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Secretary of Labor Thomas E. Perez
Proposed Exemptions; Pacific Life Corporation (Pacific Life) [Notices] [07/22/1999]

EBSA (Formerly PWBA) Federal Register Notice

Proposed Exemptions; Pacific Life Corporation (Pacific Life) [07/22/1999]

[PDF Version]

Volume 64, Number 140, Page 39532-39544

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Application No. D-10257, et al.]

 
Proposed Exemptions; Pacific Life Corporation (Pacific Life)

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

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

Written Comments and Hearing Requests

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

ADDRESSES: All written comments and request for a hearing (at least 
three copies) should be sent to the Pension and Welfare Benefits 
Administration, Office of Exemption Determinations, Room N-5649, U.S. 
Department of Labor, 200 Constitution Avenue, NW, Washington, DC 20210. 
Attention: Application No. stated in each Notice of Proposed Exemption. 
The applications for exemption and the comments received will be 
available for public inspection in the Public Documents Room of Pension 
and Welfare Benefits Administration, U.S. Department of Labor, Room N-
5507, 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 (43 FR 47713, October 17, 1978) 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

[[Page 39533]]

with the Department for a complete statement of the facts and 
representations.

Pacific Life Corporation (Pacific Life), Located in Newport Beach, 
California

[Exemption Application No. D-10257]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990).

Section I--Transactions

    (a) If the exemption is granted, the restrictions of sections 
406(a), 406(b)(1) and (b)(2) of the Act and the taxes imposed by 
section 4975(a) and (b) of the Code, by reason of section 4975(c)(1)(A) 
through (E) of the Code, shall not apply:
    (1) For the period from January 22, 1993 until August 12, 1998, to 
the sale by Pacific Life of an ``actively-managed synthetic'' 
guaranteed investment contract (Actively-Managed Synthetic GIC) to an 
employee benefit plan for which Pacific Life was a party in interest 
with respect to such plan (Plan) in instances where Pacific Life or an 
Affiliate manages the Plan's assets relating to the Synthetic GIC (an 
Affiliated-Manager GIC); and
    (2) As of January 22, 1993, to the purchase or retention of the 
Affiliated-Manager GICs, described in section (a) (1) above, by the 
Plans and the payments made by Pacific Life to the Plans pursuant to 
the terms and conditions of the Affiliated-Manager GICs, provided that 
the general conditions set forth in section II, the specific conditions 
set forth in section III, the retroactive conditions set forth in 
section IV, and the recordkeeping requirements set forth in section V 
below are met.
    (b) If the exemption is granted, the restrictions of sections 
406(a) of the Act and the taxes imposed by section 4975(a) and (b) of 
the Code, by reason of section 4975(c)(1)(A) through (D) of the Code, 
shall not apply:
    (1) As of January 22, 1993, to the sale by Pacific Life of an 
Actively-Managed Synthetic GIC to a Plan in instances where the Plan's 
assets relating to the Actively-Managed Synthetic GIC are managed by an 
investment manager who is unaffiliated with Pacific Life and its 
Affiliates (an Unaffiliated-Manager GIC); and
    (2) As of January 22, 1993, to the purchase or retention of the 
Unaffiliated-Manager GICs, described in section (b) (1) above, by the 
Plans and the payments made by Pacific Life to the Plans pursuant to 
the terms and conditions of the Unaffiliated-Manager GICs, provided 
that the general conditions set forth in section II and the 
recordkeeping requirements set forth in section V below are met.

Section II--General Conditions

    (a) Prior to the sale of an Actively-Managed Synthetic GIC, an 
independent fiduciary of each Plan receives a full and detailed written 
disclosure of all material features of the Actively-Managed Synthetic 
GIC, including all applicable fees and charges;
    (b) Following receipt of such disclosure, the Plan's independent 
fiduciary approves in writing the purchase of the Actively-Managed 
Synthetic GIC on behalf of the Plan;
    (c) All fees and charges imposed under any such Actively-Managed 
Synthetic GIC are not in excess of reasonable compensation within the 
meaning of section 408(b)(2) of the Act;
    (d) Each Actively-Managed Synthetic GIC will specifically provide 
an objective means of determining the fair market value of the 
securities owned by the Plan pursuant to the Actively-Managed Synthetic 
GIC;
    (e) Each Actively-Managed Synthetic GIC will specifically provide 
an objective formula for determining the interest rates to be credited 
periodically under the Actively-Managed Synthetic GIC;
    (f) Pacific Life does not maintain custody of the assets which are 
the subject of the Actively-Managed Synthetic GIC or commingle those 
assets with any other funds under its management;
    (g) The assets subject to the Actively-Managed Synthetic GIC are 
invested only in high quality fixed income investments specified in the 
investment guidelines agreed to, or provided by, the independent 
fiduciary;
    (h) The Plan may, at any time, terminate the Actively-Managed 
Synthetic GIC;
    (i) The fee charged under the arrangement is negotiated between 
Pacific Life and a Plan fiduciary independent of Pacific Life;
    (j) At all times during the term of each Actively-Managed Synthetic 
GIC, a Plan may elect to receive such lump sum amount equal to the 
Contract Value Record and shall be entitled to receive a lump sum 
payment no more than 3 (three) years after making an election which 
will establish a maturity date;
    (k) The Plan may establish a maturity date by notifying Pacific 
Life in writing of an intent to establish a maturity date. Each 
Actively-Managed Synthetic GIC will mature within three (3) years after 
the Plan notifies Pacific Life of its intent to establish a maturity 
date; and
    (l) Actively-Managed Synthetic GICs are sold only to Plans which 
have at least $25 million in assets.

Section III--Specific Conditions

    (a) With respect to any Affiliated-Manager GIC described in section 
I (a), Pacific Life will notify a Plan's independent fiduciary, in 
writing no later than 30 days prior to the date on which the Credited 
Rate is to be reset, advising such fiduciary that the Plan may replace 
Pacific Life or its affiliate as investment manager,<SUP>1</SUP> at no 
expense to the Plan, when the Credited Rate with respect to any 
Affiliated-Manager GIC described in section I(a) is expected to be less 
than three (3) percent at the next reset of the Credited Rate.
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    \1\ Although Pacific Life must approve the new investment 
manager selected by the Plan, Pacific Life represents that it will 
not unreasonably withhold such approval.
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Section IV--Retroactive Conditions

    (a) At no time between January 22, 1993 and August 12, 1998, was 
the Credited Rate with respect to any Affiliated-Manager GIC described 
in section I (a) less than 3% (three percent) per annum; and
    (b) At no time between January 22, 1993 and August 12, 1998, did a 
Plan elect to receive an amount equal to the Contract Value Record 
pursuant to an Affiliated-Manager GIC described in section I (a).

Section V--Recordkeeping

    (a) The Applicant maintains or causes to be maintained for a period 
of six years from the date of the transaction such records as are 
necessary to enable the persons described in paragraph (b) of this 
section V of this proposed exemption, to determine whether the 
conditions of this exemption have been met, except that: (1) A 
prohibited transaction will not be deemed to have occurred if, due to 
circumstances beyond the control of the Applicant or its affiliates, 
such records are lost or destroyed prior to the end of such six year 
period; and (2) no party in interest, other than the Applicant or an 
affiliate, shall be subject to the civil penalty that may be accessed 
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) Notwithstanding anything to the contrary in subsections 
(a)(2) and (b) of section 504 of the Act, the records

[[Page 39534]]

referred to in paragraph (a) of this section V are unconditionally 
available at their customary location for examination during normal 
business hours by:
    (i) Any duly authorized employee or representative of the 
Department of Labor or the Internal Revenue Service; (ii) any fiduciary 
of the plan or any duly authorized employee or representative of such 
fiduciary; (iii) any participant or beneficiary of the plan or duly 
authorized representative of such participant or beneficiary; (iv) any 
employer of plan participants and beneficiaries; and (v) any employee 
organization any of whose members are covered by such plan; and
    (2) None of the persons described in paragraph (b)(1)(ii) through 
(v) shall be authorized to examine trade secrets of the applicant, or 
commercial or financial information which is privileged or 
confidential.

Section VI--Definitions

    For purposes of this proposed exemption:
    (A) ``Actively-Managed Synthetic GIC'' means: a synthetic 
guaranteed investment contact, which under certain circumstances 
provides a guarantee that a pool of underlying plan assets which may be 
managed by Pacific Life, an affiliate of Pacific Life, or an unrelated 
investment manager, will perform at a specified rate of return.
    (B) ``Affiliated-Manager GIC'' means: an Actively-Managed Synthetic 
GIC under which Pacific Life guarantees the performance of an related 
investment manager.
    (C) ``Unaffiliated-Manager GIC'' means: an Actively-Managed 
Synthetic GIC under which Pacific Life guarantees the performance of an 
unrelated investment manager.
    (D) ``Contract Value Record'' means: a bookkeeping account 
maintained by Pacific Life, pursuant to each Actively-Managed Synthetic 
GIC. Initially, the Contract Value Record will be credited with the 
value of the Investment Assets (defined in (F) below), and subsequently 
with a credited rate of interest (Credited Rate, defined in (E) below), 
which shall be reset periodically as agreed to at the inception of the 
Actively-Managed Synthetic GIC.
    (E) ``Credited Rate'' means: the interest rate credited to the 
Contract Value Record. The Credited Rate is reset periodically, in 
accordance with an objective formula established under the terms of the 
Actively-Managed Synthetic GIC.
    (F) ``Investment Assets'' means: the underlying portfolio of 
investment assets, title to which remains with the Plan.
    (G) ``Managed Portfolio'' means: the total of all Investment Assets 
which comprise the portfolio which is managed by either an Affiliated-
Manager or an Unaffiliated-Manager.
    (H) ``Withdrawals'' means: a participant initiated payment or 
transfer to other investment options available under the Plan.
    Effective Date: This proposed exemption, if granted, will be 
effective for the period from January 22, 1993, until August 12, 1998, 
for the transactions described in section I (a)(1). Section I (a)(2) of 
the proposed exemption, if granted, will be effective for the retention 
by the Plan of the Affiliated-Manager GICs until the maturity date of 
such GICs. Lastly, the proposal will be effective as of January 22, 
1993, for the transactions described in section I (b) (including the 
continuing retention of any Unaffiliated-Manager GICs).

