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Secretary of Labor Thomas E. Perez

EBSA (Formerly PWBA) Federal Register Notice

Proposed Exemptions; Fidelity Management Trust Company and Its Affiliates (Collectively Fidelity) [10/08/2002]

[PDF Version]

Volume 67, Number 195, Page 62818-62826

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10958, et al.]

 
Proposed Exemptions; Fidelity Management Trust Company and Its 
Affiliates (Collectively Fidelity)

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 
requests for a hearing on the pending exemptions, unless otherwise 
stated in the Notice of Proposed Exemption, within 45 days from the 
date of publication of this Federal Register Notice. 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 requests for a hearing (at least 
three copies) should be sent to the Pension and Welfare Benefits 
Administration (PWBA), 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. Interested persons are also invited to submit 
comments and/or hearing requests to PWBA via e-mail or FAX. Any such 
comments or requests should be sent either by e-mail to: 
``moffittb@pwba.dol.gov'', or by FAX to (202) 219-0204 by the end of 
the scheduled comment period. The applications for exemption and the 
comments received will be available for public inspection in the Public 
Documents Room of the Pension and Welfare Benefits Administration, U.S. 
Department of Labor, Room N-1513, 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.

Fidelity Management Trust Company and Its Affiliates (Collectively 
Fidelity), Located in Boston, Massachusetts

[Application No. D-10958]

Proposed Exemption

I. Covered Transactions

    If the proposed exemption is granted, the restrictions of section 
406(a)(1)(A) through (D) of ERISA 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,

[[Page 62819]]

shall not apply, to certain lines of credit (the Line of Credit or 
Lines of Credit), and the Loan and repayment of funds, including 
accrued interest, thereunder (the Loan or Loans), involving certain 
employee benefit plans (the Plan or Plans) with respect to which 
Fidelity acts as directed trustee, investment manager or other 
administrative service provider.

II. General Conditions

    (a) Each Loan is made to the Plan in connection with the 
administration of a unitized fund (Unitized Fund) as defined in section 
III (e) in order to facilitate redemptions from the Unitized Fund.
    (b) Each Line of Credit will be negotiated by Fidelity on behalf of 
the Plan with a bank, as defined under the Investment Advisers Act of 
1940, as amended, having total assets of at least $5 billion (the 
Lender or Lenders);
    (c) Each Loan is initiated, accounted for and administered by 
Fidelity, which will monitor the transactions on behalf of the Plans to 
ensure that the terms and conditions of the exemption are met at all 
times;
    (d) The Line of Credit provides that each Loan thereunder, 
including accrued interest thereon, will be repaid by the Unitized Fund 
promptly in the ordinary course of business upon settlement of the 
transaction that triggered the need for the Loan;
    (e) The maximum amount loaned with respect to a Unitized Fund on 
any business day that a Loan is initiated does not, after the Loan is 
made, exceed 25% of the total fair market value of the Unitized Fund 
(such value determined as of the most recent close of the New York 
Stock Exchange or as otherwise provided in the applicable Line of 
Credit, provided such determination is substantially contemporaneous 
with the Loan);
    (f) The fair market value of the assets in the Unitized Fund is 
determined by an objective method specified in the Line of Credit;
    (g) The Lender's recourse with respect to any Loan from a Unitized 
Fund is limited to the assets of such Unitized Fund. No commitment 
fees, or commissions are paid by the Plan and no compensating balance 
is required by the Lenders in connection with these loans. Any set-off 
will be limited to the assets of the Unitized Fund borrowing the funds;
    (h) Interest payable by the Plan on each Loan is based on rates 
quoted to Fidelity by the Lenders under the Lines of Credit and 
accepted by Fidelity on behalf of the Plan in accordance with the Lines 
of Credit;
    (i) The Plan enters into a written agreement with Fidelity pursuant 
to which Fidelity is authorized to borrow on behalf of the Plan. Prior 
to borrowing on behalf of a Plan pursuant to this exemption, Fidelity 
provides the Plan with written notice explaining the Line of Credit 
program. The notice shall state that Fidelity agrees to act as a 
fiduciary on behalf of the Plan in connection with the following 
activities involving the Line of Credit agreements with the Lenders: 
the negotiation of the Plan's participation in the Line of Credit 
agreements; the negotiation of interest rates; the terms of the Loans, 
and the terms of repayment under the Lines of Credit agreements. The 
notice shall set forth Fidelity's objective methodology for allocating 
favorable interest rates or credit availability equitably among those 
Unitized Funds seeking to borrow under the Line of Credit agreements on 
any given day, i.e., ``the applicable ordering rules and limitations.'' 
Each notice shall also address under what circumstances Fidelity may 
exclude the Plan from participation in the program, either temporarily 
or permanently;
    (j) Fidelity, on behalf of the Plan, enters into a written 
agreement with each of the Lenders offering these Line of Credit 
Agreements to the Plan. The agreement shall address, among other 
things, the maximum Line of Credit available, the terms for the Loan 
and repayment, the formula or method for determining the interest rate 
payable with respect to each Loan, and the conditions for terminating 
the agreement;
    (k) The Plan may elect to terminate participation in the Lines of 
Credit at any time, without penalty and subject to the Plan's repayment 
of any outstanding Loan;
    (l) No later than 15 business days after month end, Fidelity shall 
provide the Plan Sponsor of each Plan that has any outstanding Loan 
during a calendar month with a written report showing the Plan's 
outstanding Loans on each day during such month, the amount repaid on 
each such day, the interest rate and the amount of interest paid on 
each such day, the aggregate balance of all Loans outstanding on the 
last business day of such month and the aggregate amount of interest 
paid during such month;
    (m) The Loans are made on terms at least as favorable to the Plan 
as those the Plan could obtain in an arm's-length transaction with an 
unrelated party;
    (n) Each Lender is not related to Fidelity and is a party in 
interest (including a fiduciary), solely by reason of providing 
services to the Plan, or solely by reason of a relationship to a 
service provider to the Plan described in section 3(14)(F), (G), (H) or 
(I) of the Act;
    (o) The agreements and the any loans contemplated thereunder are 
not a part of an agreement, arrangement, or understanding designed to 
benefit any party in interest with respect to any plan;
    (p) No fees, or other compensation are paid to Fidelity in 
connection with the Loans by either the Plan or the Lenders;
    (q) Where a Unitized Fund covered by this exemption invests in 
employer securities, such securities constitute ``qualifying employer 
securities'' as defined in section 407(d)(5) of the Act (QES) for which 
market quotations are readily available from independent sources within 
the meaning of Rule 17a-7, of the Investment Advisers Act of 1940, 17 
CFR 270.17a-7. The exemption shall also apply to convertible preferred 
stock that qualifies as QES and is convertible, under an objective 
formulation, into securities for which market quotations are readily 
available as described above.
    (r) Where a Unitized Fund, other than an employer securities fund 
or a stable value fund, invests directly or indirectly in securities, 
no less than 75 percent of such securities are securities for which 
market quotations are readily available from independent sources, 
within the meaning of Rule 17a-7, of the Investment Advisers Act of 
1940, 17 CFR 270.17a-7;
    (s) Fidelity maintains for a period of six years, in a manner that 
is accessible for audit and examination, the records necessary to 
enable the persons described in paragraph (t) 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 Fidelity, such 
records are lost or destroyed prior to the end of such six year period; 
and
    (2) No party in interest, other than Fidelity, shall be subject to 
the civil penalty that may be assessed under section 502(i) of the Act, 
or the taxes imposed by sections 4975(a) and (b) of the Code, if the 
records are not maintained, or are not available for examination as 
required by paragraph (t);
    (t)(1) Except as provided in paragraph (t)(2) and notwithstanding 
anything to the contrary in sections 504(a)(2) and (b) of the Act, the 
records referred to in paragraph (s) are unconditionally available for 
examination during normal business hours by--
    (A) Any duly authorized employees or representatives of the 
Department or the Internal Revenue Service;

