Proposed Exemptions; The Bank of California

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-9240, et al.]

Proposed Exemptions; The Bank of California

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

Unless otherwise stated in the Notice of Proposed Exemption, all

interested persons are invited to submit written comments, and with

respect to exemptions involving the fiduciary prohibitions of section

406(b) of the Act, requests for hearing 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, N.W., Washington, D.C.

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, 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 (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.

The Bank of California, N.A., Located in San Francisco, California;

Proposed Exemption

[Application No. D-9240]

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 C.F.R.

Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990).1

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

\1\For purposes of this exemption reference to specific

provisions of title I of the Act, unless otherwise specified, refer

also to the corresponding provisions of the Code.

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

Section I--Exemption for In-Kind Transfer of Assets

If the exemption is granted the restrictions of section 406(a) and

section 406(b) of the Act and the sanctions resulting from the

application of section 4975 of the Code by reason of section

4975(c)(1)(A) through (F) shall not apply, effective November 12, 1993,

to the in-kind transfer to any diversified open-end investment company

(the Fund or Funds) registered under the Investment Company Act of 1940

to which the Bank of California, N.A. or any of its affiliates

(collectively, the Bank) serves as investment adviser and may provide

other services of the assets of various employee benefit plans (the

Plan or Plans) that are either held in certain collective investment

funds (the CIF or CIFs) maintained by the Bank or otherwise held by the

Bank as trustee, investment manager, or in any other capacity as

fiduciary on behalf of the Plans, in exchange for shares of such Funds;

provided that the following conditions are met:

(a) A fiduciary (the Second Fiduciary) who is acting on behalf of

each affected Plan and who is independent of and unrelated to the Bank,

as defined in paragraph (g) of section III below, receives advance

written notice of the in-kind transfer of assets of the Plans or the

CIFs in exchange for shares of the Fund and the disclosures described

in paragraph (g) of section II below;

(b) On the basis of the information described in paragraph (g) of

section II below, the Second Fiduciary authorizes in writing the in-

kind transfer of assets of the Plans in exchange for shares of the

Funds, the investment of such assets in corresponding portfolios of the

Funds, and the fees received by the Bank in connection with its

services to the Fund. Such authorization by the Second Fiduciary to be

consistent with the responsibilities, obligations, and duties imposed

on fiduciaries by Part 4 of Title I of the Act;

(c) No sales commissions are paid by the Plans in connection with

the in-kind transfers of asset of the Plans or the CIFs in exchange for

shares of the Funds;

(d) All or a pro rata portion of the assets of the Plans held in

the CIFs or all or a pro rata portion of the assets of the Plans held

by the Bank in any capacities as fiduciary on behalf of such Plans are

transferred in-kind to the Funds in exchange for shares of such Funds,

(e) The Plans or the CIFs receive shares of the Funds that are

equal in value to the assets of the Plans or the CIFs exchanged for

such shares;

(f) The value of the assets of the Plans or the CIFs to be

transferred in-kind and the net asset value of the Funds receiving

those assets in exchange for shares is determined in a single valuation

performed in the same manner and at the close of business on the same

day, in accordance with the procedures set forth in Rule 17a-7(b) (Rule

17a-7) under the Investment Company Act of 1940, as amended from time

to time or any successor rule, regulation, or similar pronouncement;

(g) Not later than thirty (30) days after completion of each in-

kind transfer of assets of the Plans or the CIFs in exchange for shares

of the Funds, the Bank sends by regular mail to the Second Fiduciary,

who is acting on behalf of each affected Plan and who is independent of

and unrelated to the Bank, as defined in paragraph (g) of section III

below, a written confirmation that contains the following information:

(1) the identity of each of the assets that was valued for purposes

of the transaction in accordance with Rule 17a-7(b)(4) under the

Investment Company Act of 1940;

(2) the price of each of the assets involved in the transaction;

and

(3) the identity of each pricing service or market maker consulted

in determining the value of such assets; and

(h) For all conversion transactions that occur after the date of

this proposed exemption, the Bank, no later than ninety (90) days after

completion of each in-kind transfer of assets of the Plans or the CIFs

in exchange for shares of the Funds, will send by regular mail to the

Second Fiduciary, who is acting on behalf of each affected Plan and who

is independent of and unrelated to the Bank, as defined in paragraph

(g) of section III below, a written confirmation that contains the

following information:

(1) the number of CIF units held by each affected Plan immediately

before the conversion (and the related per unit value or the aggregate

dollar value of the units transferred); and

(2) the number of shares in the Funds that are held by each

affected Plan following the conversion (and the related per share net

asset value or the aggregate dollar value of the shares received).

(i) The conditions set forth in paragraphs (d), (e), (f), (o), (p),

(q) and (r) of section II below are satisfied;

Section II--Exemption for Receipt of Fees From Funds

If the exemption is granted, effective November 12, 1993, the

restrictions of section 406(a) and section 406(b) of the Act and the

sanctions resulting from the application of section 4975 of the Code,

by reason of section 4975(c)(1)(D) through (F) of the Code shall not

apply to the receipt of fees by the Bank from the Funds for acting as

the investment adviser, custodian, sub-administrator, and other service

provider for the Funds in connection with the investment in the Funds

by the Plans for which the Bank acts as a fiduciary provided that:

(a) No sales commissions are paid by the Plans in connection with

purchases or sales of shares of the Funds and no redemption fees are

paid in connection with the sale of such shares by the Plans to the

Funds;

(b) The price paid or received by the Plans for shares in the Funds

is the net asset value per share, as defined in paragraph (e) of

section III, at the time of the transaction and is the same price which

would have been paid or received for the shares by any other investor

at that time;

(c) The Bank, its affiliates, and officers or directors have not

and will not purchase from or sell to any of the Plans shares of any of

the Funds;

(d) The combined total of all fees received by the Bank for the

provision of services to the Plans, and in connection with the

provision of services to any of the Funds in which the Plans may

invest, are not in excess of ``reasonable compensation'' within the

meaning of section 408(b)(2) of the Act;

(e) The Bank does not receive any fees payable, pursuant to Rule

12b-1 under the Investment Company Act of 1940 (the 12b-1 Fees) in

connection with the transactions;

(f) The Plans are not sponsored by the Bank;

(g) A Second Fiduciary who is acting on behalf of a Plan and who is

independent of and unrelated to the Bank, as defined in paragraph (g)

of section III below, receives in advance of the investment by a Plan

in any of the Funds a full and detailed written disclosure of

information concerning such Fund including, but not limited to:

(1) a current prospectus for each portfolio of each of the Funds in

which such Plan is considering investing,

(2) a statement describing the fees for investment management,

investment advisory, or other similar services, any fees for secondary

services (Secondary Services), as defined in paragraph (h) of section

III below, and all other fees to be charged to or paid by the Plan and

by such Funds to the Bank, including the nature and extent of any

differential between the rates of such fees,

(3) the reasons why the Bank may consider such investment to be

appropriate for the Plan,

(4) a statement describing whether there are any limitations

applicable to the Bank with respect to which assets of a Plan may be

invested in the Funds, and, if so, the nature of such limitations; and

(5) upon request of the Second Fiduciary, a copy of the proposed

exemption and/or a copy of the final exemption, if granted.

(h) On the basis of the information described in paragraph (g) of

this section II, the Second Fiduciary authorizes in writing: (1) the

investment of assets of the Plans in shares of the Fund, in connection

with the transaction set forth in section II; (2) the investment

portfolios of the Funds in which the assets of the Plans may be

invested; and (3) the fees received by the Bank in connection with its

services to the Funds; such authorization by the Second Fiduciary to be

consistent with the responsibilities obligations, and duties imposed on

fiduciaries by Part 4 of Title I of the Act;

(i) The authorization, described in paragraph (h) of this section

II, is terminable at will by the Second Fiduciary of a Plan, without

penalty to such Plan. Such termination will be effected by the Bank

selling the shares of the Fund held by the affected Plan within one

business day following receipt by the Bank, either by mail, hand

delivery, facsimile, or other available means at the option of the

Second Fiduciary, of the termination form (the Termination Form), as

defined in paragraph (i) of section III below, or any other written

notice of termination; provided that if, due to circumstances beyond

the control of the Bank, the sale cannot be executed within one

business day, the Bank shall have one additional business day to

complete such sale;

(j) Plans do not pay any plan-level investment management fees,

investment advisory fees, or similar fees to the Bank with respect to

any of the assets of such Plans which are invested in shares of any of

the Funds. This condition does not preclude the payment of investment

advisory fees or similar fees by the Funds to the Bank under the terms

of an investment advisory agreement adopted in accordance with section

15 of the Investment Company Act of 1940 or other agreement between the

Bank and the Funds;

(k) In the event of an increase in the rate of any fees paid by the

Funds to the Bank regarding any investment management services,

investment advisory services, or fees for similar services that the

Bank provides to the Funds over an existing rate for such services that

had been authorized by a Second Fiduciary, in accordance with paragraph

(h) of this section II, the Bank will, at least thirty (30) days in

advance of the implementation of such increase, provide a written

notice (which may take the form of a proxy statement, letter, or

similar communication that is separate from the prospectus of the Fund

and which explains the nature and amount of the increase in fees) to

the Second Fiduciary of each of the Plans invested in a Fund which is

increasing such fees. Such notice shall be accompanied by the

Termination Form, as defined in paragraph (i) of section III below;

(l) In the event of an addition of a Secondary Service, as defined

in paragraph (h) of section III below, provided by the Bank to the Fund

for which a fee is charged or an increase in the rate of any fee paid

by the Funds to the Bank for any Secondary Service, as defined in

paragraph (h) of section III below, that results either from an

increase in the rate of such fee or from the decrease in the number or

kind of services performed by the Bank for such fee over an existing

rate for such Secondary Service which had been authorized by the Second

Fiduciary of a Plan, in accordance with paragraph (h) of this section

II, the Bank will at least thirty (30) days in advance of the

implementation of such additional service for which a fee is charged or

fee increase, provide a written notice (which may take the form of a

proxy statement, letter, or similar communication that is separate from

the prospectus of the Fund and which explains the nature and amount of

the additional service for which a fee is charged or the nature and

amount of the increase in fees) to the Second Fiduciary of each of the

Plans invested in a Fund which is adding a service or increasing fees.

Such notice shall be accompanied by the Termination Form, as defined in

paragraph (i) of section III below.

(m) The Second Fiduciary is supplied with a Termination Form at the

times specified in paragraphs (k), (l), and (n) of this section II,

which expressly provides an election to terminate the authorization,

described above in paragraph (h) of this section II, with instructions

regarding the use of such Termination Form including statements that:

(1) the authorization is terminable at will by any of the Plans,

without penalty to such Plans. Such termination will be effected by the

Bank selling the shares of the Fund held by the Plans requesting

termination within one business day following receipt by the Bank,

either by mail, hand delivery, facsimile, or other available means at

the option of the Second Fiduciary, of the Termination Form or any

other written notice of termination; provided that if, due to

circumstances beyond the control of the Bank, the sale of shares of

such Plans cannot be executed within one business day, the Bank shall

have one additional business day to complete such sale; and

(2) failure by the Second Fiduciary to return the Termination Form

on behalf of a Plan will be deemed to be an approval of the additional

Secondary Service for which a fee is charged or increase in the rate of

any fees, if such Termination Form is supplied pursuant to paragraphs

(k) and (l) of this section II, and will result in the continuation of

the authorization, as described in paragraph (h) of this section II, of

the Bank to engage in the transactions on behalf of such Plan;

(n) The Second Fiduciary is supplied with a Termination Form,

annually during the first quarter of each calendar year, beginning with

the first quarter of the calendar year that begins after the date the

grant of this proposed exemption is published in the Federal Register

and continuing for each calendar year thereafter; provided that the

Termination Form need not be supplied to the Second Fiduciary, pursuant

to paragraph (n) of this section II, sooner than six months after such

Termination Form is supplied pursuant to paragraphs (k) and (l) of this

section II, except to the extent required by said paragraphs (k) and

(l) of this section II to disclose an additional Secondary Service for

which a fee is charged or an increase in fees;

(o)(1) With respect to each of the Funds in which a Plan invests,

the Bank will provide the Second Fiduciary of such Plan:

(A) at least annually with a copy of an updated prospectus of such

Fund;

(B) upon the request of such Second Fiduciary, with a report or

statement (which may take the form of the most recent financial report,

the current statement of additional information, or some other written

statement) which contains a description of all fees paid by the Fund to

the Bank; and

(2) With respect to each of the Funds in which a Plan invests, in

the event such Fund places brokerage transactions with the Bank, the

Bank will provide the Second Fiduciary of such Plan at least annually

with a statement specifying:

(A) the total, expressed in dollars, brokerage commissions of each

Fund's investment portfolio that are paid to the Bank by such Fund;

(B) the total, expressed in dollars, of brokerage commissions of

each Fund's investment portfolio that are paid by such Fund to

brokerage firms unrelated to the Bank;

(C) the average brokerage commissions per share, expressed as cents

per share, paid to the Bank by each portfolio of a Fund; and

(D) the average brokerage commissions per share, expressed as cents

per share, paid by each portfolio of a Fund to brokerage firms

unrelated to the Bank;

(p) All dealings between the Plans and any of the Funds are on a

basis no less favorable to such Plans than dealings between the Funds

and other shareholders holding the same class of shares as the Plans;

(q) The Bank maintains for a period of six (6) years the records

necessary to enable the persons, as described in paragraph (r) of

section II below, 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 Bank, the

records are lost or destroyed prior to the end of the six (6) year

period, and

(2) no party in interest, other than the Bank, 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 (r) of section II below;

(r)(1) Except as provided in paragraph (r)(2) of this section II

and notwithstanding any provisions of subsection (a)(2) and (b) of

section 504 of the Act, the records referred to in paragraph (q) of

section II above are unconditionally available at their customary

location for examination during normal business hours by--

(i) Any duly authorized employee or representative of the

Department or the Internal Revenue Service;

(ii) Any fiduciary of each of the Plans who has authority to

acquire or dispose of shares of any of the Funds owned by such a Plan,

or any duly authorized employee or representative of such fiduciary;

and

(iii) Any participant or beneficiary of the Plans or duly

authorized employee or representative of such participant or

beneficiary;

(2) None of the persons described in paragraph (r)(1)(ii) and

(r)(1)(iii) of section II shall be authorized to examine trade secrets

of the Bank, or commercial or financial information which is privileged

or confidential.

Section III--Definitions

For purposes of this proposed exemption,

(a) The term ``Bank'' means The Bank of California, N.A. and any

affiliate of the Bank, as defined in paragraph (b) of this section III.

