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Employee Benefits Security Administration

EBSA Federal Register Notice

Proposed Exemptions; Landerholm, Memovich, Lansverk & Whitesides, P.S. 401(k) Profit Sharing Plan (the Plan) [03/24/2004]

[PDF Version]

Volume 69, Number 57, Page 13883-13904

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Application No. D-11132, et al.]

 
Proposed Exemptions; Landerholm, Memovich, Lansverk & Whitesides, 
P.S. 401(k) Profit Sharing Plan (the Plan)

AGENCY: Employee Benefits Security Administration, Labor

ACTION: Notice of Proposed Exemptions.

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

Written Comments and Hearing Requests

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

ADDRESSES: All written comments and requests for a hearing (at least 
three copies) should be sent to the Employee Benefits Security 
Administration (EBSA), 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

[[Page 13884]]

Exemption. Interested persons are also invited to submit comments and/
or hearing requests to EBSA via e-mail or FAX. Any such comments or 
requests should be sent either by e-mail to: ``moffitt.betty@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 
Employee Benefits Security 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.

Landerholm, Memovich, Lansverk & Whitesides, P.S.; 401(k) Profit 
Sharing Plan (the Plan); Located in Vancouver, WA

[Application No. D-11132]

Proposed Exemption

    Based on the facts and representations set forth in the 
application, the Department is considering granting an exemption under 
the authority of section 408(a) of the Act and section 4975(c)(2) of 
the Code and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990).\1\
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    \1\ For purposes of this proposed exemption, references to 
specific provisions of title I of the Act, unless otherwise 
specified, refer also to corresponding provisions of the Code.
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Section I. Covered Transactions
    If the exemption is granted, the restrictions of section 406(a) of 
the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(A) through (D) of the 
Code shall not apply, effective January 1, 1998, to the past 
acquisition by the Plan, through its real estate contract fund (the 
Fund), of real estate mortgage contracts (the Contracts) from American 
Equities, Inc. (AE), a party in interest with respect to the Plan.
    In addition, if the exemption is granted, the restrictions of 
section 406(a) of the Act and the sanctions resulting from the 
application of section 4975 of the Code, by reason of section 
4975(c)(1)(A) through (D) of the Code, shall not apply to the (1) 
future acquisition by the Plan, through the Fund, of additional 
Contracts from AE; (2) the sale by the Plan of any of the Contracts to 
AE; and (3) the exchange by the Plan of certain Contracts with AE for 
other AE contracts and/or cash.
Section II. General Conditions
    This proposed exemption is conditioned upon adherence to the 
material facts and representations described herein and upon 
satisfaction of the following general conditions:
    (a) Any acquisition, sale or exchange is approved in advance by the 
Plan's Trustees (the Trustees), who are independent of AE and the 
borrowers. Furthermore, the terms of each transaction between the Plan 
and AE involving the Contracts is not less favorable to the Plan than 
those terms generally available in an arm's length transaction between 
unrelated parties.
    (b) The transactions are not a part of an agreement, arrangement or 
understanding designed to benefit AE.
    (c) For purposes of an acquisition, sale or exchange, the cost of a 
Contract does not exceed its fair market value, as determined by the 
Plan's Trustees using an objective appraisal methodology, and the yield 
on all Contracts purchased, sold or exchanged exceeds the average yield 
of comparable mortgage contract loans by not less then 1%.
    (d) The aggregate fees paid to AE for its activities as loan 
servicing agent for the Plan at all times do not exceed ``reasonable 
compensation'' within the meaning of section 408(b)(2) of the Act.
    (e) No investment management, advisory, underwriting fees or sales 
commissions are paid by the Plan to AE or any of its affiliates with 
regard to the Plan's purchase, sale or exchange of a Contract.
    (f) All Contracts acquired by the Plan satisfy the Trustees' 
selection criteria (the Selection Criteria). In this regard, at the 
time of the transaction:
    (1) The loan to value ratio must be 75% or less;
    (2) The ``Total Return'' on the Contract is at least 1.00% above 
the prevailing 30 year home mortgage rate;
    (3) The purchaser of the property provides a clean payment history 
and a personal credit report of at least 12 months' duration;
    (4) The property is in good condition with no defects discovered 
upon inspection;
    (5) A clean title report is required; and
    (6) A first position lien is obtained on the property.
    (g) For prospective purchases or exchanges of Contracts by or 
between the Plan and AE,
    (1) The Trustees engage an independent and unrelated consultant 
(the Independent Consultant), trained and experienced in real estate 
financing, to perform a written annual review of the Plan's Contract 
selection process to assure that--
    (i) The selection process produces a yield to the Plan consistent 
with comparable market returns for first mortgage investments by direct 
federally insured lenders in the Trustees' market area;
    (ii) The selection process permits only the purchase of Contracts 
which are not subordinated to other indebtedness; and
    (iii) The selection process incorporates standards for loan to 
value ratio and borrower credit worthiness appropriate for qualified 
retirement plan investments; and
    (2) No Contracts are purchased or exchanged in any year until the 
Independent Consultant's review has been issued, and the Independent 
Consultant has the authority to require that the Plan modify or replace 
the Selection Criteria utilized by the Plan as a condition to issuance 
of its review.
    (h) The Trustees maintain for a period of six years, in a manner 
that is accessible for audit and examination, the records necessary to 
enable the persons, as described in (i) to determine whether the 
conditions of this proposed exemption have been met, except that--
    (1) A prohibited transaction will not be considered to have 
occurred if, due to circumstances beyond the control of the Trustees, 
the records are lost or

[[Page 13885]]

destroyed prior to the end of the six year period; and
    (2) No party in interest, other than the Trustees, shall be subject 
to the civil penalty that may be assessed under section 502(i) of the 
Act, or to the taxes imposed by section 4975(a) and (b) of the Code, if 
the records are not maintained, or are not available for examination as 
required by paragraph (h).
    (i) Except as provided in (i)(1)-(2) and notwithstanding any 
provisions of subsections (a)(2) and (b) of section 504 of the Act, the 
records referred to in paragraph (h) above shall be unconditionally 
available at their customary location for examination during normal 
business hours by--
    (1) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service, or the Securities and 
Exchange Commission;
    (2) Any fiduciary of the Plan who has authority to acquire or 
dispose of any assets of the Plan, or any duly authorized employee or 
representative of such fiduciary; and
    (3) Any participant or beneficiary of the Plans or duly authorized 
employee or representative of such participant or beneficiary.

EFFECTIVE DATE: If granted, this proposed exemption will be effective 
as of January 1, 1998 with respect to the Plan's past acquisition of 
the Contracts, and effective as of the date of publication of the final 
exemption in the Federal Register for future acquisitions, sales or 
exchanges of additional Contracts by the Plan.

Summary of Facts and Representations

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

[[Page 13886]]

process was completed and the Trustees agreed that certain Contracts 
were in the best interest of the Plan's investment strategy, the Plan 
purchased the Contracts on behalf of the Fund. Initially, Landerholm 
attempted to service the Contracts in-house, but it determined that it 
was more costly and cumbersome than to outsource the task. During this 
period, Landerholm bore the costs associated with servicing the 
Contracts. Subsequently, Landerholm decided that AE should be retained 
to service the Contracts and it would have no discretionary control 
over any of the Fund's assets with respect to default decisions and 
other determinations. AE began charging a service fee of $4 to $8 per 
month per Contract and an initial set-up fee of $50 per Contract.\6\
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    \5\ The Applicants state that the Landerholm firm has a large 
and active real estate practice representing brokerage firms, 
developers, investors, lenders, and businesses in all matters 
pertaining to the acquisition, development, financing, sale and 
leasing of real estate. Thus, the Applicants believe Landerholm 
possesses skill sufficient to determine the appropriate fair market 
value of the Contracts it acquires, sells or exchanges.
    \6\ Although the Applicants represent that the fees paid to AE 
for servicing the Contracts are reasonable compensation for services 
necessary for the operation of the Plan in accordance with section 
408(b)(2) of the Act, the Department expresses no opinion herein on 
whether such compensation paid to AE in connection with its 
provision of services to the Plan satisfies the terms and conditions 
of section 408(b)(2) of the Act and the regulations promulgated 
thereunder.
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    During the period between April 11, 1994, through October 19, 2001, 
the Plan acquired 26 Contracts on behalf of the Fund from AE. The 
maturity dates range from July 1, 2002, through September 27, 2020, 
according to an October 2001 spread sheet submitted by the Applicants. 
The Contracts consisted of a mortgage and several real estate contracts 
and deeds of trust. The Applicants state that as of December 31, 2002, 
which is the most recent date that financial information is available, 
the Fund had 21 participating individual accounts.
    6. At the time the Contracts were purchased, the Plan paid AE fair 
market value for the Contracts. The purchase price was determined by 
adjusting the offered Contract's rate to that of the prevailing market 
rate. In this regard, the Trustees obtained the prevailing market rate 
by measuring each prospective Contract's yield (i.e., the interest rate 
plus a discount) against the then current lending rates of independent 
local lending institutions (typically, First Independent Bank and U.S. 
Bank) all within the vicinity of Vancouver, Washington. In addition to 
ensuring that the rate of return was current through the time of 
purchase, the Trustees required each Contract to exceed the average 
yield of mortgage rates by no less than 1% in order that the Plan could 
capture a higher return.
    The Applicants represent that this method for determining fair 
market value simulates rate adjustments that take place in the bond 
market that either result in a sale premium or a discount at the time 
of purchase. Moreover, the Applicants state that the 1% above 
prevailing average mortgage yields provided a further investment 
safeguard for the Fund. Finally, the Plan paid no fees or commissions 
to AE in connection with the Contract purchases.
    7. Since the creation of the Fund, the Applicants represent that 51 
Contracts have been retired, 26 Contracts are under current management, 
2 have been foreclosed upon, and 3 have defaulted. The foreclosed 
Contracts resulted in the sale of the underlying real properties by the 
Plan to unrelated third party purchasers. Of the defaulted Contracts, 1 
has been cured and 2 are in the process of being cured.\7\
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    \7\ The Applicants state that curing refers to the process of 
removing whatever default exists in a Contract to make it current. 
For instance, if a Contract is 3 months in arrears, it will be cured 
if the borrower makes a payment to bring the loan current.
    As of February 10, 2004, the Applicants represent that three 
Contracts were in default status. All three properties were 
eventually sold, with the proceeds going to the Plan to pay in full 
the Contract balances outstanding. Two of the Contract balances were 
paid in full on December 12, 2003. The property on the third 
Contract was sold and funds to pay the balance in full are 
forthcoming.
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    Furthermore, no Contract has involved a borrower who is a party in 
interest with respect to the Plan. Within the past five years, the 
Applicants represent that the Fund has outperformed the mutual funds 
and has insulated the Plan from some of the market volatility to which 
traditional securities investments are susceptible. The Fund's annual 
return has ranged from 4.10% to 9.73%, whereas the mutual fund return 
has ranged from (-11.71%) to 24.94%.
    According to the Applicants, at no time during the Fund's inception 
did the Trustees or Landerholm realize that having AE as Contract 
seller and service provider raised the issue of a possible prohibited 
transaction. The Applicants state that the Plan would have continued to 
acquire Contracts from AE had it not been for the Department's Seattle 
Regional Office (SRO) investigation into employee benefit plans holding 
mortgage notes.
    8. On December 1, 2002, Landerholm entered into a tolling agreement 
(the Tolling Agreement) with the SRO as a result of the SRO's 
investigation of the Contracts held by the Plan. Pursuant to the 
Tolling Agreement, the SRO recommended that the Applicants seek 
exemptive relief from the Department with respect to the Plan's 
acquisition and holding of the Contracts.\8\
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    \8\ Due to the Act's statute of limitations, the Department does 
not propose to extend retroactive relief for any of the purchases 
that took place between 1982 through 1997. Therefore, the 
retroactive exemption will apply to purchases of Contracts occurring 
after January 1, 1998.
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    Accordingly, the Applicants request an administrative exemption 
from the Department in connection with the Plan's past acquisition of 
the Contracts from AE. In addition, the Applicants request prospective 
exemptive relief with respect to the Plan's future acquisition of 
additional Contracts from AE, the Plan's holding of such future 
Contracts, the sale of the Contracts to AE by the Plan, and the 
exchange by the Plan of such Contracts with AE for other Contracts and/
or cash. If granted, the proposed exemption will be effective as of 
January 1, 1998, with respect to the Plan's past acquisitions and 
holding of the Contracts. The exemption will be prospective with 
respect to additional purchases of Contracts by the Plan from AE, the 
holding of such Contracts by the Plan and the Sale or exchange of the 
Contracts.
    9. For prospective acquisitions of additional Contracts by the Plan 
from AE, the Trustees will follow the following guidelines:

