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Secretary of Labor Thomas E. Perez
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EBSA Notices

Proposed Exemptions; Deutsche Bank AG (DB)   [5/22/2003]
[PDF]
FR Doc 03-12889

[Federal Register: May 22, 2003 (Volume 68, Number 99)]
[Notices]               
[Page 28018-28030]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22my03-105]                         


[[Page 28018]]

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Application No. D-11004, et al.]

 
Proposed Exemptions; Deutsche Bank AG (DB)

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of proposed exemptions.

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SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the prohibited transaction restrictions of the Employee 
Retirement Income Security Act of 1974 (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-5649, 
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210. Attention: Application No. ------, stated in each notice of 
proposed exemption. Interested persons are also invited to submit 
comments and/or hearing requests to EBSA via e-mail or FAX. Any such 
comments or requests should be sent either by e-mail to: 
``moffitt.betty@dol.gov'', or by FAX to (202) 219-0204 by the end of 
the scheduled comment period. The applications for exemption and the 
comments received will be available for public inspection in the Public 
Documents Room of the Employee Benefits Security Administration, U.S. 
Department of Labor, Room N-1513, 200 Constitution Avenue, NW., 
Washington, DC 20210.

Notice to Interested Persons

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

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in 
applications filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 1990). 
Effective December 31, 1978, section 102 of Reorganization Plan No. 4 
of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of the 
Secretary of the Treasury to issue exemptions of the type requested to 
the Secretary of Labor. Therefore, these notices of proposed exemption 
are issued solely by the Department.
    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.
    Deutsche Bank AG (DB), located in Germany, with affiliates in New 
York, New York and other locations; and JPMorgan Chase Bank, located in 
New York, New York; (collectively, with their Affiliates, the 
Applicants). (Application Nos. D-11004 and D-11106).

Proposed 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), the Department is considering amending the 
following individual prohibited transaction exemptions (PTEs) and 
authorization made pursuant to PTE 96-62 (61 FR 39988, July 31, 1996--
referred to herein as ``EXPRO''): PTE 2000-25 (65 FR 35129, June 1, 
2000), issued to Morgan Guaranty Trust Company of New York and J.P. 
Morgan Investment Management, Inc., and PTE 2000-27, issued to the 
Chase Manhattan Bank (65 FR 35129, June 1, 2000), and Final 
Authorization Number (FAN) 2001-19E, issued to DB and its Affiliates 
(June 23, 2001).\1\
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    \1\ See also PTE 2000-26 (65 FR 35129, June 1, 2000), issued to 
Goldman, Sachs & Co., and its Affiliates; PTE 2000-29 (65 FR 35129, 
June 1, 2000), issued to Morgan Stanley Dean Witter & Co. and its 
Affiliates; FAN 2001-24E (October 6, 2001), issued to Barclays 
Global Investors N.A., Barclays Capital, Inc. and their Affiliates; 
and FAN 2002-09E (September 14, 2002), issued to The TCW Group, 
Inc., and its Affiliates. The Department will separately consider 
similar amendments to those exemptions and authorizations upon the 
receipt of applications or submissions relating thereto from such 
entities.
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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) of the Code, 
shall not apply to the purchase of any securities by the Asset Manager 
on behalf of employee benefit plans (Client Plans), including Client 
Plans investing in a pooled fund (Pooled Fund), for which the Asset 
Manager acts as a fiduciary, from any person other than the Asset 
Manager or an affiliate thereof, during the existence of an 
underwriting or selling syndicate with respect to such securities, 
where the Affiliated Broker-Dealer is a manager or member of such 
syndicate (an ``affiliated underwriter transaction'' (AUT)), and/or 
where an Affiliated Trustee serves as trustee of a trust that issued 
the securities (whether or not debt securities) or serves as indenture 
trustee of securities that are debt securities (an ``affiliated trustee 
transaction'' (ATT)), provided that the following conditions are 
satisfied:
    (a) The securities to be purchased are--
    (1) Either:
    (i) Part of an issue registered under the Securities Act of 1933 
(the 1933 Act) (15 U.S.C. 77a et. seq.) or, if exempt from such 
registration requirement, are (A) 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) issued by a bank, (C) 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 the 
issuer of which has been subject to the reporting requirements of 
section 13 of that Act (15 U.S.C. 78m) for a period of at least 90 days 
immediately preceding the sale of securities and has filed all

[[Page 28019]]

reports required to be filed thereunder with the Securities and 
Exchange Commission (SEC) during the preceding 12 months; or
    (ii) Part of an issue that is an ``Eligible Rule 144A Offering,'' 
as defined in SEC rule 10f-3 (17 CFR 270.10f-3(a)(4)). Where the 
Eligible Rule 144A Offering is of equity securities, the offering 
syndicate shall obtain a legal opinion regarding the adequacy of the 
disclosure in the offering memorandum;
    (2) Purchased prior to the end of the first day on which any sales 
are made, at a price that is not more than the price paid by each other 
purchaser of 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 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, provided that the interest rates 
on comparable debt securities offered to the public subsequent to the 
first day and prior to the purchase are less than the interest rate of 
the debt securities being purchased; and
    (3) 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 such securities has been in continuous operation 
for not less than three years, including the operation of any 
predecessors, unless --
    (1) Such securities are non-convertible debt securities rated in 
one of the four highest rating categories by at least one nationally 
recognized statistical rating organization, i.e., Standard & Poor's 
Rating Services, Moody's Investors Service, Inc., Duff & Phelps Credit 
Rating Co., or Fitch IBCA, Inc., or their successors (collectively, the 
Rating Organizations); or
    (2) Such securities are issued or fully guaranteed by a person 
described in paragraph (a)(1)(i)(A) of this exemption; or
    (3) Such securities are fully guaranteed by a person who has issued 
securities described in (a)(1)(i)(B), (C), or (D), and who has been in 
continuous operation for not less than three years, including the 
operation of any predecessors.
    (c) The amount of such securities to be purchased by the Asset 
Manager on behalf of a Client Plan does not exceed three percent of the 
total amount of the securities being offered. Notwithstanding the 
foregoing, the aggregate amount of any securities purchased with assets 
of all Client Plans (including Pooled Funds) managed by the Asset 
Manager (or with respect to which the Asset Manager renders investment 
advice within the meaning of 29 CFR 2510.3-21(c)) does not exceed:
    (1) 10 percent of the total amount of any equity securities being 
offered;
    (2) 35 percent of the total amount of any debt securities being 
offered that are rated in one of the four highest rating categories by 
at least one of the Rating Organizations; or
    (3) 25 percent of the total amount of any debt securities being 
offered that are rated in the fifth or sixth highest rating categories 
by at least one of the Rating Organizations; and
    (4) If purchased in an Eligible Rule 144A Offering, the total 
amount of the securities being offered for purposes of determining the 
percentages for (1)-(3) above is the total of:
    (i) The principal amount of the offering of such class 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 in any 
concurrent public offering.
    (d) The consideration to be paid by the Client Plan in purchasing 
such securities does not exceed three percent of the fair market value 
of the total net assets of the Client Plan, as of the last day of the 
most recent fiscal quarter of the Client Plan prior to such 
transaction.
    (e) The transaction is not part of an agreement, arrangement, or 
understanding designed to benefit the Asset Manager or an affiliate.
    (f) If the transaction is an AUT, the Affiliated Broker-Dealer does 
not receive, either directly, indirectly, or through designation, any 
selling concession or other consideration that is based upon the amount 
of securities purchased by Client Plans pursuant to this exemption. In 
this regard, the Affiliated Broker-Dealer may not receive, either 
directly or indirectly, any compensation that is attributable to the 
fixed designations generated by purchases of securities by the Asset 
Manager on behalf of its Client Plans.
    (g) If the transaction is an AUT,
    (1) The amount the Affiliated Broker-Dealer receives in management, 
underwriting or other compensation 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 exemption. 
Except as described above, nothing in this paragraph 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 consideration that 
is not based upon the amount of securities purchased by the Asset 
Manager on behalf of Client Plans pursuant to this exemption; and
    (2) The Affiliated Broker-Dealer shall provide to the Asset Manager 
a written certification, signed by an officer of the Affiliated Broker-
Dealer, stating the amount that the Affiliated Broker-Dealer received 
in compensation during the past quarter, in connection with any 
offerings covered by this exemption, was not adjusted in a manner 
inconsistent with section I, paragraphs (e), (f), or (g), of this 
exemption.
    (h) In the case of a single Client Plan, the covered transaction is 
performed under a written authorization executed in advance by an 
independent fiduciary (Independent Fiduciary) of the Client Plan.
    (i) Prior to the execution of the written authorization described 
in paragraph (h) above, the following information and materials (which 
may be provided electronically) must be provided by the Asset Manager 
to the Independent Fiduciary of each single Client Plan:
    (1) A copy of the notice of proposed exemption and of the final 
exemption, if granted, as published in the Federal Register; and
    (2) Any other reasonably available information regarding the 
covered transactions that the Independent Fiduciary requests.
    (j) Subsequent to an Independent Fiduciary's initial authorization 
permitting the Asset Manager to engage in the covered transactions on 
behalf of a single Client Plan, the Asset Manager will continue to be 
subject to the requirement to provide any reasonably available 
information regarding the covered transactions that the Independent 
Fiduciary requests.
    (k) In the case of existing plan investors in a Pooled Fund, such 
Pooled Fund may not engage in any covered

