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Secretary of Labor Thomas E. Perez
Proposed Exemptions; The Banc Funds Company, LLC (TBFC) [Notices] [05/23/2000]

EBSA (Formerly PWBA) Federal Register Notice

Proposed Exemptions; The Banc Funds Company, LLC (TBFC) [05/23/2000]

[PDF Version]

Volume 65, Number 100, Page 33360-33376


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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10624, et al.]

 
Proposed Exemptions; The Banc Funds Company, LLC (TBFC)

AGENCY: Pension and Welfare Benefits Administration, Labor

ACTION: Notice of proposed exemptions.

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

Written Comments and Hearing Requests

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

ADDRESSES: All written comments and request for a hearing (at least 
three copies) should be sent to the Pension and Welfare Benefits 
Administration, Office of Exemption Determinations, Room N-5649, U.S. 
Department of Labor, 200 Constitution Avenue, NW, Washington, DC 20210. 
Attention: Application No. ____, stated in each Notice of Proposed 
Exemption. The applications for exemption and the comments received 
will be available for public inspection in the Public Documents Room of 
the Pension and Welfare Benefits Administration, U.S. Department of 
Labor, Room N-5638, 200 Constitution Avenue, NW, Washington, DC 20210.

Notice to Interested Persons

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

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

The Banc Funds Company, LLC (TBFC), Located in Chicago, IL

[Application No. D-10624]

Proposed Exemption

    Based on the facts and representations set forth in the 
application, the Department is considering granting an exemption under 
the authority of section 408(a) of the Act and section 4975(c)(2) of 
the Code and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990.) \1\
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    \1\ For purposes of this proposed exemption, references to the 
provisions of Title I of the Act, unless otherwise specified, refer 
also to corresponding provisions of the Code.
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Section I. Covered Transactions

    If the exemption is granted, the restrictions of sections 406(a) 
and 406(b) of the Act and the sanctions resulting from the application 
of section 4975 of the Code, by reason of section 4975(c)(1)(A) through 
(D) of the Code, shall not apply to (1) the purchase or redemption of 
interests in the Banc Fund V, L.P. (the Partnership) by employee 
benefit plans (the Plans) investing in the Banc Fund V Group Trust (the 
BF V Group Trust), where TBFC, a party in interest with respect to the 
Plans, is the general partner of MidBanc V, L.P. (MidBanc V), which is, 
in turn, the general partner (the General Partner) of the Partnership; 
(2) the sale,

[[Page 33361]]

for cash or other consideration, by the Partnership of certain 
securities that are held as Partnership assets to a party in interest 
with respect to a Plan participating in the Partnership through the BF 
V Group Trust, where the party in interest proposes to acquire or merge 
with the portfolio company (the Portfolio Company) that issued such 
securities; and (3) the payment to the General Partner, by Plans 
participating in the Partnership through the BF V Group Trust, of an 
incentive fee (the Performance Fee) which is intended to reward the 
General Partner for the superior performance of investments in the 
Partnership.
    This proposed exemption is subject to the following conditions as 
set forth below in Section II.

Section II. General Conditions

    (a) Prior to a Plan's investment in the BF V Group Trust and the 
Partnership, a Plan fiduciary which is independent of TBFC and its 
affiliates (the Independent Fiduciary) approves such investments on 
behalf of the Plan.
    (b) Each Plan investing in the BF V Group Trust and the Partnership 
has total assets that are in excess of $50 million.
    (c) No Plan may invest more than 10 percent of its assets in the BF 
V Group Trust, and the interests held by the Plan may not exceed 25 
percent of the assets of the BF V Group Trust.
    (d) No Plan may invest more than 25 percent of its assets in 
investment vehicles (i.e., collective investment funds or separate 
accounts) managed or sponsored by TBFC and/or its affiliates.
    (e) Prior to investing in the BF V Group Trust and the Partnership, 
each Independent Fiduciary contemplating investing therein receives a 
Private Placement Memorandum and its supplement containing descriptions 
of all material facts concerning the purpose, structure and the 
operation of the BF V Group Trust and the Partnership.
    (f) An Independent Fiduciary which expresses further interest in 
the BF V Group Trust and Partnership receives --
    (1) A copy of the BF V Group Trust Agreement outlining the 
organizational principles, investment objectives and administration of 
the BF V Group Trust, the manner in which shares in the Group Trust may 
be redeemed, the duties of the parties retained to administer the BF V 
Group Trust and the manner in which BF V Group Trust shares are to be 
valued; and
    (2) A copy of the Partnership Agreement describing the 
organizational principles, investment objective and administration of 
the Partnership, the manner in which the Partnership interests may be 
redeemed, the manner in which Partnership assets are to be valued, the 
duties and responsibilities of the General Partner, the rate of 
remuneration of the General Partner, and the conditions under which the 
General Partner may be removed.
    (g) If accepted as an investor in the BF V Group Trust and the 
Partnership, the Independent Fiduciary is--
    (1) Furnished with the names and addresses of all other 
participating Plan and non-Plan investors in the Partnership;
    (2) Required to acknowledge, in writing, prior to purchasing a 
beneficial interest in the BF V Group Trust (and a corresponding 
limited partnership interest in the Partnership) that such Independent 
Fiduciary has received copies of such documents; and
    (3) Required to acknowledge, in writing, to the General Partner 
that such fiduciary is independent of TBFC and its affiliates, capable 
of making an independent decision regarding the investment of Plan 
assets, knowledgeable with respect to the Plan in administrative 
matters and funding matters related thereto, and able to make an 
informed decision concerning participation in the BF V Group Trust and 
the Partnership.
    (h) Each Plan, including the trustee (the Trustee) of the BF V 
Group Trust, receives the following written disclosures from the 
General Partner with respect to its ongoing participation in the BF V 
Group Trust and the Partnership:
    (1) Within 90 days after the end of each fiscal year of the BF V 
Group Trust as well as at the time of termination, an annual financial 
report containing a balance sheet for the BF V Group Trust and the 
Partnership as of the end of such fiscal year and a statement of 
changes in the financial position for the fiscal year, as audited and 
reported upon by independent, certified public accountants. The annual 
reports will also disclose the remuneration that has accrued or is paid 
to the General Partner.
    (2) Within 60 days after the end of each quarter (except in the 
last quarter) of each fiscal year of the Partnership and the BF V Group 
Trust, an unaudited quarterly financial report consisting of at least a 
balance sheet for the Partnership and the BF V Group Trust as of the 
end of such quarter and a profit and loss statement for such quarter. 
The quarterly report will also specify the remuneration that is 
actually paid or accrued to the General Partner.
    (3) Such other written information as may be needed by the Plans 
(including copies of the proposed exemption and grant notice describing 
the exemptive relief provided herein).
    (i) At least annually, the General Partner will hold a meeting of 
the Partnership, at which time, the Independent Fiduciaries of the 
participating Plans will have the opportunity to decide on whether the 
Partnership, the BF V Group Trust, the Trustee or the General Partner 
should be terminated as well discuss any aspect of the Partnership, the 
BF V Group Trust and the agreements promulgated thereunder with the 
General Partner.
    (j) During each year of the BF V Group Trust and the Partnership, 
representatives of the General Partner will be available to confer by 
telephone or in person with independent Plan fiduciaries to discuss 
matters concerning the BF V Group Trust or the Partnership.
    (k) The terms of all transactions that are entered into on behalf 
of the Partnership remain at least as favorable to a Plan investing in 
the BF V Group Trust as those obtainable in arm's length transactions 
with unrelated parties. In this regard, the valuation of assets in the 
Partnership that is done in connection with the distribution of any 
part of the General Partner's Performance Fee will be based upon 
independent market quotations or (where the same are unavailable) 
determinations made by an independent appraiser (the Independent 
Appraiser).
    (l) In the case of the sale by the Partnership of Portfolio Company 
securities to a party in interest with respect to a participating Plan 
that occurs in connection with the acquisition of a Portfolio Company 
represented in the Partnership's portfolio (the Portfolio), the party 
in interest may not be the General Partner, TBFC, any employer of a 
participating Plan, or any affiliated thereof, and the Partnership 
receives the same terms as is offered to other shareholders of a 
Portfolio Company.
    (m) As to each Plan, the total fees paid to the General Partner and 
its affiliates constitute no more than ``reasonable compensation'' 
within the meaning of section 408(b)(2) of the Act.
    (n) Any increase in the General Partner's Performance Fee is based 
upon a predetermined percentage of net realized gains minus net 
unrealized losses determined annually between the date the first 
contribution is made to the Partnership until the time the Partnership 
disposes of its last investment. In this regard--
    (1) Except as provided below in Section II(o), no part of the 
General Partner's Performance Fee may be

[[Page 33362]]

withdrawn before December 31, 2006, which represents the end of the 
Acquisition Phase (the Acquisition Phase) for the Partnership, and not 
until the BF V Group Trust has received distributions equal to 100 
percent of its capital contributions made to the Partnership.
    (2) Prior to the termination of the Partnership, no more than 75 
percent of the Performance Fee credited to the General Partner may be 
withdrawn by the Partnership.
    (3) The debit account established for the General Partner to 
calculate the Performance Fee (the Performance Fee Account) is credited 
annually with a predetermined percentage of net realized gains minus 
net unrealized losses, minus Performance Fee distributions.
    (4) No portion of the Performance Fee may be withdrawn if the 
Performance Fee Account is in a deficit position.
    (5) The General Partner repays all deficits in its Performance Fee 
Account and it maintains a 25 percent cushion in such account prior to 
receiving any further distribution.
    (o) During the Acquisition Phase of the Partnership only,
    (1) The General Partner is entitled to take distributions with 
respect to the Performance Fee in the amount of any income tax 
liability it or its affiliates become subject to with respect to net 
capital gains of the Partnership, provided such gains are based upon 
the sale of Portfolio Company securities that is initiated by a third 
party in connection with a merger, tender offer or acquisition, and 
does not involve the exercise of discretion by the General Partner.
    (2) The tax distributions are deducted from the Performance Fee.
    (3) The General Partner repays to the Partnership any tax refund 
received to the extent a distribution has been made to such General 
Partner.
    (4) The General Partner provides the Trustee and the Plans with an 
annual report and accounting of all distributions and repayments 
attributable to income taxation of the General Partner and its 
affiliates, including written evidence that the distributions have been 
utilized exclusively to pay the income tax liability.
    (p) The General Partner maintains, for a period of six years, the 
records necessary to enable the persons described in paragraph (q) of 
this Section II to determine whether the conditions of this exemption 
have been met, except that--
    (1) A prohibited transaction will not be considered to have 
occurred if, due to circumstances beyond the control of the General 
Partner, the records are lost or destroyed prior to the end of the six 
year period; and
    (2) No party in interest other than the General Partner shall be 
subject to the civil penalty that may be assessed under section 502(i) 
of the Act, or to the taxes imposed by section 4975(a) and (b) of the 
Code, if the records are not maintained, or are not available for 
examination as required by paragraph (q) below.
    (q)(1) Except as provided in section (q)(2) of this paragraph and 
notwithstanding any provisions of subsections (a)(2) and (b) of section 
504 of the Act, the records referred to in paragraph (p) of this 
Section II shall be unconditionally available at their customary 
location during normal business hours by:
    (A) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service (the Service);
    (B) Any Independent Fiduciary of a participating Plan or any duly 
authorized representative of such Independent Fiduciary;
    (C) Any contributing employer to any participating Plan or any duly 
authorized employee representative of such employer; and
    (D) Any participant or beneficiary of any participating Plan, or 
any duly authorized representative of such participant or beneficiary.
    (2) None of the persons described above in subparagraphs (B)-(D) of 
this paragraph shall be authorized to examine the trade secrets of the 
General Partner or TBFC or commercial or financial information which is 
privileged or confidential.

Section III. Definitions

    For purposes of this proposed exemption,
    (a) The term ``TBFC'' means The Banc Funds Company and any 
affiliate of TBFC as defined in paragraph (b) of Section III.
    (b) An ``affiliate'' of TBFC includes--
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with TBFC.
    (2) Any officer, director or partner in such person, and
    (3) Any corporation or partnership of which such person is an 
officer, director or a 5 percent partner or owner.
    (c) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (d) An ``Independent Fiduciary'' is a Plan fiduciary which is 
independent of TBFC and its affiliates and is either a Plan 
administrator, trustee, named fiduciary, as the recordholder of 
beneficial Interests in the BF V Group Trust or an investment manager.
    (e) The term ``Portfolio Companies'' include commercial banks and 
other depository institutions such as savings banks, savings and loan 
associations, holding companies controlling those entities (together, 
the Bank Companies), and companies providing financial services in the 
United States, which include, but are not limited to, consumer finance 
companies and demutualizing life insurance companies (together, the 
Financial Services Companies).
    (f) The term ``net realized gains'' refers to the excess of 
realized gains over realized losses.
    (g) The term ``net realized losses'' refers to the excess of 
realized losses over realized gains.
    (h) The term ``net unrealized losses'' refer to the excess of 
unrealized losses over unrealized gains.
    (i) The term ``net unrealized gains'' refers to the excess of 
unrealized gains over unrealized losses. For a gain or loss to be 
``realized,'' an asset of the Partnership must be sold for more than or 
less than its acquisition price. For a gain or loss to be 
``unrealized,'' the Partnership asset must increase or decrease in 
value but not be sold.

