[Federal Register Volume 65, Number 160 (Thursday, August 17, 2000)]
[Notices]
[Pages 50223-50245]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-20741]


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

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. L-10667, et al.]


Proposed Exemptions; Kwik-Copy Corporation Employees Welfare 
Benefit Plan and Trust (the Plan)

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

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

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

Written Comments and Hearing Requests

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

ADDRESSES: All written comments and request for a hearing (at least 
three copies) should be sent to the Pension and Welfare Benefits 
Administration, Office of Exemption Determinations, Room N-5649, U.S. 
Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210. Attention: Application No. ______, stated in each Notice of 
Proposed Exemption. The applications for exemption and the comments 
received will be available for public inspection in the Public 
Documents Room of the Pension and Welfare Benefits Administration, U.S. 
Department of Labor, Room N-5638, 200 Constitution Avenue, NW., 
Washington, DC 20210.

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all 
interested persons in the manner agreed upon by the applicant and the 
Department within 15 days of the date of publication in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and to request a hearing 
(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in 
applications filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990). 
Effective December 31, 1978, section 102 of Reorganization Plan No. 4 
of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of the 
Secretary of the Treasury to issue exemptions of the type requested to 
the Secretary of Labor. Therefore, these notices of proposed

[[Page 50224]]

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.

Kwik-Copy Corporation Employees Welfare Benefit Plan and Trust (the 
Plan), Located in Cypress Creek, TX

[Application No. L-10667]

Proposed Exemption

    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). If the exemption is granted, the restrictions 
of sections 406(a), 406(b)(1) and (b)(2) of the Act shall not apply to 
the cash sale by the Plan of certain recreational facilities (the 
Recreational Facilities) to the International Center for 
Entrepreneurial Development, Inc. (ICED), the parent of Kwik-Copy 
Corporation (Kwik-Copy),\1\ the Plan sponsor, and a party in interest 
with respect to the Plan.\2\
---------------------------------------------------------------------------

    \1\ Unless otherwise noted, Kwik-Copy and ICED are together 
referred to as the Applicants.
    \2\ Because the Plan is a voluntary employees' beneficiary 
association trust (VEBA), it is not qualified under section 401 of 
the Code. Therefore, there is no jurisdiction under Title II of the 
Act pursuant to section 4975 of the Code. However, the Department is 
assuming, for purposes of this proposal, that there is jurisdiction 
under Title I of the Act pursuant to section 3(1) of the Act.
---------------------------------------------------------------------------

    This proposed exemption is subject to the following requirements:
    (a) The proposed sale is a one-time transaction for cash.
    (b) The fair market value of the Recreational Facilities has been 
determined by qualified, independent appraisers who propose to update 
their valuation of the Recreational Facilities on the date of the sale.
    (c) On the date of the sale, the Plan receives an amount which is 
equal to the greater of the fair market value of the Recreational 
Facilities or the Plan's total acquisition costs.
    (d) The Plan pays no fees or commissions in connection with the 
proposed sale.

Summary of Facts and Representations

    1. The Plan was established by Kwik-Copy on February 25, 1983 to 
provide welfare benefits, such as health benefits and life insurance, 
to employee-participants of Kwik-Copy. The Plan constitutes a VEBA in 
which benefits are funded only when they are incurred. In this regard, 
employer contributions are immediately ``passed through'' to the Plan 
to pay current welfare benefits and there is no build-up of the trust 
corpus. As a VEBA, the Plan is exempt from taxation under section 
501(c)(9) of the Code \3\ and, as noted previously, it is not qualified 
under section 401(a) of the Code.\4\
---------------------------------------------------------------------------

    \3\ Section 501(c)(9) of the Code provides an exemption from 
federal taxation for a VEBA which provides for the payment of life, 
sick, accident, or other benefits to the members of such VEBA or 
their dependents or their designated beneficiaries, if no part of 
the net earnings of such association inures (other than through such 
payments) to the benefit of any private shareholder or individual.
    \4\ Section 401(a) of the Code sets forth the qualification 
requirements for pension, profit sharing and stock bonus plans and 
prescribes special rules thereunder.
---------------------------------------------------------------------------

    As of January 31, 2000, the Plan had 120 participants and net 
assets available for benefits of approximately $313,431. The persons 
who have investment discretion over the Plan's assets are F. C. 
Hadfield, Chairman of the Board of ICED, and Stephen B. Hammerstein, 
President of ICED. Both Messrs. Hadfield and Hammerstein also serve as 
the Plan trustees (the Trustees).
    2. Kwik-Copy, the Plan sponsor, is the franchiser of printing 
centers in various parts of the world. It conducts business under the 
principal trademarks ``Kwik Copy Printing'' and ``Kall Kwik Printing.'' 
Kwik-Copy assists individuals in acquiring and operating these printing 
centers. Kwik-Copy maintains its principal place of business at One 
Kwik-Copy Way, Cypress, Texas.
    3. ICED also maintains its principal place of business at One Kwik-
Copy Way, Cypress, Texas. Kwik-Copy is a wholly owned subsidiary of 
ICED. ICED is engaged in the business of franchising printing centers 
and other businesses.
    4. On April 26, 1984, the Plan entered into a written agreement 
(the License) with Kwik-Copy which entitled the Plan to use a portion 
of a tract of land that is adjacent to the Kwik-Copy's offices for 
recreational purposes.\5\ The entire tract of land is legally described 
as ``106.0936 acres of land out of the O.T. Taylor Survey, Abstract 
759, and the Alexander Burnett Survey, Abstract 109, Harris County, 
Texas.'' The land is located along the west line of Telge Road at 
Cypress Creek in Northwest Harris County, Cypress Creek, Texas, and is 
owned in its entirety by Kwik-Copy. The portion of the vacant land that 
was allocated to the Plan for purposes of the License consisted of 
0.4226 acres or 18,585 square feet.
---------------------------------------------------------------------------

    \5\ In a letter dated October 17, 1983 to the Internal Revenue 
Service regarding the Plan's tax-qualified status, one of the former 
Trustees, Mr. Joe A. Lambert, confirmed that Kwik-Copy would own the 
underlying land since property values in the Houston area had 
appreciated substantially and a sale of the underlying land to the 
Plan would have ultimately increased the cost of the Recreational 
Facilities that are described herein and reduced the amount of cash 
needed to provide other benefits to Plan participants.
---------------------------------------------------------------------------

    The initial term of the License was 10 years, which commenced on 
May 1, 1984 and ended on April 30, 1994. On May 1, 1994, the License 
was extended by the parties for an additional 10 year term, which will 
end on April 30, 2004. The current License term may also be extended 
again by the parties unless the Plan gives Kwik-Copy three months 
advance notice of its intention to terminate the License arrangement.
    Since its execution, the License has required the Plan to pay Kwik-
Copy $1.00 in annual consideration each January 1. However, no such 
payments have ever been made by the Plan.
    The License requires Kwik-Copy to keep the underlying property in 
good order, make all repairs and take such other actions as may be 
necessary or appropriate for the maintenance of such property. In 
addition, Kwik-Copy is required to keep the property insured and it has 
named both itself and the Plan as the insureds under such policy.
    4. Between 1984 and 1989, the Trustees had the Recreational 
Facilities constructed on the parcel of land that was subject to the 
License. The Recreational Facilities consist of a cafeteria, swimming 
pool and tennis courts, and they constitute the sole assets of the 
Plan. The Recreational Facilities were constructed in order to provide 
recreational benefits to participants pursuant to applicable provisions 
under the Plan.\6\ In this regard, section 8.16(a) of the Plan document 
expressly states that--
---------------------------------------------------------------------------

    \6\ The Department notes that section 404(a)(1) of the Act 
requires, among other things, that a fiduciary of a plan act 
prudently, and solely in the interest of the plan's participants and 
beneficiaries, and for the exclusive purpose of providing benefits 
to participants and beneficiaries. However, in this proposed 
exemption, the Department expresses no opinion on whether the Plan's 
investment in the Recreational Facilities has satisfied the 
requirements of section 404(a)(1) of the Act or has otherwise 
violated certain fiduciary responsibility provisions of Part 4 of 
Title I of the Act.

    Participants shall be entitled to the use of a recreation and 
vacation facility to be acquired or constructed by the Trustees 
within the State of Texas with Trust assets. Said facility, which 
shall be owned by the Trustees and subject to the Trustees' control 
and disposition, shall provide Participants with healthy activities 
of a nature tending to encourage relaxation and thus assist in 
combating fatigue by the Participants, thereby protecting against 
contingencies interrupting or impairing Participants' earning power. 
It is intended that said facility provide recreational benefits such 
as tennis

[[Page 50225]]

courts, swimming pool(s), a fishing pond, billiard and ping-pong 
---------------------------------------------------------------------------
tables, etc.

    5. The Trustees caused the Recreational Facilities to be 
constructed on behalf of the Plan based upon cash contributions that 
the Plan received from Kwik-Copy and for which Kwik-Copy took 
corresponding tax deductions. In this regard, Kwik-Copy contributed 
$505,434 to the Plan for the construction of the cafeteria building, 
$63,128 for the construction of the swimming pool and $22,714 for the 
construction of the tennis courts, thereby bringing the aggregate 
contribution to the Plan for the construction of the Recreational 
Facilities to $591,276. This total contribution for the Recreational 
Facilities was in addition to amounts that were contributed by Kwik-
Copy to the Plan for medical and life insurance benefits.
    The Plan has incurred no out-of-pocket expenses in connection with 
its ownership of the Recreational Facilities nor has it received any 
additional income. All maintenance expenses that are associated with 
the Recreational Facilities have been paid by Kwik-Copy.
    According to the Applicants, under Texas law, the Plan's title to 
the Recreational Facilities has not merged into the underlying real 
property owned by Kwik-Copy. Therefore, the Recreational Facilities 
have not become fixtures.\7\ Also, the Applicants represent that under 
applicable Treasury Regulations,\8\ the Recreational Facilities cannot 
revert to Kwik-Copy on the Plan's termination because the assets must 
be expended to provide benefits to Plan participants.
---------------------------------------------------------------------------

    \7\ The Applicants explain that Texas case law and not Texas 
statutory law governs whether property affixed to a parcel of land 
by a licensee remains the property of the licensee or becomes the 
property of the landowner upon the termination of the license. The 
Applicants represent that the general rule in Texas is that property 
affixed to the land of another under a license from the owner 
remains the personal property of the licensee, unless the licensee 
has intended otherwise. To illustrate this principle, the Applicants 
cite Wright v. McDonnell, 30 SW 907 (Tex. 1895), which involved 
buildings affixed to land.
    In addition, the Applicants note that the line of Texas cases 
pertaining to the issue of whether personalty has merged into the 
dominant estate have all involved a dispute between a landowner and 
a licensee as to the ownership of certain property at the end of the 
license. The Applicants indicate that, in the present case, there is 
no such dispute or claim to that effect because Kwik-Copy has agreed 
that it does not, and will not, own the affixed assets at the end of 
the License. Thus, the Applicants conclude that the intent of the 
parties is that the Recreational Facilities are personalty owned by 
the Plan.
    \8\ The last sentence of Treasury Regulations Section 
1.501(c)(9)-4(d) generally provides that if, upon termination of a 
VEBA, the VEBA's assets are distributed to its contributing 
employer, a prohibited inurement will exist and the VEBA will fail 
to qualify under section 501(c)(9) of the Code.
---------------------------------------------------------------------------

    6. During 1998, efforts were underway to sell either ICED or Kwik-
Copy to unrelated parties. Although there was no purchaser, the 
Applicants believe that this transaction could resurface at any time. 
Therefore, in the interim, the Applicants propose to have ICED purchase 
the Recreational Facilities from the Plan and hereby request an 
administrative exemption from the Department for such transaction. The 
Applicants represent that the sale proceeds will be used to satisfy 
future health claims of the participants until such amounts have been 
exhausted. Then, the Applicants contemplate terminating the Plan in 
order to facilitate the sale of Kwik-Copy's entire business premises, 
including the Recreational Facilities, to an unrelated party.
    7. The Recreational Facilities were initially appraised by Gary 
Brown, M.A.I., President of Gary Brown & Associates, Inc. of Houston, 
Texas. Mr. Brown is an independent fee appraiser who has been actively 
involved, among other things, in real property valuation, lease 
negotiations and rendering expert witness testimony. Mr. Brown is 
unrelated to Kwik-Copy, ICED and their principals.
    In an appraisal report dated February 15, 1998, Mr. Brown placed 
the fair market value of the Recreational Facilities in an ``as is'' 
condition at $280,000 as of February 3, 1998. In valuing the 
Recreational Facilities, Mr. Brown utilized the Cost Approach to 
valuation due to the ``special use'' nature of the Recreational 
Facilities, the fact that the Recreational Facilities are not 
replaceable through purchase or lease, and the lack of sales of 
comparable properties by which to assess fair market value. Mr. Brown 
also determined that the ``highest and best use'' of the Recreational 
Facilities was their ``value in use'' and that an individual component 
sale would result in a ``liquidation value'' for such properties.
    In an addendum to the appraisal report dated August 11, 1998, Mr. 
Brown again concluded that the fair market value of the Recreational 
Facilities was $280,000. He noted that the Recreational Facilities were 
an integral part of Kwik-Copy's world headquarters and that these 
structures could not stand alone as a separate economic unit. 
Therefore, Mr. Brown emphasized that the ``highest and best use'' of 
the Recreational Facilities was in conjunction with the other 
improvements comprising Kwik-Copy's property.
    In a full, updated appraisal report dated November 24, 1999, Mr. 
Brown and his colleague, Mr. Michael E. Gentry, Associate Appraiser, 
also a qualified, independent appraiser with Gary Brown & Associates, 
Inc., indicated that they had personally inspected the Recreational 
Facilities, conducted required investigations, gathered necessary data 
and analyzed the information in order to determine the appropriate fair 
market value. Messrs. Brown and Gentry noted that due to the specific 
use and design of the Recreational Facilities, it would take 
approximately 18 months to market the subject improvements to a limited 
number of potential purchasers. Therefore, on the basis of these 
findings, Messrs. Brown and Gentry placed the fair market value of the 
Recreational Facilities at $300,000 as of November 24, 1999, again 
using the Cost Approach to valuation.
    8. The Applicants contemplate that the proposed sales price for the 
Recreational Facilities will be equal to the greater of the 
independently appraised value of such improvements as of the date of 
the sale or their total acquisition cost. The consideration will be 
paid by ICED in cash. In addition, Messrs. Brown and Gentry will be 
required to update their valuation of the Recreational Facilities on 
the day the sale is consummated. Further, the Plan will not be required 
to pay any real estate fees or commissions in connection with such 
transaction.
    Thus, based upon the foregoing, because the $591,276 total cost for 
the Recreational Facilities is in excess of their $300,000 current fair 
market value, the Applicants state that ICED will pay the Plan the 
greater amount for such property.
    9. In summary, the Applicants represent that the proposed 
transaction will satisfy the statutory criteria for an exemption under 
section 408(a) of the Act because:
    (a) The proposed sale will be a one-time transaction for cash.
    (b) The fair market value of the Recreational Facilities has been 
determined by qualified, independent appraisers who will update their 
valuation of the Recreational Facilities on the date of the sale.
    (c) On the date of sale, the Plan will receive an amount which is 
equal to the greater of the fair market value of the Recreational 
Facilities or the Plan's total acquisition costs.
    (d) The Plan will pay no fees or commissions in connection with the 
proposed sale.

[[Page 50226]]

Notice to Interested Persons

    Notice of the proposed exemption will be provided to interested 
persons within 30 days after the publication of the proposed exemption 
in the Federal Register. Notice will be given to active employees of 
Kwik-Copy by hand delivery and by first class mail to each participant 
who is not actively working for Kwik-Copy. The notice will include a 
copy of the notice of proposed exemption, as published in the Federal 
Register, as well as a supplemental statement, as required pursuant to 
29 CFR 2570.43(b)(2), which shall inform interested persons of their 
right to comment on and/or to request a hearing with respect to the 
proposed exemption. Comments with respect to the proposed exemption are 
due within 60 days of the date of publication of the proposed exemption 
in the Federal Register.

