33360 Federal Register / Vol. 65, No. 100 / Tuesday, May 23, 2000 / Notices

1For purposes of this proposed exemption,

references to the provisions of Title I of the Act,

unless otherwise specified, refer also to

corresponding provisions of the Code.

response varies widely depending on

the degree of automation attained by

individual grantees. Grantees also vary

according to the numbers of individuals

served in each program year. If the

grantee has a fully-developed and

automated MIS, the response time is

limited to one-time programming plus

processing time for each response. It is

the Department’s desire to see as many

WIA section 166 grantees as possible

become computerized, so that response

time for reporting will eventually sift

down to an irreducible minimum with

an absolute minimum of human

intervention.

Estimated Total Burden Hours: 13,340

(minimum)—1,590 total responses.

(FSR: 1,060 responses times 7.75 hours

= 8,215 burden hours). (PCR: 530

responses times 9.67 hours = 5,125

burden hours). The total of these two

estimates yields a total estimate of at

least 13,340 total burden hours per

response cycle (one program year). The

use of the term ‘‘minimum’’ refers to the

fact that an individual grantee must

continue to report on expenditures by

year of appropriation until those funds

are completely expended, or ‘‘zeroed

out’’. Thus, if more that one year’s

appropriation is expended in a given

quarter, two (or more) FSRs must be

submitted for that period, corresponding

to the fund source(s) utilized.

Total Burden Cost (capital/startup):

$-0-.

Total Burden Cost (operating/

maintaining): $200,100 (13,340 total

hours per response cycle times an

estimated average wage of $15.00 per

grantee staff hour). As noted, these costs

will vary widely among grantees, from

nearly no additional cost to some higher

figure, depending on the state of

automation attained by each grantee and

the wages paid to the staff actually

completing the various forms. All costs

associated with the submission of these

forms are allowable grant expenses.

Comments submitted in response to

this comment request will be

summarized and/or included in the

request for Office of Management and

Budget approval of the information

collection request; they also will

become a matter of public record.

Signed at Washington, DC, this 17th day of

May, 2000.

Thomas M. Dowd,

Acting Director, Office of National Programs.

[FR Doc. 00–12936 Filed 5–22–00; 8:45 am]

BILLING CODE 4510–30–U

DEPARTMENT OF LABOR

Pension and Welfare Benefits

Administration

[Application No. D–10624, et al.]

Proposed Exemptions; The Banc

Funds Company, LLC (TBFC)

AGENCY: Pension and Welfare Benefits

Administration, Labor

ACTION: Notice of proposed exemptions.

SUMMARY: This document contains

notices of pendency before the

Department of Labor (the Department) of

proposed exemptions from certain of the

prohibited transaction restrictions of the

Employee Retirement Income Security

Act of 1974 (the Act) and/or the Internal

Revenue Code of 1986 (the Code).

Written Comments and Hearing

Requests

All interested persons are invited to

submit written comments or request for

a hearing on the pending exemptions,

unless otherwise stated in the Notice of

Proposed Exemption, within 45 days

from the date of publication of this

Federal Register Notice. Comments and

requests for a hearing should state: (1)

The name, address, and telephone

number of the person making the

comment or request, and (2) the nature

of the person’s interest in the exemption

and the manner in which the person

would be adversely affected by the

exemption. A request for a hearing must

also state the issues to be addressed and

include a general description of the

evidence to be presented at the hearing.

ADDRESSES: All written comments and

request for a hearing (at least three

copies) should be sent to the Pension

and Welfare Benefits Administration,

Office of Exemption Determinations,

Room N–5649, U.S. Department of

Labor, 200 Constitution Avenue, NW,

Washington, DC 20210. Attention:

Application No. ll, stated in each

Notice of Proposed Exemption. The

applications for exemption and the

comments received will be available for

public inspection in the Public

Documents Room of the Pension and

Welfare Benefits Administration, U.S.

Department of Labor, Room N–5638,

200 Constitution Avenue, NW,

Washington, DC 20210.

Notice to Interested Persons

Notice of the proposed exemptions

will be provided to all interested

persons in the manner agreed upon by

the applicant and the Department

within 15 days of the date of publication

in the Federal Register. Such notice

shall include a copy of the notice of

proposed exemption as published in the

Federal Register and shall inform

interested persons of their right to

comment and to request a hearing

(where appropriate).

SUPPLEMENTARY INFORMATION: The

proposed exemptions were requested in

applications filed pursuant to section

408(a) of the Act and/or section

4975(c)(2) of the Code, and in

accordance with procedures set forth in

29 CFR part 2570, subpart B (55 FR

32836, 32847, August 10, 1990).

Effective December 31, 1978, section

102 of Reorganization Plan No. 4 of

1978, 5 U.S.C. App. 1 (1996), transferred

the authority of the Secretary of the

Treasury to issue exemptions of the type

requested to the Secretary of Labor.

Therefore, these notices of proposed

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.

The Banc Funds Company, LLC (TBFC),

Located in Chicago, IL

[Application No. D–10624]

Proposed Exemption

Based on the facts and representations

set forth in the application, the

Department is considering granting an

exemption under the authority of

section 408(a) of the Act and section

4975(c)(2) of the Code and in

accordance with the procedures set

forth in 29 CFR part 2570, subpart B (55

FR 32836, 32847, August 10, 1990.) 1

Section I. Covered Transactions

If the exemption is granted, the

restrictions of sections 406(a) and 406(b)

of the Act and the sanctions resulting

from the application of section 4975 of

the Code, by reason of section

4975(c)(1)(A) through (D) of the Code,

shall not apply to (1) the purchase or

redemption of interests in the Banc

Fund V, L.P. (the Partnership) by

employee benefit plans (the Plans)

investing in the Banc Fund V Group

Trust (the BF V Group Trust), where

TBFC, a party in interest with respect to

the Plans, is the general partner of

MidBanc V, L.P. (MidBanc V), which is,

in turn, the general partner (the General

Partner) of the Partnership; (2) the sale,

Federal Register / Vol. 65, No. 100 / Tuesday, May 23, 2000 / Notices 33361

for cash or other consideration, by the

Partnership of certain securities that are

held as Partnership assets to a party in

interest with respect to a Plan

participating in the Partnership through

the BF V Group Trust, where the party

in interest proposes to acquire or merge

with the portfolio company (the

Portfolio Company) that issued such

securities; and (3) the payment to the

General Partner, by Plans participating

in the Partnership through the BF V

Group Trust, of an incentive fee (the

Performance Fee) which is intended to

reward the General Partner for the

superior performance of investments in

the Partnership.

This proposed exemption is subject to

the following conditions as set forth

below in Section II.

Section II. General Conditions

(a) Prior to a Plan’s investment in the

BF V Group Trust and the Partnership,

a Plan fiduciary which is independent

of TBFC and its affiliates (the

Independent Fiduciary) approves such

investments on behalf of the Plan.

(b) Each Plan investing in the BF V

Group Trust and the Partnership has

total assets that are in excess of $50

million.

(c) No Plan may invest more than 10

percent of its assets in the BF V Group

Trust, and the interests held by the Plan

may not exceed 25 percent of the assets

of the BF V Group Trust.

(d) No Plan may invest more than 25

percent of its assets in investment

vehicles (i.e., collective investment

funds or separate accounts) managed or

sponsored by TBFC and/or its affiliates.

(e) Prior to investing in the BF V

Group Trust and the Partnership, each

Independent Fiduciary contemplating

investing therein receives a Private

Placement Memorandum and its

supplement containing descriptions of

all material facts concerning the

purpose, structure and the operation of

the BF V Group Trust and the

Partnership.

(f) An Independent Fiduciary which

expresses further interest in the BF V

Group Trust and Partnership receives —

(1) A copy of the BF V Group Trust

Agreement outlining the organizational

principles, investment objectives and

administration of the BF V Group Trust,

the manner in which shares in the

Group Trust may be redeemed, the

duties of the parties retained to

administer the BF V Group Trust and

the manner in which BF V Group Trust

shares are to be valued; and

(2) A copy of the Partnership

Agreement describing the organizational

principles, investment objective and

administration of the Partnership, the

manner in which the Partnership

interests may be redeemed, the manner

in which Partnership assets are to be

valued, the duties and responsibilities

of the General Partner, the rate of

remuneration of the General Partner,

and the conditions under which the

General Partner may be removed.

(g) If accepted as an investor in the BF

V Group Trust and the Partnership, the

Independent Fiduciary is—

(1) Furnished with the names and

addresses of all other participating Plan

and non-Plan investors in the

Partnership;

(2) Required to acknowledge, in

writing, prior to purchasing a beneficial

interest in the BF V Group Trust (and a

corresponding limited partnership

interest in the Partnership) that such

Independent Fiduciary has received

copies of such documents; and

(3) Required to acknowledge, in

writing, to the General Partner that such

fiduciary is independent of TBFC and

its affiliates, capable of making an

independent decision regarding the

investment of Plan assets,

knowledgeable with respect to the Plan

in administrative matters and funding

matters related thereto, and able to make

an informed decision concerning

participation in the BF V Group Trust

and the Partnership.

(h) Each Plan, including the trustee

(the Trustee) of the BF V Group Trust,

receives the following written

disclosures from the General Partner

with respect to its ongoing participation

in the BF V Group Trust and the

Partnership:

(1) Within 90 days after the end of

each fiscal year of the BF V Group Trust

as well as at the time of termination, an

annual financial report containing a

balance sheet for the BF V Group Trust

and the Partnership as of the end of

such fiscal year and a statement of

changes in the financial position for the

fiscal year, as audited and reported

upon by independent, certified public

accountants. The annual reports will

also disclose the remuneration that has

accrued or is paid to the General

Partner.

(2) Within 60 days after the end of

each quarter (except in the last quarter)

of each fiscal year of the Partnership

and the BF V Group Trust, an unaudited

quarterly financial report consisting of

at least a balance sheet for the

Partnership and the BF V Group Trust

as of the end of such quarter and a profit

and loss statement for such quarter. The

quarterly report will also specify the

remuneration that is actually paid or

accrued to the General Partner.

(3) Such other written information as

may be needed by the Plans (including

copies of the proposed exemption and

grant notice describing the exemptive

relief provided herein).

(i) At least annually, the General

Partner will hold a meeting of the

Partnership, at which time, the

Independent Fiduciaries of the

participating Plans will have the

opportunity to decide on whether the

Partnership, the BF V Group Trust, the

Trustee or the General Partner should be

terminated as well discuss any aspect of

the Partnership, the BF V Group Trust

and the agreements promulgated

thereunder with the General Partner.

(j) During each year of the BF V Group

Trust and the Partnership,

representatives of the General Partner

will be available to confer by telephone

or in person with independent Plan

fiduciaries to discuss matters

concerning the BF V Group Trust or the

Partnership.

(k) The terms of all transactions that

are entered into on behalf of the

Partnership remain at least as favorable

to a Plan investing in the BF V Group

Trust as those obtainable in arm’s length

transactions with unrelated parties. In

this regard, the valuation of assets in the

Partnership that is done in connection

with the distribution of any part of the

General Partner’s Performance Fee will

be based upon independent market

quotations or (where the same are

unavailable) determinations made by an

independent appraiser (the Independent

Appraiser).

(l) In the case of the sale by the

Partnership of Portfolio Company

securities to a party in interest with

respect to a participating Plan that

occurs in connection with the

acquisition of a Portfolio Company

represented in the Partnership’s

portfolio (the Portfolio), the party in

interest may not be the General Partner,

TBFC, any employer of a participating

Plan, or any affiliated thereof, and the

Partnership receives the same terms as

is offered to other shareholders of a

Portfolio Company.

(m) As to each Plan, the total fees paid

to the General Partner and its affiliates

constitute no more than ‘‘reasonable

compensation’’ within the meaning of

section 408(b)(2) of the Act.

(n) Any increase in the General

Partner’s Performance Fee is based upon

a predetermined percentage of net

realized gains minus net unrealized

losses determined annually between the

date the first contribution is made to the

Partnership until the time the

Partnership disposes of its last

investment. In this regard—

(1) Except as provided below in

Section II(o), no part of the General

Partner’s Performance Fee may be

33362 Federal Register / Vol. 65, No. 100 / Tuesday, May 23, 2000 / Notices

withdrawn before December 31, 2006,

which represents the end of the

Acquisition Phase (the Acquisition

Phase) for the Partnership, and not until

the BF V Group Trust has received

distributions equal to 100 percent of its

capital contributions made to the

Partnership.

(2) Prior to the termination of the

Partnership, no more than 75 percent of

the Performance Fee credited to the

General Partner may be withdrawn by

the Partnership.

(3) The debit account established for

the General Partner to calculate the

Performance Fee (the Performance Fee

Account) is credited annually with a

predetermined percentage of net

realized gains minus net unrealized

losses, minus Performance Fee

distributions.

(4) No portion of the Performance Fee

may be withdrawn if the Performance

Fee Account is in a deficit position.

(5) The General Partner repays all

deficits in its Performance Fee Account

and it maintains a 25 percent cushion in

such account prior to receiving any

further distribution.

(o) During the Acquisition Phase of

the Partnership only,

(1) The General Partner is entitled to

take distributions with respect to the

Performance Fee in the amount of any

income tax liability it or its affiliates

become subject to with respect to net

capital gains of the Partnership,

provided such gains are based upon the

sale of Portfolio Company securities that

is initiated by a third party in

connection with a merger, tender offer

or acquisition, and does not involve the

exercise of discretion by the General

Partner.

(2) The tax distributions are deducted

from the Performance Fee.

(3) The General Partner repays to the

Partnership any tax refund received to

the extent a distribution has been made

to such General Partner.