Summary of Facts and Representations

    1. Pacific Life is a life insurance company incorporated under the 
laws of the State of California.<SUP>2</SUP> Pacific Life is also 
registered as an investment adviser under the Investment Advisers Act 
of 1940. Pacific Life is currently rated as follows: AM Best A+; 
Standard & Poor's AA+; Duff & Phelps AA+; and Moody's Aa3. As of 
December 31, 1998, Pacific Life had statutory assets of approximately 
$37.8 billion and net policy reserves of approximately $18 billion. A 
significant portion of Pacific Life's business consists of writing 
insurance and annuity contracts, guaranteed investments contracts, and 
funding agreements for numerous plans subject to the Act.
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    \2\ Pacific Life was formerly known as Pacific Mutual Life 
Insurance (Pacific Mutual) and sold some Actively Managed Synthetic 
GICs under the name of Pacific Mutual. Pacific Life represents that 
Pacific Mutual was converted from a mutual company to a stock 
company and became a majority owned subsidiary of Pacific Mutual 
Life Holding Company, a mutual company owned by the former 
policyholders of Pacific Mutual. After the conversion, Pacific 
Mutual was renamed Pacific Life.
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    2. Pacific Life has requested an exemption with respect to two 
different Actively-Managed Synthetic GIC products, each of which is a 
form of traditional guaranteed investment contract (GIC). The first 
form of Actively-Managed Synthetic GIC, for which relief is proposed in 
section I(a) of this notice of proposed exemption, is an arrangement 
under which Pacific Life, or an affiliate, acts as the investment 
manager, and Pacific Life guarantees the performance of the assets 
which it, or an affiliate, manages (Affiliated-Manager GIC). In some 
cases, Pacific Life will appoint an independent sub-advisor to carry 
out the investment management functions but Pacific Life will remain 
fully responsible as investment manager of the assets comprising the 
Actively-Managed Synthetic GIC. The second form of Actively-Managed 
Synthetic GIC, for which relief is proposed in section I(b) of this 
proposed exemption, is an arrangement under which Pacific Life 
guarantees the performance of an unrelated investment manager 
(Unaffiliated-Manager GIC). Pacific Life represents that it has not 
sold Affiliated-Manager GICs to Plans after August 12, 1998. Since 
January 23, 1993, Pacific Life sold both forms of the Actively-Managed 
Synthetic GICs to defined contribution plans. Pacific Life represents 
that it will continue selling the Unaffiliated-Manager GIC to defined 
contribution plans.
    3. Pacific Life's duties and obligations with respect to each 
Actively-Managed Synthetic GIC are governed by terms of an insurance 
contract or investment management agreement (the Contract) between the 
Plan and Pacific Life. The principal difference between the two forms 
of the Actively-Managed Synthetic GIC products is the nature of the 
Contract. Under the Unaffiliated-Manager GIC, where Pacific Life is 
guaranteeing the performance of an unrelated investment manager, 
Pacific Life's obligations and the Plan's rights will be embodied in a 
single contract of insurance. Under the Affiliated-Manager GIC, where 
Pacific Life, or a related or unrelated sub-adviser appointed by 
Pacific Life, is responsible for the investment management of the 
Managed Portfolio, the rights and obligations of the parties will 
derive primarily from the investment management agreement between 
Pacific Life and the Plan. Secondarily, the rights and obligations of 
the parties pursuant to the Affiliated-Manager GIC will be established 
in a contract of insurance guaranteeing the performance of Pacific 
Life, or the sub-adviser, in its capacity as Investment Manager.
    4. Both forms of Pacific Life's Actively-Managed Synthetic GICs 
provide that all employee initiated benefit payments and transfers to 
other investment options (collectively, Withdrawals) will be paid at an 
amount equal to the Contract Value Record (see paragraph 10 below for a 
description of the Contract Value Record). Since such Withdrawals are 
paid at the Contract Value Record, participants will not recognize a 
loss when they initiate a Withdrawal at a time when the fair

[[Page 39535]]

market value of the Investment Assets comprising the Plan's Managed 
Portfolio has declined to a level below the Contract Value Record. 
Pacific Life represents that Plans will typically purchase the 
Actively-Managed Synthetic GIC because it will allow the Plans to use 
book value accounting and, thus, account for the value of the accounts 
of participants without regard to fluctuations in the fair market value 
of the Investment Assets which result from changes in interest rates.
    5. Pacific Life represents that each Actively-Managed Synthetic GIC 
provides purchasers with the advantages of a traditional GIC, while 
providing greater security than a traditional GIC. Unlike a traditional 
GIC, the title to the Investment Assets at all times remains with the 
Plan. For this reason, it is represented that Synthetic GICs provide 
greater security to Plans because the assets held in the Managed 
Portfolio are not subject to the claims of an insurance company's 
general creditors in the event that the insurance company fails.
    Pacific Life represents that it will negotiate the terms of each 
Actively-Managed Synthetic GIC with an independent fiduciary of a Plan, 
which is generally expected to be the Plan's named fiduciary and not an 
independent investment professional.
    6. Both the Affiliated-Manager GIC and Unaffiliated-Manager GIC 
provide the same economic benefits to a Plan. The mechanical operation 
of Pacific Life's obligations (other than as an investment manager), 
under each form of the Actively-Managed Synthetic GIC is the same. In 
each case, the Contract is issued pursuant to applicable state law and 
is subject to the jurisdiction of the appropriate State Department of 
Insurance. The representations made by Pacific Life in respect of the 
Actively-Managed Synthetic GIC herein apply equally to both the 
Affiliated-Manager GIC and Unaffiliated-Manager GIC.
    7. While certain terms and conditions of each Contract will be 
negotiable by the Plan and Pacific Life, once the Contract has been 
executed, Pacific Life will have no discretion over any of the terms. 
Each Actively-Managed Synthetic GIC is issued by Pacific Life in the 
ordinary course of its business. Pacific Life represents that it will 
not sell Actively-Managed Synthetic GICs to Plans which do not have at 
least $25 million in assets.
    8. Each Actively-Managed Synthetic GIC will consist of two 
components. One component is the underlying portfolio of Investment 
Assets, title to which will remain with the Plan. The underlying 
Investment Assets will be securities issued or guaranteed by the 
Federal government or an instrumentality thereof, or other investment 
grade debt securities whose value is readily determinable and which can 
thus be objectively valued. The Investment Assets will not come under 
Pacific Life's administration or control, unless the Plan chooses 
Pacific Life as the investment manager of the Managed Portfolio by 
purchasing an Affiliated-Manager GIC. Even where Pacific Life is the 
investment manager, legal title to the Managed Portfolio, including all 
principal, interest, dividends and distributions on the Investment 
Assets in the Managed Portfolio, at all times remains with the Plan. 
The performance of such Investment Assets will affect the second 
component of each Contract.
    The second component under each Actively-Managed Synthetic GIC will 
be an accounting record established by Pacific Life to record the 
Plan's interest under the Actively-Managed Synthetic GIC. This 
accounting record is called the Contract Value Record and it is the 
amount available to Plan participants in the event they elect to 
withdraw funds pursuant to the provisions of the Plan.
    9. Under the Actively-Managed Synthetic GIC, a named fiduciary 
independent of Pacific Life will select an investment manager with 
respect to that portion of the Managed Portfolio as is agreed upon by 
that independent fiduciary and Pacific Life. On or before August 12, 
1998, the named fiduciary independent of Pacific Life may have selected 
Pacific Life or one of its affiliates as investment manager. The 
investment manager will manage the Managed Portfolio in accordance with 
investment objectives and guidelines established at the inception of 
the Contract and described therein. It is represented that, among other 
things, these guidelines are intended to assure that the Managed 
Portfolio is invested prudently and requires that the Managed Portfolio 
be adequately diversified among the class of investments available.
    10. As discussed in paragraph 8 above, under each Contract, Pacific 
Life will maintain a Contract Value Record for the Investment Assets in 
the Managed Portfolio. The Contract Value Record will be initially 
credited with an amount equal to the value of the Investment Assets at 
the inception of the Contract. Thereafter, the Contract Value Record 
will be credited with a rate of interest (i.e., the ``Credited Rate'') 
that will be reset periodically, [e.g., quarterly, semi-annually, or 
annually], in accordance with a formula established under the Contract 
and agreed upon by an independent plan fiduciary. Once the Contract is 
executed, no element of the formula which sets the Credited Rate, or 
the intervals at which the Credited Rate is reset, is within Pacific 
Life's discretion. All principal and interest payments from the 
Investment Assets will be reinvested back into the Managed Portfolio 
and stay within the Contract. The Credited Rate will take into account 
these additional accruals. Also, the Credited Rate applied to the 
Contract Value Record will be responsive to fluctuations in the Market 
Value of the Managed Portfolio (see paragraph 21 for an explanation as 
to the determination of Market Value).
    11. Pacific Life represents that one of the attractive features of 
the Actively-Managed Synthetic GIC to a Plan is that Pacific Life 
assumes certain obligations with respect to the availability of funds 
for benefit Withdrawals and the return on the Managed Portfolio. 
Mechanically, this is accomplished through the establishment of, and 
adjustments to, the Contract Value Record.
    As discussed in paragraph 10 above, the Contract Value Record 
reflects a guarantee of principal and the crediting of interest at 
periodically determined Credited Rates, pursuant to the formula 
established in the Contract. The Credited Rate of interest will equal 
the rate necessary to assure that, if the Managed Portfolio earns the 
rate of return anticipated, the value of the Managed Portfolio will 
equal the Contract Value Record after a pre-determined amortization 
period. The length of the amortization period will be negotiated at 
arms length between Pacific Life and the Plan's independent fiduciary. 
Thus, for any Actively-Managed Synthetic GIC, the initial Credited Rate 
is equal to the expected rate of return on the Managed Portfolio. For 
all purposes under the Contract, the expected return on the Managed 
Portfolio is calculated by the Plan's trustee or another fiduciary 
acting on behalf of the Plan with the concurrence of Pacific Life.
    It is represented that a party independent of Pacific Life, which 
will be the investment manager in circumstances where Pacific Life or 
an affiliate is not the Manager, or the trustee of the Plan in 
circumstances where Pacific Life is the investment manager, will 
determine the expected future rate of return on the Investment Assets 
assuming that those assets were held until maturity. Pacific Life 
represents that it will accept the expected rate of return calculations 
of the independent party, absent a mathematical error. It is 
represented that Pacific Life will calculate the

