[Federal Register Volume 76, Number 239 (Tuesday, December 13, 2011)]
[Notices]
[Pages 77594-77623]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-31741]



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Vol. 76

Tuesday,

No. 239

December 13, 2011

Part II





Department of Labor





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Employee Benefits Security Administration





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Proposed Exemptions From Certain Prohibited Transaction Restrictions; 
Notice

  Federal Register / Vol. 76, No. 239 / Tuesday, December 13, 2011 / 
Notices  

[[Page 77594]]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration


Proposed Exemptions From Certain Prohibited Transaction 
Restrictions

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of Proposed Exemptions.

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SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the prohibited transaction restrictions of the Employee 
Retirement Income Security Act of 1974 (ERISA or the Act) and/or the 
Internal Revenue Code of 1986 (the Code). This notice includes the 
following proposed exemptions: D-11517, JPMorgan Chase & Co. and its 
Current and Future Affiliates and Subsidiaries (JPMorgan Chase); D-
11579, Delaware Charter Guarantee & Trust Co. d\b\a\ Principle Trust 
Company (Principle Trust); D-11628, Aztec Well Servicing Company and 
Related Companies Medical Plan Trust Fund (the Plan); D-11669, Genzyme 
Corporation 401(k) Plan (the Plan or the Applicant); and Retirement 
Program for Employees of EnPro Industries (the Plan), D-11662 et al.

DATES: All interested persons are invited to submit written comments or 
requests 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.

ADDRESSES: 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. All written comments and requests for a 
hearing (at least three copies) should be sent to the Employee Benefits 
Security Administration (EBSA), Office of Exemption Determinations, 
Room N-5700, U.S. Department of Labor, 200 Constitution Avenue NW., 
Washington, DC 20210. Attention: Application No.----, stated in each 
Notice of Proposed Exemption. Interested persons are also invited to 
submit comments and/or hearing requests to EBSA via email or fax. Any 
such comments or requests should be sent either by email to: 
[email protected], or by fax to (202) 219-0204 by the end of the 
scheduled comment period. The applications for exemption and the 
comments received will be available for public inspection in the Public 
Documents Room of the Employee Benefits Security Administration, U.S. 
Department of Labor, Room N-1513, 200 Constitution Avenue NW., 
Washington, DC 20210.
    Warning: If you submit written comments or hearing requests, do not 
include any personally-identifiable or confidential business 
information that you do not want to be publicly-disclosed. All comments 
and hearing requests are posted on the Internet exactly as they are 
received, and they can be retrieved by most Internet search engines. 
The Department will make no deletions, modifications or redactions to 
the comments or hearing requests received, as they are public records.

SUPPLEMENTARY INFORMATION: 

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).
    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 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.

JPMorgan Chase & Co. and Its Current and Future Affiliates and 
Subsidiaries (JPMorgan Chase), Located in New York, New York

Application Number D-11517

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Employee Retirement Income Security 
Act of 1974 (ERISA or the Act) and section 4975(c)(2) of the Internal 
Revenue Code of 1986, as amended (the Code), and in accordance with the 
procedures set forth in 29 CFR part 2570, subpart B (55 FR 32836, 
32847, August 10, 1990).\1\
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    \1\ For purposes of this proposed exemption, references to 
section 406 of ERISA should be read to refer as well to the 
corresponding provisions of section 4975 of the Code.
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Section I. Sales of Auction Rate Securities From Plans to JPMorgan 
Chase: Unrelated to a Settlement Agreement
    If the proposed exemption is granted, the restrictions of section 
406(a)(1)(A) and (D) and section 406(b)(1) and (2) of the Act and the 
sanctions resulting from the application of section 4975 of the Code, 
by reason of section 4975(c)(1)(A), (D), and (E) of the Code, shall not 
apply, effective February 1, 2008, to the sale by a Plan (as defined in 
section V(e)) of an Auction Rate Security (as defined in section V(c)) 
to JPMorgan Chase, where such sale (an Unrelated Sale) is unrelated to, 
and not made in connection with, a Settlement Agreement (as defined in 
section V(f)), provided that the conditions set forth in section II 
have been met.
Section II. Conditions Applicable to Transactions Described in Section 
I
    (a) The Plan acquired the Auction Rate Security in connection with 
brokerage or advisory services provided by JPMorgan Chase;
    (b) The last auction for the Auction Rate Security was 
unsuccessful;
    (c) Except in the case of a Plan sponsored by JPMorgan Chase for 
its own employees (a JPMorgan Chase Plan), the Unrelated Sale is made 
pursuant to a written offer by JPMorgan Chase (the Offer) containing 
all of the material terms of the Unrelated Sale, including, but not 
limited to the most recent rate information for the Auction Rate 
Security (if reliable information is available). Either the Offer or 
other materials available to the Plan provide the identity and par 
value of the Auction Rate Security. Notwithstanding the foregoing, in 
the case of a pooled

[[Page 77595]]

fund maintained or advised by JPMorgan Chase, this condition shall be 
deemed met to the extent each Plan invested in the pooled fund (other 
than a JPMorgan Chase Plan) receives written notice regarding the 
Unrelated Sale, where such notice contains the material terms of the 
Unrelated Sale, including, but not limited to, the material terms 
described in the preceding sentence;
    (d) The Unrelated Sale is for no consideration other than cash 
payment against prompt delivery of the Auction Rate Security;
    (e) The sales price for the Auction Rate Security is equal to the 
par value of the Auction Rate Security, plus any accrued but unpaid 
interest or dividends; \2\
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    \2\ This proposed exemption does not address tax issues. The 
Department has been informed by the Internal Revenue Service and the 
Department of the Treasury that they are considering providing 
limited relief from the requirements of sections 72(t)(4), 
401(a)(9), and 4974 of the Code with respect to retirement plans 
that hold Auction Rate Securities. The Department has also been 
informed by the Internal Revenue Service that if Auction Rate 
Securities are purchased from a Plan in a transaction described in 
sections I and III at a price that exceeds the fair market value of 
those securities, then the excess value would be treated as a 
contribution for purposes of applying applicable contribution and 
deduction limits under sections 219, 404, 408, and 415 of the Code.
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    (f) The Plan does not waive any rights or claims in connection with 
the Unrelated Sale;
    (g) The decision to accept the Offer or retain the Auction Rate 
Security is made by a Plan fiduciary or Plan participant or IRA owner 
who is independent (as defined in section V(d)) of JPMorgan Chase. 
Notwithstanding the foregoing: (1) In the case of an individual 
retirement account (an IRA, as described in section V(e) below) which 
is beneficially owned by an employee, officer, director or partner of 
JPMorgan Chase, or a relative of any such persons, the decision to 
accept the Offer or retain the Auction Rate Security may be made by 
such employee, officer, director, partner, or relative; or (2) in the 
case of a JPMorgan Chase Plan or a pooled fund maintained or advised by 
JPMorgan Chase, the decision to accept the Offer may be made by 
JPMorgan Chase after JPMorgan Chase has determined that such purchase 
is in the best interest of the JPMorgan Chase Plan or pooled fund; \3\
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    \3\ The Department notes that the Act's general standards of 
fiduciary conduct also would apply to the transactions described 
herein. In this regard, section 404 requires, among other things, 
that a fiduciary discharge his duties respecting a plan solely in 
the interest of the plan's participants and beneficiaries and in a 
prudent manner. Accordingly, a plan fiduciary must act prudently 
with respect to, among other things, the decision to sell the 
Auction Rate Security to JPMorgan Chase for the par value of the 
Auction Rate Security, plus any accrued but unpaid interest or 
dividends. The Department further emphasizes that it expects Plan 
fiduciaries, prior to entering into any of the proposed 
transactions, to fully understand the risks associated with this 
type of transaction following disclosure by JPMorgan Chase of all 
relevant information.
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    (h) Except in the case of a JPMorgan Chase Plan or a pooled fund 
maintained or advised by JPMorgan Chase, neither JPMorgan Chase nor any 
affiliate exercises investment discretion or renders investment advice 
within the meaning of 29 CFR 2510.3-21(c) with respect to the decision 
to accept the Offer or retain the Auction Rate Security;
    (i) The Plan does not pay any commissions or transaction costs with 
respect to the Unrelated Sale;
    (j) The Unrelated Sale is not part of an arrangement, agreement or 
understanding designed to benefit a party in interest to the Plan;
    (k) JPMorgan Chase and its affiliates, as applicable, maintain, or 
cause to be maintained, for a period of six (6) years from the date of 
the Unrelated Sale, such records as are necessary to enable the persons 
described below in paragraph (l)(1), to determine whether the 
conditions of this exemption, if granted, have been met, except that--
    (1) No party in interest with respect to a Plan which engages in an 
Unrelated Sale, other than JPMorgan Chase and its affiliates, as 
applicable, shall be subject to a civil penalty under section 502(i) of 
the Act or the taxes imposed by section 4975(a) and (b) of the Code, if 
such records are not maintained, or not available for examination, as 
required, below, by paragraph (l)(1); and
    (2) A separate prohibited transaction shall not be considered to 
have occurred solely because, due to circumstances beyond the control 
of JPMorgan Chase or its affiliates, as applicable, such records are 
lost or destroyed prior to the end of the six-year period;
    (l)(1) Except as provided below in paragraph (l)(2), and 
notwithstanding any provisions of subsections (a)(2) and (b) of section 
504 of the Act, the records referred to above in paragraph (k) are 
unconditionally available at their customary location for examination 
during normal business hours by--
    (A) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service, or the U.S. Securities and 
Exchange Commission; or
    (B) Any fiduciary of any Plan, including any IRA owner, that 
engages in a Sale, or any duly authorized employee or representative of 
such fiduciary; or
    (C) Any employer of participants and beneficiaries and any employee 
organization whose members are covered by a Plan that engages in the 
Unrelated Sale, or any authorized employee or representative of these 
entities;
    (2) None of the persons described above in paragraph (l)(1)(B)-(C) 
shall be authorized to examine trade secrets of JPMorgan Chase, or 
commercial or financial information which is privileged or 
confidential; and
    (3) Should JPMorgan Chase refuse to disclose information on the 
basis that such information is exempt from disclosure, JPMorgan Chase 
shall, by the close of the thirtieth (30th) day following the request, 
provide a written notice advising that person of the reasons for the 
refusal and that the Department may request.
Section III. Sales of Auction Rate Securities From Plans to JPMorgan 
Chase: Related to a Settlement Agreement
    If the proposed exemption is granted, the restrictions of section 
406(a)(1)(A) and (D) and section 406(b)(1) and (2) of the Act and the 
sanctions resulting from the application of section 4975 of the Code, 
by reason of section 4975(c)(1)(A), (D), and (E) of the Code, shall not 
apply, effective February 1, 2008, to the sale by a Plan of an Auction 
Rate Security to JPMorgan Chase, where such sale (a Settlement Sale) is 
related to, and made in connection with, a Settlement Agreement, 
provided that the conditions set forth in Section IV have been met.
Section IV. Conditions Applicable to Transactions Described in Section 
III
    (a) The terms and delivery and timing of the Offer are consistent 
with the requirements set forth in the Settlement Agreement;
    (b) The Offer or other documents available to the Plan specifically 
describe, among other things:
    (1) How a Plan may determine: the Auction Rate Securities held by 
the Plan with JPMorgan Chase, the purchase dates for the Auction Rate 
Securities, and (if reliable information is available) the most recent 
rate information for the Auction Rate Securities;
    (2) The number of shares and par value of the Auction Rate 
Securities available for purchase under the Offer;
    (3) The background of the Offer;
    (4) That participating in the Offer will not result in or 
constitute a waiver of any claim of the tendering Plan;
    (5) The methods and timing by which Plans may accept the Offer;
    (6) The purchase dates, or the manner of determining the purchase 
dates, for

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Auction Rate Securities tendered pursuant to the Offer;
    (7) The timing for acceptance by JPMorgan Chase of tendered Auction 
Rate Securities;
    (8) The timing of payment for Auction Rate Securities accepted by 
JPMorgan Chase for payment;
    (9) The methods and timing by which a Plan may elect to withdraw 
tendered Auction Rate Securities from the Offer;
    (10) The expiration date of the Offer;
    (11) The fact that JPMorgan Chase may make purchases of Auction 
Rate Securities outside of the Offer and may otherwise buy, sell, hold 
or seek to restructure, redeem or otherwise dispose of the Auction Rate 
Securities;
    (12) A description of the risk factors relating to the Offer as 
JPMorgan Chase deems appropriate;
    (13) How to obtain additional information concerning the Offer; and
    (14) The manner in which information concerning material amendments 
or changes to the Offer will be communicated to affected Plans;
    (c) The terms of the Settlement Sale are consistent with the 
requirements set forth in the Settlement Agreement; and
    (d) All of the conditions in Section II have been met with respect 
to the Settlement Sale.

Section V. Definitions

    For purposes of this proposed exemption:
    (a) The term ``affiliate'' means: Any person directly or 
indirectly, through one or more intermediaries, controlling, controlled 
by, or under common control with such other person;
    (b) The term ``control'' means: The power to exercise a controlling 
influence over the management or policies of a person other than an 
individual;
    (c) The term ``Auction Rate Security'' means a security that:
    (1) Is either a debt instrument (generally with a long-term nominal 
maturity) or preferred stock; and
    (2) Has an interest rate or dividend that is reset at specific 
intervals through a Dutch auction process;
    (d) A person is ``independent'' of JPMorgan Chase if the person is:
    (1) Not JPMorgan Chase or an affiliate; and (2) not a relative (as 
defined in ERISA section 3(15)) of the party engaging in the 
transaction;
    (e) The term ``Plan'' means: An individual retirement account or 
similar account described in section 4975(e)(1)(B) through (F) of the 
Code (an IRA); an employee benefit plan as defined in section 3(3) of 
ERISA; or an entity holding plan assets within the meaning of 29 CFR 
2510.3-101, as modified by ERISA section 3(42); and
    (f) The term ``Settlement Agreement'' means: A legal settlement 
involving JPMorgan Chase and a U.S. state or federal authority that 
provides for the purchase of an Auction Rate Security by JPMorgan Chase 
from a Plan.
    Effective Date: If granted, this proposed exemption will be 
effective as of February 1, 2008.
Summary of Facts and Representations
    1. The applicant is JPMorgan Chase & Co. (hereinafter, either 
JPMorgan Chase or the Applicant), a financial holding company 
incorporated under Delaware law in 1968. JPMorgan Chase is a leading 
global financial services firm, with $2.0 trillion in assets, $165.4 
billion in stockholders' equity, and operations in more than 60 
countries as of December 31, 2009.
    2. The Applicant describes Auction Rate Securities (ARS) and the 
arrangement by which ARS are bought and sold as follows. ARS are 
securities (issued as debt or preferred stock) with an interest rate or 
dividend that is reset at periodic intervals pursuant to a process 
called a Dutch Auction. Investors submit orders to buy, hold, or sell a 
specific ARS to a broker-dealer selected by the entity that issued the 
ARS. The broker-dealers, in turn, submit all of these orders to an 
auction agent. The auction agent's functions include collecting orders 
from all participating broker-dealers by the auction deadline, 
determining the amount of securities available for sale, and organizing 
the bids to determine the winning bid. If there are any buy orders 
placed into the auction at a specific rate, the auction agent accepts 
bids with the lowest rate above any applicable minimum rate and then 
successively higher rates up to the maximum applicable rate, until all 
sell orders and orders that are treated as sell orders are filled. Bids 
below any applicable minimum rate or above the applicable maximum rate 
are rejected. After determining the clearing rate for all of the 
securities at auction, the auction agent allocates the ARS available 
for sale to the participating broker-dealers based on the orders they 
submitted. If there are multiple bids at the clearing rate, the auction 
agent will allocate securities among the bidders at such rate on a pro-
rata basis.
    3. The Applicant states that, under a typical Dutch Auction 
process, JPMorgan Chase is permitted, but not obligated, to submit 
orders in auctions for its own account either as a bidder or a seller 
and routinely does so in the auction rate securities market in its sole 
discretion. JPMorgan Chase may place one or more bids in an auction for 
its own account to acquire ARS for its inventory, to prevent: (a) A 
failed auction (i.e., an event where there are insufficient clearing 
bids which would result in the auction rate being set at a specified 
rate, resulting in no ARS being sold through the auction process); or 
(b) an auction from clearing at a rate that JPMorgan Chase believes 
does not reflect the market for the particular ARS being auctioned.
    4. The Applicant states that for many ARS, JPMorgan Chase has been 
appointed by the issuer of the securities to serve as a dealer in the 
auction and is paid by the issuer for its services. JPMorgan Chase is 
typically appointed to serve as a dealer in the auctions pursuant to an 
agreement between the issuer and JPMorgan Chase. That agreement 
provides that JPMorgan Chase will receive from the issuer auction 
dealer fees based on the principal amount of the securities placed 
through JPMorgan Chase.
    5. The Applicant states further that JPMorgan Chase may share a 
portion of the auction rate dealer fees it receives from the issuer 
with other broker-dealers that submit orders through JPMorgan Chase, 
for those orders that JPMorgan Chase successfully places in the 
auctions. Similarly, with respect to ARS for which broker-dealers other 
than JPMorgan Chase act as dealer, such other broker-dealers may share 
auction dealer fees with JPMorgan Chase for orders submitted by 
JPMorgan Chase.
    6. The Applicant represents that since February, 2008, a 
significant majority of auctions have been unsuccessful. According to 
the Applicant, the current state of the ARS market remains illiquid. As 
a result, Plans holding ARS may not have sufficient liquidity to make 
benefit payments, mandatory payments and withdrawals and expense 
payments when due.\4\
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    \4\ The Department notes that Class Exemption 80-26 (45 FR 28545 
(Apr. 29, 1980), as amended at 71 FR 17917 (Apr. 7, 2006)) permits 
interest-free loans or other extensions of credit from a party in 
interest to a plan if, among other things, the proceeds of the loan 
or extension of credit are used only-- (1) For the payment of 
ordinary operating expenses of the plan, including the payment of 
benefits in accordance with the terms of the plan and periodic 
premiums under an insurance or annuity contract, or (2) for a 
purpose incidental to the ordinary operation of the plan.
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    7. The Applicant represents further that, in certain instances, 
JPMorgan Chase may have previously advised or otherwise caused a Plan 
to acquire and hold an ARS.\5\ In connection with JPMorgan Chase's role 
in the acquisition and holding of ARS by various JPMorgan Chase 
clients, including the

[[Page 77597]]

Plans, JPMorgan Chase entered into Settlement Agreements with certain 
U.S. states and federal authorities. Pursuant to these Settlement 
Agreements, among other things, JPMorgan Chase was required to send a 
written offer to certain Plans that held ARS in connection with the 
advice and/or brokerage services provided by JPMorgan Chase. As 
described in further detail below, eligible Plans that accepted the 
written offer were permitted to sell the ARS to JPMorgan Chase for cash 
equal to the par value of such securities, plus any accrued interest 
and/or dividends. According to the Applicant, in connection with an 
offer issued by JPMorgan Chase pursuant to a Settlement Agreement, 
JPMorgan Chase has purchased approximately $2 billion dollars in ARS. 
The Applicant states that, prospectively, additional shares of ARS may 
be tendered by Plans to JPMorgan Chase pursuant to an offer issued by 
JPMorgan Chase pursuant to a Settlement Agreement. Accordingly, the 
Applicant is requesting retroactive and prospective relief for the 
Settlement Sales. With respect to Unrelated Sales, the Applicant states 
that to the best of its knowledge, as of January 1, 2011, no Unrelated 
Sale has occurred. However, the Applicant is requesting retroactive 
relief (and prospective relief) for Unrelated Sales in the event that a 
sale of ARS by a Plan to JPMorgan Chase has occurred outside the 
Settlement process. If granted, the exemption would be effective as of 
February 1, 2008.
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    \5\ The relief contained in this proposed exemption does not 
extend to the fiduciary provisions of section 404 of the Act.
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    8. Specifically, the Applicant is requesting exemptive relief for 
the sale of ARS under two different circumstances: (a) Where JPMorgan 
Chase initiates the sale by sending to a Plan a written offer to 
acquire the ARS, notwithstanding that such offer is not required under 
a Settlement Agreement (i.e., an Unrelated Sale); and (b) where 
JPMorgan Chase is required under a Settlement Agreement to send to 
Plans a written offer to acquire the ARS (i.e., a Settlement Sale). The 
Applicant states that the Unrelated Sales and Settlement Sales 
(hereinafter, either, a Covered Sale) are in the interests of Plans. In 
this regard, the Applicant states that the Covered Sales would permit 
Plans to normalize Plan investments. The Applicant represents that each 
Covered Sale will be for no consideration other than cash payment 
against prompt delivery of the ARS, and such cash will equal the par 
value of the ARS, plus any accrued but unpaid interest or dividends. 
The Applicant represents further that Plans will not pay any 
commissions or transaction costs with respect to any Covered Sale.
    9. The Applicant represents that the proposed exemption is 
protective of the Plans. The Applicant states that, except in the case 
of a Plan sponsored by JPMorgan Chase for its own employees (a JPMorgan 
Chase Plan), each Covered Sale will be made pursuant to a written offer 
(an Offer); and the decision to accept the Offer or retain the ARS will 
be made by a Plan fiduciary or Plan participant or IRA owner who is 
independent of JPMorgan Chase. Additionally, each Offer will be 
delivered in a manner designed to alert a Plan fiduciary that JPMorgan 
Chase intends to purchase ARS from the Plan. In connection with an 
Unrelated Sale, the Offer will describe the material terms of the 
Unrelated Sale, including the most recent rate information for the ARS 
(if reliable information is available). Either the Offer or other 
materials available to the Plan will provide the identity and par value 
of the ARS. Offers made in connection with a Settlement Agreement will 
specifically include, among other things: The background of the Offer; 
the method and timing by which a Plan may accept the Offer; the 
expiration date of the Offer; a description of certain risk factors 
relating to the Offer; how to obtain additional information concerning 
the Offer; and the manner in which information concerning material 
amendments or changes to the Offer will be communicated to affected 
Plans. The Applicant states that, except in the case of a JPMorgan 
Chase Plan or a pooled fund maintained or advised by JPMorgan Chase, 
neither JPMorgan Chase nor any affiliate will exercise investment 
discretion or render investment advice with respect to a Plan's 
decision to accept the Offer or retain the ARS.\6\ In the case of a 
JPMorgan Chase Plan or a pooled fund maintained or advised by JPMorgan 
Chase, the decision to engage in a Covered Sale may be made by JPMorgan 
Chase after JPMorgan Chase has determined that such purchase is in the 
best interest of the JPMorgan Chase Plan or pooled fund. The Applicant 
represents further that Plans will not waive any rights or claims in 
connection with any Covered Sale.
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    \6\ The Applicant states that while there may be communication 
between a Plan and JP Morgan Chase subsequent to an Offer, such 
communication will not involve advice regarding whether the Plan 
should accept the Offer.
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    10. The Applicant represents that the proposed exemption, if 
granted, would be administratively feasible. In this regard, the 
Applicant notes that each Covered Sale will occur at the par value of 
the affected ARS, plus any accrued but unpaid interest or dividends, 
and such value is readily ascertainable. The Applicant represents 
further that JPMorgan Chase will maintain the records necessary to 
enable the Department and Plan fiduciaries, among others, to determine 
whether the conditions of this exemption, if granted, have been met.
    11. In summary, the Applicant represents that the transactions 
described herein satisfy the statutory criteria of section 408(a) of 
the Act because, among other things:
    (a) Except in the case of a JPMorgan Chase Plan, each Covered Sale 
shall be made pursuant to a written Offer;
    (b) Each Covered Sale shall be for no consideration other than cash 
payment against prompt delivery of the ARS;
    (c) The amount of each Covered Sale shall equal the par value of 
the ARS, plus any accrued but unpaid interest or dividends;
    (d) Plans will not waive any rights or claims in connection with 
any Covered Sale;
    (e) Except in the case of a JPMorgan Chase Plan or a pooled fund 
maintained or advised by JPMorgan Chase:
    (1) The decision to accept an Offer or retain the ARS shall be made 
by a Plan fiduciary or Plan participant or IRA owner who is independent 
of JPMorgan Chase; and
    (2) Neither JPMorgan Chase nor any affiliate shall exercise 
investment discretion or render investment advice within the meaning of 
29 CFR 2510.3-21(c) with respect to the decision to accept the Offer or 
retain the ARS;
    (f) Plans shall not pay any commissions or transaction costs with 
respect to any Covered Sale;
    (g) A Covered Sale shall not be part of an arrangement, agreement 
or understanding designed to benefit a party in interest to the 
affected Plan;
    (h) With respect to any Settlement Sale, the terms and delivery and 
timing of the Offer, and the terms of Settlement Sale, shall be 
consistent with the requirements set forth in the Settlement Agreement;
    (i) JPMorgan Chase shall make available in connection with an 
Unrelated Sale the material terms of the Unrelated Sale, including the 
most recent rate information for the ARS (if reliable information is 
available), and the identity and par value of the ARS;
    (j) Each Offer made in connection with a Settlement Agreement shall 
describe the material terms of the Settlement Sale, including the 
following:
    (1) Information regarding how the Plan can determine: The ARS held 
by

[[Page 77598]]

the Plan with JPMorgan Chase, the number of shares and par value of the 
ARS, purchase dates for such ARS, and (if reliable information is 
available) the most recent rate information for the ARS;
    (2) The background of the Offer;
    (3) That participating in the Offer will not result in or 
constitute a waiver of any claim of the tendering Plan;
    (4) The methods and timing by which the Plan may accept the Offer;
    (5) The purchase dates, or the manner of determining the purchase 
dates, for ARS pursuant to the Offer;
    (6) The timing for acceptance by JPMorgan Chase of tendered ARS;
    (7) The timing of payment for ARS accepted by JPMorgan Chase for 
payment;
    (8) The methods and timing by which a Plan may elect to withdraw 
tendered ARS from the Offer;
    (9) The expiration date of the Offer;
    (10) The fact that JPMorgan Chase may make purchases of ARS outside 
of the Offer and may otherwise buy, sell, hold or seek to restructure, 
redeem or otherwise dispose of the ARS;
    (11) A description of the risk factors relating to the Offer as 
JPMorgan Chase deems appropriate;
    (12) How to obtain additional information concerning the Offer; and
    (13) The manner in which information concerning material amendments 
or changes to the Offer will be communicated to affected Plans.
Notice to Interested Persons
    The Applicant represents that the potentially interested 
participants and beneficiaries cannot all be identified and therefore 
the only practical means of notifying such participants and 
beneficiaries of this proposed exemption is by the publication of this 
notice in the Federal Register.
    Comments and requests for a hearing must be received by the 
Department not later than 30 days from the date of publication of this 
notice of proposed exemption in the Federal Register.
    For Further Information Contact: Chris Motta of the Department, 
telephone (202) 693-8544. (This is not a toll-free number.)

