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Federal Register / Vol. 69, No.

57 / Wednesday, March 24, 2004 / Notices 13883

acquisition expense to the Buying described herein and upon the the material facts and representations
Account(s). satisfaction of the following contained in the application accurately
9. In order to maintain consistency requirements: describes all material terms of the
with the language in the rest of the (a) All terms and conditions of the transaction which is the subject of the
Notice, the applicant requests that Lease are at least as favorable to the Plan exemption.
certain changes should have been made as those which the Plan could obtain in Signed at Washington, DC, this 19th day of
to the language of the SFR, as set forth an arm’s-length transaction with an March, 2004.
in the Notice. Specifically, in paragraph unrelated party; Ivan Strasfeld,
14, at 68 FR 64648, column 3, line 34, (b) The decision by the Plan to enter
Director of Exemption Determinations,
the reference to ‘‘proposed into the Lease will be made by the Employee Benefits Security Administration,
transactions,’’ should have referred trustees of the Plan (the Trustees); and Department of Labor.
instead to ‘‘subject transactions.’’ (c) The fair market rental amount for
[FR Doc. 04–6583 Filed 3–23–04; 8:45 am]
The Department concurs. the Lease will be determined by an
BILLING CODE 4510–29–P
Accordingly, the language in the SFR in independent, qualified appraiser as of
paragraph 14 of the Notice, at 68 FR the date of the commencement of the
64648, column 3, line 34, should have Lease; and DEPARTMENT OF LABOR
read as follows: (d) After commencement of the Lease,
an additional fair market rental Employee Benefits Security
In this regard, participation in the subject
appraisal of the Leased Premises will be Administration
transactions by ERISA-Covered Plans is
limited to plans having total assets in excess performed by an independent, qualified
appraiser every thirty months with the [Application No. D–11132, et al.]
of $100 million.
rental rate being adjusted accordingly. Proposed Exemptions; Landerholm,
After giving full consideration to the For a more complete statement of the
entire record, including the written Memovich, Lansverk & Whitesides,
facts and representations supporting the
comments from the applicant, the P.S. 401(k) Profit Sharing Plan (the
Department’s decision to grant this
Department has decided to grant the Plan)
exemption, refer to the Notice of
exemption, as described, amended, Proposed Exemption published on AGENCY: Employee Benefits Security
clarified, and concurred in above. In December 17, 2003 at 68 FR 70310. Administration, Labor
this regard, the comment letter
FOR FURTHER INFORMATION CONTACT: ACTION: Notice of Proposed Exemptions.
submitted by the applicant to the
Department has been included as part of Khalif Ford of the Department,
telephone (202) 693–8540 (this is not a SUMMARY: This document contains
the public record of the exemption notices of pendency before the
application. The complete application toll-free number).
Department of Labor (the Department) of
file, including all supplemental General Information proposed exemptions from certain of the
submissions received by the The attention of interested persons is prohibited transaction restrictions of the
Department, is made available for public directed to the following: Employee Retirement Income Security
inspection in the Public Documents (1) The fact that a transaction is the Act of 1974 (the Act) and/or the Internal
Room of the Pension Welfare Benefits subject of an exemption under section Revenue Code of 1986 (the Code).
Administration, Room N–1513, U. S. 408(a) of the Act and/or section
Department of Labor, 200 Constitution Written Comments and Hearing
4975(c)(2) of the Code does not relieve Requests
Avenue, NW., Washington, DC 20210. a fiduciary or other party in interest or
For a more complete statement of the All interested persons are invited to
disqualified person from certain other
facts and representations supporting the submit written comments or requests for
provisions to which the exemption does
Department’s decision to grant this a hearing on the pending exemptions,
not apply and the general fiduciary
exemption refer to the Notice of unless otherwise stated in the Notice of
responsibility provisions of section 404
Proposed Exemption published on Proposed Exemption, within 45 days
of the Act, which among other things
November 14, 2003, at 68 FR 64643. from the date of publication of this
require a fiduciary to discharge his
FOR FURTHER INFORMATION CONTACT: Ms. duties respecting the plan solely in the Federal Register notice. Comments and
Angelena C. Le Blanc of the Department, interest of the participants and requests for a hearing should state: (1)
telephone (202) 693–8540. (This is not beneficiaries of the plan and in a the name, address, and telephone
a toll-free number.) prudent fashion in accordance with number of the person making the
Painters District Council No. 4 section 404(a)(1)(B) of the Act; nor does comment or request, and (2) the nature
Apprenticeship, Upgrading & it affect the requirement of section of the person’s interest in the exemption
Retraining Trust Fund (the Plan) 401(a) of the Code that the plan must and the manner in which the person
Located in Cheektowaga, New York operate for the exclusive benefit of the would be adversely affected by the
[Prohibited Transaction Exemption No. employees of the employer maintaining exemption. A request for a hearing must
2004–06; [Application No. L–11190] the plan and their beneficiaries; also state the issues to be addressed and
(2) This exemption is supplemental to include a general description of the
Exemption and not in derogation of, any other evidence to be presented at the hearing.
The restrictions of section 406(a) of provisions of the Act and/or the Code, ADDRESSES: All written comments and
the Act shall not apply to a lease (the including statutory or administrative requests for a hearing (at least three
Lease) of certain space (the Leased exemptions and transactional rules. copies) should be sent to the Employee
Premises) in a building (the Building) Furthermore, the fact that a transaction Benefits Security Administration
owned by the Plan to Lipsitz, Green, is subject to an administrative or (EBSA), Office of Exemption
Fahringer, Roll, Salisbury & Cambria, statutory exemption is not dispositive of Determinations, Room N–5649, U.S.
LLP (the Applicant), a party in interest whether the transaction is in fact a Department of Labor, 200 Constitution
with respect to the Plan. This exemption prohibited transaction; and Avenue, NW., Washington, DC 20210.
is conditioned upon the adherence to (3) The availability of this exemption Attention: Application No. llll,
the material facts and representations is subject to the express condition that stated in each Notice of Proposed

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13884 Federal Register / Vol. 69, No. 57 / Wednesday, March 24, 2004 / Notices

Exemption. Interested persons are also accordance with the procedures set (e) No investment management,
invited to submit comments and/or forth in 29 CFR part 2570, subpart B (55 advisory, underwriting fees or sales
hearing requests to EBSA via e-mail or FR 32836, 32847, August 10, 1990).1 commissions are paid by the Plan to AE
FAX. Any such comments or requests or any of its affiliates with regard to the
Section I. Covered Transactions
should be sent either by e-mail to: Plan’s purchase, sale or exchange of a
‘‘moffitt.betty@dol.gov’’, or by FAX to If the exemption is granted, the Contract.
(202) 219–0204 by the end of the restrictions of section 406(a) of the Act (f) All Contracts acquired by the Plan
scheduled comment period. The and the sanctions resulting from the satisfy the Trustees’ selection criteria
applications for exemption and the application of section 4975 of the Code, (the Selection Criteria). In this regard, at
comments received will be available for by reason of section 4975(c)(1)(A) the time of the transaction:
public inspection in the Public through (D) of the Code shall not apply, (1) The loan to value ratio must be
Documents Room of the Employee effective January 1, 1998, to the past 75% or less;
Benefits Security Administration, U.S. acquisition by the Plan, through its real (2) The ‘‘Total Return’’ on the
Department of Labor, Room N–1513, estate contract fund (the Fund), of real Contract is at least 1.00% above the
200 Constitution Avenue, NW., estate mortgage contracts (the Contracts) prevailing 30 year home mortgage rate;
Washington, DC 20210. from American Equities, Inc. (AE), a (3) The purchaser of the property
party in interest with respect to the provides a clean payment history and a
Notice to Interested Persons Plan. personal credit report of at least 12
Notice of the proposed exemptions In addition, if the exemption is
months’ duration;
will be provided to all interested granted, the restrictions of section
(4) The property is in good condition
persons in the manner agreed upon by 406(a) of the Act and the sanctions
with no defects discovered upon
the applicant and the Department resulting from the application of section
4975 of the Code, by reason of section inspection;
within 15 days of the date of publication
4975(c)(1)(A) through (D) of the Code, (5) A clean title report is required; and
in the Federal Register. Such notice
shall not apply to the (1) future (6) A first position lien is obtained on
shall include a copy of the notice of
acquisition by the Plan, through the the property.
proposed exemption as published in the
Federal Register and shall inform Fund, of additional Contracts from AE; (g) For prospective purchases or
interested persons of their right to (2) the sale by the Plan of any of the exchanges of Contracts by or between
comment and to request a hearing Contracts to AE; and (3) the exchange by the Plan and AE,
(where appropriate). the Plan of certain Contracts with AE for (1) The Trustees engage an
other AE contracts and/or cash. independent and unrelated consultant
SUPPLEMENTARY INFORMATION: The
(the Independent Consultant), trained
proposed exemptions were requested in Section II. General Conditions and experienced in real estate financing,
applications filed pursuant to section
This proposed exemption is to perform a written annual review of
408(a) of the Act and/or section
conditioned upon adherence to the the Plan’s Contract selection process to
4975(c)(2) of the Code, and in
material facts and representations assure that—
accordance with procedures set forth in
described herein and upon satisfaction (i) The selection process produces a
29 CFR part 2570, subpart B (55 FR
of the following general conditions: yield to the Plan consistent with
32836, 32847, August 10, 1990).
(a) Any acquisition, sale or exchange comparable market returns for first
Effective December 31, 1978, section
is approved in advance by the Plan’s mortgage investments by direct federally
102 of Reorganization Plan No. 4 of
Trustees (the Trustees), who are insured lenders in the Trustees’ market
1978, 5 U.S.C. app. 1 (1996), transferred
independent of AE and the borrowers. area;
the authority of the Secretary of the
Furthermore, the terms of each (ii) The selection process permits only
Treasury to issue exemptions of the type
transaction between the Plan and AE the purchase of Contracts which are not
requested to the Secretary of Labor.
involving the Contracts is not less subordinated to other indebtedness; and
Therefore, these notices of proposed
favorable to the Plan than those terms (iii) The selection process
exemption are issued solely by the
generally available in an arm’s length incorporates standards for loan to value
Department.
The applications contain transaction between unrelated parties. ratio and borrower credit worthiness
(b) The transactions are not a part of appropriate for qualified retirement plan
representations with regard to the
an agreement, arrangement or investments; and
proposed exemptions which are
understanding designed to benefit AE. (2) No Contracts are purchased or
summarized below. Interested persons (c) For purposes of an acquisition,
are referred to the applications on file exchanged in any year until the
sale or exchange, the cost of a Contract Independent Consultant’s review has
with the Department for a complete does not exceed its fair market value, as
statement of the facts and been issued, and the Independent
determined by the Plan’s Trustees using Consultant has the authority to require
representations. an objective appraisal methodology, and that the Plan modify or replace the
Landerholm, Memovich, Lansverk & the yield on all Contracts purchased, Selection Criteria utilized by the Plan as
Whitesides, P.S.; 401(k) Profit Sharing sold or exchanged exceeds the average a condition to issuance of its review.
Plan (the Plan); Located in Vancouver, yield of comparable mortgage contract (h) The Trustees maintain for a period
WA loans by not less then 1%. of six years, in a manner that is
(d) The aggregate fees paid to AE for accessible for audit and examination,
[Application No. D–11132]
its activities as loan servicing agent for the records necessary to enable the
Proposed Exemption the Plan at all times do not exceed persons, as described in (i) to determine
Based on the facts and representations ‘‘reasonable compensation’’ within the whether the conditions of this proposed
set forth in the application, the meaning of section 408(b)(2) of the Act. exemption have been met, except that—
Department is considering granting an 1 For purposes of this proposed exemption,
(1) A prohibited transaction will not
exemption under the authority of references to specific provisions of title I of the Act,
be considered to have occurred if, due
section 408(a) of the Act and section unless otherwise specified, refer also to to circumstances beyond the control of
4975(c)(2) of the Code and in corresponding provisions of the Code. the Trustees, the records are lost or

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Federal Register / Vol. 69, No. 57 / Wednesday, March 24, 2004 / Notices 13885

destroyed prior to the end of the six year The present Trustees of the Plan are AE acquires contracts at a discount and
period; and Irwin C. Landerholm, T. Randall Grove, sells them at less than the federally-
(2) No party in interest, other than the and Philip Janney, all of whom are insured lending rate on the secondary
Trustees, shall be subject to the civil current Landerholm shareholders. In market. AE also services contracts sold,
penalty that may be assessed under addition to the current Trustees, the if retained by the purchasers. In 1982,
section 502(i) of the Act, or to the taxes former Plan Trustees also requesting AE was retained by the Trustees to
imposed by section 4975(a) and (b) of exemptive relief are Gregory J. Dennis, present prospective Contracts that might
the Code, if the records are not William C. Dudley, and Thomas B. be appropriate for the Fund. Each
maintained, or are not available for Ericksen.3 package prepared by AE included
examination as required by paragraph 2. The Trustees determined that relevant documentation and
(h). establishing the Fund would provide performance history, as well as an
(i) Except as provided in (i)(1)-(2) and Plan participants with lower risk, better independent appraisal by a
notwithstanding any provisions of stability and superior investment knowledgeable realtor in the property’s
subsections (a)(2) and (b) of section 504 returns. Through maintenance of a pool locale, of the underlying real estate
of the Act, the records referred to in of third party Contracts in the Fund, the securing the loans.
paragraph (h) above shall be Plan Trustees determined that the risks The Trustees reviewed the proposed
unconditionally available at their of other investment options could be AE Contracts using various selection
customary location for examination balanced and the risk of loss in any criteria they had developed to evaluate
during normal business hours by— single Contract would be moderated. All the Contract’s investment worthiness. In
(1) Any duly authorized employee or of the Contracts are ‘‘whole’’ Contracts this regard (a) the loan to value ratio had
representative of the Department, the that are held in the name of the Fund. to be 75% or less; (b) the ‘‘Total Return’’
Internal Revenue Service, or the The Contracts do not represent loans on the Contract had to be at least 1.00%
Securities and Exchange Commission; from direct, federally-insured lenders, above the prevailing 30 year home
(2) Any fiduciary of the Plan who has and as a result, they normally trade at mortgage rate; (c) the purchaser of the
authority to acquire or dispose of any a discount to the current federally- property had to provide a clean
assets of the Plan, or any duly insured lending rates. A participant payment history and a personal credit
authorized employee or representative electing to have a portion of his or her report of at least 12 months’ duration;
of such fiduciary; and account invested in the Fund is (d) the property had to be in good
(3) Any participant or beneficiary of essentially investing in an open-end condition with no defects discovered
the Plans or duly authorized employee fund. In other words, from a upon inspection; (e) a clean title report
or representative of such participant or participant’s perspective, the Fund was required; and (f) a first position lien
beneficiary. includes both an undivided interest in had to be obtained on the property. If
all Contracts held by the Fund at the the Contract was to be purchased by the
EFFECTIVE DATE: If granted, this proposed
time an investment is made, as well as Plan, it was required to pass all of the
exemption will be effective as of January Selection Criteria. Since AE has no
1, 1998 with respect to the Plan’s past in each new Contract purchased as new
participant funds become available and discretionary authority over the Plan’s
acquisition of the Contracts, and assets, the decision to invest in the
effective as of the date of publication of Contracts are retired or paid off.
3. For the Plan year 2002, the Plan’s Contracts rested solely with the
the final exemption in the Federal Trustees. Moreover, the terms reflected
Register for future acquisitions, sales or Form 5500 reported 71 currently active,
retired, or separated participants and/or arm’s length dealings between the
exchanges of additional Contracts by the parties.
Plan. beneficiaries entitled to receive benefits.
The Plan’s total assets were reported at 5. In developing the Selection
Summary of Facts and Representations $6,265,141 as of July 25, 2003. Criteria, the Applicants state that the
4. AE, which is located in Vancouver, overall purpose was to ensure that
1. The Plan is a defined contribution selected Contracts met the Fund’s
plan sponsored by Landerholm, Washington, is a company that is
primarily engaged in the purchase and investment strategy. To evaluate
Memovich, Lansverk & Whitesides, P.S. whether each factor had been met,
(Landerholm), a professional services resale of real estate contracts, such as
the subject Contracts described herein.4 Landerholm utilized the expertise of its
corporation located in Vancouver, real estate and investment and lending
Washington. The Plan includes both 3 For purposes of this proposed exemption, the practice groups.5 Once the screening
401(k) and profit sharing contributions.2 current and former Trustees are collectively referred
Participant accounts are invested, at the to herein as the Trustees. Also, Landerholm and the In addition, PTCE 1982–87 defines the term
participants’ discretion, in one of 13 Trustees are collectively referred to herein as the ‘‘recognized mortgage loan’’ as any mortgage loan
mutual funds available or in the Fund, Applicants. on a ‘‘residential dwelling unit’’ which, at the time
4 Prohibited Transaction Class Exemption (PTCE) of its origination, was eligible, through an
a real estate fund holding mortgages, established program, for purchase by the FNMA,
1982–87 (47 FR 21331, May 8, 1982) defines the
deeds of trust and real estate contracts. term ‘‘established mortgage lender’’ as an organized the Government National Mortgage Association or
business enterprise which has as one of its the FHLMC.
2 The Applicants represent that although the principal purposes in the normal course of business The Applicants represent that, in their opinion,
Trustees have not sought to designate the Plan an the origination of loans secured by real estate AE is not an ‘‘established mortgage lender’’ nor
ERISA section ‘‘404 (c) plan,’’ they state that the mortgages or deeds of trust and which has satisfied would any of the Contracts be characterized as
level of investment discretion participants can the qualification requirements of one of the ‘‘recognized mortgage loans’’ within the meaning of
exercise under the Plan is consistent with section following categories: (1) Approval by the Secretary PTCE 1982–87 because AE does not have the
404 (c) of the Act and the regulations promulgated of the Department of Housing and Urban requisite authority from state or federal regulatory
thereunder. The Applicants explain that in the Development for participation in any mortgage agencies, as described in PTCE 1982–87, and the
future, they intend to be fully compliant with insurance program under the National Housing Act; Contracts purchased and resold by AE do not
section 404 (c) of the Act. Hence, every participant (2) approval by the Federal National Mortgage originate from an established program, as described
will have identical discretionary authority over his Association (FNMA) or the Federal Home Loan in PTCE 1982–87.
account and they may invest in any combination of Mortgage Corporation (FHLMC) as a qualified 5 The Applicants state that the Landerholm firm

the 13 mutual funds offered under the Plan or the Seller/Servicer; or (3) a State agency or independent has a large and active real estate practice
Fund. The Applicants further explain that no State authority empowered by State law to raise representing brokerage firms, developers, investors,
charges or penalties will accrue as a result of any capital to provide financing for residential dwelling lenders, and businesses in all matters pertaining to
exercise by a participant of direction rights. units. Continued

