62756 Federal Register / Vol. 65, No. 203 / Thursday, October 19, 2000 / Notices

1For purposes of this proposed exemption,

references to provisions of Title I of the Act, unless

otherwise noted herein, refer also to corresponding

provisions of the Code.

of the Property’s fair market value, as of

the date of the sale.

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

September 7, 2000 at 65 FR 54314.

FOR FURTHER INFORMATION CONTACT: Ms.

Karin Weng 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 to which the exemptions

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) These exemptions are

supplemental to and not in derogation

of, any other provisions of the Act and/

or the Code, including statutory or

administrative exemptions and

transactional 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

(3) The availability of these

exemptions is subject to the express

condition that the material facts and

representations contained in each

application accurately describes all

material terms of the transaction which

is the subject of the exemption.

Signed at Washington, D.C., this 13th day

of October, 2000.

Ivan Strasfeld,

Director of Exemption Determinations,

Pension and Welfare Benefits Administration,

U.S. Department of Labor .

[FR Doc. 00–26788 Filed 10–18–00; 8:45 am]

BILLING CODE 4510–29–P

DEPARTMENT OF LABOR

Pension and Welfare Benefits

Administration

[Application No. D–10651, et al.]

Proposed Exemptions; Merrill Lynch &

Co., Inc. (ML&Co.)

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, N.W.,

Washington, D.C. 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, N.W.,

Washington, D.C. 20210.

Notice to Interested Persons

Notice of the proposed exemptions

will be provided to all interested

persons in the manner agreed upon by

the applicant and the Department

within 15 days of the date of publication

in the Federal Register. Such notice

shall include a copy of the notice of

proposed exemption as published in the

Federal Register and shall inform

interested persons of their right to

comment and to request a hearing

(where appropriate).

SUPPLEMENTARY INFORMATION: The

proposed exemptions were requested in

applications filed pursuant to section

408(a) of the Act and/or section

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

accordance with procedures set forth in

29 CFR Part 2570, Subpart B (55 FR

32836, 32847, August 10, 1990).

Effective December 31, 1978, section

102 of Reorganization Plan No. 4 of

1978, 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.

Merrill Lynch & Co., Inc. (ML&Co.)

Located in New York, NY

[Application No. D–10651]

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 section 406(a)(1)(A)

through (D) 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

sale by employee benefit plans (the

Plans), other than Plans sponsored by

ML&Co. or its affiliates (collectively, the

Applicants), of Market Index TargetTerm Securities (the MITTS), which are

debt securities issued by the Applicants;

and (2) the extension of credit by the

Plans to the Applicants in connection

with the holding of the MITTS.

Federal Register / Vol. 65, No. 203 / Thursday, October 19, 2000 / Notices 62757

2The Department is providing no opinion herein

as to whether any principal transactions involving

debt securities would be covered by PTCE 75–1, or

whether any particular mark-up by a broker-dealer

for such transaction would be permissible under

Part II of PTCE 75–1.

3For purposes of this exemption, the term

‘‘maintain’’ means that all calculations relating to

the securities in the Index, as well as the rate of

return of the Index, are made by an entity that is

unrelated to the Applicants or their affiliates.

This proposed exemption is subject to

the general conditions that are set forth

below in Section II.

Section II. General Conditions

(a) The MITTS are made available by

the Applicants in the ordinary course of

their business to Plans as well as to

customers which are not Plans.

(b) The decision to invest in the

MITTS is made by a Plan fiduciary (the

Independent Plan Fiduciary) or a

participant in a Plan that provides for

participant-directed investments (the

Plan Participant), which is independent

of the Applicants.

(c) The Applicants do not have any

discretionary authority or control or

provide any investment advice, within

the meaning of 29 CFR 2510.3–21(c),

with respect to the Plan assets involved

in the transactions.

(d) The Plans pay no fees or

commissions to ML&Co. or its affiliates

in connection with the transactions

covered by the requested exemption,

other than the mark-up for a principal

transaction permissible under Part II of

Prohibited Transaction Class Exemption

(PTCE) 75–1 (40 FR 50845, October 31,

1975).2

(e) ML&Co. agrees to notify Plan

investors in the prospectus (the

Prospectus) for the MITTS that, at the

time of acquisition, no more than 15

percent of a Plan’s assets should be

invested in any of the MITTS.

(f) The MITTS do not have a duration

which exceeds 9 years from the date of

issuance.

(g) Prior to a Plan’s acquisition of any

of the MITTS, the Applicants fully

disclose, in the Prospectus, to the

Independent Plan Fiduciary or Plan

Participant, all of the terms and

conditions of such MITTS, including,

but not limited to, the following:

(1) A statement to the effect that the

return calculated for the MITTS will be

denominated in U.S. dollars;

(2) The specified index (the Index) or

Indexes on which the rate of return on

the MITTS is based;

(3) A numerical example, capable of

being understood by the average

investor, which explains the calculation

of the return on the MITTS at maturity

and reflects, among other things, (i) a

hypothetical initial value and closing

value of the applicable Index, and (ii)

the effect of any adjustment factor on

the percentage change in the applicable

Index;

(4) The date on which the MITTS are

issued;

(5) The date on which the MITTS will

mature and the conditions of such

maturity;

(6) The initial date on which the value

of the Index is calculated;

(7) Any adjustment factor or other

numerical methodology that would

affect the rate of return, if applicable;

(8) The ending date on which interest

is determined, calculated and paid;

(9) Information relating to the

calculation of payments of principal and

interest, including a representation to

the effect that, at maturity, the beneficial

owner of the MITTS is entitled to

receive the entire principal amount,

plus an amount derived directly from

the growth in the Index (but in no event

less than zero);

(10) All details regarding the

methodology for measuring

performance;

(11) The terms under which the

MITTS may be redeemed;

(12) The exchange or market where

the MITTS are traded or maintained;

and

(13) Copies of the proposed and final

exemptions relating to the exemptive

relief provided herein, upon request.

(h) The terms of a Plan’s investment

in the MITTS are at least as favorable to

the Plan as those available to an

unrelated non-Plan investor in a

comparable arm’s length transaction at

the time of such acquisition.

(i) In the event the MITTS are delisted

from either the American Stock

Exchange (the AMEX), the New York

Stock Exchange (the NYSE) or any other

nationally-recognized securities

exchange, Merrill Lynch, Pierce, Fenner

& Smith Incorporated (MLPF&S) will

apply for trading through the National

Association of Securities Dealers

Automated Quotations System

(NASDAQ), which requires that there be

independent market-makers establishing

a market for such securities in addition

to MLPF&S. If there are no independent

market-makers, the exemption will no

longer be considered effective.

(j) The MITTS are rated in one of the

three highest generic rating categories

by at least one nationally-recognized

statistical rating service at the time of

their acquisition.

(k) The rate of return for the MITTS

is objectively determined and, following

issuance, the Applicants retain no

authority to affect the determination of

the return for such security, other than

in connection with a ‘‘market disruption

event’’ (the Market Disruption Event)

that is described in the Prospectus for

the MITTS.

(l) The MITTS are based on an Index

that is—

(1) Created and maintained 3 by an

entity that is unrelated to the Applicants

and is a standardized and generallyaccepted Index of securities; or

(2) Created by the Applicants or an

affiliate, but maintained by an entity

that is unrelated to the Applicants,

(i) Consists either of standardized and

generally-accepted Indexes or an Index

comprised of at least 10 publicly-traded

securities that are not issued by the

Applicants or their affiliates, are

designated in advance and listed in the

Prospectus for the MITTS, (Under either

circumstance, neither the Applicants

nor their affiliates may unilaterally

modify the composition of the Index,

including the methodology comprising

the rate of return.),

(ii) Meets the requirements for an

Index in Rule 19b–4 (Rule 19b–4) under

the Securities Exchange Act of 1934 (the

1934 Securities Act), and

(iii) The index value (the Index Value)

for the Index is publicly-disseminated

through an independent pricing service,

such as Reuters Group, PLC (Reuters) or

Bloomberg L.P. (Bloomberg), or through

a national securities exchange, such as

the AMEX.

(m) The Applicants do not trade in

any way intended to affect the value of

the MITTS through holding or trading in

the securities which comprise an Index.