(b) An ``affiliate'' of a person includes: (1) Any person directly

or indirectly through one or more intermediaries, controlling,

controlled by, or under common control with the person;

(2) any officer, director, employee, relative, or partner in any

such person; and

(3) Any corporation or partnership of which such person is an

officer, director, partner, or employee.

(c) The term ``control'' means the power to exercise a controlling

influence over the management or policies of a person other than an

individual;

(d) The term ``Fund or Funds'' means any diversified open-end

investment company or companies registered under the Investment Company

Act of 1940 for which the Bank serves as investment adviser, and may

also provide custodial or other services as approved by such Funds;

(e) The term, ``net asset value'' means the amount for purposes of

pricing all purchases and sales calculated by dividing the value of all

securities, determined by a method as set forth in a Fund's prospectus

and statement of additional information, and other assets belonging to

each of the portfolios in such Fund, less the liabilities charged to

each portfolio, by the number of outstanding shares.

(f) The term, ``relative,'' means a ``relative'' as that term is

defined in section 3(15) of the Act (or a ``member of the family'' as

that term is defined in section 4975(e)(6) of the Code), or a brother,

a sister, or a spouse of a brother or a sister.

(g) The term, ``Second Fiduciary,'' means a fiduciary of a plan who

is independent of and unrelated to the Bank. For purposes of this

exemption, the Second Fiduciary will not be deemed to be independent of

and unrelated to the Bank if:

(1) Such Second Fiduciary directly or indirectly controls, is

controlled by, or is under common control with the Bank;

(2) Such Second Fiduciary, or any officer, director, partner,

employee, or relative of such Second Fiduciary is an officer, director,

partner, or employee of the Bank (or is a relative of such persons);

(3) Such Second Fiduciary directly or indirectly receives any

compensation or other consideration for his or her own personal account

in connection with any transaction described in this proposed

exemption.

If an officer, director, partner, or employee of the Bank (or a

relative of such persons), is a director of such Second Fiduciary, and

if he or she abstains from participation in (i) the choice of the

Plan's investment manager/advisor, (ii) the approval of any purchase or

sale by the Plan of shares of the Funds, and (iii) the approval of any

change of fees charged to or paid by the Plan, in connection with any

of the transactions described in sections I and II above, then

paragraph (g)(2) of section III above, shall not apply.

(h) The term, ``Secondary Service,'' means a service, other than an

investment management, investment advisory, or similar service, which

is provided by the Bank to the Funds, including but not limited to

custodial, accounting, brokerage, administrative, or any other service.

(i) The term, ``Termination Form,'' means the form supplied to the

Second Fiduciary, at the times specified in paragraphs (k), (l), and

(n) of section II above, which expressly provides an election to the

Second Fiduciary to terminate on behalf of the Plans the authorization,

described in paragraph (h) of section II. Such Termination Form may be

used at will by the Second Fiduciary to terminate such authorization

without penalty to the Plans and to notify the Bank in writing to

effect such termination by selling the shares of the Fund held by the

Plans requesting termination within one business day following receipt

by the Bank, either by mail, hand delivery, facsimile, or other

available means at the option of the Second Fiduciary, of written

notice of such request for termination; provided that if, due to

circumstances beyond the control of the Bank, the sale cannot be

executed within one business day, the Bank shall have one additional

business day to complete such sale.

EFFECTIVE DATE: If the proposed exemption is granted, the exemption

will be effective retroactively, as of November 12, 1993.

Summary of Facts and Representations

1. The Bank is a national banking association having its principal

office at 400 California Street, San Francisco, California. The Bank

offers a wide range of banking services to its clients in California,

Oregon, Washington, and around the world. The Mitsubishi Bank Limited,

a Japanese bank with principal offices in Tokyo, owns either directly

or indirectly through its wholly owned subsidiary, BanCal Tri-State

Corporation, all of the outstanding stock of the Bank. The Bank has

total trust and non-trust assets of approximately $19.5 billion and

$8.4 billion, respectively. Merus Capital Management (MERUS), a

division of the Bank, belongs to the Bank's Trust and Investment

Management Group which manages approximately $5.5 billion of the assets

held in trust by the Bank.

2. The Plans involved in the transactions for which the Bank

requests exemptive relief are numerous Plans for which the Bank has

acted or will act as fiduciary and has exercised or will exercise

investment discretion with respect to all or a portion of the assets of

such Plans.2 For this reason, certain specific information

relating to each individual involved Plan does not appear in the

application. However, it is anticipated that the Plans include or will

include various employee benefit plans, as defined by section 3(3) of

the Act, and certain plans or trusts, as described in section

4975(e)(1) of the Code. These Plans are sponsored or maintained by

parties unrelated to the Bank.3 Such Plans include, among others:

(1) pension, profit sharing, stock bonus, and other retirement plans

which are qualified for tax purposes under section 401(a) of the Code,

(2) voluntary employees' beneficiary associations and other welfare

benefit plans, and (3) individual retirement accounts and simplified

employee pension plans, as described in section 408 of the Code. The

Bank serves as fiduciary to these Plans through the management of the

CIFs in which the Plans invest or through providing individual

management or advice to the Plans.

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

\2\The Department herein is not proposing relief for

transactions afforded relief by Section 404(c) of the Act.

\3\The Department, herein, is not proposing relief for

transactions involving any plan sponsored by the Bank or its

affiliates.

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

It is represented that the Bank, as of October 23, 1992, had under

management approximately $760 million in assets from approximately 400

Plans. The Bank receives compensation for serving as fiduciary with

respect to these Plans in accordance with standard published fee

schedules or as otherwise agreed upon by the Bank and the sponsors of

such Plans.4

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

\4\The Department expresses no opinion as to whether the

provision of services by the Bank or its affiliates to the Plans

satisfies the requirements for statutory exemption, as set forth in

section 408(b)(2) of the Act and 29 CFR 2550.408(b)(2) of the

Department's regulation. To the extent that such provision of

services to the Plan by the Bank or its affiliates does not satisfy

the requirements of section 408(b)(2) of the Act, the Department,

herein, is offering no relief.

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

3. The Bank or its affiliates also provide services to numerous

Funds. The Funds are open-end investment companies registered under the

Investment Company Act of 1940. Because the Bank would like the

exemption to apply prospectively to any Fund to which the Bank or any

of its affiliates may provide services, the Bank represents that it

cannot supply detailed information on each such future Fund. However,

the Bank has provided a detailed description with respect to a certain

Fund, the HighMark Group (HighMark), which is currently operating and

to which it provides services. The Bank represents that all future

Funds will assume similar structures and Plan investments therein will

be subject to the terms and conditions of this exemption. The structure

of HighMark is summarized in paragraph 4 below. To the extent Plans for

which the Bank serves as fiduciary are currently invested in HighMark,

the Bank represents that such investments were made in compliance with

Prohibited Transaction Class Exemption 77-4 (PTCE 77-4).5

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

\5\PTCE 77-4 was granted April 8, 1977, at 42 FR 732 and was

proposed November 16, 1976, at 41 FR 50516.

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

4. HighMark, a Massachusetts business trust organized on March 10,

1987, is registered under the Investment Company Act of 1940 as a

diversified, open-end, management investment company. HighMark is

governed by a board of trustees (the HighMark Trustees), all of whom

are independent of the Bank. MERUS, a division of the Bank, acts as

investment adviser to HighMark. In the context of registered investment

companies, the term ``investment adviser'' generally refers to the

entity that has investment management authority with respect to the

assets of the investment company. In this regard, subject to the

general supervision of the HighMark Trustees, MERUS manages each of the

separate investment portfolios within HighMark in accordance with the

investment objectives, and policies of each portfolio, makes decisions

with respect to and places orders for all purchases and sales of

securities, and maintains records with respect thereto. In addition,

the Bank serves as custodian, sub-administrator, sub-transfer agent,

and sub-accountant to HighMark. It is represented that the Bank may in

the future seek to serve in additional capacities for and to provide

additional services to HighMark.

HighMark consists of separate investment portfolios with combined

total net assets of approximately $1 billion. It is represented that

currently there are eight (8) portfolios in HighMark. Three of these

portfolios are invested in money market instruments (the Money Market

Portfolios), and three are invested primarily in non-money market debt

or equity securities (the Non-Money Market Portfolios). The remaining

two portfolios of HighMark are the California Tax-Free Fund, and the

Tax-Free Fund.6 In addition to these portfolios, HighMark is in

the process of establishing two additional portfolios, the Balanced

Fund and the Growth Fund, and may establish other portfolios.

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

\6\It is represented that the Tax-Free Fund has been the subject

of an inquiry by the Securities and Exchange Commission (SEC)

concerning a municipal bond backed by Mutual Benefit Life Insurance

Company held in the Tax-Free Fund. In July 1991, when Mutual Benefit

Life Insurance Company was seized by its regulator, the Bank was

serving as accountant for the Tax-Free Fund. It is represented that

due to a clerical data entry error and the failure of an employee to

follow established procedures, the impact of the seizure on the

value of the bond was not brought to the attention of the management

of the Bank until August 1991. At that time, the Bank represents

that it informed the SEC, purchased the bond from the Tax-Free Fund

at par plus accrued interest, and informed shareholders by mailing

to them a special prospectus, dated September 5, 1991. As the

situation was corrected promptly, the Bank believes that this should

not affect the merits of the application or the availability of the

Tax-Free Fund for investment by the Plan, if deemed appropriate

under the circumstances as authorized by the Second Fibuciary, and

if based on criteria set forth in section 404 of the Act.

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

In the future HighMark may modify, reorganize, or terminate any or

all of its portfolios. All existing portfolios and any portfolios

established or modified in the future will be available for investment

by the Plans, if deemed appropriate under the circumstances, as

authorized by the Second Fiduciary, and if based on criteria set forth

in section 404 of the Act. However, it is represented that the Bank

does not expect the Plans ordinarily to be invested in tax-free funds.

Winsbury Company (Winsbury), located in Columbus, Ohio, serves as

the general manager, administrator, and principal underwriter of

HighMark. For these administrative services, Winsbury receives fees

computed daily at .20% of the average net assets of each portfolio of

HighMark. Winsbury also receives fees from HighMark for serving as the

distributor of shares in HighMark. Pursuant to a plan of distribution

implemented only with respect to the Class A shares for the Money

Market Portfolios, HighMark pays out of the assets attributable to such

shares monthly fees to Winsbury in accordance with Rule 12b-1 of the

Investment Company Act of 1940 (the 12b-1 Fees) equal to .25% of the

average daily net assets attributable to such shares.7 An

affiliate of Winsbury, the Winsbury Service Corporation (Winsbury

Service), is the transfer agent, accountant, and shareholder servicing

agent of HighMark. Winsbury and Winsbury Service are unrelated to the

Bank.

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

\7\It is represented that the Plans currently are invested only

in shares of HighMark that are not subject to 12b-1 Fees and that

there is no present intention to change this arrangement. The

Department notes that proposed relief is limited to the transactions

described herein, and no relief has been provided in connection with

the payment of distribution expenses, pursuant to Rule 12b-1 under

the Investment Company Act.

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

5. Because the Bank recognizes that (1) in-kind transfers to Funds

that the Bank services or advises of all or a pro rata portion of Plan

assets in the CIFs or all or a pro rata portion of Plan assets that the

Bank otherwise manages, and (2) the approval process for additional

services for which a fee is charged and fee increases by the Bank for

these services may be outside the scope of PTCE 77-4, the Bank has

requested relief for the transactions described in section I and II.

Each of these transactions is discussed more fully in paragraphs 6, 7,

8, and 9 below. The exemption for each of the transactions involving

HighMark is conditioned on the satisfaction of certain requirements and

compliance with various general conditions which are also discussed

below. It is the Bank's expressed intention that the description of

these transactions and the conditions of the requested exemption with

respect to such transactions were and will be applicable uniformly to

HighMark and to any of the other Funds for which the Bank serves as the

investment advisor and in which the Plans invest.

In-Kind Transfers to Funds

6. It is represented that the Bank has maintained CIFs in which the

Plans have invested in accordance with Regulation 9 promulgated by the

Comptroller of the Currency and the Internal Revenue Service. The Bank

has decided to terminate certain CIFs and to offer to the Plans

participating in such CIFs appropriate interests in certain Funds as

alternative investments. Because interests in CIFs generally must be

liquidated or withdrawn to effect distributions, the Bank believes that

the interests of the Plans invested in CIFs would be better served by

investment in shares of the Funds which can be distributed in-kind.

Also, the Bank believes that the Funds offer the Plans numerous

advantages as pooled investment vehicles. In this regard, the Plans, as

shareholders of a Fund, have the opportunity to exercise voting and

other shareholder rights.

The Plans, as shareholders of the Funds, as mandated by the SEC,

periodically receive certain disclosures concerning the Funds: (1) a

copy of the prospectus which is updated annually; (2) an annual report

containing audited financial statements of the Funds and information

regarding such Funds performance (unless such performance information

is included in the prospectus of such Funds); (3) a semi-annual report

containing unaudited financial statements; and (4) at the option of the

Funds other pertinent information. With respect to the Plans, the Bank

reports all transactions in shares of the Funds in periodic account

statements provided the Second Fiduciary of each of the Plans. Further,

the Bank maintains that the investment performance of the portfolios of

the Funds can be monitored daily from information available in

newspapers of general circulation.

In order to avoid the potentially large brokerage expenses that

would otherwise be incurred, the Bank proposes that from time to time

assets of the CIFs be transferred in-kind to corresponding portfolios

of the Funds in exchange for shares of such Funds. In this regard, some

Funds may, as in the case of HighMark, be in existence and operating at

the time of the in-kind transfer of such assets. Some Funds may be

created to assume the assets of the terminating CIF. Similarly, the

Bank proposes that from time to time it may be appropriate for an

individual Plan for which the Bank serves as fiduciary to transfer all

or a pro rata share of its assets in-kind to any of the Funds in

exchange for shares of such Funds. In this regard, for example, in the

case of an in-kind exchange between an individual Plan whose portfolio

consists of common stock, money market securities, and real estate, and

a Fund that, under its investment policy, invests only in common stock

and money market securities, the exchange would involve all or a pro

rata share of the common stock and money market securities held by the

Plan, if such stock and securities are eligible for purchase by the

Fund,\8\ and would not involve the transfer or exchange of the real

estate holdings of such Plan. No brokerage commission or other fees or

expenses (other than customary transfer charges paid to parties other

than the Bank or its affiliates) have been or will be charged to the

Plans or the CIFs in connection with the in-kind transfers of assets

into the Funds and the acquisition of shares of the Funds by the Plans

or the CIFs. Thus, in addition to retroactive relief, the Bank has

requested prospective relief for transactions which would involve: (1)

the in-kind transfer by the CIFs of all or a pro rata portion of the

assets of any of the Plans held in such CIFs to the Funds in exchange

for shares of the Fund which subsequently are distributed to the Plans;

or (2) the in-kind transfer of all or a pro rata portion of the assets

of any of the Plans held by the Bank in any capacity as fiduciary on

behalf of such Plans to the Funds in exchange for shares of such Funds;

provided that conditions described in section I above are satisfied.