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13886 Federal Register / Vol. 69, No. 57 / Wednesday, March 24, 2004 / Notices

process was completed and the Trustees The Applicants represent that this with respect to the Plan’s acquisition
agreed that certain Contracts were in the method for determining fair market and holding of the Contracts.8
best interest of the Plan’s investment value simulates rate adjustments that Accordingly, the Applicants request
strategy, the Plan purchased the take place in the bond market that either an administrative exemption from the
Contracts on behalf of the Fund. result in a sale premium or a discount Department in connection with the
Initially, Landerholm attempted to at the time of purchase. Moreover, the Plan’s past acquisition of the Contracts
service the Contracts in-house, but it Applicants state that the 1% above from AE. In addition, the Applicants
determined that it was more costly and prevailing average mortgage yields request prospective exemptive relief
cumbersome than to outsource the task. provided a further investment safeguard with respect to the Plan’s future
During this period, Landerholm bore the for the Fund. Finally, the Plan paid no acquisition of additional Contracts from
costs associated with servicing the fees or commissions to AE in AE, the Plan’s holding of such future
Contracts. Subsequently, Landerholm connection with the Contract purchases. Contracts, the sale of the Contracts to
decided that AE should be retained to 7. Since the creation of the Fund, the AE by the Plan, and the exchange by the
service the Contracts and it would have Applicants represent that 51 Contracts Plan of such Contracts with AE for other
no discretionary control over any of the have been retired, 26 Contracts are Contracts and/or cash. If granted, the
Fund’s assets with respect to default under current management, 2 have been proposed exemption will be effective as
decisions and other determinations. AE foreclosed upon, and 3 have defaulted. of January 1, 1998, with respect to the
began charging a service fee of $4 to $8 The foreclosed Contracts resulted in the Plan’s past acquisitions and holding of
per month per Contract and an initial sale of the underlying real properties by the Contracts. The exemption will be
set-up fee of $50 per Contract.6 the Plan to unrelated third party prospective with respect to additional
During the period between April 11, purchasers. Of the defaulted Contracts, purchases of Contracts by the Plan from
1994, through October 19, 2001, the 1 has been cured and 2 are in the AE, the holding of such Contracts by the
Plan acquired 26 Contracts on behalf of process of being cured.7 Plan and the Sale or exchange of the
the Fund from AE. The maturity dates Furthermore, no Contract has Contracts.
range from July 1, 2002, through involved a borrower who is a party in 9. For prospective acquisitions of
September 27, 2020, according to an interest with respect to the Plan. Within additional Contracts by the Plan from
October 2001 spread sheet submitted by the past five years, the Applicants AE, the Trustees will follow the
the Applicants. The Contracts consisted represent that the Fund has following guidelines:
of a mortgage and several real estate outperformed the mutual funds and has • The terms of the transactions
contracts and deeds of trust. The insulated the Plan from some of the between the Plan and AE involving the
Applicants state that as of December 31, market volatility to which traditional Contracts must not be less favorable to
2002, which is the most recent date that securities investments are susceptible. the Plan than those terms generally
financial information is available, the The Fund’s annual return has ranged available in an arm’s length transaction
Fund had 21 participating individual from 4.10% to 9.73%, whereas the between unrelated parties.
accounts. mutual fund return has ranged from • The transactions are not a part of an
6. At the time the Contracts were (¥11.71%) to 24.94%. agreement, arrangement or
purchased, the Plan paid AE fair market According to the Applicants, at no understanding designed to benefit AE.
value for the Contracts. The purchase time during the Fund’s inception did • The cost of a Contract must not
price was determined by adjusting the the Trustees or Landerholm realize that exceed its fair market value, as
offered Contract’s rate to that of the having AE as Contract seller and service determined by the Trustees using an
prevailing market rate. In this regard, provider raised the issue of a possible objective appraisal methodology, and
the Trustees obtained the prevailing prohibited transaction. The Applicants the yield on all Contracts purchased
market rate by measuring each state that the Plan would have must exceed the average yield of
prospective Contract’s yield (i.e., the continued to acquire Contracts from AE comparable mortgage contract loans by
interest rate plus a discount) against the had it not been for the Department’s no less than 1%.
then current lending rates of Seattle Regional Office (SRO) • The aggregate fees paid to AE for its
independent local lending institutions investigation into employee benefit activities as loan servicing agent for the
(typically, First Independent Bank and plans holding mortgage notes. Plan, have, and at all times, represent
U.S. Bank) all within the vicinity of 8. On December 1, 2002, Landerholm reasonable compensation for services
Vancouver, Washington. In addition to entered into a tolling agreement (the necessary for the operation of the Plan
ensuring that the rate of return was Tolling Agreement) with the SRO as a in accordance with section 408(b)(2) of
current through the time of purchase, result of the SRO’s investigation of the the Act.
the Trustees required each Contract to Contracts held by the Plan. Pursuant to • No investment management,
exceed the average yield of mortgage the Tolling Agreement, the SRO advisory, underwriting fees or sales
rates by no less than 1% in order that recommended that the Applicants seek commissions must be paid by the Plan
the Plan could capture a higher return. exemptive relief from the Department to AE or any of its affiliates with regard
to the Plan’s purchase of additional
the acquisition, development, financing, sale and 7 The Applicants state that curing refers to the Contracts.
leasing of real estate. Thus, the Applicants believe
process of removing whatever default exists in a • All Contracts acquired by the Plan
Landerholm possesses skill sufficient to determine
the appropriate fair market value of the Contracts Contract to make it current. For instance, if a must satisfy the Trustees’ Selection
it acquires, sells or exchanges. Contract is 3 months in arrears, it will be cured if Criteria. In this regard, (1) the loan to
the borrower makes a payment to bring the loan
6 Although the Applicants represent that the fees
current.
value ratio must be 75% or less; (2) the
paid to AE for servicing the Contracts are ‘‘Total Return’’ on the Contract must be
reasonable compensation for services necessary for As of February 10, 2004, the Applicants represent
the operation of the Plan in accordance with section that three Contracts were in default status. All three
408(b)(2) of the Act, the Department expresses no properties were eventually sold, with the proceeds 8 Due to the Act’s statute of limitations, the

opinion herein on whether such compensation paid going to the Plan to pay in full the Contract Department does not propose to extend retroactive
to AE in connection with its provision of services balances outstanding. Two of the Contract balances relief for any of the purchases that took place
to the Plan satisfies the terms and conditions of were paid in full on December 12, 2003. The between 1982 through 1997. Therefore, the
section 408(b)(2) of the Act and the regulations property on the third Contract was sold and funds retroactive exemption will apply to purchases of
promulgated thereunder. to pay the balance in full are forthcoming. Contracts occurring after January 1, 1998.

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Federal Register / Vol. 69, No. 57 / Wednesday, March 24, 2004 / Notices 13887

at least 1.00% above the prevailing 30 Consultant will take place prior to the favorable to the Plan than those terms
year home mortgage rate; (3) the beginning of each Plan Year during generally available in an arm’s length
purchaser of the property must provide which the Plan will purchase additional transaction.
a clean payment history and a personal Contracts from AE. (b) The transactions are not a part of
credit report of at least 12 months’ 10. The Applicants represent that at
some point, it may become advisable to an agreement, arrangement or
duration; (4) the property must be in
sell one or more of the Contracts, held understanding designed to benefit AE.
good condition with no defects
discovered upon inspection; (5) a clean by the Fund, to AE. Under such (c) For purposes of an acquisition,
title report must be required; and (6) a circumstances, the Applicants explain sale or exchange, the cost of a Contract
first position lien must be obtained on that a sale would favor the Plan by has not exceeded and will not exceed its
the property. permitting the purchase of a more fair market value, and the yield on all
• The Trustees maintain for a period favorable Contract or providing the Contracts have exceeded and will
of six years, in a manner that is Fund with additional liquidity in order exceed the average yield of comparable
accessible for audit and examination, to make distributions or transfers mortgage contract loans.
the records necessary to enable (1) any between funds, as participants may
elect. Therefore, the Applicants (d) The aggregate fees paid to AE for
duly authorized employee or its activities as loan servicing agent for
representative of the Department, the represent that any prospective sales of
Contracts by the Plan to AE would the Plan have represented and will
Internal Revenue Service, or the
include the same safeguards applicable represent, at all times, reasonable
Securities and Exchange Commission;
to the prospective acquisitions by the compensation for services necessary for
(2) any fiduciary of the Plan who has
authority to acquire or dispose of any Plan, as set forth in Representation 9 of the operation of the Plan in accordance
assets of the Plan, or any duly the proposal. In addition, the with section 408(b)(2) of the Act.
authorized employee or representative Applicants state that such a sale by the (e) No investment management,
of such fiduciary; and (3) any Plan to AE would only be for cash. advisory, underwriting fees or sales
participant or beneficiary of the Plans or 11. The Applicants represent that commissions have been paid or will be
duly authorized employee or since AE is one of the larger marketers paid by the Plan to AE in connection
representative of such participant or of Contracts in the Southwestern
with the purchase, sale or exchange of
beneficiary to determine whether the Washington area, engaging in an
a Contract.
conditions of this proposed exemption exchange of existing Contracts with AE
would be beneficial to the Plan. Such an (f) All Contracts acquired by the Plan
have been met.
exchange, the Applicants state, would have satisfied or will satisfy the
In addition, the Trustees will retain occur where the Trustees have Trustees’ Selection Criteria.
an Independent Consultant to perform considered the Plan’s liquidity needs
an annual review of the Plan’s current (g) For prospective purchases or
and determined that it would be in the exchanges of Contracts by or between
Selection Criteria to ensure that the best interests of the Plan to dispose of
selection process produces a yield to the the Plan and AE, (1) the Trustees will
a large Contract in exchange for a
Plan consistent with comparable market engage an Independent Consultant.
combination of cash and smaller
returns for first mortgage investments by Contracts from AE. The Applicants (h) The Trustees have maintained and
independent, direct federally-insured propose that an exchange transaction will maintain, at their customary
lenders in Landerholm’s market area. will be subject to all of the safeguards location for examination during normal
Such Independent Consultant will be a already required for prospective business hours, the records necessary to
certified public accountant having acquisitions, as described in enable certain persons to determine
substantial experience in real estate Representation 9. whether the conditions of the
financing. The Independent Consultant 12. In addition, for each prospective exemption have been met.
will perform its annual review prior to sale or exchange transaction, the fair
the purchase of any further Contracts by market value of a Contract will be Notice to Interested Persons
the Plan. The Independent Consultant determined by the Trustees using an
will have the authority to modify or Notice of proposed exemption will be
objective appraisal methodology.
replace the Plan’s Selection Criteria to provided to all interested persons by
Further, such transactions will be
the extent the Independent Consultant first class mail within 10 days of
subject to the Selection Criteria
believes such modification or described above, which will be publication of the notice of pendency in
replacement is necessary for the Plan’s reviewed and approved annually by the the Federal Register. Such notice shall
Selection Criteria to comply with Independent Consultant, to ensure that include a copy of the notice of
Selection Criteria customarily employed the Plan receives neither less than fair pendency, as published in the Federal
in the purchase of Contracts within the market value or pays more than fair Register, and supplemental statement,
Plan’s market area. The Independent market value for a Contract sold or as required pursuant to 29 CFR
Consultant will also review the Plan’s exchanged. 2570.43(b)(2), which shall inform
valuation methodology for the Contracts 13. In summary, it is represented that interested persons of their right to
to ensure that the Plan’s methodology the transactions have satisfied or will comment on the proposed exemption.
will permit the purchase of Contracts satisfy the statutory criteria for an Comments are due within 40 days of the
only where the Plan’s security interest exemption under section 408(a) of the date of publication of the proposed
is not subordinate to any other Act because: exemption in the Federal Register.
indebtedness, and where the credit (a) Any acquisition, sale or exchange
worthiness of the borrower and the loan will be approved in advance by the FOR FURTHER INFORMATION CONTACT: Ms.
to value ratio of the underlying real Plan’s Trustees, who are independent of Silvia M. Quezada of the Department,
estate held as security are appropriate AE and the borrowers. Furthermore, the telephone (202) 693–8553. (This is not
for qualified retirement plan terms of each transaction between the a toll-free number.)
investments. This review of Plan Plan and AE involving the Contracts
methodology by the Independent have not been and will not be less

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13888 Federal Register / Vol. 69, No. 57 / Wednesday, March 24, 2004 / Notices

DuPont Capital Asset Management (1) A private offering memorandum performed in the same manner and at
Corporation (DCMC); Located in describing the transaction; the close of business on the same day in
Wilmington, DE (2) A table listing management fees, as accordance with Securities Exchange
negotiated under the applicable Commission Rule 17a–7 under the
[Application Nos. D–11157—D–11159]
investment management agreements, Investment Company Act of 1940 (the
Proposed Exemption and projected costs; 1940 Act), as amended (Rule 17a–7),
Based on the facts and representations (3) A chart showing the effect of such (using sources independent of DCMC),
set forth in the application, the fees and costs on an investment in the and the procedures established by the
Department is considering granting an Group Trust for different amounts of Master Trust to Rule 17a–7.
exemption under the authority of Debt Securities managed in the Group (f) Fair market value of the Debt
section 408(a) of the Act (or ERISA) and Trust; Securities for which a current market
(4) A statement of the reasons why price can be obtained is determined by
section 4975(c)(2) of the Code and in
DCMC may consider such investment to reference to the last sale price for
accordance with the procedures set
be appropriate for the DuPont Plans; transactions reported in the
forth in 29 CFR part 2570, subpart B (55
(5) A statement on whether there are consolidated transaction reporting
FR 32836, August 10, 1996).9
any limitations applicable to DCMC system (the Consolidated System), a
Section I. Covered Transactions with respect to which assets of a DuPont recognized securities exchange, or the
If the exemption is granted, the Plan may be invested in the Group Trust National Association of Securities
restrictions of sections 406(a), 406(b)(1) and the nature of such limitations; and Dealers Automated Quotation System
(6) Copies of the proposed and final (the NASDAQ System). If there are no
and (b)(2) of the Act and the sanctions
exemption. reported transactions or if the Debt
resulting from the application of section
(b) On the basis of the foregoing
4975 of the Code by reason of section Securities are not quoted in the
information, the Independent Fiduciary
4975(c)(1)(A) through (E) of the Code NASDAQ System, fair market value is
authorizes, in writing, the in kind
shall not apply to the in kind transfer of determined by taking the average of the
transfer of the Debt Securities that are
certain debt securities (the Debt highest current independent bid and
held on behalf of the DuPont Plans in
Securities) that are held in the DuPont lowest current independent ask prices
the Master Trust to a series of subtrusts
and Related Companies Defined as of the close of business as provided
under the Group Trust, in exchange for
Contribution Plan Master Trust (the to the Master Trust’s investment
units in the Group Trust. Such
Master Trust) in which the assets of the managers and the trustee of the Group
authorization is to be consistent with
E.I. du Pont de Nemours and Company Trust by three independent third-party
the responsibilities, obligations, and
Savings and Investment Plan (the SIP), commercial pricing sources. If a price is
duties imposed on fiduciaries by part 4
the DuPont Specialty Grains Savings unavailable through such sources, the
of title I of the Act. Specifically, the
Plan (the DSG Savings Plan), and the Master Trust’s investment managers
Independent Fiduciary, before
Thrift Plan for Employees of Sentinel solicit bids from at least three
authorizing the transfer of assets by the
Transportation Company (the Sentinel independent dealers who stand ready to
DuPont Plans from the Master Trust to
Thrift Plan; collectively, the DuPont trade at such bids. All commercial
the Group Trust, determines that:
Plans) invest, in exchange for units in a (1) The terms of the in kind transfer pricing sources and dealers are pre-
newly-established group trust (the transaction, are fair to the participants approved by the such investment
Group Trust), where DCMC, a wholly in the DuPont Plans, and are managers. The fair market value of any
owned subsidiary of E.I. duPont de comparable to, and no less favorable illiquid debt securities is provided to
Nemours and Company (DuPont), one of than, terms obtainable at arm’s length the Independent Fiduciary by DCMC for
the sponsors of the DuPont Plans, acts between unaffiliated parties; and review and approval of the methodology
as both a fiduciary for the Master Trust (2) The in kind transfer transaction is and the application of such
and the Group Trust. in the best interest of the DuPont Plans methodology in valuing such Debt
and their participants and beneficiaries. Securities.
Section II. Specific Conditions
(c) No sales commissions, fees or (g) DCMC provides, within 30 days
This proposed exemption is subject to other costs are paid by the DuPont Plans after the completion of the proposed
the following conditions: in connection with the in kind transfer transaction, a confirmation statement to
(a) A fiduciary (the Independent the Independent Fiduciary containing
transaction. Furthermore, no additional
Fiduciary), who is acting on behalf of the following information:
management fees are charged to the
the DuPont Plans, who is independent (1) The identity of each Debt Security
DuPont Plans by DCMC in the Group
of and unrelated to DuPont and its that DCMC deemed suitable for transfer
Trust.
subsidiaries, as defined in paragraph (e) (d) The in kind transfer transaction is from the Master Trust to the Group
of Section IV below, has the opportunity a one-time transaction for the DuPont Trust;
to review the proposed in kind transfer Plans, the transferred assets constitute a (2) The current market price of each
of the Debt Securities that are held in pro rata portion of all of the assets of the Debt Security for purposes of the
the Master Trust, to the Group Trust, in DuPont Plans that are held in the total transfer, as determined on the date of
exchange for units in the Group Trust, return tier portion of the DuPont Stable such in kind transfer;
and receives, in advance of the Value Fund (the Fund) within the (3) The identity of each Debt Security
investment by the Master Trust in the Master Trust prior to the transfer. that does not fall into at least one of the
Group Trust, full written disclosures (e) The per unit value of the units following categories: (i) A reported
concerning the Group Trust, which representing interests in the subtrusts security; (ii) a security principally
include, but are not limited to the created under the Group Trust that are traded on an exchange; or (iii) a security
following: issued to each DuPont Plan have an quoted on the NASDAQ System;
9 For purposes of this proposed exemption,
aggregate value that is equal to the value (4) The identity of each pricing
references to specific provisions of the title I of Act,
of the Debt Securities transferred to the service or market maker consulted in
unless otherwise specified, refer also to the Group Trust on the date of the transfer, determining the fair market value of the
corresponding provisions of the Code. as determined in a single valuation Debt Securities, and

