by Goldman after Goldman has determined that such purchase is in 
the best interest of the Goldman Plan or pooled fund. The Applicant 
represents further that Plans will not waive any rights or claims in 
connection with any Covered Sale.
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    \5\ The Applicant states that while there may be communication 
between a Plan and Goldman subsequent to an Offer, such 
communication will not involve advice regarding whether the Plan 
should accept the Offer.
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    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 (plus accrued but unpaid interest and dividends, to 
the extent applicable), and such value is readily ascertainable. The 
Applicant represents further that Goldman 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 because, among other things:
    (a) 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;
    (d) Plans will not waive any rights or claims in connection with 
any Covered Sale;
    (e)(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 Goldman; and (2) neither Goldman 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) Goldman shall make available in connection with an Unrelated 
Sale 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 but unpaid 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 the material terms of the Settlement Sale, including the 
following (and shall not constitute a waiver of any claim of the 
tendering Plan): (1) The background of the Offer; (2) the methods and 
timing by which the Plan may accept the Offer; (3) the purchase dates, 
or the manner of determining the purchase dates, for ARS pursuant to 
the Offer; (4) the expiration date of the Offer; and (5) how to obtain 
additional information concerning the Offer.

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 30 days from the date 
of publication of this notice of proposed exemption in the Federal 
Register.

FOR FURTHER INFORMATION CONTACT: Brian Shiker of the Department, 
telephone (202) 693-8552. (This is not a toll-free number.)

Louis B. Chaykin, M.D., P.A., Cross-Tested Profit Sharing Plan (the 
Plan), Located in Lakewood Ranch, Florida.
[Exemption Application Number: D-11532.]

Proposed Exemption

    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). If the exemption 
is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2) 
of the Act, and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(A), through (E) of 
the Code, shall not apply to the proposed sale (the Sale) at fair 
market value by the Plan of certain coins (the Collectibles), to Louis 
B. Chaykin, M.D. (the Applicant), a party in 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 Plan pays no commissions, fees or other expenses in 
connection with the Sale;
    (c) The terms and conditions of the Sale are at least as favorable 
as those obtainable in an arm's length transaction with an unrelated 
third party;
    (d) The fair market value of the Collectibles was determined by a 
qualified, independent appraiser;
    (e) The Plan receives no less than the fair market value of the 
Collectibles at the time of the Sale; and
    (f) All of the participants of the Plan, with the exception of the 
Applicant, have been paid their benefits in full.

Summary of Facts and Representations

    1. The Plan is a profit-sharing plan sponsored by Louis B. Chaykin, 
M.D., P.A., a private professional corporation

[[Page 68106]]

engaged in the practice of medicine in Lakewood Ranch, Florida. The 
Applicant represents that, as of January 1, 2007, there were seven (7) 
participants in the Plan, including five employees, the Applicant, and 
the Applicant's spouse. The Applicant is also the discretionary trustee 
of the Plan. The Plan, which was formally terminated on March 1, 2006, 
received a favorable determination letter from the Internal Revenue 
Service on May 11, 2007. The determination letter stated that the 
termination of the Plan did not adversely affect its qualification for 
Federal tax purposes.
    The Applicant represents that, pursuant to the termination of the 
Plan, all participants (with the exception of the Applicant) have been 
paid their benefits in full. In this regard, the Applicant represents 
that, of the five employees who were participants in the Plan, two 
rolled over cash into their respective individual retirement accounts 
(IRAs), while the other three took lump sum distributions of cash. The 
Applicant's spouse also rolled over cash to her IRA. The Applicant 
himself has received prior distributions of cash to satisfy his minimum 
distribution requirements because he is over age 70 and a half. The 
Applicant has also rolled over some publicly-traded securities in kind 
to his IRA. Apart from the Collectibles, the Plan holds residual assets 
consisting of a limited partnership interest and other coins. The 
Applicant represents that the total value of the non-Collectibles held 
by the Plan as of December 31, 2008 is $63,720.17.
    2. The Applicant represents that the IRA custodial trustee which 
the Applicant has designated to receive his rollover contributions from 
the Plan will not accept the Collectibles as IRA assets. Accordingly, 
the Applicant requests an exemption to permit the Sale of the 
Collectibles and the distribution of the resulting cash proceeds to 
himself, which he would then roll over into his IRA account. The Plan 
had originally purchased the Collectibles from unrelated parties at 
various times between 2005 and 2008. The Applicant also represents that 
the Plan purchased the Collectibles as an investment and held the 
Collectibles for appreciation. The Applicant states that the 
Collectibles have never used by himself, or by any other party in 
interest with respect to the Plan, for personal purposes. The Applicant 
represents that the proposed Sale will maximize the preservation of the 
Plan assets by avoiding the payment of sales commissions, advertising 
costs and other selling expenses which would generally be incurred in 
open market sales.\6\ In addition, the Applicant states that the Plan 
will receive an amount in cash reflecting the fair market value of the 
Collectibles, as established by a qualified, independent appraiser.
---------------------------------------------------------------------------

    \6\ Section 408(m) of the Code stipulates that the acquisition 
by an individual retirement account or by an individually-directed 
account under a plan described in section 401(a) of the Code of any 
collectible shall be treated (for purposes of sections 402 and 408 
of the Code) as a distribution from such account in an amount equal 
to the cost to such account of such collectible. The Applicant 
represents, however, that this provision of the Code is not 
applicable to the proposed transaction because the Plan is trusteed 
by a discretionary trustee (e.g., the Applicant), and does not allow 
for participant direction of Plan investments. The Department is 
providing no determination with respect to the Applicant's 
representation detailed above.
---------------------------------------------------------------------------

    3. The Collectibles were appraised in June of 2009 by Mr. John 
Albanese of Blanchard and Company, an independent qualified appraiser 
located in New Orleans, Louisiana. Mr. Albanese represents that he has 
over 28 years experience in the appraisal of coins. Mr. Albanese 
further states that he has not previously sold or been promised future 
sales of coins to the Applicant. Additionally, Mr. Albanese represents 
that less than 1% of the gross receipts of his business for the past 
year are derived from the Applicant. Mr. Albanese states that he 
examined the Collectibles submitted to him by the Applicant and, after 
evaluating the condition of the Collectibles, he reviewed the Coin Deal 
Newsletter as well as major auction results to arrive at their current 
value. Based on the foregoing methodology, Mr. Albanese determined 
that, as of June 3, 2009, the Collectibles had a fair market value of 
$284,895.
    4. In summary, the applicant represents that the transaction will 
satisfy the statutory requirements for an exemption under section 
408(a) of the Act because: (a) The Sale is a one-time transaction for 
cash; (b) The Plan pays no commissions, fees or other expenses in 
connection with the Sale; (c) The terms and conditions of the Sale are 
at least as favorable as those obtainable in an arm's length 
transaction with an unrelated third party; (d) The fair market value of 
the Collectibles was determined by Mr. Albanese, a qualified, 
independent appraiser; and (e) The Plan receives no less than the fair 
market value of the Collectibles at the time of the Sale.
    Notice to Interested Persons: The Applicant represents that the 
Plan has been terminated and that all participants of the Plan (with 
the exception of the Applicant) have been paid their benefits in full. 
Accordingly, the only practical means of notifying terminated plan 
participants is by publication of the proposed exemption in the Federal 
Register. Therefore, the Department must receive all written comments 
and requests for a hearing no later than forty-five (45) days after 
publication of the Notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Mr. Mark Judge of the Department, 
telephone (202) 693-8550. (This is not a toll-free number).

The Coca-Cola Company (TCCC, or the Applicant), Located in Atlanta, 
Georgia.
[Application No. D-11555.]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and in accordance with the 
procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 
32847, August 10, 1990). If the exemption is granted, the restrictions 
of section 406(a) and (b) of the Act shall not apply to the reinsurance 
of risks and the receipt of premiums therefrom by Red Re Inc. (Red Re), 
in connection with a medical stop-loss insurance policy sold by the 
Prudential Insurance Company of America (Prudential), or any successor 
insurance company to Prudential which is unrelated to TCCC, which would 
pay for certain benefits under the TCCC Retiree Health Plan (the Plan), 
provided the following conditions are met:
    (a) Red Re--
    (1) Is a party in interest with respect to the Plan by reason of a 
stock or partnership affiliation with TCCC that is described in section 
3(14)(E) or (G) of the Act;
    (2) Is licensed to sell insurance or conduct reinsurance operations 
in at least one State as defined in section 3(10) of the Act;
    (3) Has obtained a Certificate of Authority from the Insurance 
Commissioner of its domiciliary state that has not been revoked or 
suspended;
    (4)(A) Has undergone an examination by an independent certified 
public accountant for its last completed taxable year immediately prior 
to the taxable year of the reinsurance transaction; or
    (B) Has undergone a financial examination (within the meaning of 
the law of its domiciliary State, by the Insurance Commissioner of the 
State within 5 years prior to the end of the year preceding the year in 
which the reinsurance transaction occurred; and
    (5) Is licensed to conduct reinsurance transactions by a State 
whose law requires that an actuarial review of reserves be conducted 
annually by an

[[Page 68107]]

independent firm of actuaries and reported to the appropriate 
regulatory authority; and
    (b) The Plan pays no more than adequate consideration for the 
insurance contracts;
    (c) No commissions are paid by the Plan with respect to the direct 
sale of such contracts or the reinsurance thereof;
    (d) In the initial year of any contract involving Red Re, there 
will be an immediate and objectively determined benefit to the Plan's 
participants and beneficiaries in the form of increased benefits;
    (e) In subsequent years, should the relationship with Prudential be 
terminated, the formula used to calculate premiums by any successor 
insurer will be similar to formulae used by other insurers providing 
comparable stop-loss coverage under similar programs. Furthermore, the 
premium charge calculated in accordance with the formula will be 
reasonable and will be comparable to the premium charged by the insurer 
and its competitors with the same or a better rating providing the same 
coverage under comparable programs;
    (f) To the extent Red Re earns any profit due to favorable claims 
experience, such profit will be promptly returned to the Plan.
    (g) The Plan only contracts with insurers with a rating of A or 
better from A.M. Best Company. The reinsurance arrangement between the 
insurer and Red Re will be indemnity insurance only, i.e., the insurer 
will not be relieved of liability to the Plan should Red Re be unable 
or unwilling to cover any liability arising from the reinsurance 
arrangement;
    (h) The Plan retains an independent fiduciary (the Independent 
Fiduciary), at TCCC's expense, to analyze the transactions and render 
an opinion that the requirements of sections (a) thorough (g) have been 
complied with. For purposes of this exemption, the Independent 
Fiduciary is a person who:
    (1) Is not directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with TCCC or Red Re (this relationship hereinafter referred to as an 
``Affiliate'');
    (2) Is not an officer, director, employee of, or partner in TCCC or 
Red Re (or any Affiliate of either);
    (3) Is not a corporation or partnership in which TCCC or Red Re has 
an ownership interest or is a partner;
    (4) Does not have an ownership interest in TCCC or Red Re, or any 
of either's Affiliates;
    (5) Is not a fiduciary with respect to the Plan prior to the 
appointment; and
    (6) Has acknowledged in writing acceptance of fiduciary 
responsibility and has agreed not to participate in any decision with 
respect to any transaction in which the Independent Fiduciary has an 
interest that might affect its best judgment as a fiduciary.
    For purposes of this definition of an ``Independent Fiduciary,'' no 
organization or individual may serve as an Independent Fiduciary for 
any fiscal year if the gross income received by such organization or 
individual (or partnership or corporation of which such individual is 
an officer, director, or 10 percent or more partner or shareholder) 
from TCCC, Red Re, or their Affiliates (including amounts received for 
services as Independent Fiduciary under any prohibited transaction 
exemption granted by the Department) for that fiscal year exceeds 3 
percent of that organization or individual's annual gross income from 
all sources for the prior fiscal year.
    In addition, no organization or individual who is an Independent 
Fiduciary, and no partnership or corporation of which such organization 
or individual is an officer, director, or 10 percent or more partner or 
shareholder, may acquire any property from, sell any property to, or 
borrow funds from TCCC, Red Re, or their Affiliates during the period 
that such organization or individual serves as Independent Fiduciary, 
and continuing for a period of six months after such organization or 
individual ceases to be an Independent Fiduciary, or negotiates any 
such transaction during the period that such organization or individual 
serves as Independent Fiduciary.

Summary of Facts and Representations

    1. TCCC, which is headquartered in Atlanta, Georgia, is the world's 
largest beverage company and markets four of the world's top five non-
alcoholic sparkling brands. In 2008, TCCC employed 92,400 associates 
worldwide with approximately 13,000 associates in the United States. 
TCCC reported revenue of approximately $31.2 billion in 2008.
    2. Red Re is a captive insurance company owned by Coca-Cola Oasis, 
Inc., a consolidated entity of TCCC. Red Re was established on March 
14, 2006 in Charleston, South Carolina. Red Re was issued a Certificate 
of Authority permitting it to transact the business of a captive 
insurance company by the State of South Carolina on April 25, 2006. Red 
Re is a sound, viable insurance company that has been in business since 
2006. Management and administrative services for Red Re are performed 
by Marsh Management Services, Inc. of Charleston, South Carolina. Red 
Re currently provides deductible reimbursement policies to TCCC for 
selected automobile liability, product liability, general liability, 
workers' compensation and terrorism risks. In addition, TCCC's 
international employee benefits for selected countries are reinsured 
with Red Re. As of December 31, 2008, Red Re had total capital and 
surplus of $18.1 million and gross written premium of $46 million.
    3. TCCC provides medical benefits to eligible retired employees in 
the United States under the TCCC Retiree Health Plan (the Plan). The 
Plan provides coverage or reimbursement for major medical expenses, 
treatment of illness, sickness or injury, prescriptions and, in most 
cases, preventative care and vision exams to eligible retired employees 
(and their beneficiaries) of TCCC or its affiliates. Depending on the 
geographic area in which a Plan participant lives, there are a number 
of different coverage options, including an HMO option in some areas. 
As of January 1, 2009, the Plan provided retiree health benefits to 
approximately 5,000 retirees and dependents. TCCC has established a 
Voluntary Employees' Beneficiary Association (VEBA) as a funding 
vehicle for the Plan. However, TCCC retains the option of making 
benefit payments out of its general assets and may then seek 
reimbursement from the VEBA.\7\ Participants make contributions to the 
Plan which vary from year-to-year, but which generally are set at 
levels intended to cover 15-20% of the Plan's costs. However, the 
Applicant represents that no participant contributions will be used to 
pay any premium for the stop-loss policy which is the subject of this 
proposed exemption.
---------------------------------------------------------------------------

    \7\ See representation 16.
---------------------------------------------------------------------------

    4. TCCC has proposed that the VEBA purchase a non-cancellable 
accident and health medical stop-loss policy from the Prudential 
Insurance Company of America (Prudential) to insure benefits under the 
Plan as follows. This policy would pay the sum of all individual 
participant claims that are greater than a certain amount (the 
Attachment Point) in any year, but no more than an upper limit (the 
Upper Corridor Limit) for certain retirees (other than those who have 
either selected an HMO coverage option or are younger than age 55 on 
January 1, 2008) and their dependents as of the purchase date of the 
policy (the Covered Group). The Covered Group consists of approximately 
4,000 individuals (each of whom will be

[[Page 68108]]

specifically identified in an attachment to the stop-loss policy). At 
the time the exemption application for the subject transaction was 
filed, it was anticipated that for those members of the Covered Group 
who are under age 65, the Attachment Point would be $100 and the Upper 
Corridor Limit would be $5,800. For those members of the Covered Group 
aged 65 or higher, the Attachment Point would be $100 and the Upper 
Corridor Limit would be $3,500. (The range of covered benefits between 
the Attachment Point and the Upper Corridor Limit is referred to as 
``the Corridor.'') These coverage limits would apply per participant, 
per year. Claims below the Attachment Point would continue to be paid 
out of TCCC's general assets. It was also anticipated that TCCC through 
the VEBA, would pay a premium to Prudential of approximately $185.3 
million to cover or insure benefits within the Corridor for the 
lifetime of the members of the Covered Group.\8\
---------------------------------------------------------------------------

    \8\ The Upper Corridor Limits were based on an expected premium 
of $185.3 million for the stop-loss policy. However, since the 2006 
TCCC contribution of $216 million to the VEBA, approximately $50 
million in Plan benefits have been paid from the VEBA. Further, the 
VEBA has suffered approximately $23 million in investment losses. 
Thus, it is anticipated that the VEBA will pay a premium lower than 
$185.3 million. As a result, the Upper Corridor Limits for members 
of the Covered Group will be reduced. Because there may be 
additional changes to the value of the VEBA's assets (including 
potential increases due to investment earnings), TCCC is unable to 
predict with certainty the exact dollar amount that the Upper 
Corridor Limits will be until the time the policy is issued. If the 
exemption proposed herein is granted, the premium will be paid at 
that time, the Upper Corridor Limits will be fixed, and the Corridor 
will be guaranteed for the lifetime of the members of the Covered 
Group irrespective of the performance of the investment markets or 
claims experience. The Department expects that TCCC will provide an 
estimate as to the expected Upper Corridor Limits by the end of the 
comment period.
---------------------------------------------------------------------------

    5. The Applicant anticipates that Prudential will enter into a 
reinsurance agreement with Red Re for 100 percent of the risks under 
the stop-loss policy. Specifically, Prudential would provide the 
medical stop-loss insurance policy for the Plan's benefit risks in 
connection with the Covered Group, but Red Re would provide reinsurance 
coverage for 100 percent of those risks pursuant to Red Re's agreement 
with Prudential. Prudential's reinsurance agreement will be ``indemnity 
only''--that is, Prudential will not be relieved of its liability for 
benefits under the Plan if Red Re is unable or unwilling to satisfy the 
liabilities arising from the reinsurance agreements. The overall 
financial strength of Prudential is rated A+ by A.M. Best.
    6. The Applicant represents that in connection with the proposed 
transaction, the Plan will pay no more than adequate consideration for 
the stop-loss insurance contracts with Prudential or any successor 
insurer. The formula that Prudential and any successor insurer will use 
to calculate its premiums will be similar to the formulae used by other 
insurers providing similar insurance coverages under similar insurance 
programs. Moreover, the premium charge resulting from application of 
the formula will be reasonable and comparable to the premium charged by 
the insurer and its competitors with the same rating or better, 
providing the same coverage under comparable programs of insurance. 
Finally, the Plan will not pay any commissions in connection with 
either the direct sale of insurance or the reinsurance transactions 
described herein.
    7. The Applicant represents that the subject transactions have a 
number of advantages for the Plan. Specifically, TCCC will 
substantially improve benefits for members of the Covered Group by 
converting the currently revocable commitment to provide benefits into 
a fully paid-for insured arrangement that will provide them with 
benefits under the Plan for the rest of their lives. Currently, TCCC 
has reserved the right to reduce benefits or terminate the Plan at any 
time. Thus, for any claims not yet accrued, Plan participants do not 
have a guarantee or expectation that benefits will be paid. However, 
the VEBA's purchase of the non-cancellable medical stop-loss policy 
from Prudential will fully fund a contract insuring that members of the 
Covered Group will receive all benefits within the Corridor for the 
rest of their lives. If TCCC were to exercise its right to reduce 
benefits or terminate the Plan as to other participants who are not 
members of the Covered Group sometime in the future, members of the 
Covered Group would continue to receive all benefit payments within the 
Corridor. TCCC represents that this benefit enhancement is not required 
of TCCC as part of a legal proceeding, court order or judgment, or by 
State law.
    8. In connection with this exemption request, Red Re engaged the 
services of U.S. Trust Company, N.A. (U.S. Trust), as the Independent 
Fiduciary for the Plan.\9\ U.S. Trust is a national banking association 
formed under the laws of the United States and authorized to exercise 
all fiduciary powers that may be exercised by State banks and trust 
companies under the laws of the State of Connecticut. In May, 2009, 
BOA's Special Fiduciary Services business was acquired by Evercore 
Trust Company, N.A. (Evercore). All of the BOA personnel who were part 
of the Special Fiduciary Services business joined Evercore. TCCC gave 
its written consent to the transfer of its account from BOA to 
Evercore. Thus, for purposes of the exemption proposed herein, the 
Independent Fiduciary is Evercore.
---------------------------------------------------------------------------