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

\8\It is represented that a Fund's eligible investments are

described under ``Investment Policies and Fund Portfolio'' of its

prospectus.

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

The Bank maintains that the transfers in-kind of assets in exchange

for shares of the Funds are ministerial transactions performed in

accordance with pre-established objective procedures which are approved

by the board of trustees of each Fund. Such procedures require that

assets transferred to a Fund: (1) are consistent with the investment

objectives, policies, and restrictions of the corresponding portfolios

of such Fund, (2) satisfy the applicable requirements of the Investment

Company Act of 1940 and the Code, (3) have a readily ascertainable

market, (4) are liquid, and (5) are not subject to restrictions on

resale. It is represented that assets which do not meet these

requirements will be sold in the open market through an unaffiliated

brokerage firm prior to any transfer in-kind. Further, as described in

section I, prior to entering into an in-kind transfer each affected

Plan receives certain disclosures from the Bank and approves such

transaction in writing.

The Bank represents that valuation of assets transferred in-kind to

the Funds will be established by reference to independent sources. In

this regard, for purposes of the transaction, it is represented that

all assets transferred in-kind are valued in accordance with the

valuation procedures described in Rule 17a-7(b) under the Investment

Company Act of 1940, as amended from time to time or any successor

rule, regulation, or similar pronouncement. Further, the Bank

represents that within thirty (30) days of the completion of a transfer

in-kind, it will provide to Plans written confirmation of the identity

of each security valued under Rule 17a-7(b)(4), the price of each

security, and the identity of each pricing service or market maker

consulted in determining the value of the assets transferred. The

securities subject to valuation under Rule 17(a)-7(b)(4) include all

securities other than ``reported securities,'' as the term is defined

in Rule 11Aa3-1 under the Securities Exchange Act of 1934 (the 1934

Act), or those quoted on the NASDAQ system or for which the principal

market is an exchange.

It is represented that the value of the assets transferred in-kind

will be equal to the aggregate value of the corresponding portfolios

shares of the Fund at the close of business on the date of the

transaction. In this regard, it is represented that for all conversion

transactions that occur after the date of this proposed exemption, the

Bank, no later than ninety (90) days after completion of each in-kind

transfer of assets of the Plans or the CIFs in exchange for shares of

the Funds, will mail to the Second Fiduciary a written confirmation of

the number of CIF units held by each affected Plan immediately before

the conversion (and the related per unit value or the aggregate dollar

value of the units transferred), and the number of shares in the Funds

that are held by each affected Plan following the conversion (and the

related per share net asset value or the aggregate dollar value of the

shares received).

7. The Bank has requested retroactive relief, for the in-kind

transfer to HighMark that occurred over the weekend of November 12,

1993. It is represented that on the weekend of November 12, 1993, all

of the assets of five CIFs\9\, which were maintained by the Bank and in

which the Plans held interests, were transferred to HighMark in

exchange for an appropriate number of shares of certain portfolios of

HighMark which have investment objectives and policies substantially

identical to those of the CIFs. At the same time, the five CIFs were

terminated and the assets of each, then consisting of shares in

portfolios of HighMark, were distributed in-kind to the Plans

participating in such CIFs based on each Plan's pro rata share of the

assets of the CIFs on the date of the transaction.

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

\9\It is represented that the CIFs maintained by the Bank which

engaged in the transfer in-kind on November 12, 1993, were the

Balanced Fund, the Flexible Bond Fund A, the Government Fund, the

Income and Growth Equity Fund, and the Income Equity Fund A.

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

The Bank provided to the Second Fiduciary for each affected Plan

disclosures that announced the termination of the CIFs, summarized the

transaction, and otherwise complied with provisions of Section I. It is

represented that based on these disclosures, the Second Fiduciary from

each affected Plan approved in writing the transfer of the CIFs assets

to the corresponding portfolios of HighMark, the investment of the

assets of the Plans in shares of HighMark, and the receipt by the Bank

of fees for services to HighMark and to the Plans. It is represented

that the assets of Plans that did not approve investment in HighMark

were withdrawn from the CIFs and held or invested in appropriate

alternative investments in accordance with the terms of such Plans.

Prior to the transaction, the assets of the five CIFs were reviewed

to confirm that such were appropriate investments for the corresponding

portfolios of HighMark into which such assets were transferred. If any

of the assets of the five CIFs were not appropriate for HighMark, it is

represented that the Bank sold such assets in the open market through

an unaffiliated brokerage firm prior to the transfer.

It is represented that the assets transferred by the five CIFs to

HighMark consisted entirely of cash and marketable securities. For

purposes of the transfer in-kind, the value of the securities in each

of the five CIFs were determined based on market values as of the close

of business on November 12, 1993, the last business date prior to the

transfer. It is represented that the values were determined in a single

valuation using the valuation procedures described in Rule 17a-7 under

the Investment Company Act of 1940. In this regard, it is represented

that the ``current market price'' for specific types of CIF securities

involved in the transaction was determined as follows:

(1) If the security was a ``reported security'' as the term is

defined in Rule 11Aa3-1 under the 1934 Act, the last sale price with

respect to such security reported in the consolidated transaction

reporting system (the Consolidated System) for November 12, 1993; or if

there were no reported transactions in the Consolidated System that

day, the average of the highest independent bid and the lowest

independent offer for such security (reported pursuant to Rule 11Ac1-1

under the 1934 Act), as of the close of business on November 12, 1993;

or

(2) If the security was not a reported security, and the principal

market for such security was an exchange, then the last sale on such

exchange on November 12, 1993; or if there were no reported

transactions on such exchange that day, the average of the highest

independent bid and lowest independent offer on such exchange as of the

close of business on November 12, 1993; or

(3) If the security was not a reported security and was quoted in

the NASDAQ system, then the average of the highest independent bid and

lowest independent offer reported on Level 1 of NASDAQ as of the close

of business on November 12, 1993; or

(4) For all other securities, the average of the highest

independent bid and lowest independent offer as of the close of

business on November 12, 1993, determined on the basis of reasonable

inquiry. For securities in this category, the Bank represents that it

obtained quotations from at least three sources that were either

broker-dealers or pricing services independent of and unrelated to the

Bank and, where more than one valid quotation was available, used the

average of the quotations to value the securities, in conformance with

interpretations by the SEC and practice under Rule 17a-7.

It is represented that the securities received by the corresponding

portfolio of HighMark were valued by such portfolio for purposes of the

transfer in the same manner and on the same day as such securities were

valued by the CIFs. The per share value of the shares of each portfolio

of HighMark issued to the CIFs were based on the corresponding

portfolio's then current net asset value. It is represented that the

aggregate value of the shares of the corresponding portfolio of

HighMark issued to the CIFs were equal to the value of the assets (cash

and marketable securities) transferred to such portfolio as of the

close of business on November 12, 1993. It is also represented that the

value of a Plan's investment in shares of a corresponding portfolio of

HighMark as of the opening of business on the first business day after

the transaction (November 15, 1993) was equal to the value of such

Plan's investment in the CIF as of the close of business on the last

business day prior to the transaction (November 12, 1993).

It is represented that not later than thirty (30) days after

completion of the transaction (December 15, 1993), the Bank sent by

regular mail a written confirmation of the transaction to each affected

Plan. Such confirmation contained: (1) the identity of each security

that was valued in accordance with Rule 17a7(b)(4), as described in the

paragraph 7(4) above; (2) the price of each such security for purposes

of the transaction; and (3) the identity of each pricing service or

market maker consulted in determining the value of such securities. To

reiterate the above discussion, and in accordance with the conditions

under section I, similar procedures will occur upon any future in-kind

exchanges between CIFs maintained by the Bank, Plans, and the Funds.

Receipt of Fees From Funds

8. It is represented that the Bank currently invests assets of the

Plans it manages in shares of the Funds in accordance with the

conditions set forth in PTCE 77-4. Under certain conditions, PTCE 77-4

permits the Bank to receive fees from the Funds under either of two

circumstances: (a) where a Plan does not pay any investment management,

investment advisory, or similar fees with respect to the assets of such

Plan invested in shares of a Fund for the entire period of such

investment; or (b) where a Plan pays investment management, investment

advisory, or similar fees to the Bank based on the total assets of such

Plan from which a credit has been subtracted representing such Plan's

pro rata share of such investment advisory fees paid to the Bank by the

Fund. As such, it is represented that there are two levels of fees--

those fees which the Bank charges to the Plans for serving as trustee

with investment discretion or as investment manager (the Plan-level

fees); and those fees the Bank charges to the Funds (the Fund-level

fees) for serving as investment advisor, custodian, or service

provider.

It is represented that at present the vast majority of Plans for

which the Bank acts as a fiduciary do not pay any separate Plan-level

investment management, investment advisory, or similar fees with

respect to the assets of such Plans invested in shares of the Funds. A

few Plans, however, continue to pay Plan-level investment management,

investment advisory, and similar fees and receive credits which

represent each of the Plans pro rata share of investment advisory fees

paid to the Bank by the Funds. The Bank represents that Plan-level fees

currently charged are paid monthly and are calculated as a percentage

of the market value of the assets of a Plan with respect to which the

Bank provides services. It is represented that Plan-level investment

management, investment advisory or similar fees for all of the services

provided by the Bank, including services in connection with the

automated cash ``sweep'' arrangement, are charged in the form of a

single asset-based fee. It is represented that Plan-level fees are

subject to annual minimums for administration and management expressed

as flat dollar amounts and are subject to the application of certain

``break points.'' In addition to the Plan-level fees for investment

management, investment advisory, or similar services, a one-time fee

(also a flat dollar amount) may be charged in connection with the

establishment of an account for a Plan, and separate transaction fees

may be charged for various administrative transactions, such as for

example, a participant loan. It is represented that depending on the

terms of the governing documents of the Plan, Plan-level fees are paid

to the Bank either by the sponsor of the Plan or from the assets of the

Plan.

As mentioned above, the Bank also receives Fund-level fees. Such

Fund-level fees can be divided into: (1) fees paid to the Bank by a

Fund for investment management, investment advisory, or similar

services provided to such Fund, and (2) fees paid to the Bank for

administrative, custodial, transfer, accounting, and other Secondary

Services provided either to such Fund or to the distributor of shares

of such Funds and its affiliates. For example, with respect to

investment management/advisory services and Secondary Services, the

current fee arrangements between the Bank and HighMark provide for: (1)

MERUS, a division of the Bank, to receive fees from HighMark for acting

as investment advisor, (2) the Bank to receive custodian fees from

HighMark, (3) the Bank to receive fees from Winsbury for serving as

sub-administrator to HighMark, and (4) the Bank to receive fees from

Winsbury Services for services as sub-accountant and sub-transfer agent

provided to HighMark. It is represented that this compensation paid to

the Bank for investment advisory services and Secondary Services is in

accordance with various agreements between Winsbury, Winsbury Service,

HighMark, and the Bank. In this regard, it is represented that the

HighMark Trustees and the shareholders of HighMark approve the

compensation that the Bank receives from HighMark. Also, the HighMark

Trustees approve any changes in the compensation paid to the Bank for

services rendered to HighMark.

It is represented that the Fund-level fees from HighMark are

computed daily and billed monthly. The Bank represents that at the end

of each month and promptly upon receipt of the Fund-level fees from

HighMark, for those Plans which pay to the Bank Plan-level investment

management, investment advisory, or similar fees, the Bank currently

credits to each Plan its pro rata share of all investment management,

investment advisory, or similar fees charged by the Bank to HighMark.

9. Under the fee structure proposed in this exemption, it is

represented that the arrangement for Plan-level fees where assets of

the Plans managed by the Bank are invested in the Funds is different in

several respects from that described in paragraph 8 above. In this

regard, a separate Plan-level fee will be charged to the Plans for

basic administrative services not including investment management.\10\

Such administrative services would include, among others, the Bank's

acting as custodian of the assets of a Plan, maintaining the records of

a Plan, preparing periodic reports concerning the status of the Plan

and its assets, and accounting for contributions, benefit

distributions, and other receipts and disbursements. It is represented

that these functions performed by the Bank on the Plan-level are

separate and distinct from those performed on the Fund-level by the

Bank, by Winsbury, and by Winsbury Services.

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

\10\The fact that certain transactions and fee arrangements are

the subject of an administrative exemption does not relieve the

fiduciaries of the Plans from the general fiduciary responsibility

provisions of section 404 of the Act. Thus, the Department cautions

the fiduciaries of the Plans investing in the Funds that they have

an ongoing duty under section 404 of the Act to monitor the services

provided to the Plans to assure that the fees paid by the Plans for

such services are reasonable in relation to the value of the

services provided. Such responsibilities would include

determinations that the services provided are not duplicative and

that the fees are reasonable in light of the level of services

provided.

In addition, the Department notes that the combined total of all

fees received by the Bank directly or indirectly from the Plan for

the provision of services to the Plan and/or to the Fund should not

be in excess of ``reasonable compensation'' within the meaning of

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

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

It is represented that the Bank will continue to receive

compensation from the Plans for investment management services provided

with respect to assets of the Plans not invested in shares of any of

the Funds. However, under the proposed fee structure, the Bank will no

longer credit to any of the Plans their pro rata share of the

investment advisory fees, as described in paragraph 8 above, because

the Plans will no longer pay Plan-level fees to the Bank for investment

advisory services with respect to any of the assets of the Plans

invested in shares of any of the Funds. Instead, the compensation

received by the Bank for investment advisory services will be that

which is paid by the Funds to the Bank for such services rendered to

such Funds. In addition, the Bank will continue to retain fees for

providing Secondary Services to the Funds.

The applicant maintains that this proposed fee arrangement complies

with PTCE 77-4. However, there is one difference from PTCE 77-4

requested by the Bank for which an exemption is required. In this

regard, one of the requirements of PTCE 77-4 has been that any change

in any of the rates of fees would require prior written approval by the

Second Fiduciary of the Plans participating in the Funds. The applicant

maintains that where many Plans participate in a Fund, the addition of

a service or any good faith increase in fees could not be implemented

until written approval of such change is obtained from every Second

Fiduciary. The applicant proposes an alternative which the Bank

maintains provides the basic safeguards for the Plans and is more

efficient, cost effective, and administratively feasible than those

contained in PTCE 77-4.