[[Page 39536]]

Credited Rate pursuant to the formula agreed upon in the Contract, and 
that the calculations will be based on the data received from the 
independent party as to the expected rate of return and the actual rate 
of return.
    12. To achieve the intended effect of causing the Contract Value 
Record balance and the value of the Managed Portfolio to be equal at 
maturity, the formula for determining the Contract Value Credited Rate 
of interest under each Contract resets periodically pursuant to the 
terms of the Contract (see paragraph 10 above for the description of 
the Credited Rate). At each reset period, the Credited Rate will be 
adjusted, up or down, to reflect the difference between the actual 
investment experience of the Managed Portfolio and the expected 
investment experience of such assets. The Credited Rate, following the 
reset, will equal the rate necessary to assure that, at the end of the 
amortization period, the Contract Value Record will equal the value of 
the Managed Portfolio, based on the assumed return for the Managed 
Portfolio for the amortization period.<SUP>3</SUP> In the event that 
the Credited Rate for any period, as calculated by Pacific Life 
pursuant to the fixed formula established under the Contract, would be 
less than zero, the Contract Value Record's Credited Rate following 
such reset will be zero.
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    \3\ Pacific Life represents that the amortization period for 
Contracts does not exceed three (3) years.
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    13. Under each Actively-Managed Synthetic GIC, Pacific Life 
guarantees the availability of funds for participant initiated benefit 
Withdrawals up to the amount of the Contract Value Record balance as of 
any date. After certain other specified sources of funds (such as net 
contributions to the Actively-Managed Synthetic GIC, maturing proceeds, 
and cash equivalents) have been exhausted, a Plan will have the right 
to withdraw funds from the following sources in the order listed until 
depleted:
    (1) Available cash attributable to the Investment Assets in the 
Managed Portfolio; and
    (2) Cash realized from the sale of Investment Assets in the Managed 
Portfolio.
    All participant initiated benefit Withdrawals are guaranteed to be 
paid at the Contract Value Record.
    14. A Plan's fiduciary will have the option of purchasing an 
Actively-Managed Synthetic GIC which is issued on either an experience-
rated or a non-experience rated basis.<SUP>4</SUP> Under both the 
experience-rated contract (Experience-Rated Contract) and the non-
experience rated contract (Non-Experience Rated Contract), all 
participant initiated benefit Withdrawals will be paid at Contract 
Value. However, under an Experience-Rated Contract, Pacific Life will 
not compensate the Plan for any loss resulting from a benefit 
responsive Withdrawal which is effected at a time when the Market Value 
of the Investment Assets is less than the Contract Value. Pursuant to a 
Non-Experience Rated Contract, if benefit responsive Withdrawals are 
made when the Contract Value of the Investment Assets is greater than 
the Market Value of the Investment Assets, a reserve account is 
established (as discussed in paragraph 15 below) and Pacific Life will 
compensate the Plan in the event that, at maturity, the Contract Value 
plus the Reserve Account exceeds the Market Value of the Investment 
Assets.
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    \4\ The Department notes that the fiduciary responsibility 
provisions of the Act will apply to any decision made by a plan 
fiduciary to purchase an Actively-Managed Synthetic GIC as a part of 
its investment program for a plan's participants and beneficiaries. 
In this regard, section 404(a) of the Act requires that a fiduciary 
discharges his or her duties with respect to a plan solely in the 
interest of the participants and beneficiaries and with the care, 
skill, prudence and diligence under the circumstances then 
prevailing that a prudent person acting in a like capacity and 
familiar with such matters would use in the conduct of an enterprise 
of a like character and with like aims. Accordingly, the fiduciaries 
of a plan must act ``prudently'' with respect to the selection of 
investment products. This proposed exemption, if granted, should not 
be viewed as an endorsement by the Department of the plan's use of 
an Actively-Managed Synthetic GIC which is issued on either an 
experience-rated or non-experience rated basis. Finally, the 
Department notes that plan fiduciaries would be liable for any 
losses to a plan resulting from a decision to select an experience-
rated or non-experience rated synthetic GIC, if such selection was 
not prudent at the time the decision was made.
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    Pacific Life represents that, when investing in synthetic GICs, 
some Plans are less concerned about protection against market losses 
due to benefit responsive Withdrawals, primarily because such Plans 
will have sufficient cash flow, in the form of new additional cash 
investments by participants on an ordinary basis to avoid the need to 
liquidate Investment Assets to meet benefit responsive Withdrawals. 
Pursuant to an Experience-Rated Contract, Withdrawals are paid from the 
inflow of new contributions and other amounts received by the Plan 
(Cash Resources). Pacific Life represents that typically very large 
Plans, with more than sufficient Cash Resources to cover Withdrawals 
without a need to sell any of the Investment Assets, are potential 
purchasers of an Experience-Rated Contract. Since Pacific Life's risk 
exposure is lower in the context of an Experienced-Rated Contract 
because it will have no exposure related to benefit responsive 
Withdrawals, the charges associated with such a contract will be less. 
Accordingly, to reduce expenses for a Plan that has sufficient Cash 
Resources, a Plan's fiduciary may select an Experience Rated 
Contract.<SUP>5</SUP>
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    \5\ The Department expects that plan fiduciaries, consistent 
with their responsibilities under section 404(a) of the Act, will 
determine that a plan has sufficient liquidity to meet benefit 
responsive Withdrawals prior to investing in an Experience-Rated 
Contract.
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    Plans fiduciaries that do not believe they have sufficient Cash 
Resources to cover participant Withdrawals may anticipate the need to 
liquidate Investment Assets and, for this reason, such Plans would be 
expected to purchase a Non-Experience Rated Contract. The Non-
Experience Rated Contract has higher charges associated with it, 
because Pacific Life assumes a greater obligation to the Plan.
    15. Plans purchasing the Contracts are advised that the calculation 
of the future Credited Rates, and the benefit risk charge payable by 
the Plan to Pacific Life, will differ between Experience and Non-
Experience Rated Contracts.
    Under a Non-Experience Rated Contract, any benefit responsive 
Withdrawal made under the Actively-Managed Synthetic GIC will have no 
impact on the Credited Rate. After each Withdrawal, Pacific Life will 
add to or subtract from the Managed Portfolio's market value record a 
notional amount (the Reserve Account) to maintain, solely for 
bookkeeping purposes, the percentage difference between the Market 
Value and Contract Value Record at their pre-withdrawal levels. The 
Reserve Account is ongoing and will be in effect until the Contract 
terminates. Additions to the Reserve Account will be made when benefit 
Withdrawals occur and the Market Value of the Managed Portfolio is less 
than Contract Value Record. Alternatively, subtractions from the 
Reserve Account will be made when benefit Withdrawals are made and the 
Managed Portfolio's Market Value is greater than the Contract Value 
Record.
    If a Plan elects to receive a payment of the Contract Value Record 
at contract maturity, any balance in the Reserve Account will earn the 
market rate of return earned on the Managed Portfolio. A positive 
balance credited to the Reserve Account when the Contract is terminated 
will be paid to the Plan. (See paragraph 16 below for a more detailed 
explanation). The Plan will not be obligated to pay Pacific Life any 
debit in the Reserve Account. This is the benefit Withdrawal risk that 
Pacific Life will be

