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Secretary of Labor Thomas E. Perez

EBSA (Formerly PWBA) Federal Register Notice

Proposed Exemptions; A Northern Trust Company and Affiliates [11/18/2002]

[PDF Version]

Volume 67, Number 222, Page 69560-69570

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10995, et al.]

 
Proposed Exemptions; A Northern Trust Company and Affiliates

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,

[[Page 69561]]

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.

A Northern Trust Company and Affiliates; Located in Chicago, Illinois

[Application No. D-10995]

Proposed Exemption

Section I--Exemption for In-Kind Redemption of Assets

    If the proposed exemption is granted, the restrictions of section 
406(a) and 406(b) of ERISA and the sanctions resulting from the 
application of section 4975 of the Code by reason of section 
4975(c)(1)(A) through (F) of the Code shall not apply,\1\ to the in-
kind redemption (the Redemption) by the Northern Trust Company Thrift-
Incentive Plan (the Plan) (the Applicant) of shares (the Shares) of 
proprietary mutual funds currently offered by or offered in the future 
by investment companies for which the Northern Trust Company (Northern) 
or an affiliate thereof provides investment advisory and other services 
(the Mutual Funds), provided that the following conditions are met:
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    \1\ Section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. 
App. 1 (1996) generally transferred the authority of the Secretary 
of the Treasury to issue exemptions under section 4975(c)(2) of the 
Code to the Secretary of Labor. For purposes of this exemption, 
references to specific provisions of Title I of the Act, unless 
otherwise specified, refer also to the corresponding provisions of 
the Code.
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    (A) The Plan pays no sales commissions, redemption fees, or other 
similar fees in connection with the Redemption (other than customary 
transfer charges paid to parties other than Northern and any affiliates 
of Northern (Northern Affiliates);
    (B) The assets transferred to the Plan pursuant to the Redemptions 
consist entirely of cash and Transferable Securities. Notwithstanding 
the foregoing, Transferable Securities which are odd lot securities, 
fractional shares and accruals on such securities may be distributed in 
cash;
    (C) With certain exceptions defined below, the Plan receives a pro 
rata portion of the securities of the Mutual Fund upon a Redemption 
that is equal in value to the number of Shares redeemed for such 
securities, as determined in a single valuation performed in the same 
manner and as of 3 p.m. Chicago time (local time for the closing of the 
exchanges) on the same day in accordance with Rule 2a-4 under the 
Investment Company Act of 1940, as amended (``1940 Act'') and the then-
existing procedures established by the Board of Trustees of the Mutual 
Fund (using sources independent of Northern and Northern Affiliates);
    (D) Northern or any affiliates thereof, does not receive any fees, 
including any fees payable pursuant to Rule 12b-1 under the 1940 Act in 
connection with any redemption of the Shares;
    (E) Prior to a Redemption, Northern provides in writing to an 
independent fiduciary, as such term is defined in Section II (an 
Independent Fiduciary), a full and detailed written disclosure of 
information regarding the Redemption;
    (F) Prior to a Redemption, the Independent Fiduciary provides 
written authorization for such Redemption to Northern, such 
authorization being terminable at any time prior to the date of 
Redemption without penalty to the Plan, and such termination being 
effectuated by 3 p.m. Chicago time following the date of receipt by 
Northern of written or electronic notice regarding such termination 
(unless circumstances beyond the control of Northern delay termination 
for no more than one additional business day);
    (G) Before authorizing a Redemption, based on the disclosures 
provided by the Mutual Fund to the Independent Fiduciary, the 
Independent Fiduciary determines that the terms of the Redemption are 
fair to the participants of the Plan, and comparable to and no less 
favorable than terms obtainable at arms-length between unaffiliated 
parties, and that the Redemption is in the best interest of the Plan 
and its participants and beneficiaries;
    (H) Not later than thirty (30) business days after the completion 
of a Redemption, the relevant Fund will provide to the Independent 
Fiduciary a written confirmation regarding such Redemption containing:
    (i) The number of Shares held by the Plan immediately before the 
Redemption (and the related per Share net asset value and the total 
dollar value of the Shares held),
    (ii) The identity (and related aggregate dollar value) of each 
security provided to the Plan pursuant to the Redemption, including 
each security valued in accordance with Rule 2a-4 under the Investment 
Company Act of 1940, as amended (``1940 Act'') and the then-existing 
procedures established by the Board of Trustees of the Mutual Fund 
(using sources independent of Northern and Northern Affiliates);

[[Page 69562]]

    (iii) The current market price of each security received by the 
Plan pursuant to the Redemption, and
    (iv) The identity of each pricing service or market-maker consulted 
in determining the value of such securities;
    (I) The value of the securities received by the Plan for each 
redeemed Share equals the net asset value of such Share at the time of 
the transaction, and such value equals the value that would have been 
received by any other investor for shares of the same class of the 
Mutual Fund at that time;
    (J) Subsequent to a Redemption, the Independent Fiduciary performs 
a post-transaction review which will include, among other things, 
testing a sampling of material aspects of the Redemption deemed in its 
judgment to be representative, including pricing;
    (K) Each of the Plan's dealings with: the Mutual Funds, the 
investment advisors to the Mutual Funds (the Investment Advisers), the 
principal underwriter for the Mutual Funds, or any affiliated person 
thereof, are on a basis no less favorable to the Plan than dealings 
between the Mutual Funds and other shareholders holding shares of the 
same class as the Shares;
    (L) Northern will maintain, or cause to be maintained, for a period 
of six years from the date of any covered transaction such records as 
are necessary to enable the persons described in paragraph (M) below to 
determine whether the conditions of this exemption have been met, 
except that (i) a prohibited transaction will not be considered to have 
occurred if, due to circumstances beyond the control of Northern, the 
records are lost or destroyed prior to the end of the six year period, 
(ii) no party in interest with respect to the Plan other than Northern 
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 such records are not maintained or are not 
available for examination as required by paragraph (M) below;
    (M)(1) Except as provided in subparagraph (2) of this paragraph 
(M), and notwithstanding any provisions of section 504(a)(2) and (b) of 
the Act, the records referred to in paragraph (L) above are 
unconditionally available at their customary locations for examination 
during normal business hours by (i) any duly authorized employee or 
representative of the Department of Labor, the Internal Revenue 
Service, or the Securities and Exchange Commission, (ii) any fiduciary 
of the Plan or any duly authorized representative of such fiduciary, 
(iii) any participant, beneficiary, or union employee covered by the 
Plan or duly authorized representative of such participant, 
beneficiary, or union employee, (iv) any employer whose employees are 
covered by Plan and any employee organization whose members are covered 
by such Plan.
    (2) None of the persons described in paragraphs (M)(1)(ii), (iii) 
and (iv) shall be authorized to examine trade secrets of Northern or 
the Mutual Funds, or commercial or financial information which is 
privileged or confidential; and
    (3) Should Northern or the Mutual Funds refuse to disclose 
information on the basis that such information is exempt from 
disclosure pursuant to paragraph (2) above, Northern shall, by the 
close of the thirtieth (30th) day following the request, provide a 
written notice advising that person of the reasons for the refusal and 
that the Department may request such information.

