Grant of Individual Exemptions; Alex. Brown & Sons, Incorporated, et al.

Federal RegisterDec 19, 1994

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DEPARTMENT OF LABOR

[Prohibited Transaction Exemption 94-84; Exemption Application No. D-

9801, et al.]

Grant of Individual Exemptions; Alex. Brown & Sons, Incorporated,

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

beneficiaries of the plans.

Alex. Brown & Sons, Incorporated (ABS) Located in Baltimore,

Maryland

[Prohibited Transaction Exemption 94-84; Exemption Application No. D-

9801]

Exemption

I. Transactions

A. Effective August 12, 1994, the restrictions of sections 406(a)

and 407(a) of the Act and the taxes imposed by section 4975(a) and (b)

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

shall not apply to the following transactions involving trusts and

certificates evidencing interests therein:

(1) The direct or indirect sale, exchange or transfer of

certificates in the initial issuance of certificates between the

sponsor or underwriter and an employee benefit plan when the sponsor,

servicer, trustee or insurer of a trust, the underwriter of the

certificates representing an interest in the trust, or an obligor is a

party in interest with respect to such plan;

(2) The direct or indirect acquisition or disposition of

certificates by a plan in the secondary market for such certificates;

and

(3) The continued holding of certificates acquired by a plan

pursuant to subsection I.A.(1) or (2).

Notwithstanding the foregoing, section I.A. does not provide an

exemption from the restrictions of sections 406(a)(1)(E), 406(a)(2) and

407 for the acquisition or holding of a certificate on behalf of an

Excluded Plan by any person who has discretionary authority or renders

investment advice with respect to the assets of that Excluded

Plan.1

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\1\Section I.A. provides no relief from sections 406(a)(1)(E),

406(a)(2) and 407 for any person rendering investment advice to an

Excluded Plan within the meaning of section 3(21)(A)(ii) and

regulation 29 CFR 2510.3-21(c).

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B. Effective August 12, 1994, the restrictions of sections

406(b)(1) and 406(b)(2) of the Act and the taxes imposed by section

4975 (a) and (b) of the Code by reason of section 4975(c)(1)(E) of the

Code shall not apply to:

(1) The direct or indirect sale, exchange or transfer of

certificates in the initial issuance of certificates between the

sponsor or underwriter and a plan when the person who has discretionary

authority or renders investment advice with respect to the investment

of plan assets in the certificates is (a) an obligor with respect to 5

percent or less of the fair market value of obligations or receivables

contained in the trust, or (b) an affiliate of a person described in

(a); if:

(i) the plan is not an Excluded Plan;

(ii) solely in the case of an acquisition of certificates in

connection with the initial issuance of the certificates, at least 50

percent of each class of certificates in which plans have invested is

acquired by persons independent of the members of the Restricted Group

and at least 50 percent of the aggregate interest in the trust is

acquired by persons independent of the Restricted Group;

(iii) a plan's investment in each class of certificates does not

exceed 25 percent of all of the certificates of that class outstanding

at the time of the acquisition; and

(iv) immediately after the acquisition of the certificates, no more

than 25 percent of the assets of a plan with respect to which the

person has discretionary authority or renders investment advice are

invested in certificates representing an interest in a trust containing

assets sold or serviced by the same entity.2 For purposes of this

paragraph B.(1)(iv) only, an entity will not be considered to service

assets contained in a trust if it is merely a subservicer of that

trust;

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\2\For purposes of this exemption, each plan participating in a

commingled fund (such as a bank collective trust fund or insurance

company pooled separate account) shall be considered to own the same

proportionate undivided interest in each asset of the commingled

fund as its proportionate interest in the total assets of the

commingled fund as calculated on the most recent preceding valuation

date of the fund.

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(2) The direct or indirect acquisition or disposition of

certificates by a plan in the secondary market for such certificates,

provided that the conditions set forth in paragraphs B.(1) (i), (iii)

and (iv) are met; and

(3) The continued holding of certificates acquired by a plan

pursuant to subsection I.B. (1) or (2).

