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EBSA Notices

Proposed Exemptions From Certain Prohibited Transaction Restrictions   [12/28/2012]
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Federal Register, Volume 77 Issue 249 (Friday, December 28, 2012)
[Federal Register Volume 77, Number 249 (Friday, December 28, 2012)]
[Notices]
[Pages 76769-76794]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-31166]



[[Page 76769]]

Vol. 77

Friday,

No. 249

December 28, 2012

Part V





Department of Labor





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Employee Benefits Security Administration





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Proposed Exemptions From Certain Prohibited Transaction Restrictions; 
Notice

Federal Register / Vol. 77 , No. 249 / Friday, December 28, 2012 / 
Notices

[[Page 76770]]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration


Proposed Exemptions From Certain Prohibited Transaction 
Restrictions

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of Proposed Exemptions.

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SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the prohibited transaction restrictions of the Employee 
Retirement Income Security Act of 1974 (ERISA or the Act) and/or the 
Internal Revenue Code of 1986 (the Code). This notice includes the 
following proposed exemptions: D-11664, Atlas Energy, Inc. Employee 
Stock Ownership Plan (the Plan); D-11718, Notice of Proposed Amendment 
to Prohibited Transaction Exemption (PTE) 2007-05, Involving Prudential 
Securities Incorporated; L-11720, The Mo-Kan Teamsters Apprenticeship 
and Training Fund (the Fund); L-11738, The Coca-Cola Company (TCCC) and 
Red Re, Inc. (Red Re) (together, the Applicants); and D-11671, 
Silchester International Investors LLP (Silchester or the Applicant).

DATES: All interested persons are invited to submit written comments or 
requests for a hearing on the pending exemptions, unless otherwise 
stated in the Notice of Proposed Exemption, within 45 days from the 
date of publication of this Federal Register Notice.

ADDRESSES: Comments and requests for a hearing should state: (1) The 
name, address, and telephone number of the person making the comment or 
request, and (2) the nature of the person's interest in the exemption 
and the manner in which the person would be adversely affected by the 
exemption. A request for a hearing must also state the issues to be 
addressed and include a general description of the evidence to be 
presented at the hearing. All written comments and requests for a 
hearing (at least three copies) should be sent to the Employee Benefits 
Security Administration (EBSA), Office of Exemption Determinations, 
Room N-5700, U.S. Department of Labor, 200 Constitution Avenue NW., 
Washington, DC 20210. Attention: Application No., stated in each Notice 
of Proposed Exemption. Interested persons are also invited to submit 
comments and/or hearing requests to EBSA via email or FAX. Any such 
comments or requests should be sent either by email to: 
moffitt.betty@dol.gov, or by FAX to (202) 219-0204 by the end of the 
scheduled comment period. The applications for exemption and the 
comments received will be available for public inspection in the Public 
Documents Room of the Employee Benefits Security Administration, U.S. 
Department of Labor, Room N-1513, 200 Constitution Avenue NW., 
Washington, DC 20210.
    Warning: All comments will be made available to the public. Do not 
include any personally identifiable information (such as Social 
Security number, name, address, or other contact information) or 
confidential business information that you do not want publicly 
disclosed. All comments may be posted on the Internet and can be 
retrieved by most Internet search engines.

SUPPLEMENTARY INFORMATION: 

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all 
interested persons in the manner agreed upon by the applicant and the 
Department within 15 days of the date of publication in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and to request a hearing 
(where appropriate).
    The proposed exemptions were requested in applications filed 
pursuant to section 408(a) of the Act and/or section 4975(c)(2) of the 
Code, and in accordance with procedures set forth in 29 CFR Part 2570, 
Subpart B (76 FR 66637, 66644, October 27, 2011).\1\ Effective December 
31, 1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. 
App. 1 (1996), transferred the authority of the Secretary of the 
Treasury to issue exemptions of the type requested to the Secretary of 
Labor. Therefore, these notices of proposed exemption are issued solely 
by the Department.
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    \1\ The Department has considered exemption applications 
received prior to December 27, 2011 under the exemption procedures 
set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 
10, 1990).
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    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

Atlas Energy, Inc. Employee Stock Ownership Plan (the Plan) Located in 
Philadelphia, Pennsylvania

[Application No. D-11664]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR Part 
2570 Subpart B (55 FR 32836, 32847, August 10, 1990). If the proposed 
exemption is granted, the restrictions of sections 406(a)(1)(A), 
406(a)(1)(D)-(E), 406(a)(2), 406(b)(1)-(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) and 4975(c)(1)(D)-(E) of the 
Code, shall not apply, as of February 17, 2011, to the past acquisition 
and holding of certain units of Atlas Pipeline Holdings, L.P. (the AHD 
Units) by the Plan in connection with a merger (the Merger) of Arkham 
Corporation with and into Atlas Energy, Inc. (the Company), a party in 
interest with respect to the Plan, provided that the following 
conditions were satisfied: \2\
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    \2\ For purposes of this proposed exemption, references to 
section 406 of the Act should be read to refer also to the 
corresponding provisions of section 4975 of the Code.
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    (a) The Plan's acquisition and holding of the AHD Units in 
connection with the Merger occurred as a result of an independent act 
of the Company as a corporate entity;
    (b) All shareholders of the Company, including the Plan, were 
treated in a like manner with respect to all aspects of the Merger;
    (c) An independent fiduciary determined that the consideration 
received by the Plan pursuant to the Merger was not less than fair 
market value and that the overall terms and conditions of the Merger 
were fair to the Plan;
    (d) All shareholders of the Company, including the Plan, received 
the same proportionate number of AHD Units based upon the number of 
shares of Company stock held by such shareholders;
    (e) Pursuant to the terms of the Plan and in connection with the 
Merger, each participant was entitled to direct the independent 
fiduciary as to how to vote the Company shares allocated to his or her 
account; and
    (f) No commissions or other fees associated with the Merger were 
paid by the Plan except for brokerage charges and fees with respect to 
the subsequent sale of the AHD Units, which were paid

[[Page 76771]]

by the Plan to a person who is not affiliated with any Plan fiduciary.
    Effective Date: This proposed exemption, if granted, will be 
effective February 17, 2011.

Summary of Facts and Representations

    1. The prohibited transaction exemption proposed herein was 
requested by Atlas Energy Inc. (the Company) and GreatBanc Trust 
Company (GreatBanc)(together, the Applicants). Currently, the Company 
is a wholly-owned subsidiary of Chevron Corporation (Chevron). The 
Company is one of the largest producers of natural gas.
    2. Before the Company's acquisition by Chevron, the Company 
established, on June 30, 2005, The Atlas Energy, Inc. Employee Stock 
Ownership Plan (the Plan), as part of a spin-off of the Company from 
Resource America,\3\ at which time the Company became a publicly traded 
company incorporated in Delaware with offices in Philadelphia, 
Pennsylvania. The Plan was a leveraged ESOP until December 31, 2008, 
when the balance on the ESOP loan between the Company and the Plan was 
paid in full. The Plan's trustee was GreatBanc Trust Company 
(GreatBanc), an Illinois corporation with offices in Lisle, Illinois.
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    \3\ The plan sponsor is the plan administrator for the Plan.
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    3. Each participant in the Plan had a Company Stock account and an 
``Other Investments'' account; however, the Plan provided for 
investments primarily in common shares of Company Stock (Atlas Shares.) 
It is represented that the Atlas Shares are ``qualifying employer 
securities,'' within the meaning of section 407(d)(5) of the Act.\4\
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    \4\ The Department expresses no opinion as to whether the Atlas 
Shares are ``qualifying employer securities,'' within the meaning of 
section 407(d)(5) of the Act.
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    4. With respect to the Company's acquisition by Chevron, the 
Company first entered into a ``Plan of Redemption and Merger'' on 
November 8, 2010, subject to a shareholder vote. The aggregate fair 
market value of the Plan's assets was approximately $29,776,689.49, as 
of December 31, 2010. The Plan had 820 participants and beneficiaries, 
as of the same date. As of December 31, 2010, the value of the 
approximately 671,656 Atlas Shares held by the Plan represented 
approximately 99 percent of the aggregate value of the Plan's assets, 
which, represented approximately one percent of the outstanding Atlas 
Shares.
    5. On January 28, 2011, the Company's Board of Directors adopted a 
resolution to terminate the Plan. Subsequently, an application for a 
final determination letter with respect to the Plan's termination was 
submitted to the Internal Revenue Service (IRS) on January 31, 2011, 
and all participants became fully vested in their account balances.\5\ 
As a shareholder with an approximately one percent ownership interest 
in the Company, the Plan did not have the ability to materially 
influence the structure and terms of the Merger. Under the terms of the 
Plan, voting rights passed through to participants in proportion to the 
number of Atlas Shares held in their respective Company Stock accounts 
in the Plan. Accordingly, the Plan participants were provided with 
shareholder rights to vote for or against the Merger. The deadline for 
the exercise of such rights was February 13, 2011. The Atlas 
shareholders voted for the Plan of Redemption and Merger, which 
occurred on February 17, 2011, through a reverse merger (the Merger) 
with the Arkham Corporation, a wholly-owned subsidiary of Chevron. 
Because of the manner in which the Merger was designed, Arkham merged 
with and into the Company (i.e., the Company became the surviving 
subsidiary of Chevron).
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    \5\ The Company will liquidate the Plan's trust and provide for 
final distributions to the participants as soon as administratively 
feasible after receipt of a favorable final determination letter 
from the IRS.
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    6. After February 17, 2011, Atlas Shares were delisted from the New 
York Stock Exchange (NYSE). All shareholders of the Company received 
the same consideration under the terms of the Merger, as described 
further below.
    7. Immediately preceding the Merger, the Company held a 64 percent 
interest in Atlas Pipeline Holdings, L.P. (AHD), a Delaware limited 
partnership whose limited partnership units (the AHD Units) are 
publicly traded.
    8. The Applicants represent that, pursuant to the terms of the 
Merger, shareholders of the Company (including, indirectly, the 
participants in the Plan) exchanged each of their Atlas Shares for 
$38.25 in cash and approximately 0.520 AHD Units (the Exchange).\6\ The 
payment of the cash portion of the consideration was made to each 
participant's respective Other Investments Plan account and invested in 
a money market fund.
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    \6\ See paragraphs 14-19 for a description of the process 
engaged in by Great Banc for determining whether the Merger was fair 
and in the best interests of the Plan. The Applicants also clarified 
that the Atlas Shares were transferred ultimately to Chevron, which 
provided only the cash consideration for the Atlas Shares. 
Therefore, the receipt by the Plan of the AHD Units was not 
consideration specifically in an exchange with Chevron as Chevron 
never owned AHD. Because the Company was an indirect majority owner 
of AHD, the Applicants represent that the receipt by the Plan of the 
AHD Units is analogous to a dividend-in-kind distribution rather 
than the receipt of consideration in an exchange with Chevron.
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    9. The Applicants represent that the AHD Units acquired and held by 
the Plan may violate sections 406(a)(1)(E), 406(a)(2), and 407 of the 
Act, which prohibit plans from acquiring and holding ``employer 
securities,'' as defined in section 407(d)(1) of the Act, that are not 
``qualifying employer securities,'' as defined in section 407(d)(5) of 
the Act. Section 407(d)(1) of the Act defines the term ``employer 
securities'' as a security issued by an employer of employees covered 
by the plan, or by an affiliate of such employer. The Applicants note 
that although AHD is not a corporation and does not fall within the 
literal definition of an ``affiliate,'' as set forth in section 
407(d)(7) of the Act,\7\ AHD may nonetheless be considered an affiliate 
of the Company given the extent of the Company's ownership of AHD.\8\ 
Therefore, the AHD Units may be considered ``employer securities'' for 
purposes of section 407 of the Act. The Applicants note further that 
section 407(d)(5) of the Act defines a ``qualified employer security'' 
as an employer security that is either stock, a marketable obligation 
or an interest in a publicly traded partnership that was in existence 
on December 17, 1987 (i.e., a grandfathered publicly-traded 
partnership). However, the AHD Units do not meet this definition since 
they are not stock, marketable obligations or grandfathered partnership 
interests.
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    \7\ Section 407(d)(7) of the Act provides generally that a 
corporation is an affiliate of an employer if it is a member of any 
controlled group of corporations of which the employer who maintains 
the plan is a member.
    \8\ In support of this view, the Applicants cite Advisory 
Opinion 80-55A (September 23, 1980), which considered whether a 
joint venture owning 65 percent of the interests in a corporation is 
considered an affiliate of the corporation pursuant to section 
407(d)(7) of the Act.
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    10. The Applicants request further relief from sections 
406(a)(1)(D) and 406(b)(1)-(2) of the Act. Section 406(a)(1)(D) 
prohibits the transfer to, or use by or for the benefit of, a party in 
interest, of any assets of the plan. Section 406(b)(1) prohibits a 
fiduciary with respect to a plan from dealing with the assets of the 
plan in his own interest or for his own account. Section 406(b)(2) 
prohibits a fiduciary from acting, in his individual or in any other 
capacity, in any transaction involving the plan on behalf of a party 
(or representing a party) whose interests are adverse to the interests 
of the plan or the interests of its participants or beneficiaries.

[[Page 76772]]

    11. GreatBanc served as the independent fiduciary for the Plan with 
respect to the Merger and Exchange. The Applicant represents that 
GreatBanc, a wholly-owned subsidiary of U.S. Fiduciary Services, Inc., 
is nationally recognized as a highly skilled trustee specializing in 
complex financial transactions. GreatBanc has offices in Chicago, New 
York City, and Milwaukee and has over $13 billion in client assets 
under supervision. GreatBanc has confirmed that less than one percent 
of its gross annual income is derived from the Company or an affiliate 
thereof.
    12. In addition to the proxy information regarding the Merger that 
was provided to each participant in the Plan, GreatBanc provided a 
notice to each such participant that described GreatBanc's role and its 
process of consideration regarding the Merger. GreatBanc also informed 
participants that any AHD Units received pursuant to the Merger would 
be sold on the public market and that there was no guarantee as to the 
price to be received in such sale.
    13. The Applicants represent that GreatBanc had full discretion and 
powers to act on behalf of the Plan in determining what action to take 
with respect to the Merger. Specifically, GreatBanc had authority to 
(a) review and evaluate the Merger, (b) take all appropriate action 
necessary in connection with the Merger (including the execution of the 
pass-through voting procedures under the terms of the Plan), (c) vote 
the Atlas Shares in those accounts for which no participant direction 
was timely received, and (d) ensure that the AHD Units were disposed of 
in a timely and prudent manner after the Merger.
    14. The Applicants represent that as part of its fiduciary duties, 
GreatBanc: Reviewed relevant documents regarding the Company, AHD, and 
the Merger; held discussions with advisors and consultants, including 
Prairie Capital Advisors, Inc. (Prairie), GreatBanc's independent 
financial advisor; and performed an analysis of the terms of the 
Merger. Thereafter, the Applicants state that GreatBanc determined that 
the Merger was fair and in the best interests of the Plan.
    15. Prairie is a financial advisory firm specializing in business 
valuations, investment banking, and restructuring and performance 
improvement. Prairie's business valuation practice provides valuations 
of privately held businesses and business interests for all purposes. 
The Applicants represent that Prairie Capital is qualified to advise 
GreatBanc in this matter having provided financial advisory services 
for more than 100 employee benefit plan clients.
    16. The Applicants represent that the fees received by Prairie for 
services rendered in connection with the Merger were not contingent 
upon the opinion expressed by Prairie, described below, regarding the 
Merger. Further, neither Prairie nor any of its employees has a present 
or intended financial relationship with or interest in the Plan, AHD, 
or Chevron. It is represented that Prairie derived approximately 2.2 
percent of its gross annual income from the Company and its affiliates.
    17. In order to assess the fairness of the terms and conditions of 
the Merger, Prairie prepared a valuation analysis of the Company 
(ignoring the effects of the Merger) to determine if the publicly 
traded price of each entity was a reasonable representation of its 
value. In addition, Prairie prepared a valuation analysis of AHD on a 
post-merger basis to assess the value of the AHD Units following the 
Merger because part of the consideration paid to the plan would be in 
the form of AHD Units.
    18. Prairie issued a report to GreatBanc on February 15, 2011, 
expressing its opinion that: (a) The consideration received by the Plan 
for the Atlas Shares was not less than the fair market value of such 
shares; and (b) the overall terms and conditions of the Merger were 
fair to the Plan from a financial point of view. On or about February 
15, 2011, GreatBanc made a determination, after receipt of the above-
referenced report from Prairie, that: (a) The consideration received by 
the Plan for the Atlas Shares was not less than the fair market value 
of such shares; and (b) the overall terms and conditions of the Merger 
were fair to the Plan from a financial point of view.
    19. The Applicants represent that GreatBanc could have decided to 
avoid any risk of involving the Plan in a prohibited transaction by 
either selling all of the Plan's Atlas Shares prior to the Merger, or 
by not exchanging the Atlas Shares, in part, for the AHD Units. 
However, after consulting with Prairie to determine which course of 
action was more prudent and fair to the Plan and its participants, 
GreatBanc determined that exchanging the Atlas Shares, in part, for the 
AHD Units would be the best course of action, provided a prohibited 
transaction exemption could be obtained from the Department.\9\
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    \9\ Prior to the Merger, the Applicants filed an exemption 
application with the Department, dated February 11, 2011.
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    20. In this regard, the Applicants represent that GreatBanc 
determined, among other things, that, if the Atlas Shares were sold in 
the open market prior to the Merger, Plan participants would not 
receive the best value that they could have when compared to the total 
consideration the Plan could receive in the Exchange and the ultimate 
sale of the AHD Units. Additionally, GreatBanc determined that there 
could also be a risk to the Plan in selling the Atlas Shares 
prematurely if, for example, the Merger did not close, or if another 
potential buyer offered more for the Atlas Shares after these shares 
were sold. In such a situation, GreatBanc would have foregone the 
potential higher consideration that the Plan could have received for 
the Atlas Shares.
    21. The Applicants represent that the Plan received a total of 
349,471.7245 AHD Units pursuant to the Exchange. The AHD Units were 
freely transferable by non-affiliated entities, including the Plan; 
however, the Plan did not allow participants to direct any activity 
with respect to the AHD Units. In this regard, the Applicants represent 
that, following completion of the Merger on February 17, 2011, the AHD 
Units were sold in an orderly liquidation by GreatBanc in open market 
transactions on the NYSE between March 2, 2011 and March 10, 2011, in 
accordance with the prudence standards set forth under section 404 of 
the Act.\10\ The proceeds from the dispositions of the AHD Units 
received by each participant's Other Investments account equaled the 
value of the AHD Units attributable to such account, multiplied by the 
weighted average sales price of all AHD Units sold on behalf of the 
Plan.
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    \10\ The brokerage fees associated with the sale of the AHD 
Units are discussed in paragraph 23 of the Facts and 
Representations.
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    22. The proceeds from the sale of the AHD Units were allocated to 
the appropriate participants' Other Investments accounts and invested 
in the USFS Short Term Income Fund for Qualified Plans (the Fund). The 
Fund is a common/collective fund managed by Pennant Management, Inc. 
(Pennant), an affiliate of GreatBanc. Pennant receives a management fee 
of 40 basis points for their services to the Fund. GreatBanc represents 
that prior to investing the cash proceeds derived from the sale of AHD 
Units in the Fund, GreatBanc proposed several alternatives to the 
Company, as Plan sponsor, disclosing all relevant fees and expenses. 
The Company (and its new parent, Chevron) approved the investment of 
these proceeds in the Fund.\11\ GreatBanc

[[Page 76773]]

represents that it waived all its fees related to these investments and 
received no direct or indirect compensation from Pennant, including 
revenue sharing or otherwise.
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    \11\ GreatBanc represents that because it disclosed all relevant 
information concerning fees and expenses to the Company before 
investments were made, and because GreatBanc received the written 
approval of the Plan sponsor fiduciary, GreatBanc did not use its 
own fiduciary discretionary powers to generate an additional fee for 
itself and its affiliate, Pennant. In this regard, the Applicants 
represent that the receipt of fees by Pennant is statutorily exempt 
under section 408(b)(2) of the Act. The Department expresses no 
opinion herein as to whether the receipt of such fees by Pennant is 
exempt from the prohibited transaction provisions under section 
408(b)(2) of the Act. Further, if this proposed exemption is 
granted, no relief would be provided for any violation of section 
406(b) of the Act relating to the investment of proceeds from the 
Merger in the Fund.
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    23. Except as described below, the Applicants represent that 
neither the Plan nor its participants paid any fees or commissions 
associated with the Merger. Neither the Plan nor its participants paid 
any fees or commissions with respect to the disposition of the AHD 
Units on the NYSE to a person affiliated with any Plan fiduciary. 
Although the sale of the AHD Units was through GreatBanc's affiliate, 
Pennant, neither GreatBanc nor Pennant received a fee for conducting 
the sale. Pennant executed the order through Jones Trading (Jones), 
which is not affiliated with GreatBanc and Pennant. According to the 
Applicants, the only brokerage charge paid by the Plan to Jones was an 
explicit rate of $0.01/share, which is below industry average, and the 
total commissions paid to Jones were $3,494.71. The Applicants also 
represent that the Plan paid a nominal Securities Exchange Commission 
(SEC) fee.\12\ The Applicants further state that the sale of the AHD 
Units was conducted on an open market. This sale was effectuated so 
that the daily movement in the share price was not materially affected. 
The sale also was completed in a manner such that the market place was 
not aware of the identity of the seller.
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    \12\ According to the Applicants, the fee was $6.71. The SEC fee 
is imposed by the Securities Exchange Act of 1934 and is independent 
of any associated brokerage commissions. The proceeds of the SEC fee 
are collected from brokerage firms and are forwarded to the U.S. 
Treasury.
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    24. In summary, the Applicants represent that the subject 
transactions satisfied the statutory criteria for an exemption under 
section 408(a) of the Act for the following reasons: (a) The Plan's 
acquisition and holding of the AHD Units in connection with the Merger 
occurred as a result of an independent act of the Company as a 
corporate entity; (b) all shareholders of the Company, including the 
Plan, were treated in a like manner with respect to all aspects of the 
Merger; (c) An independent fiduciary determined that the consideration 
received by the Plan pursuant to the Merger was not less than fair 
market value and that the overall terms and conditions of the Merger 
were fair to the Plan; (d) all shareholders of the Company, including 
the Plan, received the same proportionate number of AHD Units based 
upon the number of shares of Company stock held by such shareholders; 
(e) pursuant to the terms of the Plan each participant was entitled to 
direct the independent fiduciary as to how to vote the Company shares 
allocated to his or her account with respect to the Merger; and (f) no 
fees, commissions or other fees associated with the Merger were paid by 
the Plan except for brokerage charges and fees with respect to the 
subsequent sale of the AHD Units, which were paid by the Plan to a 
person who is not affiliated with any Plan fiduciary.
    For Further Information Contact: Eric A. Raps of the Department, 
telephone (202) 693-8532. (This is not a toll-free number).