    \9\ The Independent Fiduciary was, in fact, Bank of America, 
N.A. (BOA), which had acquired U.S. Trust effective July 1, 2007. 
BOA continued to do business under the U.S. Trust name.
---------------------------------------------------------------------------

    9. Evercore has represented that it meets the following 
requirements to be an independent fiduciary:
    (a) Evercore is not directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with TCCC or Red Re;
    (b) Evercore is not an officer, director, employee of, or partner 
in TCCC or Red Re (or any Affiliate of either);
    (c) Evercore is not a corporation or partnership in which TCCC or 
Red Re has an ownership interest or is a partner;
    (d) Evercore does not own any shares of TCCC or Red Re, or any of 
their Affiliates, for its own account;
    (e) Evercore was not a fiduciary to the Plan prior to its 
appointment in connection with the transactions described herein;
    (f) Evercore has acknowledged, in writing, its acceptance of 
fiduciary obligations, and has agreed not to participate in any 
decision with respect to any transaction in which it would have an 
interest that might affect its judgment as a fiduciary;
    (g) The gross income received by Evercore from TCCC or Red Re and 
their Affiliates (including amounts received for services as the 
Independent Fiduciary for the Plans under any prohibited transaction 
exemption granted by the Department), does not exceed 3 percent of 
Evercore's annual gross income from all sources for its prior fiscal 
year; and
    (h) Evercore, and any partnership or corporation of which Evercore 
is an officer, director, or ten (10) percent or more partner or 
shareholder, will not acquire any property from, sell any property to, 
or borrow funds from TCCC or Red Re while it is the Independent 
Fiduciary for the Plan and for a period of six months thereafter.
    10. Evercore represents that: (i) Red Re is licensed to do business 
in the State of South Carolina; and (ii) Red Re obtained a Certificate 
of Authority from the State of South Carolina on April 25, 2006 which 
has neither been revoked nor suspended. Red Re has undergone an audit 
examination by Ernst & Young LLP, certified CPAs, for the year ended

[[Page 68109]]

December 31, 2008. Evercore and its legal advisor have reviewed a copy 
of the audit report, and are satisfied there are no issues outstanding. 
Evercore has determined that Red Re is licensed to conduct reinsurance 
transactions by a State whose law requires that an actuarial review of 
reserves be conducted annually by an independent firm of actuaries, and 
reported to the appropriate regulatory authority.
    11. The Independent Fiduciary has represented that the Plan will 
pay no more than adequate consideration for the insurance contract. In 
addition, the Plan will pay no commissions with respect to the direct 
sale of the insurance contract or the reinsurance thereof.
    12. The Independent Fiduciary has reviewed the proposed 
transactions and determined that they will provide an important 
financial benefit to the Plan's participants and beneficiaries. TCCC 
has reserved the right to modify or eliminate its retiree health 
benefit. By virtue of the proposed transactions, TCCC will effectively 
vest the Covered Group with medical benefits in an amount equal to the 
Corridor.\10\ The terms of the arrangement provide that Prudential 
cannot cancel or terminate the coverage, and this will help assure 
benefit payments, within the coverage parameters, to participants and 
beneficiaries. Thus, the Independent Fiduciary has concluded that this 
protection of the retirees' health benefits provides an immediately and 
objectively determined benefit to the Plan's participants and 
beneficiaries as of the initial year of the contract.
---------------------------------------------------------------------------

    \10\ The Applicant states that since the right of members of the 
Covered Group to have claims within the Corridor paid for the rest 
of their lives will be guaranteed under the proposed transaction, it 
may be said that members of the Covered Group have a vested right to 
receive benefits in that amount. However, the guarantee is to dollar 
amounts, not particular types of medical procedures and treatments 
that may be covered under the Plan.
---------------------------------------------------------------------------

    13. In designing and implementing the proposed transactions, TCCC 
worked with Towers Perrin (TP), one of the largest benefits, insurance 
and reinsurance consulting firms in the world, with extensive 
experience in captive reinsurance transactions. TP has advised TCCC 
that non-cancellable medical stop-loss insurance is not a new product, 
but that it is offered in the market by only one insurer, John Hancock, 
as a method to finance post-retirement medical liabilities. Prudential 
is the only insurer that has developed an insurance product for such 
liabilities that couples a stop-loss policy with captive reinsurance. 
TP introduced the same concept to three other ``A''-rated insurers, but 
none were interested in offering the coverage. TP compared the standard 
cost parameters of the John Hancock stop-loss policy to the Prudential/
Captive product and determined that the latter has lower costs for the 
Plan, as measured by discounted cash flows over 50 years. TP also 
evaluated the costs and risks of other financing options including: 
paying benefits from the general assets of TCCC, trust-owned life 
insurance, and VEBA trusts with no insurance investments, and found 
that the Prudential/Captive product offered the lowest cost solution 
for the Plan.
    14. TP represents that this type of guaranteed, long-term health 
insurance is not available in the market for individuals; it is only 
because Red Re is willing to assume these risks for TCCC retirees that 
the retirees can hope to obtain this valuable coverage. Thus, it is 
difficult to assign an absolute dollar amount to the value of the 
benefit enhancement. However, TP compared the value of the lifetime 
guarantee of coverage within the Corridor to the cost of an annuity 
with annual payments equal to the size of the Corridor. The Applicant 
states that from the perspective of the participant, having an annuity 
that provides cash that is equal to the amount of claims that he or she 
can expect to have paid by the proposed stop-loss insurance is the same 
as having an insurer who is obligated to pay those same claims pursuant 
to a contract for health insurance. TP represents that the average 
expected claims would be approximately $10,000 per year for retirees 
under age 65, and approximately $5,000 per year for retirees over age 
65. Since the proposed coverage Corridors are $5,700 for retirees 
younger than 65 years of age and $3,400 for retirees 65 years of age 
and older,\11\ TP assumes that the participants, on average, will use 
the full Corridor to cover their claims. TP then estimated the value of 
an annuity that would provide payments equal to the amounts the average 
participant will receive in health insurance coverage under the 
proposed transactions. TP used the present value of the expected 
payment each year until death is expected. TP estimates that for an 
individual who retires at age 55 with a life expectancy of age 85, the 
present value of those payments (discounted at 4%) would be 
approximately $77,000. TP estimates that for an individual who retires 
at age 65 with a life expectancy of age 85, the present value of those 
payments (discounted at 4%) would be approximately $46,000.
---------------------------------------------------------------------------

    \11\ The exact coverage limits will be set closer to the time 
the transaction is executed.
---------------------------------------------------------------------------

    15. The Applicant represents that the policy premium charged to the 
Plan by Prudential does not include a profit or risk charge for Red Re. 
There is an assumption in Red Re's business model which anticipates an 
expected return on investments greater than the rate of 4% used to 
price the stop-loss policy. Notably, that investment ``profit'' may 
turn out to be an investment ``loss'' to Red Re if investment returns 
are less than 4%. Moreover, Red Re is taking the risk that there will 
not be mortality improvements that would cause benefits to be paid for 
longer periods than expected. Both scenarios present substantial risks, 
which are not accounted for in the pricing by risk charges. 
Nonetheless, TCCC and Red Re both represent that to the extent Red Re 
earns any profit due to favorable claims experience, such profit will 
be returned to the Plan.
    16. The Applicant represents that the premiums paid to Red Re by 
Prudential pursuant to the proposed reinsurance arrangement, plus any 
investment earnings thereon, will be held in a New York Regulation 114 
Trust (114 Trust). The 114 Trust is a three-way investment trust 
agreement involving the ceding insurance company (i.e., Prudential), a 
financial institution (the trustee), and the reinsurer (i.e., Red 
Re).\12\ The 114 Trust is a method for securing the obligations of an 
insurance company that cedes reserves to reinsurers not admitted in the 
State of the ceding company. It is named after Regulation 114 of the 
Official Compilation of Codes, Rules and Regulations of the New York 
State Insurance Department (11 NYCRR 4). Under Regulation 114, the 
reinsurer (Red Re) establishes a trust of which the ceding company 
(Prudential) is the beneficiary; the beneficiary is entitled to demand 
assets from the trust at any time to satisfy the reinsurer's 
obligations under the reinsurance agreement. Regulation 114 prohibits 
the assets in a 114 Trust from being loaned to any affiliate of the 
reinsurer. Thus, the Applicant represents that no loans will be made by 
Red Re to TCCC using assets held by Red Re as a result of the proposed 
transaction.
---------------------------------------------------------------------------

    \12\ In this proposed exemption, the Department is expressing no 
opinion on whether the assets of the 114 Trust constitute Plan 
assets.
---------------------------------------------------------------------------

    17. TCCC has represented that it will retain the option of making 
benefit payments out of its general assets and may then seek 
reimbursement from the VEBA. TCCC represents that many claims paid 
under the Plan will be paid

[[Page 68110]]

directly by TCCC without expectation of any reimbursement from the 
VEBA. For example, where a claim is paid that falls outside the 
Corridor, TCCC will likely pay the claim out of its general assets 
without seeking any reimbursement from the VEBA. However, because the 
VEBA, and not TCCC, will be the policyholder of the Stop-Loss Policy, 
claims within the Corridor must be submitted by the VEBA to Prudential, 
which will in turn submit them to Red Re. In order to avoid the need 
for a separate administrative mechanism (under which some claims would 
be paid directly by TCCC while others are paid directly by the VEBA), 
TCCC will pay such claims and then submit them to the VEBA for 
reimbursement (with the VEBA submitting them to Prudential in turn).
    The Applicant represents that to the extent that this arrangement 
might be considered an extension of credit between a party in interest 
and a Plan, TCCC will fully comply with the provisions of Prohibited 
Transaction Exemption (PTE) 80-26, as amended (71 FR 17917, April 7, 
2006). In particular, no interest or fee will be charged to the Plan 
when TCCC pays a claim and later seeks reimbursement. Further, the 
proceeds of such extension of credit will be used only to pay operating 
expenses of the Plan, including benefits paid in accordance with the 
terms of the Plan. Such loan or extension of credit would be unsecured, 
will not be made by an employee benefit plan, and will not be the type 
of loan described in section 408(b)(3) of the Act. It is not 
anticipated that more than 60 days will pass between the date TCCC pays 
a claim and the date the VEBA reimburses TCCC for such claim; to ensure 
compliance with the provisions of PTE 80-26 in the event unforeseen 
delay results in more than 60 days passing before reimbursement, a 
written loan agreement will be entered into setting forth the material 
terms of such extension of credit between TCCC and the Plan.\13\
---------------------------------------------------------------------------

    \13\ The Department expresses no opinion as to whether such 
proposed arrangement would be exempt under PTE 80-26.
---------------------------------------------------------------------------

    18. TCCC represents that an audit procedure will be in place to 
ensure that reimbursements received by TCCC do not exceed the amount 
due to TCCC. TCCC represents that the Plan will undergo an annual audit 
by an independent qualified public accountant that will contain the 
following: (a) A description of the process, methodology and criteria 
used to select the Plan's transactions which comprise the sample 
collected for review and an explanation of how the sample was 
objectively determined to be representative of the reimbursements made 
during the Plan year; (b) an explanation of why the number of 
transactions comprising the sample selected for review was appropriate, 
taking into account, among other things, each instance in which there 
was a specific finding that there was a reimbursement that exceeded the 
amount due to TCCC; and (c) specific findings made (without condition, 
qualification, caveat or limitation) by the independent qualified 
public accountant for each instance in which a reimbursement exceeded 
the amount due to TCCC. The audit will be completed within the time 
frame required for the timely filing of the Plan's Form 5500. A copy of 
the audit will be provided to the Independent Fiduciary within 30 days 
after the audit is received by TCCC.
    19. In summary, the Applicant represents that the proposed 
reinsurance transactions will meet the criteria of section 408(a) of 
the Act because: (a) The Plan's participants and beneficiaries are 
afforded insurance protection by Prudential, a carrier rated A or 
better by A.M. Best; (b) Red Re, which will enter into the reinsurance 
agreements with Prudential, is a sound and viable insurance company; 
(c) the protections provided to the Plan and its participants and 
beneficiaries under the proposed reinsurance transactions are based, in 
part, on those required for direct insurance by a ``captive'' insurer, 
under the conditions of Prohibited Transaction Exemption 79-41 (PTE 79-
41), 44 FR 46365 (notwithstanding certain other requirements related 
to, among other things, the amount of gross premiums or annuity 
considerations received from customers who are not related to, or 
affiliated with, the insurer); \14\ (d) the Plan's Independent 
Fiduciary, has reviewed the proposed reinsurance transaction and has 
determined that the transaction is appropriate for, and in the best 
interests of, the Plan and that there will be an immediate benefit to 
the Plan's participants as a result thereof by reason of the guaranteed 
payment of benefits in the Corridor by Prudential; and (e) the 
Independent Fiduciary will monitor compliance by the parties with the 
terms and conditions of the proposed reinsurance transaction, and will 
take whatever action is necessary and appropriate to safeguard the 
interests of the Plans and of their participants and beneficiaries.
---------------------------------------------------------------------------

    \14\ The proposal of this exemption should not be interpreted as 
an endorsement by the Department of the transactions described 
herein. The Department notes that the fiduciary responsibility 
provisions of Part 4 of Title I of the Act apply to the fiduciary's 
decision to engage in the reinsurance arrangement.
     Specifically, section 404(a)(1) of the Act requires, among 
other things, that a plan fiduciary act prudently, solely in the 
interest of the plan's participants and beneficiaries, and for the 
exclusive purpose of providing benefits to participants and 
beneficiaries when making investment decisions on behalf of the 
plan. In this regard, the Department is not providing any opinion as 
to whether a particular insurance or investment product, strategy or 
arrangement would be considered prudent or in the interests of a 
plan, as required by section 404 of the Act. The determination of 
the prudence of a particular product or arrangement must be made by 
a plan fiduciary after appropriate consideration to those facts and 
circumstances that, given the scope of such fiduciary's investment 
duties, the fiduciary knows or should know are relevant to the 
particular product or arrangement involved, including the plan's 
potential exposure to losses and the role a particular insurance or 
investment product plays in that portion of the plan's investment 
portfolio with respect to which the fiduciary has investment duties 
and responsibilities (see 29 CFR 250.404a-1).

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department, 
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telephone (202) 693-8546. (This is not a toll-free number.)

Columbia Management Advisors, LLC (Columbia, or the Applicant) and 
its Current and Future Affiliates (collectively, the Applicants), 
Located in Boston, Massachusetts.
[Application No. D-11556.]

Proposed Exemption

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

Section I--Transactions

    If the proposed exemption is granted, the restrictions of section 
406 of the Act and the sanctions resulting from the application of 
section 4975 of the Code, by reason of section 4975(c)(1)(A) through 
(F) of the Code, shall not apply to the purchase of certain securities 
(the Securities), as defined, below in Section III(i), by an Asset 
Manager, as defined, below, in Section III(d), from any person other 
than such Asset Manager, during the existence of an underwriting or 
selling syndicate with respect to such Securities, where a broker-
dealer affiliated with Columbia (the Affiliated Broker-Dealer), as 
defined, below, in Section III(b), is a manager or member of such 
syndicate and the Asset

[[Page 68111]]

Manager purchases such Securities, as a fiduciary:
    (a) On behalf of an employee benefit plan or employee benefit plans 
(Client Plan(s)), as defined, below, in Section III(f); or
    (b) On behalf of Client Plans, and/or In-House Plans, as defined, 
below, in Section III(m), which are invested in a pooled fund or in 
pooled funds (Pooled Fund(s)), as defined, below, in Section III(g); 
provided that the conditions as set forth, below, in Section II, are 
satisfied (An affiliated underwriter transaction (AUT)).\15\
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    \15\ For purposes of this proposed exemption an In-House Plan 
may engage in AUTs only through investment in a Pooled Fund.
---------------------------------------------------------------------------

Section II--Conditions

    The proposed exemption is conditioned upon adherence to the 
material facts and representations described herein and upon 
satisfaction of the following requirements:
    (a)(1) The Securities to be purchased are either--
    (i) Part of an issue registered under the Securities Act of 1933 
(the 1933 Act) (15 U.S.C. 77a et seq.). If the Securities to be 
purchased are part of an issue that is exempt from such registration 
requirement, such Securities:
    (A) Are issued or guaranteed by the United States or by any person 
controlled or supervised by and acting as an instrumentality of the 
United States pursuant to authority granted by the Congress of the 
United States,
    (B) Are issued by a bank,
    (C) Are exempt from such registration requirement pursuant to a 
Federal statute other than the 1933 Act, or
    (D) Are the subject of a distribution and are of a class which is 
required to be registered under section 12 of the Securities Exchange 
Act of 1934 (the 1934 Act) (15 U.S.C. 781), and are issued by an issuer 
that has been subject to the reporting requirements of section 13 of 
the 1934 Act (15 U.S.C. 78m) for a period of at least ninety (90) days 
immediately preceding the sale of such Securities and that has filed 
all reports required to be filed thereunder with the Securities and 
Exchange Commission (SEC) during the preceding twelve (12) months; or
    (ii) Part of an issue that is an Eligible Rule 144A Offering, as 
defined in SEC Rule 10f-3 (17 CFR 270.10f-3(a)(4)).\16\ Where the 
Eligible Rule 144A Offering of the Securities is of equity securities, 
the offering syndicate shall obtain a legal opinion regarding the 
adequacy of the disclosure in the offering memorandum;
---------------------------------------------------------------------------

    \16\ SEC Rule 10f-3(a)(4), 17 CFR 270.10f-3(a)(4), states that 
the term ``Eligible Rule 144A Offering'' means an offering of 
securities that meets the following conditions:
     (i) The securities are offered or sold in transactions exempt 
from registration under section 4(2) of the Securities Act of 1933 
[15 U.S.C. 77d(d)], rule 144A thereunder [Sec.  230.144A of this 
chapter], or rules 501-508 thereunder [Sec. Sec.  230.501-230-508 of 
this chapter];
     (ii) The securities are sold to persons that the seller and any 
person acting on behalf of the seller reasonably believe to include 
qualified institutional buyers, as defined in Sec.  230.144A(a)(1) 
of this chapter; and
     (iii) The seller and any person acting on behalf of the seller 
reasonably believe that the securities are eligible for resale to 
other qualified institutional buyers pursuant to Sec.  230.144A of 
this chapter.
---------------------------------------------------------------------------

