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Employee Benefits Security Administration

EBSA Federal Register Notice

Grant of Individual Exemptions; John Hancock Life Insurance Company [04/16/2003]

[PDF Version]

Volume 68, Number 73, Page 18704-18710

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Prohibited Transaction Exemption 2003-05; Exemption Application No. D-
11061]

 
Grant of Individual Exemptions; John Hancock Life Insurance 
Company

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Grant of individual exemption.

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SUMMARY: This document contains an exemption issued by the Department 
of Labor (the Department) 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).
    A notice was published in the Federal Register of the pendency 
before the Department of a proposal to grant such exemption. The notice 
set forth a summary of facts and representations contained in the 
application for exemption and referred interested persons to the 
application for a complete statement of the facts and representations. 
The application has been available for public inspection at the 
Department in Washington, DC. The notice also invited interested 
persons to submit comments on the requested exemption to the 
Department. In addition the notice stated that any interested person 
might submit a written request that a public hearing be held (where 
appropriate). The applicant has represented that it has complied with 
the requirements of the notification to interested persons. No requests 
for a hearing were received by the Department. Public comments were 
received by the Department as described in the granted exemption.
    The notice of proposed exemption was issued and the exemption is 
being granted solely by the Department because, 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 proposed to the Secretary of Labor.

Statutory Findings

    In accordance with section 408(a) of the Act and/or section 
4975(c)(2) of the Code and the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990) and based upon 
the entire record, the Department makes the following findings:
    (a) The exemption is administratively feasible;
    (b) The exemption is in the interests of the plan and its 
participants and beneficiaries; and
    (c) The exemption is protective of the rights of the participants 
and beneficiaries of the plan.

John Hancock Life Insurance Company, Located in Boston, MA (Prohibited 
Transaction Exemption 2003-05, Application No. D-11061)

Exemption

Section I: Transactions

    The restrictions of sections 406(a)(1)(A) and 406(a)(1)(D) of the 
Act and the sanctions resulting from the application of section 4975 of 
the Code, by reason of sections 4975(c)(1)(A) and 4975(c)(1)(D) of the 
Code shall not apply to: \1\
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    \1\ For purposes of this exemption, references to specific 
provisions of title I of the Act, unless otherwise specified, refer 
to the corresponding provisions of the Code.
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    (a) The purchase of a timber asset (Timber Asset(s)), as defined in 
section III(f), below, from International Paper Company or any 
affiliate, as defined in section III(a), below, (collectively, 
International Paper) by a certain insurance company separate account 
(ForesTree IP), as defined in section III(d), below, maintained and 
managed by Hancock, as defined in section III(e), below, for the 
investment of the assets of one or more employee pension benefit plans 
sponsored by International Paper (the IP Plan or IP Plans); provided 
that the following conditions are satisfied:
    (1) The fair market value of the Timber Asset sold to ForesTree IP 
is determined by an independent, qualified appraiser, as defined in 
section III(h), below, as of the date of the transaction,
    (2) The fair market value of the Timber Asset sold to ForesTree IP 
must be documented by an appraisal report in writing issued, as of the 
date of the transaction, by the independent, qualified appraiser;
    (3) The price paid by ForesTree IP for the Timber Asset does not 
exceed the fair market value of such asset, as determined by an 
independent, qualified appraiser, as of the date of the transaction, 
but can be at a price that is less than the fair market value of such 
asset, as of the date of the transaction; and
    (4) The general conditions set forth in section II, below, are 
satisfied.
    (b) The sale of a timber product (Timber Product(s)), as defined in 
section III(g), below, to International Paper by ForesTree IP; provided 
that the following conditions are satisfied:

[[Page 18705]]

    (1) Prior to soliciting bids for the sale of a Timber Product, 
Hancock (or its designee) establishes a minimum bid (the Minimum Bid) 
based on its assessment of the fair market value of the Timber Product 
offered for sale;
    (2) Hancock (or its designee) solicits from each party on the 
buyers list (the Buyer's List), as defined in section III(c), below, 
for the relevant geographic area in which the Timber Product is 
located, a written bid for the purchase of the Timber Product offered 
for sale;
    (3) The highest price bid for the Timber Product offered for sale 
must meet or exceed the Minimum Bid established by Hancock (or its 
designee) and must not be less than the fair market value of such 
Timber Product at the time the contract for sale is legally binding on 
the parties involved;
    (4) Where International Paper is the highest price bidder for the 
Timber Product offered for sale, the transaction may not go forward, 
unless Hancock (or its designee) has received bids on such Timber 
Product from at least two (2) other bidders, in addition to 
International Paper, provided that each such bidder satisfies the 
definition of a bona fide bidder, as set forth in section III(i), 
below; and provided further that neither Hancock's general account nor 
any other account managed by Hancock is either of the two other 
bidders; and
    (5) The general conditions set forth in section II, below, are 
satisfied.

