Grant of Individual Exemptions; American Express Company and Affiliates, et. al.

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Prohibited Transaction Exemption 94-34; Exemption Application No. D-

8896, et al.]

Grant of Individual Exemptions; American Express Company and

Affiliates, 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, DC. 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.

American Express Company and Affiliates Located in New York, New

York

[Prohibited Transaction Exemption 94-34; Exemption Application No.

D-8896]

Exemption

American Express Company and each of its wholly-owned subsidiaries

shall not be precluded from functioning as a ``qualified professional

asset manager'' pursuant to Prohibited Transaction Exemption 84-14 (PTE

84-14, 49 FR 9494, March 13, 1984) solely because of a failure to

satisfy section I(g) of PTE 84-14, as a result of affiliation with E.F.

Hutton & Company, Inc. (Hutton) and Shearson Lehman Brothers, Inc.

(Shearson), formerly Shearson Lehman Hutton, Inc.

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 July 20, 1993 at 58 FR

38788.

EFFECTIVE DATE: This exemption is effective as of January 13, 1988, the

date on which Hutton was acquired by Shearson.

WRITTEN COMMENTS: The Department received two written comments, one of

which included a request for a hearing. The comments, and the

applicant's responses to the comments, are summarized as follows:

1. One comment letter, which included a request for a hearing,

was submitted on behalf of the New York State Teamsters Conference

Pension and Retirement Fund and the New York State Teamsters Council

Health and Hospital Fund (the Teamsters Funds). The comment

expressed objection to the proposed exemption because a civil

lawsuit (the Teamsters Lawsuit) relating to the activities of

Shearson and the Inserras remained unresolved, and because of those

activities involved allegations of violations of the prohibited

transactions provisions of the Act. In reply to this comment, the

Applicant has informed the Department that the Teamsters Lawsuit has

been settled. The resolution of the Teamsters Lawsuit has been

confirmed by a representative of the Teamsters Funds. The Department

notes that litigation resulting from a complaint filed by the

Department charging Shearson with violations of sections 404 and 406

of the Act, with respect to Shearson's activities involving the

Inserras, was settled in 1992.

After careful consideration of the entire record, the Department

has determined that no issues have been raised which would require the

convening of a hearing, and it has determined that the factual issues

identified have been fully explored through written submissions.

Accordingly, the Department has determined not to hold a public

hearing.

2. Another comment letter was submitted on behalf of the

International Brotherhood of Painters and Allied Trades Industry

Pension Fund (the Painters Fund). The Painters Fund objects to the

proposed exemption because of allegations against Shearson and two

individuals, William Duvall and Kent Kitchel (collectively, the

Defendants), that their conduct with respect to the Painters Fund

constituted violations of the Act, including prohibited transactions

and breaches of fiduciary duties, and violations of the Investment

Advisers Act of 1940. The Painters Fund notes that a civil lawsuit (the

Painters Fund Lawsuit) filed against the Defendants by the Painters

Fund on May 8, 1992 remains unresolved. The Painters Fund maintains

that the proposed exemption should not be granted until the allegations

involving Shearson's conduct with respect to the Painters Fund are

resolved.

In reply to this comment, the Applicant relates that on July 31,

1993, it sold the Shearson retail brokerage business to Primerica, and

that Primerica's new wholly-owned subsidiary, Smith Barney Shearson

(SBS), is solely responsible for that retail brokerage business. The

Applicant represents that pursuant to the terms of that sale, the

responsibility for the Painters Fund Lawsuit was transferred to SBS,

including exclusive control of the defense and authority to settle the

case without prior notice to or approval of Lehman, which is the

American Express subsidiary remaining after the transfer of the

Shearson retail brokerage business to SBS. The Applicant maintains that

this transfer of responsibility and control occurred because the

parties to the sale agreed that SBS should assume the liability for the

Painters Fund Lawsuit, in addition to other litigation, and that a $50

million balance sheet reserve was established to cover the liabilities

arising out of the transferred litigation. The Applicant states that

this agreement provides that Lehman will be liable for 50 percent of

any liabilities which in the aggregate exceed the balance sheet reserve

in connection with the transferred litigation, without any right on the

part of Lehman to control the conduct or outcome of such litigation.