Delaware Charter Guarantee & Trust Co. d\b\a\ Principal Trust Company 
(Principal Trust); Principal Life Insurance Company (Principal Life) 
and Any Affiliates, Thereof (Collectively, Principal or the 
Applicants), Located in Wilmington, Delaware and in Des Moines, Iowa

[Application No. D-11579].

Proposed Exemption

    The Department of Labor (the Department) is considering granting an 
exemption under the authority of section 408(a) of the Act and section 
4975(c)(2) of the Code and in accordance with the procedures set forth 
in 29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 1990).
Section I--Transactions
    If the exemption is granted, the restrictions of sections 
406(a)(1)(D) and 406(b) of the Act and the taxes resulting from the 
application of section 4975 of the Code, by reason of sections 
4975(c)(1)(D) through (F) of the Code, \7\ shall not apply, as of the 
effective date of this proposed exemption, to:
---------------------------------------------------------------------------

    \7\ For purposes of this proposed exemption reference to 
specific provisions of Title I of the Act, unless otherwise 
specified, refer also to the corresponding provisions of the Code.
---------------------------------------------------------------------------

    (a) The receipt of a fee by Principal, as Principal is defined, 
below, in Section IV(a), from an open-end investment company or open-
end investment companies (Affiliated Fund(s)), as defined, below, in 
Section IV(e), in connection with the direct investment in shares of 
any such Affiliated Fund, by an employee benefit plan or by employee 
benefit plans (Client Plan(s)), as defined, below, in Section IV(b), 
where Principal serves as a fiduciary with respect to such Client Plan, 
and where Principal:
    (1) Provides investment advisory services, or similar services to 
any such Affiliated Fund; and
    (2) Provides to any such Affiliated Fund other services (Secondary 
Service(s)), as defined, below, in Section IV(i); and
    (b) In connection with the indirect investment by a Client Plan in 
shares of an Affiliated Fund through investment in a pooled investment 
vehicle or pooled investment vehicles (Collective Fund(s)),\8\ as 
defined, below, in Section IV(j), where Principal serves as a fiduciary 
with respect to such Client Plan, the receipt of fees by Principal 
from:
---------------------------------------------------------------------------

    \8\ The Department, herein, is expressing no opinion in this 
proposed exemption regarding the reliance of the Applicants on the 
relief provided by section 408(b)(8) of the Act with regard to the 
purchase and with regard to the sale by a Client Plan of an interest 
in a Collective Fund and the receipt by Principal, thereby, of any 
investment management fee, any investment advisory fee, and any 
similar fee (a Collective Fund-Level Management Fee), as defined, 
below, in Section IV(n), where Principal serves as an investment 
manager or investment adviser with respect to such Collective Fund 
and also serves as a fiduciary with respect to such Client Plan, nor 
is the Department offering any view as to whether the Applicants 
satisfy the conditions, as set forth in section 408(b)(8) of the 
Act.
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    (1) An Affiliated Fund for the provision of investment advisory 
services, or similar services by Principal to any such Affiliated Fund; 
and
    (2) an Affiliated Fund for the provision of Secondary Services by 
Principal to any such Affiliated Fund; provided that the conditions, as 
set forth, below, in Section II and Section III, are satisfied, as of 
the effective date of this proposed exemption and thereafter.
Section II--Specific Conditions
    (a)(1) Each Client Plan which is invested directly in shares of an 
Affiliated Fund either:
    (i) Does not pay to Principal for the entire period of such 
investment any investment management fee, or any investment advisory 
fee, or any similar fee at the plan-level (the Plan-Level Management 
Fee), as defined, below, in Section IV(m), with respect to any of the 
assets of such Client Plan which are invested directly in shares of 
such Affiliated Fund; or
    (ii) pays to Principal a Plan-Level Management Fee, based on total 
assets of such Client Plan under management by Principal at the plan-
level, from which a credit has been subtracted from such Plan-Level 
Management Fee, where the amount subtracted represents such Client 
Plan's pro rata share of any investment advisory fee and any similar 
fee (the Affiliated Fund-Level Advisory Fee), as defined, below, in 
Section IV(o), paid by such Affiliated Fund to Principal.
    If, during any fee period, in the case of a Client Plan invested 
directly in shares of an Affiliated Fund, such Client Plan has prepaid 
its Plan-Level Management Fee, and such Client Plan purchases shares of 
an Affiliated Fund directly, the requirement of this Section 
II(a)(1)(ii) shall be deemed met with respect to such prepaid Plan-
Level Management Fee, if, by a method reasonably designed to accomplish 
the same, the amount of the prepaid Plan-Level Management Fee that 
constitutes the fee with respect to the assets of such Client Plan 
invested directly in shares of an Affiliated Fund:
    (A) Is anticipated and subtracted from the prepaid Plan-Level 
Management Fee

[[Page 77599]]

at the time of the payment of such fee; or
    (B) is returned to such Client Plan, no later than during the 
immediately following fee period; or
    (C) is offset against the Plan-Level Management Fee for the 
immediately following fee period or for the fee period immediately 
following thereafter.
    For purposes of Section II(a)(1)(ii), a Plan-Level Management Fee 
shall be deemed to be prepaid for any fee period, if the amount of such 
Plan-Level Management Fee is calculated as of a date not later than the 
first day of such period.
    (2) Each Client Plan invested in a Collective Fund the assets of 
which are not invested in shares of an Affiliated Fund:
    (i) Does not pay to Principal for the entire period of such 
investment any Plan-Level Management Fee with respect to any assets of 
such Client Plan invested in such Collective Fund.
    The requirements of this Section II(a)(2)(i) do not preclude the 
payment of a Collective Fund-Level Management Fee by such Collective 
Fund to Principal, based on the assets of such Client Plan invested in 
such Collective Fund; or
    (ii) does not pay to Principal for the entire period of such 
investment any Collective Fund-Level Management Fee with respect to any 
assets of such Client Plan invested in such Collective Fund.
    The requirements of this Section II(a)(2)(ii) do not preclude the 
payment of a Plan-Level Management Fee by such Client Plan to 
Principal, based on total assets of such Client Plan under management 
by Principal at the plan-level; or
    (iii) such Client Plan pays to Principal a Plan-Level Management 
Fee, based on total assets of such Client Plan under management by 
Principal at the plan-level, from which a credit has been subtracted 
from such Plan-Level Management Fee (the ``Net'' Plan-Level Management 
Fee), where the amount subtracted represents such Client Plan's pro 
rata share of any Collective Fund-Level Management Fee paid by such 
Collective Fund to Principal.
    The requirements of this Section II(a)(2)(iii) do not preclude the 
payment of a Collective Fund-Level Management Fee by such Collective 
Fund to Principal, based on the assets of such Client Plan invested in 
such Collective Fund.
    (3) Each Client Plan invested in a Collective Fund the assets of 
which are invested in shares of an Affiliated Fund:
    (i) Does not pay to Principal for the entire period of such 
investment any a Plan-Level Management Fee (including any ``Net'' Plan-
Level Management Fee, as described, above, in Section II(a)(2)(iii)), 
and does not pay to Principal for the entire period of such investment 
any Collective Fund-Level Management Fee with respect to the assets of 
such Client Plan which are invested in such Affiliated Fund; or
    (ii) pays to Principal a Collective Fund-Level Management Fee, in 
accordance with Section II(a)(2)(i), above, based on the total assets 
of such Client Plan invested in such Collective Fund, from which a 
credit has been subtracted from such Collective Fund-Level Management 
Fee, where the amount subtracted represents such Client Plan's pro rata 
share of any Affiliated Fund-Level Advisory Fee paid to Principal by 
such Affiliated Fund; and does not pay to Principal for the entire 
period of such investment any Plan-Level Management Fee with respect to 
any assets of such Client Plan invested in such Collective Fund; or
    (iii) pays to Principal a Plan-Level Management Fee, in accordance 
with Section II(a)(2)(iii), above, based on the total assets of such 
Client Plan under management by Principal at the plan-level, from which 
a credit has been subtracted from such Plan-Level Management Fee, where 
the amount subtracted represents such Client Plan's pro rata share of 
any Affiliated Fund-Level Advisory Fee paid to Principal by such 
Affiliated Fund; and does not pay to Principal for the entire period of 
such investment any Collective Fund-Level Management Fee with respect 
to any assets of such Client Plan invested in such Collective Fund; or
    (iv) pays to Principal a ``Net'' Plan-Level Management Fee, in 
accordance with Section II(a)(2)(iii), above, from which a further 
credit has been subtracted from such ``Net'' Plan-Level Management Fee, 
where the amount of such further credit which is subtracted represents 
such Client Plan's pro rata share of any Affiliated Fund-Level Advisory 
Fee paid to Principal by such Affiliated Fund.
    Provided that the conditions of this proposed exemption are 
satisfied, the requirements of Section II(a)(1)(i), (ii), and Section 
II(a)(3)(i)-(iv) do not preclude the payment of an Affiliated Fund-
Level Advisory Fee by an Affiliated Fund to Principal under the terms 
of an investment advisory agreement adopted in accordance with section 
15 of the Investment Company Act of 1940 (the Investment Company Act). 
Further, the requirements of Section II(a)(1)(i)-(ii), and Section 
II(a)(3)(i)-(iv) do not preclude the payment of a fee by an Affiliated 
Fund to Principal for the provision by Principal of Secondary Services 
to such Affiliated Fund under the terms of a duly adopted agreement 
between Principal and such Affiliated Fund.
    For the purpose of Section II(a)(1)(ii), and Section II(a)(3)(ii)-
(iv), in calculating a Client Plan's pro rata share of an Affiliated 
Fund-Level Advisory Fee, Principal must use an amount representing the 
``gross'' advisory fee paid to Principal by such Affiliated Fund. For 
purposes of this paragraph, the ``gross'' advisory fee is the amount 
paid to Principal by such Affiliated Fund, including the amount paid by 
such Affiliated Fund to sub-advisers.
    (b) The purchase price paid and the sales price received by a 
Client Plan for shares in an Affiliated Fund purchased or sold 
directly, and the purchase price paid and the sales price received by a 
Client Plan for shares in an Affiliated Fund purchased or sold 
indirectly through a Collective Fund, is the net asset value per share 
(NAV), as defined, below, in Section IV(f), at the time of the 
transaction, and is the same purchase price that would have been paid 
and the same sales price that would have been received for such shares 
by any other shareholder of the same class of shares in such Affiliated 
Fund at that time.\9\
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    \9\ The selection of a particular class of shares of an 
Affiliated Fund as an investment for a Client Plan indirectly 
through a Collective Fund is a fiduciary decision that must be made 
in accordance with the provisions of section 404(a) of the Act. In 
this proposed exemption, the Department is not providing any relief 
for any fiduciary violations, pursuant to section 404 of the Act, or 
violations of the prohibited transaction provisions, as set forth in 
section 406 of the Act that may arise from the selection of one 
class of shares of an Affiliated Fund over another class of shares.
---------------------------------------------------------------------------

    (c) Principal, including any officer and any director of Principal, 
does not purchase any shares of an Affiliated Fund from and does not 
sell any shares of an Affiliated Fund to any Client Plan which invests 
directly in such Affiliated Fund, and Principal, including any officer 
and director of Principal, does not purchase any shares of any 
Affiliated Fund from and does not sell any shares of an Affiliated Fund 
to any Collective Fund in which a Client Plan invests indirectly in 
shares of such Affiliated Fund.
    (d) No sales commissions, no redemption fees, and no other similar 
fees are paid in connection with any purchase and in connection with 
any sale by a Client Plan directly in shares of an Affiliated Fund, and 
no sales commissions, no redemption fees, and no other similar fees are 
paid by a Collective Fund in connection with any purchase and in 
connection with any sale of shares in an Affiliated Fund by a Client 
Plan indirectly through such

[[Page 77600]]

Collective Fund. However, this Section II(d) does not prohibit the 
payment of a redemption fee, if:
    (1) Such redemption fee is paid only to an Affiliated Fund; and
    (2) The existence of such redemption fee is disclosed in the 
summary prospectus for such Affiliated Fund in effect both at the time 
of any purchase of shares in such Affiliated Fund and at the time of 
any sale of such shares.
    (e) The combined total of all fees received by Principal is not in 
excess of reasonable compensation within the meaning of section 
408(b)(2) of the Act, for services provided:
    (1) By Principal to each Client Plan;
    (2) By Principal to each Collective Fund in which a Client Plan 
invests; and
    (3) By Principal to each Affiliated Fund in which a Client Plan 
invests directly in shares of such Affiliated Fund, and
    (4) By Principal to each Affiliated Fund in which a Client Plan 
invests indirectly in shares of such Affiliated Fund through a 
Collective Fund.
    (f) Principal does not receive any fees payable pursuant to Rule 
12b-1 under the Investment Company Act in connection with the 
transactions covered by this proposed exemption;
    (g) No Client Plan is an employee benefit plan sponsored or 
maintained by Principal.
    (h)(1) In the case of a Client Plan investing directly in shares of 
an Affiliated Fund, a second fiduciary (the Second Fiduciary), as 
defined, below, in Section IV(h), acting on behalf of such Client Plan, 
receives, in writing, in advance of any investment by such Client Plan 
directly in shares of such Affiliated Fund, a full and detailed 
disclosure via first class mail or via personal delivery of (or, if the 
Second Fiduciary consents to such means of delivery, through electronic 
email, in accordance with Section II(q), as set forth, below) of 
information concerning such Affiliated Fund, including but not limited 
to the items listed, below:
    (i) A current summary prospectus issued by each such Affiliated 
Fund;
    (ii) A statement describing the fees, including the nature and 
extent of any differential between the rates of such fees for:
    (A) Investment advisory and similar services to be paid to 
Principal by each Affiliated Fund;
    (B) Secondary Services to be paid to Principal by each such 
Affiliated Fund; and
    (C) All other fees to be charged by Principal to such Client Plan 
and to each such Affiliated Fund and all other fees to be paid to 
Principal by each such Client Plan and by each such Affiliated Fund;
    (iii) The reasons why Principal may consider investment directly in 
shares of such Affiliated Fund by such Client Plan to be appropriate 
for such Client Plan;
    (iv) A statement describing whether there are any limitations 
applicable to Principal with respect to which assets of such Client 
Plan may be invested directly in shares of such Affiliated Fund, and if 
so, the nature of such limitations; and
    (v) Upon the request of the Second Fiduciary acting on behalf of 
such Client Plan, a copy of the Notice of Proposed Exemption (the 
Notice), a copy of the final exemption, if granted, and any other 
reasonably available information regarding the transactions which are 
the subject of this proposed exemption.
    (2) In the case of a Client Plan whose assets are proposed to be 
invested in a Collective Fund after such Collective Fund has begun 
investing in shares of an Affiliated Fund, a Second Fiduciary, acting 
on behalf of such Client Plan, receives, in writing, in advance of any 
investment by such Client Plan in such Collective Fund, a full and 
detailed disclosure via first class mail or via personal delivery (or, 
if the Second Fiduciary consents to such means of delivery, through 
electronic email, in accordance with Section II(q), as set forth, 
below) of information concerning such Collective Fund and information 
concerning each such Affiliated Fund in which such Collective Fund is 
invested, including but not limited to the items listed, below:
    (i) A current summary prospectus issued by each such Affiliated 
Fund;
    (ii) A statement describing the fees, including the nature and 
extent of any differential between the rates of such fees for:
    (A) Investment advisory and similar services to be paid to 
Principal by each Affiliated Fund;
    (B) Secondary Services to be paid to Principal by each such 
Affiliated Fund; and
    (C) All other fees to be charged by Principal to such Client Plan, 
to such Collective Fund, and to each such Affiliated Fund and all other 
fees to be paid to Principal by such Client Plan, by such Collective 
Fund, and by each such Affiliated Fund;
    (iii) The reasons why Principal may consider investment by such 
Client Plan in shares of each such Affiliated Fund indirectly through 
such Collective Fund to be appropriate for such Client Plan;
    (iv) A statement describing whether there are any limitations 
applicable to Principal with respect to which assets of such Client 
Plan may be invested indirectly in shares of each such Affiliated Fund 
through such Collective Fund, and if so, the nature of such 
limitations;
    (v) Upon the request of the Second Fiduciary, acting on behalf of 
such Client Plan, a copy of the Notice, a copy of the final exemption, 
if granted, and any other reasonably available information regarding 
the transactions which are the subject of this proposed exemption; and
    (vi) A copy of the organizational documents of such Collective Fund 
which expressly provide for the addition of one or more Affiliated 
Funds to the portfolio of such Collective Fund.
    (3) In the case of a Client Plan whose assets are proposed to be 
invested in a Collective Fund before such Collective Fund has begun 
investing in shares of any Affiliated Fund, a Second Fiduciary, acting 
on behalf of such Client Plan, receives, in writing, in advance of any 
investment by such Client Plan in such Collective Fund, a full and 
detailed disclosure via first class mail or via personal delivery (or, 
if the Second Fiduciary consents to such means of delivery, through 
electronic email, in accordance with Section II(q), as set forth, 
below) of information, concerning such Collective Fund, including but 
not limited to the items listed, below:
    (i) A statement describing the fees, including the nature and 
extent of any differential between the rates of such fees for all fees 
to be charged by Principal to such Client Plan and to such Collective 
Fund and all other fees to be paid to Principal by such Client Plan, 
and by such Collective Fund;
    (ii) Upon the request of the Second Fiduciary, acting on behalf of 
such Client Plan, a copy of the Notice, a copy of the final exemption, 
if granted, and any other reasonably available information regarding 
the transactions which are the subject of this proposed exemption; and
    (iii) A copy of the organizational documents of such Collective 
Fund which expressly provide for the addition of one or more Affiliated 
Funds to the portfolio of such Collective Fund.
    (i) On the basis of the information described, above, in Section 
II(h), a Second Fiduciary, acting on behalf of a Client Plan:
    (1) Authorizes in writing the investment of the assets of such 
Client Plan, as applicable:
    (i) Directly in shares of an Affiliated Fund;
    (ii) Indirectly in shares of an Affiliated Fund through a 
Collective

[[Page 77601]]

Fund where such Collective Fund has already invested in shares of an 
Affiliated Fund; and
    (iii) In a Collective Fund which is not yet invested in shares of 
an Affiliated Fund but whose organizational document expressly provides 
for the addition of one or more Affiliated Funds to the portfolio of 
such Collective Fund; and
    (2) Authorizes in writing; as applicable:
    (i) The Affiliated Fund-Level Advisory Fee received by Principal 
for investment advisory services and similar services provided by 
Principal to such Affiliated Fund;
    (ii) The fee received by Principal for Secondary Services provided 
by Principal to such Affiliated Fund;
    (iii) The Collective Fund-Level Management Fee received by 
Principal for investment management, investment advisory, and similar 
services provided by Principal to such Collective Fund in which such 
Client Plan invests;
    (iv) The Plan-Level Management Fee received by Principal for 
investment management and similar services provided by Principal to 
such Client Plan at the plan-level; and
    (v) The selection by Principal of the applicable fee method, as 
described, above, in Section II(a)(1)-(3).
    All authorizations made by a Second Fiduciary, pursuant to this 
Section II(i), must be consistent with the responsibilities, 
obligations, and duties imposed on fiduciaries by Part 4 of Title I of 
the Act;
    (j)(1) Any authorization, described, above, in Section II(i), and 
any authorization made pursuant to negative consent, as described, 
below, in Section II(k) and in Section II(l), made by a Second 
Fiduciary, acting on behalf of a Client Plan, shall be terminable at 
will by such Second Fiduciary, without penalty to such Client Plan, 
upon receipt by Principal via first class mail, via personal delivery, 
or via electronic email of a written notification of the intent of such 
Second Fiduciary to terminate any such authorization.
    (2) A form (the Termination Form) expressly providing an election 
to terminate any authorization, described, above, in Section II(i), or 
to terminate any authorization made pursuant to negative consent, as 
described, below, in Section II(k) and in Section II(l), with 
instructions on the use of such Termination Form must be provided to 
such Second Fiduciary at least annually, either in writing via first 
class mail or via personal delivery (or if such Second Fiduciary 
consents to such means of delivery, through electronic email, in 
accordance with Section II(q), as set forth, below). However, if a 
Termination Form has been provided to such Second Fiduciary, pursuant 
to Section II(k) or pursuant to Section II(l), below, then a 
Termination Form need not be provided again, pursuant to this Section 
II(j), until at least six (6) months but no more than twelve (12) 
months have elapsed, since a Termination Form was provided;
    (3) The instructions for the Termination Form must include the 
following statements:
    (i) Any authorization, described, above, in Section II(i), and any 
authorization made pursuant to negative consent, as described, below, 
in Section II(k) or in Section II(l), is terminable at will by a Second 
Fiduciary, acting on behalf of a Client Plan, without penalty to such 
Client Plan, upon receipt by Principal via first class mail or via 
personal delivery or via electronic email of the Termination Form, or 
some other written notification of the intent of such Second Fiduciary 
to terminate such authorization;
    (ii) Within 30 days from the date the Termination Form is sent to 
such Second Fiduciary by Principal, the failure by such Second 
Fiduciary to return such Termination Form or the failure by such Second 
Fiduciary to provide some other written notification of the Client 
Plan's intent to terminate any authorization, described in Section 
II(i), or intent to terminate any authorization made pursuant to 
negative consent, as described, below, in Section II(k) or in Section 
II(l), will be deemed to be an approval by such Second Fiduciary;
    (4) In the event that a Second Fiduciary, acting on behalf of a 
Client Plan, at any time returns a Termination Form or returns some 
other written notification of intent to terminate any authorization, as 
described, above, in Section II(i), or intent to terminate any 
authorization made pursuant to negative consent, as described, below, 
in Section II(k) or in Section II(l);
    (i)(A) In the case of a Client Plan which invests directly in 
shares of an Affiliated Fund, the termination will be implemented by 
the withdrawal of all investments made by such Client Plan in the 
affected Affiliated Fund, and such withdrawal will be effected by 
Principal within one (1) Business day of the date that Principal 
receives such Termination Form or receives from the Second Fiduciary, 
acting on behalf of such Client Plan, some other written notification 
of intent to terminate any such authorization;
    (B) From the date a Second Fiduciary, acting on behalf of a Client 
Plan that invests directly in shares of an Affiliated Fund, returns a 
Termination Form or returns some other written notification of intent 
to terminate such Client Plan's investment in such Affiliated Fund, 
such Client Plan will not be subject to pay a pro rata share of any 
Affiliated Fund-Level Advisory Fee and will not be subject to pay any 
fees for Secondary Services paid to Principal by such Affiliated Fund;
    (ii)(A) In the case of a Client Plan which invests in a Collective 
Fund, the termination will be implemented by the withdrawal of such 
Client Plan from all investments in such affected Collective Fund, and 
such withdrawal will be implemented by Principal within such time as 
may be necessary for withdrawal in an orderly manner that is equitable 
to the affected withdrawing Client Plan and to all non-withdrawing 
Client Plans, but in no event shall such withdrawal be implemented by 
Principal more than five business (5) days after the day Principal 
receives from the Second Fiduciary, acting on behalf of such 
withdrawing Client Plan, a Termination Form or receives some other 
written notification of intent to terminate the investment of such 
Client Plan in such Collective Fund; and
    (B) Principal will pay to such withdrawing Client Plan interest on 
the settlement amount calculated at the prevailing Federal funds rate 
plus two percent (2%) for the period from the day Principal receives 
from the Second Fiduciary, acting on behalf of such withdrawing Client 
Plan, a Termination Form or receives some other written notification of 
intent to terminate the investment of such Client Plan in such 
Collective Fund, to the date Principal pays such settlement amount in 
cash, with interest thereon, to such withdrawing Client Plan;
    (C) From the date a Second Fiduciary, acting on behalf of a Client 
Plan that invests in a Collective Fund, returns a Termination Form or 
returns some other written notification of intent to terminate such 
Client Plan's investment in such Collective Fund, such Client Plan will 
not be subject to pay a pro rata share of any Collective Fund-Level 
Management Fee, nor will such Client Plan be subject to any other 
changes to the portfolio of such Collective Fund, including a pro rata 
share of any Affiliated Fund-Level Advisory Fee arising from the 
investment by such Collective Fund in an Affiliated Fund.
    (k)(1) Principal, at least thirty (30) days in advance of the 
implementation of each fee increase (Fee Increase(s)), as defined, 
below, in Section IV(l), must provide, in writing via first class mail 
or via personal delivery (or if the Second Fiduciary consents to such 
means of delivery, through electronic email, in

