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EBSA Notices

Grant of Individual Exemptions; Allfirst Bank   [12/21/2000]
[PDF]
[Federal Register: December 21, 2000 (Volume 65, Number 246)]
[Notices]               
[Page 80461-80467]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21de00-112]                         

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Prohibited Transaction Exemption 2000-66; Exemption Application No. D-
10706, et al.]

 
Grant of Individual Exemptions; Allfirst Bank

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemptions.

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SUMMARY: This document contains exemptions issued by the Department of 
Labor (the Department) from certain of the prohibited transaction 
restrictions of the Employee Retirement Income Security Act of 1974 
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
    Notices were published in the Federal Register of the pendency 
before the Department of proposals to grant such exemptions. The 
notices set forth a summary of facts and representations contained in 
each application for exemption and referred interested persons to the 
respective applications for a complete statement of the facts and 
representations. The applications have been available for public 
inspection at the Department in Washington, D.C. The notices also 
invited interested persons to submit comments on the requested 
exemptions to the Department. In addition the notices stated that any 
interested person might submit a written request that a public hearing 
be held (where appropriate). The applicants have represented that they 
have complied with the requirements of the notification to interested 
persons. No public comments and no requests for a hearing, unless 
otherwise stated, were received by the Department.
    The notices of proposed exemption were issued and the exemptions 
are being granted solely by the Department because, 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 proposed to the Secretary of 
Labor.

Statutory Findings

    In accordance with section 408(a) of the Act and/or section 
4975(c)(2) of the Code and the procedures set forth in 29 CFR part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon 
the entire record, the Department makes the following findings:
    (a) The exemptions are administratively feasible;
    (b) They are in the interests of the plans and their participants 
and beneficiaries; and
    (c) They are protective of the rights of the participants and 
beneficiaries of the plans.

Allfirst Bank, Located in Baltimore, Maryland

[Prohibited Transaction Exemption 2000-66; Exemption Application No. D-
10706]

Exemption

Section I--Exemption for Receipt of Fees

    The restrictions of section 406(a) and 406(b) 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, as of November 13, 1998, to the receipt of fees by Allfirst from 
the ARK Funds, open-end investment companies registered under the 
Investment Company Act of 1940 (the 1940 Act), for acting as an 
investment adviser for such Funds, as well as for providing other 
services to the ARK Funds which are ``Secondary Services,'' as defined 
in Section III(i), in connection with the investment by plans for which 
Allfirst serves as a fiduciary (the Client Plans) in shares of the ARK 
Funds, provided that the following conditions and the general 
conditions of Section II are met:
    (a) Each Client Plan satisfies either (but not both) of the 
following:
    (1) The Client Plan receives a cash credit of such Plan's 
proportionate share of all fees charged to the Funds by Allfirst for 
investment advisory services, including any investment advisory fees 
paid by Allfirst to third party sub-advisers, no later than the same 
day as the receipt of such fees by Allfirst. The crediting of all such 
fees to the Client Plans by Allfirst is audited by an independent 
accounting firm on at least an annual basis to verify the proper 
crediting of the fees to each Plan.
    (2) The Client Plan does not pay any Plan-level investment 
management fees, investment advisory fees, or similar fees to Allfirst 
with respect to any of the assets of such Plan that are invested in 
shares of any of the ARK Funds. This condition does not preclude the 
payment of investment advisory or similar fees by the ARK Funds to 
Allfirst under the terms of an investment management agreement adopted 
in accordance with section 15 of the 1940 Act, nor does it preclude the 
payment of fees for Secondary Services to Allfirst pursuant to a duly 
adopted agreement between Allfirst and the ARK Funds.
    (b) The price paid or received by a Client Plan for shares in a 
Fund is the net asset value per share, as defined in Section III(f), at 
the time of the transaction and is the same price that would have been 
paid or received for the shares by any other investor at that time.
    (c) Allfirst, including any officer or director of Allfirst, does 
not purchase or sell shares of the ARK Funds from or to any Client 
Plan.
    (d) No sales commissions are paid by the Client Plans in connection 
with the purchase or sale of shares of the ARK Funds, and no redemption 
fees are paid in connection with the sale of shares by the Client Plans 
to the ARK Funds.
    (e) For each Client Plan, the combined total of all fees received 
by Allfirst for the provision of services to a Client Plan, and in 
connection with the provision of services to the ARK Funds in which the 
Client Plan may invest, are not in excess of ``reasonable 
compensation'' within the meaning of section 408(b)(2) of the Act.
    (f) Allfirst does not receive any fees payable pursuant to Rule 
12b-1 under the 1940 Act in connection with the transactions.
    (g) The Client Plans are not employee benefit plans sponsored or 
maintained by Allfirst.
    (h) The Second Fiduciary receives, in advance of any initial 
investment by the Client Plan in a Fund, full and detailed written 
disclosure of information concerning the ARK Funds, including but not 
limited to:
    (1) A current prospectus for each Fund in which a Client Plan is 
considering investing;
    (2) A statement describing the fees for investment advisory or 
similar services, any secondary services as defined in Section III(i), 
and all other fees to be charged to or paid by the Client Plan and by 
the ARK Funds, including the nature and extent of any differential 
between the rates of such fees;
    (3) The reasons why Allfirst may consider such investment to be 
appropriate for the Client Plan;
    (4) A statement describing whether there are any limitations 
applicable to Allfirst with respect to which assets of a Client Plan 
may be invested in the ARK Funds, and if so, the nature of such