(n) The Applicants maintain, for a

period of six years, the records

necessary to enable the persons

described in paragraph (o) of this

section to determine whether the

conditions of this proposed exemption

have been met, except that—

(1) A prohibited transaction will not

be considered to have occurred if, due

to circumstances beyond the control of

the Applicants, the records are lost or

destroyed prior to the end of the six year

period; and

(2) No party in interest other than the

Applicants 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

(o) below.

(o)(1) Except as provided in section

(o)(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 (n) are unconditionally

62758 Federal Register / Vol. 65, No. 203 / Thursday, October 19, 2000 / Notices

4The Department expresses no opinion herein on

whether the acquisition and holding of the MITTS

by the Applicants’ in-house Plans is covered under

the provisions of section 408(e) of the Act. In this

regard, interested persons should refer to the

conditions contained in section 408(e), as well as

the definitions of the terms ‘‘qualifying employer

security’’ (see section 407(d)(5) of the Act) and

‘‘marketable obligations’’ (see section 407(e) of the

Act).

5 In this regard, the Applicants represent that

PTCE 75–1 does not directly address transactions

where there is a continuing extension of credit as

a result of a sale by a broker-dealer to a plan of debt

securities issued by the broker-dealer’s parent

corporation.

available at their customary location

during normal business hours by:

(A) Any duly authorized employee or

representative of the Department, the

Internal Revenue Service or the

Securities and Exchange Commission

(the SEC);

(B) Any fiduciary of a participating

Plan or any duly authorized

representative of such fiduciary;

(C) Any contributing employer to any

participating Plan or any duly

authorized employee representative of

such employer; and

(D) Any Plan Participant or

beneficiary of any participating Plan, or

any duly authorized representative of

such Plan Participant or beneficiary.

(o)(2) None of the persons described

above in subparagraphs (B)–(D) of

paragraph (o)(1) are authorized to

examine the trade secrets of the

Applicants or commercial or financial

information which is privileged or

confidential.

Summary of Facts and Representations

1. The Applicants consist of ML&Co.,

MLPF&S and such other affiliates of

MLPF&S that are broker-dealers

registered under U.S. law. The

Applicants can be further described as

follows:

(a) ML&Co. is a Delaware corporation

headquartered in New York, New York.

It is a holding company that, through its

subsidiaries and affiliates, provides

investment, financing, insurance, and

related services on a global basis. As of

December 1998, ML&Co. and its

subsidiaries and affiliates had total

consolidated assets of approximately

$299.8 billion. ML&Co. constitutes a

diversified global financial services

group, maintaining the following key

areas of client services:

• Corporate and Institutional Client,

providing securities trading, investment

banking, and advisory services to

financial institutions, corporations, and

governments worldwide. Additionally,

this group provides merger and

acquisition advisory services and raises

capital through securities underwriting

and loan syndications.

• U.S. Private Client, providing

financial services and products, advice,

and execution to individuals, small

businesses, and Plans, including

mortgage loans and commercial real

estate financing.

• International Private Client,

providing financial planning, private

banking, and trust and investment

services to individuals outside the

United States through a network of

private bankers and specialists abroad.

• Asset Management Client,

providing investment advisory and

portfolio management services.

(b) MLPF&S, the principal subsidiary

of ML&Co., is a registered broker-dealer

under section 15 of the 1934 Act.

MLPF&S is a broker in securities,

options contracts, and commodity and

financial futures contracts as well as a

dealer in options and in corporate and

municipal securities. In addition,

MLPF&S is an investment banking firm

that provides advice to, and raises

capital for, corporations and other

institutional clients, sovereigns, and

municipalities. Further, MLPF&S is an

underwriter of selected insurance

policies.

3. The Plans will consist of employee

benefit plans that are covered under the

provisions of Title I of the Act, as

amended, and subject to section 4975 of

the Code. For purposes of this proposed

exemption, the Plans will not consist of

Plans that are sponsored and

maintained by the Applicants for their

own employees. In the case of the

Applicants’ in-house Plans, ML&Co.

represents that the acquisition and

holding of the MITTS by such Plans

would be covered under the statutory

exemption that is provided under

section 408(e) of the Act.4

4. The Applicants represent that their

activities are subject to various levels of

oversight and regulation by the SEC, the

Commodities Futures Trading

Commission, and other federal and state

regulatory agencies. The Applicants also

represent that their activities are subject

to the oversight of self-regulatory

organizations such as the NYSE and the

AMEX. The Applicants further

represent that MLPF&S, as a registered

broker-dealer and member of the NYSE,

is subject to the Net Capital Rule 15c3–

1 of the 1934 Act, which specifies the

minimum net capital requirement of a

broker-dealer.

5. The Applicants represent that

broker-dealers routinely need additional

capital in order to maintain inventories

of securities for their market-making

and other business activities. For these

reasons, the Applicants state that they

have a continuous need to borrow funds

from various institutional and

individual investors for use in their

business operations. In response to this

need, the Applicants issue various highquality, publicly-offered debt securities

generally rated in one of the three

highest generic rating categories by

nationally-recognized rating firms,

offering varying levels of risk and

potential return. Among the debt

securities offered by the Applicants are

the MITTS which are publicly-offered,

unsecured, SEC-registered debt

securities, with terms that are no longer

in duration than 9 years. The MITTS

will be U.S. dollar-denominated so that

no foreign currency conversions will be

required in the calculation of the rate of

return. Further, the MITTS will offer

varying levels of risk and rates of return.

The MITTS are currently listed on the

AMEX or the NYSE and they are issued

in denominations of $10 of principal per

unit, with the minimum purchase being

one unit.

Thus, the MITTS may be offered on a

variety of terms and formulas under

which rates of return are objectively

determined in accordance with certain

Indexes by MLPF&S, the calculation

agent. The Applicants represent that

since small Plans will likely invest in

the MITTS, the formulas used to

calculate the rates of return will be

capable of being understood by the

average investor and clearly described

in the ‘‘plain English’’ summary of the

MITTS in the Applicants’ Prospectus.

6. Due to the affiliation between

ML&Co., as an issuer of the MITTS

described herein, and MLPF&S, as a

service provider to the Plans, the

Applicants represent that they are likely

to be parties in interest, as defined in

section 3(14)(B) or (H) of the Act, with

regard to a high percentage of Plans that

purchase, hold, or sell the MITTS,

regardless of whether such securities are

purchased directly from the

Applicants.5 Thus, the Applicants

represent that ML&Co. may be a party in

interest to a Plan solely because of its

affiliation with a service provider to the

Plan, and as the counterparty to the Plan

in a transaction where the Plan holds a

MITTS issued by ML&Co. or an affiliate.

Further, other affiliates of ML&Co. may

be service providers to Plans on account

of their roles as trustees, custodians,

investment advisers, or broker-dealers

for such Plans. These relationships

would make ML&Co. a party in interest

to those Plans and would create

potential prohibited transactions in the

event such Plans acquire and hold the

MITTS.

Federal Register / Vol. 65, No. 203 / Thursday, October 19, 2000 / Notices 62759

6See Footnote 2 above.

7PTCE 96–23 permits various transactions

involving employee benefit plans whose assets are

managed by an in-house asset manager (the

INHAM). An INHAM is an entity which is generally

a subsidiary of the employer sponsoring the plan.

The INHAM is also a registered investment adviser

with management and control of total assets

attributable to plans maintained by the employer

and its affiliates which are in excess of $50 million.

8PTCE 84–14 provides a class exemption for

transactions between a party in interest with respect

to an employee benefit plan and an investment fund

(including either a single customer or pooled

separate account) in which the plan has an interest,

and which is managed by a qualified professional

asset manager (the QPAM), provided certain

conditions are met. QPAMS (e.g., banks, insurance

companies, registered investment advisers with

total client assets under management in excess of

$50 million) are considered to be experienced

investment managers for plan investors that are

aware of their fiduciary duties under the Act.

9 In this regard, the Applicants propose to include

the following statement in the Prospectus for each

of the MITTS, under a heading entitled ‘‘EmployerSponsored Plan Considerations’’:

These [MITTS] Securities are being sole to

Employer-Sponsored Plans pursuant to an

exemption issued by the Department of Labor. In

accordance with the terms of this exemption, we are

required to inform such Employer-Sponsored Plans

that no more than 15 percent of plan (or individual

participant) assets, at the time of acquisition,

should be invested in MITTS. Please note, however,

that it is the responsibility of the person making the

investment decision to determine whether the

purchase is a prudent investment for the plan (or

participant-directed account).