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

DuPont Capital Management Corporation, Located in Wilmington, DE

[Exemption Application Nos.: D-10744 through D-10746]

Proposed Exemption

    The Department of Labor 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 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990).\9\
---------------------------------------------------------------------------

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

I. Transactions

    If the exemption is granted, the restrictions of section 
406(a)(1)(A) through (D) and the sanctions resulting from the 
application of section 4975 of the Code by reason of section 
4975(c)(1)(A) through (D), shall not apply to a transaction between a 
party in interest with respect to certain plans (the Former DuPont 
Related Plans), as defined in Section II(e), below, and an investment 
fund in which such plans have an interest (Investment Fund), as defined 
in Section II(k), below, provided that DuPont Capital Management 
Corporation (DCMC)has discretionary authority or control with respect 
to the plan assets involved in the transaction and the following 
conditions are satisfied:
    (a) DCMC is an investment adviser registered under the Investment 
Advisers Act of 1940 that has, as of the last day of its most recent 
fiscal year, total assets, including in-house plan assets (In-house 
Plan Assets), as defined in Section II(g), below, under its management 
and control in excess of $100 million and either:
    (1) shareholders' or partners equity, as defined in Section II(j), 
below, in excess of $750,000; or
    (2) payment of all its liabilities, including any liabilities that 
may arise by reason of a breach or violation of a duty described in 
sections 404 or 406 of the Act, is unconditionally guaranteed by--a 
person with a relationship to DCMC, as defined in Section II(a)(1), 
below, if DCMC and such affiliate have, as of the last day of their 
most recent fiscal year, shareholders' equity, in the aggregate, in 
excess of $750,000;
    (b) At the time of the transaction, as defined in Section II(m), 
below, the party in interest or its affiliate, as defined in Section 
II(a), below, does not have, and during the immediately preceding one 
(1) year has not exercised, the authority to--
    (1) Appoint or terminate DCMC as a manager of any of the Former 
DuPont Related Plans' assets, or
    (2) Negotiate the terms of the management agreement with DCMC 
(including renewals or modifications thereof) on behalf of the Former 
DuPont Related Plans;
    (c) The transaction is not described in--
    (1) Prohibited Transaction Class Exemption 81-6 (PTCE 81-6) \10\ 
(relating to securities lending arrangements);
---------------------------------------------------------------------------

    \10\ 46 FR 7527, January 23, 1981.
---------------------------------------------------------------------------

    (2) Prohibited Transaction Class Exemption 83-1 (PTCE 83-1) \11\ 
(relating to acquisitions by plans of interests in mortgage pools), or
---------------------------------------------------------------------------

    \11\ 48 FR 895, January 7, 1983.
---------------------------------------------------------------------------

    (3) Prohibited Transaction Class Exemption 82-87 (PTCE 82-87) \12\ 
(relating to certain mortgage financing arrangements);
---------------------------------------------------------------------------

    \12\ 47 FR 21331, May 18, 1982.
---------------------------------------------------------------------------

    (d) The terms of the transaction are negotiated on behalf of the 
Investment Fund by, or under the authority and general direction of, 
DCMC, and either DCMC, or (so long as DCMC retains full fiduciary 
responsibility with respect to the transaction) a property manager 
acting in accordance with written guidelines established and 
administered by DCMC, makes the decision on behalf of the Investment 
Fund to enter into the transaction;
    (e) At the time the transaction is entered into, and at the time of 
any subsequent renewal or modification thereof that requires the 
consent of DCMC, the terms of the transaction are at least as favorable 
to the Investment Fund as the terms generally available in arm's length 
transactions between unrelated parties;
    (f) Neither DCMC nor any affiliate thereof, as defined in Section 
II(b), below, nor any owner, direct or indirect, of a 5 percent (5%) or 
more interest in DCMC is a person who, within the ten (10) years 
immediately preceding the transaction, has been either convicted or 
released from imprisonment, whichever is later, as a result of:
    (1) any felony involving abuse or misuse of such person's employee 
benefit plan position or employment, or position or employment with a 
labor organization;
    (2) any felony arising out of the conduct of the business of a 
broker, dealer, investment adviser, bank, insurance company, or 
fiduciary;
    (3) income tax evasion;
    (4) any felony involving the larceny, theft, robbery, extortion, 
forgery, counterfeiting, fraudulent concealment, embezzlement, 
fraudulent conversion, or misappropriation of funds or securities; 
conspiracy or attempt to commit any such crimes or a crime in which any 
of the foregoing crimes is an element; or
    (5) any other crimes described in section 411 of the Act.
    For purposes of this Section I(f), a person shall be deemed to have 
been ``convicted'' from the date of the judgment of the trial court, 
regardless of whether the judgment remains under appeal;
    (g) The transaction is not part of an agreement, arrangement, or 
understanding designed to benefit a party in interest;
    (h) The party in interest dealing with the Investment Fund:
    (1) Is a party in interest with respect to the Former DuPont 
Related Plans (including a fiduciary) solely by reason of providing 
services to the Former DuPont Related Plans, or solely by reason of a 
relationship to a service provider described in section 
3(14)(F),(G),(H), or (I) of the Act;
    (2) Does not have discretionary authority or control with respect 
to the investment of plan assets involved in the transaction and does 
not render investment advice (within the meaning of 29 CFR Sec. 2510.3-
21(c)) with respect to those assets; and
    (3) Is neither DCMC nor a person related to DCMC, as defined in 
Section II(i), below;
    (i) DCMC adopts written policies and procedures that are designed 
to assure

[[Page 50227]]

compliance with the conditions of the exemption;
    (j) An independent auditor, who has appropriate technical training 
or experience and proficiency with the fiduciary responsibility 
provisions of the Act and who so represents in writing, conducts an 
exemption audit, as defined in Section II(f), below, on an annual 
basis. Following completion of the exemption audit, the auditor shall 
issue a written report to the Former DuPont Related Plans presenting 
its specific findings regarding the level of compliance with the 
policies and procedures adopted by DCMC in accordance with Section 
I(i), above, of this exemption; and
    (k)(1) DCMC or an affiliate maintains or causes to be maintained 
within the United States, for a period of six (6) years from the date 
of each transaction, the records necessary to enable the persons 
described in Section I(k)(2), below, to determine whether the 
conditions of this exemption have been met, except that (a) a 
prohibited transaction will not be considered to have occurred if, due 
to circumstances beyond the control of DCMC and/or its affiliates, the 
records are lost or destroyed prior to the end of the six (6) year 
period, and (b) no party in interest or disqualified person other than 
DCMC shall be subject to the civil penalty that may be assessed under 
section 502(i) of the Act, or to the taxes imposed by section 4975 (a) 
and (b) of the Code, if the records are not maintained, or are not 
available for examination as required by Section I(k)(2), below, of 
this exemption.
    (2) Except as provided in Section I(k)(3), below, of this 
exemption, and notwithstanding any provisions of subsections (a)(2) and 
(b) of section 504 of the Act, the records referred to in Section 
I(k)(1), above, of this exemption are unconditionally available for 
examination at their customary location during normal business hours 
by:
    (A) any duly authorized employee or representative of the 
Department or of the Internal Revenue Service;
    (B) any fiduciary of any of the Former DuPont Related Plans 
investing in the Investment Fund or any duly authorized representative 
of such fiduciary;
    (C) any contributing employer to any of the Former DuPont Related 
Plans investing in the Investment Fund or any duly authorized employee 
representative of such employer;
    (D) any participant or beneficiary of any of the Former DuPont 
Related Plans investing in the Investment Fund, or any duly authorized 
representative of such participant or beneficiary; and,
    (E) any employee organization whose members are covered by such 
Former DuPont Related Plans;
    (3) None of the persons described in Section I(k)(2)(B) through 
(E), above, of this exemption shall be authorized to examine trade 
secrets of DCMC or its affiliates or commercial or financial 
information which is privileged or confidential.

II. Definitions

    (a) For purposes of Section I (a) and (b), above, of this 
exemption, an ``affiliate'' of a person means--
    (1) Any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person,
    (2) Any corporation, partnership, trust, or unincorporated 
enterprise of which such person is an officer, director, 5 percent (5%) 
or more partner, or employee (but only if the employer of such employee 
is the plan sponsor), and
    (3) Any director of the person or any employee of the person who is 
a highly compensated employee, as defined in section 4975(e)(2)(H) of 
the Code, or who has direct or indirect authority, responsibility, or 
control regarding the custody, management, or disposition of plan 
assets. A named fiduciary, within the meaning of section 402(a)(2) of 
the Act, of a Plan, and an employer any of whose employees are covered 
by the plan, will be considered affiliates with respect to each other 
for purposes of Section I(b), if such employer or an affiliate of such 
employer has the authority, alone or shared with others, to appoint or 
terminate the named fiduciary or otherwise negotiate the terms of the 
named fiduciary's employment agreement.
    (b) For purposes of Section I(f), above, of this exemption, an 
``affiliate'' of a person means--
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person,
    (2) Any director of, relative of, or partner in, any such person,
    (3) Any corporation, partnership, trust, or unincorporated 
enterprise of which such person is an officer, director, or a 5 percent 
(5%) or more partner or owner, and
    (4) Any employee or officer of the person who--
    (A) Is a highly compensated employee (as defined in section 
4975(e)(2)(H) of the Code) or officer (earning 10 percent (10%) or more 
of the yearly wages of such person), or
    (B) Has direct or indirect authority, responsibility or control 
regarding the custody, management, or disposition of plan assets.
    (c) For purposes of Section II(e) and (g), below, of this exemption 
an ``affiliate'' of DCMC includes a member of either:
    (1) a controlled group of corporations, as defined in section 
414(b) of the Code, of which DCMC is a member, or
    (2) a group of trades or businesses under common control, as 
defined in section 414(c) of the Code, of which DCMC is a member; 
provided that ``50 percent'' shall be substituted for ``80 percent'' 
wherever ``80 percent'' appears in section 414(b) or 414(c) of the 
rules thereunder.
    (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) ``Former DuPont Related Plans'' mean:
    (1) CONSOL Inc. Employee Retirement Plan (the CONSOL Plan);
    (2) the Pension Plan for Consolidation Coal Company Local 5400 
Union Employees (the CONSOL Union Plan);
    (3) the Investment Plan for Salaried Employees of CONSOL, Inc. (the 
CONSOL DC Plan);
    (4) the Thrift Plan for Employees of Conoco, Inc. (the Conoco DC 
Plan);
    (5) any plan the assets of which include or have included assets 
that were managed by DCMC, as an in-house asset manager (INHAM), 
pursuant to Prohibited Transaction Class Exemption 96-23 (PTCE 96-23) 
\13\ but as to which PTCE 96-23 is no longer available because such 
assets are no longer held under a plan maintained by an affiliate of 
DCMC (as defined in Section II(c), above, of this exemption); and
---------------------------------------------------------------------------

    \13\ 61 FR 15975 (April 10, 1996).
---------------------------------------------------------------------------

    (6) any plan (the Add-On Plan) that is sponsored or becomes 
sponsored by an entity that was, but has ceased to be, an affiliate of 
DCMC (as defined in Section II(c), above, of this exemption); provided 
that: (A) The assets of the Add-On Plan are invested in a commingled 
fund (the Commingled Fund) with the assets of a plan or plans, 
described in Section II(e)(1)-(5), above; and (B) the assets of the 
Add-On Plan in the Commingled Fund do not comprise more than 25 percent 
(25%) of the value of the aggregate assets of such Fund, as measured on 
the day immediately following the commingling of their assets.
    (f) ``Exemption audit'' of any of the Former DuPont Related Plans 
must consist of the following:
    (1) A review of the written policies and procedures adopted by 
DCMC,

[[Page 50228]]

pursuant to Section I(i), above, of this exemption for consistency with 
each of the objective requirements of this exemption, as described in 
Section II(f)(5), below;
    (2) A test of a representative sample of the subject transactions 
in order to make findings regarding whether DCMC is in compliance with:
    (A) the written policies and procedures adopted by DCMC, pursuant 
to Section I(i), above, of this exemption; and
    (B) the objective requirements of this exemption;
    (3) A determination as to whether DCMC has satisfied the 
requirements of Section I(a), above, of this exemption;
    (4) Issuance of a written report describing the steps performed by 
the auditor during the course of its review and the auditor's findings; 
and
    (5) For purposes of Section II(f) of this exemption, the written 
policies and procedures must describe the following objective 
requirements of the exemption and the steps adopted by DCMC to assure 
compliance with each of these requirements:
    (A) the requirements of Section I(a), above, of this exemption 
regarding registration under the Investment Advisers Act of 1940, total 
assets under management, and shareholders' or partners' equity;
    (B) the requirements of Part I and Section I(d) of this exemption, 
regarding the discretionary authority or control of DCMC with respect 
to the asset of the Former DuPont Related Plans involved in the 
transaction, in negotiating the terms of the transaction, and with 
regard to the decision on behalf of the Former DuPont Related Plans to 
enter into the transaction;
    (C) the transaction is not entered into with any person who is 
excluded from relief under Section I(h)(1), above, of this exemption, 
Section I(h)(2) to the extent such person has discretionary authority 
or control over the plan assets involved in the transaction, or Section 
I(h)(3); and
    (D) the transaction is not described in any of the class exemptions 
listed in Section I(c), above, of this exemption.
    (g) ``In-house Plan Assets'' means the assets of any plan 
maintained by an affiliate of DCMC, as defined in Section II(c), above, 
of this exemption and with respect to which DCMC exercises 
discretionary authority or control.
    (h) The term, ``party in interest,'' means a person described in 
section 3(14) of the Act and includes a ``disqualified person,'' as 
defined in section 4975(e)(2) of the Code.
    (i) DCMC is ``related'' to a party in interest for purposes of 
Section I(h)(3) of this exemption, if the party in interest (or a 
person controlling, or controlled by, the party in interest) owns a 5 
percent (5%) or more interest in DCMC, or if DCMC (or a person 
controlling, or controlled by DCMC) owns a 5 percent (5%) or more 
interest in the party in interest.
    For purposes of this definition:
    (1) The term, ``interest,'' means with respect to ownership of an 
entity--
    (A) The combined voting power of all classes of stock entitled to 
vote or the total value of the shares of all classes of stock of the 
entity if the entity is a corporation,
    (B) The capital interest or the profits interest of the entity if 
the entity is a partnership; or
    (C) The beneficial interest of the entity if the entity is a trust 
or unincorporated enterprise; and
    (2) A person is considered to own an interest held in any capacity 
if the person has or shares the authority--
    (A) To exercise any voting rights or to direct some other person to 
exercise the voting rights relating to such interest, or
    (B) To dispose or to direct the disposition of such interest.
    (j) For purposes of Section I(a) of this exemption, the term, 
``shareholders' '' or ``partners'' equity,'' means the equity shown in 
the most recent balance sheet prepared within the two (2) years 
immediately preceding a transaction undertaken pursuant to this 
exemption, in accordance with generally accepted accounting principles.
    (k) ``Investment Fund'' includes a single customer and pooled 
separate account maintained by an insurance company, individual trust 
and common collective or group trusts maintained by a bank, and any 
other account or fund to the extent that the disposition of its assets 
(whether or not in the custody of DCMC) is subject to the discretionary 
authority of DCMC.
    (l) The term, ``relative,'' means a relative as that term is 
defined in section 3(15) of the Act, or a brother, sister, or a spouse 
of a brother or sister.
    (m) The ``time'' as of which any transaction occurs is the date 
upon which the transaction is entered into. In addition, in the case of 
a transaction that is continuing, the transaction shall be deemed to 
occur until it is terminated. If any transaction is entered into on or 
after the date when the grant of this exemption is published in the 
Federal Register or a renewal that requires the consent of DCMC occurs 
on or after such publication date and the requirements of this 
exemption are satisfied at the time the transaction is entered into or 
renewed, respectively, the requirements will continue to be satisfied 
thereafter with respect to the transaction. Nothing in this subsection 
shall be construed as exempting a transaction entered into by an 
Investment Fund which becomes a transaction described in section 406 of 
the Act or section 4975 of the Code while the transaction is 
continuing, unless the conditions of this exemption were met either at 
the time the transaction was entered into or at the time the 
transaction would have become prohibited but for this exemption. In 
determining compliance with the conditions of the exemption at the time 
that the transaction was entered into for purposes of the preceding 
sentence, Section I(h) of this exemption will be deemed satisfied if 
the transaction was entered into between a plan and a person who was 
not then a party in interest.

Temporary Nature of Exemption

    The Department has determined that the relief provided by this 
proposed exemption is temporary in nature. The exemption, if granted, 
will be effective upon the date the final exemption is published in the 
Federal Register and will expire on the day which is six (6) years from 
the date of such publication. Accordingly, the relief provided by this 
proposed exemption will not be available upon the expiration of such 
six-year period for any new or additional transactions, as described 
herein, after such date, but would continue to apply beyond the 
expiration of such six-year period for continuing transactions entered 
into within the six-year period. Should the applicant wish to extend, 
beyond the expiration of such six-year period, the relief provided by 
this proposed exemption to new or additional transactions, the 
applicant may submit another application for exemption.