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Federal Register / Vol. 69, No. 57 / Wednesday, March 24, 2004 / Notices 13889

(5) The aggregate dollar value of the (b)(1) Except as provided in paragraph unrelated to DCMC if: (1) Such fiduciary
Debt Securities that were held on behalf (b)(2) of this Section III, and directly or indirectly controls, is
of the DuPont Plans in the Master Trust notwithstanding any provisions of controlled by or is under common
immediately before the in kind transfer, sections 504(a)(2) and (b) of the Act, the control with DCMC; (2) such fiduciary
and the number of Group Trust units records referred to in paragraph (a) are directly or indirectly receives any
held by the Master Trust for the DuPont unconditionally available at their compensation or other consideration in
Plans immediately after the transfer (the customary location for examination connection with any transaction
related per unit value and the aggregate during normal business hours by: described in this proposed exemption,
value). (i) Any duly authorized employee or except that an Independent Fiduciary
(h) After the transfer of Debt representative of the Department or the may receive compensation for acting as
Securities from the Master Trust to the Internal Revenue Service; an Independent Fiduciary from DCMC
Group Trust, the Independent Fiduciary (ii) The Independent Fiduciary in connection with the transaction
performs a review verifying the pricing described in paragraph (e) of Section IV; contemplated herein if the amount of
information supplied by the investment or payment of such compensation is not
managers and the Group Trustee. (iii) Any participant or beneficiary of contingent upon or in any way affected
(i) The Debt Securities that are the DuPont Plans or any duly by the Independent Fiduciary’s ultimate
transferred from the Master Trust to the authorized employee or representative decision; and (3) the annual gross
Group Trust are valued using the same of such participant or beneficiary. revenue received by such fiduciary from
methodology currently used by the (2) None of the persons described in DCMC and its affiliates during any year
Master Trust to value such securities. paragraph (b)(1)(ii) and (iii) of this of its engagement, exceeds 5 percent
Similarly, the Group Trust uses the Section III shall be authorized to (5%) of the Independent Fiduciary’s
same valuation methodology. examine trade secrets of DCMC, or annual gross revenue from all sources
(j) DCMC does not execute the in kind commercial or financial information for its prior tax year.
transfer transaction unless the which is privileged or confidential. (f) The term ‘‘transferable securities’’
Independent Fiduciary for the DuPont Section IV. Definitions means securities (1) for which market
Plans consents to such in kind transfer quotations are readily available (as
For the purposes of this proposed
in writing. determined under Rule 17a-7 of the
exemption,
(k) DCMC does not execute the in (a) The term ‘‘DCMC’’ means DuPont 1940 Act) and (2) which are not: (i)
kind transfer transaction unless the Capital Management Corporation and Securities which, if distributed, would
wrap contracts issued by certain any affiliate of DCMC, as defined below require registration under the Securities
unrelated banks and insurance in Section IV(b). Exchange Act of 1933 (the 1933 Act); (ii)
companies to the Master Trust agree in (b) An ‘‘affiliate’’ of a person includes: securities issued by entities in countries
advance to maintain the then-current (1) Any person directly or indirectly which (a) restrict or prohibit the holding
book value for accounting purposes through one or more intermediaries, of securities by non-nationals other than
with respect to the assets transferred to controlling, controlled by, or under through qualified investment vehicles,
the Group Trust. In addition, DCMC common control with the person; such as the Mutual Funds, or (b) permit
absorbs all costs associated with the (2) Any officer, director, employee, transfers of ownership of securities to be
commitments. relative, or partner in any such person; effected only by transactions conducted
(l) Each of the DuPont Plan’s dealings and on a local stock exchange; (iii) certain
with the Master Trust, the Group Trust (3) Any corporation or partnership of portfolio positions (such as forward
and DCMC is on a basis that is no less which such person is an officer, foreign currency contracts, futures, and
favorable to such Plan than dealings director, partner, or employee. options contracts, swap transactions,
between the Group Trust and other (c) The term ‘‘control’’ means the certificates of deposit and repurchase
holders of Group Trust units. power to exercise a controlling agreements) that, although they may be
influence over the management or liquid and marketable, involve the
Section III. General Conditions
policies of a person other than an assumption of contractual obligations,
This proposed exemption is subject to individual. require special trading facilities or can
the following general conditions: (d) The term ‘‘relative’’ means a only be traded with the counter-party to
(a) DCMC maintains for a period of six ‘‘relative,’’ as that term is defined in the transaction to effect a change in
years the records necessary to enable the section 3(15) of the Act, (or a ‘‘member beneficial ownership; (iv) cash
persons described below in paragraph of the family,’’ as that term is defined in equivalents (such as certificates of
(b) of this Section III to determine section 4975(e)(6) of the Code), or a deposit, commercial paper and
whether the conditions of this brother, a sister, or a spouse of a brother repurchase agreements) which are not
exemption have been met, except that or a sister. readily distributable; (v) other assets
(1) a prohibited transaction will not be (e) The term ‘‘Independent Fiduciary’’ which are not readily distributable
considered to have occurred if, due to means a fiduciary who is: (1) (including receivables and prepaid
circumstances beyond the control of independent of and unrelated to DCMC expenses), net of all liabilities
DCMC, the records are lost or destroyed and its affiliates, and (2) appointed to (including accounts payable); and (vi)
prior to the end of the six year period, act on behalf of the Plan for all purposes securities subject to ‘‘stop transfer’’
and (2) no party in interest other than related to, but not limited to, (A) the in instructions or similar contractual
DCMC shall be subject to the civil kind transfer of the Debt Securities by restrictions on transfer. Notwithstanding
penalty that may be assessed under the Master Trust to the Group Trust, (B) the above, the term ‘‘transferrable
section 502(i) of the Act or to the taxes the Group Trust, in turn, transferring securities’’ also includes securities that
imposed by section 4975(a) and (b) of units equal in value to the assets of the are considered private placements
the Code if the records are not Master Trust held in certain stable value intended for large institutional
maintained or are not available for funds. For purposes of this proposed investors, pursuant to Rule 144A under
examination as required by paragraph exemption, a fiduciary will not be the 1933 Act, which are valued by the
(b) below. deemed to be independent of and unrelated investments managers for the

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13890 Federal Register / Vol. 69, No. 57 / Wednesday, March 24, 2004 / Notices

DuPont Stable Value Fund (the Fund), market value of the DuPont Plans’ assets and the total return tier each comprise
or if applicable, by the Independent as of January 31, 2004 exceeded $9.5 approximately 50% of the Fund’s assets.
Fiduciary, which will confirm and billion. The overall rate of return on the Fund
approve all such valuations. The Named Fiduciary of each DuPont represents a combination of the rates of
Plan is responsible for the selection of return of each of the tiers.
Summary of Facts and Representations investment options for such Plan and 4. The proposed Group Trust, which
1. DCMC, a wholly owned subsidiary for the selection of investment advisers will be utilized for the total return tier
of DuPont, is a registered investment and managers.13 Each DuPont Plan of the Fund, will be a group trust
adviser under the Investment Advisers permits the Named Fiduciary to appoint described in Rev. Rul. 81–100. The
Act of 1940. DCMC is intended to investment managers and to delegate to Group Trustee, which has been selected
qualify as an ‘‘in house asset manager’’ an investment manager the authority to by DCMC, will be State Street Bank &
or ‘‘INHAM’’ 10 with respect to the appoint additional investment Trust (SSB), a subsidiary of State Street
DuPont Plans. DCMC acts as investment managers. The Named Fiduciary of each Corporation.16 SSB will act as a directed
manager with respect to the Fund, DuPont Plan has delegated investment trustee with respect to the Group
which is offered as an investment fiduciary authority with respect to Trust.17
option under each of the DuPont Plans. investment in the Fund to the Vice 5. Besides the DuPont Plans, the
The assets of the Fund are held in the President DuPont Capital Management Investment Plan for Salaried Employees
Master Trust. DCMC is responsible for (DCM), 14 who, in turn, has entered into of CONSOL Energy, Inc. (the CONSOL
managing the Fund, including certain an investment management agreement Energy Plan) a defined contribution
underlying Debt Securities that, together with DCMC to manage assets of the plan sponsored by CONSOL Energy, Inc.
with certain bank and insurance Fund and to appoint additional (CONSOL Energy), an employer who is
contracts, constitute a portion of the investment managers to manage assets not affiliated with DuPont but for which
synthetic guaranteed investment of the Fund. DCMC has been appointed as an
contracts held by the Fund. However, 3. The Fund constitutes one of several investment manager, may participate in
DCMC directly manages approximately investment options made available to the establishment of the Group Trust.
20% of the Debt Securities, valued in participants in the DuPont Plans, and as CONSOL Energy was previously a
excess of $3.5 billion, and it has of September 30, 2002, it represented wholly owned business of DuPont. In
appointed four outside investment more than 60% of total combined assets connection with the divestiture of
managers to manage the remainder of of such plans. The Fund is a ‘‘stable CONSOL Energy, assets were transferred
the debt securities. DCMC receives no value fund’’ with an investment to a stable value fund established under
fees for its services to the DuPont Plans, objective of providing a stable rate of the CONSOL Energy Plan. As of
but it does charge back to the DuPont return that exceeds the rate of return on September 30, 2003, the CONSOL
Plans, a pro rata share of direct costs money market funds with comparable Energy Plan had total assets of
related to its management activities. risk. The Fund is also managed to $917,209,067.07 and 5,560 participants.
2. The DuPont Plans are tax-qualified, accommodate daily participant-related The Independent Fiduciary of the
defined contribution plans described in liquidity needs as provided by the CONSOL Energy Plan appointed DCMC
section 401(a) of the Code. Each of the DuPont Plans. As such, the Fund is as an investment manager of the Plan’s
DuPont Plans offers a ‘‘cash or deferred structured into two tiers (a) a ‘‘liquidity stable value fund and of the underlying
arrangement,’’ matching contributions, tier,’’ which holds cash and other Debt Securities in such fund. As with
and may also offer discretionary marketable securities consisting of one the Fund, DCMC has appointed four
employer contributions. Each of the or two short-term synthetic guaranteed
DuPont Plans offers a selection of investment contracts (synthetic GICs), portfolio over a crediting period. Wrap contracts are
which are backed by mutual or typically issued by banks and insurance companies.
investment options to participants in a Synthetic GICs became an important component of
manner intended to satisfy the commingled bond funds, maturing stable value funds after the collapse of a few large
requirements of an ERISA ‘‘section guaranteed investment contracts (GICs), GIC issuers in the early 1990’s. Since the investing
404(c) plan.’’ 11 Several of the maturing separate account GICs, and or plan retains the portfolio of debt securities
maturing synthetic GICs; and (b) a ‘‘total underlying the synthetic GIC, the potential loss to
investment options offered to ERISA the plan is limited to the value of the wrap
section 404(c) plans are common among return tier’’ consisting entirely of contracts.
the DuPont Plans, including the Fund. synthetic GICs, which are managed on 16 DCMC is not affiliated with any banks or

The common funds are pooled under a total return basis with no established insurance companies used as wrap providers for the
the Master Trust while investment maturity date (known as ‘‘evergreen Fund. State Street Global Advisors (SSGA), a
synthetic GICs’’).15 The liquidity tier division of SSC, and DCMC are 50–50 joint venture
options that are unique to a DuPont Plan partners in Wilton Asset Management, a marketer
are held under a separate trust. The of closed-end private equity funds, SSB has not
31, 2004, the DSG Savings Plan covered issued wrap contracts to the DuPont Plans and it
separate trusts and the Master Trust are approximately 91 participants and it had total is not anticipated that SSB will issue wrap contracts
exempt from taxation under the assets of approximately $8.6 million. Generally, to Plans that invest in the Group Trust.
provisions of section 501(a) of the Code. there is no overlap of participants. Furthermore, SSB will not have any role in the
As of January 31, 2004, the DuPont 13 The Named Fiduciary for SIP is the Vice
selection of the wrap issuers or investment
Plans covered approximately 68,000 President of DuPont Capital Management; Named managers.
Fiduciary authority for the Sentinel Thrift Plan is 17 As Group Trustee, SSB will be entitled to
participants and beneficiaries.12 The fair divided between Sentinel Transportation, L.L.C. receive the following fees relating to the Group
and an Employee Benefit Plans Board; and the Trust: asset-based fees, transaction fees, pooled
10 See Prohibited Transaction Class Exemption Named Fiduciary for the DSG Savings Plan is accounting fees, performance reporting fees,
(PTCE) 96–23 (61 FR 15975, April 10, 1996) (the Optimum Quality Grains, Inc. securities lending fees, short-term investment fees,
INHAM Exemption). 14 DCM is a division of DuPont, while DCMC is
and reimbursement for audit, courier,
11 See 29 CFR 2550.404c–1. a wholly owned subsidiary of DuPont. communication and other applicable miscellaneous
12 As of January 31, 2004, the SIP covered 15 Unlike traditional GICs which contain a expenses. According to DCMC, these fees are
approximately 66,866 participants and it had total contractual promise to pay a specified rate of statutorily exempt under section 408(b)(2) of the
assets in excess of $9.5 billion. As of January 31, interest over the life of the contract, a synthetic GIC Act and the regulations promulgated thereunder.
2004, the Sentinel Thrift Plan covered consists of a discreet portfolio of debt securities and However, the Department expresses no opinion
approximately 485 participants and it had total a ‘‘wrap’’ contract associated with the portfolio that herein on whether such fees satisfy the
assets of approximately $22.1 million. As of January guarantees a rate of return with respect to the requirements of section 408(b)(2) of the Act.

