Notice2023-27082
Exemption From Certain Prohibited Transaction Restrictions Involving Morgan Stanley & Co. LLC, and Current and Future Affiliates and Subsidiaries (Morgan Stanley or the Applicant) Located in New York, New York
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
December 11, 2023
Issuing agencies
Labor DepartmentEmployee Benefits Security Administration
Abstract
This document contains a notice of exemption issued by the Department of Labor (the Department) from certain of the prohibited transaction restrictions of the Employee Retirement Income Security Act of 1974 (ERISA or the Act) and/or the Internal Revenue Code of 1986 (the Code).
Full Text
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<title>Federal Register, Volume 88 Issue 236 (Monday, December 11, 2023)</title>
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[Federal Register Volume 88, Number 236 (Monday, December 11, 2023)]
[Notices]
[Pages 85918-85931]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-27082]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Prohibited Transaction Exemption 2023-21; Exemption Application No. D-
11955]
Exemption From Certain Prohibited Transaction Restrictions
Involving Morgan Stanley & Co. LLC, and Current and Future Affiliates
and Subsidiaries (Morgan Stanley or the Applicant) Located in New York,
New York
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Notice of exemption.
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SUMMARY: This document contains a notice of exemption issued by the
Department of Labor (the Department) from certain of the prohibited
transaction restrictions of the Employee Retirement Income Security Act
of 1974 (ERISA or the Act) and/or the Internal Revenue Code of 1986
(the Code).
DATES: The exemption will be in effect on the date that this grant
notice is published in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Mr. Joseph Brennan of the Department
at (202) 693-8456. (This is not a toll-free number.)
SUPPLEMENTARY INFORMATION: On November 18, 2021, the Department
published a notice of proposed exemption in the Federal Register at 86
FR 64695, permitting Morgan Stanley & Co. LLC, or an affiliate of
Morgan Stanley & Co. LLC (together, Morgan Stanley) to engage in
certain transactions with Mitsubishi UFJ Financial Group, Inc., or an
affiliate of Mitsubishi UFJ Financial Group, Inc. (together
Mitsubishi).
Under the exemption, certain restrictions of ERISA sections 406(a)
and 406(b) and certain sanctions resulting from the application of Code
section 4975,\1\ shall not apply to transactions involving Morgan
Stanley and Mitsubishi (described below) that are modeled after the
following class exemptions: Prohibited Transaction Exemption (PTE) 75-
1, Part III and Part IV, PTE 77-3, PTE 77-4, PTE 79-13, PTE 86-128, and
PTE 2002-12, provided the conditions of this exemption are met.\2\ This
exemption provides only the relief specified in its text and does not
provide relief from violations of any law other than the prohibited
transaction provisions of ERISA expressly stated herein. Accordingly,
affected parties should be aware that the conditions incorporated in
this exemption are, taken as a whole, necessary for the Department to
grant the relief requested by the Applicant. Absent these or similar
conditions, the Department would not have granted this exemption.
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\1\ For purposes of this proposed exemption reference to
specific provisions of Title I of ERISA, unless otherwise specified,
should be read to refer as well to the corresponding Code
provisions.
\2\ Part III and Part IV of Prohibited Transaction Exemption 75-
1 (PTE 75-1 Parts III and IV)(40 FR 50845, October 31, 1975);
Prohibited Transaction Exemption 77-3 (PTE 77-3) (42 FR 18734, April
8, 1977); Prohibited Transaction Exemption 77-4 (PTE 77-4) (42 FR
18732, April 8, 1977); Prohibited Transaction Exemption 79-13 (PTE
79-13) (44 FR 25533, May 1, 1979); Prohibited Transaction Exemption
86-128 (PTE 86-128) (51 FR 41686, November 18, 1986), as amended by
(67 FR 64137, October 17, 2002); Prohibited Transaction Exemption
2002-12 (PTE 2002-12)(67 FR 9483, March 1, 2002).
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The Applicant requested an individual exemption pursuant to ERISA
section 408(a) in accordance with the Department's procedures set forth
in 29 CFR part 2570, subpart B (76 FR 66637, 66644, October 27, 2011).
Background
Currently, Mitsubishi is the largest investor in Morgan Stanley,
holding 24.5 percent of Morgan Stanley's outstanding common stock.
Mitsubishi also currently nominates two directors to Morgan Stanley's
board of directors. Despite this ownership interest, the Applicant
states that Mitsubishi does not have sufficient control over Morgan
Stanley to warrant treatment of Mitsubishi and Morgan Stanley as
``affiliates'' within the meaning of certain Applicable Class
Exemptions, which are described below.\3\
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\3\ For example, Section I(b) of PTE 86-128 defines an
``affiliate'' as, in relevant part, ``any person directly
controlling, controlled by, or under common control with the person
. . .'' where ``[t]he term `control' means the power to exercise a
controlling influence over the management or policies of a person
other than an individual.'' By granting this exemption, the
Department does not express any view on whether Mitsubishi and
Morgan Stanley are or are not ``affiliates'' within the meaning of
the Applicable Exemptions.
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The Department has granted a wide variety of class exemptions that
permit affiliated parties to engage in specified plan-related
transactions, provided that certain protective conditions are met. The
following seven class exemptions (the Applicable Class Exemptions) are
relevant to this exemption:
PTE 75-1, Part III permits a fiduciary to cause a plan to purchase
securities from a member of an underwriting syndicate, when the
fiduciary is also a member of such syndicate, and the member selling
the securities to the plan is not affiliated with the fiduciary. The
[[Page 85919]]
class exemption defines the term ``fiduciary'' to include
``affiliates'' of the fiduciary.
PTE 75-1, Part IV permits a plan to purchase or sell securities in
a principal transaction with a fiduciary that is also a ``market-
maker'' with respect to such securities. For purposes of the exemption,
the term ``fiduciary'' includes ``affiliates'' of the fiduciary.
PTE 77-3 permits the acquisition or sale of shares of a registered
open-end investment company (a mutual fund) by a plan that covers only
employees of the mutual fund, the mutual fund's investment adviser, the
mutual fund's underwriter, or an affiliate thereof.
PTE 77-4 permits the purchase or sale by a plan of shares of a
mutual fund, where the mutual fund's investment adviser is a plan
fiduciary, or is affiliated with a plan fiduciary, but is not an
employer of employees covered by the plan.
PTE 79-13 permits the purchase, ownership, and sale of shares of a
closed-end mutual fund by a plan, where such plan covers only employees
of the closed-end mutual fund, employees of an investment adviser to
the closed-end mutual fund, or employees of an affiliate of the closed-
end mutual fund or investment adviser.
PTE 86-128 provides an exemption for certain fiduciaries and their
affiliates to receive a fee from a plan or IRA for effecting or
executing securities transactions as an agent on behalf of the plan or
IRA. PTE 86-128 also allows a fiduciary (or an affiliate of a
fiduciary) to act as an agent in an ``agency cross transaction'' for
both a plan (or IRA) and for another party to the transaction, and to
receive reasonable compensation from another party to the transaction.
PTE 2002-12 permits the cross-trading of securities by and between
certain index and model-driven funds managed by investment
``managers,'' and among index and model-driven funds, and certain large
accounts, that engage such ``managers.'' For purposes of PTE 2002-12,
the term ``manager'' includes affiliates of the ``manager.''
Assuming that Morgan Stanley and Mitsubishi are not affiliates for
the purposes of the Applicable Class Exemptions, as they indicate,\4\
they could not engage in the affiliated transactions described above
without violating ERISA Section 406. Morgan Stanley, therefore,
requested an exemption that, in general terms, would allow Morgan
Stanley and Mitsubishi to treat the other as an ``affiliate'' for
purposes of the Applicable Class Exemptions when engaging in
transactions that would otherwise mirror the affiliated transactions
described above.
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\4\ As previously stated, the Department does not express any
view on whether Mitsubishi and Morgan Stanley are or are not
``affiliates'' within the meaning of the Applicable Exemptions.
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The Applicant represents that the exemption would enhance plans
investment and service provider options. According to Morgan Stanley,
plan participants would have access to more counterparties and
investment products in the market. In addition, the plans would have
access to more efficient and less expensive brokerage services.
This exemption contains certain new conditions that are not
otherwise found in the Applicable Class Exemptions (the New
Conditions). One New Condition requires the Morgan Stanley/Mitsubishi
Entities to comply with a new ``Impartial Conduct Standard'' and act in
the Best Interest of plans. Another New Condition requires the Morgan
Stanley/Mitsubishi Entity to provide plans with written notice that
discloses (a) the ownership relationship between Morgan Stanley and
Mitsubishi, and (b) that the transactions will provide a benefit to
Morgan Stanley and/or Mitsubishi, and/or involve a conflict of
interest.
The Department granted each Applicable Class Exemption after
determining on the record that each exemption was administratively
feasible and in the interest of and protective of affected plans. Given
that the transactions in this exemption are substantially similar to
those permitted by the Applicable Class Exemptions, subject to not only
essentially the same suite of conditions, but also to the New
Conditions, the Department has determined that this exemption is
administratively feasible and in the interest of, and protective of,
affected plans and their participants and beneficiaries.
Written Comments
In the proposed exemption, the Department invited all interested
persons to submit written comments and/or requests for a public hearing
with respect to the notice of proposed exemption. All comments and
requests for a hearing were due to the Department by January 18, 2022.
The Department received one written comment from the Applicant. The
Department did not receive any requests for a public hearing.
Comments From the Applicant
Factual Clarification 1: Representation 3 of the proposed exemption
states as follows: ``Immediately after the conversion, Mitsubishi-owned
shares of Morgan Stanley Common Stock represented approximately 22.56%
of the outstanding shares of Morgan Stanley Common Stock. Subsequently,
Mitsubishi's ownership percentage of Morgan Stanley common stock
gradually increased because of Morgan Stanley's ongoing repurchases of
stock from other investors.'' \5\
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\5\ 86 FR 64696.