[[Page 80462]]

limitations; and (5) Upon request of the Second Fiduciary, a copy of 
the notice of proposed exemption and/or a copy of the final exemption, 
as published in the Federal Register.
    (i) After consideration of the information described in paragraph 
(h) above, the Second Fiduciary authorizes in writing the investment of 
assets of the Client Plan in each particular Fund and the fees to be 
paid by such ARK Funds to Allfirst.
    (j) All authorizations made by a Second Fiduciary regarding 
investments in a Fund and the fees paid to Allfirst are subject to an 
annual reauthorization, wherein any such prior authorization referred 
to in paragraph (i) above shall be terminable at will by the Client 
Plan, without penalty to the Client Plan, upon receipt by Allfirst of 
written notice of termination. A form expressly providing an election 
to terminate the authorization described in paragraph (i) above (the 
Termination Form) with instructions on the use of the form must be 
supplied to the Second Fiduciary no less than annually--provided that 
the Termination Form need not be supplied to the Second Fiduciary 
pursuant to this paragraph sooner than six months after such 
Termination Form is supplied pursuant to paragraph (l) below, except to 
the extent required by such paragraph in order to disclose an 
additional service or fee increase. The instructions for the 
Termination Form must include the following information:
    (1) The authorization is terminable at will by the Client Plan, 
without penalty to the Client Plan, upon receipt by Allfirst of written 
notice from the Second Fiduciary; and
    (2) Failure to return the Termination Form will result in continued 
authorization of Allfirst to engage in the transactions described in 
paragraph (i) above on behalf of the Client Plan.
    (k) For each Client Plan using the fee structure described in 
paragraph (a)(1) above with respect to investments in a particular 
Fund, the Second Fiduciary of the Client Plan receives full written 
disclosure in a Fund prospectus or otherwise of any increases in the 
rates of fees charged by Allfirst to the ARK Funds for investment 
advisory services.
    (l) (1) For each Client Plan using the fee structure described in 
paragraph (a)(2) above with respect to investments in a particular 
Fund, an increase in the rate of fees paid by the Fund to Allfirst 
regarding any investment management services, investment advisory 
services, or similar services that Allfirst provides to the Fund over 
an existing rate for such services that had been authorized by a Second 
Fiduciary in accordance with paragraph (i) above; or
    (2) For any Client Plan under this exemption, an addition of a 
Secondary Service (as defined in Section III(i) below) provided by 
Allfirst to the Fund for which a fee is charged, or an increase in the 
rate of any fee paid by the ARK Funds to Allfirst for any Secondary 
Service that results either from an increase in the rate of such fee or 
from a decrease in the number or kind of services performed by Allfirst 
for such fee over an existing rate for such Secondary Service that had 
been authorized by the Second Fiduciary of a Client Plan in accordance 
with paragraph (j) above;
    Allfirst will, at least 30 days in advance of the implementation of 
such additional service for which a fee is charged or fee increase, 
provide a written notice (which may take the form of a proxy statement, 
letter, or similar communication that is separate from the prospectus 
of the Fund and that explains the nature and amount of the additional 
service for which a fee is charged or of the increase in fees) to the 
Second Fiduciary of the Client Plan. Such notice shall be accompanied 
by a Termination Form with instructions as described in paragraph (i) 
above.
    (m) On an annual basis, Allfirst provides the Second Fiduciary of a 
Client Plan investing in the ARK Funds with:
    (1) A copy of the current prospectus for the ARK Funds in which the 
Client Plan invests and, upon such Fiduciary's request, a copy of the 
Statement of Additional Information for such ARK Funds that contains a 
description of all fees paid by the ARK Funds to Allfirst;
    (2) A copy of the annual financial disclosure report prepared by 
Allfirst that includes information about the Fund portfolios, as well 
as audit findings of an independent auditor, within 60 days of the 
preparation of the report; and
    (3) Oral or written responses to inquiries of the Second Fiduciary 
as they arise.
    (n) With respect to each of the ARK Funds in which a Client Plan 
invests, in the event such Fund places brokerage transactions with 
Allfirst, Allfirst will provide the Second Fiduciary of such Plan at 
least annually with a statement specifying:
    (1) The total, expressed in dollars, of brokerage commissions of 
each Fund that are paid to Allfirst by such Fund;
    (2) The total, expressed in dollars, of brokerage commissions of 
each Fund that are paid by such Fund to brokerage firms unrelated to 
Allfirst;
    (3) The average brokerage commissions per share, expressed as cents 
per share, paid to Allfirst by each Fund; and
    (4) The average brokerage commissions per share, expressed as cents 
per share, paid by each Fund to brokerage firms unrelated to Allfirst.
    (o) All dealings between the Client Plans and the ARK Funds are on 
a basis no less favorable to the Plans than dealings with other 
shareholders of the ARK Funds.