C. Effective August 12, 1994, the restrictions of sections 406(a),

406(b) and 407(a) of the Act, and the taxes imposed by section 4975 (a)

and (b) of the Code by reason of section 4975(c) of the Code, shall not

apply to transactions in connection with the servicing, management and

operation of a trust, provided:

(1) such transactions are carried out in accordance with the terms

of a binding pooling and servicing arrangement; and

(2) the pooling and servicing agreement is provided to, or

described in all material respects in the prospectus or private

placement memorandum provided to, investing plans before they purchase

certificates issued by the trust.3

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\3\In the case of a private placement memorandum, such

memorandum must contain substantially the same information that

would be disclosed in a prospectus if the offering of the

certificates were made in a registered public offering under the

Securities Act of 1933. In the Department's view, the private

placement memorandum must contain sufficient information to permit

plan fiduciaries to make informed investment decisions.

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Notwithstanding the foregoing, section I.C. does not provide an

exemption from the restrictions of section 406(b) of the Act or from

the taxes imposed by reason of section 4975(c) of the Code for the

receipt of a fee by a servicer of the trust from a person other than

the trustee or sponsor, unless such fee constitutes a ``qualified

administrative fee'' as defined in section III.S.

D. Effective August 12, 1994, the restrictions of sections 406(a)

and 407(a) of the Act, and the taxes imposed by sections 4975(a) and

(b) of the Code by reason of sections 4975(c)(1)(A) through (D) of the

Code, shall not apply to any transactions to which those restrictions

or taxes would otherwise apply merely because a person is deemed to be

a party in interest or disqualified person (including a fiduciary) with

respect to a plan by virtue of providing services to the plan (or by

virtue of having a relationship to such service provider described in

section 3(14)(F), (G), (H) or (I) of the Act or section 4975(e)(2)(F),

(G), (H) or (I) of the Code), solely because of the plan's ownership of

certificates.

II. General Conditions

A. The relief provided under Part I is available only if the

following conditions are met:

(1) The acquisition of certificates by a plan is on terms

(including the certificate price) that are at least as favorable to the

plan as they would be in an arm's-length transaction with an unrelated

party;

(2) The rights and interests evidenced by the certificates are not

subordinated to the rights and interests evidenced by other

certificates of the same trust;

(3) The certificates acquired by the plan have received a rating at

the time of such acquisition that is in one of the three highest

generic rating categories from either Standard & Poor's Corporation

(S&P's), Moody's Investors Service, Inc. (Moody's), Duff & Phelps Inc.

(D & P) or Fitch Investors Service, Inc. (Fitch);

(4) The trustee is not an affiliate of any member of the Restricted

Group. However, the trustee shall not be considered to be an affiliate

of a servicer solely because the trustee has succeeded to the rights

and responsibilities of the servicer pursuant to the terms of a pooling

and servicing agreement providing for such succession upon the

occurrence of one or more events of default by the servicer;

(5) The sum of all payments made to and retained by the

underwriters in connection with the distribution or placement of

certificates represents not more than reasonable compensation for

underwriting or placing the certificates; the sum of all payments made

to and retained by the sponsor pursuant to the assignment of

obligations (or interests therein) to the trust represents not more

than the fair market value of such obligations (or interests); and the

sum of all payments made to and retained by the servicer represents not

more than reasonable compensation for the servicer's services under the

pooling and servicing agreement and reimbursement of the servicer's

reasonable expenses in connection therewith; and

(6) The plan investing in such certificates is an ``accredited

investor'' as defined in Rule 501(a)(1) of Regulation D of the

Securities and Exchange Commission under the Securities Act of 1933.

B. Neither any underwriter, sponsor, trustee, servicer, insurer, or

any obligor, unless it or any of its affiliates has discretionary

authority or renders investment advice with respect to the plan assets

used by a plan to acquire certificates, shall be denied the relief

provided under Part I, if the provision of subsection II.A.(6) above is

not satisfied with respect to acquisition or holding by a plan of such

certificates, provided that (1) such condition is disclosed in the

prospectus or private placement memorandum; and (2) in the case of a

private placement of certificates, the trustee obtains a representation

from each initial purchaser which is a plan that it is in compliance

with such condition, and obtains a covenant from each initial purchaser

to the effect that, so long as such initial purchaser (or any

transferee of such initial purchaser's certificates) is required to

obtain from its transferee a representation regarding compliance with

the Securities Act of 1933, any such transferees will be required to

make a written representation regarding compliance with the condition

set forth in subsection II.A.(6) above.