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The Applicant states: (a) Mitsubishi's ownership interest in Morgan
Stanley has decreased since Morgan Stanley agreed to convert all
Mitsubishi-owned Morgan Stanley Series B Preferred Stock into Morgan
Stanley common stock; (b) it cannot represent that Mitsubishi's
ownership interest has decreased because of stock repurchases from
others; and (c) it cannot confirm the 22.56% ownership interest
referenced in the proposed exemption, as that was not a fact that the
Applicant provided to the Department.
Department's Response: The Department accepts the clarifications
noted by the Applicant.
Factual Clarification 2: Representation 3 of the proposed exemption
states as follows: ``Mitsubishi is currently the largest investor in
Morgan Stanley, holding 24.5 percent of Morgan Stanley's outstanding
common stock.'' The Applicant states that, while Mitsubishi did hold
24.5 percent of Morgan Stanley's outstanding common stock on the date
of the Applicant's application to the Department (June 4, 2018),
Mitsubishi's investment in Morgan Stanley had decreased to 20.2% as of
March 22, 2021.
Department's Response: The Department accepts Applicant's requested
clarification but notes that, as of June 30, 2023, Mitsubishi's
investment in Morgan Stanley equaled 22.76 percent. The Department also
notes that, as of June 30, 2023, Mitsubishi remained the largest
investor in Morgan Stanley.
Department's Note: The summary to the proposed exemption stated
that relief granted in PTE 77-4 was limited to ERISA section
406(a)(1)(B) and ERISA section 406(b). Part IV of the proposed
exemption, which extends exemptive relief for PTE 77-4-type
transactions, erroneously included exemptive relief from ERISA section
406(a)(1)(D). The Department has revised Part IV of this exemption for
consistency with the proposed exemption's summary, and limited
exemptive relief for PTE 77-4-type transactions to ERISA sections
406(a)(1)(B) and 406(b). Further, the Department revised some of the
[[Page 85920]]
language in the sections below for clarity.
The complete application file (D-11955) is available for public
inspection in the Public Disclosure Room of the Employee Benefits
Security Administration, Room N-1515, U.S. Department of Labor, 200
Constitution Avenue NW, Washington, DC 20210. For a more complete
statement of the facts and representations supporting the Department's
decision to grant this exemption, please refer to the notice of
proposed exemption published in the Federal Register on November 18,
2021, at 86 FR 64695.
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 ERISA section 408(a) does not relieve a fiduciary or other party
in interest from requirements of other ERISA provisions, including any
prohibited transaction provisions to which the exemption does not apply
and the general fiduciary responsibility provisions of ERISA section
404, which, among other things, require fiduciaries to discharge their
duties respecting the plan solely in the interest of the plan's
participants and beneficiaries and in a prudent fashion in accordance
with ERISA section 404(a)(1)(B).
(2) As required by ERISA section 408(a), the Department hereby
finds that the exemption is: (a) administratively feasible; (b) in the
interests of affected plans and of their participants and
beneficiaries; and (c) protective of the rights of participants and
beneficiaries of such plans.
(3) This exemption is supplemental to, and not in derogation of,
any other ERISA provisions, 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 determining whether the transaction is in fact a
prohibited transaction.
(4) The availability of this exemption is subject to the express
condition that the material facts and representations contained in the
application accurately describe all material terms of the transactions
that are the subject of the exemption.
Accordingly, after considering the entire record developed in
connection with the Applicant's exemption application, the Department
has determined to grant the following exemption under the authority of
ERISA section 408(a), and in accordance with the procedures set forth
in 29 CFR part 2570, subpart B: \6\
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\6\ 76 FR 66637, 66644 (October 27, 2011).
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Exemption
Section II. Covered Transactions
Part I. Proposed Exemption From the Prohibitions Respecting Certain
Classes of Transactions Involving Plans and Certain Underwriters
(Modeled After PTE 75-1, Part III)
The restrictions of ERISA section 406 and the taxes imposed Code
section 4975 (a) and (b), by reason of Code section 4975(c)(1), shall
not apply to the purchase or other acquisition of certain securities by
a plan during the existence of an underwriting or selling syndicate
with respect to such securities, from any person other than Morgan
Stanley or Mitsubishi, when a Morgan Stanley/Mitsubishi Entity is a
fiduciary with respect to such plan, and a Related Entity is a member
of such syndicate, provided that the following conditions are met:
(a) No Morgan Stanley/Mitsubishi Entity or Related Entity that is
involved in causing a plan to make the purchase is a manager of such
underwriting or selling syndicate. 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.
(b) The securities to be purchased or otherwise acquired are:
(1) Part of an issue registered under the Securities Act of 1933
(the 1933 Act) or, if exempt from such registration requirement, are:
(i) 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,
(ii) Issued by a bank,
(iii) Issued by a common or contract carrier, if such issuance is
subject to the provisions of section 20a of the Interstate Commerce
Act, as amended,
(iv) Exempt from such registration requirement, pursuant to a
Federal statute other than the 1933 Act, or are
(v) 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 (15 U.S.C. 781) (the 1934 Act), and the issuer of which has
been subject to the reporting requirements of section 13 of the 1934
Act (15 U.S.C. 78m) for a period of at least ninety (90) days
immediately preceding the sale of securities and has filed all the
reports required to be filed thereunder with the SEC during the
preceding twelve (12) months.
(2) Purchased at not more than the public offering price before the
end of the first full business day after the final terms of the
securities have been fixed and announced to the public, except that:
(i) If such securities are offered for subscription upon exercise
of rights, they are 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 public offering price on a day after the end of such first full
business day, provided that the interest rates on comparable debt
securities offered to the public after such first full business day and
before the purchase are less than the interest rate of the debt
securities being purchased.
(3) Offered pursuant to an underwriting agreement under which the
members of the syndicate are committed to purchase all 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.
(c) The issuer of such securities has been in continuous operation
for not less than three (3) years, including the operations of any
predecessors, unless
(1) Such securities are non-convertible debt securities rated in
one of the four (4) highest rating categories by at least one (1) of
the Rating Agencies, as defined below in Part IX (e);
(2) Such securities are issued or fully guaranteed by a person
described above in subparagraph (b)(1)(i) of this Part I; or
(3) Such securities are fully guaranteed by a person who has issued
securities described above in subparagraph (b)(1)(ii), (iii), (iv), or
(v) of Part I, and in this subparagraph (c) of Part I.
(d) The amount of such securities to be purchased or otherwise
acquired by a plan, pursuant to this exemption and PTE 75-1, Part III,
does not exceed 3 percent (3%) of the total amount of such securities
being offered.
(e) The consideration to be paid by a plan in purchasing or
otherwise acquiring such securities pursuant to this exemption and PTE
75-1, Part III, does not exceed 3 percent (3%) of the
[[Page 85921]]
fair market value of the total assets of such plan as of the last day
of the most recent fiscal quarter of such plan before to such
transaction, provided that if such consideration exceeds $1 million, it
does not exceed one percent (1%) of such fair market value of the total
assets of such plan.
If such securities are purchased by a plan from a party in interest
or disqualified person with respect to such plan, such party in
interest or disqualified person shall not be subject to the civil
penalty which may be assessed under ERISA section 502(i) or the taxes
imposed by Code section 4975(a) and (b) if the conditions of this
exemption are not met. However, if such securities are purchased from a
party in interest or disqualified person with respect to a plan, the
restrictions of ERISA section 406(a) shall apply to any Morgan Stanley/
Mitsubishi Entity acting as fiduciary with respect to such plan, and
the taxes imposed by Code section 4975(a) and (b) by reason of Code
section 4975(c)(1)(A) through (D), shall apply to such party in
interest or disqualified person, unless the conditions for exemption of
PTE 75-1 (40 FR 50845, October 31, 1975), Part II (relating to certain
principal transactions) are met.
Part II. Proposed Exemption From Prohibitions Respecting Certain
Classes of Transactions Involving Plans and Market-Makers (Modeled
After PTE 75-1, Part IV)
The restrictions of ERISA section 406, and the taxes imposed by
Code section 4975 (a) and (b), by reason of Code section 4975(c)(1),
shall not apply to any purchase or sale of any securities by a plan
from or to a Related Entity which is a market-maker with respect to
such securities, when a Morgan Stanley/Mitsubishi Entity is a fiduciary
with respect to such plan, provided that the following conditions are
met:
(a) The issuer of such securities has been in continuous operation
for not less than three (3) years, including the operations of any
predecessors, unless such securities are:
(1) non-convertible debt securities rated in one of the four (4)
highest rating categories by at least one (1) of the Rating Agencies;
(2) 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; or
(3) fully guaranteed by a person described in this subparagraph
(a).
(b) As a result of purchasing such securities:
(1) The fair market value of the aggregate amount of securities
owned, directly or indirectly, by a plan and with respect to which a
Morgan Stanley/Mitsubishi Entity is a fiduciary, pursuant to this
exemption and PTE 75-1, Part IV, does not exceed three percent (3%) of
the fair market value of the plan's assets with respect to which the
Morgan Stanley/Mitsubishi Entity is a fiduciary, as of the last day of
the most recent fiscal quarter of such plan before the transaction,
provided that if the fair market value of such securities exceeds $1
million, it does not exceed one percent (1%) of the fair market value
of the plan's assets, except that this subparagraph shall not apply to
securities described in subparagraph (a)(2) of this Part II, above; and
(2) The fair market value of the aggregate amount of all securities
for which any Related Entity is a market-maker, which are owned,
directly or indirectly, by a plan and with respect to which a Morgan
Stanley/Mitsubishi Entity is a fiduciary, pursuant to this exemption
and PTE 75-1, Part IV, does not exceed 10 percent (10%) of the fair
market value of the plan's assets with respect to which the Morgan
Stanley/Mitsubishi Entity is a fiduciary, as of the last day of the
most recent fiscal quarter of such plan before such transaction, except
that this subparagraph shall not apply to securities described in
subparagraph (a)(2) of this Part II.