[[Page 28020]]

transactions pursuant to this exemption, unless the Asset Manager has 
provided the written information described below to the Independent 
Fiduciary of each plan participating in the Pooled Fund. The following 
information and materials (which may be provided electronically) shall 
be provided not less than 45 days prior to the Asset Manager's engaging 
in the covered transactions on behalf of the Pooled Fund pursuant to 
the exemption:
    (1) A notice of the Pooled Fund's intent to purchase securities 
pursuant to this exemption and a copy of the notice of proposed 
exemption and of the final exemption, if granted, as published in the 
Federal Register;
    (2) Any other reasonably available information regarding the 
covered transactions that the Independent Fiduciary requests; and
    (3) A termination form expressly providing an election for the 
Independent Fiduciary to terminate the plan's investment in the Pooled 
Fund without penalty to the plan. Such form shall include instructions 
specifying how to use the form. Specifically, the instructions will 
explain that the plan has an opportunity to withdraw its assets from 
the Pooled Fund for a period at least 30 days after the plan's receipt 
of the initial notice described in subparagraph (1) above and that the 
failure of the Independent Fiduciary to return the termination form by 
the specified date shall be deemed to be an approval by the plan of its 
participation in covered transactions as a Pooled Fund investor. 
Further, the instructions will identify the Asset Manager and its 
Affiliated Broker-Dealer and/or Affiliated Trustee and state that this 
exemption may be unavailable unless the Independent Fiduciary is, in 
fact, independent of those persons. Such fiduciary must advise the 
Asset Manager, in writing, if it is not an ``independent Fiduciary,'' 
as that term is defined in section II(g) of this exemption.
    For purposes of this paragraph, the requirement that the 
authorizing fiduciary be independent of the Asset Manager shall not 
apply in the case of an in-house plan sponsored by the Applicants or an 
affiliate thereof. However, in-house plans must notify the Asset 
Manager, as provided above.
    (l) In the case of a plan whose assets are proposed to be invested 
in a Pooled Fund subsequent to implementation of the procedures to 
engage in the covered transactions, the plan's investment in the Pooled 
Fund is subject to the prior written authorization of an Independent 
Fiduciary, following the receipt by the Independent Fiduciary of the 
materials described in subparagraphs (1) and (2) of paragraph (k). For 
purposes of this paragraph, the requirement that the authorizing 
fiduciary be independent of the Asset Manager shall not apply in the 
case of an in-house plan sponsored by the Applicants or an affiliate 
thereof.
    (m) Subsequent to an Independent Fiduciary's initial authorization 
of a plan's investment in a Pooled Fund that engages in the covered 
transactions, the Asset Manager will continue to be subject to the 
requirement to provide any reasonably available information regarding 
the covered transactions that the Independent Fiduciary requests.
    (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:
    (1) Furnish the Independent Fiduciary of each single Client Plan, 
and of each plan investing in a Pooled Fund, with a report (which may 
be provided electronically) disclosing all securities purchased on 
behalf of that Client Plan or Pooled Fund pursuant to the exemption 
during the period to which such report relates, and the terms of the 
transactions, including:
    (i) The type of security (including the rating of any debt 
security);
    (ii) The price at which the securities were purchased;
    (iii) The first day on which any sale was made during this 
offering;
    (iv) The size of the issue;
    (v) The number of securities purchased by the Asset Manager for the 
specific Client Plan or Pooled Fund;
    (vi) The identity of the underwriter from whom the securities were 
purchased;
    (vii) In the case of an AUT, the spread on the underwriting;
    (viii) In the case of an ATT, the basis upon which the Affiliated 
Trustee is compensated;
    (ix) The price at which any such securities purchased during the 
period were sold; and
    (x) The market value at the end of such period of each security 
purchased during the period and not sold;
    (2) Provide to the Independent Fiduciary in the quarterly report 
(i) in the case of AUTs, a representation that the Asset Manager has 
received a written certification signed by an officer of the Affiliated 
Broker-Dealer, as described in paragraph (g)(2), affirming that, as to 
each AUT covered by this exemption during the past quarter, the 
Affiliated Broker-Dealer acted in compliance with section I, paragraphs 
(e), (f), and (g) of this exemption, and that copies of such 
certifications will be provided to the Independent Fiduciary upon 
request, and (ii) in the case of ATTs, a representation of the Asset 
Manager affirming that, as to each ATT, the transaction was not part of 
an agreement, arrangement or understanding designed to benefit the 
Affiliated Trustee;
    (3) Disclose to the Independent Fiduciary that, upon request, any 
other reasonably available information regarding the covered 
transactions that the Independent Fiduciary requests will be provided, 
including, but not limited to:
    (i) The date on which the securities were purchased on behalf of 
the plan;
    (ii) The percentage of the offering purchased on behalf of all 
Client Plans and Pooled Funds; and
    (iii) The identity of all members of the underwriting syndicate;
    (4) Disclose to the Independent Fiduciary in the quarterly report, 
any instance during the past quarter where the Asset Manager was 
precluded for any period of time from selling a security purchased 
under this exemption in that quarter because of its status as an 
affiliate of the Affiliated Broker-Dealer or of an Affiliated Trustee 
and the reason for this restriction;
    (5) Provide explicit notification, prominently displayed in each 
quarterly report, to the Independent Fiduciary of a single Client Plan, 
that the authorization to engage in the covered transactions may be 
terminated, without penalty, by the Independent Fiduciary on no more 
than five days' notice by contacting an identified person; and
    (6) Provide explicit notification, prominently displayed in each 
quarterly report, to the Independent Fiduciary of a Client Plan 
investing in a Pooled Fund, that the Independent Fiduciary may 
terminate investment in the Pooled Fund, without penalty, by contacting 
an identified person.
    (o) Each single Client Plan shall have total net assets with a 
value of at least $50 million. In addition, in the case of a 
transaction involving an Eligible Rule 144A Offering on behalf of a 
single Client Plan, each such Client Plan shall have at least $100 
million in securities, as determined pursuant to SEC rule 144A (17 CFR 
230.144A).\2\ In the case of

[[Page 28021]]

a Pooled Fund, the $50 million requirement will be met if 50 percent or 
more of the units of beneficial interest in such Pooled Fund are held 
by plans having total net assets with a value of at least $50 million. 
For purchases involving an Eligible Rule 144A Offering on behalf of a 
Pooled Fund, the $100 million requirement will be met if 50 percent or 
more of the units of beneficial interest in such Pooled Fund are held 
by plans having at least $100 million in assets and the Pooled Fund 
itself qualifies as a QIB, as determined pursuant to SEC rule 144A (17 
CFR 230.144A(a)(F)).
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    \2\ 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.
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    For purposes of the net asset tests described above, 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 the $100 million net asset requirement 
may be met by aggregating the assets of such Client Plans, if the 
assets 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 Prohibited 
Transaction Exemption 84-14 (49 FR 9494, 9506, March 13, 1984) and, in 
addition, has, as of the last day of its most recent fiscal year, total 
client assets under its management and control in excess of $5 billion 
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 employee 
benefit plans maintained by the Asset Manager, the Affiliated Broker-
Dealer, the Affiliated Trustee or an affiliate thereof for their own 
employees, for which the Asset Manager, the Affiliated Broker-Dealer, 
or an affiliate 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 
years from the date of any covered transaction such records as are 
necessary to enable the persons described in paragraph (s) of this 
proposed exemption to determine whether the conditions of this 
exemption have been met, except that--
    (1) No party in interest with respect to a Client Plan, other than 
the Asset Manager and the Affiliated Broker-Dealer or Affiliated 
Trustee, as applicable, shall be subject to a civil penalty under 
section 502(i) of the Act or the taxes imposed by section 4975(a) and 
(b) of the Code, if such records are not maintained, or not available 
for examination, as required by paragraph (s); and
    (2) This record-keeping condition shall not be deemed to have been 
violated if, due to circumstances beyond the control of the Asset 
Manager or the Affiliated Broker-Dealer, or Affiliated Trustee, as 
applicable, such records are lost or destroyed prior to the end of the 
six-year period.
    (s)(1) Except as provided in subparagraph (2) of this paragraph (s) 
and notwithstanding any provisions of subsections (a)(2) and (b) of 
section 504 of the Act, the records referred to in paragraph (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 a Client Plan, 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 Client Plan, or 
any authorized employee or representative of these entities; or
    (iv) Any participant or beneficiary of a Client Plan, or duly 
authorized employee or representative of such participant or 
beneficiary;
    (2) None of the persons described in paragraphs (s)(1)(ii)--(iv) 
shall be authorized to examine trade secrets of the Asset Manager or 
the Affiliated Broker-Dealer, or the Affiliated Trustee or commercial 
or financial information which is privileged or confidential; and
    (3) Should the Asset Manager or the Affiliated Broker-Dealer or the 
Affiliated Trustee refuse to disclose information on the basis that 
such information is exempt from disclosure pursuant to paragraph (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.
    (t) An indenture trustee whose affiliate has, within the prior 12 
months, underwritten any securities for an obligor of the indenture 
securities will resign as indenture trustee if a default occurs upon 
the indenture securities.

Section II--Definitions

    (a) The term ``Asset Manager'' means any asset management affiliate 
of the Applicants (as ``affiliate'' is defined in paragraph (c)) that 
meets the requirements of this proposed exemption.
    (b) The term ``Affiliated Broker-Dealer'' means any broker-dealer 
affiliate of the Applicants (as ``affiliate'' is defined in paragraph 
(c)) that meets the requirements of this exemption. Such Affiliated 
Broker-Dealer may participate in an underwriting or selling syndicate 
as a manager or member. The term ``manager'' means any member of an 
underwriting or selling syndicate who, either alone or together with 
other members of the syndicate, is authorized to act on behalf of the 
members of the syndicate in connection with the sale and distribution 
of the securities being offered, or who receives compensation from the 
members of the syndicate for its services as a manager of the 
syndicate.
    (c) The term ``affiliate'' of a person includes:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with such person;
    (2) Any officer, director, partner, employee, or relative (as 
defined in section 3(15) of the Act) of such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (d) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (e) The term ``Client Plan'' means an employee benefit plan that is 
subject to the fiduciary responsibility provisions of the Act and whose 
assets are under the management of the Asset Manager, including a plan 
investing in a Pooled Fund (as ``Pooled Fund'' is defined in paragraph 
(f) below).
    (f) The term ``Pooled Fund'' means a common or collective trust 
fund or pooled investment fund maintained by the Asset Manager.
    (g)(1) The term ``Independent Fiduciary'' means a fiduciary of a 
Client Plan who is unrelated to, and independent of, the Asset Manager, 
the Affiliated Broker-Dealer and the Affiliated Trustee. For purposes 
of this exemption, a Client Plan fiduciary will be deemed to be 
unrelated to, and independent of, the Asset Manager, the Affiliated 
Broker-Dealer and the Affiliated Trustee if such fiduciary represents 
that neither such fiduciary, nor any individual responsible for the 
decision to authorize or terminate authorization for transactions 
described in section I, is an officer, director, or