    (2) The Securities to be purchased are purchased prior to the end 
of the first day on which any sales are made, pursuant to that 
offering, at a price that is not more than the price paid by each other 
purchaser of the Securities in that offering or in any concurrent 
offering of the Securities, except that--
    (i) If such Securities are offered for subscription upon exercise 
of rights, they may be purchased on or before the fourth day preceding 
the day on which the rights offering terminates; or
    (ii) If such Securities are debt securities, they may be purchased 
at a price that is not more than the price paid by each other purchaser 
of the Securities in that offering or in any concurrent offering of the 
Securities and may be purchased on a day subsequent to the end of the 
first day on which any sales are made, pursuant to that offering, 
provided that the interest rates, as of the date of such purchase, on 
comparable debt securities offered to the public subsequent to the end 
of the first day on which any sales are made and prior to the purchase 
date are less than the interest rate of the debt Securities being 
purchased; and
    (3) The Securities to be purchased are offered pursuant to an 
underwriting or selling agreement under which the members of the 
syndicate are committed to purchase all of the Securities being 
offered, except if--
    (i) Such Securities are purchased by others pursuant to a rights 
offering; or
    (ii) Such Securities are offered pursuant to an over-allotment 
option.
    (b) The issuer of the Securities to be purchased pursuant to this 
proposed exemption must have been in continuous operation for not less 
than three years, including the operation of any predecessors, unless 
the Securities to be purchased are--
    (1) Non-convertible debt securities rated in one of the four 
highest rating categories by Standard & Poor's Rating Services, Moody's 
Investors Service, Inc., FitchRatings, Inc., Dominion Bond Rating 
Service Limited, Dominion Bond Rating Service, Inc., or any successors 
thereto (collectively, the Rating Organizations), provided that none of 
the Rating Organizations rates such Securities in a category lower than 
the fourth highest rating category; or
    (2) Debt securities issued or fully guaranteed by the United States 
or by any person controlled or supervised by and acting as an 
instrumentality of the United States pursuant to authority granted by 
the Congress of the United States; or
    (3) Debt securities which are fully guaranteed by a person (the 
Guarantor) that has been in continuous operation for not less than 
three years, including the operation of any predecessors, provided that 
such Guarantor has issued other securities registered under the 1933 
Act; or if such Guarantor has issued other securities which are exempt 
from such registration requirement, such Guarantor has been in 
continuous operation for not less than three years, including the 
operation of any predecessors, and such Guarantor is:
    (a) A bank; or
    (b) An issuer of securities which are exempt from such registration 
requirement, pursuant to a Federal statute other than the 1933 Act; or
    (c) An issuer of securities that are the subject of a distribution 
and are of a class which is required to be registered under section 12 
of the 1934 Act (15 U.S.C. 781), and are issued by an issuer that has 
been subject to the reporting requirements of section 13 of the 1934 
Act (15 U.S.C. 78m) for a period of at least ninety (90) days 
immediately preceding the sale of such securities and that has filed 
all reports required to be filed thereunder with the SEC during the 
preceding twelve (12) months.
    (c) The aggregate amount of Securities of an issue purchased, 
pursuant to this proposed exemption, by the Asset Manager with: (i) The 
assets of all Client Plans; and (ii) The assets, calculated on a pro-
rata basis, of all Client Plans and In-House Plans investing in Pooled 
Funds managed by the Asset Manager; and (iii) The assets of plans to 
which the Asset Manager renders investment advice within the meaning of 
29 CFR 2510.3-21(c) does not exceed:
    (1) Ten percent (10%) of the total amount of the Securities being 
offered in an issue, if such Securities are equity securities;
    (2) Thirty-five percent (35%) of the total amount of the Securities 
being offered in an issue, if such Securities are debt securities rated 
in one of the four highest rating categories by at least one of the 
Rating Organizations, provided that none of the Rating Organizations 
rates such Securities in a category lower

[[Page 68112]]

than the fourth highest rating category; or
    (3) Twenty-five percent (25%) of the total amount of the Securities 
being offered in an issue, if such Securities are debt securities rated 
in the fifth or sixth highest rating categories by at least one of the 
Rating Organizations; provided that none of the Rating Organizations 
rates such Securities in a category lower than the sixth highest rating 
category; and
    (4) The assets of any single Client Plan (and the assets of any 
Client Plans and any In-House Plans investing in Pooled Funds) may not 
be used to purchase any Securities being offered, if such Securities 
are debt securities rated lower than the sixth highest rating category 
by any of the Rating Organizations;
    (5) Notwithstanding the percentage of Securities of an issue 
permitted to be acquired, as set forth in Section II(c)(1), (2), and 
(3), above, of this proposed exemption, the amount of Securities in any 
issue (whether equity or debt securities) purchased, pursuant to this 
proposed exemption, by the Asset Manager on behalf of any single Client 
Plan, either individually or through investment, calculated on a pro-
rata basis, in a Pooled Fund may not exceed three percent (3%) of the 
total amount of such Securities being offered in such issue, and;
    (6) If purchased in an Eligible Rule 144A Offering, the total 
amount of the Securities being offered for purposes of determining the 
percentages, described, above, in Section II(c)(1)-(3) and (5), is the 
total of:
    (i) The principal amount of the offering of such class of 
Securities sold by underwriters or members of the selling syndicate to 
``qualified institutional buyers'' (QIBs), as defined in SEC Rule 144A 
(17 CFR 230.144A(a)(1)); plus
    (ii) The principal amount of the offering of such class of 
Securities in any concurrent public offering.
    (d) The aggregate amount to be paid by any single Client Plan in 
purchasing any Securities which are the subject of this proposed 
exemption, including any amounts paid by any Client Plan or In-House 
Plan in purchasing such Securities through a Pooled Fund, calculated on 
a pro-rata basis, does not exceed three percent (3%) of the fair market 
value of the net assets of such Client Plan or In-House Plan, as of the 
last day of the most recent fiscal quarter of such Client Plan or In-
House Plan prior to such transaction.
    (e) The covered transactions are not part of an agreement, 
arrangement, or understanding designed to benefit the Asset Manager or 
its affiliate.
    (f) The Affiliated Broker-Dealer does not receive, either directly, 
indirectly, or through designation, any selling concession, or other 
compensation or consideration that is based upon the amount of 
Securities purchased by any single Client Plan, or that is based on the 
amount of Securities purchased by Client Plans or In-House Plans 
through Pooled Funds, pursuant to this proposed exemption. In this 
regard, the Affiliated Broker-Dealer may not receive, either directly 
or indirectly, any compensation or consideration that is attributable 
to the fixed designations generated by purchases of the Securities by 
the Asset Manager on behalf of any single Client Plan or any Client 
Plan or In-House Plan in Pooled Funds.
    (g)(1) The amount the Affiliated Broker-Dealer receives in 
management, underwriting, or other compensation or consideration is not 
increased through an agreement, arrangement, or understanding for the 
purpose of compensating the Affiliated Broker-Dealer for foregoing any 
selling concessions for those Securities sold pursuant to this proposed 
exemption. Except as described above, nothing in this Section II(g)(1) 
shall be construed as precluding the Affiliated Broker-Dealer from 
receiving management fees for serving as manager of the underwriting or 
selling syndicate, underwriting fees for assuming the responsibilities 
of an underwriter in the underwriting or selling syndicate, or other 
compensation or consideration that is not based upon the amount of 
Securities purchased by the Asset Manager on behalf of any single 
Client Plan, or on behalf of any Client Plan or In-House Plan 
participating in Pooled Funds, pursuant to this proposed exemption; and
    (2) The Affiliated Broker-Dealer shall provide to the Asset Manager 
a written certification, dated and signed by an officer of the 
Affiliated Broker-Dealer, stating the amount that the Affiliated 
Broker-Dealer received in compensation or consideration during the past 
quarter, in connection with any offerings covered by this proposed 
exemption, was not adjusted in a manner inconsistent with Section 
II(e), (f), or (g) of this proposed exemption.
    (h) The covered transactions are performed under a written 
authorization executed in advance by an independent fiduciary of each 
single Client Plan (the Independent Fiduciary), as defined, below, in 
Section III(h).
    (i) Prior to the execution by an Independent Fiduciary of a single 
Client Plan of the written authorization described, above, in Section 
II(h), the following information and materials (which may be provided 
electronically) must be provided by the Asset Manager to such 
Independent Fiduciary.
    (1) A copy of the Notice of Proposed Exemption (the Notice) and a 
copy of the final exemption (the Grant) as published in the Federal 
Register, provided that the Notice and the Grant are supplied 
simultaneously; and
    (2) Any other reasonably available information regarding the 
covered transactions that such Independent Fiduciary requests the Asset 
Manager to provide.
    (j) Subsequent to the initial authorization by an Independent 
Fiduciary of a single Client Plan permitting the Asset Manager to 
engage in the covered transactions on behalf of such single Client 
Plan, the Asset Manager will continue to be subject to the requirement 
to provide within a reasonable period of time any reasonably available 
information regarding the covered transactions that the Independent 
Fiduciary requests the Asset Manager to provide.
    (k)(1) In the case of an existing employee benefit plan investor 
(or existing In-House Plan investor, as the case may be) in a Pooled 
Fund, such Pooled Fund may not engage in any covered transactions 
pursuant to this proposed exemption, unless the Asset Manager provides 
the written information, as described, below, and within the time 
period described, below, in this Section II(k)(2), to the Independent 
Fiduciary of each such plan participating in such Pooled Fund (and to 
the fiduciary of each such In-House Plan participating in such Pooled 
Fund).
    (2) The following information and materials (which may be provided 
electronically) shall be provided by the Asset Manager not less than 45 
days prior to such Asset Manager engaging in the covered transactions 
on behalf of a Pooled Fund, pursuant to this proposed exemption, and 
provided further that the information described below, in this Section 
II(k)(2)(i) and (iii) is supplied simultaneously:
    (i) A notice of the intent of such Pooled Fund to purchase 
Securities pursuant to this proposed exemption, a copy of this Notice, 
and a copy of the Grant, as published in the Federal Register;
    (ii) Any other reasonably available information regarding the 
covered transactions that the Independent Fiduciary of a plan (or 
fiduciary of an In-House Plan) participating in a Pooled Fund requests 
the Asset Manager to provide; and

[[Page 68113]]

    (iii) A termination form expressly providing an election for the 
Independent Fiduciary of a plan (or fiduciary of an In-House Plan) 
participating in a Pooled Fund to terminate such plan's (or In-House 
Plan's) investment in such Pooled Fund without penalty to such plan (or 
In-House Plan). Such form shall include instructions specifying how to 
use the form. Specifically, the instructions will explain that such 
plan (or such In-House Plan) has an opportunity to withdraw its assets 
from a Pooled Fund for a period of no more than 30 days after such 
plan's (or such In-House Plan's) receipt of the initial notice of 
intent, described, above, in Section II(k)(2)(i), and that the failure 
of the Independent Fiduciary of such plan (or fiduciary of such In-
House Plan) to return the termination form to the Asset Manager in the 
case of a plan (or In-House Plan) participating in a Pooled Fund by the 
specified date shall be deemed to be an approval by such plan (or such 
In-House Plan) of its participation in the covered transactions as an 
investor in such Pooled Fund.
    Further, the instructions will identify the Asset Manager and the 
Affiliated Broker-Dealer and will provide the address of the Asset 
Manager. The instructions will state that this proposed exemption may 
be unavailable, unless the fiduciary of each plan participating in the 
covered transactions as an investor in a Pooled Fund is, in fact, 
independent of the Asset Manager and the Affiliated Broker-Dealer. The 
instructions will also state that the fiduciary of each such plan must 
advise the Asset Manager, in writing, if it is not an ``Independent 
Fiduciary,'' as that term is defined, below, in Section III(h).
    For purposes of this Section II(k), the requirement that the 
fiduciary responsible for the decision to authorize the transactions 
described, above, in Section I of this proposed exemption for each plan 
be independent of the Asset Manager shall not apply in the case of an 
In-House Plan.
    (l)(1) In the case of each plan (and in the case of each In-House 
Plan) whose assets are proposed to be invested in a Pooled Fund after 
such Pooled Fund has satisfied the conditions set forth in this 
proposed exemption to engage in the covered transactions, the 
investment by such plan (or by such In-House Plan) in the Pooled Fund 
is subject to the prior written authorization of an Independent 
Fiduciary representing such plan (or the prior written authorization by 
the fiduciary of such In-House Plan, as the case may be), following the 
receipt by such Independent Fiduciary of such plan (or by the fiduciary 
of such In-House Plan, as the case may be) of the written information 
described, above, in Section II(k)(2)(i) and (ii), provided that the 
Notice and the Grant, described above in Section II(k)(2)(i), are 
provided simultaneously.
    (2) For purposes of this Section II(l), the requirement that the 
fiduciary responsible for the decision to authorize the transactions 
described, above, in Section I of this proposed exemption for each plan 
proposing to invest in a Pooled Fund be independent of the Asset 
Manager and its affiliates shall not apply in the case of an In-House 
Plan.
    (m) Subsequent to the initial authorization by an Independent 
Fiduciary of a plan (or by a fiduciary of an In-House Plan) to invest 
in a Pooled Fund that engages in the covered transactions, the Asset 
Manager will continue to be subject to the requirement to provide 
within a reasonable period of time any reasonably available information 
regarding the covered transactions that the Independent Fiduciary of 
such plan (or the fiduciary of such In-House Plan, as the case may be) 
requests the Asset Manager to provide.
    (n) At least once every three months, and not later than 45 days 
following the period to which such information relates, the Asset 
Manager shall furnish:
    (1) In the case of each single Client Plan that engages in the 
covered transactions, the information described, below, in this Section 
II(n)(3)-(7), to the Independent Fiduciary of each such single Client 
Plan.
    (2) In the case of each Pooled Fund in which a Client Plan (or in 
which an In-House Plan) invests, the information described, below, in 
this Section II(n)(3)-(6) and (8), to the Independent Fiduciary of each 
such Client Plan (and to the fiduciary of each such In-House Plan) 
invested in such Pooled Fund.
    (3) A quarterly report (the Quarterly Report) (which may be 
provided electronically) which discloses all the Securities purchased 
pursuant to this proposed exemption during the period to which such 
report relates on behalf of the Client Plan, In-House Plan, or Pooled 
Fund to which such report relates, and which discloses the terms of 
each of the transactions described in such report, including:
    (i) The type of Securities (including the rating of any Securities 
which are debt securities) involved in each transaction;
    (ii) The price at which the Securities were purchased in each 
transaction;
    (iii) The first day on which any sale was made during the offering 
of the Securities;
    (iv) The size of the issue of the Securities involved in each 
transaction;
    (v) The number of Securities purchased by the Asset Manager for the 
Client Plan, In-House Plan, or Pooled Fund to which the transaction 
relates;
    (vi) The identity of the underwriter from whom the Securities were 
purchased for each transaction;
    (vii) The underwriting spread in each transaction (i.e., the 
difference, between the price at which the underwriter purchases the 
Securities from the issuer and the price at which the Securities are 
sold to the public);
    (viii) The price at which any of the Securities purchased during 
the period to which such report relates were sold; and
    (ix) The market value at the end of the period to which such report 
relates of the Securities purchased during such period and not sold;
    (4) The Quarterly Report contains:
    (i) A representation that the Asset Manager has received a written 
certification signed by an officer of the Affiliated Broker-Dealer, as 
described, above, in Section II(g)(2), affirming that, as to each AUT 
covered by this proposed exemption during the past quarter, the 
Affiliated Broker-Dealer acted in compliance with Section II(e), (f), 
and (g) of this proposed exemption, and
    (ii) A representation that copies of such certifications will be 
provided upon request;
    (5) A disclosure in the Quarterly Report that states that any other 
reasonably available information regarding a covered transaction that 
an Independent Fiduciary (or fiduciary of an In-House Plan) requests 
will be provided, including, but not limited to:
    (i) The date on which the Securities were purchased on behalf of 
the Client Plan (or the In-House Plan) to which the disclosure relates 
(including Securities purchased by Pooled Funds in which such Client 
Plan (or such In-House Plan) invests);
    (ii) The percentage of the offering purchased on behalf of all 
Client Plans (and the pro-rata percentage purchased on behalf of Client 
Plans and In-House Plans investing in Pooled Funds); and
    (iii) The identity of all members of the underwriting syndicate;
    (6) The Quarterly Report discloses any instance during the past 
quarter where the Asset Manager was precluded for any period of time 
from selling Securities purchased under this proposed exemption in that 
quarter because of its status as an affiliate of an Affiliated Broker-
Dealer and the reason for this restriction;

[[Page 68114]]