Section II: General Conditions

    (a) Any IP Plan that invests in ForesTree IP has total assets in 
excess of $100 million;
    (b) Hancock acts as a discretionary investment manager for 
ForesTree IP;
    (c) Hancock (or its designee) negotiates on behalf of ForesTree IP 
the terms and conditions of any purchase of a Timber Asset by ForesTree 
IP from International Paper and the terms and conditions of any sale of 
a Timber Product by ForesTree IP to International Paper;
    (d) Prior to ForestTree IP entering into any purchase of a Timber 
Asset or any sale of a Timber Product, Hancock determines on behalf of 
such account that each such transaction is feasible, in the interest of 
the account based on the investment policy and objectives of the 
account, and protective of the participants in the account;
    (e) The terms and conditions of each transaction involving the sale 
of a Timber Asset by International Paper to ForesTree IP or the 
purchase of a Timber Product by International Paper from ForesTree IP 
are at least as favorable to ForesTree IP as the terms obtainable by 
ForesTree IP in a similar transaction negotiated at arm's length with 
an unrelated third party;
    (f) The transactions subject to this exemption are not part of an 
agreement, arrangement, or understanding designed to benefit a party in 
interest;
    (g) Each transaction subject to this exemption is exclusively a 
cash transaction;
    (h) The investment of plan assets by any IP Plan in ForesTree IP 
does not exceed 20 percent (20%) of the total assets of such plan;
    (i) The total amount of contributions received by Hancock from 
International Paper on behalf of the IP Plans and allocated to 
ForesTree IP must not in the aggregate exceed $100 million; and
    (j) Hancock maintains, or causes to be maintained, within the 
United States for a period of six (6) years from the date of each 
transaction which is subject to this exemption, in a manner that is 
convenient and accessible for audit and examination, such records as 
are necessary to enable the persons described, below in paragraph 
(k)(1), to determine whether the conditions of the 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 Hancock, the 
records are lost or destroyed prior to the end of the six (6) year 
period; and
    (2) No party in interest other than Hancock shall be subject to the 
civil penalty that may be assessed under section 502(i) of the Act, or 
to the taxes imposed by section 4975(a) and (b) of the Code, if the 
records are not maintained, or are not available for examination as 
required below by paragraph (k)(1).
    (k)(1) Except as provided in subparagraph (2) of this paragraph (k) 
and notwithstanding any provisions of subsections (a)(2) and (b) of 
section 504 of the Act, the records referred to in paragraph (j), 
above, are unconditionally available at their customary location for 
examination during normal business hours by--
    (i) Any duly authorized employee or representative of the 
Department, or the Internal Revenue Service;
    (ii) Any fiduciary of an IP Plan or any duly authorized 
representative of such fiduciary;
    (iii) Any contributing employer to an IP Plan or any duly 
authorized employee representative of such employer; and
    (iv) Any participant or beneficiary of an IP Plan, or any duly 
authorized representative of such participant or beneficiary.
    (2) None of the persons described above in subparagraphs 
(k)(1)(ii)-(iv) are authorized to examine the trade secrets of Hancock 
or its affiliates or commercial or financial information which is 
privileged or confidential.

Section III: Definitions

    (a) The term, ``affiliate'' or ``affiliates,'' of a person means:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person;
    (2) Any officer, director, employee, relative of, 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, ``Buyer's List,'' means a comprehensive and current 
list of the names of the active forest products companies and 
prospective buyers of Timber Products in the geographic area in which 
such Timber Products are located, which is compiled and maintained by 
Hancock (or its designee) for each such geographic area for the purpose 
of selling Timber Products in such area on behalf of any of the timber 
accounts managed by Hancock, provided that, with respect to the Buyer's 
List utilized by ForesTree IP:
    (1) International Paper's name may not be added to the Buyer's List 
for a geographic area solely for the purpose of a sale by ForesTree IP 
of Timber Products in such area; and
    (2) The name of a prospective buyer of Timber Products in a 
geographic area may not be removed by Hancock from the Buyer's List for 
such geographic area, unless such buyer:
    (A) Has failed to perform satisfactorily in a previous transaction;
    (B) Is no longer in business;
    (C) Requests, orally or in writing, to be removed from such list; 
or
    (D) Has failed to respond for a period of two (2) years to previous 
solicitations by ForesTree IP to bid on Timber Products offered for 
sale in the geographic area;
    (d) The term, ``ForesTree IP,'' refers to the non-pooled insurance 
company separate account maintained and managed by Hancock for the 
investment of assets of one or more of the IP Plans, as well as to any 
partnership, limited liability company, or corporation in which 
ForesTree IP invests. The term, ``ForesTree IP,'' does not include the 
other ForesTree Separate Accounts managed by Hancock.