Summary of Facts and Representations

    1. DCMC, a wholly owned subsidiary of DuPont, is organized as a 
Delaware corporation with its principal office in Wilmington, Delaware. 
DCMC is an investment adviser registered under the Investment Advisers 
Act of 1940. As of December 31, 1998, DCMC had total assets under its 
management with an aggregate market value of approximately $20.7 
billion. It is represented that DCMC either has shareholders' equity in 
excess of $750,000 or payment of all it liabilities, including any 
liabilities that may arise by reason of a breach or violation of a duty 
described in sections 404 or 406 of the Act, is unconditionally 
guaranteed by an affiliate of DCMC, as defined in Section II(a)(1) of 
this proposed exemption, if DCMC and such

[[Page 50229]]

affiliate have, as of the last day of their most recent fiscal year, 
shareholders' equity, in the aggregate, in excess of $750,000.
    DCMC provides investment management services to employee benefit 
plans, including plans sponsored by DuPont and its subsidiaries and 
affiliates (the DuPont Group), with respect to a spectrum of 
investments consisting primarily of domestic and international 
equities, fixed-income securities, and various alternative investments 
(including real estate, venture capital and commodity futures). DCMC 
primarily utilizes value-based investment strategies with the objective 
of achieving maximum return consistent with levels of risk suitable to 
each plan. In this regard, DCMC uses the services of investment 
professionals employed by DuPont Pension Fund Investment (DPFI), a 
division of DuPont.
    2. In July of 1997, DCMC replaced DPFI as investment manager for 
the assets of the DuPont Pension Trust Fund (the Trust). In this 
regard, DCMC represents that it qualified as an INHAM, as defined in 
section IV(a) of PTCE 96-23, and relied on the relief provided by that 
class exemption in connection with its management of the assets of the 
Trust.\14\ As of December 31, 1997, the value of the assets held by the 
Trust was approximately $17.7 billion.
---------------------------------------------------------------------------

    \14\ The Department expresses no opinion in this proposed 
exemption as to whether DCMC has met, or will continue to meet, the 
conditions necessary for relief under PTCE 96-23 for transactions 
with parties in interest with respect to the Trust, or whether DCMC 
qualifies or has qualified as an INHAM with regard to the management 
of the assets in the Trust.
---------------------------------------------------------------------------

    3. It is represented that CONSOL, Inc. (CONSOL) was a member of the 
DuPont Group prior to November 5, 1998. At that time, the Trust held 
the assets of the CONSOL Plan and the CONSOL Union Plan both of which 
are sponsored by CONSOL. As of December 31, 1997, approximately $184 
million of the assets held by the Trust related to the CONSOL Plan and 
approximately $759,000 related to the CONSOL Union Plan. On November 5, 
1998, DuPont divested substantially all of its holdings in CONSOL. As 
of March 3, 1999, the CONSOL Plan and the CONSOL Union Plan had 
approximately 6,703 and 44 participants and beneficiaries, 
respectively. Based on the success of DCMC's investment strategy and 
the long term experience with DCMC's investment professionals, as of 
June 1, 1999, CONSOL determined that it was in the best interest of the 
CONSOL Plan and the CONSOL Union Plan for DCMC to continue to manage 
the assets of such plans.\15\
---------------------------------------------------------------------------

    \15\ The Vice President for Human Resources of CONSOL represents 
that since 1988 the long term investment performance of DCMC and its 
predecessor, as manager of plan assets that were part of the Trust, 
compares favorably with other alternatives. In addition, the 
Director of Investment Services of DCMC represents that investment 
return on the Trust has exceeded the performance benchmark for seven 
of the eight years during the period since 1992.
---------------------------------------------------------------------------

    As a result of the divestiture of CONSOL, the relief provided to 
DCMC, as an INHAM, pursuant to PTCE 96-23, ceased to be available with 
respect to DCMC's management of the assets of the CONSOL Plan and 
CONSOL Union Plan, because under section IV(a)of PTCE 96-23, after the 
divestiture DCMC was no longer an affiliate of the employer maintaining 
such plans. The applicant represents that during the period since June 
1, 1999, DCMC has, in managing assets of the CONSOL Plan and the CONSOL 
Union Plan, investigated whether counterparties to proposed 
transactions involving the assets of such plans were parties in 
interest with respect to such plans. Further, DCMC has not authorized 
any such transactions with counterparties that were found to be parties 
in interest, unless a statutory or administrative exemption (other than 
PTCE 84-14 or PTCE 96-23) was available.
    It is represented that prior to 1999, Conoco, Inc. (Conoco), a 
wholly-owned subsidiary of DuPont was a member of the DuPont Group. 
Accordingly, at that time the Trust held the assets of a non-
contributory defined benefit plan (the DuPont Pension Plan) which 
covered substantially all of the employees of DuPont and its 
subsidiaries, including Conoco. Approximately 21,763 participants and 
beneficiaries of the DuPont Pension Plan were attributed to employees 
of Conoco and their beneficiaries. In September 1999, DuPont divested 
substantially all of its holdings in Conoco. On July 1, 2000, assets 
having a value of approximately $820,000,000 were transferred from the 
DuPont Pension Plan to a separate trust for the Retirement Plan of 
Conoco Inc. (The Conoco Plan), a qualified defined benefit pension plan 
covering substantially all of the employees of Conoco Inc. As a result 
of DuPont's divestiture of Conoco, the relief provided to DCMC, as an 
INHAM, pursuant to PTCE 96-23, ceased to be available with respect to 
DCMC's management of the assets of the Conoco Plan, because under PTCE 
96-23, as of September 1999, DCMC no longer is an affiliate of the 
employer maintaining such plan. It is represented that during the 
period since July 1, 2000, all steps necessary to avoid violations of 
the Act have been taken by the Conoco Plan.
    In addition to managing pension assets held in the Trust, DPFI, 
prior to 1997, also managed a portion of the assets of two defined 
contribution plans, the CONSOL DC Plan and the Conoco DC Plan. 
Subsequently, DCMC assumed the management of the assets of the CONSOL 
DC Plan and the Conoco DC Plan. It is represented that the assets of 
these plans have been managed by the same investment personnel both 
before and after the substitution of DCMC for DPFI. The investment 
management activities in the case of each of these plans involved the 
management of assets held in a fixed income fund that was one of the 
investment options available to participants in these plans. It is 
further represented that in managing the assets of the CONSOL DC Plan 
and the Conoco DC Plan, DCMC and DPFI have taken all steps necessary to 
avoid violations of the Act.
    With respect to the CONSOL DC Plan, the substitution of DCMC for 
DPFI did not occur until CONSOL had ceased to be an affiliate of 
Dupont. With respect to the Conoco DC Plan, DCMC began managing the 
assets of the plan at a time when Conoco was still an affiliate of 
DuPont. However, it is represented that the INHAM audits required, 
pursuant to PTCE 96-23, did not cover the Conoco DC Plan. Accordingly, 
DCMC never managed the assets of either the CONSOL DC Plan or the 
Conoco DC Plan, as an INHAM, pursuant to PTCE 96-23.
    Because the CONSOL DC Plan and the Conoco DC Plan were never 
managed by DCMC as an INHAM, these two plans do not fit within the 
definition of Former DuPont Related Plans, as set forth in Section 
II(e)(5) of this proposed exemption, nor does either plan fit within 
the definition of an Add On Plan, as set forth in this proposed 
exemption under Section II(e)(6). Therefore, the applicant has 
requested that the CONSOL DC Plan and the Conoco DC Plan be 
specifically included under the definition of Former DuPont Related 
Plans by listing each plan separately by name. The applicant believes 
that to the extent DCMC is appointed as an investment manager of the 
assets of the CONSOL DC Plan and the Conoco DC Plan, DCMC should have 
the same degree of flexibility in managing these assets as it will have 
with respect to the assets of the pension plans sponsored by CONSOL and 
Conoco which are also under the management of DCMC.
    4. DCMC seeks an exemption which would provide appropriate relief 
for any prospective transactions with certain

[[Page 50230]]

parties in interest (as described in Section I(h), above) in order to 
manage, after the divestiture of CONSOL, the assets of the CONSOL Plan, 
the CONSOL Union Plan, the CONSOL DC Plan, and after the divestiture of 
Conoco, to manage the assets of the Conoco Plan and the Conoco DC Plan, 
subject to the conditions discussed herein. Further, DCMC requests 
relief which would permit it to manage the assets of other Former 
DuPont Related Plans. In this regard, the Former DuPont Related Plans 
covered by this exemption include, in addition to those plans 
specifically mentioned above: (1) Any plan, the assets of which have 
been managed by DCMC, as an INHAM, but as to which PTCE 96-23 is no 
longer available because such plan is no longer maintained by an 
affiliate of DCMC; and (2) any Add-On Plan that is sponsored or becomes 
sponsored by an entity that was, but has ceased to be, an affiliate of 
DCMC; provided certain conditions, as set forth in this proposed 
exemption are satisfied.
    Given the large number of service providers with which the Former 
DuPont Related Plans engage, the breadth of the definition of ``party 
in interest'' under 3(14) of the Act, and the wide array of investment 
and related services offered by DCMC, it is represented that it would 
not be uncommon for DCMC, as investment manager, to propose 
transactions that involve parties in interest to one or more of the 
Former DuPont Related Plans. In this regard, the transactions for which 
DCMC seeks an exemption include, but are not limited to, sale and 
exchange transactions, leasing and other real estate transactions, 
foreign currency trading transactions, and transactions involving the 
furnishing of goods, services, and facilities. It is anticipated that 
relief will most likely be necessary where DCMC has discretion over 
investments in real estate, mortgages, foreign currency, futures, 
commodities and over-the-counter options, as there is no other class 
exemption which would permit DCMC, as investment manager, to purchase 
property from, sell or lease property to, or borrow money from most 
parties in interest to the Former DuPont Related Plans.
    Without the requested relief, DCMC would be unable to offer the 
full range of investment opportunities that were available to the 
Former DuPont Related Plans prior to divestiture, which could 
substantially reduce DCMC's overall effectiveness and adversely affect 
the Former DuPont Related Plans' investment returns. In the absence of 
the exemption, it would be necessary to examine each transaction to 
determine whether it might involve a party in interest.\16\ Such 
examinations could prove burdensome for DCMC because of the myriad of 
persons that may be parties in interest as service providers to large 
plans, such as the Former DuPont Related Plans. Moreover, it is 
represented that certain transactions which would be beneficial to the 
Former DuPont Related Plans might involve parties in interest and be 
prohibited, thereby depriving such plans of a potentially favorable 
investment opportunity.
---------------------------------------------------------------------------

    \16\ As noted above, DCMC has investigated since June 1, 1999, 
whether the counterparties to proposed transactions involving the 
assets of the CONSOL Plan and the CONSOL Union Plan were parties in 
interest with respect to such plans. Further, with respect to the 
Conoco Plan (since July 1, 2000), the CONSOL DC Plan, and the Conoco 
DC Plan, DCMC and DPFI have taken all steps necessary to avoid 
violations of the Act.
---------------------------------------------------------------------------

    5. The proposed exemption will be modeled after Prohibited 
Transaction Class Exemption 84-14 (PTCE 84-14),\17\ which, in general, 
permits various parties in interest with respect to an employee benefit 
plan to engage in a transaction involving plan assets, if the 
transaction is authorized by a qualified professional asset manager 
(QPAM) and if certain other conditions are met. Specifically, DCMC 
seeks an individual exemption for transactions that are described, 
pursuant to Part I of PTCE 84-14.\18\ In this regard, Part I of PTCE 
84-14 provides relief from the restrictions of section 406(a)(1)(A)-(D) 
of the Act and 4975(c)(1)(A)-(D) of the Code for transactions between a 
party in interest with respect to an employee benefit plan and an 
investment fund in which the plan has an interest and which is managed 
by a QPAM, provided certain conditions are satisfied. One such 
condition (the Diverse Clientele Test), as set forth in Part I(e) of 
PTCE 84-14, requires that:

    \17\ 49 FR 9494 (March 13, 1984), as amended, 50 FR 41430 
(October 10, 1985).
    \18\ DCMC is not requesting an administrative exemption for the 
transactions described in Part II, Part III, and Part IV of PTCE 84-
14.

    The transaction is not entered into with a party in interest 
with respect to any plan whose assets managed by QPAM, when combined 
with the assets of other plans established or maintained by the same 
employer (or affiliate thereof * * *) or by the same employee 
organization, and managed by the QPAM, represent more than 20 
percent of the total client assets managed by the QPAM at the time 
---------------------------------------------------------------------------
of the transaction.

    DCMC represents that, as of December 31, 1998, it met the 
definition of a QPAM, as set forth in Part V(a) of PTCE 84-14. With 
respect to the capitalization requirement, DuPont has agreed to 
unconditionally guarantee the payment of DCMC's liabilities, including 
any liabilities that may arise by reason of a breach or violation of a 
duty described in sections 404 or 406 of the Act, for any year that 
DCMC's shareholders' equity as of the last day of its preceding fiscal 
year falls below $750,000. Further, DCMC represents that it is an 
investment adviser registered under the Investment Advisers Act of 
1940. In order to be a QPAM, a registered investment adviser must, 
among other requirements, have as of the last day of its most recent 
fiscal year total client assets under its management and control in 
excess of $50 million. The proposed exemption would include ``In-house 
Plan Assets,'' as defined in Section II(g), in the calculation of total 
assets under DCMC's management for purposes of meeting the assets under 
management test required herein (see Section I(a), above). DCMC 
represents that it currently manages assets, including In-house Plan 
Assets with a value in excess of $100 million.
    In the absence of an individual exemption, DCMC is uncertain 
whether it would be deemed to satisfy the Diverse Clientele Test, as 
required for a QPAM to obtain relief for party in interest 
transactions, pursuant to PTCE 84-14 (see Part I(e) of PTCE 84-14). 
DCMC is concerned that the assets for which it serves as an INHAM are 
not ``client assets'' for purposes of serving as a QPAM for plan assets 
of Former DuPont Related Plans. In this regard, although DCMC manages 
the assets of the CONSOL Plan and CONSOL Union Plan which in the 
aggregate comprise substantially less than 20 percent (20%) of the 
total assets under its management, the remaining assets which DCMC 
manages consist entirely of plan assets for which DCMC acts as an 
INHAM. As a result, DCMC believes that the relief provided by PTCE 84-
14 may not be available for the transactions which are the subject of 
this exemption.\19\
---------------------------------------------------------------------------

    \19\ The Department expresses no opinion as to whether DCMC 
would qualify as a QPAM for purposes of PTCE 84-14 and Part I(e) 
following DuPont's divestiture of CONSOL and Conoco or with respect 
to any of the Former DuPont Related Plans or other unaffiliated 
plan.
---------------------------------------------------------------------------

    6. It is represented that the conditions of the proposed exemption 
provide safeguards for the protection of the rights of participants and 
beneficiaries of the Former DuPont Related Plans. In this regard, the 
proposed exemption incorporates all but one of the conditions found in 
PTCE 84-14. Specifically, except for the Diverse Clientele Test, DCMC 
represents that it will comply with the remaining conditions, as set 
forth in Part I of PTCE 84-14. Moreover, DCMC, although it

[[Page 50231]]

will no longer be an INHAM with respect to the assets of the Former 
DuPont Related Plans, will remain subject to the procedural 
requirements of the INHAM class exemption, as set forth in PTCE 96-23. 
DuPont will be required to maintain written policies and procedures 
designed to ensure compliance with the objective requirements of the 
exemption and to retain an independent auditor experienced and 
proficient with the fiduciary provisions of the Act to conduct an 
exemption audit. It is the responsibility of the independent auditor to 
evaluate DuPont's compliance with such policies and procedures and to 
report annually its findings to each of the Former DuPont Related 
Plans.
    7. Furthermore, the proposed exemption contains several additional 
conditions which are designed to ensure the presence of adequate 
safeguards. First, the transactions which are the subject of this 
proposed exemption cannot be part of an agreement, arrangement, or 
understanding designed to benefit a party in interest. Second, neither 
DCMC nor a person related to DCMC may engage in transactions with the 
Investment Fund. Further, a party in interest (including a fiduciary) 
which deals with the Investment Fund, may only be a party in interest 
by reason of providing services to the Former DuPont Related Plans, or 
by having a relationship to a service provider, and such party in 
interest may not have discretionary authority or control with respect 
to the investment of plan assets involved in the transaction nor render 
investment advice with respect to those assets.
    8. DCMC represents that the requested exemption is administratively 
feasible because it would not impose any administrative burdens on 
either DCMC or the Department which are not already imposed by PTCE 84-
14 or PTCE 96-23. Further, DCMC will maintain and make available 
certain records necessary to enable the Department, the Internal 
Revenue Service, and other interested parties to determine whether the 
conditions of the exemption, if granted, have been met.
    9. The applicant represents that the proposed exemption is in the 
interest of the Former DuPont Related Plans and their participants and 
beneficiaries, because it will allow DCMC, on behalf of the Former 
DuPont Related Plans, to negotiate transactions with parties in 
interest where the transactions are beneficial to such plans. Absent 
the exemption, the Former DuPont Related Plans would be precluded from 
engaging in such transactions, even though such transactions may offer 
favorable investment or diversification opportunities.
    The applicant states that denial of the exemption could deprive 
DCMC of its ability to provide a full range of investment opportunities 
to the Former DuPont Related Plans without undue administrative costs. 
Further, denial of the exemption would place DCMC in a undue 
competitive disadvantage in seeking to manage the assets of the Former 
DuPont Related Plans.\20\
---------------------------------------------------------------------------

    \20\ While it is represented that DCMC receives no fees from the 
DuPont Pension Plan, other than reimbursement of certain expenses 
(to the extent permitted by the Act), no special restrictions would 
apply to its receipt of fees for managing assets of the Former 
DuPont Related Plans, once their sponsors no longer have any 
ownership affiliation with the DCMC, provided that the provision of 
such services and the receipt of fees related thereto meet the 
conditions necessary for relief under section 408(b)(2) and the 
regulations thereunder.
---------------------------------------------------------------------------

    10. In summary, the applicant represents that the transactions 
satisfy the statutory criteria for an exemption under section 408(a) of 
the Act and section 4975(c)(2) of the Code because, among other things:
    (a) DCMC is an investment adviser registered under the Investment 
Advisers Act of 1940 that has under its management and control total 
assets, including In-house Plan Assets (as defined in Section II(g)), 
in excess of $100 million, and either has shareholders' equity, in 
excess of $750,000 or a unconditional guarantee of payment of 
liabilities in that amount from an affiliate;
    (b) At the time of the transaction and during the year preceding, 
the party in interest or its affiliate dealing with the Investment Fund 
does not have and has not exercised, the authority to appoint or 
terminate DCMC as a manager of any of the Former DuPont Related Plans' 
assets, or to negotiate the terms on behalf of the Former DuPont 
Related Plans (including renewals or modifications) of the management 
agreement with DCMC;
    (c) The transaction is not described in PTCE 81-6; PTCE 83-1; or 
PTCE 82-87;
    (d) The terms of the transaction are negotiated on behalf of the 
Investment Fund by, or under the authority and general direction of 
DCMC, and either DCMC, or a property manager acting in accordance with 
written guidelines established and administered by DCMC, makes the 
decision on behalf of the Investment Fund to enter into the 
transaction;
    (e) The transaction is not part of an agreement, arrangement, or 
understanding designed to benefit a party in interest;
    (f) At the time the transaction is entered into, renewed, or 
modified that requires the consent of DCMC, the terms of the 
transaction are at least as favorable to the Investment Fund as the 
terms generally available in arm's length transactions between 
unrelated parties;
    (g) Neither DCMC nor any affiliate, nor any owner, direct or 
indirect, of a 5 percent (5%) or more interest in DCMC is a person who, 
within the ten (10) years immediately preceding the transaction has 
been either convicted or released from imprisonment, whichever is 
later, as a result of any felony, as set forth in Section I(f) of this 
proposed exemption;
    (h) The party in interest with respect to the Former DuPont Related 
Plans that deals with the Investment Fund is a party in interest 
(including a fiduciary) solely by reason of being a service provider to 
the Former DuPont Related Plans, or having a relationship to a service 
provider, and such party in interest does not have discretionary 
authority or control with respect to the investment of plan assets 
involved in the transaction and does not render investment advice with 
respect to those assets;
    (i) Neither DCMC nor a person related to DCMC engages in the 
transactions which are the subject of this proposed exemption;
    (j) DCMC adopts written policies and procedures that are designed 
to assure compliance with the conditions of the proposed exemption;
    (k) An independent auditor, who has appropriate technical training 
or experience and proficiency with the fiduciary responsibility 
provisions of the Act and who so represents in writing, conducts an 
exemption audit on an annual basis and issues a written report to the 
Former DuPont Related Plans presenting its specific findings regarding 
the level of compliance with the policies and procedures adopted by 
DCMC; and
    (l) DCMC or an affiliate maintains or causes to be maintained 
within the United States, for a period of six (6) years from the date 
of each transaction, the records necessary to enable the Department, 
the IRS, and other persons to determine whether the conditions of this 
exemption have been met.