[[Page 28022]]

highly compensated employee (within the meaning of section 
4975(e)(2)(H) of the Code) of the Asset Manager, the Affiliated Broker-
Dealer or the Affiliated Trustee and represents that such fiduciary 
shall advise the Asset Manager if those facts change.
    (2) Notwithstanding anything to the contrary in this section II(g), 
a fiduciary is not independent if:
    (i) Such fiduciary directly or indirectly controls, is controlled 
by, or is under common control with the Asset Manager, the Affiliated 
Broker-Dealer or the Affiliated Trustee;
    (ii) Such fiduciary directly or indirectly receives any 
compensation or other consideration from the Asset Manager, the 
Affiliated Broker-Dealer or the Affiliated Trustee for his or her own 
personal account in connection with any transaction described in this 
exemption;
    (iii) Any officer, director, or highly compensated employee (within 
the meaning of section 4975(e)(2)(H) of the Code) of the Asset Manager, 
responsible for the transactions described in section I, is an officer, 
director, or highly compensated employee (within the meaning of section 
4975(e)(2)(H) of the Code) of the Client Plan sponsor or of the 
fiduciary responsible for the decision to authorize or terminate 
authorization for transactions described in section I. However, if such 
individual is a director of the Client Plan sponsor 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 in section I, then section II (g)(2)(iii) shall not apply.
    (3) The term ``officer'' means a president, any vice president in 
charge of a principal business unit, division or function (such as 
sales, administration or finance), or any other officer who performs a 
policy-making function for the entity.
    (4) In the case of existing Client Plans in a Pooled Fund, at the 
time the Asset Manager provides such Client Plans with initial notice 
pursuant to this exemption, the Asset Manager will notify the 
fiduciaries of such Client Plans that they must advise the Asset 
Manager, in writing, if they are not independent, within the meaning of 
this section II (g).
    (h) The term ``security'' 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)(1996)). For purposes of this exemption, 
mortgage-backed or other asset-backed securities rated by a Rating 
Organization will be treated as debt securities.
    (i) The term ``Eligible Rule 144A Offering'' shall have the same 
meaning as defined in SEC rule 10f-3(a)(4) (17 CFR 270.10f-3(a)(4)) 
under the 1940 Act.
    (j) The term ``qualified institutional buyer'' or ``QIB'' shall 
have the same meaning as defined in SEC rule 144A (17 CFR 
230.144A(a)(1)) under the 1933 Act.
    (k) The term ``Rating Organizations'' means Standard & Poor's 
Rating Services, Moody's Investors Service, Inc., Duff & Phelps Credit 
Rating Co., or Fitch IBCA, Inc., or their successors.
    (l) The term ``Affiliated Trustee'' means the Applicants and any 
bank or trust company affiliate of the Applicants (as ``affiliate'' is 
defined in paragraph (c)(1)) that serves as trustee of a trust that 
issues securities which are asset-backed securities or as indenture 
trustee of securities which are either asset-backed securities or other 
debt securities that meet the requirements of this proposed exemption. 
For purposes of this proposed exemption, other than section I(t), 
performing services as custodian, paying agent, registrar or in similar 
ministerial capacities is also considered serving as trustee or 
indenture trustee.

Preamble

    This document contains a notice of pendency before the Department 
of a proposed individual exemption which, if granted, would amend: PTE 
2000-25, issued to Morgan Guaranty Trust Company of New York and J.P. 
Morgan Investment Management, Inc. (65 FR 35129, June 1, 2000), PTE 
2000-27, issued to the Chase Manhattan Bank (65 FR 35129, June 1, 
2000), and FAN 2001-19E, issued to DB and its Affiliates (June 23, 
2001), pursuant to EXPRO. The exemptions, and EXPRO authorization, 
respectively, permit purchases of securities by the Applicants' asset 
management affiliate on behalf of employee benefit plans for which such 
asset management affiliate is a fiduciary, from underwriting or selling 
syndicates where the Applicants' broker-dealer affiliate participates 
as a manager or syndicate member. If granted, this proposed amendment 
would permit a plan's asset manager to acquire securities, on behalf of 
the plan, in an initial public offering (IPO) when it or its affiliate 
is the trustee, indenture trustee or a similar functionary for the 
trust which issued the securities. Thus, the relief requested is 
designed to cover acquisitions of asset-backed securities by plans 
where the plans' asset manager is affiliated with such a trustee for an 
issuing trust, as described herein. If adopted, this proposed amendment 
would affect the participants and beneficiaries of the plans involved 
in such transactions and the fiduciaries with respect to such plans.

Summary of Facts and Representations

    The facts and representations contained in the applications are 
summarized below. Interested persons are referred to the applications 
on file with the Department (see D-11004 and D-11106) for the complete 
representations of the Applicants.
    1. DB is a German banking corporation and a leading commercial 
bank, with total assets of 928,994 million euros and shareholders 
equity of 43,683 million euros, as of 2001. DB and its Affiliates 
(including the New York Branch of Deutsche Bank (DBNY)) provide a wide 
range of banking, fiduciary, record keeping, custodial, brokerage and 
investment services to corporations, institutions, governments, 
employee benefit plans, governmental retirement plans and private 
investors worldwide. DB is regulated by the Bundesanstalt fuer 
Finanzdienstleistungsaufsicht (the ``BAFin'') in Germany.
    2. Deutsche Bank Trust Company Americas (``DBTCA'') is a New York 
banking corporation and member bank of the U.S. Federal Reserve System. 
Deutsche Asset Management, Inc. (``DeAM Inc.'') is an investment 
adviser registered under the Investment Advisors Act of 1940. Both 
DBTCA and DeAM Inc. are indirect wholly-owned subsidiaries of DB. DBTCA 
and DeAM Inc., among other DB Affiliates, provide investment management 
and investment advisory services to plans covered by the Act. 
Hereinafter, DB, DBTCA, and DeAM Inc., and their other current and 
future asset management affiliates, shall be collectively referred to 
as the ``Asset Manager'' when discussing DB's activities relating to 
investment management or investment advisory services. Collectively, 
assets under management by DB and its Affiliates through collective 
trusts, separately managed accounts, and mutual funds currently exceed 
$585 billion.
    3. Deutsche Banc Securities, Inc., a wholly-owned subsidiary of DB, 
is a registered broker-dealer (hereinafter, collectively with any other 
current and future broker-dealer affiliates, the ``Affiliated Broker-
Dealer'') and regulated by the United States Securities & Exchange 
Commission (``SEC'') under Section 15 of the Securities Exchange Act of 
1934. The Affiliated Broker-Dealer serves, and engages in

[[Page 28023]]