[[Page 39537]]

assuming under a Non-Experience Rated Contract.
    However, the benefit Withdrawal activity of an Experience-Rated 
Contract will affect the future Credited Rate calculation and no 
Reserve Account will be maintained for such Contracts. If a benefit 
Withdrawal is made from the Contract at a time when the Market Value of 
the Managed Portfolio is less than the Contract Value Record, the 
Credited Rate at its next reset date will be lower to reflect the 
effect of the Withdrawal. On the other hand, at the next following 
reset date, the Credited Rate will be increased in the event that a 
Withdrawal is made at a time at which the Market Value of the Managed 
Portfolio exceeds the Contract Value Record. In this regard, in an 
Experience-Rated Contract, the Credited Rate of interest from and after 
such benefit responsive Withdrawals will be reset taking into account 
the positive or negative effect of such Withdrawal on the value of the 
Investment Assets. Thus, the Plan will assume the risk of loss on the 
benefit responsive Withdrawals (and be benefitted by any gains related 
thereto) by receiving a lower (or higher) Credited Rate on the Contract 
Value Record on a going forward basis. This enables the Plan to still 
receive the benefit of book value accounting, as all Withdrawals are 
still effected at book value, but enables it to avoid the cost of 
having Pacific Life assume the additional risk associated with such 
Withdrawals.
    16. A Plan's fiduciary may at any time elect to terminate the 
arrangements pertaining to the Actively-Managed Synthetic GIC and 
thereby cause the investment of the Managed Portfolio to be transferred 
to the Plan's trustee or another investment manager, without 
restriction. This election is called a market value payment (Market 
Value Payment).<SUP>6</SUP> The Plan would generally be expected to 
elect such a Market Value Payment only in circumstances where the 
Market Value of the Managed Portfolio exceeds the balance then credited 
to the Contract Value Record. If a Plan were to elect a Market Value 
Payment, Pacific Life will be relieved of any potential obligation to 
make a payment in an amount equal to the amount of the Contract Value 
Record. Such payment of the Contract Value Record is referred to as a 
``Contract Value Payment,'' as described below. A Market Value Payment, 
if elected, consists in essence of the total return of the Investment 
Assets of the Managed Portfolio to the Plan. Any excess of the Market 
Value of the Managed Portfolio over the balance in the Contract Value 
Record belongs exclusively to the Plan. The only cost to a Plan 
electing to receive a Market Value Payment would be an early 
termination fee, which would be payable only if the Plan makes such 
election prior to the end of the minimum term for which it agrees to 
keep the agreement in effect. This termination fee and minimum term 
will be negotiated by the Plan and Pacific Life at the inception of the 
Contract. Pacific Life represents that the minimum term is typically 
one (1) year and the termination fee generally equals Pacific Life's 
cost of establishing the Actively-Managed GIC Contract. It is further 
represented that for Contracts involving the investment of $50 million 
or more, it will waive any such early termination fee. The purpose of 
the early termination fee is to assure that Pacific Life recovers the 
costs it will incur in implementing the Actively-Managed Synthetic GIC 
for a Plan which elects the Market Value Payment.
---------------------------------------------------------------------------

    \6\ However, a Market Value Payment will not be deemed to have 
been requested if a Plan fiduciary, pursuant to the condition of the 
exemption proposed herein for Affiliated-Manager GICs, elects to 
replace Pacific Life or an affiliate of Pacific Life as investment 
manager, when the Credited Rate under such Contract falls below 
three (3) percent.
---------------------------------------------------------------------------

    Alternatively, the Plan's fiduciary may at any time elect to 
receive a Contract Value Payment, if it thinks such an election would 
provide the Plan a better return. A Contract Value Payment takes the 
form of a single payment to be made at a date at which the Contract 
will mature following such an election (the Maturity Date), which date 
will have been agreed to by Pacific Life and the Plan at the 
commencement of the Contract. The time between the date the fiduciary 
gives notice of its intent to terminate the Contract and the Maturity 
Date is generally equal to the time of the amortization period assumed 
in the Credited Rate calculation (see paragraph 12 above). It is 
represented that the amortization period will not be more than three 
years. As a result, following the provision of notice of an election to 
terminate the contract and receive a Contract Value Payment, the 
maximum period a Plan would have to wait for the Contract Value Payment 
is three years. Any payment that Pacific Life will have to make to 
support the Contract Value Payment will be in an amount equal to the 
excess on the Maturity Date of (i) the balance in the Contract Value 
Record plus the balance in the Reserve Account over (ii) the Market 
Value of the Managed Portfolio.
    17. If a Plan elects to receive a Contract Value Payment, new 
restricted investment guidelines and objectives will be set, to be 
effective for the remainder of the Contract term, under which either 
(i) the average duration of the assets in the Managed Portfolio will 
generally be six months less than the scheduled payment date until one 
year prior to the payment date, and thereafter generally one-half of 
the remaining period until the scheduled payment date, or (ii) the 
Managed Portfolio will be required to be invested in Treasury Bonds 
maturing on or before the scheduled payment date. To effect a Contract 
Value Payment, Pacific Life must receive written notice, signed by the 
Plan's independent fiduciary, of their acceptance of the revised 
investment objectives and guidelines.
    18. In making the choice as to which form of termination 
distribution it wants upon the maturity of an Actively-Managed 
Synthetic GIC, a Plan's fiduciary will compare the Market Value of the 
Investment Assets as determined by its duly appointed custodian to the 
dollar amount credited to the Contract Value Record. Pacific Life, as 
issuer of the Contract, will have no involvement in valuing the Managed 
Portfolio. Moreover, at any time after having given Pacific Life notice 
of an election to receive a Contract Value Payment, the Plan may elect 
to receive a Market Value Payment instead. Thus, if the Market Value of 
the Managed Portfolio increases to the advantage of the Plan after the 
Plan has made a Contract Value Payment election, the Plan has the right 
to reverse such election and immediately terminate the 
Contract.<SUP>7</SUP> As with any election of a Market Value Payment, 
Pacific Life will thereafter have no further obligation with respect to 
any Contract Value Payment.
---------------------------------------------------------------------------

    \7\ Pacific Life acknowledges that circumstances which would 
cause the recovery of the Market Value to the extent that it would 
exceed the Contract Value Record, after a request for a Contract 
Value Payment is made, would be unlikely to occur given the short 
amortization period and the implementation of the restrictive 
investment guidelines provided for under the Contract.
---------------------------------------------------------------------------

    19. Pacific Life represents that it believes that each Actively-
Managed Synthetic GIC is superior to traditional GICs in that each 
Actively-Managed Synthetic GIC serves the dual functions of: (a) 
Affording a Plan substantially greater protection against the risk that 
it will lose its principal investment; and (b) providing the Plan with 
an opportunity for a greater rate of return than a traditional GIC.
    In the case of an Actively-Managed Synthetic GIC, an investment 
manager will invest the Managed Portfolio within the parameters of the 
pre-established investment guidelines. The Plan's trustee holds title 
to assets in the Managed Portfolio. Any appreciation in the value of 
the Managed Portfolio

[[Page 39538]]

belongs to the Plan. The only risk in regard to the Managed Portfolio 
arising from the financial condition of Pacific Life relates to the 
amount representing the excess, if any, of the balance in the Contract 
Value Record over the Market Value of the Managed Portfolio. Pacific 
Life represents that the Actively-Managed Synthetic GIC provides 
greater security to an investing Plan than a traditional GIC, while 
also providing a guaranteed rate of return not generally available in 
respect to a managed portfolio under a separate investment advisory 
agreement.
    20. Pacific Life will maintain full and complete records and books 
reflecting the various accounts maintained in accordance with the 
Actively-Managed Synthetic GICs. Pacific Life will furnish a Plan's 
representatives with periodic statements regarding distributions, 
Withdrawals and any other transaction pertaining to the Contract. Upon 
written request from a Plan, Pacific Life will also make its records 
pertaining to the Actively-Managed Synthetic GICs available during 
normal business hours for audit by independent certified public 
accountants hired by the Plan's fiduciary.
    21. The applicant makes the following representation with respect 
to the valuation of assets under the Actively-Managed Synthetic GIC. 
The time at which the value of the Investment Assets is relevant to 
Pacific Life's obligations is at the time of any Withdrawal, including 
upon termination of the entire arrangement. At such time, the Market 
Value of the Investment Assets will be based on the last quoted sales 
price on the valuation date on a national securities exchange. With 
regard to any other security or asset which is not listed on a national 
securities exchange, its value will be determined by the Plan's 
independent investment manager or another fiduciary acting on behalf of 
the Plan, such as the Plan's trustee.
    22. Pacific Life and the Plan's fiduciary will agree to an expense 
charge, determined at the inception of the Contract, payable to Pacific 
Life with respect to each Actively-Managed Synthetic GIC that will be 
stated as a fixed percentage of the market value of the Managed 
Portfolio. This charge covers four elements: (a) A benefit risk charge, 
(b) a maturity risk charge, (c) an expense charge and (d) a profit 
charge.
    The benefit risk charge is the component of the fee attributable to 
Pacific Life's risk of loss associated with payments Pacific Life will 
be obligated to make as a result of the benefit responsive Withdrawal 
feature provided for under the Contract. The benefit risk charge will 
be developed on a Plan specific basis after a review of the Plan's 
benefit payment cash flow history and the structure of the Plan 
itself--that is, the frequency at which Withdrawals and investment 
transfers are permitted, and the structure of alternate investment 
opportunities. Since the Credited Rate for Non-Experience Rated 
Synthetic GICs is not responsive to benefit Withdrawal activity, the 
benefit risk that Pacific Life assumes from Non-Experience Rated 
Contracts is higher than for Experience Rated Contracts. Consequently, 
the benefit risk charge will be higher for Non-Experience Rated 
Contracts based on an evaluation of the Plan's Withdrawal and transfer 
possibilities.
    The maturity risk charge component of the fee will be based on a 
review of the potential volatility of the Managed Portfolio. This 
assessment of the potential volatility will be based on a thorough 
review of the investment guidelines which will be applied to the 
Managed Portfolio. If Pacific Life feels that the potential volatility 
is too high to properly manage the maturity risk, the portfolio will 
not be approved for a Actively-Managed Synthetic GIC.
    The expense and profit charges components of the fee will be 
assessed based on the expected expenses related to the arrangement and 
the payment to Pacific Life of a reasonable profit. The expense charge 
will be based on an annual rate to be determined by negotiations 
between Pacific Life and the Plan's fiduciary at the inception of the 
Contract and stated as a fixed percentage and multiplied by the value 
of the Managed Portfolio, determined pursuant to a fixed formula under 
the Contract. Such negotiated charge would remain in effect for the 
initial period until maturity agreed to by the Plan and Pacific Life, 
subject to Pacific Life's ability to make changes to such charge upon 
30 day's advance written notice if and solely to the extent that there 
has been a material change to the provisions or administration of the 
Plan which adversely affects deposits to or Withdrawals from the 
Contract, or another action by the Plan's sponsor which results in 
significant Withdrawals from the Contract, such as, but not limited to, 
plant closing, divestitures, a partial plan termination, bankruptcy, or 
early retirement incentive programs. Based on its review of competitive 
practices, Pacific Life represents that the aggregate charges with 
respect to each of the Actively-Managed Synthetic GICs are, and are 
expected to continue to be, comparable to the charges made by other 
Actively-Managed Synthetic GIC providers.
    23. Pacific Life represents that to date, Actively-Managed 
Synthetic GICs have been purchased by numerous Plans, with the first 
such purchase occurring on January 22, 1993. Pacific Life has 
accordingly requested that the exemption proposed herein be made 
retroactive to that date. Pacific Life represents that it entered into 
the previously issued Actively-Managed Synthetic GICs with the good 
faith belief that the transactions involved therein were, to the extent 
they constituted prohibited transactions, exempted by Prohibited 
Transaction Exemption 84-24 (PTE 84-24, 49 FR13208, April 3, 
1984).<SUP>8</SUP> However, because Pacific Life is unable to conclude 
affirmatively that the Actively-Managed Synthetic GICs constituted 
insurance contracts within the meaning of PTE 84-24, Pacific Life has 
requested the exemption proposed herein.
---------------------------------------------------------------------------