[[Page 18706]]

    (e) The term, ``Hancock,'' means John Hancock Financial Services 
(Financial Services); John Hancock Life Insurance Company (JHLIC); John 
Hancock Variable Life Insurance Company (Variable Life); Hancock 
Natural Resource Group (Resource Group); John Hancock Timber Resource 
Group (Timber Resource); or other affiliates of JHLIC, as defined in 
section III(a), above, as well as the employees of Resource Group and 
Timber Resource.
    (f) The term, ``Timber Asset(s),'' means a fee simple in timberland 
(and appurtenant rights), \2\ or a timber lease, or a timber deed, 
provided that, with respect to any timber lease, or timber deed:
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    \2\ It is represented that certain property rights, including 
mineral rights, easements, and recreational leases, are appurtenant 
to a fee simple and are brought and sold, and appraised along with 
the fee simple.
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    (1) The underlying fee simple is owned by a person other than 
International Paper, Hancock, or any other account managed by Hancock 
at the time of the sale; and
    (2) The entire deed or lease held by International Paper is 
purchased by ForesTree IP.
    (g) The term, ``Timber Product(s),'' means standing timber or 
timber in the form of logs.
    (h) The term, ``independent, qualified appraiser,'' means an 
individual or firm which is qualified to serve in the capacity as an 
appraiser; is independent of the parties in interest engaging in the 
transaction and their affiliates; and satisfies the following 
conditions:
    (1) Other than serving as the independent, qualified appraiser for 
a transaction which is subject to this exemption, the individual or 
firm has no current employment relationship with Hancock or with 
International Paper;
    (2) No individual or firm may serve as an independent, qualified 
appraiser during any year in which the gross receipts such individual 
or firm received from business with Hancock exceeds 5 percent (5%) of 
such individual's or firm's gross receipts from all sources for the 
prior year, and from business with International Paper for that year 
exceeds 5 percent (5%) of such individual's or firm's gross receipts 
from all sources for the prior year;
    (3) If an individual is selected to serve as the independent, 
qualified appraiser, then such individual must:
    (A) Have a forestry degree; and
    (B) Have a minimum of five (5) years of experience as a timberland 
appraiser; or
    (C) Otherwise demonstrate proficiency in timberland appraisal work 
which is equivalent to the level of expertise demonstrated by the 
requirements, as set forth in section III(h)(3)(A) and (B), above;
    (4) If a firm is selected to serve as the independent, qualified 
appraiser, then such firm must have:
    (A) A minimum of five (5) years of experience as a timberland 
appraiser; or
    (B) Otherwise demonstrate proficiency in timberland appraisal work; 
and
    (5) The individual or the firm that serves as the independent, 
qualified appraiser for transactions covered by this exemption must 
have the ability to access appropriate timberland sales comparison 
data.
    (i) The term, ``bona fide bidder,'' means a bidder on a Timber 
Product offered for sale by ForesTree IP, only if
    (1) The bidder has made an offer to purchase the Timber Product, in 
accordance with the terms of the bid solicitation;
    (2) The bidder's name appears on the Buyer's List at the time of 
bid solicitation and at the time of the bid;
    (3) Hancock neither knows or should know of any impediment to the 
bidder's consummation of the purchase of the Timber Product offered for 
sale upon which the bidder has bid; and
    (4) Hancock has no reason to believe that the bid was not made in 
good faith by the bidder with the present intent of procuring the 
Timber Product offered for sale by ForesTree IP.