(4) The General Partner provides the

Trustee and the Plans with an annual

report and accounting of all

distributions and repayments

attributable to income taxation of the

General Partner and its affiliates,

including written evidence that the

distributions have been utilized

exclusively to pay the income tax

liability.

(p) The General Partner maintains, for

a period of six years, the records

necessary to enable the persons

described in paragraph (q) of this

Section II to determine whether the

conditions of this exemption have been

met, except that—

(1) A prohibited transaction will not

be considered to have occurred if, due

to circumstances beyond the control of

the General Partner, the records are lost

or destroyed prior to the end of the six

year period; and

(2) No party in interest other than the

General Partner shall be subject to the

civil penalty that may be assessed under

section 502(i) of the Act, or to the taxes

imposed by section 4975(a) and (b) of

the Code, if the records are not

maintained, or are not available for

examination as required by paragraph

(q) below.

(q)(1) Except as provided in section

(q)(2) of this paragraph and

notwithstanding any provisions of

subsections (a)(2) and (b) of section 504

of the Act, the records referred to in

paragraph (p) of this Section II shall be

unconditionally available at their

customary location during normal

business hours by:

(A) Any duly authorized employee or

representative of the Department or the

Internal Revenue Service (the Service);

(B) Any Independent Fiduciary of a

participating Plan or any duly

authorized representative of such

Independent Fiduciary;

(C) Any contributing employer to any

participating Plan or any duly

authorized employee representative of

such employer; and

(D) Any participant or beneficiary of

any participating Plan, or any duly

authorized representative of such

participant or beneficiary.

(2) None of the persons described

above in subparagraphs (B)–(D) of this

paragraph shall be authorized to

examine the trade secrets of the General

Partner or TBFC or commercial or

financial information which is

privileged or confidential.

Section III. Definitions

For purposes of this proposed

exemption,

(a) The term ‘‘TBFC’’ means The Banc

Funds Company and any affiliate of

TBFC as defined in paragraph (b) of

Section III.

(b) An ‘‘affiliate’’ of TBFC includes—

(1) Any person directly or indirectly

through one or more intermediaries,

controlling, controlled by, or under

common control with TBFC.

(2) Any officer, director or partner in

such person, and

(3) Any corporation or partnership of

which such person is an officer, director

or a 5 percent partner or owner.

(c) The term ‘‘control’’ means the

power to exercise a controlling

influence over the management or

policies of a person other than an

individual.

(d) An ‘‘Independent Fiduciary’’ is a

Plan fiduciary which is independent of

TBFC and its affiliates and is either a

Plan administrator, trustee, named

fiduciary, as the recordholder of

beneficial Interests in the BF V Group

Trust or an investment manager.

(e) The term ‘‘Portfolio Companies’’

include commercial banks and other

depository institutions such as savings

banks, savings and loan associations,

holding companies controlling those

entities (together, the Bank Companies),

and companies providing financial

services in the United States, which

include, but are not limited to,

consumer finance companies and

demutualizing life insurance companies

(together, the Financial Services

Companies).

(f) The term ‘‘net realized gains’’

refers to the excess of realized gains

over realized losses.

(g) The term ‘‘net realized losses’’

refers to the excess of realized losses

over realized gains.

(h) The term ‘‘net unrealized losses’’

refer to the excess of unrealized losses

over unrealized gains.

(i) The term ‘‘net unrealized gains’’

refers to the excess of unrealized gains

over unrealized losses. For a gain or loss

to be ‘‘realized,’’ an asset of the

Partnership must be sold for more than

or less than its acquisition price. For a

gain or loss to be ‘‘unrealized,’’ the

Partnership asset must increase or

decrease in value but not be sold.

Preamble

On September 22, 1993, the

Department granted PTE 93–63 (58 FR

49322), a temporary exemption which is

effective for a period of eight years from

the date of the grant. PTE 93–63 permits

a series of transactions relating to the (a)

sale by the Bank Fund III Group Trust

(the BF III Group Trust) in which Plans

invest, of certain securities which have

been issued by Bank Companies and are

held in the BF III Group Trust’s

portfolio, to a party in interest with

respect to a Plan, where the party in

interest proposes to acquire or merge

with the Bank Company that issued

such securities. In addition, PTE 93–63

permits the BF III Group Trust to

purchase Bank Company securities from

the Midwest Bank Fund I Limited

Partnership (MBF I LP) and the Midwest

Bank Fund II, Limited Partnership (MBF

II LP), two entities organized by The

Chicago Corporation (TCC), the

company from which TBFC was spun

off. Further, PTE 93–63, allows Plans

investing in the BF III Group Trust to

pay a performance fee to TCC.

On March 5, 1997, the Department

granted PTE 97–15 at 62 FR 10078. PTE

97–15 permits Midwest Banc Fund IV

Group Trust (the BF IV Group Trust) in

Federal Register / Vol. 65, No. 100 / Tuesday, May 23, 2000 / Notices 33363

2 In 1986, TCC organized the MBF I LP. The

general partners of MBF I LP were two partnerships

(MidBanc I and MidBanc II), whose general partners

were corporate affiliates of TCC and whose limited

partners were members of TCC’s staff. Less than 25

percent of the assets of MBF I LP were provided by

Plans. On December 31, 1994, MBF I LP was

liquidated.

In 1989, TCC organized the MBF II LP. This

partnership had the same general partners as MBF

I LP. Also, less than 25 percent of the assets of MBF

II LP were provided by Plans. On December 31,

1997, MBF II LP was liquidated.

Finally, in 1993, TCC completed the organization

of BF III which was structured as both a limited

partnership (the BF III Partnership) and a group

trust (the BF III Group Trust).

In 1996, TCC organized BF IV as a limited

partnership (the BF IV Limited Partnership) and as

a group trust (the BF IV Group Trust). Each entity

has or had investment policies and strategies

similar to the proposed investment vehicle (i.e., the

Partnership).

3 During 1997, TCC’s parent was acquired by ABN

AMRO North America, Inc., a subsidiary of ABN

AMRO Bank N.V., a global bank headquartered in

the Netherlands. The acquisition did not involve

the purchase of the assets of TCC’s parent and TCC

retains its separate corporate identity.

4The Department is not proposing, nor is TBFC

requesting, exemptive relief for the purchase and

sale of beneficial interests in the BF V Group Trust

between the investing Plans and the Trustee beyond

that provided under section 408(b)(8) of the Act.

5Although TBFC and the Trustee will not be

affiliated with, or under the control of, or

controlling, any participating Plan, it is likely that

certain Plans will have a preexisting relationship

with TBFC in the form of an investment in MBF I,

MBF II, BF III or BF IV, investment vehicles

managed by TBFC, and it is possible that a

participating Plan may utilize the services of the

Continued

which Plans invest, to sell certain

securities that are held in the BF IV

Group Trust Portfolio to a party in

interest with respect to a participating

Plan, where the party in interest

proposes to acquire or merge with a

bank company or a financial services

company. In addition, PTE 97–15

permits TCC to receive a Performance

Fee from Plans investing in the BF IV

Group Trust.2

The pooled investment vehicle that is

described herein is similar to four

investment funds that were organized

by TCC in 1986, 1989, 1993 and 1996

and described in PTEs 93–63 and 97–17.

These four vehicles have been operated

by TCC, and since April 30, 1997, the

date TBFC was spun-off from TCC, by

TBFC.

Summary of Facts and Representations

1. TBFC is a Chicago, Illinois-based

investment advisory firm founded in

1997 as a spin-off from, and by the

individuals who managed the financial

services company advisory division of

TCC.3 TBFC is a registered investment

adviser under the Investment Advisers

Act of 1940, as amended, and it has a

single line of business. TBFC currently

provides institutional investors with

investment management services

through BF III and BF IV and it acts as

a fiduciary with respect to these clients.

TBFC currently manages $81 million in

assets of plans that are covered under

the Act, $129 million in the assets of

governmental plans and $65 million in

non-Plan assets.

TBFC’s relevant specialty is its

expertise in the banking industry. In

this regard, TBFC employees provide

management, investment and capital

formation services to collective

investment vehicles which invest in

commercial banks and other financial

institutions and expend significant

resources to research specific financial

institutions.

As described below, TBFC requests an

administrative exemption from the

Department with respect to the purchase

or redemption of interests in the

Partnership by Plans investing in the BF

V Group Trust, where TBFC, a party in

interest with respect to such Plans, is

the general partner of MidBanc V,

which is, in turn, the General Partner of

the Partnership. In addition, TBFC

requests exemptive relief to permit the

sale, for cash or other consideration, by

the Partnership of certain securities that

are held as Partnership assets to a party

in interest with respect to a Plan

participating in the Partnership through

the BF V Group Trust, where the party

in interest proposes to acquire or merge

with the Portfolio Company that issued

such securities. Further, TBFC requests

that the exemption apply to the General

Partner’s receipt of a Performance Fee

from the Partnership that is based upon

a debit account structure (i.e., the

Performance Fee Account) which will

keep track of the General Partner’s

compensation for managing the

Partnership but will not represent actual

dollars that are reserved or set aside for

the General Partner.

The BF V Group Trust is intended to

be a ‘‘pooled fund’’ as that term is

defined in 29 CFR 2570.31(g) and a

‘‘group trust’’ as that term is defined in

Rev. Rul. 81–100, 1981–1 C.B. 326. All

investors that are beneficiaries of the BF

V Group Trust must evidence the

following characteristics in order to

acquire beneficial interests: (a) Each

investor must commit to making at least

$1 million in initial capital

contributions; (b) each investor must be

a Plan; (c) each Plan must have at least

$50 million in assets; (d) each Plan must

agree to incorporate the terms of the

Group Trust Agreement into its own

trust agreement; (e) no Plan may invest

more than 10 percent of its assets in

interests in the BF V Group Trust and

such interests held by a Plan may not

exceed 25 percent of the BF V Group

Trust; and (f) no Plan may subscribe for

beneficial interests which, when

aggregated with all other Plan assets that

are subject to investment funds or

separate accounts managed by TBFC

and/or its affiliates, is valued in excess

of 25 percent of such Plan’s net assets.

The BF V Group Trust will not be

organized unless $25 million in capital

contribution commitments are

subscribed for by investors in such

Group Trust and the Partnership

described below.

3. The trustee (the Trustee) of the BF

V Group Trust will be Citibank, F.S.B.

Although TBFC may have and may have

had business relationships with the

Trustee, there will be no control

relationship or ownership affiliation

between TBFC and the Trustee. The

Trustee will be responsible for

monitoring the Trust’s investment in the

Partnership and for policing TBFC’s

adherence to the provisions of the

Partnership Agreement. In addition, the

Trustee will serve as custodian for the

Partnership.

For services rendered, the Partnership

will pay the Trustee (a) an annual base

fee of $1,500; (b) a custodial fee based

upon the market value of the

Partnership at the beginning of each

quarter (e.g., 0.02 percent annually of

the first $100 million, 0.01 percent

annually of any amount over $100

million, and 0.005 percent annually of

any amount over $200 million); (c) a

transaction fee of $12 per purchase or

sale and (d) a disbursement fee of $8 per

payment of funds. No charges will be

levied for income collection, item

storage, statement preparation or other

transactions.

In accordance with the provisions of

the Trust Agreement, the Trustee may

be removed by a vote of Plans holding

a majority of beneficial interests in the

BF V Group Trust, provided such Plans

give the Trustee 30 days’ advance

written notice of their intent to

terminate the Trustee. The Trustee may

resign at any time by giving 30 days

prior written notice to TBFC for

transmittal to the Plans.

4. Approximately 5–10 Plans may

invest in the BF V Group Trust.

However, no Plan may invest more than

25 percent of its assets in the BF V

Group Trust and every other pooled

investment vehicle sponsored by TBFC,

as measured on the date of such

investment.4 Each Participating Plan

must invest a minimum of $1 million in

the BF V Group Trust. Further, no Plan

benefitting employees of TBFC or the

Trustee will be permitted to invest in

the BF V Group Trust.5

33364 Federal Register / Vol. 65, No. 100 / Tuesday, May 23, 2000 / Notices

Trustee with respect to plan assets other than those

invested through the Trust. In this regard, TBFC is

not requesting, nor is the Department providing,

exemptive relief with respect therefor.

6According to TBFC, there are circumstances

militating against investments by the Partnership in

either BF III or BF IV. First, the Partnership will be

structured as a separate investment entity apart

from BF III and BF IV. BF III, BF IV and BF V

(collectively, the Funds) will all have somewhat

different charters with respect to what investments

each can make. Second, many companies in which

BF III, BF IV and BF V invest are (or will be

acquired) by larger banks within three years of the

particular Fund making an investment. Therefore,

something acquired by an earlier Fund is unlikely

to be acquired by a later Fund. Third, the

Partnership will not come into existence until BF

II and BF IV are fully invested, so concurrent

purchases are deemed impossible. Fourth, BF IV

may complete its wind-up and termination before

the Partnership becomes invested. Fifth, there is an

outright prohibition against the Partnership buying

investments in BF III and BF IV and also against

investing directly in BF III and BF IV. Sixth, the

Partnership will invest in an area in which the

availability of Portfolio Company securities will be

extremely limited. For the Partnership to invest in

any of the same investment vehicles as BF III and

BF IV, it would mean that none of the investment

circumstances described above would apply.

7See 29 CFR 2510.3–101(a)(2)(ii) and (f).