     The terms of the transactions between the Plan 
and AE involving the Contracts must not be less favorable to the Plan 
than those terms generally available in an arm's length transaction 
between unrelated parties.
     The transactions are not a part of an agreement, 
arrangement or understanding designed to benefit AE.
     The cost of a Contract must not exceed its fair 
market value, as determined by the Trustees using an objective 
appraisal methodology, and the yield on all Contracts purchased must 
exceed the average yield of comparable mortgage contract loans by no 
less than 1%.
     The aggregate fees paid to AE for its activities 
as loan servicing agent for the Plan, have, and at all times, represent 
reasonable compensation for services necessary for the operation of the 
Plan in accordance with section 408(b)(2) of the Act.
     No investment management, advisory, underwriting 
fees or sales commissions must be paid by the Plan to AE or any of its 
affiliates with regard to the Plan's purchase of additional Contracts.
     All Contracts acquired by the Plan must satisfy 
the Trustees' Selection Criteria. In this regard, (1) the loan to value 
ratio must be 75% or less; (2) the ``Total Return'' on the Contract 
must be

[[Page 13887]]

at least 1.00% above the prevailing 30 year home mortgage rate; (3) the 
purchaser of the property must provide a clean payment history and a 
personal credit report of at least 12 months' duration; (4) the 
property must be in good condition with no defects discovered upon 
inspection; (5) a clean title report must be required; and (6) a first 
position lien must be obtained on the property.
     The Trustees maintain for a period of six years, 
in a manner that is accessible for audit and examination, the records 
necessary to enable (1) any duly authorized employee or representative 
of the Department, the Internal Revenue Service, or the Securities and 
Exchange Commission; (2) any fiduciary of the Plan who has authority to 
acquire or dispose of any assets of the Plan, or any duly authorized 
employee or representative of such fiduciary; and (3) any participant 
or beneficiary of the Plans or duly authorized employee or 
representative of such participant or beneficiary to determine whether 
the conditions of this proposed exemption have been met.

    In addition, the Trustees will retain an Independent Consultant to 
perform an annual review of the Plan's current Selection Criteria to 
ensure that the selection process produces a yield to the Plan 
consistent with comparable market returns for first mortgage 
investments by independent, direct federally-insured lenders in 
Landerholm's market area. Such Independent Consultant will be a 
certified public accountant having substantial experience in real 
estate financing. The Independent Consultant will perform its annual 
review prior to the purchase of any further Contracts by the Plan. The 
Independent Consultant will have the authority to modify or replace the 
Plan's Selection Criteria to the extent the Independent Consultant 
believes such modification or replacement is necessary for the Plan's 
Selection Criteria to comply with Selection Criteria customarily 
employed in the purchase of Contracts within the Plan's market area. 
The Independent Consultant will also review the Plan's valuation 
methodology for the Contracts to ensure that the Plan's methodology 
will permit the purchase of Contracts only where the Plan's security 
interest is not subordinate to any other indebtedness, and where the 
credit worthiness of the borrower and the loan to value ratio of the 
underlying real estate held as security are appropriate for qualified 
retirement plan investments. This review of Plan methodology by the 
Independent Consultant will take place prior to the beginning of each 
Plan Year during which the Plan will purchase additional Contracts from 
AE.
    10. The Applicants represent that at some point, it may become 
advisable to sell one or more of the Contracts, held by the Fund, to 
AE. Under such circumstances, the Applicants explain that a sale would 
favor the Plan by permitting the purchase of a more favorable Contract 
or providing the Fund with additional liquidity in order to make 
distributions or transfers between funds, as participants may elect. 
Therefore, the Applicants represent that any prospective sales of 
Contracts by the Plan to AE would include the same safeguards 
applicable to the prospective acquisitions by the Plan, as set forth in 
Representation 9 of the proposal. In addition, the Applicants state 
that such a sale by the Plan to AE would only be for cash.
    11. The Applicants represent that since AE is one of the larger 
marketers of Contracts in the Southwestern Washington area, engaging in 
an exchange of existing Contracts with AE would be beneficial to the 
Plan. Such an exchange, the Applicants state, would occur where the 
Trustees have considered the Plan's liquidity needs and determined that 
it would be in the best interests of the Plan to dispose of a large 
Contract in exchange for a combination of cash and smaller Contracts 
from AE. The Applicants propose that an exchange transaction will be 
subject to all of the safeguards already required for prospective 
acquisitions, as described in Representation 9.
    12. In addition, for each prospective sale or exchange transaction, 
the fair market value of a Contract will be determined by the Trustees 
using an objective appraisal methodology. Further, such transactions 
will be subject to the Selection Criteria described above, which will 
be reviewed and approved annually by the Independent Consultant, to 
ensure that the Plan receives neither less than fair market value or 
pays more than fair market value for a Contract sold or exchanged.
    13. In summary, it is represented that the transactions have 
satisfied or will satisfy the statutory criteria for an exemption under 
section 408(a) of the Act because:
    (a) Any acquisition, sale or exchange will be approved in advance 
by the Plan's Trustees, who are independent of AE and the borrowers. 
Furthermore, the terms of each transaction between the Plan and AE 
involving the Contracts have not been and will not be less favorable to 
the Plan than those terms generally available in an arm's length 
transaction.
    (b) The transactions are not a part of an agreement, arrangement or 
understanding designed to benefit AE.
    (c) For purposes of an acquisition, sale or exchange, the cost of a 
Contract has not exceeded and will not exceed its fair market value, 
and the yield on all Contracts have exceeded and will exceed the 
average yield of comparable mortgage contract loans.
    (d) The aggregate fees paid to AE for its activities as loan 
servicing agent for the Plan have represented and will represent, at 
all times, reasonable compensation for services necessary for the 
operation of the Plan in accordance with section 408(b)(2) of the Act.
    (e) No investment management, advisory, underwriting fees or sales 
commissions have been paid or will be paid by the Plan to AE in 
connection with the purchase, sale or exchange of a Contract.
    (f) All Contracts acquired by the Plan have satisfied or will 
satisfy the Trustees' Selection Criteria.
    (g) For prospective purchases or exchanges of Contracts by or 
between the Plan and AE, (1) the Trustees will engage an Independent 
Consultant.
    (h) The Trustees have maintained and will maintain, at their 
customary location for examination during normal business hours, the 
records necessary to enable certain persons to determine whether the 
conditions of the exemption have been met.

Notice to Interested Persons

    Notice of proposed exemption will be provided to all interested 
persons by first class mail within 10 days of publication of the notice 
of pendency in the Federal Register. Such notice shall include a copy 
of the notice of pendency, as published in the Federal Register, and 
supplemental statement, as required pursuant to 29 CFR 2570.43(b)(2), 
which shall inform interested persons of their right to comment on the 
proposed exemption. Comments are due within 40 days of the date of 
publication of the proposed exemption in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Ms. Silvia M. Quezada of the 
Department, telephone (202) 693-8553. (This is not a toll-free number.)

[[Page 13888]]

DuPont Capital Asset Management Corporation (DCMC); Located in 
Wilmington, DE

[Application Nos. D-11157--D-11159]

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 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, August 10, 1996).\9\
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    \9\ For purposes of this proposed exemption, references to 
specific provisions of the title I of Act, unless otherwise 
specified, refer also to the corresponding provisions of the Code.
---------------------------------------------------------------------------

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

[[Page 13889]]

    (5) The aggregate dollar value of the Debt Securities that were 
held on behalf of the DuPont Plans in the Master Trust immediately 
before the in kind transfer, and the number of Group Trust units held 
by the Master Trust for the DuPont Plans immediately after the transfer 
(the related per unit value and the aggregate value).
    (h) After the transfer of Debt Securities from the Master Trust to 
the Group Trust, the Independent Fiduciary performs a review verifying 
the pricing information supplied by the investment managers and the 
Group Trustee.
    (i) The Debt Securities that are transferred from the Master Trust 
to the Group Trust are valued using the same methodology currently used 
by the Master Trust to value such securities. Similarly, the Group 
Trust uses the same valuation methodology.
    (j) DCMC does not execute the in kind transfer transaction unless 
the Independent Fiduciary for the DuPont Plans consents to such in kind 
transfer in writing.
    (k) DCMC does not execute the in kind transfer transaction unless 
the wrap contracts issued by certain unrelated banks and insurance 
companies to the Master Trust agree in advance to maintain the then-
current book value for accounting purposes with respect to the assets 
transferred to the Group Trust. In addition, DCMC absorbs all costs 
associated with the commitments.
    (l) Each of the DuPont Plan's dealings with the Master Trust, the 
Group Trust and DCMC is on a basis that is no less favorable to such 
Plan than dealings between the Group Trust and other holders of Group 
Trust units.
Section III. General Conditions
    This proposed exemption is subject to the following general 
conditions:
    (a) DCMC maintains for a period of six years the records necessary 
to enable the persons described below in paragraph (b) of this Section 
III to determine whether the conditions of this exemption have been 
met, except that (1) a prohibited transaction will not be considered to 
have occurred if, due to circumstances beyond the control of DCMC, the 
records are lost or destroyed prior to the end of the six year period, 
and (2) no party in interest other than DCMC shall be subject to the 
civil penalty that may be assessed under section 502(i) of the Act or 
to the taxes imposed by section 4975(a) and (b) of the Code if the 
records are not maintained or are not available for examination as 
required by paragraph (b) below.
    (b)(1) Except as provided in paragraph (b)(2) of this Section III, 
and notwithstanding any provisions of sections 504(a)(2) and (b) of the 
Act, the records referred to in paragraph (a) 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) The Independent Fiduciary described in paragraph (e) of 
Section IV; or
    (iii) Any participant or beneficiary of the DuPont Plans or any 
duly authorized employee or representative of such participant or 
beneficiary.
    (2) None of the persons described in paragraph (b)(1)(ii) and (iii) 
of this Section III shall be authorized to examine trade secrets of 
DCMC, or commercial or financial information which is privileged or 
confidential.
Section IV. Definitions
    For the purposes of this proposed exemption,
    (a) The term ``DCMC'' means DuPont Capital Management Corporation 
and any affiliate of DCMC, as defined below in Section IV(b).
    (b) An ``affiliate'' of a person includes:
    (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, or partner in any 
such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (c) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (d) The term ``relative'' means a ``relative,'' as that term is 
defined in section 3(15) of the Act, (or a ``member of the family,'' as 
that term is defined in section 4975(e)(6) of the Code), or a brother, 
a sister, or a spouse of a brother or a sister.
    (e) The term ``Independent Fiduciary'' means a fiduciary who is: 
(1) independent of and unrelated to DCMC and its affiliates, and (2) 
appointed to act on behalf of the Plan for all purposes related to, but 
not limited to, (A) the in kind transfer of the Debt Securities by the 
Master Trust to the Group Trust, (B) the Group Trust, in turn, 
transferring units equal in value to the assets of the Master Trust 
held in certain stable value funds. For purposes of this proposed 
exemption, a fiduciary will not be deemed to be independent of and 
unrelated to DCMC if: (1) Such fiduciary directly or indirectly 
controls, is controlled by or is under common control with DCMC; (2) 
such fiduciary directly or indirectly receives any compensation or 
other consideration in connection with any transaction described in 
this proposed exemption, except that an Independent Fiduciary may 
receive compensation for acting as an Independent Fiduciary from DCMC 
in connection with the transaction contemplated herein if the amount of 
payment of such compensation is not contingent upon or in any way 
affected by the Independent Fiduciary's ultimate decision; and (3) the 
annual gross revenue received by such fiduciary from DCMC and its 
affiliates during any year of its engagement, exceeds 5 percent (5%) of 
the Independent Fiduciary's annual gross revenue from all sources for 
its prior tax year.
    (f) The term ``transferable securities'' means securities (1) for 
which market quotations are readily available (as determined under Rule 
17a-7 of the 1940 Act) and (2) which are not: (i) Securities which, if 
distributed, would require registration under the Securities Exchange 
Act of 1933 (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. Notwithstanding the above, the term ``transferrable 
securities'' also includes securities that are considered private 
placements intended for large institutional investors, pursuant to Rule 
144A under the 1933 Act, which are valued by the unrelated investments 
managers for the

[[Page 13890]]

DuPont Stable Value Fund (the Fund), or if applicable, by the 
Independent Fiduciary, which will confirm and approve all such 
valuations.

