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Secretary of Labor Thomas E. Perez
Proposed Exemptions; Business Men's Assurance Company of America (BMA) [Notices] [12/17/99]

Proposed Exemptions; Business Men's Assurance Company of America (BMA) [12/17/99]

[PDF Version]

Volume 64, Number 242, Page 70732-70748

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Application No. D-10542, et al.]

 
Proposed Exemptions; Business Men's Assurance Company of America 
(BMA)

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

[[Page 70733]]

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

Business Men's Assurance Company of America (BMA) Located in Kansas 
City, MO

[Application No. D-10542]

Proposed Exemption

    Based on the facts and representations set forth in the 
application, the Department is considering granting an exemption under 
the authority of section 408(a) of the Act and section 4975(c)(2) of 
the Code and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, August 10, 1990).<SUP>1</SUP>
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    \1\ 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.
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Section I. Covered Transactions
    If the proposed exemption is granted, the restrictions of sections 
406(a), 406(b)(1) and (b)(2) of the Act and the sanctions resulting 
from the application of section 4975 of the Code, by reason of section 
4975(c)(1)(A) through (E) of the Code, shall not apply to: (1) The 
sales and transfers of assets of an employee benefit plan (the Plan) to 
BMA pursuant to the terms of a benefit-responsive or a non-benefit 
responsive synthetic guaranteed investment contract (the Benefit-
Responsive BMA Synthetic GIC or the Non-Benefit Responsive BMA 
Synthetic GIC) entered into by the Plan sponsor with BMA; <SUP>2</SUP> 
(2) advances (the Advances) made by BMA to a Plan in order to make 
unanticipated benefit payments, if applicable, under a Benefit-
Responsive BMA Synthetic GIC; and (3) the sweeping of interest and 
other proceeds (the Plan Interest Proceeds) to BMA from a Plan's 
Contractholder Custodial Account established under either a Benefit-
Responsive BMA Synthetic GIC or a Non-Benefit Responsive BMA Synthetic 
GIC.
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    \2\ Unless specifically noted, references to the BMA Synthetic 
GIC refer to both types of Synthetic GIC products that are offered 
to Plan investors by BMA.
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    This proposed exemption is subject to the general conditions set 
forth below in Section II.
Section II. General Conditions
    (a) The decision to enter into a BMA Synthetic GIC is made on 
behalf of a participating Plan in writing by a fiduciary of such Plan 
which is independent of BMA.
    (b) Only Plans with total assets having an aggregate market value 
of at least $50 million are permitted to purchase BMA Synthetic GICs; 
provided however that--
    (1) In the case of two or more Plans which are maintained by the 
same employer, controlled group of corporations or employee 
organization (the Related Plans), whose assets are commingled for 
investment purposes in a single master trust or any other entity the 
assets of which are ``plan assets'' under 29 CFR 2510.3-101 (the Plan 
Asset Regulation), which entity has purchased a BMA Synthetic GIC, the 
foregoing $50 million requirement is deemed satisfied if such trust or 
other entity has aggregate assets which are in excess of $50 million; 
provided that, if the fiduciary responsible for making the investment 
decision on behalf of such master trust or other entity is not the 
employer or an affiliate of the employer, such fiduciary has total 
assets under its management and control, exclusive of the $50 million 
threshold amount attributable to plan investment in the commingled 
entity, which are in excess of $100 million, or
    (2) In the case of two or more Plans which are not maintained by 
the same employer, controlled group of corporations or employee 
organization (the Unrelated Plans), whose assets are commingled for 
investment purposes in a group trust or any other form of entity the 
assets of which are ``plan assets'' under the Plan Asset Regulation, 
which entity has purchased a BMA Synthetic GIC, the foregoing $50 
million requirement is deemed satisfied if such trust or other entity 
has aggregate assets which are in excess of $50 million (excluding the 
assets of any Plan with respect to which the fiduciary responsible for 
making the investment decision on behalf of such group trust or other 
entity or any member of the controlled group of corporations including 
such fiduciary is the employer maintaining such Plan or an employee 
organization whose members are covered by such Plan). However, the 
fiduciary responsible for making the investment decision on behalf of 
such group trust or other entity--
    (i) Has full investment responsibility with respect to Plan assets 
invested therein, and
    (ii) Has total assets under its management and control, exclusive 
of the $50 million threshold amount attributable to Plan investment in 
the commingled entity, which are in excess of $100 million;
    (c) Prior to the execution of a BMA Synthetic GIC, the Plan 
fiduciary receives a full and detailed written disclosure of all 
material features concerning the BMA Synthetic GIC, including--
    (1) A copy of the underlying agreement for the BMA Synthetic GIC 
(the BMA Synthetic GIC Contract or Contract) and accompanying

[[Page 70734]]

application, which stipulate the relevant provisions of the Contract, 
the applicable fees, if any, and the rights and obligations of the 
parties;
    (2) Investment Guidelines defining the manner in which BMA will 
manage the assets in the Contractholder Custodial Account;
    (3) A copy of the Custodial Agreement between BMA, the Plan 
fiduciary and the custodian (the Custodian);
    (4) If granted, copies of the proposed exemption and grant notice 
with respect to the exemptive relief provided herein.
    (d) Upon the selection by a Plan fiduciary of a BMA Synthetic GIC, 
BMA will supply the Plan fiduciary of a Plan (including a Plan that 
provides for participant investment selection (the Section 404(c) 
Plan)), a summary of the pertinent features of the documents listed 
above in paragraphs (c)(1) through (c)(3) of this Section II which the 
Plan fiduciary, in its discretion, deems appropriate for distribution 
to such participant, to the extent necessary to satisfy the 
requirements of section 404(c) of the Act.
    (e) Subsequent to a Plan's investment in a BMA Synthetic GIC, the 
Plan fiduciary will receive the following ongoing disclosures regarding 
such investment:
    (1) A periodic report consisting of a Contract Value Record Report, 
which specifies the affected Plan's BMA Synthetic GIC Contract Value 
Record balance for the prior period, contributions, withdrawals (i.e., 
Scheduled Withdrawals (the Scheduled Withdrawals) and, if applicable, 
Unscheduled Withdrawals (the Unscheduled Withdrawals)), interest 
earned, and the current period's ending Contract Value Record balance. 
(The time periods covered by the Contract Value Record Report will be 
selected in advance by the independent Plan fiduciary and may be sent 
monthly, quarterly or annually.);
    (2) A periodic Market Value Statement, which is supplied by the 
Custodian on a quarterly basis, that specifies the prior period's 
ending market value for the assets in the Contractholder Custodial 
Account, contributions made by the Plan sponsor to the BMA Synthetic 
GIC after the initial deposit, Scheduled Withdrawals and, if 
applicable, Unscheduled Withdrawals, any fees paid to BMA, investment 
income, realized capital gains and/or losses from sales, changes in 
unrealized appreciation of assets, the current period's ending market 
value and rate of return, and a summary of transactions; and
    (3) Upon request from the Custodian (i.e., not more often than 
quarterly), a portfolio listing.
    (The reports referred to in paragraphs (e)(1)-(e)(3) of this 
Section II will be made available to the Plan fiduciary, which, in 
turn, will provide copies to participants in a Section 404(c) Plan upon 
request, to the extent the Plan fiduciary deems it necessary.)
    (f) Each BMA Synthetic GIC specifically provides an objective 
method for determining the fair market value of the securities owned by 
the Plan pursuant to such GIC.
    (g) Each BMA Synthetic GIC has a predefined, fixed maturity date 
selected by the Plan fiduciary and agreed to by BMA.
    (h) In the event BMA sells assets from a Plan's Contractholder 
Custodial Account to BMA's general account or to an affiliate during 
the term of the BMA Synthetic GIC or at such GIC's maturity, the 
transaction is--
    (1) Effected for cash;
    (2) The sales price of the security is equal to the fair market 
value of such asset as of the close of business on the date of the 
sale, as determined by independent sources; and
    (3) The Plan incurs no brokerage or transaction costs in connection 
with the transaction.
    (i) BMA maintains books and records of each BMA Synthetic GIC 
transaction for a period of six years. Such books and records are 
subject to annual audit by independent, certified public accountants.

Summary of Facts and Representations

    1. The parties involved in the proposed transactions are described 
as follows:
    (a) BMA is a stock life insurance company organized under Missouri 
law. As of December 31, 1998, BMA had total admitted assets of $2.689 
billion and $71.6 billion of in force insurance policies. BMA is 
currently rated as follows: A.M. Best--A; Standard & Poor's--AA; Duff & 
Phelps--AA; and Moody's--A1.
    BMA is a wholly owned subsidiary of Generali-Midi Expansion B.V., 
which is a wholly owned subsidiary of Assicurazioni Generali S.p.A. In 
addition, BMA owns 100 percent of BMA Financial Services, Inc. and 
Jones & Babson, Inc. (J&B). Although a significant portion of BMA's 
business consists of writing insurance and annuity contracts and 
guaranteed investment contracts for numerous Title I pension plans, BMA 
intends to become an investment adviser registered under the Investment 
Advisers Act of 1940 (the 1940 Act).
    (b) J&B is an investment management company registered as an 
investment adviser under the 1940 Act. As of April 30, 1999, J&B had 
total assets under management of $4.2 billion. J&B proposes to manage 
the underlying assets of BMA Synthetic GICs to the extent any BMA 
Synthetic GICs are sold prior to the time BMA becomes a registered 
investment adviser.<SUP>3</SUP>
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    \3\ All references to BMA throughout this proposed exemption are 
intended to include J&B where it acts as the investment manager of 
the assets held in any BMA Synthetic GIC product.
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    (c) The Plans that BMA expects will purchase the BMA Synthetic GIC 
will be plans (both defined contribution and defined benefit) that are 
qualified under section 401(a) of the Code and/or subject to applicable 
provisions of the Act. BMA states that it is possible that Plans which 
are subject to section 457 of the Code (i.e., deferred compensation 
plans of state and local government and tax exempt organizations) and 
section 414(d) of the Code (i.e., governmental plans) may also purchase 
the BMA Synthetic GIC as well as commingled investment entities holding 
plan assets. The Plans will not consist of any plans that are 
maintained or sponsored by BMA. As a precondition to investing, each 
Plan or commingled investment vehicle must have total assets of at 
least $50 million.
    (d) The Custodian of the underlying assets of a BMA Synthetic GIC 
will be a bank, trust company or ``other duly licensed provider of 
custodial services'' <SUP>4</SUP> approved by BMA and specified in the 
BMA Synthetic GIC application. The Custodian will be selected by the 
independent Plan fiduciary that decides to invest in a BMA Synthetic 
GIC and will be an entity that is unrelated to BMA.
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    \4\ BMA represents that entities that are licensed under state 
law to provide custodial services may vary from state to state. So 
as not to limit a Plan fiduciary's choice of prospective custodians 
to banks or trust companies, BMA has decided to permit appropriately 
licensed entities to serve in this capacity.
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    2. Since 1992, BMA has been offering a standard guaranteed 
investment contract (the Standard GIC) for sale to section 401(k) 
plans. A Standard GIC is a type of contract under which an insurance 
company, in exchange for a sum of money, which is deposited in the 
insurance company's general account, guarantees that it will return 
that sum to the contractholder on a specified maturity date with 
interest at a specified rate. In anticipation of its obligation to the 
contractholder, the insurance company invests the funds received from 
the contractholder primarily in fixed-income investments in order to 
achieve an investment return