    (7) Explicit notification, prominently displayed in each Quarterly 
Report sent to the Independent Fiduciary of each single Client Plan 
that engages in the covered transactions that the authorization to 
engage in such covered transactions may be terminated, without penalty 
to such single Client Plan, within five (5) days after the date that 
the Independent Fiduciary of such single Client Plan informs the person 
identified in such notification that the authorization to engage in the 
covered transactions is terminated; and
    (8) Explicit notification, prominently displayed in each Quarterly 
Report sent to the Independent Fiduciary of each Client Plan (and to 
the fiduciary of each In-House Plan) that engages in the covered 
transactions through a Pooled Fund that the investment in such Pooled 
Fund may be terminated, without penalty to such Client Plan (or such 
In-House Plan), within such time as may be necessary to effect the 
withdrawal in an orderly manner that is equitable to all withdrawing 
plans and to the non-withdrawing plans, after the date that the 
Independent Fiduciary of such Client Plan (or the fiduciary of such In-
House Plan, as the case may be) informs the person identified in such 
notification that the investment in such Pooled Fund is terminated.
    (o) For purposes of engaging in covered transactions, each Client 
Plan (and each In-House Plan) shall have total net assets with a value 
of at least $50 million (the $50 Million Net Asset Requirement). For 
purposes of engaging in covered transactions involving an Eligible Rule 
144A Offering, each Client Plan (and each In-House Plan) shall have 
total net assets of at least $100 million in securities of issuers that 
are not affiliated with such Client Plan (or such In-House Plan, as the 
case may be) (the $100 Million Net Asset Requirement).
    For purposes of a Pooled Fund engaging in covered transactions, 
each Client Plan (and each In-House Plan) in such Pooled Fund shall 
have total net assets with a value of at least $50 million. 
Notwithstanding the foregoing, if each such Client Plan (and each such 
In-House Plan) in such Pooled Fund does not have total net assets with 
a value of at least $50 million, the $50 Million Net Asset Requirement 
will be met if 50 percent (50%) or more of the units of beneficial 
interest in such Pooled Fund are held by Client Plans (or by In-House 
Plans) each of which has total net assets with a value of at least $50 
million. For purposes of a Pooled Fund engaging in covered transactions 
involving an Eligible Rule 144A Offering, each Client Plan (and each 
In-House Plan) in such Pooled Fund shall have total net assets of at 
least $100 million in securities of issuers that are not affiliated 
with such Client Plan (or such In-House Plan, as the case may be). 
Notwithstanding the foregoing, if each such Client Plan (and each such 
In-House Plan) in such Pooled Fund does not have total net assets of at 
least $100 million in securities of issuers that are not affiliated 
with such Client Plan (or In-House Plan, as the case may be), the $100 
Million Net Asset Requirement will be met if 50 percent (50%) or more 
of the units of beneficial interest in such Pooled Fund are held by 
Client Plans (or by In-House Plans) each of which have total net assets 
of at least $100 million in securities of issuers that are not 
affiliated with such Client Plan (or such In-House Plan, as the case 
may be), and the Pooled Fund itself qualifies as a QIB, as determined 
pursuant to SEC Rule 144A (17 CFR 230.144A(a)(F)).
    For purposes of the net asset requirements described above, in this 
Section II(o), where a group of Client Plans is maintained by a single 
employer or controlled group of employers, as defined in section 
407(d)(7) of the Act, the $50 Million Net Asset Requirement (or in the 
case of an Eligible Rule 144A Offering, the $100 Million Net Asset 
Requirement) may be met by aggregating the assets of such Client Plans, 
if the assets of such Client Plans are pooled for investment purposes 
in a single master trust.
    (p) The Asset Manager qualifies as a ``qualified professional asset 
manager'' (QPAM), as that term is defined under Part V(a) of PTE 84-14. 
Further, the Asset Manager, which qualifies as a QPAM, must also have 
total client assets under its management and control in excess of $5 
billion, as of the last day of its most recent fiscal year and 
shareholders' or partners' equity in excess of $1 million.
    (q) No more than 20 percent of the assets of a Pooled Fund at the 
time of a covered transaction are comprised of assets of In-House Plans 
for which the Asset Manager or the Affiliated Broker-Dealer exercises 
investment discretion.
    (r) The Asset Manager and the Affiliated Broker-Dealer, as 
applicable, maintain, or cause to be maintained, for a period of six 
(6) years from the date of any covered transaction such records as are 
necessary to enable the persons, described, below, in Section II(s), to 
determine whether the conditions of this proposed exemption have been 
met, except that--
    (1) No party in interest with respect to a plan which engages in 
the covered transactions, other than the Asset Manager and the 
Affiliated Broker-Dealer, as applicable, shall be subject to a civil 
penalty under section 502(i) of the Act or the taxes imposed by section 
4975(a) and (b) of the Code, if such records are not maintained, or not 
available for examination, as required, below, by Section II(s); and
    (2) A separate prohibited transaction shall not be considered to 
have occurred solely because, due to circumstances beyond the control 
of the Asset Manager, or the Affiliated Broker-Dealer, as applicable, 
such records are lost or destroyed prior to the end of the six-year 
period.
    (s)(1) Except as provided, below, in Section II(s)(2), and 
notwithstanding any provisions of subsections (a)(2) and (b) of section 
504 of the Act, the records referred to above, in Section II(r), are 
unconditionally available at their customary location for examination 
during normal business hours by--
    (i) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service, or the SEC; or
    (ii) Any fiduciary of any plan that engages in the covered 
transactions, or any duly authorized employee or representative of such 
fiduciary; or
    (iii) Any employer of participants and beneficiaries and any 
employee organization whose members are covered by a plan that engages 
in the covered transactions, or any authorized employee or 
representative of these entities; or
    (iv) Any participant or beneficiary of a plan that engages in the 
covered transactions, or duly authorized employee or representative of 
such participant or beneficiary;
    (2) None of the persons described above, in Section II(s)(1)(ii)-
(iv), shall be authorized to examine trade secrets of the Asset 
Manager, or the Affiliated Broker-Dealer, or commercial or financial 
information which is privileged or confidential; and
    (3) Should the Asset Manager or the Affiliated Broker-Dealer refuse 
to disclose information on the basis that such information is exempt 
from disclosure, pursuant to Section II(s)(2) above, the Asset Manager 
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.

Section III--Definitions

    (a) The term, ``the Applicant,'' means Columbia Management 
Advisors, LLC.
    (b) The term, ``Affiliated Broker-Dealer,'' means any broker-dealer 
affiliate, as ``affiliate'' is defined, below, in Section III(c), of 
the Applicant, as

[[Page 68115]]

``Applicant'' is defined, above, in Section III(a), that meets the 
requirements of this proposed exemption. Such Affiliated Broker-Dealer 
may participate in an underwriting or selling syndicate as a manager or 
member. The term, ``manager,'' with respect to a syndicate, means any 
member of an underwriting or selling syndicate who, either alone or 
together with other members of the syndicate, is authorized to act on 
behalf of the members of the syndicate in connection with the sale and 
distribution of the Securities, as defined below, in Section III(i), 
being offered or who receives compensation from the members of the 
syndicate for its services as a manager of the syndicate.
    (c) The term ``affiliate'' of a person includes:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with such person;
    (2) Any officer, director, partner, employee, or relative, as 
defined in section 3(15) of the Act, of such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    For purposes of this proposed exemption, the definition of 
``affiliate'' shall include any entity that satisfies such definition 
in the future.
    (d) The term ``Asset Manager'' means Columbia or an affiliate of 
Columbia as defined above in Section III(c), which entity acts as the 
fiduciary with respect to Client Plan(s), as defined in Section III(f), 
below, or Pooled Fund(s), as defined in Section III(g), below.
    (e) The term, ``control,'' means the power to exercise a 
controlling influence over the management or policies of a person other 
than an individual.
    (f) The term, ``Client Plan(s),'' means an employee benefit plan(s) 
that is subject to the Act and/or the Code, and for which plan(s) an 
Asset Manager exercises discretionary authority or discretionary 
control respecting management or disposition of some or all of the 
assets of such plan(s), but excludes In-House Plans, as defined, below, 
in Section III(m).
    (g) The term, ``Pooled Fund(s),'' means a common or collective 
trust fund(s) or a pooled investment fund(s):
    (1) In which employee benefit plan(s) subject to the Act and/or 
Code invest,
    (2) Which is maintained by an Asset Manager, and
    (3) For which such Asset Manager exercises discretionary authority 
or discretionary control respecting the management or disposition of 
the assets of such fund(s).
    (h)(1) The term, ``Independent Fiduciary,'' means a fiduciary of a 
plan who is unrelated to, and independent of the Asset Manager and the 
Affiliated Broker-Dealer. For purposes of this proposed exemption, a 
fiduciary of a plan will be deemed to be unrelated to, and independent 
of the Asset Manager and the Affiliated Broker-Dealer, if such 
fiduciary represents in writing that neither such fiduciary, nor any 
individual responsible for the decision to authorize or terminate 
authorization for the transactions described above, in Section I of 
this proposed exemption, is an officer, director, or highly compensated 
employee (within the meaning of Code section 4975(e)(2)(H)) of the 
Asset Manager and the Affiliated Broker-Dealer, and represents that 
such fiduciary shall advise the Asset Manager within a reasonable 
period of time after any change in such facts occur.
    (2) Notwithstanding anything to the contrary in this Section 
III(h), a fiduciary of a plan is not independent:
    (i) If such fiduciary directly or indirectly controls, is 
controlled by, or is under common control with the Asset Manager or the 
Affiliated Broker Dealer;
    (ii) If such fiduciary directly or indirectly receives any 
compensation or other consideration from the Asset Manager, or the 
Affiliated Broker-Dealer for his or her own personal account in 
connection with any transaction described in this proposed exemption;
    (iii) If any officer, director, or highly compensated employee 
(within the meaning of Code section 4975(e)(2)(H)) of the Asset Manager 
responsible for the transactions described above, in Section I of this 
proposed exemption, is an officer, director, or highly compensated 
employee (within the meaning of Code section 4975(e)(2)(H)) of the 
sponsor of the plan or of the fiduciary responsible for the decision to 
authorize or terminate authorization for the transactions described 
above, in Section I. However, if such individual is a director of the 
sponsor of the plan or of the responsible fiduciary, and if he or she 
abstains from participation in: (A) The choice of the plan's investment 
manager/adviser; and (B) the decision to authorize or terminate 
authorization for transactions described above, in Section I, then this 
Section III(h)(2)(iii) shall not apply.
    (3) The term, ``officer,'' means a president, any vice president in 
charge of a principal business unit, division, or function (such as 
sales, administration, or finance), or any other officer who performs a 
policy-making function for Columbia or any affiliate thereof.
    (i) The term, ``Securities,'' shall have the same meaning as 
defined in section 2(36) of the Investment Company Act of 1940 (the 
1940 Act), as amended (15 U.S.C. 80a-2(36)(2001)). For purposes of this 
proposed exemption, mortgage-backed or other asset-backed securities 
rated by one of the Rating Organizations, as defined, below, in Section 
III(l), will be treated as debt securities.
    (j) The term, ``Eligible Rule 144A Offering,'' shall have the same 
meaning as defined in SEC Rule 10f-3(a)(4) (17 CFR 270.10f-3(a)(4)) 
under the 1940 Act).
    (k) The term, ``qualified institutional buyer,'' or the term, 
``QIB,'' shall have the same meaning as defined in SEC Rule 144A (17 
CFR 230.144A(a)(1)) under the 1933 Act.
    (l) The term, ``Rating Organizations,'' means Standard & Poor's 
Rating Services, Moody's Investors Service, Inc., Fitch Ratings, Inc., 
Dominion Bond Rating Service Limited, and Dominion Bond Rating Service, 
Inc., or any successors thereto.
    (m) The term, ``In-House Plan(s),'' means an employee benefit 
plan(s) that is subject to the Act and/or the Code, and that is 
sponsored by the Applicant as defined, above, in Section III(a), or its 
affiliate, as defined in Section III(c), for its own employees.

Summary of Facts and Representations

The Applicants

    1. The Applicants consist of Columbia and its current and future 
affiliates. Columbia and Columbia Wanger Asset Management, LP (CWA), 
both of which are SEC-registered investment advisers, are wholly-owned 
subsidiaries of Columbia Management Group, LLC (CMG), and collectively 
had assets under management of approximately $405 billion as of 
September 30, 2008. Of these assets, Columbia managed approximately 
$380 billion. CMG, including Columbia and CWA, is the investment 
management division of Bank of America Corporation (with its 
subsidiaries, BOA). The Applicants manage institutional portfolios for 
mutual funds, corporations, pension plans endowments, foundations, 
healthcare organizations, educational organizations, public agencies, 
insurance companies and Taft-Hartley plans. They also act as fiduciary 
to numerous employee benefit plans and individual retirement accounts, 
providing trustee, custodial recordkeeping, consulting and investment 
management services.
    CMG is wholly-owned by BOA, which is one of the world's largest 
financial

[[Page 68116]]

institutions, serving individual consumers, small and middle market 
businesses and large corporations with a full range of banking, 
investing, asset management and other financial and risk-management 
products and services. It serves more than 59 million consumer and 
small-business relationships. As of October 2008, BOA served clients in 
more than 150 countries and had relationships with 99 percent of the 
U.S. Fortune 500 companies and 80 percent of the Fortune Global 500. 
BOA had approximately $564 billion in assets under management as of 
September 30, 2008.
    On September 15, 2008, BOA announced an agreement to acquire 
Merrill Lynch & Co., Inc. (ML) in an all-stock transaction (the 
Merger). The Merger became effective on January 1, 2009. Per the 
agreement, a wholly-owned merger subsidiary of BOA merged with and into 
ML, with ML continuing as the surviving company that is a subsidiary of 
BOA. ML had total client assets of approximately $1.5 trillion and more 
than 16,000 financial advisors as of September 26, 2008. Upon 
consummation of the Merger, ML and its affiliates became affiliates of 
the Applicants.
    2. The Applicants' activities are subject to oversight and are 
regulated by Federal government agencies, such as the SEC, the Federal 
Reserve Board and the Office of the Comptroller of the Currency, as 
well as by State government agencies, and industry self-regulatory 
organizations (e.g., the New York Stock Exchange and the Financial 
Industry Regulatory Authority).

Requested Exemption

    3. The Applicants request a prohibited transaction exemption that 
would permit the purchase of certain Securities by an Asset Manager 
(the Asset Manager), acting on behalf of Client Plans subject to the 
Act or Code, and acting on behalf of Client Plans and In-House Plans 
which are invested in certain Pooled Funds for which an Asset Manager 
acts as a fiduciary, from any person other than such Asset Manager or 
any affiliate thereof, during the existence of an underwriting or 
selling syndicate with respect to such Securities, where an Affiliated 
Broker-Dealer is a manager or member of such syndicate. Further, the 
Affiliated Broker-Dealer will receive no selling concessions in 
connection with the Securities sold to such plans.
    4. The Applicants represent that if the Affiliated Broker-Dealer is 
a member of an underwriting or selling syndicate, the Asset Manager may 
purchase underwritten securities for Client Plans in accordance with 
Part III of Prohibited Transaction Exemption (PTE) 75-1, (40 FR 50845, 
October 31, 1975). Part III provides limited relief from the Act's 
prohibited transaction provisions for plan fiduciaries that purchase 
securities from an underwriting or selling syndicate of which the 
fiduciary or an affiliate is a member. However, such relief is not 
available if the Affiliated Broker-Dealer manages the underwriting or 
selling syndicate.
    5. In addition, regardless of whether a fiduciary or its affiliate 
is a manager or merely a member of an underwriting or selling 
syndicate, PTE 75-1 does not provide relief for the purchase of 
unregistered securities. This includes securities purchased by an 
underwriter for resale to a ``qualified institutional buyer'' (QIB) 
pursuant to the SEC's Rule 144A under the 1933 Act. Rule 144A is 
commonly utilized in connection with sales of securities issued by 
foreign corporations to U.S. investors that are QIBs. Notwithstanding 
the unregistered nature of such shares, it is represented that 
syndicates selling securities under Rule 144A (Rule 144A Securities) 
are the functional equivalent of those selling registered securities.
    6. The Applicants represent that the Affiliated Broker-Dealer 
regularly serves as manager of underwriting or selling syndicates for 
registered securities, and as a manager or a member of underwriting or 
selling syndicates for Rule 144A Securities. Accordingly, the Asset 
Manager is currently unable to purchase on behalf of the Client Plans 
both registered securities and Rule 144A Securities sold in such 
offerings, resulting in such Client Plans being unable to participate 
in significant investment opportunities.
    7. It is represented that since 1975, there has been a significant 
amount of consolidation in the financial services industry in the 
United States. As a result, there are more situations in which a plan 
fiduciary may be affiliated with the manager of an underwriting 
syndicate. Further, many plans have expanded investment portfolios in 
recent years to include securities issued by foreign corporations. As a 
result, the exemption provided in PTE 75-1, Part III, is often 
unavailable for purchase of domestic and foreign securities that may 
otherwise constitute appropriate plan investments.

Client Plan Investments in Offered Securities

    8. The Applicants represent that the Asset Manager makes its 
investment decisions on behalf of, or renders investment advice to, 
Client Plans pursuant to the governing document of the particular 
Client Plan or Pooled Fund and the investment guidelines and objectives 
set forth in the management or advisory agreement. Because the Client 
Plans are covered by Title I of the Act and/or are subject to section 
4975 of the Code, such investment decisions are subject to, among other 
requirements, the fiduciary responsibility provisions of the Act and 
the prohibited transaction rules set forth in the Act and the Code.
    9. The Applicants state, therefore, that the decision to invest in 
a particular offering is made on the basis of price, value and a Client 
Plan's investment criteria, not on whether the securities are currently 
being sold through an underwriting or selling syndicate. The Applicants 
further state that, because the Asset Manager's compensation for its 
services is generally based upon assets under management, the Asset 
Manager has little incentive to purchase securities in an offering in 
which the Affiliated Broker Dealer is an underwriter unless such a 
purchase is in the interests of Client Plans. If the assets under 
management do not perform well, the Asset Manager will receive less 
compensation and could lose clients, costs which far outweigh any gains 
from the purchase of underwritten securities.\17\
---------------------------------------------------------------------------

    \17\ In fact, under the terms of the proposed exemption set 
forth herein, the Affiliated Broker-Dealer may receive no 
compensation or other consideration, direct or indirect, in 
connection with any transaction that would be permitted under the 
proposed exemption.
---------------------------------------------------------------------------

    10. The Applicants state that the Asset Manager generally purchases 
securities in large blocks because the same investments will be made 
across several accounts. If there is a new offering of an equity or 
fixed income security that the Asset Manager wishes to purchase, it may 
be able to purchase the security through the offering syndicate at a 
lower price than it would pay in the open market, without transaction 
costs and with reduced market impact if it is buying a relatively large 
quantity. This is because a large purchase in the open market can cause 
an increase in the market price and, consequently, in the cost of the 
securities. Purchasing from an offering syndicate can thus reduce the 
costs to the Client Plans.
    11. However, absent this proposed exemption, if the Affiliated 
Broker-Dealer is a manager of a syndicate that is underwriting a 
securities offering, the Asset Manager will be foreclosed from 
purchasing any securities on behalf of its Client Plans from that 
underwriting syndicate. This will force the Asset Manager to purchase 
the same securities

[[Page 68117]]

in the secondary market. In such a circumstance, the Client Plans may 
incur greater costs both because the market price is often higher than 
the offering price, and because of transaction and market impact costs. 
In turn, this may cause the Asset Manager to forego other investment 
opportunities because the purchase price of the underwritten security 
in the secondary market exceeds the price that the Asset Manager would 
have paid to the selling syndicate.