It is represented that in the event of an increase in the rate of

any investment management fees, investment advisory fees, or similar

fees, the addition of a Secondary Service for which a fee is charged,

or an increase in the fees for Secondary Services paid by the Funds to

the Bank over an existing rate that had been authorized by the Second

Fiduciary, the Bank will provide, at least thirty (30) days in advance

of the implementation of such additional service or fee increase, to

the Second Fiduciary of all the Plans invested in such Fund a written

notice of such additional service or fee increase, (which may take the

form of a proxy statement, letter, or similar communication that is

separate from the prospectus of the Fund and which explains the nature

and amount of the additional service or the nature and amount of the

increase in fees). In this regard, such increase in fees for Secondary

Services can result either from an increase in the rate of such fee or

from the decrease in the number or kind of services performed by the

Bank for such fee over that which had been authorized by the Second

Fiduciary of a Plan. It is represented that providing notice in this

way will give the Second Fiduciary of each of the Plans adequate

opportunity to decide whether or not to continue the authorization of a

Plan's investment in any of the portfolios of the Funds in light of the

increase in investment management fees, investment advisory fees, or

similar fees, the additional Secondary Service for which a fee is

charged, or the increase in fees for any Secondary Services. In

addition, the Bank represents that such fee increase will be disclosed

to the Secondary Fiduciaries in a supplement to the Fund's prospectus

in the case of an increase in fees for investment management,

investment advisory, or similar services and in the Fund's Statement of

Additional Information in the case of an additional Secondary Service

for which a fee is charged or an increase in the fees for Secondary

Services.

10. It is represented that the written notice of an additional

service for which a fee is charged or a fee increase, as described in

paragraph 9 above, will be accompanied by a Termination Form, as

defined in paragraph (i) of section III, and by instructions on the use

of such form, as described in paragraph (m) of section II, which

expressly provide an election to the Second Fiduciaries to terminate at

will any prior authorizations without penalty to the Plans. In

addition, it is represented that the Second Fiduciary will be supplied

with a Termination Form annually during the first quarter of each

calendar year, beginning with the first quarter of the calendar year

that begins after the date the grant of this proposed exemption is

published in the Federal Register and continuing for each calendar year

thereafter, regardless of whether there have been any changes in the

fees payable to the Bank or changes in other matters in connection with

services rendered to the Funds. However, if the Termination Form has

been provided to the Second Fiduciary in the event of an increase in

the rate of any investment management fees, investment advisory fees,

or similar fees, an addition of a Secondary Service for which a fee is

charged, or an increase in any fees for Secondary Services paid by the

Fund to the Bank, then such Termination Form need not be provided again

to the Second Fiduciary until at least six months have elapsed, unless

such Termination Form is required to be sent sooner as a result of

another increase in any investment management fees, investment advisory

fees, or similar fees, the addition of a Secondary Service for which a

fee is charged, or an increase in any fees for Secondary Services.

The Termination Form will contain instructions regarding its use

which will state expressly that the authorization is terminable at will

by a Second Fiduciary, without penalty to any Plan, and that failure to

return the form will be deemed to be an approval of the additional

Secondary Service or the increase in the rate of any fees and will

result in the continuation of all authorizations previously given by

such Second Fiduciary. It is represented that termination by any Plan

of authorization to invest in the Funds will be effected by the Bank

selling the shares of the Fund held by the affected Plan within one

business day following receipt by the Bank, either by mail, hand

delivery, facsimile, or other available means at the option of the

Second Fiduciary, of the Termination Form or any other written notice

of termination. If, due to circumstances beyond the control of the

Bank, the sale cannot be executed within one business day, the Bank

shall have one additional business day to complete such sale.

11. It is represented that the rates paid by each of the portfolios

of the Funds to the Bank for services rendered may differ depending on

the fee schedule for each portfolio and on the daily net assets in each

portfolio. The investment advisory fees paid to the Bank by the Funds

will be based on the different fee rates of each of the portfolios into

which the assets of the Plans are allocated. For example, for services

provided to the Money Market Portfolios, the California Tax Free Fund,

and the Tax Free Fund, the Bank receives the following fees from

HighMark based on each portfolio's average daily net assets: (a) .40%

of the first $500 million; (b) .35% of the next $500 million; and (c)

.30% of the remaining average daily net assets. For services provided

to the Non-Money Market Portfolios, the Bank receives the following

fees from HighMark based on each portfolio's average daily net assets:

(a) 1.00% of the first $40 million; and (b) .60% on the remaining

average daily net assets. It is represented that the Bank currently

allocates investments by the Plans among the portfolios offered by

HighMark, and proposes to continue to allocate the assets of the Plans

among the portfolios of HighMark and/or any of the Funds under the

terms of this proposed exemption.

It is represented that the impact of the change in fee structures,

described in paragraph 9 above, on aggregate fees received by the Bank

is difficult to determine, because various factors and variables are

unique to each Plan. These factors include the size of the Plan, the

extent to which Plan assets are invested in the Funds, and the

application of certain ``break points'' in the schedule of Plan-level

fees. Further, Fund size and the application of certain ``break

points'' in the rate schedule of Fund-level fees, the identity of the

particular investment portfolio of the Fund into which the Plan assets

are allocated, and voluntary waivers by the Bank of Fund-level fees are

likely to be different in each situation and may affect the aggregate

amount of fees received by the Bank. In this regard, it is represented

that the combined total of all Plan-level and Fund-level fees received

by the Bank for the provision of services to the Plans and to the

Funds, respectively, are not in excess of ``reasonable compensation''

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

12. The exemption is subject to satisfaction of certain general

conditions. Chief among such conditions is the requirement that the

proposed transactions are subject to the prior authorization of a

Second Fiduciary, acting on behalf of each of the Plans, who has been

provided with full written disclosure by the Bank. It is represented

that the Second Fiduciary will generally be the administrator, sponsor,

or a committee appointed by the sponsor to act as a named fiduciary for

a Plan.

With respect to disclosure, the Second Fiduciary of such Plan will

receive in writing in advance of the investment by a Plan in any of the

Funds: (1) a current prospectus for each portfolio of each of the Funds

in which such Plan may invest, (2) a statement describing the

investment management fees, investment advisory fees, or similar fees,

any fees for Secondary Services, and all other fees to be charged to or

paid by the Plan and by such Funds to the Bank, including the nature

and extent of any differential between the rates of such fees, (3) the

reasons why the Bank may consider such investment(s) to be appropriate

for the Plan, (4) a statement describing whether there are any

limitations applicable to the Bank with respect to which assets of a

Plan may be invested in the Funds, and, if so, the nature of such

limitations, and (5) upon request of the Second Fiduciary a copy of the

proposed exemption and/or the final exemption, if granted.

In addition to the disclosures provided to the Plan prior to

investment in any of the Funds, the Bank represents that it will

routinely provide at least annually to the Second Fiduciary updated

prospectuses of the Funds in accordance with the requirements of the

Investment Company Act of 1940 and the SEC rules promulgated

thereunder. Further, the Second Fiduciary will be supplied, upon

request, with a report or statement (which may take the form of the

most recent financial report of such Funds, the current statement of

additional information, or some other written statement) which contains

a description of all fees paid by the Fund.

It is represented that the Bank does not now execute nor in the

future intend to execute securities brokerage transactions for the

investment portfolios of any of the Funds, except as and to the extent

permitted by the Investment Company Act of 1940 and applicable rules of

the Securities and Exchange Commission. In the event the Bank ever

performs brokerage services for which a fee is paid to the Bank by the

investment portfolio of any of the Funds, the Bank represents that it

will at least thirty (30) days in advance of the implementation of such

additional service provide a written notice which explains the nature

of such additional brokerage service and the amount of the fees.

Further, the Bank represents that it will provide at least annually to

the Second fiduciary of any Plan that invests in such Funds with a

written disclosure indicating (a) the total, expressed in dollars, of

brokerage commissions of each Fund's investment portfolio that are paid

to the Bank by such Fund; (b) the total, expressed in dollars, of

brokerage commissions of each Fund's investment portfolio that are paid

by such Fund to brokerage firms unrelated to the Bank; (c) the average

brokerage commissions per share, expressed as cents per share, paid to

the Bank by each portfolio of a Fund; and (d) the average brokerage

commissions per share, expressed as cents per share, paid by each

portfolio of a Fund to brokerage firms unrelated to the Bank.

On the basis of the information disclosed, it is represented that

the Second Fiduciary will authorize in writing (i) the investment of

assets of the Plans in shares of the Fund in connection with the

transactions set forth herein; (ii) the investment portfolios of the

Funds in which the assets of the Plans may be invested; and (iii) the

compensation received by the Bank in connection with its services to

the Funds. It is represented that written authorization will extend to

only those investment portfolios of the Funds with respect to which the

Second Fiduciary has received the written disclosures referred to above

and which are specifically mentioned in such authorization. Having

obtained the authorization of the Second Fiduciary, the Bank will be

permitted to invest the assets of a Plan among the portfolios and in

the manner covered by the authorization, subject to satisfaction of the

other terms and conditions of this proposed exemption. However, the

Bank will not be permitted to invest assets of a Plan in any portfolio

not specifically mentioned in the written authorization. For example,

if the written authorization of the Second Fiduciary covered only three

of six portfolios then existing, the Bank could only invest the assets

of such Plans in those three portfolios specifically authorized.

Further, if a new portfolio were established under any of the Funds,

the Bank could invest assets of a Plan in such new portfolio only after

providing the required disclosures and obtaining from the Second

Fiduciary a separate written authorization which specifically mentions

the new portfolio.

13. The receipt of fees, as described above, are generated in

connection with the investment in the Funds by the Plans. These

investments are the result of purchases of shares in the Funds and

exchanges of assets of the Plans, including those in CIFs, for shares

in the Funds.

It is represented: (1) that Plans and other investors will

purchases or sell shares in the Funds in accordance with standard

procedures described in the prospectus for each portfolio of the Funds;

(2) that the Plans will pay no sales commissions or redemption fees in

connection with purchase or sales of shares in the Funds by the Plans;

(3) that the Bank will not purchase from or sell to any of the Plans

shares of any of the Funds; and (4) the price paid or received by the

Plans for shares of the Funds will be the net asset value per share at

the time of such purchase or sale and will be the same price as any

other investor would have paid or received at that time.11

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

\1\1In this regard, it is represented that the value of

HighMark's shares and the value of each of HighMark's portfolios are

determined on a daily basis. In the case of the Non-Money Market

Portfolios, assets are valued at fair or market value, as required

by Rule 2a-4 under the Investment Company Act. In the case of the

Money Market Portfolios, the assets are valued based on the

amortized cost method authorized by SEC Rule 2a-7, in order to

maintain net asset value at $1.00 per share. Both the Money Market

Portfolios and the Non-Money Market Portfolios determine the net

asset value per share for purposes of pricing purchases and sales by

dividing the value of all securities, determined by a method as set

forth in the prospectus for each HighMark portfolio, and other

assets belonging to each of the portfolios, less the liabilities

charged to each portfolio, by the number of each portfolio's

outstanding shares.

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

14. Purchases and sales of shares in any of the Funds by the Plans

may also occur in connection with daily automated cash ``sweep''

arrangements. However, agreement to such arrangement is not a condition

for the Plan otherwise choosing to invest in shares of the Fund, nor

will the reverse be required.

It is represented that at the time the application was filed, all

of the Plans served by the Bank had elected to participate in automated

cash ``sweep'' arrangements with HighMark. Further, it is represented

that the ``sweep'' procedures, as described below with respect to

HighMark, will remain in effect under the proposed exemption for any of

the Funds.

Under the automated cash ``sweep'' arrangement, a Plan may

participate in the ``sweep'' program only with the initial written

approval of the Second Fiduciary and only after certain disclosures

have been provided by the Bank. If such approval is given, cash

balances of the Plan held from time to time thereafter pending other

investment or distribution are invested automatically in shares of one

or more of HighMark's Money Market Portfolios selected by the Second

Fiduciary on behalf of a Plan at the time of the initial authorization.

It is represented that the automated cash ``sweep'' arrangement would

not involve shares of HighMark's Non-Money Market Portfolios.

After the Money Market Portfolios have been selected by the Second

Fiduciary on behalf of the Plan, otherwise uninvested cash down to the

last $1.00 balance of the Plans may be invested automatically on a

nightly basis. It is represented that the Bank has no discretion with

respect to the timing of the ``sweep'' either into or out of HighMark.

Under the automated cash ``sweep'' arrangement, the Bank's computerized

cash management system automatically scans the accounts of the Plans,

as of the end of each business day to determine whether such accounts

have positive or negative net cash balances. Based on this information

the system automatically invests the cash of the Plans having positive

balances in shares of the selected Money Market Portfolios. In the case

of a Plan having a negative cash balance, the system automatically

liquidates HighMark shares as necessary to eliminate such negative

balance.

It is represented that Plans may terminate their participation in

the automated cash ``sweep'' arrangement and withdraw at any time by

notifying the Bank. Such termination will be affected by the Bank

selling the shares of HighMark held by the Plan requesting termination

within one business day following receipt by the Bank, either by mail,

hand delivery, facsimile, or other available means at the option of the

Second Fiduciary, of the Termination Form or any other written notice

of termination. However, if due to circumstances beyond the control of

the Bank, the sale of shares of such Plan cannot be executed within one

business day, the Bank shall have one additional business day to

complete such sale.

It is represented that no fee, charge, or penalty of any kind is

charged in connections with a termination by a Plan of participation in

the automated cash ``sweep arrangement'' in HighMark or in any of the

Funds. It is further represented that the Bank does not charge separate

or additional fees to Plans in order to participate in the daily

automated cash ``sweep'' arrangement, nor is such additional

compensation contemplated by the proposed exemption.12

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

\1\2The Department in a letter, dated August 1, 1986, to Robert

S. Plotkin, Assistant Director, Division of Banking Supervision and

Regulation, Board of Governors of the Federal Reserve System,

addressed the application of section 408(b)(2) of the Act to

arrangements involving ``sweep services.'' In that letter the

Department set forth several examples to illustrate various

circumstances under which violations of section 406(b) of the Act

would arise with respect to such arrangements. Conversely, the

letter provided that, if a bank provides ``sweep'' services without

the receipt of additional compensation or other consideration (other

than reimbursement of direct expenses properly and actually incurred

in the performance of such services), then the provision of

``sweep'' services by the bank would not, in itself, constitute a

violation of section 406(b) of the Act. Moreover, including

``sweep'' services under a single fee arrangement for investment

management services which is calculated as a percentage of the

market value of the total assets under management would not, in

itself, constitute an act described in section 406(b)(1), because

the bank would not be exercising its fiduciary authority or control

to cause a plan to pay an additional fee.