[[Page 70735]]

that will enable the insurance company to meet its guarantee at 
maturity, pay its expenses and realize a reasonable profit margin. In 
the Standard GIC, the fixed-income investments purchased with the 
contractholder's deposit are held in the insurance company's general 
account and are available to meet the claims of any of its 
policyholders. Because the underlying fixed-income investments are not 
plan assets, BMA states that the insurance company is not a fiduciary 
of the plan as a result of issuing the Standard GIC.
    According to BMA, Standard GICs have proven to be well-suited to 
meet the investment and liquidity needs of a pension plan because a 
plan achieves a predictable yield and a fixed maturity on its deposits. 
The insurance company bears all of the investment and market 
fluctuation risk. Therefore, Standard GICs perform an important role in 
the investment portfolios of both defined benefit and defined 
contribution plans.
    Since the early 1990's fiduciaries of plans have become concerned 
that Standard GICs might be subject to losses if the insurance company 
becomes insolvent. In response to these concerns, ``synthetic'' GICs 
were created.
    Under a synthetic GIC, instead of paying a premium to the insurance 
company on the effective date of the contract, the plan places assets 
in a custodial bank account owned by the plan. The assets are held in 
that account by the bank custodian and are managed exclusively by the 
insurance company, an affiliate, or other money manager until the 
contract's maturity. The pension plan bears all of the credit and 
market value fluctuation risk of the securities in the account. The 
yield achieved is not fixed but varies depending on the skill of the 
asset manager and market conditions. Because the underlying assets of 
the synthetic GIC are not owned by the insurance company, the plan's 
investment is not affected by risks to which the insurer's own general 
account assets may be subject.
    3. BMA requests an administrative exemption from the Department in 
order to offer a ``buy & hold'' synthetic GIC to Plan investors. The 
aspects of the BMA Synthetic GIC for which BMA believes prohibited 
transaction relief may be necessary are (a) BMA's implementation of its 
Guarantee on Scheduled Withdrawal dates and the maturity date (the 
Maturity Date) by (i) sales of assets in the Contractholder's Custodial 
Account to BMA and the subsequent transfer of such assets to BMA, and 
(ii) transfers of assets remaining in the Contractholder Custodial 
Account to BMA at the Maturity Date of the BMA Synthetic GIC when BMA 
pays the Plan the value of the Contract Value Record; (b) BMA's 
Advances to a Plan in order to make unanticipated benefit payments; and 
(c) the sweeping of interest and other proceeds (i.e., the Plan 
Interest Proceeds) from a Plan's Contractholder Custodial Account to 
BMA. BMA represents that it would be a service provider to a Plan and, 
therefore, a party in interest with respect to such plan within the 
meaning of section 3(14)(B) of the Act. On the assumption that the 
assets in each Plan's Contractholder Custodial Account are ``plan 
assets'' within the meaning of 29 CFR 2510.3-101, BMA states that 
transfers or sales of securities held in a Contractholder Custodial 
Account under the terms of the BMA Synthetic GIC on Scheduled 
Withdrawal Dates and the Maturity Date could be viewed as a sale of 
property between a plan and a party in interest in violation of section 
406(a)(1)(A) of the Act or a transfer to a party in interest in 
violation of section 406(a)(1)(D) of the Act. Similarly, BMA represents 
that its guarantee as to principal and interest as well as its making 
of Advances to a Plan in the case of a benefit-responsive BMA Synthetic 
GIC, could be construed as the execution of loans between a Plan and a 
party in interest in violation of section 406(a)(1)(B) and possibly, 
section 406(b)(1) and (b)(2) of the Act. BMA further represents that 
the sweeping of Plan Interest Proceeds from a Plan's Contractholder 
Custodial Account to its general account during the term of a BMA 
Synthetic GIC could be viewed as a transfer of plan assets to a party 
in interest in violation of section 406(a)(1)(D) of the Act and 
possibly, section 406(b)(1) and (b)(2) of the Act.
    BMA notes that as a fiduciary with respect to the assets in a 
Plan's Contractholder Custodial Account, it would have discretion as to 
which assets in such Account to transfer or sell to BMA. Under such 
circumstances, BMA represents that it could be viewed as acting in its 
own interest or for its own account in selecting assets to sell or 
transfer to BMA on Scheduled Withdrawal Dates or the Maturity Date in 
violation of section 406(b)(1) and (b)(2) of the Act.
    4. The BMA Synthetic GIC will offer the Plan a guaranteed fixed 
rate of return, a final, fixed maturity date ranging between 3-7 years 
and a liquidity provision. The fixed interest rate, which will 
approximate what is available for traditional GICs being offered in the 
marketplace at the time the BMA Synthetic GIC is purchased by the Plan, 
will apply at all times until the final Maturity Date of such BMA 
Synthetic GIC.<SUP>5</SUP> In other words, at no time throughout the 
duration of the BMA Synthetic GIC will the fixed interest rate float or 
be reset. However, the fixed interest rate on BMA Synthetic GICs that 
are issued at different times may vary from one another.
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    \5\ In determining the interest rate that it will offer, BMA 
will consider the yields available to it in the market on securities 
suitable for the Contractholder Custodial Account, its likely 
expenses, and a reasonable premium for the risks that are being 
assumed by BMA in making its rate guarantee. Ultimately, the fixed 
interest rate for a BMA Synthetic GIC will be determined by market 
forces.
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    To provide additional security to the Plan against the risk of 
BMA's insolvency, the cash deposited by the Plan will be placed in a 
separate Contractholder Custodial Account that will be registered in 
the name of the Plan trustees. Only high quality securities will be 
purchased by BMA to minimize the risk of loss. During the term of the 
contract, BMA will use funds in its general account to make interest 
payments to the Plan and to fund unanticipated payments. At maturity, 
the securities in the Contractholder Custodial Account will be 
delivered to BMA in exchange for a cash payment of principal and all 
accrued but unpaid interest to the Plan.
    BMA notes that, under certain circumstances, a Plan fiduciary, such 
as the fiduciary of a defined benefit plan, may not desire the features 
of the Benefit-Responsive BMA Synthetic GIC that is described herein in 
order to utilize book value accounting methodology. Instead, BMA 
represents that a Plan fiduciary may prefer to invest in a BMA 
Synthetic GIC having a higher interest rate because BMA would not be 
taking the benefit-responsive risk. Therefore, BMA proposes to offer a 
Non-Benefit Responsive BMA Synthetic GIC to Plan investors in addition 
to the Benefit-Responsive BMA Synthetic GIC. Because there are very few 
differences between both types of investment vehicles, as previously 
stated, the Non-Benefit Responsive BMA Synthetic GIC and the Benefit-
Responsive BMA Synthetic are both referred to as ``the BMA Synthetic 
GIC.''
    5. The BMA Synthetic GIC will consist of a Contract under which BMA 
will manage Plan assets which have been placed with a Custodian 
selected by the Plan and which is subject to BMA's approval. BMA will 
guarantee that amounts placed in the Contractholder Custodial Account 
for management by BMA will be repaid to the Plan with interest at a 
specified rate

[[Page 70736]]

on certain specified dates.<SUP>6</SUP> BMA will bear investment risk-
related to assets in the Contractholder Custodial Account except in 
certain limited circumstances that are described below. At all times, 
the Plan will remain the legal owner of the Contractholder Custodial 
Account.
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    \6\ While there is no minimum interest rate that can be 
specified, BMA represents that the actual guaranteed fixed interest 
rate is unlikely ever to deviate significantly from yields available 
on comparable U.S. Treasury securities.
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    6. BMA will acknowledge its fiduciary status to the independent 
Plan fiduciary. The general investment objectives of the Contractholder 
Custodial Account will be current income with stability of principal. 
The Contract governing each BMA Synthetic GIC will instruct BMA to 
manage the Contractholder Custodial Account to achieve a total return 
over the holding period to maturity which will be sufficient to provide 
the BMA Synthetic GIC's guaranteed rate of interest. In other words, 
BMA will not be required to maximize the Contractholder Custodial 
Account's return. Rather, it will manage the assets in a manner 
calculated to reach the guaranteed rate of interest and an interest 
spread over this rate. Thus, BMA will not be required to consider or 
acquire investments with a greater level of risk than would be normally 
associated with a BMA Synthetic GIC and it will be restricted to 
considering only fixed income securities of very high quality.
    7. BMA's duties and obligations with respect to the BMA Synthetic 
GIC will be governed by the terms of an insurance contract between the 
Plan and BMA. The BMA Synthetic GIC will be submitted to the Missouri 
Department of Insurance, as well as the state departments of insurance 
in all other states BMA does business and it must be approved by these 
state agencies prior to BMA's selling this contract to investors. Once 
the BMA Synthetic GIC is executed, BMA will have no discretion over any 
of its terms.
    8. BMA Synthetic GICs will be offered only to trustees of large 
pension plans that are sponsored by Fortune 500 companies (or companies 
of comparable size) or to fiduciaries of pooled investment vehicles 
having assets of $50 million or more. However, as stated above, the BMA 
Synthetic GIC will not be offered to Plans that are sponsored by BMA or 
its affiliates. In the case of two or more Plans which are maintained 
by the same employer, controlled group of corporations or employee 
organization (i.e., the Related Plans), whose assets are commingled for 
investment purposes in a single master trust or any other entity the 
assets of which are ``plan assets'' under the Plan Asset Regulation, 
which entity has purchased a BMA Synthetic GIC, the foregoing $50 
million requirement will be considered satisfied if such trust or other 
entity has aggregate assets which are in excess of $50 million. 
However, if the fiduciary responsible for making the investment 
decision on behalf of such master trust or other entity is not the 
employer or an affiliate of the employer, such fiduciary will be 
required to have total assets under its management and control, 
exclusive of the $50 million threshold amount attributable to Plan 
investment in the commingled entity, which are in excess of $100 
million.
    In the case of two or more Plans which are not maintained by the 
same employer, controlled group of corporations or employee 
organization (i.e., the Unrelated Plans), whose assets are commingled 
for investment purposes in a group trust or any other form of entity 
the assets of which are ``plan assets'' under the Plan Asset 
Regulation, which entity has purchased a BMA Synthetic GIC, the 
foregoing $50 million requirement will be considered satisfied if such 
trust or other entity has aggregate assets which are in excess of $50 
million (excluding the assets of any Plan with respect to which the 
fiduciary responsible for making the investment decision on behalf of 
such group trust or other entity or any member of the controlled group 
of corporations including such fiduciary is the employer maintaining 
such Plan or an employee organization whose members are covered by such 
Plan). However, the fiduciary responsible for making the investment 
decision on behalf of such group trust or other entity must have (a) 
full investment responsibility with respect to Plan assets invested 
therein; and (b) total assets under its management and control, 
exclusive of the $50 million threshold amount attributable to Plan 
investment in the commingled entity, which are in excess of $100 
million.
    9. The decision by a Plan to enter into a BMA Synthetic GIC will be 
made by a Plan fiduciary which is independent of BMA. Such Plan 
fiduciary will receive full and detailed disclosure of all features 
regarding the BMA Synthetic GIC, including all applicable fees and 
charges. In this regard, prior to the execution of a BMA Synthetic GIC, 
each Plan fiduciary will receive (a) a copy of the BMA Synthetic GIC 
Contract and accompanying application, which stipulate the relevant 
provisions of the BMA Synthetic GIC Contract, the applicable fees, if 
any, and the rights and obligations of the parties;
    (b) Investment Guidelines defining the manner in which BMA will 
manage the assets in the Contractholder Custodial Account; (c) a copy 
of the Custodial Agreement between BMA, the Plan fiduciary and the 
Custodian; and (d) if granted, copies of the proposed exemption and 
grant notice with respect to the exemptive relief provided herein.
    10. Upon the selection by a Plan fiduciary of a BMA Synthetic GIC, 
BMA will supply the fiduciary of a Plan (including a Section 404(c) 
Plan), certain information, which the Plan fiduciary, in its 
discretion, may pass on to Plan participants, to the extent required to 
satisfy the requirements of section 404(c) of the Act. This information 
will consist of a summary of the pertinent features of the BMA 
Synthetic GIC Contract, the Investment Guidelines and a copy of the 
Custodial Agreement.
    Subsequent to a Plan's investment in a BMA Synthetic GIC, the Plan 
fiduciary will receive the following ongoing disclosures regarding such 
investment: (a) A periodic report consisting of a Contract Value Record 
Report, which specifies the affected Plan's BMA Synthetic GIC Contract 
Value Record balance for the prior period, contributions, Scheduled 
Withdrawals and, if applicable, Unscheduled Withdrawals, interest 
earned, the current period's ending Contract Value Record balance. (The 
time periods covered by the Contract Value Record Report will be 
selected by the independent Plan fiduciary and may be sent monthly, 
quarterly or annually.); (b) a periodic Market Value Statement, which 
is supplied by the Custodian to the Plan fiduciary on a quarterly 
basis, that specifies the prior period's ending market value for the 
assets in the Contractholder Custodian Account, contributions, 
Scheduled Withdrawals, and if applicable, Unscheduled Withdrawals, any 
fees paid to BMA, investment income, realized capital gains and/or 
losses from sales, changes in unrealized appreciation of assets, the 
current period's ending market value and rate of return, and a summary 
of transactions; and (c) upon request from the Custodian (i.e., not 
more often than quarterly), a portfolio listing. The foregoing reports 
will be made available to the Plan fiduciary, which, in turn, will 
provide copies to participants upon their request, to the extent the 
Plan fiduciary deems such information is necessary for participants of 
a Section 404(c) Plan.
    11. When a Plan enters into a BMA Synthetic GIC Contract with BMA, 
a Contractholder Custodial Account will be established on behalf of the 
Plan.