Section II--General Conditions

    (a) Allfirst maintains for a period of six years the records 
necessary to enable the persons described in paragraph (b) below to 
determine whether the conditions of this exemption have been met, 
except that--
    (1) a prohibited transaction will not be considered to have 
occurred if, due to circumstances beyond the control of Allfirst, the 
records are lost or destroyed prior to the end of the six-year period; 
and
    (2) no party in interest other than Allfirst shall be subject to 
the civil penalty that may be assessed under section 502(i) of the Act, 
or to the taxes imposed by section 4975(a) and (b) of the Code, if the 
records are not maintained or are not available for examination as 
required by paragraph (b) below.
    (b) (1) Except as provided in paragraph (b)(2) below and 
notwithstanding any provisions of section 504(a)(2) of the Act, the 
records referred to in paragraph (a) above are unconditionally 
available at their customary location for examination during normal 
business hours by--
    (i) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service,
    (ii) Any fiduciary of the Client Plans who has authority to acquire 
or dispose of shares of the ARK Funds owned by the Client Plans, or any 
duly authorized employee or representative of such fiduciary, and
    (iii) Any participant or beneficiary of the Client Plans or duly 
authorized employee or representative of such participant or 
beneficiary;
    (2) None of the persons described in paragraph (b)(1)(ii) and (iii) 
above shall be authorized to examine trade secrets of Allfirst, or 
commercial or financial information that is privileged or confidential.

Section III--Definitions

    For purposes of this exemption:
    (a) The term ``Allfirst'' means (i) from June 28, 1999 and onward, 
Allfirst Bank, and any affiliate thereof (as ``affiliate'' is defined 
below in paragraph (c)(1) of this section), and (ii) from

[[Page 80463]]

November 13, 1998 to June 28, 1999, First National Bank of Maryland 
(First Maryland), and any affiliate thereof (as ``affiliate'' is 
defined below in paragraph (c)(1) of this section), the period prior to 
the date that First Maryland changed its name to Allfirst Bank.
    (b) The term ``First Maryland'' refers to First National Bank of 
Maryland, and any affiliate thereof (as ``affiliate'' is defined below 
in paragraph (c)(1) of this section), prior to June 28, 1999.
    (c) An ``affiliate'' of a person includes:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person;
    (2) Any officer, director, employee, relative, or partner in any 
such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (d) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (e) The term ``Fund'' or ``ARK Funds'' shall include the ARK Funds 
or any other diversified open-end investment company or companies 
registered under the 1940 Act for which Allfirst serves as an 
investment adviser and may also serve as a custodian, dividend 
disbursing agent, shareholder servicing agent, transfer agent, Fund 
accountant, or provide some other ``Secondary Service'' (as defined 
below in paragraph (i) of this Section), which has been approved by 
such ARK Funds.
    (f) The term ``net asset value'' means the amount for purposes of 
pricing all purchases and sales, calculated by dividing the value of 
all securities (determined by a method as set forth in the Fund's 
prospectus and Statement of Additional Information) and other assets 
belonging to the Fund or portfolio of the Fund, less the liabilities 
charged to each such portfolio or Fund, by the number of outstanding 
shares.
    (g) The term ``relative'' means a ``relative'' as that term is 
defined in section 3(15) of the Act (or a ``member of the family'' as 
that term is defined in section 4975(e)(6) of the Code), or a brother, 
a sister, or a spouse of a brother or a sister.
    (h) The term ``Second Fiduciary'' means a fiduciary of a Client 
Plan who is independent of and unrelated to Allfirst. For purposes of 
this exemption, the Second Fiduciary will not be deemed to be 
independent of and unrelated to Allfirst if:
    (1) Such fiduciary directly or indirectly controls, is controlled 
by, or is under common control with Allfirst;
    (2) Such fiduciary, or any officer, director, partner, employee, or 
relative of the fiduciary is an officer, director, partner or employee 
of Allfirst (or is a relative of such persons);
    (3) Such fiduciary directly or indirectly receives any compensation 
or other consideration for his or her own personal account in 
connection with any transaction described in this exemption.
    If an officer, director, partner or employee of Allfirst (or 
relative of such persons), is a director of such Second Fiduciary, and 
if he or she abstains from participation in (i) the choice of the 
Client Plan's investment adviser, (ii) the approval of any such 
purchase or sale between the Client Plan and the ARK Funds, and (iii) 
the approval of any change in fees charged to or paid by the Client 
Plan in connection with any of the transactions described in Section I 
above, then paragraph (h)(2) of this section shall not apply.
    (i) The term ``Secondary Service'' means a service other than an 
investment management, investment advisory, or similar service, which 
is provided by Allfirst to the ARK Funds, including but not limited to 
custodial, accounting, brokerage, administrative, or any other service.
    (j) The term ``Termination Form'' means the form supplied to the 
Second Fiduciary that expressly provides an election to the Second 
Fiduciary to terminate on behalf of a Client Plan the authorization 
described in paragraph (i) of Section I. Such Termination Form may be 
used at will by the Second Fiduciary to terminate an authorization 
without penalty to the Client Plan and to notify Allfirst in writing to 
effect a termination by selling the shares of the ARK Funds held by the 
Client Plan requesting such termination within one business day 
following receipt by Allfirst of the form--provided that if, due to 
circumstances beyond the control of Allfirst, the sale cannot be 
executed within one business day, Allfirst shall have one additional 
business day to complete such sale.