8The Department notes that the general standards

of fiduciary conduct promulgated under the Act

would apply to the participation in the BF V Group

Trust and the Partnership by an Independent

Fiduciary. Section 404 of the Act requires that a

fiduciary discharge his duties respecting a plan

solely in the interest of the plan’s participants and

beneficiaries and in a prudent fashion. Accordingly,

an Independent Fiduciary must act prudently with

respect to the decision to invest in the BF V Group

Trust and the Partnership. The Department expects

that an Independent Fiduciary, prior to investing in

the BF V Group Trust and the Partnership, to fully

understand all aspects of such investments

following disclosure by the General Partner of all

relevant information.

9The Department is not expressing an opinion on

whether the Trustee or the General Partner would

be deemed to be fiduciaries under section

3(21)(A)(ii) of the Act with respect to a Plan’s

investment in the BF V Group Trust or the

Partnership. The Department is also not proposing

relief for the rendering of investment advice in

connection with the acquisition of interests in

either BF V Group Trust or the Partnership.

10Because of the multi-tiered structure (i.e.,

investing Plan to BF V Group Trust to Partnership),

it is represented that capital calls will be handled

as follows:

On the same day, the General Partner will notify

the Limited Partners, including Plans investing in

the BF V Group Trust that capital is being called.

All investors will have 10 days to forward the

appropriate amount of cash.

As a matter of practice, all Limited Partners will

wire their contributions to the Trustee on the same

day (the Trustee will serve as the custodian for the

Partnership’s assets).

Plan investors’ contributions will be credited to

a separate Trust account and the non-Plan

investors’ contributions will be credited to the

Partnership’s Capital Account.

On the same day, the Trustee transfers the funds

from the Trust account to the Partnership’s Capital

Account.

The General Partner will then instruct the Trustee

to utilize the Partnership’s Capital Account to

acquire the appropriate securities until the

Partnership account is exhausted, at which time,

another capital call will be made.

5. Pooled investments for Plans

investing in the BF V Group Trust will

be made through the Partnership. The

maximum capital contribution

commitment of the Partnership will be

$300 million. The primary purpose of

the Partnership is to engage in the

business of providing capital to,

acquiring equity and debt interests in,

and making available consultative

services to Portfolio Companies such as

Bank Companies and Financial Services

Companies having assets under $7

billion. The Partnership may also invest

in insurance contracts, short term

investments, derivatives (for hedging

purposes only) and covered put and call

options. Further, the Partnership may

make loans of securities. In short, it is

anticipated that the Partnership will

share the same basic investment strategy

as was held by MBF I, MBF II, BF III and

BF IV, and in many ways, the operations

and fee structures of these entities.6

6. The General Partner of the

Partnership will be MidBank V, LP. The

general partner of MidBank V, LP will

be TBFC and individuals employed by

TBFC. The General Partner will acquire

a one percent interest in the

Partnership, for cash. The General

Partner will also serve as the

Administrator of the BF V Group Trust

but it will not receive any fees from

such entity. As described later in this

proposed exemption, all fees that are

paid to the General Partner and/or its

affiliates will be paid by the Partnership

and not by the BF V Group Trust.

The principal place of business of the

Partnership will be 208 LaSalle Street,

Chicago, Illinois or at such other

location as the General Partner may

select. The Partnership is expected to

terminate on December 31, 2007, unless

terminated sooner.

7. The Limited Partners of the

Partnership will generally consist of

non-Plan investors, which will acquire,

by making capital contributions in cash

directly to the Partnership, a Limited

Partner’s interest in such Partnership.

However, as noted above, another

Limited Partner in the Partnership will

be the BF V Group Trust, the

beneficiaries of which will be Plans

covered under the provisions of the Act,

and governmental plans. These Plans

will acquire, for cash, both a beneficial

interest in the BF V Group Trust and a

Limited Partner’s interest in the

Partnership. It is expected that upon the

creation of this structure, the BF V

Group Trust will own 65.6 percent of

the equity interests in the Partnership.

Because none of the exceptions to the

plan asset regulations will apply, the

assets of the BF V Group Trust as well

as the assets of the Partnership will

constitute plan assets.7

Neither the General Partner nor the

Trustee will have any control over the

decision to cause any Plan to invest in

the Partnership through the Group

Trust. Under these circumstances, the

decision to participate in the BF V

Group Trust or the Partnership will be

made by a Plan fiduciary which is

independent of the Trustee and the

General Partner. In each instance, even

though the Trustee or the General

Partner may present a Plan fiduciary

with information concerning investment

in the Group Trust and in the

Partnership, the Plan fiduciary who

makes the investment decision will

agree not to rely on either the advice of

the Trustee or the General Partner as the

primary basis for a Plan’s investment

and the Independent Fiduciary will be

specifically required to do so in every

instance.8 The General Partner assumes

that a Plan will invest in the BF V Group

Trust only if the fiduciaries of the Plan

determine that investment performance

is anticipated to be superior.9

8. The contribution provisions for the

BF V Group Trust and the Partnership

will be identical. For example, capital

calls for Plans participating in the BF V

Group Trust will be concurrent and in

the same proportional amount as are

capital calls by the Partnership from

Limited Partners that are not Plans.10 In

pertinent part, the BF V Group Trust

Agreement provides that each Plan’s

commitment to contribute will be

divided into 20 equal segments. The

General Partner, in its capacity as

Administrator of the BF V Group Trust,

may call any amount of these

installments, upon 10 days’ advance

written notice, when cash is needed to

fund the acquisition of Portfolio

Company securities by the Partnership.

However, there are two limitations upon

the General Partner’s power to call

contributions. First, no more than 50

percent of the contribution commitment

may be called in any twelve month

period. Second, the General Partner

cannot call any contributions after the

sixth anniversary date of the inception

of the BF V Group Trust (the period

running from the date on which initial

capital contributions are made to such

sixth anniversary date being referred to

as ‘‘the Acquisition Phase’’).

If an investing Plan cannot or does not

meet a capital call, the Partnership

Agreement and the BF V Group Trust

Agreement provide that ten days after

the investor receives notice of default on

a capital call, the General Partner/

Federal Register / Vol. 65, No. 100 / Tuesday, May 23, 2000 / Notices 33365

11Reductions in a Limited Partner’s

participations are based upon the relative amount

of capital contributions that are omitted. For

example, if a Limited Partner subscribes for a 10

percent interest in the Partnership and neglects to

honor 25 percent of its commitment, the Limited

Partner will only have a 7.5 percent interest in the

Partnership if it is permitted to continue its

investment.

12The Department is not providing exemptive

relief herein for any prohibited transactions that

may arise as a result of proxy voting on the part of

the General Partner. The Department also notes that

the general standards of fiduciary conduct

promulgated under the Act would apply to such

voting practices.

13Some examples of the types of accounts that

will be maintained by the Partnership for each

Limited Partner are (a) the Capital Account, which

reflects the original capital paid into the

Partnership by the Limited Partner and any

adjustments thereto; (b) the Income Account, to

which will be credited income, interest, dividends,

fees for services (i.e., consulting services provided

by the Partnership to financial institutions) and any

other income items (other than gains or losses on

the sale or other disposition of securities or other

assets and other than income from high yield

investments) and to which will be debited any

expenses of the Partnership other than those which

are to be taken into account to determine gains and

losses; and (c) the Gain Account, to which will be

credited or debited gains or losses after expenses of

sale, when and as realized from the sale or other

disposition by the Partnership of securities or other

assets, whether or not any such gain or loss is

recognized or constitutes long-term or short-term

capital gain or loss or ordinary income or loss for

Federal income tax purposes. 14 It is represented that the Management Fee is

covered by the statutory exemptive relief available

under section 408(b)(2) of the Act. However, the

Department expresses no opinion herein on

whether the General Partner’s receipt of the

Management Fee will satisfy the terms and

conditions of section 408(b)(2) of the Act.

15As briefly alluded to in Representation 1,

certain employees of TBFC, generally those who

take an active part in the management of the

Partnership, are limited partners in MidBanc V, the

General Partner of the Partnership. MidBanc V will

be entitled to receive the Performance Fee to the

extent that it is earned. MidBanc V will then

allocate the Performance Fee among TBFC and the

employees of TBFC who are limited partners in

MidBanc V.

16Any payments of the Performance Fee will

reflect realized gains inuring to the Partnership. For

the Partnership to make a Performance Fee payment

to the General Partner, it must sell a Partnership

investment for a price exceeding the purchase price

for such investment. Therefore, the proceeds of the

sale will reflect the source of Performance Fee

payments.

After the Partnership has invested its capital, it

will have two sources of cash. One is income

received from its investments, such as dividends or

interest. The other is money received when it sells

an investment.

Administrator may (a) permit the

investor’s continued participation in the

Partnership (or BF V Group Trust) with

a commensurate reduction in both the

investor’s proportionate interest in such

Partnership (or BF V Group Trust) and

aggregate size of the Partnership (or BF

V Group Trust); 11 (b) declare the

investor’s entire capital commitment

due and pursue collection of the same;

or (c) expel, at fair market value, the

defaulting investor and offer its interest

in the Partnership (or BF V Group Trust)

first to the non-defaulting investors and

then to non-investors who are qualified

to invest in such Partnership (or BF V

Group Trust). In making the choice

between these alternatives, it is

represented that the General Partner/

Administrator will be guided by thencurrent investment strategies and the

best interest of the non-defaulting

investors.

9. The terms of the Partnership

control the duties and authority of the

General Partner. For example, the

General Partner, at its own expense, will

provide the Partnership and the BF V

Group Trust with personnel who are

able to undertake the investment

strategies for these entities as well as

perform their clerical, bookkeeping and

administrative functions. In addition,

the General Partner, at its own expense,

will provide the Partnership and the BF

V Group Trust with office space,

telephones, copying machines, postage

and all other necessary items of office

services. Further, the General Partner

will control proxy voting on all portfolio

securities.12 The Partnership Agreement

permits the General Partner to allocate

securities transactions to broker-dealers

of its choice.

The General Partner will prepare, or

cause to be prepared on behalf of the

Partnership, the following reports: (a)

annual audited financial statements;

and (b) quarterly unaudited financial

statements. In addition, the General

Partner will keep the accounts of the

Partnership in its capacity as

Administrator of the Trust.13

10. Under the Partnership Agreement,

two types of fees will be payable to the

General Partner by the Partnership.

These fees are a management fee (the

Management Fee) and the Performance

Fee, the components of which are

described below.

The General Partner’s Management

Fee is payable as a percentage of the

aggregate capital contributions to the

Partnership. The fee will be equal to 5

percent of the first $20 million in capital

contributions, 1.74 percent of the next

$230 million of capital contributions

and 2 percent on amounts in excess of

$250 million. On average, the fee will

not exceed 2 percent of committed

capital when all capital is contributed,

even if the Partnership is capitalized at

less than $250 million.14

Although Limited Partners will

receive distributions from the

Partnership throughout its duration, if,

as a result of distributions to the

Limited Partners, paid-in capital

contributions are reduced to 50 percent

or less of the original aggregate capital

contributions to the Partnership after

December 31, 2006, the Management

Fee will be reduced to 70 percent of the

amount otherwise payable, effective for

fiscal years subsequent to the year in

which said reduction was achieved.

Upon the return to the Limited Partners

of capital contributions so as to reduce

their capital contributions to 25 percent

or less of the total capital contributions

paid-in, the Management Fee will be

reduced to 50 percent of the amount

otherwise payable, effective for fiscal

years subsequent to the year in which

said reduction was achieved.

11. In addition to the Management

Fee, the General Partner 15 will be

entitled to receive the Performance Fee,

which will accrue annually in a debit

account (i.e., the Performance Fee

Account) between the date the first

contribution is made to the Partnership

until the time the Partnership disposes

of its last investment. As noted above,

the Performance Fee Account will

provide a mechanism for measuring the

General Partner’s compensation for

managing the Partnership. Such account

will be a ‘‘moving’’ balance that will

reflect the activity of the Partnership

instead of actual dollars that are

reserved or set aside for the General

Partner. Until distributions from the

Performance Fee Account are made,

funds that the debit account credits

represent will be invested for the benefit

of the Limited Partners.

The Performance Fee will be paid

during the final two years of the

Partnership. Simply stated, the

Performance Fee will equal 20 percent

of the excess of net realized gains minus

net unrealized losses of the Partnership,

minus allowed distributions determined

annually between the date of the first

contribution to the Partnership until the

disposition of the last Partnership asset.

In addition, the General Partner’s

Performance Fee will subject to the

following terms and conditions:

(a) Fee Base. As noted above, the

amount credited to the General Partner

as the Performance Fee will be equal to

a percentage of net realized gains minus

net unrealized losses. The fee will be

annually credited to the General

Partner.16

(b) Reduced Availability. Prior to the

termination of the Partnership, only 75

percent of the General Partner’s

Performance Fee may be drawn from the

Partnership. (This limit will also apply

to special income tax draws as

described in Representation 13.)

(c) Limited Deferral/Return of Capital.

Again, with the exception of the General

Partner’s income tax liabilities that are

described in Representation 13,

33366 Federal Register / Vol. 65, No. 100 / Tuesday, May 23, 2000 / Notices

17Where a partnership, such as the Partnership

described herein, makes a distribution to the

Limited Partners, that distribution can include any

of the following: income, realized gains, and/or

return of capital. Income and gains can arise at any

time during the partnership’s life. Although income

and gains occur after the initial investment phase

of a partnership, in the case of the Funds, such

distributions have occurred during the Acquisition

Phase. However generally, the contributed capital

that gives rise to a gain attributed to the Partnership

during the Acquisition Phase will be reinvested by

the General Partner. Conversely, the contributed

capital that gives rise to a gain attributed to the

Partnership after the Acquisition Phase has been

completed, will be distributed to a Limited Partner

if the gain is realized after the Acquisition Phase

expires.