Section II--Definitions

    For purposes of this proposed exemption,
    (A) The term ``affiliate'' means:
    (1) Any person (including corporation or partnership) directly or 
indirectly through one or more intermediaries, controlling, controlled 
by, or under common control with the person;
    (2) Any officer, director, employee, relative, or partner in any 
such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (B) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (C) The term ``net asset value'' means the amount for purposes of 
pricing all purchases and sales calculated by dividing the value of all 
securities, determined by a method as set forth in the Mutual Fund's 
prospectus and statement of additional information, and other assets 
belonging to the Mutual Fund, less the liabilities charged to each such 
Mutual Fund, by the number of outstanding shares.
    (D) The term ``Independent Fiduciary'' means a fiduciary who is: 
(i) Independent of and unrelated to Northern and its affiliates, and 
(ii) appointed to act on behalf of the Plan with respect to the in-kind 
transfer of assets from one or more Mutual Funds to or for the benefit 
of the Plan. For purposes of this exemption, a fiduciary will not be 
deemed to be independent of and unrelated to Northern if: (i) Such 
fiduciary directly or indirectly controls, is controlled by or is under 
common control with Northern, (ii) such fiduciary directly or 
indirectly receives any compensation or other consideration in 
connection with any transaction described in this exemption; except 
that an independent fiduciary may receive compensation from Northern in 
connection with the transactions contemplated herein if the amount or 
payment of such compensation is not contingent upon or in any way 
affected by the independent fiduciary's ultimate decision, and (iii) 
more than 2 percent (2%) of such fiduciary's gross income, for federal 
income tax purposes, in its prior tax year, will be paid by Northern 
and its affiliates in the fiduciary's current tax year.
    (E) The term ``Transferable Securities'' shall mean securities (1) 
for which market quotations are readily available (as determined under 
in Rule 2a-4 of the 1940 Act) and (2) which are not: (i) Securities 
which, if distributed, would require registration under the 1933 Act: 
(ii) securities issued by entities in countries which (a) restrict or 
prohibit the holding of securities by non-nationals other than through 
qualified investment vehicles, such as the Mutual Funds, or (b) permit 
transfers of ownership of securities to be effected only by 
transactions conducted on a local stock exchange; (iii) certain 
portfolio positions (such as forward foreign currency contracts, 
futures and options contracts, swap transactions, certificates of 
deposit and repurchase agreements) that, although they may be liquid 
and marketable, involve the assumption of contractual obligations, 
require special trading facilities or can only be traded with the 
counter-party to the transaction to effect a change in beneficial 
ownership; (iv) cash equivalents (such as certificates of deposit, 
commercial paper and repurchase agreements) which are not readily 
distributable; (v) other assets which are not readily distributable 
(including receivables and prepaid expenses), net of all liabilities 
(including accounts payable); and (vi) securities subject to ``stop 
transfer'' instructions or similar contractual restrictions on 
transfer.
    (F) The term ``relative'' means a ``relative'' as that term is 
defined in section 3(15) of ERISA (or a ``member of the family'' as 
that term is defined in section 4975(e)(6) of the Code), or a brother, 
sister, or a spouse of a brother or a sister.

Summary of Facts and Representations

    1. Northern Trust Corporation (Holding Company) is a bank holding 
company headquartered in Chicago,

[[Page 69563]]

Illinois and organized as a Delaware corporation. Northern, Northern 
Trust Investments, Inc. (NTI), and Northern Trust Global Investments-
Europe (NTGI) are each direct or indirect wholly-owned subsidiaries of 
the Holding Company. NTI is registered under the Investment Advisers 
Act of 1940 (the Advisers Act).
    2. Northern is the trustee of the Trust. The Plan is a defined 
contribution profit sharing plan and includes a section 401(k) 
arrangement maintained by Northern for certain current and former 
employees of Northern and Northern Affiliates. As of December 31, 2001, 
the Plan had approximately 8,817 participants and $854,420,878 in 
assets.
    3. The Plan's Investment Committee (the Committee) determined that 
the Plan would benefit from the investment of the Trust's assets in 
certain mutual fund portfolios organized within Northern Institutional 
Funds (NIF), which is a Delaware business trust and an open-end 
diversified investment company registered under the 1940 Act. Both NTI 
and NTGI act as investment advisors of mutual funds offered by NIF.
    4. At the time, the Committee considered the Mutual Funds to be an 
appropriate vehicle for diversifying the Plan's assets. In addition, 
the Committee determined that investment in the Mutual Funds by the 
Plan would allow the Plan to continue to use certain in-house 
investment management services which otherwise might not have been 
available. As a result, the Committee decided to invest the Plan's 
assets in the Mutual Funds in accordance with Prohibited Transaction 
Exemption 77-3 (PTE 77-3, 42 FR 18734 (1977)).\2\
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    \2\ The Applicant has not requested exemptive relief with 
respect to any investment in the Mutual Funds by the Plan. The 
Applicant notes that the Plan may acquire or redeem shares in the 
Mutual Funds pursuant to PTE 77-3. In this regard, PTE 77-3 permits 
the acquisition or sale of shares of a registered, open-end 
investment company by an employee benefit plan covering only 
employees of such investment company, employees of the investment 
adviser or principal underwriter for such investment company, or 
employees of any affiliated person (as defined therein) of such 
investment adviser or principal underwriter, provided certain 
conditions are met. The Department is expressing no opinion in this 
proposed exemption regarding whether any of the transactions with 
the Mutual Funds by the Plan is covered by PTE 77-3. Also, the 
Applicant is not requesting any exemptive relief for the subsequent 
reinvestment of the Transferable Securities in a collective trust 
fund maintained by Northern (or one of its affiliates). In this 
regard, section 408(b)(8) of ERISA allows for the purchase of an 
interest in such a fund maintained by a party in interest which is a 
bank or at trust company if the requirements of section 408(b)(8) 
are satisfied. The Department is expressing no opinion in this 
proposed exemption regarding whether the reinvestment of the 
Transferable Securities is covered by section 408(b)(8) of ERISA.
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    5. One of the mutual funds in which the Plan is currently invested 
is the Northern Institutional Equity Index Portfolio (S&P 500 Index 
Portfolio). As of October 30, 2002 the Plan held approximately 18.75 
percent of the shares of this Fund. The Committee now believes that the 
S&P 500 Fund under the Collective Trust is a more appropriate equity 
index option for the participants under the Plan than the S&P 500 Index 
Portfolio.\3\ Northern estimates that once the Plan's pro rata share of 
the securities the S&P Index Portfolio are used to purchase shares in 
the S&P 500 fund under the Collective Trust, the Plan's interest in the 
S&P 500 fund under the Collective Trust will be less than 2 percent.
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    \3\ Collective investment funds have historically been valued 
monthly or quarterly and have not permitted daily additions or 
transfers. In addition, it has historically been difficult to 
transmit pricing information on collective investment funds to 
investors. Recently, the assets in the Collective Trust have been 
valued daily. Further, investors directing investments into the 
Collective Trust are able to transfer among investments on any 
trading day and are able to access daily pricing information using a 
toll-free telephone number. Because of these developments, the 
advantages of using a mutual fund investment option have dissipated 
when a comparable collective fund investment is available. Finally, 
the Plan will benefit financially from the change in investment 
because (i) unlike the S&P 500 Index portfolio under the Mutual 
Fund, the S&P 500 Index Fund in the Collective Trust charges no 
fund-level management fees and (ii) at this time, Northern does not 
plan to charge the Plan any account-level management fees in 
connection with its investment in the S&P 500 Index Fund in the 
Collective Trust.
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    6. The Applicant represents that the Redemption, as proposed, is 
the appropriate means of effectuating this shift in investment 
strategy. In this regard, the Applicant represents that effecting a 
redemption of the Shares for cash, as provided for in PTE 77-3, 
followed by the reinvestment of such cash in securities similar to the 
securities underlying the redeemed Shares, would cause the Plan to 
incur certain costs, including potentially large brokerage expenses. As 
a result, the Committee represents that the proposed Redemption, being 
on an in-kind basis having no associated brokerage commission or other 
fees or expenses (other than customary transfer charges paid to parties 
other than Northern Affiliates), is a cost-effective means of 
implementing the investment strategy sought by Northern.\4\
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    \4\ The Applicant represents that should there be additional in-
kind transactions under this exemption involving the mutual funds 
advised by Northern or its affiliates, such in-kind transactions 
will only be effectuated where the independent fiduciary concludes 
that an in-kind transactions is in the best interests of the plan. 
Should the situation arise where the mutual fund intends to 
distribute securities rather than cash and the Plan intends to sell 
the majority of the securities once distributed, Northern will 
assume responsibility for any additional costs incurred as a result 
of this in-kind distribution and subsequent sale of securities from 
the mutual fund advised by Northern or its affiliates.
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    7. If this proposed exemption is granted, Northern anticipates the 
Redemption of certain Shares offered by the S&P 500 Index Portfolio in 
the near future. This Mutual Fund is advised by NTI. Northern 
represents that it is possible that the Plan fiduciaries may at a later 
date determine that it is in the best interest of the Plan and its 
participants and beneficiaries to redeem the Plan's interest in other 
Mutual Funds for which Northern, NTI, NTGI or an affiliate of Northern 
provides investment advisory services. Consequently, in the event that 
this proposed exemption is granted, and to the extent that all of the 
terms and conditions of the exemption, as granted, are met, the relief 
requested herein shall apply to any such future redemption.\5\
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    \5\ As previously noted, the Department is expressing no opinion 
regarding the applicability of PTE 77-3 to the acquisition of the 
Shares by the Plan. In addition, the Department is expressing no 
opinion as to the applicability of section 404 of ERISA to the 
acquisition of the Shares by the Plan. In this regard, the 
Department directs the Applicant's attention to an advisory opinion 
issued to Federated Investors (Advisory Opinion 98-06A July 30, 
1998), in which the Department noted that ``if the decision by a 
plan fiduciary to enter into a transaction is not ``solely in the 
interest'' of the plan's participants and beneficiaries, e.g., if 
the decision is motivated by the intent to generate seed money that 
facilitates the marketing of the mutual fund, then the plan 
fiduciary would be liable for any loss resulting from such breach of 
fiduciary responsibility, even if the acquisition of mutual fund 
shares was exempt by reason of PTE 77-3.''
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    8. The Applicant states that the proposed Redemption involves 
ministerial transactions to be performed in accordance with pre-
established objective procedures. As a result, the Applicant represents 
that the proposed transactions do not permit the trustee or any 
affiliate of the trustee to use its influence or control to acquire 
particular securities from the Mutual Funds. In addition, the Applicant 
states that all Mutual Fund Shares are offered and sold exclusively 
through the use of prospectuses and materials provided pursuant to the 
requirements of the Securities Act of 1933 and the 1940 Act and the 
rules and regulations thereunder.
    9. The Applicant states that, to the extent possible, the Plan will 
transfer Shares to a Mutual Fund in return for a proportionate share of 
the securities held by such Mutual Fund. According to the Applicant, 
the Plan will receive only cash and Transferable Securities pursuant to 
any Redemption. In this regard, each Transferable Security subject to a 
Redemption will be

