[Federal Register Volume 59, Number 78 (Friday, April 22, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-9828]
[[Page Unknown]]
[Federal Register: April 22, 1994]
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
[Application No. D-9552, et al.]
Proposed Exemptions; Laney & Duke Terminal Warehouse Co., Inc.,
Profit Sharing Plan and Trust, et al.
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 restriction 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
request 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. A request for a hearing must also state the issues to be
addressed and include a general description of the evidence to be
presented at the hearing.
ADDRESSES: All written comments and request for a hearing (at least
three copies) should be sent to the Pension and Welfare Benefits
Administration, Office of Exemption Determinations, room N-5649, U.S.
Department of Labor, 200 Constitution Avenue, NW., Washington, DC
20210. Attention: Application No. stated in each Notice of Proposed
Exemption. The applications for exemption and the comments received
will be available for public inspection in the Public Documents Room of
Pension and Welfare Benefits Administration, U.S. Department of Labor,
room N-5507, 200 Constitution Avenue NW., Washington, DC 20210.
Notice to Interested Person
Notice of the proposed exemptions will be provided to all
interested persons in the manner agreed upon by the applicant and the
Department within 15 days of the date of publication in the Federal
Register. Such notice shall include a copy of the notice of proposed
exemption as published in the Federal Register and shall inform
interested persons of their right to comment and to request a hearing
(where appropriate).
SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in
applications filed pursuant to section 408(a) of the Act and/or section
4975(c)(2) of the Code, and in accordance with procedures set forth in
29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 1990).
Effective December 31, 1978, section 102 of Reorganization Plan No. 4
of 1978 (43 FR 47713, October 17, 1978) transferred the authority of
the Secretary of the Treasury to issue exemptions of the type requested
to the Secretary of Labor. Therefore, these notices of proposed
exemption are issued solely by the Department.
The applications contain representations with regard to the
proposed exemptions which are summarized below. Interested persons are
referred to the applications on file with the Department for a complete
statement of the facts and representations.
Laney & Duke Terminal Warehouse Co., Inc., Profit Sharing Plan and
Trust (the Plan) Located in Jacksonville, Florida; Proposed Exemption
[Application No. D-9552]
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 to the proposed sale of two adjacent commercial
buildings (collectively; the Buildings) by the Plan to Laney & Duke
Terminal Warehouse Co. Inc., (the Employer), the Plan sponsor and a
party in interest with respect to the Plan; provided that the following
conditions are satisfied:
(1) the Plan will receive the greater of: (1) $1,958,000,
representing the Plan's total investment in the Buildings; or (2) the
aggregate fair market value of the Buildings as determined at the time
of the sale by an independent, qualified appraiser;
(2) the proposed sale will be a one-time transaction; and
(3) the Plan will pay no costs or commissions as a result of this
transaction.
Summary of Facts and Representations
1. The Plan is a defined contribution profit sharing plan, which as
of June 30, 1993, had $3,136,301 in assets, and 136 participants. The
Plan's trustees are Thomas A. Duke, Brian T. Duke and Stephen T. Duke,
who are officers of the Employer. Thomas A. Duke is also a stockholder
of the Employer. The Employer is a Florida subchapter ``C'' corporation
in the business of storing and transporting food supplies and consumer
goods.
2. The Plan owns the two Buildings which are located in downtown
Jacksonville. The first building consists of 10,400 square feet and its
entirely leased by the SouthTrust Bank (the S/T Building) for $82,500
per year. The lease agreement (The S/T Lease) effective December 31,
1983, was for a five year period, with two successive renewal options
of five years each. The first five year renewal option was exercised
and extended the S/T Lease term to December 31, 1993. The S/T Lease has
been recently renewed and will expire December 21, 1995. The second
building is a three story building which consists of approximately
33,000 square feet of floor space (the Dean Witter Building). A total
of 13,200 square feet of the Dean Witter Building has been leased to
Dean Witter Reynolds, Inc. (Dean Witter) for $263,000 per year. The
lease agreement (D/W Lease) was effective December 1, 1978, and
originally had a ten year term. By an agreement dated March 14, 1984,
the term of the D/W Lease was extended for an additional five years to
November 30, 1993. Dean Witter vacated the Dean Witter Building during
1992, but continued to make payments under the D/W Lease until its
expiration on November 30, 1993. The Dean Witter Building is currently
empty. It is represented that the SouthTrust Bank and Dean Witter are
unrelated to the Plan and the Employer.
3. The Buildings were acquired by the Plan through an investment in
a partnership (the Partnership) in which the Plan was a limited
partner. The original 49% interest in the Partnership was acquired by
the Plan in February 1980 with an initial $450,000 capital
contribution. The Buildings were transferred into the Partnership by
Alan E. Johnson (Mr. Johnson), the original general partner and the
owner of the other 51% Partnership interest, at the time the
Partnership was formed. Mr. Johnson was unrelated to the Employer and
the Plan. The Plan advanced additional funds to the Partnership from
1981 through 1985. In 1985, the Plan received a mortgage from the
Partnership for $1,208,000 covering all capital contributions and
previous advances to that date. On July 29, 1989, the remaining 51%
interest in the Partnership was acquired by the Plan from Mr. Johnson
for $750,000. After the 51% interest was acquired, the Partnership was
dissolved and the assets of the Partnership, principally the Buildings,
were transferred to the Plan.\1\ It is represented that the Plan's
total investment in the Buildings acquired through these transactions
was $1,958,000.
---------------------------------------------------------------------------
\1\The Department expresses no opinion as to whether the Plans
investment in the Partnership and the acquisition and holding of the
Buildings violated any provision of part 4 of Title I of the Act,
and no relief is provided herein.
---------------------------------------------------------------------------
4. The Employer now desires to purchase the Buildings from the Plan
in a one-time cash sale. The Buildings were appraised (the Appraisal)
by James C. Johnston (Mr. Johnston), SRPA on June 30, 1993, an
independent qualified appraiser. Mr. Johnston states that the purpose
of the Appraisal is to estimate the market value of the commercial
Buildings on an ``as is'' basis. The S/T Building is improved with
offices and banking facilities, and is currently leased to the S/T
Bank. The Dean Witter Building is a three story, multi tenant, Class
``B'' building and is currently vacant. In determining the fair market
value of the Buildings, Mr. Johnston utilized the sales comparison
approach, the income approach and the cost approach, but relied on the
income approach as the primary basis for the value estimate of the
Buildings. Accordingly, as of June 20, 1993, Mr. Johnston determined
the fair market value of the S/T Building to be $850,000, and the fair
market value of the Dean Witter Building to be $1,000,000, for an
aggregate fair market value of $1,850,000 for both Buildings.