Summary of Facts and Representations

    1. DCMC, a wholly owned subsidiary of DuPont, is a registered 
investment adviser under the Investment Advisers Act of 1940. DCMC is 
intended to qualify as an ``in house asset manager'' or ``INHAM'' \10\ 
with respect to the DuPont Plans. DCMC acts as investment manager with 
respect to the Fund, which is offered as an investment option under 
each of the DuPont Plans. The assets of the Fund are held in the Master 
Trust. DCMC is responsible for managing the Fund, including certain 
underlying Debt Securities that, together with certain bank and 
insurance contracts, constitute a portion of the synthetic guaranteed 
investment contracts held by the Fund. However, DCMC directly manages 
approximately 20% of the Debt Securities, valued in excess of $3.5 
billion, and it has appointed four outside investment managers to 
manage the remainder of the debt securities. DCMC receives no fees for 
its services to the DuPont Plans, but it does charge back to the DuPont 
Plans, a pro rata share of direct costs related to its management 
activities.
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    \10\ See Prohibited Transaction Class Exemption (PTCE) 96-23 (61 
FR 15975, April 10, 1996) (the INHAM Exemption).
---------------------------------------------------------------------------

    2. The DuPont Plans are tax-qualified, defined contribution plans 
described in section 401(a) of the Code. Each of the DuPont Plans 
offers a ``cash or deferred arrangement,'' matching contributions, and 
may also offer discretionary employer contributions. Each of the DuPont 
Plans offers a selection of investment options to participants in a 
manner intended to satisfy the requirements of an ERISA ``section 
404(c) plan.'' \11\ Several of the investment options offered to ERISA 
section 404(c) plans are common among the DuPont Plans, including the 
Fund. The common funds are pooled under the Master Trust while 
investment options that are unique to a DuPont Plan are held under a 
separate trust. The separate trusts and the Master Trust are exempt 
from taxation under the provisions of section 501(a) of the Code. As of 
January 31, 2004, the DuPont Plans covered approximately 68,000 
participants and beneficiaries.\12\ The fair market value of the DuPont 
Plans' assets as of January 31, 2004 exceeded $9.5 billion.
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    \11\ See 29 CFR 2550.404c-1.
    \12\ As of January 31, 2004, the SIP covered approximately 
66,866 participants and it had total assets in excess of $9.5 
billion. As of January 31, 2004, the Sentinel Thrift Plan covered 
approximately 485 participants and it had total assets of 
approximately $22.1 million. As of January 31, 2004, the DSG Savings 
Plan covered approximately 91 participants and it had total assets 
of approximately $8.6 million. Generally, there is no overlap of 
participants.
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    The Named Fiduciary of each DuPont Plan is responsible for the 
selection of investment options for such Plan and for the selection of 
investment advisers and managers.\13\ Each DuPont Plan permits the 
Named Fiduciary to appoint investment managers and to delegate to an 
investment manager the authority to appoint additional investment 
managers. The Named Fiduciary of each DuPont Plan has delegated 
investment fiduciary authority with respect to investment in the Fund 
to the Vice President DuPont Capital Management (DCM), \14\ who, in 
turn, has entered into an investment management agreement with DCMC to 
manage assets of the Fund and to appoint additional investment managers 
to manage assets of the Fund.
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    \13\ The Named Fiduciary for SIP is the Vice President of DuPont 
Capital Management; Named Fiduciary authority for the Sentinel 
Thrift Plan is divided between Sentinel Transportation, L.L.C. and 
an Employee Benefit Plans Board; and the Named Fiduciary for the DSG 
Savings Plan is Optimum Quality Grains, Inc.
    \14\ DCM is a division of DuPont, while DCMC is a wholly owned 
subsidiary of DuPont.
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    3. The Fund constitutes one of several investment options made 
available to participants in the DuPont Plans, and as of September 30, 
2002, it represented more than 60% of total combined assets of such 
plans. The Fund is a ``stable value fund'' with an investment objective 
of providing a stable rate of return that exceeds the rate of return on 
money market funds with comparable risk. The Fund is also managed to 
accommodate daily participant-related liquidity needs as provided by 
the DuPont Plans. As such, the Fund is structured into two tiers (a) a 
``liquidity tier,'' which holds cash and other marketable securities 
consisting of one or two short-term synthetic guaranteed investment 
contracts (synthetic GICs), which are backed by mutual or commingled 
bond funds, maturing guaranteed investment contracts (GICs), maturing 
separate account GICs, and or maturing synthetic GICs; and (b) a 
``total return tier'' consisting entirely of synthetic GICs, which are 
managed on a total return basis with no established maturity date 
(known as ``evergreen synthetic GICs'').\15\ The liquidity tier and the 
total return tier each comprise approximately 50% of the Fund's assets. 
The overall rate of return on the Fund represents a combination of the 
rates of return of each of the tiers.
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    \15\ Unlike traditional GICs which contain a contractual promise 
to pay a specified rate of interest over the life of the contract, a 
synthetic GIC consists of a discreet portfolio of debt securities 
and a ``wrap'' contract associated with the portfolio that 
guarantees a rate of return with respect to the portfolio over a 
crediting period. Wrap contracts are typically issued by banks and 
insurance companies. Synthetic GICs became an important component of 
stable value funds after the collapse of a few large GIC issuers in 
the early 1990's. Since the investing plan retains the portfolio of 
debt securities underlying the synthetic GIC, the potential loss to 
the plan is limited to the value of the wrap contracts.
---------------------------------------------------------------------------

    4. The proposed Group Trust, which will be utilized for the total 
return tier of the Fund, will be a group trust described in Rev. Rul. 
81-100. The Group Trustee, which has been selected by DCMC, will be 
State Street Bank & Trust (SSB), a subsidiary of State Street 
Corporation.\16\ SSB will act as a directed trustee with respect to the 
Group Trust.\17\
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    \16\ DCMC is not affiliated with any banks or insurance 
companies used as wrap providers for the Fund. State Street Global 
Advisors (SSGA), a division of SSC, and DCMC are 50-50 joint venture 
partners in Wilton Asset Management, a marketer of closed-end 
private equity funds, SSB has not issued wrap contracts to the 
DuPont Plans and it is not anticipated that SSB will issue wrap 
contracts to Plans that invest in the Group Trust. Furthermore, SSB 
will not have any role in the selection of the wrap issuers or 
investment managers.
    \17\ As Group Trustee, SSB will be entitled to receive the 
following fees relating to the Group Trust: asset-based fees, 
transaction fees, pooled accounting fees, performance reporting 
fees, securities lending fees, short-term investment fees, and 
reimbursement for audit, courier, communication and other applicable 
miscellaneous expenses. According to DCMC, these fees are 
statutorily exempt under section 408(b)(2) of the Act and the 
regulations promulgated thereunder. However, the Department 
expresses no opinion herein on whether such fees satisfy the 
requirements of section 408(b)(2) of the Act.
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    5. Besides the DuPont Plans, the Investment Plan for Salaried 
Employees of CONSOL Energy, Inc. (the CONSOL Energy Plan) a defined 
contribution plan sponsored by CONSOL Energy, Inc. (CONSOL Energy), an 
employer who is not affiliated with DuPont but for which DCMC has been 
appointed as an investment manager, may participate in the 
establishment of the Group Trust. CONSOL Energy was previously a wholly 
owned business of DuPont. In connection with the divestiture of CONSOL 
Energy, assets were transferred to a stable value fund established 
under the CONSOL Energy Plan. As of September 30, 2003, the CONSOL 
Energy Plan had total assets of $917,209,067.07 and 5,560 participants. 
The Independent Fiduciary of the CONSOL Energy Plan appointed DCMC as 
an investment manager of the Plan's stable value fund and of the 
underlying Debt Securities in such fund. As with the Fund, DCMC has 
appointed four

[[Page 13891]]

investment managers to assist in the management of the Debt Securities 
in the CONSOL Energy Plan's stable value fund.
    DCMC has not secured any commitments from the CONSOL Energy Plan to 
participate in the Group Trust. However, it anticipates such Plan's 
investment. If the CONSOL Energy Plan does choose to participate in the 
Group Trust, DCMC does not believe there would be a violation of 
section 406(a)(1)(D) of the Act because the decision to invest in the 
Group Trust will be made by a fiduciary for the CONSOL Energy Plan who 
is independent of DuPont and its subsidiaries. DCMC states that the 
fact that it will realize a benefit incidental to the transaction does 
not cause the transaction to violate section 406(a)(1)(D) of the Act. 
Therefore, this exemption will apply only to the DuPont Plans currently 
investing in the Master Trust.
    In addition, to the DuPont Plans and potentially, the CONSOL Energy 
Plan, tax-qualified plans of other unrelated employers will be allowed 
to participate in the Group Trust at a future date. However, DCMC will 
have no prior management responsibilities with respect to such plans.
    6. Thus, the remaining parties to the proposed transaction will be 
the investment managers DCMC will appoint as fiduciaries to assist it 
in the management of Group Trust assets. DCMC will retain the 
discretion to appoint or remove any or all of such managers. In this 
regard, DCMC may appoint four unrelated managers who will manage 
approximately 20% each of the Debt Securities held in the Group Trust 
or retain the existing managers.
    7. DCMC will propose to the Independent Fiduciary for the DuPont 
Plans, the establishment of the Group Trust to hold the Debt Securities 
which DCMC currently manages for the Fund. Specifically, the 
Independent Fiduciary, before authorizing the transfer of assets by the 
DuPont Plans from the Master Trust to the Group Trust, will determine 
that (a) the terms of the transaction, are fair to the participants in 
the DuPont Plans and are comparable to, and no less favorable than, 
terms obtainable at arm's length between unaffiliated parties; and (b) 
the transaction is in the best interest of the DuPont Plans, their 
participants and beneficiaries.
    In addition, the Independent Fiduciary will receive written 
disclosures that will include, but will not be limited to, the 
following information: (a) A private offering memorandum describing the 
transaction; \18\ (b) a table listing management fees, as negotiated 
under the applicable investment management agreements, and projected 
costs; (c) a chart showing the effect of such fees and costs on an 
investment in the Group Trust for different amounts of Debt Securities 
managed in the Group Trust; (d) a statement of the reasons why DCMC may 
consider such investment to be appropriate for the DuPont Plans; (e) a 
statement of whether there are any limitations applicable to DCMC with 
respect to which assets of a DuPont Plan may be invested in the Group 
Trust and the nature of such limitations; and (f) copies of the 
proposed and final exemption.
---------------------------------------------------------------------------