The Applicants request an

administrative exemption from the

Department to enable Plans to invest in

the MITTS under the terms and

conditions described in this proposed

exemption and to avoid liability for

prohibited transactions resulting from

such investments.

7. The Applicants believe that while

Part II of PTCE 75–1 provides relief for

principal transactions between a brokerdealer and a Plan, and would cover a

purchase of the broker-dealer parent’s

debt securities by such Plans (if the

conditions required therein were met), it

is questionable whether that class

exemption would cover the continuing

extension of credit related to the

holding of any debt securities by a Plan,

including the MITTS.6

The Applicants note that some

Independent Plan Fiduciaries have

expressed concern regarding the

application of PTCE 75–1 to brokerdealer sales of broker-parent debt to

Plans either as part of an original issue

of the securities or in the secondary

market. Moreover, the Applicants

represent that PTCE 96–23 (61 FR

15975, April 10, 1996) 7 is unavailable

to participant-directed, defined

contribution Plans and other small

Plans because these Plans, due to their

size, are unlikely to have INHAMs

responsible for making investment

decisions relating to the acquisition,

holding and disposition of securities in

which the Plans invest.

Similarly, the Applicants note that

while PTCE 84–14 8 minimizes the risk

of inadvertent prohibited transactions

for Plans whose assets are managed by

a QPAM, they believe it is unlikely that

participant-directed, defined

contribution Plans or small Plans would

incur the expense of a QPAM for the

purchase and continued holding of the

MITTS. The Applicants also believe that

the additional cost of a QPAM for a

small Plan with a small investment

would not be cost-effective. The

Applicants further explain that this cost

would be uneconomical here because

the QPAM would be required to

continue its services for the entire

period during which the MITTS are

held by the Plan since the potential

prohibited transaction is not just a sale

or exchange, under section 406(a)(1)(A)

of the Act, but is also an extension of

credit, under section 406(a)(1)(B) of the

Act. Accordingly, the Applicants state

that the cost of a QPAM would preclude

small Plans from being able to purchase

the MITTS without creating the risk of

a prohibited transaction.

8. The Applicants propose to continue

offering the MITTS to non-Plan

investors and maintain that these

investors will continue to constitute a

substantial market for such securities.

However, for each Plan investor, the

Applicants represent that the terms of

the Plan’s investment in the MITTS will

be at least as favorable to the Plan as

those available to an unrelated non-Plan

investor in a comparable arm’s length

transaction at the time the MITTS are

acquired by the Plan. Additionally, the

Applicants represent that no Plan will

pay the Applicants any fees or

commissions in connection with

transactions involving the MITTS,

except for the mark-up for a principal

transaction permitted under PTCE 75–1.

In addition to the aforementioned

requirements, the Applicants represent

that a Plan’s investment in the MITTS

will be restricted to those Plans for

which the Applicants have no

discretionary authority and do not

provide investment advice with respect

to the investment in the MITTS. In this

regard, the decision to invest in the

MITTS will be made by an Independent

Plan Fiduciary or a Plan Participant,

which is independent of the Applicants.

Moreover, the Applicants represent that

the Prospectus for each of the MITTS

that are offered to the Plans will contain

a recommendation that no more than 15

percent of a Plan’s assets should be

invested in the MITTS at the time such

security is acquired by a Plan.9

9. The MITTS will be rated in one of

the three highest generic rating

categories by a nationally-recognized

rating firm at the time of acquisition by

a Plan. There will be no triggering

events or early amortization events if

the Applicants’ credit rating drops

below a certain level established by a

rating agency. Throughout the term of

any of the MITTS, the Plans will be able

to access the latest bid and asked price

quotations for all of the Applicants’

MITTS by calling a broker or any

electronic service with a recognized

price quotation delivery system. If a

Plan wishes to terminate a MITTS

investment prior to maturity, such

investor may do so by selling the debt

security on the open market at the

prevailing market price. However,

ML&Co. may not unilaterally terminate

the MITTS prior to maturity unless the

MITTS are callable at a specific price

which will be disclosed in the

Prospectus. Assuming the MITTS are

callable, ML&Co. represents that there

will be no loss of principal.

10. As noted above, the rate of return

for the MITTS will be based upon an

Index, which may be either (a) created

and maintained by an entity that is

unrelated to the Applicants or (b)

created by the Applicants, but

maintained by an unrelated entity.

(a) Index Created and Maintained by

an Entity Unrelated to the Applicants.

This Index, which will be created by an

entity that is unrelated to the

Applicants, will consist of a

standardized and generally-accepted

index of securities, such as the Nikkei

225 Index Tokyo Stock Exchange or the

Standard & Poor’s 500 Index. In

addition, this Index will be maintained

by such unrelated entity. In other

words, all calculations relating to the

securities in the Index, as well as the

rate of return of the Index, will be made

by an entity other than the Applicants

or their affiliates.

(b) Index Created by the Applicants or

an Affiliate, but Maintained by an

Unrelated Entity. This Index will be

created by the Applicants or an affiliate.

However, it must be maintained by an

entity that is unrelated to the

Applicants, such as the AMEX. In

addition, the Index will consist either of

standardized and generally-accepted

Indexes or it will be an Index comprised

of at least 10 publicly-traded securities

that are not issued by the Applicants or

their affiliates, are designated in

advance and listed in the Prospectus for

the MITTS. Under either circumstance,

neither the Applicants nor their

affiliates will be permitted to make any

modifications to the composition of the

Index, including the methodology

62760 Federal Register / Vol. 65, No. 203 / Thursday, October 19, 2000 / Notices

10For purposes of the definition of the term

‘‘Market Disruption Event,’’ a limitation on the

hours in a trading day and/or number of days of

trading will not constitute a Market Disruption

Event if it results from an announced change in the

regular business hours of the relevant exchange.

Furthermore, for purposes of this definition, any

limitations pursuant to NYSE Rule 80A (or any

applicable rule or regulation enacted or

promulgated by the NYSE, or any other selfregulatory organization, or the SEC, of similar scope

as determined by MLPF&S, as the calculation agent)

on trading during significant market fluctuations

shall be considered ‘‘material.’’

11The Applicants have provided the following

example to illustrate this principle by describing

the return at maturity on each $10 principal

investment in the MITTS that are the subject of this

proposed exemption:

• Where the value of the applicable Index

increases by 50 percent, the Plan is entitled to

receive $15 at maturity ($10 principal plus $5

interest) because the rate of return moves in the

same direction as the growth in the applicable

Index;

• Where the value of the applicable Index

remains unchanged during the applicable period,

the Plan is entitled to receive $10 at maturity ($10

principal plus $0 interest) because the rate of return

moves in the same direction as the growth in the

applicable Index; and

• Where the value of the applicable Index

decreases by 50 percent, the Plan is entitled to

receive $10 at maturity ($10 principal and $0

interest) because the rate of return moves in the

same direction as the growth in the applicable

Index but in no event drops below zero.

While the foregoing examples, are simplistic, it

should be noted that for some of the MITTs, such

as those tied to the Standard & Poor’s 500 Index,

the interest payments shown above may be reduced

on a daily basis by an adjustment factor (the

Adjustment Factor), equal to 1.3 percent per year.

On the maturity date of the MITTS, the annual

application of the Adjustment Factor will result in

a total reduction of the Standard & Poor’s 500 Index

of 8.78 percent. In effect, this reduction will reduce

the Plan investor’s overall interest payments. This

information will be disclosed prominently in the

Prospectus.

comprising the rate of return,

unilaterally.

Further, the Index will meet the

requirements for an Index in accordance

with Rule 19b–4 of the 1934 Securities

Act, which imposes regulatory

standards on the entity maintaining the

Index. Under Rule 19b–4, a selfregulatory organization, such as a

securities exchange, is required to adopt

trading rules, procedures and listing

standards for the product classes

relating to any security that the

exchange proposes to list. In addition,

the self-regulatory organization must

maintain a surveillance program for a

class of securities. If the SEC has not

approved the self-regulatory

organization’s rules, procedures and

standards, the self-regulatory

organization must make a filing with the

SEC prior to listing the security.

According to the Applicants, this

procedure provides adequate safeguards

so that any MITTS that are created by

the Applicants or their affiliates will

meet the listing and trading standards

approved by the self-regulatory

organization.