[[Page 77602]]

accordance with Section II(q), as set forth, below), a notice of change 
in fees (the Notice of Change in Fees) (which may take the form of a 
proxy statement, letter, or similar communication which is separate 
from the summary prospectus of such Affiliated Fund) and which explains 
the nature and the amount of such Fee Increase to the Second Fiduciary 
of each affected Client Plan. Such Notice of Change in Fees shall be 
accompanied by a Termination Form and by instructions on the use of 
such Termination Form, as described, above, in Section II(j)(3);
    (2) For each Client Plan affected by a Fee Increase, Principal may 
implement such Fee Increase without waiting for the expiration of the 
30-day period, described, above, in Section II(k)(1), provided 
Principal does not begin implementation of such Fee Increase before the 
first day of the 30-day period, described, above in Section II(k)(1), 
and provided further that the following conditions are satisfied:
    (i) Principal delivers, in the manner described in Section 
II(k)(1), to the Second Fiduciary for each affected Client Plan, the 
Notice of Change of Fees, as described in Section II(k)(1), accompanied 
by the Termination Form and by instructions on the use of such 
Termination Form, as described, above, in Section II(j)(3);
    (ii) Each affected Client Plan receives from Principal a credit in 
cash equal to each such Client Plan's pro rata share of such Fee 
Increase to be received by Principal for the period from the date of 
the implementation of such Fee Increase to the earlier of:
    (A) The date when an affected Client Plan, pursuant to Section 
II(j), terminates any authorization, as described, above, in Section 
II(i), or, terminates any negative consent authorization, as described, 
in Section II(k) or in Section II(l); or
    (B) The 30th day after the day that Principal delivers to the 
Second Fiduciary of each affected Client Plan the Notice of Change of 
Fees, described in Section II(k)(1), accompanied by the Termination 
Form and by the instructions on the use of such Termination Form, as 
described, above, in Section II(j)(3).
    (iii) Principal pays to each affected Client Plan the cash credit, 
described, above, in Section II(k)(2)(ii), with interest thereon, no 
later than five (5) business days following the earlier of:
    (A) the date such affected Client Plan, pursuant to Section II(j), 
terminates any authorization, as described, above, in Section II(i), or 
terminates, any negative consent authorization, as described, in 
Section II(k) or in Section II(l); or
    (B) the 30th day after the day that Principal delivers to the 
Second Fiduciary of each affected Client Plan, the Notice of Change of 
Fees, described in Section II(k)(1), accompanied by the Termination 
Form and instructions on the use of such Termination Form, as 
described, above, in Section II(j)(3);
    (iv) Interest on the credit in cash is calculated at the prevailing 
Federal funds rate plus two percent (2%) for the period from the day 
Principal first implements the Fee Increase to the date Principal pays 
such credit in cash, with interest thereon, to each affected Client 
Plan;
    (v) An independent accounting firm (the Auditor) at least annually 
audits the payments made by Principal to each affected Client Plan, 
audits the amount of each cash credit, plus the interest thereon, paid 
to each affected Client Plan, and verifies that each affected Client 
Plan received the correct amount of cash credit and the correct amount 
of interest thereon;
    (vi) Such Auditor issues an audit report of its findings no later 
than six (6) months after the period to which such audit report 
relates, and provides a copy of such audit report to the Second 
Fiduciary of each affected Client Plan; and
    (3) Within 30 days from the date Principal sends to the Second 
Fiduciary of each affected Client Plan, the Notice of Change of Fees 
and the Termination Form, the failure by such Second Fiduciary to 
return such Termination Form and the failure by such Second Fiduciary 
to provide some other written notification of the Client Plan's intent 
to terminate the authorization, described in Section II(i), or to 
terminate the negative consent authorization, as described, in Section 
II(k) or in Section II(l), will be deemed to be an approval by such 
Second Fiduciary of such Fee Increase.
    (l) Effective on the date the final exemption is granted, in the 
case of a Client Plan which has received the disclosures, as set forth, 
above, in Section II(h)(2)(i), II(h)(2)(ii)(A), II(h)(2)(ii)(B), 
II(h)(2)(ii)(C), II(h)(2)(iii), II(h)(2)(iv), II(h)(2)(v), and 
II(h)(2)(vi), and has authorized the investment by a Client Plan in a 
Collective Fund, in accordance with Section II(i)(1)(ii), above; and, 
as applicable, effective on the date the final exemption is granted, in 
the case of a Client Plan which has received the disclosures, as set 
forth, above, in Section II(h)(3)(i), II(h)(3)(ii), and II(h)(3)(iii), 
and has authorized the investment by a Client Plan in a Collective 
Fund, in accordance with Section II(i)(1)(iii), above, then, the 
authorization, pursuant to negative consent, in accordance with this 
Section II(l), applies to:
    (1) the proposed purchase, as an addition to the portfolio of such 
Collective Fund, of shares of an Affiliated Fund (a New Affiliated 
Fund) where such New Affiliated Fund has not been previously 
authorized, pursuant to Section II(i)(1)(ii) or, as applicable, Section 
II(i)(1)(iii), above, and such Collective Fund may commence investing 
in such New Affiliated Fund without further written authorization from 
the Second Fiduciary of each Client Plan invested in such Collective 
Fund provided that:
    (i) The organizational documents of such Collective Fund expressly 
provide for the addition of one or more Affiliated Funds to the 
portfolio of such Collective Fund, and such documents were disclosed in 
writing via first class mail or via personal delivery (or, if the 
Second Fiduciary consents to such means of delivery, through electronic 
email, in accordance with Section II(q), as set forth, below) to the 
Second Fiduciary of each such Client Plan invested in such Collective 
Fund, in advance of any investment by such Client Plan in such 
Collective Fund;
    (ii) At least thirty (30) days in advance of the purchase by a 
Client Plan of shares of such New Affiliated Fund indirectly through a 
Collective Fund, Principal provides, either in writing via first class 
or via personal delivery (or if the Second Fiduciary consents to such 
means of delivery, through electronic email, in accordance with Section 
II(q), as set forth, below), to the Second Fiduciary of each Client 
Plan having an interest in such Collective Fund, full and detailed 
disclosures about such New Affiliated Fund, including but not limited 
to:
    (A) A notice of Principal's intent to add a New Affiliated Fund to 
the portfolio of such Collective Fund. Such notice may take the form of 
a proxy statement, letter, or similar communication that is separate 
from the summary prospectus of such New Affiliated Fund to the Second 
Fiduciary of each affected Client Plan;
    (B) Such notice of Principal's intent to add a New Affiliated Fund 
to the portfolio of such Collective Fund shall be accompanied by the 
information, as described, above, in Section II(h)(2)(i), 
II(h)(2)(ii)(A), II(h)(2)(ii)(B), II(h)(2)(ii)(C), II(h)(2)(iii), 
II(h)(2)(iv), and II(2)(v) with respect to each such New Affiliated 
Fund proposed to be added to the portfolio of such Collective Fund; and
    (C) A Termination Form, and instructions on the use of such

[[Page 77603]]

Termination Form, as described, above, in Section II(j)(3); and
    (2) Within 30 days from the date Principal sends to the Second 
Fiduciary of each affected Client Plan, the information described, 
above, in Section II(l)(1)(ii), the failure by such Second Fiduciary to 
return the Termination Form or to provide some other written 
notification of the Client Plan's intent to terminate the 
authorization, described in Section II(i)(1)(ii), or, as appropriate, 
to terminate the authorization, described in Section II(i)(1)(iii), or 
to terminate any authorization, pursuant to negative consent, as 
described, in this Section II(l), will be deemed to be an approval by 
such Second Fiduciary of the addition of a New Affiliated Fund to the 
portfolio of such Collective Fund in which such Client Plan invests, 
and will result in the continuation of the authorization of Principal 
to engage in the transactions which are the subject of this proposed 
exemption with respect to such New Affiliated Fund.
    (m) Principal is subject to the requirement to provide within a 
reasonable period of time any reasonably available information 
regarding the covered transactions that the Second Fiduciary of such 
Client Plan requests Principal to provide.
    (n) All dealings between a Client Plan and an Affiliated Fund, 
including all such dealings when such Client Plan is invested directly 
in shares of such Affiliated Fund and when such Client Plan is invested 
indirectly in such shares of such Affiliated Fund through a Collective 
Fund, are on a basis no less favorable to such Client Plan, than 
dealings between such Affiliated Fund and other shareholders of the 
same class of shares in such Affiliated Fund.
    (o) In the event a Client Plan invests directly in shares of an 
Affiliated Fund, and, as applicable, in the event a Client Plan invests 
indirectly in shares of an Affiliated Fund through a Collective Fund, 
if such Affiliated Fund places brokerage transactions with Principal, 
Principal will provide to the Second Fiduciary of each such Client 
Plan, so invested, at least annually a statement specifying:
    (1) The total, expressed in dollars of brokerage commissions that 
are paid to Principal by each such Affiliated Fund;
    (2) The total, expressed in dollars, of brokerage commissions that 
are paid by each such Affiliated Fund to brokerage firms unrelated to 
Principal;
    (3) The average brokerage commissions per share, expressed as cents 
per share, paid to Principal by each such Affiliated Fund; and
    (4) The average brokerage commissions per share, expressed as cents 
per share, paid by each such Affiliated Fund to brokerage firms 
unrelated to Principal.
    (p)(1) Principal provides to the Second Fiduciary of each Client 
Plan invested directly in shares of an Affiliated Fund, with the 
disclosures, as set forth, below, and at the times set forth below, in 
Section II(p)(1)(i), II(p)(1)(ii), II(p)(1)(iii), II(p)(1)(iv), and 
II(p)(1)(v), either in writing via first class mail or via personal 
delivery (or if the Second Fiduciary consents to such means of 
delivery, through electronic email, in accordance with Section II(q), 
as set forth, below);
    (i) Annually, with a copy of the current summary prospectus for 
each Affiliated Fund in which such Client Plan invests directly in 
shares of such Affiliated Fund;
    (ii) Upon the request of such Second Fiduciary, a copy of the 
statement of additional information for each Affiliated Fund in which 
such Client Plan invests directly in shares of such Affiliated Fund 
which contains a description of all fees paid by such Affiliated Fund 
to Principal;
    (iii) With regard to any Fee Increase received by Principal, 
pursuant to Section II(k)(2), above, a copy of the audit report 
referred to in Section II(k)(2)(v), above, within sixty (60) days of 
the completion of such audit report;
    (iv) Oral or written responses to the inquiries posed by the Second 
Fiduciary of such Client Plan, as such inquiries arise; and
    (v) Annually, with a Termination form, as described in Section 
II(j)(1), and instructions on the use of such form, as described in 
Section II(j)(3), except that if a Termination Form has been provided 
to such Second Fiduciary, pursuant to Section II(k) or pursuant to 
Section II(l), above, then a Termination Form need not be provided 
again, pursuant to this Section II(p)(1)(v), until at least six (6) 
months but no more than twelve (12) months have elapsed, since a 
Termination Form was provided.
    (2) Principal provides to the Second Fiduciary of each Client Plan 
invested in a Collective Fund, with the disclosures, as set forth, 
below, and at the times set forth below, in Section II(p)(2)(i), 
II(p)(2)(ii), II(p)(2)(iii), II(p)(2)(iv), II(p)(2)(v), II(p)(2)(vi), 
II(p)(2)(vii), and II(p)(2)(viii), either in writing via first class 
mail or via personal delivery (or if the Second Fiduciary consents to 
such means of delivery, through electronic email, in accordance with 
Section II(q), as set forth, below);
    (i) Annually, with a copy of the current summary prospectus for 
each Affiliated Fund in which such Client Plan invests indirectly in 
shares of such Affiliated Fund thorough each such Collective Fund;
    (ii) Upon the request of such Second Fiduciary, a copy of the 
statement of additional information for each Affiliated Fund in which 
such Client Plan invests indirectly in shares of such Affiliated Fund 
thorough each such Collective Fund which contains a description of all 
fees paid by such Affiliated Fund to Principal;
    (iii) Annually, with a statement of the Collective Fund-Level 
Management Fee for investment management, investment advisory or 
similar services paid to Principal by each such Collective Fund, 
regardless of whether such Client Plan invests in shares of an 
Affiliated Fund through such Collective Fund;
    (iv) A copy of the annual financial statement of each such 
Collective Fund in which such Client Plan invests, regardless of 
whether such Client Plan invests in shares of an Affiliated Fund 
through such Collective Fund, within sixty (60) days of the completion 
of such financial statement;
    (v) With regard to any Fee Increase received by Principal, pursuant 
to Section II(k)(2), above, a copy of the audit report referred to in 
Section II(k)(2)(v), above, within sixty (60) days of the completion of 
such audit report;
    (vi) Oral or written responses to the inquiries posed by the Second 
Fiduciary of such Client Plan, as such inquiries arise;
    (vii) For each Client Plan invested indirectly in shares of an 
Affiliated Fund through a Collective Fund, a statement of the 
approximate percentage (which may be in the form of a range) on an 
annual basis of the assets of such Collective Fund that was invested in 
Affiliated Funds during the applicable year; and
    (viii) Annually, with a Termination form, as described in Section 
II(j)(1), and instructions on the use of such form, as described in 
Section II(j)(3), except that if a Termination Form has been provided 
to such Second Fiduciary, pursuant to Section II(k) or pursuant to 
Section II(l), above, then a Termination Form need not be provided 
again, pursuant to this Section II(p)(2)(viii), until at least six (6) 
months but no more than twelve (12) months have elapsed, since a 
Termination Form was provided.
    (q) Any disclosure required, herein, to be made by Principal to a 
Second Fiduciary may be delivered by electronic email containing direct 
hyperlinks to the location of each such document required to be 
disclosed,

[[Page 77604]]

which are maintained on a Web site by Principal, provided:
    (1) Principal obtains from such Second Fiduciary prior consent in 
writing to the receipt by such Second Fiduciary of such disclosure via 
electronic email;
    (2) Such Second Fiduciary has provided to Principal a valid email 
address; and
    (3) The delivery of such electronic email to such Second Fiduciary 
is provided by Principal in a manner consistent with the relevant 
provisions of the Department's regulations at 29 CFR 2520.104b-1(c) 
(substituting the word, ``Principal,'' for the word, ``administrator,'' 
as set forth therein, and substituting the phrase, ``Second 
Fiduciary,'' for the phrase, ``the participant, beneficiary or other 
individual,'' as set forth therein).

Section III--General Conditions

    (a) Principal maintains for a period of six (6) years the records 
necessary to enable the persons described, below, in Section III(b) to 
determine whether the conditions of this proposed exemption have been 
met, except that:
    (1) A prohibited transaction will not be considered to have 
occurred, if solely because of circumstances beyond the control of 
Principal, the records are lost or destroyed prior to the end of the 
six-year period; and
    (2) No party in interest other than Principal 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 III(b); below.
    (b)(1) Except as provided in Section III(b)(2) and notwithstanding 
any provisions of section 504(a)(2) of the Act, the records referred to 
in Section III(a) are unconditionally available at their customary 
location for examination during normal business hours by--
    (i) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service, or the Securities & 
Exchange Commission;
    (ii) Any fiduciary of a Client Plan invested directly in shares of 
an Affiliated Fund, any fiduciary of a Client Plan who has the 
authority to acquire or to dispose of the interest in a Collective Fund 
in which a Client Plan invests, any fiduciary of a Client Plan invested 
indirectly in an Affiliated Fund through a Collective Fund where such 
fiduciary has the authority to acquire or to dispose of the interest in 
such Collective Fund, and any duly authorized employee or 
representative of such fiduciary; and
    (iii) Any participant or beneficiary of a Client Plan invested 
directly in shares of an Affiliated Fund or invested in a Collective 
Fund, and any participant or beneficiary of a Client Plan invested 
indirectly in shares of an Affiliated Fund through a Collective Fund, 
and any representative of such participant or beneficiary; and
    (2) None of the persons described in Section III(b)(1)(ii) and 
(iii) shall be authorized to examine trade secrets of Principal, or 
commercial or financial information which is privileged or 
confidential.
Section IV--Definitions
    For purposes of this proposed exemption:
    (a) The term, ``Principal,'' means Principal Trust, Principal Life, 
and any affiliate thereof, as defined, below, in Section IV(c).
    (b) The term, ``Client Plan(s),'' means a 401(k) plan(s), an 
individual retirement account(s), other tax-qualified plan(s), and 
other plan(s) as defined in the Act and Code, but does not include any 
employee benefit plan sponsored or maintained by Principal, as defined, 
above, in Section IV(a).
    (c) An ``affiliate'' of a person includes:
    (1) Any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person;
    (2) Any officer, director, employee, relative, or partner in any 
such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (d) The term, ``control,'' means the power to exercise a 
controlling influence over the management or policies of a person other 
than an individual.
    (e) The term, ``Affiliated Fund(s),'' means Principal Funds, Inc., 
a series of mutual funds managed by Principal Management Corporation 
(PMC), an affiliate of Principal, as defined, above in Section IV(c), 
and any other diversified open-end investment company or companies 
registered with the Securities and Exchange Commission under the 
Investment Company Act and operated in accordance with Rule 2a-7 under 
the Investment Company Act, as amended, established and maintained by 
Principal now or in the future for which Principal serves as an 
investment adviser.
    (f) The term, ``net asset value per share,'' and the term, ``NAV,'' 
means the amount for purposes of pricing all purchases and sales of 
shares of an Affiliated Fund, calculated by dividing the value of all 
securities, determined by a method as set forth in the summary 
prospectus for such Affiliated Fund and in the statement of additional 
information, and other assets belonging to such Affiliated Fund or 
portfolio of such Affiliated Fund, less the liabilities charged to each 
such portfolio or each such Affiliated Fund, by the number of 
outstanding shares.
    (g) The term, ``relative,'' means a relative as that term is 
defined in section 3(15) of the Act (or a member of the family as that 
term is defined in section 4975(e)(6) of the Code), or a brother, a 
sister, or a spouse of a brother or a sister.
    (h) The term, ``Second Fiduciary,'' means the fiduciary of a Client 
Plan who is independent of and unrelated to Principal. For purposes of 
this proposed exemption, the Second Fiduciary will not be deemed to be 
independent of and unrelated to Principal if:
    (1) Such Second Fiduciary, directly or indirectly, through one or 
more intermediaries, controls, is controlled by, or is under common 
control with Principal;
    (2) Such Second Fiduciary, or any officer, director, partner, 
employee, or relative of such Second Fiduciary, is an officer, 
director, partner, or employee of Principal (or is a relative of such 
person); or
    (3) Such Second Fiduciary, directly or indirectly, receives any 
compensation or other consideration for his or her personal account in 
connection with any transaction described in this proposed exemption.
    If an officer, director, partner, or employee of Principal (or 
relative of such person) is a director of such Second Fiduciary, and if 
he or she abstains from participation in:
    (i) The decision of a Client Plan to invest in and to remain 
invested in shares of an Affiliated Fund directly, the decision of a 
Client Plan to invest in shares of an Affiliated Fund indirectly 
through a Collective Fund, and the decision of a Client Plan to invest 
in a Collective Fund that may in the future invest in shares of an 
Affiliated Fund;
    (ii) Any authorization in accordance with Section II(i), and any 
authorization, pursuant to negative consent, as described in Section 
II(k) or in Section II(l); and
    (iii) The choice of such Client Plan's investment adviser; then 
Section IV(h)(2), above, shall not apply.
    (i) The term, ``Secondary Service(s),'' means a service or services 
other than an investment management service, investment advisory 
service, and any similar service which is provided by

[[Page 77605]]

Principal to an Affiliated Fund, including but not limited to 
custodial, accounting, administrative services, and brokerage services. 
Principal may also serve as a dividend disbursing agent, shareholder 
servicing agent, transfer agent, fund accountant, or provider of some 
other Secondary Service, as defined, in this Section IV(i).
    (j) The term, ``Collective Fund(s),'' means a separate account of 
an insurance company, as defined in section 2510.3-101(h)(1)(iii) of 
the Department's plan assets regulations,\10\ maintained by Principal, 
and a bank-maintained common or collective investment trust maintained 
by Principal.
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    \10\ 51 FR 41262 (November 13, 1986).
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    (k) The term, ``business day,'' means any day that
    (1) Principal is open for conducting all or substantially all of 
its business; and
    (2) The New York Stock Exchange (or any successor exchange is open 
for trading.
    (l) The term, ``Fee Increase(s),'' includes any increase by 
Principal in a rate of a fee, previously authorized in writing by the 
Second Fiduciary of each affected Client Plan, pursuant to Section 
II(i)(2)(i)-(iv), above, and in addition includes, but is not limited 
to:
    (1) Any increase in any fee that results from the addition of a 
service for which a fee is charged;
    (2) any increase in any fee that results from a decrease in the 
number of services and any increase in any fee that results from a 
decrease in the kind of service(s) performed by Principal for such fee 
over an existing rate of fee for each such service previously 
authorized by the Second Fiduciary, in accordance with Section 
II(i)(2)(i)-(iv), above; and
    (3) any increase in any fee that results from Principal changing 
from one of the fee methods, as described, above, in Section II(a)(1)-
(3), to using another of the fee methods, as described, above, in 
Section II(a)(1)-(3).
    (m) The term, ``Plan-Level Management Fee,'' includes any 
investment management fee, investment advisory fee, and any similar fee 
paid by a Client Plan to Principal for any investment management 
services, investment advisory services, and similar services provided 
by Principal to such Client Plan at the plan-level. The term, ``Plan-
Level Management Fee'' does not include a separate fee paid by a Client 
Plan to Principal for asset allocation service(s) (Asset Allocation 
Service(s)), as defined, below, in Section IV(p), provided by Principal 
to such Client Plan at the plan-level.\11\
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    \11\ For the receipt by Principal from a Client Plan of a fee 
for Asset Allocation Services provided by Principal to such Client 
Plan at the plan-level, Principal relies on the relief provided by 
the statutory exemption, as set forth in section 408(b)(2) of the 
Act and the Department's regulations, pursuant to 29 CFR 2550.408b-
2. The Department is offering no view, herein, as to whether the 
receipt by Principal of such an asset allocation fee is covered by 
such statutory exemption, nor is the Department, herein, offering 
any view as to whether Principal satisfies the conditions set forth 
in such statutory exemption.
---------------------------------------------------------------------------