    \18\ The private offering memorandum will contain substantially 
the same information that would be included in a prospectus for a 
registered security. Moreover, the DuPont Plans will have an 
opportunity to request whatever additional information they may need 
for purposes of evaluating the offering.
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    As stated above, DCMC will establish the Group Trust as a trust 
intended to qualify as tax-exempt under Rev. Rul. 81-100. DCMC will 
then, upon approval of the Independent Fiduciary, transfer the Debt 
Securities under DCMC's management into five separate funds or 
subtrusts established under the Group Trust for each investment manager 
of Debt Securities.\19\ In exchange for the Debt Securities transferred 
to the Group Trust, the DuPont Plans will receive units in the Group 
Trust of equal value to the Debt Securities transferred to the Group 
Trust in a one-time transaction. The Debt Securities will have readily 
ascertainable market values.\20\ The value of the units will be 
determined by dividing the total fair market value of the transferred 
Debt Securities on the day of transfer by the number of Group Trust 
units issued to the DuPont Plans. No sales commissions, fees or other 
costs will be paid by the DuPont Plans in connection with the in kind 
transfer transaction.
---------------------------------------------------------------------------

    \19\ For the DuPont Plans, all of the Debt Securities held in 
the total return tier of the Fund will be transferred to the Group 
Trust.
    \20\ It is possible that an investment manager for the Fund may 
have purchased Debt Securities through a private placement offering. 
Such securities may either be ``144A private placements,'' which 
trade similarly to public securities or others that are not as 
readily tradable. The latter category of private placement is 
intended to be held to maturity or traded on a limited basis. The 
value of such securities will be determined by an unrelated Fund 
investment manager or if applicable, by the Independent Fiduciary on 
the transfer date based on credit quality, length to maturity and 
current interest rates. Based on values on September 30, 2002, less 
than 3.2% of the Group Trust is expected to be invested in such Debt 
Securities.
---------------------------------------------------------------------------

    8. The wrap contracts held by the Master Trust will not be 
transferred to the Group Trust. Instead, DCMC will secure commitments 
from the banks and insurance companies which issued the wrap contracts 
to substitute the Group Trust units under the wrap contracts for the 
Debt Securities that are transferred to the Group Trust. DCMC will 
cover any additional costs associated with the wrap contract 
commitments. Under the terms of the agreement, the book value of the 
evergreen synthetic GICs as a whole after the substitution of Group 
Trust units will not be less than the book value of the evergreen 
synthetic GICs prior to the transfer of Debt Securities to the Group 
Trust.\21\
---------------------------------------------------------------------------

    \21\ According to AICPA Statement of Position 94-4, ``book 
value'' is defined as the measurement of value of stable value 
investments, including synthetic GICs. Generally, book value 
consists of the amount paid for the underlying portfolio of debt 
securities, plus the interest credited with respect to the portfolio 
under the terms of the wrap contract. The wrap contract specifies 
the types of securities including units of funds that can be 
wrapped. Since the wrap will apply to units after the transfer to 
the Group Trust, the applicant states that the wrap contract likely 
will require minor modification to continue book value treatment 
with respect to the units at the same levels that applied to the 
Debt Securities before the transfer to the Group Trust.
---------------------------------------------------------------------------

    9. Accordingly, DCMC requests an administrative exemption from the 
Department in order to allow it to engage in the in kind transfer 
transaction. It is represented that the exchange of Debt Securities 
held by the Master Trust through the Fund for Group Trust units 
constitutes a prohibited transaction described in section 406(a) of the 
Act due to the ``sale or exchange'' of plan assets for Group Trust 
units. It is also represented that DCMC is a fiduciary of the DuPont 
Plans and will cause such plans to transfer Debt Securities to the 
Group Trust in exchange for Group Trust units. Further, DCMC will 
continue to manage the assets as investment manager of the Group Trust 
after the in kind transfer. Because DCMC is directing an exchange in 
which it is on both sides of the transaction, DCMC does not believe the 
INHAM Exemption applies to the contemplated transaction.
    In addition, it is represented that the establishment of the Group 
Trust with Fund assets may result in a violation of section 406(b) of 
the Act because of the potential for increased management fees payable 
to DCMC in the future by unrelated plans willing to invest in the Group 
Trust. Although the applicant believes that the establishment of the 
Group Trust with assets of the DuPont Plans will likely result in a net 
decrease in fees and costs to the Plans over time, DCMC states that the 
expected future increase in asset values as assets accumulate and as 
unrelated plans contribute assets to the Group Trust may result in 
larger fees collected by DCMC

[[Page 13892]]

than DCMC would have collected if the Group Trust had not been 
established.
    10. DCMC is also requesting that the exemption encompass DCMC's 
methodology for valuing Group Trust units utilized in PTCE 97-41 (62 FR 
42830, August 8, 1997), but adapted to a non-bank context. In this 
regard, PTCE 97-41 provides a methodology for converting interests in 
bank-sponsored collective investment funds to mutual funds for which 
the bank acts as an investment adviser. Specifically, DCMC proposes 
valuing the exchanged Debt Securities on the transfer date in exchange 
for Group Trust units in a manner consistent with PTCE 97-41.\22\
---------------------------------------------------------------------------

    \22\ In this regard, the ``current market price'' for specific 
types of Debt Securities will be determined as follows:
    (a) If the security is a ``reported security'' as the term is 
defined in Rule 11Aa3-1 under the 1934 Act, the last sale price with 
respect to such security reported in the Consolidated System on the 
Group Trust valuation date; or if there are no reported transactions 
in the Consolidated System that day, the average of the highest 
current independent bid and the lowest current independent offer for 
such security (reported pursuant to Rule 11Ac1-1 under the 1934 
Act), as of the close of business on the Group Trust valuation date.
    (b) If the security is not a reported security, and the 
principal market for such security is an exchange, then the last 
sale on such exchange on the Group Trust valuation date; or if there 
are no reported transactions on such exchange that day, the average 
of the highest current independent bid and lowest current 
independent offer on such exchange as of the close of business on 
the Group Trust valuation date.
    (c) If the security is not a reported security and is quoted in 
the NASDAQ system, then the average of the highest current 
independent bid and lowest current independent offer reported on 
NASDAQ as of the close of business on the Group Trust valuation 
date.
    (d) For all other securities, the average of the highest current 
independent bid and lowest current independent offer as of the close 
of business on the Group Trust valuation date, determined on the 
basis of reasonable inquiry. (For securities in this category, DCMC 
represents that it will obtain quotations from at least three 
sources which were either broker-dealers or pricing services 
independent of and unrelated to DCMC and, where more than one valid 
quotation was available, used the average of the quotations to value 
the securities, in conformance with interpretations by the SEC and 
practice under Rule 17a-7.)
---------------------------------------------------------------------------

    Thus, fair market value will be determined by the average of the 
highest current independent bid and the lowest current independent 
offer as of the close of business as provided to the investment 
managers by three independent third-party commercial pricing sources. 
If a price is unavailable through such sources, the investment managers 
will solicit bids from at least three independent dealers who stand 
ready to trade at such bids. All commercial pricing sources and dealers 
will be pre-approved by the investment managers. The fair market value 
of any private placement Debt Securities that are not readily tradable 
will be provided by DCMC to the Independent Fiduciary for review and 
approval of the methodology and the application of such methodology in 
valuing such Debt Securities.\23\
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    \23\ As stated previously, as of September 30, 2002, such 
securities comprise less than 3.2% of the expected value of the 
Group Trust.
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    In addition, as noted in Representation 8, DCMC will not make any 
transfer of Debt Securities to the Group Trust without the advance 
agreement of the wrap issuers to wrap the Group Trust units at a book 
value that is not less than the book value reported to the Fund by the 
wrap issuers prior to the transfer.\24\ Also, DCMC will pay for any 
increase.
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    \24\ The ``wrap'' value will be the difference between the fair 
(or market) value of the underlying Debt Securities and the book (or 
contract) value of each synthetic GIC. According to DCMC, AICPA 
Statement of Position SOP 94-4 values stable value investment 
contract, at contract value. DCMC further states that all of the 
contracts contained in the Fund satisfy the requirement of SOP 94-4.
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    11. Thus, with respect to the in kind transfer transaction, Group 
Trust units will be valued by the Group Trustee based on the aggregate 
asset value of the Debt Securities held by the Group Trust as of the 
transfer date as determined in accordance with Rule 17a-7, divided by 
the number of units issued. The unit value, market value of exchanged 
securities and the number of units issued will be provided to the 
Independent Fiduciary of the DuPont Plans within 30 days of the 
transfer to the Group Trust.
    In this regard, the confirmation statement will contain the 
following information:
    (a) The identity of each Debt Security that DCMC deemed suitable 
for transfer from the Master Trust to the Group Trust; (b) the current 
market price of each Debt Security for purposes of the transfer as 
determined on the date of the in kind transfer; (c) the identity of 
each Debt Security that does not fall into at least one of the 
following categories: a reported security; a security principally 
traded on an exchange; or a security quoted on the NASDAQ System; (d) 
the identity of each pricing service or market maker which was 
consulted in determining the fair market value of the Debt Securities, 
and the aggregate dollar value of the Debt Securities that were held on 
behalf of the DuPont Plans in the Master Trust immediately before the 
in kind transfer transaction and the number of Group Trust units held 
by the Master Trust for the DuPont Plans immediately after the in kind 
transfer transaction (the related per unit value and the aggregate 
value).
    12. Once the Group Trust is established, DCMC expects that plans of 
unrelated employers will invest therein. It is anticipated that most of 
the investing plans will do so to fund all or a portion of their stable 
value funds. However, some plans may invest solely to hold a 
diversified portfolio of debt securities without associating the Group 
Trust units with a wrap contract. Because the valuation of Group Trust 
units is not dependent on the existence of a wrap contract, the number 
of issued units will be determined on the day of the transfer of any 
Debt Securities by dividing the fair market value of the transferred 
Debt Securities by the unit value of the applicable funds in the Group 
Trust. If cash is transferred, the number of units issued will be the 
cash amount divided by unit value, as determined by the Group Trustee.
    13. If the Group Trust is established as proposed, DCMC will not 
charge an investment management fee to the DuPont Plans, but it will 
continue to charge to the DuPont Plans a proportionate share of direct 
costs incurred by the subtrust under the Group Trust managed by 
DCMC.\25\ In addition, DCMC or an affiliate will charge the DuPont 
Plans direct costs for investment management of the Group Trust, only 
after full disclosure of the Group Trust's fee arrangement to the 
Independent Fiduciary. The overall fee structure will be similar, if 
not less costly, to the DuPont Plans than the fee structure currently 
in effect.
---------------------------------------------------------------------------

    \25\ Such costs will be allocated equally among subtrust units 
owned by the DuPont Plans.
---------------------------------------------------------------------------

    It is anticipated that DCMC's (or an affiliate's) total reimbursed 
expenses attributable to the assets of the DuPont Plans in the Group 
Trust will not exceed (and maybe less) than the amount of such 
reimbursed expenses before the transfer of DuPont Plan's assets in the 
Master Trust to the Group Trust. The cost savings, are expected to 
result from the ability of DCMC to consolidate investment management 
decisions and resources over a larger portfolio as opposed to separate 
and smaller portfolios maintained under separate trusts. In addition, 
DCMC expects investment management fees, as a percentage of assets, 
will decline as the asset base increases in size.
    14. In order to address the potential conflict caused by the 
establishment of the Group Trust with Fund assets, the DuPont Plans 
will retain an independent fiduciary to review the proposed 
establishment of the Group Trust. DuPont or DCMC will pay the 
Independent Fiduciary a flat fee in advance of its review of the 
proposed

[[Page 13893]]

