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Secretary of Labor Thomas E. Perez
Proposed Exemptions; Allfirst Bank, et al. [Notices] [10/22/1999]

EBSA (Formerly PWBA) Federal Register Notice

Proposed Exemptions; Allfirst Bank, et al. [10/22/1999]

[PDF Version]

Volume 64, Number 204, Page 57129-57154

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Application No. D-10706 et al.]

 
Proposed Exemptions; Allfirst Bank, et al.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

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

Written Comments and Hearing Requests

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

ADDRESSES: All written comments and request for a hearing (at least 
three copies) should be sent to the Pension and Welfare Benefits 
Administration, Office of Exemption Determinations, Room N-5649, U.S. 
Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C. 
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, N.W., Washington, D.C. 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.

Allfirst Bank, Located in Baltimore, Maryland

[Application No. D-10706]

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, August 10, 1990).
Section I--Proposed Exemption for Receipt of Fees
    If the exemption is granted, the restrictions of section 406(a) and 
406(b) 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 
(F) of the Code, shall not apply as of November 13, 1998, to the 
proposed receipt of fees by Allfirst from the ARK Funds, an open-end 
investment company registered under the Investment Company Act of 1940 
(the 1940 Act), for acting as an investment adviser for such Funds, as 
well as for providing other services to the ARK Funds which are 
``Secondary Services'' as defined in Section III(i), in connection with 
the investment by plans for which Allfirst serves as a fiduciary (the 
Client Plans) in shares of the ARK Funds, provided that the following 
conditions and the general conditions of Section II are met:
    (a) Each Client Plan satisfies either (but not both) of the 
following:
    (1) The Client Plan receives a cash credit of such Plan's 
proportionate share of all fees charged to the Funds by Allfirst for 
investment advisory services, including any investment advisory fees 
paid by Allfirst to third party sub-advisers, no later than the same 
day as the receipt of such fees by Allfirst. The crediting of all such 
fees to the Client Plans by Allfirst is audited by an independent 
accounting firm on at least an annual basis to verify the proper 
crediting of the fees to each Plan.
    (2) The Client Plan does not pay any Plan-level investment 
management fees, investment advisory fees, or similar fees to Allfirst 
with respect to any of the assets of such Plan which are invested in 
shares of any of the ARK Funds. This

[[Page 57130]]

condition does not preclude the payment of investment advisory or 
similar fees by the ARK Funds to Allfirst under the terms of an 
investment management agreement adopted in accordance with section 15 
of the 1940 Act, nor does it preclude the payment of fees for Secondary 
Services to Allfirst pursuant to a duly adopted agreement between 
Allfirst and the ARK Funds.
    (b) The price paid or received by a Client Plan for shares in a 
Fund is the net asset value per share at the time of the transaction, 
as defined in Section III(f), and is the same price which would have 
been paid or received for the shares by any other investor at that 
time.
    (c) Allfirst, including any officer or director of Allfirst, does 
not purchase or sell shares of the ARK Funds from or to any Client 
Plan.
    (d) No sales commissions are paid by the Client Plans in connection 
with the purchase or sale of shares of the ARK Funds, and no redemption 
fees are paid in connection with the sale of shares by the Client Plans 
to the ARK Funds.
    (e) For each Client Plan, the combined total of all fees received 
by Allfirst for the provision of services to a Client Plan, and in 
connection with the provision of services to the ARK Funds in which the 
Client Plan may invest, are not in excess of ``reasonable 
compensation'' within the meaning of section 408(b)(2) of the Act.
    (f) Allfirst does not receive any fees payable pursuant to Rule 
12b-1 under the 1940 Act in connection with the transactions.
    (g) The Client Plans are not employee benefit plans sponsored or 
maintained by Allfirst.
    (h) The Second Fiduciary receives, in advance of any initial 
investment by the Client Plan in a Fund, full and detailed written 
disclosure of information concerning the ARK Funds, including but not 
limited to:
    (1) A current prospectus for each Fund in which a Client Plan is 
considering investing;
    (2) A statement describing the fees for investment advisory or 
similar services, any secondary services as defined in Section III(i), 
and all other fees to be charged to or paid by the Client Plan and by 
the ARK Funds, including the nature and extent of any differential 
between the rates of such fees;
    (3) The reasons why Allfirst may consider such investment to be 
appropriate for the Client Plan;
    (4) A statement describing whether there are any limitations 
applicable to Allfirst with respect to which assets of a Client Plan 
may be invested in the ARK Funds, and if so, the nature of such 
limitations; and
    (5) Upon request of the Second Fiduciary, a copy of the proposed 
exemption and/or a copy of the final exemption, if granted, once such 
documents are published in the Federal Register.
    (i) After consideration of the information described above in 
paragraph (h), the Second Fiduciary authorizes in writing the 
investment of assets of the Client Plan in each particular Fund and the 
fees to be paid by such ARK Funds to Allfirst.
    (j) All authorizations made by a Second Fiduciary regarding 
investments in a Fund and the fees paid to Allfirst are subject to an 
annual reauthorization wherein any such prior authorization referred to 
in paragraph (i) shall be terminable at will by the Client Plan, 
without penalty to the Client Plan, upon receipt by Allfirst of written 
notice of termination. A form expressly providing an election to 
terminate the authorization described in paragraph (i) above (the 
Termination Form) with instructions on the use of the form must be 
supplied to the Second Fiduciary no less than annually--provided that 
the Termination Form need not be supplied to the Second Fiduciary 
pursuant to this paragraph sooner than six months after such 
Termination Form is supplied pursuant to paragraph (l) below, except to 
the extent required by such paragraph in order to disclose an 
additional service or fee increase. The instructions for the 
Termination Form must include the following information:
    (1) The authorization is terminable at will by the Client Plan, 
without penalty to the Client Plan, upon receipt by Allfirst of written 
notice from the Second Fiduciary; and
    (2) Failure to return the Termination Form will result in continued 
authorization of Allfirst to engage in the transactions described in 
paragraph (i) on behalf of the Client Plan.
    (k) For each Client Plan using the fee structure described in 
paragraph (a)(1) above with respect to investments in a particular 
Fund, the Second Fiduciary of the Client Plan receives full written 
disclosure in a Fund prospectus or otherwise of any increases in the 
rates of fees charged by Allfirst to the ARK Funds for investment 
advisory services.
    (l)(1) For each Client Plan using the fee structure described in 
paragraph (a)(2) above with respect to investments in a particular 
Fund, an increase in the rate of fees paid by the Fund to Allfirst 
regarding any investment management services, investment advisory 
services, or similar services that Allfirst provides to the Fund over 
an existing rate for such services that had been authorized by a Second 
Fiduciary in accordance with paragraph (i) above; or
    (2) For any Client Plan under this proposed exemption, an addition 
of a Secondary Service (as defined in Section III(i) below) provided by 
Allfirst to the Fund for which a fee is charged, or an increase in the 
rate of any fee paid by the ARK Funds to Allfirst for any Secondary 
Service that results either from an increase in the rate of such fee or 
from the decrease in the number of kind of services performed by 
Allfirst for such fee over an existing rate for such Secondary Service 
which had been authorized by the Second Fiduciary of a Client Plan in 
accordance with paragraph (i) above;
    Allfirst will, at least 30 days in advance of the implementation of 
such additional service for which a fee is charged or fee increase, 
provide a written notice (which may take the form of a proxy statement, 
letter, or similar communication that is separate from the prospectus 
of the Fund and that explains the nature and amount of the additional 
service for which a fee is charged or of the increase in fees) to the 
Second Fiduciary of the Client Plan. Such notice shall be accompanied 
by a Termination Form with instructions as described in paragraph (i) 
above.
    (m) On an annual basis, Allfirst provides the Second Fiduciary of a 
Client Plan investing in the ARK Funds with:
    (1) A copy of the current prospectus for the ARK Funds in which the 
Client Plan invests and, upon such fiduciary's request, a copy of the 
Statement of Additional Information for such ARK Funds which contains a 
description of all fees paid by the ARK Funds to Allfirst;
    (2) A copy of the annual financial disclosure report prepared by 
Allfirst which includes information about the Fund portfolios as well 
as audit findings of an independent auditor within 60 days of the 
preparation of the report; and
    (3) Oral or written responses to inquiries of the Second Fiduciary 
as they arise.
    (n) With respect to each of the ARK Funds in which a Client Plan 
invests, in the event such Fund places brokerage transactions with 
Allfirst, Allfirst will provide the Second Fiduciary of such Plan at 
least annually with a statement specifying:
    (1) The total, expressed in dollars, of brokerage commissions of 
each Fund that are paid to Allfirst by such Fund;
    (2) The total, expressed in dollars, of brokerage commissions of 
each Fund

