Grant of Individual Exemptions; Marshall & Ilsley Trust Company et al.

DEPARTMENT OF LABOR

[Prohibited Transaction Exemption 94-82; Exemption Application No. D-

9257, et al.]

Grant of Individual Exemptions; Marshall & Ilsley Trust Company

et al.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemptions.

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SUMMARY: This document contains exemptions issued by the Department of

Labor (the Department) from certain of the prohibited transaction

restrictions of the Employee Retirement Income Security Act of 1974

(the Act) and/or the Internal Revenue Code of 1986 (the Code).

Notices were published in the Federal Register of the pendency

before the Department of proposals to grant such exemptions. The

notices set forth a summary of facts and representations contained in

each application for exemption and referred interested persons to the

respective applications for a complete statement of the facts and

representations. The applications have been available for public

inspection at the Department in Washington, D.C. The notices also

invited interested persons to submit comments on the requested

exemptions to the Department. In addition the notices stated that any

interested person might submit a written request that a public hearing

be held (where appropriate). The applicants have represented that they

have complied with the requirements of the notification to interested

persons. No public comments and no requests for a hearing, unless

otherwise stated, were received by the Department.

The notices of proposed exemption were issued and the exemptions

are being granted solely by the Department because, effective December

31, 1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR

47713, October 17, 1978) transferred the authority of the Secretary of

the Treasury to issue exemptions of the type proposed to the Secretary

of Labor.

Statutory Findings

In accordance with section 408(a) of the Act and/or section

4975(c)(2) of the Code and the procedures set forth in 29 CFR Part

2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon

the entire record, the Department makes the following findings:

(a) The exemptions are administratively feasible;

(b) They are in the interests of the plans and their participants

and beneficiaries; and

(c) They are protective of the rights of the participants and

beneficiaries of the plans.

Marshall & Ilsley Trust Company Located in Milwaukee, Wisconsin

[Prohibited Transaction Exemption 94-82; Application No. D-9257]

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

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 pursuant to Rule 17a-7 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 the 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 the 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

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 from or 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,

including any investment advisory fees paid by M&I to third party sub-

advisers, 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, if applicable, 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) In the event that M&I provides an additional secondary service

to a Fund for which a fee is charged or there is an increase in the

amount of fees paid by the Funds to M&I for any secondary services

resulting from a decrease in the number or kind of services performed

by M&I for such fees in connection with a previously authorized

secondary service, M&I will, at least thirty days in advance of the

implementation of such additional service or fee increase, provide

written notice to the Second Fiduciary explaining the nature and the

amount of the additional service for which a fee will be charged or the

nature and amount of the increase in fees of the affected Fund. Such

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

Section IV(i) below.

(m) On an annual basis, M&I provides the Second Fiduciary of a

Client Plan investing in the Funds with:

(1) A copy of the current prospectus for the Funds and, upon such

fiduciary's request, a copy of the Statement of Additional Information

for such Funds which contains a description of all fees paid by the

Funds to M&I;

(2) A copy of the annual financial disclosure report prepared by

M&I which includes information about the Fund portfolios as well as

audit findings of an independent auditor within 60 days of the

preparation of the report; and

(3) Oral or written responses to inquiries of the Second Fiduciary

as they arise.

(n) 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 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, employee,

or affiliate 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, affiliate 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: The exemption is effective as of November 20, 1992.

For a more complete statement of the facts and representations

supporting the Department's decision to grant this exemption, refer to

the notice of proposed exemption published on August 17, 1994, at 59 FR

42300.

Notice to Interested Persons: The applicant represents that it was

unable to notify interested persons within the time period specified in

the Federal Register notice published on August 17, 1994. The applicant

states that interested persons were notified, in the manner agreed upon

between the applicant and the Department, by September 16, 1994.

Interested persons were advised that they had until October 17, 1994 to

comment on the proposed exemption.

Written Comments and Modifications: The applicant submitted the

following comments and requests for modifications regarding the notice

of proposed exemption (the Proposal).