Finally, the Index Value of the Index

will be publicly-disseminated through

an independent pricing service, such as

Reuters or Bloomberg, or through a

national securities exchange, such as the

AMEX.

11. Price quotations with respect to

the MITTS will be available on a daily

basis from market reporting services,

such as Bloomberg or Reuters, and the

daily financial press, such as The Wall

Street Journal. In the event the MITTS

are delisted from either the AMEX or

the NYSE, MLPF&S will apply for

trading through the NASDAQ, which

requires that there be independent

market-makers establishing a market for

the securities in addition to MLPF&S. In

the event there are no independent

market-makers, the Applicants represent

that the exemption will no longer be

considered effective.

12. The terms of each of the MITTS

will be set forth with specificity.

Therefore, in addition to the description

of the formula for computing the rate of

return, the Prospectus will include, but

will not be limited to, the following

information:

• A statement to the effect that the

return calculated for the MITTS will be

denominated in U.S. dollars;

• The specified Index or Indexes on

which the rate of return on the MITTS

is based;

• A numerical example, capable of

being understood by the average

investor, which explains the calculation

of the return on the MITTS at maturity

and reflects, among other things, (i) a

hypothetical initial value and closing

value of the applicable Index, and (ii)

the effect of any adjustment factor on

the percentage change in the applicable

Index;

• The date on which the MITTS will

be issued;

• The date on which the MITTS will

mature and the conditions of such

maturity;

• The initial date on which the value

of the Index is calculated;

• Any adjustment factor or other

numerical methodology that would

affect the rate of return, if applicable;

• The ending date on which interest

will be determined, calculated and paid;

• Information relating to the

calculation of payments of principal and

interest, including a representation to

the effect that, at maturity, the beneficial

owner of the MITTS will be entitled to

receive the entire principal amount,

plus an amount derived directly from

the growth in the Index (but in no event

less than zero);

• All details regarding the

methodology for measuring

performance;

• The terms under which the MITTS

may be redeemed;

• The exchange or market where the

MITTS are traded or maintained; and

• Copies of the proposed and final

exemptions relating to the exemptive

relief provided herein, upon request.

Aside from the Prospectus, ML&Co.

does not contemplate making any

ongoing communications to the MITTS

investors except to the extent required

under applicable securities laws.

13. The Applicants represent that the

level of specificity and the descriptions

of the terms of the MITTS are sufficient

to ensure that, after the MITTS are

issued and traded on an exchange, the

Applicants cannot, with the exception

of a Market Disruption Event, affect the

rate of return. A Market Disruption

Event may occur infrequently and is

typically defined as either: (a) the

suspension or material limitation, in

each case, for more than two hours of

trading in 10 percent or more of the

securities included in the applicable

Index; or (b) the suspension or material

limitation for more than two hours of

trading (whether by reason of

movements in price otherwise

exceeding levels permitted by the

relevant exchange or otherwise) in: (i)

futures contracts related to the Index

which are traded on the Chicago

Mercantile Exchange; or (ii) option

contracts related to the applicable Index

which are traded on the Chicago Board

Options Exchange, Inc. The Applicants

represent that ML&Co. does not have the

discretion to determine whether a

Market Disruption Event has occurred.10

Should the Applicants determine that a

Market Disruption Event has occurred

on a certain date, they indicate that the

date will not be taken into consideration

for calculating the rate of return of the

Index.

14. The Applicants represent that the

principal amount of the MITTS that are

the subject of this exemption will

always be protected regardless of the

performance of the applicable Index.

Although the return may go up or down

in the same direction as the

performance of the applicable Index, the

interest rate floor is set at zero. Thus,

even where the value of the applicable

Index decreases, there will be no

invasion of principal if the MITTS are

held until maturity.11 However, if a Plan

must sell the MITTS on the open market

prior to their maturity, the market price

will reflect the market’s perception of

the potential yield on such securities

based on the current yield and interest

rates for other debt securities of the

same duration. This market price may

Federal Register / Vol. 65, No. 203 / Thursday, October 19, 2000 / Notices 62761

result in a loss of principal value of the

investment in the MITTS in the same

fashion as would occur for other debt

securities.

15. The Applicants represent that they

will exercise no discretion with respect

to the Indexes. Further, the Applicants

represent that they will not trade in any

way intended to affect the value of the

MITTS through holding or trading in the

securities which comprise these

Indexes. The Applicants will maintain

written records of all of the MITTS

transactions for a period of six years.

16. The Applicants represent that the

MITTS may be included among assets

acquired by a Plan to comprise the

underlying portfolio of a ‘‘synthetic’’

guaranteed investment contract

(Synthetic GIC), whereby the Plan’s

beneficial interest in one or more debt

instruments is combined with a

guarantee of future value. In this regard,

the Applicants represent that they will

not be the issuer, guarantor, or

‘‘wrapper’’ provider in connection with

a Synthetic GIC. The Applicants

represent that they are not requesting

any relief for extensions of credit to

such Plans and the Plan Participants,

other than extensions of credit resulting

from such Plan’s holding of the MITTS.

Accordingly, the Applicants are not

requesting specific exemptive relief

with respect to any additional

prohibited transactions that may relate

to any Synthetic GICs.

17. In summary, the Applicants

represent that the proposed transactions

will satisfy the statutory criteria for an

exemption under section 408(a) of the

Act for the following reasons:

(a) The MITTS will be made available

by the Applicants in the ordinary course

of their business to customers which are

not Plans.

(b) The Applicants will not have any

discretionary authority or control, or

provide any ‘‘investment advice,’’

within the meaning of 29 CFR 2510.3–

21(c), with respect to the assets of Plans

which are invested in the MITTS.

(c) The Plans will pay no fees or

commissions to the Applicants in

connection with the transactions

covered by the requested exemption,

other than the mark-up for a principal

transaction permissible under PTCE 75–

1.

(d) The decision to invest in the

MITTS will be made by an Independent

Plan Fiduciary or a Plan Participant,

which is independent of the Applicants.

(e) In connection with a Plan’s

acquisition of any of the MITTS, the

Applicants will disclose to the

Independent Plan Fiduciary, or, if

applicable, the Plan Participant, in the

Prospectus, all of the material terms and

conditions concerning the MITTS.

(f) A Plan will acquire the MITTS on

terms that are at least as favorable to the

Plan as those available to an unrelated

non-Plan investor in a comparable arm’s

length transaction.

(g) The MITTS will be rated in one of

the three highest generic rating

categories by at least one nationallyrecognized statistical rating service at

the time of such security’s acquisition

by the Plan.

(h) The rate of return for the MITTS

will be objectively determined and the

Applicants will retain no authority to

affect the determination of such return,

other than in connection with a Market

Disruption Event that is described in the

Prospectus for the MITTS.

(i) The Index will be: (1) created and

maintained by an entity that is

unrelated to the Applicants and consist

of a standardized and generallyaccepted Index; or (2) created by the

Applicants or an affiliate, but

maintained by an entity that is

unrelated to the Applicants, and (i) will

consist either of standardized and

generally-accepted Indexes or will be an

Index comprised of at least 10 publiclytraded securities that are not issued by

the Applicants or their affiliates, are

designated in advance, and listed in the

Prospectus for the MITTS, (ii) will meet

the requirements for an Index as set

forth in Rule 19b–4, and (iii) the Index

Value for such Index will be publiclydisseminated through an independent

pricing service or a national securities

exchange.

Notice to Interested Persons

The Applicants represent that because

those potentially interested Plans

proposing to engage in the covered

transactions cannot all be identified, the

only practical means of notifying

Independent Plan Fiduciaries or Plan

Participants of such affected Plans is by

publication of the proposed exemption

in the Federal Register. Therefore, any

comments from interested persons must

be received by the Department no later

than 30 days from the publication of

this notice of 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.)