Notice of Proposed Amendment to Prohibited Transaction Exemption 2007-
05, 72 FR 13130 (March 20, 2007), Involving Prudential Securities 
Incorporated, et al., To Amend the Definition of ``Rating Agency''

[Application No. D-11718]

Proposed Amendment

    Based on the facts and representations set forth in the 
application, under the authority of section 408(a) of the Act and 
section 4975(c)(2) of the Code and in accordance with the procedures 
set forth in 29 CFR part 2570, subpart B (76 FR 66637, October 27, 
2011), the Department proposes to modify Section III.X of the 
individual Prohibited Transaction Exemptions (PTEs) and final 
authorizations approved by the Department under PTE 96-62 (67 FR 44622, 
July 3, 2002)(EXPRO), which are referred to herein as the ``Underwriter 
Exemptions,'' \13\ as follows:
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    \13\ The term ``Underwriter Exemptions'' refers to PTE 89-88, 54 
FR 42582 (October 17, 1989); PTE 89-89, 54 FR 42569 (October 17, 
1989); PTE 89-90, 54 FR 42597 (October 17, 1989); PTE 90-22, 55 FR 
20542 (May 17, 1990); PTE 90-23, 55 FR 23144 (June 6, 1990); PTE 90-
24, 55 FR 20548 (May 17, 1990); PTE 90-28, 55 FR 21456 (May 24, 
1990); PTE 90-29, 55 FR 21459 (May 24, 1990); PTE 90-30, 55 FR 21461 
(May 24, 1990); PTE 90-31, 55 FR 23144 (June 6,1990); PTE 90-32, 55 
FR 23147 (June 6, 1990); PTE 90-33, 55 FR 23151 (June 6, 1990); PTE 
90-36, 55 FR 25903 (June 25, 1990); PTE 90-39, 55 FR 27713 (July 5, 
1990); PTE 90-59, 55 FR 36724 (September 6, 1990); PTE 90-83, 55 FR 
50250 (December 5, 1990); PTE 90-84, 55 FR 50252 (December 5, 1990); 
PTE 90-88, 55 FR 52899 (December 24, 1990); PTE 91-14, 56 FR 7413 
(February 22, 1991); PTE 91-22, 56 FR 03277 (April 18, 1991); PTE 
91-23, 56 FR 15936 (April 18, 1991); PTE 91-30, 56 FR 22452 (May 15, 
1991); PTE 91-62, 56 FR 51406 (October 11, 1991); PTE 93-31, 58 FR 
28620 (May 5, 1993); PTE 93-32, 58 FR 28623 (May 14, 1993); PTE 94-
29, 59 FR 14675 (March 29, 1994); PTE 94-64, 59 FR 42312 (August 17, 
1994); PTE 94-70, 59 FR 50014 (September 30, 1994); PTE 94-73, 59 FR 
51213 (October 7, 1994); PTE 94-84, 59 FR 65400 (December 19, 1994); 
95-26, 60 FR 17586 (April 6, 1995); PTE 95-59, 60 FR 35938 (July 12, 
1995); PTE 95-89, 60 FR 49011 (September 21, 1995); PTE 96-22, 61 FR 
14828 (April 3, 1996); PTE 96-84, 61 FR 58234 (November 13, 1996); 
PTE 96-92, 61 FR 66334 (December 17, 1996); PTE 96-94, 61 FR 68787 
(December 30, 1996); PTE 97-05, 62 FR 1926 (January 14, 1997); PTE 
97-28, 62 FR 28515 (May 23, 1997); PTE 97-34, 62 FR 39021 (July 21, 
1997); PTE 98-08, 63 FR 8498 (February 19, 1998); PTE 99-11, 64 FR 
11046 (March 8, 1999); PTE 2000-19, 65 FR 25950 (May 4, 2000); PTE 
2000-33, 65 FR 37171 (June 13, 2000); PTE 2000-41, 65 FR 51039 
(August 22, 2000); PTE 2000-55, 65 FR 37171 (November 13, 2000); PTE 
2002-19, 67 FR 14979 (March 28, 2002); PTE 2003-31, 68 FR 59202 
(October 14, 2003); PTE 2006-07, 71 FR 32134 (June 2, 2006); PTE 
2008-08, 73 FR 27570 (May 13, 2008); PTE 2009-16, 74 FR 30623 (June 
26, 2009); and PTE 2009-31, 74 FR 59003 (November 16, 2009), each as 
subsequently amended by PTE 97-34, 62 FR 39021 (July 21, 1997) and 
PTE 2000-58, 65 FR 67765 (November 13, 2000) and for certain of the 
exemptions, amended by PTE 2002-41, 67 FR 5487 (August 22, 2002); 
thereby affecting and applying to: Deutsche Bank AG, New York Branch 
and Deutsche Morgan Grenfell/C.J. Lawrence Inc., Final Authorization 
Number (FAN) 97-03E (December 9, 1996); Credit Lyonnais Securities 
(USA) Inc., FAN 97-21E (September 10, 1997); ABN AMRO Inc., FAN 98-
08E (April 27, 1998); Ironwood Capital Capital Partners Ltd., FAN 
99-31E (December 20, 1999) (supersedes FAN 97-02E (November 25, 
1996)); William J. Mayer Securities LLC, FAN 01-25E (October 15, 
2001); Raymond James & Associates Inc. & Raymond James Financial 
Inc. FAN 03-07E (June 14, 2003); WAMU Capital Corporation, FAN 03-
14E (August 24, 2003); and Terwin Capital LLC, FAN 04-16E (August 
18, 2004); BNP Paribas Securities Corporation, FAN 07-06E (July 7, 
2007); SunTrust Robinson Humphrey, Inc., FAN 08-03E (March 10, 
2008); Jefferies & Company Inc., FAN 09-03E (March 9, 2009); NatCity 
Investments, Inc., FAN 09-06E (March 28, 2009); Amherst Securities 
Group, LLC, FAN 09-12E (September 14, 2009); Cantor Fitzgerald & 
Company, FAN 11-05E (June 6, 2011); and Cortview Capital Securities 
LLC, FAN 11-08E (October 10, 2011); which received the approval of 
the Department to engage in transactions substantially similar to 
the transactions described in the Underwriter Exemptions under the 
Department's EXPRO procedure.
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Section III.X:
    Effective as of the date of publication of a final amendment to the 
Underwriter Exemptions in the Federal Register, the term ``Rating 
Agency'' means a credit rating agency that: (i) Is currently recognized 
by the U.S. Securities and Exchange Commission (SEC) as a nationally 
recognized statistical ratings organization (NRSRO); (ii) has indicated 
on its most recently filed SEC Form NRSRO that it rates ``issuers of 
asset-backed securities''; and (iii) has had, within a period not 
exceeding 12 months prior to the closing of the current transaction, at 
least three (3) ``qualified ratings engagements. A ``qualified ratings 
engagement'' is one (i) requested by an issuer or underwriter of 
securities in connection with the initial

[[Page 76774]]

offering of the securities; (ii) for which the credit rating agency is 
compensated for providing ratings; (iii) which is a public rating; and 
(iv) which involves the offering of securities of the type that would 
be granted relief by the Underwriter Exemptions.

Summary of Facts and Representations

Background

    1. If granted, the proposed amendment described herein would amend 
the Underwriter Exemptions. The Underwriter Exemptions are individual 
exemptions and EXPRO final authorizations that provide relief for the 
origination of certain asset pool investment trusts and the 
acquisition, holding and disposition by employee benefit plans (Plans) 
of certain asset-backed and mortgage-backed pass-through certificates 
representing undivided interests in those investment trusts. The 
Underwriter Exemptions provide relief from certain of the prohibited 
transaction restrictions of sections 406(a), 406(b) and 407(a) of the 
Act, as amended, and from the taxes imposed by section 4975(a) and (b) 
of the Code, as amended, by reason of certain provisions of section 
4975(c)(1) of the Code. Those Underwriter Exemptions that were issued 
prior to 1997 were amended by PTE 97-34.\14\ Those Underwriter 
Exemptions that were issued prior to 2001 were amended by PTE 2000-
58.\15\ Those Underwriter Exemptions that were issued prior to 2007 
were amended by PTE 2007-05.\16\ Certain of the Underwriter Exemptions 
were amended by PTE 2002-41.
---------------------------------------------------------------------------

    \14\ PTE 97-34 made the following modifications to the relief 
previously provided in the Underwriter Exemptions: (i) Modified the 
definition of ``Trust'' to include a ``pre-funding account'' (PFA) 
and a ``capitalized interest account'' as part of the corpus of the 
trust; (ii) provided retroactive relief for transactions involving 
asset pool investment trusts containing PFAs which have occurred on 
or after January 1, 1992; (iii) included in the definition of 
``Certificate'' a debt instrument that represents an interest in a 
Financial Asset Securitization Investment Trust; and (iv) made 
certain changes to the Underwriter Exemptions that reflected the 
Department's current interpretation of the Underwriter Exemptions.
    \15\ PTE 2000-58 made the following modifications to the relief 
previously provided in the Underwriter Exemptions: (i) The rights 
and interest evidenced by securities acquired by plans in the 
Designated Transactions (as described in footnote 6, below) 
described in that application may be subordinated to the rights and 
interests evidenced by other securities of the same issuer as 
defined in the Underwriter Exemptions (Issuer); (ii) securities 
acquired by a plan in a Designated Transaction may receive a rating 
from a credit rating agency as defined in the Underwriter Exemptions 
(Rating Agency) at the time of such acquisition that is in one of 
the four highest generic categories; (iii) the corpus of the Issuer 
in residential and home equity Designated Transactions may include 
mortgage loans with loan-to-value property ratios in excess of 100%; 
(iv) eligible interest rate swaps (both ratings dependent and non-
ratings dependent) and yield supplement arrangements with notional 
principal amounts may be included; (v) the securitizations vehicle 
can also be an owner trust, special purpose corporation, limited 
partnership or limited liability company; and (vi) the security may 
be either an equity or debt interest issued by any permissible type 
of Issuer .
    \16\ PTE 2007-05 modified Section III.X. of the Underwriter 
Exemptions to add Dominion Bond Rating Service Limited and Dominion 
Bond Rating Service, Inc. to the definition of ``Rating Agency.''
---------------------------------------------------------------------------

    The proposed amendment, if granted, would revise the definition of 
``Rating Agency,'' as set forth in those exemptions and EXPRO final 
authorizations, by eliminating any specific reference to a particular 
credit rating agency, and substituting instead a requirement that a 
credit rating agency: (i) Be currently recognized by the U.S. 
Securities and Exchange Commission (SEC) as a nationally recognized 
statistical ratings organization (NRSRO); (ii) have indicated on its 
most recently filed SEC Form NRSRO that it rates ``issuers of asset-
backed securities''; and (iii) have had at least 3 ``qualified ratings 
engagements'' within a period not exceeding 12 months prior to the 
closing of the current transaction.
    For purposes of the proposed amendment, a ``qualified ratings 
engagement'' is one: (i) Requested by an issuer or underwriter of 
securities in connection with the initial offering of the securities; 
(ii) for which the credit rating agency is compensated for providing 
ratings; (iii) which is a public rating; and (iv) which involves the 
offering of securities of the type that would be granted relief by the 
Underwriter Exemptions.
    The Department is proposing this amendment to the Underwriter 
Exemptions on its own motion pursuant to section 408(a) of the Act and 
section 4975(c)(2) of the Code, and in accordance with the procedures 
set forth in 29 CFR part 2570, subpart B (76 FR 66637, October 27, 
2011).\17\ The proposed amendment, if granted, would affect the 
participants and beneficiaries of Plans participating in such 
transactions, and fiduciaries with respect to such Plans.
---------------------------------------------------------------------------

    \17\ Section 102 of Reorganization Plan No. 4 of 1978 (5 USC 
app. at 672 (2006)), effective December 31, 1978, generally 
transferred the authority of the Secretary of the Treasury to issue 
exemptions and rulings under section 4975(c)(2) of the Code to the 
Secretary of Labor.
---------------------------------------------------------------------------

Existing Relief

    2. Section I of the Underwriter Exemptions permit, among other 
things, transactions involving the purchase by Plans of certain 
securities representing interests in asset-backed or mortgage-backed 
investment pools. The securities, which generally take the form of 
certificates issued by a trust, must be rated in one of the three 
highest rating categories (or four in the case of Designated 
Transactions) \18\ by a Rating Agency. The Rating Agency, in assigning 
a rating to such securities, takes into account the fact that the 
Issuer may hold interest rate swaps or yield supplement agreements with 
notional principal amounts.
---------------------------------------------------------------------------

    \18\ ``Designated Transaction'' means a securitization 
transaction in which the assets of the Issuer (see below) consist of 
secured consumer receivables, secured credit instruments or secured 
obligations that bear interest or are purchased at a discount and 
are: (i) Motor vehicle, home equity and/or manufactured housing 
consumer receivables; and/or (ii) motor vehicle credit instruments 
in transactions by or between business entities; and/or (iii) 
single-family residential, multi-family residential, home equity, 
manufactured housing and/or commercial mortgage obligations that are 
secured by single-family residential, multi-family residential, 
commercial real property or leasehold interests therein.
---------------------------------------------------------------------------

    Section II of the original Underwriter Exemptions (PTEs 89-88, 89-
89, and 89-90) sets forth general conditions which had to be met in 
order for an investing Plan to avail itself of the relief provided 
therein. Specifically, Section II.A(3) of those exemptions required 
that any certificate acquired by a plan must have received a rating at 
the time of acquisition that is in one of the three highest categories 
from either Standard & Poor's Corporation (currently, Standard and 
Poor's Rating Services), Moody's Investors Services, Inc. or Duff & 
Phelps. The Department notes that in First Boston Corporation's (First 
Boston) exemption application (PTE 89-90), First Boston requested that 
any certificate receiving a rating in the three highest rating 
categories from any NRSRO receive exemptive relief. While the 
Department recognized that credit rating agencies other than Standard & 
Poor's Corporation (currently, Standard & Poor's Rating Services, a 
division of The McGraw Hill Companies, Inc.), Moody's Investor 
Services, Inc. and Duff & Phelps Inc. qualified as NRSROs, the 
Department determined that only these three entities should qualify as 
Rating Agencies under the Underwriter Exemptions, based on their 
respective experience in rating certain types of mortgage-backed 
securities or asset-backed securities (MBS or ABS, respectively). Fitch 
Inc. was later specifically named as an additional Rating Agency for 
purposes of the Underwriter Exemptions beginning in 1989.
    On November 23, 1999, the Department amended PTEs 89-88, 89-89, and 
89-90 at 55 FR 48939 to include Fitch Inc. as an acceptable credit 
rating agency for the rating of certificates

[[Page 76775]]

described in the exemptions, and the Department subsequently granted 
several other Underwriter Exemptions that included Fitch Inc. as an 
acceptable credit rating agency. Most recently, the Department amended 
the Underwriter Exemptions in PTE 2007-05 to add DBRS Limited and DBRS, 
Inc. to the definition of ``Rating Agency'' as set forth in Section 
III.X of the Underwriter Exemptions. When approving the application to 
add DBRS Limited and DBRS, Inc. to the group of Rating Agencies 
permitted to rate Underwriter Exemption-eligible securities, the 
Department found it would benefit Plan investors in several ways, 
including: (i) Investors would have access to additional information 
and additional opinions about the creditworthiness of issuers and 
securities; (ii) competition among credit rating agencies would result 
in improved accuracy and timeliness of ratings, thereby allowing 
investors to assess risk with greater certainty; and (iii) competition 
among credit rating agencies would encourage different methods of 
analyzing credit risk.
    Currently, Section III.X of the Underwriter Exemptions defines the 
term ``Rating Agency'' as ``Standard & Poor's Rating Services, a 
division of the McGraw-Hill Companies, Inc., Moody's Investors 
Services, Inc., Fitch Inc., DBRS Limited, DBRS, Inc., or any successors 
thereto.''