[[Page 70737]]

Contributions made by the Plan on the effective date of the BMA 
Synthetic GIC, as well as on any subsequent dates, will be delivered to 
the Custodian and credited to the Contractholder Custodial Account. 
These contributions will be credited by BMA to the Contract Value 
Record. The assets in the Contractholder Custodial Account will be 
subject to BMA's management and the assets will be maintained by the 
Custodian in the name of the Plan.
    12. Under the Investment Guidelines established for the BMA 
Synthetic GIC, the Contractholder Custodial Account will be required to 
invest in fixed income and money market securities that have been 
purchased by the Custodian as directed by BMA. Only high credit quality 
securities will be purchased for a Contractholder Custodial Account. In 
this regard, covered puts and calls will not be used in the 
Contractholder Custodial Account. Treasury futures contracts will be 
used only for hedging and risk management purposes but will not be used 
for leveraging. Currently, BMA's minimum quality rating at the time of 
purchase is ``Aa3/AA-.''
    The Investment Guidelines will be specifically disclosed to, 
negotiated with and agreed to by the independent Plan fiduciary. BMA 
notes that it is possible that other classes of securities may be 
included in the Investment Guidelines based on a Plan's needs. However, 
in the event the Plan fiduciary requests that other classes of 
securities be included in the Investment Guidelines, BMA will require 
that such securities be ``investment grade'' or better.
    13. BMA's guarantee of principal and interest under the BMA 
Synthetic GIC will come into play on certain specified ``Maturity 
Dates,'' any ``Interest Payment Dates'' specified in the BMA Synthetic 
GIC Contract prior to a Maturity Date and, with the exception of the 
non-benefit responsive BMA Synthetic GIC, on any dates on which BMA is 
required to provide funds for unanticipated benefit payments. On the 
Maturity Date, the Plan will be entitled to a distribution in cash, by 
BMA, of the Contract Value Record. In addition, Scheduled Withdrawals 
and Unscheduled Withdrawals will be made by BMA with corresponding book 
value adjustments to the Contract Value Record. (In the case of the 
non-benefit responsive BMA Synthetic GIC, no Unscheduled Withdrawals 
will be permitted.) The Contract Value Record will be equal to the 
amount of cash deposited by the Plan in the Contractholder Custodial 
Account on the effective date of the BMA Synthetic GIC Contract. 
Subsequent to the effective date (i.e., the date of execution of the 
BMA Synthetic GIC Contract), the Contract Value Record will be 
increased by any accrued but unpaid interest owed by BMA to the Plan 
and will be further adjusted by subtracting the following: (a) All 
payments made by BMA to provide for Scheduled Withdrawals and/or if 
applicable, Unscheduled Withdrawals; (b) all contract expense charges, 
if any, if these have not been paid to BMA directly by the Plan; (c) a 
Market Value Adjustment Charge due to a Plan's discontinuance of a BMA 
Synthetic GIC before the Maturity Date under certain circumstances; (d) 
any prepayments on securities which have been made to the Plan; and (e) 
the difference between the proceeds from the sale of an impaired asset 
and its book value.<SUP>7</SUP> In other words, BMA will guarantee that 
on the Maturity Date, distributions will be made to the Plan in amounts 
at least equal to contributions previously made to the Account plus 
interest at the guaranteed rate of interest (with appropriate 
adjustments for Scheduled and Unscheduled Withdrawals).<SUP>8</SUP> Any 
appreciation on securities that are liquidated will be retained by the 
Contractholder Custodial Account to the extent the appreciation is not 
used to meet withdrawal requests or to repay Advances.
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    \7\ Section 1.19 of the BMA's sample Synthetic GIC Contract 
defines the term ``impaired security'' (except where bonds are 
called or assets or mortgage-backed securities are prepaid according 
to their terms) as: (a) any security, which since purchase, has been 
downgraded by Standard & Poor's, Moody's, or Duff & Phelps two or 
more levels; (b) any security for which the occurrence or existence 
of an event or condition results in an acceleration of payment; (c) 
any security for which the issuer fails to make one or more payments 
of principal or interest when due, after giving effect to any grace 
period; or (d) any security upon which interest is accruing on a 
principal balance less than the original par or face amount of such 
security, or upon which the rate of interest has been reset other 
than pursuant to the security's original terms.
    If a security becomes ``impaired,'' BMA will notify the Plan and 
give the Plan fiduciary the option of removing the security from the 
Contractholder Custodial Account or having BMA replace the impaired 
security. If the security is removed, the Contract Value Record will 
be reduced by the book value of the security. However, if the Plan 
fiduciary requests a replacement security, BMA will sell the 
security and purchase another one meeting the criteria of the BMA 
Synthetic GIC. The Contract Value Record will then be reduced by the 
difference between the sale price of the impaired security and the 
book value of the impaired security.
    The Plan fiduciary may opt to retain an impaired security based 
on his or her assessment of the recovery potential of the security's 
market value. If the Plan fiduciary retains the impaired security, 
it will be removed from the Contractholder Custodial Account and the 
Contract Value Record will be debited by the book value of the 
impaired security.
    Section 2.05 of the BMA Synthetic GIC Contract provides that if 
a security is downgraded one level by a credit rating agency, BMA 
will notify the Plan fiduciary and attempt to effect the sale of the 
security as soon as reasonably possible. The sale proceeds will then 
be used to purchase another security that meets the investment 
criteria of the BMA Synthetic GIC. In addition, BMA will bear any 
risk of loss from the sale of a downgraded security.
    \8\ Again, in the case of the non-benefit responsive BMA 
Synthetic GIC, there will be no adjustments for Unscheduled 
Withdrawals since such withdrawals are not permitted.
---------------------------------------------------------------------------

    14. Scheduled Withdrawals (i.e., distributions prior to the 
Maturity Date which are subject to BMA's guarantee as to principal and 
interest, will occur on dates (i.e., Principal Distribution Dates) and 
in amounts that will be agreed upon between the Plan and BMA prior to 
execution of a BMA Synthetic GIC. In addition, Scheduled Withdrawals 
will be specified in writing. On each Principal Distribution Date, BMA 
will make a withdrawal from the Contractholder Custodial Account in an 
amount sufficient to fund such withdrawal. In this regard, BMA will pay 
the withdrawal amount to the Plan from BMA's own assets prior to any 
assets being transferred from the Contractholder Custodial Account to 
BMA. If sufficient cash is not available, BMA will direct the Custodian 
to sell securities designated by BMA that are held in the 
Contractholder Custodial Account <SUP>9</SUP> for a price reflecting 
the fair market value of the securities.<SUP>10</SUP> The cash proceeds 
from such sales will be added to the available cash in the 
Contractholder Custodial Account sufficient to make a payment to BMA of 
an amount equal to the Scheduled Withdrawal. However prior to receiving 
any transfer of assets from the Contractholder Custodial Account, BMA 
will first make a payment to the Plan in amount of the Scheduled 
Withdrawal. Any capital loss from such liquidation will be borne by BMA 
and not by the Plan.
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    \9\ BMA will determine the appropriate security to be sold based 
upon such factors as (a) the amount of cash needed by the Plan 
fiduciary; (b) the relative investment returns of the securities 
available; and (c) market factors affecting the price of the 
security.
    \10\ If the purchaser of the securities is BMA, fair market 
value will be determined in the manner described in Representation 
21 under the discussion of illiquid assets. If the purchaser is an 
unrelated party, the fair market value will be the price established 
by the marketplace in an arm's length transaction between the buyer 
and the seller (i.e., the Contractholder Custodial account).
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    The Contract Value Record of the Account will be reduced by the 
amount of such Scheduled Withdrawal. In addition, BMA will pay interest 
to the Plan equal to the unpaid accrual of the guaranteed rate of 
interest on the amount of the Scheduled Withdrawal.
    15. Under certain limited circumstances, a Plan holding a Benefit-

[[Page 70738]]

Responsive BMA Synthetic GIC will be permitted to make an Unscheduled 
Withdrawal from its Contractholder Custodial Account in order to make 
benefit payments and annuity purchases prior to the Maturity Date of 
such BMA Synthetic GIC.<SUP>11</SUP> To make an Unscheduled Withdrawal, 
an independent Plan fiduciary will be required to certify that the 
benefit payment is in accordance with the terms of the Plan. However, 
as with Scheduled Withdrawals, BMA will fund the Plan's withdrawal 
amount from its own assets prior to receiving cash in the 
Contractholder Custodial Account equal to the premium for the annuity. 
If sufficient cash is not available in the Contractholder Custodial 
Account, BMA will have the right to direct the Custodian to liquidate 
securities held in the Contractholder Custodial Account at their fair 
market value.<SUP>12</SUP> The proceeds of such sale will be added to 
the cash available in the Contractholder Custodial Account to make a 
payment to BMA of an amount equal to the premium for the annuity. 
Similarly, the amount of cash withdrawn will be subtracted from the 
Contract Value Record. Assuming there are capital losses associated 
with the securities liquidated, BMA will bear the risk of loss.
---------------------------------------------------------------------------

    \11\ Under the BMA Synthetic GIC, withdrawals cannot be 
permitted on an unrestricted basis. Otherwise, BMA would be required 
to liquidate securities, from time to time, at prices that fluctuate 
unpredictably, thereby undermining the insurer's ability to meet its 
guarantees.
    \12\ See Representations 14 and 21 for a discussion of fair 
market value.
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    16. At its discretion, BMA may advance the requested amount for 
benefit payments to Plan participants under a benefit-responsive BMA 
Synthetic GIC. However, cumulative Advances must not exceed 5 percent 
of the fair market value of the Contractholder Custodial Account and no 
single Advance may be outstanding for more than 90 days. An Advance is 
intended to cover a Plan participant's request for a small withdrawal, 
which because of its timing, might require market-inefficient 
transactions by the Contractholder Custodial Account.<SUP>13</SUP> BMA 
will not charge the Contractholder Custodial Account any interest in 
connection with an Advance.
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    \13\ For example, a Contractholder Custodial Account having a 
portfolio fully invested in asset-backed and mortgage-backed 
securities could receive a request for $100,000 in benefit 
withdrawals. To meet such a request, some securities would have to 
be sold from the Contractholder Custodial Account. However, asset-
backed and mortgage-backed securities generally trade only in 
multiples of $1 million or more and such sale would be highly 
inefficient to meet a small cash requirement. Therefore, as an 
alternative, BMA may decide to advance the required cash to the 
Plan. Subsequently, when the Contractholder Custodial Account 
receives a regular coupon payment on a security held in its 
portfolio or possibly a prepayment on an asset-backed or mortgage-
backed security, it would use some of this cash flow to repay the 
Advance to BMA.
---------------------------------------------------------------------------