EFFECTIVE DATE: The exemption is effective as of November 13, 1998, the 
date that Dauphin Deposit Bank and Trust Company ceased to exist as a 
separate bank as a result of its acquisition by First Maryland.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption (the Notice) published on October 22, 
1999 at 64 FR 57129.
    Notice to Interested Persons: The applicant was unable to notify 
interested persons within the time period specified in the Notice. 
However, the applicant stated that all interested persons, including 
the Second Fiduciaries of Client Plans invested in the ARK Funds, were 
notified in the manner and time agreed to by the Department, no later 
than June 1, 2000. Interested persons were informed that they had 30 
days to submit any written comments or requests for a hearing regarding 
the Notice to the Department.

Written Comments

    The Department received one written comment with respect to the 
Notice. The comment was submitted by the applicant. The applicant 
requested certain corrections and clarifications to the proposed 
operative language for the exemption, and to the Summary of Facts and 
Representations (the Summary) relating thereto (see 64 FR 57129).
    1. First, the applicant requested that the tenth line in Section 
I(l)(2) of the Notice (64 FR at 57130, third column) be revised to read 
as follows: ``* * * the decrease in the number or [rather than ``of'] 
kind of services * * *''
    2. Second, the applicant noted that the cross-reference to 
paragraph (i) in the last line of Section I(l)(2) of the Notice (64 FR 
at 57130, third column) should have been a cross-reference to paragraph 
(j).
    3. Third, as stated in Item 1 of the Summary (64 FR at 57131), the 
top of page 57132, ``First National Bank of Maryland'' changed its name 
to ``Allfirst Bank,'' effective June 28, 1999. The applicant noted that 
the exemption, which has a retroactive effective date of November 13, 
1998, was intended to apply to First Maryland from November 13, 1998 
through June 28, 1999, and to Allfirst from June 28, 1999, onward. 
However, Section I of the Notice (64 FR at 57129) refers only to 
Allfirst, which is later defined in Section III(a) of the Notice (64 FR 
at 57131) as follows:

    (a) The term ``Allfirst'' means Allfirst Bank, and any affiliate 
thereof as defined below in paragraph (c)(1) of this section, 
effective as of June 28, 1999 [emphasis added], the date the First 
National Bank of Maryland (First Maryland) changed its name to 
Allfirst Bank.

Thus, the applicant expressed concern that the exemption, as proposed, 
has an effective date of November 13, 1998, but appears to apply, by 
its terms, only beginning on June 28, 1999, the date in the Allfirst 
definition.
    To clarify this matter, the applicant suggested revising the 
definition of ``Allfirst'' in Section III(a) to include First Maryland 
for the period prior to June 28, 1999. The Department concurs in the 
applicant's suggestion and, accordingly, has revised the definition

[[Page 80464]]

of ``Allfirst'' in Section III(a) of the final exemption to read as 
follows:

    (a) The term ``Allfirst'' means (i) from June 28, 1999 and 
onward, Allfirst Bank, and any affiliate thereof (as ``affiliate'' 
is defined below in paragraph (c)(1) of this section) and (ii) from 
November 13, 1998 to June 28, 1999, First National Bank of Maryland 
(First Maryland), and any affiliate thereof (as ``affiliate'' is 
defined below in paragraph (c)(1) of this section), the period prior 
to the date that First Maryland changed its name to Allfirst Bank.

    4. Fourth, with respect to Section III(e) of the Notice (64 FR at 
57131), the definition of ``Fund,'' the applicant requested that 
``Inc.'' be deleted from the reference to ``ARK Funds, Inc.'' The 
applicant explained that this deletion is appropriate because the ARK 
Funds are organized as a business trust rather than as a corporation.
    5. Fifth, the applicant wanted to correct Item 1 of the Summary (64 
FR 57131, third column), which states at the top of page 57132 that, 
when ``First National Bank of Maryland'' became ``Allfirst Bank,'' 
effective June 28, 1999, no further name changes had occurred, as of 
September 21, 1999. The applicant stated that the following additional 
name changes have also occurred.
    a. First Maryland Bancorp, the parent company, became Allfirst 
Financial Inc., effective September 15, 1999;
    b. FMB Trust Company, N.A. became Allfirst Trust Company, N.A., 
effective June 28, 1999;
    c. First Maryland Brokerage Corp. became Allfirst Brokerage 
Corporation, effective June 28, 1999; and
    d. First Omni Bank, N.A. became Allfirst Financial Center, N.A., 
effective June 28, 1999.
    6. Finally, the applicant noted that some language in the Summary 
appeared to incorrectly refer to a conversion of collective investment 
funds to mutual funds. Thus, the applicant requested the following 
clarifications.
    a. In Item 7 of the Summary (64 FR at 57133, third column), the 
last full paragraph on page 57133 makes a reference to the ``change'' 
to the ARK Funds, as if the investments were occurring as part of a 
conversion transaction, which should be deleted.
    b. In Item 14(a) of the Summary (64 FR at 57135, third column), the 
reference to ``collective investment ARK Funds'' should be deleted.
    The Department acknowledges and concurs in the applicant's 
requested modifications to the language of the Notice. The Department 
received no other written comments, nor requests for a hearing, from 
interested persons regarding the proposed exemption. Accordingly, based 
upon the information contained in the entire record, the Department has 
determined to grant the proposed exemption as modified herein.

FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

Butler-Johnson Corporation, Profit Sharing Plan (the Plan), Located 
in San Jose, California

[Prohibited Transaction Exemption No. 2000-67; Application No. D-10780]

Exemption

    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 as of October 25, 1996, to:
    (1) the past sale on October 25, 1996, by the Plan of four 
residential mortgage notes (the Purchased Notes) to the Greater Bay 
Trust Company (the Trustee), the trustee of the Plan and, as such, a 
party in interest with respect to the Plan;
    (2) the past sale on October 25, 1996, by the Plan of a seventy-one 
percent (71%) interest (the Interest) in a certain parcel of real 
property located in Oakland, California (the Oakland Property) to the 
Trustee;
    (3) the ``makewhole'' payment made by the Trustee to the Plan on 
October 25, 1996 in connection with the Plan's investment losses with 
respect to certain other real property previously owned by the Plan 
which was sold to an unrelated party on June 28, 1996; and
    (4) the proposed payment to the Plan of the accrued but unpaid 
interest (the Accrued Interest Payment) that was due on the Purchased 
Notes at the time of the past sale to the Trustee, as well as two other 
mortgage notes that were in default while held by the Plan 
(collectively, the Notes) which resulted in foreclosures on the 
underlying properties, and the proposed payment to the Plan of an 
additional interest payment for the period from October 25, 1996, until 
the date that the Accrued Interest Payment is made to the Plan (the 
Additional Interest Payment), based on the total amount of the Accrued 
Interest Payment; provided the following conditions are met:
    (A) The sale of the Purchased Notes and the Interest by the Plan to 
the Trustee were one-time transactions for cash;
    (B) The Plan was not required to pay any fees or commissions in 
connection therewith;
    (C) The Plan received prices for the Purchased Notes constituting 
no less than the greater of either:
    (i) the outstanding principal balances for each Purchased Note, or
    (ii) the fair market value of each Purchased Note, as of the date 
of the sale transactions;
    (D) The Plan received a price for the Interest which was equal to 
the outstanding principal balance that was due on the mortgage note 
which had been secured by the Oakland Property, and this price 
represented an amount which exceeded the fair market value of the 
Interest at the time of the transaction;
    (E) The Accrued Interest Payment to be paid by the Trustee to the 
Plan represents an amount equal to the total accrued but unpaid 
interest that was due on the Notes on October 25, 1996;
    (F) The Additional Interest Payment to be paid by the Trustee to 
the Plan represents a reasonable rate of interest on the amount of 
accrued but unpaid interest on the Notes that was due to the Plan on 
October 25, 1996 (i.e., the Accrued Interest Payment referred to in (E) 
above), as determined by an appropriate third party source (i.e., the 
U.S. Treasury rate for 3-month Treasury Bills);
    (G) The Trustee provides the Department with documentation, within 
thirty (30) days of the Accrued Interest Payment and Additional 
Interest Payment, which verifies that the total amount of such payments 
have been made to the Plan;
    (H) The Trustee, as the responsible fiduciary for the Plans, took 
appropriate actions necessary to safeguard the interests of the Plan 
and its participants and beneficiaries in connection with the past 
transactions, and will take whatever actions are necessary to continue 
to protect the Plan's interest with respect to the Accrued Interest 
Payment and the Additional Interest Payment;
    (I) The Plan received a reasonable rate of return on the Purchased 
Notes and the Interest during the period of time that it held these 
assets; and
    (J) Upon any sale or other disposition of any of the Purchased 
Notes or the Interest by the Trustee, in the event the Trustee receives 
proceeds in excess of the amount which the Trustee paid the Plan for 
such assets, the additional proceeds shall be promptly forwarded to the 
Plan by the Trustee.

EFFECTIVE DATE: This exemption is effective as of October 25, 1996.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this

[[Page 80465]]

exemption, refer to the Notice of Proposed Exemption (the Proposal) 
published on October 19, 2000 at 65 FR 62763.
    Clarification: Condition (D) of the Proposal required that the Plan 
must have received a purchase price for the Interest constituting no 
less than seventy-one percent (71%) of the fair market value of the 
Oakland Property, as of the date of the sale transaction. The 
Department, on its own motion, has revised the language of condition 
(D) in the final exemption, with the applicant's concurrence, to read 
as follows:

``* * * (D) The Plan received a price for the Interest which was 
equal to the outstanding principal balance that was due on the 
mortgage note which had been secured by the Oakland Property, and 
this price represented an amount which exceeded the fair market 
value of the Interest at the time of the transaction.''

    The Department modified the language in condition (D) in the final 
exemption to make the requirements of that condition more consistent 
with the discussion of the transaction involving the Interest that was 
included in the Summary of Facts and Representations contained in the 
Proposal.
    After consideration of the entire record, the Department has 
determined to grant the proposed exemption as modified herein.