5. The Plan's total investment in the Buildings was $1,958,000. The
applicant represents that the Plan as a result of this transaction will
receive the greater of: (1) $1,958,000, representing the Plan's total
investment in the Buildings; or (2) the aggregate fair market value of
the Buildings as determined at the time of the sale by an independent,
qualified appraiser. The applicant maintains that the Buildings have
yielded revenue for the Plan, with the Plan receiving positive cash
flow as a result of its investment. The applicant submitted a ``return
on investment'' analysis (the Analysis) on the Plan's investment in the
Buildings, covering the period from June 30, 1980 through June 30,
1993. Return on investment ratios were derived by the applicant by
dividing the estimated net rental income by the estimated cost of
investment for each year of ownership. An average of the ``return on
investment'' figures was determined to be 16.12%. Therefore, according
to the Analysis, the Plan received an average yield of 16.12% for its
investment in the Buildings.\2\
---------------------------------------------------------------------------
\2\In the Analysis, the applicant represents that for the period
June 30, 1986 through and including June 30, 1989, actual rental
income and expense figures could not be located, and they were
estimated by the applicant. The estimate was based upon the 1985 net
rental income of $242,000, and was rounded to $240,000 per year for
the period 1986-1989.
---------------------------------------------------------------------------
6. It is represented that the transaction is desirable for the Plan
as the sale will enable the Plan to divest of an investment which
constitutes approximately 59% of the Plan's assets, and will provide
the Plan with liquidity to fund cash distributions to the participants.
The transaction is protective and in the best interest of the Plan
because the aggregate fair market value of the Buildings was determined
by an independent qualified appraiser, and because as a result of this
transaction, the Plan will receive the greater of: (1) $1,958,000,
representing the Plan's total investment in the Buildings; or (2) the
aggregate fair market value of the Buildings as determined at the time
of the sale by an independent, qualified appraiser. The applicant
represents that any amount in excess of the aggregate fair market value
of the Buildings, received by the Plan as a result of the proposed
transaction, if treated as a contribution to the Plan, will not exceed
limitations of section 415 of the Internal Revenue Code.
7. In summary, the applicant represents that the transaction
satisfies the statutory criteria of section 408(a) of the Act and
section 4975(c)(2) of the Code because:
(1) the Plan will receive the greater of: (1) $1,958,000,
representing the Plan's total investment in the Buildings; or (2) the
aggregate fair market value of the Buildings as determined at the time
of the sale by an independent, qualified appraiser;
(2) the proposed sale will be a one-time transaction; and
(3) the Plan will pay no costs or commissions as a result of this
transaction.
For Further Information Contact: Ekaterina A. Uzlyan of the
Department, telephone (202) 219-8883. (This is not a toll-free number.)
Waterman Medical Center, Inc. Productivity Incentive Program (the Plan)
Located in Eustis, Florida; Proposed Exemption
[Application No. D-9587]
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) and 406(b)(1) and (2)
of the Act and the sanctions resulting from the application of section
4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the
Code, shall not apply to the sale of a group annuity policy the (the
Policy) from the Plan to Florida Hospital/Waterman (the Employer), a
party in interest with respect to the Plan, provided that the following
conditions are met:
1. The fair market value of the Policy is established by a party
independent of the Employer and the Plan;
2. The Employer pays the greater of the current fair market value
of the Policy or the total amount the Plan has expended on the Policy
as of the date of sale;
3. The sale is a one-time transaction for cash; and
4. The Plan pays no fees or commissions in regard to the sale.
Summary of Facts and Representations
1. The Employer, a subsidiary of Adventist Health Systems Sunbelt
Healthcare Corporation, was formed by the merger of Florida Hospital
and Waterman Medical Center, Inc. (Waterman) on October 1, 1992. Prior
to the merger, Waterman had established the Plan, which is a defined
contribution plan, for the benefit of its eligible employees. The
Employer became the Plan sponsor after the merger and active Plan
participants became employees of the Employer. The Plan has been frozen
since January 18, 1992. As of September 30, 1993, the Plan had
approximately 837 participants and total assets of $1,202,429.
2. On September 17, 1986, the trustees of the Plan invested
$345,780 in the Policy, a separate investment account group annuity
policy issued by New England Mutual Life Insurance Company (New England
Life). New England Life is otherwise independent of the Employer and
the Plan. New England Life maintains a separate investment fund under
the Policy called the Developmental Properties Account (the DPA) which
is invested in new income producing properties throughout the United
States. Such properties consist mainly of commercial real estate, with
62 percent of the properties located in the Western United States.
According to the applicant, the DPA has been adversely affected by the
continuing recession in the California real estate market and other
negative market conditions. The total amount the Plan has invested in
the Policy is $345,780 (the original purchase price). Since the time of
purchase, no distributions from the Policy to the Plan have been made.
3. The market value of the Policy had declined to $183,937 as of
September 30, 1993, according to New England Life. An analysis of the
income or loss generated by the underlying properties as well as the
projected sales price and liquidity factors were utilized in this
determination of value.
New England Life has informed the Plan trustees that the value of
the DPA, and hence the Policy, may continue to fall in the months ahead
due to the continued recession in the real estate market. New England
Life has also notified the Plan that the level of withdrawal requests
from the DPA has been close to forcing a complete liquidation of the
DPA, which would not be in the best interests of policyholders.
Accordingly, New England Life has requested that any further withdrawal
requests be rescinded or reconsidered.
4. According to the applicant, under current market conditions, any
attempt by the Plan to liquidate the Plan's interest in the DPA could
force a distress liquidation of the DPA, thus creating a severe
hardship for the Plan. As a result, the Plan trustees may be precluded
from making distributions to Plan participants unless they are able to
transfer the Plan's interest in the DPA to another buyer. New England
Life has agreed to the transfer of the Policy to the Employer provided
that the Department grants an exemption with respect to such a
transaction.
5. The Plan now proposes to sell the Policy to the Employer. The
Employer will pay the greater of the current fair market value of the
Policy or the total amount the Plan has expended on the Policy as of
the date of sale. The sale will be a one-time transaction for cash, and
the Plan will pay no fees in regard to the transaction. The applicant
represents that any amounts received by the Plan as a result of the
proposed transaction which are in excess of the fair market value of
the Policy will be treated as a contribution to the Plan. However, such
contribution will not exceed the limitations of section 415 of the
Code.