Preamble

    On September 22, 1993, the Department granted PTE 93-63 (58 FR 
49322), a temporary exemption which is effective for a period of eight 
years from the date of the grant. PTE 93-63 permits a series of 
transactions relating to the (a) sale by the Bank Fund III Group Trust 
(the BF III Group Trust) in which Plans invest, of certain securities 
which have been issued by Bank Companies and are held in the BF III 
Group Trust's portfolio, to a party in interest with respect to a Plan, 
where the party in interest proposes to acquire or merge with the Bank 
Company that issued such securities. In addition, PTE 93-63 permits the 
BF III Group Trust to purchase Bank Company securities from the Midwest 
Bank Fund I Limited Partnership (MBF I LP) and the Midwest Bank Fund 
II, Limited Partnership (MBF II LP), two entities organized by The 
Chicago Corporation (TCC), the company from which TBFC was spun off. 
Further, PTE 93-63, allows Plans investing in the BF III Group Trust to 
pay a performance fee to TCC.
    On March 5, 1997, the Department granted PTE 97-15 at 62 FR 10078. 
PTE 97-15 permits Midwest Banc Fund IV Group Trust (the BF IV Group 
Trust) in

[[Page 33363]]

which Plans invest, to sell certain securities that are held in the BF 
IV Group Trust Portfolio to a party in interest with respect to a 
participating Plan, where the party in interest proposes to acquire or 
merge with a bank company or a financial services company. In addition, 
PTE 97-15 permits TCC to receive a Performance Fee from Plans investing 
in the BF IV Group Trust.\2\
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    \2\ In 1986, TCC organized the MBF I LP. The general partners of 
MBF I LP were two partnerships (MidBanc I and MidBanc II), whose 
general partners were corporate affiliates of TCC and whose limited 
partners were members of TCC's staff. Less than 25 percent of the 
assets of MBF I LP were provided by Plans. On December 31, 1994, MBF 
I LP was liquidated.
    In 1989, TCC organized the MBF II LP. This partnership had the 
same general partners as MBF I LP. Also, less than 25 percent of the 
assets of MBF II LP were provided by Plans. On December 31, 1997, 
MBF II LP was liquidated.
    Finally, in 1993, TCC completed the organization of BF III which 
was structured as both a limited partnership (the BF III 
Partnership) and a group trust (the BF III Group Trust).
    In 1996, TCC organized BF IV as a limited partnership (the BF IV 
Limited Partnership) and as a group trust (the BF IV Group Trust). 
Each entity has or had investment policies and strategies similar to 
the proposed investment vehicle (i.e., the Partnership).
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    The pooled investment vehicle that is described herein is similar 
to four investment funds that were organized by TCC in 1986, 1989, 1993 
and 1996 and described in PTEs 93-63 and 97-17. These four vehicles 
have been operated by TCC, and since April 30, 1997, the date TBFC was 
spun-off from TCC, by TBFC.

Summary of Facts and Representations

    1. TBFC is a Chicago, Illinois-based investment advisory firm 
founded in 1997 as a spin-off from, and by the individuals who managed 
the financial services company advisory division of TCC.\3\ TBFC is a 
registered investment adviser under the Investment Advisers Act of 
1940, as amended, and it has a single line of business. TBFC currently 
provides institutional investors with investment management services 
through BF III and BF IV and it acts as a fiduciary with respect to 
these clients. TBFC currently manages $81 million in assets of plans 
that are covered under the Act, $129 million in the assets of 
governmental plans and $65 million in non-Plan assets.
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    \3\ During 1997, TCC's parent was acquired by ABN AMRO North 
America, Inc., a subsidiary of ABN AMRO Bank N.V., a global bank 
headquartered in the Netherlands. The acquisition did not involve 
the purchase of the assets of TCC's parent and TCC retains its 
separate corporate identity.
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    TBFC's relevant specialty is its expertise in the banking industry. 
In this regard, TBFC employees provide management, investment and 
capital formation services to collective investment vehicles which 
invest in commercial banks and other financial institutions and expend 
significant resources to research specific financial institutions.
    As described below, TBFC requests an administrative exemption from 
the Department with respect to the purchase or redemption of interests 
in the Partnership by Plans investing in the BF V Group Trust, where 
TBFC, a party in interest with respect to such Plans, is the general 
partner of MidBanc V, which is, in turn, the General Partner of the 
Partnership. In addition, TBFC requests exemptive relief to permit the 
sale, for cash or other consideration, by the Partnership of certain 
securities that are held as Partnership assets to a party in interest 
with respect to a Plan participating in the Partnership through the BF 
V Group Trust, where the party in interest proposes to acquire or merge 
with the Portfolio Company that issued such securities. Further, TBFC 
requests that the exemption apply to the General Partner's receipt of a 
Performance Fee from the Partnership that is based upon a debit account 
structure (i.e., the Performance Fee Account) which will keep track of 
the General Partner's compensation for managing the Partnership but 
will not represent actual dollars that are reserved or set aside for 
the General Partner.
    The BF V Group Trust is intended to be a ``pooled fund'' as that 
term is defined in 29 CFR 2570.31(g) and a ``group trust'' as that term 
is defined in Rev. Rul. 81-100, 1981-1 C.B. 326. All investors that are 
beneficiaries of the BF V Group Trust must evidence the following 
characteristics in order to acquire beneficial interests: (a) Each 
investor must commit to making at least $1 million in initial capital 
contributions; (b) each investor must be a Plan; (c) each Plan must 
have at least $50 million in assets; (d) each Plan must agree to 
incorporate the terms of the Group Trust Agreement into its own trust 
agreement; (e) no Plan may invest more than 10 percent of its assets in 
interests in the BF V Group Trust and such interests held by a Plan may 
not exceed 25 percent of the BF V Group Trust; and (f) no Plan may 
subscribe for beneficial interests which, when aggregated with all 
other Plan assets that are subject to investment funds or separate 
accounts managed by TBFC and/or its affiliates, is valued in excess of 
25 percent of such Plan's net assets. The BF V Group Trust will not be 
organized unless $25 million in capital contribution commitments are 
subscribed for by investors in such Group Trust and the Partnership 
described below.
    3. The trustee (the Trustee) of the BF V Group Trust will be 
Citibank, F.S.B. Although TBFC may have and may have had business 
relationships with the Trustee, there will be no control relationship 
or ownership affiliation between TBFC and the Trustee. The Trustee will 
be responsible for monitoring the Trust's investment in the Partnership 
and for policing TBFC's adherence to the provisions of the Partnership 
Agreement. In addition, the Trustee will serve as custodian for the 
Partnership.
    For services rendered, the Partnership will pay the Trustee (a) an 
annual base fee of $1,500; (b) a custodial fee based upon the market 
value of the Partnership at the beginning of each quarter (e.g., 0.02 
percent annually of the first $100 million, 0.01 percent annually of 
any amount over $100 million, and 0.005 percent annually of any amount 
over $200 million); (c) a transaction fee of $12 per purchase or sale 
and (d) a disbursement fee of $8 per payment of funds. No charges will 
be levied for income collection, item storage, statement preparation or 
other transactions.
    In accordance with the provisions of the Trust Agreement, the 
Trustee may be removed by a vote of Plans holding a majority of 
beneficial interests in the BF V Group Trust, provided such Plans give 
the Trustee 30 days' advance written notice of their intent to 
terminate the Trustee. The Trustee may resign at any time by giving 30 
days prior written notice to TBFC for transmittal to the Plans.
    4. Approximately 5-10 Plans may invest in the BF V Group Trust. 
However, no Plan may invest more than 25 percent of its assets in the 
BF V Group Trust and every other pooled investment vehicle sponsored by 
TBFC, as measured on the date of such investment.\4\ Each Participating 
Plan must invest a minimum of $1 million in the BF V Group Trust. 
Further, no Plan benefitting employees of TBFC or the Trustee will be 
permitted to invest in the BF V Group Trust.\5\
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    \4\ The Department is not proposing, nor is TBFC requesting, 
exemptive relief for the purchase and sale of beneficial interests 
in the BF V Group Trust between the investing Plans and the Trustee 
beyond that provided under section 408(b)(8) of the Act.
    \5\ Although TBFC and the Trustee will not be affiliated with, 
or under the control of, or controlling, any participating Plan, it 
is likely that certain Plans will have a preexisting relationship 
with TBFC in the form of an investment in MBF I, MBF II, BF III or 
BF IV, investment vehicles managed by TBFC, and it is possible that 
a participating Plan may utilize the services of the Trustee with 
respect to plan assets other than those invested through the Trust. 
In this regard, TBFC is not requesting, nor is the Department 
providing, exemptive relief with respect therefor.

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[[Page 33364]]

    5. Pooled investments for Plans investing in the BF V Group Trust 
will be made through the Partnership. The maximum capital contribution 
commitment of the Partnership will be $300 million. The primary purpose 
of the Partnership is to engage in the business of providing capital 
to, acquiring equity and debt interests in, and making available 
consultative services to Portfolio Companies such as Bank Companies and 
Financial Services Companies having assets under $7 billion. The 
Partnership may also invest in insurance contracts, short term 
investments, derivatives (for hedging purposes only) and covered put 
and call options. Further, the Partnership may make loans of 
securities. In short, it is anticipated that the Partnership will share 
the same basic investment strategy as was held by MBF I, MBF II, BF III 
and BF IV, and in many ways, the operations and fee structures of these 
entities.\6\
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    \6\ According to TBFC, there are circumstances militating 
against investments by the Partnership in either BF III or BF IV. 
First, the Partnership will be structured as a separate investment 
entity apart from BF III and BF IV. BF III, BF IV and BF V 
(collectively, the Funds) will all have somewhat different charters 
with respect to what investments each can make. Second, many 
companies in which BF III, BF IV and BF V invest are (or will be 
acquired) by larger banks within three years of the particular Fund 
making an investment. Therefore, something acquired by an earlier 
Fund is unlikely to be acquired by a later Fund. Third, the 
Partnership will not come into existence until BF II and BF IV are 
fully invested, so concurrent purchases are deemed impossible. 
Fourth, BF IV may complete its wind-up and termination before the 
Partnership becomes invested. Fifth, there is an outright 
prohibition against the Partnership buying investments in BF III and 
BF IV and also against investing directly in BF III and BF IV. 
Sixth, the Partnership will invest in an area in which the 
availability of Portfolio Company securities will be extremely 
limited. For the Partnership to invest in any of the same investment 
vehicles as BF III and BF IV, it would mean that none of the 
investment circumstances described above would apply.
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    6. The General Partner of the Partnership will be MidBank V, LP. 
The general partner of MidBank V, LP will be TBFC and individuals 
employed by TBFC. The General Partner will acquire a one percent 
interest in the Partnership, for cash. The General Partner will also 
serve as the Administrator of the BF V Group Trust but it will not 
receive any fees from such entity. As described later in this proposed 
exemption, all fees that are paid to the General Partner and/or its 
affiliates will be paid by the Partnership and not by the BF V Group 
Trust.
    The principal place of business of the Partnership will be 208 
LaSalle Street, Chicago, Illinois or at such other location as the 
General Partner may select. The Partnership is expected to terminate on 
December 31, 2007, unless terminated sooner.
    7. The Limited Partners of the Partnership will generally consist 
of non-Plan investors, which will acquire, by making capital 
contributions in cash directly to the Partnership, a Limited Partner's 
interest in such Partnership. However, as noted above, another Limited 
Partner in the Partnership will be the BF V Group Trust, the 
beneficiaries of which will be Plans covered under the provisions of 
the Act, and governmental plans. These Plans will acquire, for cash, 
both a beneficial interest in the BF V Group Trust and a Limited 
Partner's interest in the Partnership. It is expected that upon the 
creation of this structure, the BF V Group Trust will own 65.6 percent 
of the equity interests in the Partnership. Because none of the 
exceptions to the plan asset regulations will apply, the assets of the 
BF V Group Trust as well as the assets of the Partnership will 
constitute plan assets.\7\
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    \7\ See 29 CFR 2510.3-101(a)(2)(ii) and (f).
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    Neither the General Partner nor the Trustee will have any control 
over the decision to cause any Plan to invest in the Partnership 
through the Group Trust. Under these circumstances, the decision to 
participate in the BF V Group Trust or the Partnership will be made by 
a Plan fiduciary which is independent of the Trustee and the General 
Partner. In each instance, even though the Trustee or the General 
Partner may present a Plan fiduciary with information concerning 
investment in the Group Trust and in the Partnership, the Plan 
fiduciary who makes the investment decision will agree not to rely on 
either the advice of the Trustee or the General Partner as the primary 
basis for a Plan's investment and the Independent Fiduciary will be 
specifically required to do so in every instance.\8\ The General 
Partner assumes that a Plan will invest in the BF V Group Trust only if 
the fiduciaries of the Plan determine that investment performance is 
anticipated to be superior.\9\
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    \8\ The Department notes that the general standards of fiduciary 
conduct promulgated under the Act would apply to the participation 
in the BF V Group Trust and the Partnership by an Independent 
Fiduciary. Section 404 of the Act requires that a fiduciary 
discharge his duties respecting a plan solely in the interest of the 
plan's participants and beneficiaries and in a prudent fashion. 
Accordingly, an Independent Fiduciary must act prudently with 
respect to the decision to invest in the BF V Group Trust and the 
Partnership. The Department expects that an Independent Fiduciary, 
prior to investing in the BF V Group Trust and the Partnership, to 
fully understand all aspects of such investments following 
disclosure by the General Partner of all relevant information.
    \9\ The Department is not expressing an opinion on whether the 
Trustee or the General Partner would be deemed to be fiduciaries 
under section 3(21)(A)(ii) of the Act with respect to a Plan's 
investment in the BF V Group Trust or the Partnership. The 
Department is also not proposing relief for the rendering of 
investment advice in connection with the acquisition of interests in 
either BF V Group Trust or the Partnership.
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    8. The contribution provisions for the BF V Group Trust and the 
Partnership will be identical. For example, capital calls for Plans 
participating in the BF V Group Trust will be concurrent and in the 
same proportional amount as are capital calls by the Partnership from 
Limited Partners that are not Plans.\10\ In pertinent part, the BF V 
Group Trust Agreement provides that each Plan's commitment to 
contribute will be divided into 20 equal segments. The General Partner, 
in its capacity as Administrator of the BF V Group Trust, may call any 
amount of these installments, upon 10 days' advance written notice, 
when cash is needed to fund the acquisition of Portfolio Company 
securities by the Partnership. However, there are two limitations upon 
the General Partner's power to call contributions. First, no more than 
50 percent of the contribution commitment may be called in any twelve 
month period. Second, the General Partner cannot call any contributions 
after the sixth anniversary date of the inception of the BF V Group 
Trust (the period running from the date on which initial capital 
contributions are made to such sixth anniversary date being referred to 
as ``the Acquisition Phase'').
---------------------------------------------------------------------------