In response to a question raised by the Department regarding the

reference in Section I(b) of the Proposal, describing the valuation

method to be used for the in-kind transfer of CIF assets, to ``* * *

procedures established by the Funds for the valuation of such assets'',

the applicant states that such ``procedures'' are adopted by the board

of directors of the Funds to provide for compliance with Securities and

Exchange Commission (SEC) Rule 17a-7 for transactions effected under

that Rule. The applicant represents that it does not intend for the

reference to these ``procedures'' to refer to any non-Rule 17a-7

valuation procedures for the Funds.

Therefore, in response to this comment, the Department has amended

Section I(b) of the Proposal by changing the clause to read as follows

(the new language being underlined):

``* * * and the procedures established by the Funds pursuant to

Rule 17a-7 for the valuation of such assets.''

The applicant states further that the valuation procedures used by

a mutual fund for determining the net asset value of its shares may

differ slightly from the valuation procedures used for Rule 17a-7

transactions. For example, the applicant notes that although the rules

and procedures for determining net asset value parallel the valuation

rules of Rule 17a-7(b) for securities for which market quotations are

readily available, the net asset value rules permit the amortized cost

method to be used for valuing certain types of securities, such as

short-term fixed-income securities, and permit the use of one, rather

than three, independent brokers or pricing services to value securities

which are not exchanged-traded.

However, the applicant represents that the net asset value

determinations by the Funds are made on an objective and consistent

basis, in accordance with the applicable SEC rules and internal

procedures established by the board of directors of the Funds (the

Board). The applicant states that all the members of the Board are

independent of M&I, the investment adviser of the Funds. The procedures

established by the Board are described in the Statement of Additional

Information issued to Fund investors. These procedures include the time

of day at which net asset value will be determined and the specific

independent pricing services that will be used by the Funds.

Accordingly, the Department has determined that no further

modifications to Section I(b) of the Proposal are necessary.

In response to a question raised by the Department regarding the

utilization of sub-advisers, the applicant states that M&I currently

uses a third party sub-adviser for one of the Funds but otherwise is

the sole investment adviser to the Funds' existing portfolios and

presently contemplates no change with respect to such existing

portfolios. M&I states that in the event that other, particularly more

specialized, portfolios are started, third party sub-advisers may be

utilized to enhance the investment alternatives and the investment

advisory services available to the Funds for such portfolios. M&I

represents that each Client Plan's credit of all investment advisory

fees charged by M&I to the Funds will include any investment advisory

fees paid by M&I to third party sub-advisers.

In response to the applicant's comment, the Department has amended

Section II(d) of the Proposal as follows (new language being

underlined):

``* * * 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, including any investment advisory fees

paid by M&I to third party sub-advisers, within no more than one

business day of the receipt of such fees by M&I.''

In response to a further question raised by the Department

regarding changes in fees received by M&I for secondary services, the

applicant has agreed to add a new condition to Section II of the

Proposal which requires prior disclosure of the addition of a secondary

service for which a fee is charged or an increase in fees as a result

of a decrease in the number or kind of services performed for an

existing secondary service fee. This condition, as discussed in

paragraph (l) of Section II, requires M&I to provide written notice to

the Second Fiduciary, at least thirty days in advance of the

implementation of such additional service or fee increase, explaining

the nature and the amount of the additional service for which a fee

will be charged or the nature and amount of the increase in fees of the

affected Fund. Such notice must be accompanied by a Termination Form.

With respect to purchases and sales of Fund shares, Section II(c)

of the Proposal states that neither M&I nor an affiliate, including any

officer or director of M&I, may purchase or sell shares of the Funds

from or to any Client Plan. The applicant states that while purchases

or redemptions of Fund shares by the Client Plans are made with the

Funds' distributor, which is independent of M&I, purchase and

redemption orders may be placed through the Client Plan's account

representative at M&I. The applicant requests that the Department

clarify that the language of Section II(c) of the Proposal does not

affect the ability of Client Plans to place orders through M&I

personnel.