18The assumption is, for purposes of this

example, that all Limited Partners investing in the

Partnership have received a 100 percent return of

their capital contributions.

distributions of the Performance Fee

cannot be made until January 1, 2007,

which is after the completion of the

Partnership’s Acquisition Phase.

Withdrawals with respect to the

Performance Fee cannot be paid until

investors have received distributions

equal to 100 percent of their capital

contributions.17

(d) Debits. The General Partner’s

Performance Fee Account is debited for

the appropriate percentage of realized

losses and net unrealized losses and

distributions pursuant to the formula.

The Performance Fee cannot be drawn

when the Performance Fee Account is in

a deficit position. Thus, if a gain is

realized when the Performance Fee

Account is in a deficit position, no

Performance Fee can be paid to the

General Partner and accrue in the

Performance Fee Account. Sufficient

gains must be realized to restore the

deficit, restore the 25 percent cushion

and generate surplus before any part of

the Performance Feet can eventually be

drawn down.

(e) Unrealized Gains. Although net

unrealized losses are subtracted from

net realized gains before the

Performance Fee is calculated, net

unrealized gains are excluded from the

calculation of the General Partner’s

Performance Fee. In essence, the

exclusion of net unrealized gains serves

as an additional reserve ensuring that

the General Partner will not be

permitted withdrawals based on early

gains that are subject to offset by later

losses. The exclusion of net unrealized

gains and the inclusion of net

unrealized losses in the Performance

Fee calculation operate to create a

moving threshold or hurdle. If the

General Partner draws on its

Performance Fee Account and the

Partnership experiences a later loss, the

General Partner cannot take another fee

until that loss is made up.

(f) Distribution Repayment. The

General Partner must prepay any deficit

in the Performance Fee Account such

that if the Partnership were to terminate

at any time, the General Partner would

not have received a Performance Fee in

excess of that which reflects the

Partnership’s performance to that date.

12. The following examples illustrate

the calculation of the General Partner’s

Performance Fee. Although the

Performance Fee may be drawn

annually for the specific purpose of

satisfying the General Partner’s tax

liabilities under certain limited

circumstances (see Section II(o) and

Representation 13), generally the

Performance Fee can only be drawn

during 2007 and 2008, the final two

years of the Partnership’s anticipated

term. However, for purposes of

illustration, four draw years have been

assumed in the examples.

EXAMPLE #1

Year Cumulative net

position

Performance

fee account

Maximum

draw Draw or refund

1 ....................................................................................................................... $800 $160 $120 $120

2 ....................................................................................................................... 200 40 30 (90)

3 ....................................................................................................................... 1,000 200 150 120

4 ....................................................................................................................... 700 140 105 (45)

Year 1 Assume that when the

Performance Fee first becomes

drawable in 2007 the Partnership’s

Cumulative Net Position is $800. The

General Partner’s Performance Fee is

20% of $200 or $160. The General

Partner may draw 75% of the $160 or

$120.18

Year 2 The Partnership’s Cumulative

Net Position at the end of Year 2 is

$200. The General Partner’s

Performance Fee is 20% of $200 or

$40. The General Partner is entitled to

draw $30, but since it has previously

drawn $120, it must refund $90.

Year 3 The Partnership now has a

Cumulative Net Position of $1,000.

The General Partner’s Performance

Fee is $200 with a permitted draw of

$150. Because the General Partner has

previously drawn a net amount of $30

at the end of Year 2 (i.e., $120 ¥ $90),

it may now draw an additional $120.

Year 4 The Partnership’s Cumulative

Net Position falls to $700 and the

General Partner’s Performance Fee

falls to $140. The 75% draw equals

$105, but the General Partner has

previously drawn a total of $150 (i.e.,

$120 ¥ $90 + $120). Therefore, the

General Partner must make a refund

to the Partnership of $45.

EXAMPLE #2

Year Cumulative net

position

Performance

fee account

Maximum

draw Draw or refund

1 ..................................................................................................................... $2,000 $400 $300 $300

2 ..................................................................................................................... 1,000 200 150 (150)

3 ..................................................................................................................... 500 100 75 (75)

4 ..................................................................................................................... 900 180 135 60

Year 1 Assume that when the General

Partner’s Performance Fee first

becomes drawable in 2007, the

Cumulative Net Position for the

Partnership is $2,000. The General

Partner’s Performance Fee is 20% of

Federal Register / Vol. 65, No. 100 / Tuesday, May 23, 2000 / Notices 33367

19The assumption is again, for purposes of this

example, that all Plans investing in the BF V Group

Trust have received a 100 percent return of their

capital contributions.

20With the exception of the General Partner, all

Limited Partners will receive distributions of gains

when they are realized. (As noted previously, this

could occur prior to the ending of the Acquisition

Phase for the Partnership.) For example, if at any

time during the Partnership’s existence, a Portfolio

Company security is purchased for $1 million and

sold by the General Partner for $3 million, a $2

million gain will be realized by the Partnership.

The Limited Partners will own $1.6 million of the

gain while the General Partner will own $400,000

of the gain (i.e., 20 percent of the Performance Fee).

Both Plan and non-Plan Limited Partners will

receive an aggregate distribution of $1.6 million

which will be allocated among such Limited

Partners. Depending on whether the Limited

Partner receiving a portion of the $1.6 million gain

is a taxable or non-taxable entity, the amount

allocated to the Limited Partner will be taxed.

Although the $400,000 gain attributable to the

General Partner will be deferred, the Service will

view the General Partner as having received taxable

income of $400,000. If the tax rate is 25 percent, the

General Partner will owe the Service $100,000. It

is the $100,000 that the General Partner seeks to

obtain as a tax distribution. The General Partner’s

remaining Performance Fee amount of $300,000

will stay in the Partnership even though the

Limited Partners will receive their proportionate

share of the $1.6 million.

21A vote of 75 percent of the Limited Partners to

remove the General Partner will also result in the

termination of the Partnership.

$2,000 or $400. The General Partner

may draw 75% of the $400 fee or

$300. $100 or 25% of the draw

amount must be left in the

Partnership as a cushion.19

Year 2 The Cumulative Net Position

for the Partnership at the end of Year

2 has fallen to $1,000. The General

Partner’s Performance Fee is 20% of

$1,000 or $200. TCC is entitled to

draw $150, but since it has previously

drawn $300, it must refund $150.

Year 3 The Cumulative Net Position

for the General Partner has fallen to

$500. The General Partner’s

Performance Fee now falls to $100

(i.e., 20% of $500) with a permitted

draw of $75 and a cushion of $25.

Because the General Partner has

previously drawn $150 ($300 ¥

$150), it must make a refund to the

Partnership of $75.

Year 4 The Cumulative Net Position

for the Partnership is $900 at the end

of Year 4. The General Partner’s

Performance Fee is 20% of $900 or

$180. The General Partner’s 75%

draw on the Performance Fee equals

$135. However, since the General

Partner has previously drawn a total

of $75 ($300 ¥ $150 ¥ $75), it may

now draw a Performance Fee of $60.

13. The General Partner has been

informed by its counsel that gains

realized by the Partnership will, to the

extent that they are allocable to the

General Partner’s Performance Fee

Account, be taxable to the General

Partner in the year gains are realized by

the Partnership, even though the

distribution of gains attributable to the

General Partner will be deferred.

Therefore, to enable the individual

owners of the General Partner or its

affiliates (collectively, referred to as the

General Partner) to discharge their

obligations to state or federal taxing

authorities, it is proposed that an

amount sufficient to pay taxes

(representing approximately 5 percent

of the gains of the Partnership) be

distributed to the General Partner solely

during the Partnership’s Acquisition

Phase. The sale of the Portfolio

Company securities that gives rise to the

early distribution of such gains may

only occur in connection with a third

party merger, acquisition or tender offer

and not through an exercise of

discretion by the General Partner.

Such distributions will be charged

against the General Partner’s

Performance Fee Account and will

reduce the balance that is used to

calculate the 25 percent cushion

required before actual distributions can

be made to the General Partner.20 In the

event the General Partner receives a tax

refund, the amount will be repaid by the

General Partner to the Partnership to the

extent a distribution has been made to

such General Partner.

To ensure that tax refunds are repaid,

the General Partner will retain an

independent accounting firm to

calculate the tax liabilities and credits.

If a tax payment is owed by the General

Partner, it will appear as an asset (i.e.,

a receivable) on the Partnership’s

financial reports that are given to the

Limited Partners.

In addition, the tax distributions will

be in the exact amount of the General

Partner’s tax liability. All funds received

in the distribution will be forwarded to

the Service and no portion will be

retained by either the General Partner or

the Limited Partners. Therefore, there

will be no gain by the General Partner.

Finally, TBFC notes that all of the

Limited Partners were made aware of

the tax distribution feature of the

Partnership. TBFC states that this

disclosure was made before the Limited

Partners determined to commit capital

to the Partnership.

14. The Partnership will terminate

upon the earliest to occur of (a) the

complete distribution of its assets, (b) a

vote in favor of termination by 75

percent of the Limited Partners,21 or (c)

December 31, 2008. If it would be to the

financial benefit of the Limited Partners

to extend the term of the Partnership

beyond 2008, extensions of up to two

years may be initiated by the General

Partner. Any further extension must be

approved by the Limited Partners

holding a majority of the Limited

Partnership interests. Neither the

General Partner nor the Partnership may

acquire additional Partnership

investments at the time of an extension.

The purpose of the extension will be to

allow the General Partner to liquidate

the Partnership’s existing investments,

distribute the cash proceeds received

from the liquidation to the Limited

Partners, and terminate the Partnership.

Upon termination of the Partnership,

all portfolio positions will be liquidated,

Partnership expenses will be paid and

distributions will be made (including

any remaining portion of the General

Partner’s Performance Fee). If all assets

cannot be converted into cash or if it

would be disadvantageous to liquidate

every asset, remaining assets may be

distributed in-kind, at the discretion of

the General Partner. The General Partner

will then receive a fractional portion of

its fee, in-kind. To ensure that the

General Partner will not select higher

income-generating Partnership assets for

itself, each Limited Partner, as well as

the General Partner, will receive a

proportionate share of each Portfolio

Company security that is distributed inkind.

15. The following example illustrates

the manner in which in-kind

distributions will be made by the

General Partner:

Assume that there are only two Limited

Partners investing in the Partnership and that

each has received a full return of capital.

Non-Plan A investor has a Partnership

interest worth $60 and the BF V Group Trust

has a Partnership interest worth $40.

The Partnership holds 100 shares of Bank

X stock which it acquired for $5 per share.

Upon termination of the Partnership, Bank X

stock is worth $7 per share.

The total unrealized gain attributable to

Bank X stock is ($7¥$5) × 100 = $200.

The General Partner’s Performance Fee is

equal to $200 × 20% = $40.

The General Partner receives $40 ÷ $7 = 5.7

shares of Bank X stock.

The non-Plan investor receives 60% × 94.3

= 56.6 shares of Bank X stock.

The BF V Group Trust receives 40% × 94.3

= 37.7 shares of Bank X stock. Therefore, the

Plans investing in the BF V Group Trust

share proportionately in the 37.7 shares of

Bank X stock.

16. In general, Partnership interests

will not be assignable, and no Limited

Partner may assign or otherwise

transfer, pledge or otherwise encumber

any or all of its interest in the

Partnership without the prior consent of

the General Partner. However, a Limited

Partner may transfer its interest only

after extending to the Partnership and

33368 Federal Register / Vol. 65, No. 100 / Tuesday, May 23, 2000 / Notices

22 It is represented that the General Partner will

gather all requisite information to produce the

valuation. This information may include pricing

information on any exchange-traded securities plus

more voluminous operating and financial data on

the companies for whose securities there is a

thinner market. The General Partner will then

compile this information into a report which is

submitted to the Valuation Committee. After

reviewing the submitted information, the

Committee will meet with the staff of the General

Partner to discuss the valuation materials. At the

end of this meeting, the Valuation Committee will

set the valuation for all portfolio hedgings. Thus,

from both a legal and operative standpoints, the

Partnership Agreement will control the valuation

process and the Valuation Committee will value the

Fund.

the other Limited Partners the right of

‘‘first offer.’’

In addition, because the BF V Group

Trust’s investment philosophy is

inconsistent with at-will withdrawals,

redemptions of Partnership interests are

limited to situations where (a) a

replacement Plan is available from

either current Plans investing in the BF

V Group Trust or there are new,

qualified investors;

(b) a Plan submits to the General

Partner and the Trustee, a written

opinion of counsel to the effect that the

Plan’s continued participation in the BF

V Group Trust would violate the Act

and that relief from the violation cannot

be obtained;

(c) the Plan loses its tax-exempt status

and that loss threatens the tax-exempt

status of the BF V Group Trust; and (d)

the BF V Group Trust loses its taxexempt status or fails to obtain the

exemptive relief proposed herein for the

necessary operation of such Group

Trust. This information will be

disclosed to investors.

17. The BF V Group Trust Agreement

requires that the General Partner, as

Administrator of the BF V Group Trust,

provide the Independent Fiduciary of

each Plan proposing to invest in the BF

V Group Trust with a copy of the Private

Placement Memorandum by the General

Partner. The Private Placement

Memorandum describes all material

facts concerning the purpose, structure

and operation of the BF V Group Trust.