transactions with, plans covered by the Act.
    4. J.P. Morgan Chase & Co. (``J.P. Morgan Chase'') is a financial 
holding company incorporated under Delaware law in 1968 and 
headquartered in New York, New York. As of December 31, 2001, after 
giving effect to the merger referred to below, J.P. Morgan Chase was 
the second largest banking institution in the United States, with 
approximately $694 billion in assets and approximately $41 billion in 
stockholders' equity. On December 31, 2000, J.P. Morgan & Co. 
Incorporated merged with and into The Chase Manhattan Corporation. Upon 
completion of the merger, The Chase Manhattan Corporation changed its 
name to ``J.P. Morgan Chase & Co.''
    J.P. Morgan Chase is a global financial services firm with 
operations in over 60 countries, and has as its principal bank 
subsidiaries: JPMorgan Chase Bank, a New York banking corporation 
headquartered in New York City, which was formed in November 2001 by 
the merger of The Chase Manhattan Bank and Morgan Guaranty Trust 
Company of New York; and Chase Manhattan Bank USA, National 
Association, headquartered in Delaware.
    The principal non-bank subsidiary of J.P. Morgan Chase is its 
investment bank subsidiary, J.P. Morgan Securities Inc. (``J.P. Morgan 
Securities''). J.P. Morgan Investment Management Inc. (``JPMIM'') is a 
wholly-owned subsidiary of J.P. Morgan Chase. J.P. Morgan Fleming Asset 
Management (USA) Inc. (JPMFAM), which was formerly known as Chase Asset 
Management, Inc., is a wholly-owned subsidiary of JPMorgan Chase Bank.
    The activities of J.P. Morgan Chase are internally organized, for 
management reporting purposes, into five major businesses:
    [sbull] Investment Banking, which includes securities underwriting 
and financial advisory, trading, mergers and acquisitions advisory, and 
corporate lending and syndication businesses;
    [sbull] Investment Management and Private Banking, which includes 
an asset management business, including mutual funds; institutional 
money management and cash management businesses; and a private bank, 
which provides wealth management solutions for a global client base of 
individuals and families;
    [sbull] Treasury & Securities Services, which provides information 
and transaction processing services, and moves securities and cash 
daily for its wholesale clients. Treasury & Securities Services 
includes custody, cash management, investor and institutional trust 
service businesses;
    [sbull] J.P. Morgan Partners, a large and diversified private 
equity investment firm, with total funds under management in excess of 
$30 billion; and
    [sbull] Retail and Middle Market Financial Services, which serves 
over 30 million consumers, small business and middle-market customers 
nationwide. Retail and Middle Market Financial Services offers a wide 
variety of financial products and services, including consumer banking, 
credit cards, mortgage services and consumer finance services, through 
a diverse array of distribution channels, including the internet and 
branch and ATM networks.
Requested Exemption
    5. The Applicants seek to amend existing individual exemptions 
(i.e., PTE 2000-25 (JP Morgan); PTE 2000-27 (Chase)) and an 
authorization made pursuant to PTE 96-62 a/k/a/ EXPRO (i.e., FAN 2001-
19E (DB)) that deal with the situation where an Asset Manager seeks to 
purchase securities for an employee benefit plan, in an initial 
offering, where the Asset Manager's Affiliate is a manager or member of 
the underwriting syndicate for such securities. Such a transaction is 
described herein as an Affiliated Underwriter Transaction or ``AUT''. 
The amendment proposed by the Applicants would add relief for two other 
transactions: (i) Where the Asset Manager is related to the trustee of 
the trust that issued the securities being underwritten or the 
indenture trustee of securities that are debt securities but its 
Affiliated Broker-Dealer is not part of the underwriting syndicate 
(i.e., an Affiliated Trustee Transaction or ``ATT''); and (ii) where 
the Asset Manager is related both to the trustee and to a member or 
manager of the underwriting syndicate (i.e., both an ``AUT'' and an 
``ATT'' at the same time).
    Therefore, the Applicants represent that the exemption, if granted, 
could be used in any of the following circumstances:
    (i) Where an Asset Manager seeks to purchase securities (equities, 
debt, or asset-backed securities, regardless of whether the latter are 
treated for tax purposes as equity or debt) in an initial offering 
where an Affiliate of the Asset Manager is a manager or member of the 
underwriting syndicate but where, in the case of a debt security or an 
asset-backed security, the trustee or indenture trustee is an 
unaffiliated entity;
    (ii) Where an Asset Manager seeks to purchase securities (debt or 
asset-backed securities, regardless of whether the latter are treated 
for tax purposes as equity or debt) in an initial offering where an 
Affiliate of the Asset Manager is the trustee or indenture trustee but 
where no member or manager of the underwriting syndicate is an 
Affiliate of the Asset Manager; or
    (iii) Where an Asset Manager seeks to purchase securities (debt or 
asset-backed securities, regardless of whether the latter are treated 
for tax purposes as equity or debt) in an initial offering where an 
Affiliate of the Asset Manager is both the trustee or indenture trustee 
and a manager or member of the underwriting syndicate.
    In such instances involving an ``AUT'', the exemption (if granted) 
would permit an Asset Manager to purchase for its Client Plans, or 
Pooled Funds, securities in an initial public offering (i.e., an IPO) 
from underwriting or selling syndicates in which the Affiliated Broker-
Dealer participates as a manager or member. In such instances involving 
an ``ATT'', DB or JPMorgan Chase Bank or an Affiliate of either, will 
act as a trustee, indenture trustee, or similar functionary 
(collectively, a ``Trustee'') with respect to the issuer of the 
securities (i.e., a trust). The Applicants state that all such 
purchases of securities, whether in an ``AUT'' or ``ATT'' or both, 
would be made from an underwriter or broker-dealer other than the 
Affiliated Broker-Dealer and that the Affiliated Broker-Dealer would 
not receive any selling concessions with respect to the securities sold 
to Client Plans. Thus, the proposed exemption would not cover any 
purchases of securities for a plan by an Asset Manager directly from 
the Asset Manager's Affiliate.\3\
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    \3\ With respect to possible acquisitions of asset-backed 
securities that could be made by plans in the secondary market, 
where the plans' asset manager has an affiliate that acts as a sub-
servicer for the issuing trust, see DOL Adv. Op. 99-03A (January 25, 
1999).
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    6. The Applicants represent that where the Affiliated Broker-Dealer 
is a member of an underwriting or selling syndicate, the Asset Manager 
generally makes purchases of securities for its Client Plans in 
compliance with part III of PTE 75-1, 40 FR 50845 (October 31, 1975). 
PTE 75-1, part III, provides a class exemption, under certain 
conditions, for a plan fiduciary to purchase securities from an 
underwriting or selling syndicate of which the fiduciary or an 
affiliate is a member. However, relief under PTE 75-1 is unavailable if 
the fiduciary or its affiliate is a manager of the underwriting or 
selling syndicate.
    7. PTE 2000-25, PTE 2000-27 and FAN 2001-19E expanded the relief

[[Page 28024]]

afforded under PTE 75-1 to, among other things, situations where the 
Affiliated Broker-Dealer is a manager of the underwriting or selling 
syndicate. However, neither PTE 75-1, PTE 2000-25, PTE 2000-27 nor FAN 
2001-19E currently addresses the situation where the fiduciary or its 
affiliate serves as Trustee with respect to a trust that is the issuer 
of the securities. Such trusts are normally associated with so-called 
asset-backed securities (ABS). ABS are usually issued as certificates 
representing an undivided interest in a trust which holds a portfolio 
of assets (e.g., secured consumer receivables or credit instruments 
that bear interest).\4\
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    \4\ For a discussion of prohibited transactions under the Act 
and exemptions relating to a plan's acquisition and holding of ABS, 
interested persons should review PTE 2002-41 (67 FR 54487, August 
22, 2002) and the so-called ``Underwriter Exemptions'' listed 
therein, as well as PTE 2002-19 (67 FR 14979, March 28, 2002), which 
amended three of the Underwriter Exemptions granted to J.P. Morgan 
Chase and certain Affiliates prior to the general amendment to the 
other Underwriter Exemptions provided by PTE 2002-41.
    Thus, the proposed exemption, if granted, would provide relief 
for prohibited transactions relating to a plan's acquisition and 
holding of ABS where a Plan's Asset Manager is affiliated with the 
Trustee of an issuing trust for a series of ABS (i.e., an ATT). 
However, other prohibited transactions that may be involved with the 
plan's investment in ABS would have to be covered by an existing 
Underwriter Exemption (absent any other applicable exemption), 
including amendments relating thereto as described in PTEs 2002-19 
and 2002-41. Interested persons should also review the Department's 
regulations defining ``plan assets'' for purposes of plan 
investments (see 29 CFR 2510.3-101, Definition of ``plan assets''--
plan investments).
    The Department notes that a fiduciary or other party in interest 
desiring relief afforded by one or the other of these exemptions 
would have to ensure that the applicable conditions of the 
appropriate exemption are met. Thus, for example, if the securities 
sold in an underwriting are asset-backed securities, both the 
proposed exemption and the existing exemptions involving asset-
backed securities referred to above may be relevant for the 
contemplated transactions. However, it should be noted that the 
party seeking the relief offered by a particular exemption must 
ensure that the conditions of the exemption have been met.
---------------------------------------------------------------------------

    With respect to the types of Trustees that would be covered by the 
proposed exemption, the Applicants state that in asset-backed 
securities, which are structured as pass-through securities, there is 
generally a trustee of the pool of assets. In certain transactions, 
such as offerings of collateralized bond obligations (CBOs), there may 
also be an indenture trustee to hold the debt obligation of the 
obligor. In more traditional public debt offerings, there is generally 
only an indenture trustee, who holds the debt obligation of the 
obligor, holds any assets pledged as collateral to secure payment of 
the debt obligation, makes required payments and keeps records, and in 
the event of a default, acts for the note holders. The Applicants 
represent that the functions and obligations of an indenture trustee 
are aligned with the interests of the note holders because such a 
trustee is generally appointed only to perform such ministerial 
functions (i.e., hold collateral, maintain records, and make payments 
when due). In this regard, the proposed exemption would also cover 
situations where an Asset Manager's Affiliate serves as a custodian, 
paying agent, registrar or other similar ministerial capacities (see 
Definition of ``Affiliated Trustee'' in section II(l) above).
    8. The Applicants state that the Affiliated Broker-Dealer is 
frequently involved in offerings of ABS and other securities where the 
Asset Manager or its Affiliate serves as a Trustee for the trust which 
issues such securities. The inability of the Asset Manager to purchase 
ABS or other securities for its Client Plans in such cases can be 
detrimental to those accounts because the accounts can lose important 
fixed-income investment opportunities that are relatively less 
expensive or qualitatively better than other available opportunities in 
such securities.
    9. The Applicants represent that the frequency of such offerings of 
ABS or other securities results from consolidation in the banking 
industry and the attendant reduction in the number of banks 
participating in the corporate trust business. Many factors that have 
made participation in the trust business less attractive to banks have 
contributed to this trend. On the income side, these factors include 
competitive pressure on pricing corporate trust services and loss of 
transactional fees and traditional ``float'' income due to the growth 
in book entry securities. On the expense side, the Applicants represent 
that the cost of entry into the corporate trust business and the cost 
of remaining competitive in the business have increased dramatically. 
This increase includes both technological and personnel costs which are 
necessary to remain competitive. The cost increase is particularly 
acute in the structured finance sector of the corporate trust business, 
where both systems and staff need to have the capability of supporting 
increasingly complex transactions.
    10. The Applicants represent that equally significant are the 
changes in the securities underwriting business, including increased 
participation by banks and bank affiliates, and consolidation within 
the industry. In 1990, Morgan Guaranty was the only bank in the 
corporate trust business that also had a significant underwriting 
affiliate. By 2000, four of the top ten underwriters for structured 
finance transactions, such as ABS, had affiliated corporate trust 
businesses. Eight of the top ten trustees of trusts issuing ABS, a 
group with a combined market share of over 76 percent in 2000, were 
affiliates of underwriters active in the structured finance sector.\5\
---------------------------------------------------------------------------

    \5\ Under the Gramm-Leach-Bliley Act, signed into law by the 
President on November 12, 1999, certain provisions of the Glass-
Steagall Act and the Bank Holding Company Act of 1956, as amended, 
are repealed. The Department notes that the effect of such law will 
likely be further consolidation of the financial services industry. 
The new law will facilitate cross-ownership and control among bank 
holding companies and securities firms through the creation of 
``financial holding companies'' that will be permitted to engage in 
a broad range of financial and related activities, including 
underwriting and dealing activities.
---------------------------------------------------------------------------