    \8\ In this proposed exemption, the Department expresses no 
opinion as to whether the subject transaction would be exempt under 
PTE 84-24.
---------------------------------------------------------------------------

    24. In summary, the applicant represents that the subject 
transactions satisfy the criteria contained in section 408(a) of the 
Act because: (a) The decision to enter into an Actively-Managed 
Synthetic GIC will be made on behalf of the Plan by a fiduciary of the 
Plan who is independent of Pacific Life, after receipt of full and 
detailed disclosure of all material features of the Contact, including 
all applicable fees and charges; (b) following receipt of such 
disclosure, the Plan's independent fiduciary approves in writing the 
execution of the Actively-Managed Synthetic GIC on behalf of the Plan; 
(c) all fees and charges under the Actively-Managed Synthetic GICs are 
reasonable; (d) each Actively-Managed Synthetic GIC will specifically 
provide for an objective means for determining the fair market value of 
the securities owned by the Plan pursuant to the Actively-Managed 
Synthetic GIC; (e) each Actively-Managed Synthetic GIC will 
specifically provide for an objective means for determining the 
Credited Rate under the Actively-Managed Synthetic GIC; (f) Pacific 
Life does not take possession of the assets which are the subject of 
the Actively-Managed Synthetic GIC or commingle those assets with any 
other funds under its management; (g) the assets subject to the 
Actively-Managed Synthetic GIC are invested only in high quality fixed 
income instruments specified in the investment guidelines provided to 
the independent fiduciary; (h) the Plan may choose at any time to 
terminate the Actively-Managed Synthetic GIC and receive the Market 
Value of the

[[Page 39539]]

Managed Portfolio; (i) An Affiliate-Manager GIC Contract provides that 
a Plan may replace an Affiliated-Manager GIC with an Unaffiliated-
Manager GIC if the Credited Rate for the next reset will be three (3) 
percent or less; (j) the Plan may receive a Contract Value Payment no 
more than three (3) years after electing a Maturity Date; (k) the fee 
charged for the combination of services is negotiated between Pacific 
Life and a Plan fiduciary independent of Pacific Life; (l) Pacific Life 
will maintain books and records of all transaction which will be the 
subject to annual audit by independent certified public accountants 
selected and responsible solely to the Plan; and (m) Affiliated-Manager 
GICs were not sold to Plans by Pacific Life after August 12, 1998; and 
(n) the Actively-Managed Synthetic GICs will only be marketed to Plans 
---------------------------------------------------------------------------
which have at least $25 million in assets.

    For Further Information Contact: Janet Schmidt of the Department, 
telephone (202) 219-8883. (This is not a toll-free number.)

The Manufacturers Life Insurance Company (Manulife), Located in 
Toronto, Canada

[Application No. D-10738]

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 in accordance with the 
procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 
32847, August 10, 1990). <SUP>9</SUP>
---------------------------------------------------------------------------

    \9\ For purposes of this proposed exemption, reference to 
provisions of Title I of the Act, unless otherwise specified, refer 
also to the corresponding provisions of the Code.
---------------------------------------------------------------------------

Section I. Covered Transactions

    If the exemption is granted, the restrictions of section 406(a) of 
the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(A) through (D) of the 
Code, shall not apply, to (1) the receipt of common stock (the Common 
Shares) of Manulife Financial Corporation, a newly-formed company that 
will be the holding company (the Holding Company) for Manulife; or (2) 
the receipt of cash or policy credits, by any plan policyholder (the 
Eligible Policyholder that is an employee benefit plan (the Plan), 
other than a policyholder which is a plan established by Manulife or an 
affiliate for its own employees (the Manulife Plan), in exchange for 
such Eligible Policyholder's membership interest in Manulife, in 
accordance with a plan of reorganization (the Plan of Demutualization) 
adopted by Manulife and implemented under the insurance laws of Canada 
and the State of Michigan.
    This proposed exemption is subject to the conditions set forth 
below in Section II.

Section II. General Conditions

    (a) The Plan of Demutualization is implemented in accordance with 
procedural and substantive safeguards that are imposed under the 
insurance laws of Canada and the State of Michigan and is subject to 
review and/or approval in Canada by the Office of the Superintendent of 
Financial Institutions (OSFI) and the Minister of Finance (the Canadian 
Finance Minister) and, in the State of Michigan, by the Commissioner of 
Insurance (the Michigan Insurance Commissioner).
    (b) OSFI, the Canadian Finance Minister and the Michigan Insurance 
Commissioner review the terms of the options that are provided to 
Eligible Policyholders of Manulife as part of their separate reviews of 
the Plan of Demutualization. In this regard,
    (1) OSFI (i) authorizes the release of the Plan of Demutualization 
and all information to be sent to Eligible Policyholders; (ii) oversees 
each step of the demutualization process; and (iii) makes a final 
recommendation to the Canadian Finance Minister on the Plan of 
Demutualization.
    (2) The Canadian Finance Minister considers such factors as whether 
(i) the Plan of Demutualization is fair and equitable to Eligible 
Policyholders; (ii) the Plan of Demutualization is in the best 
interests of the financial system in Canada; and (iii) sufficient steps 
had been taken to inform Eligible Policyholders of the Plan of 
Demutualization and of the special meeting on demutualization.
    (3) The Michigan Insurance Commissioner makes a determination that 
the Plan of Demutualization is (i) fair and equitable to all Eligible 
Policyholders and (ii) consistent with the requirements of Michigan 
law.
    (4) Both the Canadian Finance Minister and the Michigan Insurance 
Commissioner concur on the terms of the Plan of Demutualization.
    (c) Each Eligible Policyholder has an opportunity to vote to 
approve the Plan of Demutualization after full written disclosure is 
given to the Eligible Policyholder by Manulife.
    (d) One or more independent fiduciaries of a Plan that is an 
Eligible Policyholder receives Holding Company Common Shares, cash or 
policy credits pursuant to the terms of the Plan of Demutualization and 
neither Manulife nor any of its affiliates exercises any discretion or 
provides investment advice with respect to such acquisition.
    (e) After each Eligible Policyholder entitled to receive stock is 
allocated at least 184 Common Shares, additional consideration is 
allocated to Eligible Policyholders who own participating policies 
based on actuarial formulas that take into account each participating 
policy's contribution to the surplus of Manulife which formulas have 
been reviewed by the Canadian Finance Minister and the Michigan 
Insurance Commissioner.
    (f) All Eligible Policyholders that are Plans participate in the 
transactions on the same basis within their class groupings as other 
Eligible Policyholders that are not Plans.
    (g) No Eligible Policyholder pays any brokerage commissions or fees 
in connection with the receipt of Common Shares.
    (h) All of Manulife's policyholder obligations remain in force and 
are not affected by the Plan of Demutualization.