If the Independent Fiduciary

expresses further interest in

participating in the BF V Group Trust,

such Independent Fiduciary will be

provided with copies of the BF V Group

Trust Agreement outlining the

organizational principles, investment

objectives and administration of the BF

V Group Trust, the manner in which

Trust shares could be redeemed, the

duties of the parties retained to

administer the BF V Group Trust and

the manner in which Group Trust assets

would be valued. The Independent

Fiduciary will also be provided with a

copy of the Partnership Agreement

which describes the organizational

principles, investment objectives and

administration of the Partnership, the

manner in which Partnership assets will

be valued, the duties and

responsibilities of the General Partner,

the rate of remuneration that the

General Partner will be paid and the

conditions under which the General

Partner may be removed. Once the

Independent Fiduciary has made a

decision to invest in the BF V Group

Trust, the General Partner will provide

such Independent Fiduciary with the

names and addresses of all other

participating Plans as well as non-Plan

investors.

18. The Independent Fiduciary will

be required to acknowledge, in writing,

prior to purchasing a beneficial interest

in the BF V Group Trust that such

fiduciary has received copies of the

foregoing documents. The Independent

Fiduciary will also be required to

acknowledge, in writing, to the General

Partner that such fiduciary is

independent of the General Partner and

its affiliates, capable of making an

independent decision regarding the

investment of Plan assets,

knowledgeable with respect to the Plan

in administrative matters and funding

matters related thereto, and able to make

an informed decision concerning

participation in the BF V Group Trust.

With respect to its ongoing

participation in the BF V Group Trust,

each Plan and the Trustee will receive

the following written disclosures from

the General Partner, as the

Administrator of the BF V Group Trust:

(a) Within 90 days after the end of each

fiscal year of the BF V Group Trust as well

as at the time of termination, an annual

financial report containing a balance sheet

for the BF V Group Trust and the Partnership

as of the end of such fiscal year and a

statement of the changes in the financial

position for the fiscal year, as audited and

reported upon by independent, certified

public accountants. The annual report will

also disclose the remuneration actually paid

or accrued to the General Partner.

(b) Within 60 days after the end of each

quarter (except in the last quarter) of each

fiscal year of the BF V Group Trust and the

Partnership, an unaudited quarterly financial

report consisting of at least a balance sheet

for the BF V Group Trust and the Partnership

as of the end of such quarter and a profit and

loss statement for such quarter. The quarterly

report will also specify the remuneration that

is actually paid or accrued to the General

Partner.

In addition to the foregoing reports, the

General Partner will prepare and

distribute to the BF V Group Trust and

each Plan such other information as

may be reasonably requested by the

Plans to comply with the reporting

requirements of the Act or Code

(including copies of the proposed

exemption and grant notice with respect

to the exemptive relief granted herein).

At least annually, the General Partner

will hold a meeting of the Partnership,

at which time, the Independent

Fiduciaries of participating Plans will

have the opportunity to decide on

whether the Partnership, the BF V

Group Trust, the Trustee or the General

Partner should be terminated as well as

discuss any aspect of the Partnership

and Group Trust and the Agreements

promulgated thereunder. Finally, during

each year of the BF V Group Trust,

representatives of the General Partner

will be available to confer by telephone

or in person with Independent

Fiduciaries on matters concerning the

BF V Group Trust or the Partnership.

19. The terms of all transactions that

are entered into on behalf of the

Partnership by the General Partner will

be at least as favorable to an investing

Plan as those obtainable in arm’s length

transactions with unrelated parties. In

this regard, valuations of (and for) the

Partnership will be needed for general

accounting purposes, to determine the

value of the Partnership’s assets for

reports to the Limited Partners, for

distributions of securities and to

calculate the General Partner’s

Performance Fee when the General

Partner seeks to draw upon it. The

General Partner, subject to the review

and approval of the Valuation

Committee, will determine the fair

market value of the assets and liabilities

of the Partnership as of each fiscal

date.22 The Valuation Committee, which

is the same advisory committee that

served MBF I and II and currently serves

BF III and IV, will also serve as the

Independent Appraiser. The Valuation

Committee is composed of three

members who are experienced in

valuing the securities of Portfolio

Companies. None of the members of the

Valuation Committee has an ownership

or creditor relationship with the General

Partner.

As the Independent Appraiser, each

member of the Valuation Committee

must not be controlled by (or control)

TBFC or the Partnership and must not

receive more than 5 percent of their

lowest annual income from the General

Partner or the Partnership, either during

the term of the Partnership or in the

three years preceding its creation.

Individual members of the Valuation

Committee or the entire committee may

be removed by the General Partner only

for cause and with or without cause by

Limited Partners holding a majority of

the Limited Partnership interests. A

Federal Register / Vol. 65, No. 100 / Tuesday, May 23, 2000 / Notices 33369

23TBFC explains that the phrase ‘‘principally

traded’’ means that if a security is traded on more

than one exchange and if the trade prices differ

between exchanges, the value will be taken from the

exchange on which the largest volume of that

security has traded.

24TBFC explains that the most recent trade price

is not used to value a security in this instance

because it may be too dated to provide an accurate

estimate of value. Instead, TBFC considers the bid

price to be indicative of the current value at which

someone would be willing to acquire a security on

the valuation date. TBFC further notes that the use

of the bid price rather than the previous trading or

closing price in valuing a Security provides a

conservative valuation approach which will result,

in most instances, in a lower Performance Fee paid

to the General Partner. The Department assumes

that the bid price described herein represents active

bids and is a true indicator of market prices.

majority of the Limited Partners must

approve a replacement Independent

Appraiser. If the Limited Partners and

the General Partner cannot agree upon

a replacement Independent Appraiser,

the firm of KPMG Peat Marwick LLP

will be appointed.

Although the General Partner will

nominate the Independent Appraiser,

the Limited Partners will be given the

option of either approving or

disapproving the nominee. The

Independent Appraiser will not be

appointed absent the affirmative written

approval of a majority of the Limited

Partners. However, the Limited Partners

will have no veto power over the

General Partner’s decision that an

Independent Appraiser is required.

If applicable, the Independent

Appraiser will use the principles set

forth in Revenue Ruling 59–60 and the

Department’s proposed ‘‘Adequate

Consideration’’ regulations (53 FR

17632, May 17, 1988) to determine fair

market value. The valuations made by

the Independent Appraiser will be

binding upon the General Partner. In

addition, the Independent Appraiser

will issue a report to the General Partner

which sets forth the Independent

Appraiser’s pricing methodology and

rationale for securities it has been asked

to value. Such report will be issued after

each required valuation and will

comply with the aforementioned

regulations.

With respect to securities for which a

market exists, the Independent

Appraiser will determine their value

according to the following principles:

(a) National Securities Exchange. Any

security which is listed on a national

securities exchange generally will be

valued based on its last sales price on

the national securities exchange on

which the security is principally traded

on the valuation date.23 If no sale of a

listed Security occurred on the

valuation date, the value will be based

on the last bid price.

(b) No Listing. Any security which is

not listed on a national securities

exchange will be valued upon the last

publicly available bid price.24

(c) Discount for Illiquidity. Anything

herein to the contrary notwithstanding,

the Independent Appraiser in its

discretion may apply a discount for

illiquidity, on the valuation of securities

that have a thin public market.

In the event that there is no

independent market for a security or the

security is not listed on a national

securities exchange, the Independent

Appraiser will be required to value such

securities. Under such circumstances,

the securities will be valued at the time

of acquisition at their cost. The

Independent Appraiser will continue

valuing the securities at their cost until

a determination is made that a different

valuation level is indicated by the

occurrence of (a) a significant change in

book value, (b) a significant change in

a Portfolio Company’s business, (c) a

significant third-party transaction, or (d)

any other significant change in the

Financial Company, its industry or the

general market.

20. With respect to transactions that

may arise during the existence of the

Partnership and which involve parties

in interest with respect to participating

Plans, the General Partner requests

exemptive relief from the provisions of

section 406(a) of the Act. Specifically,

TBFC requests exemptive relief where

the Partnership sells securities in the

Partnership Portfolio for cash or other

securities to a party in interest with

respect to a participating Plan in the

context of an acquisition or merger by

the party in interest, provided the party

in interest is not an affiliate of the

General Partner. TBFC represents that

the Partnership will receive the same

offer that other shareholders of Portfolio

Companies will receive. Because the

Partnership will always be a minority

shareholder in such situation, TBFC

states that the Partnership will be in the

position of a beneficiary of the

acquisition offer and it will not be in the

position off an active player in the

merger or acquisition transactions.

21. In summary, it is represented that

the proposed transactions will satisfy

the statutory criteria for an exemption

under section 408(a) of the Act because:

(a) The participation by a Plan in the

BF V Group Trust and in the

Partnership will be approved by an

Independent Fiduciary.

(b) Each Plan investing in the

Partnership through the BF V Group

Trust will have assets that are in excess

of $50 million.

(c) No Plan will invest more than 10

percent of its assets in the Partnership

through the BF V Group Trust and a

Plan’s respective interests in both

entities will not represent more than 25

percent of the assets of either the BF V

Group Trust or the Partnership.

(d) No Plan will invest more than 25

percent of its assets in investment funds

and separate accounts managed or

sponsored by TBFC and/or its affiliates.

(e) Prior to making an investment in

the BF V Group Trust and the

Partnership, each Independent

Fiduciary contemplating investing

therein will receive offering materials

which disclose all material facts

concerning the purpose, structure and

operation of the BF V Group Trust, the

Partnership and the fees paid to the

Trustee and the General Partner.

(f) Each Plan investing in the BF V

Group Trust and the Partnership will be

required to acknowledge, in writing,

prior to purchasing interests that such

fiduciary has received copies of such

documents and to acknowledge, in

writing, to the General Partner that such

fiduciary is (1) independent of the

General Partner and its affiliates, (2)

capable of making an independent

decision regarding the investment of

Plan assets and (3) knowledgeable with

respect to the Plan in administrative

matters and funding matters related

thereto, and able to make an informed

decision concerning participation in the

BF V Group Trust.

(g) The General Partner will make

quarterly and annual written disclosures

to participating Plans with respect to the

financial condition of the Partnership

and the total fees that it will receive for

services rendered to such Partnership.

(h) The General Partner will hold

annual meetings and conduct periodic

discussions with Independent

Fiduciaries to address matters

pertaining to the BF V Group Trust or

the Partnership.

(i) The terms of all transactions that

are entered into on behalf of the

Partnership by the General Partner shall

remain at least as favorable to an

investing Plan as those obtainable in

arm’s length transactions with unrelated

parties. In this regard, the valuation of

assets of the Partnership will be based

upon independent market quotations or

determinations made by an Independent

Appraiser.

(j) As to each Plan, the total fees paid

to the General Partner and its affiliates

will constitute no more than reasonable

compensation.

(k) Any increase in the General

Partner’s Performance Fee will be based

upon a predetermined percentage of net

realized gains minus net unrealized

33370 Federal Register / Vol. 65, No. 100 / Tuesday, May 23, 2000 / Notices

25For purposes of this exemption, reference to

provisions of Title I of the Act, unless otherwise

specified, refer also to the corresponding provisions

of the Code.

26Unless otherwise noted, the client Plans and

the Standard Plans are collectively referred to as the

Plans.

losses. In this regard, (1) Except as

described in item (1) below, no part of

the General Partner’s Performance Fee

may be withdrawn before December 31,

2006, which represents the completion

of the Acquisition Phase of the

Partnership and not until the Limited

Partners have received distributions

equal to 100 percent of their capital

contributions to the Partnership.

(2) Prior to the termination of the

Partnership, no more than 75 percent of

the Performance Fee credited to the

General Partner may be withdrawn from

the Partnership.

(3) The Performance Fee Account

established for the General Partner will

be credited with net realized gains and

charged for net unrealized losses and

Performance Fee distributions.

(4) The General Partner will repay all

deficits in its Performance Fee Account

and it will maintain a 25 percent

cushion in such account before

receiving any further distribution.

(1) The General Partner will be

entitled to take distributions with

respect to its Performance Fee in the

amount of any income tax liability it or

its affiliates become subject to with

respect to net capital gains of the

Partnership (i) only during the

Partnership’s Acquisition Phase and (ii)

provided such gains are based on the

sale of Portfolio Company securities that

is initiated by a third party in

connection with a merger, tender offer

or acquisition.

(m) The General Partner will be

obligated to repay to the Partnership any

tax refund received to the extent a

distribution have been made to such

General Partner.

Notice to Interested Persons

Notice of the proposed exemption

will be given to Plans intending to

invest in the Partnership through the BF

V Group Trust within 3 days of the date

of publication of the notice of pendency

in the Federal Register. Such notice will

include a copy of the notice of proposed

exemption, as published in the Federal

Register, as well as a supplemental

statement, as required pursuant to 29

CFR 2570.43(b)(2), which shall inform

interested persons of their right to

comment on and/or to request a hearing.

Comments and hearing requests with

respect to the proposed exemption are

due 33 days after the date of publication

of the proposed exemption in the

Federal Register.

For Further Information Contact: Ms.

Jan D. Broady of the Department,

telephone (202) 219–8881. (This is not

a toll-free number.)