In response to the applicant's comment, the Department notes that

Section II(c) was not intended to limit the ability of Client Plans to

deal with M&I account representatives on Fund matters and is not meant

to prohibit purchases or sales of Fund shares that are placed through

M&I personnel when such personnel are acting as agents for the Client

Plans.

With respect to 12b-1 fees, Section II(f) of the Proposal provides

that M&I may not receive any fees payable pursuant to Rule 12b-1 under

the 1940 Act. The applicant states that this condition is consistent

with the representations made by M&I. However, the applicant notes that

Paragraphs 3 and 4 of the Summary of Facts and Representations in the

Proposal (the Summary) overstate the representations made by M&I with

regard to 12b-1 fees and require minor clarification.

Paragraph 3 indicates that the Client Plans will invest only in

``Trust Shares'' of the Funds. The applicant states that at the current

time only the Marshall Money Market Fund has established a category of

``Trust Shares'', as distinguished from ``Investment Shares'' that are

charged with 12b-1 fees. The applicant notes that the remaining Funds,

while capable of establishing 12b-1 plans, have not done so, and

currently use only a single class of shares. The applicant represents

that if any of these Funds does establish a 12b-1 plan, it will create

a separate class of shares analogous to the Marshall Money Market

Funds' ``Trust Shares'' that will not be charged 12b-1 fees, and

investments by Client Plans will be limited to the class of shares not

subject to 12b-1 fees.

In Paragraph 4 of the Summary, the third sentence reads, ``* * * 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 applicant states that this statement should be clarified

to limit it to transactions described under the exemption, because M&I

may receive 12b-1 fees in connection with transactions outside the

exemption involving separate classes of Fund shares. The Department

notes the applicant's clarification.

With respect to the authorization of credits in the form of Fund

shares, the applicant states that the Second Fiduciary's authorization

of the fee credits may not necessarily include an authorization to

purchase additional shares with the credited fees. Therefore, Section

II(i) of the Proposal should include the phrase ``if applicable'' as

part of the clause ``* * * and the purchase of additional shares of a

Fund by the Client Plan with the fees credited to the Client Plan by

M&I''. The Department has amended Section II(i) to include this phrase.

In addition, Paragraph 8 of the Summary states, in the middle of the

first paragraph, that ``* * * 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.''

The applicant states that this should be clarified to provide that such

authorizations may, rather than will, be included in the future. The

Department also notes this additional clarification.

With respect to the use of broker quotations and pricing services

for valuing the securities transferred to a Fund, the applicant states

that the reference in Section I(b) of the Proposal to the use of ``* *

* at least three sources that are broker-dealers or pricing services

independent of M&I * * *'' for securities described under Rule 17a-

7(b)(4) is consistent with M&I's representations. However, the

applicant notes that the third paragraph of Paragraph 6 of the Summary

indicates that unlisted securities were valued based on quotations

obtained from three brokers independent of M&I, without referring to

the use of a fourth quotation in the event of an aberration in the

three quotations obtained or the use in some cases of independent

pricing services in place of brokers. The applicant requests that this

matter be clarified for the record. In this regard, the Department

notes the applicant's clarification regarding M&I's use of broker

quotations and pricing services for valuing unlisted securities

involved in the in-kind transfers to the Funds and also notes that such

procedures were consistent with Section I(b) of the Proposal.

With respect to the frequency of reports made to the Client Plans

on Fund transactions, the applicant states that Paragraph 8 of the

Summary should be clarified to state that such reports are provided to

Second Fiduciaries monthly or quarterly, rather than just monthly. The

Department also notes this clarification. In addition, the Department

has added as a condition of the exemption (see Section II(m) above) a

requirement that M&I provide the Second Fiduciaries of Client Plans

investing in the Funds the following:

(1) A copy of the current prospectus for the Funds and, upon such

fiduciary's request, a copy of the Statement of Additional Information

for such Funds which contains a description of all fees paid by the

Funds to M&I;

(2) A copy of the annual financial disclosure report prepared by

M&I which includes information about the Fund portfolios as well as

audit findings of an independent auditor within 60 days of the

preparation of the report; and

(3) Oral or written responses to inquiries of the Second Fiduciary

as they arise.