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

[[Page 13894]]

the DuPont Plans, the transferred assets will constitute a pro rata 
portion of all of the assets of the DuPont Plans that are held in the 
total return tier portion of the Fund, which comprises part of the 
Master Trust prior to the transfer.
    (b) The DuPont Plans will pay no sales commissions, or other 
similar fees in connection with the in kind transfer transaction. 
Furthermore, no additional management fees will be charged to the 
DuPont Plans by DCMC in the Group Trust.
    (c) The assets transferred to the Group Trust pursuant to the in 
kind transfer transaction will consist of Debt Securities which are 
deemed to be ``transferable securities.''
    (d) Each DuPont Plan will receive a proportionate share of the 
transferable securities which will equal in value to the number of 
units in the Group Trust such plan will receive, as determined in a 
single valuation performed in the same manner in accordance with 
valuation procedures prescribed by Rule 17a-7 of the 1940 Act.
    (e) Prior to the in kind transfer transaction, DCMC will provide to 
the Independent Fiduciary a full and detailed written disclosure of 
information regarding the transaction and, on the basis of the 
foregoing information, such Independent Fiduciary will provide written 
authorization for the transaction.
    (f) The Independent Fiduciary will determine that (1) the terms of 
the in kind transfer transaction are fair to the participants in the 
DuPont Plans, and are comparable to, and no less favorable than, terms 
obtainable at arm's length between unaffiliated parties; and (2) the in 
kind transfer transaction is in the best interest of the DuPont Plans 
and their participants and beneficiaries.
    (g) Not later than 30 days after the completion of an in kind 
transfer transaction, DCMC will provide to the Independent Fiduciary 
for the DuPont Plans, a written confirmation regarding such 
transaction.
    (h) Subsequent to the in kind transfer transaction, the Independent 
Fiduciary will perform a post-transaction review which will include, 
among other things, a random sampling of the pricing information 
supplied by the Group Trustee.
    (i) Each of the DuPont Plan's dealings with the Master Trust, the 
Group Trust and DCMC will be on a basis that is no less favorable to 
such Plan than dealings between the Group Trust and other holders of 
Group Trust units.
    (j) The Debt Securities that are transferred from the Master Trust 
to the Group Trust will be valued using the same methodology currently 
used by the Master Trust to value such securities. Similarly, the Group 
Trust will use the same valuation methodology.
    (k) DCMC will not execute the in kind transfer transaction unless 
the Independent Fiduciary for the DuPont Plans consents to such in kind 
transfer in writing.
    (l) DCMC will not execute the in kind transfer transaction unless 
the wrap contracts issuers to the Master Trust agree in advance to 
maintain the then-current book value for accounting purposes with 
respect to the assets transferred to the Group Trust.

Notice to Interested Persons

    DCMC represents that it will distribute, by either first class mail 
or by e-mail to DuPont Plan participants who have affirmatively elected 
to access their account statements electronically, a copy of the notice 
of proposed exemption (the Notice) within thirty (30) days of the date 
of such Notice is published in the Federal Register. The Notice will 
also be sent to the Named Fiduciaries and the Independent Fiduciary for 
the DuPont Plans. The Notice will include a copy of the proposed 
exemption, as published in the Federal Register, and a supplemental 
statement, as required pursuant to 29 CFR 2570.43(b)(2), which informs 
all interested persons of their right to comment on and/or request a 
hearing with respect to the proposed exemption. Comments and requests 
for a public hearing are due within sixty (60) days following the 
publication of the proposed exemption in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Mr. Arjumand A. Ansari of the 
Department at (202) 693-8566. (This is not a toll-free number.)

The UNITE National Retirement Fund; Located in New York, New York

[Exemption Application No. D-11185]

Proposed Exemption

I. Covered Transactions
    The Department is considering granting an exemption under the 
authority of section 408 of the Act and section 4975 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).\27\ If the exemption 
is granted, the restrictions of sections 406(a)(1)(A) through(D), 
406(b)(1), and 406(b)(2) of the Act and the sanctions resulting from 
the application of section 4975 of the Code, by reason of section 
4975(c)(1)(A) through (E) of the Code, shall not apply to the proposed 
purchase by the Union of Needletrades, Industrial and Textile Employees 
(UNITE) and certain regional entities affiliated with and chartered by 
UNITE (the UNITE Affiliates) from the UNITE National Retirement Fund 
(the Pension Fund) of shares of perpetual cumulative convertible 
preferred stock (the Preferred Stock) representing fifteen percent 
(15%) of the outstanding equity interests in the ALICO Services 
Corporation (ASC), a wholly-owned entity of the Pension Fund; provided 
the conditions set forth in section II, below, are satisfied.
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    \27\ 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.
---------------------------------------------------------------------------

II. Conditions
    Prior to entering into the transactions, (a) an independent, 
qualified fiduciary,(the Independent Fiduciary), as defined in section 
III(a), below, determines, on behalf of the Pension Fund, whether the 
Preferred Stock should be sold to UNITE and to the UNITE Affiliates; 
(b) the Independent Fiduciary approves of the terms underlying the 
Preferred Stock to be issued by ASC; (c) the Independent Fiduciary 
negotiates and approves of the terms of the sales of the Preferred 
Stock to UNITE and to the UNITE Affiliates; (d) the Independent 
Fiduciary monitors the terms of the transactions and ensures that ASC, 
UNITE, and the UNITE Affiliates comply with the approved terms of the 
sales of the Preferred Stock; (e) the Independent Fiduciary determines 
that the terms of the sales of the Preferred Stock are no less 
favorable to ASC than terms that would be offered to an unrelated third 
party under similar circumstances; (f) the Independent Fiduciary 
determines that the purchase price for the Preferred Stock paid by 
UNITE and by the UNITE Affiliates is no less than the fair market value 
of such Preferred Stock, as of the date each of the transactions is 
entered; (g) the Independent Fiduciary determines the fair market value 
of the Preferred Stock, as of the date each of the transactions is 
entered; (h) in determining the fair market value of the Preferred 
Stock, the Independent Fiduciary obtains an appraisal from an 
independent qualified appraiser selected by the Independent Fiduciary 
and ensures that the appraisal and the Independent Fiduciary's analysis 
of the appraisal are consistent with sound principles of valuation and 
the elements described in paragraph 8, in the Summary of Facts and 
Representations in this proposed exemption; and (i) the Pension Fund 
incurs no fees, commissions, or other charges or

[[Page 13895]]

expenses as a result of its participation in the transactions other 
than the fees incurred in requesting this exemption and the fee payable 
to the Independent Fiduciary.
III. Definitions
    For purposes of this exemption:
    (a) the term, ``Independent Fiduciary,'' means an individual or 
firm which is independent of and unrelated to ASC, UNITE, the UNITE 
Affiliates, and any other party to the subject transactions (the 
Parties), and which has acknowledged and agreed that it is a fiduciary 
appointed to act on behalf of the Pension Fund for all purposes related 
to the subject transactions. For purposes of this exemption:
    (1) A fiduciary will not be deemed to be independent of and 
unrelated to the Parties, if:
    (i) such fiduciary directly or indirectly controls, is controlled 
by or is under common control with such Parties;
    (ii) such fiduciary directly or indirectly receives any 
compensation or other consideration from such Parties in connection 
with the transactions described in this proposed exemption; except that 
an Independent Fiduciary may receive compensation for acting as an 
Independent Fiduciary 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 
decisions with regard to the subject transactions;
    (2) No individual or firm shall serve as an Independent Fiduciary 
during any year in which annual gross revenues received from business 
with the Parties for that year exceeds five (5) percent of such 
individual's or firm's annual gross revenues from all sources for the 
prior tax year; and
    (3) The individual or firm selected as an Independent Fiduciary 
must be qualified to serve as fiduciary and to carry out the duties 
responsibilities, as set forth herein.

Summary of Facts and Representations

    1. The Pension Fund is a multiemployer pension plan jointly 
trusteed by individuals selected by UNITE and individuals selected by 
various employers who contribute to the plan (the Trustees). Certain 
Trustees of the Pension Fund are also officers of UNITE and directors 
of ASC. The Pension Fund provides pension benefits to workers covered 
by collective bargaining agreements in the cotton garment and other 
related unionized segments of the garment, textile, laundry, and allied 
industries. The Pension Fund is an ``employee pension benefit plan,'' 
as defined under section 3(2) of the Act. As of December 31, 2001, 
there were approximately 95,995 participants and beneficiaries in the 
Pension Fund. As of December 31, 2001, the approximate aggregate fair 
market value of the total assets of the Pension Fund was $577,684,500. 
Effective December 1, 2003, the name of the Pension Fund was changed 
from the UNITE National Cotton Retirement Fund to the Unite National 
Retirement Fund as a result of a merger with the ILGWU National 
Retirement Fund. It is represented that the merged fund has 
approximately $1.5 billion in assets.
    2. ASC is a holding company organized under the laws of New York 
that is wholly-owned by the Pension Fund. The Trustees of the Pension 
Fund appoint the ASC Board of Directors (the Board). ASC wholly owns 
each of the following four (4) subsidiaries: (a) Amalgamated Life 
Insurance Company (ALICO); (b) Alicare Inc. (Alicare); (c) Alicare 
Medical Management, Inc. (AMM); and (d) UNITE Fund Administrators, Inc. 
(UFA) (collectively, the ASC Subsidiaries).
    ALICO provides life, disability, and medigap insurance primarily to 
unions and union-sponsored trust funds. It also provides fully 
retrospectively rated group life insurance to various jointly 
administered funds.
    Alicare is a full-service third-party fund administrator focusing 
on the market for such service among Taft-Hartley plans. Alicare also 
offers computer services, insurance brokerage and printing services. 
Alicare's services are delivered through its four (4) divisions: (a) 
Alicare, (b) Alicomp, (c) Aligraphics and (d) Amalgamated Agency.
    AMM provides medical cost management services, including 
utilization management, comprehensive claims cost containment, and a 24 
Hour Nurse HelpLine to provide health information and education to 
patients.
    UFA, a not-for-profit tax-exempt enterprise, provides third-party 
administration for the Pension Fund and several other funds sponsored 
by UNITE and entities affiliated with UNITE (collectively, the Patron 
Funds).\28\ The specific services provided by UFA include claims 
processing, distribution and preparation of plan documents, collections 
of contributions by employers and participants, record retention and 
reporting to government authorities.\29\
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    \28\ The Patron Funds for which UFA currently provides services 
include, but are not limited to: the Pension Fund; UNITE National 
Cotton Health Fund; Amalgamated Insurance Fund-Insurance Fund; 
Amalgamated Insurance Fund-Retirement Fund; Laundry & Dry Cleaning 
Workers Health Fund, UNITE; Laundry & Dry Cleaning Workers Pension 
Fund, UNITE; Amalgamated Washable Sportswear and Allied Industries 
Insurance Fund; Amalgamated Washable Clothing Sportswear and Allied 
Industries Retirement Fund; Amalgamated Retail Fund; Barney's Retail 
Employees Union Health Fund; ILGWU Death Benefit Fund; and UNITE 
Staff Retirement Plan, ACTWU Unit.
    \29\ The applicant has not requested, and the Department is not 
providing any relief, herein, for transactions involving the 
provision of services by UFA to the any of the Patron Funds, 
including the Pension Fund, nor is the Department providing relief 
for the decision by the fiduciaries of the such funds to retain UFA 
to provide such services. In the opinion of the applicant, 
prohibited transactions would not be an issue for the Pension Fund 
where: (1) the interested Pension Fund Trustees recuse themselves 
from any decision regarding the retention of UFA, see, Advisory 
Opinion 99-09A (AO 99-09A) issued on May 21, 1999, in a letter to 
Patricia A. Shlonsky, and (2) the services are provided to the 
Pension Fund by UFA in accordance with Section 408(b)(2) of the Act.
    AO 99-09A states that a fiduciary may avoid engaging in an act 
described in section 406(b)(1) and 406(b)(2) by removing himself or 
herself from all consideration by the plan of whether or not to 
engage in such a transaction, and by not otherwise exercising, with 
respect to the transaction, any of the authority, control or 
responsibility which makes him or her a fiduciary, absent any 
arrangement, agreement or understanding with respect to who will 
ultimately provide the services in question.
    Section 408(b)(2) of the Act provides a statutory exemption for 
``contracting or making reasonable arrangements with a party in 
interest for office space, or legal, accounting, or other services 
necessary for the establishment or operation of the plan, if no more 
than reasonable compensation is paid therefor.'' The Department is 
offering no view, herein, as to the applicant's reliance on AO 99-
09A and/or the statutory exemption, as set forth in section 
408(b)(2) of the Act and 29 CFR 2550.408(b)(2) of the Department's 
regulations.
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    3. UNITE was formed in 1995 by the merger of two unions, the 
International Ladies Garment Workers Union (ILGWU) and the Amalgamated 
Clothing and Textile Workers Union (ACTWU). Under the merger agreement, 
UNITE is deemed a consolidation and continuation of ILGWU and ACTWU and 
their respective affiliates. Further, UNITE has several affiliated 
organizations, the UNITE Affiliates, which are chartered by UNITE. 
UNITE members work in the apparel and textile industries, industrial 
laundries, distribution and retail, auto parts and auto supply, and 
other industries in the United States and Canada.
    4. The Pension Fund has requested an individual exemption in order 
that ASC may issue and sell shares of stock to UNITE and to certain 
UNITE Affiliates. As set forth in more detail below, it is represented 
that the proposed transactions will provide the Pension Fund: (i) With 
the ability to increase the value of its ownership interests in ASC by 
providing ASC with access to additional working capital, (ii) with the