Written Comments

    In the notice of proposed exemption (the notice), the Department of 
Labor (the Department) invited all interested persons to submit written 
comments and requests for a hearing on the proposed exemption within 45 
days of the date of the publication of the notice in the Federal 
Register on January 22, 2003. All comments and requests for a hearing 
were due by March 14, 2003.
    During the comment period, the Department received no requests for 
a hearing. However, the Department did receive comment letters from 
four (4) commentators. At the close of the comment period, the 
Department forwarded a copy of each of these comment letters to the 
applicant and requested that the applicant respond in writing to the 
issues raised by the commentators. The concerns expressed by the 
commentators and the applicant's response thereto are summarized in the 
numbered paragraphs below.
    1. One commentator objected to the proposed exemption because he 
views the proposed transactions as Enron-like deceptive transactions 
between two International Paper entities. The commentator suggested 
that the Timber Assets should remain with International Paper as a long 
term investment, and that International Paper would suffer if it does 
not.
    In response, the applicant notes that the commentator appears to 
believe that the proposed transactions would constitute a 
``repurchase'' by International Paper of assets it already owns-- a 
``scheme'' for transferring assets among International Paper entities. 
In this regard, the IP Plan and ForesTree IP are independent of 
International Paper and a transfer to the IP Plan from International 
Paper is in no way a ``repurchase'' of the assets by International 
Paper.
    Further, the applicant maintains that there is no ``scheme'' here. 
The filing of this exemption was initiated by Hancock to obtain relief 
from the prohibited transaction provisions of the Act. Hancock is a 
professional timber manager unaffiliated with International Paper. 
Hancock, and not International Paper, sought the exemption so that if 
the investment attributes of the Timber Assets International Paper 
offered for sale were consistent with the investment objectives of 
ForesTree, the account would have an opportunity to acquire those 
Timber Assets.
    In addition, the applicant points out that the commentator seems 
more concerned with the fact that International Paper is selling the 
Timber Assets than with the fact that Hancock will be permitted to bid 
on those assets that International Paper offers for sale. In this 
regard, it is the applicants understanding that the sale of 
International Paper timberlands is part of its strategic plan to 
monetize non-strategic timberland following its merger with Champion 
International.
    Hancock, and not International Paper, will decide whether ForesTree 
IP will engage in a transaction with International Paper, and Hancock 
is subject to the fiduciary duties of the Act. It is represented that 
Hancock will cause ForesTree IP to engage in a transaction only if the 
transaction is in the interest of ForesTree IP (that is, the IP Plan). 
It is further represented that Hancock's acquisition sourcing will in 
no way take the interests of International Paper into account in 
considering the merits of each such transaction.
    The commentator also indicated a lack of confidence in the third 
party appraisal that Hancock is required to obtain, pursuant to a 
condition of this exemption, citing the ``sample intensity.'' In this 
context, the applicant understands ``sample intensity'' to refer to the 
extent of the samples of timber

[[Page 18707]]