Standard Insurance Company

(Standard) Located in Portland, OR

[Application No. D–10705]

Proposed Exemption

Based on the facts and representations

set forth in the application, the

Department is considering granting an

exemption under the authority of

section 408(a) of the Act (or ERISA) and

in accordance with the procedures set

forth in 29 CFR part 2570, subpart B (55

FR 32836, 32847, August 10, 1990).25

Section I. Covered Transactions

If the exemption is granted, the

restrictions of section 406(a) of the Act

and the sanctions resulting from the

application of section 4975 of the Code,

by reason of section 4975(c)(1)(A)

through (D) of the Code, shall not apply,

effective April 21, 1999, to (1) the

receipt of common stock (the Stock) of

the StanCorp Financial Group, Inc. (the

Holding Company), the parent of

Standard, or (2) the receipt of cash

(Cash) or policy credits (Policy Credits),

by or on behalf of any eligible

policyholder (the Eligible Member) of

Standard which is an employee benefit

plan (the Plan), including the Standard

Group Life, Supplemental Life and

AD&D Plan for Employees and Agents

(the Standard Group Life Plan) and the

Standard Group Term and Short Term

Disability Employees Plan (the Standard

Disability Plan; together, the Standard

Welfare Plans), in exchange for such

Eligible Member’s interest in Standard,

in accordance with the terms of a plan

of demutualization (the Plan of

Demutualization or Demutualization

Plan) adopted by Standard and

implemented pursuant to Section 732 of

the Oregon Revised Statutes. 26

In addition, the restrictions of section

406(a)(1)(E) and (a)(2) and section

407(a)(2) of the Act shall not apply,

effective April 21, 1999, to the receipt

or holding, by the Standard Welfare

Plans, of employer securities in the form

of excess Holding Company Stock, in

accordance with the terms of the

Demutualization Plan.

The proposed exemptions described

above are subject to the following

conditions:

(a) The Plan of Demutualization was

implemented in accordance with

procedural and substantive safeguards

that were imposed under Oregon

Insurance Law and was subject to

review and supervision by the Director

of the Department of Consumer and

Business Services of the State of Oregon

(the Director).

(b) The Director reviewed the terms of

the options that were provided to

Eligible Members of Standard, which

included, but were not limited to the

subject Plans, as part of his review of

the Demutualization Plan, and only

approved such Demutualization Plan

following a determination that the Plan

was fair and equitable to all Eligible

Members and was not detrimental to the

public.

(c) Each Eligible Member had an

opportunity to vote to approve the Plan

of Demutualization after full written

disclosure was given to the Eligible

Member by Standard.

(d) One or more independent

fiduciaries of a Plan that was an Eligible

Member received Holding Company

Stock, Cash or Policy Credits, pursuant

to the terms of the Demutualization

Plan, and neither Standard nor any of its

affiliates exercised any discretion or

provided ‘‘investment advice,’’ within

the meaning of 29 CFR 2510.3–21(c),

with respect to such acquisition.

(e) With respect to the Standard

Welfare Plans and other Plans

sponsored by Standard and its affiliates

(collectively, the Standard Plans), where

the consideration was in the form of

Holding Company Stock, Northwestern

Trust and Advisory Company

(Northwestern Trust), the independent

Plan fiduciary appointed to represent

the interests of each of the Standard

Plans,

(1) Exercised its authority and

responsibility to vote on behalf of the

Standard Plans at the special meeting of

Eligible Members on the proposal to

approve the Demutualization Plan;

(2) Monitored the Holding Company

Stock received by a Standard Plan; and

(3) Provided instructions with respect

to the voting, the continued holding and

the disposition of Holding Company

Stock held by all of the Standard Plans.

(f) After each Eligible Member was

allocated at least 52 shares of Holding

Company Stock, additional

consideration was allocated to Eligible

Members who owned participating

policies based on actuarial formulas that

took into account each participating

policy’s contribution to the surplus of

Standard which formulas have been

approved by the Director.

(g) All Eligible Members that were

Plans participated in the transactions on

the same basis within their class

groupings as other Eligible Members

that were not Plans.

(h) No Eligible Member paid any

brokerage commissions or fees in

Federal Register / Vol. 65, No. 100 / Tuesday, May 23, 2000 / Notices 33371

27 In general, a policy’s accumulation account

value is expressed in dollar terms and reflects

contributions and interest credited under the

policy, less expenses and withdrawals.

Accumulation values may be applied for the

purchase of annuity benefits, or depending on the

provisions of the contract, withdrawn by the

policyholder in a lump sum or installments. Under

Standard’s Plan of Demutualization, where a policy

eligible for distributions under such Plan has an

accumulation value, the policy’s accumulation

value will be increased by an amount equal to the

distribution the policyholder is entitled to under

the Plan.

connection with the receipt of Holding

Company Stock, nor has (or will) such

Eligible Member pay any brokerage

commissions or fees in connection with

the implementation of the commissionfree sales and purchase program (the

Program).

(i) All of Standard’s policyholder

obligations will remain in force and will

not be affected by the Plan of

Demutualization.

Section II. Definitions

For purposes of this proposed

exemption:

(a) The term ‘‘Standard’’ means The

Standard Insurance Company and any

affiliate of Standard as defined in

paragraph (b) of this Section III.

(b) An ‘‘affiliate’’ of Standard

includes—

(1) Any person directly or indirectly

through one or more intermediaries,

controlling, controlled by, or under

common control with Standard; (For

purposes of this paragraph, the term

‘‘control’’ means the power to exercise

a controlling influence over the

management or policies of a person

other than an individual.) and

(2) Any officer, director or partner in

such person.

(c) The term ‘‘Eligible Member’’

means a policyholder who is eligible to

vote and to receive consideration under

Standard’s Demutualization Plan. Such

Eligible Member must have been a

policyholder of Standard on December

17, 1997, the date the Plan of

Demutualization was adopted by the

Board of Directors of Standard.

(d) The term ‘‘policy credit’’ means an

increase in the accumulation account

value 27 (to which no surrender or

similar charges are applied) in the

general account or an increase in a

dividend accumulation on a policy.

Effective Date: If granted, this

proposed exemption will be effective as

of April 21, 1999.

Summary of Facts and Representations

1. Standard was formerly a mutual life

insurance company chartered under the

laws of the State of Oregon. It was

originally chartered in 1906 as a stock

company and was subsequently

‘‘mutualized’’ in 1929 under Oregon

law. Standard is authorized to transact

life, health and annuity business in all

50 states (reinsurance only in New

York), the District of Columbia and the

U.S. Territory of Guam. As of December

31, 1998, Standard had admitted assets

(on a statutory basis) in excess of $4.9

billion and generated $890.9 million in

annualized premium and annuity

consideration.

Standard’s home office is located at

1100 S.W. Sixth Avenue, Portland,

Oregon. As of December 31, 1998,

Standard was rated A (Excellent) by

A.M. Best, A+ (Good) by Standard and

Poor’s, AA (Very High Claims Paying

Ability) by Duff & Phelps and A2 (Good)

by Moody’s.

As a mutual life insurance company,

Standard had no stockholders. Instead,

its policyholders were members of the

company and were entitled to vote to

elect its directors and would be entitled

to share in its assets upon its

liquidation.

Standard provides a variety of

fiduciary and other services, including

plan administration, investment

management and related services, to

Plans policyholders that are covered

under the applicable provisions of the

Act and/or the Code. As a result,

Standard may be considered a party in

interest or a disqualified person with

respect to such Plans under section

3(14)(A) and (B) of the Act as well as the

related ‘‘derivative’’ provisions of

section 3(14) of the Act.

Standard has actively marketed its

products to Plans. As of December 31,

1997, Standard had approximately

30,800 outstanding policies and

contracts issued in connection with

Plan policyholders that were pension or

welfare plans subject to the Act. Of

these policies, approximately 5,200

contracts were issued to defined benefit

or defined contribution pension plans

(including section 401(k) plans) and

over 25,600 contracts were issued to

welfare plans to provide group life,

short-term and long-term disability,

accidental death and dismemberment,

and group health and dental coverage.

2. Standard Management, Inc.

(Standard Management) is a holding

company that is organized under

Oregon law and formerly wholly owned

by Standard. On April 21, 1999, the

effective date of the demutualization,

Standard Management became a wholly

owned subsidiary of StanCorp Financial

Group, Inc. (i.e., the Holding Company),

which also became the parent of

Standard. The Holding Company is also

organized under Oregon law.

3. Standard has also created two

limited liability companies under

Oregon law. They are Standard

Mortgage Investors, LLC (Standard

Mortgage), which manages Standard’s

mortgage loan portfolio and markets its

expertise to other investors and

Standard Real Estate Investors, LLC

(Standard Real Estate Investors), which

is engaged in the business of real estate

management, primarily with respect to

real estate owned by Standard.

Currently, the assets of Standard

Mortgage and Standard Real Estate

Investors are owned completely by

Standard through Standard

Management.

In addition to these companies,

Standard has formed Stan-West

Equities, Inc. (Stan-West), a licensed

broker-dealer, 400 Health Club, Inc. (400

Health Club), a corporate shell that does

not conduct business of any kind, and

Standard Assigned Benefits, Inc.

(Standard Assigned Benefits), an entity

which was formerly in the business of

funding structured litigation settlements

but which is not transacting business at

the present time. Through its sister,

Standard Management, Standard owns

100 percent of the assets of these

entities.

4. Standard and its affiliates also

sponsor a number of retirement and

welfare plans for their agents and

employees that participated in the

demutualization transaction described

herein. The affected Standard Plans,

their total number of participants and

assets are shown as follows as of

December 31, 1997, which is the most

recent date this information is available:

Standard plans

Number of

participants

as of 12/97

Total assets

as of 12/97

Group Life, Supplemental Life

and AD&D

Employees

and Agents .... 2,837 1 $431,985

Group Long

Term and

Short Term

Disability-Employees .......... 1,771 1 802,820

Defined Benefit

Plan-Employees ................ 1,419 64,754,363

Defined Benefit

Plan-Agents ... 85 13,442,533

Defined Contribution PlanEmployees .... 1,405 55,397,674

Defined Contribution PlanAgents ........... 119 16,200,232

1Expressed as an annualized premium.

5. In 1997, Standard’s Board of

Directors authorized its management to

develop a plan of demutualization

33372 Federal Register / Vol. 65, No. 100 / Tuesday, May 23, 2000 / Notices

28Section 406(a)(1)(E) of the Act prohibits the

acquisition by a Plan of any employer security that

violates section 407(a) of the Act. Section 406(a)(2)

of the Act states that no fiduciary who has authority

or discretion to control the assets of a plan shall

permit the plan to hold any employer security if he

[or she] knows that holding such security would

violate section 407(a) of the Act. Section

407(a)(1)(A) of the Act states that, except otherwise

provided, a plan may not hold any employer

security which is not a qualifying employer

security. Section 407(a)(2) of the Act prohibits the

acquisition by a plan of any qualifying employer

security if immediately after such acquisition, the

aggregate fair market value of such securities

exceeds 10 percent of the fair market value of the

plan’s assets.

29Northwestern Trust, which was retained by

Standard as the independent fiduciary for all of the

Standard Plans, subsequently determined (see

Representation 11) that the only Standard Plan

affected by the ‘‘excess holding problem’’ was the

Standard Group Life Plan. Although Northwestern

Trust expressed no opinion on the Standard

Disability Plan, Standard believes that

Northwestern Trust may have concluded that the

Holding Company Stock received in connection

with the demutualization was not a ‘‘plan asset’’

and was thus allocable to Standard. Nevertheless,

to remove any doubt, Standard has requested that

the exemption apply to both of the Standard

Welfare Plans. However, the Department is not

expressing an opinion herein on whether the

Standard Disability Plan is entitled to any of the

consideration received as a result of the

demutualization.

30The Department expresses no opinion herein

on whether the Holding Company Stock constitutes

qualifying employer securities and whether such

distributions satisfied the terms and conditions of

section 408(e) of the Act.

whereby Standard would be converted

from a mutual life insurance company

to a stock life insurance company. In

response, Standard began developing

the Plan of Demutualization which was

formally adopted by the Board of

Directors on September 28, 1998. The

principal purposes for the

demutualization were to (a) enhance

Standard’s strategic and financial

flexibility by creating a corporate

structure that would provide

opportunities for obtaining additional

capital from sources that are unavailable

to Standard in its current form as a

mutual insurer; (b) allow Standard to

use stock options or other equity-based

compensation arrangements to attract

and retain talented employees; (c)

facilitate acquisitions, which Standard’s

management viewed as an important

element of future growth; and (d)

provide Eligible Members with an

opportunity to convert their illiquid

interests as members of Standard into

shares of Stock of the Holding Company

or Cash or Policy Credits. The

demutualization would not, in any way,

change premiums or reduce policy

benefits, values, guarantees or other

policy obligations of Standard to its

policyholders. Policy dividends would

continue to be paid as declared,

although they may vary from year to

year. In effect, insurance policies would

remain in force and policyholders

would be entitled to receive the benefits

under their policies and contracts to

which they would have been entitled if

the Demutualization Plan had not been

adopted.

6. Therefore, Standard has requested

an individual exemption from the

Department that would apply, effective

April 21, 1999, to the receipt of Holding

Company Stock, Cash or Policy Credits

by Eligible Members that were Plans in

exchange for their existing membership

interests in Standard because it believes

the transaction could be viewed as a

prohibited sale or exchange of property

between a plan and a party in interest

in violation of section 406(a)(1)(A) and

(D) of the Act. Standard also has

requested exemptive relief, effective

April 21, 1999, with respect to

distributions of Holding Company Stock

to the Standard Welfare Plans, because

it believes the receipt of Holding

Company Stock by these Standard Plans

violated section 406(a)(1)(E) and (a)(2)

of the Act and section 407(a)(2) of the

Act, in addition to section 406(a)(1)(A)

and (D) of the Act.28 Standard

represents that although the Holding

Company Stock would constitute

‘‘qualifying employer securities’’ within

the meaning of section 407(d)(5) of the

Act, such stock would represent 100

percent of the assets of the Standard

Welfare Plans, in violation of section

407(a)(2) of the Act. Standard also

asserts that the statutory exemptive

relief contained in section 408(e) of the

Act would not apply to the acquisition

and holding of Holding Company Stock

by the Standard Welfare Plans.29

Standard further notes that the

holding of Holding Company Stock by

the Standard Welfare Plans would not

violate section 407(f) of the Act because

neither Plan would own more than 25

percent of the outstanding shares of

Holding Company Stock, and at least 50

percent of the outstanding shares would

be owned by persons who were

independent of the issuer.