[[Page 62820]]

    (B) Any fiduciary of the Plan or any duly authorized employee or 
representative of such fiduciary;
    (C) Any employer of participants and beneficiaries in the Plan and 
any employee organization whose members are covered by the Plan, or any 
authorized employee or representative of these entities; and
    (D) Any participant or beneficiary of the Plan or any duly 
authorized employee or representative of such participant or 
beneficiary;
    (2) None of the persons described above in paragraph (t)(1)(B), (C) 
or (D) shall be authorized to examine the trade secrets of Fidelity or 
commercial or financial information that is privileged or confidential;
    (3) Should Fidelity refuse to disclose information on the basis 
that such information is exempt from disclosure pursuant to paragraph 
(t)(2) above, Fidelity shall, by the close of the thirtieth (30th) day 
following the request, provide a written or electronic notice advising 
that person (i) of the reasons for the refusal and (ii) that the 
Department may request such information.

III. Definitions

    (a) ``Fidelity'' refers to Fidelity Management Trust Company and 
its affiliates.
    (b) ``Affiliate'' means (i) any person, directly or indirectly, 
through one or more intermediaries, controlling, controlled by, or 
under common control with such other person; (ii) any officer, 
director, or partner, employee or relative (as defined in section 3(15) 
of the Act) of such other person; and (iii) any corporation or 
partnership of which such other person is an officer, director or 
partner.
    (c) ``Control'' means the power to exercise a controlling influence 
over the management or policies of a person other than an individual.
    (d) Fidelity is ``related'' to a Lender if the Lender (or a person 
controlling, or controlled by, the Lender) owns a five percent or more 
interest in Fidelity or if Fidelity (or a person controlling, or 
controlled by, Fidelity) owns a five percent or more interest in the 
Lender. For purposes of this definition:
    (1) The term ``interest'' means with respect to ownership of an 
entity (A) the combined voting power of all classes of stock entitled 
to vote or the total value of the shares of all classes of stock of the 
entity if the entity is a corporation, (B) the capital interest or the 
profits interest of the entity if the entity is a partnership, or (C) 
the beneficial interest of the entity if the entity is a trust or 
unincorporated enterprise; and
    (2) A person is considered to own an interest held in any capacity 
if the person has or shares the authority (A) to exercise any voting 
rights or to direct some other person to exercise the voting rights 
relating to such interest, or (B) to dispose or to direct the 
disposition of such interest.
    (e) A ``Unitized Fund'' is a fund that, to facilitate trading and/
or accounting, has established ``units'' representing undivided 
interests in all of the assets of such fund.

EFFECTIVE DATE: If the proposed exemption is granted, the exemption 
shall be effective as of the date the final exemption is published in 
the Federal Register.

Summary of Facts and Representations

    1. Fidelity Management Trust Company, a Massachusetts trust 
company, is a subsidiary of FMR Corp., the parent of a group of 
companies known as Fidelity Investments[reg]. Fidelity Investments is 
one of the nation's largest mutual fund companies and a leading 
provider of financial services. It provides a wide range of investment 
management, brokerage, administrative and other financial services and 
products to both retail and institutional customers. Fidelity 
Investments manages in the United States and Canada approximately 322 
mutual funds with aggregate assets, as of December 31, 2001, in excess 
of $815 billion. In addition, it manages more than $68 billion of 
assets other than mutual funds, including separate accounts and 
collective investment funds. Fidelity provides trustee, custodial, 
investment management, participant recordkeeping and/or other related 
services to employee benefit plans, including the Plans.
    2. The Plans are qualified plans under section 401(a) of the Code 
and are employee benefit plans within the meaning of section 3(3) of 
ERISA. Substantially all of the Plans are defined contribution plans 
that permit each Plan participant to allocate his or her account 
balance among a number of investment options available under the Plan. 
These options may include mutual funds, separately-managed accounts, 
bank-maintained collective investment funds (including so-called stable 
value funds) and/or company stock funds. Moreover, many of the Plans 
operate in a so-called ``daily environment''; i.e., each Plan 
participant can elect to make investment transfers on any business day 
and the transfer will generally be effected at the close of business on 
that day.
    3. The Applicant represents that from time to time, the Plans find 
themselves in the position where, incidental to their ordinary 
operation, there is a cash shortfall that creates a short-term 
liquidity problem. Most frequently this occurs when amounts are to be 
withdrawn from a unitized investment option (e.g., to facilitate 
benefit distributions, participant loans and/or participant-directed 
transfers to other investment options) at a time when such investment 
option does not hold sufficient cash to meet the withdrawal need (each 
such investment option, a ``Unitized Fund'' and collectively, the 
``Unitized Funds''). In such circumstances, the Plan must either borrow 
the requisite cash on a short-term basis until securities can be 
liquidated and cash proceeds obtained (this will typically take three 
business days) or delay the withdrawal from the particular Unitized 
Fund until the needed cash is available. The Applicant represents that, 
since this latter alternative is at odds with the participants' 
expectation that the Plan will operate in a ``daily environment,'' the 
former alternative (i.e., short-term Loan) is the preferred choice for 
dealing with this type of situation.
    4. It would be possible for a Unitized Fund to hold a larger 
percentage of its assets in ``cash'' in order to minimize the 
likelihood that there will be such a cash shortfall; however, such an 
approach will undermine the achievement of the investment objective of 
the investment option, especially those that are equity based. 
Moreover, according to the Applicant, it is simply not feasible, as a 
practical matter, to maintain enough ``cash'' in a Unitized Fund at all 
times to be certain that the Unitized Fund will always be in a position 
to meet the maximum potential need, especially during volatile market 
situations. Hence, it is inevitable that at least some liquidity 
shortfalls will occur from time to time.
    5. Fidelity has negotiated the Lines of Credit with several banks 
that are not related to Fidelity, and anticipates that it may from time 
to time negotiate additional Lines of Credit. These Lines of Credit 
allow Fidelity to borrow, on the Plans' behalf, cash in order to meet 
the Unitized Funds' short-term cash shortfalls. Fidelity anticipates 
that there will be approximately three or four Lenders at any given 
time. It is also anticipated that the Lenders will be very large 
financial institutions with many affiliated companies and worldwide 
operations. In view of the size of such institutions and the number of 
Plans involved, Fidelity represents that it is very difficult for such 
institutions to determine whether they are parties in interest with 
respect to any of the Plans. Moreover, even if it were to be