(c) At least one (1) person other than a Related Entity is a
market-maker with respect to such securities.
(d) The transaction is executed at a net price to a plan for the
number of shares or other units to be purchased or sold in the
transaction that is more favorable to such plan than that which the
Morgan Stanley/Mitsubishi Entity, acting as fiduciary and acting in
good faith, reasonably believes to be available at the time of such
transaction from all other market-makers with respect to the
securities.
For purposes of this Part II, the term ``market-maker'' shall mean
any specialist permitted to act as a dealer, and any dealer who, with
respect to a security, holds themselves out as being willing to buy and
sell such security for their own account on a regular or continuous
basis by entering quotations in an inter-dealer communications system
or otherwise.
Part III. Proposed Exemption Involving Mutual Fund In-House Plans
(Modeled After PTE 77-3)
The restrictions of ERISA sections 406 and 407(a) and the taxes
imposed by Code section 4975(a) and (b), by reason of Code section
4975(c)(1), shall not apply to the acquisition or sale of shares of an
open end investment company registered under the Investment Company Act
of 1940 (the 1940 Act) by an benefit plan covering only employees of a
Morgan Stanley/Mitsubishi Entity where a Related Entity is an
investment adviser or principal underwriter with respect to the open-
end investment company, provided the following conditions are met
(whether or not such investment company, investment adviser, principal
underwriter or any affiliated person thereof is a fiduciary with
respect to the plan):
(a) The plan does not pay any investment management, investment
advisory or other fees or compensation to any Morgan Stanley/Mitsubishi
Entity or Related Entity, except to the extent expressly permitted
herein. This condition does not preclude the payment of investment
advisory fees by the investment company under the terms of its
investment advisory agreement adopted in accordance with section 15 of
the 1940 Act.
(b) The plan does not pay a redemption fee in connection with the
sale by the plan to the investment company of such shares, unless (1)
such redemption fee is paid only to the investment company, and (2) the
existence of such redemption fee is disclosed in the investment company
prospectus in effect both at the time of the acquisition of such shares
and at the time of such sale.
(c) The plan does not pay a sales commission in connection with
such acquisition or sale.
(d) All dealings between the plan and the investment company, the
Related Entity, any other investment adviser or principal underwriter
for the investment company, or any affiliated person (as defined in
section 2(a)(3) of the 1940 Act) of the Related Entity, other
investment adviser, or principal underwriter, are on a basis no less
favorable to the plan than such dealings are with other shareholders of
the investment company.
Part IV. Proposed Exemption for Certain Transactions Between Investment
Companies and Plans (Modeled After PTE 77-4)
The restrictions of ERISA section 406(a)(1)(B) and 406(b) and the
taxes imposed by Code section 4975(a) and (b), by reason of Code
section 4975(c)(1)(B), (D), (E) and (F), shall not apply to the
purchase or sale by a plan of shares of an open-end investment company
registered under the 1940 Act, where a Related Entity is the investment
adviser of the investment company and a Morgan Stanley/Mitsubishi
Entity is a
[[Page 85922]]
fiduciary with respect to the plan, but not an employer of employees
covered by the plan, provided that the following conditions are met:
(a) The plan does not pay a sales commission in connection with
such purchase or sale.
(b) The plan does not pay a redemption fee in connection with the
sale by the plan to the investment company of such shares unless:
(1) The redemption fee is paid only to the investment company, and
(2) The existence of the redemption fee is disclosed in the
investment company prospectus in effect both at the time of the
purchase of the shares and at the time of the sale.
(c) The plan does not pay an investment management, investment
advisory or other fee or compensation, with respect to the plan assets
invested in the shares for the entire period of the investment, except
to the extent expressly permitted herein. This condition does not
preclude the payment of investment advisory fees by the investment
company under the terms of its investment advisory agreement adopted in
accordance with section 15 of the 1940 Act. This condition also does
not preclude payment of an investment advisory fee by the plan based on
the total plan assets from which a credit has been subtracted
representing the plan's pro rata share of the investment advisory fees
paid by the investment company. If, during any fee period for which the
plan has prepaid its investment management, investment advisory or
similar fee, the plan purchases shares of the investment company, the
requirement of this subparagraph (c) shall be deemed met with respect
to such prepaid fee if, by a method reasonably designed to accomplish
the same, the amount of the prepaid fee that constitutes the fee with
respect to the plan assets invested in the investment company shares:
(1) is anticipated and subtracted from the prepaid fee at the time of
payment of the fee; (2) is returned to the plan no later than during
the immediately following fee period; or (3) is offset against the
prepaid fee for the immediately following fee period or for the fee
period immediately following thereafter. For purposes of this
subparagraph (c), a fee shall be deemed to be prepaid for any fee
period if the amount of the fee is calculated as of a date no later
than the first day of such period.
(d) A second fiduciary with respect to the plan, who is independent
of and unrelated to Morgan Stanley and Mitsubishi, receives a current
prospectus issued by the investment company, and full and detailed
written disclosure of the investment advisory and other fees charged to
or paid by such plan and the investment company, including the nature
and extent of any differential between the rates of such fees, the
reasons why the Morgan Stanley/Mitsubishi Entity may consider such
purchases to be appropriate for the plan, and whether there are any
limitations on the Morgan Stanley/Mitsubishi Entity with respect to
which plan assets may be invested in shares of the investment company
and, if so, the nature of such limitations. For purposes of this
subparagraph (d), the second fiduciary will not be deemed to be
independent of and unrelated to Morgan Stanley and Mitsubishi if:
(1) The second fiduciary directly or indirectly controls, is
controlled by, or is under common control with Morgan Stanley or
Mitsubishi;
(2) The second fiduciary, or any officer, director, partner,
employee or relative of such second fiduciary is an officer, director,
partner or employee of Morgan Stanley or Mitsubishi; or
(3) The second fiduciary directly or indirectly receives any
compensation or other consideration for their own personal account in
connection with any transaction described in this Part IV.
Subparagraph (d)(2) of this Part IV shall not apply If an officer,
director, partner, employee or relative of any Morgan Stanley or
Mitsubishi entity is a director of such second fiduciary, and if they
abstain from participation in:
(i) The choice of the plan's investment adviser,
(ii) The approval of any purchase or sale between the plan and the
investment company, and
(iii) The approval of any change of fees charged to or paid by such
plan.
For purposes of subparagraph (d)(1) above, the term ``control''
means the power to exercise a controlling influence over the management
or policies of a person other than an individual, and the term
``relative'' means a ``relative'' as that term is defined in ERISA
section 3(15) (or a ``member of the family'' as that term is defined in
Code section 4975(e)(6)), or a brother, a sister, or a spouse of a
brother or a sister.
(e) On the basis of the prospectus and disclosure referred to in
subparagraph (d), the second fiduciary referred to in subparagraph (d)
approves such purchases and sales consistent with the responsibilities,
obligations, and duties imposed on fiduciaries by Part 4 of Title I of
ERISA. Such approval may be limited solely to the investment advisory
and other fees paid by the mutual fund in relation to the fees paid by
such plan and need not relate to any other aspects of such investments.
In addition, such approval must be either:
(1) Set forth in such plan's plan documents or in the investment
management agreement between the plan and the Morgan Stanley/Mitsubishi
Entity,
(2) Indicated in writing before each purchase or sale, or
(3) Indicated in writing before commencement of a specified
purchase or sale program in the shares of such investment company.
(f) The second fiduciary referred to in subparagraph (d) above, or
any successor thereto, is notified of any change in any of the rates
and fees referred to in subparagraph (d) and approves in writing the
continuation of such purchases or sales and the continued holding of
any investment company shares acquired by such plan prior to such
change and still held by such plan. Such approval may be limited solely
to the investment advisory and other fees paid by the mutual fund in
relation to the fees paid by such plan and need not relate to any other
aspects of such investment.
(g) Each Morgan Stanley/Mitsubishi Entity and Related Entity must
satisfy ERISA section 408(b)(2) or Code section 4975(d)(2), as
applicable.
Part V. Proposed Exemption Involving Closed-End Investment Company and
In-House Plans (Modeled After PTE 79-13)
The restrictions of ERISA sections 406 and 407(a), and the taxes
imposed by Code section 4975(a) and (b), by reason of Code section
4975(c)(1), shall not apply to the acquisition, ownership, or sale of
shares of a closed-end investment company which is registered under the
Investment Company Act of 1940 Act (1940 Act) and is not a ``small
business investment company,'' as defined in section 103 of the Small
Business Investment Company Act of 1958, with respect to which a
Related Entity is an investment adviser, by an employee benefit plan
covering only employees of a Morgan Stanley/Mitsubishi Entity, provided
that the following conditions are met (whether or not such investment
company, investment adviser or any affiliated person thereof is a
fiduciary with respect to the plan):
(a) The plan does not pay any investment management, investment
advisory, or other fee or compensation to any Morgan Stanley/Mitsubishi
Entity or Related Entity, except as expressly permitted herein. This
condition does not preclude the payment of investment advisory fees by
[[Page 85923]]
the investment company under the terms of its investment advisory
agreement adopted in accordance with section 15 of the 1940 Act.
(b) The plan does not pay a sales commission in connection with
such acquisition or sale to any such investment company, or investment
adviser, or any Morgan Stanley/Mitsubishi Entity or Related Entity; and
(c) All dealings between the plan and such investment company, the
investment adviser, or any Morgan Stanley/Mitsubishi Entity or Related
Entity, are on a basis no less favorable to the plan than such dealings
are with other shareholders of the investment company.
Part VI. Proposed Exemption for Securities Transactions Involving Plans
and Broker-Dealers (Modeled After PTE 86-128)
Section I: Definition and Special Rules
The following definitions and special rules apply to this Part VI:
(a) The term ``Morgan Stanley/Mitsubishi Entity'' means Morgan
Stanley & Co. LLC (MS) or one of its ``affiliates,'' or Mitsubishi UFJ
Financial Group, Inc. (Mitsubishi UFJ) or one of its ``affiliates,''
acting as the plan fiduciary authorizing a transaction covered by this
Part.