6. In summary, the applicant represents that the proposed
transaction will satisfy the statutory criteria of section 408(a) of
the Act because: (1) The fair market value of the Policy will be
established by New England Life, a party unrelated to the Plan and the
Employer; (2) the Employer will pay the greater of the current fair
market value of the Policy or the total amount the Plan has expended on
the Policy as of the date of sale; (3) the sale will remove from the
Plan a group annuity policy which has been declining in value; and (4)
the Plan will receive all cash as a result of the transaction.
Tax Consequences of Transaction
The Department of the Treasury has determined that, if a
transaction between a qualified employee benefit plan and its
sponsoring employer (or affiliate thereof) results in the plan either
paying less or receiving more than fair market value, such excess may
be considered to be a contribution by the sponsoring employer to the
plan and thus must be examined under the applicable provisions of the
Code, including sections 401(a)(4), 404 and 415.
For Further Information Contact: Paul Kelty of the Department,
telephone (202) 219-8883. (This is not a toll-free number.)
Alberici Companies Retirement Plan (the Plan) Located in St. Louis,
Missouri; Proposed Exemption
[Application No. D-9633]
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, and 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 to the proposed cash sale (the
Sale) by the Plan of Group Annuity Policy No. GA-3363 (the GAP) issued
by the New England Life Insurance Company (New England Life) to
Alberici Corporation, the Plan sponsor (the Employer) and a party in
interest with respect to the Plan; provided the following conditions
are satisfied: (1) The Sale is a one-time transaction for cash; (2) the
Plan receives no less than the fair market value of the GAP at the time
of the Sale or, the cost of the GAP to the Plan, whichever is greater;
(3) the plan does not suffer any loss nor incur any expenses in
connection with the transaction; and (4) the Trustees of the Plan have
determined that the proposed transaction is appropriate for and in the
best interests of the Plan and its participants and beneficiaries.
Summary of Facts and Representations
1. The Plan is a defined contribution individual-account plan with
provisions for salary reduction contributions. As of December 31, 1993,
the Plan had 283 participants and total assets of approximately
$10,796,703. Alberici Corporation, the Plan sponsor, is a Missouri
Corporation and a holding company which owns all of the stock of J.S.
Alberici Construction Co., Inc.; Gunther-Nash Mining Construction Co.;
J.H. Hudson Construction Co.; and General Installation Company.
Alberici Corporation's corporate headquarters are located in St. Louis,
Missouri.
2. The Plan's trustees (the Trustees) manage the investment of the
Plan's assets. The Trustees are Gabriel J. Alberici, John S. Alberici
and David G. Millar. The Trustees have decided to change the Plan's
investment practices to permit participant self-directed investments.
In order to implement participant direction, present Plan assets,
including the GAP, will be liquidated.
3. The Plan acquired the GAP on December 31, 1982 at a cost of
$250,000 and subsequently invested an additional $100,000 in the GAP on
December 31, 1984. Thus, the Plan's total investment in the GAP is
$350,000. Under the terms of the GAP, the Plan's investment in the GAP
is credited to the Developmental Properties Fund, which is then
invested in the Developmental Properties Account (DPA). The DPA is a
pooled open-end separate investment account established by New England
Life in 1981. The DPA's investment objective is to produce a high and
increasing current rate of return principally through investing in new
income-producing properties throughout the United States. Although the
GAP did well initially, investment returns have been negative since
1990.\3\ The Trustees have been unable to liquidate the Plan's
investment in the GAP because withdrawals from the Developmental
Properties Fund and the DPA are limited to the Plan's ratable share of
the DPA's liquid balance, which has been insufficient due to negative
returns.
---------------------------------------------------------------------------
\3\The Department notes that the decisions to acquire and hold
the GAP are governed by the fiduciary responsibility requirements of
part 4, subtitle B, title I of the Act. In this regard, the
Department is not herein proposing relief for any violations of part
4 which my have arisen as a result of the acquisition and holding of
the GAP issued by New England Life.
---------------------------------------------------------------------------
4. The Trustees represent that the GAP is a non-performing asset
for which there is no ready market. The Trustees also represent that
the proposed Sale will enable the Plan to recoup its investment in the
GAP and will make it possible for the Plan to liquidate its investment
in the Gap so that provisions for participant self-directed investment
can be implemented. The Trustees propose that the Employer purchase the
GAP, for cash, at a price equal to the greater of (1) the cost of the
GAP to the Plan ($350,000), or (2) the fair market value of the GAP as
of the purchase date. The fair market value of the GAP will be
determined by the value reported by New England Life as of the end of
the quarter preceding the purchase date. New England Life represents
that the value of the GAP as of December 31, 1993 was $310,814.
Copley Real Estate Advisers (Copley), an indirect subsidiary of New
England Life, acts as asset manager and advisor to New England Life
with respect to the DPA. Copley selects qualified appraisal firms to
conduct annual outside appraisals on the properties which make up the
DPA. At quarterly dates between annual appraisals, Copley's asset
management group prepares internal valuations. Copley represents that
the internal valuations are based on the work that is completed by the
outside appraiser and that the same basic valuation methods used by the
outside appraisers are used for the internal valuations. The Trustees
represent that the valuations reported by New England Life provide a
reliable indication of the fair market value of the GAP and the DPA.
The Trustees also represent that the proposed transaction is protective
of and in the best interests of the Plan and its participants and
beneficiaries. In addition, the Trustees represent that the Employer
will receive no benefit from the sale, directly or indirectly.
5. In summary, the applicant represents that the proposed
transaction satisfies the criteria of section 408(a) of the Act
because: (1) The Plan will receive cash for the GAP in an amount equal
to (a) the amount invested in the GAP, $350,000, or (b) the fair market
value of the GAP as of the date of the Sale, if greater; (2) the
transaction will enable the Plan and its participants and beneficiaries
to avoid undue risk associated with the continued holding of the GAP
and will enable the Plan to implement participant self-directed
investment; (3) the Plan will not incur any expenses with respect to
the proposed transaction; and (4) the Trustees have determined that the
Sale at the proposed price is in the best interests of the participants
and beneficiaries of the Plan.
For Further Information Contact: Ms. Virginia J. Miller of the
Department, telephone (202) 219-8971. (This is not a toll-free number.)