inventory used by an appraiser (or prospective buyer) to assess the 
value of that inventory. The commentator's concern regarding sample 
intensity is addressed by Hancock's due diligence process, including 
the timber inventory verification described below, and the appraisal 
methodology that uses multiple valuation approaches to independently 
establish market value.
    In this regard, the applicant notes that the purchase price of 
Timber Assets is established through Hancock's intensive due diligence 
process, that includes, among other things, timber inventory 
verification through an actual on-the-ground survey of the timber, 
using a statistically sound sampling methodology. Hancock uses the 
timber inventory analysis together with information regarding timber 
markets, timber price forecast, forest management expenses, timber 
growth models, and harvesting plans among other things to develop a 
discount cash flow analysis, projected total return and purchase price 
given the relative riskiness of the market area. The purchase price 
established through this process is the starting basis for prices 
offered by Hancock in competitive bids or negotiated sale transactions. 
A third-party appraisal verifies that the purchase price, established 
through the process noted above, is not more than fair market value.
    In doing so, the third-party appraiser will typically use multiple 
valuation methodologies to estimate the market value of Timber Assets. 
These include the cost approach, the sales comparison approach, and the 
income approach (discount cash flow analysis). The different approaches 
help to establish the most probable value range based on the 
differences between buyers and sellers in the marketplace. The 
appraiser then, based on the data presented, determines a value in the 
range that represents the most probable price assuming the property 
were offered for sale.
    2. One commentator noted his opposition to the proposed exemption 
on the grounds that International Paper's domination of the relevant 
timber markets could make the fair market value, and thus the price, 
obtained by Hancock for Timber Products artificially low.
    In response the applicant notes that this comment does not appear 
to be a criticism of the sale by the IP Plan of Timber Products to 
International Paper, so much as a criticism of the IP Plan's allocation 
to timber in the first place. In this regard, the applicant maintains 
that whether or not the IP Plan invests in timber is not the subject of 
this exemption. Rather, this exemption is designed to ensure that 
ForesTree IP has access to all market outlets in a competitive manner.
    In the opinion of the applicant, participation by International 
Paper in the bid process increases, not decreases, the chances of 
ForesTree IP of obtaining a favorable price, because it expands the 
universe of potential timber purchasers. One of Hancock's objectives in 
seeking this exemption is to increase the potential buyers, and thus 
the price, of ForesTree IP's Timber Products. It is the applicant's 
view that the mergers to which the commentator refers would make it 
even more important to include International Paper in the Timber 
Products bidding process so as to have as many potential bidders as 
possible.
    The commentator also asserts that the proposed exemption would 
permit ``incestuous dealings'' between the IP Plan and International 
Paper. The applicant maintains that there is no conflict of interest in 
this case, because the IP Plan is represented by an independent 
investment manager. In this regard, Hancock manages the entire 
ForesTree IP account in its sole discretion and will determine if, and 
when, it is in the interest of ForesTree IP to enter into a transaction 
with International Paper, pursuant to the procedures established as 
part of this exemption. Furthermore, Hancock will be fully responsible 
and liable for that decision.
    3. One commentator objected to the proposed exemption because, in 
his view, International Paper does not provide sufficient pension 
benefits to IP Plan participants and beneficiaries.
    In response the applicant, points out that the IP Plan is a defined 
benefit plan, and Hancock has no control over the plan of benefits 
provided to plan participants under the IP Plan. Rather, Hancock is 
charged with investing the assets of the IP Plan allocated to timber as 
effectively as it can. In the view of the applicant, the commentator's 
complaint is with the design of the IP Plan and not the manner in which 
it is invested.
    4. One commentator believes that the fact that Hancock must seek an 
exemption for the proposed transactions indicates that the transactions 
are ``ill-advised.''
    In response the applicant points out that the drafters of the Act 
recognized that exemptions to prohibited transaction provisions would 
certainly be required and, in fact, incorporated more than ten such 
statutory exemptions into the Act. More importantly, Congress 
authorized the Department to issue individual exemptions where an 
individual plan's interest could be adequately protected. In the 
applicant's view, the fact that Hancock has applied for this exemption 
indicates only that it seeks to obtain the best return possible for 
ForesTree IP by expanding the account's potential pool of 
counterparties.
    The commentator also objected to the proposal on the grounds that 
recent corporate scandals have cast doubt upon the ``investment 
schemes'' of ``corporate financial officers.''
    In this regard, the applicant points out that Hancock, and not the 
financial officers of International Paper, is responsible for deciding 
whether or not ForesTree IP enters into transactions with International 
Paper. In addition, the applicant maintains that the subject 
transactions will be effected, if at all, in a straightforward and 
transparent manner. In this regard, the exemption requires that 
specified conditions be met and that records of the transactions and 
conditions be maintained.
    Lastly, the applicant notes that the commentator provided no 
support for his assertion that the subject transactions (routine types 
of transactions under a professionally managed timber program) 
constitute a ``speculation venture of unknown risk.'' The commentator 
objected to the fact the IP Plan invests in timber at all, which, as 
the applicant noted above, is the result of a reasonable asset 
allocation decision on the part of the plan fiduciaries. Moreover, 
there is nothing to suggest that timber is a speculative investment. 
The applicant maintains that Hancock and its affiliates are in the 
business of prudently managing the risks associated with timber 
investments. As discussed above, Hancock's due diligence process is 
thorough and is designed to assess risk.
    5. During the comment period, the Department also received a 
comment from the applicant. In this regard, in a letter dated March 14, 
2003, the applicant requested certain amendments to the operant 
language of the exemption and changes to the representations which were 
set forth in the Summary of Facts and Representations (the SFR) 
published in the notice. A discussion of the applicant's comments and 
the Department's responses, thereto are also set forth in the 
subparagraphs, below.
    A. For the sake of consistency with the language in section I(a)(1) 
and (2) of the exemption, the applicant proposes a revision of section 
I(a)(3), as set forth in the notice, on page 3040, column 3, line 26-
27, to replace the phrase, ``at the time of purchase,'' with the 
phrase, ``as of the date of the transaction.''