    According to BMA, the Advance and the repayment of the Advance can 
be viewed as distinct transactions between BMA and the Contractholder 
Custodial Account which do not affect the Contract Value Record or 
BMA's guarantees to the Plan. It is only the payment of the actual 
benefit to the Plan that reduces the Contract Value Record. Had no 
Advance been made, the Contractholder Custodial Account would have been 
required to liquidate collateral to meet the Plan's benefit 
obligations. Until the Advance is repaid to BMA, the Contractholder 
Custodial Account will hold assets that are in excess of BMA's 
obligations owed to the Plan. Repaying the Advance will restore the 
balance between collateral assets and BMA's obligations to the Plan 
that existed when the BMA Synthetic GIC was initiated.
    17. On the Maturity Date, the Custodian will distribute to BMA all 
of the assets in the Contractholder Custodial Account. Thereafter, BMA 
will distribute to the Plan an amount equal to the aggregate Contract 
Value Record plus the applicable guaranteed rate of interest 
established by agreement between BMA and the Plan, less adjustments for 
previous Scheduled and Unscheduled Withdrawals.)<SUP>14</SUP> If the 
aggregate market value of the assets in the Contractholder Custodial 
Account is less than the Contract Value Record on the Maturity Date, 
BMA will pay from its general account any such deficiency. Conversely, 
BMA will retain any excess.
---------------------------------------------------------------------------

    \14\ The reference to Unscheduled Withdrawals is inapplicable to 
the non-benefit responsive BMA Synthetic GIC.
---------------------------------------------------------------------------

    18. BMA's guarantee at the Maturity Date will be implemented in the 
two steps. First, the Plan fiduciary will preinstruct the Custodian to 
transfer the balance of all assets in the Contractholder Custodial 
Account to BMA as of the date of discontinuance, regardless of whether 
such assets are in the form of securities or otherwise, and without the 
sale of such securities. Second, simultaneously with the transfer of 
assets, BMA will pay the Plan, by wire transfer, an amount equal to the 
adjusted Contract Value Record at the time of the discontinuance. As a 
result, the underlying investments in the Plan's Contractholder 
Custodial Account will end up in BMA's general account.
    BMA notes that if assets trading at a discount from their face 
amount on the Maturity Date had to be disposed of or distributed to the 
Plan on the Maturity Date, BMA would be compelled to realize an 
immediate loss with respect to those assets in meeting its contractual 
guarantee. By allowing those assets to be transferred to BMA on the 
Maturity Date, BMA states that the procedures for implementing the 
contractual guarantees will make it possible for it to hold such assets 
to maturity or at least until market conditions warrant disposing of 
them. BMA states that the transfer of assets will enable it to 
guarantee a higher rate of return than it would otherwise be able to 
guarantee.
    19. In liquidating assets to meet contractual obligations on 
Scheduled Withdrawal Dates and the Maturity Date, the BMA Synthetic GIC 
will entitle BMA to sell assets from a Plan's Contractholder Custodial 
Account to BMA's general account or to an affiliate for a cash price 
equal to the fair market value of the assets as of the close of 
business on the date of the sale.<SUP>15</SUP> BMA represents that no 
brokerage or transactions costs will be imposed.
---------------------------------------------------------------------------

    \15\ BMA does not believe the purchase of securities by it or an 
affiliate from a Plan's Contractholder Custodial Account will lead 
to ``cherry-picking'' of the best securities and leaving the worst 
ones in the Contractholder Custodial Account because any potential 
abuse will be offset by BMA's interest in meeting its guarantee on 
the maturity of the BMA Synthetic GIC. In this regard, BMA states 
that it bears the risk that the assets in the Contractholder 
Custodial Account will be inadequate to provide the amount 
guaranteed on maturity. According to BMA, to systematically pick and 
choose those assets with the view of purchasing desirable assets 
from a Plan's Contractholder Custodial Account would seriously 
affect the predictability of the cash flows available to meet 
subsequent guarantees. BMA further states that the risk is minimized 
if the Contractholder Custodial Account retains assets that are 
expected to appreciate. Because all assets purchased with the 
initial deposit and held in the Contractholder Custodial Account 
will be highly-rated and liquid, so long as transactions between BMA 
and the Contractholder Custodial Account are effected at market 
prices, BMA does not believe cherry-picking would be possible.
    BMA also represents that the Contractholder Custodial Account's 
need to sell securities to BMA may not involve large sums of money 
and the market for such securities may not be efficient. Therefore, 
transactions between the Contractholder Custodial Account and BMA 
will permit such Account to effect needed transactions in small 
portions at the market price generally available only for 
transactions involving larger amounts. At contract maturity, all 
securities held by the Contractholder Custodial Account will be 
transferred to BMA. BMA will then have the opportunity to recombine 
the small portions of securities held in various portfolios into 
larger amounts.
    Finally, BMA states that the Plan will have complete records of 
the Contractholder Custodial Account. If the independent Plan 
fiduciary discovers that BMA has engaged in abusive conduct, the BMA 
Synthetic GIC may be discontinued.
---------------------------------------------------------------------------

    20. BMA represents that most of the securities in a Contractholder 
Custodial

[[Page 70739]]

Account will have a recognized market value. Although certain 
securities may be regularly traded on an exchange, other investments 
will be securities for which an active secondary market exists and for 
which market quotations are readily available. BMA expects that a 
significant portion of the assets in a Contractholder Custodial Account 
will consist of high-quality, mortgage-backed securities and similar 
securities for which market quotations are readily available.
    21. With BMA's Synthetic GIC, the only instances that a market 
value determination needs to be made with respect to a Contractholder 
Custodial Account are (a) for periodic (i.e., not more than quarterly) 
reports prepared by the Custodian, in which case the Custodian makes 
the market value determination; (b) whenever BMA purchases a security 
from the Contractholder Custodial Account prior to the maturity date; 
and (c) if there are illiquid assets to honor benefit payments, in the 
event of an Advance, a Scheduled Withdrawal or, with the exception of 
the non-benefit responsive BMA Synthetic GIC, an Unscheduled 
Withdrawal. However, in no event, will BMA or its affiliates value any 
of the securities held in a Plan's Contractholder Custodial Account.
    For the preparation of custodial reports, the Custodian will 
determine fair market value by using well-established independent 
pricing services such as Merrill Lynch or similar organizations 
acceptable to BMA that have resources to provide fair, reasonable and 
defensible market values for securities in the Contractholder Custodial 
Accounts. For purposes of determining the fair market value of a 
security that is acquired by BMA from the Contractholder Custodial 
Account prior to the Maturity Date or in the event there are illiquid 
assets, BMA will base the fair market value of the security on the most 
recent sales price on the date of valuation (the Valuation Date) or, if 
no sales took place on the Valuation Date, a price that reflects the 
average of the bids of at least two major independent dealers for 
publicly-traded securities. For debt instruments that are not publicly-
traded, BMA will base the fair market value of such securities on the 
average of the bids of at least two major dealers, or, if two bids 
cannot be obtained, then the fair market value will be determined by an 
independent appraisal made by an independent appraiser selected by 
either the Custodian or a Plan sponsor or fiduciary that is not 
affiliated with BMA or any of its affiliates. Where bids are required 
for either securities or debt instruments, if the bids of two major 
dealers vary by more than ``one point'' (i.e., one percent of par 
value), a third dealer's bid will be obtained by BMA and the fair 
market value will be the average of the three bids.
    22. A Plan may discontinue its BMA Synthetic GIC Contract at any 
time, provided 30 days' advance written notice is given to BMA. 
However, BMA may discontinue a BMA Synthetic GIC arrangement with a 
Plan only if certain events enumerated in the BMA Synthetic GIC 
Contract occur and as long as BMA gives the Plan 30 day's prior written 
notice. For example, Section 8.03 of BMA's sample Synthetic GIC 
Contract states, in part, that BMA may discontinue a BMA Synthetic GIC 
Contract if--
    (a) The Plan fails to give BMA written notice of any change or 
amendment to the Plan within 30 days of the date such change or 
amendment is adopted and such change materially and adversely impacts 
on BMA's financial experience under the BMA Synthetic GIC Contract.
    (b) In the judgment of BMA, any change or amendment to the Plan 
necessitates the amendment of the BMA Synthetic GIC Contract, and, upon 
the written request of BMA, the Plan fails to consent to such amendment 
within 30 days of such request.
    (c) The Plan is partially or completely terminated.
    (d) The Plan fails to be tax-qualified in accordance with the Code.
    (e) The Plan requests BMA to purchase annuities which would exceed 
the balance in the Contractholder Custodial Account.
    23. If a BMA Synthetic GIC Contract is discontinued prior to the 
Maturity Date, BMA will be entitled to receive a Market Value 
Adjustment Charge which will be deducted from the Contract Value 
Record. The Market Value Adjustment Charge is intended to allow BMA to 
recover its direct costs and unreimbursable expenses incurred in 
managing the BMA Synthetic GIC over a maximum three year period. The 
Market Value Adjustment Charge will equal the sum of (1)+ (2), where--
    (1) Is the excess, if any, of the Contract Value Record over the 
fair market value of the assets in the Contractholder Custodial Account 
at the determination date (i.e., the distribution date), but not less 
than 0; and
    (2) Is (a) + (b), where--

    (a) Is the amount of any outstanding Advances to make benefit 
payments, and
    (b) Is the amount equal to [(F * CVR)] * N, where--

F = The Market Value Expense Charge, expressed as an annual percentage 
rate, payable to BMA as agreed upon by BMA and the Plan and specified 
in the BMA Synthetic GIC Contract;
CVR = The amount of the Contract Value Record on the determination 
date; and
N = The number of days in the period from the determination date 
through the third anniversary of the effective date of the Contract, or 
the Maturity Date, if earlier, divided by 365. This variable also 
reflects the recovery of BMA's unreimbursable expenses over a maximum 
three year period and does not represent a penalty.

Whenever a withdrawal from the Contract is less than the value of the 
Contract Value Record and is subject to the Market Value Adjustment 
Charge, such Charge will be based upon the aforementioned formula. 
However, the Charge will be multiplied by a ratio, the numerator of 
which will reflect the amount of the withdrawal and the denominator, 
the amount of the Contract Value Record at the determination date.
    The Plan will preinstruct the Custodian to transfer, to BMA, the 
balance of all assets that are held in the Contractholder Custodial 
Account as of the date of the discontinuance, whether in the form of 
securities or otherwise, and without the sale of such securities. 
Simultaneously with such transfer of assets, BMA will pay the Plan, by 
wire transfer, an amount equal to the adjusted Contract Value Record at 
the time of such discontinuance.
    24. Interest and other income payments made by issuers of 
securities (i.e., Plan Interest Proceeds) held in the Contractholder 
Custodial Account will be transferred to BMA as they are paid to the 
Custodian during the term of the BMA Synthetic GIC. BMA represents that 
Plan Interest Proceeds are generally too small to be reinvested 
efficiently in any one Contactholder Custodial Account. Therefore, BMA 
explains that it will be able to invest the stream of income derived 
from the Plan Interest Proceeds in its general account. BMA further 
represents that in exchange for its guarantees to pay benefits and 
interest on the Interest Payment Dates, the Plan fiduciary is 
acknowledging that the Plan Interest Proceeds cease to be plan assets 
upon their transfer to BMA and, thus, become the sole and exclusive 
property of BMA.
    25. Because it is anticipated that a large portion of the 
securities held in the Contractholder Custodial Account will be high 
credit quality mortgage-backed and asset-backed securities,

[[Page 70740]]

BMA notes that such securities generally experience partial principal 
repayment on a regular basis. Therefore, BMA's Synthetic GIC will offer 
a Plan either of two investment options--(a) the opportunity to require 
that BMA reinvest all of the prepayments received by the Custodian and 
bear the reinvestment risks on such cashflows; or (b) the opportunity 
to allow BMA to negotiate with the Plan a BMA Synthetic GIC that will 
pay a higher guaranteed interest rate to such Plan, but which requires 
that the Plan receive some of the prepayments as they are paid to the 
Custodian.<SUP>16</SUP> In other words, some of the reinvestment risks 
from the prepayment of cashflows will not be borne by BMA. These 
options will be available to the Plan fiduciary prior to the inception 
of the BMA Synthetic GIC Contract.
---------------------------------------------------------------------------

    \16\ Under this option, if prepayments are paid to the Plan, the 
Contract Value Record will be reduced by the amount of the payment. 
However, the amount of prepayments will be limited to a maximum 
percentage of the principal balance of the security.
---------------------------------------------------------------------------