    \10\ Because of the multi-tiered structure (i.e., investing Plan 
to BF V Group Trust to Partnership), it is represented that capital 
calls will be handled as follows:
    On the same day, the General Partner will notify the Limited 
Partners, including Plans investing in the BF V Group Trust that 
capital is being called. All investors will have 10 days to forward 
the appropriate amount of cash.
    As a matter of practice, all Limited Partners will wire their 
contributions to the Trustee on the same day (the Trustee will serve 
as the custodian for the Partnership's assets).
    Plan investors' contributions will be credited to a separate 
Trust account and the non-Plan investors' contributions will be 
credited to the Partnership's Capital Account.
    On the same day, the Trustee transfers the funds from the Trust 
account to the Partnership's Capital Account.
    The General Partner will then instruct the Trustee to utilize 
the Partnership's Capital Account to acquire the appropriate 
securities until the Partnership account is exhausted, at which 
time, another capital call will be made.
---------------------------------------------------------------------------

    If an investing Plan cannot or does not meet a capital call, the 
Partnership Agreement and the BF V Group Trust Agreement provide that 
ten days after the investor receives notice of default on a capital 
call, the General Partner/

[[Page 33365]]

Administrator may (a) permit the investor's continued participation in 
the Partnership (or BF V Group Trust) with a commensurate reduction in 
both the investor's proportionate interest in such Partnership (or BF V 
Group Trust) and aggregate size of the Partnership (or BF V Group 
Trust); \11\ (b) declare the investor's entire capital commitment due 
and pursue collection of the same; or (c) expel, at fair market value, 
the defaulting investor and offer its interest in the Partnership (or 
BF V Group Trust) first to the non-defaulting investors and then to 
non-investors who are qualified to invest in such Partnership (or BF V 
Group Trust). In making the choice between these alternatives, it is 
represented that the General Partner/Administrator will be guided by 
then-current investment strategies and the best interest of the non-
defaulting investors.
---------------------------------------------------------------------------

    \11\ Reductions in a Limited Partner's participations are based 
upon the relative amount of capital contributions that are omitted. 
For example, if a Limited Partner subscribes for a 10 percent 
interest in the Partnership and neglects to honor 25 percent of its 
commitment, the Limited Partner will only have a 7.5 percent 
interest in the Partnership if it is permitted to continue its 
investment.
---------------------------------------------------------------------------

    9. The terms of the Partnership control the duties and authority of 
the General Partner. For example, the General Partner, at its own 
expense, will provide the Partnership and the BF V Group Trust with 
personnel who are able to undertake the investment strategies for these 
entities as well as perform their clerical, bookkeeping and 
administrative functions. In addition, the General Partner, at its own 
expense, will provide the Partnership and the BF V Group Trust with 
office space, telephones, copying machines, postage and all other 
necessary items of office services. Further, the General Partner will 
control proxy voting on all portfolio securities.\12\ The Partnership 
Agreement permits the General Partner to allocate securities 
transactions to broker-dealers of its choice.
---------------------------------------------------------------------------

    \12\ The Department is not providing exemptive relief herein for 
any prohibited transactions that may arise as a result of proxy 
voting on the part of the General Partner. The Department also notes 
that the general standards of fiduciary conduct promulgated under 
the Act would apply to such voting practices.
---------------------------------------------------------------------------

    The General Partner will prepare, or cause to be prepared on behalf 
of the Partnership, the following reports: (a) annual audited financial 
statements; and (b) quarterly unaudited financial statements. In 
addition, the General Partner will keep the accounts of the Partnership 
in its capacity as Administrator of the Trust.\13\
---------------------------------------------------------------------------

    \13\ Some examples of the types of accounts that will be 
maintained by the Partnership for each Limited Partner are (a) the 
Capital Account, which reflects the original capital paid into the 
Partnership by the Limited Partner and any adjustments thereto; (b) 
the Income Account, to which will be credited income, interest, 
dividends, fees for services (i.e., consulting services provided by 
the Partnership to financial institutions) and any other income 
items (other than gains or losses on the sale or other disposition 
of securities or other assets and other than income from high yield 
investments) and to which will be debited any expenses of the 
Partnership other than those which are to be taken into account to 
determine gains and losses; and (c) the Gain Account, to which will 
be credited or debited gains or losses after expenses of sale, when 
and as realized from the sale or other disposition by the 
Partnership of securities or other assets, whether or not any such 
gain or loss is recognized or constitutes long-term or short-term 
capital gain or loss or ordinary income or loss for Federal income 
tax purposes.
---------------------------------------------------------------------------

    10. Under the Partnership Agreement, two types of fees will be 
payable to the General Partner by the Partnership. These fees are a 
management fee (the Management Fee) and the Performance Fee, the 
components of which are described below.
    The General Partner's Management Fee is payable as a percentage of 
the aggregate capital contributions to the Partnership. The fee will be 
equal to 5 percent of the first $20 million in capital contributions, 
1.74 percent of the next $230 million of capital contributions and 2 
percent on amounts in excess of $250 million. On average, the fee will 
not exceed 2 percent of committed capital when all capital is 
contributed, even if the Partnership is capitalized at less than $250 
million.\14\
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    \14\ It is represented that the Management Fee is covered by the 
statutory exemptive relief available under section 408(b)(2) of the 
Act. However, the Department expresses no opinion herein on whether 
the General Partner's receipt of the Management Fee will satisfy the 
terms and conditions of section 408(b)(2) of the Act.
---------------------------------------------------------------------------

    Although Limited Partners will receive distributions from the 
Partnership throughout its duration, if, as a result of distributions 
to the Limited Partners, paid-in capital contributions are reduced to 
50 percent or less of the original aggregate capital contributions to 
the Partnership after December 31, 2006, the Management Fee will be 
reduced to 70 percent of the amount otherwise payable, effective for 
fiscal years subsequent to the year in which said reduction was 
achieved. Upon the return to the Limited Partners of capital 
contributions so as to reduce their capital contributions to 25 percent 
or less of the total capital contributions paid-in, the Management Fee 
will be reduced to 50 percent of the amount otherwise payable, 
effective for fiscal years subsequent to the year in which said 
reduction was achieved.
    11. In addition to the Management Fee, the General Partner \15\ 
will be entitled to receive the Performance Fee, which will accrue 
annually in a debit account (i.e., the Performance Fee Account) between 
the date the first contribution is made to the Partnership until the 
time the Partnership disposes of its last investment. As noted above, 
the Performance Fee Account will provide a mechanism for measuring the 
General Partner's compensation for managing the Partnership. Such 
account will be a ``moving'' balance that will reflect the activity of 
the Partnership instead of actual dollars that are reserved or set 
aside for the General Partner. Until distributions from the Performance 
Fee Account are made, funds that the debit account credits represent 
will be invested for the benefit of the Limited Partners.
---------------------------------------------------------------------------

    \15\ As briefly alluded to in Representation 1, certain 
employees of TBFC, generally those who take an active part in the 
management of the Partnership, are limited partners in MidBanc V, 
the General Partner of the Partnership. MidBanc V will be entitled 
to receive the Performance Fee to the extent that it is earned. 
MidBanc V will then allocate the Performance Fee among TBFC and the 
employees of TBFC who are limited partners in MidBanc V.
---------------------------------------------------------------------------

    The Performance Fee will be paid during the final two years of the 
Partnership. Simply stated, the Performance Fee will equal 20 percent 
of the excess of net realized gains minus net unrealized losses of the 
Partnership, minus allowed distributions determined annually between 
the date of the first contribution to the Partnership until the 
disposition of the last Partnership asset.
    In addition, the General Partner's Performance Fee will subject to 
the following terms and conditions:
    (a) Fee Base. As noted above, the amount credited to the General 
Partner as the Performance Fee will be equal to a percentage of net 
realized gains minus net unrealized losses. The fee will be annually 
credited to the General Partner.\16\
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    \16\ Any payments of the Performance Fee will reflect realized 
gains inuring to the Partnership. For the Partnership to make a 
Performance Fee payment to the General Partner, it must sell a 
Partnership investment for a price exceeding the purchase price for 
such investment. Therefore, the proceeds of the sale will reflect 
the source of Performance Fee payments.
    After the Partnership has invested its capital, it will have two 
sources of cash. One is income received from its investments, such 
as dividends or interest. The other is money received when it sells 
an investment.
---------------------------------------------------------------------------

    (b) Reduced Availability. Prior to the termination of the 
Partnership, only 75 percent of the General Partner's Performance Fee 
may be drawn from the Partnership. (This limit will also apply to 
special income tax draws as described in Representation 13.)
    (c) Limited Deferral/Return of Capital. Again, with the exception 
of the General Partner's income tax liabilities that are described in 
Representation 13,

[[Page 33366]]

distributions of the Performance Fee cannot be made until January 1, 
2007, which is after the completion of the Partnership's Acquisition 
Phase. Withdrawals with respect to the Performance Fee cannot be paid 
until investors have received distributions equal to 100 percent of 
their capital contributions.\17\
---------------------------------------------------------------------------

    \17\ Where a partnership, such as the Partnership described 
herein, makes a distribution to the Limited Partners, that 
distribution can include any of the following: income, realized 
gains, and/or return of capital. Income and gains can arise at any 
time during the partnership's life. Although income and gains occur 
after the initial investment phase of a partnership, in the case of 
the Funds, such distributions have occurred during the Acquisition 
Phase. However generally, the contributed capital that gives rise to 
a gain attributed to the Partnership during the Acquisition Phase 
will be reinvested by the General Partner. Conversely, the 
contributed capital that gives rise to a gain attributed to the 
Partnership after the Acquisition Phase has been completed, will be 
distributed to a Limited Partner if the gain is realized after the 
Acquisition Phase expires.
---------------------------------------------------------------------------