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investment managers to assist in the transaction; 18 (b) a table listing secure commitments from the banks and
management of the Debt Securities in management fees, as negotiated under insurance companies which issued the
the CONSOL Energy Plan’s stable value the applicable investment management wrap contracts to substitute the Group
fund. agreements, and projected costs; (c) a Trust units under the wrap contracts for
DCMC has not secured any chart showing the effect of such fees and the Debt Securities that are transferred
commitments from the CONSOL Energy costs on an investment in the Group to the Group Trust. DCMC will cover
Plan to participate in the Group Trust. Trust for different amounts of Debt any additional costs associated with the
However, it anticipates such Plan’s Securities managed in the Group Trust; wrap contract commitments. Under the
investment. If the CONSOL Energy Plan (d) a statement of the reasons why terms of the agreement, the book value
does choose to participate in the Group DCMC may consider such investment to of the evergreen synthetic GICs as a
Trust, DCMC does not believe there be appropriate for the DuPont Plans; (e) whole after the substitution of Group
would be a violation of section a statement of whether there are any Trust units will not be less than the
406(a)(1)(D) of the Act because the limitations applicable to DCMC with book value of the evergreen synthetic
decision to invest in the Group Trust respect to which assets of a DuPont Plan GICs prior to the transfer of Debt
will be made by a fiduciary for the may be invested in the Group Trust and Securities to the Group Trust.21
CONSOL Energy Plan who is the nature of such limitations; and (f) 9. Accordingly, DCMC requests an
independent of DuPont and its copies of the proposed and final administrative exemption from the
subsidiaries. DCMC states that the fact exemption. Department in order to allow it to
that it will realize a benefit incidental to As stated above, DCMC will establish engage in the in kind transfer
the transaction does not cause the the Group Trust as a trust intended to transaction. It is represented that the
transaction to violate section qualify as tax-exempt under Rev. Rul. exchange of Debt Securities held by the
406(a)(1)(D) of the Act. Therefore, this 81–100. DCMC will then, upon approval Master Trust through the Fund for
exemption will apply only to the of the Independent Fiduciary, transfer Group Trust units constitutes a
DuPont Plans currently investing in the the Debt Securities under DCMC’s prohibited transaction described in
Master Trust. management into five separate funds or section 406(a) of the Act due to the ‘‘sale
In addition, to the DuPont Plans and subtrusts established under the Group or exchange’’ of plan assets for Group
potentially, the CONSOL Energy Plan, Trust for each investment manager of Trust units. It is also represented that
tax-qualified plans of other unrelated Debt Securities.19 In exchange for the DCMC is a fiduciary of the DuPont Plans
employers will be allowed to participate Debt Securities transferred to the Group and will cause such plans to transfer
in the Group Trust at a future date. Trust, the DuPont Plans will receive Debt Securities to the Group Trust in
However, DCMC will have no prior units in the Group Trust of equal value exchange for Group Trust units. Further,
management responsibilities with to the Debt Securities transferred to the DCMC will continue to manage the
respect to such plans. Group Trust in a one-time transaction. assets as investment manager of the
6. Thus, the remaining parties to the The Debt Securities will have readily Group Trust after the in kind transfer.
proposed transaction will be the ascertainable market values.20 The value Because DCMC is directing an exchange
investment managers DCMC will of the units will be determined by in which it is on both sides of the
appoint as fiduciaries to assist it in the dividing the total fair market value of transaction, DCMC does not believe the
management of Group Trust assets. the transferred Debt Securities on the INHAM Exemption applies to the
DCMC will retain the discretion to day of transfer by the number of Group contemplated transaction.
Trust units issued to the DuPont Plans. In addition, it is represented that the
appoint or remove any or all of such
establishment of the Group Trust with
managers. In this regard, DCMC may No sales commissions, fees or other
Fund assets may result in a violation of
appoint four unrelated managers who costs will be paid by the DuPont Plans
section 406(b) of the Act because of the
will manage approximately 20% each of in connection with the in kind transfer
potential for increased management fees
the Debt Securities held in the Group transaction.
8. The wrap contracts held by the payable to DCMC in the future by
Trust or retain the existing managers. unrelated plans willing to invest in the
7. DCMC will propose to the Master Trust will not be transferred to
the Group Trust. Instead, DCMC will Group Trust. Although the applicant
Independent Fiduciary for the DuPont believes that the establishment of the
Plans, the establishment of the Group Group Trust with assets of the DuPont
18 The private offering memorandum will contain
Trust to hold the Debt Securities which Plans will likely result in a net decrease
substantially the same information that would be
DCMC currently manages for the Fund. included in a prospectus for a registered security. in fees and costs to the Plans over time,
Specifically, the Independent Fiduciary, Moreover, the DuPont Plans will have an DCMC states that the expected future
before authorizing the transfer of assets opportunity to request whatever additional increase in asset values as assets
by the DuPont Plans from the Master information they may need for purposes of
evaluating the offering. accumulate and as unrelated plans
Trust to the Group Trust, will determine 19 For the DuPont Plans, all of the Debt Securities contribute assets to the Group Trust may
that (a) the terms of the transaction, are held in the total return tier of the Fund will be result in larger fees collected by DCMC
fair to the participants in the DuPont transferred to the Group Trust.
Plans and are comparable to, and no less 20 It is possible that an investment manager for
21 According to AICPA Statement of Position 94–

favorable than, terms obtainable at arm’s the Fund may have purchased Debt Securities 4, ‘‘book value’’ is defined as the measurement of
through a private placement offering. Such value of stable value investments, including
length between unaffiliated parties; and securities may either be ‘‘144A private placements,’’ synthetic GICs. Generally, book value consists of
(b) the transaction is in the best interest which trade similarly to public securities or others the amount paid for the underlying portfolio of debt
of the DuPont Plans, their participants that are not as readily tradable. The latter category securities, plus the interest credited with respect to
and beneficiaries. of private placement is intended to be held to the portfolio under the terms of the wrap contract.
maturity or traded on a limited basis. The value of The wrap contract specifies the types of securities
In addition, the Independent such securities will be determined by an unrelated including units of funds that can be wrapped. Since
Fiduciary will receive written Fund investment manager or if applicable, by the the wrap will apply to units after the transfer to the
disclosures that will include, but will Independent Fiduciary on the transfer date based Group Trust, the applicant states that the wrap
not be limited to, the following on credit quality, length to maturity and current contract likely will require minor modification to
interest rates. Based on values on September 30, continue book value treatment with respect to the
information: (a) A private offering 2002, less than 3.2% of the Group Trust is expected units at the same levels that applied to the Debt
memorandum describing the to be invested in such Debt Securities. Securities before the transfer to the Group Trust.

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13892 Federal Register / Vol. 69, No. 57 / Wednesday, March 24, 2004 / Notices

than DCMC would have collected if the by DCMC to the Independent Fiduciary unrelated employers will invest therein.
Group Trust had not been established. for review and approval of the It is anticipated that most of the
10. DCMC is also requesting that the methodology and the application of investing plans will do so to fund all or
exemption encompass DCMC’s such methodology in valuing such Debt a portion of their stable value funds.
methodology for valuing Group Trust Securities.23 However, some plans may invest solely
units utilized in PTCE 97–41 (62 FR In addition, as noted in to hold a diversified portfolio of debt
42830, August 8, 1997), but adapted to Representation 8, DCMC will not make securities without associating the Group
a non-bank context. In this regard, PTCE any transfer of Debt Securities to the Trust units with a wrap contract.
97–41 provides a methodology for Group Trust without the advance Because the valuation of Group Trust
converting interests in bank-sponsored agreement of the wrap issuers to wrap units is not dependent on the existence
collective investment funds to mutual the Group Trust units at a book value of a wrap contract, the number of issued
funds for which the bank acts as an that is not less than the book value units will be determined on the day of
investment adviser. Specifically, DCMC reported to the Fund by the wrap issuers the transfer of any Debt Securities by
proposes valuing the exchanged Debt prior to the transfer.24 Also, DCMC will dividing the fair market value of the
Securities on the transfer date in pay for any increase. transferred Debt Securities by the unit
exchange for Group Trust units in a 11. Thus, with respect to the in kind value of the applicable funds in the
manner consistent with PTCE 97–41.22 transfer transaction, Group Trust units
Group Trust. If cash is transferred, the
Thus, fair market value will be will be valued by the Group Trustee
number of units issued will be the cash
determined by the average of the highest based on the aggregate asset value of the
amount divided by unit value, as
current independent bid and the lowest Debt Securities held by the Group Trust
determined by the Group Trustee.
current independent offer as of the close as of the transfer date as determined in
of business as provided to the accordance with Rule 17a–7, divided by 13. If the Group Trust is established
investment managers by three the number of units issued. The unit as proposed, DCMC will not charge an
independent third-party commercial value, market value of exchanged investment management fee to the
pricing sources. If a price is unavailable securities and the number of units DuPont Plans, but it will continue to
through such sources, the investment issued will be provided to the charge to the DuPont Plans a
managers will solicit bids from at least Independent Fiduciary of the DuPont proportionate share of direct costs
three independent dealers who stand Plans within 30 days of the transfer to incurred by the subtrust under the
ready to trade at such bids. All the Group Trust. Group Trust managed by DCMC.25 In
commercial pricing sources and dealers In this regard, the confirmation addition, DCMC or an affiliate will
will be pre-approved by the investment statement will contain the following charge the DuPont Plans direct costs for
managers. The fair market value of any information: investment management of the Group
private placement Debt Securities that (a) The identity of each Debt Security Trust, only after full disclosure of the
are not readily tradable will be provided that DCMC deemed suitable for transfer Group Trust’s fee arrangement to the
from the Master Trust to the Group Independent Fiduciary. The overall fee
22 In this regard, the ‘‘current market price’’ for Trust; (b) the current market price of structure will be similar, if not less
specific types of Debt Securities will be determined each Debt Security for purposes of the costly, to the DuPont Plans than the fee
as follows: transfer as determined on the date of the
(a) If the security is a ‘‘reported security’’ as the structure currently in effect.
term is defined in Rule 11Aa3–1 under the 1934
in kind transfer; (c) the identity of each
Debt Security that does not fall into at It is anticipated that DCMC’s (or an
Act, the last sale price with respect to such security
reported in the Consolidated System on the Group least one of the following categories: a affiliate’s) total reimbursed expenses
Trust valuation date; or if there are no reported reported security; a security principally attributable to the assets of the DuPont
transactions in the Consolidated System that day, Plans in the Group Trust will not exceed
the average of the highest current independent bid traded on an exchange; or a security
and the lowest current independent offer for such quoted on the NASDAQ System; (d) the (and maybe less) than the amount of
security (reported pursuant to Rule 11Ac1–1 under identity of each pricing service or such reimbursed expenses before the
the 1934 Act), as of the close of business on the market maker which was consulted in transfer of DuPont Plan’s assets in the
Group Trust valuation date. Master Trust to the Group Trust. The
(b) If the security is not a reported security, and
determining the fair market value of the
Debt Securities, and the aggregate dollar cost savings, are expected to result from
the principal market for such security is an
exchange, then the last sale on such exchange on value of the Debt Securities that were the ability of DCMC to consolidate
the Group Trust valuation date; or if there are no held on behalf of the DuPont Plans in investment management decisions and
reported transactions on such exchange that day, resources over a larger portfolio as
the average of the highest current independent bid
the Master Trust immediately before the
and lowest current independent offer on such in kind transfer transaction and the opposed to separate and smaller
exchange as of the close of business on the Group number of Group Trust units held by the portfolios maintained under separate
Trust valuation date. Master Trust for the DuPont Plans trusts. In addition, DCMC expects
(c) If the security is not a reported security and
immediately after the in kind transfer investment management fees, as a
is quoted in the NASDAQ system, then the average percentage of assets, will decline as the
of the highest current independent bid and lowest transaction (the related per unit value
current independent offer reported on NASDAQ as and the aggregate value). asset base increases in size.
of the close of business on the Group Trust 12. Once the Group Trust is 14. In order to address the potential
valuation date. established, DCMC expects that plans of
(d) For all other securities, the average of the
conflict caused by the establishment of
highest current independent bid and lowest current the Group Trust with Fund assets, the
23 As stated previously, as of September 30, 2002,
independent offer as of the close of business on the DuPont Plans will retain an
Group Trust valuation date, determined on the basis such securities comprise less than 3.2% of the
expected value of the Group Trust.
independent fiduciary to review the
of reasonable inquiry. (For securities in this
category, DCMC represents that it will obtain 24 The ‘‘wrap’’ value will be the difference proposed establishment of the Group
quotations from at least three sources which were between the fair (or market) value of the underlying Trust. DuPont or DCMC will pay the
either broker-dealers or pricing services Debt Securities and the book (or contract) value of Independent Fiduciary a flat fee in
independent of and unrelated to DCMC and, where each synthetic GIC. According to DCMC, AICPA advance of its review of the proposed
more than one valid quotation was available, used Statement of Position SOP 94–4 values stable value
the average of the quotations to value the securities, investment contract, at contract value. DCMC
in conformance with interpretations by the SEC and further states that all of the contracts contained in 25 Such costs will be allocated equally among

practice under Rule 17a–7.) the Fund satisfy the requirement of SOP 94–4. subtrust units owned by the DuPont Plans.

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transaction.26 The fee is payable dated December 17, 2003 (the Report). procedures and confirm this in writing.
regardless of whether the proposed Specifically, in the Report, U.S. Trust Consistent with this requirement, U.S.
transaction is consummated. Prior to concludes that— Trust represents that if the exemption is
approving the transaction, the (a) The in kind transfer transaction granted and the in kind transfer
Independent Fiduciary will receive an will likely avoid certain transaction transaction occurs, it will update the
offering memorandum for the proposed costs otherwise incurred in a cash findings and opinions as set forth in the
transaction and will be given access to redemption; Report so as to confirm whether they
Fund reports and transaction data in (b) The Debt Securities associated still apply as of the expected date of the
order to determine whether the with the proposed transaction will be transfer. U.S. Trust will provide its
proposed transaction is in the best calculated based on the Master Trust’s opinion that the methodologies for the
interests of the participants of the respective statements of assets and proposed transaction is fair to the
DuPont Plans. Should the Independent liabilities, valued in accordance with DuPont Plans and reasonable in all
Fiduciary approve the transaction and the pricing procedures established by material respects. In addition, U.S. Trust
direct the exchange of Debt Securities the Master Trust’s Board of Trustees. In will state that the proposed transaction
for Group Trust units, the Independent this regard, U.S. Trust has reviewed a is in the interest of the participants and
Fiduciary will receive confirmation sample spreadsheet developed by beneficiaries of the DuPont Plans since
from DCMC of the transfer of Debt DCMC to calculate the exact number of the anticipated costs savings are likely
Securities from the Master Trust to the Debt Securities to be transferred, and to be material. Further, U.S. Trust will
Group Trust. The Independent believes the information provided to be conclude that if the exemption is
Fiduciary will also have the opportunity conceptually and mathematically granted, and all other essential facts and
to confirm that the transfer was correct; circumstances of the in kind transfer
executed as described in the offering (c) All Debt Securities held by the transaction remains materially
memorandum and to confirm and Master Trust will be ‘‘qualifying’’ unchanged at the time DCMC seeks to
approve the proper valuations for the securities; effectuate the transaction, it will issue a
(d) The proposed transaction will be favorable recommendation regarding the
Debt Securities, including the private
in compliance with the Plan’s commencement of such effectuation.
placements. The Independent Fiduciary,
investment guidelines; 16. The costs of applying for the
before authorizing the transfer of the (e) The methodology used to conduct
DuPont Plans assets to the Group Trust, exemption, establishing the Group Trust
the in kind transfer transaction will be and preparing disclosure documents for
must determine that the terms of the comparable to, and no less favorable
transfer are fair to the participants in the review by the Independent Fiduciary
than, similar in kind transfer will be borne by DuPont or DCMC and
DuPont Plans and comparable to and no transactions reached at arm’s length
less favorable than terms obtainable at not by the DuPont Plans. Furthermore,
between unaffiliated parties. DCMC will maintain for a period of six
arm’s length between unaffiliated U.S Trust represents that, if this
parties and that the transfer is in the years in a manner that is accessible for
proposed exemption is granted and the audit and examinations, records
best interest of the DuPont Plans and in kind transfer transaction is thereafter
their participants and beneficiaries. necessary to enable certain persons,
undertaken, it will be responsible for such as representatives from the
15. DCMC represents that U.S. Trust updating its findings and opinions to
Company, N.A. (U.S. Trust) has Department, the Service, the
confirm whether such findings and Independent Fiduciary, or any
confirmed its independence from DCMC opinions are applicable as of the
and is qualified to serve as the participant or beneficiaries of the
anticipated date of such transaction. In DuPont Plans to determine whether the
Independent Fiduciary for the DuPont this regard, U.S. Trust states that it will
Plans with respect to the proposed in conditions of the exemption have been
review the in kind transfer transaction met.
kind transfer transaction. U.S. Trust, in and confirm in writing whether such
turn, represents that it understands and The exchange of Debt Securities by
transaction has been effectuated the Master Trust for units in the Group
will accept the duties, responsibilities consistent with the required criteria and
and liabilities in acting as a fiduciary Trust will not result in any commissions
procedures set forth in the Report. In being paid to DCMC or any of the
under the Act for the Plan. U.S. Trust carrying out this duty, U.S. Trust investment managers appointed by the
represents that as the Independent represents that, if the proposed DuPont Plans. For the exchange of Debt
Fiduciary, it will be responsible for (a) exemption is granted and the in kind Securities for Group Trust units, the
analyzing, from an investment transfer transaction occurs, it will Group Trustee will calculate the unit
perspective, the fairness and conduct a post-exemption review, value based on the market value of the
reasonableness of the methodology used which will include (a) reviewing each Debt Securities transferred so that the
with respect to the in kind transfer DuPont Plan’s current investment policy value of the units issued to the Fund is
transaction; and (b) giving its opinion as guidelines; (b) reviewing each DuPont equal to the fair market value of the
to the fairness and reasonableness of Plan’s investment portfolio and the Debt Securities transferred. Statements
such methodology, as compared with a Master Trust’s assets as of the most indicating the fair market value at
redemption for cash and subsequent recent common date for which such which the Debt Securities are
reinvestment of such cash, based on data is available; and (c) ascertaining exchanged, the number of units issued
such analysis. This determination and whether the policies, procedures and in connection with such exchange, and
opinion are set forth in a written report controls established for effectuating the the calculation of unit value will be
26 The fee may be a flat fee or hourly fee. If a flat
transfer remains unchanged. Moreover, provided to the Independent Fiduciary.
fee, it will be paid in advance of the Independent
U.S. Trust represents that it will 17. In summary, it is represented that
Fiduciary’s review. If an hourly fee, the fee will be conduct a post-transfer review to the proposed transaction will satisfy the
estimated and substantially paid in advance to the provide an additional safeguard to the statutory criteria for an exemption
Independent Fiduciary as a retainer. The purpose Plan. In this regard, U.S. Trust will under section 408(a) of the Act for the
of the advance payment is to remvoe any
appearance that the independent Fiduciary’s fee is
evaluate and test whether the in kind following reasons:
contingent on its recommendation to the DuPont transfer transaction has been effectuated (a) The in kind transfer transaction
Plans. consistent with the required criteria and will be a one-time transaction, and for