[[Page 69564]]

transferred in-kind to the Plan, except those permitted to be 
distributed in cash. However, assets that are not Transferable 
Securities will not be distributed, but the Plan's proportionate 
interest in these assets will be transferred in cash. The Applicant 
states that the proposed Redemption will be therefore carried out, to 
the extent possible, on a pro rata basis as to the number and kind of 
securities transferred to the Plan.\6\ Notwithstanding the foregoing, 
cash may be paid for securities not amounting to round lots (including 
the amount of any fixed income security that is less than the minimum 
amount permitted to be traded \7\) or which would not amount to round 
lots if included in the distribution, fractional shares and accruals on 
such securities.
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    \6\ According to NTI, the securities actually transferred from 
the Mutual Fund will have a relative aggregate income tax basis 
which is approximately equal to (within 1%) the relative aggregate 
income tax basis of the securities which are not being distributed 
in the proposed Redemption.
    \7\ The minimum tradeable denomination of any fixed income 
security is determined by the issuer or by the depository company 
appointed by the issuer to custody the indicia of ownership of the 
fixed income security. The minimum tradeable denomination is an 
attribute of any particular bond issue, and neither the Mutual Funds 
nor the Plan has any discretion to modify it. The typical minimum 
tradeable denomination of a fixed income security ranges from $1,000 
to $100,000.
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    10. The Applicant represents that the Board of Trustees of the 
Mutual Funds has adopted a procedure for the distribution of in-kind 
redemption requests in conformance with the no action letter issued by 
the staff of the Securities and Exchange Commission in Signature 
Financial Group Inc.\8\ The Applicant represents that pricing 
methodology included in this procedure complies with section 2a-4 of 
the 1940 Act.
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    \8\ In the no action letter to Signature Financial Group, Inc., 
the Division of Investment Management of the SEC states that it will 
not recommend enforcement action pursuant to section 17(a) of the 
Investment Company Act of 1940 for certain in-kind distributions of 
portfolio securities to an affiliate of a mutual fund. Funds seeking 
to use this ``safe harbor'' must value the securities to be 
distributed to an affiliate in an in-kind distribution ``in the same 
manner as they are valued for purposes of computing the distributing 
fund's net asset value.'' The Applicant represents that, the Mutual 
Funds having adopted procedures in accordance with the Signature 
Financial Letter for use in affiliate transactions, and the 
Applicant must follow those procedures for transactions with its in-
house plans, as these in-house plans are affiliates of the Mutual 
Funds. The Department agreed to the use of procedures consistent 
with the Signature Financial Letter for determining the value of the 
securities in this in-kind transaction, with the limitations 
described herein.
    The Signature Financial Letter does not address the 
marketability of securities distributed in-kind. The range of 
securities distributed pursuant to this ``safe harbor'' may 
therefore be broader than the range of securities covered by SEC 
Rule 17a-7, 17 CFR 270.17a-7. In granting past exemptive relief with 
respect to in-kind transactions involving mutual funds, the 
Department has required that the securities being distributed in-
kind fell within Rule 17a-7. One of the requirements of Rule 17a-7 
is that the securities are those for which ``market quotations are 
readily available.'' SEC Rule 17a-7(a). The Department has 
determined, and the Applicant agrees, that exemptive relief in this 
case will also be limited to in-kind distribution of securities for 
which market quotations are readily available. The value of any 
other securities will be paid to the plan in cash. Under the 
exemption requested by the Applicant, the Plan will receive only 
securities for which market quotations are readily available (as 
determined pursuant to the Funds' procedures described above) or 
cash. The Applicant represents that, although the Signature 
Financial Letter does not necessarily require pro rata 
distributions, the procedures adopted by the Mutual Funds do require 
pro rata distributions for the transactions contemplated herein.
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    11. With the exception noted in footnote 9, the Applicant 
represents that, for purposes of the Redemption, the values of the 
Mutual Fund securities will be determined based on the current market 
price of such securities as of 3:00 p.m. Chicago time on the date of 
the Redemption request (the Valuation Date). The value of the 
securities in each Mutual Fund will be determined by using the then-
existing valuation procedures established by the Board of Trustees for 
the Mutual Fund that will comply with Rule 2a-4 of the 1940 Act. In 
this regard, the Applicant represents that the ``current market price'' 
for exchange-traded securities held by the Mutual Funds are generally 
determined by using the closing prices of the security on its ``primary 
exchange'' for that trading day.\9\
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    \9\ The pricing procedures for the S&P 500 Index in the Mutual 
Fund and the S&P 500 Portfolio under the Collective Trust are 
identical, and the same prices are used daily to calculate the net 
asset value for both funds. For an exchange-traded security, 
Northern uses the closing price of the security on its ``primary 
exchange'' for that trading day, requesting such information from 
independent third-party vendors. Non-exchange traded securities, 
which would be bonds not traded on an exchange or the NASDAQ 
National Market System, are generally valued at the most recent 
quoted bid price. However, the independent pricing systems may use 
``evaluated prices'' if they believe such prices more accurately 
reflect the fair market value of these securities, taking into 
account such factors as prices, yields, maturities, call features, 
ratings, institutional size, trading in similar groups of securities 
and developments related to specific securities. Northern's primary 
pricing vendor for the securities in S&P 500 indices is Interactive 
Data Systems, Inc. If timely information is not received from IDSI, 
Northern's price determination defaults to a secondary pricing 
vendor, e.g., J. J. Kenny Co., Inc. Northern generally receives 
pricing information from vendors by 3:45 p.m. Chicago time on each 
trading day.
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    12. The Applicant represents that, not later than 30 business days 
after completion of a Redemption, the Mutual Funds will confirm in 
writing to the Independent Fiduciary the following: (i) The number of 
Mutual Fund shares held by the Plan immediately before the Redemption 
(and the related per Share net asset value and the aggregate dollar 
value of the shares held); (ii) the identity (and related aggregate 
dollar value) of each security provided to the Plan upon the Redemption 
as described above; (iii) the price of each such security for purposes 
of the Redemption: and (iv) the identity of each pricing service or 
market-maker consulted in determining the value of such securities. In 
accordance with the conditions of this proposed exemption, similar 
procedures will be implemented with respect to any future Redemption of 
Shares of the Mutual Funds by an employee benefit plan maintained by 
Northern for the benefit of certain of its employees or the employees 
of its affiliates.
    13. Northern represents that Consulting Fiduciaries, Inc. (CFI), a 
registered investment adviser under the 1940 Act, has confirmed its 
independence from Northern and is qualified to serve as an independent 
fiduciary as that term is defined in Section II. CFI, in turn, 
represents that it understands and will accept the duties, 
responsibilities and liabilities in acting as a fiduciary under the Act 
for the Plan. CFI represents that, if it is appointed as the 
Independent Fiduciary, it will be responsible for: (i) Analyzing, from 
an investment perspective, the fairness and reasonableness of the 
methodology used with respect to the Redemption, (ii) giving its 
opinion as to the fairness and reasonableness of such methodology, as 
compared with a redemption for cash and subsequent reinvestment of such 
cash, based on such analysis. This determination and opinion is set 
forth in a written report dated April 1, 2002 (the ``Report''). 
Specifically, in the Report, CFI concludes that:
    (a) the Redemption would likely avoid certain transaction costs 
otherwise incurred in a cash redemption; \10\
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    \10\ With respect to the Redemption involving S&P 500 Index 
securities, CFI has concluded that the underlying securities are 
expected to be identical since the two investment funds are 
essentially identical and the in kind approach avoids the 
realization of trading commissions and exposure to market 
fluctuation. If the Northern proposes a future Redemption, it will 
request that the Independent Fiduciary determine whether the 
distributed securities will be appropriate investments in the 
collective investment trust into which the Plan will be investing. 
The Applicant represents that if the Independent Fiduciary 
determines that all of the distributed securities will be 
appropriate investments into the collective investment trust into 
which the Plan will invest, no further action will be required. If 
the Independent Fiduciary determines that some of the distributed 
securities will not be appropriate investments into the collective 
investment trust into which the Plan will invest, these securities 
would then be sold by the Plan on the relevant exchange for cash, 
and the cash would then be invested in the relevant collective fund. 
In this regard, the Department notes that the fiduciaries must 
determine, consistent with their fiduciary duties under section 404 
of ERISA, whether it is prudent to accept an in-kind redemption of 
shares where the in-house plan may incur transaction costs in 
connection with the disposition of such redeemed securities shortly 
after receipt.