Bank of America National Trust and Savings Association (Bank of
America) Located in San Francisco, California; Proposed Exemption
[Application No. D-9516]
Part I--Exemption for Cross-Trading Between Certain Funds
The restrictions of sections 406(a)(1)(A) and 406(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) of the Code, shall not apply
to (1) The purchase and sale of stock (including the stock of
BankAmerica Corporation (BAC) between Index Funds and/or Model Driven
funds (collectively, the Funds); and (2) the purchase and sale of
stocks (including the common stock of BAC) between Index or Model-
Driven Funds and various large pension plans (the Large Plans) pursuant
to portfolio restructuring programs of the Large Plans; provided that
the following conditions and the General Conditions of Part III are
met:
(a) The Index or Model-Driven Fund is based on an index which
represents the investment performance of a specific segment of the
public market for equity securities in the United States and/or foreign
countries. The organization creating and maintaining the index must be
(1) Engaged in the business of providing financial information,
evaluation, advice or securities brokerage services to institutional
clients, (2) a publisher of financial news or information, or (3) a
public stock exchange or association of securities dealers. The index
must be created and maintained by an organization independent of Bank
of America and its affiliates. The index must be a generally accepted
standardized index of securities which is not specifically tailored for
the use of Bank of America or its affiliates.
(b) The price for the stock is set at the closing price for that
stock on the day of trading; unless the stock was added to or deleted
from an index underlying a Fund (or Funds) after the close of trading,
in which case the price will be the opening price for that stock on the
next business day after the announcement of the addition or deletion.
(c) The transaction takes place within three business days of the
``triggering event'' giving rise to the cross-trade opportunity. A
triggering event is defined as:
(1) A change in the composition or weighting of the index and/or
model underlying a Fund;
(2) A change in the overall level of investment in a Fund as a
result of investments and withdrawals made on the Fund's regularly-
scheduled opening date; or
(3) A declaration by Bank of America (recorded on Bank of America's
records) that a ``triggering event'' has occurred, which will be made
upon an accumulation of cash in a Fund attributable to dividends and/or
tender offers for portfolio securities equal to not less than .05
percent and not more than .5 percent of the Fund's total value;
(d) In the event that a number of shares of a particular stock
which all of the Funds or Large Plans propose to sell on a given day is
less than the number of shares of such stock which all of the Funds or
the Large Plans propose to buy, or vice versa, the direct cross-trade
opportunity must be allocated among potential buyers or sellers on a
pro rata basis.
(e) With respect to transactions involving a Large Plan:
(1) It has assets in excess of $50 million;
(2) Fiduciaries of the Large Plan who are independent of Bank of
America are, prior to any cross-trade transactions, fully informed of
the cross-trade technique and provide advance written approval of such
transactions. Within 45 days of the completion of the Large Plan's
portfolio restructuring program, such fiduciaries shall be fully
appraised in writing of the transaction results. However, if such
program takes longer than three months to complete, interim reports of
the transaction results will be made within 30 days of the end of each
three month period.
(3) Such Large Plan transactions occur only in situations where
Bank of America has been authorized to restructure all or a portion of
the Large Plan's portfolio into an Index or Model-Driven Fund
(including a separate account based on an index or computer model) or
to act as a ``trading adviser'' in carrying out a Large Plan-initiated
liquidation or restructuring of its equity portfolio; and
(f) Bank of America receives no additional direct or indirect
compensation as a result of the cross-trade transaction.
Part II--Exemption for the Acquisition, Holding and Disposition of BAC
Stock
The restrictions of sections 406(a)(1)(D), 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) (D) and (E) of the
Code, shall not apply to the acquisition, holding or disposition of the
common stock of BAC by Index or Model-Driven Funds, if the following
conditions and the General Conditions of Part III are met: (a) The
acquisition or disposition of the BAC stock is for the sole purpose of
maintaining strict quantitative conformity with the relevant index upon
which the Index or Model-Driven Fund is based;
All acquisitions and dispositions, other than through cross-trade
transactions meeting the conditions of Part I, will comply with Rule
10b-18 of the Securities and Exchange Commission, including the
limitations regarding the price paid or received for such stock;
(c) Aggregate daily purchases of BAC stock, other than cross-trade
purchases meeting the conditions of Part I, will constitute no more
than the greater of: (1) 10 percent of the stock's average daily
trading volume for the previous five days; or (2) 10 percent of the
stock's trading volume on the date of the transaction;
(d) If the necessary number of shares of BAC stock cannot be
acquired within 10 business days from the date of the event which
causes the particular Index or Model-Driven Fund(s) to require BAC
stock, Bank of America will appoint a fiduciary which is independent of
Bank of America and its affiliates to design acquisition procedures and
monitor Bank of America's compliance with such procedures;
(e) All purchases and sales of BAC stock, other than cross-trades
meeting the conditions of Part I, will be executed on the national
exchange on which BAC stock is primarily traded;
(f) No transactions will involve purchases from, or sales to, Bank
of America or any affiliate, officer, director or employee of Bank of
America or any party in interest with respect to a plan which is
invested in an Index or Model-Driven Fund. This requirement does not
preclude purchases and sales of BAC stock in cross-trade transactions
meeting the conditions of Part I;
(g) No more than five (5) percent of the total amount of BAC stock
issued and outstanding at any time shall be held in the aggregate by
the Index and Model-Driven Funds;
(h) BAC stock shall constitute no more than two percent of the
value of any independent third-party index on which the investments of
an Index or Model-Driven Fund are based;
(i) A plan fiduciary independent of Bank of America authorizes the
investment of such plan's assets in an Index or Model-Driven Fund which
purchases and/or holds BAC stock; and
(j) A fiduciary independent of Bank of America and its affiliates
will direct the voting of the BAC stock held by an Index or Model-
Driven Fund on any matter in which shareholders of BAC stock are
required or permitted to vote.
Part III--General Conditions
(a) Bank of America maintains or causes to be maintained for a
period of six years from the date of the transaction the records
necessary to enable the persons described in paragraph (b) of this Part
to determine whether the conditions of the exemption have been met,
except that a prohibited transaction will not be considered to have
occurred if, due to circumstances beyond the control of Bank of America
or its affiliates, the records are lost or destroyed prior to the end
of the six-year period.