In addition, the letter also discusses the applicability of the

statutory exemptions under section 408(b)(6) fees for ``ancillary

services'' and under section 408(b)(8) for collective trust funds

maintained by such bank of the Act to such ``sweep'' service

arrangements.

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

15. In summary, the Bank represents that the proposed transactions

meet the statutory criteria of section 408(a) of the Act because:

(a) Neither the Plans nor the CIFs have paid or will pay sales

commissions or redemption fees in connection with the in-kind transfer

of assets to the Funds in exchange for shares of the Funds or in

connection with purchases or sales by the Plans of shares of the Funds,

including purchases and sales handled through daily automated cash

``sweep'' arrangements;

(b) The Plans or the CIFs have received and will receive shares of

the Funds that are equal in value to the assets of the Plans or the

CIFs exchanged for such shares, as determined in a single valuation

performed in the same manner and at the close of business on the same

day in accordance with the procedures set forth in Rule 17a-7 under the

Investment Company Act of 1940, as amended from time to time or any

successor rule, regulation, or similar pronouncement;

(c) Not later than thirty (30) days after completion of each in-

kind transfer of assets in exchange for share of the Funds, the Second

Fiduciaries for affected Plans have received and will receive written

confirmation of the assets involved in the exchange, the price of such

assets, and the identity of the pricing service or market maker

consulted;

(d) For all conversion transactions that occur after the date of

this proposed exemption, the Bank, no later than ninety (90) days after

completion of each in-kind transfer of assets of the Plans or the CIFs

in exchange for shares of the Funds, will mail to the Second Fiduciary

a written confirmation of the number of CIF units held by each affected

Plan immediately before the conversion (and the related per unit value

or the aggregate dollar value of the units transferred), and the number

of shares in the Funds that are held by each affected Plan following

the conversion (and the related per share net asset value or the

aggregate dollar value of the shares received);

(e) The price that has been or will be paid or received by the

Plans for shares in the Funds is the net asset value per share at the

time of the transaction and is the same price for the shares which

would have been paid or received by any other investor at that time;

(f) The Bank, its affiliates, and officers or directors have not

and will not purchase from or sell to any of the Plans shares of any of

the Funds;

(g) The combined total of all fees received by the Bank for the

provision of services to the Plans, and in connection with the

provision of services to any of the Funds in which the Plans may

invest, has not been and will not be in excess of ``reasonable

compensation'' within the meaning of section 408(b)(2) of the Act;

(h) The Bank has not and will not receive any 12b-1 Fees in

connection with the transactions;

(i) Prior to investment by a Plan in any of the Funds, in

connection with transactions, the Second Fiduciary has received and

will receive a full and detailed written disclosure of information

concerning such Fund;

(j) subsequent to the investment by a Plan in any of the Funds, the

Bank will provide the Second Fiduciary of such Plan, among other

information, at least annually with an updated copy of the prospectus

for each of the Funds in which the Plan invests;

(k) in the event such Fund places brokerage transactions with the

Bank, the Bank will provide the Second Fiduciary of such Plan at least

annually with a statement specifying the total, expressed in dollars,

of brokerage commissions of each Fund's investment portfolio that are

paid by such Fund to the Bank and to unrelated brokerage firms and the

average brokerage commissions per share, expressed as cents per share,

by each portfolio of a Fund paid to the Bank and to brokerage firms

unrelated to the Bank;

(l) On the basis of the disclosures, the Second Fiduciary has

authorized and will authorize the transactions;

(m) The authorization by the Second Fiduciary has been and will be

terminable at will without penalty to such Plans, and has been and will

be effected within one business day following receipt by the Bank,

either by mail, hand delivery, facsimile, or other available means at

the option of the Second Fiduciary, of the Termination Form or any

other written notice of termination, unless circumstances beyond the

control of the Bank delay execution for no more than one additional

business day;

(n) The Plans do not pay any investment management, investment

advisory, or similar fees to the Bank with respect to any of the assets

of such Plans which are invested in shares of any of the Funds;

(o) the Second Fiduciary has received and will receive a written

notice accompanied by a Termination Form with instructions regarding

the use of such form, at least thirty (30) days in advance of the

implementation of any increase in the rate of any fees for investment

management, investment advisory, or similar fees, any additional

Secondary Service for which a fee is charged, or any increase in fees

for Secondary Services that the Bank provides to the Funds; and

(p) All dealings between the Plans and any of the Funds have been

and will on a basis no less favorable to such Plans than dealings

between the Funds and other shareholders holding the same class of

shares as the Plans.

Notice to Interested Persons

Those persons who may be interested in the pendency of the

requested exemption include the fiduciaries of Plans which have

invested, as of the effective date of this exemption, in HighMark and/

or in any of the Funds, where the Bank served as investment adviser to

such Funds and also served in any capacity as fiduciary for such Plans.

In addition, it is represented that many other Plans for which the Bank

serves in any capacity as a fiduciary may from time to time invest in

HighMark and/or in any of the Funds to which the Bank may serve as

investment adviser in the future. For this reason, the Bank does not

know the number of Plans which may therefore be affected by this

proposed exemption. Accordingly, the Department has determined that the

only practical form of providing notice to interested persons is the

distribution by the Bank by first class mail of a copy of the notice of

pendency of this proposed exemption (the Notice) within thirty (30)

days of the date of the publication of such Notice in the Federal

Register to the fiduciaries of any of the Plans which are invested, on

the date of the publication of the Notice in the Federal Register, in

HighMark and/or any the Funds to which the Bank serves as investment

adviser. Such distribution to interested persons shall include a copy

of the Notice, as published in the Federal Register, plus a copy of the

supplemental statement, as required, pursuant to 29 CFR 2570.43(b)(2),

which shall inform such interested persons of their right to comment

and to request a hearing. The Bank also represents that it will provide

a copy of the proposed exemption and/or a copy of the final exemption,

if granted, to any Second Fiduciary of a Plan upon request.

FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the

Department, telephone (202) 219-8883 (this is not a toll-free number.)

Marshall & Ilsley Trust Company Located in Milwaukee, Wisconsin;

Proposed Exemption

[Application No. D-9257]

The Department is considering granting an exemption under the

authority of section 408(a) of the Act and section 4975(c)(2) of the

Code and in accordance with the procedures set forth in 29 CFR Part

2570, Subpart B (55 FR 32836, 32847, August 10, 1990).

Section I--Exemption for In-Kind Transfer of CIF Assets

If the exemption is granted, the restrictions of section 406(a) and

406(b) of the Act and the sanctions resulting from the application of

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

(F) of the Code, shall not apply, as of November 20, 1992, to the in-

kind transfer of assets of plans for which Marshall & Ilsley Trust

Company or an affiliate (collectively, M&I) serves as a fiduciary (the

Client Plans), other than plans established and maintained by M&I, that

are held in certain collective investment funds maintained by M&I (the

CIFs), in exchange for shares of the Marshall Funds, Inc. (the Funds),

an open-end investment company registered under the Investment Company

Act of 1940 (the 1940 Act), for which M&I acts as investment adviser,

custodian, and/or shareholder servicing agent, in connection with the

termination of such CIFs, provided that the following conditions and

the general conditions of Section III below are met:

(a) No sales commissions or other fees are paid by the Client Plans

in connection with the purchase of Fund shares through the in-kind

transfer of CIF assets and no redemption fees are paid in connection

with the sale of such shares by the Client Plans to the Funds.

(b) Each Client Plan receives shares of a Fund which have a total

net asset value that is equal to the value of the Client Plan's pro

rata share of the assets of the CIF on the date of the transfer, based

on the current market value of the CIF's assets, as determined in a

single valuation performed in the same manner at the close of the same

business day, using independent sources in accordance with Rule 17a-

7(b) of the Securities and Exchange Commission under the 1940 Act and

the procedures established by the Funds for the valuation of such

assets. Such procedures must require that all securities for which a

current market price cannot be obtained by reference to the last sale

price for transactions reported on a recognized securities exchange or

NASDAQ be valued based on an average of the highest current independent

bid and lowest current independent offer, as of the close of business

on the Friday preceding the weekend of the CIF transfers, determined on

the basis of reasonable inquiry from at least three sources that are

broker-dealers or pricing services independent of M&I.

(c) A second fiduciary who is independent of and unrelated to M&I

(the Second Fiduciary) receives advance written notice of the in-kind

transfer of assets of the CIFs and full written disclosure of

information concerning the Funds (including a current prospectus for

each of the Funds and a statement describing the fee structure) and, on

the basis of such information, authorizes in writing the in-kind

transfer of the Client Plan's CIF assets to a corresponding Fund in

exchange for shares of the Fund.

(d) For all subsequent transfers of CIF assets to a Fund following

the publication of this proposed exemption in the Federal Register, M&I

sends by regular mail to each affected Client Plan a written

confirmation, not later than 30 days after completion of the

transaction, containing the following information:

(1) The identity of each security that was valued for purposes of

the transaction in accordance with Rule 17a-7(b)(4);

(2) The price of each such security involved in the transaction;

and

(3) The identity of each pricing service or market maker consulted

in determining the value of such securities.

(e) For all subsequent transfers of CIF assets to a Fund following

the publication of this proposed exemption in the Federal Register, M&I

sends by regular mail to the Second Fiduciary no later than 90 days

after completion of each transfer a written confirmation that contains

the following information:

(1) The number of CIF units held by the Client Plan immediately

before the transfer, the related per unit value, and the total dollar

amount of such CIF units; and

(2) The number of shares in the Funds that are held by the Client

Plan following the transfer, the related per share net asset value, and

the total dollar amount of such shares.

(f) The conditions set forth in paragraphs (e), (f) and (l) of

Section II below are satisfied.

Section II--Exemption for Receipt of Fees

If the exemption is granted, the restrictions of sections 406(a)

and 406(b) of the Act and the sanctions resulting from the application

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

through (F) of the Code, shall not apply as of November 20, 1992, to:

(1) The receipt of fees by M&I from the Funds for acting as an

investment adviser to the Funds in connection with the investment by

the Client Plans in shares of the Funds; and (2) the receipt and

proposed retention of fees by M&I from the Funds for acting as

custodian and shareholder servicing agent to the Funds as well as for

any other services to the Funds which are not investment advisory

services (i.e. ``secondary services'') in connection with the

investment by the Client Plans in shares of the Funds, provided that

the following conditions and the general conditions of Section III are

met:

(a) No sales commissions are paid by the Client Plans in connection

with the purchase or sale of shares of the Funds and no redemption fees

are paid in connection with the sale of shares by the Client Plans to

the Funds.

(b) The price paid or received by a Client Plan for shares in a

Fund is the net asset value per share at the time of the transaction,

as defined in Section IV(e), and is the same price which would have

been paid or received for the shares by any other investor at that

time.

(c) Neither M&I nor an affiliate, including any officer or director

of M&I, purchases or sells shares of the Funds to any Client Plan.

(d) Each Client Plan receives a credit, either through cash or the

purchase of additional shares of the Funds pursuant to an annual

election made by the Client Plan, of such Plan's proportionate share of

all fees charged to the Funds by M&I for investment advisory services,

within no more than one business day of the receipt of such fees by

M&I.

(e) The combined total of all fees received by M&I for the

provision of services to a Client Plan, and in connection with the

provision of services to the Funds in which the Client Plan may invest,

are not in excess of ``reasonable compensation'' within the meaning of

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

(f) M&I does not receive any fees payable pursuant to Rule 12b-1

under the 1940 Act in connection with the transactions.

(g) The Client Plans are not employee benefit plans sponsored or

maintained by M&I.

(h) The Second Fiduciary receives full and detailed written

disclosure of information concerning the Funds (including a current

prospectus for each of the Funds and statement describing the fee

structure) in advance of any investment by the Client Plan in a Fund.

(i) On the basis of the information described above in paragraph

(h), the Second Fiduciary authorizes in writing the investment of

assets of the Client Plan in each particular Fund, the fees to be paid

by such Funds to M&I, and the purchase of additional shares of a Fund

by the Client Plan with the fees credited to the Client Plan by M&I.

(j) All authorizations made by a Second Fiduciary regarding

investments in a Fund and the fees paid to M&I are subject to an annual

reauthorization wherein any such prior authorization referred to in

paragraph (i) shall be terminable at will by the Client Plan, without

penalty to the Client Plan, upon receipt by M&I of written notice of

termination. A form expressly providing an election to terminate the

authorization described in paragraph (i) above (the Termination Form)

with instructions on the use of the form must be supplied to the Second

Fiduciary no less than annually. The instructions for the Termination

Form must include the following information:

(1) The authorization is terminable at will by the Client Plan,

without penalty to the Client Plan, upon receipt by M&I of written

notice from the Second Fiduciary; and

(2) Failure to return the Termination Form will result in continued

authorization of M&I to engage in the transactions described in

paragraph (i) on behalf of the Client Plan.

(k) The Second Fiduciary of each Client Plan invested in a

particular Fund receives full written disclosure, in a statement

separate from the Fund prospectus, of any proposed increases in the

rates of fees charged by M&I to the Funds for secondary services (as

defined in Section IV(h) below) at least 30 days prior to the effective

date of such increase, accompanied by a copy of the Termination Form,

and receives full written disclosure in a Fund prospectus or otherwise

of any increases in the rates of fees charged by M&I to the Funds for

investment advisory services even though such fees will be credited as

required by paragraph (d) above.

(l) All dealings between the Client Plans and the Funds are on a

basis no less favorable to the Client Plans than dealings with other

shareholders of the Funds.

Section III--General Conditions

(a) M&I maintains for a period of six years the records necessary

to enable the persons described below in paragraph (b) to determine

whether the conditions of this exemption have been met, except that:

(1) a prohibited transaction will not be considered to have occurred

if, due to circumstances beyond the control of M&I, the records are

lost or destroyed prior to the end of the six-year period, and (2) no

party in interest other than M&I 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 (b) below.

(b) (1) Except as provided in paragraph (b)(2) and notwithstanding

any provisions of section 504 (a)(2) and (b) of the Act, the records

referred to in paragraph (a) are unconditionally available at their

customary location for examination during normal business hours by--

(i) Any duly authorized employee or representative of the

Department or the Internal Revenue Service,

(ii) Any fiduciary of the Client Plans who has authority to acquire

or dispose of shares of the Funds owned by the Client Plans, or any

duly authorized employee or representative of such fiduciary, and

(iii) Any participant or beneficiary of the Client Plans or duly

authorized employee or representative of such participant or

beneficiary;

(2) None of the persons described in paragraph (b)(1)(ii) and (iii)

shall be authorized to examine trade secrets of M&I, or commercial or

financial information which is privileged or confidential.