Regulation of Credit Rating Agencies

    3. On September 29, 2006, the President signed into law the Credit 
Rating Agency Reform Act of 2006 (CRARA), which was introduced as a 
bill in Congress to improve ratings quality for the protection of 
investors by fostering accountability, transparency, and competition in 
the credit rating agency industry. A credit rating agency can obtain 
the NRSRO designation under CRARA through an application process unless 
the SEC determines that the agency lacks adequate financial and 
managerial resources to consistently produce credit ratings with 
integrity and to comply with its stated methodologies and 
procedures.\19\ CRARA included requirements that NRSROs provide annual 
reports regarding their ratings performance on the SEC Form NRSRO and 
make their methodologies public.\20\
---------------------------------------------------------------------------

    \19\ See section 15E(a)(1)(C) of the Securities Exchange Act of 
1934, as amended (the Exchange Act).
    \20\ See section 15E(b) of the Exchange Act.
---------------------------------------------------------------------------

    On July 21, 2010, Congress passed the Dodd-Frank Wall Street Reform 
and Consumer Protection Act (the Dodd-Frank Act), which included new 
regulatory requirements for NRSROs through amendments of Section 15E of 
the Exchange Act. Under the Dodd-Frank Act, in order for the SEC to 
recognize a credit rating agency as an NRSRO, the credit rating agency 
must satisfy certain established criteria, including that it is 
accepted as an issuer of credible and reliable ratings by qualified 
institutional buyers of the securities it rates. Further, under the 
Dodd-Frank Act, NRSROs have become subject to a more rigorous 
regulatory regime, which requires annual examinations by the SEC that 
include a review of (i) whether the NRSRO conducts business in 
accordance with the policies, procedures, and rating methodologies of 
the NRSRO; (ii) the management of conflicts of interest by the NRSRO; 
(iii) the implementation of ethics policies by the NRSRO; (iv) the 
internal supervisory controls of the NRSRO; (v) the governance of the 
NRSRO; (vi) the activities of the NRSRO's designated compliance 
officer; (vii) the processing of complaints by the NRSRO; and (viii) 
the policies of the NRSRO governing the post-employment activities of 
former staff of the NRSRO.\21\ The evaluation of internal controls 
includes an examination of whether the NRSRO has sufficiently qualified 
staff and resources dedicated to rating the types of securities it is 
registered to rate. These issues are annually revisited through the SEC 
annual examination process and through the annual reporting required 
through the SEC Form NRSRO.\22\
---------------------------------------------------------------------------

    \21\ See section 15(p)(3)(B) of the Exchange Act.
    \22\ See section 15E(b) and p(3) of the Exchange Act.
---------------------------------------------------------------------------

Proposed Amendment

    4. On September 29, 2011, in a letter to the Department, the 
American Securitization Forum (the ASF) encouraged the Department to 
take action to further revise the Rating Agency definition under the 
Underwriter Exemptions by including other NRSROs in order to ``bring 
greater choice to investors in asset-backed securities.'' The ASF noted 
that diversity and competition among credit rating agencies ``increases 
the choices available to investors, which in turn, can promote greater 
accountability of rating agencies to investors.'' The ASF encouraged 
the Department to consider, ``among all of the other appropriate 
factors, the positive effects of increasing the number of NRSROs 
qualified to provide ratings on transactions that rely on the 
Underwriter Exemption [sic].'' This need for greater investor choice 
was echoed in letters to the Department by banks active in the issuance 
and underwriting of asset-backed securities.
    In light of the regulatory developments cited above, the Department 
is considering amending the definition of ``Rating Agency'' under 
Section III.X of the Underwriter Exemptions. If adopted, the amendment 
would eliminate specific references to named credit rating agencies. 
Instead, the term ``Rating Agency'' would be defined using a general 
framework of self-executing criteria based on based on both (i) SEC 
rules applicable to NRSROs and (ii) the Department's own ``seasoning'' 
requirement for credit rating agencies. In this regard, if the proposed 
amendment is adopted, Section III.X would be defined as follows:

    ``Rating Agency'' means a credit rating agency that: (i) Is 
currently recognized by the U.S. Securities and Exchange Commission 
(SEC) as a nationally recognized statistical ratings organization 
(NRSRO); (ii) has indicated on its most recently filed SEC Form 
NRSRO that it rates ``issuers of asset-backed securities''; and 
(iii) has had, within a period not exceeding 12 months prior to the 
closing of the current transaction, at least three (3) ``qualified 
ratings engagements. A ``qualified ratings engagement'' is one (i) 
requested by an issuer or underwriter of securities in connection 
with the initial offering of the securities; (ii) for which the 
credit rating agency is compensated for providing ratings; (iii) 
which is a public rating; and (iv) which involves the offering of 
securities of the type that would be granted relief by the 
Underwriter Exemptions.

    If so amended, the definition of ``Rating Agency'' would require 
that a ``credit rating agency'' be an NRSRO that is registered by the 
SEC to rate issuers of ABS, thereby exhibiting adequate qualifications 
to rate ABS and MBS that are subject to periodic examination by the 
SEC. In addition, the NRSRO must demonstrate that it has been selected 
to rate at least three similar transactions during the preceding 12 
months.\23\
---------------------------------------------------------------------------

    \23\ The Department notes that Plan fiduciaries are responsible 
for confirming that any rating given for a certificate acquired 
pursuant to an Underwriter Exemption was issued by a credit rating 
agency that has met the Rating Agency criteria set forth herein. In 
that regard, Plan fiduciaries may demonstrate that they have 
fulfilled their fiduciary responsibilities to the plan by accepting 
representations from credit rating agencies that the foregoing 
criteria have been met.
---------------------------------------------------------------------------

Merits of Proposed Amendment

    5. The Department believes that this proposed amendment is 
administratively feasible since the requirements for an entity to meet 
the definition of ``Rating Agency,'' as set forth herein, generally 
mirror those deemed administratively feasible in the

[[Page 76776]]

previously granted Underwriter Exemptions, as well as certain Dodd-
Frank and SEC requirements concerning NRSROs. Further, the NRSROs' 
status as such and the number of transactions each has rated is a 
matter of public record. No further action would be required by the 
Department and the proposed amendment is self-executing. In addition, 
the Department tentatively believes that the proposed amendment is in 
the interest of the Plans and their participants and beneficiaries 
because it increases the number of available investment options, 
enhances diversification and liquidity and promotes a greater ability 
to assess credit risk and the rating process. Further, the Department 
believes that the proposed amendment would be protective of the rights 
of the Plans and their participants and beneficiaries because, as noted 
above, the credit rating agency will be a registered NRSRO that 
exhibits adequate qualifications to rate ABS and MBS, and that will be 
subject to periodic examination by the SEC, and must demonstrate that 
it has been selected to rate at least three similar transactions during 
the preceding 12 months.

Prospective Relief

    6. Relief, if adopted, will apply prospectively with respect to any 
asset-backed security that was rated in one of the three (or four in 
the case of a Designated Transaction) highest generic credit ratings 
categories by a credit rating agency that qualifies as a Rating Agency 
under the Underwriter Exemptions, as proposed to be amended herein, 
even if such rating occurred before the later of: the date that the 
final amendment is published in the Federal Register and the date that 
the credit rating agency qualifies as a Rating Agency under the 
Underwriter Exemption. Thus, if, for example, after the date that the 
final amendment is published in the Federal Register, a credit rating 
agency qualifies as a Rating Agency under the Underwriter Exemptions, 
and, if prior to such date (or any date prior to so qualifying as a 
Rating Agency), such credit rating agency rated an asset-backed 
security in one of the three (or four in the case of a Designated 
Transaction) highest generic credit ratings categories (and assuming 
that there has been no downgrade), Plans will be able to rely on the 
amended Underwriter Exemptions for the purchase certificates in the 
secondary market (to the extent all relevant conditions have been met), 
even though the certificates were originally issued prior to the date 
the final amendment is published in the Federal Register (or, if later, 
prior to the date that the credit rating agency qualified as a Rating 
Agency).

Opting Out of Proposed Amendment by Underwriter Exemption Grantees

    7. The Department attempted to inform each grantee of an existing 
Underwriter Exemption or recipient of a FAN (described and identified 
above), via email, that the Department was considering amending the 
definition of ``Rating Agency'' set forth in such Underwriter 
Exemption. In this regard, at the request of the Department, the ASF 
sent an email notice on July 2, 2012 intended to reach a broad spectrum 
of its membership interested in developments relating to asset-back 
securitizations. The email indicated that existing grantees of 
Underwriter Exemptions and recipients of FANs could opt out of the 
proposed change by notifying the Department in writing. To date, the 
Department has not received any requests to opt out; however, the 
Department notes that such a grantee or recipient should notify the 
Department in writing during the comment period described herein if 
they do not want the proposed amendment to apply to their exemption.
    It is the understanding of the Department that credit rating 
agencies that are specifically identified in the Underwriter Exemptions 
will meet the revised definition of ``Rating Agency'' set forth herein.

Written Comments and Hearing Requests

    All written comments and requests for a public hearing (preferably, 
three copies) should be sent to the Office of Exemption Determinations, 
Employee Benefits Security Administration, Room N-5700, U.S. Department 
of Labor, 200 Constitution Avenue NW., Washington, DC 20210, 
(Attention: D-11718). Interested persons are invited to submit comments 
and/or hearing requests to the Department by February 11, 2013, by U.S. 
mail, facsimile to (202) 219-0204 or electronic mail to 
vaughan.anna@dol.gov. The application pertaining to the proposed 
amendment (the Application) and the comments received will be available 
for public inspection in the Public Disclosure Room of the Employee 
Benefits Security Administration, U.S. Department of Labor, Room N-
1513, 200 Constitution Avenue NW., Washington, DC 20210.
    For Further Information Contact: Anna Mpras Vaughan of the 
Department, telephone (202) 693-8565. (This is not a toll-free number.)

The Mo-Kan Teamsters Apprenticeship and Training Fund (the Fund) 
Located in Kansas City, Missouri

[Application No. L-11720]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and in accordance with the 
procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 
32847, August 10, 1990). If the exemption is granted, the restrictions 
of section 406(a)(1)(A) and (D) of the Act shall not apply to the 
purchase (Purchase) by the Fund of certain real property located in 
Kansas City, Missouri (the Property) from Jim Kidwell Construction, a 
party in interest with respect to the Fund; provided that the following 
conditions are satisfied:
    (a) The terms and conditions of the Purchase are at least as 
favorable to the Fund as those obtainable in an arm's length 
transaction with an unrelated party;
    (b) The Purchase is a one-time transaction for cash;
    (c) The Fund pays the lesser of $1,500,000 or the fair market value 
of the Property, as of the date of the Purchase, as determined by a 
qualified, independent appraiser (the Appraiser);
    (d) The Fund's fiduciaries review and approve the methodology used 
by the Appraiser, ensure that such methodology is properly applied in 
determining the fair market value of the Property, and determine 
whether it is prudent to go forward with the proposed transaction; and
    (e) The Fund pays only reasonable closing costs with respect to the 
Purchase that a similarly situated buyer would customarily pay in a 
similar transaction.

Summary of Facts and Representations

The Parties

    1. The Building, Material, Excavation, Heavy Haulers, Drivers, 
Warehouse & Helpers Local Union No. 541 (the Union) is located in 
Kansas City, Missouri and represents certain workers in the 
construction and warehouse industries.
    2. Members of the Union are eligible to participate in the Fund. 
The Fund is a multiemployer apprenticeship and training plan that was 
established as a Taft-Hartley Trust pursuant to a collective bargaining 
agreement. As of March 2, 2012, the Fund covered approximately 1,015 
participants, who receive training in the fields of construction 
driving, mechanics and warehouse work. As of December 31,

[[Page 76777]]

2011, the Fund had net assets of $1,802,909.
    3. The members of the Board of Trustees (the Board) serve as the 
Fund's sponsor, plan administrator and fiduciaries. The Board consists 
of four trustees (the Trustees), who represent the Union and the 
contributing employers. Board Chairman Jed L. Cope and Ronald L. 
Johnson are the Union trustees. Board Secretary Florian Rothbrust and 
Member Jeff Shoemaker are the employer trustees. None of the Trustees 
have an interest in Jim Kidwell Construction (the Seller).
    4. The proposed transaction described herein involves the purchase 
of certain property by the Fund from the Seller. The Seller is owned 
and operated by Jim Kidwell, who is not a fiduciary with respect to the 
Fund. The Seller, which was established in 1965, is a construction 
company conducting commercial building excavation and grading located 
in Greenwood, Missouri. The Seller is a contributing employer to the 
Fund and, as such, is required under the terms of a collective 
bargaining agreement to make monthly contributions on behalf of its 
covered employees for all hours worked in covered employment.
    5. Currently, the Fund does not have its own training facility and 
has an arrangement to use the property of the Metropolitan Community 
Colleges (the Colleges), an unrelated party, that is located in Jackson 
County, Missouri. The Fund uses land owned by the Colleges to provide 
truck-related training.
    6. Beginning in 2008, the Board began to consider purchasing 
approximately 30 to 50 acres of real property. The Trustees represent 
that the purchase of the Property would allow the Fund to construct a 
future training facility for training apprentices in the operation of 
trucks and heavy equipment. The facility would also be used for the 
Fund's offices and provide classroom space, testing facilities and 
equipment storage. According to the Trustees, by owning the Property, 
the Fund would be able to make changes or additions to meet its future 
training requirements without the consent of a landlord. Further, the 
Fund would be assured of the continued availability of the facility.

The Property

    7. In 2009, the Board hired the Grubb Ellis/The Winbury Group (the 
Winbury Group), an unrelated realtor, to locate several vacant land 
sites for the Fund. The Trustees considered several locations in the 
Kansas City area, but found them to be too large and/or too costly. In 
2010, Mr. Kidwell approached Mr. Cope and offered to sell certain real 
property, located at 8616 E. Winner Road, Kansas City, Missouri, to the 
Fund for $2,000,000. The Property was not one of sites identified by 
the Winbury Group.
    The Property consists of 40 acres of undeveloped land that is 
irregular in shape and has a rolling surface topography except for a 
fairly steep drop off at the northeastern side. Located beneath the 
surface tract is an old limestone mine (Mine) that extends past the 
surface tract boundaries. The Mine is used by the Seller for storage 
and maintenance.

The Proposed Transaction

    8. After investigation of the Property and review of the Due 
Diligence Report--Wilson Road Mine (the Report) prepared by the URS 
Corporation, of Overland Park, Kansas, which was included in the 
Appraisal described herein, the Trustees determined that the Property 
had advantages over the other sites picked by the Winbury Group. The 
Trustees represent that the Property was the best site and tract of 
real property given the resources of the Fund. The Property's surface 
has both flat areas and moderate elevation areas which are beneficial 
to the Fund's training program use. The Property also has areas that 
would provide bays for all-weather storage and work areas making the 
cost of a warehouse building unnecessary. The current improvements on 
the site are likely to have sufficient capacity to support the Fund's 
use so that site work costs for utility extension would not be incurred 
despite the costs to monitor underground electrical systems, ground 
water levels and maintain sump pumps, the Mine has benefits for the 
Fund.
    The Trustees represent that the Fund's proposed purchase of the 
Property has the support of the public officials in both Kansas City, 
Missouri and Independence, Missouri for the Fund's proposed use of the 
Property. The Trustees also represent that this cooperation was a 
factor in selecting the Property. The Trustees further represent that 
based on all the facts and circumstances, having the Fund purchase the 
Property is in the interests of the Fund and its participants and its 
beneficiaries.
    9. On January 9, 2012, the Fund executed a sales contract (the 
Contract) with the Seller prior to the Appraisal. Under the terms of 
the Contract, the Fund would purchase the Property for $1,500,000 and 
it has placed a $50,000 deposit in escrow on the signing date. This 
price is less than the $2,000,000 price at which the Property was 
originally offered by the Seller and the Appraised value, as discussed 
below. The Fund will pay the balance of the purchase price with the 
proceeds of a loan and cash on the closing date. Accordingly, the 
purchase price of the Property represents 83% of the Fund's assets 
($1,500,000/$1,802,909).
    10. The Fund will finance part of the purchase with Lead Bank (the 
Bank) of Lee's Summitt, Missouri, which does not currently have a 
party-in-interest relationship to the Fund. The Fund will borrow 
$500,000 from the Bank in a balloon loan, carrying an interest rate of 
3.75% and having a term of 24 months. The Fund will pay the remaining 
$1,000,000 in cash. The Bank will hold a security interest in the Fund 
account that the Fund will open at the Bank and require that the Fund 
maintain insured bank certificates with a 10% margin as compared to its 
loan balance at all times during the loan. The Fund will not face any 
prepayment penalties.
    11. Under the Contract and the financing arrangement, the Fund will 
pay for certain items. The Contract requires that the Fund pay for its 
pro rata share of taxes based on the Purchase Date. The Trustees 
represents that the precise allocation will not be known until the 
closing date and that it will receive a credit from the Seller for the 
Seller's share of the accrued but unpaid real estate tax. The Fund will 
also pay approximately $100 in recording charges and $300 in escrow 
fees charged by the title company, Chicago Title Insurance.
    12. The Fund is responsible for the lender's title policy and 
endorsements. According to the Bank's Term Sheet, the Fund will pay to 
the Bank $1,000 in fees due at closing and, with respect to the loan, 
an additional document fee of $300.00. In no event, however, will any 
Bank fees exceed $3,000.
    13. The Trustees represent that the fees for title, escrow, 
recordation and the loan are estimated at $1,700, and are not expected 
to be greater than $3,400. According to the Trustees, a similarly 
situated buyer would find such fees reasonable, customary and de 
minimus in connection with the Purchase.

The Appraised Value of the Property

    14. The Fund retained Peter D. Burgess of Burgess-Johnson and 
Associates to serve as the Appraiser and to prepare the Appraisal of 
the Property in a report dated February 14, 2012. The Appraiser has 25 
years of appraisal experience, including performing mine appraisals, 
and is a State Certified Real Estate Instructor in Kansas and Missouri 
and a State Certified General Real Estate

[[Page 76778]]

Appraiser in Kansas (G8) and Missouri (RA1285).
    15. The Appraiser represents that his gross income for this 
assignment was $2,500 or approximately 3.31% of his actual gross 
revenue in 2011 ($2,500/$75,427). The Appraiser represents that the 
Appraisal took three weeks to complete and was a complex undertaking. 
In this regard, in addition to valuing the surface land, the Appraiser 
represents that the assignment involved, among other things, the 
valuation of an extremely irregular and dysfunctional underground 
limestone mine that was created during the World War II period when 
underground mines did not have secondary uses. Accordingly, the 
Appraiser states that these complications explain why his fee for this 
assignment exceeded 2% of his prior year's income.
    16. The Appraiser represents that the surface tract (the Surface 
Tract) meets all zoning requirements for surface uses and that 
underground storage is grandfathered as a legal nonconforming use. The 
utility services are sufficient to support permitted uses and the 
property taxes are in line with comparable Jackson County properties.
    17. The Appraiser used the Sales Comparison Approach to value the 
Property, but applied separate values to the Surface Tract and the 
Mine. With respect to the Surface Tract, the Appraiser reviewed six 
sale transactions in the Kansas Metropolitan Area from August 2007 to 
July 2010 between 800,000 and 4,000,000 square feet (SF) as there were 
no comparable tract sales reported in 2011 and 2012 at the time of the 
Appraisal. The Appraiser represents that he took the location, size and 
shape, and certain site characteristics into account. After reviewing 
these factors, the Appraiser determined that the Surface Tract is 
larger than most urban land sales in Kansas City Metro Area and falls 
in the category of large tracts that sell far below premium prices per 
square foot and below good second tier locations in urban retail or in 
expanding suburban residential communities. The Appraiser then reviewed 
three tracts of land sales that were the most instructive and 
determined that the mean rate of $.72 per SF (PSF) applied to the 
Surface Tract was 1,742,400 SF (40 acres x 43,560 SF). As of February 
2, 2012, the Appraiser determined that the Surface Tract had a fair 
market value of $1,255,000 rounded ($.72 PSF x 1,742,400 SF = 
$1,254,528).\24\
---------------------------------------------------------------------------

    \24\ The Appraiser stated that no survey measurement and 
environmental testing were reported to him. Therefore, he cautioned, 
that the site value is subject to the assumption that there are no 
adverse environmental factors on the Surface Tract.
---------------------------------------------------------------------------

    18. The Appraiser also valued the Mine's usable portion which is 
approximately 20 acres. The Appraiser noted that the Mine is suited for 
storage and underground industrial uses. The Appraiser reviewed nine 
limestone mine sales in the Kansas City Metropolitan area and 
determined that the Mine's value for raw space was $217,800.00 ($.25 
per acre x 20 acres or 43,560 PSF). After taking into account the 
depreciated value of the Mine's improvements such as walls, false 
pillars, concrete floors and asphalt paving worth $296,000, the 
Appraiser determined that the Mine's value was $513,000. Thus, the 
Appraiser determined that the fair market value of the 40 acre Surface 
Tract and the Mine totaled $1,770,000 rounded ($1,255,000 + 513,000 = 
$1,768,000), as of February 2, 2012.