General Motors Hourly-Rate Employees

Pension Plan; General Motors

Retirement Program for Salaried

Employees; Saturn Individual

Retirement Plan for Represented Team

Members; Saturn Personal Choices

Retirement Plan for Non-Represented

Team Members; Employees’ Retirement

Plan for GMAC Mortgage Group;

Delphi Hourly-Rate Employees Pension

Plan; and Delphi Retirement Program

for Salaried Employees (collectively,

the Plans) Located in New York, New

York

[Application Nos. D–10713; D–10714; D–

10715; D–10716; and D–10717]

Proposed Exemption

The Department is considering

granting an exemption under the

authority of section 408(a) of the Act

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

in accordance with the procedures set

forth in 29 CFR Part 2570, Subpart B (55

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

the exemption is granted, the

restrictions of section 406(a) of the Act

and the sanctions resulting from the

application of section 4975 of the Code,

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

through (D) of the Code, shall not apply

to (1) the past and continuing lease (the

Lease) by the Plans to CB Richard Ellis,

Inc. (CB Richard Ellis), a party in

interest with respect to the Plans, of

commercial space in a certain office

building; and (2) the exercise, by CB

Richard Ellis, of an option to renew the

Lease for one additional term, provided

that the following conditions are met:

(a) All the terms and conditions of the

Lease, including those providing CB

Richard Ellis with an option to renew

the Lease, are at least as favorable to the

Plans as terms and conditions the Plans

could have obtained in an arm’s length

transaction with an unrelated party;

(b) The interests of the Plans for all

purposes under the Lease, including any

renewal thereof, are represented by a

qualified, independent fiduciary;

(c) The rent paid by CB Richard Ellis

under the Lease, including any renewal

thereof, is, at all times, no less than the

fair market rental value of the leased

space; and

(d) The independent fiduciary

monitors the Lease, and any renewal

thereof, on behalf of the Plans, and takes

whatever actions necessary to safeguard

the interests of the Plans and their

participants and beneficiaries.

EFFECTIVE DATE: This proposed

exemption, if granted, will be effective

as of December 17, 1998, the date on

which CB Richard Ellis entered into the

Lease.

62762 Federal Register / Vol. 65, No. 203 / Thursday, October 19, 2000 / Notices

12The applicant states that the assets of the LLC

are deemed to be ‘‘plan assets’’ under the

Department’s regulations (see 29 CFR 2510.3–101)

because the Plans own a 100% beneficial

ownership interest in the LLC. Thus, all

transactions between the LLC and persons that are

parties in interest with respect to the Plans invested

therein would be subject to the prohibited

transaction restrictions of the Act.

13This rental amount per month would equal

approximately $395,820 annually ($32,985 × 12 =

$395,820). With 13,687 square feet of rental space,

the annual rental amount per square foot would be

approximately $28.92 during the first 36 months.

14 It is represented that the cost of the one-time

tenant improvement allowance and other expenses

paid for by Pacific Corporate Towers were factored

into the rental rate for the leased space.

The Department expresses no opinion in this

proposed exemption as to whether the expenses

incurred by the Plans, through the Trusts, relating

to the tenant improvements provided for CB

Richard Ellis would violate any provision of Part 4

of Title I of the Act. In this regard, the Department

notes that section 404(a) of the Act requires, among

other things, that plan fiduciaries act prudently and

solely in the interest of the plan’s participants and

beneficiaries when making investment decisions on

behalf of a plan. In addition section 404(a) of the

Act requires that plan fiduciaries act for the

exclusive purpose of providing benefits to

participants and beneficiaries and to defray

reasonable expenses of administering the plan.

Summary of the Facts and

Representations

1. The Plans are the General Motors

Hourly-Rate Employees Pension Plan

(GM Hourly Plan); General Motors

Retirement Program for Salaried

Employees (GM Salaried Plan); Saturn

Individual Retirement Plan for

Represented Team Members (Saturn

Represented Team Plan); Saturn

Personal Choices Retirement Plan for

Non-Represented Team Members

(Saturn Non-Represented Team Plan);

Employees’ Retirement Plan for GMAC

Mortgage Group (GMAC Plan); Delphi

Hourly-Rate Employees Pension Plan

(Delphi Hourly Plan); and Delphi

Retirement Program for Salaried

Employees (Delphi Salaried Plan). The

sponsors of the Plans are General

Motors Corporation (GMC), Saturn

Corporation, GMAC Mortgage Group,

and Delphi Automotive Systems

Corporation, respectively.

The GM Hourly Plan and the GM

Salaried Plan covered approximately

514,120 and 200,183 participants,

respectively, as of September 30, 1999.

The Saturn Represented Team Plan and

the Saturn Non-Represented Team Plan

covered approximately 7,507 and 2,122

participants, respectively, as of

December 31, 1999. The GMAC Plan

covered approximately 5,936

participants, as of December 31, 1999.

The Delphi Hourly Plan and the Delphi

Salaried Plan covered approximately

56,360 and 20,821 participants,

respectively, as of June 1, 2000.

The Plans’ assets are held in two

trusts: (i) the General Motors Salaried

Employees Pension Trust, which holds

the assets of the GM Salaried Plan and

the Delphi Salaried Plan; and (ii) the

General Motors Hourly-Rate Employees

Pension Trust, which holds the assets of

all the other Plans (together, the Trusts).

The Plans are the beneficial owners of

all the assets held in their respective

Trusts. The Plans had total assets of

$85,009,953,138.64, as of April 30,

2000. The property, known as ‘‘Pacific

Corporate Towers’’ (described in Item 2,

below), had a fair market value of

$241,400,000.00, as of December 31,

1999.

2. Among the assets of the Plans, held

through the Trusts, is a 100% beneficial

ownership interest in Pacific Corporate

Towers LLC (the LLC).12 The LLC, a

Delaware limited liability company,

owns a 41-story office building (i.e.,

Pacific Corporate Towers), which is

located at 200 N. Sepulveda Boulevard,

El Segundo, California, and has a total

of 1,542,270 square feet of rentable

space. CB Richard Ellis is the property

manager and leasing agent for Pacific

Corporate Towers and, thus, is a party

in interest with respect to the Plans. CB

Richard Ellis, headquartered in Los

Angeles, California, is a large asset

advisor for institutional real estate

owners and, as of October 1, 1998,

employed 9,000 full-time employees.

3. On December 17, 1998, CB Richard

Ellis entered into the Lease with the

Plans for the rental of 13,687 square feet

of office space on the third floor of

Pacific Corporate Towers. The Lease is

for a period of six years, ending on

November 14, 2004. The Lease provides

CB Richard Ellis with an option to

renew the Lease for an additional fiveyear period.

Under the Lease terms, the monthly

rent for the office space for the first 36

months is $32,985.67,13 and the

monthly rent for the second 36 months

is $35,723.07. The renewal option

requires that CB Richard Ellis pay the

then prevailing fair market rent at the

time of renewal, but not less than the

monthly rate in effect during the second

36 months of the Lease. The Lease also

provides for a one-time tenant

improvement allowance of $34.78 per

rentable square foot, during the first 36

months of the Lease. Finally, the Lease

provides that CB Richard Ellis is

responsible for its proportionate share of

tax, operating, and insurance costs.14

4. Prior to entering into the Lease with

CB Richard Ellis, the Plans, through the

General Motors Investment Management

Corporation, hired Pacific Green

Advisors Ltd. (Pacific Green), to act as

an independent fiduciary for the Plans

with respect to the Lease, pursuant to an

agreement dated August 24, 1998 (the

Fiduciary Agreement). Pacific Green is a

real estate investment advisory firm

located in Torrance, California.

It is represented that Pacific Green is

qualified to act as an independent

fiduciary for the Plans because it serves

as an asset advisor for institutional real

estate owners and provides advisory

services relating to overall real estate

asset planning. Specifically, Pacific

Green provides property management

services; engages and supervises

managing agents on behalf of owners;

provides long-term and short-term

acquisition planning services; develops

market studies with respect to potential

acquisitions; negotiates, drafts, and

executes leases; and purchases and sells

targeted properties.

In addition, Pacific Green states that

it is independent of CB Richard Ellis,

because: (i) Neither Pacific Green nor its

affiliates have any ownership interest in

CB Richard Ellis or its affiliates; (ii)

neither CB Richard Ellis nor any of its

affiliates have any ownership interest in

Pacific Green or its affiliates; and (iii)

Pacific Green and its affiliates receive

no annual income from CB Richard

Ellis.