Section IV--Definitions

For purposes of this proposed exemption:

(a) The term ``M&I'' means the Marshall & Ilsley Trust Company and

any affiliate thereof as defined below in paragraph (b) of this

section.

(b) An ``affiliate'' of a person includes:

(1) Any person directly or indirectly through one or more

intermediaries, controlling, controlled by, or under common control

with the person;

(2) Any officer, director, employee, relative, or partner in any

such person; and

(3) Any corporation or partnership of which such person is an

officer, director, partner, or employee.

(c) The term ``control'' means the power to exercise a controlling

influence over the management or policies of a person other than an

individual.

(d) The term ``Fund'' or ``Funds'' shall include the Marshall

Funds, Inc., or any other diversified open-end investment company or

companies registered under the 1940 Act for which M&I serves as an

investment adviser and may also serve as a custodian, shareholder

servicing agent, transfer agent or provide some other ``secondary

service'' (as defined below in paragraph (h) of this Section) which has

been approved by such Funds.

(e) The term ``net asset value'' means the amount for purposes of

pricing all purchases and sales calculated by dividing the value of all

securities, determined by a method as set forth in the Fund's

prospectus and statement of additional information, and other assets

belonging to the Fund or portfolio of the Fund, less the liabilities

charged to each such portfolio or Fund, by the number of outstanding

shares.

(f) The term ``relative'' means a ``relative'' as that term is

defined in section 3(15) of the Act (or a ``member of the family'' as

that term is defined in section 4975(e)(6) of the Code), or a brother,

a sister, or a spouse of a brother or a sister.

(g) The term ``Second Fiduciary'' means a fiduciary of a Client

Plan who is independent of and unrelated to M&I. For purposes of this

exemption, the Second Fiduciary will not be deemed to be independent of

and unrelated to M&I if:

(1) Such fiduciary directly or indirectly controls, is controlled

by, or is under common control with M&I;

(2) Such fiduciary, or any officer, director, partner, employee, or

relative of the fiduciary is an officer, director, partner or employee

of M&I (or is a relative of such persons);

(3) Such fiduciary directly or indirectly receives any compensation

or other consideration for his or her own personal account in

connection with any transaction described in this exemption.

If an officer, director, partner or employee of M&I (or relative of

such persons), is a director of such Second Fiduciary, and if her or

she abstains from participation in: (i) The choice of the Client Plan's

investment adviser, (ii) the approval of any such purchase or sale

between the Client Plan and the Funds, and (iii) the approval of any

change in fees charged to or paid by the Client Plan in connection with

any of the transactions described in Sections I and II above, then

paragraph (g)(2) of this section shall not apply.

(h) The term ``secondary service'' means a service other than an

investment management, investment advisory, or similar service, which

is provided by M&I to the Funds. However, for purposes of this

exemption, the term ``secondary service'' will not include any

brokerage services provided to the Funds by M&I for the execution of

securities transactions engaged in by the Funds.

(i) The term ``Termination Form'' means the form supplied to the

Second Fiduciary which expressly provides an election to the Second

Fiduciary to terminate on behalf of a Client Plan the authorization

described in paragraph (j) of Section II. Such Termination Form may be

used at will by the Second Fiduciary to terminate an authorization

without penalty to the Client Plan and to notify M&I in writing to

effect a termination by selling the shares of the Funds held by the

Client Plan requesting such termination within one business day

following receipt by M&I of the form; provided that if, due to

circumstances beyond the control of M&I, the sale cannot be executed

within one business day, M&I shall have one additional business day to

complete such sale.

EFFECTIVE DATE: If the proposed exemption is granted, the exemption

will be effective November 20, 1992.

Summary of Facts and Representations

1. Marshall & Ilsley Trust Company (M&I Trust) is a Wisconsin

corporation with its principal offices located at 770 North Water

Street, Milwaukee, Wisconsin, and is a subsidiary of Marshall & Ilsley

Corporation (M&I Corp.), a bank holding company. M&I Corp. and various

affiliates (referred to herein as ``M&I''), serve as trustee, directed

trustee, investment manager, or custodian for approximately 1,163

employee benefit plans. As of September 30, 1992, M&I had total assets

of approximately $25.3 million and total assets under management of

approximately $4.86 billion.

M&I represents that its status as a fiduciary with investment

discretion for a Client Plan arises out of its relationship as a

trustee or investment manager for such Plan, but does not result from

the rendering of any investment advice to a Plan fiduciary that has

investment discretion for the Client Plan. As a custodian or directed

trustee of a Client Plan, M&I has custody of Plan assets, collects all

income, performs bookkeeping and accounting services, generates

periodic statements of account activity and other reports, and makes

payments or distributions from the account as directed. However, M&I

has no duty as custodian or directed trustee to review investments or

make recommendations, acting only as directed by an authorized Second

Fiduciary.

The Client Plans include various pension, profit sharing, and stock

bonus plans as well as voluntary employees' beneficiary associations,

supplemental unemployment benefit plans, simplified employee benefit

plans, retirement plans for self-employed individuals (i.e., Keogh

plans), and individual retirement accounts (IRAs).13 M&I, in its

capacity as a fiduciary of the Client Plans, may exercise investment

discretion for all or a portion of he assets of such Client Plans.

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

\1\3M&I states that only pension, profit sharing and Keogh plans

were invested in the CIFs at the time of the transfers of assets

from the CIFs to the Funds.

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

2. M&I requests an exemption for investments in a Fund which occur

through an in-kind transfer of a Client Plan's pro rata share of assets

from a terminating CIF to a corresponding Fund in exchange for shares

of such Fund.14 M&I also requests an exemption for the receipt of

fees from the Funds in connection with the investment of assets of a

Client Plan (including any assets of a Client Plan which were held in a

terminating CIF) for which it acts as a trustee, directed trustee,

investment manager, or custodian, in shares of the Funds in instances

where M&I is an investment adviser, custodian, and shareholder

servicing agent for the Funds. The exemption would include Client Plans

for which M&I exercises investment discretion as well as Client Plans

where investment decisions are directed by a Second Fiduciary.

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

\1\4M&I is not requesting an exemption for any investment in the

Funds by the M&I Plans. M&I represents that the M&I Plans may

acquire or sell shares of the Funds pursuant to Prohibited

Transaction Exemption 77-3 (PTE 77-3, 42 FR 18734, April 8, 1977).

PTE 77-3 permits the acquisition or sale of shares of a registered,

open-end investment company by an employee benefit plan covering

only employees of such investment company, employees of the

investment adviser or principal underwriter for such investment

company, or employees of any affiliated person (as defined therein)

of such investment adviser or principal underwriter, provided

certain conditions are met. The Department is expressing no opinion

in this proposed exemption regarding whether any transactions with

the Funds by the M&I Plans would be covered by PTE 77-3.

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

The Client Plans' pro rata share of fees paid by the Funds to M&I

for investment advisory services are credited to the Client Plans, in

accordance with the conditions of the proposed exemption (as discussed

in Item 7 below), with respect to the assets of the Client Plans

involved in Fund investments. Any amounts received by M&I for serving

as a custodian and shareholder servicing agent of the Funds are also

currently credited to the Client Plans to the extent that such amounts

exceed M&I's direct expenses for providing the service to the Funds.

However, M&I proposes to retain such fees in the future. All

investments in the Funds are made by M&I pursuant to an initial written

authorization and an annual reauthorization of the investment by the

Second Fiduciary. M&I invests assets of a Client Plan in any of the

Funds for which it has received prior written authorization for such

investment from the Second Fiduciary during the period that the

authorization is effective.

3. The Funds are a Wisconsin corporation organized as an open-end

investment company registered under the 1940 Act. The Funds currently

consist of five Funds or ``portfolios'', each having a separate

prospectus and representing a distinct investment vehicle. The shares

of each Fund represent a proportionate interest in the assets of that

Fund. The existing Funds include the Marshall Money Market Fund, the

Marshall Government Income Fund, the Marshall Intermediate Bond Fund,

the Marshall Short-Term Income Fund, and the Marshall Stock Fund. M&I

states that additional Funds may be established in the future. Shares

of the Funds are offered and sold to eligible investors. Certain

shares, identified by each prospectus as Trust Shares, are offered to

trust accounts of M&I as a means of acquiring an interest in a

diversified porfolio of investments. M&I states that the Trust Shares

are offered to M&I's trust customers, including the Client Plans, under

terms and conditions which are at least as favorable to such customers

as the terms and conditions involved in any other class of Fund shares.

If the proposed exemption is granted, the exemption would cover only

investments by Client Plans in Trust Shares. Thus, all references

herein to the transactions involving the Client Plans refer only to the

Trust Shares described by the prospectus for each Fund.

Investments of Client Plan assets in the Funds occur either through

a transfer of assets from a terminating CIF, the direct purchase of

shares of the Funds for a Client Plan by M&I, the transfer by M&I of

Client Plan assets from one Fund to another Fund, or a daily automated

sweep of uninvested cash of a Client Plan by M&I into one or more Funds

previously designated by the Client Plan for sweeping such cash.15

All such investments for the Client Plans are made pursuant to the

Second Fiduciary's prior written authorization and annual

reauthorization to M&I (as described in Item 8 below).

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

\1\5M&I states that an automated sweep of uninvested cash is

currently available as a means of investment by the Client Plans

into either the Marshall Money Market Fund, the Marshall Government

Income Fund, and the Marshall Short-Term Income Fund.

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

4. Federated Securities Corporation (FSC) is the principal

distributor for all shares of the Funds including Trust Shares which

are sold to the Client Plans.16 There are no fees for distribution

expenses, pursuant to Rule 12b-1 under the 1940 Act, paid to FSC with

respect to the Trust Shares. In addition, M&I does not and will not

receive fees payable pursuant to Rule 12b-1 in connection with

transactions involving any shares of the Funds. The Trust Shares are

charged for certain administrative expenses of the Funds. FSC is a

subsidiary of Federated Investors (Federated) which, through other

subsidiaries, acts as the transfer and dividend disbursing agent for

the Funds and provides certain personnel and administrative services

for the Funds. Federated and its subsidiaries are unrelated to M&I.

However, M&I Trust is the custodian for the securities and cash of the

Funds and Marshall Funds Investor Services (MFIS), another affiliate of

M&I Corp., is the shareholder servicing agent for the Funds.

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

\1\6According to the Fund prospectuses, investors may purchase

shares of the Funds through M&I Brokerage Services, Inc. (M&I

Brokerage Services), an affiliate of M&I Corp. However, the

involvement of M&I Brokerage Services in selling Fund shares is

limited to transactions through M&I ``retail'' accounts--i.e.,

accounts other than those accounts handled by M&I Trust or other M&I

affiliated trust companies. M&I represents that purchases and sales

of Fund shares for all M&I trust accounts, including the Client

Plans, are handled by M&I trust officers dealing directly with

Federated, the Funds' distributor.

In addition, M&I Brokerage Services does not provide portfolio

execution services for the Funds. M&I states that securities

transactions for a Fund's portfolio are executed by broker-dealers

unrelated to M&I and do not generate commissions or other fees to

M&I Brokerage Services or any affiliate. The Department notes that

for purposes of this exemption the term ``secondary service'' does

not include any brokerage services provided to the Funds by M&I for

the execution of securities transactions engaged in by the Funds

(see Section IV(h) above).

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

5. M&I Investment Management Corp. (M&I Management), a wholly-owned

subsidiary of M&I Corp., serves as the investment adviser for the Funds

pursuant to investment advisory agreements with the Funds (the

Agreements) which allow M&I Management to receive monthly investment

advisory fees based on a percentage of the average daily net assets of

each of the Funds. The Agreements and the fees received by M&I

Management are approved by the Board of Directors of the Funds (the

Funds' Directors), in accordance with the applicable provisions of the

1940 Act. Any changes in the fees are approved by the Funds' Directors.

All of the Funds' Directors are independent of M&I.

6. Prior to November 20, 1992, M&I generally invested assets of

Client Plans for which it acted as a trustee with investment discretion

in a series of CIFs. In addition, certain Client Plans where investment

decisions are directed by a Second Fiduciary generally used an M&I CIF

as an investment option for individual accounts in the Client Plans.

However, on Friday, November 20, 1992, M&I terminated three of its

CIFs--the M&I Employee Benefit Money Market Fund, the M&I Employee

Benefit Bond Fund, and the M&I Employee Benefit Stock Fund. The assets

in these CIFs were transferred to the Marshall Money Market Fund, the

Marshall Intermediate Bond Fund, and the Marshall Stock Fund,

respectively. Each CIF transferred its assets to the corresponding Fund

in exchange for Trust Shares of that Fund at the then current market

value of the CIF assets, in accordance with Rule 17a-7 under the 1940

Act (as discussed below).17 The CIFs were liquidated and the Trust

Shares were distributed to the Client Plans, subject to the prior

written consent of the Second Fiduciary for the Client Plan. Any Client

Plan that had not provided prior written approval for the transfer of

its CIF assets to the Funds, by the deadline set for such approvals,

received a cash distribution of its pro rata share of the CIF assets no

later than Friday, November 20, 1992, preceding the transfers.

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

\1\7Rule 17a-7 permits transactions between investment funds

that use the same investment adviser, subject to certain conditions.

Rule 17a-7 requires, among other things, that such transactions be

effected at the ``independent current market price'' for each

security, involve only securities for which market quotations are

readily available, involve no brokerage commissions or other

remuneration, and comply with valuation procedures adopted by the

board of directors of the investment company to ensure that all

requirements of the Rule are satisfied.

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

The assets of the CIFs were reviewed by M&I Management as

investment adviser to the Funds, in coordination with Federated

Administrative Services (FAS), the Funds' third party administrator, to

determine that the assets were appropriate investments for the

corresponding Funds. FAS created a portfolio accounting system to track

the securities to be acquired by the Funds. Prior to the transfer of

CIF assets to the Funds, the Funds did not hold any securities or other

assets except cash or, as in the case of the Marshall Money Market

Fund, U.S. Treasury Bills.