[[Page 13896]]

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

    \32\ The applicant has not requested, and the Department is not 
providing relief, herein, with respect to the conversion of the 
Preferred Stock into Common Stock. See, discussion of potential 
future prohibited transactions in paragraph 12, herein.
---------------------------------------------------------------------------

    If at any time following initial public offering, ASC proposes to 
register shares of the Common Stock with the Securities and Exchange 
Commission, the holders of the Preferred Stock will be allowed to 
include in such registration the shares of Common Stock into which 
their Preferred Stock are convertible (i.e., the holders have ``piggy-
back'' registration rights). In addition, the Preferred Stock (and the 
shares of Common Stock issued upon conversion of the Preferred Stock) 
will be subject to ``drag along'' and ``tag along'' rights. In this 
regard, if the Pension Fund sells its shares in ASC to an unrelated 
third party, the Pension Fund will be able to force UNITE and the UNITE 
Affiliates to also sell their Preferred Stock (and the shares of Common 
Stock issued upon conversion of the Preferred Stock) to the third party 
buyer, while UNITE and the UNITE Affiliates will be able to force the 
third party buyer to buy their Preferred Stock (and the shares of 
Common Stock issued upon conversion of the Preferred Stock), as part of 
the transaction.
    UNITE will also have a right of first refusal in the event any of 
the UNITE Affiliates wishes to dispose of its Preferred Stock (and the 
shares of Common Stock issued upon conversion of the Preferred Stock). 
If UNITE fails to purchase such shares, then ASC and/or the Pension 
Fund shall have a right of first refusal to purchase the shares in 
question. Furthermore, if UNITE wishes to sell its Preferred Stock (and 
the shares of Common Stock issued upon conversion of the Preferred 
Stock), ASC

[[Page 13897]]

and/or the Pension Fund will have a right of first refusal with respect 
to such shares.\33\
---------------------------------------------------------------------------

    \33\ The applicant has not requested, and the Department is not 
providing, herein, relief for the purchase by the Pension Fund and/
or ASC, pursuant to a right of first refusal, of the Preferred Stock 
or the shares of Common Stock issued upon conversion of the 
Preferred Stock from UNITE or the UNITE Affiliates. The applicant 
may submit an application for exemption prior to engaging in such 
transaction.
---------------------------------------------------------------------------

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

[[Page 13898]]

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

[[Page 13899]]

    With respect to decisions by the Trustees of the Pension Fund to 
vote the Common Stock of ASC when the vote concerns the Preferred Stock 
held by UNITE and the UNITE Affiliates, the applicant has agreed that 
Trustees affiliated with UNITE and/or the UNITE Affiliates would recuse 
themselves from any decision to vote the Common Stock of ASC when 
participation by such Trustees would give rise to conflicts of 
interest. The applicant does not believe that such recusal is 
prohibited under the Taft-Hartley Act or the Labor Management Relations 
Act. In this regard, the applicant represents that the Taft-Hartley Act 
merely requires equal representation of employees and employers in 
connection with the receipt of payments by a trust fund. The purpose of 
restricting employers from making payments to benefit funds was to 
avoid union control and abuse--not employer control.
    Potential conflicts may also arise with respect to any decision by 
the directors of ASC to redeem the Preferred Stock and any decision to 
pay dividends with respect to such stock.
    In the opinion of the applicant, the redemption or call of the 
Preferred Stock or the conversion of the Preferred Stock, among other 
transactions, would not be prohibited, because the transaction would 
take place between UNITE and/or the UNITE Affiliates, and ASC, rather 
than with the Pension Fund. In this regard, the applicant maintains 
that once the Preferred Stock has been sold to UNITE and to the UNITE 
Affiliates, ASC no longer constitutes a plan asset look-through vehicle 
with respect to the Pension Fund under the Department's regulations at 
29 CFR 2510.3-101(h) (the Plan Asset Regulation).\34\ Accordingly, the 
applicant maintains that Trustees who are members of the ASC Board 
would be acting as directors of an operating company and not as 
fiduciaries under the Act controlling assets of the Pension Fund when 
making decisions regarding the Preferred Stock. The applicant further 
maintains that members of the ASC Board would be subject to the 
mandates of the New York state corporate laws, including those 
applicable to related party transactions, in the exercise of their 
duties as directors of ASC.
---------------------------------------------------------------------------

    \34\ The Plan Asset Regulation provides that where a plan ``owns 
all of the outstanding equity interests (other than director's 
qualifying shares) in an entity, its assets include those equity 
interests and all of the underlying assets of the entity.''
---------------------------------------------------------------------------

    As the Department noted in it's regulations at 29 CFR 2509.75-2:

if a transaction between a party in interest and a plan would be a 
prohibited transaction, then such a transaction between a party in 
interest and such corporation or partnership will ordinarily be a 
prohibited transaction if the plan may, by itself, require the 
corporation or partnership to engage in such transaction.

In any event, the Department is providing no relief herein, other than 
with respect to the sale of the Preferred Stock to UNITE and the UNITE 
Affiliates.
    The applicant understands the concerns of the Department and has 
represented that conflicted directors of ASC will recuse themselves 
from participating in any decision or action involving the Preferred 
Stock. Thus, for example the ASC Directors affiliated with UNITE and/or 
the UNITE Affiliates would recuse themselves from any decision to issue 
dividends with respect to the Preferred Stock and any decision to 
redeem the Preferred Stock.
    13. In summary, the applicant represents that the proposed 
transactions satisfy the statutory criteria of section 408(a) of the 
Act and section 4975 of the Code because: (a) Fiduciary Counselors will 
determine, on behalf of the Pension Fund, whether the Preferred Stock 
should be sold to UNITE and to the UNITE Affiliates; (b) Fiduciary 
Counselors will approve of the terms underlying the Preferred Stock to 
be issued by ASC; (c) Fiduciary Counselors will negotiate and approve 
the terms of the sales of the Preferred Stock to UNITE and to the UNITE 
Affiliates; (d) Fiduciary Counselors will monitor the terms of the 
transactions and ensure that ASC, UNITE, and the UNITE Affiliates 
comply with the approved terms; (e) Fiduciary Counselors will determine 
that the terms of the sales of Preferred Stock are no less favorable to 
ASC than would be offered to an unrelated third party under similar 
circumstances; (f) Fiduciary Counselors will determine that the 
purchase price for the Preferred Stock paid by UNITE and by the UNITE 
Affiliates is no less than the fair market value of such Preferred 
Stock, as of the date the transactions are entered; (g) Fiduciary 
Counselors will determine the fair market value of the Preferred Stock, 
as of the date each of the transactions is entered; (h) in determining 
the fair market value of the Preferred Stock, Fiduciary Counselors will 
obtain an appraisal from an independent qualified appraiser selected by 
it and ensure that the appraisal and Fiduciary Counselors's analysis of 
the appraisal are consistent with sound principles of valuation and the 
elements described in paragraph 8, in the Summary of Facts and 
Representations in this proposed exemption; and (i) the Pension Fund 
will incur no fees, commissions, or other charges or expenses as a 
result of its participation in the transactions, other than the fee 
payable to Fiduciary Counselors.

Notice to Interested Persons

    Those persons who may be interested in the pendency of the 
requested exemption include all of the active participants and 
beneficiaries of the Pension Fund, the retirees receiving benefits from 
the Pension Fund, vested deferred participants and beneficiaries of the 
Pension Fund, the Trustees of the Pension Fund, all contributing 
employers to the Pension Fund, the members of the Board of ASC and the 
ASC Subsidiaries, UNITE, the UNITE Affiliates, and all locals, joint 
boards, and regional offices of UNITE who represent members who are 
participants in the Pension Fund. It is represented that these various 
classes of interested persons will be notified as follows.
    All of the active participants and beneficiaries of the Pension 
Fund, the retirees receiving benefits from the Pension Fund, the 
Trustees of the Pension Fund, UNITE, and the members of the Board of 
ASC and the ASC Subsidiaries will be provided with a copy of the notice 
of pendency of this proposed exemption (the Notice), plus a copy of the 
supplemental statement (the Supplemental Statement), as required, 
pursuant to 29 CFR 2570.43(b)(2), which will advise such interested 
persons of their right to comment and to request a hearing. The Notice 
and the Supplemental Statement will be delivered by first class mail 
within fifteen (15) days of the publication of the Notice in the 
Federal Register.
    In addition, a copy of the Notice and the Supplemental Statement 
will be provided, within fifteen (15) calendar days of the date of 
publication of the Notice in the Federal Register, to all locals, joint 
boards, and regional offices of UNITE who represent members who are 
participants in the Pension Fund and to contributing employers that 
employ members who are participants in the Pension Fund. The Pension 
Fund represents that immediately upon receipt of a copy of the Notice 
and Supplemental Statement such locals, joint boards, regional offices 
of UNITE, and contributing employers will post such Notice and the 
Supplemental Statement at those locations which are customarily used 
for notices regarding employee benefits matters and/or will post such 
Notice and Supplemental Statement at the union hall.
    It is represented that for the purpose of sending the Notice and 
Supplemental

[[Page 13900]]

Statement by mail, current addresses maintained by the Pension Fund 
will be used.
    All written comments and requests for a hearing must be received by 
the Department no later than forty-five (45) days from the date of the 
publication of the 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.)

Pan-American Life Insurance Corporation (Pan-American); Located in New 
Orleans, LA

[Application No. D-11202]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act (or ERISA) and section 
4975(c)(2) of the Code and in accordance with the procedures set forth 
in 29 CFR part 2570, subpart B (55 FR 32836, August 10, 1996).\35\ If 
the exemption is granted, the restrictions of sections 406(a), 
406(b)(1) and (b)(2) of the Act and the sanctions resulting from the 
application of section 4975 of the Code by reason of section 
4975(c)(1)(A) through (E) of the Code shall not apply to the cash sale, 
on November 17, 2003, by certain defined contribution plans (the 
Plans), which invest in Separate Account V (the Account), a pooled 
separate account, whose assets are invested in units of the Dreyfus-
Certus Stable Value Fund (the Fund), of Fund units, to Pan-American, 
the Account's investment manager and a fiduciary with respect to such 
Account.
---------------------------------------------------------------------------

    \35\ For purposes of this proposed exemption, references to 
specific provisions of Title I of the Act, unless otherwise 
specified, refer also to the corresponding provisions of the Code.
---------------------------------------------------------------------------

    This proposed exemption is subject to the following conditions:
    (a) Prior to the transaction (the Transaction), a fiduciary (the 
Independent Fiduciary), acting on behalf of the Plans, who was 
independent of and unrelated to Pan-American and its subsidiaries, 
determined that the subject Transaction (1) was fair to the 
participants in the Plans investing in the Account; (2) was comparable 
to, and no less favorable than, terms obtainable at arm's length 
between unaffiliated parties; and (3) was in the best interest of the 
Plans investing in the Account and their participants and 
beneficiaries.
    (b) The Independent Fiduciary monitored the Transaction on behalf 
of the Plans investing in the Account.
    (c) Subsequent to the closing of the Transaction, the Independent 
Fiduciary performed a post-Transaction review, which included, among 
other things, a determination that the fair market value of the Plan's 
interests in the Account as of November 14, 2003, as determined by the 
Fund trustee, was accurate and consistent with the Fund's valuation 
method.
    (d) No sales commissions, fees or other costs were paid by the 
Plans in connection with the Transaction.
    (e) The sale was a one-time transaction for cash.
    (f) The fair market value of the units was determined in good faith 
by The Dreyfus Trust Company (TDTC), an unrelated party, at the time of 
the Transaction.