    (d) Debits. The General Partner's Performance Fee Account is 
debited for the appropriate percentage of realized losses and net 
unrealized losses and distributions pursuant to the formula. The 
Performance Fee cannot be drawn when the Performance Fee Account is in 
a deficit position. Thus, if a gain is realized when the Performance 
Fee Account is in a deficit position, no Performance Fee can be paid to 
the General Partner and accrue in the Performance Fee Account. 
Sufficient gains must be realized to restore the deficit, restore the 
25 percent cushion and generate surplus before any part of the 
Performance Feet can eventually be drawn down.
    (e) Unrealized Gains. Although net unrealized losses are subtracted 
from net realized gains before the Performance Fee is calculated, net 
unrealized gains are excluded from the calculation of the General 
Partner's Performance Fee. In essence, the exclusion of net unrealized 
gains serves as an additional reserve ensuring that the General Partner 
will not be permitted withdrawals based on early gains that are subject 
to offset by later losses. The exclusion of net unrealized gains and 
the inclusion of net unrealized losses in the Performance Fee 
calculation operate to create a moving threshold or hurdle. If the 
General Partner draws on its Performance Fee Account and the 
Partnership experiences a later loss, the General Partner cannot take 
another fee until that loss is made up.
    (f) Distribution Repayment. The General Partner must prepay any 
deficit in the Performance Fee Account such that if the Partnership 
were to terminate at any time, the General Partner would not have 
received a Performance Fee in excess of that which reflects the 
Partnership's performance to that date.
    12. The following examples illustrate the calculation of the 
General Partner's Performance Fee. Although the Performance Fee may be 
drawn annually for the specific purpose of satisfying the General 
Partner's tax liabilities under certain limited circumstances (see 
Section II(o) and Representation 13), generally the Performance Fee can 
only be drawn during 2007 and 2008, the final two years of the 
Partnership's anticipated term. However, for purposes of illustration, 
four draw years have been assumed in the examples.

                                                   Example #1
----------------------------------------------------------------------------------------------------------------
                                                  Cumulative net    Performance
                      Year                           position       fee account    Maximum draw   Draw or refund
----------------------------------------------------------------------------------------------------------------
1...............................................            $800            $160            $120           $120
2...............................................             200              40              30           (90)
3...............................................           1,000             200             150            120
4...............................................             700             140             105            (45)
----------------------------------------------------------------------------------------------------------------

Year 1  Assume that when the Performance Fee first becomes drawable in 
2007 the Partnership's Cumulative Net Position is $800. The General 
Partner's Performance Fee is 20% of $200 or $160. The General Partner 
may draw 75% of the $160 or $120.\18\
---------------------------------------------------------------------------

    \18\ The assumption is, for purposes of this example, that all 
Limited Partners investing in the Partnership have received a 100 
percent return of their capital contributions.
---------------------------------------------------------------------------

Year 2  The Partnership's Cumulative Net Position at the end of Year 2 
is $200. The General Partner's Performance Fee is 20% of $200 or $40. 
The General Partner is entitled to draw $30, but since it has 
previously drawn $120, it must refund $90.
Year 3  The Partnership now has a Cumulative Net Position of $1,000. 
The General Partner's Performance Fee is $200 with a permitted draw of 
$150. Because the General Partner has previously drawn a net amount of 
$30 at the end of Year 2 (i.e., $120 - $90), it may now draw an 
additional $120.
Year 4  The Partnership's Cumulative Net Position falls to $700 and the 
General Partner's Performance Fee falls to $140. The 75% draw equals 
$105, but the General Partner has previously drawn a total of $150 
(i.e., $120 - $90 + $120). Therefore, the General Partner must make a 
refund to the Partnership of $45.

                                                   Example #2
----------------------------------------------------------------------------------------------------------------
                                                 Cumulative net    Performance
                      Year                          position       fee account    Maximum draw    Draw or refund
----------------------------------------------------------------------------------------------------------------
1..............................................          $2,000            $400            $300            $300
2..............................................           1,000             200             150            (150)
3..............................................             500             100              75             (75)
4..............................................             900             180             135              60
----------------------------------------------------------------------------------------------------------------

Year 1  Assume that when the General Partner's Performance Fee first 
becomes drawable in 2007, the Cumulative Net Position for the 
Partnership is $2,000. The General Partner's Performance Fee is 20% of

[[Page 33367]]

$2,000 or $400. The General Partner may draw 75% of the $400 fee or 
$300. $100 or 25% of the draw amount must be left in the Partnership as 
a cushion.\19\
---------------------------------------------------------------------------

    \19\ The assumption is again, for purposes of this example, that 
all Plans investing in the BF V Group Trust have received a 100 
percent return of their capital contributions.
---------------------------------------------------------------------------

Year 2  The Cumulative Net Position for the Partnership at the end of 
Year 2 has fallen to $1,000. The General Partner's Performance Fee is 
20% of $1,000 or $200. TCC is entitled to draw $150, but since it has 
previously drawn $300, it must refund $150.
Year 3  The Cumulative Net Position for the General Partner has fallen 
to $500. The General Partner's Performance Fee now falls to $100 (i.e., 
20% of $500) with a permitted draw of $75 and a cushion of $25. Because 
the General Partner has previously drawn $150 ($300 - $150), it must 
make a refund to the Partnership of $75.
Year 4  The Cumulative Net Position for the Partnership is $900 at the 
end of Year 4. The General Partner's Performance Fee is 20% of $900 or 
$180. The General Partner's 75% draw on the Performance Fee equals 
$135. However, since the General Partner has previously drawn a total 
of $75 ($300 - $150 - $75), it may now draw a Performance Fee of $60.

    13. The General Partner has been informed by its counsel that gains 
realized by the Partnership will, to the extent that they are allocable 
to the General Partner's Performance Fee Account, be taxable to the 
General Partner in the year gains are realized by the Partnership, even 
though the distribution of gains attributable to the General Partner 
will be deferred. Therefore, to enable the individual owners of the 
General Partner or its affiliates (collectively, referred to as the 
General Partner) to discharge their obligations to state or federal 
taxing authorities, it is proposed that an amount sufficient to pay 
taxes (representing approximately 5 percent of the gains of the 
Partnership) be distributed to the General Partner solely during the 
Partnership's Acquisition Phase. The sale of the Portfolio Company 
securities that gives rise to the early distribution of such gains may 
only occur in connection with a third party merger, acquisition or 
tender offer and not through an exercise of discretion by the General 
Partner.
    Such distributions will be charged against the General Partner's 
Performance Fee Account and will reduce the balance that is used to 
calculate the 25 percent cushion required before actual distributions 
can be made to the General Partner.\20\ In the event the General 
Partner receives a tax refund, the amount will be repaid by the General 
Partner to the Partnership to the extent a distribution has been made 
to such General Partner.
---------------------------------------------------------------------------

    \20\ With the exception of the General Partner, all Limited 
Partners will receive distributions of gains when they are realized. 
(As noted previously, this could occur prior to the ending of the 
Acquisition Phase for the Partnership.) For example, if at any time 
during the Partnership's existence, a Portfolio Company security is 
purchased for $1 million and sold by the General Partner for $3 
million, a $2 million gain will be realized by the Partnership. The 
Limited Partners will own $1.6 million of the gain while the General 
Partner will own $400,000 of the gain (i.e., 20 percent of the 
Performance Fee). Both Plan and non-Plan Limited Partners will 
receive an aggregate distribution of $1.6 million which will be 
allocated among such Limited Partners. Depending on whether the 
Limited Partner receiving a portion of the $1.6 million gain is a 
taxable or non-taxable entity, the amount allocated to the Limited 
Partner will be taxed. Although the $400,000 gain attributable to 
the General Partner will be deferred, the Service will view the 
General Partner as having received taxable income of $400,000. If 
the tax rate is 25 percent, the General Partner will owe the Service 
$100,000. It is the $100,000 that the General Partner seeks to 
obtain as a tax distribution. The General Partner's remaining 
Performance Fee amount of $300,000 will stay in the Partnership even 
though the Limited Partners will receive their proportionate share 
of the $1.6 million.
---------------------------------------------------------------------------

    To ensure that tax refunds are repaid, the General Partner will 
retain an independent accounting firm to calculate the tax liabilities 
and credits. If a tax payment is owed by the General Partner, it will 
appear as an asset (i.e., a receivable) on the Partnership's financial 
reports that are given to the Limited Partners.
    In addition, the tax distributions will be in the exact amount of 
the General Partner's tax liability. All funds received in the 
distribution will be forwarded to the Service and no portion will be 
retained by either the General Partner or the Limited Partners. 
Therefore, there will be no gain by the General Partner.
    Finally, TBFC notes that all of the Limited Partners were made 
aware of the tax distribution feature of the Partnership. TBFC states 
that this disclosure was made before the Limited Partners determined to 
commit capital to the Partnership.
    14. The Partnership will terminate upon the earliest to occur of 
(a) the complete distribution of its assets, (b) a vote in favor of 
termination by 75 percent of the Limited Partners,\21\ or (c) December 
31, 2008. If it would be to the financial benefit of the Limited 
Partners to extend the term of the Partnership beyond 2008, extensions 
of up to two years may be initiated by the General Partner. Any further 
extension must be approved by the Limited Partners holding a majority 
of the Limited Partnership interests. Neither the General Partner nor 
the Partnership may acquire additional Partnership investments at the 
time of an extension. The purpose of the extension will be to allow the 
General Partner to liquidate the Partnership's existing investments, 
distribute the cash proceeds received from the liquidation to the 
Limited Partners, and terminate the Partnership.
---------------------------------------------------------------------------

    \21\ A vote of 75 percent of the Limited Partners to remove the 
General Partner will also result in the termination of the 
Partnership.
---------------------------------------------------------------------------

    Upon termination of the Partnership, all portfolio positions will 
be liquidated, Partnership expenses will be paid and distributions will 
be made (including any remaining portion of the General Partner's 
Performance Fee). If all assets cannot be converted into cash or if it 
would be disadvantageous to liquidate every asset, remaining assets may 
be distributed in-kind, at the discretion of the General Partner. The 
General Partner will then receive a fractional portion of its fee, in-
kind. To ensure that the General Partner will not select higher income-
generating Partnership assets for itself, each Limited Partner, as well 
as the General Partner, will receive a proportionate share of each 
Portfolio Company security that is distributed in-kind.
    15. The following example illustrates the manner in which in-kind 
distributions will be made by the General Partner:

    Assume that there are only two Limited Partners investing in the 
Partnership and that each has received a full return of capital. 
Non-Plan A investor has a Partnership interest worth $60 and the BF 
V Group Trust has a Partnership interest worth $40.
    The Partnership holds 100 shares of Bank X stock which it 
acquired for $5 per share. Upon termination of the Partnership, Bank 
X stock is worth $7 per share.
    The total unrealized gain attributable to Bank X stock is 
($7-$5)  x  100 = $200.
    The General Partner's Performance Fee is equal to $200  x  20% = 
$40.
    The General Partner receives $40 <divide> $7 = 5.7 shares of 
Bank X stock.
    The non-Plan investor receives 60%  x  94.3 = 56.6 shares of 
Bank X stock.
    The BF V Group Trust receives 40%  x  94.3 = 37.7 shares of Bank 
X stock. Therefore, the Plans investing in the BF V Group Trust 
share proportionately in the 37.7 shares of Bank X stock.

