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
[[Page 57132]]
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).
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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