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[[Page 69565]]

    (b) The Shares and cash associated with the proposed Redemption 
will be calculated based on the Mutual Fund's respective statements of 
assets and liabilities, valued in accordance with the pricing 
procedures established by the Board of Trustees. In this regard, CFI 
has reviewed a sample spreadsheet developed by Northern to calculate 
the exact number of Shares and the residual cash to be transferred, and 
believes the information provided to be conceptually and mathematically 
correct;
    (c) All securities held by the Mutual Funds, other than the non-
Transferable Securities, are qualifying securities;
    (d) The proposed transactions would be in compliance with the 
Plan's investment guidelines;
    (e) The methodology used to conduct the Redemptions would be 
comparable to and no less favorable than a similar in-kind redemption 
reached at arms' length between unaffiliated parties. The Independent 
Fiduciary represents that, if this proposed exemption is granted and 
the Redemption is thereafter undertaken, it will be responsible for 
updating its findings and opinions to confirm whether such findings and 
opinions are applicable as of the anticipated date(s) of the 
Redemption. In this regard, CFI states that it will review the 
Redemption and confirm in writing whether such Redemption was 
effectuated consistent with the required criteria and procedures set 
forth in the Report. In carrying out this duty, CFI represents that, if 
the proposed exemption is granted and the Redemption occurs, it will 
conduct a post-exemption review, which will include: (i) Reviewing the 
Plan's current investment policy guidelines, (ii) reviewing the Plan's 
investment portfolio and the Mutual Fund's assets as of the most recent 
common date for which such data is available, (iii) estimating whether 
the Excluded Assets are consistent with the types of securities so 
defined, and whether the amount of these securities might be material, 
and (iv) ascertaining whether the policies, procedures and controls 
established for effectuating the transfers remain unchanged. Moreover, 
CFI represented that it will conduct a post-transfer review to provide 
an additional safeguard to the Plan. In this regard, CFI will evaluate 
and test whether the transfer was effectuated consistent with the 
required criteria and procedures and confirm this in writing. 
Consistent with this, CFI represents that if the exemption is granted 
and the redemption occurs, it will update the findings and opinions as 
set forth in the Report so as to confirm whether they still apply as of 
the expected date(s) of the transfer(s). CFI will provide its opinion 
that the proposed Redemption methodologies are fair to the Plan and 
reasonable in all material respects. In addition, CFI will state that 
the proposed Redemption is in the interest of the participants and 
beneficiaries of the Plan since the anticipated costs savings is likely 
to be material. CFI will conclude that if the exemption is granted, and 
all other essential facts and circumstances of the Redemption remain 
materially unchanged at the time Northern seeks to effectuate the 
Redemption, it will issue a favorable recommendation regarding the 
commencement of such effectuation.
    14. In summary, it is represented that the proposed Redemption 
satisfies the statutory criteria for an exemption under section 408(a) 
of the Act for the following reasons:
    (A) The Plan pays no sales commissions, redemption fees, or other 
similar fees in connection with the Redemption (other than customary 
transfer charges paid to parties other than Northern and Northern 
Affiliates);
    (B) The assets transferred to the Plan pursuant to the Redemption 
consist entirely of cash and Transferable Securities. If the proposed 
transaction from one of the Mutual Funds does not consist entirely of 
Transferable Securities, the cash distributed would include an amount 
equal to the Plan's value of assets that are not Transferable 
Securities and the Plan's value of certain Transferable Securities 
permitted to be distributed in cash.
    (C) With certain exceptions defined below, the Plan receives a pro 
rata portion of the securities of the Mutual Fund upon a Redemption 
that is equal in value to the number of Shares redeemed for such 
securities, as determined in a single valuation performed in the same 
manner and as of 3:00 p.m. Chicago time on the same day in accordance 
with the then-existing procedures established by the Board of Trustees 
of the Mutual Fund which will comply with Rule 2a-4 of the 1940 Act 
(using sources independent of Northern and Northern Affiliates);
    (D) Northern, or any affiliate thereof, does not receive any fees, 
including any fees payable pursuant to Rule 12b-1 under the 1940 Act, 
in connection with any redemption of the Shares;
    (E) Prior to a Redemption, Northern provides in writing to the 
Independent Fiduciary a full and detailed written disclosure of 
information regarding the Redemption;
    (F) Prior to a Redemption, the Independent Fiduciary provides 
written authorization for such Redemption to Northern, such 
authorization being terminable at any time prior to the date of the 
Redemption without penalty to the Plan, and such termination being 
effectuated by the close of business following the date of receipt by 
Northern of written or electronic notice regarding such termination 
(unless circumstances beyond the control of Northern delay termination 
for no more than one additional business day);
    (G) Before authorizing a Redemption, based on the disclosures 
provided by the Mutual Funds to the Independent Fiduciary, the 
Independent Fiduciary determines that the terms of the Redemption are 
fair to the participants of the Plan, and comparable to and no less 
favorable than terms obtainable at arm's length between unaffiliated 
parties, and that the Redemption is in the best interest of the Plan 
and its participants and beneficiaries;
    (H) Not later than 30 business days after the completion of a 
Redemption, the relevant Fund will provide to the Independent Fiduciary 
a written confirmation regarding such Redemption containing:
    (i) The number of Shares held by the Plan immediately before the 
Redemption (and the related per Share net asset value and the total 
dollar value of the Shares held),
    (ii) The identity (and related aggregate dollar value) of each 
security provided to the Plan pursuant to the Redemption, including 
each security valued in accordance with the procedures established by 
the Board of Trustees for the Mutual Funds,
    (iii) The current market price of each security received by the 
Plan pursuant to the Redemption, and
    (iv) The identity of each pricing service or market-maker consulted 
in determining the value of such securities;
    (I) The value of the securities received by the Plan for each 
redeemed Share equals the net asset value of such Share at the time of 
the transaction, and such value equals the value that would have been 
received by any other investor for shares of the same class of the 
Mutual Fund at that time;
    (J) Subsequent to a Redemption, the Independent Fiduciary performs 
a post-transaction review which will include, among other things, a 
random sampling