[[Page 18708]]

    The Department concurs and in the final exemption has amended the 
language of section I(a)(3), accordingly.
    B. Section I(a)(1) requires that the price paid by ForesTree IP for 
the Timber Asset be determined by an independent, qualified appraiser, 
as defined in section III(h), below, as of the date of the transaction. 
Section I(a)(2) provides that the fair market value of the Timber 
Assets sold to ForesTree IP must be documented in a written appraisal 
report by an independent, qualified appraiser, as of the date of the 
transaction. Section I(a)(3) provides that the price paid by ForesTree 
IP for the Timber Asset may not exceed the fair market value of such 
asset at the time of the purchase.
    It is the applicant's view that, given the conditions in sections 
I(a)(2) and (3) of the exemption, it is not necessary to require that 
the Timber Asset price be determined by the independent, qualified 
appraiser. In this regard, the applicant maintains that the other 
conditions make it impossible for ForesTree IP to purchase a Timber 
Asset for more than fair market value and that the condition in section 
I(a)(1) does not provide any additional protection to the IP Plans and 
their participants and beneficiaries. Moreover, the applicant believes 
that section I(a)(1) would interfere with Hancock's duty to negotiate 
the best price for ForesTree IP, including a price that is less than 
the appraised value of the Timber Asset. Accordingly, the applicant 
requests that section I(a)(1), as set forth in the notice, on page 
3040, column 3, lines 13-17, be deleted and that the remaining three 
(3) subparagraphs in section I(a) be renumbered.
    In the view of the Department, a determination by an independent, 
qualified appraiser of the fair market value of a Timber Asset at the 
time of the transaction provides a safeguard which insures that the IP 
Plan through ForesTree IP does not pay to much for such asset. 
Accordingly, the Department has decided not to delete section I(a)(1) 
of the exemption and has decided not to renumber section I(a)(2), 
section I(a)(3), or section I(a)(4).
    However, the Department does not intend that compliance with the 
language of section (I)(a)(1)would preclude Hancock from negotiating on 
behalf of ForesTree IP a price for a Timber Asset which is less than 
the fair market value of such asset at the time of the transaction. 
Accordingly, the Department has determined in the final exemption to 
amend the language of section I(a)(1), as set forth in the notice, on 
page 3040, column 3, lines 13-17, to delete the bracketed words and add 
the italicized words as follows:

    The [price paid by ForesTree IP for] fair market value of the 
Timber Asset sold to ForesTree IP is determined by an independent, 
qualified appraiser, as defined in section III(h), below, as of the 
date of the transaction.

    Further the Department has determined in the final exemption to 
amend the language of section I(a)(3), as set forth in the notice, on 
page 3040, column 3, lines 24-27, to delete the bracketed phrase and 
add the italicized phrases as follows:

    The price paid by ForesTree IP for the Timber Asset does not 
exceed the fair market value of such asset, [at the time of the 
purchase] as determined by an independent, qualified appraiser as of 
the date of the transaction, but can be at a price that is less than 
the fair market value of such asset, as of the date of the 
transaction.