Section III. Definitions

    For purposes of this proposed exemption:
    (a) The term ``Manulife'' means ``The Manufacturers Life Insurance 
Company'' and any affiliate of Manulife as defined in paragraph (b) of 
this Section III.
    (b) An ``affiliate'' of Manulife includes--
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with Manulife. (For purposes of this paragraph, the term ``control'' 
means the power to exercise a controlling influence over the management 
or policies of a person other than an individual.)
    (2) Any officer, director or partner in such person, and
    (3) Any corporation or partnership of which such person is an 
officer, director or a 5 percent partner or owner.
    (c) The term ``Eligible Policyholder'' means a policyholder who is 
eligible to vote at annual meetings of the mutual insurer and to 
receive consideration under Manulife's Plan of Demutualization. More 
specifically, an Eligible Policyholder is a policyholder of the mutual 
insurer that had a voting policy before Manulife announced its 
intention to demutualize or any policyholder that applied for a voting 
policy prior to that day. Policyholders will also be deemed Eligible 
Policyholders if they are holders of a

[[Page 39540]]

voting policy that lapsed before the insurer's announcement date but 
was reinstated on or before 90 days prior to the special meeting to 
consider demutualization. These policyholders will be eligible to 
receive benefits upon demutualization.
    (d) The term ``policy credit'' means whichever of the following is 
applicable: (1) With respect to an individual life insurance policy, an 
increase in the dividend accumulation amount; (2) with respect to an 
individual deferred annuity policy where the owner has elected a 
dividend accumulation option, an increase in the dividend accumulation 
amount; (3) with respect to all other individual deferred annuity 
policies, an increase in the dividend addition value; and (4) with 
respect to a settlement annuity, an increase in the contract reserve 
which shall provide for an increase in the monthly income payment equal 
to the ratio of the reserve increase to the then current contract 
reserve.

Summary of Facts and Representations

    1. Manulife, which maintains its principal place of business at 200 
Bloor Street East, Toronto, Ontario, Canada, is a mutual insurance 
company originally incorporated on June 23, 1887 by a Special Act of 
Parliament of the Dominion of Canada. Manulife currently has letters 
patent (i.e., a corporate charter) issued under the Insurance Companies 
Act of Canada (the ICA). Its port of entry into the United States is 
the State of Michigan which is responsible for regulating its United 
States operations.
    Manulife provides a wide range of financial products and services, 
including individual life insurance, group life and health insurance, 
pensions, annuities and mutual funds to individuals and group 
customers, including employers in Canada and other countries. Either 
directly or through its subsidiaries, Manulife is authorized to conduct 
business in 50 states of the United States as well as in the District 
of Columbia. As of December 31, 1997, Manulife had total assets under 
administration of Cdn$79.5 billion and it had more than Cdn$400 billion 
of life insurance in force. In addition, during 1998, Manulife was 
rated as follows by Duff & Phelps, A.M Best, Standard & Poor's and 
Moody's:

----------------------------------------------------------------------------------------------------------------
                                                 Valuation
                 Rating agency                      date                            Rating
----------------------------------------------------------------------------------------------------------------
Duff & Phelps Claims Paying Ability...........      8/24/98  AAA (Highest).
A.M. Best Financial Strength..................         1998  A++ (Superior).
Standard & Poor's Financial Strength..........      11/4/98  AA+ (Very Strong).
Moody's Financial Strength....................         3/98  Aa2 (Excellent).
----------------------------------------------------------------------------------------------------------------

    As a mutual insurance company, Manulife has no shareholders. 
Instead, its participating policyholders, which are members of the 
company, are entitled to vote to elect all directors of Manulife. If 
Manulife is liquidated, such policyholders would also be entitled to 
share in the insurer's assets.
    Manulife is the sole indirect shareholder of three United States-
domiciled stock insurance companies. The three companies are Manulife 
Reinsurance Corporation (U.S.A.) (Reinsurance), a Michigan-domiciled 
insurer incorporated in 1983; ManUSA, a Michigan-domiciled insurer 
incorporated in 1955; and The Manufacturers Life Insurance Company of 
America, a Michigan-domiciled insurer incorporated in 1977. 
Additionally, Manulife indirectly owns approximately 85 percent of The 
Manufacturers Life Insurance Company of North America, a Delaware-
domiciled insurer incorporated in 1979, which, in turn, owns The 
Manufacturers Life Insurance Company of New York, a New York-domiciled 
insurer incorporated in 1992.
    Formerly, Manulife operated in the United States through a branch. 
However, since 1997, its businesses in the United States have been 
conducted through its subsidiaries. Prior to 1997, Manulife provided a 
variety of insurance products to Plans covered under applicable 
provisions of the Act and the Code.
    2. ManUSA is a Michigan corporation which was incorporated in 1955 
as a stock life insurance company. It is a wholly owned subsidiary of 
Reinsurance and is located at 500 N. Woodward Ave., Bloomfield Hills, 
Michigan. ManUSA is authorized to issue and reissue various forms of 
life insurance, annuities and other insurance products to Plans and to 
other policyholders. As of December 31, 1997, ManUSA had approximately 
16,000 policies in force that were held on behalf of Plan policyholders 
located in the United States.
    3. Between December 31, 1993 and December 31, 1996, Manulife began 
the process of transferring its operations from its U.S. branch to its 
wholly owned U.S. subsidiaries. Thus, on December 31, 1993, under the 
terms of an assumption reinsurance agreement, Manulife transferred to 
ManUSA (a) certain nonparticipating life insurance policies and annuity 
contracts written by Manulife in the United States through its U.S. 
branch; and (b) investment assets with a value and tax basis equal to 
or in excess of the tax reserves and other liabilities associated with 
the transferred policies and contracts. At the time of the transfer, 
Reinsurance was a wholly owned subsidiary of Manulife and ManUSA was a 
wholly owned subsidiary of Reinsurance.
    On December 31, 1996, under the terms of an assumption reinsurance 
agreement, Manulife transferred to ManUSA (either directly or through 
Reinsurance) (a) all of its life insurance policies, annuity contracts, 
and other insurance contracts remaining in its U.S. branch (the U.S. 
Policies), other than Manulife's obligations under certain reinsurance 
contracts that it had previously written in its U.S. branch as the 
assuming company; and (b) other assets and liabilities of its U.S. 
branch (the 1996 Assumption Transaction). <SUP>10</SUP> The transferred 
assets had a value and tax basis equal to or in excess of the tax 
reserves and other liabilities assumed by ManUSA or associated with the 
transferred U.S. policies and assets. The U.S. Policies were primarily 
participating policies and included policies that qualified as tax-
sheltered annuities described in section 403(b) of the Code, policies 
that qualified as individual retirement annuities within the meaning of 
section 408(b) of the Code, and individual and group policies issued in 
connection with Plans intending to qualify under section 401(a) or 
403(a) of the Code (the Qualified Plan Contracts). Certain Qualified 
Plan Contracts were held in trust or custodial accounts; others were 
not.
---------------------------------------------------------------------------

    \10\ As an accommodation to Canadian tax law, a portion of the 
assets were transferred from Manulife to Reinsurance and then from 
Reinsurance to ManUSA. The remainder of the assets and all the 
liabilities were transferred directly from Manulife to ManUSA.

---------------------------------------------------------------------------

[[Page 39541]]