[[Page 57131]]

that are paid by such Fund to brokerage firms unrelated to Allfirst;
    (3) The average brokerage commissions per share, expressed as cents 
per share, paid to Allfirst by each Fund; and
    (4) The average brokerage commissions per share, expressed as cents 
per share, paid by each Fund to brokerage firms unrelated to Allfirst.
    (o) All dealings between the Client Plans and the ARK Funds are on 
a basis no less favorable to the Plans than dealings with other 
shareholders of the ARK Funds.
Section II--General Conditions
    (a) Allfirst maintains for a period of six years the records 
necessary to enable the persons described below in paragraph (b) to 
determine whether the conditions of this exemption have been met, 
except that (1) a prohibited transaction will not be considered to have 
occurred if, due to circumstances beyond the control of Allfirst, the 
records are lost or destroyed prior to the end of the six-year period, 
and (2) no party in interest other than Allfirst shall be subject to 
the civil penalty that may be assessed under section 502(i) of the Act 
or to the taxes imposed by section 4975(a) and (b) of the Code if the 
records are not maintained or are not available for examination as 
required by paragraph (b) below.
    (b)(1) Except as provided below in paragraph (b)(2) and 
notwithstanding any provisions of section 504(a)(2) of the Act, the 
records referred to in paragraph (a) are unconditionally available at 
their customary location for examination during normal business hours 
by--
    (i) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service,
    (ii) Any fiduciary of the Client Plans who has authority to acquire 
or dispose of shares of the ARK Funds owned by the Client Plans, or any 
duly authorized employee or representative of such fiduciary, and
    (iii) Any participant or beneficiary of the Client Plans or duly 
authorized employee or representative of such participant or 
beneficiary;
    (2) None of the persons described in paragraph (b)(1)(ii) and (iii) 
shall be authorized to examine trade secrets of Allfirst, or commercial 
or financial information which is privileged or confidential.
Section III--Definitions
    For purposes of this proposed exemption:
    (a) The term ``Allfirst'' means Allfirst Bank, and any affiliate 
thereof as defined below in paragraph (c)(1) of this section, effective 
as of June 28, 1999, the date the First National Bank of Maryland 
(First Maryland) changed its name to Allfirst Bank.
    (b) The term ``First Maryland'' refers to First National Bank of 
Maryland, and any affiliate thereof as defined below in paragraph 
(c)(1) of this section, prior to June 28, 1999.
    (c) An ``affiliate'' of a person includes:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person;
    (2) Any officer, director, employee, relative, or partner in any 
such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (d) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (e) The term ``Fund'' or ``ARK Funds'' shall include the ARK Funds, 
Inc. or any other diversified open-end investment company or companies 
registered under the 1940 Act for which Allfirst serves as an 
investment adviser and may also serve as a custodian, dividend 
disbursing agent, shareholder servicing agent, transfer agent, Fund 
accountant, or provide some other ``Secondary Service'' (as defined 
below in paragraph (i) of this Section) which has been approved by such 
ARK Funds.
    (f) The term ``net asset value'' means the amount for purposes of 
pricing all purchases and sales calculated by dividing the value of all 
securities, determined by a method as set forth in the Fund's 
prospectus and Statement of Additional Information, and other assets 
belonging to the Fund or portfolio of the Fund, less the liabilities 
charged to each such portfolio or Fund, by the number of outstanding 
shares.
    (g) The term ``relative'' means a ``relative'' as that term is 
defined in section 3(15) of the Act (or a ``member of the family'' as 
that term is defined in section 4975(e)(6) of the Code), or a brother, 
a sister, or a spouse of a brother or a sister.
    (h) The term ``Second Fiduciary'' means a fiduciary of a Client 
Plan who is independent of and unrelated to Allfirst. For purposes of 
this exemption, the Second Fiduciary will not be deemed to be 
independent of and unrelated to Allfirst if:
    (1) Such fiduciary directly or indirectly controls, is controlled 
by, or is under common control with Allfirst;
    (2) Such fiduciary, or any officer, director, partner, employee, or 
relative of the fiduciary is an officer, director, partner or employee 
of Allfirst (or is a relative of such persons);
    (3) Such fiduciary directly or indirectly receives any compensation 
or other consideration for his or her own personal account in 
connection with any transaction described in this proposed exemption.
    If an officer, director, partner or employee of Allfirst (or 
relative of such persons), is a director of such Second Fiduciary, and 
if he or she abstains from participation in (i) the choice of the 
Client Plan's investment adviser, (ii) the approval of any such 
purchase or sale between the Client Plan and the ARK Funds, and (iii) 
the approval of any change in fees charged to or paid by the Client 
Plan in connection with any of the transactions described in Section I 
above, then paragraph (h)(2) of this section shall not apply.
    (i) The term ``Secondary Service'' means a service other than an 
investment management, investment advisory, or similar service, which 
is provided by Allfirst to the ARK Funds, including but not limited to 
custodial, accounting, brokerage, administrative, or any other service.
    (j) The term ``Termination Form'' means the form supplied to the 
Second Fiduciary which expressly provides an election to the Second 
Fiduciary to terminate on behalf of a Client Plan the authorization 
described in paragraph (i) of Section I. Such Termination Form may be 
used at will by the Second Fiduciary to terminate an authorization 
without penalty to the Client Plan and to notify Allfirst in writing to 
effect a termination by selling the shares of the ARK Funds held by the 
Client Plan requesting such termination within one business day 
following receipt by Allfirst of the form; provided that if, due to 
circumstances beyond the control of Allfirst, the sale cannot be 
executed within one business day, Allfirst shall have one additional 
business day to complete such sale.