    C. Because Hancock utilizes affiliated and unaffiliated timber 
managers in managing ForesTree IP, the applicant believes that it would 
be more accurate to reference Hancock's ``designees,'' as is currently 
reflected in section I(b)(2). Accordingly, the applicant requests that 
the phrase, ``(or its designee),'' be inserted after the word, 
``Hancock,'' in the following sections of the final exemption, section 
I(b)(1), section I(b)(3), section I(b)(4), section II(c), and section 
III(c).
    The Department concurs and has amended the language, as set forth 
in the notice, to insert the parenthetical phrase, ``(or its 
designee),'' after the word, ``Hancock,'' in the following locations:
    (1) In section I(b)(1)on page 3040, column 3, line 36;
    (2) In section I(b)(3)on page 3040, column 3, line 51;
    (3) In section I(b)(4)on page 3040, column 3, line 59;
    (4) In section II(c)on page 3041, column 1, line 9; and
    (5) In section III(c)on page 3041, column 2, line 68.
    D. The applicant has suggested that the Department delete section 
II(h), as set forth in the notice, on page 3041, column 1, lines 42-46. 
Section II(h) precludes ForesTree IP from purchasing Timber Assets from 
or selling Timber Products to Hancock's general account or any other 
account managed by Hancock. In this regard, the applicant expressed 
concern that section II(h)suggests that ForesTree IP could not use 
Prohibited Transaction Exemption 98-61 (PTE 98-61), in an appropriate 
case, for transactions between ForesTree IP and other Hancock separate 
accounts. In this regard, PTE 98-61 provides relief from section 
406(b)(2) of the Act, for purchases and sales of Timber Assets between 
certain separate accounts, as defined in PTE 98-61, that are managed by 
Resource Group and Timber Resource or other affiliates of JHLIC. In 
support of the request that section II(h) be deleted, the applicant 
notes that: (1) The exemption provides relief only for transactions 
between ForesTree IP and International Paper; (2) Hancock is not 
seeking relief for transactions between ForesTree IP and the general 
account or other Hancock separate accounts; and (3) section I(b)(4) of 
the exemption already provides that neither Hancock's general account 
nor any other account managed by Hancock may be counted as one of the 
two bona fide bidders required where International Paper is the highest 
price bidder for the Timber Products offered for sale by ForesTree IP.
    The Department concurs with the applicant's request, and 
accordingly, has deleted section II(h) from the final exemption. As a 
result of the deletion of section II(h)from the final exemption, 
subsections (i), (j), (k), and (l) of section II have, accordingly, 
been reordered as subsections (h), (i), (j), and (k) of section II. 
Conforming changes have also been made to cross references within these 
subsections.
    Further, the Department wishes to note that for transactions 
between ForesTree IP and other Hancock separate accounts, ForesTree IP 
may rely on PTE 98-61 only for transactions, as described therein, and 
only if the conditions, as set forth in PTE 98-61 are satisfied.
    E. The applicant notes that section II(k), as set forth in the 
notice, makes reference on page 3041, column 1, line 64, to paragraph 
(1)(1) (the numeral ``one'' followed by the numeral ``one''). The 
applicant requests that the reference be changed so as to refer to 
paragraph(l)(1) (the letter ``l'' and then the numeral ``one''). The 
applicant also notes that, if the Department accepts the proposed 
deletion of section II(h), as discussed above, this reference will 
actually become paragraph(k)(1).
    The Department concurs with the applicant's request. As the 
Department did decide to delete section II(h) from the final exemption, 
the reference to paragraph (1)(1), as set forth in the notice, on page 
3041, column 1, line 64, had been changed to paragraph (k)(1) in the 
final exemption.
    F. The applicant requests a revision to the language of section 
III(e), as set forth in the notice, on page 3041, column 3, lines 38-
48. Section II(e), states:

    The term, ``Hancock,'' means John Hancock Financial Services 
(Financial Services); John

[[Page 18709]]

Hancock Life Insurance Company (JHLIC); John Hancock Variable Life 
Insurance Company (Variable Life); Hancock Natural Resources Group 
(Resources Group); John Hancock Timber Resource Corporation (Timber 
Resource); or other affiliates of JHLIC, as defined in section 
III(a), above.

Pursuant to section III(a), the term, ``affiliate'' or ``affiliates,'' 
of a person includes ``any officer, director, employee, relative of, or 
partner in any such person.'' The applicant is concerned that the 
combination of these two definitions omits from the term, ``Hancock,'' 
(and perhaps from relief) employees of Hancock affiliated entities, 
other than JHLIC. In this regard, the applicant seeks to ensure that 
the exemption provides relief for the individual employees of those 
entities making decisions with respect to ForesTree IP. Accordingly, 
the applicant suggested a revision to section III(e) to add the phrase, 
``as well as the employees of such entities,'' to the language of 
section III(e) in the final exemption. Subsequently, in an e-mail to 
the Department, dated April 2, 2003, the applicant clarified that in 
addition to employees of JHLIC, incorporated into the definition of 
affiliate, as set forth in section III(a)(2), the term, ``Hancock'' 
should include employees of Resource Group, and Timber Resource.
    The Department concurs with the applicant's request. Accordingly, 
the language of section III(e), as set forth in the Notice, on page 
3041, column 3, line 48, has been amended to add the phrase, ``as well 
as the employees of Resource Group and Timber Resource,'' after the 
word, ``above.''
    The applicant also suggested a few corrections to the names of the 
entities listed in the definition of the term, ``Hancock,'' as set 
forth in section III(e) in the Notice, on page 3041, column 3, lines 
43-46. In this regard, ``Hancock Natural Resources Group'' should be 
``Hancock Natural Resource Group,'' and ``(Resources Group)'' should 
become ``(Resource Group).'' In the same paragraph, ``John Hancock 
Timber Resource Corporation'' should be changed to ``John Hancock 
Timber Resource Group.''
    The Department concurs and in the final exemption has amended the 
language of section III(e), accordingly.
    G. Section III(h)(2), as set forth in the Notice, on page 3042, 
column 1, lines 18-27, requires that:

    No individual or firm may serve as an independent, qualified 
appraiser during any year in which the gross receipts such 
individual or firm received from business with Hancock and from 
business with International Paper for that year exceeds 5 percent 
(5%) of such individual's or firm's gross receipts from all sources 
for the prior year.