    11. The Applicants represent that currently most providers of 
corporate trust and related services in the structured finance 
marketplace are large banks that have the requisite staff and systems 
resources to efficiently serve the various types of ABS that are common 
to this marketplace. Most of these same banks, particularly those that 
are profitable and well capitalized, have expanded into the securities 
underwriting business, including underwriting of structured finance 
transactions. The Applicants represent that not only will plan 
investors be disadvantaged if banks and their affiliates that 
underwrite securities continue to be precluded from providing trustee 
services, but, further, it is clearly not in the best interest of plan 
investors to eliminate those banks--often the most competent in the 
servicing of structured finance transactions--from the pool of 
available corporate trust service providers.
    12. The Applicants state that the Trustee in a structured finance 
transaction for ABS, while involved in complex calculations and 
reporting, typically does not perform any discretionary functions. Such 
a Trustee operates as a stakeholder and strictly in accordance with the 
explicit terms of the governing agreements, so that the intent of the 
crafters of the transaction may be carried out. These functions are 
essentially ministerial and include establishing accounts, receiving 
funds, making payments, and issuing reports, all in a predetermined 
manner. Unlike trustees for corporate or municipal debt, Trustees in 
structured finance transactions for ABS need not assume discretionary 
functions to protect the interests of debt holders in the event of 
default or bankruptcy because structured finance entities are designed 
to be bankruptcy remote vehicles. The Applicants represent that there 
is no

[[Page 28025]]

``issuer'' outside the structured transaction to pursue for repayment 
of the debt. The Trustee's role is defined by a contract-explicit 
structure that spells out the actions to be taken upon the happening of 
specified events. The Applicants state that there is no opportunity (or 
incentive) for the Trustee in a structured finance transaction, by 
reason of its affiliation with an underwriter, asset manager, or 
otherwise, to take or not to take actions that might benefit the 
underwriter or asset manager to the detriment of plan investors.
    With respect to offerings of more traditional public debt 
securities that are not part of a structured finance transaction, the 
Applicants state that an indenture trustee may have more discretion 
when the issuer of the securities is not bankruptcy remote.\6\ In such 
instances, indenture trustees generally exercise meaningful discretion 
only in the context of a default, at which time the indenture trustee 
has the duty to act for the bondholders, in a manner consistent with 
the interests of investing plans (and other investors) and not with the 
interests of the issuer. In such situations, an indenture trustee may 
be an affiliate of an underwriter for the securities. In the event of a 
default, the duty of an indenture trustee in pursuing the bondholders' 
rights against the issuer might conflict with the indenture trustee's 
other business interests. However, the Applicants represent that under 
the Trust Indenture Act of 1939 (the Trust Indenture Act), an indenture 
trustee whose affiliate has, within the prior 12 months, underwritten 
any securities for an obligor of the indenture securities generally 
must resign as indenture trustee if a default occurs upon the indenture 
securities. Thus, the Applicants maintain that this requirement and 
other provisions of the Trust Indenture Act are designed to protect 
bondholders from conflicts of interest to which an indenture trustee 
may be subject.\7\
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    \6\ The amount of discretion possessed by an indenture trustee 
will depend on the terms of the particular indenture, and factual 
issues, such as whether a default has occurred.
    \7\ The Applicants submit that the Trust Indenture Act addresses 
analogous circumstances and is thus instructive regarding potential 
conflicts of interest. DB represents that the Trust Indenture Act 
was amended in 1990 to correct unnecessarily restrictive provisions 
that deemed a conflict of interest to exist where an indenture 
trustee or its affiliate simultaneously acts in other capacities 
(e.g., underwriter) for the issuer of the debt securities. The 
Applicants state that the U.S. Congress, at the SEC's instigation, 
determined that an indenture trustee and its affiliates could act in 
multiple capacities (including as trustee and underwriter for the 
issuer) absent a default under the governing trust indenture. 
According to the Applicants, the premise for this change was that 
until such a default occurs, there is no risk that the trustee could 
or would act in any way that might conflict with the interests of 
security holders (i.e., certificate holders of ABS). One of the 
reasons for the amendments to the Trust Indenture Act was the 
recognition of the alternative: withdrawal from the corporate trust 
business of the largest and best service providers, whose management 
would undoubtedly be attracted to the greater profitability of 
underwriting as opposed to the steady, but smaller profits from 
acting as an indenture trustee. According to the Applicants, the 
amendment to the Trust Indenture Act has in fact proved to be a 
benefit to the public in encouraging the best providers of trustee 
services to continue to provide such services.
---------------------------------------------------------------------------

    13. According to the Applicants, the role of the underwriter in a 
structured financing for a series of ABS involves, among other things, 
assisting the sponsor or originator of the applicable receivables or 
other assets in structuring the contemplated transaction. The Trustee 
becomes involved later in the process, after the principal parties have 
agreed on the essential components, to review the proposed transaction 
from the limited standpoints of technical workability and potential 
Trustee liability. After the issuance of securities to plan investors 
in a structured financing, while the Trustee performs its role as 
Trustee over the life of the transaction, the underwriter of the 
securities has no further role in the transaction. In addition, the 
Trustee has no opportunity to take or not take action, or to use 
information in ways that might advantage the underwriter to the 
detriment of plan investors. The Applicants state that an underwriter, 
in order to protect its reputation, clearly wants the transaction to 
succeed as it was structured, which includes the Trustee performing in 
a manner independent of the underwriter.
    14. The Applicants represent that, in many offerings of ABS or 
other securities, the Trustee's fee is a fixed dollar amount that does 
not depend on the size of the offering. In such cases, the Asset 
Manager has no conflict of interest in an ATT because it cannot 
increase the Trustee's fee by causing Client Plans to participate in 
the offering. Where the Trustee's fee in an ATT is a portion of the 
principal amount of outstanding securities to be offered, the Asset 
Manager could conceivably cause Client Plans to participate to affect 
the size of the offering and thus the Trustee's fee.\8\ The Applicants 
further represent that the protective conditions of the requested 
exemption (e.g., the requirement of advance approval by an independent 
fiduciary and reporting of the basis for the Trustee's fee) render this 
possibility remote.
---------------------------------------------------------------------------

    \8\ The Applicants note that this theoretical conflict is 
directly addressed by the protective conditions in the Underwriter 
Exemptions and in this proposed exemption. In this regard, the 
Applicants state that the exemption (if granted) will apply only to 
firm commitment underwritings, where, by definition, the entire 
issue of securities will be purchased, either by the public or the 
underwriters (see section I(a)(3) above). Thus, where the trustee's 
fee would be a fixed percentage of the total dollar amount of the 
securities issued in the offering, the amount of the trustee's fee 
would be, in fact, a fixed dollar amount that would be known to plan 
investors as part of disclosures made relating to the offering 
(e.g., the prospectus or private placement memorandum). The 
Department notes that plan fiduciaries would have a duty to 
adequately review, and effectively monitor, all fees paid to 
service-providers, including those paid to parties affiliated with 
an Asset Manager.
---------------------------------------------------------------------------

    In this regard, the Applicants state that the present conditions of 
the proposed exemption, which are based on the prior individual 
exemptions granted by the Department for an ``AUT'', impose adequate 
safeguards as well for an ``ATT'' in order to prevent possible abuse. 
First, there are significant limitations on the quantity of securities 
that the Asset Manager may acquire for a Client Plan, meaning not only 
that there will be significant limitations on the ability of the Asset 
Manager to affect the fees of its Affiliate, but also insuring that 
significant numbers of independent investors also decided that the 
securities were an appropriate purchase. Second, the Asset Manager must 
obtain the consent of an independent fiduciary to engage in these 
transactions. Third, regular reporting of the subject transactions to 
an independent fiduciary will take place. Fourth, an independent 
fiduciary must be provided information on how securities purchased 
under the proposed exemption actually performed. Finally, the consent 
of the independent fiduciary may be revoked if it suspects that 
purchases by the Asset Manager have been motivated by a desire to 
generate fees for its Affiliated Trustee.

Investments in Offered Securities

    15. The Applicants represent that the Asset Manager makes 
investment decisions on behalf of, or renders investment advice to, its 
Client Plans in accordance with the governing document of the 
particular Client Plan or Pooled Fund and the guidelines and objectives 
established in the investment management or advisory agreement. Since 
the Client Plans are covered by Title I of the Act, such investment 
decisions are also subject to the fiduciary responsibility provisions 
of the Act.\9\
---------------------------------------------------------------------------

    \9\ By proposing this exemption, the Department is not 
expressing an opinion regarding whether any investment decisions or 
other actions taken by an Asset Manager regarding the acquisition 
and holding of ABS or other securities in an ATT would be consistent 
with its fiduciary obligations under part 4 of title I of the Act. 
In this regard, section 404 of the Act requires, among other things, 
that a plan fiduciary act prudently, solely in the interest of the 
plan's participants and beneficiaries, and for the exclusive purpose 
of providing benefits to participants and beneficiaries when making 
decisions on behalf of a plan.