    (n) The term, ``Collective Fund-Level Management Fee,'' includes 
any investment management fee, investment advisory fee, and any similar 
fee paid by a Collective Fund to Principal for any investment 
management services, investment advisory services, and any similar 
services provided by Principal to such Collective Fund at the 
collective fund level.
    (o) The term, ``Affiliated Fund-Level Advisory Fee'' includes any 
investment advisory fee and any similar fee paid by an Affiliated Fund 
to Principal under the terms of an investment advisory agreement 
adopted in accordance with section 15 of the Investment Company Act.
    (p) The term, ``Asset Allocation Service(s),'' means a service or 
services to a Client Plan relating to the selection of appropriate 
asset classes or target-date ``glidepath,'' the selection of specific 
Collective Funds, and the selection of specific Affiliated Funds 
(subject to the required consent of the Second Fiduciary) to 
``populate'' the selected asset classes (including rebalancing), and 
the allocation of the assets of a Client Plan among the selected funds. 
Such services do not include the management of the underlying assets of 
a Client Plan, or the selected Affiliated Funds or Collective Funds.
    Effective Date: If granted, this proposed exemption will be 
effective as of the publication of the final exemption in the Federal 
Register.
Summary of Facts and Representations
    1. Principal Life was originally established in 1879. Principal's 
Affiliates have been founded or acquired from time to time thereafter. 
Principal offers a variety of financial products and services to 
businesses, individuals, and institutional clients. Principal has 
approximately $236.6 billion in assets under management and serves 18.8 
million customers worldwide from offices in twelve (12) countries.
    2. The Principal Financial Group is a trade name/registered 
trademark under which various Principal affiliated companies operate. 
Affiliated companies include Principal Financial Group, Inc., a public 
(holding) company (NYSE: PFG); numerous direct or indirect subsidiaries 
including Principal Life, Delaware Charter Guarantee & Trust Company 
d\b\a Principal Trust Company; PMC, Princor Financial Services 
Corporation, Principal Financial Services, Inc., Principal Global 
Investors, LLC, and many other affiliated entities.
    3. It is represented that certain Affiliates within Principal make 
investments available, either directly or indirectly through Collective 
Funds to Client Plans. Principal has requested that the proposed 
exemption apply to any Client Plan for which Principal serves as 
investment fiduciary and for which Principal causes such Client Plan to 
invest in shares of Affiliated Funds, either directly or indirectly 
through a Collective Fund. It is represented that Principal places no 
limits on the minimum or maximum portion of the total assets of each 
Client Plan that may be invested directly in shares of an Affiliated 
Fund or invested indirectly in an Affiliated Fund through a Collective 
Fund.
    4. Section 406(a)(1)(D) of the Act prohibits a fiduciary with 
respect to a plan from causing such plan to engage in a transaction, if 
he knows or should know, that such transaction constitutes a transfer 
to, or use by or for the benefit of, a party in interest, of any assets 
of such plan.
    Sections 3(14)(A) and (B) of the Act define the term, ``party in 
interest,'' to include, respectively, any fiduciary of a plan and any 
person providing services to a plan. Under section 3(21)(A)(i) of the 
Act, a person is a fiduciary with respect to a plan to the extent such 
person exercises authority or control with respect to the management or 
disposition of the assets of a plan. Under section 3(21)(A)(ii) a 
person is a fiduciary with respect to a plan to the extent such person 
renders investment advice for a fee or other compensation, direct or 
indirect, with respect to any moneys or other property of a plan or has 
any authority or responsibility to do so.
    Under section 406(b) of the Act, a fiduciary with respect to a plan 
may not: (1) Deal with the assets of a plan in his own interest or for 
his own account, (2) in his individual or in any other capacity act in 
any transaction involving a plan on behalf of a party (or represent a 
party) whose interests are adverse to the interests of such plan or the 
interests of its participants or beneficiaries, or (3) receive any 
consideration for his

[[Page 77606]]

own personal account from any party dealing with a plan in connection 
with a transaction involving the assets of such plan.
    Principal entities may currently serve, and may in the future 
serve, as investment advisors, investment managers, trustees, or other 
fiduciaries with respect to Client Plans. Accordingly, the Applicants 
and various other Principal affiliates may currently be, or may in the 
future be, parties in interest with respect to a Client Plan which 
engage in the proposed transactions. In this regard, where Principal 
now or in the future is a fiduciary with respect to a Client Plan, the 
investment of the assets of such Client Plan in a Collective Fund and/
or in an Affiliated Fund advised by Principal may raise issues under 
sections 406(a)(1)(D), 406(b)(1), 406(b)(2), and 406(b)(3) of the Act, 
and the corresponding provisions of the Code, unless an exemption is 
available.
    5. Principal's collective investment vehicles currently include 
various pooled separate accounts. In this regard, Principal Life 
manages several insurance company separate accounts (the Separate 
Accounts). Principal Life is a fiduciary with respect to any Separate 
Accounts that hold plan assets. It is represented that none of the 
Separate Accounts currently invests in any Affiliated Fund in a manner 
that requires exemptive relief, hereunder. However, it is represented 
that existing Separate Accounts or Separate Accounts to be established 
in the future may do so. Accordingly, the Applicants request that the 
proposed exemption apply, as of the effective date of this proposed 
exemption, to Separate Accounts that hold ``plan assets'' of investor 
Client Plans.
    6. Principal's collective investment vehicles also currently 
include various bank-maintained collective investment trusts. Any or 
all of Principal's collective investment vehicles may rely upon one or 
more statutory or class exemptions in connection with their activities. 
Principal represents that the proposed exemption, if granted, will 
apply to Collective Funds, as defined, above, in Section IV(j).
    7. It is represented that in 2009, Principal Trust established 
certain target date collective funds (the Target Date Funds). The 
Target Date Funds are used as investment options in participant-
directed Client Plans. The Target Date Funds are deemed to hold ``plan 
assets'' of such investing Client Plans. It is represented that 
although a Second Fiduciary, as defined, above, in Section IV(h), will 
select the Target Date Funds as designated investment options, the 
actual decision to invest in any Target Date Funds is made by 
individual plan participants, unless such fund is selected by a Second 
Fiduciary as a qualified default investment option.
    The Target Date Funds are bank-maintained collective investment 
trusts. The Target Date Funds are currently comprised of eleven (11) 
portfolios. Principal Trust acts as trustee and investment manager for 
the Target Date Funds. As such, Principal Trust has discretion over the 
investment of the assets of the Target Date Funds. Principal Trust 
manages the portfolios of the Target Date Funds in accordance with its 
own investment objectives and strategies. In this regard, Principal 
Trust invests the assets of such Target Date Funds in Affiliated Funds 
and other investments including other Collective Funds. Principal Trust 
selects the underlying investments and allocates the assets of each of 
the Target Date Funds among the underlying investments based on the 
time horizon of each such Target Date Fund and the expected risk 
tolerance of those investors who have chosen that time horizon. It is 
represented that the underlying investments include investment in 
Principal Funds Inc., a series of Affiliated Funds managed by PMC, or 
may include other Affiliated Funds to be formed in the future. It is 
represented that the Target Date Funds are the only Principal 
Collective Funds currently invested in Affiliated Funds.
    8. The Affiliated Funds are a series of mutual funds managed by 
PMC, an affiliate of Principal, and may include other Affiliated Funds 
to be established in the future by Principal. The Affiliated Funds are 
open-end investment companies registered with the Securities and 
Exchange Commission under the Investment Company Act, as amended and 
operated in accordance with Rule 2a-7 under the Investment Company Act. 
PMC or Principal serves as an investment adviser with respect to the 
Affiliated Funds. Principal may also serve as custodian, dividend 
disbursing agent, shareholder servicing agent, transfer agent, fund 
accountant, or provider of some other Secondary Services, including 
brokerage services, to an Affiliated Fund.
Prohibited Transaction Exemption 77-4 (PTE 77-4)
    9. It is represented that all of the Principal entities to which 
the proposed exemption, if granted, would apply are currently part of 
the same controlled group. In this regard, the Applicants maintain that 
such Principal entities can rely on the relief provided pursuant to PTE 
77-4.\12\
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    \12\ The Department, herein, is expressing no opinion in this 
proposed exemption regarding the reliance of the Applicants on the 
relief provided by PTE 77-4, nor is the Department offering any view 
as to whether the Applicants satisfy the conditions, as set forth in 
PTE 77-4.
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    PTE 77-4 provides an exemption from section 406 of the Act and 
section 4975 of the Code for the purchase and for the sale by a plan of 
shares of a registered, open-ended investment company where the 
investment adviser of such fund: (1) Is a plan fiduciary or affiliated 
with a plan fiduciary; and (2) is not an employer of employees covered 
by the plan. The conditions of PTE 77-4 prohibit the payment of 
commissions by a plan, limit the payment of redemption fees by such 
plan, require prior disclosures (e.g., fee information and a current 
prospectus) to a second fiduciary and written authorization from such 
second fiduciary who is generally the sponsor or other named fiduciary 
or trustee of such plan, and prohibit the payment of double investment 
advisory fees and similar fees with respect to plan assets invested in 
such shares for the entire period of such investment. In addition, PTE 
77-4 requires advance written approval from a second fiduciary for any 
changes in the fund fee rates.
    10. The Applicants represent that the requested relief is 
essentially the same as that afforded by PTE 77-4, except for the use 
of a ``negative consent'' procedure, as discussed in the paragraphs, 
below, for:
    (1) Approving Fee Increases received by Principal, and
    (2) approving in advance the addition of Affiliated Funds (not 
previously authorized) as investments ``inside'' a Principal Collective 
Fund, subject to notice and a right to terminate the original approval 
at the time a new Affiliated Fund is proposed to be added.
    Principal maintains that obtaining advance written approval from a 
Second Fiduciary can be difficult, particularly in the case of a 
Collective Fund, such as a Target Date Fund, where a Second Fiduciary 
from every investing Client Plan must provide written approval before 
fees payable to Principal by an Affiliated Fund in which such Client 
Plans invest indirectly via a Collective Fund can be increased, or 
before a new investment in an Affiliated Fund that was not previously 
authorized can be made. If advance written approval is not obtained 
from the Second Fiduciary of each affected Client Plan, then PTE 77-4 
may not apply and Principal may violate the restrictions of section 
406(a) and 406(b) of the Act.

[[Page 77607]]

Negative Consent for Fee Increases
    11. In order to avoid the administrative burden of obtaining 
advance written approval from a Second Fiduciary of each affected 
Client Plan, the Applicants request an individual administrative 
exemption which would allow for a negative consent procedure for 
obtaining the approval from a Second Fiduciary for Fee Increases 
payable to Principal. Fee Increases are defined in Section IV(l) and 
include: (1) Any increase in the rate of a fee previously authorized in 
writing by the Second Fiduciary of an affected Client Plan, (2) any 
increase in any fee that results from an addition of services for which 
a fee is charged, (3) any increase in any fee that results from a 
decrease in the number or kind of services performed for such fee over 
an existing rate for such service previously authorized by the Second 
Fiduciary, and (3) any increase in a fee that results from Principal 
changing from one of the fee methods, as described, above, in Section 
II(a)(1)-(3), to using another of the fee methods, as described, above, 
in Section II(a)(1)-(3).
    In order to obtain the negative consent authorization from the 
Second Fiduciary of each affected Client Plan with regard to a Fee 
Increase, Principal will have to comply with the provisions, set forth 
in Section II(k). In this regard, the proposed exemption would require 
Principal to provide to the Second Fiduciary of a Client Plan invested 
directly in shares of an Affiliated Fund or indirectly through a 
Collective Fund certain disclosures in writing thirty (30) days in 
advance of any proposed Fee Increase, including but not limited to any 
Fee Increase for Secondary Services, as such services are described, 
below. The disclosures are delivered by regular mail or personal 
delivery (or if the Second Fiduciary consents by electronic means), and 
are accompanied by a Termination Form and instructions on the use of 
such form.
    Notwithstanding the requirement for thirty (30) days advance notice 
of a Fee Increase, the proposed exemption would permit Principal to 
implement a Fee Increase, without waiting until the expiration of the 
30 day period; provided that implementation of such Fee Increase does 
not start before Principal delivers to each affected Client Plan the 
Notice of Intent of Change of Fees, as described in Section II(k), and 
provided further that any affected Client Plan receives a cash credit 
equal to its pro rata share of such Fee Increase, for the period from 
the date of the implementation of such Fee Increase to the earlier of 
the date of the termination of the investment or the thirtieth (30th) 
day after the date Principal delivers the Notice of Change of Fee to 
the Second Fiduciary of each affected Client Plan. In addition, 
Principal must pay to each affected Client Plan interest on such cash 
credit. An Auditor on at least an annual basis will verify the proper 
crediting of the pro rata share of each such Fee Increase and interest. 
An audit report shall be completed by such Auditor no later than six 
(6) months after the period to which it relates.
    Failure of the Second Fiduciary to return the Termination Form or 
to provide some other written notification of the intent to terminate 
within a certain period of time will be deemed to be approval of the 
proposed Fee Increase, including but not limited to an increase in the 
fee for Secondary Services.
Negative Consent for New Affiliated Funds
    12. Principal further requests that the proposed exemption permit a 
Principal Collective Fund holding the assets of a Client Plan, such as 
a Target Date Fund, to purchase shares of an Affiliated Fund not 
previously affirmatively authorized by the Second Fiduciary of such 
Client Plan; provided: (1) The organizational document of such 
Collective Fund expressly provides for the addition of one or more 
Affiliated Funds to the portfolio of such Collective Fund and such 
organizational document is disclosed initially to such Client Plan; and 
(2) Principal satisfies the requirements of the negative consent 
procedure for obtaining the approval of the Second Fiduciary for each 
Client Plan invested in such Collective Fund at the time Principal 
proposes to add an Affiliated Fund to such Collective Fund's portfolio.
    Specifically, the negative consent procedure would entail that the 
Second Fiduciary of each Client Plan invested in such Collective Fund 
receives in advance: (i) A notice of Principal's intent to add an 
Affiliated Fund to the portfolio of such Collective Fund; and (ii) 
certain disclosures in writing, including a summary prospectus of such 
Affiliated Fund. The disclosures are delivered by regular mail or 
personal delivery (or if the Second Fiduciary consents by electronic 
means), and are accompanied by a Termination Form and instructions on 
the use of such form.
    Failure of the Second Fiduciary to return the Termination Form or 
to provide some other written notification of the intent to terminate 
within a certain period of time will be deemed to be approval of the 
investment by such Collective Fund in such Affiliated Fund.
    13. Principal represents that the negative consent procedures, 
described in the paragraphs, above, are more efficient, cost effective, 
and administratively feasible than the advance written approval from 
the Second Fiduciary, as described in PTE 77-4. It is represented that 
the negative consent procedure avoids the administrative delays that 
would result if advance written approval from the Second Fiduciary were 
required.
    It is further represented that because the Second Fiduciary of each 
Client Plan will receive all of the necessary disclosures and will have 
an opportunity to terminate the investment in any Affiliated Fund 
without penalty, such Client Plan and its participants and 
beneficiaries are adequately protected. Further, to the extent that 
Principal may find it desirable from time to time to create an 
Affiliated Fund with new investment goals, the negative consent 
procedure will facilitate the addition of an Affiliated Fund into the 
portfolios of Principal's Collective Funds.
Electronic Disclosures
    14. Principal intends to utilize electronic mail with hyperlinks to 
documents required to be disclosed by this proposed exemption. 
Principal agrees that it will ``actively'' satisfy the various 
disclosure requirements of this proposed exemption by transmitting 
emails, rather than relying on ``passive'' postings on a Web site. It 
is represented that this method of disclosure will be consistent with 
the Department's regulations at 29 CFR section 2520.104b-1. Client 
Plans which do not authorize electronic delivery will receive in 
advance hard copies of the documents required to be disclosed, and hard 
copies of documents will also be available on request.
Termination
    15. A Client Plan invested directly in shares of an Affiliated Fund 
or invested indirectly through a Collective Fund will have an 
opportunity to terminate and withdraw from investment in such 
Affiliated Fund, and, as applicable, to terminate and withdraw from 
investment in such Collective Fund in the event of a Fee Increase and 
in the event of the addition of an Affiliated Fund to the portfolio of 
a Collective Fund.
    In this regard, a Second Fiduciary will be provided with a 
Termination Form at least annually and may terminate the authorization 
to invest directly in shares of an Affiliated Fund or indirectly

[[Page 77608]]

through a Collective Fund, at will, without penalty to a Client Plan. 
Termination of the authorization by the Second Fiduciary of a Client 
Plan investing directly in shares of an Affiliated Fund will result in 
such Client Plan withdrawing from such Affiliated Fund. Termination of 
the authorization by the Second Fiduciary of a Client Plan investing 
indirectly in shares of an Affiliated Fund through a Collective Fund 
will result in such Client Plan withdrawing from such Collective Fund.
    Generally, Principal will process timely requests for withdrawal 
from an Affiliated Fund within one (1) Business day. Withdrawal from a 
Collective Fund will generally be processed within the same time frame, 
subject to rules designed to ensure orderly withdrawals and fairness 
for the withdrawing Client Plans and non-withdrawing Client Plans, but 
in no event shall such withdrawal be implemented by Principal more than 
five business (5) days after receipt by Principal of a termination form 
or other written notification of intent to terminate investment in such 
Collective Fund from the Second Fiduciary acting on behalf of the 
withdrawing Client Plan. Principal will pay interest on the settlement 
amount for the period from receipt by Principal of a termination form 
or other written notification of intent to terminate from the Second 
Fiduciary, acting on behalf of the withdrawing Client Plan, to the date 
Principal pays the settlement amount, plus interest thereon.
    From the date a Client Plan terminates its investment in an 
Affiliated Fund, such Client Plan will not be subject to pay a pro rata 
share of the fees received by Principal from such Affiliated Fund. 
Likewise, from the date a Client Plan terminates its investment in a 
Collective Fund, such Client Plan will not be subject to pay a pro rata 
share of the fees received by Principal from such Collective Fund, nor 
will such Client Plan be subject to changes in the portfolio of such 
Collective Fund, including a pro rate share of any Affiliated Fund-
Level Advisory Fee arising from the investment by such Collective Fund 
in an Affiliated Fund.
Receipt of Fees Pursuant to the Fee Methods
    16. The exemption, if granted, includes conditions which detail 
various methods which ensure that Principal complies with the 
prohibition against a Client Plan paying double investment management 
fees, investment advisory, and similar fees for the assets of Client 
Plans invested directly in shares of an Affiliated Fund or invested 
indirectly in shares of an Affiliated Fund though a Collective Fund. 
These methods are described in Section II(a)(1)-(3) of this proposed 
exemption.
Plan-Level Fees
    17. It is represented that currently to the extent that Principal 
provides discretionary investment management services \13\ to any 
Client Plan that invests directly in shares of an Affiliated Fund or 
indirectly through a Collective Fund, Principal does not charge any 
investment management fee, any investment advisory fee, or any similar 
fee directly to such Client Plan.\14\ If in the future, Principal were 
to do so, this proposed exemption would require Principal to use the 
methods, as described in Section II(a) of this exemption, as 
applicable, so as to avoid receiving ``double'' investment management, 
investment advisory, and similar fees.
---------------------------------------------------------------------------

    \13\ Investment management services do not include Asset 
Allocation Services, as defined, above, in Section IV(p).
    \14\ The Department, herein, is not providing relief for the 
receipt by Principal of a Plan-Level Management Fee for investment 
management services provided at the plan-level by Principal to a 
Client Plan.
---------------------------------------------------------------------------

    Also, services provided by Principal for which a fee is charged 
involve plan-level and participant-level recordkeeping and 
administrative services, custody, and other clerical and administrative 
functions.\15\ It is represented that a Second Fiduciary typically will 
select Principal's Collective Funds in connection with a decision to 
retain Principal as a service provider to such Client Plan, usually as 
part of a ``bundled'' arrangement. It is also possible that a Second 
Fiduciary of a Client Plan that already uses Principal's products and 
services may wish to add additional Collective Funds to its investment 
line-up.
---------------------------------------------------------------------------

    \15\ The Applicants have not requested and the Department, 
herein, is not providing any relief for the receipt by Principal at 
the plan-level of fees for providing recordkeeping and 
administrative services, custody, and other clerical and 
administrative functions to a Client Plan.
---------------------------------------------------------------------------

The Collective Fund-Level Management Fee
    18. With regard to the Collective Fund-Level Management Fee, it is 
represented that the only Collective Funds over which Principal 
currently exercises fiduciary discretion to invest in Affiliated Funds 
are the Target Date Funds. Principal currently charges no investment 
advisory and no similar fees ``inside'' the Target Date Funds. Fees 
charged by the Target Date Funds presently are limited to: (i) Four (4) 
basis points charged by Principal Trust for non-advisory, custodial and 
administrative services (Collective Fund Administrative Services); \16\ 
and (ii) depending on the specific class of units selected by a sponsor 
of a Client Plan, certain additional ``services fees'' \17\ that the 
plan sponsor may direct to be paid over to other plan service providers 
for services such as recordkeeping, custody, and distribution.\18\
---------------------------------------------------------------------------

    \16\ The Department, herein, is not providing relief for the 
receipt by Principal of fees from a Collective Fund for providing 
Collective Fund Administrative Services to such Collective Fund.
    \17\ For example, a sponsor of a Client Plan can select a 
``share'' class of a Collective Fund that is subject to a four (4) 
basis point trustee fee, or may elect to utilize a share class of a 
Collective Fund that pays (by way of example) fourteen (14) basis 
points, four (4) basis points of which are paid to Principal Trust 
and ten (10) basis points of which the sponsor of such Client Plan 
may direct Principal Trust to pay to such Client Plan's recordkeeper 
or other service providers.
    \18\ The Department, herein, is not providing relief for any 
other additional ``services fees'' received by Principal that the 
sponsor of a Client Plan may direct to be paid over to other service 
providers to such Client Plan.
---------------------------------------------------------------------------

    However, it is represented that in the future, Principal may decide 
to charge investment advisory fees or may decide to charge similar fees 
``inside'' a collective investment vehicle. In that event, Principal 
will utilize the methods, described in Section II(a)(2) and in Section 
II(a)(3), as applicable so as to avoid charging ``double'' investment 
advisory and similar fees.
The Affiliated Fund-Level Advisory Fee
    19. The Affiliated Fund-Level Advisory Fees are described in the 
summary prospectus for an Affiliated Fund and include fees for 
investment advisory services and fees for similar services which 
Principal receives as compensation for the provision of such services 
to such Affiliated Fund.
    As noted, above, Principal currently waives the Plan-Level 
Management Fees and Collective Fund-Level Management Fees for the 
provision of investment management services, investment advisory 
services, and similar services and retains the fees paid to Principal 
by an Affiliated Fund with regard to a Client Plan that invests 
directly in shares of such Affiliated Fund or indirectly in shares of 
such Affiliated Fund through a Collective Fund. Notwithstanding this 
fact, it is represented that Principal in the future may cease to waive 
Plan-Level Management Fees and Collective Fund-Level Management Fees. 
In that event, in order to avoid receiving double fees, Principal must 
comply with the