The transfer transactions occurred using market values as of the

close of business on Friday, November 20, 1992. The securities

transferred from the CIFs were the same as the securities received by

the Funds. The applicant states that the value of the securities was

determined in a single valuation by M&I as investment adviser for the

Funds, in accordance with the requirement of Rule 17a-7(b) that

transactions be effected at the ``independent current market price'' of

the securities. The valuation of the securities was performed in the

same manner for both the CIF and the corresponding Fund at the close of

the same business day. Specifically, as required by the Rule,

securities listed on exchanges were valued at their closing prices on

Friday, November 20, and unlisted securities were valued based on the

average of bid and ask quotations at the close of the market on Friday,

November 20, obtained from three brokers independent of M&I. Any fees

charged by the independent brokers for the bid and ask prices were paid

by M&I.

Each Client Plan that approved the CIF asset transfers to the Funds

received account statements describing the asset transfers either in

mid-December 1992, if such Plans were on a monthly account statement

schedule, or mid-January 1993, if such Plans were on a quarterly

account statement schedule. The statements showed the disposition of

the CIF units from the Client Plan account and the acquisition by the

account of Fund shares, both posted as of Monday, November 23,

1992.\18\ This information provided the affected Client Plans with

written confirmation of the number of CIF units held by the Client Plan

immediately before the transfer, the related per unit value and the

total dollar amount of such CIF units as well as the number of shares

of the Funds held by the Client Plan following the transfer, the

related per share net asset value, and the total dollar amount of such

shares.

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

\1\8The applicant has provided the following example: Assume a

Client Plan held 12,506 units of the M&I Employee Benefit Stock Fund

prior to the asset transfers. The account statement showed a

disposition of 12,506 units of M&I Employee Benefit Stock Fund, at a

value of $72.08 per unit, on November 23, 1992, with total proceeds

of $901,432.18. The statement also showed a purchase on that same

date of 90,143.218 shares of the Marshall Stock Fund, the Fund

corresponding to the M&I Employee Benefit Stock Fund, at $10 per

share, at a total cost of $901,432.18, the same amount as the

proceeds of the disposition from the M&I Employee Benefit Stock

Fund.

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

Thus, the applicant represents that as of November 23, 1992, Client

Plans that were formerly invested in the terminated CIFs held Trust

Shares of the corresponding Funds which were of the same value, based

on the Client Plans' pro rata share of the underlying market value of

the securities transferred to the Funds, as their assets in the CIF as

of the close of business on Friday, November 20, 1992. M&I represents

that the other CIFs may be terminated in the future and that all such

terminations and subsequent transfers of CIF assets for Trust Shares of

the Funds will comply with Rule 17a-7 as described above and the

conditions of this proposed exemption.19

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

\1\9On Friday, October 1, 1993, M&I terminated the M&I Dividend

Fund and transferred its assets upon written approval from the

investors to a new Marshall Fund, the Marshall Equity Income Fund.

The transfer of assets occurred in the same manner as the asset

transfers which occurred on November 20, 1992.

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

M&I states that for all subsequent transfers of CIF assets to a

Fund following the publication of this proposed exemption in the

Federal Register, M&I will send by regular mail to each affected Client

Plan a written confirmation, not later than 30 days after completion of

the transaction, containing the following information:

(1) The identity of each security that was valued for purposes of

the transaction in accordance with Rule 17a-7(b)(4);

(2) The price of each such security involved in the transaction;

and

(3) The identity of each pricing service or market maker consulted

in determining the value of such securities. Securities which are

valued in accordance with Rule 17a-7(b)(4) are securities for which the

current market price cannot be obtained by reference to the last sale

price for transactions reported on a recognized securities exchange or

the NASDAQ system. M&I states that such securities are valued based on

an average of the highest current independent bid and lowest current

independent offer, as of the close of business on the Friday preceding

the weekend of the CIF transfers, determined on the basis of reasonable

inquiry from at least three sources that are broker-dealers or pricing

services independent of M&I.

In addition, for all in-kind transfers of CIF assets to a Fund that

occur after the date this proposed exemption is published in the

Federal Register, M&I will send by regular mail to the Second Fiduciary

no later than 90 days after completion of each transfer a written

confirmation that contains the following information:

(1) The number of CIF units held by the Client Plan immediately

before the transfer, the related per unit value, and the total dollar

amount of such CIF units; and

(2) The number of shares in the Funds that are held by the Client

Plan following the transfer, the related per share net asset value, and

the total dollar amount of such shares.

M&I believes that the interests of the Client Plans are better

served by the collective investment of assets of the Client Plans in

the Funds rather than in the CIFs. The Funds are valued on a daily

basis, whereas the majority of the CIFs are valued monthly. The daily

valuation permits: (i) Immediate investment of Client Plan

contributions in various types of investments; (ii) greater flexibility

in transferring assets from one type of investment to another; and

(iii) daily redemption of investments for purposes of making

distributions. In addition, information concerning the investment

performance of the Funds will be available in newspapers of general

circulation which will allow Client Plan fiduciaries to monitor the

performance of investments on a daily basis and make more informed

investment decisions.

7. For investments in the Funds on behalf of Client Plans

subsequent to the transfer of the CIF assets to the Funds where the

assets involved were not previously invested in any CIFs, M&I currently

offsets its investment management or advisory fees for assets invested

in the Funds in accordance with one of the methods for offsetting

double investment advisory fees described in Prohibited Transaction

Exemption 77-4 (PTE 77-4, 42 FR 18732, April 8, 1977).\20\

Consequently, the applicant represents that the fee structure for these

investments complies with the fee structure under PTE 77-4, and that

the other conditions of PTE 77-4 are met.\21\ However, for Client Plan

investments in the Funds with respect to assets that were previously

held in the CIFs prior to the investment of such assets in the Funds,

M&I uses the fee structure (the Fee Structure) described below. M&I

anticipates using the Fee Structure for future Client Plan investments

in the Funds where the assets involved were not previously invested in

the CIFs if the Second Fiduciary for the Client Plan elects to use the

Fee Structure in lieu of the offset or credit methods prescribed by PTE

77-4. M&I states that the Fee Structure preserves a Client Plan's

existing fee rates for investment management services by M&I when such

Plan invests in the Funds or when such Plan's assets are transferred

from the CIFs to the Funds. The Fee Structure is described as follows:

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

\2\0PTE 77-4, in pertinent part, permits the purchase and sale

by an employee benefit plan of shares of a registered, open-end

investment company when a fiduciary with respect to the plan is also

the investment adviser for the investment company, provided that,

among other things, the plan does not pay an investment management,

investment advisory or similar fee with respect to the plan assets

invested in such shares for the entire period of such investment.

Section II(c) of PTE 77-4 states that this condition does not

preclude the payment of investment advisory fees by the investment

company under the terms of an investment advisory agreement adopted

in accordance with section 15 of the Investment Company Act of 1940.

Section II(c) states further that this condition does not preclude

payment of an investment advisory fee by the plan based on total

plan assets from which a credit has been subtracted representing the

plan's pro rata share of investment advisory fees paid by the

investment company.

\2\1The Department is expressing no opinion in this proposed

exemption regarding whether any transactions with the Funds under

the circumstances described herein would be covered by PTE 77-4.

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

(a) M&I charges its standard fees to all the Client Plans for

serving as a trustee, directed trustee, investment manager, or

custodian for the Client Plans.\22\ All fees are billed on a quarterly

basis. The annual charges for a Client Plan account are based on fee

schedules negotiated with M&I. For example, if the fee is unbundled,

the standard charge by M&I to a Client Plan for serving as a trustee

with solely custodial responsibilities varies from 17.5 basis points

for account assets under $5 million to 5 basis points for account

assets over $75 million, subject to a base annual charge of $1,500 and

additional charges for specific services. Where M&I serves as

investment manager to a Client Plan account, depending on the type of

portfolio, the charge may vary from 30 basis points up to 80 basis

points. This charge is separate from, and would be in addition to, the

fee for custodial services described above. M&I provides services to

the Client Plans for which it acts as a trustee with investment

discretion, including sweep services for uninvested cash balances in

such Plans, under a bundled or single fee arrangement which is

calculated as a percentage of the market value of the Plan assets under

management. Thus, in such instances, there are no separate charges for

the provision of particular services to the Client Plans. However, for

Client Plans where investment decisions are directed by a Second

Fiduciary, a separate charge is assessed for particular services,

including sweep services, where the Second Fiduciary specifically

agrees to have M&I provide such services to the Client Plan.\23\ M&I

states that in many cases fees charged by M&I to a Client Plan are paid

by the Client Plan sponsor rather than by the Client Plan.

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

\2\2The applicant represents that all fees paid by Client Plans

directly to M&I for services performed by M&I are exempt from the

prohibited transaction provisions of the Act by reason of section

408(b)(2) of the Act and the regulations thereunder (see 29 CFR

2550.408b-2). The Department notes that to the extent there are

prohibited transactions under the Act as a result of services

provided by M&I directly to the Client Plans which are not covered

by section 408(b)(2), no relief is being proposed herein for such

transactions.

\2\3See DOL Letter dated August 1, 1986 to Robert S. Plotkin,

Assistant Director, Division of Banking Supervision and Regulation,

Board of Governors of the Federal Reserve System, stating the

Department's views regarding the application of the prohibited

transaction provisions of the Act to sweep services provided to

plans by fiduciary banks and the potential applicability of certain

statutory exemptions as described therein.

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

(b) M&I Management charges the Funds for its services to the Funds

as investment adviser, in accordance with the Agreements between M&I

and the Funds. Under the Agreements, M&I Management charges fees at a

different rate for each Fund, computed based on the average daily net

assets for the respective Fund. The fee differentials among the Funds

result from the particular level of services rendered by M&I Management

to the Funds.

(c) The investment advisory and other fees paid by each of the

existing Funds are accrued on a daily basis and billed by M&I

Management to the Funds at the beginning of the month following the

month in which the fees accrued. The applicant states that any

additional Funds will follow the same monthly billing arrangement.

(d) At the beginning of each month (pursuant to the terms of the

applicable Agreements) and essentially simultaneously with the billing

described in (c) above, but in no event more than one business day

following the receipt of such fees by M&I Management, M&I credits to

each Client Plan directly with cash such Plan's pro rata share of all

investment advisory fees charged by M&I Management to the Funds (the

Credit Program). In addition, M&I currently credits to each Client Plan

any amounts it is paid for providing custody and shareholder services

to the Funds in the same manner as the investment advisory fees but

only to the extent that these amounts exceed M&I's direct expenses for

providing such services. However, M&I proposes in the future to retain

any fees received by M&I from the Funds for custody and shareholder

services or other secondary services.24

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

\2\4M&I states that such secondary services are distinct from

the services provided by M&I as trustee to a Client Plan. Trustee

services rendered at the Plan-level include maintaining custody of

the assets of the Client Plan (including the Fund shares, but not

the assets underlying the Fund shares), processing benefit payments,

maintaining participant accounts, valuing plan assets, conducting

non-discrimination testing, preparing Forms 5500 and other required

filings, and producing statements and reports regarding overall plan

and individual participant holdings. These trustee services are

necessary regardless of whether the Client Plan's assets are

invested in the Funds. Thus, M&I represents that its proposed

receipt of fees for both secondary services at the Fund-level and

trustee services at the Plan-level would not involve the receipt of

``double fees'' for duplicative services to the Client Plans because

a Fund is charged for custody and other services relative to the

individual securities owned by the Fund, while a Client Plan is

charged for the maintenance of Plan accounts reflecting ownership of

the Fund shares and other assets.

In this regard, the Department notes that the combined total of

all fees received by M&I directly and indirectly from the Client

Plans for the provision of services to the Plans and/or to the Funds

should not be in excess of ``reasonable compensation'' within the

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

In addition, the fact that certain transactions and fee

arrangements are the subject of an administrative exemption does not

relieve a Client Plan fiduciary from the general fiduciary

responsibility provisions of section 404 of the Act. Thus, the

Department cautions the fiduciaries of the Client Plans investing in

the Funds that they have an ongoing duty under section 404 of the

Act to monitor the services provided to the Client Plans to assure

that the fees paid by the Client Plans for such services are

reasonable in relation to the value of the services provided. Such

responsibilities would include determinations that the services

provided are not duplicative and that the fees are reasonable in

light of the level of services provided.

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

M&I represents that the credited fees are currently paid to the

Client Plan only in cash, but that the credits may be effectuated in

the future through the purchase of additional shares of the Funds

pursuant to an annual election made by the Second Fiduciary for the

Client Plan. The purchase of the shares will occur in lieu of a cash

credit on the same day that such credit would have been paid to the

Client Plan. M&I states that the fee credits were initially made in

cash to the Client Plans so that no authorizations for crediting fees

in the form of additional shares of the Funds would be involved at the

time of the transfers of the CIF assets to the Funds. All decisions

regarding the use of the credited fees to purchase additional shares of

the Funds, including annual reauthorizations for such credits, will be

made by a Second Fiduciary for the Client Plan.

The Credit Program ensures that M&I does not receive any additional

investment management, advisory or similar fees from the Funds as a

result of investments in the Funds by the Client Plans. Thus, M&I

represents that the Fee Structure is at least as advantageous to the

Client Plans as an arrangement pursuant to the conditions of PTE 77-4

whereby investment advisory fees paid by the Funds to M&I Management

would be offset or credited against investment management fees charged

directly by M&I to the Client Plans. In this regard, M&I states that

the Credit Program essentially has the same effect in offsetting M&I

Management's investment advisory fees as an arrangement under PTE 77-4,

section II(c), allowing for a credit by subtracting the amount of such

fees from the investment management fees charged directly by M&I to the

Client Plans (the Subtraction Method). M&I states further that in many

instances the Credit Program is more advantageous to a Client Plan than

an arrangement using the Subtraction Method because under the Credit

Program a Client Plan receives a credit in either cash or shares on the

same day (or within one business day after) the fees are received by

M&I Management from the Funds. However, under the Subtraction Method, a

Client Plan would not receive a credit on the same day (or within one

business day after) the fees are paid to M&I Management from the Funds

if the billing period for services to the Funds is different than the

billing period for M&I's fiduciary services to the Client Plan. The Fee

Structure with the Credit Program allows M&I to maintain a fixed

fiduciary fee schedule for services to the Client Plans without any

adjustments in billing for such services, as required under the

Subtraction Method. M&I notes that the Fee Structure also allows the

Client Plan sponsor the option to pay the Client Plan's fees to M&I for

serving as a trustee, directed trustee, investment manager, or

custodian and have the Client Plan receive a credit of the Plan's pro

rata share of the investment advisory fees paid to M&I.25

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

\2\5To the extent that the Department of the Treasury determines

that this arrangement should be deemed a contribution by an employer

to a Client Plan of the credited fees, the transaction must be

examined under the applicable provisions of the Internal Revenue

Code, including sections 401(a)(4), 404 and 415.