    26. Other than the Market Value Adjustment Charge described above, 
BMA does not anticipate charging any fees under the BMA Synthetic GIC 
inasmuch as its ``compensation'' will be based upon the anticipated 
difference between the market value of securities in the Contractholder 
Custodial Account and its guarantee of principal. However, the BMA 
Synthetic GIC Contract provides that a Contract Expense Charge may be 
imposed if it is individually negotiated with the Plan fiduciary. BMA 
states that the purpose of this provision is to allow the Plan to net a 
higher interest rate by paying a portion of BMA's 
expenses.<SUP>17</SUP> According to BMA, the Contract Expense Charge 
will not be in excess of ``reasonable compensation'' within the meaning 
of section 408(b)(2) of the Act.
---------------------------------------------------------------------------

    \17\ For example, BMA states that the interest rate it is able 
to offer under the BMA Synthetic GIC will be affected by its 
investments. At the Plan's request, BMA explains that it would be 
willing to pass on some of these expenses to the Plan, and in 
exchange, it would offer a higher rate of interest. BMA further 
states that it would only charge such fees if the Plan fiduciary 
negotiating the BMA Synthetic GIC requests this provision in order 
to obtain a higher interest rate.
---------------------------------------------------------------------------

    27. BMA will keep full and complete records and books of account 
reflecting all transactions of each Contractholder Custodial Account 
and will make them available on an annual basis for audit by 
independent certified public accountants selected by and responsible to 
the Plan. In addition, BMA will furnish annual reports of the 
operations of the Contractholder Custodial Account containing a list of 
the investments of such Account to an independent Plan fiduciary.
    28. 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 decision to enter into a BMA Synthetic GIC will be made on 
behalf of a participating Plan, in writing, by a fiduciary of such Plan 
who is independent of BMA.
    (b) Each Plan or plan asset look-through vehicle investing in a BMA 
Synthetic GIC will have assets that are in excess of $50 million.
    (c) Prior to and subsequent to the execution of a BMA Synthetic 
GIC, the Plan fiduciary, and if applicable, the Plan participant, will 
receive written disclosures concerning the BMA Synthetic GIC, including 
a description of all applicable fees and charges, as well as ongoing 
disclosures with respect to such investment.
    (d) BMA will maintain, for a period of six years from the date of 
each BMA Synthetic GIC transaction, books and records of such 
transactions that will be subject to annual audit by independent, 
certified public accountants who are selected by and responsible solely 
to the relevant Plan.

Notice to Interested Persons

    BMA represents that because those potentially interested 
participants and beneficiaries cannot be identified at this time, the 
only practical means of notifying such participants and beneficiaries 
of this proposed exemption is by the publication of this notice in the 
Federal Register. Therefore, comments and requests for a hearing must 
be received no later than 30 days from the date of publication of this 
notice of proposed exemption 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.)

South Central New York District Council of Carpenters Pension Fund 
(the Fund) Johnson City, New York

[Application No. D-10755]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975 (c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted, the restrictions of sections 406(a), 406(b)(1) and (2) of 
the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the 
Code, shall not apply to: The sale (the Sale) of improved real property 
(the Property) to the Fund by the Local 281 Carpenters Property 
Corporation (the Corporation), a party in interest with respect to the 
Fund, provided the following conditions are met:
    (a) The terms and conditions of the Sale are at least as favorable 
to the Fund as those obtainable in an arm's length transaction with an 
unrelated party;
    (b) The Fund purchases the Property for cash from the Corporation 
for the lesser of $250,000 or the fair market value of the Property as 
of the date of the Sale;
    (c) The Sale is monitored and approved by an independent fiduciary 
acting on behalf of the Fund;
    (d) The Sale is a one-time transaction for cash; and
    (e) The Fund pays no fees or commissions in connection with the 
Sale.

Summary of Facts and Representations

    1. The United Brotherhood of Carpenters and Joiners of America, 
Local 281 and Local 532 (the Union) is a union located in the Village 
of Johnson City, Broome County, New York. The Union represents 
carpenters who are employed throughout the state of New York. The Fund 
is a defined benefit pension plan established by the Union for the 
provision of retirement benefits to Union members. The Fund had 847 
participants and approximately $29,600,175 in assets as of January 1, 
1998.
    2. The Corporation is a holding company established by the Union on 
April 18, 1974 for the holding and management of investment property. 
The Corporation purchased the Property on April 29, 1974 for $95,000 
from the Baptist Bible Seminary, an unrelated party. The Property is 
located at 335 Main Street, in the Village of Johnson City, Broome 
County, New York. The Property is comprised of a two-story building 
having approximately 4,800 square feet in rentable space and is 
situated on approximately 2.3 acres. The applicant represents that the 
Fund currently rents office space, occupying 300 square feet, in the 
Property, on a month-to-month basis pursuant to Section 228 of New York 
State's Real Property Law.<SUP>18</SUP> The lease has been in force in 
excess of twenty-five years and the rental rate has not increased for 
the last thirteen years. The applicant further

[[Page 70741]]

represents that the rental rate was determined by D'Arcangelo & Co., 
LLP Certified Public Accountants, in excess of thirteen years ago, by 
allocating the Property's operating expenses in proportion to the 
square footage utilized by each tenant. This resulted in a monthly 
rental rate of $1 per square foot. Accordingly, the Fund has been 
charged a monthly rate of $300 for at least the past thirteen years.
---------------------------------------------------------------------------

    \18\ In this regard, the applicant represents that a month-to-
month tenancy may be terminated by providing written notice of at 
least 30 days.
---------------------------------------------------------------------------

    In addition, the applicant represents that the Fund is represented 
by both employer and union trustees. In the latter part of 1997 through 
the present, George Hamarich was a union trustee of the Fund and a 
trustee of the Corporation.<SUP>19</SUP>
---------------------------------------------------------------------------

    \19\ The Corporation is a party in interest with respect to the 
Fund under section 3(14)(G) of the Act as * * * ``a corporation * * 
* of which (or in which) 50% or more of * * * is owned directly or 
indirectly, or held by * * *'' an employee organization any of whose 
members are covered by the (Fund). As a result, the lease is 
prohibited by section 406(a)(1)(A) of the Act which prohibits the 
``* * * leasing * * * of any property between the (Fund) and a party 
in interest * * *'' However, section 408(b)(2) of the Act provides a 
statutory exemption, so long as the conditions therein are met, for 
* * * ``reasonable arrangements with a party in interest for office 
space * * * necessary for the * * * operation of the (Fund), if no 
more than reasonable compensation is paid therefor.'' Under 
regulation 29 CFR 2550.408(b)(2)(e)(1), an act described under 
section 406(b) of the Act constitutes a separate transaction which 
is not exempt under 408(b)(2) of the Act. Specifically section 
406(b)(2) of the Act states that ``(a) fiduciary with respect to a 
(Fund) shall not * * * (2)(i)n his individual or in any other 
capacity act in any transaction involving the plan on behalf of a 
party (or represent a party) whose interest are adverse to the 
interest of the plan or the interests of its participants or 
beneficiaries * * *'' As a result, the representation of the Fund 
and the Corporation by Mr. Hamarich, during the leasing, would 
constitute a violation of section 406(b)(2) of the Act. The 
Department is not proposing exemptive relief herein for the above 
described violation of the Act.
---------------------------------------------------------------------------

    3. The Property was appraised (the Appraisal) on June 18, 1998 by 
Mr. John Miller (Mr. Miller) of the Central New York Appraisal Group 
(the Appraisal Group). The applicants represent that Mr. Miller and the 
Appraisal Group are independent of the Fund and the Union. Mr. Miller, 
an appraiser certified in the State of New York, used the sales 
comparison approach and compared the Property to five properties which 
were similar to the Property and which were also the subject of recent 
sales. Based on these comparisons, Mr. Miller concluded the value of 
the Property to be $250,000, as of June 2, 1998, as if the site was 
vacant and ready for redevelopment (the Appraised Value).
    4. The applicant proposes the sale of the Property from the Union 
to the Fund for $250,000 (i.e., the Sale). The applicant represents 
that proposed Sale was analyzed by Mr. John P. Jeanneret (Mr. 
Jeanneret) of J. P. Jeanneret Associates, an investment and consulting 
company located in Syracuse, New York. Mr. Jeanneret represents that he 
is an investment adviser registered with the Securities and Exchange 
Commission and is knowledgeable in matters concerning real estate and 
qualified employee benefit plans. Mr. Jeanneret additionally represents 
that he is the Fund's investment consultant and fiduciary and is 
knowledgeable in matters concerning the Fund's investment objectives 
and guidelines. Mr. Jeanneret represents that he has analyzed the 
proposed Sale and has determined that the proposed Sale is appropriate 
for the Fund and is in the best interest of the Fund's participants and 
beneficiaries.
    The applicant additionally represents that the Fund has engaged the 
services of Mr. Thomas M. Barnell (Mr. Barnell) of Farrell, Martin, & 
Barnell LLP, located in Baldwinsville, New York, to act as independent 
fiduciary on behalf of the Fund for purposes of the proposed Sale. Mr. 
Barnell represents that he is independent of the Union and the Fund and 
has over 25 years of experience in matters concerning real estate 
transactions. Mr. Barnell additionally represents that he acknowledges 
his duties to the Fund and its participants and beneficiaries.
    Mr. Barnell represents that he has personally inspected the 
Property and has analyzed the Appraisal and the terms of the Sale. Mr. 
Barnell represents that, based on his analysis, the Appraised Value of 
the Property is accurate. Mr. Barnell additionally represents that the 
terms of the Sale fully protect the interests of the Fund. The 
applicant represents that Mr. Barnell will represent the Fund to ensure 
that the Sale is in the best interests of the Fund and its participants 
and beneficiaries.
    5. The applicant represents that the Sale, if granted, is 
administratively feasible in that it will be a one-time transaction for 
cash in which the Fund will pay no fees or commissions. The applicant 
also represents that the proposed Sale is in the best interest of the 
Fund since the Fund currently rents space in the Property and intends 
to continue utilizing the Property as its offices for the foreseeable 
future. The applicant further represents that the Fund presently has no 
intention of demolishing the structure which exists on the Property and 
re-selling the unimproved Property.<SUP>20</SUP> In addition, the 
applicants represent that a sale of the Property to a third-party may 
disrupt the Fund's operations. Finally, the applicants represent that 
the proposed Sale is protective of the Fund since the Property will 
comprise approximately one percent (1%) of the Fund's assets and an 
independent fiduciary acting on behalf of the Fund has represented that 
the proposed Sale meets the Fund's investment objectives.
---------------------------------------------------------------------------

    \20\ In this regard, the Department notes that the Act's 
standards of fiduciary conduct will apply to the purchase and any 
possible future development of the Property. Section 404(a)(1) of 
the Act requires that a fiduciary discharge 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 a enterprise of a like character and with like aims. 
Accordingly, the fiduciaries of the Fund must act ``prudently'' with 
respect to the decision to purchase the Property, as well as to any 
possible future development of the Property (including where 
relevant, the determination as to whether to develop the Property, 
the types of improvements that are appropriate and the Plan's 
ability to finance any such improvements). The granting of this 
exemption should not be viewed as an endorsement by the Department 
of the Fund's subsequent use of such Property. Finally, we note 
that, if the decision by the fiduciaries to purchase and 
subsequently develop the Property is not prudent, the fiduciaries 
would be liable for any loss resulting from such breach even though 
the purchase of the Property was the subject of an administrative 
exemption.
---------------------------------------------------------------------------

    6. In summary, the applicant represents that the subject 
transactions satisfy the statutory criteria contained in section 408(a) 
of the Act for the following reasons:
    (a) The terms and conditions of the Sale are at least as favorable 
to the Fund as those obtainable in an arm's length transaction with an 
unrelated party;
    (b) The Fund purchases the Property from the Corporation for the 
lesser of $250,000 or the fair market value of the Property as of the 
date of the Sale;
    (c) The Sale is monitored and approved by an independent fiduciary 
acting on behalf of the Fund;
    (d) The Sale is a one-time transaction for cash; and
    (e) The Fund pays no fees or commissions in connection with the 
Sale.

NOTICE TO INTERESTED PERSONS: Notice of the proposed exemption shall be 
given 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. Comments and requests for a hearing are due 
thirty (30) days after publication of the Notice in the Federal 
Register.