(b) An ``affiliate'' of a Morgan Stanley/Mitsubishi Entity or a
Related Entity, which is defined below, includes the following:
(1) Any person directly or indirectly controlling, controlled by,
or under common control with, MS or with Mitsubishi UFJ;
(2) Any officer, director, partner, employee, relative (as defined
in ERISA section 3(15)), brother, sister, or spouse of a brother or
sister, of a Morgan Stanley/Mitsubishi Entity or a Related Entity; and
(3) Any corporation or partnership of which a Morgan Stanley/
Mitsubishi Entity or a Related Entity is an officer(s), director(s), or
partner(s).
A person is not an affiliate of another person solely because such
person has investment discretion over the other's assets. The term
``control'' means the power to exercise a controlling influence over
the management or policies of a person other than an individual.
(c) An ``agency cross transaction'' is a securities transaction in
which the same Related Entity acts as agent for both any seller and any
buyer for the purchase or sale of a security.
(d) The term ``covered transaction'' means an action described in
Section II (a), (b), or (c) of this Part VI.
(e) The term ``effecting or executing a securities transaction''
means the execution of a securities transaction as agent for another
person and/or the performance of clearance, settlement, custodial, or
other functions ancillary thereto.
(f) A plan fiduciary is independent of a Morgan Stanley/Mitsubishi
Entity and a Related Entity only if the fiduciary has no relationship
to and no interest in MS and no interest in Mitsubishi UFJ that might
affect the exercise of such fiduciary's best judgment as a fiduciary.
(g) The term ``profit'' includes all charges relating to effecting
or executing securities transactions, less reasonable and necessary
expenses including reasonable indirect expenses (such as overhead
costs) properly allocated to the performance of these transactions
under generally accepted accounting principles.
(h) The term ``securities transaction'' means the purchase or sale
of securities.
(i) The term ``nondiscretionary trustee'' of a plan means a trustee
or custodian whose powers and duties with respect to any assets of the
plan are limited to:
(1) The provision of nondiscretionary trust services to the plan,
and
(2) Duties imposed on the trustee by any provision or provisions
ERISA or the Code. The term ``nondiscretionary trust services'' means
custodial services and services ancillary to custodial services, none
of which services are discretionary. For purposes of this Part VI, a
person does not fail to be a nondiscretionary trustee solely by reason
of having been delegated, by the sponsor of a master or prototype plan,
the power to amend such plan.
(j) The term ``Related Entity'' means MS or one of its
``affiliates,'' or Mitsubishi UFJ or one of its ``affiliates,'' where
the entity is not the plan fiduciary authorizing a transaction covered
by this Part.
Section II: Covered Transactions
If each condition in Section III below is either satisfied or not
applicable under Section IV, the restrictions of ERISA section 406(b)
and the taxes imposed by Code section 4975(a) and (b) by reason of Code
section 4975(c)(1)(E) and (F) shall not apply to:
(a) a Morgan Stanley/Mitsubishi Entity, as a plan fiduciary, using
its authority to cause the plan to pay a fee to a Related Entity, for
effecting or executing securities transactions on behalf of the plan,
but only to the extent that such transactions are not excessive, under
the circumstances, in either amount or frequency;
(b) a Related Entity, as the agent in an agency cross transaction,
acting on behalf of: (1) a plan with a Morgan Stanley/Mitsubishi Entity
as the plan fiduciary that used its authority to cause the transaction;
and (2) one or more other parties to the agency cross transaction; and
(c) the receipt of reasonable compensation by a Related Entity for
effecting or executing an agency cross transaction on behalf of a plan
with a Morgan Stanley/Mitsubishi Entity as the plan fiduciary that used
its authority to cause the transaction, where the reasonable
compensation is received from one or more other parties to the agency
cross transaction.
Section III: Conditions
Except to the extent otherwise provided in Section IV below,
Section II applies only if the following conditions are satisfied:
(a) The Morgan Stanley/Mitsubishi Entity or Related Entity engaging
in the covered transaction is not an administrator of the plan, or an
employer any of whose employees are covered by the plan.
(b) The covered transaction is performed under a written
authorization executed in advance by a fiduciary of each plan whose
assets are involved in the transaction that is independent of MS and
Mitsubishi UFJ.
(c) The authorization referred to above in subparagraph (b) of this
Section III is terminable at will by the plan, without penalty to the
plan, upon receipt by the authorized Morgan Stanley/Mitsubishi Entity
of written notice of termination. A form expressly providing an
election to terminate the authorization described in subparagraph (b)
of this Section III with instructions on the use of the form must be
supplied to the authorizing plan fiduciary no less than annually. The
instructions for such form must include the following information:
(1) The authorization is terminable at will by the plan, without
penalty to the plan, upon receipt by the authorized Morgan Stanley/
Mitsubishi Entity of written notice from the authorizing plan fiduciary
or other plan official having authority to terminate the authorization;
and
(2) Failure to return the form will result in the continued
authorization of the authorized Morgan Stanley/Mitsubishi Entity to
engage in the covered transactions on behalf of the plan.
(d) Within three (3) months before an authorization is made, the
authorizing plan fiduciary is furnished with any reasonably available
information that the Morgan Stanley/Mitsubishi Entity
[[Page 85924]]
seeking authorization reasonably believes is necessary for the
authorizing plan fiduciary to determine whether the authorization
should be made, including (but not limited to) (i) a copy of this
proposed exemption and the associated granted exemption, (ii) the form
for termination of authorization described in Section III(c) of this
Part VI, (iii) a description of the Morgan Stanley/Mitsubishi Entity's
brokerage placement practices, and (iv) any other reasonably available
information regarding the matter that the authorizing plan fiduciary
requests.
(e) The authorizing plan fiduciary is furnished with either:
(1) A confirmation slip for each securities transaction underlying
a covered transaction within ten (10) business days after the
securities transaction containing the information described in Rule
10b-10(a)(1-7) under the Securities and Exchange Act of 1934 (1934
Act), 17 CFR 240.10b-10; or
(2) At least once every three (3) months and not later than forty-
five (45) days following the period to which it relates, a report
disclosing:
(i) A compilation of the information that would be provided to a
plan pursuant to subparagraph (e)(1) of this Section III during the
three-month period covered by the report;
(ii) The total of all securities transaction-related charges
incurred by the plan during such period in connection with such covered
transactions; and
(iii) The amount of the securities transaction-related charges
retained by the Related Entity and the amount of such charges paid to
other persons for execution or other services.
For purposes of this subparagraph (e), the words ``incurred by the
plan'' shall be construed to mean ``incurred by the pooled fund'' with
respect to covered transactions engaged in on behalf of a pooled fund
in which the plan participates.
(f) The authorizing plan fiduciary is furnished with a summary of
the information required under subparagraph (e)(1) of this Section III
at least once per year. The summary must be furnished within forty-five
(45) days after the end of the period to which it relates, and must
contain the following:
(1) The total of all securities transaction-related charges
incurred by the plan during the period in connection with covered
securities transactions.
(2) The amount of the securities transaction-related charges
retained by the authorized Related Entity and the amount of these
charges paid to other persons and their affiliates for execution or
other services.
(3) A description of the Morgan Stanley/Mitsubishi Entity's
brokerage placement practices, if such practices have materially
changed during the period covered by the summary.
(4) (i) A portfolio turnover ratio, calculated in a manner which is
reasonably designed to provide the authorizing plan fiduciary with the
information needed to assist in discharging its duty of prudence. The
requirements of this subparagraph (f)(4)(i) will be met if the
``annualized portfolio turnover ratio'', calculated in the manner
described in subparagraph (f)(4)(ii), is contained in the summary.
(ii) The ``annualized portfolio turnover ratio'' must be calculated
as a percentage of the plan assets consisting of securities or cash
over which the authorized Morgan Stanley/Mitsubishi Entity had
discretionary investment authority, or with respect to which such
Morgan Stanley/Mitsubishi Entity rendered, or had any responsibility to
render, investment advice (the portfolio) at any time or times
(management period(s)) during the period covered by the report. First,
the ``portfolio turnover ratio'' (not annualized) is obtained by
dividing:
(A) The lesser of the aggregate dollar amounts of purchases or
sales of portfolio securities during the management period(s) by
(B) The monthly average of the market value of the portfolio
securities during all management period(s). Such monthly average is
calculated by totaling the market values of the portfolio securities as
of the beginning and ending of each management period and as of the end
of each month that ends within such period(s) and dividing the sum by
the number of valuation dates so used. For purposes of this
calculation, all debt securities whose maturities at the time of
acquisition were one (1) year or less are excluded from both the
numerator and the denominator. The ``annualized portfolio turnover
ratio'' is then derived by multiplying the ``portfolio turnover ratio''
by an annualizing factor. The annualizing factor is obtained by
dividing (C) the number twelve (12) by (D) the aggregate duration of
the management period(s) expressed in months (and fractions thereof).
(iii) The information described in this subparagraph (f)(4) is not
required to be furnished in any case where the authorized Morgan
Stanley/Mitsubishi Entity acting as plan fiduciary has not exercised
discretionary authority over trading in the plan's account during the
period covered by the report.
For purposes of this subparagraph (f), the words, ``incurred by the
plan,'' shall be construed to mean ``incurred by the pooled fund'' with
respect to covered transactions engaged in on behalf of a pooled fund
in which the plan participates.
(g) For an agency cross transaction with respect to which Section
IV(a) of this Part VI does not apply, the following conditions must
also be satisfied:
(1) The information required under Section III(d) or Section
IV(c)(1)(ii) of this Part VI includes a statement to the effect that
with respect to agency cross transactions, the entity effecting or
executing the transactions will have a potentially conflicting division
of loyalties and responsibilities regarding the parties to the
transactions;
(2) The summary required under Section III(f) of this Part VI
includes a statement identifying the total number of agency cross
transactions during the period covered by the summary and the total
amount of all commissions or other remuneration received or to be
received from all sources by the Related Entity engaging in the
transactions in connection with those transactions during the period;
(3) The Morgan Stanley/Mitsubishi entity has the discretionary
authority to act on behalf of, and/or provide investment advice to,
either:
(i) One or more sellers, or
(ii) One or more buyers with respect to the transaction, but not
both.
