Application Nos. and Proposed Exemptions: D-11336, Camino Medical Group, Inc. Employee Retirement Plan (the Retirement Plan); D-11458, The Bank of New York Mellon Corporation (the Applicant); and D-11465, United States Steel and Carnegie Pension Fund (the Applicant), et al., 79168-79194 [E8-30513]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 73, Number 248 (Wednesday, December 24, 2008)]
[Notices]
[Pages 79168-79194]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-30513]



[[Page 79168]]

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DEPARTMENT OF LABOR

Employee Benefits Security Administration


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

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of Proposed Exemptions.

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

Written Comments and Hearing Requests

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

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

Notice to Interested Persons

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

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in 
applications filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990). 
Effective December 31, 1978, section 102 of Reorganization Plan No. 4 
of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of the 
Secretary of the Treasury to issue exemptions of the type requested to 
the Secretary of Labor. Therefore, these notices of proposed exemption 
are issued solely by the Department.
    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

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

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

Proposed Exemption

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

[[Page 79169]]

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

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

Summary of Facts and Representations

CMG

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

[[Page 79170]]

Plan History

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

Acquisition of the Buildings

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

PTE 87-13 and the Department's Information Letter

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

The 1997 Leases

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

[[Page 79171]]

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

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

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

Prohibited Transactions

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

[[Page 79172]]

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

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

The 2003 Leases/Request for Exemptive Relief

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

Independent Appraisals of the Buildings

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

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

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

[[Page 79173]]

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

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

Other Determinations Made by the Independent Fiduciary

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

Department's Investigation

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

[[Page 79174]]

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

Tax Consequences Of The Transactions

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

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

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

Proposed Exemption

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

Section I--Transactions

    If the proposed exemption is granted, effective as of the date of 
issuance of this proposed exemption, the restrictions of section 406 of 
the Act, and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(A) through (F) of the 
Code, shall not apply to the purchase of certain securities (the 
Securities), as defined below in Section III(h), by an asset management 
affiliate of The Bank of New York Mellon Corporation (BNYMC), as 
``affiliate'' is defined below in Section III(c), from any person other 
than such asset management affiliate of BNYMC or any affiliate thereof, 
during the existence of an underwriting or selling syndicate with 
respect to such Securities, where a broker-dealer affiliated with BNYMC 
(the Affiliated Broker-Dealer), as defined below in Section III(b), is 
a manager or member of such syndicate (an ``affiliated underwriter 
transaction'' (AUT \10\)) and/or where an Affiliated Trustee, as 
defined below in Section III(m), serves as trustee of a trust that 
issued the Securities (whether or not debt securities) or serves as 
indenture trustee of Securities that are debt Securities (an 
``affiliated trustee transaction'' (ATT \11\)) and the asset management 
affiliate of BNYMC, as a fiduciary, purchases such Securities:
---------------------------------------------------------------------------

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

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

Section II--Conditions

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

[[Page 79175]]

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

[[Page 79176]]

through designation, any selling concession, or other compensation or 
consideration that is based upon the amount of Securities purchased by 
any single Client Plan, or that is based on the amount of Securities 
purchased by Client Plans or In-House Plans through Pooled Funds, 
pursuant to this proposed exemption. In this regard, the Affiliated 
Broker-Dealer may not receive, either directly or indirectly, any 
compensation or consideration that is attributable to the fixed 
designations generated by purchases of the Securities by the asset 
management affiliate of BNYMC on behalf of any single Client Plan or 
any Client Plan or In-House Plan in Pooled Funds.
    (g) If the transaction is an AUT,
    (1) The amount the Affiliated Broker-Dealer receives in management, 
underwriting, or other compensation or consideration is not increased 
through an agreement, arrangement, or understanding for the purpose of 
compensating the Affiliated Broker-Dealer for foregoing any selling 
concessions for those Securities sold pursuant to this proposed 
exemption. Except as described above, nothing in this Section II(g)(1) 
shall be construed as precluding the Affiliated Broker-Dealer from 
receiving management fees for serving as manager of the underwriting or 
selling syndicate, underwriting fees for assuming the responsibilities 
of an underwriter in the underwriting or selling syndicate, or other 
compensation or consideration that is not based upon the amount of 
Securities purchased by the asset management affiliate of BNYMC on 
behalf of any single Client Plan, or on behalf of any Client Plan or 
In-House Plan participating in Pooled Funds, pursuant to this proposed 
exemption; and
    (2) The Affiliated Broker-Dealer shall provide, on a quarterly 
basis, to the asset management affiliate of BNYMC a written 
certification, signed by an officer of the Affiliated Broker-Dealer, 
stating that the amount that the Affiliated Broker-Dealer received in 
compensation or consideration during the past quarter, in connection 
with any offerings covered by this exemption, was not adjusted in a 
manner inconsistent with Section II(e), (f), or (g) of this proposed 
exemption.
    (h) The covered transactions are performed under a written 
authorization executed in advance by an independent fiduciary of each 
single Client Plan (the Independent Fiduciary), as defined below in 
Section III(g).
    (i) Prior to the execution by an Independent Fiduciary of a single 
Client Plan of the written authorization described above in Section 
II(h), the following information and materials (which may be