[[Page 62821]]

established that the Lenders are not parties in interest with respect 
to the Plans, that could change over time while a Loan is outstanding 
or as new Loans are affected.
    6. Since Fidelity may not be able to determine in the ordinary 
course of business, whether a Lender is a party in interest with 
respect to each Plan, the Lines of Credit raise potential concerns 
under section 406(a) of the Act, absent an exemption. In this regard, 
given the size of the Lenders, the large number of Plans involved and 
the various conditions of the potentially available class exemptions 
(e.g., the qualified professional asset manager exemption, (QPAM), PTE 
84-14, 49 FR 9494(3/13/84), as corrected, 50 FR 41430 (10/10/85), it 
may be difficult to determine if any of such class exemptions are 
available. Consequently, the implementation of the Lines of Credit, and 
the Loans thereunder, even where such Line of Credit is in the best 
interests of the Plan, may result in a prohibited transaction.
    7. The Applicant represents that each Line of Credit provides that 
(i) each Loan thereunder will be unsecured, (ii) recourse with respect 
to each Loan thereunder will be limited to the assets of the Unitized 
Fund that borrowed the funds, (iii) each Loan thereunder, including 
accrued interest thereon, will be repaid promptly in the ordinary 
course of business, generally in less than ten days and (iv) with 
respect to any Unitized Fund, the aggregate amount of Loans outstanding 
on any business day that a Loan is initiated will not, after such Loan 
is made, exceed 25% of the total fair market value of the Unitized 
Fund.\1\ The total fair market value of a Unitized Fund (including 
Employer Stock, cash or cash equivalents and accrued dividends and 
earnings) will be determined as of the most recent close of the New 
York Stock Exchange or as otherwise provided in the applicable Line of 
Credit, provided such determination is substantially contemporaneous 
with the Loan.
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    \1\ The Applicant originally requested a limit of 33\1/3\ 
percent, explaining that registered investment companies (mutual 
funds) can potentially face the same types of liquidity concerns as 
the Unitized Funds. According to the Applicant, pursuant to section 
18(f)(1) of the Investment Company Act of 1940, such mutual funds 
would be limited to borrowing no more than 33\1/3\ percent of fund 
assets. The Department believed that a 25 percent limit was more 
appropriate and the Applicant agreed.
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    8. Interest rates will be quoted to Fidelity each business day by 
each Lender in accordance with the terms of the Line of Credit. The 
quoted interest rate will be based on a Federal funds rate (or other 
market rate) plus a spread, and will apply to any Loans from the Lender 
that are outstanding on such day. Because the quoted interest rate may 
fluctuate daily, the rate of interest being charged on any outstanding 
loan may also fluctuate daily.
    9. In regard to these Lines of Credit, Fidelity will act as a 
fiduciary pursuant to a written agreement with the Plan. The agreement 
will provide that Fidelity will act as a fiduciary on behalf of the 
Plan in connection with the negotiation of the Plan's participation in 
the Line of Credit agreements, the negotiation of interest rates under 
the Line of Credit agreements, the Loans under the Line of Credit 
agreements, the ordering rules and limitations described below, and the 
terms of repayment of the Line of Credit agreements.
    10. Fidelity will establish generally applicable ordering rules and 
limitations with respect to the use of the Lines of Credit. The need 
for such rules arises from several factors. For example, although not 
anticipated to be very likely, it is possible that the aggregate 
liquidity needs of all eligible Unitized Funds on any given day may 
exceed the total credit available under all of the credit lines then in 
place. In addition, and more relevant, the three or four Lenders that 
will be making advances available under the lines may, and likely will, 
quote different rates on a given day. If the aggregate demand for 
liquidity on a particular day exceeds the amount of credit available at 
the most favorable rate on that day, then it is necessary to allocate 
the opportunity to borrow at the most favorable rate(s) among the 
various Unitized Funds requiring liquidity on that day. Accordingly, on 
those days when the aggregate liquidity demand of the eligible Unitized 
Funds exceeds the amount available at the most favorable rate, Fidelity 
will implement a policy pursuant to which it will allocate the 
available credit among the Unitized Funds pursuant to a pre-established 
objective allocation methodology.
    11. Fidelity will initiate, account for and administer each Loan 
and will monitor such transactions on behalf of the Plans to ensure 
that the terms and conditions of the exemption are met at all times.
    12. Fidelity will provide the Plan Sponsor of each Plan that has 
any outstanding Loans during a calendar month with a written report 
showing the Plan's outstanding Loans on each day during such month, the 
amount repaid on each such day, the amount of interest paid on each 
such day, the interest rate and the aggregate balance of all Loans 
outstanding on the last business day of such month and the aggregate 
amount of interest paid during such month.
    13. The Plan Sponsor of each Plan will be notified of the Lines of 
Credit that may be available to such Plan in advance of any Loan made 
pursuant to the exemption. Such notice will include a general 
description of the Lines of Credit and how they operate. Each Plan 
Sponsor may elect to ``opt-out'' of the program, in which event the 
Plan of such Plan Sponsor will not effect any Loans under the Lines of 
Credit. Moreover, a Plan Sponsor who has initially determined not to 
opt-out of the program may at any time thereafter elect to opt-out of 
the program without penalty, by written notice to Fidelity. Subsequent 
to its receipt of such a notice, Fidelity will not effect any further 
Loans on behalf of such Plan under the Lines of Credit. Any Loans 
outstanding at the time such notice is received will be repaid in 
accordance with the Lines of Credit.
    14. Fidelity will not receive any fees or other compensation from 
the Plans in connection with the Lines of Credit. In addition, Fidelity 
will not receive any payment or other consideration from the Lenders in 
connection with the Loans. Fidelity represents that it will pay the 
Lender's cost of establishing the Lines of Credit. The Applicant 
represents that such up-front expenses are required to be paid by the 
borrower (the Plans on behalf of their Unitized Funds) under virtually 
all credit agreements. In this case, in order to induce the Lenders to 
enter into the proposed arrangements, and given the practical 
difficulty of allocating the up-front cost of establishing the 
arrangements among the many Unitized Funds that may ultimately 
participate in the credit arrangement, Fidelity has determined that it 
will pay these expenses on behalf of the Unitized Funds. Any out-of-
pocket expenses incurred by a Lender in enforcing the agreement, 
however, will generally be paid by the applicable Unitized Fund, unless 
otherwise paid by the Plan Sponsor or Fidelity. The Applicant 
represents that lender expenses relating to enforcing the terms of the 
loan are required to be paid by the borrower (here the Plans on behalf 
of the Unitized Funds) under virtually all credit agreements.
    15. As a general matter, Fidelity explains that its intent is that 
the credit program will be administered such that advances under the 
program will be used primarily in the context of settlement risk (i.e., 
the risk of broker default prior to settlement) as opposed to being 
used in the context of market risk. ``Settlement risk'' is present when 
a Unitized Fund has entered into the

