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