[[Page 77609]]

conditions, as set forth in Section II(a) of this exemption, as 
applicable.
Receipt of Fees for Secondary Services
    20. Principal also receives from an Affiliated Fund various fees 
and expenses for custody, transfer agency, and similar services, 
including brokerage services. It is represented that all such services 
are treated as ``Secondary Services.'' The term, ``Secondary 
Services,'' is defined, above, in Section IV(i), to mean a service 
other than an investment management service, an investment advisory 
service, and any similar service, which is provided by Principal to an 
Affiliated Fund, including but not limited to custodial, accounting, 
administrative, brokerage, and other services. It is represented that 
all fees for Secondary Services received by Principal at this time are 
paid to Principal directly by the Affiliated Funds. The negative 
consent procedure applicable for a Fee Increase for Secondary Services 
is discussed, above, in paragraph 11.
    In addition, Principal affiliates may receive commissions for the 
performance of brokerage services for the mutual funds. Under the 
conditions of this proposed exemption, if an Affiliated Fund places 
brokerage transactions with Principal, Principal will provide the 
Second Fiduciary of each such Client Plan, at least annually with the 
disclosure described in Section II(o) of this proposed exemption.
    21. The Applicants represent that proposed exemption is in the 
interest of Client Plans, because it will allow Principal to 
efficiently manage or advise with respect to the assets of such Client 
Plans invested in shares of an Affiliated Fund, either directly or 
indirectly through a Collective Fund, in a timely manner and on terms 
that might not otherwise be available without exemptive relief.
    22. It is represented that the proposed exemption contains 
sufficient safeguards for the protection of the Client Plans invested 
in shares of an Affiliated Fund either directly or indirectly through a 
Collective Fund. Prior to any investment by a Client Plan directly or 
indirectly in shares of an Affiliated Fund, such investment must be 
authorized by the Second Fiduciary of such Client Plan, based on full 
and detailed written disclosure concerning such Affiliated Fund.
    It is further represented that the proposed exemption is protective 
of the rights of Client Plans, because any Fee Increase or the addition 
of an Affiliated Fund to the portfolio of a Collective Fund will be on 
terms monitored and approved by the Second Fiduciary who will have the 
ability to avoid the effect of such Fee Increase and the effect of the 
addition of an Affiliated Fund to the portfolio of a Collective Fund. 
Furthermore, each investment of the assets of a Client Plan in shares 
of an Affiliated Fund, either directly, or indirectly through a 
Collective Fund, will be subject to the ongoing ability of the Second 
Fiduciary of such Client Plan to terminate the investment in such 
Affiliated Fund and to terminate the investment in such Collective 
Fund, without penalty to such Client Plan at any time upon written 
notice of termination to Principal.
    In addition to the initial disclosures, Principal provides to such 
Second Fiduciary ongoing disclosures regarding such Affiliated Funds. 
Further, Principal will respond to inquiries from a Second Fiduciary 
and will provide any other reasonably available information to a Second 
Fiduciary upon request.
    23. It is represented that the proposed exemption is 
administratively feasible, because the subject transactions will not 
require continued monitoring or other involvement on behalf of the 
Department or the Internal Revenue Service. The use of a Termination 
Form will provide both a record and a regular reminder to the Second 
Fiduciary of a Client Plan of such plan's rights vis-[agrave]-vis 
investing in Affiliated Funds, either directly or indirectly through a 
Collective Fund.
    24. In summary, the Applicants represent that the proposed 
transactions satisfy the statutory criteria for an exemption under 
section 408(a) of the Act for the following reasons:
    (a) The Affiliated Funds will provide Client Plans with effective 
investment vehicles;
    (b) The receipt by Principal of an Affiliated Fund-Level Advisory 
Fee, and the receipt of a fee by Principal for Secondary Services will 
require an authorization in writing in advance by a Second Fiduciary 
for each such Client Plan after receipt of full written disclosure;
    (c) Any authorization made by a Second Fiduciary, acting on behalf 
of a Client Plan will be terminable at will by such Second Fiduciary, 
without penalty to such Client Plan, following receipt by Principal of 
a Termination Form or any other written notice of termination from such 
Second Fiduciary of a Client Plan invested directly in shares of an 
Affiliated Fund or indirectly through a Collective Fund;
    (d) The Termination Form will be supplied to such Second Fiduciary 
at least annually;
    (e) No sales commissions will be paid by Client Plans in connection 
with the acquisition or in connection with the sale of shares of the 
Affiliated Funds either directly or through a Collective Fund, and only 
redemption fees disclosed in the summary prospectus of an Affiliated 
Fund will be paid by a Client Plan;
    (f) All dealings among a Client Plan, any Affiliated Fund, and 
Principal will be on a basis no less favorable to such Client Plan than 
such dealings with the other shareholders of such Affiliated Fund;
    (g) The purchase price paid and the sales price received by a 
Client Plan for shares in an Affiliated Fund purchased or sold 
directly, and the purchase price paid and the sales price received by a 
Client Plan for shares in an Affiliated Fund purchased or sold 
indirectly through a Collective Fund, will be the NAV at the time of 
the transaction, and will be the same purchase price paid and the same 
sales price received for such shares by any other shareholder of the 
same class of shares in such Affiliated Fund at that time;
    (h) A Client Plan investing in shares of an Affiliated Fund, either 
directly or indirectly, through a Collective Fund, will not pay 
``double fees'' for investment management, investment advisory, and 
similar fees with respect to the assets of such Client Plan so 
invested; and
    (i) An Auditor on at least an annual basis will verify the proper 
crediting of any Fee Increase and interest, received by a Client Plan, 
pursuant to Section II(k)(2), and an audit report shall be completed by 
such Auditor no later than six (6) months after the period to which it 
relates.
Notice to Interested Persons
    Those persons who may be interested in the publication in the 
Federal Register of the Notice include each Client Plan invested 
directly in shares of an Affiliated Fund, each Client Plan invested 
indirectly in shares of an Affiliated Fund through a Collective Fund, 
and each plan for which Principal provides discretionary management 
services, via the Target Date Funds or otherwise at the time the 
proposed exemption is published in the Federal Register.
    It is represented that notification will be provided to each of 
these interested persons by first class mail, within fifteen (15) 
calendar days of the date of the publication of the Notice in the 
Federal Register. Such mailing will contain a copy of the Notice, as it 
appears in the Federal Register on the date of publication, plus a copy 
of the

[[Page 77610]]

Supplemental Statement, as required, pursuant to 29 CFR 2570.43(b)(2), 
which will advise such interested persons of their right to comment and 
to request a hearing.
    The Department must receive all written comments and requests for a 
hearing no later than forty-five (45) days from the date of the 
publication of the Notice in the Federal Register.
    For further information contact: Angelena C. Le Blanc of the 
Department, telephone (202) 693-8540 (This is not a toll-free number.)

Aztec Well Servicing Company & Related Companies Medical Plan Trust 
Fund (the Plan), Located in Aztec, New Mexico

[Application No. D-11628]

Proposed Exemption

    The Department of Labor (the Department) is considering granting an 
exemption under the authority of section 408(a) of the Act in 
accordance with procedures set forth in 29 CFR part 2570, Subpart B (55 
FR 32836, 32847, August 10, 1990).
Section I
    If the proposed exemption is granted, the restrictions of sections 
406(a)(1)(A), (C) and (D), 406(b)(1), and 406(b)(2) of the Act shall 
not apply to the payment by the Plan to Basin Occupational & Urgent 
Care, LLC (BOUC), a party in interest with respect to the Plan, for the 
on-site provision to the Plan of urgent medical care and wellness 
services by a nurse-practitioner and a wellness coordinator employed by 
BOUC, provided that the following conditions are satisfied:
    (a) An independent, qualified fiduciary (I/F), with expertise in 
plans providing health and welfare benefits under the Act and the 
fiduciary obligations thereunder, acting on behalf of the Plan, 
determines prior to entering into the transaction that the transaction 
is feasible, in the interest of, and protective of the Plan and the 
participants and beneficiaries of the Plan;
    (b) Before the Plan enters into the proposed transaction, the I/F 
reviews the transaction, ensures that the terms of the transaction are 
at least as favorable to the Plan as an arm's length transaction with 
an unrelated party, and determines whether or not to approve the 
transaction, in accordance with the fiduciary provisions of the Act;
    (c) The I/F monitors compliance with the terms and conditions of 
this proposed exemption, as described herein, and ensures that such 
terms and conditions are at all times satisfied;
    (d) The I/F monitors compliance with the terms of the written 
license agreement (the License) between the Plan and AWS, and takes any 
and all steps necessary to ensure that the Plan is protected, 
including, but not limited to, exercising its authority to terminate 
the License on 10 days' written notice; and
    (e) The subject transaction is, in fact, on terms and at all times 
remains on terms that are at least as favorable to the Plan as those 
that would have been negotiated under similar circumstances at arm's-
length with an unrelated third party.
Section II
    If the proposed exemption is granted, the restrictions of sections 
406(a)(1)(A), (C) and (D), 406(b)(1), and 406(b)(2) of the Act shall 
not apply, effective July 1, 2010, to: (1) The payment by the Plan's 
participants to BOUC for medical services provided as a result of the 
inclusion of BOUC's clinic, located in Farmington, New Mexico, as a 
network provider in the BlueCross BlueShield of New Mexico (BCBSNM) 
Network of Health Care Providers; and (2) the payment by the Plan to 
BCBSNM of the difference between BOUC's fee and the participant's co-
pay, which difference is then transmitted by BCBSNM to BOUC, provided 
that the following conditions are satisfied:
    (a) The terms of the medical services provided by BOUC to Plan 
participants are at least as favorable to the participants as those 
they could obtain in similar transactions with an unrelated party;
    (b) the Plan participants will have access to all of the providers 
in BCBSNM's network and will be free to choose whether or not to use 
BOUC's clinic;
    (c) at least 99% of the providers participating in the BCBSNM are 
unrelated to the companies whose employees participate in the Plan, or 
any other party in interest with respect to the Plan;
    (d) BOUC will be treated no more favorably than any other provider 
participating in the BCBSNM; and
    (e) the transactions are not part of an agreement, arrangement or 
understanding designed to benefit BOUC or any other party in interest 
with respect to the Plan.
Summary of Facts and Representations
    1. Aztec Well Servicing Company (AWS) is a family-owned business 
that has operated in San Juan County, in northwestern New Mexico, near 
the Four Corners, since 1963. In 2007, AWS decided to self-insure its 
medical benefits and established the Aztec Well Servicing Company & 
Related Companies Medical Plan Trust Fund (the Plan). The Plan covers 
the employees of six companies (together, the Companies) with common 
ownership: Totah Rental and Equipment Company, Inc., Triple S Trucking 
Company, Inc., Double M Mud Company, Inc., Basin Disposal, Inc., and 
Roadrunner Fuels, as well as AWS. All six of these companies operate in 
the well drilling and servicing industry in and around San Juan County. 
As of May 31, 2011, there were approximately 344 participants in the 
Plan. The Plan and its related trust fund are governed by a three-
member Board of Trustees (the Trustees) that consists of Jerry Sandel, 
the President of the Companies, his son Jason Sandel, Vice-President 
and Treasurer, and Stewart Peterson, Vice-President.
    2. The Trustees contract with BCBSNM for access to the BCBSNM 
network of health care providers and for claims adjudication and 
related services. However, even with access to that network, there is a 
dearth of primary and urgent care providers in San Juan County. Along 
with many members of the community, the Trustees have been concerned 
about the lengthy waiting times for urgent care and the general 
inaccessibility of health care in this rural area.
    3. In order to address this problem, Trustee Jason Sandel, along 
with his sister Michelle Sandel, formed a health care clinic, Basin 
Occupational & Urgent Care LLC (BOUC), which was organized under the 
laws of the State of New Mexico as a for-profit limited liability 
corporation. No Plan assets were used in the formation of BOUC, and its 
services are available to the general public. Currently, AWS has an 
arrangement with BOUC under which BOUC provides the services of a 
nurse-practitioner to the Plan participants and their dependents. The 
services consist of non-occupational urgent care, wellness exams, and 
preventive care advice and are available on AWS' campus during working 
hours without charge to the individual. BOUC also provides a wellness 
coordinator who oversees the Plan's exercise facility, which is also 
available without charge to the Plan's participants and their eligible 
dependents. BOUC has also joined the Plan as a sponsoring employer and 
its employees have the opportunity to participate in the Plan on the 
same terms as all other employees of participating employers.
    4. The applicant represents that AWS set up the Plan in order to 
provide medical benefits. The Trustees of the

[[Page 77611]]

Plan consider access to the nurse-practitioner and the wellness 
coordinator to be an important part of such benefits. The applicant 
represents that it was always intended that the Plan would provide 
these benefits; AWS is currently furnishing them to avoid violating the 
prohibited transaction rules. The applicant has requested relief to 
permit the Plan to enter into an agreement (the Agreement) with BOUC to 
provide the same services, on the same terms and conditions (i.e., the 
Plan will pay BOUC for providing the services of the nurse-practitioner 
and the wellness coordinator). The services would continue to be 
available to all Plan participants without charge. AWS represents that 
if the Plan were to provide medical services directly to its 
participants, it would have to comply with a number of state laws, 
including medical facility and provider licensing, as well as state and 
federal employment laws. It would also have to insure against medical 
malpractice liability. Because the Plan is so small, the Trustees have 
decided that it is more cost-effective to the Plan to contract out 
these services to an entity that can take care of the licensing, 
insurance, employment and legal and regulatory compliance issues in the 
context of a larger book of business.
    5. The nurse-practitioner and the wellness coordinator, who are 
employees of BOUC, will be providing their services to the Plan in a 
building (Building) owned by AWS. AWS has entered into a licensing 
agreement (the License) with the Plan under which the Plan can use the 
Building free of charge. The Plan purchased exercise equipment from an 
unrelated party, The Fitness Superstore, a national chain that sells 
sports equipment. The equipment, which the Plan has put into the 
Building, includes treadmills, elliptical trainers, stationary 
bicycles, weight machines, exercise mats, and the like, none of which 
is affixed to the real property and all of which could either be moved 
to a new location or sold on the open market by the Plan. The License 
does not contain a specific number of years, but simply provides that 
it will remain in effect until terminated by either party (on 10 days' 
written notice). The License provides that the Plan will retain 
ownership of any alterations, remodeling, and/or improvements funded by 
the Plan. In the event of termination, AWS and the Plan will apply to 
the Department for a separate prohibited transaction exemption to 
permit the Plan to sell to AWS any alterations, remodeling or 
improvements the Plan makes to the Building.
    6. An independent, qualified fiduciary has been retained by the 
Plan and has conducted a study regarding the proposed transaction. The 
independent fiduciary is Maureen Sanders, of Albuquerque, New Mexico. 
Ms. Sanders represents that she has been the attorney for the New 
Mexico Medical Insurance Pool (the Pool) since the late 1980s. The Pool 
was created by the legislature to ensure that health insurance is 
available for purchase for those with pre-existing conditions. Ms. 
Sanders represents that because of that affiliation, she has become 
very aware of the importance of preventive measures to assist 
individuals with their health needs. She is also aware of the costs of 
health care, the lack of providers in the Four Corners area, and the 
need for options for those working in the oil fields. Since she has 
left full-time teaching, Ms. Sanders has continued to teach insurance 
law at the University of New Mexico School of Law as an adjunct 
professor. She represents that she regularly represents clients who 
have been denied medical and other welfare benefits by their fully-
insured ERISA plans and is familiar with the fiduciary obligations 
imposed by ERISA. She further represents that less than 1% of her 
annual income has been and will be derived from her role as independent 
fiduciary for the Plan.
    7. Ms. Sanders has reviewed the proposed transaction and determined 
that it is appropriate for the Plan and in the best interest of its 
participants and beneficiaries. She states that the proposed 
arrangement would provide several benefits to the Plan participants, 
including worksite medical services and a fitness center. Under the 
Agreement, BOUC will furnish the worksite medical services to the 
Plan's participants and beneficiaries at no additional out-of-pocket 
costs to them. The services will include wellness services and urgent 
care triage and treatment. However, participants and beneficiaries will 
be referred to their primary care physicians for routine and on-going 
treatment. The services of the nurse-practitioner will be made 
available to all of the participants and beneficiaries, on site and 
free of charge. BOUC will also furnish a wellness coordinator to assist 
in the administration of wellness programs and activities designed to 
improve employee health and well-being. It is expected that the Fitness 
Center will support healthy lifestyles for the participants and 
beneficiaries.
    8. Ms. Sanders further represents that she reviewed the proposed 
rates and fees to be paid by the Plan for the services to be rendered 
by BOUC, and determined that they were reasonable. In reaching that 
determination, Ms. Sanders reviewed compensation for non-physician 
providers both nationally and for the western states. She also looked 
at cost to customers generally and at the anticipated cost to BOUC for 
the non-physician providers. She additionally reviewed the actual or 
anticipated BOUC operating expenses for both a wellness clinic and a 
fitness center. In comparing that information with the proposed fees to 
be paid by the Plan to BOUC, she determined that the proposed fees were 
reasonable. She represents that her conclusion is especially true given 
the dearth of facilities and providers in the Four Corners area.
    9. On July 1, 2010, BOUC joined the BCBSNM provider network. BCBSNM 
is the largest provider network in New Mexico. In order to operate 
competitively and establish itself financially, it had no choice 
economically but to join a number of preferred provider networks, 
including BCBSNM, the largest. The benefits to BOUC of such an 
arrangement are those that attract other providers; relatively fast and 
streamlined claims payment in exchange for lower reimbursement fees 
that are set by BCBSNM. BCBSNM is not affiliated with the Plan nor any 
of the Companies, other than as a service provider for network access, 
claims adjudication and related services to the Plan.
    10. The Plan has contracted annually with BCBSNM for the use of its 
provider network and claims adjudication services since August 1, 2007. 
The Trustees' selection of the BCBSNM network occurred after they had 
an insurance broker carry out a competitive search of area provider 
networks before BOUC was formed or contemplated. It is anticipated that 
some Plan participants, as well as the participants in plans sponsored 
by other unrelated employers and the general public will use the BOUC 
clinic located in Farmington, New Mexico. The Plan would pay claims for 
the services that BOUC provides at the rates specified in its provider 
agreement with BCBSNM.\19\ The Plan participants will not be required 
to use the BOUC clinic; they will be able to choose any health care 
facilities that are in the BCBSNM network. The applicant represents 
that there are 20,730 health care providers in

[[Page 77612]]

the BCBSNM network, so the BOUC clinic represents less than .05% of the 
providers in the network from which the participants are free to 
choose. The applicant further represents that there are 774 providers 
in the BCBSNM network who are located in San Juan County.
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    \19\ For example, if a Plan participant visits a member of the 
BCBSNM network, including the BOUC clinic, the participant pays the 
co-pay, and the provider bills BCBSNM for the difference between the 
negotiated fee amount and the co-pay. BCBSNM would pay the provider 
that difference, and then bill that amount to the Plan.
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    11. BOUC is a member of the San Juan Independent Practice 
Association (SJIPA), which negotiates provider reimbursement rates with 
BCBSNM on behalf of its members. SJIPA also negotiates with most, if 
not all, of the other medical provider networks that operate in San 
Juan County, such as Presbyterian Health Plan, Aetna, Cigna, United 
Health Care, and Lovelace Health Plan. SJIPA credentials its members 
through a lengthy application process that includes site visits, 
verification of provider licensure, and regulatory agency standing. 
Providers such as BOUC then have the opportunity to enter into a 
written agreement directly with one of the provider networks at the 
negotiated master rates.
    12. Providers such as BOUC pay a per-practitioner membership fee to 
SJIPA of $1,000 for the first year, $225 per quarter during the second 
year, and $100 per quarter for all subsequent years. The providers do 
not pay any fee to BCBSNM. The Plan pays an administrative fee to 
BCBSNM for access to the BCBSNM network (and thus the negotiated 
discounted rates for providers) and for other administrative services, 
such as adjudication and processing of claims, but that fee has not 
changed and will not change due to the presence of BOUC in the network. 
None of the Companies have received or will receive any direct or 
indirect fees as a result of BOUC joining the BCBSNM network.
    13. The applicant represents that the Plan has been trying to 
encourage its participants to use urgent care facilities instead of 
more expensive emergency rooms, when medically appropriate. To that 
end, the Plan recently reduced its normal participant co-pay for urgent 
care visits to BOUC from $75 to $25, and BOUC agreed to reduce its 
rates by the difference. The BCBSNM reimbursement that BOUC receives 
remains at the negotiated BCBSNM rate for all similar services, and the 
Plan does not make any additional payment to BOUC; the urgent care 
facility simply absorbs the loss. The Plan's Trustees recently 
negotiated the same reduced co-pay amount with a new urgent care 
facility in Aztec called Aztec Urgent Care, which is unrelated to BOUC, 
any of the Trustees, and any of the Companies.
    14. In summary, the applicant represents that the proposed 
transaction meets the statutory criteria for an exemption under section 
408(a) of the Act because:
    (a) An independent, qualified fiduciary (I/F), acting on behalf of 
the Plan, has determined prior to entering into the proposed 
transaction that the transaction is administratively feasible, in the 
interest of, and protective of the Plan and the participants and 
beneficiaries of the Plan;
    (b) The I/F has reviewed the transaction to ensure that its terms 
are at least as favorable to the Plan as an arm's-length transaction 
with an unrelated party, and has determined to approve the transaction, 
in accordance with the fiduciary provisions of the Act;
    (c) The I/F will monitor compliance with the terms and conditions 
of this proposed exemption, as described herein, and ensure that such 
terms and conditions are at all times satisfied;
    (d) The I/F will monitor compliance with the terms of the License, 
and take any and all steps necessary to ensure that the Plan is 
protected, including, but not limited to, exercising her authority to 
terminate the License on 10 days' written notice; and
    (e) The transaction is, in fact, on terms and at all times remains 
on terms that are at least as favorable to the Plan as those that would 
have been negotiated under similar circumstances at arm's-length with 
an unrelated third party;
    (f) The terms of the medical services provided by BOUC to Plan 
participants at its Farmington, New Mexico clinic are at least as 
favorable to the participants as those they could obtain in similar 
transactions with an unrelated party;
    (g) The Plan participants will have access to all of the providers 
in BCBSNM's network and will be free to choose whether or not to use 
BOUC's clinic;
    (h) At least 99% of the providers participating in the BCBSNM are 
unrelated to the companies whose employees participate in the Plan, or 
any other party in interest with respect to the Plan;
    (i) BOUC will be treated no more favorably than any other provider 
participating in the BCBSNM; and
    (j) The transactions are not part of an agreement, arrangement or 
understanding designed to benefit BOUC or any other party in interest 
with respect to the Plan.
    For Further Information Contact: Gary H. Lefkowitz of the 
Department, telephone (202) 693-8546 (This is not a toll-free number.)