[[Page 62822]]

sale transaction whose settlement (i.e., receipt of cash proceeds) is 
pending (thereby triggering the liquidity shortfall to be satisfied by 
a Loan) prior to the close of business on the day on which the 
withdrawal that is being funded by such advance occurs. In this 
situation, the price of the ``related'' sale transaction is known and 
will be factored into the Unitized Fund unit value that is utilized for 
purposes of the withdrawal. By contrast, according to Fidelity, market 
risk will be present (in addition to settlement risk) in situations 
where the ``related'' sale transaction is not able to be effected prior 
to the determination of the relevant Unitized Fund unit value, with the 
result that the Unitized Fund (and the remaining participants in the 
Unitized Fund) bear the risk that the actual sale transaction price 
will turn out to be lower than the value on which the unit value was 
based.\2\
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    \2\ According to Fidelity, the Unitized Fund (and the remaining 
participants) will also benefit on the upside in the event that the 
actual sale transaction price turns out to be higher than the value 
on which the unit value was based.
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    16. In addition, in order to maintain the integrity of the overall 
credit arrangement, Fidelity reserves the ability, in its sole 
discretion, to exclude a particular Plan or Plans from access to the 
Lines of Credit on a given day or days. Fidelity represents that it 
does not anticipate that it will exercise its exclusion power very 
often. The Applicant explains that, if there were circumstances giving 
rise to a material concern regarding the potential for default by a 
particular Plan, (such as, for example, an unanticipated bankruptcy of 
the Plan sponsor that triggers a suspension of trading in the Plan 
sponsor's stock or some other cause of extreme volatility in the Plan 
sponsor's stock value) Fidelity believes it is important that it have 
the power to avoid the risk of such default by excluding the Plan from 
borrowing under the Line of Credit program during the period of 
concern.
    17. In summary, the applicant represents that the proposed Lines of 
Credit satisfy the criteria contained in section 408(a) of the Act for 
the following reasons:
    (a) the Loan terms must be at least as favorable to the Plan as a 
similar third-party arm's-length transaction;
    (b) each Loan will be initiated, accounted for and administered by 
Fidelity which will maintain written records of each Loan and monitor 
the terms and conditions of the exemption, on behalf of the affected 
Plan, at all times.
    (c) the same Lines of Credit will generally be available pursuant 
to their terms for use by all of the Unitized Funds;
    (d) the Lenders will not be ``related'' to Fidelity or ``parties in 
interest'' to the Plans other than by reason of being a service 
provider to the Plans or related to a service provider;
    (e) the Plans will benefit from not having to maintain a larger 
cash buffer that undermines the achievement of the investment objective 
of the Unitized Funds;
    (f) the Plans will further benefit from not having to delay 
withdrawals from the Unitized Funds in most situations until such time 
as there is sufficient cash to satisfy the cash shortfall and therefore 
will be able to better achieve the participants' expectation of a 
``daily environment;'' and
    (g) the sponsor of each Plan will be notified of the existence of 
the Lines of Credit that may be available to such Plan in advance of 
any Loan made pursuant to the exemption and will make an independent 
decision whether the Plan should participate in the program. In 
addition, the Plan Sponsor of a Plan that is participating in the 
program may elect to opt out at any time, without penalty.

Notice to Interested Persons

    Notice of the proposed exemption will be provided by first-class 
mail to each known Plan Sponsor within 25 days after the publication of 
the notice of proposed exemption 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 45 days after the date of publication of the proposed 
exemption in the Federal Register.

For Further Information Contact: Ms. Andrea W. Selvaggio of the 
Department, telephone (202) 693-8540. (This is not a toll-free number.)

Brightpoint, Inc. (Brightpoint) Located in Indianapolis, Indiana

[Exemption Application No. D-10999]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the proposed 
exemption is granted, the restrictions of sections 406(a) and 406(b)(1) 
and (b)(2) of the Act and the sanctions resulting from the application 
of section 4975(a) and (b) of the Code, by reason of section 
4975(c)(1)(A) through (E) of the Code shall not apply to: (1) The June 
5, 2001 payment (the Payment) by Brightpoint of $108,738.85 (the 
Assessment Amount) to the Millennium Trust Company LLC (Millennium) on 
behalf of the Brightpoint, Inc. 401(k) Plan (the Plan) for the purpose 
of satisfying a court-ordered assessment against the assets of the Plan 
(the Assessment) that arose in connection with the $68,100,000.00 
deficiency (the Deficiency) incurred by the Independent Trust 
Corporation (Intrust); and (2) the transfer by the Plan to Brightpoint 
(the Repayment) of certain assets recovered by PricewaterhouseCoopers 
LLP (the Receiver) in connection with the Deficiency, if the following 
conditions are met:
    (A) In the event the Plan receives an amount of assets from the 
Receiver (a Recovery Amount) that is greater than the Assessment 
Amount, the Plan will not be required to pay Brightpoint that portion 
of the Recovery Amount that is in excess of the Assessment Amount;
    (B) In the event the Plan receives a Recovery Amount that is less 
than the Assessment Amount, the Plan will not be required to pay 
Brightpoint the difference between the Assessment Amount and the 
Recovery Amount;
    (C) The Plan will not pay any of the costs and/or fees associated 
with the Payment and the Repayment;
    (D) The Deficiency did not arise in connection with any improper 
act undertaken by a Plan fiduciary (other than Intrust or its 
principals); and
    (E) Upon notification of the Intrust losses, the Brightpoint Plan 
fiduciaries undertook, and will continue to undertake, any actions 
necessary to ensure that the assets of the Plan were, and are, 
adequately protected.