Due Diligence Report on the Mine

    19. Mr. Cope has toured the Mine and the Trustees represent that it 
has been developed for office space and has adequate areas and bays for 
storage and maintaining equipment. The Trustees have also reviewed the 
Report prepared for the Seller in September 2011. With respect to the 
Mine and its potential hazards, the Report discusses a number of 
observations and action items. The Report states that ``considering the 
mining era and limited maintenance, the Mine appears to be in 
relatively good condition with the exception of known instabilities and 
areas that have closely spaced open joints.'' The Trustees represent 
that they acknowledged the Report's findings and will take certain 
specified actions as noted in the Report which include:
     Investigating alternatives for long-term access to the 
Mine because the only Mine entrance is located near an unstable portion 
of the Mine.
     Taking remedial action in order to improve known 
instabilities in the Mine space to ensure long-term performance.
     Requiring, in order to maintain the Mine, regular 
inspections, groundwater control, and roof repairs to use the Mine or 
the ground above it.
     Taking steps to halt any lateral propagation of unstable 
areas in the Mine to maintain the integrity of the stable mine space. 
In the areas where domeouts (mine instabilities) have occurred, the 
Trustees have been advised that backfilling of the Mine space will be 
necessary. Accordingly, the Trustees will have semi-annual inspections 
performed on the mine space beneath the Property for purposes of 
evaluating the Mine and any changes in its condition and assessing the 
need for corrective measures.
     Having a geotechnical study conducted for the purpose of 
defining the subsurface soil and bedrock condition above the Mine space 
in the event a training facility is constructed over the Mine space. 
This study would also consider the long-term stability of the Mine and 
how it would interact with an actual training facility.

The Holding Costs of the Property

    20. The Trustees represents that it also considered the costs to 
hold the Property and use it to train apprentices and estimates these 
costs to be $46,100 annually. These costs include taxes ($5,500), 
utilities ($12,000), insurance ($4,850), Mine maintenance ($5,000), and 
finance payments ($18,750). The Trustees represent that the Board has 
discussed the Fund's ability to meet these operating costs with the 
current monthly contributions allocated to the Fund and other 
investment income generated by those contributions. In 2011, the Fund 
had revenue of $390,301 and expenses of $98,394. The Trustees represent 
that the Fund has adequate reserves to cover the acquisition and 
maintenance costs regarding the Purchase, and that it has considered 
its fiduciary responsibility to the Fund, and to the Fund's 
participants and beneficiaries.

Reasons in Support of the Proposed Transaction

    21. Absent an administrative exemption, the proposed transaction 
would violate sections 406(a)(1)(A) and (D) of the Act. The Trustees 
represent that the Board does not have an interest in the Seller, who 
is a party in interest solely by reason of being an employer of 
employees participating in the Fund. The Trustees state that the 
proposed transaction is administratively feasible because it is a one-
time transaction for cash.
    The Trustees state that the proposed transaction would also be 
protective of the rights of the Fund and its participants and 
beneficiaries because the terms and conditions of the proposed 
transaction would be no less favorable to the Fund than those which the 
Fund would receive in an arm's length transaction with an unrelated 
party. Additionally, the Trustees anticipate that the Fund will pay 
routine closing costs of only $1,700.00, and at the most only $3,400, 
for title, escrow, recording and Bank financing fees. The Trustees 
represent that these

[[Page 76779]]

routine closing costs are reasonable and de minimus in connection with 
purchase price of $1,500,000.
    The Trustees state that the proposed transactions would also be in 
the interests of the Fund and its participants and beneficiaries 
because the Fund will pay a purchase price of $1,500,000 instead of the 
Property's appraised value of $1,770,000.
    The Trustees note that the Property is a large piece of real 
property suitable for Fund purposes. The use of Property has the 
support of public officials in both Kansas City, Missouri and 
Independence, Missouri which was a factor in selecting the Property. 
The Property has all-weather storage and work areas that make the cost 
of a warehouse building unnecessary. Additionally, the Property has 
sufficient utility services so that site work costs for utility 
extension would not be incurred. The Property has 40 acres of both flat 
and elevated areas that can be used to train truck drivers. Finally, 
the Trustees represent that if the Fund is unable to complete the 
proposed transaction, it will have to purchase another comparably-sized 
property at a significantly higher price.

Summary

    22. In summary, the Trustees represent that the proposed 
transaction will satisfy the statutory requirements for an exemption 
under section 408(a) of the Act because:
    (a) The terms and conditions of the Purchase will be least as 
favorable to the Fund as those obtainable in an arm's length 
transaction with an unrelated party;
    (b) The Purchase will be a one-time transaction for cash;
    (c) The Fund will pay the lesser of $1,500,000 or the fair market 
value of the Property as of the date of the Purchase, as determined by 
the Appraiser;
    (d) The Fund's fiduciaries will review and approve the methodology 
used by the Appraiser, ensure that such methodology is properly applied 
in determining the fair market value of the Property, and also 
determine whether it is prudent to go forward with the proposed 
transaction; and
    (e) The Fund will pay only reasonable closing costs with respect to 
the Purchase that a similarly situated buyer customarily would pay in a 
similar transaction.

Notice to Interested Parties

    Notice of the proposed exemption will be given to interested 
persons within 14 days of the publication of the notice of proposed 
exemption in the Federal Register. The notice will be given to 
interested persons by first class mail and posted in both the Union 
Hall and the Fund's Web site. Such notice will contain a copy of the 
notice of proposed exemption, as published in the Federal Register, and 
a supplemental statement, as required pursuant to 29 CFR 2570.43(b)(2). 
The supplemental statement will inform interested persons of their 
right to comment on and/or to request a hearing with respect to the 
pending exemption. Written comments and hearing requests are due within 
44 days of the publication of the notice of proposed exemption in the 
Federal Register.
    All comments will be made available to the public. Warning: Do not 
include any personally identifiable information (such as name, address, 
or other contact information) or confidential business information that 
you do not want publicly disclosed. All comments may be posted on the 
Internet and can be retrieved by most Internet search engines.
    For Further Information Contact: Mr. Anh-Viet Ly of the Department, 
telephone (202) 693-8648 (This is not a toll-free number.)

The Coca-Cola Company (TCCC) and Red Re, Inc. (Red Re)(together, the 
Applicants) Located in Atlanta, Georgia and Charleston, SC, 
respectively

[Application No. L-11738]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and in accordance with the 
procedures set forth in 29 CFR part 2570, Subpart B (76 FR 66637, 
66644, October 27, 2011).

Section I. Transactions

    If the proposed exemption is granted, the restrictions of sections 
406(a)(1)(D) and 406(b)of the Act shall not apply to:
    (a) The reinsurance of risks and the receipt of premiums therefrom 
by Red Re, an affiliate of TCCC, as the term ``affiliate'' is defined 
in Section III(a)(1) below, in connection with group term life 
insurance sold by Metropolitan Life Insurance Company or any successor 
insurance company (a Fronting Insurer) to The Coca-Cola Company Health 
and Welfare Benefits Plan (the Actives Plan) to pay for group term life 
insurance benefits under such Actives Plan; and
    (b) the reinsurance of risks and the receipt of premiums therefrom 
by Red Re in connection with accidental death and disability insurance 
(AD&D) sold by a Fronting Insurer to The Coca-Cola Company Retiree 
Benefits Plan (the Retiree Plan) to pay for AD&D benefits under the 
Retiree Plan; provided the conditions set forth in Section II, below, 
are satisfied.\25\
---------------------------------------------------------------------------

    \25\ The Actives Plan and the Retiree Plan are, herein, 
collectively referred to as the ``Plans.''
---------------------------------------------------------------------------

Section II. Conditions

    The relief provided in this proposed exemption is conditioned upon 
adherence to the material facts and representations described herein, 
and as set forth in the application file, and upon compliance with the 
following conditions:
    (a) Red Re--
    (1) Is a party in interest with respect to the Plans by reason of a 
stock or partnership affiliation with TCCC that is described in section 
3(14)(E) or 3(14)(G) of the Act;
    (2) Is licensed to sell insurance or conduct reinsurance operations 
in at least one state as defined in section 3(10) of the Act;
    (3) Has obtained a Certificate of Authority from the Director of 
the Department of Insurance of its domiciliary state (South Carolina), 
which has neither been revoked nor suspended;
    (4)(A) Has undergone and shall continue to undergo an examination 
by an independent certified public accountant for its last completed 
taxable year immediately prior to the taxable year of the reinsurance 
transaction covered by this proposed exemption, if granted; or
    (B) Has undergone a financial examination (within the meaning of 
the law of South Carolina) by the Director of the South Carolina 
Department of Insurance (SCDI) within five (5) years prior to the end 
of the year preceding the year in which such reinsurance transaction 
has occurred; and
    (5) Is licensed to conduct reinsurance transactions by South 
Carolina, whose law requires that an actuarial review of reserves be 
conducted annually by an independent firm of actuaries and reported to 
the appropriate regulatory authority;
    (b) The Plans pay no more than adequate consideration for the 
insurance contracts;
    (c) No commissions are paid by the Plans with respect to the direct 
sale of such contracts or the reinsurance thereof;
    (d) In the initial year of every contract involving Red Re and a 
Fronting Insurer, there will be an immediate and objectively determined 
benefit to participants and beneficiaries of the Plans in the form of 
increased benefits, and such benefits will continue in all

[[Page 76780]]

subsequent years of each contract and in every renewal of each 
contract;
    (e) In the initial year and in subsequent years of coverage 
provided by a Fronting Insurer, the formula used by the Fronting 
Insurer to calculate premiums will be similar to formulae used by other 
insurers providing comparable coverage under similar programs. 
Furthermore, the premium charge calculated in accordance with the 
formula will be reasonable and will be comparable to the premium 
charged by the Fronting Insurer and its competitors with the same or a 
better rating providing the same coverage under comparable programs;
    (f) The Fronting Insurer has a financial strength rating of ``A'' 
or better from A. M. Best Company (A. M. Best). The reinsurance 
arrangement between the Fronting Insurer and Red Re will be indemnity 
insurance only, (i.e., the Fronting Insurer will not be relieved of 
liability to the Plans should Red Re be unable or unwilling to cover 
any liability arising from the reinsurance arrangement);
    (g) The Plans retain an independent, qualified fiduciary or 
successor to such fiduciary, as defined in Section III(c), below, (the 
I/F) to analyze the transactions and to render an opinion that the 
requirements of Section II(a) through (f) and (h) of this proposed 
exemption have been satisfied;
    (h) Participants and beneficiaries in the Plans will receive in 
subsequent years of every contract of reinsurance involving Red Re and 
the Fronting Insurer no less than the immediate and objectively 
determined increased benefits such participant and beneficiary received 
in the initial year of each such contract involving Red Re and the 
Fronting Insurer;
    (i) The I/F will: monitor the transactions proposed herein on 
behalf of the Plans on a continuing basis to ensure such transactions 
remain in the interest of the Plans; take all appropriate actions to 
safeguard the interests of the Plans; and enforce compliance with all 
conditions and obligations imposed on any party dealing with the Plans; 
and
    (j) At the conclusion of the five-year period (the 5-Year Period), 
from January 1, 2013 to December 31, 2017, in which MetLife has 
provided a rate guarantee in connection with the provision to 
participants in the Plans of the group term life insurance and the AD&D 
coverage which is reinsured by Red Re, the I/F will review any renewal 
of the reinsurance of risks and the receipt of premiums therefrom by 
Red Re and must determine that the requirements of this proposed 
exemption and the terms of the benefit enhancements continue to be 
satisfied.
Section III. Definitions
    (a) The term ``affiliate'' of a person includes:
    (1) Any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with 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.
    (b) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (c) For purposes of the proposed exemption, an I/F is a person, or 
a successor to such person, who is not an affiliate of TCCC and:
    (1) Does not have an ownership interest in TCCC, in Red Re, or in 
an affiliate of either;
    (2) Is not a fiduciary with respect to the Plans prior to its 
appointment to serve as the I/F;
    (3) Has acknowledged in writing acceptance of fiduciary 
responsibility and has agreed not to participate in any decision with 
respect to any transaction in which it has an interest that might 
affect its best judgment as a fiduciary; and
    (4) Has appropriate training, experience, and facilities to act on 
behalf of the Plans regarding the subject transactions in accordance 
with the fiduciary duties and responsibilities prescribed by the Act.
    For purposes of this definition of an ``I/F,'' no organization or 
individual may serve as an I/F for any fiscal year if the gross income 
received by such organization or individual (or partnership or 
corporation of which such individual is an officer, director, or 10 
percent or more partner or shareholder) for that fiscal year exceeds 
two percent (2%) of that organization's or individual's annual gross 
income from all sources for the prior fiscal year from TCCC or from Red 
Re, or from an affiliate of either (including amounts received for 
services as I/F under any prohibited transaction exemption granted by 
the Department).
    In addition, no organization or individual who is an I/F, and no 
partnership or corporation of which such organization or individual is 
an officer, director, or 10 percent (10%) or more partner or 
shareholder, may acquire any property from, sell any property to, or 
borrow any funds from TCCC or from Red Re, or from any affiliate of 
either during the period that such organization or individual serves as 
an I/F, and continuing for a period of six (6) months after such 
organization or individual ceases to be the I/F, or negotiates any such 
transaction during the period that such organization or individual 
serves as the I/F.
    In the event a successor I/F is appointed to represent the 
interests of the Plans with respect to the subject transactions, there 
should be no lapse in time between the resignation or termination of 
the former I/F and the appointment of the successor I/F.
    Effective Date: This proposed exemption, if granted, will be 
effective on January 1, 2013.

Summary of Facts and Representations

    1. TCCC, headquartered in Atlanta, Georgia, is the world's largest 
beverage company. TCCC markets four (4) of the world's top five (5) 
non-alcoholic sparkling brands: Coca-Cola, Diet Coke, Sprite, and 
Fanta. In 2011, TCCC employed 146,200 associates worldwide with 
approximately 67,400 associates in the United States. TCCC reported 
revenue of approximately $46.5 billion in 2011. TCCC is a party in 
interest with respect to the Plans, pursuant to section 3(14)(C) of the 
Act, as an employer any of whose employees are covered by the Plans.
    2. Red Re is an insurance company more than 50 percent (50%) owned 
by Coca-Cola Oasis, Inc., a consolidated entity of TCCC. Red Re was 
established on March 14, 2006, and commenced operations in Charleston, 
South Carolina, effective May 1, 2006. Red Re is a party in interest 
with respect to the Plans, pursuant to section 3(14)(G) of the Act, 
because it is a corporation of which 50 percent (50%) or more of the 
combined voting power of all classes of stock entitled to vote is owned 
directly or indirectly held by TCCC, an employer any of whose employees 
are covered by the Plans, as described in section 3(14)(C) of the Act. 
Further, if the subject transactions are entered into, Red Re will 
become a party in interest with respect to the Plans, as a service 
provider, under section 3(14)(B) of the Act.
    3. Red Re currently provides deductible reimbursement policies to 
TCCC for selected automobile liability, product liability, premises 
liability, general liability, workers compensation, and terrorism 
risks. In addition, TCCC's international employee benefits for selected 
countries are reinsured with Red Re. Red Re is subject to regulation by 
the SCDI and is required to maintain $15 million dollars of capital and

[[Page 76781]]

surplus. On April 25, 2006, Red Re was issued a Certificate of 
Authority by the SCDI permitting Red Re to transact the business of a 
captive insurance company by the State of South Carolina. For the 
fiscal years ending December 31, 2010, and December 31, 2011, Red Re 
had total shareholder's equity of $32 million and $20.7 million, 
respectively. It is further represented that Red Re had gross written 
premiums of $114 million, as of December 31, 2011.
    4. The Actives Plan is a welfare benefit plan that provides basic 
and supplemental group term life insurance and supplemental AD&D 
coverage for full-time non-union active employees or regular part-time 
employees working a minimum of thirty (30) hours a week (excluding 
interns, temporary, seasonal, co-op, and leased employees) of TCCC and 
participating affiliates in the United States and Puerto Rico. These 
employees automatically receive the basic coverage and are eligible to 
participate in the supplemental coverage, regardless of age, sex, 
salary range, or position. The Actives Plan had approximately 9,245 
participants, as of July 16, 2012. The Actives Plan is funded through 
insurance and the general assets of TCCC, and as such the Actives Plan 
has no assets set aside for the payment of benefits.
    5. Under the current terms of the Actives Plan, basic group term 
life insurance is available to active employees in multiples of a 
``basic life amount,'' which varies depending on an employee's annual 
earnings. In this regard, the Actives Plan provides basic group term 
life insurance paid for by TCCC equal to one (1) times an employee's 
annual earnings rounded up to the next $25,000 of ``basic life amount'' 
coverage, with a maximum of $300,000 of coverage. For example, 
according to the Summary Plan Description for the group term life 
insurance, effective January 1, 2012, an employee earning less than 
$25,000 per year would have a ``basic life amount'' coverage of 
$25,000, an employee earning between $25,000 and $49,999 per year would 
have ``basic life amount'' coverage of $50,000, and so forth up to the 
maximum of $300,000. As an option, active employees concerned with the 
federal law that places an imputed income on employer-provided life 
insurance in excess of $50,000 may elect to have their ``basic life 
amount'' coverage reduced to a flat $50,000.
    6. The Retiree Plan is a welfare benefit plan that, as described 
below, provides supplemental group term life insurance and supplemental 
AD&D coverage to retirees of TCCC. The Retiree Plan had approximately 
5,260 participants as of July 16, 2012. The Retiree Plan is funded 
through insurance and the general assets of TCCC, and as such the 
Retiree Plan has no assets set aside for the payment of benefits. 
Certain retirees with five (5) years of service who retire on or before 
December 31, 2012, (the Eligible Retiree(s)) may elect basic group term 
life insurance with the premium paid for by TCCC. Such Eligible 
Retirees may continue supplemental group term life insurance until age 
70 by paying the required premium on an after-tax basis. After age 70 
the basic group term life insurance paid for by TCCC is reduced to a 
flat amount depending on the number of years of service of such 
Eligible Retiree. An Eligible Retiree may supplement the group term 
life insurance at age 70 by converting to an individual policy within 
sixty (60) days of the month when coverage ends.
    For those who retired on or after January 1, 1990, a retiree has 
the opportunity: (i) To waive AD&D coverage, (ii) to elect ``retiree 
only'' supplemental AD&D coverage of $50,000 or $100,000, or (iii) to 
elect family supplemental AD&D coverage in amounts based on varying 
percentages of such retiree's individual AD&D coverage. If a retiree 
elects supplemental AD&D coverage, such retiree may continue such AD&D 
coverage until reaching the age of 75 by paying the required premiums 
on an after-tax basis. At age 75, all AD&D coverage ends. AD&D coverage 
cannot be converted to an individual policy.
    7. Life Insurance Company of America (LINA) is the current direct 
insurer for the Plans' group term life insurance and AD&D coverage. The 
premiums paid for the group term life insurance in the Actives Plan for 
basic coverage and supplemental coverage in 2011 was approximately 
$565,000 and $2,030,000, respectively. The premiums paid for the group 
term life insurance coverage in the Retiree Plan for basic coverage and 
supplemental coverage in 2011 was approximately $2,145,000 and 
$816,000, respectively.
    8. TCCC and Red Re (the Applicants) represent that TCCC has reached 
an agreement with MetLife for MetLife, rather than LINA, to serve as 
the direct insurer for the Plans. The Applicants state that this 
agreement is for a five year period, beginning on January 1, 2013, 
during which MetLife has provided a rate guarantee (the 5-Year Period). 
The Applicants represent that MetLife is a leading global provider of 
insurance, annuities, and employee benefit programs. MetLife is 
headquartered in New York, New York, and is subject to the approval of 
the New York State Insurance Department (NYSID).
    9. The Applicants state that, beginning on January 1, 2013, MetLife 
will provide direct insurance for the group term life insurance and 
AD&D coverage offered under the Plans. In this regard, TCCC intends to 
insure the basic and supplemental group term life insurance and AD&D 
coverage offered to the Plans with MetLife. MetLife has agreed to a 
rate guarantee for the 5-Year Period from January 1, 2013 through 
December 31, 2017. The Applicants represent that the proposed change in 
insurance carriers from LINA to MetLife will reduce the employees' 
overall costs for the supplemental benefits by $932,000. In this 
regard, compared with the approximately $3 million in premiums paid by 
participants in 2011 for supplemental coverage, the $932,000 premium 
reduction will result in a 31% decrease in participant-paid premiums 
for supplemental coverage. According to the Applicants, under the 
proposed arrangement with MetLife and Red Re, TCCC's premium for basic 
group term life insurance would be reduced by $46,000.
    10. If this proposed exemption is granted, MetLife will contract 
with Red Re to reinsure 90 percent (90%) of the risks associated with 
such coverage (or 100 percent (100%) of such risks if approved by the 
NYSID).\26\ The Applicants state that MetLife's reinsurance agreement 
with Red Re (the Reinsurance Agreement) will be ``indemnity only''---
that is, MetLife will not be relieved of its liability for benefits 
under the Plans, if Red Re is unable or unwilling to satisfy the 
liabilities arising from the reinsurance arrangement.
---------------------------------------------------------------------------