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13894 Federal Register / Vol. 69, No. 57 / Wednesday, March 24, 2004 / Notices

the DuPont Plans, the transferred assets Master Trust to value such securities. the application of section 4975 of the
will constitute a pro rata portion of all Similarly, the Group Trust will use the Code, by reason of section 4975(c)(1)(A)
of the assets of the DuPont Plans that are same valuation methodology. through (E) of the Code, shall not apply
held in the total return tier portion of (k) DCMC will not execute the in kind to the proposed purchase by the Union
the Fund, which comprises part of the transfer transaction unless the of Needletrades, Industrial and Textile
Master Trust prior to the transfer. Independent Fiduciary for the DuPont Employees (UNITE) and certain regional
(b) The DuPont Plans will pay no Plans consents to such in kind transfer entities affiliated with and chartered by
sales commissions, or other similar fees in writing. UNITE (the UNITE Affiliates) from the
in connection with the in kind transfer (l) DCMC will not execute the in kind UNITE National Retirement Fund (the
transaction. Furthermore, no additional transfer transaction unless the wrap Pension Fund) of shares of perpetual
management fees will be charged to the contracts issuers to the Master Trust cumulative convertible preferred stock
DuPont Plans by DCMC in the Group agree in advance to maintain the then- (the Preferred Stock) representing fifteen
Trust. current book value for accounting percent (15%) of the outstanding equity
(c) The assets transferred to the Group purposes with respect to the assets interests in the ALICO Services
Trust pursuant to the in kind transfer transferred to the Group Trust. Corporation (ASC), a wholly-owned
transaction will consist of Debt entity of the Pension Fund; provided the
Notice to Interested Persons
Securities which are deemed to be conditions set forth in section II, below,
‘‘transferable securities.’’ DCMC represents that it will are satisfied.
(d) Each DuPont Plan will receive a distribute, by either first class mail or by
proportionate share of the transferable e-mail to DuPont Plan participants who II. Conditions
securities which will equal in value to have affirmatively elected to access their Prior to entering into the transactions,
the number of units in the Group Trust account statements electronically, a (a) an independent, qualified
such plan will receive, as determined in copy of the notice of proposed fiduciary,(the Independent Fiduciary),
a single valuation performed in the exemption (the Notice) within thirty as defined in section III(a), below,
same manner in accordance with (30) days of the date of such Notice is determines, on behalf of the Pension
valuation procedures prescribed by Rule published in the Federal Register. The Fund, whether the Preferred Stock
17a–7 of the 1940 Act. Notice will also be sent to the Named should be sold to UNITE and to the
(e) Prior to the in kind transfer Fiduciaries and the Independent UNITE Affiliates; (b) the Independent
transaction, DCMC will provide to the Fiduciary for the DuPont Plans. The Fiduciary approves of the terms
Independent Fiduciary a full and Notice will include a copy of the underlying the Preferred Stock to be
detailed written disclosure of proposed exemption, as published in issued by ASC; (c) the Independent
information regarding the transaction the Federal Register, and a Fiduciary negotiates and approves of the
and, on the basis of the foregoing supplemental statement, as required terms of the sales of the Preferred Stock
information, such Independent pursuant to 29 CFR 2570.43(b)(2), which to UNITE and to the UNITE Affiliates;
Fiduciary will provide written informs all interested persons of their (d) the Independent Fiduciary monitors
authorization for the transaction. right to comment on and/or request a the terms of the transactions and
(f) The Independent Fiduciary will hearing with respect to the proposed ensures that ASC, UNITE, and the
determine that (1) the terms of the in exemption. Comments and requests for UNITE Affiliates comply with the
kind transfer transaction are fair to the a public hearing are due within sixty approved terms of the sales of the
participants in the DuPont Plans, and (60) days following the publication of Preferred Stock; (e) the Independent
are comparable to, and no less favorable the proposed exemption in the Federal Fiduciary determines that the terms of
than, terms obtainable at arm’s length Register. the sales of the Preferred Stock are no
between unaffiliated parties; and (2) the FOR FURTHER INFORMATION CONTACT: Mr. less favorable to ASC than terms that
in kind transfer transaction is in the best Arjumand A. Ansari of the Department would be offered to an unrelated third
interest of the DuPont Plans and their at (202) 693–8566. (This is not a toll-free party under similar circumstances; (f)
participants and beneficiaries. number.) the Independent Fiduciary determines
(g) Not later than 30 days after the that the purchase price for the Preferred
completion of an in kind transfer The UNITE National Retirement Fund; Stock paid by UNITE and by the UNITE
transaction, DCMC will provide to the Located in New York, New York Affiliates is no less than the fair market
Independent Fiduciary for the DuPont [Exemption Application No. D–11185] value of such Preferred Stock, as of the
Plans, a written confirmation regarding date each of the transactions is entered;
such transaction. Proposed Exemption (g) the Independent Fiduciary
(h) Subsequent to the in kind transfer I. Covered Transactions determines the fair market value of the
transaction, the Independent Fiduciary Preferred Stock, as of the date each of
The Department is considering the transactions is entered; (h) in
will perform a post-transaction review
granting an exemption under the determining the fair market value of the
which will include, among other things,
authority of section 408 of the Act and Preferred Stock, the Independent
a random sampling of the pricing
section 4975 of the Code, and in Fiduciary obtains an appraisal from an
information supplied by the Group
accordance with the procedures set independent qualified appraiser
Trustee.
(i) Each of the DuPont Plan’s dealings forth in 29 CFR part 2570, subpart B, 55 selected by the Independent Fiduciary
with the Master Trust, the Group Trust FR 32836, 32847 (August 10, 1990).27 If and ensures that the appraisal and the
and DCMC will be on a basis that is no the exemption is granted, the Independent Fiduciary’s analysis of the
less favorable to such Plan than dealings restrictions of sections 406(a)(1)(A) appraisal are consistent with sound
between the Group Trust and other through(D), 406(b)(1), and 406(b)(2) of principles of valuation and the elements
holders of Group Trust units. the Act and the sanctions resulting from described in paragraph 8, in the
(j) The Debt Securities that are 27 For purposes of this exemption, references to
Summary of Facts and Representations
transferred from the Master Trust to the specific provisions of title I of the Act, unless
in this proposed exemption; and (i) the
Group Trust will be valued using the otherwise specified, refer also to the corresponding Pension Fund incurs no fees,
same methodology currently used by the provisions of the Code. commissions, or other charges or

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Federal Register / Vol. 69, No. 57 / Wednesday, March 24, 2004 / Notices 13895

expenses as a result of its participation laundry, and allied industries. The by UFA include claims processing,
in the transactions other than the fees Pension Fund is an ‘‘employee pension distribution and preparation of plan
incurred in requesting this exemption benefit plan,’’ as defined under section documents, collections of contributions
and the fee payable to the Independent 3(2) of the Act. As of December 31, by employers and participants, record
Fiduciary. 2001, there were approximately 95,995 retention and reporting to government
participants and beneficiaries in the authorities.29
III. Definitions 3. UNITE was formed in 1995 by the
Pension Fund. As of December 31, 2001,
For purposes of this exemption: the approximate aggregate fair market merger of two unions, the International
(a) the term, ‘‘Independent value of the total assets of the Pension Ladies Garment Workers Union
Fiduciary,’’ means an individual or firm Fund was $577,684,500. Effective (ILGWU) and the Amalgamated Clothing
which is independent of and unrelated December 1, 2003, the name of the and Textile Workers Union (ACTWU).
to ASC, UNITE, the UNITE Affiliates, Pension Fund was changed from the Under the merger agreement, UNITE is
and any other party to the subject UNITE National Cotton Retirement deemed a consolidation and
transactions (the Parties), and which has Fund to the Unite National Retirement continuation of ILGWU and ACTWU
acknowledged and agreed that it is a Fund as a result of a merger with the and their respective affiliates. Further,
fiduciary appointed to act on behalf of ILGWU National Retirement Fund. It is UNITE has several affiliated
the Pension Fund for all purposes represented that the merged fund has organizations, the UNITE Affiliates,
related to the subject transactions. For approximately $1.5 billion in assets. which are chartered by UNITE. UNITE
purposes of this exemption: 2. ASC is a holding company members work in the apparel and textile
(1) A fiduciary will not be deemed to organized under the laws of New York industries, industrial laundries,
be independent of and unrelated to the that is wholly-owned by the Pension distribution and retail, auto parts and
Parties, if: Fund. The Trustees of the Pension Fund auto supply, and other industries in the
(i) such fiduciary directly or appoint the ASC Board of Directors (the United States and Canada.
indirectly controls, is controlled by or is Board). ASC wholly owns each of the 4. The Pension Fund has requested an
under common control with such following four (4) subsidiaries: (a) individual exemption in order that ASC
Parties; Amalgamated Life Insurance Company may issue and sell shares of stock to
(ii) such fiduciary directly or UNITE and to certain UNITE Affiliates.
(ALICO); (b) Alicare Inc. (Alicare); (c)
indirectly receives any compensation or As set forth in more detail below, it is
Alicare Medical Management, Inc.
other consideration from such Parties in represented that the proposed
(AMM); and (d) UNITE Fund
connection with the transactions transactions will provide the Pension
Administrators, Inc. (UFA) (collectively,
described in this proposed exemption; Fund: (i) With the ability to increase the
the ASC Subsidiaries).
except that an Independent Fiduciary ALICO provides life, disability, and value of its ownership interests in ASC
may receive compensation for acting as medigap insurance primarily to unions by providing ASC with access to
an Independent Fiduciary in connection and union-sponsored trust funds. It also additional working capital, (ii) with the
with the transactions contemplated provides fully retrospectively rated
herein, if the amount or payment of group life insurance to various jointly
Amalgamated Washable Clothing Sportswear and
such compensation is not contingent Allied Industries Retirement Fund; Amalgamated
administered funds. Retail Fund; Barney’s Retail Employees Union
upon or in any way affected by the Alicare is a full-service third-party Health Fund; ILGWU Death Benefit Fund; and
Independent Fiduciary’s ultimate fund administrator focusing on the UNITE Staff Retirement Plan, ACTWU Unit.
decisions with regard to the subject market for such service among Taft-
29 The applicant has not requested, and the

transactions; Department is not providing any relief, herein, for


Hartley plans. Alicare also offers transactions involving the provision of services by
(2) No individual or firm shall serve
computer services, insurance brokerage UFA to the any of the Patron Funds, including the
as an Independent Fiduciary during any Pension Fund, nor is the Department providing
and printing services. Alicare’s services
year in which annual gross revenues relief for the decision by the fiduciaries of the such
are delivered through its four (4) funds to retain UFA to provide such services. In the
received from business with the Parties
divisions: (a) Alicare, (b) Alicomp, (c) opinion of the applicant, prohibited transactions
for that year exceeds five (5) percent of
Aligraphics and (d) Amalgamated would not be an issue for the Pension Fund where:
such individual’s or firm’s annual gross (1) the interested Pension Fund Trustees recuse
Agency.
revenues from all sources for the prior themselves from any decision regarding the
AMM provides medical cost retention of UFA, see, Advisory Opinion 99–09A
tax year; and
management services, including (AO 99–09A) issued on May 21, 1999, in a letter
(3) The individual or firm selected as
utilization management, comprehensive to Patricia A. Shlonsky, and (2) the services are
an Independent Fiduciary must be provided to the Pension Fund by UFA in
claims cost containment, and a 24 Hour
qualified to serve as fiduciary and to accordance with Section 408(b)(2) of the Act.
Nurse HelpLine to provide health
carry out the duties responsibilities, as AO 99–09A states that a fiduciary may avoid
information and education to patients. engaging in an act described in section 406(b)(1)
set forth herein.
UFA, a not-for-profit tax-exempt and 406(b)(2) by removing himself or herself from
Summary of Facts and Representations enterprise, provides third-party all consideration by the plan of whether or not to
engage in such a transaction, and by not otherwise
1. The Pension Fund is a administration for the Pension Fund exercising, with respect to the transaction, any of
multiemployer pension plan jointly and several other funds sponsored by the authority, control or responsibility which makes
trusteed by individuals selected by UNITE and entities affiliated with him or her a fiduciary, absent any arrangement,
UNITE (collectively, the Patron agreement or understanding with respect to who
UNITE and individuals selected by will ultimately provide the services in question.
various employers who contribute to the Funds).28 The specific services provided Section 408(b)(2) of the Act provides a statutory
plan (the Trustees). Certain Trustees of 28 The Patron Funds for which UFA currently
exemption for ‘‘contracting or making reasonable
arrangements with a party in interest for office
the Pension Fund are also officers of provides services include, but are not limited to: the space, or legal, accounting, or other services
UNITE and directors of ASC. The Pension Fund; UNITE National Cotton Health Fund; necessary for the establishment or operation of the
Pension Fund provides pension benefits Amalgamated Insurance Fund-Insurance Fund; plan, if no more than reasonable compensation is
to workers covered by collective Amalgamated Insurance Fund-Retirement Fund; paid therefor.’’ The Department is offering no view,
Laundry & Dry Cleaning Workers Health Fund, herein, as to the applicant’s reliance on AO 99–09A
bargaining agreements in the cotton UNITE; Laundry & Dry Cleaning Workers Pension and/or the statutory exemption, as set forth in
garment and other related unionized Fund, UNITE; Amalgamated Washable Sportswear section 408(b)(2) of the Act and 29 CFR
segments of the garment, textile, and Allied Industries Insurance Fund; 2550.408(b)(2) of the Department’s regulations.

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13896 Federal Register / Vol. 69, No. 57 / Wednesday, March 24, 2004 / Notices

potential for increased profitability, and lawfully do so.31 In such event, and such shareholders, or (g) subordinate
(iii) with the potential for new business when the holder has not elected to the rights of the preferred shares by
opportunities. convert the Preferred Stock into the authorizing shares having preferences
At present, ASC has one class of Common Stock of ASC (if applicable) that would be in any respect superior to
outstanding equity in the form of the holder of the Preferred Stock will the shareholders’ rights.
common stock (the Common Stock), the receive an amount equal to the price The term of the Preferred Stock will
entirety of which is held by the Pension paid for the Preferred Stock, plus any be perpetual. After five (5) years, the
Fund. There are currently 10,000 shares accrued but unpaid dividends. Written Preferred Stock will be convertible at
of ASC Common Stock outstanding. In notice of such redemption shall be any time at the option of each holder,
connection with the proposed provided to the holders of Preferred into shares of the ASC Common Stock
transactions, ASC proposes issuing a Stock at least fifteen (15) days but no on a one to one basis. This ratio may
new class of shares, the Preferred Stock, more than thirty (30) days prior to the only be adjusted for customary anti-
to be purchased by UNITE and by the date of redemption. At that date, all dilution purposes. The Board cannot
UNITE Affiliates for cash.30 It is rights associated with the Preferred otherwise adjust the conversion ratio.
anticipated that UNITE will purchase Stock, except the right to receive the Further, each of the shares of Preferred
shares of the Preferred Stock equal to redemption price shall cease. In the Stock shall be automatically converted
approximately five percent (5%) of the event of liquidation, the holders of into ASC Common Stock upon the first
outstanding equity of ASC, and that the Preferred Stock will be entitled to sale under the Securities Act of 1933 of
UNITE Affiliates will purchase shares of receive, on a pro rata basis, prior to the at least twenty-five percent (25%) of the
Preferred Stock representing holders of the ASC Common Stock, an total voting power of ASC. In the event
approximately ten percent (10%) of the amount equal to the price paid for the of a conversion, the conversion price
outstanding equity of ASC. Preferred Stock, plus any accrued but will be adjusted for certain dilutive
5. The terms underlying the Preferred unpaid dividends. issuances, splits, and combinations.32
Stock will be determined by the issuer, The Preferred Stock will have no If at any time following initial public
ASC. However, the Independent voting rights, except as required by offering, ASC proposes to register shares
Fiduciary has the discretion to accept or section 804 of the New York Business of the Common Stock with the
reject the terms of the Preferred Stock. Corporation Laws. Section 804 of the Securities and Exchange Commission,
A fixed dividend rate of five percent New York Business Corporation Laws the holders of the Preferred Stock will
(5%), declared annually, has been provides that preferred shares of stock be allowed to include in such
established for the Preferred Stock. It is have voting power when a proposed registration the shares of Common Stock
represented that Preferred Stock charter amendment would: (a) Exclude into which their Preferred Stock are
dividends will only be paid when (1) or limit the shareholder’s right to vote convertible (i.e., the holders have
there is surplus capital and (2) the on any matter, except as such right may ‘‘piggy-back’’ registration rights). In
Board declares a dividend. If there is not be limited by voting rights given to new addition, the Preferred Stock (and the
a surplus, the dividend cannot be paid shares then being authorized of any shares of Common Stock issued upon
under applicable corporate law. Further, existing or new class or series; (b) conversion of the Preferred Stock) will
the Board can exercise its discretion not reduce the par value of the shares (if be subject to ‘‘drag along’’ and ‘‘tag
to pay a dividend when there is a they have par value); (c) change the along’’ rights. In this regard, if the
capital surplus. If dividends are not shares of the class into a different Pension Fund sells its shares in ASC to
paid in a particular year, they number of shares; (d) change the class an unrelated third party, the Pension
accumulate. No dividends may be paid or series of the shares; (e) fix, change, Fund will be able to force UNITE and
or abolish the designation of the the UNITE Affiliates to also sell their
on the Common Stock until all accrued
preferred, or any of the relative rights, Preferred Stock (and the shares of
and unpaid dividends on the Preferred
preferences and limitation of any of the Common Stock issued upon conversion
Stock are paid.
shares of the preferred, whether issued of the Preferred Stock) to the third party
It is represented that the Board does
or unissued, including any provisions in buyer, while UNITE and the UNITE
not have the discretion to alter the five
respect to undeclared dividends, Affiliates will be able to force the third
percent (5%) dividend rate, but such
whether or not cumulative or accrued, party buyer to buy their Preferred Stock
rate is subject to customary anti-dilution
or the redemption of any shares, or any (and the shares of Common Stock issued
adjustments. For example, if the number
sinking fund for the redemption or upon conversion of the Preferred Stock),
of issued and outstanding shares of
purchase of any shares, or any as part of the transaction.
Preferred Stock is increased by a stock UNITE will also have a right of first
split from 100 to 200, the dividend rate preemptive right to acquire shares or
other securities; (f) provide that the refusal in the event any of the UNITE
paid with respect to each share would Affiliates wishes to dispose of its
decrease to 2.5%. shares may be converted into shares of
any other class or into shares of any Preferred Stock (and the shares of
ASC can redeem the Preferred Stock, Common Stock issued upon conversion
on a pro rata basis at anytime it may other series of the same class, or alter
the terms or conditions upon which the of the Preferred Stock). If UNITE fails to
30 It is represented that the decision was made to shareholders’ shares are convertible or purchase such shares, then ASC and/or
issue the Preferred Stock, rather than sell 15% of change the shares issuable upon the Pension Fund shall have a right of
the Common Stock, because UNITE and the UNITE conversion of the shareholders’ shares, first refusal to purchase the shares in
Affiliates generally invest in fixed income or fixed question. Furthermore, if UNITE wishes
income-type investments that provide a set rate of if such action would adversely affect
to sell its Preferred Stock (and the
return. UNITE and the UNITE Affiliates seek a fixed
rate of return in order to generate cash from 31 The applicant has not requested, and the
shares of Common Stock issued upon
investments on an annual basis to ensure that Department is not providing, herein, relief for the conversion of the Preferred Stock), ASC
union-related activities are adequately funded. As redemption or call by ASC of the Preferred Stock
structured, the Preferred Stock will enable UNITE or the shares of Common Stock issued upon 32 The applicant has not requested, and the
and the UNITE Affiliates to obtain an equity interest conversion of the Preferred Stock from UNITE or Department is not providing relief, herein, with
in ASC while simultaneously providing an income the UNITE Affiliates. See, discussion of potential respect to the conversion of the Preferred Stock into
stream similar to that offered by a fixed income future prohibited transactions in paragraph 12, Common Stock. See, discussion of potential future
investment. herein. prohibited transactions in paragraph 12, herein.