Notice to Interested Persons

    The applicant will furnish a copy of the Notice of Proposed 
Exemption (the Notice) along with the supplemental statement, described 
at 29 CFR Sec. 2570.43(b)(2), to the investment committee or trustees 
of each of the Former DuPont Related Plans to inform them of the 
pendency of the exemption, by hand delivery or first class mailing, 
within fifteen (15) days of the

[[Page 50232]]

publication of the Notice in the Federal Register. Comments and 
requests for a hearing are due on or before 45 days from the date of 
publication of the Notice in the Federal Register. A copy of the final 
exemption, if granted, will also be provided to the CONSOL Plan, the 
CONSOL Union Plan, the CONSOL DC Plan, the Conoco Plan and the Conoco 
DC Plan. Further, DCMC will furnish a copy of the final exemption to 
any of the other Former DuPont Related Plans at the time the exemption 
becomes applicable to the management of the assets of such plan.

FOR FURTHER INFORMATION CONTACT: Ms. Angelena C. Le Blanc of the 
Department, telephone (202) 219-8883 (this is not a toll-free number).

General Motors Investment Management Corporation Located in New 
York, NY

[Exemption Application Nos.: D-10782 through D-10785]

Proposed Exemption

    The Department of Labor 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 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990).\21\
---------------------------------------------------------------------------

    \21\ For purposes of this exemption, references to specific 
provisions of Title I of the Act unless otherwise specified, refer 
to the corresponding provisions of the Code.
---------------------------------------------------------------------------

I. Transactions

    If the exemption is granted, the restrictions of section 
406(a)(1)(A) through (D) and the sanctions resulting from the 
application of section 4975 of the Code by reason of section 
4975(c)(1)(A) through (D), shall not apply, as of May 28, 1999, to a 
transaction between a party in interest with respect to certain plans 
(the Transition Plans), as defined in Section II(e), below, and an 
investment fund in which such plans have an interest (the Investment 
Fund), as defined in Section II(k), below, provided that General Motors 
Investment Management Corporation or its successor (collectively, 
GMIMCO) has discretionary authority or control with respect to the plan 
assets involved in the transaction and the following conditions are 
satisfied:
    (a) GMIMCO or its successor is an investment adviser registered 
under the Investment Advisers Act of 1940 that has, as of the last day 
of its most recent fiscal year, total assets, including in-house plan 
assets (the In-house Plan Assets), as defined in Section II(g), below, 
under its management and control in excess of $100 million and 
shareholders' or partners' equity, as defined in Section II(j), below, 
in excess of $750,000;
    (b) At the time of the transaction, as defined in Section II(m), 
below, the party in interest or its affiliate, as defined in Section 
II(a), below, does not have, and during the immediately preceding one 
(1) year has not exercised, the authority to--
    (1) Appoint or terminate GMIMCO as a manager of any of the 
Transition Plans' assets, or
    (2) Negotiate the terms of the management agreement with GMIMCO 
(including renewals or modifications thereof) on behalf of the 
Transition Plans;
    (c) The transaction is not described in--
    (1) Prohibited Transaction Class Exemption 81-6 (PTCE 81-6) \22\ 
(relating to securities lending arrangements);
---------------------------------------------------------------------------

    \22\ 46 FR 7527, January 23, 1981.
---------------------------------------------------------------------------

    (2) Prohibited Transaction Class Exemption 83-1 (PTCE 83-1) \23\ 
(relating to acquisitions by plans of interests in mortgage pools), or
---------------------------------------------------------------------------

    \23\ 48 FR 895, January 7, 1983.
---------------------------------------------------------------------------

    (3) Prohibited Transaction Class Exemption 82-87 (PTCE 82-87) \24\ 
(relating to certain mortgage financing arrangements);
---------------------------------------------------------------------------

    \24\ 47 FR 21331, May 18, 1982.
---------------------------------------------------------------------------

    (d) The terms of the transaction are negotiated on behalf of the 
Investment Fund by or under the authority and general direction of 
GMIMCO, and either GMIMCO, or (so long as GMIMCO retains full fiduciary 
responsibility with respect to the transaction) a property manager 
acting in accordance with written guidelines established and 
administered by GMIMCO, makes the decision on behalf of the Investment 
Fund to enter into the transaction;
    (e) At the time the transaction is entered into, and at the time of 
any subsequent renewal or modification thereof that requires the 
consent of GMIMCO, the terms of the transaction are at least as 
favorable to the Investment Fund as the terms generally available in 
arm's length transactions between unrelated parties;
    (f) Neither GMIMCO nor any affiliate thereof, as defined in Section 
II(b), below, nor any owner, direct or indirect, of a 5 percent (5%) or 
more interest in GMIMCO is a person who, within the ten (10) years 
immediately preceding the transaction, has been either convicted or 
released from imprisonment, whichever is later, as a result of:
    (1) any felony involving abuse or misuse of such person's employee 
benefit plan position or employment, or position or employment with a 
labor organization;
    (2) any felony arising out of the conduct of the business of a 
broker, dealer, investment adviser, bank, insurance company, or 
fiduciary;
    (3) income tax evasion;
    (4) any felony involving the larceny, theft, robbery, extortion, 
forgery, counterfeiting, fraudulent concealment, embezzlement, 
fraudulent conversion, or misappropriation of funds or securities; 
conspiracy or attempt to commit any such crimes or a crime in which any 
of the foregoing crimes is an element; or
    (5) any other crimes described in section 411 of the Act.
    For purposes of this Section I(f), a person shall be deemed to have 
been ``convicted'' from the date of the judgment of the trial court, 
regardless of whether the judgment remains under appeal;
    (g) The transaction is not part of an agreement, arrangement, or 
understanding designed to benefit a party in interest;
    (h) The party in interest dealing with the Investment Fund:
    (1) Is a party in interest with respect to the Transition Plans 
(including a fiduciary) solely by reason of providing services to the 
Transition Plans, or solely by reason of a relationship to a service 
provider described in section 3(14)(F),(G),(H), or (I) of the Act;
    (2) Does not have discretionary authority or control with respect 
to the investment of plan assets involved in the transaction and does 
not render investment advice (within the meaning of 29 CFR Sec. 2510.3-
21(c)) with respect to those assets; and
    (3) Is neither GMIMCO nor a person related to GMIMCO, as defined in 
Section II(i), below;
    (i) GMIMCO adopts written policies and procedures that are designed 
to assure compliance with the conditions of the exemption;
    (j) An independent auditor, who has appropriate technical training 
or experience and proficiency with the fiduciary responsibility 
provisions of the Act and who so represents in writing, conducts an 
exemption audit, as defined in Section II(f), below, on an annual 
basis. Following completion of the exemption audit, the auditor shall 
issue a written report to the Transition Plans presenting its specific 
findings regarding the level of compliance with the policies and 
procedures adopted by GMIMCO in accordance with Section I(i), above, of 
this exemption; and

[[Page 50233]]

    (k)(1) GMIMCO or an affiliate maintains or causes to be maintained 
within the United States, for a period of six (6) years from the date 
of each transaction, the records necessary to enable the persons 
described in Section I(k)(2) to determine whether the conditions of 
this exemption have been met, except that (a) a prohibited transaction 
will not be considered to have occurred if, due to circumstances beyond 
the control of GMIMCO and/or its affiliates, the records are lost or 
destroyed prior to the end of the six (6) year period, and (b) no party 
in interest or disqualified person other than GMIMCO 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 Section I(k)(2), below, of this proposed 
exemption.
    (2) Except as provided in Section I(k)(3), below, and 
notwithstanding any provisions of subsections (a)(2) and (b) of section 
504 of the Act, the records referred to in Section I(k)(1), above, of 
this exemption are unconditionally available for examination at their 
customary location during normal business hours by:
    (A) any duly authorized employee or representative of the 
Department or of the Internal Revenue Service;
    (B) any fiduciary of any of the Transition Plans investing in the 
Investment Fund or any duly authorized representative of such 
fiduciary;
    (C) any contributing employer to any of the Transition Plans 
investing in the Investment Fund or any duly authorized employee 
representative of such employer;
    (D) any participant or beneficiary of any of the Transition Plans 
investing in the Investment Fund, or any duly authorized representative 
of such participant or beneficiary; and,
    (E) any employee organization whose members are covered by such 
Transition Plans;
    (3) None of the persons described in Section I(k)(2)(B) through 
(E), above, of this exemption shall be authorized to examine trade 
secrets of GMIMCO or its affiliates or commercial or financial 
information which is privileged or confidential.

II. Definitions

    (a) For purposes of Section I(b) of this exemption, an 
``affiliate'' of a person means--
    (1) Any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person,
    (2) Any corporation, partnership, trust, or unincorporated 
enterprise of which such person is an officer, director, 5 percent (5%) 
or more partner, or employee (but only if the employer of such employee 
is the plan sponsor), and
    (3) Any director of the person or any employee of the person who is 
highly compensated employee, as defined in section 4975(e)(2)(H) of the 
Code, or who has direct or indirect authority, responsibility, or 
control regarding the custody, management, or disposition of plan 
assets. A named fiduciary (within the meaning of section 402(a)(2) of 
the Act) of a plan, and an employer any of whose employees are covered 
by the plan, will also be considered affiliates with respect to each 
other for purposes of Section I(b) if such employer or an affiliate of 
such employer has the authority, alone or shared with others, to 
appoint or terminate the named fiduciary or otherwise negotiate the 
terms of the named fiduciary's employment agreement.
    (b) For purposes of Section I(f), above, of this exemption, an 
``affiliate'' of a person means--
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person,
    (2) Any director of, relative of, or partner in, any such person,
    (3) Any corporation, partnership, trust, or unincorporated 
enterprise of which such person is an officer, director, or a 5 percent 
(5%) or more partner or owner, and
    (4) Any employee or officer of the person who --
    (A) Is a highly compensated employee (as defined in section 
4975(e)(2)(H) of the Code) or officer (earning 10 percent (10%) or more 
of the yearly wages of such person), or
    (B) Has direct or indirect authority, responsibility or control 
regarding the custody, management, or disposition of plan assets.
    (c) For purposes of Section II(e) and (g), below, of this exemption 
an ``affiliate'' of GMIMCO includes a member of either:
    (1) a controlled group of corporations, as defined in section 
414(b) of the Code, of which GMIMCO is a member, or
    (2) a group of trades or businesses under common control, as 
defined in section 414(c) of the Code, of which GMIMCO is a member; 
provided that ``50 percent'' shall be substituted for ``80 percent'' 
wherever ``80 percent'' appears in section 414(b) or 414(c) of the 
rules thereunder.
    (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) ``Transition Plans'' mean:
    (1) the Delphi Retirement Program for Salaried Employees; Delphi 
Hourly-Rate Employees Pension Plan; Delphi Automotive Systems 
Corporation Personal Savings Plan, Delphi Automotive Systems 
Corporation Income Security Plan, Delphi Automotive Systems Corporation 
Savings-Stock Purchase Program, Packard-Hughes Interconnect Non-
Bargaining Retirement Plan, Packard-Hughes Interconnect Bargaining 
Retirement Plan, Packard-Hughes Interconnect Foley-Alabama Facility 
Retirement Plan, and ASEC Manufacturing Retirement Program 
(collectively, the Delphi Plans);
    (2) any plan the assets of which include or have included assets 
that were managed by GMIMCO, as an in-house asset manager (INHAM), 
pursuant to Prohibited Transaction Class Exemption 96-23 (PTCE 96-23); 
\25\ but as to which PTCE 96-23 is no longer available because such 
assets are no longer held under a plan maintained by an affiliate of 
GMIMCO (as defined in Section II(c), above, of this exemption); and
---------------------------------------------------------------------------

    \25\ 61 FR 15975 (April 10, 1996)
---------------------------------------------------------------------------

    (3) any plan (an Add-On Plan) that is sponsored or becomes 
sponsored by an entity that was, but has ceased to be, an affiliate of 
GMIMCO,(as defined in Section II(c), above, of this exemption); 
provided that: (A) the assets of the Add-On Plan are invested in a 
commingled fund (the Commingled Fund) with the assets of a plan or 
plans, described in Section II(e)(1) or Section II(e)(2), above; and 
(B) the assets of the Add-On Plan in the Commingled Fund do not 
comprise more than 25 percent (25%) of the value of the aggregate 
assets of such fund, as measured on the day immediately following the 
commingling of their assets.
    (f) ``Exemption audit'' of any of the Transition Plans must consist 
of the following:
    (1) A review of the written policies and procedures adopted by 
GMIMCO, pursuant to Section I(i) of this exemption, for consistency 
with each of the objective requirements of this exemption, as described 
in Section II(f)(5), below;
    (2) A test of a representative sample of the subject transactions 
in order to make findings regarding whether GMIMCO is in compliance 
with:

[[Page 50234]]

    (A) the written policies and procedures adopted by GMIMCO, pursuant 
to Section I(i), above, of this exemption; and
    (B) the objective requirements of this exemption;
    (3) A determination as to whether GMIMCO has satisfied the 
requirements of Section I(a), above, of this exemption;
    (4) Issuance of a written report describing the steps performed by 
the auditor during the course of its review and the auditor's findings; 
and
    (5) For purposes of Section II(f) of this exemption, the written 
policies and procedures must describe the following objective 
requirements of the exemption and the steps adopted by GMIMCO to assure 
compliance with each of these requirements:
    (A) the requirements of Section I(a), above, of this exemption 
regarding registration under the Investment Advisers Act of 1940, total 
assets under management, and shareholders' or partners' equity;
    (B) the requirements of Part I and Section I(d) of this exemption, 
regarding the discretionary authority or control of GMIMCO with respect 
to the assets of the Transition Plans involved in the transaction, in 
negotiating the terms of the transaction, and with regard to the 
decision on behalf of the Transition Plans to enter into the 
transaction;
    (C) the transaction is not entered into with any person who is 
excluded from relief under Section I(h)(1), above, of this exemption, 
Section I(h)(2) to the extent such person has discretionary authority 
or control over the plan assets involved in the transaction, or Section 
I(h)(3); and
    (D) the transaction is not described in any of the class exemptions 
listed in Section I(c), above, of this exemption.
    (g) ``In-house Plan Assets'' means the assets of any plan 
maintained by an affiliate of GMIMCO, as defined in Section 
II(c),above, of this exemption and with respect to which GMIMCO 
exercises discretionary authority or control.
    (h) The term, ``party in interest,'' means a person described in 
section 3(14) of the Act and includes a ``disqualified person,'' as 
defined in section 4975(e)(2) of the Code.
    (i) GMIMCO is ``related'' to a party in interest for purposes of 
Section I(h)(3) of this exemption, if the party in interest (or a 
person controlling, or controlled by, the party in interest) owns a 5 
percent (5%) or more interest in GMIMCO, or if GMIMCO (or a person 
controlling, or controlled by GMIMCO) owns a 5 percent (5%) or more 
interest in the party in interest.
    For purposes of this definition:
    (1) The term, ``interest,'' means with respect to ownership of an 
entity--
    (A) The combined voting power of all classes of stock entitled to 
vote or the total value of the shares of all classes of stock of the 
entity if the entity is a corporation,
    (B) The capital interest or the profits interest of the entity if 
the entity is a partnership; or
    (C) The beneficial interest of the entity if the entity is a trust 
or unincorporated enterprise; and
    (2) A person is considered to own an interest held in any capacity 
if the person has or shares the authority--
    (A) To exercise any voting rights or to direct some other person to 
exercise the voting rights relating to such interest, or
    (B) To dispose or to direct the disposition of such interest.
    (j) For purposes of Section I(a) of this exemption, the term, 
``shareholders' or partners' equity,'' means the equity shown in the 
most recent balance sheet prepared within the two (2) years immediately 
preceding a transaction undertaken pursuant to this exemption, in 
accordance with generally accepted accounting principles.
    (k) ``Investment Fund'' includes a single customer and pooled 
separate account maintained by an insurance company, individual trust 
and common collective or group trusts maintained by a bank, and any 
other account or fund to the extent that the disposition of its assets 
(whether or not in the custody of GMIMCO) is subject to the 
discretionary authority of GMIMCO.
    (l) The term, ``relative,'' means a relative as that term is 
defined in section 3(15) of the Act, or a brother, sister, or a spouse 
of a brother or sister.
    (m) The ``time'' as of which any transaction occurs is the date 
upon which the transaction is entered into. In addition, in the case of 
a transaction that is continuing, the transaction shall be deemed to 
occur until it is terminated. If any transaction is entered into on or 
after the date when the grant of this exemption is published in the 
Federal Register or a renewal that requires the consent of GMIMCO 
occurs on or after such publication date and the requirements of this 
exemption are satisfied at the time the transaction is entered into or 
renewed, respectively, the requirements will continue to be satisfied 
thereafter with respect to the transaction. Nothing in this subsection 
shall be construed as exempting a transaction entered into by an 
Investment Fund which becomes a transaction described in section 406 of 
the Act or section 4975 of the Code while the transaction is 
continuing, unless the conditions of this exemption were met either at 
the time the transaction was entered into or at the time the 
transaction would have become prohibited but for this exemption. In 
determining compliance with the conditions of the exemption at the time 
that the transaction was entered into for purposes of the preceding 
sentence, Section I(h) of this exemption will be deemed satisfied if 
the transaction was entered into between a plan and a person who was 
not then a party in interest.