Genzyme Corporation 401(k) Plan (the Plan or the Applicant), Located in 
Cambridge, MA

[Application No. D-11669]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act (or ERISA) and section 
4975(c)(2) of the Code, and in accordance with the procedures set forth 
in 29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 
1990).\20\ If the proposed exemption is granted, the restrictions of 
sections 406(a), 406(b)(1) and (b)(2) and section 407(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 (E) of the Code, shall 
not apply, effective April 4, 2011, to (1) the acquisition by the Plan 
of contingent value rights (CVRs) as a result of the Plan's ownership 
of certain common stock (Genzyme Common Stock) in Genzyme Corporation 
(Genzyme), the Plan sponsor, in connection with (a) The purchase of 
shares (Shares) of Genzyme Common Stock pursuant to an exchange offer 
(the Exchange Offer) and a subsequent offer to the Exchange Offer (the 
Subsequent Exchange Offer) by GC Merger Corp. (the Purchaser), a 
wholly-owned subsidiary of sanofi-aventis (Sanofi), a party in interest 
with respect to the Plan, and (b) the ``short-form'' merger (the 
Merger) of Sanofi into Genzyme (together, the Transactions); (2) the 
continued holding of CVRs by the Plan; and (3) the resale of the CVRs 
by the Plan to Sanofi, pursuant to the exercise of repurchase rights 
(the Repurchase Rights) available under certain circumstances specified 
in the Contingent Value Rights Agreement (the CVR Agreement).
---------------------------------------------------------------------------

    \20\ For purposes of this proposed exemption, references to 
section 406 of the Act should be read to refer as well to the 
corresponding provisions of section 4975 of the Code.
---------------------------------------------------------------------------

    This proposed exemption is subject to the following conditions:
    (a) Plan participants holding Genzyme Common Stock received one CVR 
for each Share on the effective date of the tender or cancellation of 
their Shares, in connection with the Transactions.
    (b) The acquisition of CVRs by the Plan occurred in connection with 
the Transactions on the same terms and in the same manner as the 
acquisition of CVRs by all other holders of Genzyme Common Stock, other 
than Sanofi, the Purchaser, Genzyme and dissenting shareholders.
    (c) The Plan's acquisition of CVRs resulted either (1) from a 
decision by a

[[Page 77613]]

participant or beneficiary to tender Shares allocated to his or her 
account or (2) following a decision by a participant or beneficiary not 
to tender Shares by reason of the Merger.
    (d) The Plan did not pay any fees or commissions in connection with 
the acquisition of the CVRs, nor does it pay any fees or commissions in 
connection with the holding or sale of CVRs to Sanofi pursuant to an 
exercise of Sanofi's repurchase right under the CVR Agreement.
    (e) Credit Suisse Securities (USA) LLC (Credit Suisse Securities) 
and Goldman Sachs & Co (Goldman Sachs) advised Genzyme that the 
consideration received by Genzyme shareholders (Genzyme Shareholders), 
including Plan participants, in exchange for their Shares was ``fair,'' 
from a financial point of view.
    (f) The Plan does not acquire or hold CVRs other than those 
acquired in connection with the Transactions.
    (g) Plan participants have the same rights with respect to CVRs 
allocated to their accounts under the Plan (including with respect to 
any repurchase of CVRs by Sanofi) as unrelated parties have with 
respect to CVRs not held under the Plan, and they may direct the Plan's 
trustee (the Trustee) to sell CVRs allocated to their respective 
accounts at any time.
    (h) For so long as CVRs remain a permissible Plan investment, the 
retention or disposition by the Plan of CVRs allocated to a 
participant's or beneficiary's account is administered in accordance 
with the provisions of the Plan that are in effect for individually-
directed investment of participant accounts.
    Effective Date: If granted, this proposed exemption will be 
effective as of April 4, 2011.
Summary of Facts and Representations
The Plan
    1. The Plan, which is sponsored and maintained by Genzyme, is an 
individual account plan intended to qualify under section 401(a) of the 
Code that includes a qualified cash or deferred arrangement described 
in section 401(k) of the Code. The Plan allows participants to direct 
the investment of their accounts under the Plan in various investment 
alternatives available under the Plan, including, during periods prior 
to the Transactions described herein, Genzyme Common Stock.
    As of April 4, 2011, the Plan had 7,537 participants and assets 
having an aggregate fair market value of $738,806,554. As of the same 
date, 646,922.56 Shares were held by the Plan in accounts maintained 
for 2,933 participants, representing approximately 39% of the 
participants in the Plan. These Shares had an aggregate fair market 
value on April 4, 2011 of $49,366,660, or approximately 6.7% of the 
aggregate fair market value of the Plan's total assets, and represented 
approximately 0.2437% of the 265,485,712 Shares that were issued and 
outstanding as of that date. According to the Applicant, the Plan's 
Shares constituted qualifying employer securities within the meaning of 
section 407(d)(5) of the Act.\21\
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    \21\ Section 407(d)(5) of the Act generally defines the term 
``qualifying employer security'' as an employer security which is 
(a) stock, (b) a marketable obligation, or (c) an interest in an 
existing publicly traded partnership.
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    The Plan is funded through a trust of which Prudential Bank & 
Trust, FSB, serves as the Trustee. The Trustee is a directed trustee. 
Under the Genzyme Corporation 401(k) Plan Trust Agreement (the Trust 
Agreement) executed between the Trustee and Genzyme, the Trustee 
accepted employer securities (i.e., Genzyme Common Stock), as defined 
in the Plan, as a plan asset with Genzyme's understanding and approval 
that the employer securities would be held by Prudential Investment 
Management Services LLC.
    The Plan is administered by the Genzyme Benefit Plan Committee (the 
Committee), which was appointed by Genzyme. The Committee is 
responsible for making all investment decisions related to the Plan, 
other than decisions made by the participants and decisions with regard 
to investments provided for as a design feature in the Plan document, 
such as investments in employer securities. Genzyme, as Plan sponsor, 
is responsible for decisions relating to the availability of specified 
investments as a feature of the Plan's design. The Committee has 
engaged CapTrust Advisors (CapTrust), an independent financial advisor 
with its primary office located in Raleigh, North Carolina, to provide 
financial services to the Committee and to Plan participants.
Genzyme
    2. Genzyme, a Massachusetts corporation with its principal offices 
located in Cambridge, Massachusetts, is a global biotechnology company 
engaged in the research, development, manufacturing and marketing of 
products to address unmet medical needs. As of December 31, 2010, 
Genzyme had total assets of approximately $10.91 billion and total 
stockholders' equity of approximately $7.59 billion. As of the same 
date, there were approximately 261.5 million Shares outstanding.
Sanofi
    3. Sanofi, a French soci[eacute]t[eacute] anonyme \22\ with its 
headquarters located in Paris, France, is a global pharmaceutical group 
engaged in the research, development, manufacture and marketing of 
healthcare products. As of December 31, 2010, Sanofi had total assets 
of approximately [euro]85.26 billion and total stockholders' equity of 
approximately [euro]53.3 billion.
---------------------------------------------------------------------------

    \22\ The Applicant states that a soci[eacute]t[eacute] anonyme 
is a stock company or limited company. The Applicant further states 
that the ``S.A.'' that follows the name of a French 
soci[eacute]t[eacute] anonyme is comparable to the ``Inc.'' that 
follows the name of a U.S. corporation.
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The Purchaser
    4. The Purchaser, a Massachusetts corporation incorporated on July 
29, 2010, is a direct wholly-owned subsidiary of Sanofi. The Purchaser 
was organized by Sanofi to acquire Genzyme and has not conducted any 
unrelated activities since its organization. All outstanding shares of 
the capital stock of the Purchaser are owned by Sanofi.
Acquisition of Genzyme by Sanofi
    5. On April 8, 2011, Sanofi completed its acquisition of Genzyme. 
The acquisition occurred pursuant to an Agreement and Plan of Merger 
dated February 16, 2011 (the Merger Agreement) executed by Sanofi, the 
Purchaser and Genzyme, wherein all of the outstanding Shares of Genzyme 
Common Stock were acquired by the Purchaser. The Share acquisition 
transaction was consummated by the Purchaser through both an Exchange 
Offer and a Subsequent Exchange Offer for all of the outstanding Shares 
(together, the Exchange Offers). The Exchange Offers were followed by a 
``short-form'' merger (i.e., the Merger) of the Purchaser with and into 
Genzyme that did not require a Genzyme Shareholder vote.
    As a result of the Transactions (i.e., the Share acquisition 
transaction and the Merger), Genzyme survives as a direct wholly-owned 
subsidiary of Sanofi. All Shares validly tendered and not withdrawn in 
either the Exchange Offer or the Subsequent Exchange Offer (except for 
Shares held by Sanofi, Genzyme and their subsidiaries, and Shares held 
by shareholders who properly perfected appraisal rights under 
Massachusetts law) were converted into the right to receive (a) $74.00 
in cash, less any applicable withholding for taxes and without

[[Page 77614]]

interest (the Cash Consideration), per Share, and (b) one CVR per Share 
(together with the Cash Consideration, the Merger Consideration). All 
Shares not tendered were converted into the right to receive the same 
Merger Consideration. The Merger Consideration was paid by the 
Purchaser and delivered by Computershare Trust Company, N.A., the 
exchange agent for the Exchange Offers (the Exchange Agent), to 
tendering Shareholders in the Exchange Offer and the Subsequent 
Exchange Offer on April 4, 2011.
    The terms of the Transactions were negotiated on an arm's length 
basis by the parties and approved by the Boards of Directors of Sanofi, 
the Purchaser, and Genzyme. In connection with Genzyme's consideration 
of the Exchange Offer and the Subsequent Exchange Offer and Merger, 
fairness opinions were prepared by Credit Suisse Securities and Goldman 
Sachs. Notice of the Transactions was provided by Genzyme to Genzyme 
Shareholders. Also, Plan participants were given the same consideration 
as all other holders of Shares.\23\ More details about the Transactions 
are presented below.
---------------------------------------------------------------------------

    \23\ While this statement is generally accurate, the Applicant 
notes that Sanofi, the Purchaser and Genzyme did not receive the 
Merger Consideration for their Shares. Further, dissenting 
shareholders who perfected their appraisal rights were not entitled 
to receive the CVRs, but they generally received $74 in cash for 
each Share they owned, plus interest.
---------------------------------------------------------------------------

The Exchange Offer
    6. On April 4, 2011, the Purchaser accepted for exchange all Shares 
that were tendered and actually delivered. The exchange for such Shares 
was made in accordance with the terms of the Exchange Offer, which 
commenced on March 7, 2011 and ended on April 1, 2011 at 11:59 p.m., 
unless extended by the Purchaser. The Exchange Agent advised Sanofi and 
the Purchaser that 224,528,469 Shares were validly tendered and not 
properly withdrawn pursuant to the Exchange Offer by Genzyme 
Shareholders. The tendered Shares represented approximately 84.6% of 
all the outstanding Shares as of the April 1, 2011 expiration date of 
the Exchange Offer. However, 43,285,259 of those Shares were offered up 
with a guarantee by an ``eligible guarantor institution'' \24\ that 
they would be delivered within a short period of time, and the related 
Shares (i.e., the Shares for which the guarantor guaranteed delivery of 
a Share certificate or book-entry confirmation) were not actually 
accepted for exchange at the expiration of the Exchange Offer. The 
number of Shares actually delivered and accepted for exchange at the 
end of the Exchange Offer was 181,243,210 (224,528,469 Shares minus 
43,285,259 Shares). Accordingly, following the acceptance of the Shares 
validly tendered and not properly withdrawn in the Exchange Offer 
(excluding the Shares subject to guarantees of delivery), Sanofi and 
the Purchaser owned approximately 68.3% of the outstanding Shares or 
approximately 62% of the total Shares on a fully-diluted basis (i.e., 
the number of Shares actually outstanding plus the number of additional 
Shares that would be outstanding if Shares were issued pursuant to all 
outstanding stock rights). As a result of such acceptance of Shares in 
the Exchange Offer, a change in control of Genzyme occurred.
---------------------------------------------------------------------------

    \24\ The Applicant represents that ``eligible guarantor 
institutions,'' as defined in Rule 17Ad-15 of the Securities 
Exchange Act of 1934 (the 1934 Act), include banks, brokers, 
dealers, credit unions, national securities exchanges, registered 
securities associations, clearing agencies, and savings 
associations. The Applicant states that, typically, the delivery 
guarantee would have been made by a broker.
---------------------------------------------------------------------------

    Of the total Shares tendered during the Exchange Offer, 320,294 
Shares were tendered by 971 Plan participants. In return for their 
Shares, Plan participants received cash consideration of $23,701,756 in 
the aggregate, and a total of 320,294 CVRs with a value of $2.35 per 
Share, or an aggregate value of $752,690.90, as of the close of trading 
on April 4, 2011.\25\
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    \25\ The Applicant notes that the CVRs in which the Plan 
acquired an ownership interest on April 4, 2011 were received by the 
Plan on April 7, 2011. The Applicant further notes that the value of 
the CVRs at the close of trading on April 7, 2011 was $2.41 per CVR, 
or $771,908.54 for all CVRs received on that date.
---------------------------------------------------------------------------

The Subsequent Exchange Offer
    7. The Purchaser commenced a Subsequent Exchange Offer on April 4, 
2011 for all remaining untendered Shares. The Subsequent Exchange Offer 
expired at 6 p.m., New York City time, on April 7, 2011, in accordance 
with the applicable rules and regulations of the U.S. Securities and 
Exchange Commission (the SEC) and the Merger Agreement. Following the 
close of the Subsequent Exchange Offer, the Exchange Agent advised 
Sanofi and the Purchaser that 56,069,616 Shares were validly tendered. 
The tendered Shares represented 21.1% of the issued and outstanding 
Shares. The Shares included both (a) Shares delivered for exchange 
pursuant to delivery guarantees made during the Exchange Offer, and (b) 
Shares newly tendered and delivered for exchange in the Subsequent 
Exchange Offer.\26\ Together with the 181,243,210 Shares delivered and 
accepted for exchange in the Exchange Offer, the 56,069,616 Shares 
delivered and accepted in the Subsequent Exchange Offer brought the 
total Shares acquired by Sanofi in the two offering periods to 
237,312,826, or approximately 89.4% of the issued and outstanding 
Shares.
---------------------------------------------------------------------------

    \26\ The Applicant notes that the Form 8-K filed by Genzyme with 
the SEC on April 8, 2011 does not indicate how many of the 
56,069,616 Shares were Shares delivered pursuant to delivery 
guarantees made during the Exchange Offer and how many were Shares 
newly tendered and delivered for exchange. The Applicant also notes 
that additional Shares may have been newly offered up during the 
Subsequent Exchange Offer with a guarantee that they would be 
delivered within a short period of time, but the Form 8-K does not 
contain disclosure regarding such guarantees because the related 
Shares had not been accepted for exchange at that time.
---------------------------------------------------------------------------

    Of the total Shares tendered in the Subsequent Exchange Offer, 
14,567 Shares were exchanged by 66 Plan participants, who received 
aggregate cash consideration of $1,077,958, and a total of 14,567 CVRs 
with a value of $2.41 per CVR, or an aggregate value of $35,106.47, as 
of the close of trading on April 7, 2011, the acceptance date of the 
Subsequent Exchange Offer.\27\
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    \27\ The Applicant notes that the CVRs in which the Plan 
acquired an ownership interest on April 7, 2011 were received by the 
Plan on April 8, 2011. The Applicant further notes that the value of 
the CVRs at the close of trading on April 8, 2011 was $2.32 per CVR 
or $33,795.44 for all CVRs received on that date.
---------------------------------------------------------------------------

Steps Taken by Genzyme Prior to the Transactions
    8. Genzyme took certain steps prior to the Transactions in 
preparation for the acquisition of CVRs by the Plan. In this regard, 
certain provisions of the Plan and the Trust Agreement relating to 
employer securities were amended to accommodate the acquisition and 
holding of the CVRs. In addition, notice (the Notice) of the 
Transactions, dated March 10, 2011, was provided to Genzyme 
Shareholders as well as to each Plan participant and beneficiary who 
had invested in Shares through the Plan. The Notice explained that on 
the effective date of the Exchange Offer, the Plan participant or 
beneficiary could elect to provide instructions to the Plan Trustee to 
tender all or some of the Shares held on their behalf under the Plan. 
The Notice further explained that no action was required if a Plan 
participant or beneficiary did not wish to tender any of the Shares 
allocated to their account under the Plan in the Exchange Offer.
    Plan participants and beneficiaries also had the opportunity, on a 
daily basis until the second day preceding the

[[Page 77615]]

closing of the Exchange Offer and the Subsequent Exchange Offer, to 
transfer funds held on their behalf in Genzyme Common Stock to other 
investment funds under the Plan if they did not wish to receive 
interests in CVRs under the Plan. The Notice furnished to Plan 
participants and beneficiaries included notice of the period of time 
immediately preceding the closing of the tender offer during which they 
would be unable to give further instructions regarding the investment 
of the portion of their accounts invested in Genzyme Common Stock.
Top-Up Option
    9. In the Merger Agreement, Genzyme granted an irrevocable option 
(i.e., the Top-Up Option) to the Purchaser to purchase newly-issued 
Shares directly from Genzyme. On April 8, 2011, subsequent to the 
acceptance of Shares in the Subsequent Exchange Offer, the Purchaser 
exercised the Top-Up Option granted to the Purchaser to purchase newly 
issued Shares directly from Genzyme in accordance with the Merger 
Agreement. The Purchaser purchased 16,245,894 newly issued Shares at a 
price of $76.33 per Share and paid the purchase price (a) By issuing a 
promissory note to Genzyme in the amount of $1,239,886,631 and (b) by 
paying $162,459 in cash to Genzyme. Subsequent to the exercise of the 
Top-Up Option, Sanofi and the Purchaser had an aggregate ownership of 
over 90% of the outstanding Shares.
Short-Form Merger and Cancellation of Shares
    10. Sanofi completed its acquisition of Genzyme by effecting a 
``short-form merger,'' which did not require a shareholder vote, 
pursuant to section 11.05 of the Massachusetts Business Corporation Act 
between the Purchaser and Genzyme. As a result of the Merger, Genzyme 
became a direct, wholly-owned subsidiary of Sanofi. Any Shares not 
tendered in the Exchange Offer or the Subsequent Exchange Offer (other 
than Shares held in Genzyme's treasury or owned by Sanofi, which Shares 
were cancelled and retired without any conversion thereof) were 
cancelled and converted into the right to receive the same Merger 
Consideration that was paid in the Exchange Offer and the Subsequent 
Exchange Offer. The total number of Shares outstanding on the effective 
date of the Merger that became eligible to be cancelled and converted 
into a right to receive the Merger Consideration was 28,173,190. Of the 
total Shares eligible to be cancelled, 308,464.81 Shares were owned by 
and allocated to participant accounts under the Plan, for which the 
Plan received the Merger Consideration shortly after the appraisal 
period expired on May 28, 2011 in the form of cash consideration of 
$22,826,395.94, in the aggregate, and a total of 308,465 CVRs. No 
specific action was taken by the Plan to exercise or relinquish 
appraisal rights.\28\
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    \28\ The Applicant represents that, under Massachusetts law, 
holders of Shares of Genzyme Common Stock that were not tendered had 
the opportunity to exercise appraisal rights to demand fair value 
for their Shares for a specified time after the Merger. The deadline 
for the exercise of appraisal rights was May 28, 2011. However, the 
Applicant notes that the Plan did not provide for appraisal rights 
to be passed through to participants, and the Committee did not 
direct the Trustee either to exercise such rights or to relinquish 
them before they expired. Accordingly, no participant in the Plan 
exercised appraisal rights affecting the disposition of Shares held 
by the Plan.
---------------------------------------------------------------------------

The CVRs
    11. The CVRs are general, unsecured, contingent payment obligations 
of Sanofi that rank equally with all existing and future unsecured 
unsubordinated indebtedness of Sanofi and senior to all subordinated 
indebtedness of Sanofi. They were issued by Sanofi pursuant to a CVR 
Agreement that was executed on March 30, 2011 by and between Sanofi and 
American Stock Transfer & Trust Company, LLC (the CVR Trustee), an 
unrelated party. In accordance with requirements of the Trust Indenture 
Act of 1939, the CVRs were also issued under an indenture with the CVR 
Trustee, which was appointed to protect and enforce the rights of the 
CVR holders. The indenture trust that holds the CVRs is not a plan 
asset vehicle. The CVR Trustee (a) Will receive from Sanofi amounts due 
under the CVRs and promptly remit payment to the CVR holders, (b) may 
demand payment and institute legal proceedings to collect amounts due 
and unpaid if Sanofi fails to pay amounts due under the CVRs, (c) must 
transmit notice to the CVR holders of breaches under the CVR Agreement, 
subject to certain conditions and expectations, and (d) may institute 
legal proceedings to protect and enforce the rights of the CVR holders 
upon the occurrence of a breach under the CVR Agreement.
    The CVR Trustee also performs various administrative functions that 
include, but are not limited to, (a) Serving as the initial Security 
Registrar for the purposes of registration and transfer of the CVRs, 
(b) notifying the CVR holders of certain amendments to the CVR 
Agreement, and (c) providing the CVR holders with certain reports 
concerning its actions and filing a copy of each such report with the 
Nasdaq Global Market, the SEC and Sanofi.
    Under the CVR Agreement, Sanofi is required to pay to the CVR 
Trustee, and the CVR Trustee is required to pay to the holders of CVRs, 
specified amounts upon achievement of certain milestones, as described 
below, up to a maximum payment of $14 in the aggregate per CVR. In 
accordance with the CVR Agreement, Sanofi is obligated to use 
commercially reasonable efforts to ensure that the CVRs are publicly 
traded on a national securities exchange.\29\
---------------------------------------------------------------------------

    \29\ According to the Applicant, the CVRs were listed on the 
Nasdaq Stock Market under the symbol ``GCVRZ'' on March 31, 2011 at 
an opening price of $2.20 per CVR.
---------------------------------------------------------------------------

    The CVRs were registered under the Securities Act of 1933 (the 1933 
Act), as required by the CVR Agreement, effective March 29, 2011. The 
CVRs were also registered under the 1934 Act, effective March 28, 2011. 
No CVRs may be issued after the initial issuance in connection with the 
Transactions, and no payments will be due under the CVR Agreement for 
any milestones achieved after the earlier of (a) December 31, 2020 or 
(b) the date that Product Sales Milestone 4 (as described 
below) is achieved.
    12. The CVR Agreement provides for payments to the holders of CVRs 
on attainment of the following production and development milestones:

     Production Milestone. A payment of $1.00 per CVR will 
be made upon the completion, not later than December 31, 2011, of 
production and release of specified quantities of Cerezyme[supreg] 
and Fabrazyme[supreg], two of Genzyme's enzyme replacement 
therapies, with payment to be made 20 business days following 
achievement of the milestone but not earlier than January 3, 2012.
     Approval Milestone. A payment of $1.00 per CVR will be 
made within 20 business days following the receipt, not later than 
March 31, 2014, of FDA approval for use of the drug alemtuzumab for 
treatment of multiple sclerosis (alemtuzumab MS).

    In addition, the CVR Agreement provides for payments to the holders 
of CVRs on attainment of targets for sales of alemtuzumab MS, as 
follows.

     Product Sales Milestone #1. A payment of $2.00 per CVR 
will be made if sales during the four calendar quarter period that 
begins on the first anniversary of the major market launch of 
alemtuzumab MS equal or exceed $400,000,000.
     Product Sales Milestone #2. A payment of $3.00 per CVR 
will be made if sales in any period of four consecutive calendar 
quarters during the term of the CVR Agreement equal or exceed 
$1,800,000,000. If Product Sales Milestone 2 is achieved as 
a result of sales of alemtuzumab MS outside of the United States but 
the Approval Milestone is not achieved by March 31, 2014, the 
Product Sales Milestone 2 payment will be $4.00 per CVR 
rather than $3.00 per CVR.

[[Page 77616]]

     Product Sales Milestone #3. A payment of $4.00 per CVR 
will be made if sales in any period of four consecutive calendar 
quarters during the term of the CVR Agreement equal or exceed 
$2,300,000,000 (excluding any quarter in which sales were used to 
determine whether Product Sales Milestone 1 or 2 
was achieved).
     Product Sales Milestone #4. A payment of $3.00 per CVR 
will be made if sales in any period of four consecutive calendar 
quarters during the term of the CVR Agreement equal or exceed 
$2,800,000,000 (excluding any quarter in which sales were used to 
determine whether Product Sales Milestone 1, 2 or 
3 was achieved).