(b) (1) Except as provided in paragraph (2) of this subsection (b)
and notwithstanding any provisions of subsections (a)(2) and (b) of
section 504 of the Act, the records referred to in subsection (a) of
this Part are available at their customary location for examination
during normal business hours by--
(A) Any duly authorized employee or representative of the
Department of Labor or the Internal Revenue Service,
(B) Any fiduciary of a plan participating in an Index or Model-
Driven fund who has authority to acquire or dispose of the interests of
the plan, or any duly authorized employee or representative of such
fiduciary,
(C) Any contributing employer with respect to any plan
participating in an Index or Model-Driven Fund or any duly authorized
employee or representative of such employer, and
(D) Any participant or beneficiary of any plan participating in an
Index or Model-Driven Fund, or any duly authorized employee or
representative of such participant or beneficiary.
(2) None of the persons described in subparagraphs (B) through (D)
of this subsection (b) shall be authorized to examine trade secrets of
Bank of America, any of its affiliates, or commercial or financial
information which is privileged or confidential.
Part IV--Definitions
(1) Index Fund--Any investment fund, account or portfolio
sponsored, maintained and/or trusteed by Bank of America, or an
affiliate of Bank of America, in which one or more investors invest
which is designed to replicate the capitalization-weighted composition
of a stock index which satisfies the conditions of Part I(a) and Part
II(h).
(2) Model-Driven Fund--Any investment fund, account or portfolio
sponsored, maintained and/or trusteed by Bank of America, or an
affiliate of the Bank of America, in which one or more investors invest
which is based on computer models using prescribed objective criteria
to transform an independent third-party stock index which satisfies the
conditions of Part I(a) and Part II(h).
(3) Opening date--The regularly-scheduled date on which investments
in or withdrawals from an Index or Model-Driven Fund may be made.
(4) Trading adviser--A person whose role is limited to arranging a
Large Plan-initiated liquidation or equity restructuring within a
stated time so as to minimize transaction costs.
Summary of Facts and Representatives
1. Bank of America National Trust and Savings Association (the
Bank) is a national bank which is the principal subsidiary of
BankAmerica Corporation (BAC). BAC is the second largest bank holding
company in the U.S., with assets of approximately $185 billion. The
Bank is licensed to operate a trust department, which is regulated by
the Office of the Comptroller of the Currency (OCC). Within its trust
department, the Bank provides a variety of fiduciary services,
including acting as trustee of pension plans subject to the Act.
Currently, the Bank acts as trustee of pension plans with assets
totalling approximately $27 billion.
2. In its capacity as trustee, the Bank may be either directed by
an independent fiduciary or a plan participant with self-direction
ability (such as a participant in a 401(k) plan) with respect to
investment decisions. Alternatively, in those cases in which the Bank
actually manages the investments, the Bank will make the investment
decisions itself, which would include choosing to place some or all of
the pension assets under its management in the Funds or other
collective investment funds managed by the Bank. A combination of
management responsibilities result when an independent fiduciary
directs the Bank to invest pension assets in a particular Bank
collective investment fund. The Bank represents that it requires the
ability to manage its collective investment funds in various ways, in
order to enable pension plan assets to be diversified, to reduce risk,
and to be invested in the types of investments that a particular
manager for a plan may determine is appropriate at a particular time.
Index Funds and Model-Driven Funds (the Funds) are two examples of the
Bank's collective investment funds which include plan investors.
Index and Model-Driven Funds
3. An Index Fund is a collective investment fund, the objective of
which is the replication of the performance of an independently-
maintained stock index representing the performance of a specific
segment of the public market for equity securities. The Index Funds are
passively managed, in that the choice of stocks purchased and sold, and
the volume purchased and sold, are made according to predetermined
third party indices rather than according to active evaluation of the
investments. The Bank currently offers two types of funds that are
invested according to the criteria of an Index:
(a) The Mid-Cap 400 Index Fund is designed to track the Standard &
Poors Mid-Cap 400 Index. This index was established by Standard & Poors
(S&P) on June 5, 1991, and was the first index established by S&P after
the creation of the S&P 500 Index in 1957. The universe of stocks from
which the S&P Mid-Cap 400 Index is developed consists of U.S. companies
having market values ranging from $200 million to $5 billion. The level
of the index reflects the total market value of all 400 component
stocks relative to a particular base period. The stocks included in the
index are selected by the S&P Index Committee, an independent committee
selected by S&P.
(b) Another fund, the S&P 500 Index Fund, tracks the Standard &
Poors 500 Index (S&P 500). The S&P 500 is an index of 500 stocks that
are traded on the New York Stock Exchange, the American Stock Exchange,
and the NASDAQ National Market System. The S&P 500 is a market value-
weighted index, multiplying shares outstanding times stocks price, in
which each company's influence on index performance is directly
proportional to its market value. The 500 companies chosen by the S&P
Index Committee for the index are not the 500 largest companies but,
instead, are the companies that tend to be leaders in key industries
within the U.S. economy, as determined by the Committee.
4. A Model-Driven Fund is a collective investment fund, the
performance of which is based on computer models using prescribed
objective criteria to transform an independently-maintained stock index
representing the performance of a specific segment of the public market
for equity securities. The portfolio of a Model-Driven Fund is
determined by the details of the computer model, which examines
structural aspects of the stock market rather than the underlying stock
values. An example of a Model-Driven fund would include a fund which
``transforms'' the S&P 500, making investments according to a computer
model which uses such data as the following: (a) Earnings, dividends
and price-earning ratios for S&P 500 common stocks; (b) current yields
on corporate bonds and money market instruments; and (c) historical
standard deviations and correlations of and between asset classes. Like
Index Funds, Model-Driven Funds are also passively-managed, in that the
decisions about stock purchases and sales are not the result of active
evaluation of the investments by an investment manager, but are
determined in accordance with the predetermined computer model. The
Bank does not currently maintain any Model-Driven funds, but intends to
establish such funds in the future.
Cross Trades
5. Frequent purchases and sales of securities by the Funds are
required to accomplish portfolio balances in accordance with the
particular indexes or models in use. In addition, some securities
transactions may be prompted by a client Plan's request to add funds
to, or withdraw funds from, a Fund. Under any of these circumstances,
the Bank's disposition of a particular security for one Fund may
involve a security which may be needed by another Fund, presenting an
opportunity to save substantial commissions for both the liquidating
Fund and the acquiring Fund. This saving is enabled by a cross-trade
transaction, which involves matching the Bank's sell orders for a
particular day with its buy orders for the same day, and the execution
of trades between the Funds in off-market transactions. Under current
procedures, all securities transactions, including cross-trades between
accounts maintained by the Bank, are executed by a broker on behalf of
a purchasing or selling Fund, at the direction of the Bank, dealing
with a second broker acting on behalf of a purchasing or selling second
party.