FOR FURTHER INFORMATION CONTACT: J. Martin Jara of the Department, 
telephone (202) 219-8883 (this is not a toll free number).

[[Page 70742]]

S & S Partnership, Inc. Profit Sharing Plan (the Plan) Located in 
Stony Brook, New York

[Application No. D-10807]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted, the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the 
Code, shall not apply to the proposed loan (the Loan) totaling $200,000 
by the Plan to Hiramco Realty Corporation (Hiramco), a disqualified 
person with respect to the Plan, provided that the following conditions 
are met:
    (a) The terms of Loan by the Plan are at least as favorable to the 
Plan as those obtainable in an arm's length transaction with an 
unrelated party;
    (b) The Loan does not exceed 20% of the assets of the Plan, 
throughout the duration of the Loan;
    (c) The Loan is secured by a first mortgage on certain real 
property (the Property) which has been appraised by a qualified 
independent appraiser to have a fair market value not less than 150% of 
the principal amount of the Loan;
    (d) The fair market value of the collateral remains at least equal 
to 150% of the outstanding principal balance plus accrued but not 
unpaid interest, throughout the duration of the Loan;
    (e) Mr. Steven C. Fuchs and his wife, Margaret Fuchs (the Fuchs) 
are the only Plan participants to be affected by the Loan transaction; 
<SUP>21</SUP> and
---------------------------------------------------------------------------

    \21\ Since the Fuchs are the sole owners of the Plan sponsor and 
the only participants in the Plan, there is no jurisdiction under 
Title I of the Act pursuant to 29 CFR 2510.3-3(b). However, there is 
jurisdiction under Title II of the Act pursuant to section 4975 of 
the Code.
---------------------------------------------------------------------------

    (f) should any employee of the Plan Sponsor become eligible for 
plan participation, the new plan participant will be enrolled in 
another qualified retirement plan or Hiramco may elect to pay the 
entire balance on the Loan.

Summary of Facts and Representations

    1. S & S Partnership, Inc. (the Partnership), the Plan's sponsor, 
is a partnership located in Stony Brook, New York. The Plan is a 
defined contribution profit sharing plan, with Mr. Steven C. Fuchs and 
his wife, Margaret Fuchs (the Fuchs) as its sole participants and 
trustees. As of December 31, 1998, the Plan had total assets of 
approximately $1,230,238.
    2. Hiramco is a corporation in the real estate management business, 
of which 50% ownership interests remain with Mr. Fuchs and J.A. Green 
Development Corporation, respectively. Hiramco wishes to borrow 
$200,000 from the Plan, which represents approximately 16% of the 
current fair market value of the assets of the Plan. The Loan will be 
amortized over a 10 year period, with equal monthly payments of 
principal and interest over the 10 year term. The interest rate for the 
Loan will be 10% per annum. The total monthly payments for the Loan 
will be $2,643.02 per month. Mr. Daniel J. Liberty, Senior Vice 
President of KeyBank (the Bank) of Melville, New York, has represented 
in a letter dated October 8, 1999, that the terms and conditions of the 
mortgage are within the current conditions for commercial mortgages 
provided by the financial services industry. The Bank is independent of 
the Plan and Plan Sponsor.
    3. The applicant represents that Hiramco has a sufficient cash flow 
stream to meet the monthly payments under the terms of the Loan. The 
applicant further represents that Hiramco currently leases the Property 
to a prime tenant, the United Stated Post Office.
    4. The Loan will be secured by a first mortgage on the Property, 
which is located at 117 North Paul's Path, Coram, New York. The 
Property has been appraised by Mr. Richard C. Clarke, a real estate 
appraiser in Stony Brook, New York, to have a fair market value of 
$650,000 as of July 28, 1999. The applicant represents that the Plan's 
security interest will be perfected in the manner required by 
applicable law in New York by recording with the appropriate government 
officials. Furthermore, the applicant represents that the Property 
securing the Loan will be insured against casualty loss in an amount 
not less than the amount of the outstanding principal of the Loan (plus 
accrued but unpaid interest), and the Plan will be named beneficiary of 
the policy.
    5. The applicant represents that should the fair market value of 
the Property decline below 150% of the balance of the Loan, the Plan 
Sponsor will provide additional collateral to maintain the 150% 
threshold or pay the entire balance on the Loan.
    6. In summary, the applicant represents that the proposed 
transaction satisfies the statutory criteria of section 4975(c)(2) of 
the Code because: (a) The Loan represents approximately 16% of the 
assets of the Plan; (b) the terms of the Loan will be at least as 
favorable the Plan as those obtainable in an arm's length transaction 
with an unrelated party, as demonstrated by the letter from the Bank; 
(c) the Loan will be secured by a first mortgage on the Property, which 
has been determined by a qualified, independent appraiser to have a 
fair market value of not less than 150% of the total principal amount 
of the Loan that it will secure; (d) the Fuchs are the only 
participants in the Plan to be affected by the transaction, and they 
desire that the transaction be consummated.

NOTICE TO INTERESTED PERSONS: Because the applicants are the only 
participants in the Plan, it has been determined that there is no need 
to distribute the notice of proposed exemption (the Notice) to 
interested persons. Comments and requests for a hearing are due thirty 
(30) days after publication of the Notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: J. Martin Jara of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

First American Capital Management, Inc. (FACM) Located in Newport 
Beach, California

(Exemption Application No. D-10819)

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--Definitions and Special Rules
    The following definitions and special rules will apply to this 
proposed exemption:
    (a) The term ``person'' includes the person and affiliates of the 
person.
    (b) An ``affiliate'' of a person includes the following:
    (1) Any person directly or indirectly controlling, controlled by, 
or under common control with, the person;
    (2) Any officer, director, partner, employee, relative (as defined 
in section 3(15) of the Act), brother, sister, or spouse of a brother 
or sister, of the person; and
    (3) Any corporation or partnership of which the person is an 
officer, director or partner.
    A person is not an affiliate of another person solely because one 
of them has investment discretion over the other's assets. The term 
``control'' means the power to exercise a controlling influence over 
the management or

[[Page 70743]]

policies of a person other than an individual.
    (c) An ``affiliate of FACM'' includes Pacific American Securities, 
LLC, (PAS) and any other broker-dealer registered under the Securities 
Exchange Act of 1934 with respect to which FACM has at least a 40 
percent minority ownership interest and which is subject to regulations 
similar to those to which PAS is subject (such entities referred to 
collectively herein as ``FACM'').
    (d) An ``agency cross transaction'' is a securities transaction in 
which the same person acts as agent for both any seller and any buyer 
for the purchase or sale of a security.
    (e) The term ``covered transaction'' means an action described in 
section II(a), (b), or (c) of this proposed exemption.
    (f) The phrase ``effecting or executing a securities transaction'' 
means the execution of a securities transaction as agent for another 
person and/or the performance of clearance, settlement, custodial or 
other functions ancillary thereto.
    (g) A Plan fiduciary is independent of a person only if the 
fiduciary has no relationship to or interest in such person that might 
affect the exercise of such fiduciary's best judgment as a fiduciary.
    (h) The term ``profit'' includes all charges relating to effecting 
or executing securities transactions, less reasonable and necessary 
expenses including reasonable indirect expenses (such as overhead 
costs) properly allocated to the performance of these transactions 
under generally accepted accounting principles.
    (i) The term ``securities transaction'' means the purchase or sale 
of securities.
    (j) The term ``nondiscretionary trustee'' of a Plan means a trustee 
or custodian whose power and duties with respect to any assets of the 
Plan are limited to (1) the provision of nondiscretionary trust 
services to the Plan, and (2) duties imposed on the trustee by any 
provision or provisions of the Act or the Code. The term 
``nondiscretionary trust services'' means custodial services and 
services ancillary to custodial services, none of which services are 
discretionary. For purposes of this proposed exemption, a person does 
not fail to be a nondiscretionary trustee solely by reason of having 
been delegated, by the sponsor of a master or prototype Plan, the power 
to amend such Plan.
Section II--Covered Transactions
    If each condition of Section III of this proposed exemption is 
either satisfied or non-applicable under Section IV, the restrictions 
of section 406(b) of the Act and the sanctions resulting from the 
application of sections 4975(a) and (b) of the Code, by reason of 
section 4975(c)(1)(E) or (F) of the Code, shall not apply to--
    (a) First American Capital Management (FACM) using its authority to 
cause an employee benefit plan (a ``Plan'') to pay a fee to PAS, or 
another affiliate of FACM, for effecting or executing securities 
transactions as an agent for the Plan, but only to the extent that such 
transactions are not excessive under the circumstances, in either 
amount or frequency;
    (b) FACM acting through PAS, or another affiliate of FACM, as an 
agent in an agency cross transaction for both a Plan with respect to 
which FACM is a fiduciary and one or more other parties to the 
transaction; or
    (c) The receipt by FACM, through its affiliates, of reasonable 
compensation for effecting or executing an agency cross transaction in 
which a Plan is a party from one or more other parties to the 
transaction.
Section III--Conditions
    Except to the extent otherwise provided in Section IV of this 
proposed exemption, Section II of this proposed exemption applies only 
if the following conditions are satisfied:
    (a) The person engaging in the covered transaction is not a trustee 
(other than a nondiscretionary trustee) or an administrator of the 
Plan, or an employer any of whose employees are covered by the Plan.
    (b) The covered transaction is performed under a written 
authorization executed in advance by a fiduciary of each Plan whose 
assets are involved in the transaction, which Plan fiduciary is 
independent of FACM.
    (c) The authorization referred to in paragraph (b) of this section 
is terminable at will by the Plan, without penalty to the Plan, upon 
receipt by FACM of written notice of termination. A form expressly 
providing an election to terminate the authorization described in 
paragraph (b) of this section with instructions on the use of the form 
must be supplied to the authorizing fiduciary no less than annually. 
The instructions for such form must include the following information:
    (1) the authorization is terminable at will by the Plan, without 
penalty to the Plan, upon receipt by FACM of written notice from the 
authorizing fiduciary or other Plan official having authority to 
terminate the authorization; and
    (2) failure to return the form will result in the continued 
authorization of FACM to engage in the covered transactions on behalf 
of the Plan.
    (d) Within three (3) months before an authorization is made, the 
authorizing fiduciary is furnished with any reasonably available 
information that FACM reasonably believes to be necessary for the 
authorizing fiduciary to determine whether the authorization should be 
made, including (but not limited to) a copy of this exemption (if 
granted), the form for termination of authorization described in 
Section II(c), a description of FACM's brokerage placement practices, 
and any other reasonably available information regarding the matter 
that the authorizing fiduciary requests.
    (e) FACM furnishes the authorizing fiduciary with either:
    (1) A confirmation slip for each securities transaction underlying 
a covered transaction within ten (10) business days of the securities 
transaction containing the information described in Rule 10b-10(a)(1-7) 
under the Securities Exchange Act of 1934, 17 CFR 240.10b-10; or
    (2) At least once every three (3) months, and not later than 45 
days following the period to which it relates, a report disclosing:
    (A) A compilation of the information that would be provided to the 
Plan pursuant to subparagraph (e)(1) of this Section during the three-
month period covered by the report;
    (B) the total of all securities transaction-related charges 
incurred by the Plan during such period in connection with such covered 
transactions; and
    (C) the amount of the securities transaction-related charges 
retained by FACM and the amount of such charges paid to other persons 
for execution or other services.
    For purposes of this paragraph (e), the words ``incurred by the 
Plan'' shall be construed to mean ``incurred by the pooled fund'' when 
FACM engages in covered transactions on behalf of a pooled fund in 
which the Plan participates.
    (f) The authorizing fiduciary is furnished with a summary of the 
information required under paragraph (e)(1) at least once per year. The 
summary must be furnished within 45 days after the end of the period to 
which it relates, and must contain the following:
    (1) The total of all securities transaction-related charges 
incurred by the Plan during the period in connection with covered 
securities transactions;
    (2) The amount of the securities transaction-related charges 
retained by

[[Page 70744]]