EFFECTIVE DATE: June 5, 2001.

Summary of Facts and Representations

    1. Brightpoint is a Delaware corporation with its principal offices 
located in Indianapolis, Indiana. Brightpoint supports the global 
wireless telecommunications industry through the provision of, among 
other things, distribution, management, and business solution services.
    2. Brightpoint is the sponsor of the Plan. The Plan is a defined 
contribution 401(k) plan having 480 participants and $2,648,775.39 in 
total assets as of March 31, 2001. The applicant represents that

[[Page 62823]]

the assets of the Plan are comprised solely of shares of certain mutual 
funds and shares of Brightpoint stock (collectively, the Plan Shares).
    The applicant states that from April 1, 1997 until April 13, 2001, 
Intrust acted as the trustee of the Plan.\3\ As such, Intrust forwarded 
Plan contributions to either American Funds, the custodian for the 
mutual funds, or McDonald & Company, the custodian for the Brightpoint 
stock. In addition, Intrust processed Plan distributions by forwarding 
to Plan participants the cash proceeds it received from various sales 
of the Plan Shares.
---------------------------------------------------------------------------

    \3\ The Department is expressing no opinion herein as to whether 
the requirements of section 404 of the Act have been met with 
respect to the hiring and retention of Intrust by Brightpoint.
---------------------------------------------------------------------------

    3. On April 14, 2000, the Illinois Office of Banks and Real Estate 
(the State Regulator) discovered the Deficiency. In this regard, on 
that date, the State Regulator determined that a substantial cash 
shortage existed with respect to the amount of assets held in trust by 
Intrust. According to the applicant, it is presently believed that the 
Deficiency, the resolution of which is currently under litigation, 
resulted from the misappropriation by certain Intrust principals of 
assets held by Intrust. Specifically, the Deficiency involved cash 
taken from certain Intrust accounts. The applicant states, however, 
that cash was not misappropriated from the Plan's trust account with 
Intrust (the Intrust Plan Account). As a result, the applicant states 
that the amount of assets held in the Intrust Plan Account, being 
comprised primarily of the Plan Shares, was not affected or reduced by 
the misappropriation of Intrust assets (the Misappropriation).
    The State Regulator initiated receivership proceedings under the 
jurisdiction of the Circuit Court of Cook County, Illinois (the Court). 
The Court appointed PricewaterhouseCoopers LLP as the receiver of 
Intrust and, with limited exceptions, the Court froze all of the trust 
assets held by Intrust, including those of the Plan.\4\ On November 29, 
2000, the Court approved the purchase of Intrust's assets by Millennium 
and, thereafter, Millennium became the trustee of the Plan. The 
applicant represents that currently the Plan Shares are held in trust 
in a certain Millennium trust account (the Millennium Plan Account).
---------------------------------------------------------------------------

    \4\ By order of the Court, the assets held in the Plan 
Millennium Account, and almost all other former Intrust accounts, 
were to remain frozen until Millennium had completed its efforts to 
collect the allocated shortage amounts from each affected account. 
The applicant represents that for the period in time in which the 
assets remained frozen, Plan distributions were made using assets 
that came into the Plan after the starting date of the freeze. 
Subsequently, the assets in the Plan Millennium Account were 
unfrozen and, thereafter, Plan distributions were made from the 
unfrozen assets.
---------------------------------------------------------------------------

    4. On March 1, 2001, upon determining that the Deficiency totaled 
$68,100,000.00, the Court issued an order (the First Court Order) that 
apportioned the Deficiency among certain Intrust accounts (the 
Allocation). In this regard, after taking judicial notice of, among 
other things, various hearings, proceedings, testimony, arguments, and 
pleadings, the Court determined that it was not feasible to trace the 
Deficiency Amount to specific Intrust accounts. Rather, with certain 
exceptions not applicable to the Plan, the Court allocated the 
Deficiency among essentially all of the frozen former Intrust accounts 
on mostly a pro rata basis.
    In this way, the Court allocated the Assessment Amount to the 
Millennium Plan Account. The applicant represents that such assessment 
had the effect of a $108,738.85 charge against the assets held in the 
Millennium Plan Account.\5\
---------------------------------------------------------------------------

    \5\ To determine this amount, the Court first determined the 
types of Intrust account assets that would be subject to the 
Allocation. Next, the Court determined that an amount equal to 8.69% 
of the total amount of such assets would need to be paid to 
Millennium to offset the shortage. Since the Account held 
$1,251,310.16 in assets subject to the Allocation, the Plan, or a 
party on behalf of the Plan, was required to pay $108,738.85 (0.0869 
x $1,251,310.16) to Millennium.
---------------------------------------------------------------------------

    5. Each trust account affected by the Allocation, or a party on 
behalf of such account, was required to pay its allocated portion to 
Millennium by June 5, 2001.\6\ Pursuant to the terms of the First Court 
Order, upon Millennium's receipt of this payment, the Receiver was 
required to issue the respective payor a certificate. Such certificate 
entitled its holder to receive a pro rata portion of the total net 
amount recovered from certain Intrust principals, insurers, and/or 
elsewhere. A certificate, however, did not guarantee its holder would 
receive a recovery amount equal to the amount such holder paid pursuant 
to the Court's allocation of the Deficiency.
---------------------------------------------------------------------------

    \6\ The applicant states that if Millennium did not receive the 
assessed amount with respect to a particular account by June 5, 
2001, Millennium was authorized by the Court to reduce the amount of 
assets held in that account by such assessed amount.
---------------------------------------------------------------------------

    6. Upon monitoring the legal actions associated with the 
Deficiency, the applicant states, Brightpoint determined that the 
Recovery Amount would likely be less than the Assessment Amount.\7\ To 
protect the Plan from a potential shortfall, on June 5, 2001, 
Brightpoint paid the Assessment Amount on behalf of the Plan. The 
applicant represents that, consistent with the terms of the First Court 
Order, Brightpoint thereafter anticipated that it would receive a 
certificate from the Receiver.
---------------------------------------------------------------------------

    \7\ According to the applicant, Brightpoint retains the belief 
that the Recovery Amount will be less than the Allocation Amount.
---------------------------------------------------------------------------