(4) The agency cross transaction is a purchase or sale for no
consideration other than cash payment against prompt delivery of a
security for which market quotations are readily available; and
(5) The agency cross transaction is executed or effected at a price
that is at or between the independent bid and independent ask prices
for the security prevailing at the time of the transaction.
(h) A Morgan Stanley/Mitsubishi Entity serving as trustee (other
than a nondiscretionary trustee) may only engage in a covered
transaction with a plan that has total net assets with a value of at
least $50 million. In the case of a pooled fund, the $50 million net
asset requirement will be met, if 50 percent or more of the units of
beneficial interest in such pooled fund are held by plans each of which
has total net assets with a value of at least $50 million.
For purposes of the net asset tests described above, where a group
of plans is maintained by a single employer or controlled group of
employers, as defined in ERISA section 407(d)(7), the $50 million net
asset requirement may be met by aggregating the assets of such
[[Page 85925]]
plans, if the assets are pooled for investment purposes in a single
master trust.
(i) The Morgan Stanley/Mitsubishi Entity serving as trustee (other
than a nondiscretionary trustee) engaging in a covered transaction
furnishes, at least annually, to the authorizing plan fiduciary of each
plan the following:
(1) The aggregate brokerage commissions, expressed in dollars, paid
by the plan to brokerage firms affiliated with such trustee;
(2) The aggregate brokerage commissions, expressed in dollars, paid
by the plan to brokerage firms not affiliated with such trustee;
(3) The average brokerage commissions, expressed as cents per
share, paid by the plan to brokerage firms affiliated with such
trustee; and
(4) The average brokerage commissions, expressed as cents per
share, paid by the plan to brokerage firms not affiliated with such
trustee.
For purposes of this subparagraph (i), the words, ``paid by the
plan,'' should be construed to mean ``paid by the pooled fund'' when
the trustee engages in covered transactions on behalf of a pooled fund
in which the plan participates.
Section IV: Exceptions From Conditions
(a) Certain agency cross transactions. Section III of this Part VI
does not apply in the case of an agency cross transaction, provided
that the Morgan Stanley/Mitsubishi Entity and/or Related Entity:
(1) Does not render investment advice to any plan for a fee within
the meaning of ERISA section 3(21)(A)(ii) with respect to the
transaction;
(2) Is not otherwise a fiduciary who has investment discretion with
respect to any plan assets involved in the transaction, see 29 CFR
2510.3-21(d); and
(3) Does not have the authority to engage, retain or discharge any
person who is or is proposed to be a fiduciary regarding any such plan
assets.
(b) Recapture of profits. Section III(a) of this Part VI does not
apply in any case where the entity engaging in a covered transaction
returns or credits to the plan all profits earned by the entity in
connection with the securities transactions associated with the covered
transaction.
(c) Special rules for pooled funds. In the case of a covered
transaction involving an account or fund for the collective investment
of the assets of more than one plan (pooled fund):
(1) Section III (b), (c), and (d) of this Part VI do not apply if:
(i) The arrangement under which the covered transaction is
performed is subject to the prior and continuing authorization, in the
manner described in this subparagraph (c)(1), of an authorizing plan
fiduciary with respect to each plan whose assets are invested in the
pooled fund who is independent of the Morgan Stanley/Mitsubishi Entity
and the Related Entity. The requirement that the authorizing plan
fiduciary be independent shall not apply in the case of a plan covering
only employees of a Morgan Stanley/Mitsubishi Entity, if the
requirements of Section IV(c)(2)(i) and (ii) of this Part VI are met.
(ii) The authorizing plan fiduciary is furnished with any
reasonably available information that the Morgan Stanley/Mitsubishi
Entity engaging or proposing to engage in the covered transactions
reasonably believes to be necessary for the authorizing plan fiduciary
to determine whether the authorization should be given or continued,
not less than thirty (30) days prior to implementation of the
arrangement or material change thereto, including (but not limited to)
a description of the Morgan Stanley/Mitsubishi Entity's brokerage
placement practices, and, where requested, any reasonably available
information regarding the matter upon the reasonable request of the
authorizing plan fiduciary at any time.
(iii) In the event an authorizing plan fiduciary submits a notice
in writing to the Morgan Stanley/Mitsubishi Entity engaging in or
proposing to engage in the covered transaction objecting to the
implementation of, material change in, or continuation of, the
arrangement, the plan on whose behalf the objection was tendered is
given the opportunity to terminate its investment in the pooled fund,
without penalty to the plan, within such time as may be necessary to
effect the withdrawal in an orderly manner that is equitable to all
withdrawing plans and to the non-withdrawing plans. In the case of a
plan that elects to withdraw under this subparagraph (c)(1)(iii), the
withdrawal shall be effected prior to the implementation of, or
material change in, the arrangement; but an existing arrangement need
not be discontinued by reason of a plan electing to withdraw.
(iv) In the case of a plan whose assets are proposed to be invested
in the pooled fund after the implementation of the arrangement and that
has not authorized the arrangement in the manner described in
subparagraphs (c)(1)(ii) and (c)(1)(iii) of this Section IV, such
plan's investment in the pooled fund is subject to the prior written
authorization of an authorizing fiduciary who satisfies the
requirements of subparagraph (c)(1)(i).
(2) To the extent that Section III(a) of this Part VI prohibits any
Morgan Stanley/Mitsubishi Entity or Related Entity from being the
employer of employees covered by a plan investing in a pool managed by
the Morgan Stanley/Mitsubishi Entity, Section III(a) of this Part VI
does not apply if:
(i) The Morgan Stanley/Mitsubishi Entity is an ``investment
manager'' as defined in ERISA section 3(38), and
(ii) Either
(A) The Morgan Stanley/Mitsubishi Entity returns or credits to the
pooled fund all profits earned by the Related Entity in connection with
all covered transactions engaged in by the Related Entity on behalf of
the fund, or
(B) The pooled fund satisfies the requirements of Section IV(c)(3)
of this Part VI.
(3) A pooled fund satisfies the requirements of this subparagraph
for a fiscal year of the fund if:
(i) On the first day of such fiscal year, and immediately following
each acquisition of an interest in the pooled fund during the fiscal
year by any plan covering employees of any Morgan Stanley/Mitsubishi
Entity or Related Entity, the aggregate fair market value of the
interests in such fund of all plans covering employees of any Morgan
Stanley/Mitsubishi Entity and Related Entity, acquired under this
exemption and PTE 86-128, does not exceed 20 percent (20%) of the fair
market value of the total assets of the fund; and
(ii) The aggregate brokerage commissions received by any Related
Entity, in connection with covered transactions engaged under this
exemption and PTE 86-128, on behalf of all pooled funds in which a plan
covering employees of any Morgan Stanley/Mitsubishi Entity or Related
Entity participates, do not exceed five percent (5%) of the total
brokerage commissions received by any Related Entity from all sources
in such fiscal year.
Part VII. Proposed Exemption for Cross-Trades of Securities by Index
and Model-Driven Funds (Modeled After PTE 2002-12)
Section I. Proposed Exemption for Cross-Trading of Securities by Index
and/or Model-Driven Funds
The restrictions of ERISA sections 406(a)(1)(A) and 406(b)(2), and
the sanctions resulting from the application of Code section 4975, by
reason of Code section 4975(c)(1)(A), shall not apply to the
transactions described below, if the
[[Page 85926]]
applicable conditions set forth in Sections II and III of this
exemption, below, are satisfied.
(a) The purchase and sale of securities between an Index Fund or a
Model-Driven Fund, as defined in Section IV(a) and (b), below, and
another Index Fund or Model-Driven Fund (hereinafter, either referred
as a Fund), at least one of which holds ``plan assets'' subject to the
Act; or
(b) The purchase and sale of securities between a Fund and a Large
Account, as defined in Section IV(e) of this Part VII, at least one of
which holds ``plan assets'' subject to the Act, pursuant to a portfolio
restructuring program, as defined in Section IV(f) of this Part VII, of
the Large Account, where a Morgan Stanley entity is the Manager on one
side of the cross-trade and a Mitsubishi entity is the Manager on the
other side of the cross-trade. Each Manager must comply with each
condition below and is deemed a Morgan Stanley/Mitsubishi Entity for
purposes of Parts VIII and IX below.
Notwithstanding the foregoing, this Part VII shall apply to cross-
trades between two (2) or more Large Accounts pursuant to a portfolio
restructuring program, if such cross-trades occur as part of a single
cross-trading program involving both Funds and Large Accounts for which
securities are cross-traded solely because of the objective operation
of the program.
Section II. Specific Conditions
(a) The cross-trade is executed at the closing price, as defined
below in Section IV(h) of this Part VII.
(b) Any cross-trade of securities by a Fund occurs as a direct
result of a ``triggering event,'' as defined in Section IV(d), and is
executed no later than the close of the third business day following
such ``triggering event.''
(c) If the cross-trade involves a Model-Driven Fund, the cross-
trade does not take place within three (3) business days following any
change made by the Manager to the model underlying the Fund.
(d) The Manager has allocated the opportunity for all Funds or
Large Accounts to engage in the cross-trade on an objective basis which
has been previously disclosed to the authorizing fiduciaries of plan
investors, and which does not permit the exercise of discretion by the
Manager (e.g., a pro rata allocation system).
(e) No more than 20 percent (20%) of the assets of the Fund or
Large Account at the time of the cross-trade is comprised of assets of
plans maintained by the Manager for its own employees (the Manager
Plan(s)) for which the Manager exercises investment discretion.