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and/or the Pension Fund will have a Preferred Stock to UNITE and to the equity of ASC is between $33 million
right of first refusal with respect to such UNITE Affiliates. The Independent and $38.4 million, as of May 31, 2003.
shares.33 Fiduciary is authorized to obtain Based on values for ASC’s equity with
6. Absent an exemption, the proposed another valuation if it believes that it a low of $33 million and a high of $38.4
transactions would constitute sales of would be in the interest of the Pension million, it is the opinion of WMA that
property between a plan and parties in Fund. 118 shares of the Preferred Stock, which
interest, and transfers of assets from a WMA is independent in that the is convertible into a one percent (1%)
plan to parties in interest in violation of average percentage of WMA’s annual ownership interest in the outstanding
section 406(a)(1)(A) and section income derived from work for the Common Stock of ASC on a fully-
406(a)(1)(D) of the Act. Accordingly, the Pension Fund over the past six (6) year diluted basis, would be valued at a low
Pension Fund is seeking relief with period is less than one percent (1%). of approximately $536,000 and a high of
respect to section 406(a)(1)(A) and Further, the Pension Fund and ASC approximately $624,000, respectively,
406(a)(1)(D) of the Act. Further, to the represent that professional fees of WMA as of May 31, 2003. Based on values for
extent that UNITE and the UNITE are not contingent upon the opinion ASC’s equity with a low of $33 million
Affiliates are disqualified persons, the expressed in the valuation report, and and a high of $38.4 million, it is the
proposed transactions would also WMA represents that other than the opinion of WMA that 1,765 shares of the
violate sections 4975(c)(1)(A) and services provided attendant to the Preferred Stock, which upon
4975(c)(1)(D) of the Code, for which valuation of ASC, neither it nor any of conversion, would be convertible into
relief is also requested. its employees has a present or intended 1,765 shares of Common Stock, or
The proposed transactions may also financial interest in ASC. fifteen percent (15%) of the total shares
raise issues under section 406(b)(1) of In anticipation of the issuance of the of ASC outstanding on a fully-diluted
the Act and section 4975(c)(1)(E) of the Preferred Stock and the entry into the basis, would be valued in the aggregate,
Code which provide that ‘‘a fiduciary subject transactions, WMA prepared a respectively, at a low of approximately
with respect to a plan shall not’(1) deal valuation report, dated July 29, 2003, $8,040,000 ($4,557 per share) and a high
with the assets of the plan in his own of approximately $9,360,000 ($5,303 per
which offered WMA’s preliminary
interest or for his own account.’’ share), as of May 31, 2003. It is
opinion of the fair market value of
Further, the proposed transactions may represented that the number of shares of
ASC’s equity, as of May 31, 2003.
also raise issues under section 406(b)(2) Preferred Stock that are issued as part of
Specifically, WMA was asked to submit,
of the Act, because certain Trustees of the transaction will have no impact on
as of a certain date, an opinion of: (1)
the Pension Fund are also officers of the per share value of the Common
The fair market value of an ownership
UNITE affiliated with UNITE and/or the Stock or the Preferred Stock for
interest in the Preferred Stock that is
UNITE Affiliates (the Overlapping purposes of this transaction. It is
convertible into a one percent (1%)
Trustees) and directors of ASC. In this represented that this is due to the fact
ownership interest in the outstanding
regard, the Overlapping Trustees could that the number of shares will increase
Common Stock of ASC on a fully- at the same rate as the value of the
be viewed as acting on behalf of UNITE diluted basis; and (2) the fair market
and the UNITE Affiliates, adverse Preferred Stock. It is further represented
value of an ownership interest in the that WMA’s valuation of a one percent
parties to the Pension Fund, in Preferred Stock that is convertible into
connection with the proposed (1%) and a fifteen percent (15%)
a fifteen percent (15%) ownership ownership interest in the outstanding
transactions. Because of the potential interest in the outstanding Common
concerns that may be raised, the Common Stock of ASC on a fully-
Stock of ASC on a fully-diluted basis. It diluted basis is based on WMA’s
Pension Fund has also requested relief is represented that WMA was asked to
with respect to sections 406(b)(1) and understanding: (1) That there are
provide the fair market value of one currently 10,000 shares of Common
406(b)(2) of the Act and section percent (1%) of ASC’s equity in case
4975(c)(1)(E) of the Code. Stock of ASC outstanding; (2) that ASC
ASC elected to issue more or less than plans to issue 1,765 shares of Preferred
7. For purposes of determining the fifteen percent (15%) ownership interest
fair market value of the Preferred Stock, Stock; and (3) that the terms of the
in ASC’s outstanding common shares Preferred Stock included a mandatory
ASC sought the opinion of Willamette (e.g. sell Preferred Stock convertible into
Management Associates (WMA), an dividend of five percent (5%) into
a sixteen percent (16%) ownership perpetuity.
independent, qualified appraiser. WMA interest in ASC’s outstanding common It is represented that the final
is experienced in that it has prepared shares). In a letter dated February 10, appraisal conducted by WMA in
valuations relating to ASC for 2004, the applicant represented that it connection with the sale of the Preferred
approximately six (6) years. As has been determined that ASC will sell Stock will set a fixed price for the
described more fully in paragraph 8, Preferred Stock convertible into a fifteen Preferred Stock. It is represented as
below, it is represented that the percent (15%) interest in ASC’s possible that the price set by WMA
Independent Fiduciary will review the outstanding common shares. could fall outside the range of values,
valuation prepared by WMA in After giving consideration to the discussed in the paragraphs above.
determining the per share price of the historical and prospective operating However, in no event will the Pension
Preferred Stock, as well as any other characteristics of ASC, as well as the Fund receive less than fair market value
appropriate documents, for the purpose after-tax expected cash flows and for the Preferred Stock.
of evaluating the proposed sales of the earnings attributable to ASC, the current 8. It is represented that the
33 The applicant has not requested, and the
and forecasted capital structure of ASC, determination of whether to sell the
Department is not providing, herein, relief for the
the risk/return relationship reflected for Preferred Stock, and the oversight and
purchase by the Pension Fund and/or ASC, comparative companies having negotiations with respect to the terms of
pursuant to a right of first refusal, of the Preferred securities traded in the public market, the sales of the Preferred Stock shall be
Stock or the shares of Common Stock issued upon the capital market and related industry the sole responsibility of Fiduciary
conversion of the Preferred Stock from UNITE or
the UNITE Affiliates. The applicant may submit an
macroeconomic evidence available, and Counselors, Inc. (formerly, Aon
application for exemption prior to engaging in such other relevant factors, it is the opinion Fiduciary Counselors, Inc.) (hereinafter,
transaction. of WMA that the range of value for the Fiduciary Counselors), which has been

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retained by the Pension Fund to act as proposed transactions close, or the date the terms of the sales are no less
the Independent Fiduciary on its behalf. on which Fiduciary Counselors favorable to ASC than would be offered
Specifically, in its capacity as determines that ASC should not issue to an unrelated third party under similar
Independent Fiduciary for the Pension and sell the Preferred Stock, or the date circumstances. It is also represented that
Fund, Fiduciary Counselors shall: (1) on which UNITE and the UNITE Fiduciary Counselors will ensure that at
Determine, on behalf of the Pension Affiliates determine not to purchase the closing, the subject transactions will be
Fund, whether the Preferred Stock Preferred Stock from ASC. conducted in compliance with the
should be sold by ASC to UNITE and to Fiduciary Counselors has negotiated terms, including that ASC
the UNITE Affiliates; (2) approve of the acknowledged and agreed that it is a receives no less than the fair market
terms underlying the Preferred Stock to fiduciary, under section 3(21) of the Act, value of the Preferred Stock and that the
be issued by ASC; (3) negotiate and with respect to any actions taken, transactions remain prudent, in the
approve the terms of the sales of such pursuant to its agreement with the interest of, and protective of the
Preferred Stock to UNITE and to the Pension Fund to serve as Independent participants and beneficiaries of the
UNITE Affiliates; (4) determine that the Fiduciary. Further, Fiduciary Pension Fund. In connection with the
terms of the sales of Preferred Stock are Counselors has represented that it is foregoing, Ms. Hennessy represented
no less favorable to ASC than would be independent of and unrelated to the that Fiduciary Counselors will provide
offered to an unrelated third party under parties to the proposed transactions. a detailed report to the Department
similar circumstances; and (5) 9. It is represented that the proposed upon the closing of the transactions.
determine that the purchase price for transactions are protective of the 10. It is represented that the proposed
the Preferred Stock paid by UNITE and Pension Fund and of its participants transactions are feasible in that the sales
by the UNITE Affiliates is no less than and beneficiaries in that Fiduciary of the Preferred Stock to UNITE and to
the fair market value of such Preferred Counselors has been retained to serve as the UNITE Affiliates will be one time
Stock on the date of the purchases. the Independent Fiduciary. Among occurrences for cash with no ongoing
In addition, in a letter agreement other things, Fiduciary Counselors, as oversight requirements.
between the Pension Fund and set forth above, will review and evaluate 11. It is represented that the proposed
Fiduciary Counselors, dated August 7, the terms of the Preferred Stock and the transactions are in the interests of the
2003, Fiduciary Counselors subject transactions. Fiduciary Pension Fund, because the transactions
acknowledged that the services of a Counselors will also review and will provide ASC with an infusion of
qualified independent appraiser must be evaluate the independent appraisal of capital from an outside source which
utilized to determine the purchase price the fair market value of the Preferred could be used to invest in the continued
for the Preferred Stock. Fiduciary Stock prepared by WMA, as well as any growth of ASC and the development of
Counselors further acknowledged that other relevant documents. Further, new product lines and markets with the
the selection and continuing retention Fiduciary Counselors will make a goal of further increasing the value of
of the appraiser and the acceptance of determination as to whether the ASC. The proposed transactions will
the appraiser’s valuation of the proposed sales satisfy the fiduciary permit ASC to raise capital while
Preferred Stock are fiduciary decisions requirements of prudence and loyalty. ensuring that the Pension Fund retains
governed by the provisions of part 4 of In a letter to the Department, dated control of ASC.
title I of the Act. Fiduciary Counselors August 14, 2003, Ms. Hennessy set forth Furthermore, it is anticipated that the
represents that it understands that in the preliminary conclusions of proposed transactions will increase the
discharging its obligations under Fiduciary Counselors regarding the profitability of ASC. It is represented
Section 404(a) of the Act, it must take proposed transactions. Specifically, that the fact that UNITE and the UNITE
steps calculated to obtain the most Fiduciary Counselors: (1) Determined, Affiliates will own the Preferred Stock
accurate valuation of the Preferred Stock based on the terms of the transactions, of ASC will enhance the standing of
available. Fiduciary Counselors including the tentative range for the fair ASC with its existing trade union
recognizes that the obligation to act market value of the Preferred Stock, that customers, leading to additional
prudently requires, at a minimum that such stock should be sold to UNITE and business opportunities with such
it conduct a thorough and analytical to the UNITE Affiliates; (2) determined clients. Furthermore, it is represented
critique of the Preferred Stock valuation that the transactions, as structured that the fact that UNITE and the UNITE
and that in conducting such would be in the interest of and would Affiliates own the Preferred Stock of
verification, it must evaluate a number benefit the Pension Fund’s participants ASC could serve as an effective
of factors relating to the accuracy and and beneficiaries; (3) approved the marketing tool for obtaining business
methodology of the valuation and the proposed terms underlying the Preferred from other trade unions or trade union
expertise of the independent qualified Stock, as set forth in the draft term sponsored groups that have not
appraiser. In addition it is represented sheet; (4) determined that such terms previously purchased products from
that Fiduciary Counselors may cause the are consistent with what is ‘‘market’’ ASC or that do not currently utilize the
Pension Fund to replace the appraiser if with respect to such securities; (5) services provided by ASC.
necessary. reviewed the valuation provided by 12. The Department notes that it is
It is represented that Nell Hennessy, WMA; (6) determined that the providing no relief for any potential
Esq. (Ms. Hennessy), President of transactions as structured are protective down-the-road prohibited transactions
Fiduciary Counselors, shall be the lead of the participants and beneficiaries of that may arise after the sale of the
individual from Fiduciary Counselors in the Pension Fund; and (7) determined, Preferred Stock, including any that may
the execution of the duties of the on a preliminary basis, that ASC will arise in connection with (a) decisions by
Independent Fiduciary set forth above. receive no less than fair market value for the Trustees of the Pension Fund to vote
Further, under the terms of its the Preferred Stock. Ms. Hennessy the Common Stock of ASC in a manner
agreement with the Pension Fund, further represented that Fiduciary which could advantage the Preferred
Fiduciary Counselors is responsible for Counselors is currently in the process of Stockholders, and (b) any decisions
maintaining records with respect to the negotiating the terms of the sales with made by or actions undertaken by the
performance of its duties for a period of the representatives of UNITE and of the ASC Board with respect to the Preferred
six (6) years from the date on which the UNITE Affiliates, and will ensure that Stock.