[[Page 69566]]

of the pricing information supplied by Northern; and
    (K) Each of the Plan's dealings with: The Mutual Funds, the 
Investment Advisers, the principal underwriter for the Mutual Funds, or 
any affiliated person thereof, is on a basis no less favorable to the 
Plan than dealings between the Mutual Funds and other shareholders 
holding shares of the same class as the Shares.
    Notice to Interested Persons: Every participant and beneficiary of 
the Plan will be notified within 30 days after publication of this 
proposed exemption in the Federal Register, including beneficiaries of 
deceased employees and alternate payees. The notice to employee 
organizations defined in section 3(4) of ERISA is not applicable, as 
none exist. Notice to current employees with electronic mail access 
will be provided in accordance with the requirements of DOL Reg. 
section 2520.104b-1(c). Notice to current employees without electronic 
mail access will be provided by interoffice delivery to their worksite. 
Notice to current employees on long-term disability or extended leave, 
terminated employees with account balances under the Plan, alternate 
payees and beneficiaries of deceased employees and former employees 
will be provided by first-class mail. The notice will contain a copy of 
the Federal Register, and will inform interested persons of their right 
to comment on and request a hearing with respect to the proposed 
exemption. All relevant persons will be notified within one month of 
the publication of this proposed exemption in the Federal Register. The 
notices will inform interested persons of their right to comment and/or 
request a hearing. Comments and requests for a hearing must be received 
by the Department not later than 60 days from the date of publication 
of this notice of 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.)

Michigan Conference of Teamsters Welfare Fund (the Plan); Located in 
Detroit, MI

[Application No. L-11058]

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). If the exemption is granted, the 
restrictions of section 406(a)(1)(A) and (D) of the Act shall not apply 
to the cash sale, by the Plan, of certain parcels of real estate (the 
Property) to the Detroit Teamsters Temple Association (DTTA), a party 
in interest with respect to the Plan and a lessee of a portion of such 
Property, provided that the following conditions are satisfied:
    (a) DTTA pays the fair market value as determined by a qualified, 
independent appraiser on the date of the transaction.
    (b) The sale transaction has been reviewed and approved by an 
Independent Fiduciary (the Independent Fiduciary), who was appointed by 
the United States District Court for the Eastern District of Michigan, 
Southern Division (the Court) for purposes of enforcing a settlement 
agreement dated January 21, 1998 (the Settlement Agreement).
    (c) The sale is a one-time transaction for cash.
    (d) The Plan pays no fees or commissions in connection with the 
sale.

Summary of Facts and Representations

    1. The Plan (or the Applicant) is a multiemployer welfare plan 
established in 1949. It is maintained pursuant to collective bargaining 
agreements between the Michigan Teamsters Joint Council No. 43 (the 
Union) and the Motor Carriers Employers Association of Michigan and 
Michigan Cartagemen's Association (the Associations). The Plan is 
administered by a board consisting of six trustees (the Trustees), 
three of whom are appointed by the Union (the Union Trustees) and three 
of whom are appointed by the Associations (the Association Trustees).
    The Plan provides health, disability and death benefits to 
approximately 17,590 employees of employers that contribute to the 
Plan, as well as the employees' estimated 30,000 beneficiaries. Most of 
the Plan's 17,590 participants are covered by collective bargaining 
agreements between their employers and a local union affiliated with 
the Union (the Local Union). As of March 31, 2001, the Plan had total 
assets of $259.9 million.
    2. In the past, the Plan has been the subject of scrutiny by the 
Department. In this regard, after an investigation of the Plan in 1995, 
the Department concluded that the then-Trustees had violated their 
fiduciary duties to the Plan. Based on the investigation results, the 
Department filed an action against the Trustees and the Plan's 
executive director on February 29, 1996 in the United States District 
Court for the Eastern District of Michigan in Reich v. Holmes, Case No. 
96-60051 (E.D. Mich.). In March 1996, the defendants agreed to a 
consent order and judgment in the action and paid $724,717 to the Plan 
for reimbursement of excessive administrative expenses and restoration 
of losses resulting from prohibited transactions during the period from 
April 1, 1989 through March 31, 1994, plus $125,283 in civil penalties 
under section 502(l) of the Act.
    Several months later, in July 1996, a group of Plan participants 
sued the then-Trustees and others in Jordan v. Michigan Conference of 
Teamsters Welfare Fund, Case No. CIV 96-73113 (E.D. Mich.). In that 
action, the Court appointed a Special Fund Counsel to investigate the 
allegations in the complaint. Based on the report and recommendations 
of the Special Fund Counsel, the parties entered into the Settlement 
Agreement effective January 21, 1998, which was reviewed and approved 
by the Court.
    3. The Settlement Agreement provided for the appointment of an 
Independent Fiduciary who would serve for a term of four years from the 
date of the Settlement Agreement (i.e., until January 21, 2002), unless 
otherwise agreed or ordered by the Court. The Independent Fiduciary had 
broad authority under the Settlement Agreement to review all actions of 
the Trustees and all of the Plan's policies. Such Independent Fiduciary 
was responsible for overseeing the implementation of the terms of the 
Settlement Agreement and for making recommendations to the Trustees 
concerning the prudent operation of the Plan.
    Mr. Marc Gertner, a partner with the firm of Shumaker, Loop and 
Kendrick, was appointed Independent Fiduciary under the Settlement 
Agreement. Mr. Gertner has practiced law in the multiemployer area 
since ERISA was enacted. He is also the editor of the Trustee Handbook, 
a guide for multiemployer plan trustees, and a speaker on fiduciary 
issues.
    4. DTTA is a non-profit, ``membership'' corporation under Michigan 
law. DTTA has no stockholders, and its members are Local Unions 
affiliated with the Union. The Union lists DTTA as a subsidiary 
organization on its form ``LM-2'' filed with the Department. DTTA 
serves as the ``landlord'' for the Union, acquiring and renting 
property for use by the Union, the Local Unions and their members. DTTA 
is also an employer whose employees are covered by the Plan.