    \26\ It is represented that New York law requires insurers to 
retain 10 percent (10%) of the risk in a reinsurance transaction, 
but MetLife will seek approval from the Commissioner of Insurance 
for New York to reinsure 100 percent (100%) of this risk.
---------------------------------------------------------------------------

    11. As Red Re is a party in interest with respect to the Plans, the 
reinsurance of the risks associated with the group term life insurance 
and AD&D coverage offered to the Plans by MetLife would result in the 
indirect transfer to Red Re of the Plans' premium payments, which are 
plan assets. Section 406(a)(1)(D) of the Act prohibits the transfer to, 
or use by or for the benefit of, a party in interest, of any assets of 
a plan. Accordingly, this proposed exemption, if granted, would provide 
relief from the prohibition set forth in section 406(a)(1)(D) of the 
Act for the reinsurance of risks, and the receipt of premiums therefrom 
by Red Re, in connection with group term life

[[Page 76782]]

insurance and AD&D coverage. In addition, because the reinsurance by 
Red Re of the group term life insurance and the AD&D coverage is 
contemplated by TCCC at the time that the Plans are obtaining insurance 
coverage from MetLife, such transactions could constitute violations by 
TCCC of sections 406(b) of the Act. In this regard, section 406(b)(1) 
of the Act prohibits a fiduciary from dealing with the assets of a plan 
in his own interest or for his own account, 406(b)(2) of the Act 
prohibits a fiduciary from acting in a transaction involving plan 
assets on behalf of a party whose interests are adverse to those of the 
plan, and section 406(b)(3) of the Act prohibits a fiduciary from 
receiving any consideration for his own personal account from any party 
dealing with a plan in connection with a transaction involving plan 
assets.
    12. The Applicants represent that if Red Re enters into the 
Reinsurance Agreement, all eligible non-union active employee 
participants (employees) in the Actives Plan will receive an 
enhancement in their basic group term life insurance. In this regard, 
the ``basic life amount'' under the group term life insurance will 
increase to an amount equal to such employee's basic annual earnings 
rounded up to the next higher $1,000 multiplied by 1.5 times, up to a 
maximum benefit of $2,000,000. TCCC has further committed that 
employees with basic annual earnings below $25,000 will receive group 
term life insurance with a minimum ``basic life amount'' of $30,000, 
and that employees with basic annual earnings of $25,000 to $39,999 
will receive group term life insurance with a ``basic life amount'' of 
$60,000. An employee will receive group term life insurance in the 
amount of his or her current ``basic life amount'' times 1.2. As such, 
it is represented that, if this proposed exemption is granted, all 
employees will receive an increase in their employer-paid group term 
life insurance ``basic life amount'' of coverage.
    13. The Applicants represent further that if Red Re enters into the 
Reinsurance Agreement, TCCC will provide Eligible Retirees in the 
Retiree Plan employer-paid $10,000 AD&D coverage. In this regard, at 
the present time, Eligible Retirees are offered AD&D coverage at their 
own expense. The Applicants note that group term life insurance 
coverage currently provided to Eligible Retirees will not change under 
the proposed arrangement.
    14. The Applicants state that the two enhancements described above 
(the Two Enhancements) will impose a financial burden on the sponsor of 
the Actives Plan and the Retiree Plan. In this regard, TCCC will bear 
the entire cost of these enhancements, which will benefit all active 
employees currently covered by the Actives Plan (with regard to the 
increased group term life insurance) and will benefit all Eligible 
Retirees currently covered by the Retiree Plan (with regard to the 
employer-paid AD&D coverage in the amount of $10,000). The incremental 
annual premium on the coverage under the group term life insurance is 
estimated to cost TCCC an additional $212,000 annually (from $518,000 
to $730,000), and providing Eligible Retirees with the additional AD&D 
coverage will entail a $23,000 annual premium cost for TCCC.
    15. The Applicants note that certain additional benefits will be 
provided by MetLife in anticipation of a receipt of the exemptive 
relief described herein. Specifically, effective January 1, 2012, 
MetLife will provide the following additional benefits to any 
participant, active or retired, who elects to purchase supplemental 
coverage: \27\ The supplemental group term life insurance will include 
a free in-person will preparation and probate service through Hyatt 
Legal; the supplemental group term life insurance and the AD&D coverage 
will be expanded and the maximum overall coverage level (basic plus 
supplemental) will increase to $2 million; and the following benefits 
would be included in the voluntary supplemental AD&D coverage provided 
by MetLife:
---------------------------------------------------------------------------

    \27\ According to the Applicants, all eligible active 
participants in the Actives Plan will have the opportunity to 
purchase supplemental coverage, and all Eligible Retirees in the 
Retiree Plan may continue to participate in the supplemental 
coverage by paying the required premium until age seventy (70).
---------------------------------------------------------------------------

     Seat belt benefit-10 percent (10%) of full amount (minimum 
$1,000-maximum $25,000).
     Air bag use benefit-5 percent (5%) of the full amount 
(minimum $1,000-maximum $10,000).
     Child care benefit-actual charges up to $5,000 annually 
for four (4) consecutive years (maximum 5 percent (5%) of full amount)
     Child education benefit-actual charges $10,000 annually 
for four (4) consecutive years (maximum 20 percent (20%) of full 
amount).
     Spouse education benefit--actual charges up to $10,000 
annually for three (3) consecutive years (maximum 5 percent (5%) of 
full amount).
     Common carrier benefit--100 percent (100%) of the full 
amount.
     Therapeutic counseling benefit-10 percent (10%) of the 
full amount (maximum $10,000).
     Reparation of remains benefit-actual charges up to $5,000.
    According to the Applicants, while these additional benefits will 
be available on January 1, 2013, Coca Cola has retained the right to 
discontinue such benefits at any time if this proposed exemption is not 
granted.
    16. In connection with this exemption request, Evercore Trust 
Company (Evercore) has been engaged to act as the independent fiduciary 
(the I/F) on behalf of the Plans for the purpose of evaluating, and if 
appropriate, approving the subject transactions. In this regard, 
Evercore is responsible for conducting a due diligence review and 
analysis of the proposed transactions and for providing a written 
opinion as to whether the arrangement complies with the Department's 
requirements for an administrative exemption. Evercore certifies that 
it is qualified to serve as the I/F in that, among other things, 
Evercore has served as an independent fiduciary for employee benefit 
plans in connection with numerous requests for exemptions over the past 
three (3) years. Additionally, the personnel who comprise Evercore have 
served (under the auspices of U.S. Trust Company, N.A.) as an 
independent fiduciary for employee benefit plans in connection with 
numerous requests for exemptions over the past twenty (20) years. 
Evercore represents that it is independent in that it does not have and 
has not previously had, any relationship with any party in interest 
(including any affiliates thereof) engaging in the proposed 
transactions.
    17. In connection with the transactions that are the subject of 
this proposed exemption, Evercore, among other things: reviewed a draft 
of TCCC and Red Re's request for an administrative exemption from the 
Department; conferred with TCCC's outside counsel, the Groom Law Group, 
to discuss the proposed transactions and the Plans; conducted such 
other due diligence reviews as were deemed necessary. In addition, 
Evercore retained Robert L. Northrop (Mr. Northrop) of Northrop 
Consulting Services, LLC, an experienced insurance consultant, to 
review the proposed transactions and provide a written report of his 
determinations (the Report). Evercore and Mr. Northrop considered the 
premiums to be paid by the Plans for the proposed coverage, and 
determined that this premium is comparable to the premiums that would 
have been charged by an insurer of its competitors, with the same of 
better rating, providing similar coverage under comparable programs. 
The premium rate agreed to with MetLife includes a percentage 
allocation for non-claims

[[Page 76783]]

expenses, which expenses here include fronting fees and expenses and 
taxes. Mr. Northrop examined these expenses, and determined that the 
expenses are within an expected range. In particular, Mr. Northrop 
determined that 5.36% of premiums will be retained by MetLife to cover 
MetLife's and Red Re's expenses and profit. Mr. Northrop opined that a 
reasonable net administrative expense (excluding taxes) would be 
between 5 percent (5%) and 8 percent (8%) of premiums. Because the 
premium was agreed to as a result of a competitive bidding process, and 
the expenses and profits paid by the Plans are within the expected 
range, Mr. Northrop determined and Evercore concurred that the Plans 
will pay no more than adequate consideration for the insurance. Mr. 
Northrop advised that no commission be paid by the Plans in connection 
with the subject transactions. As of the date of Mr. Northrop's Report, 
A.M. Best Company rated MetLife A\+\ (Excellent), and Standard and 
Poor's rated MetLife AA- (Stable).
    19. Evercore has determined that the enhancements described above 
will result in an immediate and quantifiable substantial increase in 
benefits to all participants of the Plans, and an immediate and 
substantial decrease in premiums to the participants and beneficiaries 
of the Plans. Evercore opines that the enhancements will be useful to 
the participants in the Actives Plan and the Retirees Plan, even if 
participants do not get sick, become disabled, or die, because such 
programs provide security to participants and their families (i.e., 
beneficiaries) against such contingencies that could have a devastating 
impact on such participants and beneficiaries were such contingencies 
to arise. In addition, in the opinion of Evercore, the enhancements 
will be in the interest of the participants in the Actives Plan and in 
the Retiree Plan, because the enhancements will provide additional 
benefits at no incremental cost to participants. It is Evercore's 
further view that the proposed transactions are: protective of the 
Plans, by adding a layer of insurance guarantee through the reinsurance 
arrangement with Red Re; and meet the requirements of obtaining an 
administrative exemption from the Department.
    20. The Applicants represent that the proposed exemption is 
administratively feasible because the reinsurance of the Plans' risks 
under the terms of the group term life insurance and AD&D coverage will 
be, among other things, subject to review by an I/F, which can be 
audited. TCCC has and will bear the cost of the exemption application 
and of notifying the interested persons. Further, the proposed 
exemption will not require continued monitoring or other involvement by 
the Department. 21. The Applicants also represent that the proposed 
transactions are in the interest of the Plans. In this regard, the 
Actives Plan and the Retiree Plan will incur no cost for the benefit 
enhancements, as TCC will pay 100% of the premiums for basic group term 
life insurance under the Actives Plan and will pay 100% of the premiums 
for the $10,000 AD&D coverage under the Retiree Plan. Further, the 
Plans will pay no more than adequate consideration for the insurance 
contracts with MetLife, and the proposed change in insurance carriers 
from LINA to MetLife will reduce the employees' overall costs for the 
supplemental benefits by $932,000. Compared with the approximately $3 
million in premiums paid by participants in 2011 for supplemental 
coverage, the $932,000 premium reduction will result in a 31% decrease 
in participant-paid premiums for supplemental coverage.
    22. The Applicants represent that the proposed exemption is 
protective of the rights of the participants and beneficiaries of the 
Plans, because the exemption will require the review and approval of an 
I/F, at TCCC's expense. Specifically, the proposed exemption, if 
granted, will require that the I/F analyze the subject transactions and 
render an opinion regarding whether certain of the conditions of the 
exemption were satisfied, including that: the Plans pay no more than 
adequate consideration for the insurance contracts; the Plans pay no 
commissions with respect to the direct sale of such contracts or the 
reinsurance thereof; in the initial year of every contract involving 
Red Re and a Fronting Insurer, there is an immediate and objectively 
determined benefit to participants and beneficiaries of the Plans in 
the form of increased benefits, and such benefits will continue in all 
subsequent years of each contract and in every renewal of each 
contract; in the initial year and in subsequent years of coverage 
provided by a Fronting Insurer, the formula used by the Fronting 
Insurer to calculate premiums is similar to formulae used by other 
insurers providing comparable coverage under similar programs. 
Furthermore, the premium charge calculated in accordance with the 
formula will be reasonable and will be comparable to the premium 
charged by the Fronting Insurer and its competitors with the same or a 
better rating providing the same coverage under comparable programs. 
The Applicants state that if exemptive relief is granted any Fronting 
Insurer have a financial strength rating of ``A'' or better from A. M. 
Best Company (A. M. Best), and the reinsurance arrangement between the 
Fronting Insurer and Red Re will be indemnity insurance only. Finally 
the Applicants note that participants and beneficiaries in the Plans 
will receive in subsequent years of every contract of reinsurance 
involving Red Re and the Fronting Insurer no less than the immediate 
and objectively determined increased benefits such participant and 
beneficiary received in the initial year of each such contract 
involving Red Re and the Fronting Insurer.
    23. In summary, the Applicants represent that the proposed 
reinsurance transactions will meet the criteria of section 408(a) of 
the Act since, among other things:
    (a) The Plans will pay no more than adequate consideration for the 
insurance contracts;
    (b) No commissions will be paid by the Plans with respect to the 
direct sale of such contracts or the reinsurance thereof;
    (c) In the initial year of every contract involving Red Re and a 
Fronting Insurer, there will be an immediate and objectively determined 
benefit to participants and beneficiaries of the Plans in the form of 
increased benefits, and such benefits will continue in all subsequent 
years of each contract and in every renewal of each contract;
    (d) In the initial year and in subsequent years of coverage 
provided by a Fronting Insurer, the formula used by the Fronting 
Insurer to calculate premiums will be similar to formulae used by other 
insurers providing comparable coverage under similar programs. 
Furthermore, the premium charge calculated in accordance with the 
formula will be reasonable and will be comparable to the premium 
charged by the Fronting Insurer and its competitors with the same or a 
better rating providing the same coverage under comparable programs;
    (e) The Fronting Insurer has a financial strength rating of ``A'' 
or better from A. M. Best Company (A. M. Best). The reinsurance 
arrangement between the Fronting Insurer and Red Re will be indemnity 
insurance only, (i.e., the Fronting Insurer will not be relieved of 
liability to the Plans should Red Re be unable or unwilling to cover 
any liability arising from the reinsurance arrangement);
    (f) The Plans retain an independent, qualified fiduciary or 
successor to such fiduciary, as defined in Section III (c), below, (the 
I/F) to analyze the

[[Page 76784]]

transactions and to render an opinion that certain relevant 
requirements of the proposed exemption, if granted, have been 
satisfied;
    (g) Participants and beneficiaries in the Plans will receive in 
subsequent years of every contract of reinsurance involving Red Re and 
the Fronting Insurer no less than the immediate and objectively 
determined increased benefits such participant and beneficiary received 
in the initial year of each such contract involving Red Re and the 
Fronting Insurer;
    (h) The I/F will: monitor the transactions proposed herein on 
behalf of the Plans on a continuing basis to ensure such transactions 
remain in the interest of the Plans; take all appropriate actions to 
safeguard the interests of the Plans; and enforce compliance with all 
conditions and obligations imposed on any party dealing with the Plans; 
and
    (i) At the conclusion of the 5-Year Period from January 1, 2013 to 
December 31, 2017, the I/F will review any renewal of the reinsurance 
of risks and the receipt of premiums therefrom by Red Re and will 
determine whether the requirements of this proposed exemption and the 
terms of the benefit enhancements, as described herein, continue to be 
satisfied.

Notice to Interested Persons

    It is represented that TCCC shall provide notification of the 
publication of the Notice of Proposed Exemption (the Notice) in the 
Federal Register to all interested persons via first class mail to each 
such interested person's most recent address maintained in the records 
of the administrator of the Plans. Such notification will contain a 
copy of the Notice, as it appears in the Federal Register on the date 
of publication, plus a copy of the Supplemental Statement, as required 
pursuant to 29 CFR 2570.43(a)(2) which will advise all interested 
persons of their right to comment and to request a hearing. TCCC will 
provide such notification to all such interested persons within five 
(5) business days of the date of publication of the Notice in the 
Federal Register. All written comments and/or requests for a hearing 
must be received by the Department from interested person no later than 
35 days after publication of the Notice in the Federal Register.
    All comments will be made available to the public. Warning: Do not 
include any personally identifiable information (such as name, address, 
or other contact information) or confidential business information that 
you do not want publicly disclosed. All comments may be posted on the 
Internet and can be retrieved by most Internet search engines.
    Further Information Contact: Angelena C. Le Blanc of the 
Department, telephone (202) 693-8551 (This is not a toll-free number.)

Silchester International Investors LLP (Silchester or the Applicant) 
Located in London, England

[Application Number D-11671]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Employee Retirement Income Security 
Act of 1974 (ERISA or the Act) and section 4975(c)(2) of the Internal 
Revenue Code of 1986, as amended (the Code), and in accordance with the 
procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 
32847, August 10, 1990).\28\
---------------------------------------------------------------------------

    \28\ For purposes of this proposed exemption, references to 
section 406 of ERISA should be read to refer as well to the 
corresponding provisions of section 4975 of the Code.
---------------------------------------------------------------------------

Section I. Proposed Transactions
    If the proposed exemption is granted, the restrictions of section 
406(a)(1)(A), 406(a)(1)(D), and section 406(b)(2) of ERISA, and the 
sanctions resulting from the application of section 4975 of the Code, 
by reason of section 4975(c)(1)(A) and section 4975(c)(1)(D) of the 
Code, shall not apply to the cross trading of securities (the cross 
trades, or the transactions) between various Accounts managed by 
Silchester, where at least one of the Accounts involved in the cross 
trade is an ERISA Account, if the conditions set forth in section II 
have been met:
Section II. Conditions
    (a) Each cross trade is a purchase or sale of securities by an 
ERISA Account for no consideration other than cash payment against 
prompt delivery of a security for which market quotations are readily 
available.
    (b) A cross trade may only be effected on the first business date 
of the month.
    (c) Each cross trade is effected at a price equal to the security's 
``independent current market price'' (within the meaning of section 
270.17a-7(b) of Title 17, Code of Federal Regulations) on the business 
date that immediately precedes the first business date of the month on 
which the cross trade occurs.
    (d) No brokerage commission, fees or other remuneration is paid in 
connection with a cross trade involving an ERISA Account. 
Notwithstanding the above, customary transfer fees or brokerage fees 
dictated by local market restrictions may be applicable, the fact of 
which is disclosed in advance to an Independent Fiduciary. In the event 
local market restrictions require the use of a broker-dealer, and only 
in such event, broker-dealers that are not Affiliates of Silchester or 
the trustee of any Account that is a commingled fund will be used to 
execute the transaction, and no more than reasonable compensation will 
be paid to such unaffiliated broker-dealer to execute the cross trade. 
In any event, neither Silchester nor the trustee of any ERISA Account 
will receive a commission, fee, or other remuneration directly or 
indirectly from an ERISA Account in connection with a cross trade 
involving an ERISA Account (provided that the trustee of an Account may 
be expected to receive remuneration on foreign exchange transactions in 
the ordinary course that would be received irrespective of whether the 
trade was a cross trade or if the securities were sold in the market).
    (e) Prior to engaging in any cross trade for an ERISA Account or at 
the inception of any new relationship between Silchester and a Plan, 
Silchester shall deliver to the Independent Fiduciary (i) a written 
disclosure regarding the conditions under which cross trades may take 
place (which disclosure will be separate from any other agreement or 
disclosure in respect of the ERISA Account, including the Policies and 
Procedures); (ii) a written copy of the Policies and Procedures; and 
(iii) written instructions (via email correspondence or otherwise) 
directing the Independent Fiduciary to give appropriate consideration 
to: (A) The responsibilities, obligations and duties imposed upon 
fiduciaries by Part 4 of Title I of the Act, (B) whether the terms of 
the cross trades are fair to the Plan and its participants and 
beneficiaries, and to the ERISA Account, and are comparable to, and no 
less favorable than, terms obtainable at arm's-length between 
unaffiliated parties, and (C) whether the cross trades are in the best 
interest of the Plan and its participants and beneficiaries and of the 
ERISA Account. The receipt of the instructions described in clause 
(iii) must be acknowledged in writing (via email correspondence or 
otherwise) by the Independent Fiduciary.
    (f) Prior to engaging in any cross trade for an ERISA Account, 
Silchester must receive authorization from the Independent Fiduciary of 
such ERISA Account to engage in cross trades involving the ERISA 
Account at Silchester's discretion, which