The Applicant states that there no longer exists any nexus between

American Express Company, its affiliates, and the allegations against

the Defendants in the Painters Fund Lawsuit, and that the pendency of

the Painters Fund Lawsuit, involving a business which the Applicant no

longer owns or controls, should not prevent the granting of the

proposed exemption.

After consideration of the entire record, including the comments

and responses thereto, the Department has determined to grant the

exemption.

For further information contact: Ronald Willett of the Department,

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

Reliance Group Holdings, Inc. Plan, (the RGH Plan), Located in New

York, New York; Commonwealth Pension Plan (the Commonwealth Plan),

Located in Philadelphia, Pennsylvania; RIC Employee Pension Plan (the

RIC Plans); (together, the Plans) Located in Philadelphia, Pennsylvania

[Prohibited Transaction Exemption 94-35; Exemption Application Nos. D-

9159, D-9160 and D-9161, respectively]

Exemption

The restrictions of sections 406(a), 406(b) (1) and (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 (1) the continued holding by the Plans

after December 31, 1992, of shares of common stock (the Stock) of

Reliance Group Holdings, Inc. (RGH); (2) the cash payment by RGH to the

Plans pursuant to an irrevocable shortfall agreement (the Shortfall

Agreement) between the Plans and RGH whereby RGH will reimburse the

Plans by the amount by which the fair market value of shares of the

Stock on December 31, 1992 exceeds the fair market value of the Stock

sold by the Plans; (3) the prior acquisition and holding by the Plans

of warrants (the Warrants) from RGH which entitle the Plans to acquire

additional shares of the Stock; (4) the exercise of the Warrants by the

Plans and the holding of the Stock acquired pursuant to the Warrants;

and (5) the sale of any unexercised Warrants by the Plans to RGH upon

the Warrants' expiration provided that the following conditions are

satisfied:

(A) The Plans' interests for all purposes with respect to the Stock

and the Warrants are represented by an independent fiduciary for the

duration of the Plans' holding of any of the Stock or the Warrants;

(B) The independent fiduciary will take whatever action is

necessary to protect the Plans' rights, including but not limited to,

selling the Stock and taking the appropriate action to enable the Plans

to receive amounts due pursuant to the Shortfall Agreement;

(C) The independent fiduciary shall have 90 days to reduce the

value of the Plans' holding of the Stock to 10 percent if: (1) the

independent fiduciary exercises the Warrants to acquire additional

shares of the Stock, and (2) immediately following such acquisition,

the value of the total shares of the Stock held by any Plan exceeds 10

percent of the fair market value of such Plan's assets; and

(D) RGH's obligations under the Shortfall Agreement remain secured

by an escrow account (the Escrow) containing cash or U.S. Government

securities equal to at least 25% of the fair market value of the Stock

on December 31, 1992, and if any Plan acquires additional shares of the

Stock pursuant to the Warrants, RGH shall deposit in the escrow account

an amount equal to 25% of the total acquisition price.

Effective Dates: The effective date with respect to all

transactions arising from the acquisition of the Warrants is January

28, 1992; and with respect to the holding of the Stock, the execution

and the exercise of the Shortfall Agreement, the effective date is

January 1, 1993.

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 (the Notice) published June 2, 1993,

at 58 FR 31427.

Comments

In the Notice, the Department invited interested persons to submit

written comments and requests for a hearing on the exemption. Nineteen

comments from interested persons were received by the Department.

The commenters' concerns and the Plans' independent fiduciary's

response to the comments are summarized below.

1. Some commenters questioned generally whether the granting of the

exemption would risk the security of their pensions. LaSalle National

Trust, N. A. (LaSalle), the independent fiduciary representing the

Plans' for purposes of the exemption, explained that the granting of

the exemption in and of itself does not affect the security of the

participants pensions. First, the holding of the Stock by each Plan

represents only 5% to 5.5% of the total assets of each of the Plans as

of March 31, 1992. In addition, the Shortfall Agreement and the Escrow

arrangement provide the Plans with downside protection. Such downside

protection, LaSalle stated, is not typically available with respect to

an equity investment. LaSalle noted that these factors, together with

the expected reasonable growth potential of the Stock, would not lead

to an adverse effect on pension benefits should the exemption be

granted.