5. Pursuant to the Fiduciary

Agreement, Pacific Green was retained

to determine on behalf of the Plans

whether the Lease would be in the best

interests of the Plans and their

participants and beneficiaries. In order

to make this determination, Pacific

Green specifically agreed to: (i) Perform

such review and analysis as it deemed

necessary to determine the fair market

rental value of the leased space; (ii)

determine whether the terms and

conditions of the Lease, including basic

rental and allowances, in the aggregate,

were at least as favorable to the Plans as

those available in an arm’s length

transaction with an unrelated party; (iii)

determine whether the Lease, as

proposed, would be in the best interests

of the Plans; (iv) negotiate the terms of

the Lease on behalf of the Plans; and (v)

determine whether to grant approval of

the Lease, or take any other action with

respect to the Lease, on behalf of the

Plans.

6. Pacific Green represents that, in

order to determine whether the terms

and conditions of the Lease would be

fair to the Plans and the rent to be paid

thereunder would be fair market value,

it inspected the subject office space,

evaluated the competitive office space

market in El Segundo, California, and

reviewed recent rentals of office space

in Pacific Corporate Towers, as well as

recent rentals of competitive office

space in the local area.

Federal Register / Vol. 65, No. 203 / Thursday, October 19, 2000 / Notices 62763

15Should it become necessary in the future to

appoint a successor independent fiduciary (the

Successor) to replace Pacific Green, the applicant

will notify the Department at least 30 days in

advance of the appointment of the Successor. Any

such Successor will be independent and have

responsibilities and experience comparable to those

of Pacific Green.

Pacific Green represents that, after

conducting this market survey, it

completed negotiations on behalf of the

Plans with respect to the Lease terms,

including the renewal option. Then on

November 16, 1998, John M. Williams,

President of Pacific Green, rendered a

report to the Plans. In his report, Mr.

Williams stated that the Lease, as

proposed, was fair to the Plans and that

the proposed rental rate constituted the

fair market rent for the office space. Mr.

Williams further opined that the terms

of the Lease, including the renewal

option, were in the best interests of the

Plans.

7. Pursuant to the Fiduciary

Agreement, Pacific Green also accepted

the continuing duty to monitor

compliance with the terms and

conditions of the Lease and to enforce

the rights of the Plans with respect to

the Lease and any renewal thereof.

Pacific Green represents that it

understands and acknowledges its

duties and responsibilities as a fiduciary

to the Plans under the Act. Pacific Green

also agreed to take any actions necessary

to ensure that CB Richard Ellis’

obligations as lessee are fully

performed. If CB Richard Ellis exercises

its option to extend the Lease for five

more years, Pacific Green will negotiate

the terms of the extended Lease and will

continue to serve as the independent

fiduciary for the Plans.15

8. Only after Pacific Green determined

that the Lease was in the best interests

of the Plans, the parties entered into the

Lease agreement on December 17, 1998.

The applicant represents that the Lease

was, and is, in the best interests of the

Plans because it contains arm’s length

terms and conditions and a fair market

rental rate for the leased space. In

addition, the Plans did not have to pay

any leasing commissions in connection

with the transaction. The Lease reduces

the amount of vacant rentable office

space in Pacific Corporate Towers,

resulting in greater cash flow to Pacific

Corporate Towers over the term of the

Lease, which should have a favorable

impact on the value of that investment

for the Plans.

9. In summary, the applicant

represents that the subject transactions

satisfy the statutory criteria of section

408(a) of the Act because: (a) All the

terms and conditions of the Lease are at

least as favorable to the Plans as those

the Plans could have obtained in an

arm’s length transaction with an

unrelated party; (b) the interests of the

Plans for all purposes under the Lease

are represented by Pacific Green, a

qualified, independent fiduciary; (c)

Pacific Green has determined that the

rent paid by CB Richard Ellis under the

Lease is the fair market rental value of

the leased space and will ensure that

such rent remains so, upon any renewal

of the Lease; and (d) Pacific Green will

continue to monitor the Lease on behalf

of the Plans and take whatever actions

necessary to safeguard the interests of

the Plans and their participants and

beneficiaries.

FOR FURTHER INFORMATION CONTACT: Ms.

Karin Weng of the Department,

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

a toll-free number.)

Butler-Johnson Corporation; Profit

Sharing Plan (the Plan); Located in San

Jose, California;

[Application No. D–10780]

Proposed Exemption

The Department is considering

granting an exemption under the

authority of section 408(a) of the Act

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

in accordance with the procedures set

forth in 29 CFR Part 2570, Subpart B (55

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

the exemption is granted, the

restrictions of sections 406(a), 406(b)(1)

and (b)(2) of the Act and the sanctions

resulting from the application of section

4975 of the Code, by reason of section

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

shall not apply, effective as of October

25, 1996, to:

(1) the past sale on October 25, 1996,

by the Plan of four residential mortgage

notes (the Purchased Notes) to the

Greater Bay Trust Company (the

Trustee), the trustee of the Plan and, as

such, a party in interest with respect to

the Plan;

(2) the past sale on October 25, 1996,

by the Plan of a seventy-one percent

(71%) interest (the Interest) in a certain

parcel of real property located in

Oakland, California (the Oakland

Property) to the Trustee;

(3) the ‘‘makewhole’’ payment made

by the Trustee to the Plan on October

25, 1996 in connection with the Plan’s

investment losses with respect to certain

other real property previously owned by

the Plan which was sold to an unrelated

party on June 28, 1996; and

(4) the proposed payment to the Plan

of the accrued but unpaid interest (the

Accrued Interest Payment) that was due

on the Purchased Notes at the time of

the past sale to the Trustee, as well as

two other mortgage notes that were in

default while held by the Plan

(collectively, the Notes) which resulted

in foreclosures on the underlying

properties, and the proposed payment to

the Plan of an additional interest

payment for the period from October 25,

1996, until the date that the Accrued

Interest Payment is made to the Plan

(the Additional Interest Payment), based

on the total amount of the Accrued

Interest Payment; provided the

following conditions are met:

(A) The sale of the Purchased Notes

and the Interest by the Plan to the

Trustee were one-time transactions for

cash;

(B) The Plan was not required to pay

any fees or commissions in connection

therewith;

(C) The Plan received prices for the

Purchased Notes constituting no less

than the greater of either:

(i) the outstanding principal balances

for each Purchased Note, or

(ii) the fair market value of each

Purchased Note, as of the date of the

sale transactions;

(D) The Plan received a purchase

price for the Interest constituting no less

than seventy-one percent (71%) of the

fair market value of the Oakland

Property, as of the date of the sale

transaction;

(E) The Accrued Interest Payment to

be paid by the Trustee to the Plan

represents an amount equal to the total

accrued but unpaid interest that was

due on the Notes on October 25, 1996;

(F) The Additional Interest Payment

to be paid by the Trustee to the Plan

represents a reasonable rate of interest

on the amount of accrued but unpaid

interest on the Notes that was due to the

Plan on October 25, 1996 (i.e., the

Accrued Interest Payment referred to in

(E) above), as determined by an

appropriate third party source (i.e., the

U.S. Treasury rate for 3-month Treasury

Bills);

(G) The Trustee provides the

Department with documentation, within

thirty (30) days of the Accrued Interest

Payment and Additional Interest

Payment, which verifies that the total

amount of such payments have been

made to the Plan;

(H) The Trustee, as the responsible

fiduciary for the Plans, took appropriate

actions necessary to safeguard the

interests of the Plan and its participants

and beneficiaries in connection with the

past transactions, and will take

whatever actions are necessary to

continue to protect the Plan’s interest

with respect to the Accrued Interest

Payment and the Additional Interest

Payment;

(I) The Plan received a reasonable rate

of return on the Purchased Notes and

62764 Federal Register / Vol. 65, No. 203 / Thursday, October 19, 2000 / Notices

16The Department expresses no opinion in this

proposed exemption as to whether the Plan’s

acquisition and holding of the Notes and the

Properties violated any of the fiduciary

responsibility provisions contained in Part 4 of

Title I of the Act.

However, the Department notes that an

investigation regarding the subject investments

made by the Plan and related transactions has been

conducted by the Department’s Regional Office in

San Francisco. In this regard, the proposed

exemption, if granted, will facilitate certain

agreements made by the parties to restore assets to

the Plan.

the Interest during the period of time

that it held these assets; and

(J) Upon any sale or other disposition

of any of the Purchased Notes or the

Interest by the Trustee, in the event the

Trustee receives proceeds in excess of

the amount which the Trustee paid the

Plan for such assets, the additional

proceeds shall be promptly forwarded to

the Plan by the Trustee.