[[Page 76785]]

authorization must be provided in a written document in advance of any 
such cross trades, and must be separate from any other written 
agreement or disclosure between Silchester and the ERISA Account or 
Plan, as applicable. Such authorization will only be effective if the 
Independent Fiduciary has already received the disclosures described in 
paragraph (e) above.
    (g) The Independent Fiduciary shall represent, in its authorization 
of participation for an ERISA Account, that it has the requisite 
knowledge and experience in financial and business matters to be 
capable of evaluating the merits and risks of investing in the ERISA 
Account and to be capable of protecting the Plan's interests in 
connection with the investment or that it has obtained expert advice 
that allows it to adequately evaluate its investment in the ERISA 
Account. If such Independent Fiduciary cannot make the foregoing 
representations, then the authorization described herein will not be 
effective.
    (h) Both on an annual basis and each time Silchester provides 
notice to the Independent Fiduciary in writing that a new fund or new 
Separately Managed Account may engage in cross trades, a designated 
representative of Silchester will advise each such Independent 
Fiduciary in writing that it can revoke the authorization described in 
paragraph (f) at any time in writing by withdrawing from the ERISA 
Account (or in the case of an ERISA Account that is a Separately 
Managed Account, by written notice to the Applicant).
    (i) On a quarterly basis, Silchester will provide (or cause to be 
provided) to each Independent Fiduciary a written report detailing all 
cross trades in which the ERISA Account participated during such 
quarter, including the following information, as applicable: (i) The 
identity of each security bought or sold; (ii) the number of shares or 
units traded; (iii) the Accounts involved in the cross trade; and (iv) 
the trade price and the total U.S. dollar value of each security 
involved in the cross trade and the method used to establish the trade 
price. The quarterly report will be provided to the Independent 
Fiduciary prior to the end of the next following quarter.
    (j) Silchester will not base its fee schedule on a Plan's consent 
to cross trading, nor is any other service (other than the investment 
opportunities and cost savings available through a cross trade) 
conditioned on the Plan's consent.
    (k) Silchester adopts, and cross trades will be effected in 
accordance with, the Policies and Procedures, which will be made 
further available to an Independent Fiduciary upon request.
    (l) A member of Silchester's compliance group reviews cross trades 
within 10 business days of the cross trades to confirm compliance with 
the Policies and Procedures and report to the compliance group 
regarding such member's findings, and Silchester designates an 
individual member of its compliance group to be responsible for 
annually reviewing a sampling of each ERISA Account's cross trades that 
is sufficient in size and nature to determine compliance with the 
Policies and Procedures described herein with respect to each such 
ERISA Account and, following such review, such individual shall issue 
an annual written report no later than 90 calendar days following the 
end of the ERISA Account's fiscal year to which it relates, signed 
under penalty of perjury, to each Independent Fiduciary describing the 
actions performed during the course of the review, the level of such 
compliance, and any specific instances of non-compliance.
    (m) An Independent Auditor conducts an Exemption Audit on an annual 
basis, the audit period for which will be the ERISA Account's fiscal 
year. Following completion of the Exemption Audit, the Independent 
Auditor shall issue a written report to Silchester (with copies thereof 
delivered to each Independent Fiduciary) presenting its specific 
findings regarding the level of compliance with: (1) the Policies and 
Procedures and (2) the objective requirements of the proposed 
exemption, if granted. The written report shall also contain the 
Independent Auditor's overall opinion regarding whether Silchester's 
program complied with: (1) the Policies and Procedures and (2) the 
objective requirements of the proposed exemption, if granted. The 
Exemption Audit and the written report must be completed within six 
months following the end of the fiscal year to which the Exemption 
Audit relates.
    (n) The ERISA Account has at least U.S. $100 million in assets.
    (o) Each underlying investor in a commingled fund ERISA Account and 
each ERISA Account that is a Separately Managed Account shall represent 
in writing (which representation is deemed to be repeated upon each 
subsequent investment in such ERISA Account) that it is a ``qualified 
purchaser,'' as that term is defined in section 2(a)(51)(A) of the 
Investment Company Act of 1940, as amended.
    (p) Silchester will conduct cross trades involving an ERISA Account 
only when triggered by contributions or withdrawals initiated by 
investors in such ERISA Account where:
    (1) Contributions from one Account can be matched against 
withdrawals from another Account and the confirmed net contributions/
withdrawals (as the case may be) from the ERISA Account exceed U.S. $10 
million or 10 basis points or 0.1% of the value of the ERISA Account 
(whichever is less); and
    (2) The ERISA Account's forecasted residual cash balance when 
adjusted for month-end cash flows after the cross trade will be within 
50 basis points or 0.5% of the cash weightings of each such other 
Account.
    (q) Silchester will not include an ERISA Account in a cross trade 
during any period in which the weightings of 14 or more securities in 
the ERISA Account individually differ by more than 50 basis points from 
the weightings of the same securities in the other Accounts; and none 
of the circumstances under which different weightings across the funds 
may arise or increase will be the result of any discretionary or 
opportunistic actions by Silchester.
    (r) The U.S. dollar amount determined for the cross trade will be 
prorated across all of the securities eligible for the cross trade in 
each of the Accounts, based on each Account's relative weighting of 
each security included in the cross trade, subject to the restrictions 
and/or exclusions set forth in the Policies and Procedures.
    (s) No cross trades will be conducted between an ERISA Account and 
any Account in which Silchester and/or its Affiliates (together or 
separately) own 10% or more of the outstanding units in such Account in 
the aggregate.
    (t) Silchester maintains or causes to be maintained for a period of 
six years from the date of any cross trade such records as are 
necessary to enable the persons described in paragraph (u)(i) below to 
determine whether the conditions of this proposed exemption, if 
granted, have been met, provided that (i) a separate prohibited 
transaction will not be considered to have occurred if, due to 
circumstances beyond the control of Silchester, the records are lost or 
destroyed prior to the end of the six-year period, and (ii) no party in 
interest other than Silchester shall be subject to a civil penalty that 
may be assessed under section 502(i) of the Act or the taxes imposed by 
section 4975(a) and (b) of the Code, if such records are not 
maintained, or are not available for examination as required by 
paragraph (u)(i) below.
    (u)(i) Except as provided below in paragraph (u)(ii), and 
notwithstanding

[[Page 76786]]

any provisions of subsections (a)(2) and (b) of section 504 of the Act, 
the records referred to above in paragraph (t) are unconditionally 
available at their customary location for examination during normal 
business hours by:
    (A) Any duly authorized employee or representative of the 
Department,
    (B) Any Independent Fiduciary, Plan investing in an Account, or 
such Plan's designated representative, and
    (C) The Independent Auditor; and
    (ii) None of the persons described above in paragraphs (u)(i)(B)-
(C) shall be authorized to examine trade secrets of Silchester, or 
commercial or financial information which is privileged or 
confidential, and should Silchester refuse to disclose information on 
the basis that such information is exempt from disclosure, Silchester 
shall, by the close of the thirtieth (30th) day following the request, 
provide a written notice advising that person of the reasons for the 
refusal and that the Department may request such information.
Section III. Definitions
    (a) The term ``Account'' is a group trust, a commingled fund, or a 
Separately Managed Account, holding assets over which the Applicant has 
discretion.
    (b) The term ``Affiliate'' of a person includes:
    (1) Any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with, the person;
    (2) Any officer, director, employee, relative, or partner of the 
person; or
    (3) Any corporation or partnership of which such person is an 
officer.
    (c) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (d) The term ``ERISA Account'' means an Account the assets of which 
are ``plan assets'' within the meaning of section 3(42) of the Act and 
29 CFR 2510.3-101, as amended.
    (e) The term ``Exemption Audit'' means an engagement with an 
Independent Auditor that consists of the following:
    (1) A review of the Policies and Procedures for consistency with 
each of the objective requirements of this proposed exemption, if 
granted;
    (2) A test of a sample of the ERISA Account's cross trades during 
the audit period that is sufficient in size and nature to afford the 
Independent Auditor a reasonable basis:
    (A) To make specific findings regarding whether the ERISA Account's 
cross trades are in compliance with: (i) the Policies and Procedures; 
and (ii) the objective requirements of this proposed exemption, if 
granted. The findings will specifically address the pro rata 
calculation for a cross trade and will ensure that the exclusions set 
forth in the Policies and Procedures have been applied on a reasonable 
and consistent basis; and
    (B) To render an overall opinion regarding the level of compliance 
with the Policies and Procedures and the objective requirements of the 
proposed exemption, if granted.
    (3) Issuance of a written report describing the actions performed 
by the Independent Auditor during the course of its review in 
connection with the Exemption Audit and the Independent Auditor's 
findings with respect thereto.
    (f) The term ``Independent Auditor'' means an auditor with 
appropriate technical training or experience and proficiency with 
ERISA's fiduciary responsibility provisions, capable of issuing the 
written report required in connection with the Exemption Audit, that 
derives less than 5% of its annual gross revenue from Silchester, and 
so represents the foregoing in writing.
    (g) The term ``Independent Fiduciary'' means a plan fiduciary for 
each Plan investor in a commingled fund ERISA Account or, in the case 
of an ERISA Account that is a Separately Managed Account, the plan 
fiduciary for such Separately Managed Account, provided that in either 
case such plan fiduciary is not Silchester or any Affiliate of 
Silchester and has no interest in the subject transactions beyond the 
interest of such Plan.
    (h) The term ``Plan'' means an employee benefit plan described in 
section 3(3) of the Act or a plan described in section 4975(e)(1) of 
the Code.
    (i) The term ``Policies and Procedures'' means written cross 
trading policies and procedures adopted by Silchester that are designed 
to assure compliance with the conditions for the proposed exemption, if 
granted, and provide clear guidelines regarding how and under what 
circumstances cross trades will be effected by Silchester on behalf of 
an ERISA Account, including (but not limited to) descriptions of (i) 
triggering transactions for identifying when a cross trade is 
available, (ii) cross trade procedures that must be followed when 
implementing a cross trade, (iii) pricing of securities included in a 
cross trade, (iv) reporting of cross trade transactions and related 
information, and the (v) Exemption Audit.
    (j) The term ``Separately Managed Account'' means a separately 
managed account over which the Applicant has discretion and either: (1) 
such separately managed account is not subject to Title I of the Act or 
section 4975 of the Code or (2) the Plan whose assets are held in the 
separately managed account has assets of at least U.S. $100 million, 
provided that if the assets of a Plan whose assets are held in the 
separately managed account are invested in a master trust containing 
the assets of Plans maintained by employers in the same controlled 
group, then such master trust has assets of at least U.S. $100 million.

Summary of Facts and Representations

Background

    1. Silchester International Investors LLP (the Applicant or 
Silchester) is a private investment management group established in 
1994, specializing in international investment, primarily on behalf of 
investors based in the United States. The Applicant is registered as an 
investment adviser with the U.S. Securities and Exchange Commission 
(SEC) and is authorized and regulated by the Financial Services 
Authority (FSA) in the United Kingdom. The Applicant states that 
Silchester invests client assets primarily in publicly traded non-U.S. 
equity securities and benchmarks its client portfolios against the MSCI 
EAFE (Europe, Australasia, Far East) Index, inclusive of income and net 
of foreign withholding taxes (the MSCI EAFE Index). The Applicant 
represents that Silchester had approximately $22.5 billion of 
discretionary client assets under its management, as of May 31, 2012.
    2. According to the Applicant, Silchester has one primary 
investment program, International Value Equity, and Silchester 
currently offers its international investment program through five 
privately offered commingled funds (referred to generally as the funds 
or the commingled funds).\29\ The Applicant states that the governing 
documents for the commingled funds do not allow them to borrow, open a 
margin account, engage in securities lending, or engage in short sales. 
Furthermore, the Applicant notes that it does not charge incentive or 
performance fees in connection with its management of the commingled 
funds.

[[Page 76787]]

The Applicant describes these commingled funds in more detail as 
follows:
---------------------------------------------------------------------------

    \29\ The Applicant states that Silchester has managed the 
commingled funds since November 1, 2010 and, prior to that, 
Silchester International Investors Limited (SII Limited) managed the 
commingled funds. The Applicant states that SII Limited, which was 
renamed Silchester Partners Limited subsequent to the filing of the 
exemption application, currently owns 96.35% of the capital of the 
Applicant and is expected to own in excess of 90% of the Applicant's 
capital in future years.
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    A. The Silchester International Investors International Value 
Equity Group Trust (the Group Trust), a commingled fund established to 
qualify as a ``group trust'' under applicable Internal Revenue Service 
rules and regulations. The Group Trust was established to provide for 
the collective investment and reinvestment of certain assets of 
employee benefit plans described in section 3(3) of the Employee 
Retirement Income Security Act of 1974 (ERISA or the Act), or plans 
described in section 4975(e)(1) of the Internal Revenue Code of 1986, 
as amended (the Code) (Plans, or individually, a Plan) and other 
entities eligible to invest in a group trust under Internal Revenue 
Service Revenue Ruling 81-100,\30\ as may be amended, supplemented or 
modified from time to time. The Group Trust is currently the only 
commingled fund the assets of which constitute ``Plan Assets'' within 
the meaning of Section 3(42) of the Act and 29 CFR 2510.3-101, as 
amended. As of May 31, 2012, the Group Trust held net assets worth 
approximately $5.86 billion.
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    \30\ 26 CFR 1.501(a)-1 (March 30, 1981).
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    B. The Silchester International Investors International Value 
Equity Trust (the Business Trust), a commingled fund generally for 
U.S., non-ERISA tax-exempt investors. The Business Trust is currently 
structured as a Delaware Statutory Trust. Plans are permitted to invest 
in the Business Trust (but generally have not invested in the Business 
Trust). The assets of the Business Trust do not currently constitute 
Plan Assets, and the Applicant currently does not expect that the 
assets of the Business Trust will become Plan Assets. As of May 31, 
2012, the Business Trust held net assets worth approximately $10.83 
billion.
    C. The Silchester International Investors Tobacco Free 
International Value Equity Trust (the Tobacco Free Trust), a commingled 
fund for U.S. tobacco adverse investors. The Tobacco Free Trust is 
currently structured as a Delaware Statutory Trust. Although Plans are 
permitted to invest in the Tobacco Free Trust (and have invested in 
this fund), the assets of the Tobacco Free Trust do not currently 
constitute Plan Assets, and the Applicant currently does not expect 
that the assets of the Tobacco Free Trust will become Plan Assets. As 
of May 31, 2012, the Tobacco Free Trust held net assets worth 
approximately $1.49 billion.
    D. The Silchester International Investors International Value 
Equity Taxable Trust (the Taxable Trust), a commingled fund for U.S. 
taxable investors. The Taxable Trust is currently structured as a 
Delaware Statutory Trust. Plans are permitted to invest in the Taxable 
Trust (but generally have not invested in Taxable Trust). The assets of 
the Taxable Trust do not currently constitute Plan Assets and the 
Applicant currently does not expect that the assets of the Taxable 
Trust will become Plan Assets. As of May 31, 2012, the Taxable Trust 
held net assets worth approximately $2.92 billion.
    E. The Calleva Trust (the Calleva Trust), a regulated commingled 
fund for non-U.S. investors. The Calleva Trust is domiciled outside of 
the U.S. and U.S. investors are not currently permitted to invest 
directly in the Calleva Trust. The assets of the Calleva Trust do not 
constitute Plan Assets and the Applicant currently does not expect that 
the assets of the Calleva Trust will become Plan Assets. As of May 31, 
2012, the Calleva Trust held net assets worth approximately $1.45 
billion.
    3. According to the Applicant, (a) certain of Silchester's 
``Affiliates,'' as such term is used in the proposed exemption, (b) 
several entities in which Silchester Partners Limited maintains a 
minority ownership interest, (the Associates),\31\ and (c) the 
Associates' Affiliates, have invested (or may invest) in the Taxable 
Trust, Tobacco Free Trust, and the Calleva Trust and could invest in 
other commingled funds as well. Furthermore, the Applicant states that 
a wholly owned subsidiary of Silchester has invested in the Business 
Trust, Tobacco Free Trust, and the Taxable Trust in order to act as a 
``tax matters partner'' of these funds.
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    \31\ Silchester Partners Limited, in addition to the partnership 
interest it has in the Applicant, currently owns significant 
minority interests in each of Sanderson Asset Management, Colchester 
Global Investors, Heronbridge Investment Management, through a 
participation in Heronbridge Limited, Highclere International 
Investors, through a participation in Highclere Investment 
Management Limited, Nippon Value Investors, Edgbaston Investment 
Partners and Kiltearn Partners, through a participation in Kiltearn 
Limited.
---------------------------------------------------------------------------

    4. The Applicant states that the commingled funds currently own 
primarily non-U.S. publicly traded equity securities and, additionally, 
cash and cash equivalents. However, the commingled funds may 
occasionally own U.S. equity securities (or the investment guidelines 
governing the commingled funds and Separately Managed Accounts \32\ 
may, in the future, permit investment in U.S. securities). For example, 
a non-U.S. company could spin off and publicly list a subsidiary as a 
U.S. security, but this has historically occurred very infrequently for 
the commingled funds. If the U.S. shares issued in such a spin-off are 
publicly traded, then these shares could be included in any cross 
trade. The commingled funds may also hold American Depositary Receipts 
(ADRs) and enter into forward currency contracts or other foreign 
exchange transactions with unrelated parties.\33\
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    \32\ The Applicant states that, for purposes of the proposed 
exemption, a ``Separately Managed Account'' is a separately managed 
account over which the Applicant has discretion and either: (1) such 
separately managed account is not subject to Title I of the Act or 
section 4975 of the Code or (2) the Plan whose assets are held in 
the separately managed account has assets of at least U.S. $100 
million, provided that, if the assets of a Plan whose assets are 
held in the separately managed account are invested in a master 
trust containing the assets of Plans maintained by employers in the 
same controlled group, then such master trust has assets of at least 
U.S. $100 million.
    \33\ However, as noted below, relief under this proposed 
exemption, if granted, does not extend to cross trades involving 
forward contacts or foreign exchange transactions.
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    5. A trustee (the Trustee), which is independent from the Applicant 
and its Associates, acts as the custodial trustee of the Group Trust 
and as the custodian and fund administrator for the Group Trust and 
each of the other commingled funds.\34\ As such, the Trustee maintains 
the primary books and records of the Group Trust and the other 
commingled funds. The Trustee, in addition to its other fund 
administration duties, sends client statements and transaction 
confirmations directly to the investors in the Group Trust and each of 
the commingled funds. The Applicant does not hold or receive any client 
assets, or subscription or withdrawal proceeds.
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    \34\ Under the Amended and Restated Declaration of Trust 
governing the Group Trust, the Trustee has responsibility for 
maintaining the custody of the assets of the Group Trust as required 
by Section 404(b) of the Act and the regulations issued thereunder.
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Description of the Requested Relief

    6. The Applicant seeks relief for the purchase and sale of 
securities between a group trust, a commingled fund, or a Separately 
Managed Account, holding assets over which the Applicant has discretion 
(an Account) and the Applicant's other Accounts (the cross trades, or 
the transactions), where at least one of the Accounts involved in the 
cross trade holds ``plan assets'' within the meaning of section 3(42) 
of ERISA and 29 CFR 2510.3-101, as amended (an ERISA Account). The 
Applicant represents that cross trades are customary in the 
institutional investment management industry, and the Applicant 
currently effects cross

[[Page 76788]]

trades among its non-ERISA commingled funds. Further, the Applicant 
notes that it has been effecting cross trades for over 10 years and has 
developed a significant working knowledge of cross trades and their 
benefit to the commingled funds that participate.
    7. According to the Applicant, the cross trades which are the 
subject of this proposed exemption would constitute prohibited 
transactions in violation of sections 406(a)(1)(A) and (D) of the Act. 
Furthermore, the Applicant states that the cross trades may violate 
section 406(b)(2) of the Act, because a cross trade would cause the 
Applicant to act in a transaction involving a Plan on behalf of a party 
whose interests are adverse to the interests of the Plan. Moreover, the 
Applicant represents that the cross trades do not qualify for exemptive 
relief under the statutory exemption for cross trades set forth in 
section 408(b)(19) of the Act.
    Section 408(b)(19)(E) requires in relevant part, as a condition for 
relief, that ``each plan participating in the transaction has assets of 
at least $100,000,000 * * *.'' According to the Applicant, as of 
September 30, 2011, the Group Trust had 108 investors, of which it is 
estimated that 15 investors had less than $100 million of investable 
assets.\35\ Therefore, the Applicant explains, section 408(b)(19) of 
the Act is not currently available to Silchester because certain of the 
Plans invested in the Group Trust do not have assets of at least $100 
million. Accordingly, the Applicant seeks relief from sections 
406(a)(1)(A) and (D), and section 406(b)(2) of the Act for cross trades 
involving Plans.
---------------------------------------------------------------------------