    The applicant seeks confirmation that the ``5 percent gross receipt 
test'' in section III(h)(2) applies separately with respect to Hancock 
and to International Paper. In this regard, it is the applicant's 
understanding that an individual appraiser may not have gross receipts 
from Hancock in excess of 5 percent (5%) or from International Paper in 
excess of 5 percent (5%).
    The Department confirms the applicant's understanding of section 
III(h)(2). In addition, the Department has decided to amend the 
language of section III(h)(2), as set forth in the notice, on page 
3042, column 1, line 22, to insert the phrase, ``exceeds 5 percent (5%) 
of such individual's or firm's gross receipts from all sources for the 
prior year,'' after the word, ``Hancock.''
    H. The applicant has requested and the Department concurs with the 
following modifications, corrections, or updates to the information 
that appeared in the SFR of the notice:
    (1) References to ``Resources Group'' that appeared in the SFR 
throughout representations 2, 4, 5 and 6 should have been references to 
``Resource Group;''
    (2) A reference to ``.5 million'' that appeared in the second 
paragraph of representation 2 in the SFR should have been a reference 
to ``0.5 million;''
    (3) The reference to Olympic Resource Management that appeared in 
the fifth paragraph of representations 4 in the SFR should be revised. 
In this regard, the applicant has informed the Department that Resource 
Group recently chose not to renew its contract with Olympic Resource 
Management. It is represented that Hancock Forest Management, Inc., a 
recently formed affiliate of Resource Group, has taken over the duties 
of Olympic Resource Management with respect to the western United 
States and Canada;
    (4) The eighth sentence in the first paragraph of representation 5 
of the SFR, should be revised to delete the bracketed words and add the 
italicized words as follows:

    John Hancock [expects that] allocated the remaining $15 million 
[will be allocated before] for investment near the end of the year 
2002;

    (5) The reference to ``$1 million to $2 million'' that appeared in 
the second sentence of representation 6 in the SFR should have been a 
reference to ``$1 billion to $2 billion;''
    (6) The second sentence in representation 6 of the SFR should be 
further revised to delete the bracketed words and add the italicized 
words as follows:

    In this regard, John Hancock, at the time of its application, 
originally anticipated [anticipates] that $1 billion to $2 billion 
worth of Timber Assets [will] would be marketed by International 
Paper for sale over the next two (2) years, as a result of the May 
2000 merger of International Paper and Champion International;

    (7) After the second sentence in representation 6 of the SFR, the 
applicant has requested the addition of the following sentence:

    Since the filing of the exemption application, John Hancock has 
learned that International Paper's business strategy with respect to 
these assets may have changed, but John Hancock does not yet know 
what the new divestment strategy will be; and

    (8) The reference to ``section III (i) below'' that appeared in 
representation 10(f) should have been a reference to ``section III 
(i)'' as that section actually comes before representation 10(f) in the 
SFR.
    After giving full consideration to the entire record, including the 
written comments from the commentators and the applicant's response to 
such comments and the comment from the applicant, the Department has 
decided to grant the exemption, as described and amended, above. In 
this regard, the comment letters, the applicant's response thereto, and 
the applicant's comment letter submitted to the Department have been 
included as part of the public record of the exemption application. The 
complete application file, including all supplemental submissions 
received by the Department, is made available for public inspection in 
the Public Documents Room of the Employee Benefits Security 
Administration, Room N-1513, U.S. Department of Labor, 200 Constitution 
Avenue, NW., Washington, DC 20210.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption refer to 
the notice published on January 22, 2003, at 68 FR 3040.

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 to which the exemption does not 
apply and the general fiduciary

[[Page 18710]]

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) This exemption is supplemental to and not in derogation of, any 
other provisions of the Act and/or the Code, including statutory or 
administrative exemptions and transactional 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
    (3) The availability of this exemption is subject to the express 
condition that the material facts and representations contained in the 
application accurately describes all material terms of the transaction 
which is the subject of the exemption.

    Signed in Washington, DC, this 11th day of April, 2003.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. 03-9353 Filed 4-15-03; 8:45 am]

BILLING CODE 4510-29-P