Standard represents that statutory

exemptive relief from section 408(e) of

the Act would apply to distributions of

Holding Company Stock to its defined

benefit plans (i.e., the Defined Benefit

Retirement Plan-Employees and the

Defined Benefit Retirement Plan-Agents)

(together, the Standard Defined Benefit

Plans) because the fair market value of

the Stock would not exceed 10 percent

of the assets of these Plans. Therefore,

Standard has not requested that the

exemption apply to the Standard

Defined Benefit Plans.

Similarly, Standard represents that

section 408(e) would be applicable to

distributions of Holding Company Stock

to its two defined contribution plans

(i.e., the Defined Contribution PlanEmployees and the Defined

Contribution Plan-Agents) (together, the

Standard Defined Contribution Plans).30

Therefore, Standard has not requested

that the exemption apply to the

Standard Defined Contribution Plans.

7. Standard’s Plan of Demutualization

was approved by the Director in January

1999. Subsequently, the following steps

were taken to implement the

Demutualization Plan:

(a) Demutualization under Oregon

Law. Standard converted from a mutual

life insurance company to a stock life

insurance company on April 21, 1999 in

accordance with the requirements of

Sections 732.600 to 732.630 of the

Oregon Revised Statutes as well as

under the provisions of its Plan of

Demutualization. Each policyholder’s

membership interest in Standard was

terminated. As compensation for their

membership interests, Eligible Members

received Holding Company Stock, Cash

or Policy Credits as compensation for

the termination of their interests.

As a result of the demutualization,

Standard became a stock company and

a wholly owned subsidiary of the

Holding Company. Standard also

distributed its real estate management

and mortgage subsidiaries (i.e., Standard

Mortgage and Standard Real Estate

Investors) and certain other noninsurance subsidiaries (i.e., Stan-West

Equities, 400 Health Club and Standard

Assigned Benefits) to the Holding

Company. As a result, these companies

became direct or indirect subsidiaries of

the Holding Company.

(b) The Initial Public Offering (the

IPO). The Holding Company sold

15,209,400 shares of Holding Company

Stock in an underwritten IPO in

conjunction with the demutualization.

The Holding Company also arranged for

the listing of Holding Company Stock

on the NYSE.

(c) Contribution to the Capital of

Standard. Following the transactions

described above, the Holding Company

contributed $267.9 million raised in the

IPO (after the payment of transaction

expenses) to Standard to pay Cash

consideration to certain Eligible

Members and to fund Policy Credits for

other Eligible Members as required

under the Plan of Demutalization.

8. Standard represents that Sections

732.600 to 732.630 (Section 732) of the

Oregon Revised Statutes establish an

approval process for the

demutualization of a life insurance

company organized under Oregon law.

Federal Register / Vol. 65, No. 100 / Tuesday, May 23, 2000 / Notices 33373

31The Director held a public hearing regarding

Standard’s demutualization on January 27, 1999

and approved the Demutualization Plan by order

issued on February 12, 1999.

32Under Oregon law, the notice of the

policyholder meeting must be mailed within 45

days of the Director’s order and at least 30 days

prior to the meeting. Eligible Members must receive

two notices. The first notice pertains to the public

hearing and includes a summary of the plan of

demutualization and provides information

regarding the right of the Eligible Member to

comment, either in person or in writing, on the

plan. The second notice relates to the meeting to

vote on the plan of demutualization and includes

a full copy of the plan, a detailed explanation of the

plan and its consequences, and an explanation of

the voting procedure.

33As noted above, Standard’s IPO resulted in the

sale of 15,290,400 shares of Holding Company

Stock. An additional 18,310,836 shares were also

allocated by Standard to Eligible Members.

34Consistent with section 732.600 to 732.630 of

Oregon Insurance Law, the Demutualization Plan

generally provides that the policyholder eligible to

participate in the distribution of stock, cash or

policy credits resulting from the Demutualization

Continued

Specifically, Section 732 requires that a

plan of demutualization be approved by

both the Director and a vote of the

policyholders. The Director may hold a

hearing for the purpose of receiving

comments on whether a plan should be

approved and on any other matter

relating to the demutualization. After

the hearing, the Director will approve

the demutualization plan if he or she

finds all of the following: 31

(a) The applicable provisions of ORS

732.600 to 732.630, and other applicable

provisions of the law, have been fully met.

(b) The plan protects the rights of

policyholders.

(c) The plan will be fair and equitable to

the members, and the plan will not prejudice

the interests of the members.

(d) The allocation of consideration among

the Eligible Members is fair and equitable.

(e) The converted stock insurer will have

capital or surplus, or any combination

thereof, that is required of a domestic stock

insurer on initial authorization to transact

like kinds of insurance, and otherwise will be

able to satisfy the requirements of this state

for transacting its insurance business.

(f) The plan will not substantially reduce

the security of the policyholders and the

service to be rendered to the policyholders.

(g) If a stock holding or mutual holding

company is organized, the financial

condition of the stock holding company, the

mutual holding company or any subsidiary

thereof will not jeopardize the financial

stability of the converted stock insurer.

(h) The financial condition of the

converting mutual insurer will not be

jeopardized by the conversion or

reorganization, and the conversion or

reorganization will not jeopardize the

financial stability of the stock holding

company, the mutual holding company or

any subsidiary thereof.

(i) The competence, experience and

integrity of those persons who will control

the operation of the converted stock insurer

are not contrary to the interests of

policyholders of the converted stock insurer

and of the public in allowing the plan to

proceed.

(j) Implementation of the plan will protect

the interests of the insurance-buying public.

(k) The activity is not subject to other

material and reasonable objections.

(l) All modifications required by the

Director have been made.

Section 732 authorizes the Director to

employ staff personnel and to engage

outside consultants to assist the

Commissioner in determining whether a

demutualization plan meets the

requirements of Section 732. (In the case

of the Standard demutualization, the

Director retained Ernst & Young to

provide actuarial services, Sidley &

Austin to provide legal services and

Merrill Lynch & Co. to provide

investment banking services.) The

decision by the Director to approve a

demutualization plan under Section 732

is subject to judicial review in the

Oregon courts.

9. In addition to being approved by

the Director, Standard represents that its

Demutualization Plan had to be

approved by its policyholders. In this

regard, Section 732 requires that the

policyholders be provided with notice

of a meeting convened for the purpose

of voting on whether to approve the

demutualization plan.32 Moreover, the

demutalization plan must be approved

by a vote of not less than a majority of

the votes of the insurer’s policyholders

voting thereon in person, by proxy or by

mail.

With respect to Standard,

approximately 114,000 Eligible

Members were eligible to vote on the

Demutualization Plan which occurred at

a special meeting on March 19, 1999.

Each Eligible Member was entitled to

one vote. Of the Eligible Members,

35,569 or 32.4 percent voted and 32,598

or 91.7 percent of the votes cast were in

favor of the demutualization.

10. Standard’s Demutualization Plan

provided for Eligible Members to

receive Holding Company Stock, Cash

or Policy Credits as consideration for

the termination of their membership

interests in the mutual company.

(Combinations of different forms of

consideration were not permitted.) For

purposes of the demutualization, an

Eligible Member is any owner of one or

more policies of insurance, if the policy

was in force as of December 17, 1998,

the record date for the plan of

conversion. This was the date that

Standard’s Board of Directors adopted

the Demutualization Plan.

Solely for purposes of calculating the

amount of consideration, each Eligible

Member was allocated (but not

necessarily issued) a minimum of 52

shares of Holding Company Stock as

soon as reasonably practicable after

April 21, 1999, the effective date of the

demutualization. Any remaining

Holding Company Stock was allocated

substantially on the basis of the

contributions to surplus made by each

Eligible Member’s in-force policies.33 In

this regard, under Section 732, the

Director was required to make a finding

that the allocation methodology was fair

and equitable.

Certain Eligible Members received

Cash or Policy Credits in lieu of Holding

Company Stock, which Cash or Policy

Credits had a value equal to the Holding

Company Stock the policyholders

would otherwise have received, based

on the price per share of the Holding

Company Stock in the IPO. Specifically,

an Eligible Member received Cash in

lieu of allocable Holding Company

Stock (a) if the owner of the policy was

known to Standard to be subject to a

bankruptcy proceeding, or (b) where the

Eligible Member’s address for mailing

purposes, as shown on the records of

Standard, was located outside the

United States of America or was shown

on Standard’s records to be an address

at which mail to such Eligible Member

is undeliverable, or (c) where an Eligible

Member, who had been allocated 99

shares or less of Holding Company

Stock, made an affirmative election, on

a form provided to such Eligible

Member by Standard, to receive Cash

instead of Holding Company Stock.

An Eligible Member received Policy

Credits in lieu of Holding Company

Stock with respect any policy that was

(a) an individual retirement annuity

contract within the meaning of section

408 of the Code, (b) a tax sheltered

annuity contract within the meaning of

section 403(b) of the Code, (c) an

individual annuity contract that had

been issued pursuant to a plan qualified

under section 401(a) of the Code

directly to the plan participant, or (d) an

individual life insurance policy that had

been issued pursuant to a plan qualified

under section 401(a) of the Code

directly to the plan participant.

The decision to receive Holding

Company Stock, Cash or Policy Credits

by a Plan was made by one or more

fiduciaries of such Plan which was

independent of Standard and its

affiliates. In addition, neither Standard

nor any of its affiliates exercised

discretion or provided ‘‘investment

advice,’’ within the meaning of 29 CFR

2510.3–21(c), with respect to each such

acquisition.34 Further, no Eligible

33374 Federal Register / Vol. 65, No. 100 / Tuesday, May 23, 2000 / Notices

Plan is the ‘‘Owner’’ of the policy and that ‘‘The

Owner of a Policy shall be shown on the Company’s

records.’’ Standard further represents that an

insurance or annuity policy that provides benefits

under an employee benefit plan, typically

designates the employer that sponsors the plan, or

a trustee acting on behalf of the plan, as the owner

of the policy. In regard to insurance or annuity

policies that designate the employer or trustee as

owner of the policy, Standard represents that it was

required under the foregoing provisions of Oregon

Law and the Demutualization Plan to make

distributions resulting from such Plan to the

employer or trustee as owner of the policy, except

as provided below.

In general, it is the Department’s view that, if an

insurance policy (including an annuity contract) is

purchased with assets of an employee benefit plan,

including participant contributions, and if there

exist any participants covered under the plan (as

defined at 29 CFR 2510.3–3) at the time when

Standard incurred the obligation to distribute

Holding Company Stock, Cash or policy credits,

then such consideration would constitute an asset

of such plan. Under these circumstances, the

appropriate plan fiduciaries must take all necessary

steps to safeguard the assets of the plan in order to

avoid engaging in a violation of the fiduciary

responsibility provisions of the Act.

35 Indeed, the Independent Fiduciary Agreement

requires that Northwestern Trust make an election

available under the Demutualization Plan with

respect to the form of consideration that is to be

received by each of the Standard Plans.

Member will pay any brokerage

commissions or fees in connection with

the receipt of stock.

11. Standard’s Demutualization Plan

provided for the Holding Company to

establish a commission-free sales and

purchase program. The Program

commenced on February 24, 2000 and it

will continue until May 31, 2000. The

Program may be extended if the Board

of Directors of the Holding Company

determines that the extension is

appropriate and in the best interest of

the Holding Company and its

shareholders.

Under the Program, each Eligible

Member who received 99 or fewer

shares of Holding Company Stock has

been given the opportunity to sell, at

prevailing market prices, all shares of

such stock. Moreover, an Eligible

Member who received 99 or fewer

shares of Holding Company Stock is

permitted to purchase, at prevailing

market prices, additional shares of

Holding Company Stock required to

round-up the total number of shares to

100. Under either the sales or purchase

components of the Program, the Eligible

Member is not required to pay any

brokerage commissions or similar fees.

Also, Standard and its affiliates have not

provided (and will not provide)

‘‘investment advice,’’ as defined in 29

CFR 2510.3–21(c).

12. Northwestern Trust was appointed

by Standard to serve as the independent

fiduciary and, in so doing, to represent

the interests of the Standard Plans that

are identified in Representation 4.

Northwestern Trust is a privately-owned

trust company chartered by the State of

Washington and regulated by the State

of Washington Department of Financial

Institutions. As of May 31, 1999,

Northwestern Trust had assets under

administration exceeding $3.5 billion. A

majority of those assets consisted of

retirement plan assets. Northwestern

Trust’s professional staff manages

ERISA programs and its ERISA clients

are located in 15 states across the

United States. Northwestern Trust

provides fiduciary services to a variety

of pension and welfare plans and it is

experienced in connection with the

acquisition, retention and disposition of

employer securities. In addition,

Northwestern Trust is extensively

involved with non-qualified deferred

compensation arrangements. To assist

Northwestern Trust in carrying out its

independent fiduciary duties, it retained

Dorsey & Whitney LLP as independent

legal counsel.

Northwestern Trust represents that it

is completely unrelated to Standard and

its affiliates. In this regard,

Northwestern Trust states that both it

and Standard have no common officers

or directors nor does it have an

ownership interest in Standard or vice

versa.

Northwestern Trust also represents

that although it had no voting or

dispositive power over shares of

Holding Company Stock other than

pursuant to its Independent Fiduciary

Agreement with Standard, it acted as a

directed trustee or custodian to various

retirement or welfare plans that were

not sponsored by Standard or its

affiliates. On a de minimus basis,

Northwestern Trust explains that it

made investments on behalf of these

plans in contracts issued by Standard.