[[Page 69567]]

    Robert Rayes, one of the Plan's Union Trustees, is the President of 
DTTA. The other Union Trustees, William Bernard and H.R. Hillard, are 
officers of the Local Unions affiliated with the Union.
    5. Among the assets of the Plan are two parcels of unimproved, 
commercial land (Parcel A and Parcel B), located in Detroit, Michigan, 
and totaling approximately 2.05 acres. Parcel A is located at 2702-2744 
Cochrane Street and consists of 24,800 square feet of land that is 
fully landscaped and fenced. Parcel B consists of 64,480 square feet of 
land located at 1538-1576 Spruce Street and 1535-1571 Perry Street. 
Approximately 39% of Parcel B is landscaped and fenced, while the 
remaining portion is an asphalt parking lot.
    The Property is contiguous to other real estate owned by DTTA.\11\ 
Since July 1999, DTTA has been leasing a portion of the Property 
(located at 1535, 1541 and 1547 Perry Street) from the Plan to provide 
parking space in connection with space leased to DTTA at 2700 Trumbull 
Avenue. Under a month-to-month lease agreement, DTTA pays the Plan 
$66.25 per month for the use of such property at 1535, 1541 and 1547 
Perry Street.\12\ The rent charged is intended to cover the Plan's 
costs for the Perry Street properties, with monthly rent representing 
one twelfth of the Plan's annual costs for taxes ($645), insurance 
($50) and maintenance ($100) for the leased property. The lease will be 
terminated upon DTTA's purchase of the subject Property.
---------------------------------------------------------------------------

    \11\ In this regard, DTTA owns lots at 2741, 2723 and 2715 
Trumbull Avenue, which are separated from the Property by an alley. 
In addition, DTTA owns lots at 1520 and 1546 Perry Street, which are 
adjacent to the Property.
    \12\ The Applicant represents that the lease between the Plan 
and DTTA for a portion of the Property is covered under Prohibited 
Transaction Exemptions (PTEs) 76-1 (41 FR 12740, March 26, 1976) and 
77-10 (42 FR 33918, July 1, 1977). The Department, however, 
expresses no opinion herein on whether the leasing arrangement 
complies with the provisions of PTEs 76-1 and 77-10. Accordingly, 
the Department is not proposing any exemptive relief beyond that 
offered by these class exemptions.
---------------------------------------------------------------------------

    6. The Plan purchased the lots comprising the Property over a long 
period of time,\13\ with the majority of the lots being acquired in 
1964 and the final lots being purchased in 1992.\14\ The total 
acquisition cost for the Property was $196,000 and it is represented 
that no financing arrangements were ever involved. Over that same 
period of time, the Plan made certain improvements to the Property, 
such as landscaping and fencing, and it incurred demolition expenses to 
remove unwanted structures. These improvements cost the Plan an 
additional $29,875. Further, the Plan expended approximately $21,435 in 
real estate taxes between 1996 and 2001, based on what information was 
available, thereby bringing its total acquisition and holding costs 
with respect to the Property to approximately $242,978.\15\
---------------------------------------------------------------------------

    \13\ The Department is expressing no opinion herein on whether 
the acquisition and holding of the Property by the Plan violated any 
of the provisions of Part 4 of Title I of the Act.
    \14\ The Applicant represents that from the 1960s through the 
1980s, the Trustees purchased abandoned lots, such as the Property, 
in order to create a buffer zone around the Plan's building, protect 
the Plan's investment in its building, and ensure the safety of Plan 
employees. The Applicant indicates that while the Plan does not 
regularly use the Property, the Trustees considered the purchases a 
reasonable response to the urban blight in the surrounding 
neighborhood. The Applicant further indicates that the more recent 
purchases of lots in the 1990s were made on behalf of the Plan by L. 
Keith Taylor, a former Plan employee. The Trustees concluded that 
the 1992 purchases of lots 2702, 2710, 2716, 2720, and 2727 Cochrane 
Street by Mr. Taylor were improper and commenced an action against 
him and a real estate company involved in the sales to recover 
amounts the Plan had paid for the lots. In 1998, the Plan settled 
the action, recovering approximately $4,200 plus interest from Mr. 
Taylor and the real estate company.
    \15\ Although the Plan has received rental income totaling 
$2,186 on that portion of the Property which is leased to DTTA, the 
lease payments are intended to cover the Plan's costs with respect 
to this property. Therefore, the Plan's net income on this portion 
of the Property is $0.
---------------------------------------------------------------------------

    7. The Property is located in a section of Detroit where property 
values, according to Signature Associates (Signature), the Plan's real 
estate broker, are declining. There is abundant, vacant property and 
vacant or derelict buildings in the area, including Tiger Stadium. In 
this regard, the Casino, which opened in 2000, also is located in the 
general area and has purchased some vacant property for parking and 
other uses. Although the Casino has approached the Plan in the past 
about purchasing other real estate that the Plan owns on the east side 
of Trumbull Avenue, the Casino has not shown any interest in the 
Property or any other real estate on the west side of Trumbull Avenue.
    8. In addition to the Property's declining value, the Applicant 
represents that the Plan continues to pay property taxes that are a 
drain on its assets, except for that portion of the Property covered by 
the lease with DTTA (which includes real estate taxes and other 
expenses associated with the leased portion). By selling the Property, 
the Applicant represents that the Plan will be able to convert this 
asset into cash and then invest the cash in a vehicle more appropriate 
to the Plan's investment needs. However, the Applicant states that 
selling the Property is a problem because, although Signature has 
actively marketed the Property since September 17, 2001 at an asking 
price of $175,000, only one potential buyer has made an inquiry and no 
offers have been made.\16\ The only other entity that has shown any 
interest in buying the Property is DTTA, according to the Applicant. 
Therefore, the Applicant requests an administrative exemption from the 
Department to permit the proposed sale of such Property to DTTA.
---------------------------------------------------------------------------

    \16\ The Property has also been entered into the CoStar 
database, which provides commercial real estate information to its 
members in the commercial real estate community.
---------------------------------------------------------------------------

    9. DTTA proposes to purchase the Property from the Plan for cash 
consideration, to be payable at closing. The purchase price for the 
Property will reflect the fair market value of such Property, as 
determined by a qualified, independent appraiser, on the date of the 
sale. The Plan will not be required to pay any real estate fees or 
commissions in connection with the transaction. In addition, Mr. Rayes 
has and will continue to recuse himself as President of DTTA from 
participating in any of the Plan's decisions concerning the Property to 
avoid violating the self-dealing and conflict of interest prohibitions 
under section 406(b)(1) and (b)(2) of the Act.
    10. The Property has been appraised by Mr. Laurence G. Allen, a 
qualified, independent appraiser and President of Allen & Associates, a 
real estate valuation and consulting firm located in Birmingham, 
Michigan. Mr. Allen is a member of the American Institute of Real 
Estate Appraisers and is currently licensed in Michigan as a State 
Certified Real Estate Appraiser.
    Initially, Mr. Allen performed an appraisal of the Property in fee 
simple on November 15, 2000 and issued a ``restricted'' \17\ appraisal 
report, dated December 19, 2000, for use of internal decision-making by 
the Trustees. Mr. Allen's appraisal was based on the Sales Comparison 
Approach to valuation. The scope of the appraisal included research 
into market trends that would affect the value of the Property.
---------------------------------------------------------------------------

    \17\ Mr. Allen considered the appraisal report to be restrictive 
because reliance on the report was limited to the client. Also, 
without other information contained in the appraiser's work file, 
Mr. Allen thought the report would not be understood properly.
---------------------------------------------------------------------------

    Based on the initial appraisal report, Mr. Allen placed the fair 
market value of Parcel A at $1.70 per square foot on November 15, 2000. 
He determined that Parcel A would be worth $42,160 as if vacant, and 
that the improvements were worth $4,112. Thus, Mr. Allen