Temporary Nature of Exemption

    The Department has determined that the relief provided by this 
proposed exemption is temporary in nature. The exemption, if granted, 
will be effective May 28, 1999, and will expire on the day which is 
five (5) years from the date of the publication of the final exemption 
in the Federal Register. Accordingly, the relief provided by this 
proposed exemption will not be available upon the expiration of such 
five-year period for any new or additional transactions, as described 
herein, after such date, but would continue to apply beyond the 
expiration of such five-year period for continuing transactions entered 
into within the five-year period. Should the applicant wish to extend, 
beyond the expiration of such five-year period, the relief provided by 
this proposed exemption to new or additional transactions, the 
applicant may submit another application for exemption.

Summary of Facts and Representations

    1. GMIMCO, a wholly-owned subsidiary of General Motors Corporation 
(GM), is organized as a Delaware corporation with its principal office 
in New York, New York. GMIMCO is an investment adviser registered under 
the Investment Advisers Act of 1940. As of December 31, 1998, GMIMCO 
had total assets under its management with an aggregate market value of 
approximately $100 billion.
    GMIMCO provides investment management services to employee benefit 
plans and corporate clients that are not employee benefit plans. 
Clients include plans sponsored by GM and its subsidiaries and 
affiliates (the GM Group). Investments managed by GMIMCO include 
domestic and international equities, fixed-income securities, real 
estate, venture capital investments, futures, and other alternative 
investments. GMIMCO has been providing these services to the GM Group 
since 1992, \26\ and is generally the

[[Page 50235]]

named fiduciary for investment purposes under the Act with respect to 
the pension plans sponsored by the GM Group.
---------------------------------------------------------------------------

    \26\ It is represented that GMIMCO has been a registered 
investment advisor since 1992.
---------------------------------------------------------------------------

    2. GMIMCO manages the assets of the following U.S. employee benefit 
plans: (a) General Motors Hourly-Rate Employees Pension Plan, (b) 
General Motors Retirement Program for Salaried Employees, (c) General 
Motors Savings-Stock Purchase Program for Salaried Employees in the 
United States, (d) General Motors Personal Savings Plan for Hourly-Rate 
Employees in the United States, (e) Saturn Individual Retirement Plan 
for Represented Team Members, (f) Saturn Personal Choices Retirement 
Plan for Non-Represented Team Members, (g) Saturn Individual Savings 
Plan for Union Represented Employees, (h) Employees' Retirement Plan 
for GMAC Mortgage Corporation, and (i) plans participating in the 
General Motors Welfare Benefit Trust (collectively, the GM Plans). In 
this regard, GMIMCO represents that it has qualified as an INHAM, as 
defined in section IV(a) of PTCE 96-23, and has relied on the relief 
provided by that class exemption in connection with its management of 
the assets of the GM Plans. \27\ In addition, GMIMCO manages the assets 
of corporate clients that are members of the GM Group, most 
significantly Motors Insurance Corporation for which GMIMCO has over $4 
billion in assets under management.
---------------------------------------------------------------------------

    \27\ The Department expresses no opinion in this proposed 
exemption as to whether GMIMCO has met, or will continue to meet, 
the conditions necessary for relief under PTCE 96-23 for 
transactions with parties in interest with respect to the GM Plans, 
or whether GMIMCO qualifies or has qualified as an INHAM with regard 
to the management of the assets of the GM Plans in such 
transactions.
---------------------------------------------------------------------------

    3. On or after January 1, 1999, Delphi Automotive Systems 
Corporation (Delphi) and its subsidiaries sponsored the Delphi Plans 
for the benefit of their employees. As of April 30, 1999, the estimated 
number of participants in the Delphi Plans was 173,931 and the 
approximate aggregate fair market value of the assets of the Delphi 
Plans was $10,337,453,634. It is represented that Delphi was at that 
time a subsidiary of GM and a member of the GM Group and that the 
assets of the Delphi Plans were managed by GMIMCO, pursuant to PTCE 96-
23.
    On May 28, 1999, GM totally divested all of its holdings in Delphi. 
After the divestiture, Delphi requested that GMIMCO continue to act as 
investment manager for the assets of the Delphi Plans. However, because 
GM had divested itself of its holdings in Delphi, the relief provided 
to GMIMCO, as an INHAM, pursuant to PTCE 96-23, ceased to be available 
with respect to GMIMCO's management of the assets of the Delphi Plans, 
because under section IV(a) of PTCE 96-23, GMIMCO would not be an 
affiliate of the employer maintaining such plans. \28\
---------------------------------------------------------------------------

    \28\ The Department expresses no opinion on whether GMIMCO 
qualifies or has qualified as an INHAM with regard to the management 
of the assets of the Delphi Plans.
---------------------------------------------------------------------------

    4. GMIMCO seeks an exemption, effective as of May 28, 1999, to 
continue, after the divestiture of Delphi, to manage the assets of the 
Delphi Plans. Further, GMIMCO requests relief which would permit it to 
manage the assets of other Transition Plans. In this regard, in 
addition to the Delphi Plans, the Transition Plans covered by this 
exemption include: (1) Any plan the assets of which have been managed 
by GMIMCO, as an INHAM but as to which PTCE 96-13 is no longer 
available, because such plan is no longer maintained by an affiliate of 
GMIMCO; and (2) any Add-On Plan that is sponsored or becomes sponsored 
by an entity that was, but has ceased to be, an affiliate of GMIMCO; 
provided certain conditions, as set forth in this proposed exemption, 
are satisfied.
    Given the large number of service providers (particularly financial 
institutions) which the Delphi Plans and most large employee benefit 
plans engage, the breadth of the definition of ``party in interest'' 
under 3(14) of the Act, and the wide array of investment and related 
services offered by GMIMCO, it would not be uncommon for GMIMCO, as 
investment manager, to propose transactions that involve parties in 
interest to one or more Transition Plans. In this regard, the 
transactions for which GMIMCO seeks an exemption include, but are not 
limited to, sale and exchange transactions, leasing and other real 
estate transactions, foreign currency trading transactions, and 
transactions involving the furnishing of goods, services, and 
facilities. It is anticipated that relief will most likely be necessary 
where GMIMCO has discretion over investments in real estate, mortgages, 
foreign currency, futures, commodities, and over-the-counter options, 
or other types of investments not covered by specific exemptions or 
other class exemptions which would permit GMIMCO, as investment 
manager, to purchase property from, sell or lease property to, or 
borrow money from most parties in interest with respect to the 
Transition Plans.
    Without the requested relief, GMIMCO would be unable to offer the 
full range of investment opportunities that were available to the 
Delphi Plans prior to the divestiture, which could substantially reduce 
GMIMCO's overall effectiveness and adversely affect the Delphi Plan's 
investment returns. In the absence of the exemption, it would be 
necessary to examine each transaction to determine whether it might 
involve a party in interest. Such examinations could prove burdensome 
for GMIMCO, because of the myriad of persons that may be parties in 
interest as service providers to large plans, such as the Delphi Plans. 
Moreover, it is represented that certain transactions which would be 
beneficial to the Transition Plans might involve parties in interest 
and be prohibited, thereby depriving such plans of a potentially 
favorable investment opportunity.
    5. GMIMCO has requested that the proposed exemption be modeled 
after PTCE 84-14, which, in general, permits various parties in 
interest with respect to an employee benefit plan to engage in a 
transaction involving plan assets, if the transaction is authorized by 
a qualified professional asset manager (QPAM) and if certain other 
conditions are met. Specifically, GMIMCO seeks an individual exemption 
for transactions that are described, pursuant to Part I of PTCE 84-
14.\29\ In this regard, Part I of PTCE 84-14 provides relief from the 
restrictions of section 406(a)(1)(A)-(D) of the Act and 4975(c)(1)(A)-
(D) of the Code for transactions between a party in interest with 
respect to an employee benefit plan and an investment fund in which the 
plan has an interest and which is managed by a QPAM, provided certain 
conditions are satisfied. One such condition (the Diverse Clientele 
Test), as set forth in Part I(e) of PTCE 84-14, requires that:

    \29\ GMIMCO is not requesting an administrative exemption for 
the transactions described in Part II, Part III, and Part IV of PTCE 
84-14.
---------------------------------------------------------------------------

    The transaction is not entered into with a party in interest 
with respect to any plan whose assets managed by QPAM, when combined 
with the assets of other plans established or maintained by the same 
employer (or affiliate thereof * * *) or by the same employee 
organization, and managed by the QPAM, represent more than 20 
percent of the total client assets managed by the QPAM at the time 
of the transaction.

    GMIMCO represents that, as of the effective date for the requested 
exemption, it met all of the requirements of the definition of a QPAM, 
as set forth in Part V(a) of PTCE 84-14, other than the Diverse 
Clientele Test. In this regard, GMIMCO represents that it has been 
capitalized in excess of $750,000 to meet the capitalization 
requirement on its own, as of the date

[[Page 50236]]

of the requested relief. Further, GMIMCO represents that it is an 
investment adviser registered under the Investment Advisers Act of 1940 
and that it currently manages in excess of $100 million in assets, 
including In-house Plan Assets, as defined in Section II(g), above of 
this proposed exemption.
    However, GMIMCO is uncertain whether it would be deemed to satisfy 
the Diverse Clientele Test found in Part I(e) of PTCE 84-14 with 
respect to the Delphi Plans or other Transition Plans that might become 
clients of GMIMCO during the period of GMIMCO's transition from a 
wholly-owned in-house clientele to a full range of clients. In this 
regard, GMIMCO is concerned that the assets for which it serves as an 
INHAM are not ``client assets'' for purposes of Part I(e) of PTCE 84-
14. Although GMIMCO manages assets of the Delphi Plans which comprise 
substantially less than 20 percent (20%) of the total assets under its 
management, the remaining assets which GMIMCO manages consist entirely 
of plan assets for which GMIMCO acts as an INHAM. As a result, GMIMCO 
believes that it may be precluded from acting as a QPAM with respect to 
the Delphi Plans and any other unaffiliated plans that might 
temporarily exceed the 20% limit, if the test is based solely on assets 
of unaffiliated plans and other non-GM related parties, even though 
such assets might be insignificant in relation to total assets managed 
by GMIMCO.\30\
---------------------------------------------------------------------------

    \30\ The Department expresses no opinion as to whether GMIMCO 
would qualify as a QPAM for purposes of PTCE 84-14 and Part I(e) 
with respect to the Delphi Plans after the divestiture of Delphi or 
with respect to any Transition Plans or other unaffiliated plans.
---------------------------------------------------------------------------

    6. It is represented that the conditions of the proposed exemption 
provide safeguards for the protection of the rights of participants and 
beneficiaries of the Transition Plans. In this regard, the proposed 
exemption incorporates all but one of the conditions found in PTCE 84-
14. Except for the Diverse Clientele Test, GMIMCO represents that it 
will comply with the remaining conditions, as set forth in Part I of 
PTCE 84-14. Moreover, GMIMCO, although it will no longer be an INHAM 
with respect to the assets of the Transition Plans, will remain subject 
to the procedural requirements of the INHAM class exemption, as set 
forth in PTCE 96-23. In this regard, GMIMCO will be required to 
maintain written policies and procedures designed to ensure compliance 
with the objective requirements of the exemption and to retain an 
independent auditor experienced and proficient with the fiduciary 
provisions of the Act to conduct an exemption audit. It is the 
responsibility of the independent auditor to evaluate GMIMCO's 
compliance with such policies and procedures and to report annually its 
findings to each of the Transition Plans.
    7. Furthermore, the proposed exemption contains several additional 
conditions which are designed to ensure the presence of adequate 
safeguards. First, the transactions which are the subject of this 
proposed exemption cannot be part of an agreement, arrangement, or 
understanding designed to benefit a party in interest. Second, neither 
GMIMCO nor a person related to GMIMCO may engage in transactions with 
the Investment Fund. Further, a party in interest (including a 
fiduciary) which deals with the Investment Fund, may only be a party in 
interest by reason of providing services to the Transition Plans, or by 
having a relationship to a service provider, and such party in interest 
may not have discretionary authority or control with respect to the 
investment of plan assets involved in the transaction nor render 
investment advice with respect to those assets.
    8. GMIMCO represents that the requested exemption is 
administratively feasible because it would not impose any 
administrative burdens on either GMIMCO or the Department which are not 
already imposed by PTCE 84-14 or PTCE 96-23. Further, GMIMCO will 
maintain and make available certain records necessary to enable the 
Department, the Internal Revenue Service, and other interested parties 
to determine whether the conditions of the exemption, if granted, have 
been met.
    9. The proposed exemption is in the interest of the Transition 
Plans and participants and beneficiaries of such plans, because it will 
allow GMIMCO, on behalf of the Transition Plans, to negotiate 
transactions with parties in interest where the transactions are 
beneficial to such plans. Absent the exemption, the Transition Plans 
would be precluded from engaging in such transactions, even though such 
transactions may offer favorable investment or diversification 
opportunities.
    The applicant represents that denial of the exemption could deprive 
GMIMCO of its ability to provide a full range of investment 
opportunities to the Transition Plans without undue administrative 
costs. Further, denial of the exemption would place GMIMCO in a undue 
competitive disadvantage in seeking to manage the assets of the 
Transition Plans.\31\
---------------------------------------------------------------------------

    \31\ While it is represented that GMIMCO receives no fees from 
the GM Plans or the Delphi Plans, other than reimbursement of 
certain expenses (to the extent permitted by the Act), no special 
restrictions would apply to its receipt of fees for managing assets 
of the Delphi Plans in the future or any other Transition Plans that 
do not have any affiliation with GMIMCO, provided that the provision 
of such services and the receipt of fees related thereto meet the 
conditions necessary for relief under section 408(b)(2) of the Act 
and the regulations thereunder.
---------------------------------------------------------------------------

    10. In summary, the applicant represents that the transactions 
satisfy the statutory criteria for an exemption under section 408(a) of 
the Act and section 4975(c)(2) of the Code because, among other things:
    (a) GMIMCO or its successor is an investment adviser registered 
under the Investment Advisers Act of 1940 that has under its management 
and control total assets in excess of $100 million and has 
shareholders' equity, in excess of $750,000;
    (b) At the time of the transaction and during the year preceding, 
the party in interest or its affiliate dealing with the Investment 
Fund, does not have and has not exercised, the authority to appoint or 
terminate GMIMCO as a manager of any of the Transition Plans' assets, 
or to negotiate the terms on behalf of the Transition Plans (including 
renewals or modifications) of the management agreement with GMIMCO;
    (c) The transaction is not described in PTCE 81-6; PTCE 83-1; or 
PTCE 82-87;
    (d) The terms of the transaction are negotiated on behalf of the 
Investment Fund by, or under the authority and general direction of, 
GMIMCO, and either GMIMCO, or a property manager acting in accordance 
with written guidelines established and administered by GMIMCO, makes 
the decision on behalf of the Investment Fund to enter into the 
transaction;
    (e) The transaction is not part of an agreement, arrangement, or 
understanding designed to benefit a party in interest;
    (f) At the time the transaction is entered into, renewed, or 
modified that requires the consent of GMIMCO, the terms of the 
transaction are at least as favorable to the Investment Fund as the 
terms generally available in arm's length transactions between 
unrelated parties;
    (g) Neither GMIMCO nor any affiliate, nor any owner, direct or 
indirect, of a 5 percent (5%) or more interest in GMIMCO is a person 
who, within the ten (10) years immediately preceding the transaction 
has been either convicted or released from imprisonment, whichever is 
later, as a result of any felony, as set forth in Section I(f) of this 
exemption;
    (h) The party in interest with respect to the Transition Plans that 
deals with the Investment Fund is a party in

[[Page 50237]]

interest (including a fiduciary) solely by reason of being a service 
provider to the Transition Plans, or having a relationship to a service 
provider and such party in interest does not have discretionary 
authority or control with respect to the investment of plan assets 
involved in the transaction and does not render investment advice with 
respect to those assets;
    (i) Neither GMIMCO nor a person related to GMIMCO engages in the 
transactions which are the subject of this proposed exemption;
    (j) GMIMCO adopts written policies and procedures that are designed 
to assure compliance with the conditions of the proposed exemption;
    (k) An independent auditor, who has appropriate technical training 
or experience and proficiency with the fiduciary responsibility 
provisions of the Act and who so represents in writing, conducts an 
exemption audit on an annual basis and issues a written report to the 
Transition Plans presenting specific findings regarding the level of 
compliance with the policies and procedures adopted by GMIMCO; and
    (l) GMIMCO or an affiliate maintains or causes to be maintained 
within the United States, for a period of six (6) years from the date 
of each transaction, the records necessary to enable the Department, 
the IRS, and other persons to determine whether the conditions of this 
proposed exemption have been met.