EFFECTIVE DATE: If granted, this proposed exemption will be effective 
as of November 17, 2003.

Summary of Facts and Representations

    1. Pan-American is a mutual life insurance company based in New 
Orleans, Louisiana and is subject to the supervision and examination of 
the Louisiana Commissioner of Insurance. Pan-American is licensed in 40 
states and the District of Columbia, Puerto Rico and the Virgin 
Islands. The insurer has affiliates in Panama, Guatemala and Colombia, 
and branch offices in Ecuador, El Salvador and Honduras. As of December 
31, 2002, Pan-American had total assets under management of 
approximately $2.3 billion. As of that date, Pan-American managed about 
$900 million in retirement plan assets for approximately 1,200 employee 
benefit plans, covering about 50,000 plan participants. The insurer's 
most recent A.M. Best rating is ``A-'' (Excellent).
    2. Among the insurance products and services it offers, Pan-
American and certain of its affiliates provide funding, asset 
management and other services for employee benefit plans, some of which 
are subject to the provisions of title I of the Act. In particular, 
Pan-American maintains pooled separate accounts in which Title I 
pension, profit sharing, and other plans invest. The assets of a 
separate account are established and maintained by Pan-American 
separate and apart from its general account. The income and realized 
gains or losses from the assets in the separate account are credited or 
charged against the account without regard to the other investment 
gains or losses of Pan-American. Under the terms of the Pan-American 
contracts, either an independent Plan fiduciary or a participant can 
direct the investment of contract values among the investment options 
offered by Pan-American, in separate accounts or subaccounts. Pan-
American manages all or a portion of the assets of such separate 
accounts.
    3. Among the separate accounts managed by Pan-American was Separate 
Account V, otherwise referred to herein as ``the Account.'' The Account 
was established by Pan-American on or about November 24, 1992, and it 
was available only to defined contribution retirement plans, many of 
which are subject to Title I of the Act. The purpose of the Account was 
to provide a stable value fund option as an investment alternative in a 
pooled vehicle for Title I Plans. The unit value of the Account was set 
at $10.00 when the first investment was made by a Plan in August 1995. 
The unit value was adjusted each Valuation Date (i.e., each business 
day on which the Home Office of Pan-American was open to transact 
business and on which the New York Stock Exchange was open for 
unrestricted trading) to reflect the value of the assets of the 
Account, less any charges due Pan-American. The gross unit value of the 
Account on October 31, 2003 was $14.4934. The net unit value for the 
Account varied according to differences in the charge structures for 
different group annuity contracts attributed to Plans participating in 
the Account.
    A Plan's participation in the Account was governed by the Separate 
Account V Rider appended to the contracts issued by Pan-American to a 
participating Plan. The Account was not registered under the Investment 
Company Act of 1940. For purposes of the Act, the assets of the Account 
were treated as ``plan assets'' within the meaning of 29 CFR 2510.3-
101(h)(1)(iii).
    Approximately, 417 small to mid-sized client Plans of Pan-American 
invested in the Account.\36\ As of October 31, 2003, the Plans had 
approximately $75,517,418 invested in the Account and the Fund 
described herein. No Plan sponsored by Pan-American ever invested in 
the Account.
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    \36\ The smallest Plan invested in the Account had an interest 
valued at $29 and one participant while the largest Plan invested in 
the Account had an interest valued at over $3 million and 1,243 
participants. For 2001, 2002 and 2003, the net cash flow into the 
Account was $17,785,258, $32,727,395 and $5,039,484, respectively.
---------------------------------------------------------------------------

    Accordingly, Pan-American was a party in interest with respect to 
such Plans, and a fiduciary with respect to the Account. Pan-American 
represents that neither it nor its affiliates had any discretionary 
authority over the decision to invest a Plan's assets in the Account. 
Instead, a Plan fiduciary or participant independent of Pan-American 
and its affiliates was

[[Page 13901]]

responsible for such investment decisions.
    4. The Account began investing in the Fund in August 1995. The Fund 
is a collective investment fund invested primarily in guaranteed 
investment contracts (GICs) and other similar instruments intended to 
achieve high current income and stability of principal. The Fund is 
designed for employee benefit plans, and for financial institutions 
acting as trustee, investment manager, custodian, or agent for one or 
more employee benefit plans as a convenient means of participating in a 
professionally managed, diversified portfolio consisting primarily of 
GICs and other stable value instruments.
    Specifically, the Fund invests primarily in a diversified portfolio 
of GICs issued by insurance companies, bank investment contracts 
(BICs), corporate investment contracts, synthetic GICs(the wrap issuers 
of whom are not Pan-American), separate account GICs, floating rate 
GICs, repurchase agreements, and cash and cash equivalents, including 
money market instruments and certificates of deposit.
    The trustee and portfolio manager of the Fund is TDTC, which has 
appointed Standish Mellon Asset Management Company LLC (Standish 
Mellon) as an investment advisor (prior to June 1, 2003, was doing 
business as Certus Asset Advisors). Both TDTC and Standish Mellon LLC 
are not affiliated with and are independent of Pan-American, which has 
no involvement in the operation or administration of the Fund. As of 
December 31, 2002, the Fund had total assets of $588,015,081.
    5. Units in the Fund are valued each business day at fair value, as 
determined in good faith by TDTC. At the Fund's inception, and all the 
times thereafter, the Fund has maintained a unit value of $1.00. In 
other words, Fund units can never be worth more than $1.00. Income 
distributed from the Fund is applied to the purchase of additional Fund 
units. Thus, an investor is entitled to receive a return on the 
investment plus the $1.00 per unit value.\37\ Units in the Fund are 
offered by TDTC for purchase or redemption on a continuous basis, 
except that TDTC reserves the right to defer redemptions for a period 
of time, generally not to exceed twelve months, as necessary for a fair 
and orderly liquidation of Fund assets. There is no secondary market 
for units in the Fund.
---------------------------------------------------------------------------

    \37\ The Plans investing in the Fund through the Account 
received a return on investment in the form of an increase or 
decrease in the number of units held. Pan-American did not issue any 
synthetic, stabilizing or other wrappers with respect to the Fund. 
The Fund was designed to provide the Account with stability of 
principal and high-current income through the assets it purchased, 
and the Fund did not separately provide a guarantee of principal, 
nor did Pan-American provide a guarantee of principal or earnings by 
issuing any wrappers with respect to the Fund. Although neither the 
value of the Fund's portfolio nor an investment in the Fund is 
insured or guaranteed, certain investments within the Fund, such as 
money market funds issued by banks, provided the Account with a 
guarantee of principal.
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    6. Pan-American determined to discontinue the sale of its group 
annuity contracts and to transfer its existing business to another 
carrier in a reinsurance transaction because it could not reach the 
critical asset level needed to attain profitability in the retirement 
plan market. In particular, with respect to the group annuity contracts 
previously issued by Pan-American and remaining in force (the 
Contracts), Pan-American entered into agreements to transfer such 
business to Securian Retirement Services (Securian), a business unit of 
Minnesota Life Insurance Company (Minnesota Life). The Contracts 
included all of the group annuity contracts with amounts allocated to 
the Account.
    Minnesota Life provides financial security for individuals and 
businesses in the form of insurance, retirement plans and investments. 
The company serves over seven million people with nearly $350 billion 
of life insurance in force and $22 billion in assets under management. 
Minnesota Life's combined work force of 4,400 employees and 
representatives is located at its St. Paul headquarters and agencies 
and offices across the country.
    Minnesota Life is highly rated by the major independent rating 
agencies (e.g., A++ (Superior) by A.M. Best) that analyze the financial 
soundness and claims-paying ability of insurance companies. The 
Securian business unit of Minnesota Life currently manages assets of 
more than $5.7 billion for more than 2,700 plans and over 180,000 
participants nationwide. Securian consistently receives superior 
service ratings in independent surveys of plan sponsors and was one of 
the first retirement plan providers to offer transactional services on 
line.
    7. The insurance commissioners of Louisiana and Minnesota approved 
the reinsurance transaction (the Reinsurance Transaction) on October 
17, 2003, and October 28, 2003, respectively. Pan-American closed both 
the subject Transaction and the Reinsurance Transaction on November 17, 
2003. On that date, Securian took responsibility for the administration 
and operation of the Contracts. Subsequently, subject to the consent of 
the insurance commissioners in other jurisdictions, Securian agreed to 
co-insure the risks under the Contracts and, if the Plan owning the 
Contracts consented, to issue its own group annuity contracts in 
substitution for the Contracts.
    In connection with the Reinsurance Transaction, Securian advised 
that it would not offer the Fund as an investment option for the 
Contracts nor a comparable stable value product.\38\ Therefore, in 
accordance with industry practice, the Contracts provided, in pertinent 
part, that ``[i]f in the judgment of the Insurance Company it [became] 
necessary or desirable to terminate Separate Account V by reason of any 
federal or state statute, any judicial decision or any rule or 
regulation of any governmental authority, or because it [was] no longer 
commercially feasible, the Insurance Company [could] liquidate the 
assets credited to the contractholder in Separate Account V and 
transfer them at the contractholder's election, to the Deposit Fund or 
other separate accounts maintained under the Group Annuity Contract or 
to any alternative funding agency.''
---------------------------------------------------------------------------

    \38\ It is represented that Securian would offer all of the 
Plans invested in the Account and Fund a fixed income investment 
option that is supported and guaranteed by Minnesota Life's general 
account.
---------------------------------------------------------------------------

    In order to make all Plan monies immediately available for 
investment or reinvestment in the investment options to be offered by 
Securian, Pan-American requested that TDTC effect a redemption of the 
Account's interest in the Fund effective November 13, 2003, the 
original contemplated date of the Transaction. TDTC advised that it 
would not be able to fully redeem all of the Account's interests as of 
November 13, 2003, but, as allowed by the instruments governing the 
Fund, committed to redeeming $8,000,000 of the Account's interests in 
the Fund each month beginning November 2003, until such time as all 
interests are redeemed.
    8. Pan-American believed that it was appropriate and in the best 
interest of the Plans and their participants and beneficiaries for the 
monies invested in the Account to be made available for Plan 
fiduciaries and participants for reinvestment in other options. Because 
there was no secondary market for units in the Fund, to the best of 
Pan-American's information and belief, there was no available unrelated 
purchaser for the Fund units held by the Account.
    9. Therefore, on November 17, 2003, Pan-American purchased in the 
ordinary course of business, for its own account, the Fund units held 
by the Account, at a per unit value of $1.00, as

[[Page 13902]]

determined by TDTC on November 14, 2003.\39\ Pan-American acquired 
55,010,750.23 units from the Account for cash.\40\ (The redemption 
proceeds for the Fund units that are received over the following six to 
twelve months will be paid by TDTC to Pan-American.) Thus, the purchase 
price for the Transaction was at the full unit value on November 14, 
2003, without any discount or other reduction for the deferral of the 
redemption of those Fund units.
---------------------------------------------------------------------------