(f)(1) Cross-trades of equity securities involve only securities
that are widely held, actively traded, and for which market quotations
are readily available from independent sources that are engaged in the
ordinary course of business of providing financial news and pricing
information to institutional investors and/or to the general public,
and are widely recognized as accurate and reliable sources for such
information. For purposes of this requirement, the terms, ``widely-
held'' and ``actively-traded,'' shall be deemed to include any security
listed in an Index, as defined in Section IV(c); and
(2) Cross-trades of fixed-income securities involve only securities
for which market quotations are readily available from independent
sources that are engaged in the ordinary course of business of
providing financial news and pricing information to institutional
investors and/or to the general public and are widely recognized as
accurate and reliable sources for such information.
(g) The Manager receives no brokerage fees or commissions because
of the cross-trade.
(h) A plan's participation in the cross-trading program of a
Manager, as a result of investments made in any Index or Model-Driven
Fund that holds plan assets is subject to a written authorization
executed in advance of such investment by a fiduciary of such plan that
is independent of Morgan Stanley and Mitsubishi (the independent plan
fiduciary).
For purposes of this Part VII, the requirement that the authorizing
fiduciary be independent of the Manager shall not apply in the case of
a Manager Plan.
(i) With respect to existing plan investors in any Index or Model-
Driven Fund that holds plan assets as of the date this proposed
exemption is granted, the independent fiduciary is furnished with a
written notice, not less than forty-five (45) days before the
implementation of the cross-trading program, that describes the Fund's
participation in the cross-trading program of the Manager, provided
that:
(1) Such notice allows each plan an opportunity to object to such
plan's participation in the cross-trading program as a Fund investor by
providing such plan with a special termination form;
(2) The notice instructs the independent plan fiduciary that
failure to return the termination form to the Manager, by a specified
date (which shall be at least thirty (30) days following such plan's
receipt of the form) shall be deemed to be an approval by such plan of
its participation in the Manager's cross-trading program as a Fund
investor; and
(3) If the independent plan fiduciary objects to a plan's
participation in the cross-trading program as a Fund investor by
returning the termination form to the Manager by the specified date,
such plan is given the opportunity to withdraw from each Index or
Model-Driven Fund without penalty before the implementation of the
cross-trading program, within such time as may be reasonably necessary
to effectuate the withdrawal in an orderly manner.
(j) Prior to obtaining the authorization described in Section II(h)
the notice described in Section II(i) of this Part VII, the following
statement must be provided by the Manager to the independent plan
fiduciary:
Investment decisions for the Fund (including decisions regarding
which securities to buy or sell, how much of a security to buy or sell,
and when to execute a sale or purchase of securities for the Fund) will
not be based in whole or in part by the Manager on the availability of
cross-trade opportunities and will be made prior to the identification
and determination of any cross-trade opportunities. In addition, all
cross-trades by a Fund will be based solely upon a ``triggering event''
as set forth in this Part VII. Records documenting each cross-trade
transaction will be retained by the Manager.
(k) Before any authorization set forth in Section II(h) of this
Part VII, and at the time of any notice described in Section II(i) of
this Part VII, the independent plan fiduciary must be furnished with
any reasonably available information necessary for the fiduciary to
determine whether the authorization should be given, including (but not
limited to) (i) a copy of this proposed exemption and the final
exemption, if granted, (ii) an explanation of how the authorization may
be terminated, (iii) detailed disclosure of the procedures to be
implemented under the Manager's cross-trading practices (including the
``triggering events'' that will create the cross-trading opportunities,
the independent pricing services that will be used by the Manager to
price the cross-traded securities, and the methods that will be used
for determining closing price), and (iv) any other reasonably available
information regarding the matter that the authorizing plan fiduciary
requests. The independent plan fiduciary must also be provided with a
statement that the Manager will have a potentially conflicting division
of
[[Page 85927]]
loyalties and responsibilities to the parties to any cross-trade
transaction and must explain how the Manager's cross-trading practices
and procedures will mitigate such conflicts.
With respect to Funds that are added to the Manager's cross-trading
program or changes to, or additions of, triggering events regarding
Funds, following the authorizations described in Section II(h) or
Section II(i) of this Part VII, the Manager shall provide a notice to
each relevant independent plan fiduciary of each plan invested in the
affected Funds before, or within ten (10) days following, such addition
of Funds or change to, or addition of, triggering events, which
contains a description of such Fund(s) or triggering event(s). Such
notice will also include a statement that such plan has the right to
terminate its participation in the cross-trading program and its
investment in any Index Fund or Model-Driven Fund without penalty at
any time, as soon as is necessary to effectuate the withdrawal in an
orderly manner.
(l) At least annually, the Manager notifies the independent
fiduciary for each plan that has previously authorized participation in
the Manager's cross-trading program as a Fund investor, that such plan
has the right to terminate its participation in the cross-trading
program and its investment in any Index Fund or Model-Driven Fund that
holds plan assets without penalty at any time, as soon as is necessary
to effectuate the withdrawal in an orderly manner. This notice shall
also provide each independent plan fiduciary with a special termination
form and instruct the fiduciary that failure to return the form to the
Manager by a specified date (which shall be at least thirty (30) days
following such plan's receipt of the form) shall be deemed an approval
of the subject plan's continued participation in the cross-trading
program as a Fund investor. In lieu of providing a special termination
form, the notice may permit the independent plan fiduciary to utilize
another written instrument by the specified date to terminate a plan's
participation in the cross-trading program; provided that in such case
the notification explicitly discloses that a termination form may be
obtained from the Manager upon request. Such annual re-authorization
must provide information to the relevant independent plan fiduciary
regarding each Fund in which a plan is invested, as well as explicit
notification that such plan fiduciary may request and obtain
disclosures regarding any new Funds in which such plan is not invested
that are added to the cross-trading program, or any new triggering
events (as defined in Section IV(d) of this Part VII) that may have
been added to any existing Funds in which such plan is not invested,
since the time of the initial authorization described in Section II(h)
of this Part VII, or the time of the notification described in Section
II(i) of this Part VII.
(m) With respect to a cross-trade involving a Large Account:
(1) The cross-trade is executed in connection with a portfolio
restructuring program, as defined in Section IV(f) of this Part VII,
with respect to all or a portion of the Large Account's investments
which an independent fiduciary of the Large Account (other than in the
case of any assets of a Manager Plan) has authorized the Manager to
carry out or to act as a ``trading adviser,'' as defined in Section
IV(g) of this Part VII, in carrying out a Large Account-initiated
liquidation or restructuring of its portfolio;
(2) Before the cross-trade, a fiduciary of the Large Account who is
independent of Morgan Stanley and Mitsubishi (other than in the case of
any assets of a Manager Plan) \7\ has been fully informed of the
Manager's cross-trading program, has been provided with the information
required in Section II(k) of this Part VII, and has provided the
Manager with advance written authorization to engage in cross-trading
in connection with the restructuring, provided that:
---------------------------------------------------------------------------
\7\ However, for the Manager Plan to participate in a specific
portfolio restructuring program as part of a Large Account, proper
disclosures must be made to, and written authorization must be made
by, an appropriate plan fiduciary.
---------------------------------------------------------------------------
(i) Such authorization may be terminated at will by the Large
Account upon receipt by the Manager of written notice of termination.
(ii) A form expressly providing an election to terminate the
authorization, with instructions on the use of the form, is supplied to
the authorizing Large Account fiduciary concurrent with the receipt of
the written information describing the cross-trading program. The
instructions for such form must specify that the authorization may be
terminated at will by the Large Account, without penalty to the Large
Account, upon receipt by the Manager of written notice from the
authorizing Large Account fiduciary;
(3) All cross-trades made in connection with the portfolio
restructuring program must be completed by the Manager within sixty
(60) days of the initial authorization (or initial receipt of assets
associated with the restructuring, if later) to engage in such
restructuring by the Large Account's independent fiduciary, unless such
fiduciary agrees in writing to extend this period for another thirty
(30) days; and,
(4) No later than thirty (30) days after completion of the Large
Account's portfolio restructuring program, the Large Account's
independent fiduciary must be fully apprised in writing of all cross-
trades executed in connection with the restructuring. Such writing
shall include a notice that the Large Account's independent fiduciary
may obtain, upon request, the information described in Section III(a)
of this Part VII, subject to the limitations described in Section
III(b) of this Part VII. However, if the program takes longer than
sixty (60) days to complete, interim reports containing the transaction
results must be provided to the Large Account fiduciary no later than
fifteen (15) days following the end of the initial sixty (60) day
period and the succeeding thirty (30) day period.
Section III. General Conditions
(a) The Manager maintains or causes to be maintained for a period
of six (6) years from the date of each cross-trade the records
necessary to enable the persons described below in subparagraph (b) of
this Section III to determine whether the conditions of this Part VII
have been met, including records which identify:
(1) On a Fund-by-Fund basis, the specific triggering events which
result in the creation of the model prescribed output or trade list of
specific securities to be cross-traded;
(2) On a Fund-by-Fund basis, the model prescribed output or trade
list which describes:
(i) Which securities to buy or sell; and
(ii) How much of each security to buy or sell; in detail sufficient
to allow an independent plan fiduciary to verify that each of the above
decisions for the Fund was made in response to specific triggering
events; and
(3) On a Fund-by-Fund basis, the actual trades executed by the Fund
on a particular day and which of those trades resulted from triggering
events.
Such records must be readily available to assure accessibility and
maintained so that an independent fiduciary, or other persons
identified below in subparagraph (b) of this Section III, may obtain
them within a reasonable period of time. However, a prohibited
transaction will not be considered to have occurred if, due to
circumstances beyond the control of the Manager, the records are lost
or destroyed prior to the end of the six-year period, and no party in
interest other than the Manager shall be subject
[[Page 85928]]
to the civil penalty that may be assessed under ERISA section 502(i) or
to the taxes imposed by Code section 4975(a) and (b) if the records are
not maintained or are not available for examination as required by
subparagraph (b)below of this Section III.