Notice to Interested Persons

    GMIMCO will furnish a copy of the Notice of Proposed Exemption (the 
Notice) along with the supplemental statement described at 29 CFR 
Sec. 2570.43(b)(2) to the investment committee or trustees of each of 
the Delphi Plans to inform them of the pendency of the exemption, by 
hand delivery or first class mailing, within fifteen (15) days of the 
publication of the Notice in the Federal Register. Comments and 
requests for a hearing are due on or before 45 days from the date of 
publication of the Notice in the Federal Register. A copy of the final 
exemption, if granted, will also be provided to the Delphi Plans. 
Further, GMIMCO will furnish a copy of the final exemption to any other 
Transition Plans at the time the exemption becomes applicable to the 
management of the assets of such plans.

FOR FURTHER INFORMATION CONTACT: Ms. Angelena C. Le Blanc of the 
Department, telephone (202) 219-8883 (this is not a toll-free number).

Columbia Energy Group (Columbia) Located in Herndon, Virginia

[Application No. D-10802]

Proposed Exemption

    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). If the exemption is granted, the restrictions 
of section 406(a) and (b) of the Act shall not apply to the reinsurance 
of risks and the receipt of premiums therefrom by Columbia Insurance 
Corporation, Ltd. (CICL) in connection with an insurance contract sold 
by Employers Insurance of Wausau (Wausau), or any successor insurance 
company to Wausau which is unrelated to Columbia, to provide long-term 
disability benefits to participants in Columbia's Long Term Disability 
Plan (the Plan), provided the following conditions are met:
    (a) CICL--
    (1) Is a party in interest with respect to the Plan by reason of a 
stock or partnership affiliation with Columbia that is described in 
section 3(14)(E) or (G) of the Act;
    (2) Is licensed to sell insurance or conduct reinsurance operations 
in at least one State as defined in section 3(10) of the Act;
    (3) Has obtained a Certificate of Authority from the Insurance 
Commissioner of its domiciliary state which has neither been revoked 
nor suspended;
    (4)(A) Has undergone an examination by an independent certified 
public accountant for its last completed taxable year immediately prior 
to the taxable year of the reinsurance transaction; or
    (B) Has undergone a financial examination (within the meaning of 
the law of its domiciliary State, Vermont) by the Insurance 
Commissioner of the State of Vermont within 5 years prior to the end of 
the year preceding the year in which the reinsurance transaction 
occurred; and
    (5) Is licensed to conduct reinsurance transactions by a State 
whose law requires that an actuarial review of reserves be conducted 
annually by an independent firm of actuaries and reported to the 
appropriate regulatory authority;
    (b) The Plan pays no more than adequate consideration for the 
insurance contracts;
    (c) No commissions are paid by the Plan with respect to the direct 
sale of such contracts or the reinsurance thereof;
    (d) In the initial year of any contract involving CICL, there will 
be an immediate and objectively determined benefit to the Plan's 
participants and beneficiaries in the form of increased benefits;
    (e) In subsequent years, the formula used to calculate premiums by 
Wausau or any successor insurer will be similar to formulae used by 
other insurers providing comparable long-term disability coverage under 
similar programs. Furthermore, the premium charge calculated in 
accordance with the formula will be reasonable and will be comparable 
to the premium charged by the insurer and its competitors with the same 
or a better rating providing the same coverage under comparable 
programs;
    (f) The Plan only contracts with insurers with a rating of A or 
better from A. M. Best Company (Best's). The reinsurance arrangement 
between the insurers and CICL will be indemnity insurance only, i.e., 
the insurer will not be relieved of liability to the Plan should CICL 
be unable or unwilling to cover any liability arising from the 
reinsurance arrangement;
    (g) CICL retains an independent fiduciary (the Independent 
Fiduciary), at Columbia's expense, to analyze the transaction and 
render an opinion that the requirements of sections (a) through (f) 
have been complied with. For purposes of this proposed exemption, the 
Independent Fiduciary is a person who:
    (1) Is not directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with Columbia or CICL (this relationship hereinafter referred to as an 
``Affiliate'');
    (2) Is not an officer, director, employee of, or partner in, 
Columbia or CICL (or any Affiliate of either);
    (3) Is not a corporation or partnership in which Columbia or CICL 
has an ownership interest or is a partner;
    (4) Does not have an ownership interest in Columbia or CICL, or any 
of either's Affiliates;
    (5) Is not a fiduciary with respect to the Plan prior to the 
appointment; and
    (6) Has acknowledged in writing acceptance of fiduciary 
responsibility and has agreed not to participate in any decision with 
respect to any transaction in which the Independent Fiduciary has an 
interest that might affect its best judgment as a fiduciary.
    For purposes of this definition of an ``Independent Fiduciary,'' no 
organization or individual may serve as an Independent Fiduciary for 
any fiscal year if the gross income received by such organization or 
individual (or

[[Page 50238]]

partnership or corporation of which such individual is an officer, 
director, or 10 percent or more partner or shareholder) from Columbia, 
CICL, or their Affiliates (including amounts received for services as 
Independent Fiduciary under any prohibited transaction exemption 
granted by the Department) for that fiscal year exceeds 5 percent of 
that organization or individual's annual gross income from all sources 
for such fiscal year.
    In addition, no organization or individual who is an Independent 
Fiduciary, and no partnership or corporation of which such organization 
or individual is an officer, director, or 10 percent or more partner or 
shareholder, may acquire any property from, sell any property to, or 
borrow funds from Columbia, CICL, or their Affiliates during the period 
that such organization or individual serves as Independent Fiduciary, 
and continuing for a period of six months after such organization or 
individual ceases to be an Independent Fiduciary, or negotiates any 
such transaction during the period that such organization or individual 
serves as Independent Fiduciary.

Preamble

    On August 7, 1979, the Department published a class exemption 
[Prohibited Transaction Exemption 79-41 (PTE 79-41), 44 FR 46365] which 
permits insurance companies that have substantial stock or partnership 
affiliations with employers establishing or maintaining employee 
benefit plans to make direct sales of life insurance, health insurance 
or annuity contracts which fund such plans if certain conditions are 
satisfied.
    In PTE 79-41, the Department stated its views that if a plan 
purchases an insurance contract from a company that is unrelated to the 
employer pursuant to an arrangement or understanding, written or oral, 
under which it is expected that the unrelated company will subsequently 
reinsure all or part of the risk related to such insurance with an 
insurance company which is a party in interest with respect to the 
plan, the purchase of the insurance contract would be a prohibited 
transaction under the Act.
    The Department further stated that as of the date of publication of 
PTE 79-41, it had received several applications for exemption under 
which a plan or its employer would contract with an unrelated company 
for insurance, and the unrelated company would, pursuant to an 
arrangement or understanding, reinsure part or all of the risk with 
(and cede part or all of the premiums to) an insurance company 
affiliated with the employer maintaining the plan. The Department felt 
that it would not be appropriate to cover the various types of 
reinsurance transactions for which it had received applications within 
the scope of the class exemption, but would instead consider such 
applications on the merits of each individual case.

Summary of Facts and Representations

    1. Columbia was organized under the laws of the State of Delaware 
on September 30, 1926, and is a registered holding company under the 
Public Utility Holding Company of 1935, as amended. Its headquarters 
are located in Herndon, Virginia. Columbia is one of the nation's 
largest integrated natural gas systems engaged in the production of 
natural gas and oil. Columbia is also engaged in related energy 
businesses including the marketing of natural gas and electricity, the 
generation of electricity, primarily fueled by natural gas, and the 
distribution of propane. Columbia derives substantially all of its 
revenues and earnings from the operating results of its 18 direct 
subsidiaries.
    2. CICL is a wholly-owned subsidiary of Columbia. In November, 
1996, it was formed and issued a Certificate of Authority by the 
Commonwealth of Bermuda permitting it to transact the business of a 
Class 3 insurance company. The applicant represents that a Class 3 
insurer in Bermuda is authorized to write any type of business that is 
described in its business plan. Class 1 and Class 2 insurers are 
restricted in the amount of unrelated business that can be written. 
Besides the differences in the types of business that can be written, 
Class 3 insurers have higher minimum capital and surplus, and more 
stringent examination requirements, than either Class 1 or Class 2 
insurers. ARS Management, Ltd. (ARS), an entity which is independent of 
Columbia and CICL, has responsibility for accounting functions, records 
retention and other management and administrative services for CICL. As 
of December 31, 1999, total capital and surplus of CICL was $1,143,635 
and earned premium was $5,996,265.
    3. In 1999, CICL formed a branch (Branch) which obtained a license 
in the State of Vermont. ARS, which is authorized to manage captives in 
the State of Vermont, will also handle the management functions for 
Branch. The applicant represents that an actuary on the staff of ARS, 
the management firm for CICL, has conducted reviews of the reserves 
held by CICL in the past. When CICL became a Class 3 insurer and 
established Branch in Vermont, it became subject to the laws in both 
jurisdictions requiring annual certification of reserves by an 
independent actuarial firm. Watson, Wyatt (WW), an independent, 
qualified international actuarial and benefits consulting firm has been 
retained to provide actuarial services to Branch. WW's responsibilities 
will include examining, on an annual basis, the reserves that will be 
established by Branch in connection with the employee benefit business 
reinsured by CICL through Branch to ensure that amounts required by the 
State of Vermont are met. The initial reserve study has been conducted 
by Christopher George, FSA, MAAA (Mr. George) of the Wellesley Hills, 
Massachusetts office of WW (see rep. 12, below).
    4. Columbia maintains the Plan, a long-term disability program for 
approximately 10,000 of its employees. Prior to changes made in 
anticipation of implementation of the subject transaction, the Plan 
promised a benefit of 30 percent of salary up to the current Social 
Security wage base and 60 percent of salary over that threshold. 
However, combined disability income from all sources, including Social 
Security, could not exceed 70 percent of earnings, and Social Security 
benefits paid to family members counted towards that limitation.
    5. The Plan has been historically insured with Aetna Life Insurance 
Company. However, at the beginning of 1999, Columbia formulated a plan 
to utilize CICL for the reinsurance of benefits and has made 
substantial improvements to the Plan in anticipation of that 
transaction. Specifically, the new benefit is 60 percent of salary 
across the board, and the reduced percentage for earnings up to the 
Social Security wage base has been eliminated. In addition, the 70 
percent maximum now does not include Social Security benefits paid to 
family members. Moreover, there has been a liberalization of the 
definition of the term ``disability.'' The prior definition required 
that an employee demonstrate that he or she could not perform ``* * * 
any reasonable type of job.'' Under the new definition, an employee 
qualifies for benefits in the first two years if he or she cannot 
perform his or her own job, or another that pays at least 80% of the 
amount the employee was earning before the disability.
    6. The Plan is now insured by Wausau. Wausau was recently acquired 
by Liberty Mutual Insurance Company (Liberty), an A+ rated (by Best's) 
carrier located in Boston, Massachusetts. Liberty is rated by Moody's 
as Aa3 (Excellent) and by Standard & Poor's as

[[Page 50239]]

AA-(Very Strong). Wausau is also rated A+ by Best's. The applicant 
represents that if the Plan chooses another insurer in the future, that 
insurer will carry similar ratings. It is anticipated that upon the 
granting of the exemption proposed herein, Wausau will enter into a 
reinsurance agreement with CICL, through Branch. Wausau will continue 
to insure the Plan, with the enhanced new benefits. However, Wausau 
will reinsure 100% of the risk with CICL through Branch.
    The Plan will pay no more than adequate consideration for the 
insurance contracts with Wausau or any successor insurer. The formula 
used to calculate premiums by Wausau or any successor insurer \32\ will 
be similar to formulae used by other insurers providing long-term 
disability coverage under similar programs. Furthermore, the premium 
charge calculated in accordance with the formula will be reasonable and 
will be comparable to the premium charged by the insurer and its 
competitors with the same or a better rating providing the same 
coverage under comparable programs.
---------------------------------------------------------------------------

    \32\ The applicant states that any successor insurer would be a 
legal reserve life insurance company with assets of such a size as 
to afford similar protection and responsibility.
---------------------------------------------------------------------------

    7. In connection with this exemption request, CICL has engaged the 
services of Milliman and Robertson (M&R), which is an international 
firm of consultants and actuaries with expertise in all facets of 
employee benefits, including insurance, as the Independent Fiduciary 
for the Plan. Charles M. Waldron, FSA (Mr. Waldron), a Principal and 
Consulting Actuary employed by M&R, has signed the Independent 
Fiduciary representations on behalf of M&R. M&R's consultants are 
frequently retained to advise corporations on the insurance 
arrangements underlying their benefit programs and have considerable 
expertise in the area of reinsurance and captive insurers.
    8. For purposes of demonstrating independence, Mr. Waldron has 
represented that:
    (a) Neither he nor M&R is an Affiliate of Columbia, Wausau or CICL;
    (b) He is not an officer, director, employee of, or partner in 
Columbia, CICL or Wausau;
    (c) M&R is not a corporation in which Columbia, CICL or any of the 
other insurers involved in the proposed transaction has an ownership 
interest or is a partner;
    (d) neither he nor M&R has an ownership interest in Columbia, CICL, 
or Wausau, or in any Affiliate of those firms;
    (e) he was not a fiduciary with respect to the Plan prior to his 
appointment for this transaction;
    (f) he has acknowledged in writing on behalf of M&R its acceptance 
of fiduciary obligations and has agreed not to participate in any 
decision with respect to any transaction in which either he or M&R has 
an interest that might affect their fiduciary duty;
    (g) gross income received by Mr. Waldron and M&R separately and 
combined from Columbia, CICL, or Wausau does not exceed 5 percent of 
Mr. Waldron's or M&R's gross annual income from all sources for any 
fiscal year; and
    (h) neither M&R nor Mr. Waldron has acquired any property from, 
sold property to, or borrowed funds from Columbia, CICL, or Wausau or 
their Affiliates.
    9. Mr. Waldron represents that CICL is registered in Bermuda and 
has been conducting business in Bermuda since 1996 reinsuring property 
and casualty risks. CICL's reserves have been reviewed by ARS, which is 
a firm independent of CICL and Columbia. These reports cover the last 
two reporting periods prior to the proposed transaction. In addition, 
Mr. Waldron has received assurances from Columbia and CICL that all 
future reserves in the Vermont branch of CICL (i.e., Branch) will be 
certified by a qualified actuary approved by the State of Vermont. Mr. 
Waldron has confirmed that CICL has undergone an examination by Arthur 
Andersen & Co., an independent certified public accountant, for its 
last completed taxable year.
    10. Mr. Waldron has concluded that, as a result of the reinsurance 
agreement described in representation 6, above, the Plan's risks will 
be 100% covered by Wausau, a carrier rated A+ by Best's, even if CICL 
were unable or unwilling to cover the Plan's liabilities it is assuming 
as a result of the reinsurance agreement. Mr. Waldron represents that 
he has reviewed the terms of the proposed reinsurance agreement between 
Wausau and CICL, and it provides for the risk retained by CICL to 
revert back to Wausau at no further cost to the Plan should CICL be 
unable or unwilling to pay the benefits.
    11. Mr. Waldron has represented that he reviewed the Plan benefits 
before the reinsurance transaction and the benefits implemented in 
anticipation of the reinsurance transaction. He has concluded that 
there is an immediate benefit to the Plan participants from the 
reinsurance transaction. Benefits have been increased from 30% of 
monthly earnings up to the Social Security wage base plus 60% of basic 
monthly earnings above the Social Security wage base, to 60% of the 
basic monthly earnings without regard to the Social Security wage base. 
In addition, the family benefit from Social Security will no longer be 
used to offset the Plan benefits if the combined benefits exceed 70% of 
basic monthly earnings.
    12. The applicant makes the following representations concerning 
the determination of the initial premium to the Plan under the proposed 
arrangement. The Plan contacted Wausau and was quoted a rate based on 
Wausau's evaluation of the risk. When CICL considered reinsuring the 
Plan's risk, it asked its consultants, WW and ARS, to evaluate the risk 
and the Wausau premium based on their best estimates of expected claims 
and expenses, respectively. Mr. Waldron represents that M&R has 
reviewed the report by Mr. George of WW (see rep. 3, above), who was 
retained to develop the expected claims for the year 2000 based on the 
covered participants as of December 31, 1999. In addition, M&R had a 
discussion regarding that report with Mr. George to obtain more 
information concerning the details of the methods he used, and M&R 
relied on this report for its accuracy of data and calculation. With 
respect to ARS' evaluation of expenses, M&R reviewed the types of 
expenses to ensure that all types of expenses that would be expected 
were provided for. M&R represents that the premium developed for the 
Plan follows a methodology of adding to the expected claims, a small 
provision for adverse deviation and the estimated expenses of the Plan, 
including premium tax. Mr. Waldron states that this method is one of 
many methods used within the industry. The expected claims were 
estimated to be at the midpoint of M&R's claims model, relating to such 
claims, which was based on modifications to the 1987 Group Long Term 
Disability Table. The modifications were based in part on the actual 
historical experience of the Plan. Expenses were developed from actual 
costs incurred by the Plan, or by contractual agreements between the 
parties. Expenses include administrative costs, including claims 
handling expenses, fronting and placement fees, and premium taxes.
    In summary, M&R represents that it has reviewed the analysis of the 
Wausau rate by WW and ARS, and has concluded that the rate being 
charged by Wausau is consistent with the actuarial projections. M&R 
represents that the formula used to calculate the premiums is similar 
to formulae used by other insurers providing long-term disability 
coverage under similar plans.