EFFECTIVE DATE: The proposed exemption, if granted, will be effective 
as of November 13, 1998, the date that Dauphin Deposit Bank and Trust 
Company ceased to exist as a separate bank as a result of its 
acquisition by First Maryland.

Summary of Facts and Representations

    1. Allfirst is currently a subsidiary of First Maryland Bancorp, a 
Maryland corporation and bank holding company registered under the Bank 
Holding Company Act of 1956. Prior to June 28, 1999, Allfirst was doing 
business under the name ``First National Bank of Maryland'' (i.e., 
First Maryland). The

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applicant represents that First Maryland changed its name to ``Allfirst 
Bank'' effective June 28, 1999. The applicant states that as of 
September 21, 1999, there have been no further name changes. Thus, all 
representations made by Allfirst are meant to apply to First Maryland 
for the period from November 13, 1998, the effective date of this 
proposed exemption, until June 28, 1999.
    First Maryland Bancorp serves, through its banking, trust company 
and investment management affiliates, as trustee, investment manager 
and/or custodian to employee benefit plans. As of December 31, 1997, 
these affiliates collectively provided trust services to approximately 
800 employee benefit trusts, and had total assets under management of 
approximately $16 billion. As of that date, First Maryland Bancorp had 
consolidated total assets of $17.8 billion.
    Prior to November 13, 1998, First Maryland Bancorp wholly-owned the 
following banks and trust companies: (i) The York Bank & Trust Company 
(a Pennsylvania-chartered bank, referred to hereafter as York Bank); 
(ii) First Omni Bank, N.A. (a national banking association); (iii) 
First National Bank of Maryland (a national banking association); (iv) 
Dauphin Deposit Bank & Trust Company (a Pennsylvania-chartered bank, 
acquired July 8, 1997, referred to hereafter as ``Dauphin''); and (v) 
FMB Trust Company, N.A. (a non-depository trust company wholly-owned by 
First Maryland).
    Effective November 13, 1998, Dauphin and York Bank were merged into 
First Maryland. Following this merger, the trust and investment 
advisory business formerly conducted by Dauphin was conducted by First 
Maryland and its trust and investment advisory subsidiaries.
    First Maryland (i.e., Allfirst, as of June 28, 1999) also owns 
First Maryland Brokerage Corp., a brokerage firm, and Allied Investment 
Advisors, Inc. (Allied), a registered investment adviser that serves as 
investment adviser to the ARK Funds. As of June 30, 1998, Allied had 
assets under management of approximately $11.1 billion.
    First Maryland Bancorp is controlled by Allied Irish Banks, p.l.c., 
which owns 100% of First Maryland Bancorp's outstanding common stock.
    2. In 1996, Dauphin obtained a prohibited transaction exemption 
from the Department (see Prohibited Transaction Exemption (PTE) 96-45 
(61 FR 28244, June 4, 1996). Section I of PTE 96-45 permits the in-kind 
transfer of assets of plans for which Dauphin acted as a fiduciary (the 
Client Plans), other than plans established and maintained by Dauphin 
(Bank Plans), that were held in certain collective investment funds 
(CIFs) maintained by Dauphin, in exchange for shares of the Marketvest 
Funds, open-end investment companies registered under the 1940 Act, in 
situations where Dauphin acted as investment advisor for such Funds, as 
well as for providing certain ``secondary services'' to such Funds (as 
defined therein), in connection with the termination of such CIFs. 
Section II of PTE 96-45 permits the receipt of fees by Dauphin from the 
Marketvest Funds, or any other diversified open-end investment company 
registered under the 1940 Act for which Dauphin serves as an investment 
adviser, for acting as an investment adviser for such Funds as well as 
for providing other services to the Funds which are ``secondary 
services'' (as defined therein), in connection with the investment by 
the Client Plans in shares of such Funds.
    In July 1997, Dauphin became a subsidiary of First Maryland, and in 
March 1998, the Marketvest Funds were merged into First Maryland's 
family of mutual funds. Dauphin ceased to exist as a separate bank as 
of November 13, 1998. Therefore, First Maryland requested a new 
exemption to enable it to obtain exemptive relief similar to the relief 
granted by the Department to Dauphin in Section II of PTE 96-45 for the 
receipt of fees by Dauphin from the Marketvest Funds. With respect to 
the relief provided to Dauphin in Section I of PTE 96-45, it should be 
noted that the Department granted a class exemption in August 1997 for 
collective investment fund conversion transactions (see PTE 97-41, 62 
FR 42830, August 8, 1997). Thus, the relief provided to Dauphin in PTE 
96-45, Section I, for in-kind transfers of CIF assets to Funds, would 
be available under PTE 97-41 to First Maryland as of November 13, 1998, 
and is available to Allfirst as of June 28, 1999, if the conditions of 
that class exemption are met.
    However, First Maryland (i.e., Allfirst), like Dauphin and as the 
acquirer of Dauphin's business, serves a number of employee benefit 
plan clients in the capacity of trustee, investment manager, and/or 
custodian. The assets of some of these plans are investment in the ARK 
Funds, a series of mutual fund portfolios advised by an affiliate of 
Allfirst, as discussed further below. As a result, this proposed 
exemption concerns the relief needed by First Maryland, as of November 
13, 1998, and Allfirst, as of June 28, 1999, for the receipt of fees by 
such entities from the ARK Funds for investment advisory and other 
services to such Funds.
    3. As noted above, Allfirst acts as a trustee, directed trustee, 
investment manager, and/or custodian for a number of plans (referred to 
herein as ``the Client Plans''). The Client Plans may include various 
pension, profit sharing, and stock bonus plans, as well as voluntary 
employees' beneficiary associations, supplemental unemployment benefit 
plans, simplified employee benefit plans, retirement plans for self-
employed individuals (i.e. Keogh Plans) and individual retirement 
accounts (IRAs). Some of the Client Plans may be participant-directed 
individual account plans.
    As custodian of a Client Plan, Allfirst is responsible for 
maintaining custody over all or a portion of the Client Plan's assets, 
for providing trust accounting and valuation services, for asset and 
transaction reporting, and for execution and settlement of directed 
transactions. Where Allfirst serves as trustee or directed trustee, it 
is responsible for ownership of the assets of the Client Plan, and may 
provide additional trust services such as benefit payments, loan 
processing, and participant accounting. Where Allfirst is also acting 
as the investment manager, Allfirst has investment discretion over the 
Client Plan's assets and is responsible for implementing the Plan's 
funding policies and investment objectives, executing transactions, and 
periodic performance measurements.
    The Client Plans pay fees in accordance with fee schedules 
negotiated with Allfirst. Fees vary from fixed amounts to asset-based 
amounts, depending on the level of services provided, and may include 
further charges for additional trust services such as processing 
benefit payments.
    The specific Client Plans of Allfirst to which this proposed 
exemption, if granted, would apply are those whose assets were invested 
in the ARK Funds as of November 13, 1998, those whose assets have been 
invested in such Funds since that date, and those whose assets will be 
invested in such Funds in the future. However, Allfirst does not seek 
relief for investments in the Funds by any employee benefit plans 
established and maintained by Allfirst for its own employees (Allfirst 
Plans).<SUP>1</SUP>
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    \1\ Allfirst represents that it will comply with the 
requirements of Prohibited Transaction Exemption (PTE) 77-3, 42 FR 
18734 (April 8, 1977), with respect to any investments in the Funds 
made by the Allfirst Plans. PTE 77-3 permits the acquisition or sale 
of shares of a registered, open-end investment company by an 
employee benefit plan covering only employees of such investment 
company, employees of the investment adviser or principal 
underwriter for such investment company, or employees of any 
affiliated person (as defined therein) of such investment adviser or 
principal underwriter, provided certain conditions are met. The 
Department is expressing no opinion in this proposed exemption 
regarding whether any of the transactions with the Funds by the 
Allfirst Plans would be covered by PTE 77-3.