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[[Page 28026]]

    16. The Applicants state that a decision by an Asset Manager for a 
Client Plan to invest in particular securities is made on the basis of 
price, value, and the particular Client Plan's investment criteria, not 
on whether the Trustee with respect to the securities is, or is 
affiliated with, the Asset Manager. The Applicants further assert that 
the Asset Manager has little incentive to make purchases for Client 
Plans in IPOs involving an ATT that are not in the interests of the 
Client Plans because the Asset Manager's compensation for its services 
is generally based upon total assets under its management. If the 
assets under its management do not perform well, the Asset Manager will 
receive less compensation and could lose the Client Plan's future 
business.
    According to the Applicants, the proposed exemption would be in the 
interest of a Client Plan's participants and beneficiaries because it 
will increase investment opportunities for such plans in ABS or other 
securities. Failure to grant the exemption will unnecessarily restrict 
the investment opportunities available to Client Plans in fixed-income 
securities.
    17. In summary, the Applicants represent that the proposed 
transactions will satisfy the statutory criteria for an exemption under 
section 408(a) of the Act because:
    (a) The Client Plans will gain access to desirable investment 
opportunities;
    (b) In each offering, the Asset Manager will purchase the 
securities for its Client 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 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;
    (f) Prior to any purchase of securities, the Asset Manager will 
make the required disclosures to an Independent Fiduciary of each 
Client Plan and obtain written authorization for such transaction 
(i.e., an ATT);
    (g) The Asset Manager will provide regular reporting to an 
Independent Fiduciary of each Client Plan with respect to all 
securities purchased pursuant to the exemption, if granted, including 
all ATTs;
    (h) Each Client Plan participating in these transactions will be 
subject to a minimum size requirement of at least $50 million ($100 
million for ``Eligible Rule 144A Offerings''), with certain exceptions 
for Pooled Funds;
    (i) The Asset Manager must have total assets under management in 
excess of $5 billion and shareholders' or partners' equity in excess of 
$1 million; and
    (j) The Trustee will be unable to subordinate the interests of the 
investing Client Plans to those of the Asset Manager.
    For a complete discussion of the facts and representations 
supporting the Department's decision to grant the original exemptions 
for JPMorgan Chase Bank and its Affiliates (i.e., PTEs 2000-25 and 
2000-27) for AUTs, interested persons should review the notice of 
proposed exemption for Morgan Guaranty Trust of New York, et al., 
published in the Federal Register on February 8, 2000 (65 FR 6229).
    Copies of all documents relating thereto are available for public 
inspection and may be obtained by interested persons from the Public 
Documents Room, Employee Benefits Security Administration, U.S. 
Department of Labor, Room N-1513, 200 Constitution Avenue, NW., 
Washington, DC 20210.
    Interested persons should request File Numbers D-10119 and D-10120, 
and D-10779 with respect to the application for JPMorgan Chase Bank 
(formerly, Morgan Guaranty Trust of New York and The Chase Manhattan 
Bank). With regard to FAN 2001-19E for DB and its Affiliates, 
interested persons should request File Number E-00226.
    Notice to Interested Persons: The Applicants represent that because 
those potentially interested Client Plans that may invest in 
securities, involving either an AUT or an ATT (or both), cannot all be 
identified, the only practical means of notifying such Client Plans 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: Gary Lefkowitz of the Department, 
telephone (202) 693-8546. (This is not a toll-free number). IBEW Local 
No. 1 Health and Welfare Fund, (the Welfare Fund) and IBEW Local No. 1, 
Apprenticeship and Training Fund, (the Training Fund; collectively, the 
Funds or the Applicants), located in St. Louis, MO. (Application Nos. 
L-11155 and L-11156, respectively.)

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act (or ERISA) 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) of the Act shall not apply to the lease 
of certain classroom space and supplemental facilities (the Lease) by 
the Welfare Fund to the Training Fund, a party in interest with respect 
to the Welfare Fund.
    The proposed exemption is subject to the following conditions:
    (1) The terms of the Lease are at least favorable to the Welfare 
Fund and the Training Fund as those obtainable in an arm's length 
transaction with an unrelated party.
    (2) Qualified, independent appraisers have determined the initial 
amount of the Lease payments.
    (3) A qualified, independent fiduciary, The Philip Company (TPC), 
has approved the Lease and has agreed to monitor the terms of the 
exemption, at all times, on behalf of the Welfare Fund.
    (4) The independent fiduciary agrees to take whatever actions are 
necessary and proper to enforce the Welfare Fund's rights under the 
Lease and to protect the participants and beneficiaries of the Welfare 
Fund.
    (5) The rental payments under the Lease are adjusted once every 
five years by the independent fiduciary to ensure that such Lease 
payments are not greater than or less than the fair market rental value 
of the leased space.
    (6) The fair market rental amount for the leased space, at no time, 
will exceed 25 percent of the assets of either Fund, including any 
improvements that are constructed thereon.
    (7) The independent fiduciary and the Board of Trustees of the 
Welfare Fund (the Welfare Fund Trustees) have determined that the Lease 
is an appropriate investment for the Welfare Fund and is in the best 
interest of the Welfare Fund's participants and beneficiaries.

[[Page 28027]]

    (8) The Board of Trustees of the Training Fund (the Training Fund 
Trustees) has determined that the Lease transaction is an appropriate 
investment for the Training Fund and is in the best interest of the 
Training Fund's participants and beneficiaries.

Summary of Facts and Representations

    1. The Welfare Fund, which operates under a formal Trust Agreement, 
is a collectively-bargained, multiemployer joint welfare plan. The 
Welfare Fund provides medical and related benefits to union 
electricians and their families. The Welfare Fund was established by 
Local 1, of the International Brotherhood of Electrical Workers, AFL-
CIO (Local 1), a labor organization, and the St. Louis Chapter, of the 
National Electrical Contractors Association (St. Louis Chapter, NECA), 
an employer association.
    The benefits provided by the Welfare Fund are funded by 
contributions made by the employers pursuant to collective bargaining 
agreements between Local 1 and the St. Louis Chapter, NECA. As of 
December 31, 2001, the Welfare Fund had net assets available for 
benefits of $87,890,891 based upon audited financial statements.\10\ As 
of April 30, 2003, the Welfare Fund had 4,782 participants. The Welfare 
Fund's operations are located at 3260 Hampton Avenue, St. Louis, 
Missouri.
---------------------------------------------------------------------------

    \10\ According to the Applicants, the Welfare Fund's 2002 audit 
report has not been completed. However, draft balance sheets for 
this Fund show net assets available for benefits of $91,586,030 as 
of December 31, 2002, and $89,305,694, as of March 31, 2003.
---------------------------------------------------------------------------

    2. The Training Fund, which is administered under a formal Trust 
Agreement, is a collectively-bargained, multiemployer joint 
apprenticeship training plan. The Training Fund was established by 
Local 1 and the St. Louis Chapter, NECA. The Training Fund provides 
training and educational benefits to electrical apprentices and 
journeymen. The benefits are funded by contributions made by the 
employers to the Training Fund pursuant to collective bargaining 
agreements between Local 1 and the St. Louis Chapter, NECA. The 
Training Fund is a party in interest with respect to the Welfare Fund 
because employees of the Training Fund are participants in the Welfare 
Fund. As of December 31, 2002, the Training Fund had net assets 
available for benefits of $4,998,407 based upon audited financial 
statements.\11\ As of April 30, 2003, the Training Fund had 3,267 
participants. The Training Fund's present facility is located at 2300 
Hampton Avenue, St. Louis, Missouri (the 2300 Hampton Avenue Building).
---------------------------------------------------------------------------

    \11\ Based on an unaudited financial statement, the Training 
Fund had net assets available for benefits of $4,832,184.44 as of 
March 31, 2003.
---------------------------------------------------------------------------

    3. The Welfare Fund is administered by six trustees. Three of the 
Welfare Fund Trustees are appointed by Local 1 while the remaining 
three Welfare Fund Trustees have been appointed by the St. Louis 
Chapter, NECA. The Local 1 appointed Welfare Fund Trustees are Messrs. 
Stephen P. Schoemehl, James Reinheimer and Mathew Lampe. The St. Louis 
Chapter, NECA appointed trustees of the Welfare Fund are Messrs. 
Douglas R. Martin, Robert Kaemmerlen and Eric Aschinger.
    The Training Fund is also administered by six trustees, three of 
whom are appointed by Local 1, and three of whom are appointed by the 
St. Louis Chapter, NECA. The Local 1 appointed Training Fund Trustees 
are Messrs. Stephen P. Schoemehl, Thomas E. George, and Dan King. The 
St. Louis Chapter, NECA appointed Training Fund Trustees are Messrs. 
Douglas R. Martin, T. Michael Fogarty, and Stephen J. Kohnen. As noted 
herein, Messrs. Stephen P. Schoemehl and Douglas Martin are common 
Trustees to both Funds.
    4. The IBEW-NECA Service Center (the Service Center), which is a 
``not for profit'' Missouri corporation, is a party in interest with 
respect to the Welfare Fund because it is an employer whose employees 
participate in such Fund. The Board of Directors of the Service Center 
are appointed by the Business Manager of Local 1 and the St. Louis 
Chapter, NECA. The Service Center provides employee benefit plan 
administration to approximately 17 welfare and pension funds, including 
the Funds. The largest group of employee benefits funds administered by 
the Service Center were established by Local 1 and the St. Louis 
Chapter, NECA pursuant to collective bargaining. The Service Center 
also administers employee benefit funds established by Local 257, IBEW, 
and the St. Louis Chapter, NECA, and a pension fund established by the 
Illinois Chapter, NECA and several locals of the IBEW. The Service 
Center's costs of administration are allocated among the various 
employee benefit funds that the Service Center administers.
    The Service Center's sole administrative facility is located at 
3260 Hampton Avenue, St. Louis, Missouri. There, the Service Center 
leases portions of three separate two-story buildings (the 3260 Hampton 
Avenue Buildings) from the Local 1, IBEW Pension Benefit Trust Fund 
(the Pension Fund), which is the owner of the 3260 Hampton Avenue 
Buildings. The Pension Fund is one of the employee benefit plans 
administered by the Service Center. The three 3260 Hampton Avenue 
Buildings comprise a total of 12,000 square feet of space. Of this 
total, the Service Center leases 9,300 square feet of space in these 
premises.\12\ Two unrelated tenants occupy the remaining space in the 
3260 Hampton Avenue Buildings.
---------------------------------------------------------------------------

    \12\ As noted above, the Pension Fund currently leases portions 
of its 3260 Hampton Avenue Buildings to the Service Center, a party 
in interest with respect to the Pension Fund. The Applicants 
represent that the current lease satisfies the terms and conditions 
of Prohibited Transaction Exemptions (PTEs) 76-1 and 77-10 (41 FR 
12740, March 26, 1976 and 42 FR 33918, July 1, 1977, respectively). 
However, the Department expresses no opinion herein on whether such 
lease satisfies the terms and conditions of these class exemptions.
---------------------------------------------------------------------------