FOR FURTHER INFORMATION CONTACT: Khalif Ford of the Department, 
telephone (202) 219-8883 (this is not a toll-free number).

The Masters, Mates and Pilots Pension Plan (the Pension Plan) and 
Individual Retirement Account Plan (the IRAP; together, the Plans) 
Located in Linthicum Heights, Maryland

[Prohibited Transaction Exemption 2000-68; Exemption Application Nos. 
D-10800 and D-10801]

Exemption

    The restrictions of sections 406(a), 406(b)(1) and (b)(2) and 
407(a) of the Act and the sanctions resulting from the application of 
section 4975 of the Code, by reason of section 4975(c)(1)(A) through 
(E) of the Code, shall not apply to: (1) The transfer and sale by the 
Plans of their shares of stock (the AHL Stock or the Stock) in American 
Heavy Lift Shipping Company (AHL) to AHL Holdings, Inc. (AHL Holdings), 
in exchange for a note (the Note) from AHL Holdings to the Plans; (2) 
the holding of the Note by the Plans; (3) the guarantee (the Guarantee) 
of the Note to the Plans by AHL; (4) the continued holding of the AHL 
Stock by the Plans for the period from January 1, 1999 until the date 
of the sale of the Stock by the Plans to AHL Holdings; and (5) the 
holding by the Plans for a period of two years of any collateral, 
including the Stock, received by the Plans as a result of the exercise 
of their rights in the event of a default under the Note or under the 
Guarantee, provided that: (a) The Plans' independent fiduciary, 
Independent Fiduciary Services, Inc. (IFS), has determined that the 
transactions are appropriate for the Plans and in the best interests of 
the Plans' participants and beneficiaries; (b) the Plans' independent 
investment manager with respect to the Stock, Hellmold Associates, Inc. 
(HAI), negotiated the terms of the subject transactions with AHL 
Holdings and has made the decision for the Plans' to enter the subject 
transactions with AHL Holdings; (c) HAI continues to monitor the Plans' 
holding of the Note, determines at all times that such transaction 
remains in the best interests of the Plans and takes whatever actions 
are necessary to enforce the Plans' rights under the Note; (d) HAI has 
determined that the current fair market value of the Note is not less 
than the current fair market value of the Stock; and (e) HAI has 
determined that the proposed transactions have terms and conditions 
which are at least as favorable to the Plans as the terms and 
conditions which would exist in similar transactions with unrelated 
parties.

EFFECTIVE DATE: With respect to the Plans' holding of the AHL Stock, 
this exemption is effective from January 1, 1999 until the date of the 
sale of the Stock by the Plans to AHL Holdings; with respect to the 
sale of the AHL Stock by the Plans to AHL Holdings, this exemption is 
effective December 21, 2000.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption (the Notice) published on September 
22, 2000 at 65 FR 57390.

Written Comments

    The Department received 11 written comments and one request for a 
hearing from interested persons in response to the Notice. Three of the 
commentators stated that they approved of the proposed exemption and 
that they desired to see the exemption granted as it was proposed.
    The remaining seven comments raised the following concerns: (1) AHL 
is a poor company in which to invest the assets of the Plans on either 
a debt or equity basis, and (2) the proposed transaction will represent 
a new and riskier commitment of capital by the Plans in AHL. In this 
regard, the commentators stated that there is a real possibility that 
AHL will become bankrupt, its shares will have no value, and that not 
even the wage and work rule concessions (the Concessions) described in 
the Notice will make it profitable. Based on these assessments, the 
commentators concluded that the Plans should not invest in AHL and not 
assume any AHL debt. One commentator specifically stated that none of 
the monies in his IRAP account currently invested in the Vanguard Funds 
should be invested in AHL.
    The applicant responded to the comments as follows. The proposed 
exemption would convert the Plans' current equity ownership in AHL to a 
more secure debt investment, and would not permit any new investment by 
the Plans in AHL. No part of any IRAP participant's investment in the 
Vanguard Funds or any other investment option under the IRAP would be 
liquidated to invest in AHL. None of the commentators suggests any 
alternative to the proposed transaction which would enhance the 
position of the Plans with respect to the Plans' existing investment in 
AHL Stock.
    As has been repeatedly made clear by HAI, the Plans' independent 
investment manager, there are significant issues relating to the 
viability of AHL. The proposed transaction improves the Plans' position 
by giving each Plan a priority claim on AHL's cash flow and, through 
the Concessions, increasing the likelihood that the Plans will realize 
a return on their investment. The transaction is designed to reduce the 
Plans' investment risk and permit them to exit their current equity 
position in AHL.
    HAI has reviewed and updated its determinations, as of November 28, 
2000, that the transaction is in the interests of the Plans. Among the 
reasons given for this conclusion by HAI are:
    (1) The transaction creates for the Plans a structurally senior 
position to the Plans' current equity interest in AHL, thereby reducing 
the risk of the investment for the Plans. The Note from AHL Holdings 
will be secured by a pledge of all the AHL Stock (none of which will be 
released until the Note is paid in full), the Guarantee, and a pledge 
of the cash in the escrow account established for wage increases, none 
of which will be released until the Note is paid in full;
    (2) The transaction provides an automatic mechanism for the Plans 
to begin to realize a cash return on their investment after three years 
and a mechanism creating an incentive for