Summary of Facts and Representations

1. The Plan is a defined contribution

profit sharing plan which had

approximately 103 participants and

total assets of $2,949,910 as of December

31, 1996. The sponsor of the Plan is

Butler-Johnson Corporation (the

Employer), a California privately-held

corporation. The trustee of the Plan is

Greater Bay Trust Company (i.e., the

Trustee), which is a division of

Cupertino National Bank & Trust,

having its principal place of business in

Palo Alto, California. The Trustee has

discretionary authority for the

investment of Plan assets, subject to

investment guidelines provided by a

committee (the Committee) comprised

of employees and officers of the

Employer.

2. In 1992, the Committee and the

Trustee established guidelines for the

purchase of real estate loans for the

Plan. The guidelines provided that the

Trustee was permitted to invest the

Plan’s assets in certain real estate loans

secured by single family dwellings.

The Trustee invested the Plan’s assets

in six mortgage notes (the Notes)

evidencing real estate loans made to

persons unrelated to the Employer. The

Notes were originated between May

1992 and December 1994. The Plan

acquired a one hundred percent (100%)

ownership of each of the Notes except

one, referred to as the Kakos Note, in

which the Plan acquired a seventy-one

percent (71%) ownership interest. The

remaining twenty-nine percent (29%)

interest in the Kakos Note was held by

an unrelated investor whom the Trustee

represents was neither a disqualified

person under the Code nor a party in

interest under the Act with respect to

the Plan. The Trustee states that all

obligors under the Notes were

independent of the Plan and the

Trustee. As of December 31, 1995, the

Plan’s total investment in the Notes

represented approximately twenty-eight

percent (28%) of the fair market value

of the Plan’s assets.

3. All of the Notes resulted in default

and two of the Notes resulted in

foreclosure. On December 30, 1993, the

Trustee, on behalf of the Plan,

foreclosed on the Kakos Note. The Plan

consequently acquired a seventy-one

percent (71%) interest (i.e., the Interest)

in the underlying real property in

Oakland, California (i.e., the Oakland

Property) which secured the Kakos

Note. On January 20, 1995, the Trustee,

on behalf of the Plan, foreclosed on

another Note (referred to as the Bennett

Note). The Plan consequently acquired

the underlying real property in Grass

Valley, California (the Grass Valley

Property) which secured that Note. The

Trustee represents that at the time of

these foreclosures, the Oakland Property

and the Grass Valley Property (together,

the Properties) each had fair market

values which were less than the

outstanding principal balances of the

Notes which they secured.

4. The Trustee represents that due to

the circumstances surrounding the

default on four of the Notes and the

foreclosure on the remaining two Notes,

the Trustee determined that the Notes

and the Properties did not constitute

suitable investments for the Plan.16 The

Trustee maintains that this

determination included a finding by the

Trustee that the Notes were not

marketable to third parties. Based on the

Trustee’s belief that it shared

responsibility in failing to meet certain

due diligence obligations in investing in

the Notes, the Trustee determined to

take the steps necessary to make the

Plan ‘‘whole’’ with respect to its

investments in the Notes and the

Properties, as follows:

(a) The Grass Valley Property was

sold to an unrelated party on June 28,

1996 for $83,532.71, which was

$56,041.80 less than the outstanding

principal balance of the Note which the

Grass Valley Property had secured. This

investment loss was recovered by the

Plan in a cash payment made to the Plan

by the Trustee, as discussed below.

(b) The Trustee placed the Interest

(i.e., the Plan’s interest in the Oakland

Property) on the market for over two

years. Finally, the Trustee purchased

the Interest from the Plan on October 25,

1996 for $151,875.58. This amount was

equal to the outstanding principal

balance that had been due on the Kakos

Note prior to default.

(c) The Trustee purchased the

remaining four Notes (i.e., the

Purchased Notes) from the Plan on

October 25, 1996 at prices constituting

the outstanding principal balance of

each Purchased Note as of the date of

such purchase.

On October 25, 1996, the Trustee paid

the Plan a total of $618,391.05,

representing (i) the aggregate

outstanding principal balances on the

Purchased Notes at the time of the

transaction, plus (ii) the purchase price

for the Interest (i.e., the Plan’s 71%

interest in the Oakland Property), plus

(iii) $56.041.80 to reimburse the Plan for

its loss on the sale of the Grass Valley

Property to an unrelated party. The

Trustee represents that the Plan paid no

commissions or fees with respect to

these transactions.

In addition to the Trustees’ repayment

of the principal amount of the

investment losses resulting to the Plan

from the default of four Notes and

foreclosure on the remaining two Notes,

the Trustee now proposes to pay all of

the accrued but unpaid interest (i.e., the

Accrued Interest Payment) that was due

to the Plan on the Notes as of October

25, 1996. The Trustee has also agreed to

pay the Plan a reasonable rate of interest

on the amount represented by the

Accrued Interest Payment (i.e., the

Additional Interest Payment) for the

period from October 25, 1996, until the

date the Accrued Interest Payment is

paid to the Plan. The interest rate for the

Additional Interest Payment will be

determined by the U.S. Treasury rate for

3-month Treasury Bills, which the

Trustee has determined is an

appropriate third party rate and source

for such amount.

The applicant represents that the

Accrued Interest Payment will be

approximately $181,581. Further, the

Additional Interest Payment would have

been approximately $35,699, as of July

31, 2000. Thus, the total additional

payments that the Trustee proposes to

pay to the Plan was approximately

$217,280, as of July 31, 2000.

5. The Trustee represents that the past

transactions were in the best interests of

the Plan because they enabled the Plan

to dispose of non-productive assets

under terms which were better than the

Plan could have obtained in arm’slength transactions with unrelated

parties. The Trustee maintains that if it

had not purchased the Interest and the

Purchased Notes from the Plan, the Plan

either would have continued to hold

these non-productive assets or would

have sold these assets to unrelated

parties and incurred a substantial loss

on the investments. The Trustee

represents that the past transactions

Federal Register / Vol. 65, No. 203 / Thursday, October 19, 2000 / Notices 62765

were protective of the Plan because the

Plan incurred no expenses related to the

transactions. The Trustee states that

prior to purchasing the Purchased Notes

and the Interest from the Plan, it

determined that these assets were

unmarketable. In addition, with respect

to the Interest, the Trustee represents

that attempts were made over two years

to sell the Oakland Property to an

unrelated party without any success.

Thus, the Trustee determined that any

sale of the Purchased Notes and Interest

(through a sale of the Oakland Property)

to an unrelated party would have

resulted in substantial losses to the Plan

and its participants and beneficiaries.

6. The Trustee represents that all

measures taken with respect to the

Plan’s investments in the Notes were

taken in order to reimburse the Plan for

actual out-of-pocket losses on the Notes.

The additional measures that the

Trustee now proposes to take with

respect to the Accrued Interest

Payments and the Additional Interest

Payments are meant to restore

additional assets to the Plan which

relate to the Notes, including the

Purchased Notes and the Interest which

were sold by the Plan to the Trustee.

The Trustee, as the responsible

fiduciary for the Plans, will take

whatever actions are necessary to

protect the Plan’s interest with respect

to the Accrued Interest Payment and the

Additional Interest Payment. The

Trustee will provide the Department

with documentation, within thirty (30)

days of the Accrued Interest Payment

and Additional Interest Payment, which

verifies that the total amount of such

payments have been made to the Plan.

The Trustee states that, upon any sale or

other disposition of any of the

Purchased Notes or the Interest, in the

event the Trustee receives proceeds in

excess of the amount which the Trustee

paid the Plan for these assets, the

additional proceeds shall be promptly

forwarded to the Plan.

7. In summary, the applicant

represents that the transactions satisfied

the criteria of section 408(a) of the Act

for the following reasons:

(a) The sale of the Purchased Notes

and the Interest by the Plan to the

Trustee were one-time transactions for

cash;

(b) The Plan received the full

outstanding principal balances on the

Purchased Notes, an amount which the

Trustee determined to be in excess of

the fair market value of such Notes at

the time of the transaction;

(c) The Plan received a price for the

Interest (i.e., the Plan’s 71% interest in

the Oakland Property) which was equal

to the outstanding principal balance that

had been due on the Kakos Note which

had been secured by the Oakland

Property, and the Trustee determined

that this price represented an amount

which exceeded the fair market value of

the Interest at the time of the

transaction;

(d) The transactions enabled the Plan

to dispose of non-income-producing

assets without incurring any losses on

the investments or any expenses with

respect to their disposition;

(e) The Plan received a full

‘‘makewhole’’ payment from the Trustee

on October 25, 1996, in connection with

the Plan’s investment losses on the

Grass Valley Property which was sold to

an unrelated party on June 28, 1996;

(f) The Accrued Interest Payment to

be paid by the Trustee to the Plan will

represent an amount equal to the total

accrued but unpaid interest that was

due on the Notes on October 25, 1996;

(g) The Additional Interest Payment to

be paid by the Trustee to the Plan will

represent a reasonable rate of interest on

the amount of the Accrued Interest

Payment, as determined by the U.S.