    The Welfare Fund is administered by the Service Center in the 3260 
Hampton Avenue Buildings. Of the 9,300 square feet of space leased by 
the Service Center, employees of the Service Center perform work for 
the Welfare Fund within approximately 3,965 square feet of space.
    The parking facilities at the 3260 Hampton Avenue Buildings are 
limited with a total of 45 spaces, of which 13 spaces are leased to the 
two outside tenants. There is no convenient overflow parking at the 
3260 Hampton Avenue Buildings.
    5. Under section 4.05 of the Welfare Fund Trust Agreement, the 
Welfare Fund Trustees are authorized to invest in real estate. 
Therefore, on September 26, 2002, the Welfare Fund Trustees signed a 
contingent sales contract for the purchase of a two-story, concrete 
block building, with office and training center facilities, located at 
5735 Elizabeth Avenue, St. Louis, Missouri (the 5735 Elizabeth Avenue 
Building) with the owner, the Plumbers' and Pipefitters' Welfare 
Educational Fund, an unrelated party. Following the initial planning 
meetings, Messrs. Schoemehl and Martin, who are the common Trustees of 
the Welfare Fund and the Training Fund, did not participate in the 
decisions to purchase the 5735 Elizabeth Avenue Building or to lease 
it, in accordance with the Lease described herein.
    Under the terms of the contingent sales contract, the Welfare Fund 
must satisfy the purchaser's contingencies prior to the last day of the 
applicable contingency period. The contingencies to be satisfied 
contemplate the Welfare Fund (a) obtaining any and all inspections and 
assessment reports pertaining to the 5735 Elizabeth Avenue Building; 
(b) obtaining a commitment for title insurance; (c) obtaining a survey 
of the 5735 Elizabeth Avenue Building

[[Page 28028]]

by a licensed Missouri land surveyor; (d) obtaining verification that 
the present zoning and deed restrictions of the 5735 Elizabeth Avenue 
Building will permit the Welfare Fund's intended commercial use and 
development; (e) reviewing and approving all documents and contracts 
pertaining to the 5735 Elizabeth Avenue Building; (f) receiving 
evidence satisfactory to the Welfare Fund in all respects as to the 
economic feasibility of acquiring, developing, and improving the 5735 
Elizabeth Building; and (g) obtaining, from the Department, an 
individual exemption from the Act's prohibited transactions rules in 
order to engage in the subject Lease of a portion of the 5735 Elizabeth 
Avenue Building by the Welfare Fund to the Training Fund.
    The relevant terms of the proposed sale contemplate that the 5735 
Elizabeth Avenue Building will be sold to the Welfare Fund for 
$1,070,000 on an ``as is'' basis. The sale will take place 
approximately 30 days from the date the Department publishes the notice 
granting the requested exemption in the Federal Register.
    6. Under section 3.03(a)(3) of the Training Fund Trust Agreement, 
the Training Fund Trustees are authorized to enter into a lease of 
buildings related to the training program. In this regard, the 
Applicants represent that the Training Fund requires overflow classroom 
and lab space at a location which is conveniently located to the 
Training Fund's 2300 Hampton Avenue Building. The Applicants state that 
the lease of the second floor of the 5735 Elizabeth Avenue Building 
would present an attractive opportunity for the Training Fund to 
acquire overflow classroom and lab space at a location that is one 
block away from the Training Fund's existing facility in the 2300 
Hampton Avenue Building, and close to the Local 1 office.
    The Training Fund Trustees represent that the Training Fund cannot 
meet current and anticipated demand for training programs at the 2300 
Hampton Avenue Building. This is because the 2300 Hampton Avenue 
Building is located on a landlocked parcel. The Training Fund Trustees 
also state that constructing on the existing land parcel would be 
disruptive and costly for the Training Fund. Furthermore, the Training 
Fund Trustees maintain that leaving the existing facility at 2300 
Hampton Avenue would not be an option for the Training Fund because it 
owns the property and, as of 1999, renovations costing $1,600,000 were 
made to the building.
    7. The Applicants state that the Welfare Fund and its 
administrator, the Service Center, also require additional space for 
claims administration offices. The Applicants assert that the first 
floor of the 5735 Elizabeth Avenue Building will present an opportunity 
to expand and consolidate the Service Center's administrative offices 
on a single floor at a location that is convenient to many participants 
because of its proximity to the Training Fund and Local 1, one block 
apart in distance. The Applicants represent that the proposed lease of 
office space between the Welfare Fund and the Service Center, a 
participating employer, will be subject to the exemptive relief 
provided under PTEs 76-1 and 77-10. The Applicants further explain that 
it is the parties' intention that the Service Center Lease will comply 
with the terms and conditions of these class exemptions.\13\ Therefore, 
the Applicants do not request additional administrative exemptive 
relief from the Department regarding such Lease.
---------------------------------------------------------------------------

    \13\ The Welfare Fund Trustees represent that the Service Center 
Lease will satisfy the terms and conditions of PTEs 76-1 and 77-10. 
However, the Department expresses no opinion herein on whether such 
lease will satisfy the terms and conditions of these class 
exemptions.
---------------------------------------------------------------------------

    8. Accordingly, with respect to the second floor of the 5735 
Elizabeth Avenue Building, the Applicants request an administrative 
exemption from the Department that will permit, if granted, the Welfare 
Fund to lease classroom space and supplemental facilities to the 
Training Fund. The exemption transaction and related transactions will 
be structured as follows:
    (a) The Welfare Fund will purchase the 5735 Elizabeth Avenue 
Building for a purchase price of $1,070,000, contingent upon, among 
other things, the Department granting this exemption;
    (b) The Welfare Fund and the Training Fund will enter into the 
subject Lease for classroom space and supplemental facilities on the 
second floor of the 5735 Elizabeth Avenue Building; and
    (c) The Welfare Fund and the Service Center will enter into the 
Service Center Lease on the first floor of the 5735 Elizabeth Avenue 
Building in a manner that is designed to comply with PTEs 76-1 and 77-
10.
    9. The construction costs in renovating the 5735 Elizabeth Avenue 
Building are estimated at $1,503,934, with an estimated additional 
$115,000 in professional costs related to architectural, legal, and 
appraisal services.\14\ The Training Fund will contribute $426,207 to 
fund its allocated share of the second floor construction costs. This 
will result in a total net cost to the Welfare Fund of $2,262,727 for 
the purchase price and renovation costs of the 5735 Elizabeth Avenue 
Building. However, such costs will not exceed 5 percent of the assets 
of the Welfare Fund.
---------------------------------------------------------------------------

    \14\ It is contemplated that Kadean Construction Company 
(Kadean), a general contractor, will perform the renovation work to 
be performed for the Training Fund. Kadean is not a party in 
interest to the Welfare Fund or the Training Fund because it is not 
a contributing employer. However, Kadean will subcontract the 
electrical work on the project to signatory employers who are 
parties in interest to the Training and Welfare Funds as 
contributing employers.
    The Department is providing no opinion in this proposed 
exemption on whether the contemplated expenditures to be made by the 
Training Fund for the construction of the second floor of the 5735 
Elizabeth Avenue Building are (or will be) consistent with the 
fiduciary responsibilities contained in part 4 of title I of the 
Act. In this regard, the Department notes that section 404(a) of the 
Act requires, among other things, that plan fiduciaries act 
prudently and solely in the interest of the plan and its 
participants and beneficiaries when providing benefits to such 
participants and beneficiaries and defraying reasonable expenses of 
administering the plan.
---------------------------------------------------------------------------

    10. The second floor Lease of the 5735 Elizabeth Avenue Building to 
the Training Fund is for 8,309 square feet in ``white box'' condition, 
with renovations completed to bring the second floor into compliance 
with applicable building codes.\15\ Initially, the Training Fund's base 
rent was set at $10.50 per square foot \16\ based upon an independent 
appraisal (the Appraisal) of the property that was performed on 
November 20, 2002 by Messrs. Edward W. Dinan, MAI, CRE and Mark B. 
Baffa, Appraiser/Analyst, who are qualified, independent appraisers 
(the Appraisers), employed by Dinan Real Estate Advisors of St. Louis, 
Missouri. (See Representation 14 for further details about the 
Appraisal.) The Appraisers concluded that the market rent for the first 
floor Service Center Lease was $14.50 per square foot, and for the 
second floor Training Fund Lease, $10.50 per square foot. The $10.50 
per square foot rental amount was based on the assumption that the 
Welfare Fund would fund the full $426,207 of construction costs for the 
renovation and any rehabilitation of the second floor of the 5735 
Elizabeth Avenue Building. However, the Training Fund Trustees decided 
to

[[Page 28029]]

finance the second floor improvements by agreeing to pay the Welfare 
Fund $426,207, thereby buying down the Training Fund's rent to $6 per 
square foot.\17\
---------------------------------------------------------------------------

    \15\ The Applicants represent that the Welfare Fund and the 
independent fiduciary are required to approve any alterations, 
additions, modifications, or improvements of a permanent nature to 
the second floor. During the term of the Lease, the alterations are 
the property of the Training Fund, and the Training Fund is required 
to reimburse the Welfare Fund for any additional taxes, inspections, 
and fees that are attributable in any way to such alterations. At 
the expiration of the Lease, or sooner termination, the alterations 
automatically become the property of the Welfare Fund.
    \16\ Or $7,270 monthly and $87,245 annually.
    \17\ Or $4,155 monthly and $49,854 annually. With the payment of 
renovation costs and first year rent, the Training Fund's total 
investment in the 5735 Elizabeth Avenue Building ($476,061) would 
represent approximately 10 percent of the Training Fund's assets.
---------------------------------------------------------------------------