6. The Bank proposes to take advantage of opportunities to direct
the cross-trading of securities directly between the Funds, or directly
with other client accounts for which the Bank is the investment
manager, or with mutual funds or institutional accounts for which the
Bank is the investment advisor. The Bank maintains that comparable
transactions on the open market between unrelated parties would require
a brokerage commission equal to between four and five cents per share
for each sale or purchase transaction. However, the brokerage
commission paid for each proposed cross trade would be only 1 cent per
share, which reflects the record-keeping costs of the brokers. The Bank
represents that in accordance with Bank policy, the Bank's own in-house
brokerage unit would not be used to effect the cross trades, and that
all brokers used in the cross trades will be unrelated to and
independent of the Bank.
The Bank also represents that by participating in its cross-trading
program, the Funds will benefit by not incurring the cost, in terms of
price, of dealing with a person or firm acting as ``market maker'' for
the particular security involved in a cross-trade transaction. This
cost is measured by the spread between the asking and bidding prices
for the security. Additionally, the Bank represents that where trading
of a particular security is ``thin'' (limited in numbers of shares
available), participation in the cross-trading program may enable the
Funds to obtain early opportunities to acquire or sell such securities.
The Bank intends that the requested exemption for cross-trade
transactions would apply, in addition to the two Index Funds it
currently maintains, to Index and Model-Driven Funds which it may
create in the future which satisfy all the conditions of the exemption,
if granted.
7. The Bank also proposes cross-trade transactions between the
Funds and Large Plans with assets in excess of $50 million and whose
investment portfolio is not controlled by an index or model. Such
trades will occur only when the Large Plans' fiduciaries, which are
independent of the Bank, are fully informed of the cross-trade
technique, provided advance written approval of such transactions, and
are fully apprised of the transaction results. Further, cross trades
involving Large Plans will be limited to those situations where the
Bank's advising role is restricted to either managing a portion of the
Large Plan's assets through one or more of the Bank's passive
investment strategies such as the Funds, or acting as a trading adviser
in a Large Plan portfolio restructuring. Such restructurings generally
occur in connection with a Large Plan decision to invest in one of the
Bank's Funds, but they may also involve requests for the Bank to carry
out a restructuring program independent of future investments in the
passive Funds. In this instance, the Bank's only role is that of a
trading adviser, carrying out a Large Plan-initiated liquidation or
equity restructuring. When a Large Plan engages the Bank to invest in a
Fund or to arrange its own passively-managed portfolio, the Large
Plan's assets must be transformed into an Index or Model-Driven Fund
portfolio. In implementing the transformation, the Bank is limited by
the stated portfolio and is not in any active investment role. The
impetus for the investment comes from the independent fiduciaries of
these Large Plans. Given such an investment by a Large Plan, the Bank's
role is limited to recreating the required portfolio. By performing
cross-trades with Index or Model-Driven Funds where possible, the Bank
reduces the overall transactions costs by both parties to the cross-
trade. The Bank has a similar lack of discretion in the case of Large
Plans which request the Bank to restructure a portfolio, generally by
liquidation: The Bank then acts as the trading advisor to the Large
Plan, arranging for the stock transactions within a stated time so as
to minimize transaction costs. The opportunity to engage in cross-
trades with Index and/or Model-Driven Funds occurs only when those
Funds are required to purchase the same stock which the Large Plan is
selling.
8. The Bank represents that its cross-trading program will be
effected pursuant to a proportional allocation system which will ensure
that no client account will be favored over any other client account.
In the event that the number of shares of a particular stock which all
of the Funds or Large Plans propose to sell on a given day is less than
the number of shares of such stock which all the Funds or the Large
Plans propose to buy, the direct cross-trade opportunity will be
allocated among potential buyers on a pro rata basis. Thus, all the
Bank's client accounts participating in its cross-trade program will
have opportunities to participate on a proportional basis in all cross-
trade transactions during the operation of the cross-trading program.
This aspect of the Bank's cross-trading program is among the
information which is disclosed in writing to the fiduciaries of the
Large Plans and pension plans which invest in the Funds.
Acquisition, Holding and Disposition of BAC Stock
9. The Bank is also proposing that each Fund be permitted to invest
in the stock of BAC (BAC Stock) if BAC stock is included among the
stocks listed on the index utilized by the Fund. BAC Stock is not
currently included in the S&P Mid-Cap 400 Index, but BAC Stock is one
of the stocks included in the S&P 500. Because of the prohibitions of
section 406 and 407 of the Act, the S&P 500 Index Fund currently is not
permitted to invest in BAC stock. The Bank represents that the
exclusion of BAC stock from the S&P 500 Index Fund creates a material
tracking error due to BAC's substantial capitalization. To correct the
tracking error, the Bank proposes to purchase on the open market, and
hold, on behalf of the S&P 500 Fund the number of shares of BAC Stock
necessary to replicate correctly the weighting of BAC Stock in the S&P
500. All purchases will be made in accordance with Securities and
Exchange Commission (SEC) Rule 10b-18, which provides a ``safe harbor''
for issuers of securities from section 9(a)(2) of the Securities
Exchange Act of 1943 and SEC Rule 10b-5 (which generally prohibits
persons from manipulating the price of a security and engaging in fraud
in connection with the purchase or sale of a security).
The Bank represents that the conditions imposed by Rule 10b-18 for
proposed purchases of BAC Stock would be as follows: (a) All purchases
must be made from or through only one broker on any single day. (b) No
purchases may constitute the opening transaction in BAC Stock. (c)
Purchases may not occur during the one-half hour before the scheduled
close of trading on the NYSE. (d) The price may not be higher than the
current independent bid quotation or the last independent sale price on
the exchange, whichever is higher. (e) If the purchases of BAC Stock
are not block purchases as defined by rule 10b-189(b)(4), the total
amount of purchases on any one day may not exceed the higher of one
round lot or the number of round lots closest to 25 percent of the
trading volume for BAC Stock on that day.
Any purchases or sales of BAC Stock by the S&P 500 Fund after the
initial acquisition of the stock would be accomplished either through
cross-trade transactions subject to the conditions of Parts I and III
of the proposed exemption, or on the open market subject to SEC rule
10b-18 and the conditions of Parts II and III of the proposed
exemption.