Accordingly, after consideration of the entire record, the

Department has determined to grant the exemption as modified.

FOR FURTHER INFORMATION CONTACT: Mr. E. F. Williams of the Department,

telephone (202) 219-8194. (This is not a toll-free number.)

Xerox Corporation Profit Sharing and Savings Plan; Xerox Corporation

Retirement Income Guarantee Plan; Profit Sharing Plan of Xerox

Corporation and the Xerographic Division, A.C.T.W.U, AFL-CIO; and the

Retirement Income Guarantee Plan of Xerox Corporation and the

Xerographic Division, A.C.T.W.U, AFL-CIO (collectively, the Plans)

Located in Stamford, Connecticut; Exemption

[Prohibited Transaction Exemption 94-83; Exemption Application Nos. D-

9778 through D-9781]

The restrictions of sections 406(a), 406 (b)(1) and (b)(2) of the

Act and the sanctions resulting from the application of section 4975 of

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

shall not apply to the guarantees (the Guarantees) by the Xerox

Corporation, the sponsor of the Plans, of amounts payable to the Plans

by the Aurora National Life Assurance Company with respect to five

group annuity contracts (the GACs) originally issued by Executive Life

Insurance Company of California (Executive Life); provided that the

following conditions are satisfied:

(A) All terms and conditions of such transactions are no less

favorable to the Plans than those which the Plans could obtain in

arm's-length transactions with unrelated parties;

(B) The Guarantees are made solely with respect to the amounts

which are due the Plans, but unpaid, with respect to the GACs; and

(C) The Settlement Agreement described within the Summary of Facts

and Representations, in the notice of proposed exemption, is approved

by the U.S. District Court, District of Connecticut.

For a more complete statement of the facts and representations

supporting the Department's decision to grant this exemption, refer to

the notice of proposed exemption published on September 30, 1994 at 59

FR 50011.

Written Comments: The Department received 16 written comments and

no requests for a hearing. Two of the comments requested additional

information, which was provided by telephone by a representative of the

Department. Twelve of the comments did not address substantively the

transactions addressed by the proposed exemption. The remaining two

comments addressed substantive issues relating to the proposed

exemption:

1. One comment raised issues which are summarized as follows: (a)

The Plans continue to lose earning opportunities on the assets invested

in the GACs until 1999; (b) The Plans' participants have incurred

administrative and litigation expenses related to the proposed

transaction; (c) The Employer's profitability is affected by the

subject transactions; (d) The proposed transaction represents an

estimated loss of 15 percent of the Plans' principal investment in the

GACs; and (e) The Plans will have earned no income on their investments

in the GACs.

In a written response, the Xerox Corporation (the Applicant) notes

that the comment raises questions, and appears to constitute an

objection, with respect to the Applicant's entire two-part remedy

proposed for the problems resulting from the conservatorship of

Executive Life. This two-part remedy consists of (1) an up-front cash

payment, and (2) the proposed Guarantees pursuant to the Settlement

Agreement. The Applicant emphasizes that the proposed exemption relates

solely to the proposed Guarantees, and not to the entire two-part

remedy. Since the comment addresses the entire remedy as a whole, the

Applicant maintains that the comment is not relevant to the proposed

exemption, which involves only the Guarantees. The Applicant states

that prior to the Settlement Agreement's approval by the Federal

District Court for the District of Connecticut (the Court), affected

Plan participants were duly notified and afforded ample opportunity to

comment on the proposed Settlement Agreement. In response to

approximately 32,000 notices mailed to affected Plan participants

publicizing the settlement's terms, in addition to newspaper reports,

the Applicant states that only three objections were received. The

Applicant represents that in its hearing on September 8, 1994, the

Court determined that the Settlement Agreement was ``fair, reasonable

and adequate''. In conclusion, the Applicant states that the comment is

neither timely, nor relevant to the exemption request, nor in keeping

with the judgment of the Court which has considered this matter.