III. Definitions

For purposes of this exemption:

A. ``Certificate'' means:

(1) a certificate--

(a) that represents a beneficial ownership interest in the assets

of a trust; and

(b) that entitles the holder to pass-through payments of principal,

interest, and/or other payments made with respect to the assets of such

trust; or

(2) a certificate denominated as a debt instrument--

(a) that represents an interest in a Real Estate Mortgage

Investment Conduit (REMIC) within the meaning of section 860D(a) of the

Internal Revenue Code of 1986; and

(b) that is issued by and is an obligation of a trust;

with respect to certificates defined in (1) and (2) above for which ABS

or any of its affiliates is either (i) the sole underwriter or the

manager or co-manager of the underwriting syndicate, or (ii) a selling

or placement agent.

For purposes of this exemption, references to ``certificates

representing an interest in a trust'' include certificates denominated

as debt which are issued by a trust.

B. ``Trust'' means an investment pool, the corpus of which is held

in trust and consists solely of:

(1) either

(a) secured consumer receivables that bear interest or are

purchased at a discount (including, but not limited to, home equity

loans and obligations secured by shares issued by a cooperative housing

association);

(b) secured credit instruments that bear interest or are purchased

at a discount in transactions by or between business entities

(including, but not limited to, qualified equipment notes secured by

leases, as defined in section III.T);

and which are secured by single-family residential, multi-family

residential and commercial real property (including obligations secured

by leasehold interests on commercial real property);

(d) obligations that bear interest or are purchased at a discount

and which are secured by motor vehicles or equipment, or qualified

motor vehicle leases (as defined in section III.U);

(e) ``guaranteed governmental mortgage pool certificates,'' as

defined in 29 CFR 2510.3-101(i)(2);

(f) fractional undivided interests in any of the obligations

described in clauses (a)-(e) of this section B.(1);

(2) property which had secured any of the obligations described in

subsection B.(1);

(3) undistributed cash or temporary investments made therewith

maturing no later than the next date on which distributions are to be

made to certificateholders; and

(4) rights of the trustee under the pooling and servicing

agreement, and rights under any insurance policies, third-party

guarantees, contracts of suretyship and other credit support

arrangements with respect to any obligations described in subsection

B.(1).

Notwithstanding the foregoing, the term ``trust'' does not include

any investment pool unless: (i) the investment pool consists only of

assets of the type which have been included in other investment pools,

(ii) certificates evidencing interests in such other investment pools

have been rated in one of the three highest generic rating categories

by S&P's, Moody's, D & P, or Fitch for at least one year prior to the

plan's acquisition of certificates pursuant to this exemption, and

(iii) certificates evidencing interests in such other investment pools

have been purchased by investors other than plans for at least one year

prior to the plan's acquisition of certificates pursuant to this

exemption.

C. ``Underwriter'' means:

(1) ABS;

(2) any person directly or indirectly, through one or more

intermediaries, controlling, controlled by or under common control with

ABS; or

(3) any member of an underwriting syndicate or selling group of

which ABS or a person described in (2) is a manager or co-manager with

respect to the certificates.

D. ``Sponsor'' means the entity that organizes a trust by

depositing obligations therein in exchange for certificates.

E. ``Master Servicer'' means the entity that is a party to the

pooling and servicing agreement relating to trust assets and is fully

responsible for servicing, directly or through subservicers, the assets

of the trust.

F. ``Subservicer'' means an entity which, under the supervision of

and on behalf of the master servicer, services loans contained in the

trust, but is not a party to the pooling and servicing agreement.

G. ``Servicer'' means any entity which services loans contained in

the trust, including the master servicer and any subservicer.

H. ``Trustee'' means the trustee of the trust, and in the case of

certificates which are denominated as debt instruments, also means the

trustee of the indenture trust.

I. ``Insurer'' means the insurer or guarantor of, or provider of

other credit support for, a trust. Notwithstanding the foregoing, a

person is not an insurer solely because it holds securities

representing an interest in a trust which are of a class subordinated

to certificates representing an interest in the same trust.

J. ``Obligor'' means any person, other than the insurer, that is

obligated to make payments with respect to any obligation or receivable

included in the trust. Where a trust contains qualified motor vehicle

leases or qualified equipment notes secured by leases, ``obligor''

shall also include any owner of property subject to any lease included

in the trust, or subject to any lease securing an obligation included

in the trust.

K. ``Excluded Plan'' means any plan with respect to which any

member of the Restricted Group is a ``plan sponsor'' within the meaning

of section 3(16)(B) of the Act.

L. ``Restricted Group'' with respect to a class of certificates

means:

(1) each underwriter;

(2) each insurer;

(3) the sponsor;

(4) the trustee;

(5) each servicer;

(6) any obligor with respect to obligations or receivables included

in the trust constituting more than 5 percent of the aggregate

unamortized principal balance of the assets in the trust, determined on

the date of the initial issuance of certificates by the trust; or

(7) any affiliate of a person described in (1)-(6) above.