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[[Page 57133]]

    4. The ARK Funds are registered as an open-end investment company 
with the SEC under the 1940 Act. The ARK Funds consist of a series of 
investment portfolios (each a ``Fund'') representing distinct 
investment vehicles. Each ARK Fund will have its own prospectus or a 
joint prospectus with one or more other ARK Fund(s). The shares of each 
ARK Fund will represent a proportionate interest in the assets of that 
Fund.
    The overall management of the ARK Funds, including the negotiation 
of investment advisory contracts, will rest with each Fund's Board of 
Directors, more than a majority of whose members will be independent of 
Allfirst. The Board of Directors will be elected by the shareholders of 
the Funds. Allied, which is a wholly-owned subsidiary of Allfirst, 
serves as the investment adviser to each ARK Fund and will receive 
investment advisory fees from each Fund that will vary between 0.20% 
and 1.00% of the Fund's average net assets on an annual basis, 
depending on the particular Fund. However, these fees will be subject 
to voluntary waivers by Allfirst and initially will be no more than 
0.87% of the Fund's average net assets. FMB Trust Company, another 
First Maryland subsidiary, serves as custodian of the ARK Funds, for 
which it receives a custodial services fee and also provides sub-
administration services for a fee.
    The other service-providers to the Funds will be independent of and 
unaffiliated with Allfirst. Such service-providers currently will 
include: (i) The Fund Administrator, SEI Investments Mutual Fund 
Services; (ii) the Fund Distributor, SEI Investments Distribution Co.; 
and (iii) the Transfer Agent, SEI Investments Management Corporation. 
The ARK Funds also may pay shareholder servicing fees of up to 0.15% on 
certain classes of shares.
    The Funds will be able to charge a distribution fee of 0.25% of a 
Fund's average net assets, pursuant to Rule 12b-1 under the 1940 Act, 
for certain classes of shares. However, Allfirst represents that such 
12b-1 fees will not be charged to any class of shares invested in by 
the Client Plans. Therefore, Allfirst will not receive any fees payable 
pursuant to Rule 12b-1 under the 1940 Act in connection with the 
transactions covered by this proposed exemption.
    5. Allfirst is making the ARK Funds available to the Client Plans 
because it believes that there are material advantages to the Client 
Plans from the use of the ARK Funds, and Allfirst's customers are 
interested in having mutual funds available as investment vehicles for 
their employee benefit plan trust accounts. The ARK Funds are valued on 
a daily basis, which permits: (i) Immediate investment of Plan 
contributions in varied types of investments; (ii) greater flexibility 
in transferring assets from one type of investment to another; and 
(iii) daily redemption of investments for purposes of making 
distributions. In addition, information concerning the investment 
performance of the ARK Funds is available each day in newspapers of 
general circulation, which allow Client Plan sponsors and participants 
to monitor the performance of their investments on a daily basis. 
Furthermore, shares of the ARK Funds can be given to Client Plan 
participants in plan distributions, thus avoiding the expense and delay 
of liquidating plan investments and facilitating roll-overs into IRAs. 
At the present time, Allfirst expects that the Client Plans will be 
able to continue making direct purchases of ARK Fund shares for cash on 
an ongoing basis.
    Allfirst states that the price that will be paid or received by a 
Client Plan for shares in a Fund will be the net asset value per share 
at the time of the transaction, as defined in Section III(f), and will 
be the same price which will be paid or received for the shares by any 
other investor at that time. In addition, Allfirst states that no sales 
commissions or redemption fees will be charged in connection with the 
purchase or sale of Fund shares by the Client Plans.
    6. Prior to investing any Client Plan's assets in an ARK Fund, 
Allfirst will obtain the approval of a Second Fiduciary acting for the 
Client Plan. The Second Fiduciary generally will be the Client Plan's 
named fiduciary, trustee (if other than Allfirst), or the sponsoring 
employer. Allfirst will provide the Second Fiduciary with a current 
prospectus for the Fund and a written statement giving full disclosure 
of the fee structure under which either Allfirst's investment advisory 
and other fees will be credited back to the Client Plan or the Plan-
level investment management fees will be waived. The disclosure 
statement and the letter that precedes the disclosure statement will 
describe why Allfirst believes the investment of a Client Plan's assets 
in the ARK Funds may be appropriate. Allfirst states that these 
disclosures will be based on the requirements of PTE 77-4 (42 FR 18732, 
April 8, 1977).<SUP>2</SUP>
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    \2\ PTE 77-4, in pertinent part, permits the purchase and sale 
by an employee benefit plan of shares of a registered, open-end 
investment company when a fiduciary with respect to the plan is also 
the investment adviser for the investment company, provided that, 
among other things, the plan does not pay an investment management, 
investment advisory, or similar fee with respect to the plan assets 
invested in such shares for the entire period of such investment. 
Section II(c) of PTE 77-4 states that this condition does not 
preclude the payment of investment advisory fees by the investment 
company under the terms of an investment advisory agreement adopted 
in accordance with section 15 of the Investment Company Act of 1940. 
Section II(c) states further that this condition does not preclude 
payment of an investment advisory fee by the plan based on total 
plan assets from which a credit has been subtracted representing the 
plan's pro rata share of investment advisory fees paid by the 
investment company.
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    On the basis of such information, the Second Fiduciary will 
authorize Allfirst to invest the Client Plan's assets in the ARK Funds 
and to receive fees from the ARK Funds.
    7. Allfirst will charge investment advisory fees to the ARK Funds 
in accordance with the investment advisory agreements between Allfirst 
and the ARK Funds. These agreements will be approved by the independent 
members of the Board of Directors of the ARK Funds, in accordance with 
the applicable provisions of the 1940 Act, and any subsequent changes 
in the fees will have to be approved by such Directors. These fees also 
will not be increased without the approval of the shareholders of the 
affected ARK Funds. The fees will be paid monthly by the ARK Funds. In 
addition, FMB Trust Company, an affiliate of Allfirst, will charge fees 
for custody services, or other services, it will provide to the ARK 
Funds in accordance with a custodial services agreement and other 
agreements negotiated with the ARK Funds.
    Allfirst will avoid charging the Client Plans duplicative 
investment management fees by either: (a) Crediting the Client Plan's 
pro rata share of the Fund advisory fees back to the Client Plan; or 
(b) waiving any investment management fee for the Client Plan at the 
Plan-level.
    The ``crediting'' fee structure will be designed to preserve the 
negotiated fee rates of the Client Plans so as to minimize the impact 
of the change to the ARK Funds on a Client Plan's fees. Allfirst will 
charge a Client Plan its standard fees as applicable to the particular 
Client Plan for serving as trustee, directed trustee, investment 
manager, or custodian. At the beginning of each month, and in no event 
later than the same day as the payment of investment advisory fees by 
the ARK