2. A commenter suggested that the Stock should be sold because the

assets of the Plans are not sufficiently diversified. LaSalle responded

by stating that because only 5 to 5.5% of each of the Plans' assets are

invested in the Stock, there is adequate diversification of the Plans'

assets.

3. One commenter was concerned that the Plans' assets were used to

purchase Warrants that may involve Stock purchase prices which are

higher than the Stock's price at the time the Warrants were issued.

LaSalle stated that the Plans received the Warrants at no cost, and

they will not exercise the Warrants unless the Stock's price increases

so that such exercise is advantageous to the Plans.

4. Some commenters questioned whether the granting of the exemption

would adversely effect the calculation or vesting of their pension

benefits. LaSalle noted that because the transaction is not related to

the calculation or the vesting of participant benefits and only

pertains to the holding of the Stock by the Plans, the granting of the

exemption cannot have this adverse effect.

5. Several commenters inquired as to whether the Plans should

invest in a different stock that would pay higher dividends. LaSalle

explained that RGH currently pays a dividend of $0.32 per share which

represents a 4.7% annual yield. LaSalle stated that according to

Barron's, as of February 3, 1994, the S&P 500 had an average annual

dividend yield of 2.72%. When coupled with the Stock's reasonable

growth potential and the downside protection provided by the Shortfall

Payment Agreement and the Escrow Account, LaSalle considered the

dividend yield to favor an investment in the Stock.

6. One commenter expressed concern that the granting of the

exemption would permit the removal of Plan assets and the disbanding of

the Plan. LaSalle stated that the exemption affects only whether the

Stock may be held as an asset of the Plans and does not permit the

disbanding of the Plans.

7. One commenter objected to the transaction because Saul Steinberg

owned 77% of the Stock. Another commenter objected that RGH was no

longer publicly traded. LaSalle explained that these comments are not

accurate. After RGH completed a capital enhancement program in November

1993, Saul Steinberg and his family owned slightly less than 50% of the

Stock. Moreover, the Stock is publicly traded on the New York Stock

Exchange.

8. One comment suggested that the Stock held by the Plans could

have been sold to third parties without depressing its market value.

Thus, the commenter implied that the Stock should have been sold.

LaSalle noted that while it is presumably true that the Stock could

have been sold over a reasonable period of time without depressing the

market price, this fact in and of itself is not dispositive as to

whether the Stock should have been sold. LaSalle stated that as

independent fiduciary, they have concluded, after extensive analysis,

that it is in the best interest of the Plans' participants and

beneficiaries for the Plans to continue to hold the Stock.

In light of some of the concerns expressed by the commenters, the

Department also asked LaSalle to address various issues relating to

RGH's ability to fulfill its obligations under the Shortfall Agreement.

In its response, LaSalle noted that on November 15, 1993, RGH completed

a capital enhancement plan which refinanced substantially all of its $1

billion in outstanding debt. The capital enhancement plan extinguished

the $340 million debt which was due in 1993/1994 by replacing it with

Senior Notes which are not due until November 15, 2000 and Senior

Subordinated Debentures which are not due until November 15, 2003. The

new notes and debentures carry lower interest rates than the debt which

has been extinguished. According to LaSalle, this is a positive factor

in evaluating RGH's future financial prospects, including its earnings

and dividend capabilities. Moreover, the completion of the common stock

offering generated substantial additional shareholder equity to RGH.

Therefore, LaSalle concluded that RGH will be able to fulfill its

obligations under the Shortfall Agreement.

LaSalle believes that as a result of the capital enhancement

program (as discussed above), the Stock has reasonable growth

potential. LaSalle's financial advisor, LaSalle Street Capital

Management, Ltd. has advised them that the property and casualty

insurance industry is currently rebounding, and it is expected that RGH

will participate in this industry growth trend. Secondly, the Shortfall

Agreement and the Escrow arrangement that have been adopted in

connection with the Plans' holding of the Stock, provide the Plans with

valuable downside protection that is not normally available with

respect to an equity investment.