[[Page 50240]]

Furthermore, it is Mr. Waldron's opinion that the premium is below the 
midpoint of the range of premiums charged by other insurers providing 
similar coverage under similar programs. The applicant represents that 
the independent fiduciary will confirm on an annual basis that the Plan 
is paying a rate comparable to that which would be charged by a 
comparably-rated insurer for a program of the approximate size of the 
Plan with comparable claims experience.
    13. M&R will represent the interests of the Plan as the Independent 
Fiduciary at all times.\33\ M&R will monitor compliance by the parties 
with the terms and conditions of the proposed reinsurance transaction, 
and will take whatever action is necessary and appropriate to safeguard 
the interests of the Plan and of its participants and beneficiaries.
---------------------------------------------------------------------------

    \33\ In this regard, the applicant makes a representation 
regarding a successor independent fiduciary. Specifically, if it 
becomes necessary in the future to appoint a successor independent 
fiduciary (the Successor) to replace M&R and Mr. Waldron, the 
applicant will notify the Department sixty (60) days in advance of 
the appointment of the Successor. Any Successor will have the 
responsibilities, experience and independence similar to those of 
M&R and Mr. Waldron.
---------------------------------------------------------------------------

    14. The applicant represents that the proposed reinsurance 
transaction will meet the following conditions of PTE 79-41 covering 
direct insurance transactions:
    (a) CICL is a party in interest with respect to the Plan (within 
the meaning of section 3(14)(G) of the Act) by reason of stock 
affiliation with Columbia, which maintains the Plan;
    (b) Branch is licensed to do conduct reinsurance transactions by 
the State of Vermont. The law under which Branch is licensed requires 
that all business written in a branch captive must have an annual 
certification by a qualified actuary;
    (c) CICL has undergone an examination by the independent certified 
public accountant firm of Arthur Andersen & Co. for its last completed 
taxable year;
    (d) Branch has received a Certificate of Authority from its 
domiciliary state, Vermont, which has neither been revoked nor 
suspended;
    (e) The Plan will pay no more than adequate consideration for the 
insurance. In addition, in the initial year of the proposed reinsurance 
transaction, there will be an immediate increase in benefits to the 
Plan's participants and beneficiaries; and
    (f) No commissions will be paid by the Plan with respect to the 
reinsurance arrangement with CICL, through Branch, as described herein.
    In addition, the Plan's interests will be represented by a 
qualified, independent fiduciary (i.e., M&R or its Successor), who has 
initially determined that such transaction will be in the best 
interests, and protective, of the Plan and its participants and 
beneficiaries. The independent fiduciary will also confirm on an annual 
basis that the Plan is paying a rate comparable to that which would be 
charged by a comparably-rated insurer for a program of the approximate 
size of the Plan with comparable claims experience.
    15. In summary, the applicant represents that the proposed 
transaction will meet the criteria of section 408(a) of the Act 
because: (a) Plan participants and beneficiaries are afforded insurance 
protection by Wausau, a carrier rated A+ by Best's, at competitive 
market rates arrived at through arm's-length negotiations; (b) CICL, 
which through Branch will enter into the reinsurance transaction with 
Wausau, is a sound, viable insurance company which has been in business 
since 1996; (c) the protections described in representation 14, above, 
provided to the Plan and its participants and beneficiaries under the 
proposed reinsurance transaction are based on those required for direct 
insurance by a ``captive'' insurer, under the conditions of PTE 79-41 
(notwithstanding certain other requirements related to, among other 
things, the amount of gross premiums or annuity considerations received 
from customers who are not related to, or affiliated with the insurer); 
\34\ (d) Mr. Waldron, the Plan's independent fiduciary, has reviewed 
the proposed reinsurance transaction and has determined that the 
transaction is appropriate for, and in the best interests of, the Plan 
and that there will be an immediate benefit to the Plan participants as 
a result thereof by reason of an improvement in benefits under the 
terms of the Plan; and (e) M&R will monitor compliance by the parties 
with the terms and conditions of the proposed reinsurance transaction, 
and will take whatever action is necessary and appropriate to safeguard 
the interests of the Plan and of its participants and beneficiaries.
---------------------------------------------------------------------------

    \34\ The proposal of this exemption should not be interpreted as 
an endorsement by the Department of the transactions described 
herein. The Department notes that the fiduciary responsibility 
provisions of Part 4 of Title I of the Act apply to the fiduciary's 
decision to engage in the reinsurance arrangement.
    Specifically, section 404(a)(1) of the Act requires, among other 
things, that a plan fiduciary act prudently, solely in the interest 
of the plan's participants and beneficiaries, and for the exclusive 
purpose of providing benefits to participants and beneficiaries when 
making investment decisions on behalf of the plan. In this regard, 
the Department is not providing any opinion as to whether a 
particular insurance or investment product, strategy or arrangement 
would be considered prudent or in the best interests of a plan, as 
required by section 404 of the Act. The determination of the 
prudence of a particular product or arrangement must be made by a 
plan fiduciary after appropriate consideration to those facts and 
circumstances that, given the scope of such fiduciary's investment 
duties, the fiduciary knows or should know are relevant to the 
particular product or arrangement involved, including the plan's 
potential exposure to losses and the role a particular insurance or 
investment product plays in that portion of the plan's investment 
portfolio with respect to which the fiduciary has investment duties 
and responsibilities (see 29 CFR 2550.404a-1).

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

American Mutual Holding Company (AMHC)

    Located in Des Moines, IA

[Application No. D-10874]

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).\35\
---------------------------------------------------------------------------

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

Section I. Covered Transactions

    If the exemption is granted, the restrictions of section 406(a) of 
the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(A) through (D) of the 
Code, shall not apply to (1) the receipt of certain common stock 
(Common Stock) issued by AMHC, or (2) the receipt of cash (Cash) or 
policy credits (Policy Credits), by or on behalf of a policyowner of 
AMHC (the Eligible Member), which is an employee benefit plan (the 
Plan), other than a Plan maintained by AMHC and/or its affiliates, in 
exchange for such Eligible Member's membership interest in AMHC, in 
accordance with the terms of a plan of conversion (the Plan of 
Conversion), implemented under Iowa law.
    This proposed exemption is subject to the following conditions set 
forth below in Section II.

Section II. General Conditions

    (a) The Plan of Conversion is subject to approval, review and 
supervision by the Iowa Commissioner of Insurance

[[Page 50241]]

(the Commissioner) and is implemented in accordance with procedural and 
substantive safeguards that are imposed under Iowa law.
    (b) The Commissioner reviews the terms and options that are 
provided to Eligible Members of AMHC as part of such Commissioner's 
review of the Plan of Conversion and the Commissioner approves the Plan 
of Conversion following a determination that such Plan is fair and 
equitable to Eligible Members and is not detrimental to the general 
public.
    (c) Each Eligible Member has an opportunity to vote to approve the 
Plan of Conversion after full written disclosure is given to the 
Eligible Member by AMHC.
    (d) Any determination to receive Common Stock, Cash or Policy 
Credits by an Eligible Member which is a Plan, pursuant to the terms of 
the Plan of Conversion, is made by one or more Plan fiduciaries which 
are independent of AMHC and its affiliates and neither AMHC nor any of 
its affiliates exercises any discretion or provides investment advice, 
within the meaning of 29 CFR 2510.3-21(c), with respect to such 
decisions.
    (e) After each Eligible Member entitled to receive Common Stock is 
allocated at least 20 shares, additional consideration is allocated to 
Eligible Members who own participating policies based on actuarial 
formulas that take into account each participating policy's 
contribution to the surplus and asset valuation reserve of AMHC, which 
formulas have been approved by the Commissioner.
    (f) All Eligible Members that are Plans participate in the 
transactions on the same basis as all Eligible Members that are not 
Plans.
    (g) No Eligible Member pays any brokerage commissions or fees in 
connection with their receipt of Common Stock or Policy Credits or in 
connection with the implementation of the commission-free program (the 
Program).
    (h) All of AMHC's policyholder obligations remain in force and are 
not affected by the Plan of Conversion.

Section III. Definitions

    For purposes of this proposed exemption:
    (a) The term ``AMHC'' means American Mutual Holding Company and any 
affiliate of AMHC as defined in paragraph (b) of this Section III.
    (b) An ``affiliate'' of AMHC includes--
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with AMHC. (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 Member'' means a person who is (or, 
collectively, persons who are) the owner(s) of one or more ``eligible 
policies'' (the Eligible Policy or Eligible Policies) on the adoption 
date of the Plan of Conversion. An ``Eligible Policy'' is defined as a 
policy that has been in force for at least one year prior to the 
adoption date and that remains in force on the effective date of the 
Plan of Conversion. A mutual member of AMHC who owns both an Eligible 
Policy and a policy that is not an Eligible Policy will be an Eligible 
Member only with respect to the Eligible Policy.
    (d) The term ``Policy Credit'' means either an increase in the 
accumulation account value (to which no surrender or similar charge 
will be applied) or an increase in a dividend accumulation on a policy 
or contract issued by AmerUs Life Insurance Company (AmerUs Life).

Summary of Facts and Representations

    1. AMHC is a mutual insurance holding company that was organized 
under Iowa law on June 30, 1996. AMHC was formed incident to the 
conversion of AmerUs Life, from a mutual insurance company to a stock 
life insurance company under a plan of reorganization that was approved 
by the Commissioner and AmerUs Life members. As required under Section 
521A.14 of the Iowa Code (which governs the formation of mutual 
insurance holding companies), and as provided in that plan of 
reorganization, AmerUs Life policyowners ceased to have any membership 
interests in AmerUs Life and instead became mutual members of AMHC.
    2. AmerUs Life was originally organized in 1896 as a mutual 
insurance company under the name ``Central Life Assurance Society of 
the United States.'' In 1902, AmerUs Life was converted to a stock 
company in 1902 and again reverted to a mutual company in 1919. In 
1994, AmerUs Life's name was changed to American Mutual Life Insurance 
Company when it merged with a previously unrelated company of that 
name. On June 30, 1996, the insurer's name was finally changed to 
``AmerUs Life Insurance Company.'' As of March 31, 2000, AmerUs Life 
had the following financial-strength ratings: ``A'' (by A.M. Best); 
``Baa1'' (by Moody's); and ``A'' (by Standard & Poor's).
    3. Currently, AmerUs Life has approximately 16,000 outstanding 
contracts held in connection with employee benefit plan policyowners 
which are members of AMHC. None of the Plans is sponsored by AmerUs 
Life or any AMHC affiliate.
    In certain cases, AmerUs Life or one of its affiliates may provide 
limited administrative or recordkeeping services to the Plans. These 
services include the preparation of required tax forms (such as IRS 
Forms 1099-R and 5948), tracking of regular contributions made to Roth 
IRAs, and, in prior years, provision of prototype plan documents. 
However, neither AmerUs Life nor any of its affiliates is in the 
business of providing administrative, recordkeeping or fiduciary 
services to Plans.
    As of December 31, 1999, AmerUs Life, together with its 
subsidiaries, had approximately $4.674 billion in assets, more than $4 
billion of assets under management, and more than $33 billion of 
individual life insurance in force.
    4. The principal products of AmerUs Life include life insurance and 
annuity contracts. Some of these contracts are sold to Plans that are 
subject to Title I of the Act or described in section 4975(e)(1) of the 
Code. The Plans generally include qualified plans and qualified annuity 
plans, described in sections 401(a) and 403(a) of the Code (including 
401(k) plans and Keogh plans); individual retirement arrangements 
(IRAs) described in Code section 408 (including simplified employee 
pensions); Roth IRAs described in Code section 408A; tax-sheltered 
annuities described in Code section 403(b); and welfare plans. Because 
no employee benefit plan sponsored by AMHC or its affiliates owns a 
life insurance or annuity contract issued by AmerUs Life, no in-house 
Plans of these entities will be involved in the demutualization and 
merger transactions (collectively, the Restructuring) described herein.
    5. As part of the 1996 reorganization, all of the capital stock of 
AmerUs Life was issued to AMHC. Subsequently, AMHC transferred all of 
that stock to its subsidiaries. At present, AmerUs Life is a wholly 
owned subsidiary of AmerUs Life Holdings, Inc. (AMH), a publicly-traded 
insurance holding company. AMH also owns Delta Life Corporation, 
AmVestor Financial Corporation and several non-life subsidiaries. The 
direct and indirect subsidiaries of AMH (other than those that are 
inactive or that serve only as holding companies) are all involved in 
the business of life

[[Page 50242]]

insurance or in related financial services.
    AMH is approximately 58 percent owned by AmerUs Group Co. (Group), 
a wholly owned subsidiary of AMHC, and approximately 42 percent owned 
by public investors. Group also owns a number of non-life subsidiaries. 
Subsidiaries of AmerUs Life include CLA Assurance Company, Centralife 
Annuity Services, Inc. and American Vanguard Life Insurance Company.
    6. An AmerUs Life policyowner's membership interest in AMHC 
consists of the rights to vote, to participate in the distribution of 
AMHC's surplus in the event of AMHC's voluntary dissolution or 
liquidation, and to receive consideration in the event of AMHC's 
demutualization. The voting rights of such members are equal, with each 
member having only one vote regardless of the number of policies owned 
by that member. In addition, members have the right to vote for the 
election of AMHC's Board of Directors and to vote on any proposition 
that the Board of Directors submits to a vote of members or that is 
required to be submitted to such a vote under Iowa law. A person ceases 
to be a member of AMHC when such person ceases to be an AmerUs Life 
policyowner.
    7. Because the mutual holding company structure no longer agrees 
with the strategic business plan of AMHC and AMH, AMHC intends to 
convert from a mutual company to a stock company and then merge AMH 
into AMHC (i.e., the Restructuring) in accordance with the ``Plan of 
Conversion of American Mutual Holding Company'' which was adopted by 
the AMHC Board of Directors on December 17, 1999. The principal purpose 
of the Restructuring is to enhance AMHC's financial flexibility. In 
addition, the Restructuring will provide members who are eligible to 
receive consideration under the Restructuring (i.e., the Eligible 
Members) with an opportunity to receive shares of Common Stock issued 
by AMHC, Cash or Policy Credits, in exchange for such Eligible Member's 
illiquid membership interests, which will be extinguished. In this 
regard, Eligible Members will realize economic value from their 
membership interests that is not currently available to them as long as 
AMHC remains a mutual holding company. The proposed Restructuring will 
not affect the rights of AmerUs Life policyowners under their insurance 
and annuity contracts. All of AmerUs Life's insurance and annuity 
contracts will remain in force and all policyowners will be entitled to 
receive all benefits under their contracts to which they would have 
been entitled without regard to the Restructuring. In other words, the 
Restructuring will not, in any way, change premiums or reduce policy 
benefits, values, guarantees or other policy obligations of AmerUs Life 
to its policyowners. Policy dividends will continue to be paid as 
declared.
    8. Accordingly, AMHC requests an administrative exemption from the 
Department that would cover the receipt of Common Stock, Cash or Policy 
Credits by Eligible Members that are Plans in exchange for such 
Eligible Member's existing membership interests in AMHC. As noted 
above, AMHC is not requesting an exemption for distributions of 
consideration to ``in house'' Plans maintained by it or its affiliates 
for their own employees because these Plans do not own life insurance 
or annuity contracts that are issued by AmerUs Life.
    9. Under Section 521.14(b)(5) of the Iowa Code, AMHC is treated as 
a mutual entity and it may be converted to a stock company under 
chapter 508B of the Iowa Code. Chapter 508B, which applies to AMHC's 
Plan of Conversion, sets forth procedural and substantive requirements 
to ensure that the Restructuring will be fair and equitable to AmerUs 
Life policyowners.
    Specifically, Section 508B.2 of the Iowa Code provides that a 
mutual life insurance company may become a stock life insurance company 
under a plan of conversion established and approved in the manner 
provided by Chapter 508B. Section 508B.2 and Section 508B.3 also 
provide that, in lieu of selecting a plan of conversion provided for in 
Chapter 508B, a mutual company may convert to a stock company pursuant 
to a plan approved by the Commissioner. (The Restructuring of AMHC will 
be conducted in accordance with these latter provisions.)
    Under Section 508B.3 of the Iowa Code, the Commissioner must 
determine the fairness and equity of a plan of conversion with respect 
to policyowners of a company undergoing demutualization. More 
specifically, Section 508B.7 of the Iowa Code requires that the 
Commissioner review the plan of conversion to determine whether it 
complies with all provisions of law, is fair and equitable to the 
mutual company and its policyowners, and whether the reorganized 
company will have the amount of capital and surplus deemed by the 
Commissioner to be reasonable necessary for its future solvency. 
Additionally, Section 508B.7 of the Iowa Code permits the Commissioner 
to order a hearing on the fairness and equity of the terms of the plan 
of conversion after giving written notice of the hearing to the mutual 
company, its policyowners, and other interested persons--all of whom 
have a right to appear at the hearing.
    Section 508B.6 of the Iowa Code requires that a plan of conversion 
be approved by two-thirds of the policyowners of the mutual company who 
are entitled to vote on the conversion. The statute requires notice to 
be given to the policyowners and permits voting by ballot, in person, 
or by proxy. The notice of meeting and election must contain a copy of 
the plan of conversion or a summary of the plan of conversion. Section 
508B.4 of the Iowa Code defines the class of policyowners entitled to 
receive notice and to vote on the plan of conversion as generally 
including policyowners whose policies or contracts are in force on the 
date of adoption of the plan of conversion.
    Finally, Section 508B.9 of the Iowa Code provides that, after the 
plan of conversion has been approved by the Commissioner and the 
policyowners, the reorganized company will be a continuation of the 
mutual company and the conversion will not annul or modify any of the 
mutual company's existing suits, contracts, or liabilities except as 
provided in light of the plan of conversion.
    All rights, franchisees and interests of the mutual company in and 
to property, assets and other interests will be transferred to and vest 
in the reorganized company. The reorganized company will assume all 
obligations and liabilities of the mutual company.
    Consistent with these requirements of chapter 508B, the Plan of 
Conversion provides for AMHC to file an application with the 
Commissioner under Section 508B.2 of the Iowa Code to reorganize as a 
stock holding company and to merge with AMH (with AMHC as the surviving 
entity). In the present case, the Commissioner will hold a public 
hearing on the fairness and equity of the terms of the Plan of 
Conversion and on whether AMHC will have the amount of capital and 
surplus necessary for its future solvency.
    The Plan of Conversion also provides for members to comment on such 
Plan at the hearing and for policyowners who are entitled to vote on 
the Plan to do so at a special members' meeting. Further, the Plan of 
Conversion requires AMHC to provide notice to its members of both the 
public hearing and the members' meeting.
    10. Thus, subject to the approval of the Commissioner and the 
voting members, the Plan of Conversion will include the following 
actions:
     Group will liquidate into AMHC.