    11. The Training Fund Lease is a written, triple net lease, having 
an initial term of five years and two five year renewal options. The 
Training Fund will pay 41.25 percent of the operating costs of the 
Building. Among others, these operating expenses include real estate 
taxes and insurance. At the time the Lease options are to be exercised, 
rent is to be set by the Welfare Fund's independent fiduciary, who has 
experience in real estate valuations.
    Section 2.2 of the Training Fund Lease provides that the rent may 
be increased by the independent fiduciary, at the time of renewal, but 
in no event can the rent drop below the preceding term's rent. In this 
respect, the Welfare Fund is assured that the base rent amount remains 
at $6 per square foot. However, the Training Fund will have the right 
to terminate its exercise of a renewal option if the Training Fund does 
not accept the independent fiduciary's determination of rent payable 
during the renewal term.
    12. The first floor lease of the 5735 Elizabeth Avenue Building to 
the Service Center, which the Applicants believe will be covered under 
PTEs 76-01 and 77-10, is for 11,836 square feet of finished office 
space. The Service Center's rent is set at $14.50 per square foot. The 
Service Center Lease is a written, triple net lease having a 10 year 
term, with one five year renewal option. The Service Center Lease 
provides for yearly termination during the initial term as of the last 
day of each lease year, provided that the Service Center gives at least 
6 months prior written notice of such termination and pays a 
termination fee equal to the amount of unamortized improvement costs 
and a penalty of three months' rent. At the time the lease option is to 
be exercised, rent is to be set by the Welfare Fund's independent 
fiduciary.
    Section 2.2 of the Service Center Lease provides that the rent may 
be increased by the independent fiduciary, at the time of renewal, but 
in no event can the rent drop below the preceding term's rent. In this 
respect, the Welfare Fund is assured that the base rent will remain at 
$14.50 per square foot. The Service Center will also pay 58.75 percent 
of the operating costs associated with the 5735 Elizabeth Avenue 
Building.
    13. The Welfare Fund anticipates a rate of return on the 5735 
Elizabeth Building of between 8.5 percent to 9.5 percent. With the 
assistance of the independent fiduciary, TPC, the Welfare Fund has 
established a contingency reserve of 10 percent of the projected 
construction costs ($150,000). If the entire contingency reserve is 
used, the Welfare Fund's projected return is 8.55 percent.
    14. As noted briefly in Representation 10, on November 25, 2002, 
the Welfare Fund Trustees obtained an independent appraisal report (the 
Appraisal Report) of the 5735 Elizabeth Avenue Building. In the 
Appraisal Report, the Appraisers also valued the proposed improvements 
and the contemplated Leases.
    Initially, the Appraisers determined that the fair market value of 
a fee simple interest in the 5735 Elizabeth Avenue Building was 
$1,070,000 as of November 20, 2002, in an ``as is'' condition. The 
Appraisers then valued the 5735 Elizabeth Avenue Building as of 
September 1, 2003, on an ``as proposed basis'' using both a ``direct 
capitalization'' valuation ($2,690,000) and a sales comparison approach 
($2,620,000).
    The Appraisal Report also included a survey of area rents. Under 
the survey, the Appraisers concluded that the market rent for the first 
floor Service Center Lease was $14.50 per square foot, and $10.50 per 
square foot for the second floor Training Fund Lease.
    15. As noted above, the proposed rental under the Training Fund 
Lease was adjusted to $6 per square foot based upon the Training Fund 
agreeing to fund its allocated share of the construction costs. These 
costs include, among others, new mechanical, electrical and plumbing 
systems for the 5735 Elizabeth Avenue Building. The Appraisers, in a 
letter dated December 16, 2002, considered $6 per square foot ``market 
rent,'' given the assumption that the Training Fund was financing its 
own improvements. The Appraisers also adjusted the direct 
capitalization valuation of the 5735 Elizabeth Avenue Building downward 
to $2,290,000 in order to take into account the reduction in the 
Training Fund's rent to $6 per square foot. However, the Appraisers' 
sales comparison valuation remained unchanged at $2,690,000.
    16. In addition to its short term obligations, the Welfare Fund is 
funding retiree medical benefits which is a long term funding goal 
similar to a pension benefit. The Welfare Fund's projected investment 
in the 5735 Elizabeth Avenue Building of approximately $2,290,000, with 
a projected return ranging from 8.5 percent to 9.5 percent, represents 
approximately 2.6 percent of the Welfare Fund's assets. The Welfare 
Fund's investment consultant, Mr. Randall Kirkland, has reviewed the 
contemplated purchase and has concluded that it does not represent an 
over-concentration in real estate and will fit the long term investment 
goals of the Welfare Fund which is funding for retiree medical. 
Furthermore, the Welfare Fund Trustees, and for that matter, the 
Training Fund Trustees, have determined that the Lease is an 
appropriate transaction for the Funds and is in the best interests of 
the participants and beneficiaries of such Funds.
    17. The Welfare Fund Trustees have retained TPC to serve as 
independent fiduciary with respect to the Training Fund Lease and the 
Service Center Lease. Mr. Philip Hulse, the President of TPC, will 
undertake the specific duties of the independent fiduciary. Mr. Hulse 
is a real estate broker and a member of several real estate 
organizations, including the Society of Industrial and Office Realtors, 
National Association of Realtors, St. Louis Association of Realtors, 
Missouri Association of Realtors, and the Missouri State Bank Board of 
Directors. In addition, Mr. Hulse has partial ownership interests in 
several real estate partnerships of over two million square feet of 
office, industrial, and commercial space throughout the St. Louis 
metropolitan market. Since 1985, Mr. Hulse's firm, TPC, has been 
involved in the St. Louis, Missouri commercial and industrial real 
estate community where it has assisted clients in a variety of 
capacities, including tenant and buyer representation, site selection, 
asset disposition, investment, and development.
    On December 17, 2002, the Welfare Fund Trustees and Mr. Hulse on 
behalf of TPC, entered into and executed an independent fiduciary 
engagement agreement. Pursuant to this agreement, TPC has agreed to (a) 
evaluate and make recommendations relating to the provisions on the 
fair market rental value of the 5735 Elizabeth Avenue Building (and any 
proposed amendments thereto); (b) evaluate and make recommendations on 
the provisions of the sales contact for the 5735 Elizabeth Avenue 
Building (and any proposed amendments thereto); (c) evaluate and make 
recommendations on the provisions of the Training Fund and Service 
Center Leases (and any proposed amendments thereto), and make a 
determination and

[[Page 28030]]

recommendation to the Welfare Fund Trustees whether such Leases would 
be in the best interest and protective of the Funds; (d) monitor the 
transactions related to the Training Fund Lease, including verification 
that monthly rent has been timely paid; (e) monitor the exemption to 
ensure that the terms are complied with and take all appropriate 
actions to ensure that the Training Fund Lease is protective and in the 
best interest of the Welfare Fund; and (f) recommend to the Welfare 
Fund Trustees whether the Leases should be terminated or the amount of 
the Lease payment adjustments when the five year options under the 
Training Fund Lease becomes due.
    On behalf of TPC, Mr. Hulse represents that both he and the firm 
are independent of, and unrelated to either Applicants. In addition, 
Mr. Hulse states that he has been advised by legal counsel to the 
Welfare Fund regarding his fiduciary obligations under ERISA and he 
acknowledges and accepts such duties, responsibilities and liabilities 
as an ERISA fiduciary for the Welfare Fund.
    In his fiduciary capacity, Mr. Hulse has reviewed and made 
recommendations to the Welfare Fund Trustees on the purchase of the 
5735 Elizabeth Avenue Building and contemplated leases involving the 
Training Fund and the Service Center. Prior to making its 
determination, Mr. Hulse represents that he has examined the Welfare 
Fund's overall investment portfolio, considered the liquidity 
requirements of the Welfare Fund, considered the diversification of the 
portfolio in light of the proposed transactions, and considered whether 
the proposed transactions herein comply with the Welfare Fund's 
investment objectives and policies. Lastly, Mr. Hulse explains that he 
has reviewed the Training Fund's creditworthiness to enter into the 
contemplated Lease.
    Based on his review, Mr. Hulse has determined that both the 
purchase and Lease transactions are suitable for the Welfare Fund and 
its participants and beneficiaries. Mr. Hulse also believes that the 
Training Fund's ``rent buy down'' represents a common practice within 
the real estate industry and is, therefore, appropriate in this 
transaction. Further, Mr. Hulse represents that due to his commercial 
leasing experience, he has the ability to procure a fair market 
valuation of the rental space once the option to renew comes due five 
years from the inception of the Lease.
    18. In summary, the Applicants represent that the transaction will 
satisfy the statutory criteria for an exemption under section 408(a) of 
the Act because:
    (a) The terms of the Lease will be at least favorable to the 
Welfare Fund and the Training Fund as those obtainable in an arm's 
length transaction with an unrelated party.
    (b) Qualified, independent appraisers have determined the initial 
amount of the Lease payments.
    (c) A qualified, independent fiduciary has approved the Lease and 
will monitor the terms of the exemption, at all times, on behalf of the 
Welfare Fund.
    (d) The independent fiduciary will take whatever actions are 
necessary and proper to enforce the Welfare Fund's rights under the 
Lease and to protect the participants and beneficiaries of the Welfare 
Fund.
    (e) The rental payments under the Lease will be adjusted once every 
five years by the independent fiduciary to ensure that such rental 
payments are not greater than or less than the fair market rental value 
of the leased space.
    (f) The fair market rental amount for the leased space, at no time, 
will exceed 25 percent of the assets of either Fund, including any 
improvements that are constructed thereon.
    (g) The independent fiduciary, the Welfare Fund Trustees and the 
Training Fund Trustees have determined that the Lease is an appropriate 
investment for the Welfare Fund and is in the best interest of the 
participants and beneficiaries of the respective Funds.

Notice to Interested Persons

    Notice of proposed exemption will be provided to all interested 
persons by first class mail within 10 days of publication of the notice 
of pendency in the Federal Register. Such notice shall include a copy 
of the notice of pendency of the exemption, as published in the Federal 
Register, and a supplemental statement, as described at 29 CFR 
2570.43(b)(2). Such notice will inform interested persons of their 
right to comment on the proposed exemption. Comments are due within 40 
days of the date of publication of the proposed exemption in the 
Federal Register.

FOR FURTHER INFORMATION CONTACT: Ms. Silvia M. Quezada of the 
Department, telephone (202) 693-8553. (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 in Washington, DC, this 19th day of May, 2003.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, Department of Labor.
[FR Doc. 03-12889 Filed 5-21-03; 8:45 am]

BILLING CODE 4510-29-P