    Each payment to be made on any of the Product Sales Milestones is 
required to be made within 20 business days following notice by Sanofi 
to the CVR Trustee that the applicable target was achieved in the most 
recently ended calendar quarter, such notice to be provided within 50 
days following the end of the calendar quarter. All notices required to 
be filed with the CVR Trustee are required to be made available 
simultaneously to the holders of CVRs on Sanofi's Web site.
    In the event Sanofi fails to make timely payment with respect to 
any of the payment milestones, interest will accrue on unpaid amounts 
at a rate equal to the prime rate plus three percent. The CVR Trustee 
is empowered to institute legal or equitable actions in order to 
collect amounts that are due and unpaid. The CVR Trustee can be 
directed to exercise its remedies by action of the holders of 30% or 
more of the CVRs.
    13. The CVR Agreement also provides that Sanofi has the right to 
repurchase, and subsequently cancel, all outstanding CVRs on a date on 
or after the third anniversary of the launch date of alemtuzumab MS, if 
certain conditions indicating lack of success are present.\30\
---------------------------------------------------------------------------

    \30\ For this purpose, the product launch date is the first day 
of the calendar quarter beginning one full calendar quarter after 
the end of the calendar quarter in which a first commercial sale 
occurs in the United States, the United Kingdom, France, Germany, 
Italy, or Spain.
---------------------------------------------------------------------------

    Specifically, under the Repurchase Right, Sanofi may purchase all 
outstanding CVRs (but not fewer than all outstanding CVRs) upon 
providing notice to the CVR Trustee between 30 and 60 days following 
the date as of which both of the following conditions have occurred: 
(a) The volume weighted average trading price per CVR for all CVRs 
traded over the previous 45 trading days is less than fifty cents, and 
(b) sales of alemtuzumab MS for the four most recently ended calendar 
quarters are less than $1,000,000,000 in the aggregate. The price at 
which Sanofi would purchase each outstanding CVR pursuant to an 
exercise of this right is the volume weighted average price paid per 
CVR for all CVRs traded over the 45 trading days prior to the fifth 
trading day preceding the date Sanofi gives notice of its intent to 
exercise its Repurchase Right.
    It is also possible that Sanofi may purchase CVRs on the open 
market in circumstances where the Plan is selling CVRs into the market. 
Any such purchase would be at market price.
    14. The CVRs do not provide any rights that could lapse by reason 
of a failure on the part of the holder to take timely action. Holders 
of CVRs will have the right to receive payments over time upon 
achievement of one or more of the above milestones during the term of 
the CVR, without the need for the CVR holder to take action. The rights 
of a CVR holder will not change in any way as a result of any action or 
inaction on the part of the holder, but are expected to remain in 
effect until all payment obligations under the CVR Agreement are 
satisfied or have terminated. The only exception would be if the CVRs 
are repurchased by Sanofi pursuant to its Repurchase Right, in which 
case, the holders of CVRs would not see their rights lapse and become 
worthless but would receive value for their CVRs in accordance with the 
terms of the Repurchase Right. With regard to the date on which the 
CVRs are scheduled to terminate, if not earlier repurchased by Sanofi 
pursuant to the Repurchase Right, the CVR Agreement provides that if 
any milestone has been achieved prior to December 31, 2020 but the 
related payment has not been paid as of that date, the CVR Agreement 
and the rights of CVR holders under the Agreement will not terminate 
until the payment has been made in full.
Fairness Opinions
    15. Credit Suisse Securities, an investment banking firm that 
operates in the United States and a subsidiary of Credit Suisse, 
advised Genzyme that the Merger Consideration to be received by Genzyme 
Shareholders in exchange for their Shares was ``fair,'' from a 
financial point of view. In arriving at its opinion, Credit Suisse 
Securities, among other things, (a) Reviewed the Merger Agreement, a 
form of the CVR Agreement and certain publicly available business and 
financial information relating to Genzyme; (b) reviewed certain other 
information relating to Genzyme, including financial forecasts, 
provided to or discussed with Credit Suisse Securities by Genzyme and 
have met with Genzyme's management to discuss the business and 
prospects of Genzyme; (c) considered certain financial and stock market 
data of Genzyme, and Credit Suisse Securities has compared that data 
with similar data for other publicly held companies in businesses 
Credit Suisse Securities has deemed similar to that of Genzyme and 
Credit Suisse Securities has considered, to the extent publicly 
available, the financial terms of certain other business combinations 
and other transactions which have recently been effected; and (d) 
considered such other information, financial studies, analyses and 
investigations and financial, economic and market criteria which Credit 
Suisse Securities deemed relevant.
    In rendering its opinion, Credit Suisse Securities did not 
independently verify any of the foregoing information and assumed and 
relied on such information being complete and accurate in all material 
respects. For example, with respect to the updated financial forecasts 
for Genzyme and the assessments as to the probability and estimated 
timing of achievement of the Approval Milestone, each of the Product 
Sales Milestones and the Production Milestone provided to Credit Suisse 
Securities by Genzyme, the management of Genzyme advised Credit Suisse 
Securities, and Credit Suisse Securities assumed, that such forecasts 
and assessments were reasonably prepared on bases reflecting the best 
currently available estimates and judgments of Genzyme's management as 
to the future financial performance of Genzyme and the probability and 
timing of achievement of the Approval Milestone, each of the Product 
Sales Milestones and the Production Milestone.
    Furthermore, in rendering its opinion, Credit Suisse addressed only 
the fairness of the Merger Consideration to be received in the 
Transactions, from a financial point of view, to the holders of Genzyme 
Common Stock (other than Sanofi and its affiliates). It did not address 
any other aspect of the Transactions or any other agreement, 
arrangement or understanding entered into in connection with the 
Transactions, including the fairness of the amount or nature of any 
compensation paid to any officers, directors or employees of any party 
to the Transactions, or class of such persons, relative to the Merger 
Consideration or otherwise. In addition, Credit Suisse did not express 
any opinion as to the price at which the CVRs would trade at any time 
or as to the solvency or viability of Genzyme or Sanofi or the ability 
of Genzyme or Sanofi to pay its obligations, including

[[Page 77617]]

in respect of the CVRs, when they come due.
    Credit Suisse issued its opinion with the understanding that the 
opinion would be for the information of the Board of Directors of 
Genzyme in connection with its consideration of the Transactions and 
would not constitute advice or a recommendation to any holder of 
Genzyme Common Stock as to whether or not such holder should tender 
such Shares in connection with the Exchange Offers, or how such 
stockholder should vote or act on any matter relating to the proposed 
Merger or any other matter. The issuance of the opinion was approved by 
an authorized internal committee of Credit Suisse.
    16. Goldman Sachs, a full-service global investment banking and 
securities firm, advised Genzyme that the Merger Consideration to be 
received by Genzyme Shareholders in exchange for their Shares was also 
``fair,'' from a financial point of view. In connection with its 
opinion, Goldman Sachs reviewed, among other things, (a) The Merger 
Agreement, (b) annual reports to shareholders and Annual Reports on 
Form 10K of Genzyme for the five fiscal years ended December 31, 2009; 
(c) certain interim reports to shareholders and Quarterly Reports on 
Form 10-Q of Genzyme; (d) annual reports to shareholders and Annual 
Reports on Form 20-F of Sanofi for the five fiscal years ended December 
31, 2009; (e) certain interim reports to shareholders and quarterly 
reports included in Reports on Form 6-K of Sanofi; (f) certain other 
communications from Genzyme and Sanofi to their respective 
shareholders; (g) certain publicly available research analyst reports 
for Genzyme and Sanofi; (h) the Tender Offer Statement on Schedule TO 
filed by Sanofi and the Purchaser, with the SEC on October 4, 2010, as 
amended through Amendment No. 14 to the Tender Offer Statement on 
Schedule TO filed by Sanofi and the Purchaser with the SEC on February 
9, 2011; (i) The Solicitation/Recommendation Statement of Genzyme filed 
on Schedule 14D-9 filed by Genzyme with the SEC on January 31, 2011; 
(j) and certain financial analyses and forecasts for Genzyme prepared 
by its management, including management's updated forecasts and its 
assessments as to the probability and estimated timing of achievement 
of the Approval Milestone, the Product Sales Milestones and the 
Production Milestone (each as defined in the CVR Agreement) approved 
for Goldman Sachs' use by Genzyme (the Forecasts). Goldman Sachs also 
(a) Held discussions with members of the senior management of Genzyme 
regarding the past and current business operations, financial condition 
and future prospects of Genzyme; (b) reviewed the reported price and 
trading activity for the Shares; (c) compared certain financial and 
stock market information for Genzyme and Sanofi with similar 
information for certain other companies the securities of which are 
publicly traded; (d) reviewed the financial terms of certain recent 
business combinations in the biotechnology industry and in other 
industries; and (e) performed such other studies and analyses, and 
considered such other factors, as they deemed appropriate.
    For purposes of rendering its opinion, Goldman Sachs relied upon 
and assumed, without assuming any responsibility for independent 
verification, the accuracy and completeness of all the financial, 
legal, regulatory, tax, accounting and other information provided to, 
discussed with or reviewed by, Goldman Sachs; and Goldman Sachs does 
not assume any responsibility for any such information. In that regard, 
Goldman Sachs assumed with Genzyme's consent that the forecasts were 
reasonably prepared on a basis reflecting the best currently available 
estimates and judgments of the management of Genzyme. Goldman Sachs 
also did not make an independent evaluation or appraisal of the assets 
and liabilities (including any contingent, derivative or other off-
balance-sheet assets and liabilities) of Genzyme, Sanofi or any of 
their respective subsidiaries and they were not furnished with any such 
evaluation or appraisal. Furthermore, Goldman Sachs assumed that all 
governmental, regulatory or other consents and approvals necessary for 
the consummation of the Transactions would be obtained without any 
adverse effect on Genzyme, Sanofi or on the expected benefits of the 
Transactions in any way meaningful to their analysis. Finally, Goldman 
Sachs assumed that the Transactions would be consummated on the terms 
set forth in the Merger Agreement, without the waiver or modification 
of any term or condition the effect of which would be in any way 
meaningful to its analysis.
    In rendering its opinion, Goldman Sachs did not address the 
underlying business decision of Genzyme to engage in the Transactions, 
or the relative merits of the Transactions as compared to any strategic 
alternatives that may have been available to Genzyme. Additionally, 
Goldman Sachs did not address any legal, regulatory, tax or accounting 
matters. Instead, Goldman Sachs addressed only the fairness, from a 
financial point of view, of the Merger Consideration to be paid to the 
holders of Genzyme Common Stock (other than Sanofi and any of its 
affiliates) pursuant to the Merger Agreement, as of February 16, 2011, 
the date of its opinion.
    In addition, Goldman Sachs did not express any view on, nor did its 
opinion address, any other term or aspect of the Merger Agreement, the 
CVR Agreement or the Transactions, or any term or aspect of any other 
agreement or instrument contemplated by the Merger Agreement, the CVR 
Agreement or entered into or amended in connection with the 
Transactions, including, without limitation, the fairness of the 
Transactions to, or any consideration received in connection therewith 
by, the holders of any other class of securities, creditors, or other 
constituencies of Genzyme; nor as to the fairness of the amount or 
nature of any compensation to be paid or payable to any of the 
officers, directors or employees of Genzyme, or class of such persons 
in connection with the Transactions. Further, Goldman Sachs did not 
express any opinion as to the price at which the CVRs would trade at 
any time or as to the impact of the Transactions on the solvency or 
viability of Genzyme or Sanofi or the ability of Genzyme or Sanofi to 
pay its obligations when they come due. In sum, Goldman Sachs based its 
opinion on economic, monetary, market and other conditions in effect 
on, and the information made available to it as of, February 16, 2011. 
Goldman Sachs assumed no responsibility for updating, revising or 
reaffirming its opinion based on circumstances, developments or events 
occurring after that date.
    The advisory services and opinion expressed by Goldman Sachs were 
provided for the information and assistance of the Board of Directors 
of Genzyme in connection with its consideration of the Transactions, 
and such opinion did not constitute a recommendation as to whether or 
not any holder of Genzyme Common Stock should tender such Shares in 
connection with the Exchange Offer or how any holder of Shares should 
vote with respect to the Merger or any other matter. The opinion of 
Goldman Sachs was approved by a fairness committee of Goldman Sachs.
Request for Exemptive Relief
    17. Genzyme has requested an administrative exemption from the 
Department for (a) The acquisition by the Plan of CVRs as a result of 
the Plan's ownership of Genzyme Common Stock, in connection with (i) 
The purchase of Shares of Genzyme Common Stock pursuant to the Exchange 
Offers by the

[[Page 77618]]

Purchaser, and (ii) the Merger of Sanofi into Genzyme; (b) the 
continued holding of CVRs by the Plan; and (c) the resale of the CVRs 
by the Plan to Sanofi, pursuant to the exercise of the Repurchase 
Rights available under certain circumstances specified in the CVR 
Agreement. If granted, the exemption would be effective as of April 4, 
2011 and it would also apply to successor plans to the current Plan.
    Genzyme concluded that if the CVRs were to be acquired by the Plan, 
it would be advisable to seek exemptive relief from the Department 
because the CVRs would likely be ``employer securities,'' but might not 
constitute ``qualifying employer securities,'' as defined in section 
407(d)(5) of the Act (i.e., stock or marketable obligations). The 
Applicant states that, as registered securities issued by Sanofi, the 
CVRs would likely be ``employer securities'' under section 407(d)(1) of 
the Act because Sanofi would be an ``affiliate'' of Genzyme within the 
meaning of section 407(d)(7) immediately following the closing of the 
tender offer inasmuch as it would be more than 50% owned by Sanofi. 
However, the Applicant further states that it is not clear whether the 
CVRs, although not ``stock,'' constitute ``marketable obligations'' 
within the meaning of section 407 of the Act.
    18. The Applicant represents that if the CVRs are employer 
securities, but not qualifying employer securities, the Plan's 
acquisition and holding of CVRs would violate sections 406(a)(1)(E), 
406(a)(2) and 407(a)(1) of the Act, absent an administrative exemption. 
In addition, the Applicant represents that if Sanofi were to acquire 
CVRs from the Plan pursuant to an exercise of its Repurchase Right, the 
transaction would, absent an exemption, constitute a sale or exchange 
of property between the Plan and a party in interest, in violation of 
section 406(a)(1)(A) of the Act, and a transfer to a party in interest 
of assets of the Plan, in violation of section 406(a)(1)(D) of the Act. 
Moreover, the Applicant states that, to the extent Sanofi or an 
affiliate is a fiduciary of the Plan at the time of such a transaction, 
such a fiduciary could be viewed, absent an exemption, as dealing with 
Plan assets for the fiduciary's own account, in violation of section 
406(b)(1) of the Act, or as acting in a transaction involving the Plan 
on behalf of a party whose interests are adverse to the interests of 
the Plan or the interests of its participants or beneficiaries, in 
violation of section 406(b)(2) of the Act. Finally, the Applicant 
states that because the price at which the Repurchase Right is 
exercisable is based on an average trading price for the CVRs over a 
forty-five day trailing average, circumstances could exist that might 
cause the purchase price to be viewed as less than ``adequate 
consideration'' for purposes of Section 408(e) of the Act.
Rationale for the Transactions
    19. In light of the foregoing prohibitions, the Applicant 
represents that Genzyme considered whether it would better serve the 
interests of participants and beneficiaries in the Plan to remove 
Genzyme Common Stock from the Plan prior to the Transactions or to 
retain Genzyme Common Stock in the Plan and apply for exemptive relief 
covering any CVRs received by the Plan in the Transactions. According 
to the Applicant, Genzyme determined that a decision to eliminate 
Genzyme Common Stock from the Plan would deprive participants and 
beneficiaries with interests in Genzyme Common Stock of the ability to 
realize the full value of the consideration that would be paid to other 
shareholders, by forcing a pre-closing sale and effectively depriving 
participants of investment discretion, including the discretion to 
retain an investment in CVRs.
    20. The Applicant believes that an exemption permitting the Plan to 
acquire and hold CVRs in connection with the Transactions is in the 
interest of the Plan's participants and beneficiaries because it 
maximizes their ability to realize the full value of the consideration 
offered in exchange for their interests in Genzyme Common Stock by 
continuing to give them the discretionary ability to hold or sell the 
employer securities allocated to their accounts. The Applicant 
represents that a pre-closing sale of Genzyme Common Stock by the Plan 
would preclude Plan participants from choosing to hold CVRs within the 
Plan and thereby retain the possibility of substantial future payouts, 
and would instead force them to settle for the current implied market 
value of the CVRs.
    21. The Applicant believes that the proposed exemption is 
protective of the rights of the Plan's participants and beneficiaries 
because it permits them to realize the same benefits as other 
shareholders in connection with the Transactions. The Applicant states 
that the conditions of the exemption would ensure that the participants 
have the same rights with respect to CVRs allocated to their accounts 
under the Plan as other holders of CVRs, including with respect to any 
repurchase by Sanofi. The Applicant further states that the Plan's past 
acquisition of the CVRs was a one-time transaction and the proposed 
exemption is not intended to cover any future acquisitions of CVRs by 
the Plan. However, the Applicant represents that the Plan would not 
prevent participants from investing in CVRs outside the Plan on the 
same basis as unrelated parties.
    In addition, the Applicant represents that all rights available to 
holders of CVRs held outside the Plan are available on the same basis 
to participants with respect to CVRs held in accounts under the Plan. 
Moreover, the Applicant states that during the period in which CVRs 
remain a Plan investment, the retention or disposition of CVRs 
allocated to a participant's or beneficiary's account will be 
administered in accordance with the provisions of the Plan in effect 
for individually-directed investment of participant accounts.
    22. The Applicant believes that it is administratively feasible to 
grant the proposed exemption because all conditions of the exemption 
either will have been satisfied prior to the grant of the exemption or 
are required to be satisfied by the documents governing issuance of the 
CVRs. In addition, the Applicant represents that the fact that the CVRs 
are registered ensures that the regulatory scheme under the 1933 Act 
and the 1934 Act will apply in full force to the CVRs.
    23. In summary, the Applicant represents that the proposed 
transactions have satisfied or will satisfy the statutory requirements 
for an exemption under section 408(a) of the Act and section 4975(c)(2) 
of the Code because:
    (a) Plan participants holding Genzyme Common Stock received one CVR 
for each Share on the effective date of the tender or cancellation of 
their Shares, in connection with the Transactions.
    (b) The acquisition of CVRs by the Plan occurred in connection with 
the Transactions on the same terms and in the same manner as the 
acquisition of CVRs by all other holders of Genzyme Common Stock, other 
than Sanofi, the Purchaser, Genzyme and dissenting shareholders.
    (c) The Plan's acquisition of CVRs resulted either from a decision 
by a participant or beneficiary to tender Shares allocated to his or 
her account or, following a decision by a participant or beneficiary 
not to tender Shares, by reason of the Merger.
    (d) The Plan did not pay any fees or commissions in connection with 
the acquisition of the CVRs, nor will it pay any fees or commissions in 
connection with the holding or sale of CVRs to Sanofi pursuant to an 
exercise of Sanofi's repurchase right under the CVR Agreement.

[[Page 77619]]

    (e) Credit Suisse Securities and Goldman Sachs advised Genzyme that 
the consideration to be received by Genzyme Shareholders, including 
Plan participants, in exchange for their Shares was ``fair,'' from a 
financial point of view.
    (f) The Plan has not acquired or held CVRs, and will not acquire or 
hold CVRs, other than those acquired in connection with the 
Transactions.
    (g) Plan participants have had and will continue to have the same 
rights with respect to CVRs allocated to their accounts in the Plan 
(including with respect to any repurchase of CVRs by Sanofi) as 
unrelated parties and they may direct the Plan Trustee to sell CVRs 
allocated to their respective accounts at any time.
    (h) For so long as CVRs remain a permissible Plan investment, the 
retention or disposition by the Plan of CVRs allocated to a 
participant's or beneficiary's account has been administered and will 
continue to be administered in accordance with the provisions of the 
Plan that are in effect for individually-directed investment of 
participant accounts.

Notice to Interesed Persons

    Within fifteen (15) days of the date of publication of the proposed 
exemption in the Federal Register, the Applicant will provide notice of 
the proposed exemption (consisting of a copy of the proposed exemption, 
as published in the Federal Register, and the supplemental statement 
required by 29 CFR 2570.43(b)(2), (together, the Notice)) to all 
current participants and beneficiaries of the Plan. The Applicant will 
provide interested persons with a copy of the Notice, as well as an 
explanatory cover letter, by first class mail, at its own expense. The 
Notice will specify that the Department must receive all written 
comments and requests for a hearing no later than thirty (30) days from 
the last date of the mailing of such Notice. Therefore, interested 
persons will have forty-five (45) days to provide their written 
comments and/or hearing requests to the Department.
    For Further Information Contact: Anna Mpras Vaughan of the 
Department, telephone (202) 693-8565. (This is not a toll-free number.)

Retirement Program for Employees of EnPro Industries (Plan), Located in 
Charlotte, NC

[Application No. D-11662]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990).\31\ If the 
exemption is granted, the restrictions of sections 406(a)(1)(A) and 
406(b)(1) and (b)(2) of the Act and the sanctions resulting from the 
application of section 4975(c)(1)(A) and (E) of the Code, shall not 
apply, effective July 15, 2011, to the in kind contribution (the 
Contribution) to the Plan of a guaranteed investment contract (the 
Annuity), issued by the Metropolitan Life Insurance Company (MetLife), 
an unrelated party, by EnPro Industries, Inc. (EnPro or the Applicant); 
provided that the following conditions are satisfied:
---------------------------------------------------------------------------

    \31\ For purposes of this proposed exemption, references to the 
provisions of Title I of the Act, unless otherwise specified, refer 
also to the corresponding provisions of the Code.
---------------------------------------------------------------------------

    (a) A qualified, independent fiduciary (the Independent Fiduciary), 
acting on behalf of the Plan, determined whether the Contribution was 
in the interests of the Plan and protective of the Plan's participants 
and beneficiaries;
    (b) The Independent Fiduciary reviewed, negotiated and approved the 
terms of the Contribution on behalf of the Plan in accordance with the 
fiduciary provisions of the Act;
    (c) A qualified, independent appraiser (the Appraiser) determined 
the fair market value of the Annuity prior to the Contribution, and it 
updated such valuation on the date of the Contribution;
    (d) The Annuity represented approximately 19% of the Plan's assets 
at the time of the Contribution;
    (e) The Plan incurred no fees, commissions, or other charges or 
expenses in connection with the Contribution;
    (f) The terms of the Contribution were no less favorable to the 
Plan than the terms negotiated at arm's length under similar 
circumstances between unrelated parties; and
    (g) EnPro amended the Investment Policy Statement for the Plan in 
conformity with the recommendations of the Independent Fiduciary prior 
to the Contribution.
    Effective Date: If granted, this proposed exemption will be 
effective as of July 15, 2011.

Summary of Facts and Representations

    1. EnPro, based in Charlotte, NC, and its companies manufacture and 
market a variety of industrial products. EnPro's businesses include: 
Garlock Sealing Technology (Garlock), a manufacturer of gaskets and 
sealing systems; \32\ GGB, a manufacturer of various types of 
lubricated plain bearings; Stemco, a manufacturer of wheel-end 
component parts and long-life systems in the medium- and heavy-duty 
truck and trailer markets; Compressor Products International, a leading 
supplier of sealing components and services for reciprocating 
compressors used in chemical plants, refineries and natural gas 
processing and transmission; and Fairbanks Morse Engine, which 
manufacturers diesel and dual fuel engines and provides parts and 
services for such engines. EnPro stock is publicly traded on the New 
York Stock Exchange under the symbol ``NPO.'' EnPro operates 
manufacturing facilities throughout the world and employs approximately 
5,000 employees. EnPro also sponsors several employee benefit plans, 
including the Plan.
---------------------------------------------------------------------------

    \32\ EnPro represents that Garlock is currently in Chapter 11 
Bankruptcy Proceedings in the Bankruptcy Court for the Western 
District of North Carolina, but operates in the ordinary course 
under Bankruptcy Court protection from asbestos claims. Further, 
EnPro represents that this bankruptcy filing will protect EnPro and 
its other lines of business while permanently resolving asbestos 
claims against Garlock.
---------------------------------------------------------------------------

    2. The Plan, which is closed to new participants, is a defined 
benefit plan covering U.S.-based hourly and salaried employees of 
EnPro. As of January 26, 2011, the Plan had 1,400 active employees and 
1,400 deferred vested and retirees eligible for benefits under the 
Plan.\33\ As of January 1, 2011, the Plan had assets of $112,488,412 
and accumulated benefit obligations of $179,539,776.
---------------------------------------------------------------------------

    \33\ The Applicant represents that effective January 1, 2007, 
future benefit accruals under the Plan were frozen for a significant 
number of then current employees of EnPro. As a result, many current 
employees of EnPro who were employed on January 1, 2007 are entitled 
to a future benefit under the Plan following termination of 
employment, but no longer accrue benefits under the Plan. These non-
accruing current employees are included in the number of deferred 
vested participants under the Plan, as well as former employees who 
are entitled to future Plan benefits.
---------------------------------------------------------------------------

    The named fiduciary of the Plan is the EnPro Industries, Inc. 
Benefits Committee (the Committee). The Vanguard Fiduciary Trust 
Company serves as the Plan's trustee. The Committee appointed Evercore 
Trust Company, N.A. (Evercore) to serve as Independent Fiduciary for 
the Plan with respect to the Contribution.
    3. The Plan also constitutes a single plan that is comprised of 
three separate plan documents, which reflect different benefit formulas 
for (a) The EnPro Industries, Inc. Retirement Program for Salaried 
Employees; (b) the EnPro Industries, Inc. Retirement Program for Hourly 
Employees; and the (c) Pension

[[Page 77620]]

Plan Between Quincy Compressor Division and Lodge 822 of the 
International Association of Machinists and Aerospace Workers.