[[Page 80466]]

early cash prepayments due to the discounted prepayment formula under 
the Note;
    (3) It provides a mechanism which should motivate AHL's employees, 
as 100% shareholders of AHL, to insure that AHL has a cost structure 
which is viable in the long run, including providing for the payment of 
interest and principal on the Note (because a default on the Note could 
result in AHL's bankruptcy and a total loss of the economic benefits 
created by the Concessions);
    (4) AHL Holdings will not be permitted to incur any debt, file for 
bankruptcy or amend its Articles of Incorporation without the unanimous 
consent of its Board of Directors (the Board), and HAI will maintain a 
seat on the Board until the Note is fully repaid;
    (5) The net present value of the Note is fair under the current 
circumstances;
    (6) The transaction should result in lower annual administrative 
costs to the Plans; and
    (7) The transaction satisfies the regulatory mandate that the Plans 
dispose of their equity interest in AHL.
    In conclusion, HAI has stated that absent the transaction, the 
Plans' equity interest in AHL is likely worth nothing\1\ With the 
closing of the transaction, the Plans will have a superior position in 
AHL since the company will have a much more attractive cost structure 
and better financial prospects.
---------------------------------------------------------------------------

    \1\ The Department wishes to note that ERISA's general standards 
of fiduciary conduct would apply to the acquisition and holding of 
the Note by the Plans and the acquisition and holding of the Stock 
by the ESOP, and that satisfaction of the conditions of this 
exemption should not be viewed as an endorsement of the investments 
by the Department. Section 404(a) of the Act requires, among other 
things, that a plan fiduciary discharge his duties with respect to a 
plan solely in the interest of the plan's participants and 
beneficiaries and in a prudent fashion. Accordingly, the plan 
fiduciary must act prudently with respect to the decision to enter 
into an investment transaction. The Department further emphasizes 
that it expects the plan fiduciary to fully understand the benefits 
and risks associated with engaging in a specific type of investment, 
following disclosure to such fiduciary of all relevant information. 
In addition, such plan fiduciary must be capable, either directly or 
indirectly through the use of hired professional experts, of 
monitoring the investment, including any changes in the value of the 
investment. Thus, in considering an investment, a fiduciary should 
take into account its ability to provide adequate oversight of the 
particular investment.
    The Department also wishes to note that it reserves the right to 
investigate and take any other action with respect to the 
transaction which is the subject of the exemption.
---------------------------------------------------------------------------

    In addition, the Department has received an updated letter from a 
representative of the AHL ESOP Committee (the Committee) confirming 
that as of November 23, 2000, the Committee continues to believe that 
the transaction would be in the best interests of participants in the 
employee stock ownership plan (the ESOP) which is being established by 
AHL, and which will hold all the shares of stock of AHL Holdings.
    With respect to the request for a hearing made by one commentator, 
the Department has determined that a public hearing is not necessary in 
this case. Accordingly, based on all of the information contained in 
the record, including the comments submitted and the applicant's 
response thereto, the Department has determined to grant the exemption 
as proposed.
    Interested persons are invited to review the complete exemption 
file, which is available for public inspection in the Public Disclosure 
Room of the Pension and Welfare Benefits Administration, Room N-1513, 
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

Gillespie Real Estate Professional Corporation Defined Benefit Plan 
(the Plan) Located in Phoenix, Arizona

[Prohibited Transaction Exemption No. 2000-69; Applicant No. D-10880]

Exemption

    The sanctions resulting from the application of section 4975 of the 
Code, by reason of section 4975(c)(1)(A) through (E) of the Code, shall 
not apply to the proposed cash sale (the Sale) of a certain residential 
lot (the Property) by the Plan \2\ to Bruce and Ann Gillespie, 
disqualified persons with respect to the Plan, provided that the 
following conditions are met:
---------------------------------------------------------------------------

    \2\ Because Bruce Gillespie is the sole shareholder of the 
Employer and he and his wife, Ann Gillespie, are the only 
participants in the Plan, there is no jurisdiction under Title I of 
the Act pursuant to 29 CFR 2510.3-3(b). However, there is 
jurisdiction under Title II of the Act under section 4975 of the 
Code.
---------------------------------------------------------------------------

    (a) The Sale is a one-time transaction for cash;
    (b) The terms and conditions of the Sale are at least as favorable 
to the Plan as those obtainable in an arm's length transaction with an 
unrelated party;
    (c) The Plan receives the greater of $450,000 or the fair market 
value of the Property at the time of the Sale; and
    (d) The Plan is not required to pay any commissions, costs or other 
expenses in connection with the Sale.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on October 31, 2000 at 65 FR 
65015.