[[Page 57134]]

Funds to Allfirst for the previous month, Allfirst will credit to each 
Client Plan in cash its proportionate share of all investment advisory 
fees charged by Allfirst to the ARK Funds for the previous month. The 
credit will include the Client Plan's share of any investment advisory 
fees paid by Allfirst to third party sub-advisors.
    Allfirst states that the credit will not include the custodial fees 
payable by the ARK Funds to FMB Trust Company, or any other affiliate 
of Allfirst who may serve in that capacity in the future, because 
custodial services rendered at the Fund-level will not be duplicative 
of any services provided directly to the Client Plan. The custodial 
services to the Fund will involve maintaining custody and providing 
reporting relative to the individual securities owned by the Fund. The 
services to the Client Plan will involve maintaining custody over all 
or a portion of the Client Plan's assets (which may include Fund 
shares, but not the assets underlying the Fund shares), providing trust 
accounting and participant accounting (if applicable), providing asset 
and transaction reporting, execution and settlement of directed 
transactions, processing benefit payments and loans, maintaining 
participant accounts, valuing plan assets, conducting non-
discrimination testing, preparing Forms 5500 and other required 
filings, and producing statements and reports regarding overall plan 
and individual participant holdings. Allfirst states that these trust 
services will be necessary regardless of whether the Client Plan's 
assets are invested in the ARK Funds. Thus, Allfirst represents that 
its proposed receipt of fees for both secondary services at the Fund-
level and trustee services at the Plan-level will not involve the 
receipt of ``double fees'' for duplicative services to the Client Plans 
because a Fund will be charged for custody and other services relative 
to the individual securities owned by the Fund, while a Client Plan 
will charged for the maintenance of Plan accounts reflecting ownership 
of the Fund shares and other assets.<SUP>3</SUP>
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    \3\ The Department notes that although certain transactions and 
fee arrangements are the subject of an administrative exemption, a 
Client Plan fiduciary must still adhere to the general fiduciary 
responsibility provisions of section 404 of the Act. Thus, the 
Department cautions the fiduciaries of the Client Plans investing in 
the ARK Funds that they will have an ongoing duty under section 404 
of the Act to monitor the services provided to the Client Plans to 
ensure that the fees paid by the Client Plans for such services are 
reasonable in relation to the value of the services provided. Such 
responsibilities will include determinations that the services 
provided are not duplicative and that the fees are reasonable in 
light of the level of services provided.
    The Department also notes that Allfirst, as a trustee and 
investment manager for a Client Plan in connection with the decision 
to invest Client Plan assets in the ARK Funds, will have a fiduciary 
duty to monitor all fees paid by a Fund to Allfirst, its affiliates, 
and third parties for services provided to the Fund to ensure that 
the totality of such fees will be reasonable and will not involve 
the payment of any ``double'' fees for duplicative services to the 
Fund by such parties.
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    Allfirst represents that for each Client Plan, the combined total 
of all fees it will receive directly and indirectly from the Client 
Plans for the provision of services to the Plans and/or to the ARK 
Funds will not be in excess of ``reasonable compensation'' within the 
meaning of section 408(b)(2) of the Act.<SUP>4</SUP>
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    \4\ The Department is expressing no opinion in this proposed 
exemption as to whether the fee arrangements discussed herein will 
comply with section 408(b)(2) of the Act and the regulations 
thereunder (see 29 CFR 2550.408b-2).
---------------------------------------------------------------------------

    8. Allfirst will maintain a system of internal accounting controls 
for the crediting of all fees to the Client Plans. In addition, 
Allfirst has retained the services of PricewaterhouseCoopers LLP (the 
Auditor), an independent accounting firm, to audit annually the 
crediting of fees to the Client Plans under this program. Such audits 
will provide independent verification of the proper crediting to the 
Client Plans.
    In its annual audit of the credit program, the Auditor will: (i) 
Review and test compliance with the specific operational controls and 
procedures established by Allfirst for making the credits; (ii) verify 
on a test basis the monthly credit factors transmitted to Allfirst by 
the ARK Funds; (iii) verify on a test basis the proper assignment of 
identification fields to the Client Plans; (iv) verify on a test basis 
the credits paid in total to the sum of all credits paid to each Client 
Plan; and (v) recompute, on a test basis, the amount of the credit 
determined for selected Client Plans and verify that the credit was 
made to the proper Client Plan account.
    In the event either the internal audit by Allfirst or the 
independent audit by the Auditor identifies an error made in the 
crediting of fees to the Client Plans, Allfirst will correct the error. 
With respect to any shortfall in credited fees to a Client Plan, 
Allfirst will make a cash payment to the Client Plan equal to the 
amount of the error plus interest paid at money market rates offered by 
Allfirst for the period involved. Any excess credits made to a Client 
Plan will be corrected by an appropriate deduction from the Client Plan 
account or reallocation of cash during the next payment period after 
discovery of the error to reflect accurately the amount of total 
credits due to the Client Plan for the period involved.
    9. Allfirst represents that the use of the ``crediting'' fee 
structure will be available for any investments made by Client Plans in 
the ARK Funds. The use of this fee structure must be approved prior to 
the Client Plan's initial investment in the ARK Funds by a Second 
Fiduciary acting for the Client Plan. The Second Fiduciary will receive 
full and detailed written disclosure of information concerning the ARK 
Funds in advance of any investment by the Client Plan in the ARK Funds, 
including the Fund prospectuses as well as a separate statement 
describing the crediting fee structure.
    After consideration of such information, the Second Fiduciary will 
authorize in writing the investment of assets of the Client Plan in one 
or more specified ARK Funds and the fees to be paid by the ARK Funds to 
Allfirst. In addition, the Second Fiduciary of each Client Plan 
invested in a particular Fund will receive full written disclosure, in 
a statement separate from the Fund prospectus, of any proposed 
increases in the rates of fees charged by Allfirst to the ARK Funds for 
secondary services which are above the rates reflected in the Fund 
prospectuses, at least thirty (30) days prior to the effective date of 
such increase.
    In the event that Allfirst provides an additional secondary service 
for which a fee is charged or there is an increase in the rate of fees 
paid by the ARK Funds to Allfirst for any secondary service, including 
any increase resulting from a decrease in the number or kind of 
services performed by Allfirst for such fees in connection with a 
previously authorized secondary service, Allfirst will, at least 30 
days in advance of the implementation of such additional service or fee 
increase, provide written notice to the Second Fiduciary explaining the 
nature and the amount of the additional service for which a fee will be 
charged or the nature and amount of the increase in fees of the 
affected Fund.<SUP>5</SUP> Such notice