10. The Bank will appoint an independent fiduciary for the purposes
of developing trading procedures for the initial acquisition of BAC
Stock on the open market by the S&P 500 Fund in the amounts required by
the S&P 500 while minimizing the impact of the acquisitions on the
market for BAC Stock, and monitoring the Bank's compliance with those
procedures. The independent fiduciary and its principals will be
completely independent from the Bank and its affiliates and be
experienced in developing and operating investment strategies,
including index funds. The Bank will require the fiduciary to be able
to accurately represent that neither it nor its principals, employees,
or affiliates holds or controls any shares of BAC Stock and that during
the exercise of the trading program by the Bank no principal employee
of the independent fiduciary nor the fiduciary itself will engage in
any trading of any kind in BAC Stock. Furthermore, the independent
fiduciary will not act as the broker for any purchases or sales of BAC
Stock and will not receive any commissions as a result of the trading
program.
11. The independent fiduciary will have as its primary goal the
development of a trading program that minimizes the market impact of
purchases made pursuant to the program. Thus, price increases that
would be detrimental to the interests of Plan investors will be
minimized. The trading activities will be conducted in a low-profile,
mechanical, non-discretionary manner. In this regard, the independent
fiduciary will be required to utilize a computerized trading program
that will engage in a number of small purchases over the course of each
day, randomly timed. Such a program will allow the Bank to acquire the
necessary shares of BAC Stock for the S&P 500 Fund with minimum impact
on the market and in a manner that will be in the best interests of the
Plans participating in the S&P 500 Fund.
12. The independent fiduciary will also be required to monitor the
Bank's compliance with the trading program and procedures it developed
for the initial acquisition of BAC Stock. The independent fiduciary
will receive duplicate confirmation slips of all trades as well as the
``time and tape'' of all NYSE transactions in BAC Stock completed
immediately before and after each transaction and a time/price/quantity
record of all completed or attempted trades. The independent fiduciary
will be required to review the activities weekly to determine
compliance with the trading procedures and notify the Bank and the
Department should any non-compliance be detected. Should the trading
strategy need modifications due to unforeseen events or consequences,
the independent fiduciary will be required to consult with the Bank and
must approve in advance any alteration of the trading procedures. All
purchases of BAC Stock pursuant to the independent fiduciary's trading
program will comply with SEC rule 10b-18 and Parts II and III of the
proposed exemption.
13. The Bank represents that it does not exercise any discretionary
authority over whether a Plan invests in the S&P 500 Fund, except for a
relatively small number of Plans which subscribe to Portfolio
Management in Funds (PMF) services. If the Bank provides PMF to a Plan,
the Bank does exercise discretion in allocating and reallocating Plan
assets among various collective investment funds including the S&P 500
Fund and any other index or model-driven fund, based on the Plan's
investment objectives, risk profile and market conditions. However, the
Bank makes the following representations, and will take the following
steps, with respect to plans utilizing PMF (PMF Plans):
(a) The Bank represents that with respect to any prohibited
transactions which might result from its discretionary allocation and
reallocation of plan assets, such services will satisfy the
requirements of section 408(b)(8) of the Act and, accordingly, will be
exempt from the prohibitions of section 406 of the Act .\4\
---------------------------------------------------------------------------
\4\In this proposed exemption, the Department expresses no
opinion as to whether the Bank's discretionary allocation and
reallocation services satisfy the requirements of section 408(b)(8)
of the Act.
---------------------------------------------------------------------------
(b) Before BAC Stock is purchased by the Fund, the appropriate
independent fiduciary for each PMF Plan will be furnished an
explanation and a simple form to return on which approval or
disapproval of investments in Index and Model-Driven funds holding BAC
Stock could be indicated, together with a postage-paid return envelope.
If the form is not received by the Bank within 30 days, the Bank may
obtain a verbal response by telephone. If a verbal response is obtained
by telephone, the Bank will confirm the fiduciary's decision in writing
within five business days. In the event no response is obtained from a
PMF Plan fiduciary, the assets of the Plan will not be invested in any
fund which invests in BAC Stock.
(c) Each new management agreement with a PMF Plan will contain
language specifically approving or disapproving the discretionary
investment in Index or Model-Driven Funds which might hold BAC Stock.
The fiduciary for each present PMF Plan will be informed that the
existing management agreement could be modified in the same way.
(d) Each PMF Plan will be informed on a quarterly basis of any
investment in or withdrawal from an Index or Model-Driven Fund holding
BAC Stock. The PMF Plan would be granted the election to override the
Bank's discretionary decision to invest in or withdraw from such Fund.
14. In the event a third-party index, in addition to the S&P 500,
utilized by the Bank for an Index or Model-Driven Fund, adds BAC Stock,
or if the Bank establishes an Index or Model-Driven Fund based on a
third-party index other than the S&P 500, and the Bank is unable to
satisfy the need of such Fund for BAC Stock through cross-trades with
other Funds, the Bank will acquire BAC Stock in the open market. If the
Bank is required to acquire BAC Stock in the open market on behalf of
an Index or Model-Driven Fund in those circumstances, the Bank will
determine whether the stock can be acquired within 10 business days,
acquiring on each day no more than the greater of 10 percent of the
stock's average daily trading volume for the previous five days or 10
percent of the stock's current day's trading volume. If the BAC Stock
cannot be acquired within 10 business days, the Bank will appoint an
independent fiduciary to establish the procedures to be used to acquire
the BAC Stock and monitor the Bank's compliance with those procedures.
The fiduciary will be unrelated to and independent of the Bank and will
have expertise in the operation of Index Funds. Further, any such
acquisition of BAC Stock on behalf of an Index or Model-Driven Fund
will comply with the conditions of Parts II and III of the proposed
exemption, including compliance with SEC Rule 10b-18.
15. The Bank will appoint an independent fiduciary which will
direct the voting of the BAC Stock held by the Index and/or Model-
Driven Funds. The independent fiduciary will be a consulting firm
specializing in corporate governance issues and proxy voting on behalf
of public and private pension funds, banks, trust companies, money
manager, insurance companies and other institutional investors with
large equity portfolios. The fiduciary will be required to develop, and
supply to the Bank, a corporate ownership manual which will act as a
guideline to the voting of proxies by institutional fiduciaries, and
their current voting guidelines. The Bank will provide the independent
fiduciary with all necessary information regarding the collective funds
that hold BAC Stock, the amount of BAC Stock held by the Funds on the
record date for shareholder meetings of BAC, and all proxy and consent
materials with respect to BAC Stock. The independent fiduciary will
maintain records with respect to its activities as an independent
fiduciary on behalf of the Funds, including the number of BAC Stock
shares voted, the manner in which they were voted, and the rationale
for the vote if the vote was not consistent with the independent
fiduciary's corporate ownership manual and the current voting
guidelines in effect at the time of the vote. The independent fiduciary
will supply the Bank with the information after each shareholder
meeting. The independent fiduciary will be required to acknowledge that
it will be acting as a fiduciary with respect to the plans which invest
in the Funds which own BAC Stock, when voting the Stock.