    7. On September 8, 2001, the Receiver petitioned the court to amend 
the First Court Order. In this regard, the applicant states that for 
reasons unrelated to the Plan and the transactions described herein, 
the Receiver sought a procedural change with respect to the issuance of 
the certificates. As applied to the payment by Brightpoint of the 
Assessment Amount on behalf of the Plan, and contrary to the terms of 
the First Court Order, the requested amendment had the effect of 
requiring the Receiver to issue a certificate to the Plan, and not 
Brightpoint. The Court granted the motion on October 12, 2001 and, 
accordingly, the First Court Order was amended (the Amended Court 
Order).
    Accordingly, the Plan received, and currently continues to hold, a 
certificate that was issued by the Receiver (the Certificate). The 
applicant states that, to date, the Plan has not received any amounts 
pursuant to its holding of the Certificate.
    8. The applicant seeks relief for the Payment and the Repayment. In 
this regard, the applicant represents that as stated above, Brightpoint 
undertook the Payment in the belief that the Recovery Amount will 
likely be less than the Assessment Amount. The applicant notes that, in 
the event that the Recovery Amount does in fact turn out to be less 
than the Assessment Amount, the Plan will not be required to pay 
Brightpoint the amount representing the difference between the 
Assessment Amount and the Recovery Amount. In this way, the Plan will 
not incur a loss due to the court-ordered allocation of the Deficiency.
    The applicant states further that the terms of the Repayment are 
also protective of the Plan. In this regard, the entitlement of 
Brightpoint to any recovery of the Deficiency pursuant to the holding 
of the Certificate by the Plan is limited to an amount not in excess of 
the Assessment Amount. Pursuant to the terms of the Repayment, in the 
event that the Recovery Amount turns out to be greater than the 
Assessment Amount, the portion of the Recovery Amount that exceeds the 
Assessment Amount will be retained by the Plan. In this way, 
Brightpoint may only receive up to $108,738.85, the amount Brightpoint 
paid to Millennium on behalf of the Plan, as a result of the Plan's 
holding of the Certificate.

[[Page 62824]]

    9. The applicant states that Brightpoint acted in good faith in 
paying the Assessment Amount on behalf of the Plan. In this regard, the 
applicant represents that the fiduciaries of the Plan had no reason or 
opportunity to know in advance of the Deficiency since the Intrust 
shortage consisted solely of non-Plan assets. In addition, the 
applicant represents that Plan distributions processed through Intrust 
were done so properly and in a timely manner. According to the 
applicant, Brightpoint paid the Assessment Amount solely as a means of 
responding to an event that was potentially harmful to the Plan and its 
participants and beneficiaries.
    10. In summary, the applicant represents that the Payment and 
Repayment satisfy the statutory criteria for an exemption under section 
408(a) of the Act since:
    (A) In the event the Plan receives a Recovery Amount that is 
greater than the Assessment Amount, the Plan will not be required to 
pay Brightpoint that portion of the Recovery Amount that is in excess 
of the Assessment Amount;
    (B) In the event the Plan receives a Recovery Amount that is less 
than the Assessment Amount, the Plan will not be required to pay 
Brightpoint the difference between the Assessment Amount and the 
Recovery Amount;
    (C) The Plan will not pay any of the costs and/or fees associated 
with the Payment and the Repayment;
    (D) The Deficiency did not arise in connection with any improper 
act undertaken by a Plan fiduciary (other than Intrust or its 
principals); and
    (E) Upon notification of the Intrust losses, the Brightpoint Plan 
fiduciaries undertook, and will continue to undertake, the actions 
necessary to ensure that the assets of the Plan were, and are, 
adequately protected.
    Notice to Interested Persons: The applicant represents that notice 
to interested persons will be made within thirty (30) business days 
following publication of this notice in the Federal Register. Comments 
and requests for a hearing must be received by the Department not later 
than sixty (60) days from the date of publication of this notice of 
proposed exemption in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Christopher Motta of the Department, 
telephone (202) 693-8544. (This is not a toll-free number.)

J. Penner Corporation Profit Sharing Plan (the Plan), Located in 
Doylestown, PA

[Application No. D-11099]

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).\8\ If the 
exemption is granted, the restrictions of sections 406(a), 406(b)(1) 
and (b)(2) of the Act and the sanctions resulting from the application 
of section 4975 of the Code, by reason of section 4975(c)(1) (A) 
through (E) of the Code, shall not apply to (1) the sale (the Sale) of 
certain improved real property (the Property) by Thomas G. Frazier and 
Carol G. Frazier (the Fraziers) to their respective participant 
directed individual investment accounts in the Plan (the Thomas Frazier 
Account and the Carol Frazier Account; together, the Frazier Accounts 
or the Accounts); and (2) the simultaneous lease (the Lease) of the 
Property by the Frazier Accounts to J. Penner Corporation (the 
Corporation), the Plan sponsor and a party in interest with respect to 
the Plan, provided that the following conditions are met:
---------------------------------------------------------------------------

    \8\ For purposes of this proposed exemption, references to 
provisions of Title I of the Act, unless otherwise specified, refer 
also to corresponding provisions of the Code.
---------------------------------------------------------------------------

    (a) The terms and conditions of the transactions are not less 
favorable to the Frazier Accounts than those which the Frazier Accounts 
would receive in an arm's length transaction with an unrelated party.
    (b) The Sale is a one-time transaction for cash.
    (c) The acquisition price that is paid by the Frazier Accounts for 
proportionate interests in the Property is not more than the fair 
market value of the Property as determined by a qualified, independent 
appraiser on the date of the Sale.
    (d) The value of the proportionate interests in the Property that 
are acquired by each of the Frazier Accounts does not exceed 25% of 
each of the Frazier Accounts' assets at the time of the Sale nor 
throughout the duration of the Lease.
    (e) The Frazier Accounts do not pay any real estate fees, 
commissions or other expenses with respect to the transactions.
    (f) The rental amount under the Lease is no less than the fair 
market rental value of the Property, as determined by a qualified, 
independent appraiser on the date the Lease is entered into by the 
parties.
    (g) The Lease is a triple net lease under which the Corporation, as 
lessee, pays, in addition to the base rent, all normal operating 
expenses of the Property, including taxes, insurance, maintenance, 
repairs and utilities.
    (h) The Fraziers indemnify and hold the Plan and the Frazier 
Accounts harmless from any liability arising from the Sale, including, 
but not limited to, hazardous material found on the Property, violation 
of zoning, land use regulations or restrictions, and violations of 
federal, state or local environmental regulations or laws.
    (i) The Sale is effected and the Lease commences only upon 
completion of the following transactions, which shall occur no later 
than sixty days after the granting of the final exemption: (1) The 
Fraziers and the Bucks County Industrial Development Corporation 
(BCIDC) fulfill all of their obligations to the Pennsylvania Industrial 
Development Authority (PIDA); (2) the Fraziers pay off their debt 
obligation to BCIDC in accordance with the terms of an installment sale 
agreement (the Installment Sale Agreement) and reacquire legal title to 
the Property; and (3) the lease agreement (the Original Lease) between 
the Fraziers and the Corporation is terminated.