The Origins of the Annuity

    4. The Annuity, that is the subject of this exemption request, was 
formerly an asset of a grantor trust (the Grantor Trust) established by 
Colt Industries, Inc. and Colt Industries Operating Corp. (together, 
CIOC), predecessors to Coltec Industries, Inc. (Coltec), a subsidiary 
of EnPro. The Grantor Trust (a rabbi trust) and another trust known as 
the ``Colt Midland Retiree Medical Trust'' (the CIOC Trust) were 
established in connection with the settlement of litigation in 1985 to 
retiree benefits involving Coltec (the CIOC Settlement). The lawsuit 
was filed by the United Steel Workers of America against Colt 
Industries Operating Corp. on January 5, 1985. Although the litigation 
was filed and settled before EnPro came into existence as an 
independent corporation, the obligations of the settlement became 
EnPro's obligations when it was spun off from the Goodrich Corporation 
in 2002.
    5. Under the terms of the CIOC Settlement, CIOC was required to 
fund both the CIOC Trust and the Grantor Trust, both of which would be 
managed by independent parties. The CIOC Trust was established to fund 
lifetime retiree medical benefits for certain CIOC retirees and their 
dependents and is a voluntary employees beneficiary association. The 
CIOC Trust was funded with $14,800,000. An actuary was to review the 
funding of the CIOC Trust as of June 30, 1994, June 30, 2004, and June 
30, 2014 to determine the projected future costs of providing lifetime 
medical benefits as of January 1, 1995, January 1, 2005 and January 1, 
2015, respectively. If the assets of the CIOC Trust fell below pre-set 
levels on those dates, the CIOC Settlement required CIOC to provide 
additional funding to the CIOC Trust.\34\
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    \34\ Pursuant to the terms of the CIOC Settlement, Coltec, as 
successor of CIOC, provided approximately $2 million of additional 
funding to the CIOC Trust following the January 1, 1995 valuation. 
However, Coltec was not required to provide additional funding to 
such trust following the January 1, 2005 valuation and withdrew a 
portion of funds available in the Grantor Trust in accordance with 
the terms of the CIOC Settlement.
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    To ensure that the liability of any additional funding obligations 
would be fulfilled, the CIOC Settlement required CIOC to establish and 
fund the Grantor Trust.\35\ The Grantor Trust would serve as a 
supplemental source of funding for those benefits only if the CIOC 
Trust was financially unable to fund its obligations. The Grantor Trust 
was initially funded with a series of MetLife guaranteed annuity 
contracts, whose aggregate funding amount is not known. The Grantor 
Trust also held a group annuity contract that was a predecessor to the 
Annuity (the Old Annuity), having a face value of $13,781,486. The Old 
Annuity was issued by MetLife to the CIOC Trustee on December 11, 1997. 
The Old Annuity paid interest at an effective annual rate of 6.82%. It 
permitted the contractholder to withdraw $8.4 million on December 31, 
2004 and no less than $26,209,835.28 on December 14, 2014, the maturity 
date.
---------------------------------------------------------------------------

    \35\ EnPro represents that the assets of the Grantor Trust have 
always been assets of EnPro's corporate predecessors or EnPro and, 
as such, they have never been plan assets.
---------------------------------------------------------------------------

    If no additional funding was necessary as of January 1, 1995, 
January 1, 2005 or January 1, 2015, the CIOC Settlement permitted CIOC 
to withdraw a portion of the assets of the Grantor Trust. Further, any 
assets remaining in the Grantor Trust after January 1, 2015, subject to 
the fulfillment of any contribution due to the CIOC Trust, would revert 
to CIOC.\36\
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    \36\ According to the most recent actuarial valuations, the CIOC 
Trust's assets are more than sufficient to meet all of it funding 
needs. Therefore, Coltec will not be required to provide additional 
funding to the CIOC Trust in 2015. Further, in the unlikely event 
additional funding would be required, under an analysis of the 
``worst case scenario,'' the maximum contribution from the Grantor 
Trust would be $2.7 million. This amount is far below the 
approximated value of $22 million held in the Grantor Trust prior to 
its termination (See Representation 7).
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    6. On May 25, 2010, Coltec reached an agreement with the trustees 
of the CIOC Trust and the Grantor Trust that would allow the transfer 
of ownership of the Old Annuity to EnPro. The agreement required that 
Coltec would make a one-time $900,000 cash payment to the CIOC Trust to 
be used by the CIOC trustees for any purpose permitted under the CIOC 
Trust. The parties also agreed that the Old Annuity would be split into 
two contracts. The first contract would have a value of $2.3 million. 
It would be transferred to an escrow account (the Escrow Account) in 
the name of Coltec and the CIOC Trust to ensure that funds would be 
available to the CIOC Trust regardless of the financial condition of 
Coltec. The second contract, the current Annuity, would have a 
remaining value of approximately $17.85 million and would be eventually 
issued to EnPro. The parties also agreed that EnPro would guarantee the 
performance of Coltec's funding obligations with respect to the CIOC 
Trust and the Escrow Account and that it would be prudent for the 
parties to seek judicial approval since the process would involve 
modification of the CIOC Settlement.
    7. In June 2010, this matter was presented to the United States 
District Court for the Western District of Pennsylvania (the Court), 
which had jurisdiction over the retiree medical benefits litigation and 
had retained jurisdiction over the CIOC and the Grantor Trusts pursuant 
to the CIOC Settlement. As a condition of approval, the Court required 
notice to, and an opportunity to comment from, the CIOC Trust 
beneficiaries. Following the notice period, the Court set a hearing on 
July 27, 2010. The settlement agreement transferring ownership of the 
Annuity to EnPro and establishment of the Escrow Account was approved 
by the Court on July 27, 2010. As permitted by the Court's order, the 
escrow account was funded and the Grantor Trust was terminated. 
Unencumbered title to the portion of the Old Annuity not deposited in 
the Escrow Account is vested in EnPro.

The Annuity

    8. On January 7, 2011, Metlife issued a new group annuity contract, 
the Annuity, naming EnPro as the contractholder. The Annuity had a face 
value of $17,852,632.22 on the date of issuance. Under the terms of the 
Annuity, Metlife will pay the Annuity's contractholder, in a single 
payout, no less than $23,214,698.70 on December 31, 2014. Metlife will 
credit interest, payable at a fixed rate, on amounts in the Annuity's 
funding account. Such interest will be credited at a rate compounded 
daily equivalent to an effective annual rate of 6.82%. The Annuity is 
fully funded and does not require any further payments to MetLife by 
any person. The Annuity also does not permit early withdrawal, 
including payment of Plan benefits prior to the final maturity date.

The Transaction

    9. On July 15, 2011, EnPro contributed the Annuity to the Plan in 
order to meet its funding obligations under the Act. Therefore, EnPro 
requests an administrative exemption from the Department for the 
Contribution. Absent an exemption, the Contribution to the Plan by 
EnPro, a party in interest, would violate section 406(a)(1)(A) of the 
Act. Additionally, because EnPro is also a fiduciary with respect to 
the Plan, the Contribution would violate sections 406(b)(1) and (2) of 
the Act.

[[Page 77621]]

Annuity Appraisals

    10. In an April 25, 2011 letter, the Cognient Group, LLC of 
Chicago, IL confirmed and acknowledged its status as a qualified, 
independent appraiser on behalf of Evercore, the Independent Fiduciary. 
The Appraiser has also worked for the Independent Fiduciary (and its 
predecessor) on other types of assignments. However, prior to this 
engagement, the Appraiser had not provided financial advisory services 
to EnPro or its retirement plans. The Appraiser represents that its fee 
from this assignment represents less than 1% of its annual gross 
income.
    The Appraiser states that it has been involved as an independent 
financial adviser to plan fiduciaries for over 25 years in numerous 
ERISA securities transactions. Prior to its 2009 formation, the 
Appraiser explains that most of its professionals had spent a majority 
of their professional careers at the financial services and business 
valuation firm of Duff & Phelps for approximately 25 years. The 
Appraiser's professionals have represented independent fiduciaries and 
company plan committees in numerous ERISA-related transactions.
    The Appraiser represents that its ERISA-related work for clients 
includes contributions of large blocks of restricted securities to 
public company retirement plans and the sale of securities to employee 
stock ownership plans for both publicly-traded and closely-held 
companies. Such securities have also included certain fixed income 
securities, such as guaranteed investment contracts.
    11. In a valuation analysis (the Appraisal), the Appraiser valued 
the Annuity initially at $20,709,088 as of March 15, 2011. The 
Appraiser valued the Annuity based on the expected cash flows 
discounted at a rate that appropriately reflected the risk of the 
Contractholder receiving full payment on the final payment date. For 
the cash flow analysis, the Appraiser noted that the Annuity's funding 
account had a balance of $18,024,481.02 as of February 28, 2011 and 
that interest accrued on this balance at a rate, compounded daily, 
equivalent to an effective annual rate of 6.82%. This would result in a 
projected funding account balance of $23,227,291 as of December 31, 
2014.
    12. In order to select the appropriate discount rate to apply to 
the expected lump sum payment on December 31, 2014, the Appraiser 
reviewed MetLife's credit ratings and recent bond offerings. The 
Appraiser noted that the major credit rating firms currently rate 
Metlife's senior unsecured corporate bonds at investment grade and that 
Metlife was rated ``A-'' by Standard and Poor's, ``A3'' by Moody's 
Investors Service and ``A-'' by Fitch. The Appraiser also considered 
publicly traded MetLife bonds maturing in 2014 and 2015. The first was 
a $350 million bond due on June 30, 2014 with a coupon rate of 5.5% or 
current yield to maturity of 2.59%. The second was a $1,000 million due 
June 30, 2015 with a coupon rate of 5.0% or current yield to maturity 
of 2.95%. In addition, the Appraiser represents that MetLife issued 
$1,000 million in new unsecured bonds due February 6, 2014 at a coupon 
rate of 2.375%. Based on this information, the Appraiser determined 
that the appropriate discount rate for the Annuity, given its maturity 
date of December 31, 2014, was 3.02% as of March 15, 2011. According to 
the Appraiser, this discount rate would reflect current MetLife market 
bond yields and the non-publicly traded nature of the Contract.
    The Appraiser then applied the discount rate to the projected 
funding account balance for the annuity of $23,227,291 as of December 
31, 2014. After applying the discount rate and considering the 
Annuity's time to maturity from March 15, 2011 to December 31, 2014 
(1,387 days), the Appraiser determined that the Annuity's present value 
was $20,709,088 as of March 15, 2011. Thus, the annuity would represent 
approximately 18% of the Plan's assets.
    13. The Appraiser updated the Appraisal (the Appraisal Update) on 
the date of the Contribution. In the Appraisal Update, the Appraiser 
placed the fair market value of the Annuity at $21,406,713 as of July 
15, 2011. Although the Appraiser utilized the same valuation 
methodology in the Appraisal Update as it had done in the Appraisal, 
there were differences in the amounts previously calculated. For 
example, in the cash flow analysis, the Appraiser noted that the 
Annuity's funding account balance had increased to $18,426,370.25, in 
contrast to the $18,024,418.02 balance originally determined in the 
Appraisal. Thus, because of a change in the daily interest rate, the 
projected funding account balance for the Annuity as of December 31, 
2014 in the Appraisal Update would be $23,223,092, instead of 
$23,227,291, as evidenced in the Appraisal.
    Additionally, the Appraiser determined, in the Appraisal Update, 
that the appropriate discount rate for the Annuity was 2.35% instead of 
3.02%, which was the rate set forth in the Appraisal. In applying the 
July 15, 2011 discount rate of 2.35% to the Annuity's projected funding 
balance of $23,223,092 as of December 31, 2014, and considering the 
Annuity's time to maturity (i.e., 1,265 days instead of 1,387 days), 
the Appraiser calculated the Annuity's fair market value at $21,406,713 
as of July 15, 2011. This amount represented an increase from the 
$20,709,088 fair market value of the Annuity as of March 15, 2011 that 
was set forth in the Appraisal. The fair market value of the Annuity 
also represented approximately 19% of the Plan's assets at the time of 
the Contribution.

Independent Fiduciary's Recommendation

    14. Pursuant to engagement letter executed on October 6, 2010 (the 
Engagement Letter), EnPro retained Evercore as the Independent 
Fiduciary to determine whether the proposed Contribution was in the 
interests of the Plan and its participants and beneficiaries. The 
Independent Fiduciary represents that it is independent of and 
unrelated to EnPro and that (a) It does not directly or indirectly 
control, is not controlled by, and is not under common control with 
EnPro; (b) neither it, nor any of its officers, directors, or employees 
is an officer, director, partner or employee of EnPro (or is a relative 
of such person); and (c) it does not directly or indirectly receive any 
compensation or other consideration for its own account in connection 
with the Contribution, except that the Independent Fiduciary may 
receive compensation from EnPro for performing the services described 
in the Engagement Letter as long as amount of such payment is not 
contingent upon or in any way affected by the Independent Fiduciary's 
ultimate decision.
    The Independent Fiduciary also represents that its total fee in 
connection with the subject exemption application represents less than 
1% of its 2010 gross business income. The Independent Fiduciary further 
represents that it acknowledges and understands its duties, 
responsibilities and liabilities under the Act in acting as a fiduciary 
on behalf of the Plan with respect to the proposed transaction.
    15. The Independent Fiduciary represents that it is a national 
trust bank, chartered by the U.S. Office of the Comptroller of 
Currency. The Independent Fiduciary, which formerly comprised U.S. 
Trust's Special Fiduciary Services division, states that it has served 
as an independent fiduciary to employee benefit plans since 1987, 
including serving as an independent fiduciary to qualified plans

[[Page 77622]]

in connection with prior exemptions granted by the Department. The 
Independent Fiduciary also asserts that it has extensive experience in 
serving as an independent fiduciary to defined benefits plans in 
connection with proposed contributions to such plans of qualifying 
employer securities.
    16. In its Engagement Letter, a March 29, 2011 report, and a July 
29, 2011 supplemental report, the Independent Fiduciary agreed to 
perform the following duties on behalf of the Plan: (a) Determine 
whether to accept the proposed Contribution, subject to the 
Department's grant of an exemption; (b) cause the Appraiser, acting as 
Evercore's independent valuation expert, to prepare a report as to the 
fair market value of the Annuity; \37\ (c) negotiate the terms and 
conditions of the proposed Contribution; and (d) render an opinion 
suitable for submission to the Department in connection with this 
exemption request.
---------------------------------------------------------------------------

    \37\ In this regard, the Independent Fiduciary reviewed and 
approved the methodology used by the Appraiser and ensured that such 
methodology was properly applied in determining the fair market 
value of the Annuity on the date of the Contribution.
---------------------------------------------------------------------------

    17. In making its determinations about the Contribution, the 
Independent Fiduciary explains that it considered several factors. 
These included the exemption application, the Annuity, the Appraisal, 
the Appraiser's spreadsheet analysis of the Annuity, the Plan's 
Investment Annuity Statement, communications between EnPro and its 
outside counsel and a statement from Towers Watson, the Plan's actuary, 
that the Plan had sufficient assets to cover benefit payments through 
December 2014. After reviewing the Appraisal, the Independent Fiduciary 
determined that the Appraiser's valuation approach was appropriate.
    18. The Independent Fiduciary represents that the Plan's assets 
declined during the recent recession and have yet to recover fully. For 
Plan Year 2011, the Independent Fiduciary explains that EnPro owed the 
Plan required minimum contributions totaling approximately $20 million 
and that it intended to make a first quarter cash contribution of $3 
million. (On April 11, 2011, EnPro contributed $3,478,251 to the Plan.)
    The Independent Fiduciary states that EnPro estimates that it will 
owe the Plan annual contributions of $21 to $24 million per year from 
2011 through 2014. These contributions, according to the Independent 
Fiduciary, could impact EnPro's financial strength, limit its operating 
goals and impair its ability to maintain the Plan in its current form.
    19. The Annuity, valued at $21,406,173 as of July 15, 2011, exceeds 
the amount of the required minimum contribution for Plan Year 2011, the 
Independent Fiduciary explains. Once contributed to the Plan, the 
Annuity would provide the Plan with assets in excess of $24 million. 
This, in the Independent Fiduciary's view, would give the Plan an 
incremental benefit of more than $4 million over its required minimum 
contribution for Plan Year 2011.
    20. The Independent Fiduciary also explains that it considered the 
quality of the Annuity. In this regard, the Independent Fiduciary 
states that the Annuity is very similar to a zero coupon bond.\38\ The 
Independent Fiduciary represents that were the Plan to purchase a zero 
coupon bond with a similar time to maturity, from an issuer with a 
similar credit profile as MetLife, the Plan would not likely obtain a 
better quality investment. Instead, the Plan would receive an asset 
with a face value of $17,852,632.22 and a fair market value of 
$21,406,713 as of July 15, 2011. Such asset would generate a return of 
6.82% from face value and 2.35% from fair market value until the date 
of maturity on December 31, 2014, according to the Independent 
Fiduciary. Were the Plan to invest in a similar bond, i.e., a bond with 
a similar time to maturity from an issuer with a similar credit 
profile, the Independent Fiduciary explains that the return from fair 
market value or yield to maturity of that hypothetical bond would be no 
better than the Annuity.
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    \38\ The Independent Fiduciary explains that zero coupon bonds 
make no coupon payments and investors in such bonds receive par 
value at the time of maturity but no interest payments. Such bonds 
are issued at prices that are considerably below par value and the 
return comes solely from the difference between the issue price and 
the payment of par value at maturity. The holder of the Annuity, 
similarly, will receive no interest payment in installments, but 
will get a lump sum payment at maturity.
---------------------------------------------------------------------------

    With respect to Plan benefits, the Independent Fiduciary notes that 
should the Department deny this exemption, one of the options available 
to EnPro is to impose benefit restrictions on Plan participants. 
However, the Applicant represents that the Contribution of the Annuity, 
in lieu of cash, should not have a detrimental effect on the Plan's 
ability to pay benefits from the Contribution date until the maturity 
date of the Annuity. The Independent Fiduciary, after confirming with 
the Plan's actuary, represents that the Plan is in a position to meet 
its benefit obligations from the date of the Contribution until the 
maturity date of the Annuity on December 31, 2014.
    21. The Independent Fiduciary represents that based on its review 
and analysis of the Contribution and the Appraisal, the Contribution 
was in the interests of the Plan and its participants and 
beneficiaries. Furthermore, the Independent Fiduciary has determined 
that the Contribution was fair and reasonable, and it approved the 
Plan's acceptance of the Annuity.
    22. Finally, the Independent Fiduciary requested that EnPro amend 
its Investment Policy Statement for the Plan (the Investment Policy 
Statement). This document was silent with regard to the Contribution of 
the Annuity. The value of the Annuity would have violated certain 
diversification guidelines because the Plan's Investment Policy 
Statement, prior to the Contribution, limited fixed income investments 
(with the exception of fixed income explicitly guaranteed by the United 
States) to less than 5% of the Plan's assets. EnPro represents that at 
the time of the Contribution, the value of the Annuity would exceed the 
diversification guidelines under the Plan's Investment Policy 
Statement. Accordingly, the Independent Fiduciary confirmed that the 
Plan's Investment Policy Statement was amended by EnPro to permit the 
Contribution.

Rationale for the Proposed Contribution

    23. The Applicant represents that the Contribution was 
administratively feasible because it was a one-time transaction that 
would be easy to review and audit. In addition, the Plan was not 
required to pay any fees, commissions or expenses in connection 
therewith. Moreover, the Independent Fiduciary had been engaged to 
determine whether to accept the Annuity, and, if so, the value of the 
Annuity for Contribution and funding purposes. In this regard, the 
Independent Fiduciary (a) Reviewed and approved the methodology used by 
the Appraiser, (b) ensured that such methodology was properly applied 
in determining the fair market value of the Annuity on the date of the 
Contribution, and (c) determined whether it was prudent to go forward 
with the transaction. Finally, EnPro would value the Annuity annually 
with the assistance of the Appraiser or another qualified, independent 
appraiser.
    EnPro states that the Contribution was also in the interests of the 
Plan and its participants and beneficiaries because the Plan realized 
an additional contribution of approximately $4 million above the 
estimated required minimum contribution for Plan Year 2011. In 
addition, the Plan obtained, with no transaction costs, a high-quality 
instrument backed by MetLife. Further,

[[Page 77623]]

EnPro states that the Contribution was protective of the rights of the 
Plan's participants and beneficiaries because the Plan would be in a 
position to meet its benefit obligations from the date of the 
Contribution until the maturity date of the Annuity on December 31, 
2014. EnPro notes that the Annuity pays a daily effective interest rate 
equivalent to a 6.82% annual interest rate and states that the Plan 
would not likely find a zero coupon bond with a better interest rate.

Summary

    24. In summary, the Applicant represents that the Contribution 
satisfied the statutory requirements for an exemption under section 
408(a) of the Act because:
    (a) The Independent Fiduciary, acting on behalf of the Plan, 
determined whether the Contribution was in the interests of the Plan 
and protective of the Plan's participants and beneficiaries;
    (b) The Independent Fiduciary reviewed, negotiated and approved the 
terms of the Contribution on behalf of the Plan in accordance with the 
fiduciary provisions of the Act;
    (c) The Appraiser determined the fair market value of the Annuity 
prior to the Contribution and it updated such valuation on the date of 
the Contribution;
    (d) The Annuity represented approximately 19% of the Plan's assets 
at the time of the Contribution;
    (e) The Plan incurred no fees, commissions, or other charges or 
expenses in connection with the Contribution;
    (f) The terms of the Contribution were no less favorable to the 
Plan than the terms negotiated at arm's length under similar 
circumstances between unrelated parties; and
    (g) EnPro amended the Plan's Investment Policy Statement in 
conformity with the recommendations of the Independent Fiduciary prior 
to the Contribution.

Notice to Interested Parties

    Notice of the proposed exemption will be given to interested 
persons within 10 days of the publication of the notice of proposed 
exemption in the Federal Register. The notice will be given to 
interested persons by first class mail or personal delivery. Such 
notice will contain a copy of the notice of proposed exemption, as 
published in the Federal Register, and a supplemental statement, as 
required pursuant to 29 CFR 2570.43(b)(2). The supplemental statement 
will inform interested persons of their right to comment on and/or to 
request a hearing with respect to the pending exemption. Written 
comments and hearing requests are due within 40 days of the publication 
of the notice of proposed exemption in the Federal Register.
    For Further Information Contact: Mr. Anh-Viet Ly of the Department 
at (202) 693-8648. (This is not a toll-free number.)

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest 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 7th day of December, 2011.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. 2011-31741 Filed 12-12-11; 8:45 am]
BILLING CODE 4510-29-P