[[Page 57135]]

will be made separate from the Fund prospectus and will be accompanied 
by a Termination Form. The Second Fiduciary also will receive full 
written disclosure in a Fund prospectus or otherwise of any increases 
in the rate of fees charged by Allfirst to the ARK Funds for investment 
advisory services, even though such fees will be credited to the 
investing Client Plans.
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    \5\ With respect to increases in fees, the Department notes that 
an increase in the amount of a fee for an existing secondary service 
(other than through an increase in the value of the underlying 
assets in the ARK Funds), or the imposition of a fee for a newly-
established secondary service, shall be considered an increase in 
the rate of such fees. However, in the event a secondary service fee 
has already been described in writing to the Second Fiduciary and 
the Second Fiduciary has provided authorization for the fee, and 
such fee was temporarily waived, no further action by Allfirst would 
be required in order for the Bank to receive such fee at a later 
time. Thus, for example, no further disclosure would be necessary if 
Allfirst had received authorization for a fee for custodial services 
from Plan investors and subsequently determined to waive the fee for 
a period of time in order to attract new investors but later charged 
the fee.
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    The authorizations made by a Second Fiduciary of any Client Plan 
will be terminable at will, without penalty to the Client Plan, upon 
receipt by Allfirst of written notice of termination. A form (the 
Termination Form) expressly providing an election to terminate the 
authorization, with instructions on the use of the form, will be 
supplied to the Second Fiduciary no less than annually. However, the 
Termination Form will not need to be supplied to the Second Fiduciary 
for an annual reauthorization sooner than six months after such 
Termination Form is supplied for an additional service or for an 
increase in fees (as discussed above), unless another Termination Form 
is required to disclose additional services or fee increases. The 
Termination Form will instruct the Second Fiduciary that the 
authorization is terminable at will by the Client Plan, without penalty 
to the Client Plan, upon receipt by Allfirst of written notice from the 
Second Fiduciary, and that failure to return the Termination Form will 
result in the continued authorization of Allfirst to engage in the 
subject transactions on behalf of the Client Plan.
    The Termination Form will be used to notify Allfirst in writing to 
effect a termination by selling the shares of the ARK Funds held by the 
Client Plan, requesting such termination within one business day 
following receipt by Allfirst of the form. If, due to circumstances 
beyond the control of Allfirst, the sale cannot be executed within one 
business day, Allfirst will be obligated to complete the sale within 
the next business day.
    10. Allfirst represents that for smaller Client Plans, the Fund-
level investment advisory fees generally do not exceed the Plan-level 
investment management fees, so that the Client Plan will not benefit 
from a Fund-level fee credit. In these cases, if the Second Fiduciary 
authorizes the fee structure, Allfirst will waive the Plan-level 
investment management fees that would otherwise be charged for the 
Client Plan's assets invested in the ARK Funds, so that the Plan-level 
fees will be offset and the Client Plan will pay only one investment 
management fee for those assets, at the Fund-level. This fee structure, 
which is one of the fee structures described in PTE 77-4, will ensure 
that Allfirst does not receive any additional investment management, 
advisory or similar fee as a result of investments in the ARK Funds by 
the Client Plans.
    Disclosures, approvals, and notifications with regard to any 
changes in fees or secondary services will be handled in the same 
manner as for the fee structure described in paragraph 10 above, with 
one exception. The exception is that notifications with regard to 
increases in rates of investment advisory fees for the ARK Funds will 
conform to the procedures for increases in rates of secondary service 
fees as described above. Therefore, in such instances, there will be 
prior written notification of the fee increase to the Second Fiduciary 
for the Client Plan and a Termination Form will be provided. The reason 
for the exception is that the total fees paid by the Client Plan, under 
this fee structure, will be directly affected by any increases in Fund-
level investment advisory fees because such fees will not be credited 
back to the Client Plan.
    11. Allfirst states that a Second Fiduciary will always receive a 
written statement giving full disclosure of the fee structures prior to 
any investment in the ARK Funds. The disclosure statement will explain 
why Allfirst believes that the investment of assets of the Client Plan 
in the ARK Funds may be appropriate. The disclosure statement also will 
describe whether there are any limitations on Allfirst with respect to 
which Client Plan assets may be invested in shares of the ARK Funds 
and, if so, the nature of such limitations.<SUP>6</SUP>
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    \6\ See section II(d) of PTE 77-4 which requires, in pertinent 
part, that an independent plan fiduciary receive a current 
prospectus issued by the investment company and a full and detailed 
written disclosure of the investment advisory and other fees charged 
to or paid by the plan and the investment company, including a 
discussion of whether there are any limitations on the fiduciary/
investment adviser with respect to which plan assets may be invested 
in shares of the investment company and, if so, the nature of such 
limitations.
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    12. On an annual basis, the Second Fiduciary of a Client Plan 
investing in the ARK Funds will receive copies of the current Fund 
prospectuses and, upon such fiduciary's request, a copy of the 
Statement of Additional Information for such ARK Funds, as well as 
copies of the annual financial disclosure reports containing 
information about the Fund and independent auditor findings.
    In addition, if the ARK Funds obtain brokerage services in the 
future from any broker-dealers that are affiliates of Allfirst, 
Allfirst will provide at least annually to the Second Fiduciary of 
Client Plans investing in the ARK Funds written disclosures indicating 
the following: (i) The total, expressed in dollars, of brokerage 
commissions of each Fund that are paid to Allfirst by such Fund; (ii) 
the total, expressed in dollars, of brokerage commissions of each Fund 
that are paid by such Fund to brokerage firms unrelated to Allfirst; 
(iii) the average brokerage commissions per share, expressed as cents 
per share, paid to Allfirst by each Fund portfolio; and (iv) the 
average brokerage commissions per share, expressed as cents per share, 
paid by each Fund portfolio to brokerage firms unrelated to Allfirst. 
All such brokerage services would be provided in accordance with 
section 17(e) of the 1940 Act and Rule 17e-1 thereunder. Such 
provisions require, among other things, that the commissions, fees, or 
other remuneration for any brokerage services provided by an affiliate 
of an investment company's investment adviser be reasonable and fair 
compared to what other brokers receive for comparable transactions 
involving similar securities.
    13. No sales commissions will be paid by the Client Plans in 
connection with the purchase or sale of shares of the ARK Funds. In 
addition, no redemption fees will be paid in connection with the sale 
of shares by the Client Plans to the ARK Funds. Allfirst states that it 
will not receive any fees payable pursuant to Rule 12b-1 under the 1940 
Act in connection with the transactions. Allfirst states further that 
all other dealings between the Client Plans and the ARK Funds will be 
on a basis no less favorable to the Client Plans than such dealings 
will be with the other shareholders of the ARK Funds.
    14. In summary, Allfirst represents that the transactions described 
herein will satisfy the statutory criteria of section 408(a) of the Act 
because: (a) The ARK Funds will provide the Client Plans with a more 
effective investment vehicle than collective investment ARK Funds 
maintained by Allfirst without any increase in investment management, 
advisory, or similar fees paid to Allfirst; (b) Allfirst will require 
annual audits by an independent accounting firm to verify the proper 
crediting to the Client Plans of investment advisory fees charged by 
Allfirst to the ARK Funds; (c) with respect to any investments in a 
Fund by the Client Plans and the payment of any fees by the Fund to 
Allfirst, a Second Fiduciary will receive full written disclosure of 
information concerning the Fund, including a current prospectus and a 
statement describing the fee structure, and will authorize in writing 
the investment of the Client