In specific response to the comment's point relating to litigation

expenses, the Applicant states that fees and administrative costs with

respect to the lawsuit resulting in the Settlement Agreement will be

paid out of funds transferred by the Applicant to an escrow account. In

specific response to the comment's point relating to loss of principal,

the Applicant states that the comment is wrong factually: The Applicant

represents that the proposed two-part remedy will protect 100 percent

of the face value of the GACs as of April 1, 1991, consisting of all

principal investments plus interest accrued at the rates guaranteed by

the GACs, less previous withdrawals.

2. The other comment objected to the proposed transaction because

of the commenter's opinion that it would wrongfully permit Xerox

Corporation to reinstate the principal investments in the GACs by 1999

while depriving the Plans' participants of any interest on such funds.

The commenter maintained that the proposed transaction rewards Xerox

Corporation for faulty investment strategy and violations of its

fiduciary duties.

In a written response to this comment, the Applicant notes that,

like the previous comment, it raises questions about the Applicant's

entire two-part remedy as a whole, rather than the proposed exemption,

which relates solely to the proposed Guarantees pursuant to the

Settlement Agreement. The Applicant maintains that since the comment

addresses the entire proposed remedy, the comment is not relevant to

the proposed exemption. As in response to the prior comment, the

Applicant states that before the Settlement Agreement was approved by

the Court, affected Plan participants were duly notified and afforded

ample opportunity to comment on the proposed Settlement Agreement. The

Applicant again notes that in its hearing on September 8, 1994, the

Court determined that the Settlement Agreement was ``fair, reasonable

and adequate''. The Applicant maintains in conclusion that the comment

is neither timely, nor relevant to the exemption request, nor in

keeping with the judgment of the Court which has considered this

matter.

3. The Department notes that, although all aspects of the

Settlement Agreement were disclosed in the Applicant's exemption

application, the exemption request was specifically limited to the

provision of the Guarantees by the Xerox Corporation. Accordingly, the

Department considered the request in the context of a settlement

agreement that had been agreed to by the parties to the litigation and

approved by the U.S. District Court. In this regard, the Department

noted in the proposal that it was not proposing any relief for any

violation of Part 4 which may have arisen as a result of the

acquisition and holding of the GACs.

Accordingly, after consideration of the entire record, including

the comments and the Applicant's responses, the Department has

determined to grant the exemption as proposed.

FOR FURTHER INFORMATION CONTACT: Ronald Willett of the Department,

telephone (202) 219-8881. (This is not a toll-free number.)

General Information

The attention of interested persons is directed to the following:

(1) The fact that a transaction is the subject of an exemption

under section 408(a) of the Act and/or section 4975(c)(2) of the Code

does not relieve a fiduciary or other party in interest or disqualified

person from certain other provisions to which the exemptions does not

apply and the general fiduciary responsibility provisions of section

404 of the Act, which among other things require a fiduciary to

discharge his duties respecting the plan solely in the interest of the

participants and beneficiaries of the plan and in a prudent fashion in

accordance with section 404(a)(1)(B) of the Act; nor does it affect the

requirement of section 401(a) of the Code that the plan must operate

for the exclusive benefit of the employees of the employer maintaining

the plan and their beneficiaries;

(2) These exemptions are supplemental to and not in derogation of,

any other provisions of the Act and/or the Code, including statutory or

administrative exemptions and transactional rules. Furthermore, the

fact that a transaction is subject to an administrative or statutory

exemption is not dispositive of whether the transaction is in fact a

prohibited transaction; and

(3) The availability of these exemptions is subject to the express

condition that the material facts and representations contained in each

application accurately describes all material terms of the transaction

which is the subject of the exemption.

Signed at Washington, D.C., this 30th day of November, 1994.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 94-29834 Filed 12-2-94; 8:45 am]

BILLING CODE 4510-29-P