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With respect to decisions by the if a transaction between a party in interest exemption; and (i) the Pension Fund
Trustees of the Pension Fund to vote the and a plan would be a prohibited transaction, will incur no fees, commissions, or
Common Stock of ASC when the vote then such a transaction between a party in other charges or expenses as a result of
interest and such corporation or partnership
concerns the Preferred Stock held by its participation in the transactions,
will ordinarily be a prohibited transaction if
UNITE and the UNITE Affiliates, the the plan may, by itself, require the other than the fee payable to Fiduciary
applicant has agreed that Trustees corporation or partnership to engage in such Counselors.
affiliated with UNITE and/or the UNITE transaction. Notice to Interested Persons
Affiliates would recuse themselves from In any event, the Department is
any decision to vote the Common Stock Those persons who may be interested
providing no relief herein, other than in the pendency of the requested
of ASC when participation by such with respect to the sale of the Preferred
Trustees would give rise to conflicts of exemption include all of the active
Stock to UNITE and the UNITE participants and beneficiaries of the
interest. The applicant does not believe Affiliates.
that such recusal is prohibited under the Pension Fund, the retirees receiving
The applicant understands the benefits from the Pension Fund, vested
Taft-Hartley Act or the Labor concerns of the Department and has
Management Relations Act. In this deferred participants and beneficiaries
represented that conflicted directors of of the Pension Fund, the Trustees of the
regard, the applicant represents that the ASC will recuse themselves from
Taft-Hartley Act merely requires equal Pension Fund, all contributing
participating in any decision or action employers to the Pension Fund, the
representation of employees and involving the Preferred Stock. Thus, for
employers in connection with the members of the Board of ASC and the
example the ASC Directors affiliated ASC Subsidiaries, UNITE, the UNITE
receipt of payments by a trust fund. The with UNITE and/or the UNITE Affiliates
purpose of restricting employers from Affiliates, and all locals, joint boards,
would recuse themselves from any and regional offices of UNITE who
making payments to benefit funds was decision to issue dividends with respect
to avoid union control and abuse—not represent members who are participants
to the Preferred Stock and any decision in the Pension Fund. It is represented
employer control. to redeem the Preferred Stock. that these various classes of interested
Potential conflicts may also arise with 13. In summary, the applicant persons will be notified as follows.
respect to any decision by the directors represents that the proposed All of the active participants and
of ASC to redeem the Preferred Stock transactions satisfy the statutory criteria beneficiaries of the Pension Fund, the
and any decision to pay dividends with of section 408(a) of the Act and section retirees receiving benefits from the
respect to such stock. 4975 of the Code because: (a) Fiduciary Pension Fund, the Trustees of the
In the opinion of the applicant, the Counselors will determine, on behalf of Pension Fund, UNITE, and the members
redemption or call of the Preferred the Pension Fund, whether the Preferred of the Board of ASC and the ASC
Stock or the conversion of the Preferred Stock should be sold to UNITE and to Subsidiaries will be provided with a
Stock, among other transactions, would the UNITE Affiliates; (b) Fiduciary copy of the notice of pendency of this
not be prohibited, because the Counselors will approve of the terms proposed exemption (the Notice), plus a
transaction would take place between underlying the Preferred Stock to be copy of the supplemental statement (the
UNITE and/or the UNITE Affiliates, and issued by ASC; (c) Fiduciary Counselors Supplemental Statement), as required,
ASC, rather than with the Pension will negotiate and approve the terms of pursuant to 29 CFR 2570.43(b)(2), which
Fund. In this regard, the applicant the sales of the Preferred Stock to will advise such interested persons of
maintains that once the Preferred Stock UNITE and to the UNITE Affiliates; (d) their right to comment and to request a
has been sold to UNITE and to the Fiduciary Counselors will monitor the hearing. The Notice and the
UNITE Affiliates, ASC no longer terms of the transactions and ensure that Supplemental Statement will be
constitutes a plan asset look-through ASC, UNITE, and the UNITE Affiliates delivered by first class mail within
vehicle with respect to the Pension comply with the approved terms; (e) fifteen (15) days of the publication of
Fund under the Department’s Fiduciary Counselors will determine the Notice in the Federal Register.
regulations at 29 CFR 2510.3–101(h) that the terms of the sales of Preferred In addition, a copy of the Notice and
(the Plan Asset Regulation).34 Stock are no less favorable to ASC than the Supplemental Statement will be
Accordingly, the applicant maintains would be offered to an unrelated third provided, within fifteen (15) calendar
that Trustees who are members of the party under similar circumstances; (f) days of the date of publication of the
ASC Board would be acting as directors Fiduciary Counselors will determine Notice in the Federal Register, to all
of an operating company and not as that the purchase price for the Preferred locals, joint boards, and regional offices
fiduciaries under the Act controlling Stock paid by UNITE and by the UNITE of UNITE who represent members who
assets of the Pension Fund when Affiliates is no less than the fair market are participants in the Pension Fund
making decisions regarding the value of such Preferred Stock, as of the and to contributing employers that
Preferred Stock. The applicant further date the transactions are entered; (g) employ members who are participants
maintains that members of the ASC Fiduciary Counselors will determine the in the Pension Fund. The Pension Fund
Board would be subject to the mandates fair market value of the Preferred Stock, represents that immediately upon
of the New York state corporate laws, as of the date each of the transactions is receipt of a copy of the Notice and
including those applicable to related entered; (h) in determining the fair Supplemental Statement such locals,
party transactions, in the exercise of market value of the Preferred Stock, joint boards, regional offices of UNITE,
their duties as directors of ASC. Fiduciary Counselors will obtain an and contributing employers will post
appraisal from an independent qualified such Notice and the Supplemental
As the Department noted in it’s appraiser selected by it and ensure that Statement at those locations which are
regulations at 29 CFR 2509.75–2: the appraisal and Fiduciary customarily used for notices regarding
Counselors’s analysis of the appraisal employee benefits matters and/or will
34 The Plan Asset Regulation provides that where
are consistent with sound principles of post such Notice and Supplemental
a plan ‘‘owns all of the outstanding equity interests
(other than director’s qualifying shares) in an entity,
valuation and the elements described in Statement at the union hall.
its assets include those equity interests and all of paragraph 8, in the Summary of Facts It is represented that for the purpose
the underlying assets of the entity.’’ and Representations in this proposed of sending the Notice and Supplemental

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Statement by mail, current addresses performed a post-Transaction review, or a portion of the assets of such
maintained by the Pension Fund will be which included, among other things, a separate accounts.
used. determination that the fair market value 3. Among the separate accounts
All written comments and requests for of the Plan’s interests in the Account as managed by Pan-American was Separate
a hearing must be received by the of November 14, 2003, as determined by Account V, otherwise referred to herein
Department no later than forty-five (45) the Fund trustee, was accurate and as ‘‘the Account.’’ The Account was
days from the date of the publication of consistent with the Fund’s valuation established by Pan-American on or
the Notice in the Federal Register. method. about November 24, 1992, and it was
FOR FURTHER INFORMATION CONTACT: (d) No sales commissions, fees or available only to defined contribution
Angelena C. Le Blanc of the Department, other costs were paid by the Plans in retirement plans, many of which are
telephone (202) 693–8540. (This is not connection with the Transaction. subject to Title I of the Act. The purpose
a toll-free number.) (e) The sale was a one-time of the Account was to provide a stable
transaction for cash. value fund option as an investment
Pan-American Life Insurance (f) The fair market value of the units alternative in a pooled vehicle for Title
Corporation (Pan-American); Located was determined in good faith by The I Plans. The unit value of the Account
in New Orleans, LA Dreyfus Trust Company (TDTC), an was set at $10.00 when the first
[Application No. D–11202] unrelated party, at the time of the investment was made by a Plan in
Transaction. August 1995. The unit value was
Proposed Exemption
EFFECTIVE DATE: If granted, this proposed adjusted each Valuation Date (i.e., each
The Department is considering exemption will be effective as of business day on which the Home Office
granting an exemption under the November 17, 2003. of Pan-American was open to transact
authority of section 408(a) of the Act (or business and on which the New York
ERISA) and section 4975(c)(2) of the Summary of Facts and Representations
Stock Exchange was open for
Code and in accordance with the 1. Pan-American is a mutual life unrestricted trading) to reflect the value
procedures set forth in 29 CFR part insurance company based in New of the assets of the Account, less any
2570, subpart B (55 FR 32836, August Orleans, Louisiana and is subject to the charges due Pan-American. The gross
10, 1996).35 If the exemption is granted, supervision and examination of the unit value of the Account on October
the restrictions of sections 406(a), Louisiana Commissioner of Insurance. 31, 2003 was $14.4934. The net unit
406(b)(1) and (b)(2) of the Act and the Pan-American is licensed in 40 states value for the Account varied according
sanctions resulting from the application and the District of Columbia, Puerto to differences in the charge structures
of section 4975 of the Code by reason of Rico and the Virgin Islands. The insurer for different group annuity contracts
section 4975(c)(1)(A) through (E) of the has affiliates in Panama, Guatemala and attributed to Plans participating in the
Code shall not apply to the cash sale, on Colombia, and branch offices in Account.
November 17, 2003, by certain defined Ecuador, El Salvador and Honduras. As A Plan’s participation in the Account
contribution plans (the Plans), which of December 31, 2002, Pan-American was governed by the Separate Account
invest in Separate Account V (the had total assets under management of V Rider appended to the contracts
Account), a pooled separate account, approximately $2.3 billion. As of that issued by Pan-American to a
whose assets are invested in units of the date, Pan-American managed about participating Plan. The Account was not
Dreyfus-Certus Stable Value Fund (the $900 million in retirement plan assets registered under the Investment
Fund), of Fund units, to Pan-American, for approximately 1,200 employee Company Act of 1940. For purposes of
the Account’s investment manager and benefit plans, covering about 50,000 the Act, the assets of the Account were
a fiduciary with respect to such plan participants. The insurer’s most treated as ‘‘plan assets’’ within the
Account. recent A.M. Best rating is ‘‘A¥’’ meaning of 29 CFR 2510.3–
This proposed exemption is subject to (Excellent). 101(h)(1)(iii).
the following conditions: 2. Among the insurance products and Approximately, 417 small to mid-
(a) Prior to the transaction (the services it offers, Pan-American and sized client Plans of Pan-American
Transaction), a fiduciary (the certain of its affiliates provide funding, invested in the Account.36 As of October
Independent Fiduciary), acting on asset management and other services for 31, 2003, the Plans had approximately
behalf of the Plans, who was employee benefit plans, some of which $75,517,418 invested in the Account
independent of and unrelated to Pan- are subject to the provisions of title I of and the Fund described herein. No Plan
American and its subsidiaries, the Act. In particular, Pan-American sponsored by Pan-American ever
determined that the subject Transaction maintains pooled separate accounts in invested in the Account.
(1) was fair to the participants in the which Title I pension, profit sharing, Accordingly, Pan-American was a
Plans investing in the Account; (2) was and other plans invest. The assets of a party in interest with respect to such
comparable to, and no less favorable separate account are established and Plans, and a fiduciary with respect to
than, terms obtainable at arm’s length maintained by Pan-American separate the Account. Pan-American represents
between unaffiliated parties; and (3) was and apart from its general account. The that neither it nor its affiliates had any
in the best interest of the Plans investing income and realized gains or losses from discretionary authority over the
in the Account and their participants the assets in the separate account are decision to invest a Plan’s assets in the
and beneficiaries. credited or charged against the account Account. Instead, a Plan fiduciary or
(b) The Independent Fiduciary without regard to the other investment participant independent of Pan-
monitored the Transaction on behalf of gains or losses of Pan-American. Under American and its affiliates was
the Plans investing in the Account. the terms of the Pan-American
(c) Subsequent to the closing of the contracts, either an independent Plan 36 The smallest Plan invested in the Account had
Transaction, the Independent Fiduciary fiduciary or a participant can direct the an interest valued at $29 and one participant while
investment of contract values among the the largest Plan invested in the Account had an
35 For purposes of this proposed exemption, interest valued at over $3 million and 1,243
references to specific provisions of Title I of the
investment options offered by Pan- participants. For 2001, 2002 and 2003, the net cash
Act, unless otherwise specified, refer also to the American, in separate accounts or flow into the Account was $17,785,258,
corresponding provisions of the Code. subaccounts. Pan-American manages all $32,727,395 and $5,039,484, respectively.

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Federal Register / Vol. 69, No. 57 / Wednesday, March 24, 2004 / Notices 13901

responsible for such investment Fund are offered by TDTC for purchase the insurance commissioners in other
decisions. or redemption on a continuous basis, jurisdictions, Securian agreed to co-
4. The Account began investing in the except that TDTC reserves the right to insure the risks under the Contracts and,
Fund in August 1995. The Fund is a defer redemptions for a period of time, if the Plan owning the Contracts
collective investment fund invested generally not to exceed twelve months, consented, to issue its own group
primarily in guaranteed investment as necessary for a fair and orderly annuity contracts in substitution for the
contracts (GICs) and other similar liquidation of Fund assets. There is no Contracts.
instruments intended to achieve high secondary market for units in the Fund. In connection with the Reinsurance
current income and stability of 6. Pan-American determined to Transaction, Securian advised that it
principal. The Fund is designed for discontinue the sale of its group annuity would not offer the Fund as an
employee benefit plans, and for contracts and to transfer its existing investment option for the Contracts nor
financial institutions acting as trustee, business to another carrier in a a comparable stable value product.38
investment manager, custodian, or agent reinsurance transaction because it could Therefore, in accordance with industry
for one or more employee benefit plans not reach the critical asset level needed practice, the Contracts provided, in
as a convenient means of participating to attain profitability in the retirement pertinent part, that ‘‘[i]f in the judgment
in a professionally managed, diversified plan market. In particular, with respect of the Insurance Company it [became]
portfolio consisting primarily of GICs to the group annuity contracts necessary or desirable to terminate
and other stable value instruments. previously issued by Pan-American and Separate Account V by reason of any
Specifically, the Fund invests remaining in force (the Contracts), Pan- federal or state statute, any judicial
primarily in a diversified portfolio of American entered into agreements to decision or any rule or regulation of any
GICs issued by insurance companies, transfer such business to Securian governmental authority, or because it
bank investment contracts (BICs), Retirement Services (Securian), a [was] no longer commercially feasible,
corporate investment contracts, business unit of Minnesota Life the Insurance Company [could]
synthetic GICs(the wrap issuers of Insurance Company (Minnesota Life). liquidate the assets credited to the
whom are not Pan-American), separate The Contracts included all of the group contractholder in Separate Account V
account GICs, floating rate GICs, annuity contracts with amounts and transfer them at the contractholder’s
repurchase agreements, and cash and allocated to the Account. election, to the Deposit Fund or other
cash equivalents, including money Minnesota Life provides financial separate accounts maintained under the
market instruments and certificates of security for individuals and businesses Group Annuity Contract or to any
deposit. in the form of insurance, retirement alternative funding agency.’’
plans and investments. The company In order to make all Plan monies
The trustee and portfolio manager of
serves over seven million people with immediately available for investment or
the Fund is TDTC, which has appointed
nearly $350 billion of life insurance in reinvestment in the investment options
Standish Mellon Asset Management
force and $22 billion in assets under to be offered by Securian, Pan-American
Company LLC (Standish Mellon) as an requested that TDTC effect a redemption
management. Minnesota Life’s
investment advisor (prior to June 1, of the Account’s interest in the Fund
combined work force of 4,400
2003, was doing business as Certus effective November 13, 2003, the
employees and representatives is
Asset Advisors). Both TDTC and original contemplated date of the
located at its St. Paul headquarters and
Standish Mellon LLC are not affiliated Transaction. TDTC advised that it
agencies and offices across the country.
with and are independent of Pan- would not be able to fully redeem all of
Minnesota Life is highly rated by the
American, which has no involvement in the Account’s interests as of November
major independent rating agencies (e.g.,
the operation or administration of the 13, 2003, but, as allowed by the
A++ (Superior) by A.M. Best) that
Fund. As of December 31, 2002, the instruments governing the Fund,
analyze the financial soundness and
Fund had total assets of $588,015,081. committed to redeeming $8,000,000 of
claims-paying ability of insurance
5. Units in the Fund are valued each companies. The Securian business unit the Account’s interests in the Fund each
business day at fair value, as determined of Minnesota Life currently manages month beginning November 2003, until
in good faith by TDTC. At the Fund’s assets of more than $5.7 billion for more such time as all interests are redeemed.
inception, and all the times thereafter, than 2,700 plans and over 180,000 8. Pan-American believed that it was
the Fund has maintained a unit value of participants nationwide. Securian appropriate and in the best interest of
$1.00. In other words, Fund units can consistently receives superior service the Plans and their participants and
never be worth more than $1.00. Income ratings in independent surveys of plan beneficiaries for the monies invested in
distributed from the Fund is applied to sponsors and was one of the first the Account to be made available for
the purchase of additional Fund units. retirement plan providers to offer Plan fiduciaries and participants for
Thus, an investor is entitled to receive transactional services on line. reinvestment in other options. Because
a return on the investment plus the 7. The insurance commissioners of there was no secondary market for units
$1.00 per unit value.37 Units in the Louisiana and Minnesota approved the in the Fund, to the best of Pan-
reinsurance transaction (the American’s information and belief, there
37 The Plans investing in the Fund through the
Reinsurance Transaction) on October was no available unrelated purchaser for
Account received a return on investment in the
form of an increase or decrease in the number of 17, 2003, and October 28, 2003, the Fund units held by the Account.
units held. Pan-American did not issue any respectively. Pan-American closed both 9. Therefore, on November 17, 2003,
synthetic, stabilizing or other wrappers with respect the subject Transaction and the Pan-American purchased in the
to the Fund. The Fund was designed to provide the
Reinsurance Transaction on November ordinary course of business, for its own
Account with stability of principal and high-current account, the Fund units held by the
income through the assets it purchased, and the 17, 2003. On that date, Securian took
Fund did not separately provide a guarantee of responsibility for the administration and Account, at a per unit value of $1.00, as
principal, nor did Pan-American provide a operation of the Contracts.
guarantee of principal or earnings by issuing any 38 It is represented that Securian would offer all

wrappers with respect to the Fund. Although Subsequently, subject to the consent of of the Plans invested in the Account and Fund a
neither the value of the Fund’s portfolio nor an fixed income investment option that is supported
investment in the Fund is insured or guaranteed, money market funds issued by banks, provided the and guaranteed by Minnesota Life’s general
certain investments within the Fund, such as Account with a guarantee of principal. account.