    \35\ The Applicant states that these 15 investors represented 
approximately 1% of all of the Group Trust's assets and less than 1% 
of the Applicant's total assets under management.
---------------------------------------------------------------------------

    8. Each underlying investor in a commingled fund ERISA Account and 
each ERISA Account that is a Separately Managed Account would be 
required to be a ``qualified purchaser,'' as that term is defined in 
Section 2(a)(51)(A) of the Investment Company Act of 1940, as amended 
(the Investment Company Act),\36\ determined, in the case of a 
commingled fund, on the date of the investor's initial investment in 
the commingled fund ERISA Account. Each independent plan fiduciary for 
each Plan investor in a commingled fund ERISA Account or, in the case 
of an ERISA Account that is a Separately Managed Account, the 
independent plan fiduciary for such Separately Managed Account (each 
such person, an Independent Fiduciary) \37\ would represent to the 
Applicant (which representation is deemed to be repeated upon each 
subsequent investment in an ERISA Account) that it will remain a 
``qualified purchaser'' for so long as it maintains an investment in 
the ERISA Account. The Applicant proposes further that, in order to 
engage in the covered transactions, any ERISA Account would need to 
have at least U.S. $100 million in assets.
---------------------------------------------------------------------------

    \36\ Section 2(a)(51)(A) of the Investment Company Act provides 
that the term ``qualified purchaser'' is generally: (i) any natural 
person who owns not less than $5,000,000 in investments; (ii) any 
company that owns not less than $5,000,000 in investments and that 
is owned directly or indirectly by or for 2 or more natural persons 
who are related as siblings or spouse (including former spouses), or 
direct lineal descendants by birth or adoption, spouses of such 
persons, the estates of such persons, or foundations, charitable 
organizations, or trusts established by or for the benefit of such 
persons; (iii) any trust that is not covered by clause (ii) and that 
was not formed for the specific purpose of acquiring the securities 
offered, as to which the trustee or other person authorized to make 
decisions with respect to the trust, and each settlor or other 
person who has contributed assets to the trust, is a person 
described in clause (i), (ii), or (iv); or (iv) any person, acting 
for its own account or the accounts of other qualified purchasers, 
who in the aggregate owns and invests on a discretionary basis, not 
less than $25,000,000 in investments.
    \37\ In either case such plan fiduciary shall not be Silchester 
or any Affiliate of Silchester.
---------------------------------------------------------------------------

    9. In addition, the Applicant represents that no cross trades will 
be conducted between an ERISA Account and any Account in which the 
Applicant, its Associates, and/or their respective Affiliates own 10% 
or more of the outstanding units in such Account in the aggregate. 
Furthermore, the Applicant states that cross trades between an ERISA 
Account and any Accounts managed by any Associates, directed by either 
the Applicant or an Associate, will not be allowed.
    10. The Applicant observes that it may in the future establish 
other commingled funds. According to the Applicant, if any such new 
fund constituted an ERISA Account, the Applicant would engage in cross 
trades involving that fund in reliance on the relief described in the 
proposed exemption only if the conditions of such relief were met. 
Furthermore, while the Applicant currently offers its international 
investment program only through the commingled funds, the Applicant may 
in the future also have discretion over certain Separately Managed 
Accounts that it may wish to have engage in cross trades in accordance 
with the proposed exemption, if granted. The Applicant represents that 
no such Separately Managed Account shall engage in a cross trade in 
reliance on the proposed exemption, if granted, unless either (a) the 
assets of such Separately Managed Account do not constitute Plan Assets 
or (b) the Plan whose assets are held in the Separately Managed Account 
has assets of at least U.S. $100 million, provided that if the assets 
of a Plan whose assets are held in the separately managed account are 
invested in a master trust containing the assets of Plans maintained by 
employers in the same controlled group, then such master trust has 
assets of at least U.S. $100 million.
    11. In addition, the Applicant states that, in the event that the 
Applicant in the future (a) establishes a new commingled fund (other 
than those identified herein) which it wishes to have engage in cross 
trades in reliance on the proposed exemption, if granted, or (b) wishes 
to have a new Separately Managed Account engage in cross trades in 
reliance on the proposed exemption, if granted, the Applicant shall 
notify each Independent Fiduciary of an ERISA Account involved in cross 
trades in writing that a new fund or new Separately Managed Account may 
engage in cross trades under the conditions of the proposed exemption, 
if granted, prior to such cross trades taking place.\38\ Furthermore, 
along with such notification, a designated representative of Silchester 
will advise each such Independent Fiduciary in writing that it can 
revoke its authorization allowing Silchester to engage the ERISA 
Account in cross trades, at any time in writing by withdrawing from the 
ERISA Account (or in the case of an ERISA Account that is a Separately 
Managed Account, by written notice to the Applicant).
---------------------------------------------------------------------------

    \38\ The Applicant notes that the written notice shall not be 
required to provide identifying information regarding any investors 
in the new fund or identification of the client for the new 
Separately Managed Account.
---------------------------------------------------------------------------

    The procedures applicable when a Plan invested in the Group Trust 
does not wish to authorize cross-trading are delineated in the Group 
Trust Agreement, and are described in more detail in the 
Representations below. Further, the Applicant states that when an 
Independent Fiduciary of a Separately Managed Account does not 
authorize cross trading, Silchester will not cause that Separately 
Managed Account to participate in cross trades.

Policies and Procedures for Entering Into Cross Trades

    12. According to the Applicant, Silchester will adopt, and cross 
trades will be effected in accordance with, written cross trading 
policies and procedures adopted by Silchester (the Policies and 
Procedures), which will provide strict guidelines for when and

[[Page 76789]]

how cross trades will be used. The Applicant states that the Policies 
and Procedures will describe (i) triggering transactions for 
identifying when a cross trade is available to an ERISA Account, (ii) 
cross trade procedures that must be followed when implementing a cross 
trade involving an ERISA Account, (iii) pricing of securities included 
in a cross trade involving an ERISA Account, (iv) reporting of cross 
trade transactions and related information to each Independent 
Fiduciary, and (v) the independent audit which includes a review of the 
Policies and Procedures, a test sampling of the cross trades conducted 
under this proposed exemption, if granted, to determine compliance with 
the requirements thereunder, and the Policies and Procedures, and the 
issuance of a written report in connection with the foregoing (the 
Exemption Audit).
    The Policies and Procedures will be disclosed to the Independent 
Fiduciary prior to engaging in cross trades for an ERISA Account or at 
the inception of any new relationship between Silchester and a Plan and 
will be made further available to the Independent Fiduciary on request. 
The Policies and Procedures are described in more detail in the 
following paragraphs.
    13. The Applicant represents that cross trades covered by the 
proposed exemption, if granted, will occur only to the extent that such 
cross trades are triggered by contributions or withdrawals to or from 
an ERISA Account.\39\ For example, where contributions to an ERISA 
Account can be matched against a withdrawal from another Account, 
consideration will be given to a cross trade between those Accounts. 
Specifically, the Applicant is proposing that the ERISA Account would 
be eligible for inclusion in such cross trade if, among other things: 
The confirmed net contributions/withdrawals (as the case may be) to or 
from the ERISA Account exceed $10 million or 10 basis points or 0.1% of 
the value of the ERISA Account (whichever is less); and the ERISA 
Account's forecasted residual cash balance when adjusted for month-end 
cash flows after the cross trade would be within 50 basis points or 
0.5% of the cash weightings of each such other Account.\40\
---------------------------------------------------------------------------

    \39\ The Applicant notes that contributions and withdrawals from 
an Account will in all circumstances be initiated by the Independent 
Fiduciaries of such Accounts (including the Independent Fiduciary of 
any Separately Managed Accounts), and not by Silchester. As such, 
cross-trading for the Group Trust or a Separately Managed Account 
would be triggered only by a Plan's contributions or withdrawals.
    \40\ The Applicant states that contributions and withdrawals in 
any of the commingled funds are generally only made effective on the 
first business day of each month, except for the Calleva Trust 
where, under Irish UCITS rules, a mid-month dealing day must be 
offered in addition to the first business day of each month.
---------------------------------------------------------------------------

    Furthermore, the Applicant notes that although cross trading 
opportunities may arise, Silchester may decide, in its sole discretion, 
not to enter into a cross trade if Silchester believes that the cross 
trade is not in the best interests of the ERISA Account given the 
prevailing (external) conditions and circumstances at the time of the 
cross trade.
    14. The Applicant represents that there will be a record of 
triggering events, based on investor-initiated contributions or 
withdrawals, that the Independent Auditor can verify. Furthermore, the 
Applicant states that, as described in the Group Trust's Confidential 
Private Offering Memorandum, all contributions and withdrawals are made 
by a written request/notice made to Silchester by the Independent 
Fiduciary. Thus, according to the Applicant, the combination of the 
written record of the Plan-initiated contributions and withdrawals, as 
well as the 10 basis point numerical threshold outlined in the 
application, will allow the Independent Auditor to verify the 
occurrence of the triggering events.
    15. The Applicant states that, at least two business days before a 
cross trade, a designated representative of the Applicant will 
determine whether an ERISA Account will participate in a cross trade 
based on the triggering criteria set out above. The U.S. dollar amount 
available to be crossed will also be determined. In addition, the 
Applicant states that, at least two business days before a cross trade, 
a list of securities that will form part of the cross trade will be 
prepared. Subject to investment guideline restrictions, and certain 
restrictions/exclusions described below (which will be set out in the 
Policies and Procedures), all securities held within an ERISA Account 
(assuming the ERISA Account was the selling account) or all securities 
held by the selling Account (assuming the ERISA Account was the 
purchasing account) would be included in the cross trade.
    16. The Applicant states that cross trades will be effected on a 
pro rata basis. In this regard, the Applicant explains that the U.S. 
dollar amount determined for the cross trade will be prorated across 
all of the securities eligible for the cross trade in each of the 
Accounts, based on each Account's relative weighting of each security 
included in the cross trade, subject to the restrictions and/or 
exclusions described below and set forth in the Policies and 
Procedures. The Applicant states further that securities will also be 
allocated on a pro rata basis in the event multiple Accounts 
participate in a cross trade (i.e., as buyers or sellers).
    17. The Applicant describes the following investment restrictions/
exclusions under which securities would be excluded from a cross trade: 
Legal or compliance restrictions, such as a security being subject to 
an insider trading restriction or approval being required before the 
Accounts can exceed certain percentage thresholds; unfavorable tax 
treatment, such as triggering an adverse capital gains tax liability in 
one of the Accounts; regulatory or stock exchange restrictions, such as 
the underlying stock exchange suspending the trading of a security; 
minimum lot trading sizes, such as minimum lot sizes imposed by stock 
exchanges (e.g., Japan); ``sell to zero'' tickets (e.g., securities 
that Silchester reasonably expects will no longer be held within the 
ERISA Account or the other Accounts within ten business days); 
securities that cannot be sold due to proxy voting limits (in some 
circumstances, a stock exchange may impose ``black out'' periods during 
the period before an annual general meeting or extraordinary general 
meeting of a company/security); forfeiture of additional dividend or 
proxy voting rights that are periodically made available to longer term 
holders of certain European equities; circumstances in which the value 
of securities purchased or the value of securities sold is de minimis 
(i.e., less than U.S. $5,000) and therefore would result in the ERISA 
Account incurring unnecessary costs; closure of a stock exchange for a 
market holiday or closure due to an exceptional circumstance (such as 
political unrest in a country resulting in the stock exchange being 
closed and all trading suspended); when the ERISA Account or other 
commingled fund does not already hold the security before the cross 
trade (no security can be purchased by the ERISA Account in a cross 
trade unless the security is already held by the ERISA Account prior to 
the cross trade); and when a market quotation for a security is not 
readily available.
    The Applicant states that where any of the above circumstances 
exist, the affected security or securities will be excluded from the 
cross trade.\41\ The

[[Page 76790]]

cross trade will be prorated across all of the remaining securities in 
the Accounts eligible for the cross trade.
---------------------------------------------------------------------------

    \41\ The Applicant represents that, based on the Silchester's 
experience with cross trading in respect of the non-ERISA Accounts, 
the number of exclusions varies among cross trades. Currently, on 
average, between three (3) and twelve (12) securities are excluded 
from each cross trade. Recently, the primary reason for securities 
being excluded from a cross trade are restrictions on emerging 
market securities because emerging markets commonly require all 
purchases and sales to occur ``on exchange.'' In that case, 
Silchester is not able to engage in the cross trades in those 
securities for any of the Accounts.
---------------------------------------------------------------------------

    18. Furthermore, the Applicant states that the Accounts currently 
have approximately the same portfolio weighting, as a percentage of 
assets, in equity securities and cash or cash equivalents, and the 
Applicant expects that, over time, dispersion among all of the Accounts 
weightings will be minimal. According to the Applicant, none of the 
circumstances under which dispersion may arise or increase are the 
result of any discretionary or opportunistic actions by Silchester. 
Furthermore, the Applicant notes that Silchester prefers to have little 
or no dispersion to allow for efficiencies across the administration of 
the commingled funds.
    The Applicant states that if dispersion in holdings of different 
stocks in the various Accounts increases materially, the Applicant will 
stop cross trading for an ERISA Account until such time as the 
dispersion in holdings has been reduced. The Applicant represents that 
Silchester will not include an ERISA Account in a cross trade during 
any period in which the weightings of 14 or more securities in the 
ERISA Account individually differ by more than 50 basis points from the 
weightings of the same securities in the other Accounts.
    19. The Applicant also proposes that each covered cross trade be a 
purchase or sale of securities by an ERISA Account for no consideration 
other than cash payment against prompt delivery of a security for which 
market quotations are readily available from independent sources that 
are engaged in the ordinary course of business of providing financial 
news and pricing information to institutional investors and/or the 
general public, and are widely recognized as accurate and reliable 
sources for such information.
    20. Further, the Applicant is proposing that each covered cross 
trade: (a) only take place on the first business day of a month; and 
(b) be effected at the independent current market price of the security 
(within the meaning of section 270.17a-7(b) of Title 17, Code of 
Federal Regulations) \42\ on the business date that immediately 
precedes the first business date of the month on which the cross trade 
occurs. In connection with the foregoing, the Applicant states that the 
commingled funds are generally valued on a monthly basis using closing 
prices and exchange rates as of the last business day of a month. 
Nevertheless, the Applicant notes that, in special limited 
circumstances (e.g., the introduction of the Euro), the commingled 
funds may be valued on a date other than the last business day of a 
month.\43\ However, the Applicant states that, under no circumstance 
will cross trades be executed with an ERISA Account on a date other 
than the first business day of a month.
---------------------------------------------------------------------------

    \42\ Section 270.17a-7 of Title 17, Code of Federal Regulations, 
provides an exemption from the provisions of section 17(a) of the 
Investment Company Act, which prohibits, among other things, 
transactions between an investment company and its investment 
adviser or affiliates of its investment adviser, subject to the 
condition, among others, that the transaction is effected at the 
``independent current market price.'' Under section 270.17a-7(b), 
the ``current market price'' is generally:
    (1) If the security is reported security, the last sale price 
with respect to such security reported in the consolidated 
transaction reporting system (consolidated system) or the average of 
the highest current independent bid and lowest current independent 
offer for such security if there are no reported transactions in the 
consolidated system that day; or
    (2) If the security is not a reported security, and the 
principal market for such security is an exchange, then the last 
sale on such exchange or the average of the highest current 
independent bid and lowest current independent offer on such 
exchange if there are no reported transactions on such exchange that 
day; or
    (3) If the security is not a reported security and is quoted in 
the NASDAQ System, then the average of the highest current 
independent bid and lowest current independent offer reported on 
Level 1 of NASDAQ; or
    (4) For all other securities, the average of the highest current 
independent bid and lowest current independent offer determined on 
the basis of reasonable inquiry.
    \43\ In this regard, the Applicant notes that the Calleva Trust 
is required under Irish regulations to have two valuation dates each 
month.
---------------------------------------------------------------------------

    21. The Applicant notes that the prices used for cross trades are 
the same as the prices used by the Trustee to value the commingled 
funds at month's end. According to the Applicant, these prices will 
ordinarily be determined within three (3) hours of the close of the 
relevant market. The Applicant represents further that these prices 
meet the definition of an independent ``current market price'' of a 
security within the meaning of Section 270.17a-7(b) of Title 17, Code 
of Federal Regulations and SEC no-action and interpretative letters 
thereunder, and Silchester's settlement team verifies the closing 
prices on the following morning.
    22. The Applicant represents that if the proposed exemption is 
granted, no brokerage commission, fees or other remuneration will be 
paid in connection with a cross trade involving an ERISA Account, 
except for customary transfer fees or brokerage fees dictated by local 
market restrictions, the fact of which is disclosed in advance to each 
Independent Fiduciary. Additionally, the Applicant states that 
Silchester will not base its fee schedule on a Plan's consent to cross 
trading, nor is any other service (other than the investment 
opportunities and cost savings available through a cross trade) 
conditioned on the Plan's consent.
    23. Notwithstanding the above, in the event local market 
restrictions require the use of a broker-dealer, and only in such 
event, broker-dealers that are not Affiliates of Silchester or the 
Trustee will be used to execute the transaction and no more than 
reasonable compensation will be paid to such an unaffiliated broker-
dealer to execute the cross trade. Furthermore, the Applicant notes 
that the Trustee may be expected to receive remuneration on foreign 
exchange transactions in the ordinary course that would be received 
regardless of whether the trade was a cross trade or if the securities 
were sold in the market. The Applicant explains that Silchester engages 
in foreign exchange transactions for the Group Trust in different ways, 
including (a) under a guaranteed rate agreement with the Trustee, (b) 
pursuant to negotiated transactions between Silchester and the Trustee 
and (c) in the case of restricted currencies only, by the Trustee 
directly pursuant to a standing instruction. The Applicant states that, 
when applicable, Silchester principally relies on the statutory 
exemption for foreign exchange transactions under section 408(b)(18) of 
the Act and/or Prohibited Transaction Exemption (PTE) 84-14 involving 
qualified professional asset managers (QPAM) for the Group Trust's 
foreign exchange transactions.\44\ However, the Applicant confirms that 
the Group Trust does not engage in any foreign exchange or ADR 
transactions with any party related to Silchester.
---------------------------------------------------------------------------

    \44\ The Department is offering no view herein regarding the 
Applicant's reliance on such exemptions in connection with the Group 
Trust's foreign exchange transactions.
---------------------------------------------------------------------------

    In any event, notwithstanding the above, the Applicant represents 
that neither Silchester nor the Trustee will receive a commission, fee 
or other remuneration, directly or indirectly, from an ERISA Account in 
connection with a cross trade involving an ERISA Account.
    24. Prior to engaging in any cross trade for an ERISA Account or at 
the inception of any new relationship between Silchester and a Plan, 
Silchester shall deliver to the Independent Fiduciary (i) a written