M. ``Affiliate'' of another person includes:

(1) Any person directly or indirectly, through one or more

intermediaries, controlling, controlled by, or under common control

with such other person;

(2) Any officer, director, partner, employee, relative (as defined

in section 3(15) of the Act), a brother, a sister, or a spouse of a

brother or sister of such other person; and

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

officer, director or partner.

N. ``Control'' means the power to exercise a controlling influence

over the management or policies of a person other than an individual.

O. A person will be ``independent'' of another person only if:

(1) such person is not an affiliate of that other person; and

(2) the other person, or an affiliate thereof, is not a fiduciary

who has investment management authority or renders investment advice

with respect to any assets of such person.

P. ``Sale'' includes the entrance into a forward delivery

commitment (as defined in section Q below), provided:

(1) The terms of the forward delivery commitment (including any fee

paid to the investing plan) are no less favorable to the plan than they

would be in an arm's length transaction with an unrelated party;

(2) The prospectus or private placement memorandum is provided to

an investing plan prior to the time the plan enters into the forward

delivery commitment; and

(3) At the time of the delivery, all conditions of this exemption

applicable to sales are met.

Q. ``Forward delivery commitment'' means a contract for the

purchase or sale of one or more certificates to be delivered at an

agreed future settlement date. The term includes both mandatory

contracts (which contemplate obligatory delivery and acceptance of the

certificates) and optional contracts (which give one party the right

but not the obligation to deliver certificates to, or demand delivery

of certificates from, the other party).

R. ``Reasonable compensation'' has the same meaning as that term is

defined in 29 CFR 2550.408c-2.

S. ``Qualified Administrative Fee'' means a fee which meets the

following criteria:

(1) the fee is triggered by an act or failure to act by the obligor

other than the normal timely payment of amounts owing in respect of the

obligations;

(2) the servicer may not charge the fee absent the act or failure

to act referred to in (1);

(3) the ability to charge the fee, the circumstances in which the

fee may be charged, and an explanation of how the fee is calculated are

set forth in the pooling and servicing agreement; and

(4) the amount paid to investors in the trust will not be reduced

by the amount of any such fee waived by the servicer.

T. ``Qualified Equipment Note Secured By A Lease'' means an

equipment note:

(1) which is secured by equipment which is leased;

(2) which is secured by the obligation of the lessee to pay rent

under the equipment lease; and

(3) with respect to which the trust's security interest in the

equipment is at least as protective of the rights of the trust as the

trust would have if the equipment note were secured only by the

equipment and not the lease.

U. ``Qualified Motor Vehicle Lease'' means a lease of a motor

vehicle where:

(1) the trust holds a security interest in the lease;

(2) the trust holds a security interest in the leased motor

vehicle; and

(3) the trust's security interest in the leased motor vehicle is at

least as protective of the trust's rights as the trust would receive

under a motor vehicle installment loan contract.

V. ``Pooling and Servicing Agreement'' means the agreement or

agreements among a sponsor, a servicer and the trustee establishing a

trust. In the case of certificates which are denominated as debt

instruments, ``Pooling and Servicing Agreement'' also includes the

indenture entered into by the trustee of the trust issuing such

certificates and the indenture trustee.

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 October 25, 1994 at 59 FR

53674.

EFFECTIVE DATE: This exemption is effective for transactions occurring

on or after August 12, 1994.

FOR FURTHER INFORMATION CONTACT: Gary Lefkowitz of the Department,

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

The Masters, Mates and Pilots Pension Plan (The Pension Plan) and

Individual Retirement Account Plan (the IRAP; together, the Plans)

Located in Linthicum Heights, Maryland

[Prohibited Transaction Exemption 94-85; Exemption Application Nos. D-

9618 and D-9619]

Exemption

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

407(a) of the Act and the sanctions resulting from the application of

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

(E) of the Code, shall not apply to the continued holding by the Plans

of their shares of stock (the Stock) in American Heavy Lift Shipping

Company, provided that: (a) the Plans' independent fiduciary has

determined that the Plans' holding of the Stock is appropriate for the

Plans and in the best interests of the Plans' participants and

beneficiaries; and (b) the Plans' independent fiduciary continues to

monitor the Plans' holding of the Stock and determines at all times

that such transaction remains in the best interests of the Plans.