(b)(1) Except as provided below in subparagraph (b)(2) of this
Section III and notwithstanding any provisions of ERISA sections
504(a)(2) and (b), the records referred to in subparagraph (a) of this
Section III are unconditionally available at their customary location
for examination during normal business hours by:
(i) Any duly authorized employee or representative of the
Department or the IRS,
(ii) Any fiduciary of a plan participating in a cross-trading
program who has the authority to acquire or dispose of the assets of
such plan, or any duly authorized employee or representative of such
fiduciary,
(iii) Any contributing employer with respect to any plan
participating in a cross-trading program or any duly authorized
employee or representative of such employer, and
(iv) Any participant or beneficiary of any Manager Plan
participating in a cross-trading program, or any duly authorized
employee or representative of such participant or beneficiary.
(2) If, in the course of seeking to inspect records maintained by a
Manager pursuant to this Section III, any person described below in
subparagraph (b)(1)(ii) through (iv) of this Section III seeks to
examine trade secrets, or commercial or financial information of the
Manager that is privileged or confidential, and the Manager is
otherwise permitted by law to withhold such information from such
person, the Manager may refuse to disclose such information provided
that, by the close of the thirtieth (30th) day following the request,
the Manager gives a written notice to such person advising the person
of the reasons for the refusal and that the Department of Labor may
request such information.
(3) The information required to be disclosed to persons described
above in subparagraph (b)(1)(ii) through (iv) of this Section III shall
be limited to information that pertains to cross-trades involving a
Fund or Large Account in which they have an interest.
Section IV. Definitions
The following definitions apply for purposes of this Part VII:
(a) ``Index Fund''--Any investment fund, account or portfolio
sponsored, maintained, trusteed, or managed by a Manager or an
Affiliate, in which one or more investors invest, and:
(1) Which is designed to track the rate of return, risk profile and
other characteristics of an Index, as defined in Section IV(c) of this
Part VII, by either
(i) Replicating the same combination of securities which compose
such Index, or
(ii) Sampling the securities which compose such Index based on
objective criteria and data;
(2) For which the Manager does not use its discretion, or data
within its control, to affect the identity or amount of securities to
be purchased or sold;
(3) That either contains ``plan assets'' subject to ERISA, is an
investment company registered under the 1940 Act, or contains assets of
one or more institutional investors, which may include, but not be
limited to, such entities as an insurance company separate account or
general account, a governmental plan, a university endowment fund, a
charitable foundation fund, a trust, or other fund which is exempt from
taxation under Code section 501(a); and,
(4) That involves no agreement, arrangement, or understanding
regarding the design or operation of the Index Fund which is intended
to benefit a Manager or an Affiliate, or any party in which a Manager
or an Affiliate may have an interest.
(b) ``Model-Driven Fund''--Any investment fund, account or
portfolio sponsored, maintained, trusteed, or managed by the Manager or
an Affiliate in which one or more investors invest, and:
(1) Which is composed of securities the identity of which and the
amount of which are selected by a computer model that is based on
prescribed objective criteria using independent third-party data, not
within the control of the Manager, to transform an Index, as defined in
Section IV(c) of this Part VII;
(2) Which either contains ``plan assets'' subject to ERISA, is an
investment company registered under the 1940 Act, or contains assets of
one or more institutional investors, which may include, but not be
limited to, such entities as an insurance company separate account or
general account, a governmental plan, a university endowment fund, a
charitable foundation fund, a trust, or other fund which is exempt from
taxation under Code section 501(a); and
(3) That involves no agreement, arrangement, or understanding
regarding the design or operation of the Model-Driven Fund or the
utilization of any specific objective criteria which is intended to
benefit a Manager or an Affiliate, or any party in which a Manager or
an Affiliate may have an interest.
(c) ``Index''--A securities index that represents the investment
performance of a specific segment of the public market for equity or
debt securities in the United States and/or foreign countries, but only
if--
(1) The organization creating and maintaining the index is:
(i) Engaged in the business of providing financial information,
evaluation, advice, or securities brokerage services to institutional
clients,
(ii) A publisher of financial news or information, or
(iii) A public securities exchange or association of securities
dealers; and,
(2) The index is created and maintained by an organization
independent of the Manager, as defined in Section IV(i) of this Part
VII; and,
(3) The index is a generally accepted standardized index of
securities which is not specifically tailored for the use of the
Manager.
(d) ``Triggering Event'':
(1) A change in the composition or weighting of the Index
underlying a Fund by the independent organization creating and
maintaining the Index;
(2) A material amount of net change in the overall level of assets
in a Fund, as a result of investments in and withdrawals from the Fund,
provided that:
(i) Such material amount has either been identified in advance as a
specified amount of net change relating to such Fund and disclosed in
writing as a ``triggering event'' to an independent fiduciary of each
plan having assets held in the Fund prior to, or within ten (10) days
following, its inclusion as a ``triggering event'' for such Fund or the
Manager has otherwise disclosed in the description of its cross-trading
practices, pursuant to Section II(k) of this Part VII, the parameters
for determining a material amount of net change, including any amount
of discretion retained by the Manager that may affect such net change,
in sufficient detail to allow the independent fiduciary to determine
whether the authorization to engage in cross-trading should be given;
and
(ii) Investments or withdrawals as a result of the Manager's
discretion to invest or withdraw assets of a Manager Plan, other than a
Manager Plan which is a defined contribution plan under which
participants direct the investment of their accounts among various
investment options, including such Fund, will not be taken into
[[Page 85929]]
account in determining the specified amount of net change;
(3) An accumulation in the Fund of a material amount of either:
(i) Cash which is attributable to interest or dividends on, and/or
tender offers for, portfolio securities; or
(ii) Stock attributable to dividends on portfolio securities;
provided that such material amount has either been identified in
advance as a specified amount relating to such Fund and disclosed in
writing as a ``triggering event'' to an independent fiduciary of each
plan having assets held in the Fund prior to, or within ten (10) days
after, its inclusion as a ``triggering event'' for such Fund, or the
Manager has otherwise disclosed in the description of its cross-trading
practices, pursuant to Section II(k) of this Part VII the parameters
for determining a material amount of accumulated cash or securities,
including any amount of discretion retained by the Manager that may
affect such accumulated amount, in sufficient detail to allow the
independent fiduciary to determine whether the authorization to engage
in cross-trading should be given;
(4) A change in the composition of the portfolio of a Model-Driven
Fund mandated solely by operation of the formulae contained in the
computer model underlying the Model-Driven Fund where the basic factors
for making such changes (and any fixed frequency for operating the
computer model) have been disclosed in writing to an independent
fiduciary of each plan having assets held in the Model-Driven Fund,
prior to, or within ten (10) days after, its inclusion as a
``triggering event'' for such Model-Driven Fund; or
(5) A change in the composition or weighting of a portfolio for an
Index Fund or a Model-Driven Fund which results from an independent
fiduciary's direction to exclude certain securities or types of
securities from the Fund, notwithstanding that such securities are part
of the index used by the Fund.
(e) ``Large Account''--Any investment fund, account or portfolio
that is not an Index Fund or a Model-Driven Fund sponsored, maintained,
trusteed (other than a Fund for which the Manager is a nondiscretionary
trustee), or managed by the Manager, which holds assets of either:
(1) An employee benefit plan within the meaning of ERISA section
3(3) that has $50 million or more in total assets (for purposes of this
requirement, the assets of one or more employee benefit plans
maintained by the same employer, or controlled group of employers, may
be aggregated provided that such assets are pooled for investment
purposes in a single master trust);
(2) An institutional investor that has total assets in excess of
$50 million, such as an insurance company separate account or general
account, a governmental plan, a university endowment fund, a charitable
foundation fund, a trust, or other fund which is exempt from taxation
under Code section 501(a); or
(3) An investment company registered under the 1940 Act (e.g., a
mutual fund) other than an investment company advised or sponsored by
the Manager; provided that the Manager has been authorized to
restructure all or a portion of the portfolio for such Large Account or
to act as a ``trading adviser'' (as defined in Section IV(g) of this
Part VII in connection with a portfolio restructuring program (as
defined in Section IV(f) of this Part VII for the Large Account.
(f) ``Portfolio restructuring program''--Buying and selling the
securities on behalf of a Large Account in order to produce a portfolio
of securities which will be an Index Fund or a Model-Driven Fund
managed by the Manager or by another investment manager, or in order to
produce a portfolio of securities the composition of which is
designated by a party independent of the Manager, without regard to the
requirements of Section IV(a)(3) or (b)(2) of this Part VII, or to
carry out a liquidation of a specified portfolio of securities for the
Large Account.
(g) ``Trading adviser''--A Morgan Stanley or Mitsubishi entity
whose role is limited with respect to a Large Account to the
disposition of a securities portfolio in connection with a portfolio
restructuring program that is a Large Account-initiated liquidation or
restructuring within a stated period of time in order to minimize
transaction costs. The Morgan Stanley or Mitsubishi Entity does not
have discretionary authority or control with respect to any underlying
asset allocation, restructuring or liquidation decisions for the
account in connection with such transactions and does not render
investment advice [within the meaning of 29 CFR 2510.3-21(c)] with
respect to such transactions.
(h) ``Closing price''--The price for a security on the date of the
transaction, as determined by objective procedures disclosed to
investors in advance and consistently applied with respect to
securities traded in the same market, which procedures shall indicate
the independent pricing source (and alternates, if the designated
pricing source is unavailable) used to establish the closing price and
the time frame after the close of the market in which the closing price
will be determined.
(i) ``Manager''--A Morgan Stanley entity acting as manager of a
Fund or Large Account involved in one side of a cross-trade transaction
involving a Mitsubishi entity acting as manager of a Fund or Large
Account involved in the other side of the same cross-trade transaction;
or a Mitsubishi entity acting as manager of a Fund or Large Account
involved in one side of a cross-trade transaction involving a Morgan
Stanley entity acting as manager of a Fund or Large Account involved in
the other side of the same cross-trade transaction, where the Morgan
Stanley entity and the Mitsubishi entity is:
(1) A bank or trust company, or any Affiliate thereof, which is
supervised by a state or federal agency; or
(2) An investment adviser or any Affiliate thereof which is
registered under the Investment Advisers Act of 1940.