[[Page 76791]]

disclosure regarding the conditions under which cross trades may take 
place (which disclosure will be separate from any other agreement or 
disclosure in respect of the ERISA Account, including the Policies and 
Procedures); (ii) a written copy of the Policies and Procedures; and 
(iii) written instructions (via email correspondence or otherwise) 
directing the Independent Fiduciary to give appropriate consideration 
to: (A) the responsibilities, obligations and duties imposed upon 
fiduciaries by Part 4 of Title I of the Act, (B) whether the terms of 
the cross trades are fair to the Plan and its participants and 
beneficiaries, and to the ERISA Account, and are comparable to, and no 
less favorable than, terms obtainable at arm's-length between 
unaffiliated parties, and (C) whether the cross trades are in the best 
interest of the Plan and its participants and beneficiaries and of the 
ERISA Account. The Applicant states that the receipt of the 
instructions described in clause (iii) above will be acknowledged in 
writing (via email correspondence or otherwise) by the Independent 
Fiduciary.
    25. Prior to engaging in any cross trade for an ERISA Account, 
Silchester must receive authorization from the Independent Fiduciary of 
such ERISA Account to engage in cross trades involving the ERISA 
Account at Silchester's discretion, which authorization must be 
provided in a written document in advance of any such cross trades, and 
must be separate from any other written agreement or disclosure between 
Silchester and the ERISA Account or Plan, as applicable. Such 
authorization will only be effective if the Independent Fiduciary has 
already received the disclosures described above.
    26. The Applicant states further that the Independent Fiduciary, as 
part of the authorization described above, shall represent that it has 
the requisite knowledge and experience in financial and business 
matters to be capable of evaluating the merits and risks of investing 
in the ERISA Account and to be capable of protecting the Plan's 
interests in connection with the investment or that it has obtained 
expert advice that allows it to adequately evaluate its investment in 
the ERISA Account. Finally, the Applicant notes that it will also seek 
representations from each Independent Fiduciary regarding the 
Independent Fiduciary's satisfaction of the above-described actions in 
connection the establishment of a Plan's investment in the ERISA 
Account.
    27. Both on an annual basis and each time the Applicant provides 
notice to the Independent Fiduciary in writing that a new fund or new 
Separately Managed Account may engage in cross trades, a designated 
representative of Silchester will advise each such Independent 
Fiduciary in writing that it can revoke the authorization described 
above at any time in writing by withdrawing from the ERISA Account (or 
in the case of an ERISA Account that is a Separately Managed Account, 
by written notice to the Applicant).
    28. The Applicant notes that the Group Trust's withdrawal 
provisions are described in the Group Trust's Confidential Private 
Offering Memorandum and delineated in the Group Trust Agreement. In 
this regard, the Group Trust Agreement provides that a Plan may 
withdraw all or part of its units in the Group Trust on the first 
business day of each calendar month (referred to as a dealing day) upon 
six business days' prior written notice. The Applicant states that 
withdrawals are generally made in cash, although redemptions in kind 
may be used on occasions when net redemptions from the Group Trust are 
significant (typically more than 0.5% of the Group Trust).
    The Applicant explains that cash withdrawals are funded first by 
netting any contributions to be made as of that same dealing day. 
According to the Applicant, for example, if withdrawals of $100x are to 
be made as of the same dealing day that contributions of $100x are also 
to be made, those amounts would be ``netted.'' The Applicant states 
that this net cash withdrawal would then be subject to the transaction 
costs applicable to liquidating assets to cash to fund the withdrawal. 
For withdrawals made in kind, the amount withdrawn would be subject to 
any stamp duty, market related charges and other transfer fees required 
by a foreign jurisdiction or stock exchange. All transaction costs 
would be reimbursed to the Group Trust and not paid to Silchester or 
its Associates.\45\ Plans receive reporting on applicable transaction 
costs incurred on their behalf. The Applicant represents that no 
further transaction costs would be assessed by the Group Trust.
---------------------------------------------------------------------------

    \45\ The Applicant notes that this is the same withdrawal 
process used for all withdrawals made from the Group Trust.
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    29. According to the Applicant, if the Independent Fiduciary of a 
Separately Managed Account were to elect not to authorize cross 
trading, Silchester will not cause that Separately Managed Account to 
participate in cross trades.\46\
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    \46\ The Applicant notes that Silchester does not currently 
manage any Separately Managed Accounts, but may do so in the future.
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    30. The Applicant states that, according to the pricing policy 
under the Policies and Procedures, the Trustee, in its capacity as fund 
administrator, is responsible for independently valuing the Group 
Trust's assets on a monthly basis, and equity securities are typically 
valued using the closing price reported by their primary stock exchange 
and translated into U.S. dollars using exchange rates provided by WM 
Reuters.\47\ Accordingly, these are the same prices and exchange rates 
currently used by major market indices such as MSCI for valuing (among 
others) the MSCI EAFE Index. Dividend and withholding tax accruals are 
valued at fair market value in accordance with U.S. Generally Accepted 
Accounting Principles.\48\ The Applicant represents further that prices 
of securities included in a cross trade will be identical to those used 
by the Trustee to value the Group Trust and the other commingled funds 
on the immediately preceding valuation date.
---------------------------------------------------------------------------

    \47\ See section 270.17a-7(b) of Title 17, Code of Federal 
Regulations.
    \48\ The Applicant states that Silchester reconciles, but cannot 
arbitrarily override, the Trustee's valuations. If the Applicant 
believes that the Trustee has mis-valued a given security, the 
Trustee requires the Applicant to follow an established ``challenge 
procedure.'' Under this procedure, Silchester provides a written 
letter advising the Trustee of the discrepancy and support for its 
market price/exchange rate, and the Trustee considers the challenge 
over the subsequent 24 hour period. If the challenge is valid, the 
Trustee changes the market price/exchange rate used in the 
valuation; if not, the Trustee's valuation stands. Because of the 
nature of the commingled funds' investments (publicly traded 
equities), pricing challenges have historically been infrequent.
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    31. The Applicant represents that, in accordance with reporting 
requirements under the Policies and Procedures, Silchester will provide 
(or cause to be provided) to each Independent Fiduciary a quarterly 
report detailing all cross trades in which the ERISA Account 
participated during such quarter, including the following information, 
as applicable: (a) The identity of each security bought or sold; (b) 
the number of shares or units traded; (c) the Accounts involved in the 
cross trade; and (d) the trade price and the total U.S. dollar value of 
each security involved in the cross trade and the method used to 
establish the trade price. According to the Applicant, the quarterly 
report will be provided to the Independent Fiduciary in writing prior 
to the end of the next following quarter.
    32. The Applicant represents that a member of the Applicant's 
compliance

[[Page 76792]]

group will review cross trades within 10 business days of the cross 
trades to confirm compliance with the Policies and Procedures.\49\ In 
addition, the Applicant states that Silchester will designate a member 
of its Compliance Group responsible for periodically reviewing a 
sampling of the ERISA Account's cross trades sufficient in size and 
nature to ensure compliance with the Policies and Procedures and, 
following such review, such individual shall issue an annual written 
report no later than 90 calendar days following the end of the fiscal 
year of the ERISA Account (the fiscal year-end of the Group Trust is 
currently December 31) to which it relates, signed under penalty of 
perjury, to each Independent Fiduciary, and describing the steps 
performed during the course of the review, the level of compliance and 
any specific instances of non-compliance.
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    \49\ The Applicant notes that, in the event of non-compliance 
with the Policies and Procedures, Silchester would review the event 
of non-compliance and address the non-compliance by seeking to 
correct the non-compliance and reporting any non-exempt prohibited 
transaction resulting from such non-compliance on IRS Form 5330 and, 
if appropriate, by adopting or revising supplemental procedures.
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    33. Finally, the Applicant represents that the Policies and 
Procedures will provide for an Exemption Audit to be conducted on an 
annual basis, by an ``Independent Auditor'' with appropriate technical 
training or experience and proficiency with ERISA's fiduciary 
responsibility provisions and so represents in writing. Further, the 
Independent Auditor will derive less than 5% of its annual gross 
revenue from Silchester on an annual basis. The Exemption Audit will 
consist of a review of the Policies and Procedures for consistency with 
each of the objective requirements of the proposed exemption, if 
granted. The Exemption Audit will include a test of a sample of each 
ERISA Account's cross trades during the audit period that is sufficient 
in size and nature to afford the Independent Auditor a reasonable basis 
to (a) make specific findings regarding whether the ERISA Account's 
cross trades are in compliance with the Policies and Procedures and the 
objective requirements of the proposed exemption, if granted, and (b) 
render an overall opinion regarding the level of compliance with the 
Policies and Procedures and the objective requirements of the proposed 
exemption, if granted. The Applicant notes that the findings will 
specifically address the pro rata calculation for a cross trade and 
ensure that the restrictions/exclusions described in the Policies and 
Procedures have been applied on a reasonable basis.
    34. Following completion of the Exemption Audit, the Independent 
Auditor shall issue a written report to Silchester (with copies thereof 
delivered to each Independent Fiduciary) presenting its specific 
findings regarding the level of compliance with: (1) The Policies and 
Procedures and (2) the objective requirements of the proposed 
exemption, if granted. The written report shall also contain the 
Independent Auditor's overall opinion regarding whether Silchester's 
program complied with: (1) The Policies and Procedures and (2) the 
objective requirements of the proposed exemption, if granted. The 
Applicant represents that the Exemption Audit and the written report 
will be completed within six months following the end of the fiscal 
year to which the Exemption Audit relates.

Merits of the Transactions

    35. The Applicant represents that the proposed exemption is 
administratively feasible since, among other things, Silchester will 
follow the Policies and Procedures, which provide concrete guidelines 
for when and how cross trades will be effected. The Applicant states 
that the Policies and Procedures also serve to facilitate the audit of 
the proposed exemption, if granted. In this regard, the requirements 
contained therein will be independently audited on an annual basis as 
described herein, consistent with procedures that the Department has 
already established in the amendment to prohibited transaction 
exemption (PTE) 96-23, the exemption for in-house asset managers, at 61 
FR 15975 (April 10, 1996), as amended at 76 FR 18255 (April 1, 2011).
    36. The Applicant states the proposed exemption is in the interest 
of Plans and their participants and beneficiaries. In this regard, 
cross trades of portfolio securities involving an ERISA Account can 
result in significant savings to the ERISA Account, primarily in the 
form of transaction cost savings and the avoidance of market 
impact.\50\ The Applicant represents that these savings can be up to 75 
basis points on contributions and 50 basis points on redemptions.\51\ 
In addition, in the Applicant's experience, it is easier to mitigate 
the effect of bid-ask spreads and market impact charges in a cross 
trade.
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    \50\ The Applicant notes that in the event that the proposed 
exemption is granted, ERISA Accounts will be able to benefit from 
cross trades in a manner already available to non-ERISA Accounts.
    \51\ According to the Applicant, the difference between charges 
on contributions and redemptions primarily relates to stamp duty--in 
Ireland and the UK, stamp duty charges of 100 basis points and 50 
basis points, respectively, are currently charged on purchases only.
---------------------------------------------------------------------------

    The Applicant also represents that cost savings include the costs 
of converting cash contributions into securities (and securities into 
cash to meet client redemption requests), such as brokerage commissions 
(averaging 5 to 35 basis points depending on the market), foreign 
exchange costs, bid-offer spreads and market impact charges. The 
Applicant notes that these savings are more critical for international 
funds than domestic funds because of the higher costs of trading 
overseas. Further, mitigating these costs appropriately protects long-
term investors in the Group Trust from bearing the costs of other 
investors either acquiring new interests in the Group Trust or 
rebalancing part of their moneys.
    In addition, the Applicant states that Plans may wish to be 
invested in the Group Trust or another commingled fund that is a group 
trust because a group trust is generally the most tax efficient 
commingled fund for Plans. The Applicant explains that a group trust is 
able to reclaim a greater level of withholding taxes on dividends it 
receives due to broad exemptions available to a group trust from 
foreign capital gains taxes on the sale of securities and due to the 
favorable treatment afforded group trusts under various tax treaties 
that the U.S. has in place with other foreign governments. The 
Applicant represents that it considered maintaining just one fund which 
would eliminate all cross trading, however this would not provide ERISA 
investors and certain other tax-exempt investors the opportunity to 
benefit from significant foreign tax withholding savings that are only 
available to ERISA investors and tax-exempt investors which would not 
be available if all investors invested only through a single Account 
which also has taxable investors.
    The Applicant maintains that, if the proposed exemption is not 
granted, the Applicant may consider relying on the statutory exemption 
provided in section 408(b)(19) of the Act, which would require any 
Plans that do not meet the U.S. $100 million requirement to redeem from 
the Group Trust and invest in another of the Accounts (which do not 
enjoy the same favourable tax benefits described above).
    37. Finally, the Applicant states that the proposed transactions 
are protective of the interests of plans and their participants and 
beneficiaries. In this regard, the Applicant represents that cross 
trades entered into by an ERISA

[[Page 76793]]

Account will comply with the Policies and Procedures, described above, 
which will be fair and equitable to all Accounts participating in the 
cross trading program. Further, the Applicant represents that the 
Policies and Procedures will comply with Silchester's fiduciary 
responsibilities to Plans invested in the ERISA Accounts and investors 
in the other Accounts. According to the Applicant, the Policies and 
Procedures will include full descriptions of Silchester's policies and 
procedures for pricing and Silchester's policies and procedures for 
allocating cross trades in an objective manner among the Funds 
participating in the cross trading program, so that Plans participating 
in the cross trading program are well informed of their rights 
thereunder.

Summary

    38. In summary, the Applicant represents that the covered 
transactions satisfy the statutory requirements for an exemption under 
section 408(a) of the Act because, among other things:
    (a) Each cross trade will be a purchase or sale of securities by an 
ERISA Account for no consideration other than cash payment against 
prompt delivery of a security for which market quotations are readily 
available;
    (b) A cross trade will only be effected on the first business date 
of the month, at a price equal to the security's ``independent current 
market price'' (within the meaning of section 270.17a-7(b) of Title 17, 
Code of Federal Regulations) on the business date that immediately 
precedes the first business date of the month on which the cross trade 
occurs;
    (c) No brokerage commission, fees or other remuneration will be 
paid in connection with a cross trade involving an ERISA Account 
(except for customary transfer fees or brokerage fees paid to 
unaffiliated broker-dealers dictated by local market restrictions, the 
fact of which is disclosed in advance to the Independent Fiduciary);
    (d) Prior to engaging in any cross trade for an ERISA Account or at 
the inception of any new relationship between Silchester and a Plan, 
the Applicant will deliver to the Independent Fiduciary (i) a written 
disclosure regarding the conditions under which cross trades may take 
place; (ii) a written copy of the Policies and Procedures; and (iii) 
written instructions (via email correspondence or otherwise) to give 
appropriate consideration to: (A) the responsibilities, obligations and 
duties imposed upon fiduciaries by Part 4 of Title I of the Act, (B) 
whether the terms of the cross trades are fair to the Plan and its 
participants and beneficiaries, and to the ERISA Account, and are 
comparable to, and no less favorable than, terms obtainable at arm's-
length between unaffiliated parties, and (C) whether the cross trades 
are in the best interest of the Plan and its participants and 
beneficiaries and of the ERISA Account. The receipt of such instruction 
will also be acknowledged in writing (via email correspondence or 
otherwise) by the Independent Fiduciary;
    (e) Prior to engaging in any cross trade for an ERISA Account, 
Silchester must receive authorization from the Independent Fiduciary 
which must be provided in a written document in advance of any such 
cross trades, and will only be effective if the Independent Fiduciary 
has already received the disclosures described in paragraph (d) above;
    (f) The Independent Fiduciary will represent, in its authorization 
of participation for an ERISA Account, that it has the requisite 
knowledge and experience in financial and business matters to be 
capable of evaluating the merits and risks of investing in the ERISA 
Account and to be capable of protecting the Plan's interests in 
connection with the investment or that it has obtained expert advice 
that allows it to adequately evaluate its investment in the ERISA 
Account, and if the Independent Fiduciary cannot make the foregoing 
representations, then the authorization described herein will not be 
effective;
    (g) Both on an annual basis and each time the Applicant provides 
notice to the Independent Fiduciary in writing that a new fund or new 
Separately Managed Account may engage in cross trades, a designated 
representative of Silchester will advise each such Independent 
Fiduciary in writing that it can revoke the authorization described in 
this paragraph at any time in writing by withdrawing from the ERISA 
Account (or in the case of an ERISA Account that is a Separately 
Managed Account, by written notice to the Applicant);
    (h) Silchester will provide (or cause to be provided) to each 
Independent Fiduciary a quarterly report detailing all cross trades in 
which the ERISA Account participated during such quarter, including the 
following information, as applicable: (i) the identity of each security 
bought or sold; (ii) the number of shares or units traded; (iii) the 
Accounts involved in the cross trade; and (iv) the trade price and the 
total U.S. dollar value of each security involved in the cross trade 
and the method used to establish the trade price;
    (i) Silchester will not base its fee schedule on a Plan's consent 
to cross trading, nor is any other service conditioned on the Plan's 
consent;
    (j) Silchester adopts, and cross trades will be effected in 
accordance with, the Policies and Procedures, which will be made 
further available to an Independent Fiduciary upon request;
    (k) A member of Silchester's compliance group will review cross 
trades within 10 business days of the cross trades to confirm 
compliance with the Policies and Procedures and report to the 
compliance group regarding such member's findings, and Silchester will 
designate an individual member of its compliance group responsible for 
periodically reviewing a sampling of the ERISA Account's cross trades 
that is sufficient in size and nature to ensure compliance with the 
Policies and Procedures described herein and, following such review, 
such individual shall issue an annual written report to each 
Independent Fiduciary describing the actions performed during the 
course of the review, the level of compliance, and any specific 
instances of non-compliance;
    (l) An Independent Auditor will conduct an Exemption Audit on an 
annual basis and will issue a written report to Silchester (with copies 
thereof delivered to each Independent Fiduciary) presenting its 
specific findings regarding the level of compliance with: (1) the 
Policies and Procedures and (2) the objective requirements of the 
proposed exemption, if granted. The written report shall also contain 
the Independent Auditor's overall opinion regarding whether 
Silchester's program complied with: (1) the Policies and Procedures and 
(2) the objective requirements of the proposed exemption, if granted. 
The Exemption Audit and the written report must be completed within six 
months following the end of the fiscal year to which the Exemption 
Audit relates;
    (m) The ERISA Account will have at least $100 million in assets, 
and each underlying investor in a commingled fund ERISA Account and 
each ERISA Account that is a Separately Managed Account will be 
required to represent that it is a ``qualified purchaser,'' as that 
term is defined in section 2(a)(51)(A) of the Investment Company Act;
    (n) Silchester will only conduct cross trades involving an ERISA 
Account when triggered by contributions or withdrawals initiated by 
investors in such ERISA Account where:
    (1) Contributions from one Account can be matched against 
withdrawals from another Account and the

[[Page 76794]]

confirmed net contributions/withdrawals (as the case may be) from the 
ERISA Account exceed U.S. $10 million or 10 basis points or 0.1% of the 
value of the ERISA Account (whichever is less), and
    (2) The ERISA Account's forecasted residual cash balance when 
adjusted for month-end cash flows after the cross trade will be within 
50 basis points or 0.5% of the cash weightings of each such other 
Account;
    (o) Silchester will not include an ERISA Account in a cross trade 
during any period in which the weightings of 14 or more securities in 
the ERISA Account individually differ by more than 50 basis points from 
the weightings of the same securities in the other Accounts, and none 
of the circumstances under which different weightings across the funds 
may arise or increase will be the result of any discretionary or 
opportunistic actions by Silchester;
    (p) The U.S. dollar amount determined for the cross trade will be 
prorated across all of the securities eligible for the cross trade in 
each of the Accounts, based on each Account's relative weighting of 
each security included in the cross trade, subject to the restrictions 
and/or exclusions set forth in the Policies and Procedures;
    (q) No cross trades will be conducted between an ERISA Account and 
any Account in which Silchester and/or its Affiliates (together or 
separately) own 10% or more of the outstanding units in such Account in 
the aggregate; and
    (r) Silchester will comply with the recordkeeping requirements 
provided herein to enable certain authorized persons to determine 
whether the conditions of the exemption have been met, for so long as 
such records are required to be maintained.

Notice to Interested Persons

    Notice of the proposed exemption will be given to each Independent 
Fiduciary by electronic mail within 10 days of the publication of the 
notice of proposed exemption in the Federal Register. Such notice will 
contain a copy of the notice of proposed exemption, as published in the 
Federal Register, and a supplemental statement, as required pursuant to 
29 CFR 2570.43(b)(2). The supplemental statement will inform interested 
persons of their right to comment on and to request a hearing with 
respect to the pending exemption. Written comments and hearing requests 
are due within 40 days of the publication of the notice of proposed 
exemption in the Federal Register.
    For Further Information Contact: Warren Blinder of the Department, 
telephone (202) 693-8553. (This is not a toll-free number.)

General Information

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

    Signed at Washington, DC, this 21st day of December, 2012.
Lyssa E. Hall,
Director, Office of Exemption Determinations, Employee Benefits 
Security Administration, U.S. Department of Labor.
[FR Doc. 2012-31166 Filed 12-27-12; 8:45 am]
BILLING CODE 4510-29-P