[[Page 57136]]

Plan's assets in the Fund and the fees paid by the Fund to Allfirst; 
(d) any authorizations made by a Client Plan regarding investments in a 
Fund and fees to be paid to Allfirst, or any increases in the rates of 
fees for secondary services which will be retained by Allfirst, will be 
terminable at will by the Client Plan, without penalty to the Client 
Plan, upon receipt by Allfirst of written notice of termination from 
the Second Fiduciary; (e) no commissions or redemption fees will be 
paid by the Client Plan in connection with either the acquisition of 
Fund shares or the sale of Fund shares; (f) Allfirst will not receive 
any fees payable pursuant to Rule 12b-1 under the 1940 Act in 
connection with the transactions; and (g) all dealings between the 
Client Plans and the ARK Funds will be on a basis which is at least as 
favorable to the Client Plans as such dealings are with other 
shareholders of the ARK Funds.

FOR FURTHER INFORMATION CONTACT: Mr. E.F. Williams or Ms. Karin Weng of 
the Department, telephone (202) 219-8194 or 219-8881, respectively. 
(These are not toll-free numbers.)

John Hancock Mutual Life Insurance Company (John Hancock), Located 
in Boston, Masachusetts

[Application No. D-10718]

Proposed Exemption

    Based on the facts and representations set forth in the 
application, the Department is considering granting an exemption under 
the authority of section 408(a) of the Act and in accordance with the 
procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 
32847, August 10, 1990).<SUP>7</SUP>
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    \7\ 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 exemption is granted, the restrictions of section 406(a) of 
the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(A) through (D) of the 
Code, shall not apply to: (1) The receipt of common stock of John 
Hancock Financial Services, Inc., the holding company for John Hancock 
(the Holding Company); or (2) the receipt of cash or policy credits, by 
or on behalf of any eligible policyholder (the Eligible Policyholder) 
of John Hancock which is an employee benefit plan (the Plan), subject 
to applicable provisions of the Act and/or the Code, other than certain 
Eligible Policyholders which are Plans maintained by John Hancock or an 
affiliate for their own employees (the John Hancock Plans), in exchange 
for such Eligible Policyholder's membership interest in John Hancock, 
in accordance with the terms of a plan of reorganization (the Plan of 
Reorganization) adopted by John Hancock and implemented pursuant to 
Chapter 175 of the Massachusetts General Laws.
    In addition, the restrictions of section 406(a)(1)(E) and (a)(2) 
and section 407(a)(2) of the Act shall not apply to the receipt or 
holding, by the John Hancock Plans, of employer securities in the form 
of excess Holding Company stock, in accordance with the terms of the 
Plan of Reorganization.
    This proposed exemption is subject to the conditions set forth 
below in Section II.
Section II--General Conditions
    (a) The Plan of Reorganization is implemented in accordance with 
procedural and substantive safeguards that are imposed under 
Massachusetts Insurance Law and is subject to review and supervision by 
the Massachusetts Commissioner of Insurance (the Commissioner).
    (b) The Commissioner reviews the terms of the options that are 
provided to Eligible Policyholders of John Hancock as part of such 
Commissioner's review of the Plan of Reorganization, and the 
Superintendent only approves the Plan of Reorganization following a 
determination that such Plan of Reorganization is fair and equitable to 
all Eligible Policyholders and is not detrimental to the public.
    (c) Both the Commissioner and the Superintendent concur on the 
terms of the Plan of Reorganization.
    (d) Each Eligible Policyholder has an opportunity to vote to 
approve the Plan of Reorganization after full written disclosure is 
given to the Eligible Policyholder by John Hancock.
    (e) One or more independent fiduciaries of a Plan that is an 
Eligible Policyholder receives Holding Company stock, cash or policy 
credits pursuant to the terms of the Plan of Reorganization and neither 
John Hancock nor any of its affiliates exercises any discretion or 
provides ``investment advice,'' as that term is defined in 29 CFR 
2510.3-21(c), with respect to such acquisition.
    (f) After each Eligible Policyholder is allocated 17 shares of 
Holding Company stock, additional consideration is allocated to 
Eligible Policyholders who own participating policies based on 
actuarial formulas that take into account each participating policy's 
contribution to the surplus of John Hancock which formulas have been 
approved by the Commissioner.
    (g) With respect to a John Hancock Plan, where the consideration 
may be in the form of Holding Company stock an independent Plan 
fiduciary --
    (1) Determines whether the Plan of Reorganization is in the best 
interest of the John Hancock Plans and their participants and 
beneficiaries.
    (2) Votes at the special meeting of Eligible Policyholders on the 
proposal to approve or not to approve the Plan of Reorganization.
    (3) If the vote is to approve the Plan or Reorganization,
    (i) Decides whether the affected John Hancock Plan should receive 
Holding Company stock or cash (should the latter option be available) 
and receives such consideration on behalf of the affected John Hancock 
Plan;
    (ii) Monitors, on behalf of the affected John Hancock Plan, the 
acquisition and holding of the shares of any Holding Company stock 
received;
    (iii) Makes determinations on behalf of the John Hancock Plan with 
respect to voting and the continued holding of the shares of Holding 
Company stock received by such Plan; and
    (iv) Disposes of any Holding Company stock held by the John Hancock 
Plan which exceeds the limitation of section 407(a)(2) of the Act as 
reasonably as practicable but in no event later than six months year 
following the effective date of the demutualization;
    (v) Takes all actions that are necessary and appropriate to 
safeguard the interests of the John Hancock Plans; and
    (vi) Provides the Department with a complete and detailed final 
report as it relates to the John Hancock Plans prior to the effective 
date of the demutualization.
    (h) All Eligible Policyholders that are Plans participate in the 
transactions on the same basis within their class groupings as other 
Eligible Policyholders that are not Plans.
    (i) No Eligible Policyholder pays any brokerage commissions or fees 
in connection with their receipt of Holding Company stock or in 
connection with the implementation of the commission-free sales and 
purchase programs.
    (j) All of John Hancock's policyholder obligations remain in force 
and are not affected by the Plan of Reorganization.
Section III--Definitions
    For purposes of this proposed exemption:
    (a) The term ``John Hancock'' means The John Hancock Mutual Life 
Insurance Company and any affiliate of John Hancock as defined in 
paragraph (b) of this Section III.