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 October 25, 1994 at 59 FR

53682.

TEMPORARY NATURE OF EXEMPTION: This exemption is effective until the

later of: (1) December 31, 1995, or (2) December 31, 1996 provided

another application for exemption is filed with the Department prior to

December 31, 1995.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,

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

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

[Prohibited Transaction Exemption 94-86; Exemption Application No. D-

9240]

Exemption

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

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;

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 have a

total net asset value equal in value to the assets of the Plans or the

CIFs exchanged for such shares on the date of transfer;

(f) The current market value of the assets of the Plans or the CIFs

to be transferred in-kind 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, using independent sources 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, 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 Plan or CIF transfers determined on the basis of reasonable

inquiry from at least three sources that are broker-dealers or pricing

services independent of the Bank;

(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 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) (A) 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;

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.

(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 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;

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 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 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.

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 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: The exemption is effective retroactively, as of

November 12, 1993.

Written Comments

In the Notice of Proposed Exemption (the Notice), the Department

invited all interested persons to submit written comments and requests

for a hearing on the proposed exemption within sixty (60) days of the

date of the publication of the Notice in the Federal Register on August

17, 1994. All comments and requests for hearing were due by October 17,

1994.

During the comment period, the Department received no requests for

a hearing. However, the Department did receive a comment letter from

the applicant, dated October 17, 1994. The comment from the applicant

requested certain modifications and clarifications of the conditions of

the exemption and certain corrections of the language of the Summary of

Facts and Representation in the Notice. The applicant's comments are as

follows:

First, the Bank requests modification of the language in Section

I(f). This section provides in relevant part that,

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.

(Emphasis added). In this regard, the Bank indicated that the valuation

procedures described in Rule 17a-7 were used to value the CIF

securities transferred to the Funds in the ``conversion'' transaction

that occurred on November 12, 1993, for which retroactive relief has

been requested. Further, in connection with the determination of the

net asset value of the Funds' shares to be transferred to the CIFs in

that transaction, the trustees of the HighMark Group (HighMark) decided

to use Rule 17a-7 procedures to value certain securities held in the

portfolios of the Funds in cases where those securities were the same

as the securities being transferred to the Funds by the CIFs. However,

it is represented that Rule 17a-7 procedures were not used to determine

the value of other securities held in the Fund portfolios where those

securities were not the same as those held by the CIFs. The values of

such other Fund securities were instead determined pursuant to

procedures permitted under the Investment Company Act and normally

followed by HighMark in determining net asset value. The Bank maintains

that it did not intend as a condition of the exemption that Rule 17a-7

valuation procedures be used to determine the value of all of the

Fund's assets for purposes of ascertaining the number of shares to be

issued in connection with a conversion. The Bank believes that the best

approach is to require both parties to a conversion (e.g., a CIF and a

Fund) to use the same procedures to value any securities that are held

by both parties, but that compliance with the valuation requirements of

Rule 17a-7 should be required only with respect to securities held by a

party (such as a CIF) that is not a registered investment company. In

the opinion of the Bank, this would provide assurance that assets

transferred in a conversion transaction are priced appropriately

without interfering with the procedures normally employed by a

registered investment company in determining its net asset value.

In this regard, the Department believes that the most important

consideration is that the value of the securities transferred by the

Plan or the CIF into the Fund equal the value of the units of the Fund

received in exchange for such securities by the Plan. Accordingly, we

believe that the securities transferred must be valued under the same

procedures by both the transferee and transferor entity (e.g. a CIF and

a Fund). In response to the comment, the Department has reviewed its

policies concerning valuation in these types of transactions and has

decided to implement the following changes. The word, ``are,'' before

the word, ``value,'' should be deleted and the language of Section I(e)

amended to read as follows: ``The Plans or the CIFs receive shares of

the Funds that have a total net asset value equal in value to the

assets of the Plans or the CIFs exchanged for such shares on the date

of transfer.'' (The New language is italicized).

The Department concurs with the applicant's request that Section

I(f) be amended by deleting the phrase, ``and the net asset value of

the Funds receiving those assets,'' from the language quoted above to

provide that Rule 17a-7 procedures are required to value only assets

being transferred to a Fund, and not the assets of the Fund itself. In

this connection, the Department has amended the language of Section

I(f) to read as follows: ``The current market value of the assets of

the Plans or the CIFs to be transferred in-kind 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, using independent sources 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, and the