    At the time of the 1996 Assumption Transaction, it is represented 
that Manulife assured the holders of the U.S. Policies that were 
participating policies (the Transferred U.S. Policies) that they would 
retain their membership interests in Manulife and would not be 
disadvantaged in a future demutualization of Manulife as a result of 
their policies being transferred to ManUSA. Therefore, in accordance 
with the approval granted by the Canadian regulatory authorities, 
Manulife agreed that holders of the Transferred U.S. Policies would 
retain their ``equity'' rights or membership interests in Manulife. In 
addition, the membership interests retained by the holders of the 
Transferred U.S. Policies were nontransferable and could be 
extinguished at the time any related insurance or annuity contract was 
canceled, matured, lapsed without reinstatement, or ceased to be a 
ManUSA participating policy.
    Second, ManUSA agreed to pay cash dividends on the Transferred U.S. 
Policies by adopting a dividend policy consistent with its dividend 
policy for participating policies. In addition, ManUSA agreed that in 
no event would it pay dividends on the Transferred U.S. Policies on a 
less favorable basis than the basis on which it paid dividends on its 
own participating policies (assuming that ManUSA maintained a single 
participating fund for all participating policies).
    Third, Manulife agreed to satisfy any claims on the U.S. Policies 
in the event of ManUSA's insolvency.
    4. On January 20, 1998, Manulife's Board of Directors authorized 
management to develop a plan of demutualization whereby Manulife would 
be converted, in accordance with the provisions of the ICA, from a 
mutual life insurance company into an insurance company with common 
shares. The principal purposes of the demutualization are to (a) 
enhance Manulife's strategic and financial flexibility by creating a 
corporate structure that will make it potentially possible for the 
insurer to obtain additional capital sources that are unavailable to 
Manulife as a mutual insurer; (b) enable Manulife to use stock options 
or other equity-based compensation arrangements in order to attract and 
retain talented employees; and (c) provide Eligible Policyholders with 
marketable securities, cash or policy credits. Moreover, the ultimate 
result of the transaction will be a structure in which all of 
Manulife's shares will be held by a holding company, which has applied 
to be organized as an insurance company under the ICA for this purpose. 
Eligible Policyholders, which will generally include holders of the 
Transferred U.S. Policies will receive Common Shares of the Holding 
Company, a publicly-traded company whose Common Shares will be listed 
on the Montreal, Toronto or New York Stock Exchanges, or, in certain 
cases (for legal or tax reasons), cash or policy credits, in exchange 
for (and in extinguishment of) their membership interests and rights in 
the surplus of Manulife. The demutualization will not, in any way, 
change premiums or reduce policy benefits, values, guarantees or other 
policy obligations of Manulife to its policyholders.
    5. Therefore, Manulife requests an administrative exemption from 
the Department that would cover the receipt of Common Shares of the 
Holding Company, cash or policy credits by Eligible Policyholders that 
are Plans in exchange for their existing membership interests in 
Manulife. Neither Manulife nor ManUSA is a ``party in interest,'' with 
respect to any of its Plan policyholders merely because such entity has 
issued an insurance policy to the Plan. As noted above, ManUSA does 
(and, prior to 1997, Manulife did), however, provide certain services 
to Plan policyholders which would cause ManUSA and Manulife to be 
considered parties in interest with respect to such Plans under section 
3(14)(A) and (B) of the Act.<SUP>11</SUP>
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    \11\ Manulife notes that even though the Holding Company may not 
be subject to the provisions of the Act, there is no clear provision 
that would except a non-U.S. person from the general definition of 
the term ``party in interest'' with respect to a plan under section 
3(14) of the Act. Thus, to remove any uncertainty that Manulife's 
proposed demutualization will not constitute a prohibited 
transaction, Manulife has requested an administrative exemption.
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    Manulife is not requesting that the exemption apply to 
distributions of Common Shares to the Manulife Plans because it 
believes the Common Shares received by such Plans would constitute 
qualifying employer securities within the meaning of section 407(d)(5) 
of the Act and that section 408(e) of the Act would apply to such 
distributions.<SUP>12</SUP>
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    \12\ The Department expresses no opinion herein on whether the 
Holding Company Common Shares will constitute qualifying employer 
securities and whether such distributions will satisfy the terms and 
conditions of section 408(e) of the Act.
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    The proposed exemption includes a requirement that distributions to 
Plans pursuant to the exemption must be on terms no less favorable to 
the Plans than in an arm's length transaction between unrelated parties 
would be. In this regard, Plans for which Manulife and/or ManUSA are 
parties in interest will not by reason of that relationship be treated 
any differently from other Eligible Policyholders that are not Plans.
    6. On May 19, 1999, Manulife's Board of Directors formally adopted 
the Plan of Demutualization. On the effective date of the 
demutualization, which is scheduled to occur during September 1999, 
several steps will be deemed to occur simultaneously. In this regard, 
Manulife will issue shares (Manulife Shares) to the Holding Company. 
Then, all of the Holding Company's Common Shares held by Manulife 
immediately prior to the effective date will be canceled. Finally, the 
Holding Company will issue its Common Shares in book-entry form to 
Eligible Policyholders who are entitled to receive Common Shares under 
the Plan of Demutualization.
    7. An initial public offering (the IPO) in which the Holding 
Company's Common Shares will be sold for cash is expected to close 5 
business days after the effective date of the demutualization. The 
Holding Company intends to contribute a portion of the proceeds of the 
IPO to Manulife in an amount at least equal to the amount required to 
fund the mandatory cash payments and the mandatory crediting of policy 
credits to Eligible Policyholders who are to receive such 
consideration. As soon as reasonably practicable after the effective 
date of the IPO, the Holding Company will pay, or cause Manulife to 
pay, cash to Eligible Policyholders required under the Plan of 
Demutualization to receive such consideration, and will transfer cash 
to ManUSA to fund all policy credits due under the Plan of 
Demutualization.
    A portion of the proceeds from the IPO will also help to satisfy, 
to the extent possible, elections by Canadian resident policyholders to 
receive cash instead of Common Shares. If the proceeds from the IPO are 
sufficient to satisfy cash elections in full, Canadian resident 
policyholders will receive the full amount of their cash election as 
promptly as possible after the closing of the IPO. If the proceeds from 
the IPO are not sufficient to satisfy cash elections in full, Canadian 
resident policyholders will receive Common Shares in book-entry form as 
part of their compensation.
    To avoid the potentiality of a double-tax that might otherwise be 
imposed on non-Canadian policyholders who express a desire to receive 
cash through a cash election, the Common Shares for which such cash 
elections are made by non-Canadian policyholders will be sold in a 
secondary offering by the Holding Company's underwriters as part of (or 
simultaneously with) the IPO and subject to the approval of the Board 
of Directors of the Holding Company.

[[Page 39542]]

Assuming the IPO generates sufficient cash to fund all cash elections, 
an amount equal to the IPO price per share will be remitted to all 
policyholders making such elections.<SUP>13</SUP>
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    \13\ In this regard, Manulife has agreed that it or the Holding 
Company will pay the underwriters' discount on the sale of such 
shares. Because the payment of the underwriters' discount is treated 
as dividend in Canada, a withholding tax of 15 percent of the amount 
of the dividend will be imposed on Manulife and not on the Plans. It 
is represented that Manulife will not seek reimbursement from any 
Plan policyholder under such circumstances.
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    8. Section 237 of the ICA and the regulations promulgated 
thereunder (the Demutualization Law) establish an approval process for 
the demutualization of a life insurance company organized under 
Canadian law. The Demutualization Law prescribes the contents of the 
Plan of Demutualization and also prescribes the information that must 
be sent to Eligible Policyholders with the notice of the special 
meeting which must be convened to vote on the Plan of Demutualization. 
The information will be contained in an information circular which, 
together with the notice of special meeting and the Plan of 
Demutualization, must be sent to Eligible Policyholders at least 45 
days prior to the special meeting. Manulife must first submit these 
materials to OSFI, a Canadian agency established to supervise Canadian 
financial institutions in order to determine whether they are in sound 
financial condition and are complying with their governing statutory 
law and supervisory requirements under that law. OSFI will oversee each 
step of the demutualization process. Manulife must obtain the 
authorization from OSFI's Superintendent to deliver the materials to 
Eligible Policyholders.<SUP>14</SUP> Before granting such 
authorization, OSFI may require that the notice or the information 
circular contain such additional information as it may determine.
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    \14\ The Superintendent determined on May 21, 1999 that the 
documentation submitted by Manulife's Board of Directors was 
appropriate for mailing to Eligible Policyholders.
---------------------------------------------------------------------------

    The Plan of Demutualization must be approved by two-thirds of the 
Eligible Policyholders voting in person or by proxy at the special 
meeting. Within 3 months of the approval of the Plan of Demutualization 
by Eligible Policyholders, Manulife must apply to the Canadian Finance 
Minister for approval of the Plan of Demutualization and for the 
issuance of the Letters Patent of Conversion.<SUP>15</SUP> In deciding 
whether to approve the Plan of Demutualization, the Canadian Finance 
Minister may consider such factors as (a) whether the proposal is fair 
and equitable to policyholders; (b) whether the proposal is in the best 
interests of the financial system in Canada; and (c) whether sufficient 
steps had been undertaken to inform policyholders of the Plan of 
Demutualization and of the special meeting on 
demutualization.<SUP>16</SUP> The demutualization will be effective 
upon the issuance of the Letters Patent of Conversion by the Canadian 
Finance Minister.
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    \15\ The Letters Patent of Conversion give legal effect to the 
Plan of Demutualization and convert a mutual company into a company 
with common shares.
    \16\ The policyholder notice was mailed on or before May 31, 
1999. It is anticipated that the policyholder meeting will take 
place in Toronto on or about July 29, 1999. It is also expected that 
the approval of the Demutualization Plan by the Canadian Finance 
Minister will be obtained in late September 1999.
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    9. The Plan of Demutualization must also be approved by the 
Michigan Insurance Commissioner.<SUP>17</SUP> To approve the Plan of 
Demutualization, the Michigan Insurance Commissioner must determine 
after a public hearing that the Plan of Demutualization does not 
prejudice the interests of Eligible Policyholders, and is consistent 
with the requirements of Michigan law. Manulife's directors, officers, 
employees and policyholders have the right to appear and to be heard at 
the public hearing.<SUP>18</SUP>
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    \17\ Manulife does not believe that the demutualization can 
proceed unless both the Michigan Insurance Commissioner and the 
Canadian Finance Minister both approve the Demutualization Plan. 
Therefore, the insurer is having simultaneous discussions with both 
regulatory authorities and has been consulting with both regulators 
on requested changes. The Michigan Insurance Commissioner's 
statutory authority is limited to the approval or disapproval of the 
Plan of Demutualization presented by Manulife and is precluded from 
passing on the findings of the Canadian regulators.
    \18\ It is anticipated that the Michigan Insurance 
Commissioner's hearing will be conducted in Lansing, Michigan during 
the month of July 1999. The hearing will be open to anyone who 
wishes to participate, including Eligible Policyholders, regardless 
of domicile.
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    The Michigan Insurance Commissioner is required to give public 
notice of the hearing not less than 10 days before the hearing. The 
notice identifies the statutory authority under which the determination 
is made, the time and place of the hearing, a statement of the manner 
in which data, views and arguments may be submitted to the Michigan 
Insurance Commissioner at time other than at the hearing, and a 
description of the subjects and issues involved.
    Any person who makes a written request to the Michigan Insurance 
Commissioner for advanced notice of the proposed action that may affect 
that person will receive copies of the notice. The notice also will be 
published as a display advertisement in newspapers of general 
circulation within Michigan.
    The Michigan Insurance Commissioner may elect to conduct the 
hearing in person or may designate this assignment to another person. 
During the hearing, persons may give oral presentations to the hearing 
officer. At the conclusion of the hearing, a report on the hearing will 
be prepared for the Michigan Insurance Commissioner's use in reaching 
the determinations required by law.
    Under Section 5925 of the Michigan Insurance Code, any action 
challenging the validity of the Michigan Insurance Commissioner's 
decision approving or disapproving the Plan of Demutualization must be 
commenced within 30 days after the Commissioner's decision.
    10. Manulife's Plan of Demutualization provides for Eligible 
Policyholders to receive Common Shares, cash or policy credits in 
exchange for, and in extinguishment of, their membership 
interests.<SUP>19</SUP> For this