Finally, the applicants submitted a comment letter asking the

Department to clarify certain items contained in the Notice.

1. In order to describe specifically the condition which limits the

value of the Plans' holding in the Stock in the event the Plans acquire

additional shares of the Stock pursuant to the Warrants, the applicants

request that the phrase ``immediately following such acquisition'' be

added to section (C)(2) of the exemption so it would read: ``(2)

Immediately following such acquisition, the value of the total shares

of the Stock held by any Plan exceeds 10 percent of the fair market

value of such Plan's assets.''

2. With respect to the Shortfall Agreement described in

Representation (Rep.) 7 of the Notice, the applicants wish to add the

following sentences after the last sentence in Rep. 7: ``Under the

terms of the Shortfall Agreement, the Shortfall Agreement shall remain

in effect for as long as any shares of the Stock are held by the plans.

However, upon thirty days written notice to the Plans, RGH may

terminate the Shortfall Agreement with respect to shares of the Stock

to be acquired pursuant to the Warrants. Any such termination would

result in the Plans' acquiring no additional shares of the Stock unless

such acquisition does not constitute a prohibited transaction. Thus,

any such termination by RGH would not affect in any way RGH's

obligations with respect to the Shortfall Agreement for shares of the

Stock held by the Plans as of the termination date or acquired

thereafter pursuant to a Warrant exercised or a binding contract

entered into prior to such termination date.''

3. The applicants wish to clarify that no stock will be acquired by

the Plans due to the exercise of the Warrants unless RGH agrees in

writing. Thus, the following sentence should be inserted after the last

sentence in Rep. 6: ``No shares of the Stock will be acquired through

the exercise of the Warrants unless RGH agrees in writing, prior to

their acquisition, to the application of the Shortfall Agreement to the

shares of the Stock acquired pursuant to the Warrants.''

4. The applicants have requested that the fourth sentence of Rep. 8

read: ``The Escrow shall be maintained at a minimum value of 25 percent

of the value of the Stock as of December 31, 1993 and 25 percent of the

acquisition price of any Stock acquired pursuant to the Warrants.''

5. Lastly, the applicants represent that the Plans' rights to the

amount held in the Escrow do not arise as a result of ``a lien'' in

favor of the Plans. Rather, the Plans' rights arise from the Escrow

agreement, and the assets of the Escrow account are not considered to

be assets of RGH. Consequently, under the terms of the Escrow

agreement, creditors of RGH do not have a claim on the assets of the

Escrow. Thus, the applicants would like ``first claim'' to replace

``first lien'' in the fourth sentence of Rep. 8.

The Department has reviewed the clarifications as described above,

and concurs with these changes. Accordingly, upon consideration of the

entire record, including the written comments received, the Department

has determined to grant the exemption subject to the aforementioned

changes.

For Further Information Contact: Allison K. Padams of the

Department, telephone (202) 219-8971. (This is not a toll-free number.)

The Northern Trust Company (Northern Trust) Located in Chicago,

Illinois

[Prohibited Transaction Exemption 94-36; Application No. D-9176]

Exemption

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

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

Code, by reason of section 4975(c)(1)(A) of the Code, shall not apply

to:

(1) The purchase and sale of stocks between Index Funds and/or

Model-Driven Funds (collectively, the Funds); and

(2) The purchase and sale of stocks between the Funds and various

Large pension plans or other large accounts (collectively, the Large

Accounts) pursuant to portfolio restructuring programs of the large

Accounts, provided that the following conditions are met:

(a) The Index or Model-Driven Fund is based on an index which

represents the investment performance of a specific segment of the

public market for equity securities in the United States and/or foreign

countries. The organization creating and maintaining the index must be

(1) Engaged in the business of providing financial information,

evaluation, advice or securities brokerage services to institutional

clients,

(2) A publisher of financial news of information, or

(3) A public stock exchange or association of securities dealers.

The index must be created and maintained by an organization independent

of Northern Trust and its affiliates. The index must be a generally

accepted standardized index of securities which is not specifically

tailored for the use of Northern Trust or its affiliates.