    16. In general, Partnership interests will not be assignable, and 
no Limited Partner may assign or otherwise transfer, pledge or 
otherwise encumber any or all of its interest in the Partnership 
without the prior consent of the General Partner. However, a Limited 
Partner may transfer its interest only after extending to the 
Partnership and

[[Page 33368]]

the other Limited Partners the right of ``first offer.''
    In addition, because the BF V Group Trust's investment philosophy 
is inconsistent with at-will withdrawals, redemptions of Partnership 
interests are limited to situations where (a) a replacement Plan is 
available from either current Plans investing in the BF V Group Trust 
or there are new, qualified investors;
    (b) a Plan submits to the General Partner and the Trustee, a 
written opinion of counsel to the effect that the Plan's continued 
participation in the BF V Group Trust would violate the Act and that 
relief from the violation cannot be obtained;
    (c) the Plan loses its tax-exempt status and that loss threatens 
the tax-exempt status of the BF V Group Trust; and (d) the BF V Group 
Trust loses its tax-exempt status or fails to obtain the exemptive 
relief proposed herein for the necessary operation of such Group Trust. 
This information will be disclosed to investors.
    17. The BF V Group Trust Agreement requires that the General 
Partner, as Administrator of the BF V Group Trust, provide the 
Independent Fiduciary of each Plan proposing to invest in the BF V 
Group Trust with a copy of the Private Placement Memorandum by the 
General Partner. The Private Placement Memorandum describes all 
material facts concerning the purpose, structure and operation of the 
BF V Group Trust.
    If the Independent Fiduciary expresses further interest in 
participating in the BF V Group Trust, such Independent Fiduciary will 
be provided with copies of the BF V Group Trust Agreement outlining the 
organizational principles, investment objectives and administration of 
the BF V Group Trust, the manner in which Trust shares could be 
redeemed, the duties of the parties retained to administer the BF V 
Group Trust and the manner in which Group Trust assets would be valued. 
The Independent Fiduciary will also be provided with a copy of the 
Partnership Agreement which describes the organizational principles, 
investment objectives and administration of the Partnership, the manner 
in which Partnership assets will be valued, the duties and 
responsibilities of the General Partner, the rate of remuneration that 
the General Partner will be paid and the conditions under which the 
General Partner may be removed. Once the Independent Fiduciary has made 
a decision to invest in the BF V Group Trust, the General Partner will 
provide such Independent Fiduciary with the names and addresses of all 
other participating Plans as well as non-Plan investors.
    18. The Independent Fiduciary will be required to acknowledge, in 
writing, prior to purchasing a beneficial interest in the BF V Group 
Trust that such fiduciary has received copies of the foregoing 
documents. The Independent Fiduciary will also be required to 
acknowledge, in writing, to the General Partner that such fiduciary is 
independent of the General Partner and its affiliates, capable of 
making an independent decision regarding the investment of Plan assets, 
knowledgeable with respect to the Plan in administrative matters and 
funding matters related thereto, and able to make an informed decision 
concerning participation in the BF V Group Trust.
    With respect to its ongoing participation in the BF V Group Trust, 
each Plan and the Trustee will receive the following written 
disclosures from the General Partner, as the Administrator of the BF V 
Group Trust:

    (a) Within 90 days after the end of each fiscal year of the BF V 
Group Trust as well as at the time of termination, an annual 
financial report containing a balance sheet for the BF V Group Trust 
and the Partnership as of the end of such fiscal year and a 
statement of the changes in the financial position for the fiscal 
year, as audited and reported upon by independent, certified public 
accountants. The annual report will also disclose the remuneration 
actually paid or accrued to the General Partner.
    (b) Within 60 days after the end of each quarter (except in the 
last quarter) of each fiscal year of the BF V Group Trust and the 
Partnership, an unaudited quarterly financial report consisting of 
at least a balance sheet for the BF V Group Trust and the 
Partnership as of the end of such quarter and a profit and loss 
statement for such quarter. The quarterly report will also specify 
the remuneration that is actually paid or accrued to the General 
Partner.

In addition to the foregoing reports, the General Partner will prepare 
and distribute to the BF V Group Trust and each Plan such other 
information as may be reasonably requested by the Plans to comply with 
the reporting requirements of the Act or Code (including copies of the 
proposed exemption and grant notice with respect to the exemptive 
relief granted herein).
    At least annually, the General Partner will hold a meeting of the 
Partnership, at which time, the Independent Fiduciaries of 
participating Plans will have the opportunity to decide on whether the 
Partnership, the BF V Group Trust, the Trustee or the General Partner 
should be terminated as well as discuss any aspect of the Partnership 
and Group Trust and the Agreements promulgated thereunder. Finally, 
during each year of the BF V Group Trust, representatives of the 
General Partner will be available to confer by telephone or in person 
with Independent Fiduciaries on matters concerning the BF V Group Trust 
or the Partnership.
    19. The terms of all transactions that are entered into on behalf 
of the Partnership by the General Partner will be at least as favorable 
to an investing Plan as those obtainable in arm's length transactions 
with unrelated parties. In this regard, valuations of (and for) the 
Partnership will be needed for general accounting purposes, to 
determine the value of the Partnership's assets for reports to the 
Limited Partners, for distributions of securities and to calculate the 
General Partner's Performance Fee when the General Partner seeks to 
draw upon it. The General Partner, subject to the review and approval 
of the Valuation Committee, will determine the fair market value of the 
assets and liabilities of the Partnership as of each fiscal date.\22\ 
The Valuation Committee, which is the same advisory committee that 
served MBF I and II and currently serves BF III and IV, will also serve 
as the Independent Appraiser. The Valuation Committee is composed of 
three members who are experienced in valuing the securities of 
Portfolio Companies. None of the members of the Valuation Committee has 
an ownership or creditor relationship with the General Partner.
---------------------------------------------------------------------------

    \22\ It is represented that the General Partner will gather all 
requisite information to produce the valuation. This information may 
include pricing information on any exchange-traded securities plus 
more voluminous operating and financial data on the companies for 
whose securities there is a thinner market. The General Partner will 
then compile this information into a report which is submitted to 
the Valuation Committee. After reviewing the submitted information, 
the Committee will meet with the staff of the General Partner to 
discuss the valuation materials. At the end of this meeting, the 
Valuation Committee will set the valuation for all portfolio 
hedgings. Thus, from both a legal and operative standpoints, the 
Partnership Agreement will control the valuation process and the 
Valuation Committee will value the Fund.
---------------------------------------------------------------------------

    As the Independent Appraiser, each member of the Valuation 
Committee must not be controlled by (or control) TBFC or the 
Partnership and must not receive more than 5 percent of their lowest 
annual income from the General Partner or the Partnership, either 
during the term of the Partnership or in the three years preceding its 
creation. Individual members of the Valuation Committee or the entire 
committee may be removed by the General Partner only for cause and with 
or without cause by Limited Partners holding a majority of the Limited 
Partnership interests. A

[[Page 33369]]

majority of the Limited Partners must approve a replacement Independent 
Appraiser. If the Limited Partners and the General Partner cannot agree 
upon a replacement Independent Appraiser, the firm of KPMG Peat Marwick 
LLP will be appointed.
    Although the General Partner will nominate the Independent 
Appraiser, the Limited Partners will be given the option of either 
approving or disapproving the nominee. The Independent Appraiser will 
not be appointed absent the affirmative written approval of a majority 
of the Limited Partners. However, the Limited Partners will have no 
veto power over the General Partner's decision that an Independent 
Appraiser is required.
    If applicable, the Independent Appraiser will use the principles 
set forth in Revenue Ruling 59-60 and the Department's proposed 
``Adequate Consideration'' regulations (53 FR 17632, May 17, 1988) to 
determine fair market value. The valuations made by the Independent 
Appraiser will be binding upon the General Partner. In addition, the 
Independent Appraiser will issue a report to the General Partner which 
sets forth the Independent Appraiser's pricing methodology and 
rationale for securities it has been asked to value. Such report will 
be issued after each required valuation and will comply with the 
aforementioned regulations.
    With respect to securities for which a market exists, the 
Independent Appraiser will determine their value according to the 
following principles:
    (a) National Securities Exchange. Any security which is listed on a 
national securities exchange generally will be valued based on its last 
sales price on the national securities exchange on which the security 
is principally traded on the valuation date.\23\ If no sale of a listed 
Security occurred on the valuation date, the value will be based on the 
last bid price.
---------------------------------------------------------------------------

    \23\ TBFC explains that the phrase ``principally traded'' means 
that if a security is traded on more than one exchange and if the 
trade prices differ between exchanges, the value will be taken from 
the exchange on which the largest volume of that security has 
traded.
---------------------------------------------------------------------------

    (b) No Listing. Any security which is not listed on a national 
securities exchange will be valued upon the last publicly available bid 
price.\24\
---------------------------------------------------------------------------

    \24\ TBFC explains that the most recent trade price is not used 
to value a security in this instance because it may be too dated to 
provide an accurate estimate of value. Instead, TBFC considers the 
bid price to be indicative of the current value at which someone 
would be willing to acquire a security on the valuation date. TBFC 
further notes that the use of the bid price rather than the previous 
trading or closing price in valuing a Security provides a 
conservative valuation approach which will result, in most 
instances, in a lower Performance Fee paid to the General Partner. 
The Department assumes that the bid price described herein 
represents active bids and is a true indicator of market prices.
---------------------------------------------------------------------------

    (c) Discount for Illiquidity. Anything herein to the contrary 
notwithstanding, the Independent Appraiser in its discretion may apply 
a discount for illiquidity, on the valuation of securities that have a 
thin public market.
    In the event that there is no independent market for a security or 
the security is not listed on a national securities exchange, the 
Independent Appraiser will be required to value such securities. Under 
such circumstances, the securities will be valued at the time of 
acquisition at their cost. The Independent Appraiser will continue 
valuing the securities at their cost until a determination is made that 
a different valuation level is indicated by the occurrence of (a) a 
significant change in book value, (b) a significant change in a 
Portfolio Company's business, (c) a significant third-party 
transaction, or (d) any other significant change in the Financial 
Company, its industry or the general market.
    20. With respect to transactions that may arise during the 
existence of the Partnership and which involve parties in interest with 
respect to participating Plans, the General Partner requests exemptive 
relief from the provisions of section 406(a) of the Act. Specifically, 
TBFC requests exemptive relief where the Partnership sells securities 
in the Partnership Portfolio for cash or other securities to a party in 
interest with respect to a participating Plan in the context of an 
acquisition or merger by the party in interest, provided the party in 
interest is not an affiliate of the General Partner. TBFC represents 
that the Partnership will receive the same offer that other 
shareholders of Portfolio Companies will receive. Because the 
Partnership will always be a minority shareholder in such situation, 
TBFC states that the Partnership will be in the position of a 
beneficiary of the acquisition offer and it will not be in the position 
off an active player in the merger or acquisition transactions.
    21. In summary, it is represented that the proposed transactions 
will satisfy the statutory criteria for an exemption under section 
408(a) of the Act because:
    (a) The participation by a Plan in the BF V Group Trust and in the 
Partnership will be approved by an Independent Fiduciary.
    (b) Each Plan investing in the Partnership through the BF V Group 
Trust will have assets that are in excess of $50 million.
    (c) No Plan will invest more than 10 percent of its assets in the 
Partnership through the BF V Group Trust and a Plan's respective 
interests in both entities will not represent more than 25 percent of 
the assets of either the BF V Group Trust or the Partnership.
    (d) No Plan will invest more than 25 percent of its assets in 
investment funds and separate accounts managed or sponsored by TBFC 
and/or its affiliates.
    (e) Prior to making an investment in the BF V Group Trust and the 
Partnership, each Independent Fiduciary contemplating investing therein 
will receive offering materials which disclose all material facts 
concerning the purpose, structure and operation of the BF V Group 
Trust, the Partnership and the fees paid to the Trustee and the General 
Partner.
    (f) Each Plan investing in the BF V Group Trust and the Partnership 
will be required to acknowledge, in writing, prior to purchasing 
interests that such fiduciary has received copies of such documents and 
to acknowledge, in writing, to the General Partner that such fiduciary 
is (1) independent of the General Partner and its affiliates, (2) 
capable of making an independent decision regarding the investment of 
Plan assets and (3) knowledgeable with respect to the Plan in 
administrative matters and funding matters related thereto, and able to 
make an informed decision concerning participation in the BF V Group 
Trust.
    (g) The General Partner will make quarterly and annual written 
disclosures to participating Plans with respect to the financial 
condition of the Partnership and the total fees that it will receive 
for services rendered to such Partnership.
    (h) The General Partner will hold annual meetings and conduct 
periodic discussions with Independent Fiduciaries to address matters 
pertaining to the BF V Group Trust or the Partnership.
    (i) The terms of all transactions that are entered into on behalf 
of the Partnership by the General Partner shall remain at least as 
favorable to an investing Plan as those obtainable in arm's length 
transactions with unrelated parties. In this regard, the valuation of 
assets of the Partnership will be based upon independent market 
quotations or determinations made by an Independent Appraiser.
    (j) As to each Plan, the total fees paid to the General Partner and 
its affiliates will constitute no more than reasonable compensation.
    (k) Any increase in the General Partner's Performance Fee will be 
based upon a predetermined percentage of net realized gains minus net 
unrealized

[[Page 33370]]

losses. In this regard, (1) Except as described in item (1) below, no 
part of the General Partner's Performance Fee may be withdrawn before 
December 31, 2006, which represents the completion of the Acquisition 
Phase of the Partnership and not until the Limited Partners have 
received distributions equal to 100 percent of their capital 
contributions to the Partnership.
    (2) Prior to the termination of the Partnership, no more than 75 
percent of the Performance Fee credited to the General Partner may be 
withdrawn from the Partnership.
    (3) The Performance Fee Account established for the General Partner 
will be credited with net realized gains and charged for net unrealized 
losses and Performance Fee distributions.
    (4) The General Partner will repay all deficits in its Performance 
Fee Account and it will maintain a 25 percent cushion in such account 
before receiving any further distribution.
    (1) The General Partner will be entitled to take distributions with 
respect to its Performance Fee in the amount of any income tax 
liability it or its affiliates become subject to with respect to net 
capital gains of the Partnership (i) only during the Partnership's 
Acquisition Phase and (ii) provided such gains are based on the sale of 
Portfolio Company securities that is initiated by a third party in 
connection with a merger, tender offer or acquisition.
    (m) The General Partner will be obligated to repay to the 
Partnership any tax refund received to the extent a distribution have 
been made to such General Partner.