[[Page 39543]]

purpose, an Eligible Policyholder generally is any owner of one or more 
voting policies in force (including the Transferred U.S. Policies 
assumed by ManUSA) on January 20, 1998 (or in lapse status on that date 
and reinstated at least 90 days prior to the special meeting of the 
policyholders to vote on the Plan of Demutualization). It is 
anticipated that 675,000 Eligible Policyholders will be entitled to 
vote on the Plan of Demutualization following the receipt of full and 
complete written disclosure of such Plan. Of these Eligible 
Policyholders, approximately 2,100 are Plan policyholders. Each 
Eligible Policyholder will be entitled to one vote regardless of the 
number of policies held with Manulife and/or its affiliates.
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    \19\ Consistent with sections 1 and 4(1)(e)(i) of the Mutual 
Company (Life Insurance) Conversion Regulations (Canada), the Plan 
of Demutualization generally provides that the policyholder eligible 
to participate in the distribution of Common Shares, cash or policy 
credits resulting from the Plan of Demutualization is the ``owner'' 
of the policy, and that the ``owner'' of any policy shall generally 
be determined on the basis of the records of Manulife. Manulife 
further represents that an insurance or annuity policy that provides 
benefits under an employee benefit plan, typically designates the 
employer that sponsors the plan, or a trustee acting on behalf of 
the plan, as the owner of the policy. In regard to insurance or 
annuity policies that designate the employer or trustee as owner of 
the policy, Manulife represents that it is required under the 
foregoing provisions of Canadian Law and the Demutualization Plan to 
make distributions resulting from such Plan to the employer or 
trustee as owner of the policy, except as provided below.
    Notwithstanding the foregoing, Manulife's Plan of 
Demutualization provides a special rule applicable to an insurance 
policy issued to a trust established by Manulife. This rule applies 
whether or not the trust, or any arrangement established by any 
employer participating in the trust, constitutes an employee benefit 
plan subject to the Act. Under this special rule, the holder of each 
individual ``certificate'' issued in connection with the insurance 
policy is treated as the policyholder and owner for all purposes 
under the Plan of Demutualization, including voting rights and the 
distribution of consideration. The trustee of any such trust 
established by Manulife for the benefit of Eligible Policyholders 
that are Plans will be considered a policyholder or owner and will 
be eligible to vote or receive consideration.
    In general, it is the Department's view that, if an insurance 
policy (including an annuity contract) is purchased with assets of 
an employee benefit plan, including participant contributions, and 
if there exist any participants covered under the plan (as defined 
at 29 CFR 2510.3-3) at the time when Manulife incurs the obligation 
to distribute Common Shares, cash or policy credits, then such 
consideration would constitute an asset of such plan. Under these 
circumstances, the appropriate plan fiduciaries must take all 
necessary steps to safeguard the assets of the plan in order to 
avoid engaging in a violation of the fiduciary responsibility 
provisions of the Act.
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    To determine the amount of consideration to which each Eligible 
Policyholder is entitled, each Eligible Policyholder will be allocated 
(but not necessarily issued) a number of Common Shares equal to the sum 
of (a) a fixed component consisting of 184 Common Shares; <SUP>20</SUP> 
and (b) an additional number of Common Shares based on actuarial 
formulas that take into account each participating policy's death 
benefit, account value and time-in-force. For those Eligible 
Policyholders who receive cash or policy credits due to legal or tax 
reasons, the amount of cash or policy credits will be determined by 
reference to the price per share at which the Common Shares are offered 
to the public in the IPO.
---------------------------------------------------------------------------

    \20\ Approximately 125 million Common Shares, representing 25 
percent of the aggregate demutualization benefit, are expected to be 
allocated to Eligible Policyholders as the fixed allocation. On this 
basis, each Eligible Policyholder will be allocated a fixed 
component of 184 Common Shares.
---------------------------------------------------------------------------

    Although an Eligible Policyholder may receive Common Shares as a 
result of Manulife's demutualization, another Eligible Policyholder (a) 
whose jurisdiction of residence on the records of Manulife as of a 
specified date is other than Canada, the United States, Hong Kong or 
the Philippines; or (b) which is a government or government agency; or 
(c) who holds a Canadian Pension Policy, will receive cash in lieu of 
Common Shares in an amount equal to the number of shares such 
policyholder would otherwise have received multiplied by the price at 
which the Common Shares are offered to the public in the IPO.
    In addition, an Eligible Policyholder who is entitled to receive 
Common Shares will be permitted to make a cash election in accordance 
with the terms of the Plan of Demutualization and will receive the 
value of his or her Common Shares in cash in accordance with the same 
formula. The cash election may be reduced if the Board of Directors of 
the Holding Company determines that such a reduction is in Manulife's 
best interests. In the event that the IPO fails to close, the Eligible 
Policyholder will receive the number of Common Shares he or she was 
originally allocated.
    Other Eligible Policyholders, namely owners of individual 
retirement annuities, tax sheltered annuities, certain other policies 
issued directly to plan participants in qualified pension or profit 
sharing plans, or group policies issued in connection with plans 
intending to qualify under section 403(a) of the Code that are not held 
in trust, will receive policy credits equal in value to the shares 
allocated to such Eligible Policyholders.
    In no event will Manulife nor ManUSA exercise any discretion with 
respect to voting on the Plan of Demutualization or with respect to any 
election made by any Eligible Policyholder which is a Plan, nor will 
Manulife and ManUSA provide ``investment advice'' as that term is 
defined in 29 CFR 2510.3-2(c) with respect to any election made by such 
Plan policyholder. In addition, no Plan will be required to pay any 
fees or commissions in connection with the receipt of Common Shares.
    As stated above, under both Canadian and Michigan law, a plan of 
conversion must specify the consideration given to policyholders and it 
must be approved by the Canadian Finance Minister and the Michigan 
Insurance Commissioner. The Michigan Insurance Commissioner must find 
that the plan is fair and equitable to the U.S. policyholders. 
Moreover, the Canadian Finance Minister and the Michigan Insurance 
Commissioner must approve all forms of consideration.
    11. It is anticipated that Manulife will establish a Share Sales 
Program to provide a convenient way for those Eligible Policyholders 
who choose to sell their Common Shares subsequent to the 
demutualization without having to establish an independent relationship 
with an investment dealer, stock broker or other qualified 
professional. The Share Sales Program will involve Common Shares being 
sold through one or more of the stock exchanges on which the Common 
Shares are listed for market prices that prevail at the time of the 
sale. Although Manulife will not subsidize the costs of the Common 
Shares, it is expected that participants in the Share Sales Program 
will benefit from the bulk commission rates which Manulife has 
negotiated with the participating brokers.
    12. In the event the exemption has not been granted before the 
effective date of the demutualization, Manulife may delay payment of 
the consideration to Eligible Policyholders that are Plans and place 
such consideration in an escrow or similar arrangement subject to terms 
and conditions approved by the Superintendent of OSFI. Any such escrow 
or arrangement will provide for the payment to Eligible Policyholders 
of the consideration not later than the third anniversary date of the 
demutualization. All costs and expenses associated with the escrow 
arrangement will be borne by Manulife.
    13. In summary, it is represented that the proposed transactions 
will satisfy the statutory criteria for an exemption under section 
408(a) of the Act because:
    (a) The Plan of Demutualization, which is being implemented 
pursuant to stringent procedural and substantive safeguards imposed 
under Canadian and Michigan law, will not require any ongoing 
supervision by the Department.
    (b) One or more independent Plan fiduciaries will have an 
opportunity to determine whether to vote to approve the Plan of 
Demutualization and will be responsible for all such decisions.
    (c) The proposed exemption will allow Eligible Policyholders that 
are Plans to acquire Common Shares, cash or policy credits in exchange 
for, and in extinguishment of, their membership interests in Manulife 
and neither Manulife nor its affiliates will be paid any brokerage 
commissions or fees in connection with the receipt of Common Shares.
    (d) Neither Manulife nor ManUSA will exercise any discretion with 
respect to voting on the Plan of Demutualization or with respect to any 
election to be made by any Eligible Policyholder which is a Plan, nor 
will they provide ``investment advice'' as that term is defined in 29 
CFR 2510.3-2(c) with respect to any election made by such Plan 
policyholder.
    (e) The Plan of Demutualization will not change premiums or reduce 
policy benefits, values, guarantees or other policy obligations of 
Manulife to its policyholders and contractholders.

Notice to Interested Persons

    Manulife will provide a copy of the proposed exemption to Eligible 
Policyholders that are Plans, within 14 days following the publication 
of the notice of pendency in the Federal Register. Such notice will be 
provided to interested persons by first class mail and will include a 
copy of the notice of

[[Page 39544]]

proposed exemption as published in the Federal Register as well as a 
supplemental statement, as required pursuant to 20 CFR 2570.43(b)(2), 
which shall inform interested persons of their right to comment on the 
proposed exemption. Comments with respect to the notice of proposed 
exemption are due within 44 days of the publication of this pendency 
notice in the Federal Register.

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

General Information

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

    Signed at Washington, DC, this 16th day of July, 1999.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 99-18616 Filed 7-21-99; 8:45 am]
BILLING CODE 4510-29-P