Summary of Facts and Representations

    1. The Plan is a defined contribution profit sharing plan, as 
described in section 401(a) of the Code, and is exempt from taxation 
under section 501 of the Code. The Plan was established by the 
Corporation on July 1, 1986. As of December 31, 2001, the Plan had 18 
participants, including the Fraziers. The Plan provides for 
individually-directed accounts and each of the Fraziers maintains a 
directed investment account in such Plan. The Fraziers are trustees and 
fiduciaries of the Plan.
    As of December 31, 2001, the Plan had total assets of approximately 
$1,945,224. As of the same date, the Thomas Frazier Account in the Plan 
had a fair market value of $919,472 and the Carol Frazier Account in 
the Plan had a fair market value of $537,520, for a combined total fair 
market value of $1,456,992.
    2. The Corporation is an S corporation that is incorporated in the 
Commonwealth of Pennsylvania and maintains its principal place of 
business in Doylestown, Pennsylvania. The Corporation manufactures 
products for the automotive replacement glass market and sells its 
products to the

[[Page 62825]]

original equipment manufacturers. The Fraziers own 100 percent of the 
outstanding capital stock of the Corporation and they are directors and 
officers of the Corporation.
    3. At present, BCIDC, a Pennsylvania non-profit corporation, holds 
legal title to certain improved, real property that is located at 17 
Weldon Drive, Doylestown Township, Doylestown, Pennsylvania, of which 
the Fraziers are the equitable owners, as set forth in the Installment 
Sale Agreement. The Property consists of a 3.47 acre parcel of light 
industrially zoned land with an existing one story industrial building 
totaling approximately 10,000 square feet of space and adjoining 
parking facilities. The Fraziers originally acquired the Property, 
which was vacant land at the time, in 1988 for $212,000 in cash from 
Horsham Valley Development Corporation, an unrelated party. The 
Property is currently subject to an original lease (the Original Lease) 
between the Fraziers as the lessors, and the Corporation as the lessee. 
The Original Lease is a 15 year, triple net lease which commenced on 
April 5, 1990 and expires on April 1, 2005. The annual rental under the 
Original Lease is $80,000, payable in monthly installments of 
approximately $6,666.67. The Corporation does not own any other real 
estate contiguous to the Property, which is used solely by the 
Corporation in its business.
    4. On April 5, 1990, legal title to the Property was transferred by 
the Fraziers to BCIDC by deed for consideration in the amount of $1.00. 
This enabled BCIDC to obtain a first mortgage loan (the Mortgage Loan) 
from PIDA, a Pennsylvania non-profit entity created under the 
Pennsylvania Industrial Development Authority Act (the PIDAA) \9\ to 
provide financing in the form of low interest loans for industrial 
development projects throughout Pennsylvania. The Mortgage Loan is in 
the principal amount of $314,822. It has a term that commenced on June 
1, 1990 and ends on May 1, 2005, and it carries an interest rate of 
three percent per annum. The parties intended that the interest rate 
would be passed through to the Fraziers under the terms of the 
Installment Sale Agreement. The applicants represent that this interest 
rate could only be obtained by having BCIDC acquire legal title to the 
Property so that the Property could qualify as an ``industrial 
development project.''\10\ In addition, the applicants represent that 
BCIDC agreed to enter into this financing arrangement with the Fraziers 
in order to establish an industrial development project and to create 
jobs in the area.
---------------------------------------------------------------------------

    \9\ The purpose of the PIDAA is to promote the welfare of the 
people of Pennsylvania by reducing unemployment in certain critical 
economic areas and to provide for the establishment of industrial 
development projects in such areas.
    \10\ Under Section 303(i) of the PIDAA, as amended, an 
``industrial development project'' is described as any land, site, 
structure, facility or undertaking comprising or being connected 
with or being a part of (i) an industrial enterprise, (ii) a 
manufacturing enterprise, (iii) a research and development 
enterprise, or (iv) an agricultural enterprise, established or to be 
established by an industrial development agency in a critical 
economic area.
---------------------------------------------------------------------------

    The Fraziers received the Mortgage Loan proceeds and simultaneously 
entered into the Installment Sale Agreement on April 5, 1990 with BCIDC 
to repurchase the Property for $314,822 and pay for it over a period of 
15 years, which coincides with the term of the Mortgage Loan. Pursuant 
to the amortization schedule, such payments would be in monthly 
installments of $2,174.11, with interest at three percent per annum 
included in each payment.
    The Fraziers used the Mortgage Loan proceeds exclusively for the 
industrial development project. Of the $314,822 received, $5,626.96 
were used for settlement costs including counsel fees, title insurance, 
recording fees and real estate taxes. The balance of the Mortgage Loan 
proceeds was used to construct the industrial building. As of August 
31, 2002, the Mortgage Loan and the Installment Sale Agreement had an 
outstanding principal balance of approximately $66,779.79.
    As collateral for the Mortgage Loan, the Fraziers assigned the 
Original Lease to PIDA and BCIDC and the Installment Sale Agreement to 
PIDA. As additional security for the Mortgage Loan, the Fraziers gave 
their personal guarantee.
    5. The Property has been appraised by Stuart S. Kingsbury, Jr., 
CCRA, CREA, CRB, GRI of Kingsbury Real Estate Appraisers, located in 
Doylestown, Pennsylvania. Mr. Kingsbury is an independent, certified 
general appraiser in the State of Pennsylvania. In an independent 
appraisal report dated April 6, 2002 (the 2002 Appraisal), Mr. 
Kingsbury updated a June 27, 2001 independent appraisal (the 2001 
Appraisal) that was prepared by his firm, in which the Property's fair 
market value and annual fair market rental value were placed at 
$330,000 and $80,000, respectively, as of June 1, 2001. Utilizing the 
Market Data Approach to valuation in the 2002 Appraisal, Mr. Kingsbury 
determined that the fair market value of the Property as of March 19, 
2002 was $350,000. As of the same date, Mr. Kingsbury also determined 
that the annual fair market rental value of the Property was $85,000 or 
$7,0883.33 per month on a triple net basis. Mr. Kingsbury will again 
update the appraisal on the date of the Sale and Lease transactions.
    6. To enable the Frazier Accounts to diversify their assets by 
obtaining income-producing real estate, the applicants propose that the 
Frazier Accounts purchase the Property from the Fraziers for $350,000 
or an amount that is not more than the fair market value of the 
Property on the date of the Sale. The Property will be allocated 
between the Frazier Accounts so that the Thomas Frazier Account 
acquires a 64 percent interest in the Property, representing 
approximately 24 percent of the fair market value of such Account's 
assets, and the Carol Frazier Account acquires a 36 percent interest in 
the Property, representing approximately 23 percent of the fair market 
value of that Account's assets.
    Contemporaneously with their purchase of the Property, the Frazier 
Accounts will enter into the Lease with the Corporation. The Frazier 
Accounts will not be required to pay any real estate fees, commissions 
or other expenses in connection with their acquisition of the Property 
or with the administration of the Lease. Further, the Fraziers, who had 
a combined net worth of approximately $3 million as of September 21, 
2002, will indemnify and hold the Plan and the Frazier Accounts 
harmless from any liability arising from the Sale, including, but not 
limited to, hazardous material found on the Property, violation of 
zoning, land use regulations or restrictions, and violations of 
federal, state or local environmental regulations or laws.\11\ Finally, 
the Sale and the Lease will commence only upon the completion of the 
following transactions, which will occur no later than sixty days after 
the granting of the final exemption: (a) The Fraziers and BCIDC have 
fulfilled all of their obligations to PIDA; (b) the Fraziers have paid 
off their debt obligation to BCIDC in accordance with the Installment 
Sale Agreement and have reacquired legal title to the