(j) ``Affiliate''--An affiliate of a Manager is:
(1) Any person, directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with
the Manager:
(2) Any officer, director, employee, or relative of such Manager,
or partner of any such Manager; or
(3) Any corporation or partnership of which such Manager is an
officer, director, partner, or employee.
(k) ``Control''--The power to exercise a controlling influence over
the management or policies of a person other than an individual.
(l) ``Relative''--A relative is a person that is defined in ERISA
section 3(15) (or a ``member of the family'' as that term is defined in
Code section 4975(e)(6)), or a brother, a sister, or a spouse of a
brother or sister).
(m) ``Nondiscretionary trustee''--A plan trustee whose powers and
duties with respect to any assets of a plan are limited to:
(1) The provision of nondiscretionary trust services to such plan,
and
(2) Duties imposed on the trustee by any provision or provisions of
ERISA or the Code. The term ``nondiscretionary trust services'' means
custodial services and services ancillary to custodial services, none
of which services are discretionary. For purposes of this Part VII, a
person who is otherwise a nondiscretionary trustee will not fail to be
a nondiscretionary trustee solely by reason of having been delegated,
by the sponsor of a master or prototype plan, the power to amend such
plan.
[[Page 85930]]
Part VIII. New Global Conditions Applicable to All Transactions Covered
by This Exemption
(a) Notwithstanding the requirements above, the applicable Morgan
Stanley/Mitsubishi Entity maintain(s) or cause(s) to be maintained for
a period of six (6) years from the date of any transaction described
herein, such records as are necessary to enable the persons described
below in subparagraph (b) to determine whether the conditions of this
proposed exemption were met, except that:
(1) If the records necessary to enable the persons described below
in subparagraph (b)(1)(i)-(iv) to determine whether the conditions of
the proposed exemption have been met are lost or destroyed, due to
circumstances beyond the control of the Morgan Stanley/Mitsubishi
Entity, then no prohibited transaction will be considered to have
occurred solely on the basis of the unavailability of those records;
and
(2) No party in interest with respect to a plan which engages in
the covered transactions, other than Morgan Stanley and Mitsubishi,
shall be subject to the civil penalty that may be assessed under ERISA
section 502(i) Act or to the taxes imposed by Code section 4975(a) and
(b) if the records have not been maintained or are not available for
examination as required by subparagraph (b) below.
(b)(1) Except as provided below in subparagraph (b)(2), and
notwithstanding the provisions of subsections (a)(2) and (b) of ERISA
section 504, the records referred to above in subparagraph (a) are
unconditionally available for examination during normal business hours
at their customary location to the following persons or an authorized
representative thereof:
(i) Any duly authorized employee or representative of the
Department, the Internal Revenue Service (IRS), or the SEC; or
(ii) Any fiduciary of any plan that engages in the covered
transactions, or any duly authorized employee or representative of such
fiduciary; or
(iii) Any employer of participants and beneficiaries and any
employee organization whose members are covered by any plan that
engages in the transactions covered herein, or any authorized employee
or representative of these entities; or
(iv) Any participant or beneficiary of any plan that engages in the
transactions covered herein, or duly authorized representative of such
participant or beneficiary;
(2) None of the persons described above in subparagraph (b)(1)(ii)-
(iv) shall be authorized to examine the trade secrets of a Morgan
Stanley/Mitsubishi Entity, or commercial or financial information,
which is privileged or confidential; and
(3) Should a Morgan Stanley/Mitsubishi entity refuse to disclose
information on the basis that such information is exempt from
disclosure, pursuant to subparagraph (b)(2) above such Morgan Stanley/
Mitsubishi Entity shall, by 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.
(c) If an Applicable Class Exemption is amended, revised or
revoked, or is subject to a new interpretation by the Department
following the grant of this exemption, such change or interpretation
will apply to the relevant transactions, conditions and/or terms in the
relevant exemption herein.
(d) Disclosure of Conflicts: The Morgan Stanley/Mitsubishi Entity
engaging in a transaction covered by any Part of this exemption (with
the exception of transactions described in Parts III and V) must
provide a written notice to a fiduciary of that plan that is
independent of both Mitsubishi and Morgan Stanley. The notice must
clearly, and in plain English: (i) describe the ownership relationship
between Morgan Stanley and Mitsubishi; (ii) describe the transactions
that Morgan Stanley and Mitsubishi will engage in under this exemption
on behalf of the plan or IRA; and (iii) alert the independent plan
fiduciary that, as a result of the ownership relationship between
Morgan Stanley and Mitsubishi, the previously identified transactions
will provide a benefit to Morgan Stanley or Mitsubishi (i.e., the party
that is not exercising discretion over the assets involved in the
transaction) and/or involve a conflict of interest;
(e) When relying on the relief in any Part of this exemption, the
Morgan Stanley/Mitsubishi Entity must comply with the following
``Impartial Conduct Standards'': (1) The Morgan Stanley/Mitsubishi
Entity, at the time of the transaction, must act in the Best Interest
of the plan. In this regard, acting in the Best Interest means acting
with the care, skill, prudence, and diligence under the circumstances
then prevailing that a prudent person acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise of
a like character and with like aims, based on the investment
objectives, risk tolerance, financial circumstances, and needs of
affected plan, and not place the financial or other interests of the
Morgan Stanley/Mitsubishi Entity, Related Entity, or other party ahead
of the interests of the affected plan, or subordinate the plan's
interests to their own; (2)(A) The compensation received, directly or
indirectly, by the Morgan Stanley/Mitsubishi Entity and Related
Entities for their services may not exceed reasonable compensation
within the meaning of ERISA section 408(b)(2) and Code section
4975(d)(2); and (B) As required by the federal securities laws, the
Morgan Stanley/Mitsubishi Entity must obtain the best execution of the
investment transaction reasonably available under the circumstances;
and (3) The Morgan Stanley/Mitsubishi Entity's statements to the plan
about the covered transaction and other relevant matters must not be
materially misleading at the time statements are made.
(f) All Morgan Stanley/Mitsubishi Entities utilizing the exemption
will have policies and procedures in place that are prudently designed
to ensure that the conditions of the exemption are met. The policies
and procedures must be in place prior to the occurrence of the
transaction that is the subject of the relevant relief.
Part IX. General Definitions
(a) The term ``Morgan Stanley/Mitsubishi Entity'' means an entity
acting as a plan fiduciary in a transaction described in Parts I
through VII:
(1) That meets the definition of Morgan Stanley, as defined below;
or
(2) That meets the definition of Mitsubishi, as defined below; or
(b) The term ``Related Entity'' means an entity that meets the
definition of ``Morgan Stanley/Mitsubishi Entity,'' except that the
entity is not acting as a fiduciary with respect to the transaction
that is the subject of the exemptive relief described in Parts I
through VII of the exemption, if granted.
(c) The term ``Morgan Stanley'' means Morgan Stanley & Co. LLC and
any person, directly or indirectly, through one or more intermediaries,
controlling, controlled by, or under common control with Morgan Stanley
& Co.
(d) The term ``Mitsubishi'' means Mitsubishi UFJ Financial Group,
Inc., and any person, directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control
with Mitsubishi UFJ Financial Group, Inc.
(e) For purposes of Part IX (c) and (d) above, the term ``control''
means the power to exercise a controlling influence over the management
or
[[Page 85931]]
policies of a person other than an individual.
(f) The term ``Rating Agency'' or collectively, ``Rating Agencies''
means a credit rating agency that:
(1) Is currently recognized by the Securities and Exchange
Commission (SEC) as a nationally recognized statistical ratings
organization (NRSRO);
(2) Has indicated on its most recently filed SEC Form NRSRO that it
rates ``issuers of asset-backed securities;'' and
(3) Has had, within a period not exceeding twelve (12) months prior
to the initial issuance of the securities, at least three (3)
``qualified ratings engagements.'' A ``qualified ratings engagement''
is one:
(i) Requested by an issuer or underwriter of securities in
connection with the initial offering of the securities;
(ii) For which the credit rating agency is compensated for
providing ratings;
(iii) Which is made public to investors generally; and
(iv) Which involves the offering of securities of the type that
would be granted relief by the certain underwriter exemptions (the
Underwriter Exemptions).\8\
---------------------------------------------------------------------------
\8\ The Underwriter Exemptions are a group of individual
exemptions granted by the Department to provide relief for the
origination and operation of certain asset pool investment trusts
and the acquisition, holding, and disposition by plans of certain
asset-backed pass-through certificates representing undivided
interests in those investment trusts. The most recent amendment to
the Underwriter Exemptions is the Amendment to Prohibited
Transaction Exemption 2007-05, 72 FR 13130 (March 20, 2007),
Involving Prudential Securities Incorporated, et al., To Amend the
Definition of ``Rating Agency,'' [Prohibited Transaction Exemption
2012-08, 78 FR 41090 (July 9, 2013); Exemption Application No. D-
11718].
---------------------------------------------------------------------------
(g) The term ``Applicable Class Exemption'' means PTE 75-1, Part
III; PTE 75-1, Part IV; PTE 77-3; PTE 77-4; PTE 79-13; PTE 86-128; or
PTE 2002-12.
Applicability Date: This exemption will be in effect on the date
that this grant notice is published in the Federal Register.
Signed at Washington, DC.
George Christopher Cosby,
Director, Office of Exemption Determinations, Employee Benefits
Security Administration, U.S. Department of Labor.
[FR Doc. 2023-27082 Filed 12-8-23; 8:45 am]
BILLING CODE 4510-29-P
</pre></body>
</html>Indexed from Federal Register on December 11, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.