[[Page 69568]]

concluded that the total fair market value of Parcel A was $46,000.
    Similarly, Mr. Allen determined that Parcel B had a fair market 
value of $1.70 per square foot on November 15, 2000. He concluded that 
Parcel B was worth $109,616 as if vacant, and calculated the value of 
the improvements at $19,397, for a total fair market value of $129,000. 
Therefore, Mr. Allen placed the total appraised value of the Property, 
including the improvements, at $175,000 as of November 15, 2000.
    In an updated appraisal report dated March 4, 2002, Mr. Allen again 
utilized the Sales Comparison Approach to valuation in order to 
calculate the value of the Property in fee simple in an ``as is'' 
condition.\18\ The ``as is'' date of value for the appraisal was 
February 25, 2002, which was the date Mr. Allen states that the 
Property was last inspected.
---------------------------------------------------------------------------

    \18\ Although the restriction was removed from the updated 
appraisal, Mr. Allen noted that the appraisal report had been 
prepared solely for the Trustees and the Department as part of the 
proposed sale transaction.
---------------------------------------------------------------------------

    Mr. Allen determined that Parcel A had a fair market value of $1.62 
per square foot, or $40,176 as if vacant. With the addition of site 
improvements (i.e., 100% landscaping and fencing around Parcel A) 
costing $2,863, Mr. Allen placed the total fair market value of Parcel 
A at $43,000 as of February 25, 2002.
    With respect to Parcel B, Mr. Allen determined that the fair market 
value of this tract was $1.62 per square foot as of February 25, 2002. 
Mr. Allen concluded that Parcel B was worth $104,458 as if vacant, and 
calculated the value of the improvements (i.e., 61% asphalt parking, 
39% landscaping and partial fencing around Parcel B) at $13,565, for a 
total fair market value of $118,000. Thus, Mr. Allen placed the total 
appraised value of the Property including the improvements at $161,000 
as of February 25, 2002.
    Mr. Allen also concluded that the highest and best use of the 
Property is to provide parking for DTTA, an adjacent owner. In his 
analysis, Mr. Allen confirmed that the Property has special value to 
DTTA, and that the $161,000 appraised value takes into account a 
premium in the value of the Property to DTTA. Prior to the date of 
closing, Mr. Allen will again reevaluate the Property to determine 
whether or not there has been a change in the fair market value.
    11. As stated above in Representation 2, the Settlement Agreement 
provided that Mr. Marc Gertner would continue to serve on behalf of the 
Plan as Independent Fiduciary until as late as January 21, 2002. 
However, Mr. Gertner concluded before that date that the terms of the 
Settlement Agreement had been implemented and that his involvement as 
Independent Fiduciary was no longer necessary. Accordingly, Mr. Gertner 
asked for and received the Court's permission to resign as Independent 
Fiduciary, effective October 31, 2001.
    Mr. Gertner states that, prior to his resignation, he suggested to 
the Trustees that all unneeded, undeveloped real estate in the area of 
the Plan's office be listed for sale because he believed that it would 
be imprudent for an employee welfare plan to own land in the quantity 
held by the Plan. Although the Trustees authorized the sale of one 
parcel of real estate, Mr. Gertner states that his suggestion was met 
by resistance from some of the Trustees who felt that it was the wrong 
time to sell the remaining parcels of land comprising the Property, 
following the initial success of the nearby Motor City Casino (the 
Casino) and after the Mayor's announcement that he was working on a 
redevelopment plan for the general area, which included finding a 
developer and a new use for Tiger Stadium, as well as the rumored 
addition of motels and restaurants to the area. Mr. Gertner further 
indicates that, based on this information, he went along with the 
position of a majority of the Trustees to require that the Plan hold 
onto the Property because he did not believe it would be prudent or 
proper to miss out on a major upward surge in property values over the 
next year or two.
    In the 18 months following the October 1999 decision to take the 
Property off the market, Mr. Gertner represents that messages were sent 
to the Casino stating that the Trustees were thinking of relisting the 
Property. In addition, Mr. Gertner indicates that he held discussions 
with real estate firms, lawyers, accountants and business people in the 
Greater Detroit area in order to determine what action to take with 
respect to the Property. After these discussions, Mr. Gertner 
determined that there was little hard, demonstrable evidence to support 
an expectation that the value of the Property would appreciate and, by 
the summer of 2001, he said he concluded that the proposed sale 
transaction would be in the Plan's best interests.
    12. In a letter dated September 26, 2002 (the 2002 Letter), Mr. 
Gertner provided the Department with an updated and current opinion 
regarding the appropriateness of the proposed transaction. Mr. Gertner 
represents in the 2002 Letter that, at the August 28, 2002 meeting of 
the Trustees, he was redesignated as the Independent Fiduciary for the 
purpose of evaluating the proposed exemption transaction on behalf of 
the Plan. Aside from providing additional insight into fluctuating real 
estate values in the vicinity of the Property, as Independent 
Fiduciary, Mr. Gertner certifies in the 2002 Letter that it is prudent, 
proper and in the best interests of the Plan, its participants and 
their beneficiaries to effect the proposed sale of the Property as soon 
as possible to the highest responsible third-party offeror or, if none, 
to DTTA. Mr. Gertner states that he has based this conclusion on his 
review of the exemption application, as well as on Mr. Allen's 
independent appraisal of the Property. In addition, Mr. Gertner states 
that he held discussions with the Plan's Executive Director and the 
Plan's Counsel. Further, Mr. Gertner represents that he made inquiries 
of the listing realtor and the Detroit counsel who represented him and 
the Plan on real estate issues during his tenure as Independent 
Fiduciary. Based on this due diligence and after consideration of the 
matters at hand, Mr. Gertner explains that it remains his firm and 
unequivocal opinion that it is prudent, proper and in the best 
interests of the Plan participants and beneficiaries to proceed with 
the proposed sale transaction.
    Moreover, Mr. Gertner states that the issue concerning undeveloped 
property, such as the Property, is how soon it can be sold and 
converted into investable cash at the highest obtainable price, but at 
all times in a prudent and proper, ERISA-compliant manner. He opines 
that following an apparent spurt in values, fanned by hopes of a city 
plan of revitalization and a rampant rumor-mill, values have trended 
downward, and that it appears from his due diligence, there is no 
reason to presume a change in this trend.
    Mr. Gertner also asserts that since the Property produces minimal 
rental income, it is a net cash drain on the Plan due to taxes, 
insurance and maintenance. Because the Plan has no apparent nor 
imminent need or use for any of the Property, Mr. Gertner believes that 
the sale of such Property to a third party or to DTTA will convert a 
cash-draining asset into cash which can be invested by one or more of 
the Plan's investment managers in accordance with the Plan's investment 
objectives in order to produce income to provide benefits to the 
participants and their beneficiaries. Mr. Gertner notes that the Plan's 
corpus could always use additional funds and that now appears to be an 
opportune time for reinvestment.

[[Page 69569]]

    13. The Applicant represents that the proposed transaction is 
administratively feasible since the sale will be completed at closing, 
and no ongoing involvement by the Department is required to safeguard 
the interests of the Plan's participants and beneficiaries. 
Furthermore, the Applicant states that the transaction is in the best 
interests of the Plan's participants and their beneficiaries because it 
will permit the Plan to convert an asset with a declining value and an 
annual out-of-pocket tax expense into cash proceeds that can be 
invested to provide a better return. The Applicant also states that 
this, in turn, will benefit the Plan's participants and beneficiaries 
by increasing the Plan's assets and enhancing the Plan's ability to 
provide benefits and improve benefits. Finally, the Applicant asserts 
that the transaction is protective of the rights of the participants 
and beneficiaries because the transaction will be for cash with no 
deferred payments, involves only a small percentage of the Plan's total 
assets, and has been reviewed by the Plan's Independent Fiduciary who 
has determined that such transaction is protective of the interests of 
the Plan's participants and beneficiaries.
    14. In summary, it is represented that the proposed transaction 
will satisfy the statutory criteria for an exemption under section 
408(a) of the Act because:
    (a) DTTA will pay the most current appraised value as determined by 
a qualified, independent appraiser.
    (b) The sale transaction has been reviewed and approved by an 
Independent Fiduciary who was appointed by the Court for purposes of 
enforcing the terms of the Settlement Agreement.
    (c) The sale will be a one-time transaction for cash.
    (d) The Plan will pay no fees or commissions in connection with the 
sale.