[[Page 50243]]

     AMHC will convert to a stock corporation.
     AMHC will provide Common Stock, Cash or Policy Credits to 
Eligible Members as consideration for their membership interests.
     AMH will merge into AMHC with AMHC as the surviving 
corporation and with shareholders of AMH receiving stock of AMHC in 
exchange for their shares of AMH.
     AmerUs Life will become a wholly owned subsidiary of AMHC 
(which will be renamed ``AmerUs Group Co.'').\36\ Shares of the 
successor entity will be traded on the New York Stock Exchange. Thus, 
there will be no initial public offering of AMHC stock as a result of 
the Restructuring.
---------------------------------------------------------------------------

    \36\ AMHC is in the process of combining with Indianapolis Life 
Insurance Company (ILICo), a mutual life insurance company. AMHC 
expects that ILICo will be converted to a stock company under a 
``sponsored demutualization'' after the Restructuring of AMHC. The 
sponsored demutualization of ILICo will result in certain ILICo 
policyowners receiving Common Stock, Cash or Policy Credits. It is 
anticipated that a plan of conversion for the demutualization of 
ILICo will be filed with the Indiana Insurance Commissioner in 
August 2000 and that an exemption request will be subsequently filed 
with the Department.
---------------------------------------------------------------------------

    On June 22, 2000, the voting members of AMHC approved the Plan of 
Conversion with approximately 100,000 policyowners voting on such Plan. 
On the same day, the shareholders of AMH approved the merger of AMH 
into AMHC. On June 23, 2000, the Commissioner held a public hearing on 
the Plan of Conversion. The Commissioner is expected to approve the 
Plan of Conversion during August 2000 and it is anticipated AMHC will 
demutualize on or before September 30, 2000.
    11. Under the Plan of Conversion, all Eligible Members will receive 
consideration in exchange for their membership interests in AMHC.\37\ 
The decision to vote on the Plan of Conversion and the decision to 
elect the form of consideration to be received by a Plan in connection 
with the Restructuring will be made by a Plan fiduciary which is 
independent of AMHC and its affiliates. In this respect, neither AMHC 
nor its affiliates will exercise investment discretion or render 
``investment advice,'' within the meaning of 29 CFR 2510.3-21(c), with 
respect to such decisions.
---------------------------------------------------------------------------

    \37\ AMHC represents that, consistent with section 508B.1.4 of 
the Iowa Code, the Plan of Conversion generally provides that the 
policyowner eligible to participate in the distribution of Common 
Stock, Cash or Policy Credits resulting from the Plan of Conversion 
generally is the owner of a policy as ``determined by [AMHC] on the 
basis of AmerUs Life's records.'' AMHC further represents that an 
insurance or annuity policy that provides benefits under an employee 
benefit plan typically designates the employer that sponsors the 
plan, or a trustee acting on behalf of the plan, as the owner of the 
policy. In regard to insurance or annuity policies that designate 
the employer or trustee as owner of the policy, AMHC represents that 
it is required under the foregoing provisions of the Iowa Code and 
the Plan of Conversion to make distributions resulting from the Plan 
of Conversion to the employer or trustee as owner of the policy.
    In general, it is the Department's view that, if an insurance 
policy (including an annuity contract) is purchased with assets of 
an employee benefit plan, including participant contributions, and 
if there exist any participants covered under the plan (as defined 
at 29 CFR 2510.3-3) at the time when AMHC incurs the obligation to 
distribute Common Stock, Cash or Policy Credits, then such 
consideration would constitute an asset of such Plan. Under these 
circumstances, the appropriate Plan fiduciaries must take all 
necessary steps to safeguard the assets of the Plan in order to 
avoid engaging in a violation of the fiduciary responsibility 
provisions of the Act.
---------------------------------------------------------------------------

    The total consideration given to the Eligible Members will be equal 
in value to the assets of AMHC, net of its liabilities and other 
obligations. For purposes of allocating the total consideration among 
Eligible Members, each Eligible Member will be allocated (but not 
necessarily issued) shares of Common Stock equal to the sum of (a) a 
fixed component equal to 20 shares of Common Stock; and (b) a variable 
component of consideration equal to the portion, if any, of the 
``aggregate variable component'' allocated to any variable component 
policy owned by the Eligible Member.\38\
---------------------------------------------------------------------------

    \38\ A ``variable component policy'' is a policy eligible to 
participate in the divisible surplus of AmerUs Life.
---------------------------------------------------------------------------

    12. The aggregate variable component will be allocated among 
variable component policies by multiplying an ``equity share'' for each 
variable component policy by the number of shares of Common Stock 
constituting the aggregate variable component. The ``equity share'' for 
a variable component policy will be equal to the ratio of the 
``actuarial contribution'' for that policy to the sum of all actuarial 
contributions for all variable component policies. The ``actuarial 
contribution'' for a policy is the contribution that the policy has 
made (and is expected to make) to AmerUs Life's statutory surplus and 
asset valuation reserve, as calculated under the principles, 
assumptions and methodologies set forth in the Plan of Conversion and 
the actuarial contribution memorandum referred to in the Plan of 
Conversion.
    13. After shares of Common Stock have been allocated in the manner 
described above, consideration will be paid to Eligible Members as 
follows:
     First, in the case of policies and contracts held by IRAs 
described in Code section 408(b) and tax-sheltered annuities described 
in Code section 403(b) and in the case of individual annuity contracts 
and individual life insurance policies issued directly to participants 
under qualified plans described in Code section 401(a), consideration 
will be paid only in Policy Credits.
     Second, in the case of other Eligible Members who hold 
policies known by AMHC to be subject to a creditor lien (other than a 
policy loan) or a bankruptcy proceeding or whose addresses as shown in 
the records of AMHC are outside the United States or are addresses at 
which mail is undeliverable, consideration will be paid only in Cash.
     Third, in the case of other Eligible Members who so elect, 
by making an affirmative election, consideration generally will be paid 
in Common Stock.
     Fourth, in all other cases, consideration generally will 
be paid in Cash. (In other words, an Eligible Member, who is not 
described in bulleted paragraph One or Two above, and who does not make 
an affirmative election to receive Common Stock, as described in 
bulleted paragraph Three above, will receive Cash.)
    Section 6.3(d) of the Plan of Conversion provides special rules for 
satisfying the Cash and Common Stock preferences of Eligible 
Members.\39\ In this regard, the Plan of Conversion limits the total 
amount of Cash available for payment of consideration to Eligible 
Members and provides for an allocation of Cash and Common Stock among 
Eligible Members (other than those described in the first two 
categories) in the event that the amount of available Cash is not 
adequate to meet Cash preferences. This allocation will be made as 
follows:
---------------------------------------------------------------------------

    \39\ The special rules are intended to apply on a uniform basis 
without regard to whether the Eligible Member entitled to receive 
consideration is a Plan. The reason for the special rules is that 
the Plan of Conversion limits both the total number of shares of 
Common Stock available for distribution in connection with the 
Restructuring and the total funds available for distribution as Cash 
or Policy Credits. In this regard, the total number of shares of 
Common Stock available under the Plan of Conversion is 17,390,165 
shares. This number is equal to the number of AMH shares currently 
held by AMHC. The total funds available for distribution as Cash or 
Policy Credits is the ``net cash proceeds'' of AMHC (i.e., the cash 
balances of AMHC immediately prior to the effective date of the Plan 
of Conversion less expenses relating to the Plan of Conversion, all 
other expenses of AMHC accrued as of the effective date of the Plan 
of Conversion, and the liabilities of AMHC).
---------------------------------------------------------------------------

     First, Cash will be distributed to those ``Cash 
Preference'' Eligible Members who are allocated no more than the number 
of shares of Common Stock constituting the fixed component of 
consideration.

[[Page 50244]]

     Then, Cash will be distributed continuing to the highest 
level of share allocation at which Cash preferences can be satisfied.
     If Cash preferences cannot be satisfied for ``Cash 
Preference'' Eligible Members entitled to receive the same number of 
shares of Common Stock, Cash will be distributed on a pro rata basis to 
such Eligible Members (but with Cash paid only to the extent of whole 
shares of Common Stock).
     Any consideration not paid in Cash under the first through 
third bulleted paragraphs set forth above, will be paid in shares of 
Common Stock.
    At present, AMHC anticipates that the satisfaction of Cash 
preferences with Common Stock will become applicable only with respect 
to ``Cash Preference'' Eligible Members who are allocated in excess of 
100 shares of Common Stock.
    14. Eligible Members who do not receive Cash consideration under 
the aforementioned allocation method may receive consideration in the 
form of Common Stock. Therefore, it is possible that Eligible Members 
who ``state a Cash preference,'' by not affirmatively electing to 
receive Common Stock, may receive Common Stock as consideration for 
their membership interests.
    In addition, the Plan of Conversion limits the total number of 
shares of Common Stock available for payment to Eligible Members and 
provides for Cash and Common Stock to be allocated among Eligible 
Members in a fair and equitable manner in the event the amount of 
available Common Stock is not adequate to meet the Common Stock 
preferences.\40\
---------------------------------------------------------------------------

    \40\ Specifically, Section 6.3(d) of the Plan of Conversion 
provides special rules for the limited satisfaction of Common Stock 
preferences with Cash. These rules apply in the event Eligible 
Members elect to receive consideration in the form of Common Stock 
in such a way that the net cash proceeds of AMHC would not be fully 
utilized and the shares of Common Stock issued in connection with 
the Restructuring would exceed 17,390,165 shares. In this event, the 
number of shares of Common Stock to be issued to the Eligible 
Members who have elected to receive Common Stock (the Stock 
Preference Members) will be reduced to 17,390,165 shares ``in a fair 
and equitable manner'' and an amount of funds necessary to reduce 
the undistributed net cash proceeds to zero will be distributed to 
Stock Preference Members ``in a fair and equitable manner.'' AMHC 
expects that the Common Stock preferences of all Stock Preference 
Members will be satisfied with shares of Common Stock so the 
foregoing rules will not apply in connection with the Restructuring.
---------------------------------------------------------------------------

    15. Where consideration is to be paid in the form of Cash or Policy 
Credits, the amount of Cash or Policy Credits will be determined by 
multiplying the number of shares of Common Stock allocated to the 
Eligible Member by the ``stock price'' of the Common Stock. Under the 
Plan of Conversion, the ``stock price'' is defined as the greater of 
the closing price per share of the Common Stock on the effective date 
of the Plan of Conversion or the average of the closing price per share 
of the Common Stock for each of the first ten trading days beginning 
with the effective date of the Plan of Conversion.
    16. Where consideration is to be paid in the form of Common Stock, 
AMHC will issue to the Eligible Member, in book-entry form as 
uncertificated shares, the shares of Common Stock allocated to the 
Eligible Member for which the Eligible Member will not receive 
consideration in the form of Cash or Policy Credits and will mail 
notice that a designated number of shares of Common Stock have been 
registered in the Eligible Member's name. Upon request of the 
registered holder of such shares, AMHC will mail a stock certificate 
representing such shares. No Eligible Member will pay a brokerage 
commission or fee in connection with the receipt of Common Stock under 
the Plan of Conversion.
    17. The Plan of Conversion permits AMHC to establish a commission-
free program beginning within one year of the effective date of the 
Plan of Conversion and continuing for at least three months. Pursuant 
to the Program, each Eligible Member who receives not more than 99 
shares of Common Stock will be entitled to sell, at prevailing market 
prices all such shares received under the Restructuring without paying 
brokerage commissions, mailing charges, registration fees, or other 
administrative or similar expenses.
    Additionally, Eligible Members receiving fewer than 99 shares of 
Common Stock will be entitled to purchase, at prevailing market prices, 
additional shares to round-up their holdings to 100 shares without 
paying brokerage commissions, mailing charges, registration fees or 
other administrative or similar expenses. However, the decision to sell 
or purchase shares under the Program will be made by an independent 
Plan fiduciary and neither AMHC nor its affiliates will exercise 
investment discretion or render ``investment advice'' within the 
meaning of 29 CFR 2510.3-21(c).
    18. In summary, it is represented that the proposed transactions 
will satisfy the statutory criteria for an exemption under section 
408(a) of the Act because:
    (a) The Plan of Conversion will be implemented in accordance with 
stringent procedural and substantive safeguards that are imposed under 
Section 508B of the Iowa Code and will be subject to the review and 
supervision of the Commissioner.
    (b) The Commissioner will review the terms and options that are 
provided to Eligible Members of AMHC as part of such Commissioner's 
review of the Plan of Conversion and the Commissioner will approve the 
Plan of Conversion following a determination that such Plan is fair and 
equitable to Eligible Members (including Plans) and is not detrimental 
to the general public.
    (c) One or more independent Plan fiduciaries will have an 
opportunity to vote to approve the terms of the Plan of Conversion (or 
to comment on such Plan), and will be solely responsible for all such 
decisions after receiving full and complete disclosure from AMHC.
    (d) The proposed exemption will allow Eligible Members that are 
Plans to receive Common Stock, Cash or Policy Credits, in exchange for 
their membership interests in AMHC and neither AMHC nor any of its 
affiliates will exercise investment discretion or provide ``investment 
advice,'' within the meaning of 29 CFR 2510. 3-21(c), with respect to 
such decisions.
    (e) All Plans that are Eligible Members will participate in the 
transactions and on the same basis as Eligible Members that are not 
Plans.
    (f) No Eligible Member will pay any brokerage commissions or fees 
in connection with the receipt of Common Stock or Policy Credits or in 
connection with the implementation of the Program.
    (g) All of AMHC's policyholder obligations will remain in force and 
will not be affected by the Plan of Conversion such that no benefits, 
guarantees, or other rights and interests (apart from membership in 
AMHC) will be compromised.

Notice to Interested Persons

    AMHC will provide notice of the proposed exemption to Eligible 
Members which are Plans within 21 days of the publication of the notice 
of pendency in the Federal Register. Such notice will be provided to 
interested persons by first-class mail and will include a copy of the 
notice of proposed exemption, as published in the Federal Register, 
including a supplemental statement, as required pursuant to 20 CFR 
2570.43(b)(2) which shall inform interested persons of their right to 
comment on the proposed exemption. Comments with respect to the notice 
of proposed exemption are due within 51 days after the date of 
publication of this pendency notice in the Federal Register.

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

[[Page 50245]]

General Information

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

    Signed at Washington, DC, this 10th day of August, 2000.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits, 
Administration, U.S. Department of Labor.
[FR Doc. 00-20741 Filed 8-16-00; 8:45 am]
BILLING CODE 4510-29-P