[[Page 62826]]

Property; and (c) the Original Lease between the Fraziers and the 
Corporation has been terminated.
---------------------------------------------------------------------------

    \11\ It should be noted that in his 2001 Appraisal of the 
Property, Mr. Kingsbury states that his routine inspection of, and 
inquiries about, the Property did not reveal any information to 
indicate any apparent environmental conditions which would affect 
the Property's value negatively. However, he explains that it is 
possible that tests and inspections made by a qualified hazardous 
substance and environmental expert would reveal the existence of 
hazardous materials and environmental conditions on or around the 
Property that would negatively affect its value. Mr. Kingsbury did 
not comment on the Property's environmental conditions in his 2002 
Appraisal.
---------------------------------------------------------------------------

    Accordingly, the applicants request an administrative exemption 
from the Department under the terms and conditions described herein.
    7. The proposed Lease will be for a term of ten years and it will 
have no renewal options. The Lease provides that the Corporation will 
pay the Frazier Accounts an initial monthly rent of $7,083.33 per 
month, based upon Mr. Kingsbury's 2002 Appraisal of the fair market 
rental value of the Property, which will be updated at the time the 
Lease is entered into by the parties. Said rent will be allocated in 
proportion to each Account's ownership interest in the Property. The 
Lease will be a triple net lease under which the Corporation will pay 
all normal operating expenses of the Property, including taxes, 
insurance, maintenance, repairs and utilities. The applicant represents 
that on the third, sixth and ninth anniversaries of the date of 
commencement of the Lease (the Tri-Annual Adjustment Dates), the fair 
market rental value of the Property will be determined as of the Tri-
Annual Adjustment Date, by a qualified, independent appraiser selected 
by the Fraziers in their capacity as trustees of their respective 
Accounts in the Plan. However, in no event will the rent be adjusted 
below the rental amount paid for the preceding year. In addition, 
during each year of the term of the Lease, the rental rate will be 
increased by an amount equal to the most recent percentage increase in 
the Consumer Price Index or three percent, whichever is greater.
    8. 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 terms and conditions of the transactions will not be less 
favorable to the Frazier Accounts than those which the Frazier Accounts 
would receive in an arm's length transaction with an unrelated party.
    (b) The Sale will be a one-time transaction for cash.
    (c) The acquisition price that is paid by the Frazier Accounts for 
proportionate interests in the Property will be no more than the fair 
market value of the Property as determined by a qualified, independent 
appraiser on the date of the Sale.
    (d) The value of the proportionate interests in the Property that 
are acquired by each of the Frazier Accounts will not exceed 25 percent 
of each of the Frazier Accounts' assets at the time of the transaction 
and throughout the duration of the Lease.
    (e) The Frazier Accounts will not pay any real estate commissions, 
fees or other expenses with respect to the transactions.
    (f) The rental amount of the Lease will be no less than the fair 
market rental value of the Property, as determined by a qualified, 
independent appraiser on the date the Lease is entered into by the 
parties.
    (g) The Lease will be a triple net lease under which the 
Corporation, as lessee, will pay, in addition to the base rent, all 
normal operating expenses of the Property, including taxes, insurance, 
maintenance, repairs and utilities.
    (h) The Fraziers will indemnify and hold the Plan and the Frazier 
Accounts harmless from any liability arising from the Sale, including, 
but not limited to, hazardous material found on the Property, violation 
of zoning, land use regulations or restrictions, and violations of 
federal, state or local environmental regulations or laws.
    (i) The Sale will be effected and the Lease will commence only upon 
completion of the following transactions, which shall occur no later 
than sixty days following the granting of the exemption: (1) The 
Fraziers and BCIDC have fulfilled all of their obligations to PIDA; (2) 
the Fraziers have paid off their debt obligation to BCIDC in accordance 
with the Installment Sale Agreement and have reacquired legal title to 
the Property; and (3) the Original Lease between the Fraziers and the 
Corporation has been terminated.

Notice to Interested Persons

    The Fraziers will provide notice of the proposed exemption to all 
interested persons by personal delivery within ten days of the date of 
publication of the notice of proposed exemption in the Federal 
Register. The notice will include a copy of the proposed exemption, as 
published in the Federal Register, and a supplemental statement, as 
required pursuant to 29 CFR 2570.43(b)(2), which will inform interested 
persons of their right to comment on and/or to request a hearing with 
respect to the proposed exemption. Comments regarding the proposed 
exemption and requests for a public hearing are due within 40 days of 
the date of publication of the notice of pendency in the Federal 
Register.

FOR FURTHER INFORMATION CONTACT: Ms. Anna M.N. Mpras of the Department, 
telephone (202) 693-8565. (This is not a toll-free number.)

General Information

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

    Signed at Washington, DC, this 3rd day of October, 2002.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits, 
Administration, Department of Labor.
[FR Doc. 02-25598 Filed 10-7-02; 8:45 am]
BILLING CODE 4510-29-P