However, Northwestern Trust states that

it received no revenues from these

investments other than a trustee or

custodial fee from the investing plan.

As the independent fiduciary for the

Standard Plans, Northwestern Trust

explains that it understood and

acknowledged the duties,

responsibilities and liabilities in acting

as a fiduciary for such Plans. In this

respect, Northwestern Trust states that

in accordance with the terms of its

Independent Fiduciary Agreement, it (a)

exercised its authority and

responsibility to vote on behalf of the

Standard Plans at the special meeting of

Eligible Members on the proposal to

approve the Demutualization Plan; (b)

monitored, on behalf of the Standard

Plans, the holding of the Holding

Company Stock; and (c) provided

instructions with respect to the voting,

the continued holding and the

disposition of Holding Company Stock

held by all of the Standard Plans.

Finally, Northwestern Trust asserts that

it would take all actions that were

necessary and appropriate to safeguard

the interests of the Standard Plans.

Northwestern Trust notes that the

Standard Plans were entitled to receive

consideration in the form of Holding

Company Stock because each of these

Plans was allocated more than 99

shares. Thus, Northwestern Trust states

that it was not required to make an

‘‘election’’ with respect to the form of

consideration that was to be received by

the Standard Plans.35 Northwestern

Trust also states that it advised Standard

that the only Standard Plan for which a

distribution of Holding Company Stock

would exceed the 10 percent limitation

imposed by section 407(a)(2) of the Act

was Standard’s Group Life Plan which

had no other assets.

Northwestern Trust represents that

the transactions were prudent and in the

best interests of the Standard Plans and

their participants and beneficiaries

because the consummation of the

transactions was conditioned upon

approval of Standard’s Eligible

Members, an overwhelming majority of

whom approved the Demutualization

Plan on March 19, 1999, as well as other

conditions set forth in the

Demutualization Plan. In addition,

Northwestern Trust states that its

determination that the transactions were

appropriate for the Standard Plans was

based upon its review of all of the facts

and circumstances surrounding the

transactions, including documentation

and records prepared in connection

with the transactions. Based upon this

information, Northwestern Trust

determined that approval of the

Demutualization Plan would be in the

best interests of all of the Standard

Plans and their participants and

beneficiaries. Accordingly,

Northwestern Trust explains that it

voted in favor of the Demutualization

Plan and directed the appropriate

fiduciaries of the Standard Plans to

receive and hold title to the Holding

Company Stock when issued.

13. In connection with the disposition

of Holding Company Stock that was

held by the Standard Plans,

Northwestern Trust directed that such

shares be repurchased by the Holding

Company as follows:

(a) The Standard Defined

Contribution Plans. The Standard

Defined Contribution Plan-Employees

and the Standard Defined Contribution

Plan-Agents received a total of 44,610

shares of Holding Company Stock as a

result of the demutualization. The

Federal Register / Vol. 65, No. 100 / Tuesday, May 23, 2000 / Notices 33375

36As noted previously, it is believed that shares

of Holding Company Stock attributed to the

Standard Disability Plan were determined not to be

‘‘plan assets’’ and thus, were distributed to

Standard.

37The Department again expresses no opinion on

whether the sale of Holding Company Stock by any

of the Standard Plans described above satisfied the

terms and conditions of section 408(e) of the Act.

Holding Company Stock held by these

Standard Plans was repurchased by the

Holding Company for cash in four equal

weekly installments occurring on

November 4, 1999, November 10, 1999,

November 18, 1999 and November 24,

1999 at the closing market prices on

those dates. In this regard, on November

4, 1999, the Standard Defined

Contribution Plans sold 11,152 shares of

Holding Company Stock to the Holding

Company for a closing price of $24.625

per share. On November 10, 1999, the

Standard Defined Contribution Plans

sold another 11,152 shares of Holding

Company Stock to the Holding

Company for a closing price of $23.625

per share. On November 18, 1999, the

Standard Defined Contribution Plans

sold 11,153 shares of Holding Company

Stock to the Holding Company at a

closing price of $25.50 per share.

Finally, on November 24, 1999, the

Standard Defined Contribution Plans

sold 11,153 shares of Holding Company

Stock to the Holding Company at the

closing price of $28.188 per share.

(b) The Standard Defined Benefit

Plans. The Standard Defined Benefit

Plan-Employees and the Standard

Defined Benefit-Agents received 26,127

shares and 4,389 shares, respectively, as

a result of the demutualization. These

shares were repurchased by the Holding

Company on November 4, 1999 at the

closing market price per share of

$24.625.

(c) The Standard Group Life Plan. In

Standard’s demutualization, the

Standard Group Life Plan received

29,562 shares of Holding Company

Stock.36 On November 4, 1999, 23,490

shares of Holding Company Stock that

were held by the Standard Group Life

Plan were repurchased by the Holding

Company at the closing market price of

$24.625 per share. On November 11,

1999, the remaining 5,632 shares of

Holding Company Stock that were held

by the Standard Group Life Plan and

which had been transferred to a

voluntary beneficiary employee

association, were sold to the Holding

Company at the closing price of $23.562

per share.

No commissions or other fees were

charged to the Standard Plans with

respect to each repurchase transaction.

Proceeds from the sale were deposited

with each Standard Plan and distributed

or allocated by Northwestern Trust.

Standard represents that statutory

exemptive relief under section 408(e) of

the Act will cover the repurchase of

shares of Holding Company Stock by

each of the Standard Plans. Therefore, it

has not requested administrative

exemptive relief from the Department.37

14. In summary, it is represented that

the transactions satisfied or will satisfy

the statutory criteria for an exemption

under section 408(a) of the Act because:

(a) The Plan of Demutualization,

which was being implemented pursuant

to stringent procedural and substantive

safeguards imposed under Oregon law

and supervised by the Director, will not

require any ongoing involvement by the

Department.

(b) One or more independent Plan

fiduciaries had an opportunity to

determine whether or not to vote to

approve the terms of the

Demutualization Plan and was solely

responsible for all such decisions.

(c) The exemption allowed Eligible

Members that were Plans to acquire

Holding Company Stock, Cash or Policy

Credits in exchange for their

membership interests in Standard and

neither Standard nor its affiliates

exercised any discretion nor provided

‘‘investment advice’’ within the

meaning of 29 CFR 2510.3–21(c) with

respect to such acquisitions.

(d) No Eligible Member paid any

brokerage commissions or fees in

connection with such Eligible Member’s

receipt of Holding Company Stock, nor

did (or will) an Eligible Member pay any

brokerage commissions or fees with

respect to the implementation of the

Program.

(e) Each Eligible Member that was a

Plan had an opportunity to comment on

the Demutualization Plan and to vote to

approve such Plan after receiving full

and complete disclosure of its terms.

(f) The Director made an independent

determination that the Demutualization

Plan was in the interest of all of

Standard’s policyholders, including

Plans.

(g) The Plan of Demutualization did

not change and will not change

premiums or reduce policy benefits,

values, guarantees or other policy

obligations of Standard to its

policyholders or contractholders.

Notice to Interested Persons

Standard will provide notice of the

proposed exemption to Eligible

Members which are Plans within 14

days of the publication of the notice of

pendency in the Federal Register. Such

notice will be provided to interested

persons by first class mail and will

include a copy of the notice of proposed

exemption as published in the Federal

Register as well as a supplemental

statement, as required pursuant to 29

CFR 2570.43(b)(2) which shall inform

interested persons of their right to

comment on the proposed exemption.

Comments with respect to the notice of

proposed exemption are due within 44

days after the date of publication of this

pendency notice in the Federal

Register.

FOR FURTHER INFORMATION CONTACT: Ms.

Jan D. Broady of the Department,

telephone (202) 219–8881. (This is not

a toll-free number.)

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

33376 Federal Register / Vol. 65, No. 100 / Tuesday, May 23, 2000 / Notices

that each application accurately

describes all material terms of the

transaction which is the subject of the

exemption.

Signed at Washington, DC, this 18th; day

of May, 2000.

Ivan Strasfeld,

Director of Exemption Determinations,

Pension and Welfare Benefits, Administration

U.S. Department of Labor.

[FR Doc. 00–12948 Filed 5–22–00; 8:45 am]

BILLING CODE 4510–29–P

DEPARTMENT OF LABOR

Pension and Welfare Benefits

Administration

[Prohibited Transaction Exemption 2000–

21; Exemption Application No. D–10777, et

al.]

Grant of individual exemptions; Texas

Iron Workers and Employers

Apprenticeship Training and

Journeyman Upgrading Fund (the

Plan)

AGENCY: Pension and Welfare Benefits

Administration, Labor.

ACTION: Grant of individual exemptions.

SUMMARY: This document contains

exemptions issued by the Department of

Labor (the Department) from certain of

the prohibited transaction restrictions of

the Employee Retirement Income

Security Act of 1974 (the Act) and/or

the Internal Revenue Code of 1986 (the

Code).

Notices were published in the Federal

Register of the pendency before the

Department of proposals to grant such

exemptions. The notices set forth a

summary of facts and representations

contained in each application for

exemption and referred interested

persons to the respective applications

for a complete statement of the facts and

representations. The applications have

been available for public inspection at

the Department in Washington, D.C. The

notices also invited interested persons

to submit comments on the requested

exemptions to the Department. In

addition the notices stated that any

interested person might submit a

written request that a public hearing be

held (where appropriate). The

applicants have represented that they

have complied with the requirements of

the notification to interested persons.

No public comments and no requests for

a hearing, unless otherwise stated, were

received by the Department.

The notices of proposed exemption

were issued and the exemptions are

being granted solely by the Department

because, 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 proposed to the Secretary of

Labor.

Statutory Findings

In accordance with section 408(a) of

the Act and/or section 4975(c)(2) of the

Code and the procedures set forth in 29

CFR Part 2570, Subpart B (55 FR 32836,

32847, August 10, 1990) and based upon

the entire record, the Department makes

the following findings:

(a) The exemptions are

administratively feasible;

(b) They are in the interests of the

plans and their participants and

beneficiaries; and

(c) They are protective of the rights of

the participants and beneficiaries of the

plans.

Texas Iron Workers and Employers

Apprenticeship Training and

Journeyman Upgrading Fund (the

Plan), Located in San Antonio, Texas

[Prohibited Transaction Exemption 2000–21;

Exemption Application No. D–10777]

Exemption

The restrictions of sections 406(a),

406(b)(1) and (b)(2) of the Act shall not

apply to the purchase of a classroom/

office building and a shop building

(together, the Buildings) and an adjacent

lot (the Adjacent Lot) by the Plan from

Local Union No. 66 of the International

Association of Bridge, Structural,

Ornamental and Reinforcing Iron

Workers, for $63,000, provided that: (a)

The purchase is a one-time transaction

for cash, and no commissions are paid

by the Plan with respect to the

transaction; (b) the Plan pays a price for

the Buildings and the Adjacent Lot

(collectively, the Properties) that is no

more than the fair market value of the

Properties at the time of the transaction,

as determined by a qualified,

independent appraiser; (c) the Plan’s

independent fiduciary has determined

that the transaction is appropriate for

the Plan and in the best interests of the

Plan and its participants and

beneficiaries; and (d) the Plan’s

independent fiduciary monitors the

purchase of the Properties by the Plan

and takes whatever action is necessary

to safeguard the interests of the Plan and

its participants and beneficiaries.

For a more complete statement of the

facts and representations supporting the

Department’s decision to grant this

exemption, refer to the notice of

proposed exemption published on

March 22, 2000 at 65 FR 15367.

For Further Information Contact: Gary

H. Lefkowitz of the Department,

telephone (202) 219–8881. (This is not

a toll-free number.)

Bankers Trust Company (BTC), Located

in New York, New York

[Prohibited Transaction Exemption 2000–22;

Application No. D–10838]

Exemption

The restrictions of section 406(a) of

the Act and the sanctions resulting from

the application of section 4975 of the

Code, by reason of section 4975(c)(1)(A)

through (D) of the Code, shall not apply

to: (1) The granting to BTC (a) by the

Cheslock-Bakker Opportunity Fund,

L.P. (the LP) of security interests in (i)

the capital commitments and capital

contributions (Capital Contributions) of

certain employee benefit plans (the

Plans) investing in the LP and (ii) a

borrower collateral account to which all

Capital Contributions will be deposited

when paid and (b) by the LP and by its

general partner, CBA Real Estate

Partners, LLC, a Delaware limited

liability company, of the right to make

calls for cash contributions

(Contribution Calls) under the CheslockBakker Opportunity Fund, L.P. Limited

Partnership Agreement, where BTC is

the representative of certain lenders (the

Lenders) that will fund a so-called

‘‘credit facility’’ providing credit to the

LP, and where the Lenders are parties in

interest with respect to the Plans; and

(2) the execution of a partner agreement

and estoppel (the Estoppel) under

which the Plans agree to honor the

Contribution Calls; provided that (a) the

grants and Estoppels are on terms no

less favorable to the Plans than those

which the Plans could obtain in arm’slength transactions with unrelated

parties; (b) the decisions on behalf of

each Plan to invest in the LP and to

execute such Estoppels in favor of BTC

are made by a fiduciary which is not

included among, and is independent of

and unaffiliated with, the Lenders and

BTC; (c) with respect to Plans that have

invested or may invest in the LP in the

future, such Plans have or will have

assets of not less than $100 million and

not more than 5% of the assets of any

such Plan are or will be invested in the

LP. For purposes of this condition (c),

in the case of multiple plans maintained

by a single employer or single

controlled group of employers, the

assets of which are invested on a

commingled basis, (e.g., through a

master trust), this $100 million

threshold will be applied to the

aggregate assets of all such plans; and

(d) the general partner of the LP must be