Notice to Interested Persons

    Notice of the proposed exemption will be given to Plans intending 
to invest in the Partnership through the BF V Group Trust within 3 days 
of the date of publication of the notice of pendency in the Federal 
Register. Such notice will include a copy of the notice of proposed 
exemption, as published in the Federal Register, as well as a 
supplemental statement, as required pursuant to 29 CFR 2570.43(b)(2), 
which shall inform interested persons of their right to comment on and/
or to request a hearing. Comments and hearing requests with respect to 
the proposed exemption are due 33 days after the date of publication of 
the proposed exemption in the Federal Register.
    For Further Information Contact: Ms. Jan D. Broady of the 
Department, telephone (202) 219-8881. (This is not a toll-free number.)

Standard Insurance Company (Standard) Located in Portland, OR

[Application No. D-10705]

Proposed Exemption

    Based on the facts and representations set forth in the 
application, the Department is considering granting an exemption under 
the authority of section 408(a) of the Act (or ERISA) and in accordance 
with the procedures set forth in 29 CFR part 2570, subpart B (55 FR 
32836, 32847, August 10, 1990).\25\
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    \25\ For purposes of this exemption, reference to provisions of 
Title I of the Act, unless otherwise specified, refer also to the 
corresponding provisions of the Code.
---------------------------------------------------------------------------

Section I. Covered Transactions

    If the exemption is granted, the restrictions of section 406(a) of 
the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(A) through (D) of the 
Code, shall not apply, effective April 21, 1999, to (1) the receipt of 
common stock (the Stock) of the StanCorp Financial Group, Inc. (the 
Holding Company), the parent of Standard, or (2) the receipt of cash 
(Cash) or policy credits (Policy Credits), by or on behalf of any 
eligible policyholder (the Eligible Member) of Standard which is an 
employee benefit plan (the Plan), including the Standard Group Life, 
Supplemental Life and AD&D Plan for Employees and Agents (the Standard 
Group Life Plan) and the Standard Group Term and Short Term Disability 
Employees Plan (the Standard Disability Plan; together, the Standard 
Welfare Plans), in exchange for such Eligible Member's interest in 
Standard, in accordance with the terms of a plan of demutualization 
(the Plan of Demutualization or Demutualization Plan) adopted by 
Standard and implemented pursuant to Section 732 of the Oregon Revised 
Statutes. \26\
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    \26\ Unless otherwise noted, the client Plans and the Standard 
Plans are collectively referred to as the Plans.
---------------------------------------------------------------------------

    In addition, the restrictions of section 406(a)(1)(E) and (a)(2) 
and section 407(a)(2) of the Act shall not apply, effective April 21, 
1999, to the receipt or holding, by the Standard Welfare Plans, of 
employer securities in the form of excess Holding Company Stock, in 
accordance with the terms of the Demutualization Plan.
    The proposed exemptions described above are subject to the 
following conditions:
    (a) The Plan of Demutualization was implemented in accordance with 
procedural and substantive safeguards that were imposed under Oregon 
Insurance Law and was subject to review and supervision by the Director 
of the Department of Consumer and Business Services of the State of 
Oregon (the Director).
    (b) The Director reviewed the terms of the options that were 
provided to Eligible Members of Standard, which included, but were not 
limited to the subject Plans, as part of his review of the 
Demutualization Plan, and only approved such Demutualization Plan 
following a determination that the Plan was fair and equitable to all 
Eligible Members and was not detrimental to the public.
    (c) Each Eligible Member had an opportunity to vote to approve the 
Plan of Demutualization after full written disclosure was given to the 
Eligible Member by Standard.
    (d) One or more independent fiduciaries of a Plan that was an 
Eligible Member received Holding Company Stock, Cash or Policy Credits, 
pursuant to the terms of the Demutualization Plan, and neither Standard 
nor any of its affiliates exercised any discretion or provided 
``investment advice,'' within the meaning of 29 CFR 2510.3-21(c), with 
respect to such acquisition.
    (e) With respect to the Standard Welfare Plans and other Plans 
sponsored by Standard and its affiliates (collectively, the Standard 
Plans), where the consideration was in the form of Holding Company 
Stock, Northwestern Trust and Advisory Company (Northwestern Trust), 
the independent Plan fiduciary appointed to represent the interests of 
each of the Standard Plans,
    (1) Exercised its authority and responsibility to vote on behalf of 
the Standard Plans at the special meeting of Eligible Members on the 
proposal to approve the Demutualization Plan;
    (2) Monitored the Holding Company Stock received by a Standard 
Plan; and
    (3) Provided instructions with respect to the voting, the continued 
holding and the disposition of Holding Company Stock held by all of the 
Standard Plans.
    (f) After each Eligible Member was allocated at least 52 shares of 
Holding Company Stock, additional consideration was allocated to 
Eligible Members who owned participating policies based on actuarial 
formulas that took into account each participating policy's 
contribution to the surplus of Standard which formulas have been 
approved by the Director.
    (g) All Eligible Members that were Plans participated in the 
transactions on the same basis within their class groupings as other 
Eligible Members that were not Plans.
    (h) No Eligible Member paid any brokerage commissions or fees in

[[Page 33371]]

connection with the receipt of Holding Company Stock, nor has (or will) 
such Eligible Member pay any brokerage commissions or fees in 
connection with the implementation of the commission-free sales and 
purchase program (the Program).
    (i) All of Standard's policyholder obligations will remain in force 
and will not be affected by the Plan of Demutualization.

Section II. Definitions

    For purposes of this proposed exemption:
    (a) The term ``Standard'' means The Standard Insurance Company and 
any affiliate of Standard as defined in paragraph (b) of this Section 
III.
    (b) An ``affiliate'' of Standard includes--
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with Standard; (For purposes of this paragraph, the term ``control'' 
means the power to exercise a controlling influence over the management 
or policies of a person other than an individual.) and
    (2) Any officer, director or partner in such person.
    (c) The term ``Eligible Member'' means a policyholder who is 
eligible to vote and to receive consideration under Standard's 
Demutualization Plan. Such Eligible Member must have been a 
policyholder of Standard on December 17, 1997, the date the Plan of 
Demutualization was adopted by the Board of Directors of Standard.
    (d) The term ``policy credit'' means an increase in the 
accumulation account value \27\ (to which no surrender or similar 
charges are applied) in the general account or an increase in a 
dividend accumulation on a policy.
---------------------------------------------------------------------------

    \27\ In general, a policy's accumulation account value is 
expressed in dollar terms and reflects contributions and interest 
credited under the policy, less expenses and withdrawals. 
Accumulation values may be applied for the purchase of annuity 
benefits, or depending on the provisions of the contract, withdrawn 
by the policyholder in a lump sum or installments. Under Standard's 
Plan of Demutualization, where a policy eligible for distributions 
under such Plan has an accumulation value, the policy's accumulation 
value will be increased by an amount equal to the distribution the 
policyholder is entitled to under the Plan.
---------------------------------------------------------------------------

    Effective Date: If granted, this proposed exemption will be 
effective as of April 21, 1999.

Summary of Facts and Representations

    1. Standard was formerly a mutual life insurance company chartered 
under the laws of the State of Oregon. It was originally chartered in 
1906 as a stock company and was subsequently ``mutualized'' in 1929 
under Oregon law. Standard is authorized to transact life, health and 
annuity business in all 50 states (reinsurance only in New York), the 
District of Columbia and the U.S. Territory of Guam. As of December 31, 
1998, Standard had admitted assets (on a statutory basis) in excess of 
$4.9 billion and generated $890.9 million in annualized premium and 
annuity consideration.
    Standard's home office is located at 1100 S.W. Sixth Avenue, 
Portland, Oregon. As of December 31, 1998, Standard was rated A 
(Excellent) by A.M. Best, A+ (Good) by Standard and Poor's, AA (Very 
High Claims Paying Ability) by Duff & Phelps and A2 (Good) by Moody's.
    As a mutual life insurance company, Standard had no stockholders. 
Instead, its policyholders were members of the company and were 
entitled to vote to elect its directors and would be entitled to share 
in its assets upon its liquidation.
    Standard provides a variety of fiduciary and other services, 
including plan administration, investment management and related 
services, to Plans policyholders that are covered under the applicable 
provisions of the Act and/or the Code. As a result, Standard may be 
considered a party in interest or a disqualified person with respect to 
such Plans under section 3(14)(A) and (B) of the Act as well as the 
related ``derivative'' provisions of section 3(14) of the Act.
    Standard has actively marketed its products to Plans. As of 
December 31, 1997, Standard had approximately 30,800 outstanding 
policies and contracts issued in connection with Plan policyholders 
that were pension or welfare plans subject to the Act. Of these 
policies, approximately 5,200 contracts were issued to defined benefit 
or defined contribution pension plans (including section 401(k) plans) 
and over 25,600 contracts were issued to welfare plans to provide group 
life, short-term and long-term disability, accidental death and 
dismemberment, and group health and dental coverage.
    2. Standard Management, Inc. (Standard Management) is a holding 
company that is organized under Oregon law and formerly wholly owned by 
Standard. On April 21, 1999, the effective date of the demutualization, 
Standard Management became a wholly owned subsidiary of StanCorp 
Financial Group, Inc. (i.e., the Holding Company), which also became 
the parent of Standard. The Holding Company is also organized under 
Oregon law.
    3. Standard has also created two limited liability companies under 
Oregon law. They are Standard Mortgage Investors, LLC (Standard 
Mortgage), which manages Standard's mortgage loan portfolio and markets 
its expertise to other investors and Standard Real Estate Investors, 
LLC (Standard Real Estate Investors), which is engaged in the business 
of real estate management, primarily with respect to real estate owned 
by Standard. Currently, the assets of Standard Mortgage and Standard 
Real Estate Investors are owned completely by Standard through Standard 
Management.
    In addition to these companies, Standard has formed Stan-West 
Equities, Inc. (Stan-West), a licensed broker-dealer, 400 Health Club, 
Inc. (400 Health Club), a corporate shell that does not conduct 
business of any kind, and Standard Assigned Benefits, Inc. (Standard 
Assigned Benefits), an entity which was formerly in the business of 
funding structured litigation settlements but which is not transacting 
business at the present time. Through its sister, Standard Management, 
Standard owns 100 percent of the assets of these entities.
    4. Standard and its affiliates also sponsor a number of retirement 
and welfare plans for their agents and employees that participated in 
the demutualization transaction described herein. The affected Standard 
Plans, their total number of participants and assets are shown as 
follows as of December 31, 1997, which is the most recent date this 
information is available:

------------------------------------------------------------------------
                                                 Number of      Total
                Standard plans                 participants   assets as
                                                as of 12/97    of 12/97
------------------------------------------------------------------------
Group Life, Supplemental Life and AD&D                2,837   <SUP>1</SUP> $431,985
 Employees and Agents........................
Group Long Term and Short Term Disability-            1,771    <SUP>1</SUP> 802,820
 Employees...................................
Defined Benefit Plan-Employees...............         1,419   64,754,363
Defined Benefit Plan-Agents..................            85   13,442,533
Defined Contribution Plan-Employees..........         1,405   55,397,674
Defined Contribution Plan-Agents.............           119  16,200,232
------------------------------------------------------------------------
<SUP>1</SUP> Expressed as an annualized premium.