    \39\ Based on its review of information provided by Pan-American 
and TDTC, the Independent Fiduciary concluded that the purchase of 
the Fund units by Pan-American was effectuated in a manner 
consistent with the required criteria and procedures set forth in 
its preliminary report and that the fair market value of the Plan's 
interest in the Account as of November 14, 2003, as determined by 
TDTC, was accurate and consistent with the Fund's valuation 
methodology.
    \40\ As noted in Representation 3, the Account had total assets 
in excess of $75 million as of October 31, 2003 invested in the 
Fund. However, the Account sold approximately $55 million in Fund 
units to Pan-American. The applicant explains that prior to the date 
of the Transaction and the Reinsurance Transaction, TDTC redeemed 
approximately 20,000,000 Fund units held by the Account at the 
request of certain Plan fiduciaries electing not to participate in 
the Reinsurance Transaction, thereby reducing the Account size.
---------------------------------------------------------------------------

    Both the subject Transaction and the entire Reinsurance Transaction 
were completed on November 17, 2003. The Plans received their pro rata 
portion of cash based upon their ownership percentage in the Fund at 
the close of business on November 14, 2003. No commissions or other 
fees were paid by the Account in connection with the Transaction.\41\
---------------------------------------------------------------------------

    \41\ The applicant represents that the economic burdens and 
benefits of the Fund units in the future will accrue to the 
detriment or benefit of Pan-American rather than to the Plans. 
Because the Fund units were purchased at fair market value, the 
purchase price reflected the market's assessment of the opportunity 
for future gains in the value of the Fund, balanced against the risk 
of future loss in value. The purchase price was the fair market 
value of the units determined in the ordinary course of business by 
TDTC for that date. The purchase price, which was credited to the 
Account, and to the Plans, compensated the Plans for the transfer of 
the future risks and rewards of Fund ownership. As a result, the 
applicant does not believe that the Transaction, and in particular, 
the form and timing of the payment by Pan-American to the Plans for 
the Fund units, provided financial benefit to Pan-American for which 
the Plans were not being compensated.
---------------------------------------------------------------------------

    In addition, the value of the interests of Plans and participants 
and beneficiaries in the Account on November 14, 2003, was exactly the 
same as it would have been had the Transaction not occurred. The cash 
in the Account resulting from the Transaction was immediately available 
to the Plans and their participants for reinvestment in the options 
then offered under the Contracts. Following the reinvestment of these 
monies at the direction of the Plans and their participants, the 
Account was terminated.
    Accordingly, Pan-American requests an administrative exemption from 
the Department with respect to the Transaction. If granted, the 
exemption will be effective as of November 17, 2003.
    10. U.S. Trust Company, National Association (U.S. Trust) agreed to 
act on behalf of the Plans investing in the Account as the Independent 
Fiduciary with respect to the Transaction. The Independent Fiduciary is 
a national banking association formed under the laws of the United 
States and authorized to exercise all fiduciary powers that may be 
exercised by state banks and trust companies under the laws of the 
State of Connecticut. The Independent Fiduciary, which is a wholly 
owned subsidiary of The Charles Schwab Corporation, has served as an 
independent fiduciary for employee benefit plans in connection with 
exemption requests from Department over the past fifteen years. The 
Independent Fiduciary has certified that it meets the following 
requirements:

 The Independent Fiduciary is not directly or 
indirectly, through one or more intermediaries, controlling, controlled 
by, or under common control with Pan-American, Minnesota Life, 
Securian, TDTC, or Standish Mellon.
 The Independent Fiduciary is not an officer, 
director, employee of, or partner in Pan-American, Minnesota Life, 
Securian, TDTC, or Standish Mellon.
 The Independent Fiduciary is not a corporation or 
partnership in which Pan-American, Minnesota Life, Securian, TDTC, or 
Standish Mellon has an ownership interest or is a partner.
 The Independent Fiduciary does not have an ownership 
interest in Pan-American, Minnesota Life, Securian, TDTC, or Standish 
Mellon or any of their affiliates (except for possibly de minimis 
holdings in Minnesota Life).
 The Independent Fiduciary was not a fiduciary with 
respect to the Account prior to its appointment as an independent 
fiduciary.
 The Independent Fiduciary has acknowledged in 
writing acceptance of fiduciary responsibility and has agreed not to 
participate in any decision with respect to any transaction in which it 
has an interest that might affect its best judgment as a fiduciary.
 The Independent Fiduciary has not received, for any 
fiscal year, from Pan-American, Minnesota Life, Securian, TDTC, or 
Standish Mellon or their affiliates (including amounts received for 
services provided by the Independent Fiduciary associated with the 
Transaction) gross income for that fiscal year that exceeds one percent 
of the Independent Fiduciary's annual gross income from all sources for 
such fiscal year.
 Lastly, neither the Independent Fiduciary nor any 
partnership or corporation of the Independent Fiduciary is an officer, 
director, or 10 percent or more partner or shareholder, will acquire 
any property from, sell any property to, or borrow funds from Pan-
American, Minnesota Life, Securian, TDTC, or Standish Mellon during the 
period that the Independent Fiduciary serves as independent fiduciary 
of the Plans, and continuing for a period of six months after the 
Independent Fiduciary ceases to be an independent fiduciary of the 
Plans, or negotiate any such transaction during the period that the 
Independent Fiduciary serves as an independent fiduciary of the Plans.

    11. Thus, the Independent Fiduciary is independent of and has no 
affiliation with Pan-American, Minnesota Life, Securian, TDTC, or 
Standish Mellon, and the fees paid to the Independent Fiduciary in 
connection with the Transaction will constitute less than one percent 
of its revenue for 2003. Furthermore, the Independent Fiduciary has 
acknowledged and accepted the duties, responsibilities of an 
Independent Fiduciary.
    Prior to the closing of the Transaction, the Independent Fiduciary 
(a) Conducted a due diligence review of the Transaction; (b) determined 
whether the Transaction was in the interest and protective of the Plans 
and their participants and beneficiaries; (c) issued a written 
preliminary report to the Department; and (d) a final report to the 
Department within 30 days of the closing of the Transaction.
    In making its determinations, the Independent Fiduciary was 
required to (a) Review the terms of the Transaction; (b) review the 
written procedures by which TDTC calculates the net asset value of the 
Fund; (c) conduct discussions, as necessary to make the determinations 
described above, with appropriate personnel of Pan-American, Standish 
Mellon, and/or TDTC; and (d) if the Transaction was effectuated, 
confirm in writing whether the Transaction was effectuated consistently 
with the required terms set forth in the exemption application, based 
on written representations that the Independent

[[Page 13903]]

Fiduciary would request from Pan-American and TDTC and a test of a 
sample of material aspects of the Transaction, deemed in the 
Independent Fiduciary's judgment to be representative.
    In connection with its analysis of the Transaction, the Independent 
Fiduciary states that it reviewed and considered various documents, 
including, but not limited to, the Separate Account V Rider, the 
Optional Investment Contract, the Fund's product description brochure, 
the December 31, 2002 Annual Report of the Fund, and the exemption 
request. However, the Independent Fiduciary states that it did not make 
any independent investigation to verify the accuracy of such 
information, data, analyses and representations. Instead, the 
Independent Fiduciary represents that it relied upon information 
provided by Pan-American, which Pan-American deemed to be accurate.
    In anticipation of the Transaction, the Independent Fiduciary notes 
that as of August 31, 2003, the Fund was valued at $643.2 million by 
TDTC, as based on a daily valuation of the Fund, and that the value of 
each unit was $1.00 per unit. The Independent Fiduciary states that 
investments in GICs and other similar investments were valued at their 
contract values, and would provide for benefit responsive withdrawals 
at contract value and daily dividends to Fund unitholders that would be 
automatically reinvested on a monthly basis. In reviewing the Account's 
July Fund statement, the Independent Fiduciary demonstrated the 
methodology implemented by TDTC in calculating the net asset value of 
the Account's interest in the Fund as follows:

Number of units Beginning of July.....................   $77,442,676.88
    Value of units....................................             1.00
Account's Equity Beginning of July....................    77,442,676.88
Value of units acquired through Contributions (at          4,238,607.63
 $1.00 per unit)......................................
Value of units acquired through Reinvestment of              260,589.89
 dividends (at $1.00 per unit)........................
Value of units withdrawn (at $1.00 per unit)..........    (2,720,669.48)
Account's Equity End of July..........................    79,221,204.92


    The Independent Fiduciary opined that the Transaction would be in 
the interest and protective of the Plans and their participants and 
beneficiaries because:

 Securian had determined not to continue the Fund as 
an investment alternative following the Transaction. Therefore, the 
Independent Fiduciary believed it imperative that the Account's 
interest in the Fund be redeemed.
 TDTC had the discretion to defer redemptions over an 
extended period of time and had chosen to do so.
 There was no secondary market for the Fund units 
and, to the best of Pan-American's knowledge, there was no available 
unrelated purchaser for the Fund units held by the Account.
 The fair market value of the Account's units in the 
Funds as of November 14, 2003, would be determined by TDTC in the same 
manner that the units were historically valued by TDTC.
 Pan-American would purchase the Account's units at 
the determined value for cash which would allow the Plans to reinvest 
the full amount of the proceeds immediately rather than extending the 
receipt of redemption proceeds over 6-12 months.
 The Plans would pay no fees or commissions 
associated with the Transaction.

    Furthermore, the Independent Fiduciary believed the terms of the 
Transaction were no less favorable to the Account than the terms 
obtainable in an arm's length transaction with an unrelated party at 
the time of such Transaction.
    Subsequent to the closing of the Transaction, the Independent 
Fiduciary performed a post-transaction review which included, among 
other things, a determination of whether the fair market value of the 
Plans' interests in the Account, as determined by TDTC, was accurate 
and consistent with TDTC's valuation methodology of the Fund. Based 
upon the results of such review, the Independent Fiduciary concluded 
that the purchase of Fund units by Pan-American was effectuated in a 
manner consistent with the required criteria and procedures set forth 
in its preliminary report, and that the value paid by Pan-American for 
the Plan's interests in the Account was accurate and consistent with 
the Fund's valuation methodology.
    12. In summary, it is represented that the Transaction satisfied 
the statutory criteria for an exemption under section 408(a) of the Act 
for the following reasons:
    (a) Prior to the Transaction, the Independent Fiduciary, acting on 
behalf of the Plans, determined that the subject Transaction (1) was 
fair to the participants in the Plans investing in the Account; (2) was 
comparable to and no less favorable than terms obtainable at arm's 
length between unaffiliated parties; and (3) was in the best interest 
of the Plans investing in the Account and their participants and 
beneficiaries.
    (b) The Independent Fiduciary monitored the Transaction on behalf 
of the Plans investing in the Account.
    (c) Subsequent to the closing of the Transaction, the Independent 
Fiduciary performed a post-Transaction review, which included, among 
other things, a determination that the fair market value of the Plan's 
interests in the Account as of November 14, 2003, as determined by 
TDTC, was accurate and consistent with the Fund's valuation method.
    (d) No sales commissions, fees or other costs were paid by the 
Plans in connection with the Transaction.
    (e) The sale was a one-time transaction for cash.
    (f) The fair market value of the units was determined in good faith 
by TDTC, at the time of the Transaction.

Notice to Interested Persons

    Pan-American represents that it will distribute, by first class 
mail, a copy of the notice of proposed exemption (the Notice) within 
five (5) days of the date of such Notice is published in the Federal 
Register to the independent fiduciaries of the Plans affected by the 
Transaction. The Notice will include a copy of the proposed exemption, 
as published in the Federal Register, and a supplemental statement, as 
required pursuant to 29 CFR 2570.43(b)(2), which informs all interested 
persons of their right to comment on and/or request a hearing with 
respect to the proposed exemption. Comments and requests for a public 
hearing are due within 35 days following the publication of the 
proposed exemption in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Mr. Arjumand A. Ansari of the 
Department at (202) 693-8566. (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

[[Page 13904]]

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 19th day of March, 2004.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. 04-6584 Filed 3-23-04; 8:45 am]

BILLING CODE 4510-29-P