Underwriting of Securities Offerings

    12. The Applicants represent that the Affiliated Broker-Dealer 
currently manages and participates in firm commitment underwriting 
syndicates for registered offerings of both equity and debt securities. 
While equity and debt underwritings may operate differently with regard 
to the actual sales process, the basic structures are the same. In a 
firm commitment underwriting, the underwriting syndicate acquires the 
securities from the issuer and then sells the securities to investors.
    13. The Applicants represent that while, as a legal matter, a 
selling syndicate assumes the risk that the underwritten securities 
might not be fully sold, as a practical matter, this risk is reduced, 
in marketed deals, through ``building a book'' (i.e., taking 
indications of interest from potential purchasers) prior to pricing the 
securities. Accordingly, there is no incentive for the underwriters to 
use their discretionary accounts (or the discretionary accounts of 
their affiliates) to buy up the securities as a way to avoid 
underwriting liabilities.
    14. Each selling syndicate has one or more lead managers, who are 
the principal contact between the syndicate and the issuer and who are 
responsible for organizing and coordinating the syndicate. The 
syndicate may also have co-managers, who generally assist the lead 
manager in working with the issuer to prepare the registration 
statement to be filed with the SEC and in distributing the underwritten 
securities. While equity syndicates typically include additional 
members that are not managers, more recently, membership in many debt 
underwriting syndicates has been limited to lead and co-managers.
    15. If more than one underwriter is involved in a selling 
syndicate, the lead manager, who has been selected by the issuer of the 
underwritten securities, contacts other underwriters, and the 
underwriters enter into an ``Agreement Among Underwriters.'' Most lead 
managers have a standing form of agreement. This document is then 
supplemented for the particular deal by sending an ``invitation telex'' 
or ``terms telex'' that sets forth particular terms to the other 
underwriters.
    16. The arrangement between the syndicate and the issuer of the 
underwritten securities is embodied in an underwriting agreement, which 
is signed on behalf of the underwriters by one or more of the managers. 
In a firm commitment underwriting, the underwriting agreement provides, 
subject to certain closing conditions, that the underwriters are 
obligated to purchase the underwritten securities from the issuer in 
accordance with their respective commitments. This obligation is met by 
using the proceeds received from the buyers of the securities in the 
offering, although there is a risk that the underwriters will have to 
pay for a portion of the securities in the event that not all of the 
securities are sold.
    17. The Applicants represent that, generally, the risk that the 
securities will not be sold is small because the underwriting agreement 
is not executed until after the underwriters have obtained sufficient 
indications of interest to purchase the securities from a sufficient 
number of investors to assure that all the securities being offered 
will be acquired by investors. Once the underwriting agreement is 
executed, the underwriters immediately begin contacting the investors 
to confirm the sales, at first by oral communication and then by 
written confirmation. Sales are finalized within hours and sometimes 
minutes. In registered transactions, the underwriters are particularly 
anxious to complete the sales as soon as possible because until they 
``break syndicate,'' they cannot enter the market. In many cases, the 
underwriters will act as market-makers for the security. A market-maker 
holds itself out as willing to buy or sell the security for its own 
account on a regular basis.
    18. The Applicants represent that the process of ``building a 
book'' or soliciting indications of interest occurs as follows: In a 
registered equity offering, after a registration statement is filed 
with the SEC and, while it is under review by the SEC staff, 
representatives of the issuer of the securities and the selling 
syndicate managers conduct meetings with potential investors, who learn 
about the company and the underwritten securities. Potential investors 
also receive a preliminary prospectus. The underwriters cannot make any 
firm sales until the registration statement is declared effective by 
the SEC. Prior to the effective date, while the investors cannot become 
legally obligated to make a purchase, they indicate whether they have 
an interest in buying, and the managers compile a ``book'' of investors 
who are willing to ``circle'' a particular portion of the issue. These 
indications of interest are sometimes referred to as a ``soft circle'' 
because investors cannot be legally bound to buy the securities until 
the registration statement is effective. However, the Applicants 
represent that investors generally follow through on their indications 
of interest, and would be expected to do so, barring any sudden adverse 
developments (in which case it is likely that the offering would be 
withdrawn or the price range modified and the process restarted), 
because, if the investors that gave an indication of interest do not 
follow through, the underwriters may be reluctant to include them in 
future offerings.
    19. Assuming that the marketing efforts have produced sufficient 
indications of interest, the Applicants represent that the issuer of 
the securities and the selling syndicate managers together will set the 
price of the securities and ask the SEC to declare the registration 
effective. After the registration statement becomes effective and the 
underwriting agreement is executed, the underwriters contact those 
investors that have indicated an interest in purchasing securities in 
the offering to execute the sales. The Applicants represent that 
offerings are often oversubscribed, and many have an over-allotment 
option that the underwriters can exercise to acquire additional shares 
from the issuer. Where an offering is oversubscribed, the underwriters 
decide how to allocate the securities among the potential purchasers. 
However, if an issue is a ``hot issue,'' (i.e., it is selling in the 
market at a premium above its offering price) the underwriters may not 
hold this hot issue in their own accounts, nor sell it to their 
employees, officers and directors. Subject to certain exceptions, a hot 
issue may also not be sold to the personal accounts of those 
responsible for investing for others, such as officers of banks, 
insurance companies, mutual funds and investment advisers.
    20. The Applicants represent that debt offerings may be 
``negotiated'' offerings, ``competitive bid'' offerings, or ``bought 
deals.'' ``Negotiated'' offerings, which often involve non-investment 
grade securities, are conducted in the same manner as an equity 
offering with regard to when the underwriting agreement is executed and 
how the securities are offered. ``Competitive bid'' offerings, in which 
the issuer determines the price

[[Page 68118]]

for the securities through competitive bidding rather than negotiating 
the price with the underwriting syndicate, are performed under 
``shelf'' registration statements pursuant to the SEC's Rule 415 under 
the 1933 Act (17 CFR 230.415).\18\
---------------------------------------------------------------------------

    \18\ Rule 415 permits an issuer to sell debt as well as equity 
securities under an effective registration statement previously 
filed with the SEC by filing a post-effective amendment or 
supplemental prospectus.
---------------------------------------------------------------------------

    21. In a competitive bid offering, prospective lead underwriters 
will bid against one another to purchase debt securities, based upon 
their determinations of the degree of investor interest in the 
securities. Depending on the level of investor interest and the size of 
the offering, a bidding lead underwriter may bring in co-managers to 
assist in the sales process. Most of the securities are frequently sold 
within hours, or sometimes even less than an hour, after the securities 
are made available for purchase.
    22. The Applicants represent that, because of market forces and the 
requirements of Rule 415, the competitive bid process is generally 
available only to issuers of investment-grade securities who have been 
subject to the reporting requirements of the 1934 Act for at least one 
(1) year.
    23. Occasionally, in highly-rated debt issues, underwriters ``buy'' 
the entire deal off of a ``shelf registration'' before obtaining 
indications of interest. These ``bought'' deals involve issuers whose 
securities enjoy a deep and liquid secondary market, such that an 
underwriter has confidence without pre-marketing that it can identify 
purchasers for the bonds.

Structure of Diversified Financial Services Firms

    24. The Applicants represent that there are internal policies in 
place that restrict contact and the flow of information between 
investment management personnel and non-investment management personnel 
in the same or affiliated financial service firms. These policies are 
designed to protect against ``insider trading,'' i.e., trading on 
information not available to the general public that may affect the 
market price of the securities. Diversified financial services firms 
must be concerned about insider trading problems because one part of 
the firm--e.g., the mergers and acquisitions group--could come into 
possession of non-public information regarding an upcoming transaction 
involving a particular issuer, while another part of the firm--e.g., 
the investment management group--could be trading in the securities of 
that issuer for its clients.
    25. The Applicants represent that the business separation policies 
and procedures of Columbia and its affiliates are also structured to 
restrict the flow of any information to or from the Asset Manager that 
could limit its flexibility in managing client assets, and of 
information obtained or developed by the Asset Manager that could be 
used by other parts of the organization, to the detriment of the Asset 
Manager's clients.
    26. The Applicants represent that major clients of the Affiliated 
Broker-Dealer include investment management firms that are competitors 
of the Asset Manager. Similarly, the Asset Manager deals on a regular 
basis with broker-dealers that compete with the Affiliated Broker-
Dealer. If special consideration were shown to an affiliate, such 
conduct would likely have an adverse effect on the relationships of the 
Affiliated Broker-Dealer and of the Asset Manager with firms that 
compete with such affiliate. Therefore, a goal of the Applicants' 
business separation policies is to avoid any possible perception of 
improper flows of information between the Affiliated Broker-Dealer and 
the Asset Manager, in order to prevent any adverse impact on client and 
business relationships.

Underwriting Compensation

    27. The Applicants represent that the underwriters are compensated 
through the ``spread,'' or difference, between the price at which the 
underwriters purchase the securities from the issuer and the price at 
which the securities are sold to the public. The spread is divided into 
three components.
    28. The first component includes the management fee, which 
generally represents an agreed upon percentage of the overall spread 
and is allocated among the lead manager and co-managers. Where there is 
more than one managing underwriter, the way the management fee will be 
allocated among the managers is generally agreed upon between the 
managers and the issuer prior to soliciting indications of interest. 
Thus, the allocation of the management fee is not reflective of the 
amount of securities that a particular manager sells in an offering.
    29. The second component is the underwriting fee, which represents 
compensation to the underwriters (including the non-managers, if any) 
for the risks they assume in connection with the offering and for the 
use of their capital. This component of the spread is also used to 
cover the expenses of the underwriting that are not otherwise 
reimbursed by the issuer of the securities.
    30. The first and second components of the ``spread'' are received 
without regard to how the underwritten securities are allocated for 
sales purposes or to whom the securities are sold. The third component 
of the spread is the selling concession, which generally constitutes 60 
percent or more of the spread. The selling concession compensates the 
underwriters for their actual selling efforts. The allocation of 
selling concessions among the underwriters generally follows the 
allocation of the securities for sales purposes. However, a buyer of 
the underwritten securities may designate other broker-dealers (who may 
be other underwriters, as well as broker-dealers outside the syndicate) 
to receive the selling concessions arising from the securities they 
purchase.
    31. Securities are allocated for sales purposes into two 
categories. The first and larger category is the ``institutional pot,'' 
which is the pot of securities from which sales are made to 
institutional investors. Selling concessions for securities sold from 
the institutional pot are generally designated by the purchaser to go 
to particular underwriters or other broker-dealers. If securities are 
sold from the institutional pot, the selling syndicate managers 
sometimes receive a portion of the selling concessions, referred to as 
a ``fixed designation,'' \19\ attributable to securities sold in this 
category, without regard to who sold the securities or to whom they 
were sold. For securities covered by this proposed exemption, however, 
the Affiliated Broker-Dealer may not receive, either directly or 
indirectly, any compensation or consideration that is attributable to 
the fixed designation generated by purchases of securities by the Asset 
Manager on behalf of its Client Plans.
---------------------------------------------------------------------------

    \19\ A fixed designation is sometimes referred to as an ``auto 
pot split.''
---------------------------------------------------------------------------

    32. The second category of allocated securities is ``retail,'' 
which are the securities retained by the underwriters for sale to their 
retail customers. The underwriters receive the selling concessions from 
their respective retail retention allocations. Securities may be 
shifted between the two categories based upon whether either category 
is oversold or undersold during the course of the offering.
    33. The Applicants represent that the Affiliated Broker-Dealer's 
inability to receive any selling concessions, or any compensation 
attributable to the fixed designations generated by purchases of 
securities by the Asset Manager's Client

[[Page 68119]]

Plans, removes the primary economic incentive for the Asset Manager to 
make purchases that are not in the interests of its Client Plans from 
offerings for which the Affiliated Broker-Dealer is an underwriter. The 
reason is that the Affiliated Broker-Dealer will not receive any 
additional fees as a result of such purchases by the Asset Manager.

Rule 144A Securities

    34. The Applicants represent that a number of the offerings of Rule 
144A Securities in which the Affiliated Broker-Dealer participates 
represent good investment opportunities for the Asset Manager's Client 
Plans. Particularly with respect to foreign securities, a Rule l44A 
offering may provide the least expensive and most accessible means for 
obtaining these securities. However, as discussed above, PTE 75-1, Part 
III, does not cover Rule 144A Securities. Therefore, absent an 
exemption, the Asset Manager is foreclosed from purchasing such 
securities for its Client Plans in offerings in which the Affiliated 
Broker-Dealer participates.
    35. The Applicants state that Rule 144A acts as a ``safe harbor'' 
exemption from the registration provisions of the 1933 Act for sales of 
certain types of securities to QIBs. QIBs include several types of 
institutional entities, such as employee benefit plans and commingled 
trust funds holding assets of such plans, which own and invest on a 
discretionary basis at least $100 million in securities of unaffiliated 
issuers.
    36. Any securities may be sold pursuant to Rule 144A except for 
those of the same class or similar to a class that is publicly traded 
in the United States, or certain types of investment company 
securities. This limitation is designed to prevent side-by-side public 
and private markets developing for the same class of securities and is 
the reason that Rule 144A transactions are generally limited to debt 
securities.
    37. Buyers of Rule 144A Securities must be able to obtain, upon 
request, basic information concerning the business of the issuer and 
the issuer's financial statements, much of the same information as 
would be furnished if the offering were registered. This condition does 
not apply, however, to an issuer filing reports with the SEC under the 
1934 Act, for which reports are publicly available. The condition also 
does not apply to a ``foreign private issuer'' for whom reports are 
furnished to the SEC under Rule 12g3-2(b) of the 1934 Act (17 CFR 
240.12g3-2(b)), or to issuers who are foreign governments or political 
subdivisions thereof and are eligible to use Schedule B under the 1933 
Act (which describes the information and documents required to be 
contained in a registration statement filed by such issuers).
    38. Sales under Rule 144A, like sales in a registered offering, 
remain subject to the protections of the anti-fraud rules of Federal 
and State securities laws. These rules include Section 10(b) of the 
1934 Act and Rule 10b-5 thereunder (17 CFR 240.10b-5) and Section 17(a) 
of the 1933 Act (15 U.S.C. 77a). Through these and other provisions, 
the SEC may use its full range of enforcement powers to exercise its 
regulatory authority over the market for Rule 144A Securities, in the 
event that it detects improper practices or fraud.
    39. The Applicants represent that this regulatory structure 
provides a considerable incentive to the issuer of the securities and 
the members of the selling syndicate to insure that the information 
contained in a Rule 144A offering memorandum is complete and accurate 
in all material respects. Among other things, the lead manager 
typically obtains an opinion from a law firm, commonly referred to as a 
``10b-5'' opinion, stating that the law firm has no reason to believe 
that the offering memorandum contains any untrue statement of material 
fact or omits to state a material fact necessary in order to make sure 
the statements made, in light of the circumstances under which they 
were made, are not misleading.
    40. The Applicants represent that Rule 144A offerings generally are 
structured in the same manner as underwritten registered offerings. The 
major difference is that a Rule l44A offering uses an offering 
memorandum rather than a prospectus that is filed with the SEC. The 
marketing process is the same in most respects, except that the selling 
efforts are limited to contacting QIBs and there are no general 
solicitations for buyers (e.g., no general advertising). In addition, 
the Affiliated Broker-Dealer's role in these offerings is typically 
that of a lead or co-manager. Generally, there are no non-manager 
members in a Rule 144A selling syndicate. Nonetheless, the Applicants 
request that the proposed exemption extend to authorization for 
situations where the Affiliated Broker-Dealer acts as a manager or as a 
syndicate member.

Summary

    41. The proposed exemption is administratively feasible. In this 
regard, compliance with the terms and conditions of the proposed 
exemption will be verifiable and subject to audit.
    42. The proposed exemption is in the interest of participants and 
beneficiaries of Client Plans that engage in the covered transactions. 
In this regard, it is represented that the proposed exemption will 
increase investment opportunities and will reduce administrative costs 
for Client Plans.
    43. In summary, the Applicants represent that the proposed 
transactions will satisfy the statutory criteria for an exemption set 
forth in section 408(a) of the Act because:
    (a) The Client Plans and In-House Plans will gain access to 
desirable investment opportunities;
    (b) In each offering, the Asset Manager will purchase the 
securities for its Client Plans and In-House Plans from an underwriter 
or broker-dealer other than the Affiliated Broker-Dealer;
    (c) Conditions similar to those of PTE 75-1, Part III, will 
restrict the types of securities that may be purchased, the types of 
underwriting or selling syndicates and issuers involved, and the price 
and timing of the purchases;
    (d) The amount of securities that the Asset Manager may purchase on 
behalf of Client Plans and In-House Plans will be subject to percentage 
limitations;
    (e) The Affiliated Broker-Dealer will not be permitted to receive, 
either directly, indirectly or through designation, any selling 
concessions with respect to the securities sold to the Asset Manager 
for the account of a Client Plan or an In-House Plan;
    (f) Prior to any purchase of securities, the Applicant will make 
the required disclosures to an Independent Fiduciary of each Client 
Plan (or the fiduciary of each In-House Plan) and obtain the required 
written authorization to engage in the covered transactions;
    (g) The Applicant will provide regular reporting to an Independent 
Fiduciary of each Client Plan (or the fiduciary of each In-House Plan) 
with respect to all securities purchased pursuant to the exemption, if 
granted;
    (h) Each Client Plan and each In-House Plan will be subject to net 
asset requirements, with certain exceptions for Pooled Funds; and
    (i) The Asset Manager must have total assets under management in 
excess of $5 billion and shareholders' or partners' equity in excess of 
$1 million, in addition to qualifying as a QPAM, pursuant to Part V(a) 
of PTE 84-14.
    Notice to Intersted Persons: The Applicants represent that because 
those potentially interested Plans proposing to engage in the covered 
transactions cannot all be identified, the only practical means of 
notifying Independent Plan Fiduciaries or Plan participants of such 
affected Plans is by publication of the proposed exemption in the 
Federal Register. Therefore, any comments from interested persons must

[[Page 68120]]

be received by the Department no later than 30 days from the 
publication of this notice of proposed exemption in the Federal 
Register.

FOR FURTHER INFORMATION CONTACT: Mr. Gary H. Lefkowitz of the 
Department, telephone (202) 693-8546. (This is not a toll-free number.)
Boston Carpenters Apprenticeship and Training Fund (the Fund), 
Located in Boston, Massachusetts.
[Exemption Application No.: L-11558.]

Proposed Exemption

    The Department of Labor (the Department) is considering granting an 
exemption under the authority of section 408(a) of the Act in 
accordance with 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 of sections 406(a)(1)(A) through (D), 
406(b)(1), and 406(b)(2) of the Act shall not apply to the purchase by 
the Fund from the NERCC, LLC (the Building Corporation), a party in 
interest with respect to the Fund, of a condominium unit (the Condo) in 
a building (the Building) owned by the New England Regional Council of 
Carpenters (the Union), also a party in interest with respect to the 
Fund, where the Union will own the only other condominium unit in the 
Building; provided that, at the time the transaction is entered into, 
the following conditions are satisfied:
    (1) An independent, qualified fiduciary (the I/F), acting on behalf 
of the Fund, is responsible for analyzing the relevant terms of the 
transaction and deciding whether the Board of Trustees (the Trustees) 
should proceed with the transaction;
    (2) The Fund may not purchase the Condo, unless and until the I/F 
approves such purchase;
    (3) Acting as the independent fiduciary on behalf of the Fund, the 
I/F is responsible for: (a) Establishing the purchase price of the 
Condo, (b) reviewing the financing terms, (c) determining that such 
financing terms are the product of arm's length negotiations, and (d) 
ensuring that the Fund will not close on the Condo until the I/F has 
determined that proceeding with the proposed transaction is feasible, 
in the interest of, and protective of the participants and 
beneficiaries of the Fund;
    (4) The purchase price paid by the Fund for the Condo, as 
documented in writing and approved by the I/F, acting on behalf of the 
Fund, is the lesser of:
    (a) The fair market value of the Condo, as of the date of the 
closing on the transaction, as determined by an independent, qualified 
appraiser selected by the I/F; or
    (b) 58.3 percent (58.3%) of the amount actually expended by the 
Building Corporation in the construction of the Condo under the 
guaranteed maximum price contract (the GMP), plus the following 
amounts:
    (i) 58.3 percent (58.3%) of the additional construction soft costs 
incurred outside the GMP contract (i.e., the amount expended on 
furniture, fixtures, and equipment, and the amount expended for 
materials for minor work);
    (ii) 54.4 percent (54.4%) of the amount expended on construction 
soft costs (i.e. architect, legal, zoning, permits, and other fees); 
and
    (iii) 54.4 percent (54.4%) of the cost of the land underlying the 
Building;
    (5) Acting as the independent fiduciary on behalf of the Fund, the 
I/F is responsible, prior to entering into the proposed transaction, 
for: (a) Reviewing an appraisal of the fully completed Condo, which has 
been prepared by an independent, qualified appraiser, and updated, as 
of the date of the closing on the transaction, (b) evaluating the 
sufficiency of the methodology of such appraisal, and (c) determining 
the reasonableness of the conclusions reached in such appraisal;
    (6) The terms of the transaction are no less favorable to the Fund 
than terms negotiated under similar circumstances at arm's length with 
unrelated third parties;
    (7) The Fund does not purchase the Condo or take possession of the 
Condo until such Condo is completed;
    (8) The Fund has not been, is not, and will not be a party to the 
construction financing loan or the permanent financing loan obtained by 
the Building Corporation and/or by the Union;
    (9) The Fund does not pay any commissions, sales fees, or other 
similar payments to any party as a result of the transaction, and the 
costs incurred in connection with the purchase of the Condo by the Fund 
at closing do not include, directly or indirectly, any developer's 
profit, any premium receive by the developer, nor any interest charges 
incurred on the construction financing loan or the permanent financing 
loan obtained by the Building Corporation and/or by the Union;
    (10) Under the terms of the current collective bargaining 
agreement(s) and any future collective bargaining agreement(s), the 
Union has the ability, unilaterally, to increase the contribution rate 
to the Fund at any time by diverting money from wages and contributions 
to other benefit funds within the total wage and benefit package, and 
the Union is obligated to do so in order to prevent a default by the 
Fund under the terms of the financing obtained by the Fund to purchase 
the Condo;
    (11) In the event the Building Corporation and/or the Union 
defaults on the construction financing loan or the permanent financing 
loan obtained by the Building Corporation and/or the Union, the 
creditors under the terms of such construction financing loan or such 
permanent financing loan shall have no recourse against the Condo or 
any of the assets of the Fund;
    (12) Acting as the independent fiduciary with respect to the Fund, 
the I/F is responsible for reviewing and approving the allocation 
between funding the purchase of the Condo from the Fund's existing 
assets or financing; and
    (13) Acting as the independent fiduciary with respect to the Fund, 
the I/F is responsible for determining whether the proposed transaction 
satisfies the criteria, as set forth in section 404 and section 408(a) 
of the Act.