    5. In 1997, Standard's Board of Directors authorized its management 
to develop a plan of demutualization

[[Page 33372]]

whereby Standard would be converted from a mutual life insurance 
company to a stock life insurance company. In response, Standard began 
developing the Plan of Demutualization which was formally adopted by 
the Board of Directors on September 28, 1998. The principal purposes 
for the demutualization were to (a) enhance Standard's strategic and 
financial flexibility by creating a corporate structure that would 
provide opportunities for obtaining additional capital from sources 
that are unavailable to Standard in its current form as a mutual 
insurer; (b) allow Standard to use stock options or other equity-based 
compensation arrangements to attract and retain talented employees; (c) 
facilitate acquisitions, which Standard's management viewed as an 
important element of future growth; and (d) provide Eligible Members 
with an opportunity to convert their illiquid interests as members of 
Standard into shares of Stock of the Holding Company or Cash or Policy 
Credits. The demutualization would not, in any way, change premiums or 
reduce policy benefits, values, guarantees or other policy obligations 
of Standard to its policyholders. Policy dividends would continue to be 
paid as declared, although they may vary from year to year. In effect, 
insurance policies would remain in force and policyholders would be 
entitled to receive the benefits under their policies and contracts to 
which they would have been entitled if the Demutualization Plan had not 
been adopted.
    6. Therefore, Standard has requested an individual exemption from 
the Department that would apply, effective April 21, 1999, to the 
receipt of Holding Company Stock, Cash or Policy Credits by Eligible 
Members that were Plans in exchange for their existing membership 
interests in Standard because it believes the transaction could be 
viewed as a prohibited sale or exchange of property between a plan and 
a party in interest in violation of section 406(a)(1)(A) and (D) of the 
Act. Standard also has requested exemptive relief, effective April 21, 
1999, with respect to distributions of Holding Company Stock to the 
Standard Welfare Plans, because it believes the receipt of Holding 
Company Stock by these Standard Plans violated section 406(a)(1)(E) and 
(a)(2) of the Act and section 407(a)(2) of the Act, in addition to 
section 406(a)(1)(A) and (D) of the Act.\28\ Standard represents that 
although the Holding Company Stock would constitute ``qualifying 
employer securities'' within the meaning of section 407(d)(5) of the 
Act, such stock would represent 100 percent of the assets of the 
Standard Welfare Plans, in violation of section 407(a)(2) of the Act. 
Standard also asserts that the statutory exemptive relief contained in 
section 408(e) of the Act would not apply to the acquisition and 
holding of Holding Company Stock by the Standard Welfare Plans.\29\
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    \28\ Section 406(a)(1)(E) of the Act prohibits the acquisition 
by a Plan of any employer security that violates section 407(a) of 
the Act. Section 406(a)(2) of the Act states that no fiduciary who 
has authority or discretion to control the assets of a plan shall 
permit the plan to hold any employer security if he [or she] knows 
that holding such security would violate section 407(a) of the Act. 
Section 407(a)(1)(A) of the Act states that, except otherwise 
provided, a plan may not hold any employer security which is not a 
qualifying employer security. Section 407(a)(2) of the Act prohibits 
the acquisition by a plan of any qualifying employer security if 
immediately after such acquisition, the aggregate fair market value 
of such securities exceeds 10 percent of the fair market value of 
the plan's assets.
    \29\ Northwestern Trust, which was retained by Standard as the 
independent fiduciary for all of the Standard Plans, subsequently 
determined (see Representation 11) that the only Standard Plan 
affected by the ``excess holding problem'' was the Standard Group 
Life Plan. Although Northwestern Trust expressed no opinion on the 
Standard Disability Plan, Standard believes that Northwestern Trust 
may have concluded that the Holding Company Stock received in 
connection with the demutualization was not a ``plan asset'' and was 
thus allocable to Standard. Nevertheless, to remove any doubt, 
Standard has requested that the exemption apply to both of the 
Standard Welfare Plans. However, the Department is not expressing an 
opinion herein on whether the Standard Disability Plan is entitled 
to any of the consideration received as a result of the 
demutualization.
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    Standard further notes that the holding of Holding Company Stock by 
the Standard Welfare Plans would not violate section 407(f) of the Act 
because neither Plan would own more than 25 percent of the outstanding 
shares of Holding Company Stock, and at least 50 percent of the 
outstanding shares would be owned by persons who were independent of 
the issuer.
    Standard represents that statutory exemptive relief from section 
408(e) of the Act would apply to distributions of Holding Company Stock 
to its defined benefit plans (i.e., the Defined Benefit Retirement 
Plan-Employees and the Defined Benefit Retirement Plan-Agents) 
(together, the Standard Defined Benefit Plans) because the fair market 
value of the Stock would not exceed 10 percent of the assets of these 
Plans. Therefore, Standard has not requested that the exemption apply 
to the Standard Defined Benefit Plans.
    Similarly, Standard represents that section 408(e) would be 
applicable to distributions of Holding Company Stock to its two defined 
contribution plans (i.e., the Defined Contribution Plan-Employees and 
the Defined Contribution Plan-Agents) (together, the Standard Defined 
Contribution Plans).\30\ Therefore, Standard has not requested that the 
exemption apply to the Standard Defined Contribution Plans.
---------------------------------------------------------------------------

    \30\ The Department expresses no opinion herein on whether the 
Holding Company Stock constitutes qualifying employer securities and 
whether such distributions satisfied the terms and conditions of 
section 408(e) of the Act.
---------------------------------------------------------------------------

    7. Standard's Plan of Demutualization was approved by the Director 
in January 1999. Subsequently, the following steps were taken to 
implement the Demutualization Plan:
    (a) Demutualization under Oregon Law. Standard converted from a 
mutual life insurance company to a stock life insurance company on 
April 21, 1999 in accordance with the requirements of Sections 732.600 
to 732.630 of the Oregon Revised Statutes as well as under the 
provisions of its Plan of Demutualization. Each policyholder's 
membership interest in Standard was terminated. As compensation for 
their membership interests, Eligible Members received Holding Company 
Stock, Cash or Policy Credits as compensation for the termination of 
their interests.
    As a result of the demutualization, Standard became a stock company 
and a wholly owned subsidiary of the Holding Company. Standard also 
distributed its real estate management and mortgage subsidiaries (i.e., 
Standard Mortgage and Standard Real Estate Investors) and certain other 
non-insurance subsidiaries (i.e., Stan-West Equities, 400 Health Club 
and Standard Assigned Benefits) to the Holding Company. As a result, 
these companies became direct or indirect subsidiaries of the Holding 
Company.
    (b) The Initial Public Offering (the IPO). The Holding Company sold 
15,209,400 shares of Holding Company Stock in an underwritten IPO in 
conjunction with the demutualization. The Holding Company also arranged 
for the listing of Holding Company Stock on the NYSE.
    (c) Contribution to the Capital of Standard. Following the 
transactions described above, the Holding Company contributed $267.9 
million raised in the IPO (after the payment of transaction expenses) 
to Standard to pay Cash consideration to certain Eligible Members and 
to fund Policy Credits for other Eligible Members as required under the 
Plan of Demutalization.
    8. Standard represents that Sections 732.600 to 732.630 (Section 
732) of the Oregon Revised Statutes establish an approval process for 
the demutualization of a life insurance company organized under Oregon 
law.

[[Page 33373]]

Specifically, Section 732 requires that a plan of demutualization be 
approved by both the Director and a vote of the policyholders. The 
Director may hold a hearing for the purpose of receiving comments on 
whether a plan should be approved and on any other matter relating to 
the demutualization. After the hearing, the Director will approve the 
demutualization plan if he or she finds all of the following: \31\
---------------------------------------------------------------------------

    \31\ The Director held a public hearing regarding Standard's 
demutualization on January 27, 1999 and approved the Demutualization 
Plan by order issued on February 12, 1999.

    (a) The applicable provisions of ORS 732.600 to 732.630, and 
other applicable provisions of the law, have been fully met.
    (b) The plan protects the rights of policyholders.
    (c) The plan will be fair and equitable to the members, and the 
plan will not prejudice the interests of the members.
    (d) The allocation of consideration among the Eligible Members 
is fair and equitable.
    (e) The converted stock insurer will have capital or surplus, or 
any combination thereof, that is required of a domestic stock 
insurer on initial authorization to transact like kinds of 
insurance, and otherwise will be able to satisfy the requirements of 
this state for transacting its insurance business.
    (f) The plan will not substantially reduce the security of the 
policyholders and the service to be rendered to the policyholders.
    (g) If a stock holding or mutual holding company is organized, 
the financial condition of the stock holding company, the mutual 
holding company or any subsidiary thereof will not jeopardize the 
financial stability of the converted stock insurer.
    (h) The financial condition of the converting mutual insurer 
will not be jeopardized by the conversion or reorganization, and the 
conversion or reorganization will not jeopardize the financial 
stability of the stock holding company, the mutual holding company 
or any subsidiary thereof.
    (i) The competence, experience and integrity of those persons 
who will control the operation of the converted stock insurer are 
not contrary to the interests of policyholders of the converted 
stock insurer and of the public in allowing the plan to proceed.
    (j) Implementation of the plan will protect the interests of the 
insurance-buying public.
    (k) The activity is not subject to other material and reasonable 
objections.
    (l) All modifications required by the Director have been made.

    Section 732 authorizes the Director to employ staff personnel and 
to engage outside consultants to assist the Commissioner in determining 
whether a demutualization plan meets the requirements of Section 732. 
(In the case of the Standard demutualization, the Director retained 
Ernst & Young to provide actuarial services, Sidley & Austin to provide 
legal services and Merrill Lynch & Co. to provide investment banking 
services.) The decision by the Director to approve a demutualization 
plan under Section 732 is subject to judicial review in the Oregon 
courts.
    9. In addition to being approved by the Director, Standard 
represents that its Demutualization Plan had to be approved by its 
policyholders. In this regard, Section 732 requires that the 
policyholders be provided with notice of a meeting convened for the 
purpose of voting on whether to approve the demutualization plan.\32\ 
Moreover, the demutalization plan must be approved by a vote of not 
less than a majority of the votes of the insurer's policyholders voting 
thereon in person, by proxy or by mail.
---------------------------------------------------------------------------

    \32\ Under Oregon law, the notice of the policyholder meeting 
must be mailed within 45 days of the Director's order and at least 
30 days prior to the meeting. Eligible Members must receive two 
notices. The first notice pertains to the public hearing and 
includes a summary of the plan of demutualization and provides 
information regarding the right of the Eligible Member to comment, 
either in person or in writing, on the plan. The second notice 
relates to the meeting to vote on the plan of demutualization and 
includes a full copy of the plan, a detailed explanation of the plan 
and its consequences, and an explanation of the voting procedure.
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    With respect to Standard, approximately 114,000 Eligible Members 
were eligible to vote on the Demutualization Plan which occurred at a 
special meeting on March 19, 1999. Each Eligible Member was entitled to 
one vote. Of the Eligible Members, 35,569 or 32.4 percent voted and 
32,598 or 91.7 percent of the votes cast were in favor of the 
demutualization.
    10. Standard's Demutualization Plan provided for Eligible Members 
to receive Holding Company Stock, Cash or Policy Credits as 
consideration for the termination of their membership interests in the 
mutual company. (Combinations of different forms of consideration were 
not permitted.) For purposes of the demutualization, an Eligible Member 
is any owner of one or more policies of insurance, if the policy was in 
force as of December 17, 1998, the record date for the plan of 
conversion. This was the date that Standard's Board of Directors 
adopted the Demutualization Plan.
    Solely for purposes of calculating the amount of consideration, 
each Eligible Member was allocated (but not necessarily issued) a 
minimum of 52 shares of Holding Company Stock as soon as reasonably 
practicable after April 21, 1999, the effective date of the 
demutualization. Any remaining Holding Company Stock was allocated 
substantially on the basis of the contributions to surplus made by each 
Eligible Member's in-force policies.\33\ In this regard, under Section 
732, the Director was required to make a finding that the allocation 
methodology was fair and equitable.
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    \33\ As noted above, Standard's IPO resulted in the sale of 
15,290,400 shares of Holding Company Stock. An additional 18,310,836 
shares were also allocated by Standard to Eligible Members.
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    Certain Eligible Members received Cash or Policy Credits in lieu of 
Holding Company Stock, which Cash or Policy Credits had a value equal 
to the Holding Company Stock the policyholders would otherwise have 
received, based on the price per share of the Holding Company Stock in 
the IPO. Specifically, an Eligible Member received Cash in lieu of 
allocable Holding Company Stock (a) if the owner of the policy was 
known to Standard to be subject to a bankruptcy proceeding, or (b) 
where the Eligible Member's address for mailing purposes, as shown on 
the records of Standard, was located outside the United States of 
America or was shown on Standard's records to be an address at which 
mail to such Eligible Member is undeliverable, or (c) where an Eligible 
Member, who had been allocated 99 shares or less of Holding Company 
Stock, made an affirmative election, on a form provided to such 
Eligible Member by Standard, to receive Cash instead of Holding Company 
Stock.
    An Eligible Member received Policy Credits in lieu of Holding 
Company Stock with respect any policy that was (a) an individual 
retirement annuity contract within the meaning of section 408 of the 
Code, (b) a tax sheltered annuity contract within the meaning of 
section 403(b) of the Code, (c) an individual annuity contract that had 
been issued pursuant to a plan qualified under section 401(a) of the 
Code directly to the plan participant, or (d) an individual life 
insurance policy that had been issued pursuant to a plan qualified 
under section 401(a) of the Code directly to the plan participant.
    The decision to receive Holding Company Stock, Cash or Policy 
Credits by a Plan was made by one or more fiduciaries of such Plan 
which was independent of Standard and its affiliates. In addition, 
neither Standard nor any of its affiliates exercised discretion or 
provided ``investment advice,'' within the meaning of 29 CFR 2510.3-
21(c), with respect to each such acquisition.\34\ Further, no Eligible