[[Page 57137]]

    (b) An ``affiliate'' of John Hancock includes --
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with John Hancock (For purposes of this paragraph, the term ``control'' 
means the power to exercise a controlling influence over the management 
or policies of a person other than an individual.);
    (2) Any officer, director or partner in such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director or a 5 percent partner or owner.
    (c) The term ``Eligible Policyholder'' means a policyholder whose 
name appears on the conversion date on John Hancock's records as the 
owner of a policy under which there is a right to vote and which, on 
both the December 31 immediately preceding the conversion date and the 
date the John Hancock's Board of Directors first votes to convert to 
stock form, is in full force for its full basic benefits with no unpaid 
premiums or consideration at the expiration of any applicable grace 
period, or which is being continued under a nonforfeiture benefit and 
continues to be eligible for participation in John Hancock's annual 
distribution of divisible surplus.
    (d) The term ``policy credit'' means: (1) For an individual or 
joint ordinary life insurance policy, an increase to the paid-up 
dividend addition value; and (2) for all other individual or joint life 
policies and annuities, (i) if the policy or contract has a defined 
account value, an increase in the account value, or (ii) if the policy 
or contract does not have a defined account value, an increase to the 
dividend accumulation fund.

Summary of Facts and Representations

    1. John Hancock is a mutual life insurance company organized under 
the laws of the Commonwealth of Massachusetts on April 18, 1862. As of 
December 31, 1998, John Hancock and its subsidiaries had total assets 
in excess of $76 billion and had approximately $310 billion of 
individual life insurance in force.
    John Hancock has a number of subsidiaries and affiliates that 
provide a variety of financial services, including investment 
management and brokerage services. John Hancock and its investment 
management subsidiaries had approximately $124.4 billion in assets 
under management as of December 31, 1998. As a mutual life insurance 
company, John Hancock has no stockholders. Instead, policyholders of 
John Hancock are ``members'' of the company and in that capacity, they 
are entitled to vote to elect the directors of the company and would be 
entitled to share in the assets of the company if it were liquidated.
    2. John Hancock and its affiliates provide a variety of fiduciary 
and other services to employee benefit plans covered under relevant 
provisions of the Act and the Code. By providing these services John 
Hancock may be considered a party in interest with respect to such 
Plans under section 3(14)(A) and (B) of the Act or the related 
derivative provisions. The services provided by John Hancock and its 
affiliates to Plans include plan administration, investment management 
and related services. Many of the Plans to which John Hancock provides 
services are also John Hancock policyholders. As of December 31, 1997 
(the most recent date such information is available), John Hancock had 
issued over 27,000 outstanding policies and contracts to employee 
pension and welfare benefit plans. These Plans include defined benefit 
pension plans, defined contribution plans (such as section 401(k) 
plans), and welfare benefit plans providing welfare benefit plan 
coverage such as group life, short- and long-term disability, 
accidental death and dismemberment and group health coverage.
    3. John Hancock and its affiliates also sponsor the following 
Plans, which are collectively referred to herein as ``the John Hancock 
Plans'':
    (a) The John Hancock Mutual Life Insurance Company Pension Plan 
(the Pension Plan) is a defined benefit pension plan that benefits the 
home office and the field employees of the company as well as its 
unionized managerial agents and employees of most of John Hancock's 
domestic subsidiaries. The trustee of the Pension Plan is Investors 
Bank & Trust Company (Investors). Investment decisions for the Pension 
Plan are made by either of two internal committees within John Hancock, 
i.e., the Directors' Employee Benefits Plan Committee or the Plan 
Investment Advisory Committee. As of December 31, 1998, the Pension 
Plan had approximately 26,818 participants and total assets of 
$2,056,832,491.
    (b) The Pension Plan for Personnel in the General Agencies of John 
Hancock Mutual Life Insurance Company (the GA Pension Plan) is a 
multiple employer, defined benefit pension plan that covers statutory 
employees of John Hancock's general agencies. The trustee of the GA 
Pension Plan is Investors. The decisionmakers with respect to 
investments for the GA Pension Plan are the two internal committees 
identified above in paragraph 3(a). As of December 31, 1997 (the most 
recent date such information is available), the GA Pension Plan had 
4,668 participants and total assets of $186,343,278.
    (c) The Investment-Incentive Plan for John Hancock Employees (TIP) 
is a section 401(k) profit sharing plan covering home office employees 
of John Hancock as well as certain domestic subsidiaries. The trustee 
of TIP is Investors. Because TIP is participant-directed and intended 
to qualify under section 404(c) of the Act, its investment options are 
selected by two internal committees within John Hancock. They are the 
Directors' Employee Benefits Plan Committee and the Savings Plan 
Investment Committee. As of December 31, 1998, TIP had 8,655 
participants and total assets of $848,545,190.
    (d) The John Hancock Savings and Investment Plan (SIP) is a section 
401(k) profit sharing plan covering unionized managerial agents of John 
Hancock as well as certain other employees in the managerial agency 
system. SIP shares the same trustee and decision-making committees as 
TIP. As of December 31, 1998, SIP had 2,145 participants and total 
assets of $135,847,910.
    (e) The John Hancock Mutual Life Insurance Company Employee Welfare 
Plan (the Employee Welfare Plan) is a welfare benefit plan maintained 
by John Hancock and its employees and those of its domestic 
subsidiaries. The Employee Welfare Plan provides health, life 
insurance, dental, vision, temporary and long-term disability, and 
long-term care coverage. The Employee Welfare Plan has 3 trustees, each 
of whom is an officer of John Hancock. Investment decisions for the 
non-insurance plan assets of the Employee Welfare Plan are made by the 
same investment committees as the Pension Plan described above in 
paragraph 3(a). As of December 31, 1997, the Employee Welfare Plan had 
17,148 participants (including beneficiaries of deceased participants) 
and total assets of $87,066,100.
    (f) The GA Association Employee Welfare Plan (the GA Employee 
Welfare Plan is a multiple employer welfare benefit plan maintained by 
John Hancock to enable General Agents who are members of the John 
Hancock General Agency Association to provide benefits to personnel who 
are common law or statutory employees of the general agencies. The GA 
Employee Welfare Plan, which provides health, life, long-term 
disability and voluntary accidental death and dismemberment benefits, 
I