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13902 Federal Register / Vol. 69, No. 57 / Wednesday, March 24, 2004 / Notices

determined by TDTC on November 14, participants, the Account was TDTC, or Standish Mellon or their
2003.39 Pan-American acquired terminated. affiliates (including amounts received
55,010,750.23 units from the Account Accordingly, Pan-American requests for services provided by the
for cash.40 (The redemption proceeds for an administrative exemption from the Independent Fiduciary associated
the Fund units that are received over the Department with respect to the with the Transaction) gross income
following six to twelve months will be Transaction. If granted, the exemption for that fiscal year that exceeds one
paid by TDTC to Pan-American.) Thus, will be effective as of November 17, percent of the Independent
the purchase price for the Transaction 2003. Fiduciary’s annual gross income from
was at the full unit value on November 10. U.S. Trust Company, National all sources for such fiscal year.
14, 2003, without any discount or other Association (U.S. Trust) agreed to act on • Lastly, neither the Independent
reduction for the deferral of the behalf of the Plans investing in the Fiduciary nor any partnership or
redemption of those Fund units. Account as the Independent Fiduciary corporation of the Independent
Both the subject Transaction and the with respect to the Transaction. The Fiduciary is an officer, director, or 10
entire Reinsurance Transaction were Independent Fiduciary is a national percent or more partner or
completed on November 17, 2003. The banking association formed under the shareholder, will acquire any property
Plans received their pro rata portion of laws of the United States and authorized from, sell any property to, or borrow
cash based upon their ownership to exercise all fiduciary powers that may funds from Pan-American, Minnesota
percentage in the Fund at the close of be exercised by state banks and trust Life, Securian, TDTC, or Standish
business on November 14, 2003. No companies under the laws of the State Mellon during the period that the
commissions or other fees were paid by of Connecticut. The Independent Independent Fiduciary serves as
the Account in connection with the Fiduciary, which is a wholly owned independent fiduciary of the Plans,
Transaction.41 subsidiary of The Charles Schwab and continuing for a period of six
In addition, the value of the interests Corporation, has served as an months after the Independent
of Plans and participants and independent fiduciary for employee Fiduciary ceases to be an independent
beneficiaries in the Account on benefit plans in connection with fiduciary of the Plans, or negotiate
November 14, 2003, was exactly the exemption requests from Department any such transaction during the
same as it would have been had the over the past fifteen years. The period that the Independent Fiduciary
Transaction not occurred. The cash in Independent Fiduciary has certified that serves as an independent fiduciary of
the Account resulting from the it meets the following requirements: the Plans.
Transaction was immediately available
to the Plans and their participants for • The Independent Fiduciary is not 11. Thus, the Independent Fiduciary
reinvestment in the options then offered directly or indirectly, through one or is independent of and has no affiliation
under the Contracts. Following the more intermediaries, controlling, with Pan-American, Minnesota Life,
reinvestment of these monies at the controlled by, or under common Securian, TDTC, or Standish Mellon,
direction of the Plans and their control with Pan-American, and the fees paid to the Independent
Minnesota Life, Securian, TDTC, or Fiduciary in connection with the
39 Based on its review of information provided by Standish Mellon. Transaction will constitute less than one
Pan-American and TDTC, the Independent • The Independent Fiduciary is not an percent of its revenue for 2003.
Fiduciary concluded that the purchase of the Fund officer, director, employee of, or Furthermore, the Independent Fiduciary
units by Pan-American was effectuated in a manner
consistent with the required criteria and procedures
partner in Pan-American, Minnesota has acknowledged and accepted the
set forth in its preliminary report and that the fair Life, Securian, TDTC, or Standish duties, responsibilities of an
market value of the Plan’s interest in the Account Mellon. Independent Fiduciary.
as of November 14, 2003, as determined by TDTC, • The Independent Fiduciary is not a Prior to the closing of the Transaction,
was accurate and consistent with the Fund’s
valuation methodology. corporation or partnership in which the Independent Fiduciary (a)
40 As noted in Representation 3, the Account had Pan-American, Minnesota Life, Conducted a due diligence review of the
total assets in excess of $75 million as of October Securian, TDTC, or Standish Mellon Transaction; (b) determined whether the
31, 2003 invested in the Fund. However, the has an ownership interest or is a Transaction was in the interest and
Account sold approximately $55 million in Fund
units to Pan-American. The applicant explains that
partner. protective of the Plans and their
prior to the date of the Transaction and the • The Independent Fiduciary does not participants and beneficiaries; (c) issued
Reinsurance Transaction, TDTC redeemed have an ownership interest in Pan- a written preliminary report to the
approximately 20,000,000 Fund units held by the American, Minnesota Life, Securian, Department; and (d) a final report to the
Account at the request of certain Plan fiduciaries
electing not to participate in the Reinsurance TDTC, or Standish Mellon or any of Department within 30 days of the
Transaction, thereby reducing the Account size. their affiliates (except for possibly de closing of the Transaction.
41 The applicant represents that the economic minimis holdings in Minnesota Life). In making its determinations, the
burdens and benefits of the Fund units in the future • The Independent Fiduciary was not a Independent Fiduciary was required to
will accrue to the detriment or benefit of Pan-
American rather than to the Plans. Because the
fiduciary with respect to the Account (a) Review the terms of the Transaction;
Fund units were purchased at fair market value, the prior to its appointment as an (b) review the written procedures by
purchase price reflected the market’s assessment of independent fiduciary. which TDTC calculates the net asset
the opportunity for future gains in the value of the • The Independent Fiduciary has value of the Fund; (c) conduct
Fund, balanced against the risk of future loss in
value. The purchase price was the fair market value acknowledged in writing acceptance discussions, as necessary to make the
of the units determined in the ordinary course of of fiduciary responsibility and has determinations described above, with
business by TDTC for that date. The purchase price, agreed not to participate in any appropriate personnel of Pan-American,
which was credited to the Account, and to the decision with respect to any Standish Mellon, and/or TDTC; and (d)
Plans, compensated the Plans for the transfer of the
future risks and rewards of Fund ownership. As a transaction in which it has an interest if the Transaction was effectuated,
result, the applicant does not believe that the that might affect its best judgment as confirm in writing whether the
Transaction, and in particular, the form and timing a fiduciary. Transaction was effectuated consistently
of the payment by Pan-American to the Plans for
the Fund units, provided financial benefit to Pan-
• The Independent Fiduciary has not with the required terms set forth in the
American for which the Plans were not being received, for any fiscal year, from Pan- exemption application, based on written
compensated. American, Minnesota Life, Securian, representations that the Independent

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Federal Register / Vol. 69, No. 57 / Wednesday, March 24, 2004 / Notices 13903

Fiduciary would request from Pan- alternative following the Transaction. parties; and (3) was in the best interest
American and TDTC and a test of a Therefore, the Independent Fiduciary of the Plans investing in the Account
sample of material aspects of the believed it imperative that the and their participants and beneficiaries.
Transaction, deemed in the Independent Account’s interest in the Fund be (b) The Independent Fiduciary
Fiduciary’s judgment to be redeemed. monitored the Transaction on behalf of
representative. • TDTC had the discretion to defer the Plans investing in the Account.
In connection with its analysis of the redemptions over an extended period (c) Subsequent to the closing of the
Transaction, the Independent Fiduciary of time and had chosen to do so. Transaction, the Independent Fiduciary
states that it reviewed and considered • There was no secondary market for performed a post-Transaction review,
various documents, including, but not the Fund units and, to the best of Pan- which included, among other things, a
limited to, the Separate Account V American’s knowledge, there was no determination that the fair market value
Rider, the Optional Investment Contract, available unrelated purchaser for the of the Plan’s interests in the Account as
the Fund’s product description Fund units held by the Account. of November 14, 2003, as determined by
brochure, the December 31, 2002 • The fair market value of the Account’s TDTC, was accurate and consistent with
Annual Report of the Fund, and the units in the Funds as of November 14, the Fund’s valuation method.
exemption request. However, the 2003, would be determined by TDTC (d) No sales commissions, fees or
Independent Fiduciary states that it did in the same manner that the units other costs were paid by the Plans in
not make any independent investigation were historically valued by TDTC. connection with the Transaction.
to verify the accuracy of such • Pan-American would purchase the (e) The sale was a one-time
information, data, analyses and Account’s units at the determined transaction for cash.
representations. Instead, the value for cash which would allow the (f) The fair market value of the units
Independent Fiduciary represents that it Plans to reinvest the full amount of was determined in good faith by TDTC,
relied upon information provided by the proceeds immediately rather than at the time of the Transaction.
Pan-American, which Pan-American extending the receipt of redemption
Notice to Interested Persons
deemed to be accurate. proceeds over 6–12 months.
In anticipation of the Transaction, the • The Plans would pay no fees or Pan-American represents that it will
Independent Fiduciary notes that as of commissions associated with the distribute, by first class mail, a copy of
August 31, 2003, the Fund was valued Transaction. the notice of proposed exemption (the
at $643.2 million by TDTC, as based on Furthermore, the Independent Notice) within five (5) days of the date
a daily valuation of the Fund, and that Fiduciary believed the terms of the of such Notice is published in the
the value of each unit was $1.00 per Transaction were no less favorable to Federal Register to the independent
unit. The Independent Fiduciary states the Account than the terms obtainable fiduciaries of the Plans affected by the
that investments in GICs and other in an arm’s length transaction with an Transaction. The Notice will include a
similar investments were valued at their unrelated party at the time of such copy of the proposed exemption, as
contract values, and would provide for Transaction. published in the Federal Register, and
benefit responsive withdrawals at Subsequent to the closing of the a supplemental statement, as required
contract value and daily dividends to Transaction, the Independent Fiduciary pursuant to 29 CFR 2570.43(b)(2), which
Fund unitholders that would be performed a post-transaction review informs all interested persons of their
automatically reinvested on a monthly which included, among other things, a right to comment on and/or request a
basis. In reviewing the Account’s July determination of whether the fair hearing with respect to the proposed
Fund statement, the Independent market value of the Plans’ interests in exemption. Comments and requests for
Fiduciary demonstrated the the Account, as determined by TDTC, a public hearing are due within 35 days
methodology implemented by TDTC in was accurate and consistent with following the publication of the
calculating the net asset value of the TDTC’s valuation methodology of the proposed exemption in the Federal
Account’s interest in the Fund as Fund. Based upon the results of such Register.
follows: review, the Independent Fiduciary FOR FURTHER INFORMATION CONTACT: Mr.
Number of units Begin- concluded that the purchase of Fund Arjumand A. Ansari of the Department
ning of July ................... $77,442,676.88 units by Pan-American was effectuated at (202) 693–8566. (This is not a toll-free
Value of units ........... 1.00 in a manner consistent with the number.)
Account’s Equity Begin- required criteria and procedures set
ning of July ................... 77,442,676.88 General Information
Value of units acquired
forth in its preliminary report, and that
through Contributions the value paid by Pan-American for the The attention of interested persons is
(at $1.00 per unit) ........ 4,238,607.63 Plan’s interests in the Account was directed to the following:
Value of units acquired accurate and consistent with the Fund’s (1) The fact that a transaction is the
through Reinvestment valuation methodology. subject of an exemption under section
of dividends (at $1.00 12. In summary, it is represented that 408(a) of the Act and/or section
per unit) ........................ 260,589.89 the Transaction satisfied the statutory 4975(c)(2) of the Code does not relieve
Value of units withdrawn criteria for an exemption under section a fiduciary or other party in interest or
(at $1.00 per unit) ........ (2,720,669.48) 408(a) of the Act for the following disqualified person from certain other
Account’s Equity End of
July ................................ 79,221,204.92
reasons: provisions of the Act and/or the Code,
(a) Prior to the Transaction, the including any prohibited transaction
The Independent Fiduciary opined Independent Fiduciary, acting on behalf provisions to which the exemption does
that the Transaction would be in the of the Plans, determined that the subject not apply and the general fiduciary
interest and protective of the Plans and Transaction (1) was fair to the responsibility provisions of section 404
their participants and beneficiaries participants in the Plans investing in the of the Act, which, among other things,
because: Account; (2) was comparable to and no require a fiduciary to discharge his
• Securian had determined not to less favorable than terms obtainable at duties respecting the plan solely in the
continue the Fund as an investment arm’s length between unaffiliated interest of the participants and

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13904 Federal Register / Vol. 69, No. 57 / Wednesday, March 24, 2004 / Notices

beneficiaries of the plan and in a softwood dimensional lumber workers after September 4, 2002 through two years
prudent fashion in accordance with of the subject firm. The Notice of from the date of this certification, are eligible
section 404(a)(1)(b) of the Act; nor does Affirmative Determination Regarding to apply for adjustment assistance under
it affect the requirement of section Application for Reconsideration was section 223 of the Trade Act of 1974, and are
also eligible to apply for alternative trade
401(a) of the Code that the plan must signed in February 10, 2004 and adjustment assistance under section 246 of
operate for the exclusive benefit of the published in the Federal Register on the Trade Act of 1974.
employees of the employer maintaining February 25, 2004 (69 FR 8698).
the plan and their beneficiaries; The initial denial was based on the Signed in Washington, DC this 8th day of
(2) Before an exemption may be March 2004.
findings of no sales declines and
granted under section 408(a) of the Act minimal production declines during the Elliott S. Kushner
and/or section 4975(c)(2) of the Code, period of employment declines at the Certifying Officer, Division of Trade
the Department must find that the subject company, no shift of production Adjustment Assistance.
exemption is administratively feasible, abroad, no subject company imports and [FR Doc. 04–6548 Filed 3–23–04; 8:45 am]
in the interests of the plan and of its that there was a shift of production to BILLING CODE 4510–30–P
participants and beneficiaries, and a domestic facility. The workers
protective of the rights of participants produce plywood and softwood
and beneficiaries of the plan; dimensional lumber and are separately DEPARTMENT OF LABOR
(3) The proposed exemptions, if identifiable by product line.
granted, will be supplemental to, and In the request for reconsideration, the Employment and Training
not in derogation of, any other petitioner alleged that employment Administration
provisions of the Act and/or the Code, declines occurred at the subject facility [TA–W–52,128, TA–W–52,128A, and TA–W–
including statutory or administrative and increased import of softwood 52,128B]
exemptions and transitional rules. dimension lumber.
Furthermore, the fact that a transaction An examination of new information Control Engineering Company,
is subject to an administrative or and further review of existing Pellston, MI; Control Engineering
statutory exemption is not dispositive of information supplied by the company Company, Harbor Springs, MI; Control
whether the transaction is in fact a during the initial investigation reveals Engineering Company, Boyne City, MI;
prohibited transaction; and that the subject company did experience Notice of Negative Determination on
(4) The proposed exemptions, if sales, production and employment Reconsideration
granted, will be subject to the express declines during the relevant time
condition that the material facts and On December 8, 2003, the Department
period. issued an Affirmative Determination
representations contained in each The Department conducted a survey
application are true and complete, and Regarding Application for
of the subject company’s major
that each application accurately Reconsideration for the workers and
declining customers for the time periods
describes all material terms of the former workers of the subject firm. The
2001, 2002, and January-August 2003
transaction which is the subject of the notice was published in the Federal
regarding imports of softwood
exemption. Register on December 29, 2003 (68 FR
dimensional lumber. The sample survey
74972).
Signed at Washington, DC, this 19th day of represents a meaningful portion of total
The Department initially denied TAA
March, 2004. subject company sales. The survey
to workers of Control Engineering
Ivan Strasfeld, revealed decreased subject company
Company, Pellston, Harbor Springs, and
Director of Exemption Determinations, purchases and increased customer
Boyne City, Michigan because the
Employee Benefits Security Administration, reliance on imported softwood
‘‘contributed importantly’’ group
U.S. Department of Labor. dimensional lumber during the relevant
eligibility requirement of section 222(3)
[FR Doc. 04–6584 Filed 3–23–04; 8:45 am] time period.
of the Trade Act of 1974, as amended,
BILLING CODE 4510–29–P The investigation also revealed that at
was not met. The ‘‘contributed
least five percent of the workforce at the
importantly’’ test is generally
subject firm is at least fifty years of age
demonstrated through a survey of
DEPARTMENT OF LABOR and that the workers possess skills that
customers of the workers’ firm. The
are not easily transferable. Competitive
Employment and Training survey revealed that none of the
conditions within the industry are
Administration respondents increased their purchases
adverse.
of imported automated material
[TA–W–52,912] Conclusion handling systems/AVG and sheet metal
After careful consideration of the new enclosures. The company did not
Boise Cascade Corporation, Yakima,
facts obtained on reconsideration, it is import automated material handling
WA; Notice of Revised Determination
concluded that increased imports of systems/AVG and sheet metal
on Reconsideration Regarding
softwood dimensional lumber, enclosures in the relevant period, nor
Eligibility To Apply for Worker
contributed importantly to the decline did they shift production to a foreign
Adjustment Assistance and Alternative
in production and to the total or partial source.
Trade Adjustment Assistance
separation of workers at Boise Cascade In the request for reconsideration, the
By letter dated December 3, 2003, the Corporation, Yakima, Washington. In petitioners alleged that the basis for
Western Council of Industrial Workers, accordance with the provisions of the certification at an affiliated facility
Local 2739, requested administrative Act, I make the following revised (Jervis B. Webb Company, New Hudson,
reconsideration regarding the determination: Michigan, TA–W–41,440) was also a
Department’s Negative Determination Workers of Boise Cascade Corporation,
contributing factor in layoffs at the
Regarding Eligibility to Apply for Yakima, Washington, engaged in activity subject firm facilities in this
Worker Adjustment Assistance and related to the production of softwood investigation. In the case of workers at
Alternative Trade Adjustment dimensional lumber, who became totally or the New Hudson facility, workers were
Assistance (ATAA), applicable to partially separated from employment on or certified on the basis of a shift of

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