[[Page 33374]]

Member will pay any brokerage commissions or fees in connection with 
the receipt of stock.
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    \34\ Consistent with section 732.600 to 732.630 of Oregon 
Insurance Law, the Demutualization Plan generally provides that the 
policyholder eligible to participate in the distribution of stock, 
cash or policy credits resulting from the Demutualization Plan is 
the ``Owner'' of the policy and that ``The Owner of a Policy shall 
be shown on the Company's records.'' Standard further represents 
that an insurance or annuity policy that provides benefits under an 
employee benefit plan, typically designates the employer that 
sponsors the plan, or a trustee acting on behalf of the plan, as the 
owner of the policy. In regard to insurance or annuity policies that 
designate the employer or trustee as owner of the policy, Standard 
represents that it was required under the foregoing provisions of 
Oregon Law and the Demutualization Plan to make distributions 
resulting from such Plan to the employer or trustee as owner of the 
policy, except as provided below.
    In general, it is the Department's view that, if an insurance 
policy (including an annuity contract) is purchased with assets of 
an employee benefit plan, including participant contributions, and 
if there exist any participants covered under the plan (as defined 
at 29 CFR 2510.3-3) at the time when Standard incurred the 
obligation to distribute Holding Company Stock, Cash or policy 
credits, then such consideration would constitute an asset of such 
plan. Under these circumstances, the appropriate plan fiduciaries 
must take all necessary steps to safeguard the assets of the plan in 
order to avoid engaging in a violation of the fiduciary 
responsibility provisions of the Act.
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    11. Standard's Demutualization Plan provided for the Holding 
Company to establish a commission-free sales and purchase program. The 
Program commenced on February 24, 2000 and it will continue until May 
31, 2000. The Program may be extended if the Board of Directors of the 
Holding Company determines that the extension is appropriate and in the 
best interest of the Holding Company and its shareholders.
    Under the Program, each Eligible Member who received 99 or fewer 
shares of Holding Company Stock has been given the opportunity to sell, 
at prevailing market prices, all shares of such stock. Moreover, an 
Eligible Member who received 99 or fewer shares of Holding Company 
Stock is permitted to purchase, at prevailing market prices, additional 
shares of Holding Company Stock required to round-up the total number 
of shares to 100. Under either the sales or purchase components of the 
Program, the Eligible Member is not required to pay any brokerage 
commissions or similar fees. Also, Standard and its affiliates have not 
provided (and will not provide) ``investment advice,'' as defined in 29 
CFR 2510.3-21(c).
    12. Northwestern Trust was appointed by Standard to serve as the 
independent fiduciary and, in so doing, to represent the interests of 
the Standard Plans that are identified in Representation 4. 
Northwestern Trust is a privately-owned trust company chartered by the 
State of Washington and regulated by the State of Washington Department 
of Financial Institutions. As of May 31, 1999, Northwestern Trust had 
assets under administration exceeding $3.5 billion. A majority of those 
assets consisted of retirement plan assets. Northwestern Trust's 
professional staff manages ERISA programs and its ERISA clients are 
located in 15 states across the United States. Northwestern Trust 
provides fiduciary services to a variety of pension and welfare plans 
and it is experienced in connection with the acquisition, retention and 
disposition of employer securities. In addition, Northwestern Trust is 
extensively involved with non-qualified deferred compensation 
arrangements. To assist Northwestern Trust in carrying out its 
independent fiduciary duties, it retained Dorsey & Whitney LLP as 
independent legal counsel.
    Northwestern Trust represents that it is completely unrelated to 
Standard and its affiliates. In this regard, Northwestern Trust states 
that both it and Standard have no common officers or directors nor does 
it have an ownership interest in Standard or vice versa.
    Northwestern Trust also represents that although it had no voting 
or dispositive power over shares of Holding Company Stock other than 
pursuant to its Independent Fiduciary Agreement with Standard, it acted 
as a directed trustee or custodian to various retirement or welfare 
plans that were not sponsored by Standard or its affiliates. On a de 
minimus basis, Northwestern Trust explains that it made investments on 
behalf of these plans in contracts issued by Standard. However, 
Northwestern Trust states that it received no revenues from these 
investments other than a trustee or custodial fee from the investing 
plan.
    As the independent fiduciary for the Standard Plans, Northwestern 
Trust explains that it understood and acknowledged the duties, 
responsibilities and liabilities in acting as a fiduciary for such 
Plans. In this respect, Northwestern Trust states that in accordance 
with the terms of its Independent Fiduciary Agreement, it (a) exercised 
its authority and responsibility to vote on behalf of the Standard 
Plans at the special meeting of Eligible Members on the proposal to 
approve the Demutualization Plan; (b) monitored, on behalf of the 
Standard Plans, the holding of the Holding Company Stock; and (c) 
provided instructions with respect to the voting, the continued holding 
and the disposition of Holding Company Stock held by all of the 
Standard Plans. Finally, Northwestern Trust asserts that it would take 
all actions that were necessary and appropriate to safeguard the 
interests of the Standard Plans.
    Northwestern Trust notes that the Standard Plans were entitled to 
receive consideration in the form of Holding Company Stock because each 
of these Plans was allocated more than 99 shares. Thus, Northwestern 
Trust states that it was not required to make an ``election'' with 
respect to the form of consideration that was to be received by the 
Standard Plans.\35\ Northwestern Trust also states that it advised 
Standard that the only Standard Plan for which a distribution of 
Holding Company Stock would exceed the 10 percent limitation imposed by 
section 407(a)(2) of the Act was Standard's Group Life Plan which had 
no other assets.
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    \35\ Indeed, the Independent Fiduciary Agreement requires that 
Northwestern Trust make an election available under the 
Demutualization Plan with respect to the form of consideration that 
is to be received by each of the Standard Plans.
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    Northwestern Trust represents that the transactions were prudent 
and in the best interests of the Standard Plans and their participants 
and beneficiaries because the consummation of the transactions was 
conditioned upon approval of Standard's Eligible Members, an 
overwhelming majority of whom approved the Demutualization Plan on 
March 19, 1999, as well as other conditions set forth in the 
Demutualization Plan. In addition, Northwestern Trust states that its 
determination that the transactions were appropriate for the Standard 
Plans was based upon its review of all of the facts and circumstances 
surrounding the transactions, including documentation and records 
prepared in connection with the transactions. Based upon this 
information, Northwestern Trust determined that approval of the 
Demutualization Plan would be in the best interests of all of the 
Standard Plans and their participants and beneficiaries. Accordingly, 
Northwestern Trust explains that it voted in favor of the 
Demutualization Plan and directed the appropriate fiduciaries of the 
Standard Plans to receive and hold title to the Holding Company Stock 
when issued.
    13. In connection with the disposition of Holding Company Stock 
that was held by the Standard Plans, Northwestern Trust directed that 
such shares be repurchased by the Holding Company as follows:
    (a) The Standard Defined Contribution Plans. The Standard Defined 
Contribution Plan-Employees and the Standard Defined Contribution Plan-
Agents received a total of 44,610 shares of Holding Company Stock as a 
result of the demutualization. The

[[Page 33375]]

Holding Company Stock held by these Standard Plans was repurchased by 
the Holding Company for cash in four equal weekly installments 
occurring on November 4, 1999, November 10, 1999, November 18, 1999 and 
November 24, 1999 at the closing market prices on those dates. In this 
regard, on November 4, 1999, the Standard Defined Contribution Plans 
sold 11,152 shares of Holding Company Stock to the Holding Company for 
a closing price of $24.625 per share. On November 10, 1999, the 
Standard Defined Contribution Plans sold another 11,152 shares of 
Holding Company Stock to the Holding Company for a closing price of 
$23.625 per share. On November 18, 1999, the Standard Defined 
Contribution Plans sold 11,153 shares of Holding Company Stock to the 
Holding Company at a closing price of $25.50 per share. Finally, on 
November 24, 1999, the Standard Defined Contribution Plans sold 11,153 
shares of Holding Company Stock to the Holding Company at the closing 
price of $28.188 per share.
    (b) The Standard Defined Benefit Plans. The Standard Defined 
Benefit Plan-Employees and the Standard Defined Benefit-Agents received 
26,127 shares and 4,389 shares, respectively, as a result of the 
demutualization. These shares were repurchased by the Holding Company 
on November 4, 1999 at the closing market price per share of $24.625.
    (c) The Standard Group Life Plan. In Standard's demutualization, 
the Standard Group Life Plan received 29,562 shares of Holding Company 
Stock.\36\ On November 4, 1999, 23,490 shares of Holding Company Stock 
that were held by the Standard Group Life Plan were repurchased by the 
Holding Company at the closing market price of $24.625 per share. On 
November 11, 1999, the remaining 5,632 shares of Holding Company Stock 
that were held by the Standard Group Life Plan and which had been 
transferred to a voluntary beneficiary employee association, were sold 
to the Holding Company at the closing price of $23.562 per share.
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    \36\ As noted previously, it is believed that shares of Holding 
Company Stock attributed to the Standard Disability Plan were 
determined not to be ``plan assets'' and thus, were distributed to 
Standard.
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    No commissions or other fees were charged to the Standard Plans 
with respect to each repurchase transaction. Proceeds from the sale 
were deposited with each Standard Plan and distributed or allocated by 
Northwestern Trust.
    Standard represents that statutory exemptive relief under section 
408(e) of the Act will cover the repurchase of shares of Holding 
Company Stock by each of the Standard Plans. Therefore, it has not 
requested administrative exemptive relief from the Department.\37\
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    \37\ The Department again expresses no opinion on whether the 
sale of Holding Company Stock by any of the Standard Plans described 
above satisfied the terms and conditions of section 408(e) of the 
Act.
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    14. In summary, it is represented that the transactions satisfied 
or will satisfy the statutory criteria for an exemption under section 
408(a) of the Act because:
    (a) The Plan of Demutualization, which was being implemented 
pursuant to stringent procedural and substantive safeguards imposed 
under Oregon law and supervised by the Director, will not require any 
ongoing involvement by the Department.
    (b) One or more independent Plan fiduciaries had an opportunity to 
determine whether or not to vote to approve the terms of the 
Demutualization Plan and was solely responsible for all such decisions.
    (c) The exemption allowed Eligible Members that were Plans to 
acquire Holding Company Stock, Cash or Policy Credits in exchange for 
their membership interests in Standard and neither Standard nor its 
affiliates exercised any discretion nor provided ``investment advice'' 
within the meaning of 29 CFR 2510.3-21(c) with respect to such 
acquisitions.
    (d) No Eligible Member paid any brokerage commissions or fees in 
connection with such Eligible Member's receipt of Holding Company 
Stock, nor did (or will) an Eligible Member pay any brokerage 
commissions or fees with respect to the implementation of the Program.
    (e) Each Eligible Member that was a Plan had an opportunity to 
comment on the Demutualization Plan and to vote to approve such Plan 
after receiving full and complete disclosure of its terms.
    (f) The Director made an independent determination that the 
Demutualization Plan was in the interest of all of Standard's 
policyholders, including Plans.
    (g) The Plan of Demutualization did not change and will not change 
premiums or reduce policy benefits, values, guarantees or other policy 
obligations of Standard to its policyholders or contractholders.

Notice to Interested Persons

    Standard will provide notice of the proposed exemption to Eligible 
Members which are Plans within 14 days of the publication of the notice 
of pendency in the Federal Register. Such notice will be provided to 
interested persons by first class mail and will include a copy of the 
notice of proposed exemption as published in the Federal Register as 
well as a supplemental statement, as required pursuant to 29 CFR 
2570.43(b)(2) which shall inform interested persons of their right to 
comment on the proposed exemption. Comments with respect to the notice 
of proposed exemption are due within 44 days after the date of 
publication of this pendency notice in the Federal Register.

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

General Information

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

[[Page 33376]]

that each application accurately describes all material terms of the 
transaction which is the subject of the exemption.

    Signed at Washington, DC, this 18th; day of May, 2000.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits, 
Administration U.S. Department of Labor.
[FR Doc. 00-12948 Filed 5-22-00; 8:45 am]
BILLING CODE 4510-29-P