16. In summary, the applicant represents that the proposed cross-
trading transactions satisfy the criteria of section 408(a) of the Act
for the following reasons: (a) the Index and Model-Driven Funds buy or
sell stock only in response to various ``triggers'' which are not
within the Bank's control or discretion; (b) The Large Plans will
engage in cross trades only in situations where the Bank has no
discretion with respect to the investment decision; (c) All cross
trades, including cross-trades involving BAC Stock, will occur within 3
business days of the ``triggering event'' necessitating the purchase or
sale; (d) The price for the Stocks will be set at the closing (or
opening, where appropriate) price for those stocks on the day of
trading; (e) The Funds and the Large Plans will save significant
amounts of money on brokerage commissions; and (f) The Bank will
receive no additional compensation as a result of the proposed cross
trades nor with respect to the acquisition, holding and disposition of
BAC Stock.
The applicant further represents that the proposed BAC Stock
transactions satisfy the criteria of section 408(a) of the Act for the
following reasons: (a) The acquisition, holding and disposition of BAC
Stock will occur solely to maintain strict quantitative conformance by
an Index or Model-Driven Fund to its underlying index or model; (b) All
acquisitions and dispositions of BAC Stock in the open market will
comply with SEC Rule 10b-18; (c) no more than 5 percent of the total
outstanding shares of BAC Stock will be held in the aggregate by the
Funds; (d) The initial acquisition of BAC Stock by the S&P 500 Fund
will be monitored by a fiduciary independent of the Bank to result in
minimum market disturbances; and (e) A fiduciary independent of the
Bank will direct the voting of any BAC Stock held by the Funds.
For further information contact: Ronald Willett of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Atlanta Consulting Group, Inc. Retirement Plan (the Plan) Located
Atlanta, Georgia; Proposed Exemption
[Exemption Application No. D-9638]
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR part
2570, subpart B (55 FR 32836, August 10, 1990). If the exemption is
granted, the restrictions of section 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 to the proposed cash sale (the Sale) of
certain shares of stock (the Stock) from the Plan to Atlanta Consulting
Group, Inc., a party in interest with respect to the Plan.
This proposed exemption is conditioned upon the following
requirements: (1) All terms and conditions of the Sale are at least as
favorable to the Plan as those obtainable in an arm's length
transaction; (2) the Sale is a one-time cash transaction; (3) the Plan
is not required to pay any commissions, costs or other expenses in
connection with the Sale; and (4) the Plan receives a sales price equal
to the greater of: (a) The fair market value of the Stock on the date
of the Sale; or (b) the Stock's original acquisition of $25,000.
Summary of Facts and Representations
1. The Plan is comprised of the assets of a profit sharing plan and
a 401(k) plan sponsored by Atlanta Consulting Group, Inc. (the
Employer), a Mississippi corporation engaged in management consulting
and employee training services. As of December 31, 1992, the Plan had
total assets of $863,833 and twenty-one participants.
2. On September 14, 1988, the Plan purchased 2,500 shares of
Charter Bank stock (the Stock) for $25,000 or $10 per share directly
from Charter Bank (Charter Bank), an unrelated small banking company
organized and operating in Cobb County, Georgia. The Plan did not incur
any brokerage fees or other expenses in connection with this purchase.
On January 1, 1993, Charter Bank split the number of outstanding shares
three for two, thus increasing the number of shares owned by the Plan
to 3,750 shares. Since the Stock's acquisition, the Plan has not
received any dividends.
3. The Plan has recently offered its participants the opportunity
to direct their investments. As a result, the Plan wishes to convert
the Stock into cash so that other alternative investments can be chosen
by the participants. Since the Stock is not publicly traded and,
therefore, cannot be readily liquidated, the Employer requests an
administrative exemption from the Department to permit the Sale from
the Plan to the Employer under the terms and conditions described
herein.
4. The Employer will purchase the Stock for the greater of: (a) its
fair market value on the date of the Sale; or (b) its original
acquisition price of $25,000. At the present time, the Employer does
not own any Charter Bank stock, and as a result, the Employer will not
own a majority interest in Charter Bank after the Sale. The fair market
value will be based upon the trading prices of Charter Bank stock from
May 1, 1993 through the date of the Sale. The Sale will be a one-time
cash transaction, and the Plan will incur no expenses with respect to
the transaction.
5. From May 1, 1993 through March 25, 1994, a supplemental stock
offering and two buy/sell transactions to unrelated parties have
resulted in an average trading price of $7.50 per share. Accordingly,
because this average trading price exceeds the Plan's original
acquisition price of $25,000, the Employer will purchase the Stock for
its fair market value of $7.50 per share or $28,125. The applicant will
monitor all further buy/sell transactions of Charter Bank stock between
unrelated parties until the date of the Sale and will adjust the Sales
price accordingly.
6. In summary, the applicant represents that the proposed
transaction will satisfy the statutory criteria for an exemption under
section 408(a) of the Act because: (a) All terms and conditions of the
Sale will be at least as favorable to the Plan as those obtainable in
an arm's-length transaction; (b) the Sale will be a one-time cash
transaction; (c) the Plan will not be required to pay any commissions,
costs or other expenses in connection with the Sale; and (d) the Plan
will receive a sales price equal to the greater of: (1) The fair market
value of the Stock on the date of the Sale; or (2) the Stock's original
acquisition price of $25,000.
For further information contact: Kathryn Parr of the Department,
telephone (202) 219-8971. (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 believe a fiduciary or other party in interest of 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 accurately describe all
material terms of the transaction which is the subject of the
exemption. In the case of continuing exemption transactions, if any of
the material facts or representations described in the application
change after the exemption is granted, the exemption will cease to
apply as of the date of such change. In the event of any such change,
application for a new exemption may be made to the Department.
Signed at Washington, DC, this 19th day of April, 1994.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 94-9828 Filed 4-21-94; 8:45 am]
BILLING CODE 4510-29-P