Summary of Facts and Representations

    1. The Union is a labor organization made up of thirty (30) local 
carpenter unions in six (6) New England states. The local unions that 
are affiliated with the Union include local union nos. 33, 40, 67, 218, 
and 723 (the Locals). Members of the Union are covered by the Fund. The 
Union is a party in interest with respect to the Fund, pursuant to 
section 3(14)(D) of the Act, as an employee organization any of whose 
members are covered by such Fund.
    2. The Fund is an employee welfare benefit plan, as that term is 
defined in the Act. Further, the Fund is a multiemployer apprenticeship 
and training fund. The Fund is a Massachusetts nonprofit organization, 
and is exempt from income taxes under the provisions of Section 
501(c)(3) of the Internal Revenue Code.
    3. In the fiscal year ending September 30, 2008, the Fund received 
employer contributions of $2,584,069, based on approximately 6.7 
million hours of work. In addition, the Fund received other income of 
approximately $189,000. As of September 30, 2008, the Fund had expenses 
of $2,254,078 and total assets of $5,910,043. Included in the Fund's 
total assets is a parcel of improved real property (the Existing 
Facility) located at 385 Market Street in the Brighton section of 
Boston, Massachusetts.
    4. The Trustees of the Fund have authority to invest the assets of 
the Fund. The Trustees consist of six (6)

[[Page 68121]]

labor representatives and six (6) management representatives. Among the 
labor representatives serving as Trustees are Joseph Power, John 
Estano, Steve Tewksbury, Charles MacFarlane, Richard Pedi, and Neal 
O'Brien. Mr. Power, one of the labor Trustees, also serves on the 
Executive Board of the Union. It is represented that Mr. Power will 
recuse himself from all votes and matters before the Trustees relating 
to the purchase by the Fund of the Condo from the Building Corporation.
    The representatives of management serving as Trustees are Donald 
MacKinnon, Steven Affanato, George Allen, William Fitzgerald, 
Christopher Pennie, and Mark DeNapoli. Mr. DeNapoli, one of the 
management Trustees, also is the Executive Vice President and General 
Manager of Suffolk Construction (Suffolk) which is responsible for the 
construction of the Condo that is the subject of this proposed 
exemption. It is represented that Mr. DeNapoli will recuse himself from 
all votes and matters before the Trustees relating to the construction 
of the Condo.
    5. The Fund provides training and education to carpenter 
apprentices in the greater Boston area. From 1993 to 2009 there was an 
increase in the number of apprentices from 267 to 539.
    The Fund also provides training and education to journeymen 
carpenters in the greater Boston area. During 2008, the Fund provided 
journeyman upgrade training to approximately 2,671 journeymen 
carpenters. From 1995-2008 there was an increase in the number of 
journeymen carpenters taking classes from the Fund from 292 to 2,671.
    In 2008, the Fund offered 265 courses in numerous aspects of the 
carpentry trade. These courses represented an increase from the 100 
courses offered by the Fund in 2004.
    6. The Fund provides all of its classes and training in the 
Existing Facility. Purchased in 1975, from an unrelated third party, 
the Fund owns the Existing Facility free and clear of any mortgages. In 
the opinion of Gary R. Schwandt, a principal of Great Point Investors, 
LLC the value of the Existing Facility after brokerage fees and closing 
costs is $1,750,000.
    The Existing Facility is an approximately 14,600 square foot 
building situated on a 33,500 square foot parcel of land. Due to space 
limitations at the Existing Facility, it is represented that the Fund 
has been unable to offer certain courses.
    The Existing Facility has forty-eight (48) regular parking spaces 
and two (2) spaces for disabled persons. It is represented that these 
parking spaces service approximately 100 to 150 apprentices and 
journeymen attending classes nightly at the Existing Facility. In 
addition, it is represented that there is not adequate public 
transportation for servicing the Existing Facility.
    7. The Fund is maintained under collective bargaining agreements 
negotiated between the Union of the United Brotherhood of Carpenters 
and Joiners of America and the following multiemployer bargaining 
organizations: (a) The Labor Relations Division of the Associated 
General Contractors of Massachusetts, Inc.; (b) The Building Trades 
Employers' Association of Boston and Eastern Massachusetts, Inc.; and 
(c) The Labor Relations Division of the Construction Industry of 
Massachusetts (collectively, the Employer Associations).
    It is represented that when the Union negotiates a multi-year 
collective bargaining agreement, it negotiates a single increase in the 
wage and benefit package for each year of the contract. Then, on an 
annual basis, the Union allocates that increase between wages and 
various benefit funds.
    It is represented that the wage and benefit package for local union 
nos. 33, 40, 67, 218, the commercial construction local unions 
affiliated with the Fund, has historically accounted for approximately 
93 percent (93%) of the Fund's revenue. It is represented that the 
collective bargaining agreement for these commercial construction local 
unions was renegotiated for a period of three (3) years, effective 
September 1, 2009, through August 31, 2012. The contribution rate to 
the Fund for work performed under this collective bargaining agreement 
is $.50 per hour. The current total wage and benefit package is $60.23, 
and as of March 1, 2012, the total package will be $65.10.
    It is represented that the wage and benefit package for local union 
no. 723, the wood frame residential union affiliated with the Fund, has 
historically accounted for approximately 7 percent (7%) of the Fund's 
revenue. The collective bargaining agreement for local union no. 723 
expires on March 31, 2010. Under the terms of the collective bargaining 
agreement for local union no. 723, as of March 1, 2009, each employer 
signatory is required to contribute to the Fund $.25 per hour for each 
hour of work performed by its carpenter employees. The current wage and 
benefit package for local union no. 723 is $39.68 per hour.
    In the fiscal year ending September 30, 2008, there were 6,719,058 
hours of work for which contributions in the amount of $2,584,069 were 
made to the Fund. It is represented that, at the per hour rates, 
effective as of March 1, 2009, under the collective bargaining 
agreements, the same number of hours of work, would yield $2,939,516 in 
annual contributions to the Fund.
    It is represented that under the terms of the collective bargaining 
agreements, the Union has the right, at its discretion, to divert money 
from wages to benefit funds or to transfer future contributions from 
one benefit fund to another benefit fund, provided that the Union gives 
sixty (60) days written notice to the employers. It is further 
represented that, where the employers and the Union negotiate fixed 
contribution rates to the various employee benefit funds, such 
collective bargaining agreements at the same time provide that the 
Union with advanced notice can divert future contributions from one 
fund to another. In doing so, the Union maintains that it is acting as 
a settlor and not as a fiduciary. Further, the applicant maintains that 
a collective bargaining agreement contribution rate for future hours 
does not constitute a plan asset under the Act.\20\
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    \20\ The Department, herein, is not opining, as to whether the 
Union in diverting money from wages to benefit funds or in 
transferring future contributions from one benefit fund to another 
benefit fund is acting as a settlor and not as a fiduciary.
---------------------------------------------------------------------------

    8. The Union currently rents office space at 803 Summer Street, 
Boston, Massachusetts, from an unrelated third party. It is represented 
that the Union for the past several years has been seeking either to 
buy a building or to buy unimproved land and construct a building to 
house the Union offices.
    To this end, on February 1, 2008, the Union purchased for cash in 
the amount of $5.8 million, a parcel of improved real property (the 
Original Property). The Union established the Building Corporation as a 
limited liability company for the purpose of developing the Original 
Property. In this regard, the Union contributed the Original Property 
to the Building Corporation in exchange for sole interest in the 
Building Corporation. The Building Corporation is a party in interest 
with respect to the Fund, pursuant to section 3(14)(G) of the Act, as 
50 percent (50%) or more of the interests in the Building Corporation 
are owned by the Union.
    9. It is represented that the Union purchased the Original Property 
from the Tyott Co. Neither the Tyott Co., nor its owners, nor its 
principals are parties in interest with respect to the Fund.
    The Original Property is described as a 48,000 square foot two-
story building on a 64,000 square foot lot located at 750 Dorchester 
Avenue, in Boston, Massachusetts. It is represented that the

[[Page 68122]]

location of the Original Property is within \1/8\ of a mile of the exit 
and entrance ramps to a major interstate highway and within \1/4\ of a 
mile from two (2) different train stations that offer access to public 
transportation.
    10. The Union is currently in the process of renovating and 
expanding the Original Property into two (2) condominium units. One of 
the condominium units is intended for the Union, and the other 
condominium unit is intended for the Fund. In order to finance the 
renovation and expansion of the Original Property, the Executive Board 
of the Union decided, on January 30, 2009, to obtain a construction 
loan in the amount of $10 million to finance the renovation and 
expansion of the Original Property and to pay the remaining 
construction costs from existing assets. It is the Union's intention 
for the loan to cover the last $10 million dollars of payment at the 
end of the construction project.
    Because the Original Property is located in a low-income 
neighborhood, the renovation and expansion of the Original Property is 
potentially eligible for New Market Tax Credit (NMTC) financing. The 
Union is currently pursuing NMTC financing from two (2) Community 
Development Entities (CDEs) only for the Union's condominium unit. 
These CDEs are, respectively, the Massachusetts Housing Investment 
Corporation and the Bank of America. The NMTC financing will be in the 
form of long-term, non-recourse loans that must remain in place for at 
least seven (7) years during which time the loans will be non-
amortizing. It is represented that the Fund's Condo will not serve as 
collateral for these loans, nor will any of the other assets of the 
Fund serve as collateral for these loans. These loans will bear a very 
low annual interest charge, estimated at one percent (1%) or below, to 
cover annual accounting expenses. After seven (7) years and a day, 
these loans will be repurchased by the Union at their fair market 
value.\21\
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    \21\ It is represented that the Fund will attempt to obtain from 
NMTC partial financing on its own in 2010 at the time it purchases 
the Condo, but is proceeding with the proposed transaction on the 
assumption that NMTC financing will not be available for its unit. 
It is represented that the Fund will only utilize the NMTC 
financing, if obtained, if such financing results in more favorable 
financing terms for the purchase of the Condo. It is further 
represented that any NMTC financing obtained by the Fund will not 
involve any transaction with the Union. For a discussion of 
additional methods of financing the purchase of the Condo that are 
being considered by the Fund, see the discussion in paragraph 19, 
below.
---------------------------------------------------------------------------

    11. The plans for renovation and expansion of the Original Property 
call for taking the walls and columns of the existing building on the 
Original Property down to the second floor slab, rebuilding the second 
floor, and then adding a new third floor. It is represented that the 
full design and construction documents and the city approvals were 
completed at the end of 2008. It is expected that renovation and 
expansion of the Original Property will take approximately one (1) 
year. Construction on the renovation and expansion of the Original 
Property began in January 2009. It is anticipated that the renovated 
and expanded Building will be ready for occupancy by early 2010.
    12. Upon completion of the renovated and expanded Building, it is 
represented that there will be approximately 71,539 square feet of 
training and office space, and 6,826 square feet of common space. The 
first floor of the Building intended for the Fund will have 
approximately 21,406 square feet of training space with fifteen (15) 
foot ceilings which are necessary for erecting and working off 
scaffolding, a major component of apprentice training. The first floor 
of the Building will also have 2,354 square feet of common space for 
the entrance and lobby. The second floor will have approximately 13,820 
square feet of office and classroom space intended for the Fund, 4,233 
square feet of office space intended for the Union, and 4,472 square 
feet of common space. The third floor will have approximately 25,254 
square feet of office space intended for the Union. The Building will 
have a parking deck with 40 spaces built above a ground level parking 
area with 53 spaces, for a total of approximately 93 parking spaces on 
the site that will serve as the parking area for both the Union and the 
Fund.
    13. The Union retained ADD Inc. to serve as the architect for the 
renovation and expansion of the Building. It is represented that ADD 
Inc. selected Suffolk to serve as the construction manager for the 
project. It is represented that Suffolk is a Union signatory 
contractor. As such, Suffolk is a party in interest with respect to the 
Fund, pursuant to section 3(14)(C), an employer any of whose employees 
are covered by the Fund.
    Suffolk and the Union negotiated the GMP contract, including change 
orders through May 11, 2009, in the amount of $19.1 million for the 
renovation and expansion of the Building. Any savings on that price 
will be shared 75 percent (75%) to the Union and 25 percent (25%) to 
Suffolk.\22\
---------------------------------------------------------------------------

    \22\ It is represented that as a condition to the purchase, the 
Fund will share in the constructions savings with the Union at a 
rate equal to the Fund's proportional share of the square footage of 
the Building and this share of the savings will be reflected in the 
cost allocation method, as discussed, below, in paragraph 32, in 
determining the purchase price of the Condo.
---------------------------------------------------------------------------

    In addition to the $19.1 million construction costs under the GMP 
contract, the Union anticipates that there will be $600,000 in 
materials and construction costs not included within the scope of the 
GMP contract. This $600,000 represents $400,000 in what is known as 
furniture, fixtures, and equipment which is frequently contracted out 
directly by owners, and $200,000 for materials for minor work. Further, 
the Union has incurred ``soft costs'' of $1 million, including 
architect's fees, due diligence expenses, legal fees related to the 
purchase of the Original Property, and fees related to zoning and 
permits. It is estimated that the total cost of acquisition, 
development, and construction of the renovated and expanded Building, 
including the parking garage, will be approximately $27 million.
    14. As mentioned above, the Union will retain one of the 
condominium units in the renovated and expanded Building for its own 
use. Specifically, the Union's condominium will consist of 
approximately 32,597 square feet of floor space, including a portion of 
the common space in the Building, and will constitute approximately 
45.6 percent (45.6%) of the total square footage (71,539 square feet) 
in the Building.
    The Union intends to lease out at market rate any space in its 
condominium unit that it does not utilize. It is represented that if 
the Union leases office space to an employee benefit fund to which it 
is a party in interest, the Union will do so pursuant to section 
408(b)(2) of the Act.\23\ The Union will also own and intends to lease 
the retail portions on the second floor of the Building. It is 
represented that the intended retail lessees include an eye care 
center, a banking area, and an ATM.
---------------------------------------------------------------------------

    \23\ The Department is offering no view, herein, as to whether 
the leasing of office space to any employee benefit fund to which 
the Union is a party in interest is covered by the statutory 
exemption provided in sections 408(b)(2) of the Act and the 
Department's regulations, pursuant to 29 CFR 2550.408b-2. Further, 
the Department is not providing, herein, any relief with respect to 
the leasing of office space to any such employee benefit fund by the 
Union.
---------------------------------------------------------------------------

    15. It is represented that in numerous meetings over the past 
several years, the Trustees of the Fund have discussed and acknowledged 
the need for additional parking, better access to public 
transportation, and additional space for offices, classrooms, and 
training. In this regard, the Trustees

[[Page 68123]]

reviewed utilization reports proved by the Fund Administrator, Benjamin 
Tilton.
    In 2003, the Trustees retained Sam Park & Co., a Boston real estate 
firm, to research the availability of buildings to purchase or to lease 
that would meet the present and future needs of the Fund. After review, 
the Trustees found that none of the options resulting from the 2003 
search met the needs of the Fund. At that time, the Trustees suspended 
the search for a new training space.
    16. Because the Union was aware of the Fund's need for additional 
training and classroom space, parking, and access to public 
transportation, the Union approached the Trustees with a proposal that 
the Union develop a portion of the Original Property to the 
specifications of the Fund for the purpose of providing apprenticeship 
training (i.e., ``build to suit'') and then sell it to the Fund as a 
condominium unit.
    17. On July 11, 2008, Gary Schwandt of Great Point Investors, LLC 
provided the Trustees of the Fund with an update to the 2003 search for 
a training facility that would meet the Fund's requirements. After 
reviewing the results of the 2003 and 2008 real estate search, the 
Trustees determined that the Original Property was the best available 
site. In a meeting on May 20, 2008, the Trustees voted to proceed with 
the purchase of the Condo from the Building Corporation where the 
Fund's space would be ``built to suit,'' provided that: (i) The 
transaction is reviewed and approved by an I/F; (ii) the Fund receives 
a prohibited transaction exemption from the Department, and (iii) there 
is not a better building option available that meets the Fund's space, 
parking, access, and financial requirements. Accordingly, the Trustees, 
acting on behalf of the Fund, have requested an administrative 
exemption from the restrictions of sections 406(a)(1)(A) through (D), 
406(b)(1), and 406(b)(2) of the Act which would permit the Fund to 
purchase the Condo for cash from the Building Corporation.
    18. In order to purchase the Condo, the Trustees of the Fund intend 
to sell the Existing Facility and expect to realize net proceeds of 
approximately $1.75 million. In the event that the sale of the Existing 
Facility is not completed by the closing date on the Fund's purchase of 
the Condo, the Trustees intend to obtain a bridge loan. The Trustees 
intend to contribute an amount yet to be determined from the Fund's 
existing assets toward the purchase of the Condo, and then to finance 
the remaining costs. Acting as the independent fiduciary with respect 
to the Fund, the I/F is responsible for reviewing and approving the 
allocation between funding the purchase of the Condo from the Fund's 
existing assets or financing such purchase. It is represented that in 
addition to the purchase price, in order to complete the proposed 
transaction the Fund will incur certain ``soft costs,'' in the amount 
of $650,000, including the cost of engaging the I/F, legal costs 
related to the prohibited transaction exemption process, real estate 
legal costs, and underwriters fees. Once the Fund purchases the Condo, 
the Fund will also be responsible for paying for electrical, gas, 
telephone, and water service to the Condo, and for sharing the cost of 
the common areas in the Building with the Union.
    The Condo will be established in accordance with Massachusetts law 
M.G.L. chapter 183A. The Fund's interest in the Condo will be recorded 
as a deed for real property with the Suffolk County Registry of Deeds. 
Further, the Massachusetts Condominium Act, Massachusetts General Law 
Chapter 183A, provides that the default method for allocating common 
expenses is that such expenses be ``assessed against all units in 
accordance with their respective percentages of undivided interest in 
the common areas and facilities.'' Specifically, Section 5(a) of the 
Chapter 183A provides:

    Each owner shall be entitled to an undivided interest in the 
common areas and facilities in the percentage set forth in the 
master deed. Such percentage shall be in the approximate relation 
that the fair value of the of the unit on the date of the master 
deed bears to the aggregate fair value of all the units.
    The I/F's projection of the split of common expenses is 
approximately 58% for the Fund and 42% for the Union, which percentages 
are based on the May 19, 2009 fair market value appraisal of the 
Building, as if completed, prepared by CB Richard Ellis/New England, 
and is consistent with the methodology set forth in Section 5(a) of the 
Chapter 183A of the Massachusetts Condominium Act, Massachusetts 
General Law.
    19. As discussed above, in footnote 1, the Trustees, on behalf of 
the Fund, are considering various means of financing the purchase price 
of the Condo and associated costs. It is represented that financing the 
purchase of commercial property is the normal method of acquiring such 
an asset. It is represented that financing the purchase of the Condo is 
in the interest of the Fund, because the Fund does not have sufficient 
equity to acquire the Condo on an all equity basis, even if it were 
advantageous to do so.
    In this regard, the Fund is considering a commercial real estate 
loan which may take the form of a private bank loan or private taxable 
bond financing. Such a commercial loan would be secured by a first 
mortgage on the Condo and by a general pledge of assets. It is 
represented that in the current real estate market, non-recourse loans 
to commercial entities are not available. Interest rates required on 
commercial loans are based on interest rates for highly-rated long term 
government bonds, and are priced at a spread above the current market 
level of government interest rates. The spread varies with credit 
quality.
    In the alternative to a commercial loan, the Trustees represent 
that certain lenders and underwriters are willing to lend or to finance 
projects through the Massachusetts Health and Education Facilities 
Agency (HEFA), or similar agency, such as the Massachusetts 
Development/Boston Industrial Development Finance Agency (Mass 
Development/BIFA). In this regard, HEFA and Mass Development/BIFA offer 
availability to capital markets for apprenticeship and training funds. 
The interest rate on an HEFA or Mass Development/BIFA loan or public 
debt is not subject to Federal or State income tax. Therefore, the 
interest rate on such tax-exempt bond financing would be lower than 
market interest rates on similar commercial debt. Like a commercial 
loan, the tax-exempt bond financing through these agencies would entail 
recourse debt to the Fund. In this regard, the debt would be secured by 
a first mortgage lien on the Condo, as well as a pledge of revenues of 
the Fund, as the borrower. Holders of tax-exempt bonds generated by 
these agencies have no recourse or guaranty from HEFA or Mass 
Development/BIFA as to the payment of interest or principal.
    The Fund is in the process of working with HEFA and Mass 
Development/BIFA and anticipates formally applying for tax-exempt bond 
financing from one of those agencies. The tax-exempt bond financing 
will be either through a fixed rate private placement with a local bank 
or through variable-rate debt. The I/F has based its projections 
assuming a 5.50 percent (5.50%) fixed tax-exempt rate. It is further 
represented that, if the Fund is able to procure a variable rate 
financing secured with a letter of credit, as described in the next 
paragraph, below, the interest rate on the debt, would be lower than 
the 5.50 percent (5.50%) projections. The amount of the

[[Page 68124]]

proposed tax-exempt bond financing is not yet determined.
    In May 2009, the Fund obtained an offer of an irrevocable direct 
pay letter of credit from First Trade Union Bank (FTUB) \24\ in support 
of the tax-exempt bond financing \25\ for the purchase of the Condo by 
the Fund. The amount of the letter of credit would not exceed the 
lesser of: (i) 80 percent (80%) of the appraised value of the 
underlying real estate collateral, or (ii) 80 percent (80%) of the 
purchase price, and in no event would exceed the legal lending limit 
($8 million) of FTUB. The letter of credit would be secured with a 
valid first mortgage and security interest on the Condo and would 
include an assignment of all leases, rents, plans, specifications, 
contracts, licenses, permits, warranties, and approvals pertaining to 
the Condo. The letter of credit would also be secured by a first 
position lien on all business assets of the Fund and a negative pledge 
of the Fund's deposit and investment accounts held at FTUB with a 
minimum liquidity provision, to be determined. The term of the letter 
of credit would be seven (7) years. The Union would be required to 
provide a letter of support \26\ to assure adequate cash flow to the 
Fund to meet debt service requirements. The offer by FTUB has expired, 
but it is represented that similar terms are still available to the 
Fund.
---------------------------------------------------------------------------

    \24\ It is represented that ownership interests in FTUB are as 
follows: New England Carpenters Pension Fund--36.5%, New England 
Carpenters Guaranteed Annuity Fund--18.2%, Empire State Carpenters 
Pension Fund--45%, and Bank Senior Management (through rabbi 
trust)-.3%.
    \25\ The Department, herein, is not providing any relief for the 
lending of money or other extension of credit between the Fund and 
FTUB, any other bank, financial institution, or entity.
    \26\ The Department, herein, is not providing any relief in 
connection with the letter of support.
---------------------------------------------------------------------------

    The Fund is interviewing prospective lenders and underwriters, and 
will obtain a firm commitment letter for the initial purchase of the 
tax-exempt bonds at the time of the closing on the proposed 
transaction. The Union anticipates that as a precondition for the Fund 
to obtain tax-exempt bond financing, the Union will be required to make 
a commitment to HEFA or to Mass Development/BIFA during the term of 
existing and future collective bargaining agreements to increase the 
hourly contribution to the Fund whenever necessary to ensure that the 
Fund has sufficient income and reserves to meet its debt obligation. It 
is represented that the Union is willing to make this commitment.
    20. CB Richard Ellis/New England, Consulting and Valuation Group, a 
division of CB Richard Ellis/New England is the appraiser chosen by 
Mark Haroutunian, VP & Credit Officer of FTUB, for the purposes of 
mortgage financing. James T. Moore (Mr. Moore), First Vice President/
Partner of CB Richard Ellis/New England, and Harris E. Collins (Mr. 
Collins), Senior Vice President/Partner of CB Richard Ellis/New England 
prepared an appraisal of the fair market value of Building, as if 
completed.
    Mr. Moore is qualified in that he is an associate member of the 
Appraisal Institute, a member of the Real Estate Finance Association, 
Greater Boston Real Estate Board, and a Massachusetts Certified General 
Appraiser. Mr. Collins is qualified in that he is a member of the 
Appraisal Institute, a member of the Counselors of Real Estate, and a 
member of the Real Estate Finance Association-Greater Boston Real 
Estate Board, and is a Massachusetts Certified General Appraiser.
    Both Mr. Moore and Mr. Collins are independent in that neither has 
a present or prospective interest in or bias with respect to the 
property that is the subject of the appraisal and neither have a 
business or personal interest in or bias with respect to the parties 
involved. It is further represented that the engagement of Mr. Moore 
and Mr. Collins and the compensation for completing the appraisal 
assignment was not contingent upon the development or reporting of 
predetermined results.
    The fair market value conclusions and projections reached by Mr. 
Moore and Mr. Collins are as follows:

----------------------------------------------------------------------------------------------------------------
                                                                                                       Value
            Appraisal premise                 Interest appraised             Date of value          conclusion
----------------------------------------------------------------------------------------------------------------
As Is (Land & Shell Value)..............  Fee Simple Estate.........  May 11, 2009..............      $5,710,000
As Complete-Total Property..............  Fee Simple Estate.........  January 1, 2010...........      23,000,000
As complete--The Fund's Unit............  Fee Simple Estate.........  January 1, 2010...........      13,360,000
As complete--The Union's Unit...........  Fee Simple Estate.........  January 1, 2010...........       9,640,000
----------------------------------------------------------------------------------------------------------------

    21. It is represented that in purchasing the Condo, the Fund will 
acquire a real property interest in the Condo, the land underlying the 
Building, and any common areas in the Building. Specifically, the 
Fund's Condo will consist of approximately 38,942 square feet of space, 
including a portion of the common space in the Building, and will 
constitute approximately 54.4 percent (54.4%) of the total square 
footage (71,539 square feet) in the Building.
    It is represented that the Fund may share and/or rent at fair 
market value some of the storage and training space (approximately 
3,800 square feet) on the first floor and office space (approximately 
600 square feet) on the second floor to other apprenticeship and 
training funds affiliated with the Union. It is further represented 
that the leasing of this space in the Condo will provide the Fund with 
supplemental income in the short-term, and that this space will provide 
the Fund with room for expansion in the long-term.
    The intended lessee is the Pile Drivers Local No. 56 Apprenticeship 
and Training Fund (the Pile Drivers Fund). It is represented that 
although the Pile Drivers Fund is affiliated with the Union, the Pile 
Drivers Fund and the Fund do not share any trustees in common. 
Accordingly, the applicant has represented that the Pile Drivers Fund 
is not a party in interest with respect to the Fund. To the extent that 
any leasing arrangement between the Fund and the Pile Drivers Fund and 
any leasing arrangement between the Fund any other training fund 
affiliated with the Union violates section 406 of the Act, the 
applicant represents that such transaction will either be exempt under 
section 408(b)(2) of the Act and/or will be exempt pursuant to class 
exemptions, PTE 76-1, PTE 77-10, or PTE 78-6.\27\
---------------------------------------------------------------------------

    \27\ The Department is offering no view, herein, as to whether 
any sharing or leasing arrangement between the Fund and any training 
fund affiliated with the Union is covered by the Department's 
regulations, pursuant to 29 CFR 2550.408b-2; nor, is the Department 
offering a view that any sharing or leasing arrangement between the 
Fund and any training fund affiliated with the Union would be exempt 
under the provisions of the class exemptions, PTE 76-1, PTE 77-10, 
or PTE 78-6. Further, the Department is not providing, herein, any 
relief with respect to any sharing or leasing arrangement between 
the Fund and any training fund affiliated with the Union.
---------------------------------------------------------------------------

    22. It is represented that the proposed transaction is feasible in 
that the purchase of the Condo by the Fund is

[[Page 68125]]

a one-time transaction for cash. The Fund will not pay any commissions, 
sales fees, or other similar payments to any party as a result of the 
transaction.
    23. The applicant maintains that the proposed transaction is in the 
interest of the participants and beneficiaries of the Fund, because the 
Fund would obtain a modern state of the art training and education 
facility that is ``built to suit'' the Fund's specifications, that is 
accessible both by automobile and public transportation, and that would 
alleviate the over-crowding that exists at the Existing Facility.
    The Union and the Fund also believe that the proposed transaction 
would be beneficial, because it would provide ``one-stop shopping'' for 
the Fund's apprentices and journeymen and the employers of those 
apprentices to have the Fund's training facility and Union offices at 
the same location. Such an arrangement would allow the apprentices and 
the journeymen to conduct Union business before or after attending 
classes or training. This arrangement would also allow contributing 
employers of the Fund to conduct business with the Union and address 
any apprentice issues with the Fund. Further, the arrangement would 
permit the Union and the Fund to showcase the training programs and 
facilities to contractors and developers. As the Building directly 
abuts a major interstate highway, this location would also provide both 
the Union and the Fund with the use of electronic signage on the roof 
for low-cost promotional opportunities for their respective programs.
    24. The proposed exemption contains conditions which are designed 
to ensure the presence of adequate safeguards to protect the interests 
of the Fund regarding the subject transaction. In this regard, on July 
16, 2008, the Trustees interviewed the candidates for the position of 
I/F with respect to the purchase by the Fund of the Condo. The Trustees 
selected and entered into an agreement (the Agreement), dated October 
30, 2008, with Independent Fiduciary Services, Inc. (IFS) to serve as 
the I/F to act on behalf of the Fund with regard to the subject 
transaction. IFS has represented that acting as the independent 
fiduciary with respect to the Fund, it is responsible for determining 
whether the proposed transaction satisfies the criteria, as set forth 
in section 404 and section 408(a) of the Act.
    25. The Trustees retained IFS to provide a report to the Department 
which would state IFS' conclusions and would summarize the analysis and 
considerations used by IFS to determine whether it is prudent to go 
forward with the proposed transaction.
    26. It is represented that IFS is qualified to serve as I/F in that 
it specializes in acting as an independent fiduciary to plans covered 
by the Act. It is represented that IFS is experienced as a fiduciary in 
making and evaluating investment decisions, including decisions 
involving the acquisition and management and disposition of real 
estate. IFS is registered as an investment adviser under the Investment 
Advisers Act of 1940. IFS has acted in a variety of roles, including 
independent fiduciary, named fiduciary, investment manager, and adviser 
or special consultant. In this regard, IFS serves as an ongoing 
investment consultant to plans with assets valued at approximately 
$17.9 billion. The staff of IFS includes professionals experienced with 
the management and disposition of portfolio assets, including real 
estate, as well as lawyers familiar with the Act and sensitive to 
fiduciary responsibilities involving investment activities. IFS 
acknowledges that with respect to its duties as I/F acting on behalf of 
the Fund with regard to the proposed transaction that it is a 
fiduciary, as defined in section 3(21)(A) of the Act.
    27. It is represented that IFS is independent of the parties 
involved in the proposed transaction in that it has no relationship 
with either the Fund or the Union, except for its role as the I/F with 
respect to the proposed transaction. It is represented that IFS' fee 
for its services as I/F of the Fund will be less than 1 percent (1%) of 
its annual revenues.
    28. Pursuant to the Agreement with the Trustees, IFS has agreed:
    (a) To evaluate the proposed transaction to determine whether it is 
in the interest of the Fund's participants and beneficiaries and, if 
IFS determines that the transaction is in the interest of the Fund, to 
submit a report to the Department in support of an application for a 
prohibited transaction exemption; and
    (b) To negotiate and agree on behalf of the Fund to the specific 
terms of the transaction, to decide whether to consummate the proposed 
transaction and, if IFS decides to consummate the proposed transaction 
to direct the appropriate Fund fiduciaries to execute the instruments 
necessary for such transaction.
    Further, IFS has represented that acting as I/F on behalf of the 
Fund, it is responsible for:
    (a) A review of the reasonableness of the purchase price;
    (b) A review of architect and contractor documentation to determine 
the appropriate proportional cost of the purchase and construction of 
the Condo and the common areas;
    (c) A review of the Fund's independently prepared financial 
statements and projections of future cash flow in order to evaluate the 
Fund's ability to financially support the purchase of the Condo and the 
future operating costs associated with it;
    (d) A review, with legal counsel, of the proposed sale agreement, 
the condominium agreement, the financing agreements, and other 
documents supporting the sale, ownership, and occupancy of the Condo;
    (e) A review of the Fund's financial and business analysis 
supporting the purchase of the Condo compared to leasing that space or 
buying or leasing other similar space; and
    (f) A review of the exemption application and other documentation 
provided to the Department.
    29. In carrying out its duties, IFS requested, received, and has 
reviewed the following documents concerning the Fund and the proposed 
transaction: (a) The Prohibited Transaction Exemption application, 
dated February 24, 2009, including all attachments; (b) the 
Department's response, dated April 1, 2009; (c) the draft purchase and 
sale agreement between the Building Corporation, as seller, and the 
Fund, as buyer, dated June 9, 2009, as negotiated on behalf of the Fund 
by IFS with the assistance of Kenneth Gould of Lawson & Weitzen, who is 
acting as independent real estate counsel for the Fund, including the 
negotiation of the purchase agreement by which the Fund will acquire 
the Condo and various related instruments governing the condominium; 
(d) the draft master deed and by-laws of the condominium regime under 
which the Fund's Condo would be established and managed; (e) audited 
financial statements of the Fund, as at year end September 30, 2004-
2008, prepared by Michael P. Ross, CPA; (f) forecasted income 
statements prepared by Christine Riley, Accounting Manager for the 
Fund, and Ben Tilton, Fund Administrator; (g) layout drawings of the 
existing and new structures; (h) the GMP between the Union and Suffolk, 
as set forth through change orders dated May 11, 2009, for the 
renovation and expansion of the Building, including exhibits; (i) the 
cost allocation report prepared by Casendino & Company (Casendino), an 
MAI architecture firm located in Boston, Massachusetts; and (j) the 
appraisal report, dated May 11, 2009, prepared by Mr. Moore and Mr. 
Collins of CB Richard Ellis/New

[[Page 68126]]