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

M&I is responsible for establishing and maintaining a system of

internal accounting controls for the Credit Program. In addition, M&I

has retained the services of Arthur Anderson & Co. of Milwaukee,

Wisconsin (the Auditor), an independent accounting firm, to audit

annually the crediting of fees to the Client Plans under the Credit

Program. M&I states that such audits provide independent verification

of the proper crediting to the Client Plans of fees charged by M&I to

the Funds. M&I states further that information obtained from the audits

is used in the preparation of required financial disclosure reports to

the Client Plans' fiduciaries.

By letter dated November 6, 1992, the Auditor describes the

procedures that are used in the annual audit of the Credit Program. The

Auditor obtains: (i) A calculation of the daily actual balances for all

the Funds and for the total Client Plan shareholders of such Funds;

(ii) a detailed list of the expenses charged to the Funds' shareholders

by type of expense; and (iii) calculations of the total expenses

charged by M&I to each Fund which are reimbursable to the Client Plans.

On the basis of such information, the Auditor: (i) Reviews and tests

compliance with the Credit Program's operational controls and

procedures established by M&I; (ii) verifies the daily credit factors

transmitted to M&I from the Funds, including the proper assignment of

identification numbers to all Client Plan shareholders; and (iii)

verifies the credits paid in total to the sum of all credits paid to

each Client Plan. The Auditor recomputes, in total, the cash received

in connection with the credit of each Client Plan's expenses to ensure

that the proper amount of cash was issued to the Client Plan. Finally,

the Auditor recomputes on a test basis the amount of credits received

by selected Client Plan shareholders of the Funds to verify that such

credits were properly made. In this regard, the Auditor obtains a

listing of the credits paid to each Client Plan regarding its shares in

each of the Funds to determine that the total credit paid to the Client

Plan by M&I equals the total amount that was required to be credited.

At such time as M&I offers Client Plans the option to have the fees

credited as additional Fund shares, the Auditor will also recompute the

number of Fund shares issued to the Client Plans to ensure that each

Client Plan received the proper number of shares.

In the event either the internal audit by M&I or the independent

audit by the Auditor identifies that an error has been made in the

crediting of fees to the Client Plans, M&I will correct the error. With

respect to any shortfall in credited fees to a Client Plan involving

cash credits, M&I will make a cash payment to the Client Plan equal to

the amount of the error plus interest paid at money market rates

offered by M&I for the period involved. With respect to a shortfall in

credited fees involving a Client Plan where the Second Fiduciary's

election is to have credited fees invested in shares of a particular

Fund, M&I will make a cash payment equal to at least the amount of the

error plus interest based on the greater of either: (i) The money

market rates offered by M&I for the period involved, or (ii) the total

rate of return for shares of the Fund that would have been acquired

during such period. Any excess credits made to a Client Plan will be

corrected by an appropriate deduction and reallocation of cash during

the next payment period to reflect accurately the amount of total

credits due to the Client Plan for the period involved.

8. With respect to any transfer of a Client Plan's CIF assets to a

Fund, M&I states that a Second Fiduciary for the Client Plan receives

advance written notice of the in-kind transfer of assets of the CIFs

and full written disclosure of information concerning the Fund. On the

basis of such information, the Second Fiduciary authorizes in writing

the in-kind transfer of the Client Plan's CIF assets to a Fund in

exchange for shares of the Fund. With respect to the receipt of fees by

M&I from a Fund in connection with any Client Plan's investment in the

Fund, M&I states that a Second Fiduciary receives full and detailed

written disclosure of information concerning the Fund in advance of any

investment by the Client Plan in the Fund. On the basis of such

information, the Second Fiduciary authorizes in writing the investment

of assets of the Client Plan in the Fund and the fees to be paid by the

Fund to M&I. Such authorization will include in the future an election

for the Second Fiduciary to purchase additional shares of the Fund with

the fees credited to the Client Plan by M&I. In addition, M&I

represents that the Second Fiduciary of each Client Plan invested in a

particular Fund will receive full written disclosure, in a statement

separate from the Fund prospectus, of any proposed increases in the

rates of fees charged by M&I to the Funds for secondary services which

are above the rate reflected in the prospectus for the Fund, at least

30 days prior to the effective date of such increase. The Second

Fiduciary will also receive full written disclosure in a Fund

prospectus or otherwise of any increases in the rate of fees charged by

M&I to the Funds for investment advisory services even though such fees

will be credited, as required by Section II(d) above.

Any authorizations by a Second Fiduciary regarding the investment

of a Client Plan's assets in a Fund and the fees to be paid to M&I,

including any future increases in rates of fees for secondary services,

are or will be terminable at will by the Second Fiduciary, without

penalty to the Client Plan, upon receipt by M&I of written notice of

termination. A Termination Form expressly providing an election to

terminate the authorization with instructions on the use of the form is

supplied to the Second Fiduciary no less than annually. The

instructions for the Termination Form include the following

information:

(a) The authorization is terminable at will by the Client Plan,

without penalty to the Client Plan, upon receipt by M&I of written

notice from the Second Fiduciary; and

(b) Failure to return the form will result in continued

authorization of M&I to engage in the subject transactions on behalf of

the Client Plan.

M&I states that the Termination Form may be used at will by the

Second Fiduciary to terminate an authorization without penalty to the

Client Plan and to notify M&I in writing to effect a termination by

selling the shares of the Funds held by the Client Plan requesting such

termination within one business day following receipt by M&I of the

form; provided that if, due to circumstances beyond the control of M&I,

the sale cannot be executed within one business day, M&I shall have one

additional business day to complete such sale.

Any disclosure of information regarding a proposed increase in the

rate of any fees for secondary services will be accompanied by an

additional Termination Form with instructions on the use of the form as

described above. Therefore, the Second Fiduciary will have prior notice

of the proposed increase and an opportunity to withdraw from the Funds

in advance of the date the increase becomes effective. Although the

Second Fiduciary will also have notice of any increase in the rates of

fees charged by M&I to the Funds for investment advisory services,

through an updated prospectus or otherwise, such notice will not be

accompanied by an additional Termination Form since all increases in

investment advisory fees will be credited by M&I to the Client Plans

and will be subject to an annual reauthorization as described above.

M&I states that the Second Fiduciary always receives a current

prospectus for each Fund and a written statement giving full disclosure

of the Fee Structure prior to any investment in the Funds. The

disclosure statement explains why M&I believes that the investment of

assets of the Client Plan in the Funds is appropriate. The disclosure

statement also describes whether there are any limitations on M&I with

respect to which Client Plan assets may be invested in shares of the

Funds and, if so, the nature of such limitations.26

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

\2\6See section II(d) of PTE 77-4 which requires, in pertinent

part, that an independent plan fiduciary receive a current

prospectus issued by the investment company and a full and detailed

written disclosure of the investment advisory and other fees charged

to or paid by the plan and the investment company, including a

discussion of whether there are any limitations on the fiduciary/

investment adviser with respect to which plan assets may be invested

in shares of the investment company and, if so, the nature of such

limitations.

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

M&I states further that the Second Fiduciary receives an updated

prospectus for each Fund at least annually and either annual or semi-

annual reports for each Fund. M&I provides monthly reports to the

Second Fiduciary of all transactions engaged in by the Client Plan,

including purchases and sales of Fund shares.

9. No sales commissions are paid by the Client Plans in connection

with the purchase or sale of shares of the Funds. In addition, no

redemption fees are paid in connection with the sale of shares by the

Client Plans to the Funds. The applicant states that all other dealings

between the Client Plans and the Funds, M&I Management or any

affiliate, are on a basis no less favorable to the Client Plans than

such dealings are with the other shareholders of the Funds.

10. In summary, M&I represents that the transactions described

herein satisfy the statutory criteria of section 408(a) of the Act

because: (a) The Funds provide the Client Plans with a more effective

investment vehicle than the CIFs maintained by M&I without any increase

in investment management, advisory or similar fees paid to M&I; (b)

with respect to the transfer of a Client Plan's CIF assets into a Fund

in exchange for Fund shares, a Second Fiduciary authorizes in writing

such transfer prior to the transaction only after full written

disclosure of information concerning the Fund; (c) each Client Plan

receives shares of a Fund in connection with the transfer of assets of

a terminating CIF which have a net asset value that is equal to the

value of the Client Plan's pro rata share of the CIF assets on the date

of the transfer, based on the current market value of such assets as

determined in a single valuation at the close of the same business day

using independent sources in accordance with procedures established by

the Fund which comply with Rule 17a-7 of the 1940 Act; (d) with respect

to any investments in a Fund by the Client Plans and the payment of any

fees by the Fund to M&I, a Second Fiduciary receives full written

disclosure of information concerning the Fund, including a current

prospectus and a statement describing the Fee Structure, and authorizes

in writing the investment of the Client Plan's assets in the particular

Fund and the fees paid by such Fund to M&I; (e) any authorizations made

by a Client Plan regarding investments in a Fund and fees paid to M&I,

or any increases in the rates of fees for secondary services which are

retained by M&I, are or will be terminable at will by the Client Plan,

without penalty to the Client Plan, upon receipt by M&I of written

notice of termination from the Second Fiduciary; (f) M&I requires

annual audits by an independent accounting firm to verify the proper

crediting to the Client Plans of fees charged by M&I to the Funds; (g)

no commissions or redemption fees are paid by the Client Plan in

connection with either the acquisition of Fund shares, through either a

direct purchase of the shares or a transfer of CIF assets in exchange

for the shares, or the sale of Fund shares; and (h) all dealings

between the Client Plans, the Funds and M&I, are on a basis which is at

least as favorable to the Client Plans as such dealings are with other

shareholders of the Funds.

Notice to Interested Persons

Notice of the proposed exemption shall be given to all Second

Fiduciaries of Client Plans described herein that had investments in a

terminating CIF and from whom approval was sought, or will be sought

prior to the granting of this proposed exemption, for a transfer of a

Client Plan's CIF assets to a Fund. In addition, interested persons

shall include the Second Fiduciaries of all Client Plans which have

invested in the Funds, from the effective date of the proposed

exemption (November 20, 1992) until the date the notice of the proposed

exemption is published in the Federal Register, where M&I has provided

services to the Funds and received fees which would be covered by the

exemption, if granted. Notice to interested persons shall be provided

by first class mail within fifteen (15) days following the publication

of the proposed exemption in the Federal Register. Such notice shall

include a copy of the notice of proposed exemption as published in the

Federal Register and a supplemental statement (see 29 CFR

2570.43(b)(2)) which informs all 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 are due within

forty-five (45) days following the publication of the proposed

exemption in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Mr. E. F. Williams of the Department,

telephone (202) 219-8194. (This is not a toll-free number.)

New Standard Corporation Pension Plan (the Plan) Located in Mt. Joy,

Pennsylvania; Proposed Exemption

[Application No. D-9698]

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 certain parcel of real

property (the Property) from the Plan to New Standard Corporation (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 Property is established by a real

estate appraiser independent of the Plan and the Employer;

2. The Employer pays the greater of $115,000 or the current fair

market value of the Property (excluding site improvements) with the

enhancement value for an adjoining owner as of the date of sale;

3. The sale is a one-time transaction for cash;

4. The Plan pays no fees or commissions in regard to the sale; and

5. The Employer pays any applicable excise taxes to the Internal

Revenue Service under section 4975(a) of the Code resulting from its

use of the Property since October 1993.

Summary of Facts and Representations

1. The Employer is a metal stampings manufacturing concern with

offices in Mt. Joy and Hellam Township, Pennsylvania. The Plan is a

defined benefit plan which had approximately 66 participants and total

assets of approximately $1,083,139 as of the time of filing of the

exemption application.

2. The Plan purchased the Property in April 1978 from unrelated

parties for a purchase price of $22,689 in cash. The Property is a

vacant lot of about 2.51 acres located in Hellam Township adjacent to

property of the Employer. The adjacent property includes a one-story

manufacturing and warehouse complex utilized by the Employer.

The total cost to the Plan of acquiring and holding the Property

since the time of purchase has been only the original purchase price.

All taxes and other costs related to the holding of the Property by the

Plan have been paid by the Employer. A small portion of the lot was

recently paved at the expense of the Employer to provide an additional

parking opportunity to the Employer, and certain other improvements to

the Property (including storm sewer installation and driveway access)

have been financed by the Employer. The Employer has expended a total

of $72,260, including taxes, on the Property since the time it was

acquired by the Plan.

3. The applicant obtained an appraisal on the Property dated April

14, 1994, from B. Daniel Wagner, MAI (Wagner) of Associated Appraisers

in York, Pennsylvania. The applicant represents that Wagner is

independent of the Plan and the Employer. Wagner states that he is

aware that the Employer is the owner of contiguous property and is the

prospective buyer of the Property. In Wagner's opinion, the fair market

value of the Property (excluding site improvements which were

constructed at the expense of the Employer) to an adjoining owner and

including the enhancement value for such adjoining owner was $115,000

as of the date of the appraisal.

4. The Plan now proposes to sell the Property to the Employer. The

Employer will pay the greater of the current fair market value of the

Property (excluding site improvements) for an adjoining owner, based on

an updated independent appraisal, or the total amount the Plan has

expended on the Property as of the date of sale. The sale of the

Property will be entirely for cash, and the Plan will pay no fees or

commissions in regard to the transaction.

The applicant represents that portion of the Property which was

paved for parking has been utilized by employees of the Employer. This

parking area contains 48 spaces and was completed in October 1993. A

supplement to the above described appraisal, prepared by Wagner on June

20, 1994, estimates the total fair market rental for such usage to be

approximately $350 per month. The Employer will compensate the Plan in

that amount for the period of time the Employer has utilized the

parking area from October 1993 to the date of sale of the

Property.27

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

\2\7The applicant recognizes that the use of a portion of the

Property for parking purposes of the Employer may have constituted

prohibited transactions under section 406 of the Act and section

4975 of the Code. Accordingly, the Employer will pay the Internal

Revenue Service any excise taxes that are applicable under section

4975(a) of the Code within 90 days of the publication in the Federal

Register of the grant of this proposed exemption.

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

5. 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 Property will be

established by a real estate appraiser independent of the Plan and the

Employer; (2) the Employer will pay the greater of the current fair

market value of the Property (excluding site improvements) for an

adjoining owner or the total amount the Plan has expended on the

Property; (3) the Plan will pay no fees or commissions in connection

with the sale; and (4) the sale of the Property will be an all cash

transaction.

FOR FURTHER INFORMATION CONTACT: Paul Kelty of the Department,

telephone (202) 219-8883. (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 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 11th day of August, 1994.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 94-20010 Filed 8-16-94; 8:45 am]

BILLING CODE 4510-29-P