FOR FURTHER INFORMATION CONTACT: Mr. Khalif Ford of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

HSBC Holdings plc, Located in London, England

[Prohibited Transaction No. 2000-70 Exemption Application No.: D-10910]

Exemption

    HSBC Asset Management Americas, Inc., HSBC Asset Management Hong 
Kong, Ltd., HSBC Bank USA, any current affiliate of HSBC Holdings plc 
(HSBC) that in the future becomes eligible to serve as a qualified 
professional asset manager, as defined in Prohibited Transaction Class 
Exemption 84-14 (PTCE 84-14)(QPAM),\3\ HSBC, itself, if in the future 
it becomes a QPAM, and any newly acquired or newly established 
affiliate of HSBC that is a QPAM or in the future becomes a QPAM, other 
than the Bangkok Metropolitan Bank PLC (BMB), shall not be precluded 
from functioning as a QPAM, pursuant to the terms and conditions of 
PTCE 84-14, for the period beginning on June 16, 2000, and ending ten 
(10) years from the date this exemption is published in the Federal 
Register, solely because of a failure to satisfy Section I(g) of PTCE 
84-14, as a result of an affiliation with BMB; provided that:
---------------------------------------------------------------------------

    \3\ 49 FR 9494 (March 13, 1984), as amended, 50 FR 41430 
(October 10, 1985).
---------------------------------------------------------------------------

    (a) BMB has not in the past acted, nor does it now act, nor will it 
act as a fiduciary with respect to any employee benefit plans subject 
to the Act;
    (b) This exemption is not applicable if HSBC and/or any successor 
or affiliate becomes affiliated with any person or entity convicted of 
any of the crimes described in Section I(g) of PTCE 84-14, other than 
BMB; and
    (c) This exemption is not applicable if HSBC and/or any successor 
or affiliate is convicted of any of the crimes described in Section 
I(g) of PTCE 84-14, including any such crimes subsequently committed by 
BMB.

EFFECTIVE DATE: This exemption is effective for the period beginning on 
June 16, 2000, the date the application for exemption was filed with 
the Department, and ending ten (10) years from the date of publication 
of this exemption in the Federal Register.

Written Comments

    In the Notice of Proposed Exemption (the Notice), the Department of 
Labor (the Department) invited all interested

[[Page 80467]]

persons to submit written comments and requests for a hearing on the 
proposed exemption. As set forth in the Notice, interested persons 
consisted of the trustee or other fiduciary of each of the ERISA Plan 
Clients for which one or more of the applicants have discretionary 
investment authority. The deadline for submission of comments and 
requests for a hearing was within forty-five (45) days of the date of 
the publication of the Notice in the Federal Register on October 11, 
2000. Accordingly, all comments and requests for a hearing were due on 
November 27, 2000.
    The applicants informed the Department in writing that, as of 
October 26, 2000, all interested persons, with the exception of two (2) 
individuals, were mailed a copy of the Notice along with the 
supplemental statement (the Supplemental Statement), described at 29 
CFR Sec. 2570.43(b)(2) of the Department's regulations. The 
Supplemental Statement mailed on October 26, 2000, provided that such 
interested persons had a right to comment on the proposed exemption or 
request a hearing by November 27, 2000.
    In a letter dated November 13, 2000, the applicants notified the 
Department that, as of November 9, 2000, a copy of the Notice and a 
copy of the Supplemental Statement was sent to the two individuals who 
had not received the initial mailing. In light of the fact that 
notification to these two interested persons was delayed until November 
9, 2000, and in order to allow such interested persons the benefit of 
the full thirty (30) day comment period, the Department required, and 
the applicants agreed to, an extension of the deadline within which to 
comment and request a hearing on the proposed exemption. In this 
regard, the applicants confirmed that the Supplemental Statement mailed 
to these two interested persons provided that all comments and requests 
for a hearing on the proposed exemption were due on December 11, 2000.
    During the comment period, the Department received no comments and 
no requests for a hearing from interested persons. Accordingly, after 
giving full consideration to the entire record, the Department has 
decided to grant the exemption. The complete application file, 
including all submissions received by the Department, is available for 
public inspection in the Public Documents Room of the Pension Welfare 
Benefits Administration, Room N-5638, 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 refer to 
the Notice published on October 11, 2000, at 65 FR 60466.

FOR FURTHER INFORMATION CONTACT: Ms. Angelena C. Le Blanc of the 
Department, telephone (202) 219-8883 (this is not a toll-free number).

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions to which the exemptions does not 
apply and the general fiduciary responsibility provisions of section 
404 of the Act, which among other things require a fiduciary to 
discharge his duties respecting the plan solely in the interest of the 
participants and beneficiaries of the plan and in a prudent fashion in 
accordance with section 404(a)(1)(B) of the Act; nor does it affect the 
requirement of section 401(a) of the Code that the plan must operate 
for the exclusive benefit of the employees of the employer maintaining 
the plan and their beneficiaries;
    (2) These exemptions are supplemental to and not in derogation of, 
any other provisions of the Act and/or the Code, including statutory or 
administrative exemptions and transactional rules. Furthermore, the 
fact that a transaction is subject to an administrative or statutory 
exemption is not dispositive of whether the transaction is in fact a 
prohibited transaction; and
    (3) The availability of these exemptions is subject to the express 
condition that the material facts and representations contained in each 
application accurately describes all material terms of the transaction 
which is the subject of the exemption.

    Signed at Washington, DC, this 18th day of December, 2000.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 00-32583 Filed 12-20-00; 8:45 am]
BILLING CODE 4510-29-P