England, Consulting and Valuation Group.
    In addition, IFS discussed the proposed transaction with: (a) Aaron 
D. Krakow, Esq., Krakow & Souris, LLC, outside legal counsel 
representing the Fund in connection with filing the application for 
exemption for the proposed transaction; (b) Richard Kronish, Advisor to 
the Fund and to the Union on financial matters; (c) David Cary, Integra 
Realty Resources Inc., (Integra) the appraiser for the appraisal of the 
Condo to be completed prior to closing; (d) Christine Riley, Accounting 
Manager for the Fund; and (e) Benjamin Tilton, the Fund's Training 
Director.
    30. It is represented that IFS has visited both the Fund's Existing 
Facility and the site of the Condo. In this regard, IFS has observed 
the following: (i) There is no public transportation station in the 
vicinity of the Existing Facility, while the site of the Condo is 
approximately \1/4\ mile from two (2) public transportation stations; 
(ii) the Existing Facility has no immediate access to a major highway, 
while the Condo is adjacent to an interstate highway; (iii) the Condo 
will give the Fund's journeymen and apprentices access to almost double 
the number of parking spaces available in the Existing Facility; (iv) 
the Condo is three (3) times as large as the Existing Facility and 
appears to IFS to be proportionate and reasonable in light of the 
growth in the number of apprentices and journeymen taking classes and 
the increase in the number of courses offered by the Fund; and (v) the 
design drawings for the Condo shows that the unit will provide 
substantially more shop and classroom space than is available in the 
Existing Facility. Based on the foregoing observation, IFS concurs with 
the judgment of the Fund's Trustees that the Condo which the Fund will 
acquire, if the proposed transaction is consummated, will be adequate 
for the Fund's needs and represents a significant improvement over the 
current facility as a site for conducting the Fund's training and 
apprenticeship programs.
    31. According to IFS, the Fund has considered the following 
options: (1) Renovate and expand the Existing Facility; (2) purchase 
and renovate another building; (3) build a new facility; (4) lease 
space in the Building from the Union or lease space from an unrelated 
third party; (5) purchase a ``built to suit'' property.
    The first option, renovating and expanding the Existing Facility, 
according to IFS, is not tenable as the underlying lot is too small for 
expansion, there is no room for more parking spaces, and the facility 
is not convenient to public transportation. With regard to the second 
option, it is represented that the Fund has not been able to find a 
suitable property to purchase and renovate. With regard to the third 
option, no sites were available to build a new facility that would meet 
the Fund's requirements.
    With regard to a comparison between: (i) Leasing space from a third 
party or from the Union; and (ii) purchasing a ``built to suit'' 
property, IFS has determined that ownership of the Condo is less 
expensive and more secure to the Fund than leasing. First, the Fund's 
exemption from property taxes renders purchasing a property superior to 
leasing. Leased property would be subject to property taxes, 
notwithstanding the Fund's tax exempt status as the tenant. In this 
regard, the 2009 property taxes estimated in the CB Richard Ellis 
appraisal, dated May 2009, were $211,000. Further, the Condo is being 
built according to the Fund's design and meets the Fund's parking, 
transportation, space, and usage requirements. The Condo offers the 
added benefit of synergies created by sharing common elements with the 
Union, permitting the apprentices and journeymen carpenters to do Union 
related business and obtain training in the same location. With the 
Condo ownership, the Fund has long-term stability in owning the Condo, 
control over the space, and the flexibility to modify such space. The 
long-term appreciation in value of the Condo would benefit the Fund as 
an owner. Accordingly, IFS has concluded that ownership of the Condo is 
in the interest and protective of the Fund to a greater extent than 
leasing space from a third party or from the Union. Further, IFS agrees 
with the Fund's conclusion that a ``build to suit'' facility is the 
only feasible solution.
    32. It is represented that the terms of the proposed transaction 
are on terms which are at least as favorable to the Fund as those which 
would have been negotiated at arm's length with an unrelated party. The 
purchase contract will be signed not more than thirty (30) days before 
the closing on the Condo, and the master deed and by-laws will be 
signed at closing. IFS has reviewed drafts of the purchase contract, 
master deed, and by-laws for the Condo and concurs, in general, with 
the structure of the condominium regime.
    It is represented that the master deed and property by-laws, as 
currently drafted, are protective of the Fund's interest. IFS 
represents that it will continue to negotiate the master deed and by-
laws to make sure that the Fund is protected with regard to allocation 
of common expenses, rights with regard to sale of the Condo (either 
right of first refusal or right of first offer) \28\ and major 
decisions.
---------------------------------------------------------------------------

    \28\ The Department, herein, is not proposing any relief with 
regard to the entry into a right of first refusal or a right of 
first offer between the Union and the Fund.
---------------------------------------------------------------------------

    It is represented that the purchase contract between the Fund and 
the Building Corporation will set the purchase price that the Fund will 
pay for the Condo. In this regard, the purchase price paid by the Fund 
for the Condo, as documented in writing and approved by IFS, will be 
the lesser of: (1) The fair market value of the Condo (the Appraisal 
Method); or (2) the Fund's proportionate share of the cost of 
acquisition and development of the Building (the Cost Allocation 
Method).
    With regard to the Appraisal Method of calculating the purchase 
price of the Condo, IFS has engaged Integra, a certified MAI appraiser, 
to compute the fair market value of the Condo as of the date of the 
closing. It is represented that Integra is an independent company and 
will derive less than one percent (1%) of its gross proceeds in the 
past year in performing the appraisal of the Fund's Condo unit. It is 
represented that the format of this appraisal will be to value the 
Condo, according to normal practice, using a combination of income, 
replacement cost, and sales comparison approaches. In the view of IFS, 
this methodology is reasonable under the circumstances. It is 
represented that IFS will use Integra's appraisal to arrive at the fair 
market value of the Condo, at closing. The fair market value of the 
Condo will be compared to the actual cost of the Condo allocated to the 
Fund in order to arrive at the purchase price to be paid by the Fund 
for the Condo. In this regard, IFS will require that the purchase price 
for the Condo will be the lower of fair market value of the Condo or 
the actual cost of the Condo allocated to the Fund.
    With regard to the Cost Allocation Method of calculating the 
purchase price of the Condo, it is represented that under the 
provisions of Massachusetts Property Law and the master deed, an owner 
of a condominium unit has an undivided interest in the land equal to 
its proportional interest in the building. Comparing the size of the 
Fund's Condo (35,226 square feet) and the Union's condominium unit 
(29,487 square feet) with the total square footage in the Building 
(71,539 square feet), results in a ratio of 54.4 percent (54.4%) for 
the Fund and 45.6 percent (45.6%) for the Union. Using this 54.4% 
ratio, the

[[Page 68127]]

Fund's share of the cost ($5.8 million) of the land underlying the 
Building would be $3.155 million. Similarly, using the same 54.4% 
ratio, the Fund's share of the costs ($1 million) incurred by the Union 
for architect, legal, zoning, permits, and other construction-related 
fees would be approximately $544,000.
    IFS estimates that the Fund will bear a slightly higher percentage 
58.3 percent (58.3% or $11.152 million) of the $19.128 million in 
construction costs, as set forth in the GMP. In addition, IFS estimates 
that the Fund will bear 58.3 percent (58.3% or $349,800) of the 
$600,000 charges for construction costs outside the GMP (i.e., the 
amount expended on furniture, fixtures, and equipment, and the amount 
expended for materials for minor work).
    In order to confirm its understanding of the allocation of the 
acquisition and development costs between the Fund's Condo and the unit 
to be retained by the Union, IFS engaged Casendino, an MAI architecture 
firm located in Boston, Massachusetts, to review and report on the cost 
allocations delineated in the GMP, and more specifically the cost 
breakdown between the condominium units. Based on its review, in the 
opinion of Casendino, the construction costs for the Fund should be 
allocated at 58.34% of the construction budget (including any savings 
distribution).
    Accordingly, the purchase price paid by the Fund for the Condo, as 
documented in writing and approved by IFS, will be the lesser of:
    (1) The fair market value of the Condo, as of the date of the 
closing on the transaction, as determined by an independent, qualified 
appraiser selected by IFS; or
    (2) 58.3 percent (58.3%) of the amount actually expended by the 
Building Corporation in the construction of the Condo under the GMP, 
plus the following amounts:
    (i) 58.3 percent (58.3%) of the additional construction soft costs 
incurred outside the GMP contract (i.e., the amount expended on 
furniture, fixtures, and equipment, and the amount expended for 
materials for minor work);
    (ii) 54.4 percent (54.4%) of the amount expended on construction 
soft costs (i.e., architect, legal, zoning, permits, and other fees); 
and
    (iii) 54.4 percent (54.4%) of the cost of the land underlying the 
Building.
    The following chart summarized the purchase price of the Condo 
under the Cost Allocation Method:

----------------------------------------------------------------------------------------------------------------
                                                                                      Allocation
                             Component                               Price or value    percent       Fund cost
----------------------------------------------------------------------------------------------------------------
Purchase Land & Building...........................................      $5,800,000         54.4      $3,155,200
Construction Soft Costs............................................       1,000,000         54.5         544,000
GMP Construction Contract..........................................      19,128,992         58.3      11,152,202
Non-GMP Contract Construction Costs................................         600,000         58.3         349,800
                                                                    --------------------------------------------
    Total Construction.............................................      26,528,992  ...........      15,201,202
----------------------------------------------------------------------------------------------------------------

    33. IFS has considered the size of the investment that the Fund 
proposes to make in purchasing the Condo relative to total Fund assets. 
In this regard, IFS maintains that as a training fund, the Fund is not 
limited by investment diversification principles with regard to 
investing in facilities which fulfill the Fund's training purpose and 
its ancillary administrative activities. In the opinion of IFS, the 
primary consideration is the Fund's ability to meet its financial 
obligations, as they come due without impairing its training mandate.
    IFS relies on a number of assumptions in evaluating the Fund's 
projected financial status, and used these assumptions to develop 
sensitivity models to project the Fund's financial status under a 
variety of both positive and negative assumptions. The assumptions 
break down into four categories: (1) Equity investment as a source of 
funds; (2) the collective bargaining agreements; (3) projected 
carpenter hours; and (4) fixed and variable costs.
    With regard to the first category concerning sources of funds, in 
addition to the value of the Existing Facility, the Fund has annual 
investment income of approximately $200,000, including revenue 
anticipated to arise from rental of excess space in the Condo.
    With regard to the second category, the main source of revenue for 
the Fund is the hourly contributions to be provided by the current 
collective bargaining agreements. It is anticipated that increases in 
the hourly rate and increases in the total wage and benefit package 
will be included in any future collective bargaining agreements.
    With regard to the third category, while the 2009 fiscal year's 
carpenter hours underlying the revenue projection is 20 percent (20%) 
below the 2008 carpenter hours, IFS estimates that hours will stay at 
the 2009 level in 2010, and then increase in each of the years 2011 and 
2012, and thereafter stabilizes at 6,720,000 for the next twenty years.
    With regard to the fourth category, IFS also reviewed the 
anticipated annual fixed costs of operating the Condo and the variable 
costs of operating the Fund. In this regard, IFS assumed an annual two-
percent (2%) increase in fixed and variable costs.
    IFS evaluated the Fund's ability to service the tax exempt bond 
financing under stressed scenarios in which the carpenters' hours upon 
which contributions to the Fund are based decrease over time. In 
projecting a worse case scenario, IFS assumes annual reductions in 
carpenters' hours of 16 percent (16%) per year, each year from 2013 to 
2022. In 2022, carpenters' hours would total only 1.05 million (down 
from 5.4 million hours in 2009). Under this scenario, the projected 
wage and benefit package would be $77.92 per hour, of which the Fund 
would receive $.598 per hour. In this regard, IFS estimates that the 
contribution rate to the Fund would have to increase by approximately 
$1.30 per hour from within the total projected wage and benefit 
package. Accordingly, as part of IFS' review and possible approval of 
the proposed transaction, IFS will require that the Union pledge to 
increase contributions to the Fund by diversion from other aspects of 
the wage and benefit package to cover the Fund's cash flow needs. In 
IFS' view, these potential diversions by the Union of up to an 
additional $1.30 per hour do not appear to be unmanageable given the 
projected size of the total wage and benefit package of $77.92.
    Based on its review of preliminary information and its financial 
analysis, IFS concludes that the Fund reasonably can be expected to 
make all payments of interest and principal on its loan to acquire the 
Condo, maintain the Condo, and meet its expected training obligations. 
In addition, IFS concludes that under certain stress scenarios, a 
pledge by the Union to increase contributions to the Fund will be

[[Page 68128]]

required to pay operating costs and debt service requirements.
    In the event the Fund does not meet its obligations under the 
financing documents, the consequences of such an event would be spelled 
out in the loan agreement and the trust indenture of the tax-exempt 
bonds which provided such financing. Such instruments customarily 
require that the indenture trustee give the Fund notice of any breach 
and an opportunity to cure the breach within thirty (30) days. As 
discussed above, the cure would be effected by invoking the Union's 
obligation to increase the Fund's allocation from the total wage and 
benefit package.
    34. IFS' analysis of the proposed transaction makes certain 
assumptions, about the level, security lien, and interest rate of tax-
exempt debt, the amount of the Fund's equity participation in the 
proposed transaction, and the funds available from the sale of the 
Existing Facility. Each of these assumptions, as well as escalation 
assumptions in revenue and expense calculations and interest rate 
assumptions is subject to change and further analysis by IFS. In this 
regard, IFS has represented that it will continue to monitor the terms 
of the proposed transaction and will not consent to the closing until 
IFS is able to confirm that the terms of the purchase contract under 
which the Fund will acquire the Condo and all of the closing documents 
are reasonable and in the interest of the Fund and its participants.
    35. IFS has examined the potential conflict of interest of two (2) 
of the Trustees of the Fund. In this regard, one member of the 
Executive Board of the Union is also a labor Trustee of the Fund, and a 
management Trustee of the Fund is also an executive with Suffolk, the 
contractor on the project. Both Trustees have recused themselves from 
all votes and matters relating to the construction of the Condo. As IFS 
is engaged to decide whether and on what terms to consummate the 
proposed transaction and not the Trustees of the Fund, these recusals 
provide further assurance that there is no conflict of interest arising 
out of the positions these two Trustees hold with the Union and 
Suffolk, respectively. It is further represented that any of the 
Trustees of the Fund who present similar conflicts in the future will 
recuse themselves as well.
    IFS will also require that the by-laws and the master deed of the 
Building provide the Fund with appropriate authority regarding the on-
going management of the Building over time. In this regard, Article II, 
section 2.1 of the proposed by-laws provides for each condominium unit 
owner to appoint one ``manager'' to the Condominium Association Board 
of Managers that has the responsibility for the operations and 
maintenance of the common area. The Trustees of the Fund represent that 
the manager appointed by the Fund shall be a management trustee at all 
times that the other condominium unit is owned by the Union.
    36. IFS has also addressed the marketability of the Condo. In this 
regard, it is represented that depending on the needs of various 
possible tenants and purchasers the Condo could be sold or leased as a 
single unit or could be subdivided into separate rental units. IFS 
further represents that the location relative to highway and mass 
transit and adequate parking makes the Condo competitively attractive 
for a number of commercial uses, as there are very few properties that 
combine a large open space suitable for industrial or warehouse use 
that also have office space for company staff.
    37. In conclusion, subject to certain caveats listed below, and 
subject to all of the terms of the Agreement and the assumptions 
developed in IFS's financial model to protect the Funds assets, as of 
June 11, 2009, IFS finds that the purchase of the Condo by the Fund is 
in the interest of the Fund. IFS's ultimate approval of the proposed 
transaction will be subject to the following caveats: (a) Review and 
agreement on the terms of the NMTC and tax-exempt bond financing; (b) 
agreement on the final terms of the Condo by-laws, the purchase 
contract, the master deed, and all closing documents, based on 
assistance and advice from legal counsel; (c) the final financing 
available to the Fund is on terms consistent with the assumptions 
described in the report prepared by IFS, dated June 11, 2009, and the 
terms thereof have been reviewed and approved by Fund counsel; and (d) 
satisfaction of all conditions set forth in the purchase agreement and 
related instruments.
    38. In summary, the applicant represents that the proposed 
transaction meets the statutory criteria for an exemption under section 
408(a) of the Act because:
    (a) IFS, acting as the I/F on behalf of the Fund, is responsible 
for analyzing the relevant terms of the transaction and deciding 
whether the Trustees should proceed with the transaction;
    (b) The Fund may not purchase the Condo, unless and until IFS, 
acting as the I/F on behalf of the Fund, approves such purchase;
    (c) IFS, acting as the I/F on behalf of the Fund, is responsible 
for: (i) Establishing the purchase price of the Condo, (ii) reviewing 
the financing terms, (iii) determining that such financing terms are 
the product of arm's length negotiations, and (iv) ensuring that the 
Fund will not close on the Condo until IFS has determined that to 
proceed with the proposed transaction is feasible, in the interest of, 
and protective of the participants and beneficiaries of the Fund;
    (d) The purchase price paid by the Fund for the Condo, as 
documented in writing and approved by IFS, acting as the I/F on behalf 
of the Fund, is the lesser of:
    (1) The fair market value of the Condo, as of the date of the 
closing on the transaction, as determined by an independent, qualified 
appraiser selected by the I/F; or
    (2) 58.3 percent (58.3%) of the amount actually expended by the 
Building Corporation in the construction of the Condo under the GMP, 
plus the following amounts:
    (i) 58.3 percent (58.3%) of the additional construction soft costs 
incurred outside the GMP contract (i.e., the amount expended on 
furniture, fixtures, and equipment, and the amount expended for 
materials for minor work);
    (ii) 54.4 percent (54.4%) of the amount expended on construction 
soft costs (i.e. architect, legal, zoning, permits, and other fees; and
    (iii) 54.4 percent (54.4%) of the cost of the land underlying the 
Building;
    (e) IFS, acting as the independent fiduciary on behalf of the Fund, 
is responsible, prior to entering into the proposed transaction, for: 
(i) Reviewing an appraisal of the fully completed Condo, which has been 
prepared by an independent, qualified appraiser, and updated, as of the 
date of the closing of the transaction, (ii) evaluating the sufficiency 
of the methodology of such appraisal, and (iii) determining the 
reasonableness of the conclusions reached in such appraisal;
    (f) The terms of the transaction are no less favorable to the Fund 
than terms negotiated under similar circumstances at arm's length with 
unrelated third parties;
    (g) The Fund does not purchase the Condo or take possession of the 
Condo until such Condo is completed;
    (h) The Fund has not been, is not, and will not be a party to the 
construction financing loan or the permanent financing loan obtained by 
the Building Corporation and/or by the Union;
    (i) The Fund does not pay any commissions, sales fees, or other 
similar

[[Page 68129]]

payments to any party as a result of the transaction, and the costs 
incurred in connection with the purchase of the Condo by the Fund at 
closing do not include, directly or indirectly, any developer's profit, 
any premium receive by the developer, nor any interest charges incurred 
on the construction financing loan or the permanent financing loan 
obtained by the Building Corporation and/or by the Union;
    (j) Under the terms of the current collective bargaining 
agreement(s) and any future collective bargaining agreement(s), the 
Union has the ability, unilaterally, to increase the contribution rate 
to the Fund at any time by diverting money from wages and contributions 
to other benefit funds within the total wage and benefit package, and 
the Union is obligated to do so in order to prevent a default by the 
Fund under the terms of the financing obtained by the Fund to purchase 
the Condo;
    (k) In the event, the Building Corporation and/or the Union 
defaults on the construction financing loan or the permanent financing 
loan obtained by the Building Corporation and/or the Union, the 
creditors under the terms of such construction financing loan or such 
permanent financing loan shall have no recourse against the Condo or 
any of the assets of the Fund;
    (l) IFS, acting as the independent fiduciary with respect to the 
Fund, is responsible for reviewing and approving the allocation between 
funding the purchase of the Condo from the Fund's existing assets or 
financing such purchase;
    (m) IFS, acting as the independent fiduciary with respect to the 
Fund, is responsible for determining whether the proposed transaction 
satisfies the criteria, as set forth in section 404 and section 408(a) 
of the Act.

Notice to Interested Persons

    Those persons who may be interested in the publication in the 
Federal Register of the Notice of Proposed Exemption (the Notice) 
include all members of the Locals in the Boston area and the Employer 
Associations.
    It is represented that notification will be provided to all such 
interested persons by first class mail within fifteen (15) calendar 
days of the date of publication of the Notice in the Federal Register. 
Such mailing will contain a copy of the Notice, as it appears in the 
Federal Register on the date of publication, plus a copy of the 
supplemental statement, as required, pursuant to 29 CFR Sec.  
2570.43(b)(2) of the Department's regulations, which will advise all 
interested persons of the right to comment and to request a hearing.
    The Department must receive all written comments and requests for a 
hearing no later than forty-five (45) days from the date of the 
publication of the Notice in the Federal Register.
    Further Information Contact: Angelena C. Le Blanc of the 
Department, telephone (202) 693-8551 (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 15th day of December 2009.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. E9-30262 Filed 12-21-09; 8:45 am]

BILLING CODE 4510-29-P