FACM and the amount of these charges paid to other persons for 
execution or other services;
    (3) A description of FACM's brokerage placement practices, if such 
practices have materially changed during the period covered by the 
summary;
    (4) (i) A portfolio turnover ratio, calculated in a manner which is 
reasonably designed to provide the authorizing fiduciary with the 
information needed to assist in discharging its duty of prudence. The 
requirements of this subparagraph (f)(4)(i) will be met if the 
``annualized portfolio turnover ratio,'' calculated in the manner 
described in subparagraph (f)(4)(ii), is contained in the summary;
    (ii) The ``annualized portfolio turnover ratio'' shall be 
calculated as a percentage of the Plan assets consisting of securities 
or cash over which FACM had discretionary investment authority, or with 
respect to which FACM rendered, or had any responsibility to render, 
investment advice (the ``portfolio'') at any time or times 
(``management period(s)'') during the period covered by the report. 
First, the ``portfolio turnover ratio'' (not annualized) is obtained by 
dividing (A) the lesser of the aggregate dollar amounts of purchases or 
sales of portfolio securities during the management period(s) by (B) 
the monthly average of the market value of the portfolio securities 
during all management period(s). Such monthly average is calculated by 
totaling the market values of the portfolio securities as of the 
beginning and end of each management period and as of the end of each 
month that ends within such period(s), and dividing the sum by the 
number of valuation dates so used. For purposes of this calculation, 
all debt securities whose maturities at the time of acquisition were 
one year or less are excluded from both the numerator and the 
denominator.
    The ``annualized portfolio turnover ratio'' is then derived by 
multiplying the ``portfolio turnover ratio'' by an annualizing factor. 
The annualizing factor is obtained by dividing (C) the number twelve 
(12) by (D) the aggregate duration of the management period(s) 
expressed in months (and fractions thereof).
    (iii) The information described in this paragraph (f)(4) is not 
required to be furnished in any case where FACM has not exercised 
discretionary authority over trading in the Plan's account during the 
period covered by the report.
    For purposes of this paragraph (f), the words ``incurred by the 
Plan'' shall be construed to mean ``incurred by the pooled fund'' when 
FACM engages in covered transactions on behalf of a pooled fund in 
which the Plan participates.
    (g) If an agency cross transaction to which Section IV(b) does not 
apply is involved, the following conditions must also be satisfied:
    (1) The information required under Sections III(d) or IV(d)(1)(B) 
of this proposed exemption includes a statement to the effect that, 
with respect to agency cross transactions, FACM will have a potentially 
conflicting division of loyalties and responsibilities regarding the 
parties to the transactions;
    (2) The summary required under Section III(f) of this proposed 
exemption includes a statement identifying the total number of agency 
cross transactions during the period covered by the summary and the 
total amount of all commissions or other remuneration received or to be 
received from all sources by FACM in connection with those transactions 
during the period;
    (3) FACM has the discretionary authority to act on behalf of, and/
or provide investment advice to, either (A) one or more sellers or (B) 
one or more buyers with respect to the transaction, but not both;
    (4) The agency cross transaction is a purchase or sale, for no 
consideration other than cash payment against prompt delivery of a 
security for which market quotations are readily available; and
    (5) The agency cross transaction is executed or effected at a price 
that is at or between the independent bid and independent ask prices 
for the security prevailing at the time of the transaction.

Section IV--Exceptions From Conditions

    (a) Certain plans not covering employees. Section III does not 
apply to covered transactions to the extent they are engaged in on 
behalf of individual retirement accounts (IRAs) meeting the conditions 
of 29 CFR 2510.3-2(d), or Plans, other than training programs, that 
cover no employees within the meaning of 29 CFR 2510.3-3.
    (b) Certain agency cross transactions. Section III of this proposed 
exemption does not apply in the case of an agency cross transaction, 
provided that FACM:
    (1) does not render investment advice to any Plan for a fee within 
the meaning of section 3(21)(A)(ii) of the Act with respect to the 
transaction;
    (2) is not otherwise a fiduciary who has investment discretion with 
respect to any Plan assets involved in the transaction (see 29 CFR 
2510.3-21(d)); and
    (3) does not have the authority to engage, retain or discharge any 
person who is, or is proposed to be, a fiduciary regarding any such 
Plan assets.
    (c) Recapture of profits. Section III(a) of this proposed exemption 
does not apply in any case where FACM returns or credits to the Plan 
all profits earned by FACM in connection with the securities 
transactions associated with the covered transaction.
    (d) Special rule for pooled funds. If FACM engages in a covered 
transaction on behalf of an account or fund for the collective 
investment of the assets of more than one Plan (a Pooled Fund):
    (1) Sections III(b), (c), and (d) do not apply if--
    (A) The arrangement under which the covered transaction is 
performed is subject to the prior and continuing authorization, in the 
manner described in this paragraph (d)(1), of a plan fiduciary with 
respect to each Plan whose assets are invested in the Pooled Fund who 
is independent of FACM. The requirement that the authorizing fiduciary 
be independent of FACM shall not apply in the case of a Plan covering 
only employees of FACM, if the requirements of Sections IV(d)(2)(A) and 
(B) are met.
    (B) The authorizing fiduciary is furnished with any reasonably 
available information that FACM believes to be necessary to determine 
whether the authorization should be given or continued, not less than 
30 days prior to implementation of the arrangement or material change 
thereto, including (but not limited to) a description of FACM's 
brokerage placement practices, and, where requested, any reasonably 
available information regarding the matter upon the reasonable request 
of the authorizing fiduciary at any time.
    (C) In the event an authorizing fiduciary submits a notice in 
writing to FACM objecting to the implementation of, material change in, 
or continuation of, the arrangement, the Plan on whose behalf the 
objection was tendered is given the opportunity to terminate its 
investment in the Pooled Fund, without penalty to the Plan, within such 
time as may be necessary to effect the withdrawal in an orderly manner 
that is equitable to all withdrawing Plans and to the non-withdrawing 
Plans. In the case of a Plan that elects to withdraw under this 
subparagraph (d)(1)(C), the withdrawal shall be effected prior to the 
implementation of, or material change in, the arrangement; but an 
existing arrangement need not be discontinued by reason of a Plan 
electing to withdraw.
    (D) In the case of a Plan whose assets are proposed to be invested 
in the Pooled Fund subsequent to the implementation of the arrangement 
and

[[Page 70745]]

that has not authorized the arrangement in the manner described in 
subparagraphs (d)(1)(B) and (C) of this section, the Plan's investment 
in the Pooled Fund is subject to the prior written authorization of an 
authorizing fiduciary who satisfies the requirements of subparagraph 
(d)(1)(A).
    (2) Section III(a) of this proposed exemption, to the extent that 
it prohibits FACM from being the employer of employees covered by a 
plan investing in a pool managed by FACM, does not apply if--
    (A) FACM is an ``investment manager'' as defined in section 3(38) 
of the Act, and
    (B) Either (i) FACM returns or credits to the Pooled Fund all 
profits earned by FACM in connection with all covered transactions 
engaged in by FACM on behalf of the Pooled Fund, or (ii) the Pooled 
Fund satisfies the requirements of subparagraph (d)(3) of this section.
    (3) A Pooled Fund satisfies the requirements of paragraph (d) of 
this section for a fiscal year of the Fund if--
    (A) On the first day of such fiscal year, and immediately following 
each acquisition of an interest in the Pooled Fund during the fiscal 
year by any Plan covering employees of FACM, the aggregate fair market 
value of the interests in such Fund of all Plans covering employees of 
FACM does not exceed twenty (20) percent of the fair market value of 
the total assets of the Fund; and
    (B) The aggregate brokerage commissions received by FACM, in 
connection with covered transactions engaged in by FACM on behalf of 
all Pooled Funds in which a Plan covering employees of FACM 
participates, do not exceed five (5) percent of the total brokerage 
commissions received by FACM from all sources in such fiscal year.

EFFECTIVE DATE: This proposed exemption, if granted, will be effective 
for transactions described herein occurring on or after the date this 
proposed exemption is published in the Federal Register.

Summary of Facts and Representations

    1. The applicant, First American Capital Management (FACM), is 
located in Newport Beach, California. FACM is registered as an 
investment adviser with the U.S. Securities and Exchange Commission 
(SEC), pursuant to the Investment Advisers Act of 1940. As of December 
31, 1998, FACM had approximately $1.36 billion in assets under 
management and $581,000 in stockholders' equity.
    FACM owns forty-two (42) percent of the outstanding equity of 
Pacific American Securities, LLC (PAS).<SUP>22</SUP> PAS is registered 
with, and regulated by, the SEC as a broker-dealer pursuant to the 
requirements of the Securities Exchange Act of 1934. PAS is a member of 
the National Association of Securities Dealers (NASD).
---------------------------------------------------------------------------

    \22\ In this regard, the applicant states that there is a 
controlling equity ownership interest in PAS that is held by an 
individual who is otherwise unrelated to FACM.
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    All references herein to ``FACM'' will include ``PAS'' and any 
other broker-dealer for which FACM may have at least a 40 percent 
minority ownership interest and which is subject to regulations similar 
to those to which PAS is subject.
    FACM requests an individual exemption to permit:
    (i) FACM to use its authority to cause an employee benefit plan (a 
``Plan'') to pay a fee to PAS, or another affiliate of FACM (as defined 
herein), for effecting or executing securities transactions as agent 
for that Plan; or
    (ii) FACM, through PAS or another affiliate of FACM (as defined 
herein), to act as an agent in an agency cross transaction for both a 
Plan with respect to which FACM is a fiduciary and one or more other 
parties to the transaction; or
    (iii) the receipt by FACM, through its affiliates, of reasonable 
compensation for effecting and executing an agency cross transaction to 
which a Plan is a party from one or more other parties to the 
transaction.
    Each transaction described above will meet the applicable 
requirements of Prohibited Transaction Class Exemption 86-128 (PTCE 86-
128, 51 FR 41686, November 18, 1986), with the principal exception that 
the agent for the Plan effecting or executing the securities 
transactions (including any agency cross transactions) will not be an 
``affiliate'' of FACM within the meaning of that term as it is used in 
Part I of PTCE 86-128.
    For purposes of this proposed exemption, Section I(c) herein 
defines the phrase ``affiliate of FACM'' to include PAS and any other 
broker-dealer with respect to which FACM has at least a 40 percent 
minority ownership interest and which is subject to regulations similar 
to those to which PAS is subject (such entities referred to 
collectively as ``FACM''). Thus, this exemption (if granted) would 
apply to securities transactions executed by PAS, as a broker-dealer 
``affiliated'' with FACM, the investment manager for a Plan which 
causes the execution of such transactions to be made by PAS, in 
situations where PTCE 86-128 would not apply because that exemption 
requires that the plan fiduciary have a controlling interest in the 
broker-dealer executing the covered transactions.
    2. FACM represents that the use by a Plan fiduciary of its 
authority to cause a Plan to pay a fee to an affiliate of such 
fiduciary as an agent of such Plan for effecting or executing 
securities transactions, and an affiliate acting as agent in agency 
cross transactions for both a Plan and one or more other parties to 
such transactions and receiving reasonable compensation from one or 
more other such parties, are common practices. FACM states that such 
arrangements can provide Plans with the opportunity to decrease the 
costs of engaging in securities transactions and pose little or no risk 
to the Plans. For example, an affiliate of a Plan fiduciary may be able 
to better effect or execute securities transactions with a lower 
commission charged to the Plan than if such orders were placed with 
another brokerage firm. Thus, FACM represents that Plans for which it 
acts as a fiduciary will be better able to maximize the returns, and 
lower the commission costs, on their portfolios if the requested 
exemption is granted.
    3. PTCE 86-128 provides an exemption for a Plan fiduciary to cause 
a Plan to pay a fee to an ``affiliate'' of that person (as defined 
therein) for effecting or executing securities transactions as an agent 
to the Plan, and to act as an agent in an agency cross transaction for 
both a Plan and one or more other parties to the transaction and to 
receive a fee from such other parties, if certain condition are met. 
The applicant states that the Department, in granting PTCE 86-128, 
recognized the benefits to Plans of permitting Plan fiduciaries to 
obtain certain brokerage services from affiliates of such fiduciaries. 
However, PTCE 86-128 defines an ``affiliate'' of a person to include, 
among others, any person directly or indirectly controlling, controlled 
by, or under common control with such person. Therefore, as noted 
above, the applicant represents that the securities transactions for 
which an individual exemption is requested may fall outside the scope 
of relief provided by PTCE 86-128 because FACM holds only a minority 
ownership interest in PAS and may not be considered an ``affiliate'' 
within the meaning of the definition contained in PTCE 86-128. However, 
the applicant is concerned that FACM's minority ownership of PAS may 
give rise to a prohibited transaction if FACM were to engage in any of 
the transactions described in Section II of this proposed exemption.
    4. FACM requests this proposed exemption to permit it to engage in 
the