Notice to Interested Persons

    The Trustees will provide notice of the proposed exemption to all 
Plan participants as interested parties, by personal delivery or by 
first class mail within 10 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 and a supplemental statement 
in substantially the same form as set forth in 29 CFR 2570.43(b)(2), 
which will inform interested persons of their right to comment on the 
proposed exemption. Comments regarding the proposed exemption 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.)

The Profit Sharing Trust of Dr. Ferdinand G. Mainolfi (the Plan) 
Located in Baltimore, MD

[Exemption Application No. D-11108]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of 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 exemption is granted, 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 \19\ shall not apply 
to the proposed sale of parcels of improved real property (the 
Property) by the Plan to Ferdinand G. Mainolfi (Dr. Mainolfi), a 
disqualified person with respect to the Plan; provided that: (1) The 
sale will be a one-time transaction for cash; (2) as a result of the 
sale, the Plan will receive the fair market value of the Property, as 
determined by an independent, qualified appraiser, as of the date of 
the transaction; (3) the Plan will pay no commissions, fees, or other 
expenses in connection with the sale; and (4) the terms of the sale 
will be no less favorable to the Plan than terms it would have received 
under similar circumstances in arm's length negotiations with unrelated 
third parties.
---------------------------------------------------------------------------

    \19\ Pursuant to 29 CFR 2510.3-2(d), the Plan is not within the 
jurisdiction of Title I of the Act. However, there is jurisdiction 
under Title II of the Act, pursuant to section 4975 of the Code.
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Summary of Facts and Representations

    1. The Plan is a defined contribution profit sharing plan sponsored 
by Ferdinand G. Mainolfi, Inc. (the Employer). The Employer is engaged 
in the practice of medicine in Baltimore, Maryland. Dr. Mainolfi is the 
sole shareholder of the Employer, the only participant in the Plan, and 
serves as the trustee of the Plan. The Plan had, as of August 31, 2001, 
total assets of approximately $940,992.
    2. The Property which is the subject of this exemption is located 
in the northeastern quadrant of Carroll County Maryland, less than two 
miles from the center of Manchester, Maryland, approximately two miles 
south of the Pennsylvania State Line, and three miles from the 
Baltimore County line. The neighborhood consists of a diversity of 
housing styles ranging from larger homes on farms and very large lots 
to older more modest houses and cottages interspersed with active 
agricultural operations and forest.
    The Property consists of two (2) parcels which border each other. 
The parcels are known respectively as the Mainolfi Farm (Parcel 1) and 
the Benjamin Lot (Parcel 2). The Plan acquired these parcels in two 
transactions with sellers unrelated to Dr. Mainolfi. It is represented 
that the Plan purchased the Property for long term investment.
    It is represented that a sharecropper, who is unrelated to Dr. 
Mainolfi, has been farming the tillable land on the Property, retaining 
the income, and paying all related expenses, in exchange for being 
responsible for the care and maintenance of the Property. It is 
represented that the Property has never been used personally by Dr. 
Mainolfi or any other party in interest. Dr. Mainolfi represents that 
he has made periodic inspections of the Property in satisfaction of his 
responsibility as trustee.
    The Plan acquired Parcel 1 on August 10, 1971, for a purchase price 
of $32,000 from Mr. and Mrs. William Ensor, Jr. The Plan financed the 
purchase with a mortgage obtained from the sellers. Parcel 1 is 
comprised of 37.48 acres of land traversed by a stream. There are open 
spaces and large, mature shade trees throughout the parcel. A residence 
and outbuildings are located on an elevated section on the western edge 
of Parcel 1. There is proximity to a lake with facilities for boating 
and swimming. Parcel 1 is bounded on the east by woods, on the west by 
several large tracts of farmland, on the north by a floodplain, and on 
the south by Parcel 2.
    The Plan acquired Parcel 2 on May 9, 1974, for a purchase price of 
$29,000 from Mr. Donald Benjamin. It is represented that the Plan 
financed the purchase with a mortgage from Baltimore Federal Savings 
and Loan. Parcel 2, consisting of 9.3119 acres, is entirely wooded, and 
is traversed by two streams.
    3. This exemption is requested to permit the Plan to sell the 
Property to Dr. Mainolfi for the appraised fair market value of the 
Property on the date of sale. Dr. Mainolfi, acting as trustee for the 
Plan, wishes to sell the Property, which is illiquid.
    It is represented that the proposed transaction is feasible in that 
it involves a one-time sale of the Property for cash. In addition, the 
Plan will be able to sell the Property without incurring any

[[Page 69570]]

further expense of searching for a buyer and without paying brokerage 
commissions, fees, or other expenses as a result of the sale. It is 
anticipated that once the Property is sold the cash proceeds will be 
invested so as to diversify the assets of the Plan.
    In the opinion of Dr. Mainolfi, the proposed transaction is 
protective of the participant and beneficiaries of the Plan in that the 
sale price would be based on the fair market value of the Property, as 
determined by an independent, qualified appraiser, as of the date of 
the sale.
    4. An appraisal of the Property was prepared by Herbert A. Davis, 
GRI (Mr. Davis) and Donna D. Fried, SRA (Ms. Fried), of Appraisal 
Connection, Inc., in Baltimore, Maryland. It is represented that Mr. 
Davis and Ms. Fried are qualified to perform the appraisal of the 
Property. In this regard, Mr. Davis is a graduate of the Realtors 
Institute of Maryland and has attended courses offered by the American 
Institute of Real Estate Appraisers. Ms. Fried has, from 1991 to the 
present, been licensed by the State of Maryland as a certified 
residential real estate appraiser. Ms. Fried is a member of the 
National Association of Real Estate Appraisers, the Maryland 
Association of Appraisers, Inc., and the Appraisal Institute, SRA.
    It is further represented that both appraisers are independent in 
that neither has a present or prospective interest in the Property, nor 
any personal interest or bias with respect to the participants in the 
proposed transaction. It is represented that neither the employment nor 
the compensation of the appraisers was conditioned upon the appraised 
value of the Property, nor were the appraisers required to report a 
predetermined value or base the appraisal on a requested minimum value 
for the Property.
    After physically inspecting the Property, the appraisers concluded 
the Property is not currently suited to subdivision due to location, 
zoning, and expense considerations. Taking into account the sales of 
similar properties in the recent past and having made adjustment to the 
reported sale prices of these comparable properties, it was determined 
by the sales comparison method of appraisal that the fair market value 
of the Property was $400,000, as of February 5, 2002.
    5. In summary, the applicant represents that the proposed 
transaction meets the statutory criteria for an exemption under section 
4975(a) of the Code because:
    (a) The sale of the Property will be a one-time transaction for 
cash;
    (b) As a result of the sale, the Plan will receive the fair market 
value of the Property, as determined by an independent, qualified 
appraiser, as of the date of the sale;
    (c) The Plan will pay no commissions, fees, or other expenses as a 
result of the transaction;
    (d) The terms of the sale will be no less favorable to the Plan 
than those it would have received in similar circumstances when 
negotiated at arm's length with unrelated third parties;
    (e) The Plan will be able to invest the proceeds from the sale of 
the Property in order to diversify the assets of the Plan; and
    (f) The Plan will be able to dispose of the Property which is 
illiquid.

Notice to Interested Persons

    Because Dr. Mainolfi is the only participant in the Plan, it has 
been determined that there is no need to distribute the notice of 
proposed exemption to interested persons. Comments and requests for a 
hearing are due thirty (30) days after publication of this notice in 
the Federal Register.

FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the 
Department, telephone (202) 693-8540 (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 13 day of November, 2002.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 02-29197 Filed 11-15-02; 8:45 am]

BILLING CODE 4510-29-P