Treasury rate for 3-month Treasury

Bills;

(h) The Trustee will provide the

Department with documentation, within

thirty (30) days of the Accrued Interest

Payment and Additional Interest

Payment, which verifies that the total

amount of such payments have been

made to the Plan;

(i) The Trustee, as the responsible

fiduciary for the Plans, took appropriate

actions necessary to safeguard the

interests of the Plan and its participants

and beneficiaries in connection with the

past transactions, and will take

whatever actions are necessary to

continue to protect the Plan’s interest

with respect to the Accrued Interest

Payment and the Additional Interest

Payment; and

(j) Any proceeds received by the

Trustee upon sale or other disposition of

the Purchased Notes or the Interest in

excess of the amount paid to the Plan by

the Trustee for such assets shall be

promptly forwarded to the Plan.

Notice to Interested Persons

The applicant will distribute (by first

class mail, personal delivery or by

posting in the applicant’s places of

business) a copy of the notice of

pendency of this proposed exemption

(the Notice) within fifteen (15) days of

the date such Notice is published in the

Federal Register. The Notice will be

given to all interested persons,

including all participants in the Plan

and all employee organizations in

which such participants are members.

The distribution to interested persons

shall include a copy of the Notice, as

published in the Federal Register, and

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 request a

hearing with respect to the proposed

exemption.

Comments and requests for a public

hearing with respect to the proposed

exemption are due within forty-five (45)

days following the publication of the

Notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT:

Khalif I. Ford 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

62766 Federal Register / Vol. 65, No. 203 / Thursday, October 19, 2000 / Notices

application are true and complete, and

that each application accurately

describes all material terms of the

transaction which is the subject of the

exemption.

Signed at Washington, DC, this 13th day of

October, 2000.

Ivan Strasfeld,

Director of Exemption Determinations,

Pension and Welfare Benefits,

Administration, U.S. Department of Labor.

[FR Doc. 00–26789 Filed 10–18–00; 8:45 am]

BILLING CODE 4510–29–P

NATIONAL AERONAUTICS AND

SPACE ADMINISTRATION

[Notice 00–126]

NASA Advisory Council (NAC), AeroSpace Technology Advisory

Committee (ASTAC); Meeting

AGENCY: National Aeronautics and

Space Administration.

ACTION: Notice of meeting.

SUMMARY: In accordance with the

Federal Advisory Committee Act, Pub.

L. 92–463, as amended, the National

Aeronautics and Space Administration

announces a forthcoming meeting of the

NASA Advisory Council, Aero-Space

Technology Advisory Committee.

DATES: Tuesday, November 28, 2000,

8:30 a.m. to 5:00 p.m.; and Wednesday,

November 29, 2000, 8 a.m. to 12:00

Noon.

ADDRESSES: National Aeronautics and

Space Administration Room 6H46, 300

E Street, SW., Washington, DC 20546.

FOR FURTHER INFORMATION CONTACT: Ms.

Mary-Ellen McGrath, Office of

Aerospace Technology, National

Aeronautics and Space Administration,

Washington, DC 20546 (202/358–4729).

SUPPLEMENTARY INFORMATION: The

meeting will be open to the public up

to the seating capacity of the room. The

agenda for the meeting is as follows:

—Status of Aerospace Technology

Programs

—Small Aircraft Transportation System

(SATs) Report

—Status of Icing Workshop

—2nd, 3rd, and 4th Generation Reusable

Launch Vehicles (RLVs)

—Government Performance Results Act

(GPRA) Briefings

—Research Test Pilot Issues and

Concerns

—Subcommittee Reports

It is imperative that the meeting be

held on these dates to accommodate the

scheduling priorities of the key

participants.

Dated: October 16, 2000.

Beth M. McCormick,

Advisory Committee Management Officer,

National Aeronautics and Space

Administration.

[FR Doc. 00–26930 Filed 10–18–00; 8:45 am]

BILLING CODE 7510–01–P

NATIONAL AERONAUTICS AND

SPACE ADMINISTRATION

[Notice 00–127]

NASA Advisory Council, Space Flight

Advisory Committee (SFAC); Meeting

AGENCY: National Aeronautics and

Space Administration.

ACTION: Notice of meeting.

SUMMARY: In accordance with the

Federal Advisory Committee Act, Pub.

L. 92–463, as amended, the National

Aeronautics and Space Administration

announces a meeting of the NASA

Advisory Council, Space Flight

Advisory Committee.

DATES: Monday, November 6, 2000 from

8 a.m. until 5:30 p.m. and on Tuesday,

November 7, 2000 from 8 a.m. until 3:30

p.m.

ADDRESSES: Kennedy Space Center

Visitor Complex, Atlas Room, Kennedy

Space Center, FL 32899.

FOR FURTHER INFORMATION CONTACT: Ms.

Susan Y. Edgington (Stacey), Code M,

National Aeronautics and Space

Administration, Washington, DC 20546,

202/358–4519.

SUPPLEMENTARY INFORMATION: The

meeting will be open to the public up

to seating capacity of the room. The

agenda for the meeting is as follows:

—Overview, status and metrics for

Office of Space Flight programs.

—Shuttle upgrades discussion.

—International Space Station

commercialization

It is imperative that the meeting be

held on this date to accommodate the

scheduling priorities of the key

participants. Visitors will be requested

to sign a visitor’s register.

Dated: October 16, 2000.

Beth M. McCormick,

Advisory Committee Management Officer,

National Aeronautics and Space

Administration.

[FR Doc. 00–26931 Filed 10–18–00; 8:45 am]

BILLING CODE 7510–01–P

NUCLEAR REGULATORY

COMMISSION

[Docket No. 72–1]

General Electric Company, Morris

Operation; Notice of Docketing, Notice

of Consideration of Issuance, and

Notice of Opportunity for a Hearing for

the Renewal of Materials License

SNM–2500 for the Morris Operation

Independent Spent Fuel Storage

Installation

The Nuclear Regulatory Commission

(NRC or Commission) is considering a

renewal application dated May 22,

2000, of a materials license under the

provisions of 10 CFR Part 72, from

General Electric Company (GE) for

renewal of its Morris Operation

independent spent fuel storage

installation (ISFSI) license (SNM–2500).

GE has owned and operated Morris

Operations since its construction under

Atomic Energy Commission Provisional

Construction Permit No. CPCSF–3

issued in December 1967, as a spent fuel

reprocessing facility, and specifically as

an ISFSI for the last 18 years under the

current NRC License SNM–2500. This

application was docketed under 10 CFR

Part 72; the ISFSI Docket No. is 72–1

and will remain the same for this action.

The GE Morris Operation is located in

Gooselake Township, Grundy County,

Morris, Illinois, near the confluence of

the Kankakee and Des Plaines Rivers. If

granted, the license will authorize the

applicant to continue to store spent fuel

in a wet storage facility for a term of

twenty (20) years.

Prior to issuance of the requested

license renewal, the NRC will have

made the findings required by the

Atomic Energy Act of 1954, as amended

(the Act), and the NRC’s rules and

regulations. The issuance of the

materials license will not be approved

until the NRC has reviewed the

application and has concluded that

renewal of the license will not be

inimical to the common defense and

security and will not constitute an

unreasonable risk to the health and

safety of the public. The NRC will

complete an environmental evaluation,

in accordance with 10 CFR Part 51, to

determine if the preparation of an

environmental impact statement is

warranted or if an environmental

assessment and finding of no significant

impact are appropriate. This action will

be the subject of a subsequent notice in

the Federal Register. Pursuant to 10

CFR 2.105, by November 20, 2000, the

applicant may file a request for a

hearing; and any person whose interest

may be affected by this proceeding and

who wishes to participate as a party in