[[Page 70746]]

transactions described herein, each of which will meet the applicable 
conditions of PTCE 86-128, except that PAS would be an entity to which 
FACM holds a non-controlling, minority ownership interest. In this 
regard, neither FACM nor PAS will be a trustee (other than a 
nondiscretionary trustee) or an administrator of the Plan, or an 
employer any of whose employees are covered by the Plan, except in a 
case where FACM returns or credits to the Plan all profits earned by 
FACM in connection with the securities transactions associated with the 
covered transaction.
    5. Except in certain limited circumstances, all covered 
transactions will be performed under a written authorization executed 
in advance by a fiduciary of each Plan whose assets are involved in the 
transaction, which Plan fiduciary is independent of FACM, PAS, and 
their affiliates.
    If FACM engages in a covered transaction on behalf of a Pooled 
Fund, the arrangement under which the covered transaction is performed 
will be subject to the prior and continuing authorization of a plan 
fiduciary, with respect to each Plan whose assets are invested in the 
Pooled Fund, who is independent of FACM. However, the requirement that 
the authorizing fiduciary be independent of FACM shall not apply in the 
case of a Plan covering only employees of FACM (a FACM Plan), if 
certain requirements are met. In this regard, FACM must be an 
``investment manager,'' as defined in section 3(38) of the Act, for the 
FACM Plan, and must either (i) Return or credit to the Pooled Fund all 
profits earned by FACM in connection with all covered transactions 
engaged in by FACM on behalf of the Pooled Fund, or (ii) satisfy 
certain additional requirements with respect to the Fund. Such 
additional requirements state that a Pooled Fund with assets of a FACM 
Plan may take advantage of the relief provided herein for covered 
transactions for a fiscal year of the Fund if:
    (A) On the first day of such fiscal year, and immediately following 
each acquisition of an interest in the Pooled Fund during the fiscal 
year by any FACM Plan, the aggregate fair market value of the interests 
in such Fund of all FACM Plans does not exceed twenty (20) percent of 
the fair market value of the total assets of the Fund; and
    (B) the aggregate brokerage commissions received by FACM, in 
connection with covered transactions engaged in by FACM on behalf of 
all Pooled Funds in which a FACM Plan participates, do not exceed five 
(5) percent of the total brokderage commissions received by FACM from 
all sources in such fiscal year.
    6. With respect to any Pooled Fund, the authorizing Plan fiduciary 
will be furnished with any reasonably available information that FACM 
believes to be necessary to determine whether an authorization to 
engage in the covered transactions should be given or continued. This 
information must be furnished not less than 30 days prior to 
implementation of the arrangement, or any material change to such 
arrangement. Such information must include (but not be limited to) a 
description of FACM's brokerage placement practices, and any reasonably 
available information regarding the matter upon the request of the 
authorizing Plan fiduciary at any time.
    In the event an authorizing Plan fiduciary submits a notice in 
writing to FACM objecting to the implementation of, a material change 
in, or continuation of, the arrangement, the Plan on whose behalf the 
objection was tendered will be given the opportunity to terminate its 
investment in the Pooled Fund, without penalty to the Plan, within such 
time as may be necessary to effect the withdrawal in an orderly manner 
that is equitable to all withdrawing Plans and to the non-withdrawing 
Plans. In the case of a Plan that elects to withdraw, the withdrawal 
will be effected prior to the implementation of, or material change in, 
the arrangement. However, an existing arrangement need not be 
discontinued by reason of a Plan electing to withdraw.
    In the case of a Plan whose assets are proposed to be invested in 
the Pooled Fund subsequent to the implementation of the arrangement, 
and such Plan has not previously authorized the arrangement, the Plan's 
investment in the Pooled Fund will be subject to the prior written 
authorization of an authorizing Plan fiduciary who is independent of 
FACM and its affiliates.
    7. All authorizations for covered transactions will be terminable 
at will by the Plan, without penalty to the Plan, upon receipt by FACM 
of written notice of termination. A form expressly providing an 
election to terminate the authorization (Termination Form), with 
instructions on the use of the form, must be supplied to the 
authorizing fiduciary no less than annually. The instructions for the 
Termination Form must include the following information:
    (1) The authorization is terminable at will by the Plan, without 
penalty to the Plan, upon receipt by FACM of written notice from the 
authorizing fiduciary or other Plan official having authority to 
terminate the authorization; and
    (2) failure to return the form will result in the continued 
authorization of FACM to engage in the covered transactions on behalf 
of the Plan.
    Within three (3) months before an authorization is made, the 
authorizing Plan fiduciary will be furnished with any reasonably 
available information that FACM believes to be necessary for the 
authorizing fiduciary to determine whether the authorization should be 
made, including (but not limited to) a copy of this exemption (if 
granted), the Termination Form, a description of FACM's brokerage 
placement practices, and any other reasonably available information 
regarding the matter that the authorizing fiduciary requests.
    In addition, FACM will furnish the authorizing fiduciary with 
either:
    (1) A confirmation slip for each securities transaction underlying 
a covered transaction within ten (10) business days of the securities 
transaction containing the information described in Rule 10b-10(a)(1-7) 
under the Securities Exchange Act of 1934, 17 CFR 240.10b-10; or
    (2) At least once every three (3) months, and not later than 45 
days following the period to which it relates, a report disclosing:
    (A) A compilation of the information that would be provided to the 
Plan during the three-month period covered by the report;
    (B) The total of all securities transaction-related charges 
incurred by the Plan during such period in connection with such covered 
transactions; and
    (C) The amount of the securities transaction-related charges 
retained by FACM and the amount of such charges paid to other persons 
for execution or other services.
    For this purposes, the words ``incurred by the Plan'' shall be 
construed to mean ``incurred by the Pooled Fund'' when FACM engages in 
covered transactions on behalf of a Pooled Fund in which the Plan 
participates.
    8. The authorizing Plan fiduciary will be furnished with a summary 
of the information described in Paragraph 7 above at least once per 
year. This summary must be furnished within 45 days after the end of 
the period to which it relates, and must contain the following:
    (1) The total of all securities transaction-related charges 
incurred by the Plan during the period in connection with covered 
securities transactions;
    (2) The amount of the securities transaction-related charges 
retained by FACM and the amount of these charges

[[Page 70747]]

paid to other persons for execution or other services;
    (3) A description of FACM's brokerage placement practices, if such 
practices have materially changed during the period covered by the 
summary;
    (4) (i) A portfolio turnover ratio, calculated in a manner which is 
reasonably designed to provide the authorizing fiduciary with the 
information needed to assist in discharging its duty of prudence. These 
requirements will be met if the ``annualized portfolio turnover 
ratio,'' calculated in the manner described below, is contained in the 
summary;
    (ii) The ``annualized portfolio turnover ratio'' shall be 
calculated as a percentage of the Plan assets consisting of securities 
or cash over which FACM had discretionary investment authority, or with 
respect to which FACM rendered, or had any responsibility to render, 
investment advice (the ``portfolio'') at any time or times 
(``management period(s)'') during the period covered by the report. 
First, the ``portfolio turnover ratio'' (not annualized) must be 
obtained by dividing (A) the lesser of the aggregate dollar amounts of 
purchases or sales of portfolio securities during the management 
period(s) by (B) the monthly average of the market value of the 
portfolio securities during all management period(s). Such monthly 
average will be calculated by totaling the market values of the 
portfolio securities as of the beginning and end of each management 
period and as of the end of each month that ends within such period(s), 
and dividing the sum by the number of valuation dates so used. For 
purposes of this calculation, all debt securities whose maturities at 
the time of acquisition were one year or less will be excluded from 
both the numerator and the denominator.
    The ``annualized portfolio turnover ratio'' will be derived by 
multiplying the ``portfolio turnover ratio'' by an annualizing factor. 
The annualizing factor will be obtained by dividing (C) the number 
twelve (12) by (D) the aggregate duration of the management period(s) 
expressed in months (and fractions thereof).
    The information described above will not be required in any case 
where FACM or an affiliate has not exercised discretionary authority 
over trading in the Plan's account during the period covered by the 
report.
    For purposes of the above description of information to be included 
in any summary report, the words ``incurred by the Plan'' shall be 
construed to mean ``incurred by the Pooled Fund'' when FACM engages in 
covered transactions on behalf of a Pooled Fund in which the Plan 
participates.
    9. If the covered transaction is an agency cross transaction, 
certain additional conditions must also be satisfied, unless the person 
effecting or executing the transaction:
    (i) Does not render investment advice to any Plan for a fee within 
the meaning of section 3(21)(A)(ii) of the Act with respect to the 
transaction;
    (ii) Is not otherwise a fiduciary who has investment discretion 
with respect to any Plan assets involved in the transaction (see 29 CFR 
2510.3-21(d)); and
    (iii) Does not have the authority to engage, retain or discharge 
any person who is, or is proposed to be, a fiduciary regarding any such 
Plan assets.
    These additional conditions require that the information submitted 
to an authorizing Plan fiduciary include a statement to the effect 
that, with respect to any agency cross transactions, FACM will have a 
potentially conflicting division of loyalties and responsibilities 
regarding the parties to the transactions. In addition, the summary 
information furnished to authorizing Plan fiduciaries at least once per 
year must include a statement identifying the total number of agency 
cross transactions during the period covered by the summary, and the 
total amount of all commissions or other remuneration received or to be 
received from all sources by PAS in connection with those transactions 
during the period.
    With respect to any agency cross transaction, FACM may have the 
discretionary authority to act on behalf of, and/or provide investment 
advice to, either (A) one or more sellers or (B) one or more buyers 
with respect to a covered transaction, but not both.<SUP>23</SUP> Any 
agency cross transaction must be a purchase or sale for no 
consideration other than cash payment against prompt delivery of a 
security for which market quotations are readily available. The agency 
cross transaction must be executed or effected at a price that is at or 
between the independent bid and independent ask prices for the security 
prevailing at the time of the transaction.
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    \23\ The Department notes that no relief is being provided in 
this proposed exemption for agency cross transactions beyond that 
already provided in PTCE 86-128, under the conditions required 
therein.
    The Department notes further that cross-trading transactions 
could result in violations of one or more provisions of Part 4 of 
Title I of the Act. Section 406(b)(2) provides that a fiduciary may 
not act in any transaction involving a plan on behalf of a party (or 
represent a party) whose interests are adverse to the interests of 
the plan or the interests of its participants or beneficiaries. 
Where an investment manager has investment discretion with respect 
to both sides of a cross-trade of securities and at least one side 
is an employee benefit plan account, the Department has previously 
taken the position that a violation of section 406(b)(2) of the Act 
would occur (see Reich v. Strong Capital Management Inc., No. 96-C-
0669, USDC E.D. Wis. (June 6, 1996).
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    10. In summary, the applicant represents that the proposed 
transactions will meet the statutory criteria of section 408(a) of the 
Act because, among other things:
    (a) The Plans will be able to maximize their returns from engaging 
in securities transactions by improving the execution of such 
transactions, and paying lower brokerage commissions, by using broker-
dealers affiliated with FACM, the Plans' investment manager; and
    (b) The Plans will engage in the covered transactions under terms 
and conditions which are virtually identical to those required for 
transactions covered by PTCE 86-128.

FOR FURTHER INFORMATION CONTACT: Mr. E.F. Williams of the Department, 
telephone (202) 219-8194. (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

[[Page 70748]]

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 14th day of December, 1999.
Ivan Strasfeld,
Director of Exemption Determinations Pension and Welfare Benefits 
Administration, Department of Labor.
[FR Doc. 99-32753 Filed 12-16-99; 8:45 am]
BILLING CODE 4510-29-P