(b) The price of the stock is set at the closing price for that

stock on the day of trading; unless the stock was added to or deleted

from an index underlying a Fund or Funds after the close of trading, in

which case the price will be the opening price for that stock on the

next business day after the announcement of the addition or deletion.

(c) The transaction takes place within three business days of the

``triggering event'' giving rise to the cross-trade opportunity. A

``triggering event'' is defined as:

(1) A change in the composition or weighing of the index underlying

a Fund by the organization creating and maintaining the index;

(2) A change in the composition or weighting of a portfolio used

for Model-Driven Fund which results from an independent fiduciary's

decision to exclude certain stocks or types of stocks from the Fund

even though such stocks are part of the index used by the Fund;

(3) A change in the overall level of investment in a Fund as a

result of investments and withdrawals made on the Fund's regularly

scheduled ``opening date''; provided, however, that Northern Trust does

not change the level of investment in the Fund through investments or

withdrawals of assets of any employee benefit plan maintained by

Northern Trust or its affiliates (the NTC Plans) for which Northern

Trust has investment discretion; or

(4) A declaration by Northern Trust (recorded on Northern Trust's

records) that a ``triggering event'' has occurred which will be made

upon an accumulation of cash in a Fund attributable to dividends on

and/or tender offers for portfolio securities equal to not more than .5

percent of the Fund's total value.

(d) A Fund does not participate in a direct cross-trade if the

assets of any NTC Plan in the Fund exceed 10 percent of the total

assets of the Fund.

(e) Prior to any proposed cross-trading by a Fund, Northern Trust

provides to each employee benefit plan which invests in a Fund

information which describes the existence of the cross-trading program,

the ``triggering events'' which will create cross-trade opportunities,

the pricing mechanism that will be utilized for stocks purchased or

sold by the Funds, and the allocation methods and other procedures

which will be implemented by Northern Trust for its cross-trading

practices. Any such employee benefit plan which subsequently invests in

a Fund shall be provided the same information prior to or immediately

after the plan's initial investment in a Fund.

(f) With respect to transactions involving a Large Account:

(1) It has assets in excess of $50 million.

(2) Fiduciaries of the Large Account who are independent of

Northern Trust are, prior to any cross-trade transactions, fully

informed in writing of the cross-trade technique and provide advance

written authorization of such transactions.

Such authorization shall be terminable at will by the Large Account

upon receipt by Northern Trust of written notice of termination. A form

expressly providing an election to terminate the authorization, with

instructions on the use of the form, must be supplied to the

authorizing Large Account fiduciary concurrent with the receipt of the

written information describing the cross-trading program. The

instructions for such forms must include the following information:

(i) The authorization is terminable at will by the Large Account,

without penalty to the Large Account, upon receipt by Northern Trust of

written notice from the authorizing Large Account fiduciary; and

(ii) Failure to return the termination form will result in the

continued authorization of Northern Trust to engage in cross-trade

transactions on behalf of the Large Account.

(3) Within 45 days of the completion of the Large Account's

portfolio restructuring program such fiduciaries shall be fully

apprised in writing of the results of such transactions. In addition,

if the restructuring program takes longer than three months to

complete, interim reports of the results of all transactions will be

made within 30 days of the end of each three-month period.

(4) Such Large Account transactions occur only in situations where

Northern Trust has been authorized to restructure all or a portion of

the Large Account's portfolio into an Index or Model-Driven Fund

(including a separate account based on an index or computer model) or

to act as a ``trading adviser'' in carrying out the liquidation or

restructuring of the Large Account's equity portfolio.

(g) Northern Trust receives no additional direct or indirect

compensation as a result of the cross-trade transaction.

(h) In the event that the number of shares of a particular stock

which all of the Funds or Large Accounts propose to sell on a given day

is less than the number of shares of such stock which all of the Funds

or the Large Accounts propose to buy, or vice versa, the direct cross-

trade opportunity must be allocated among potential buyers or sellers

on a pro rata basis.

(i) Northern Trust maintains or causes to be maintained for a

period of six years from the date of the transaction the records

necessary to enable the persons described in paragraph (j) to determine

whether the conditions of this exemption have been met, except that a

prohibited transaction will not be considered to have occurred if, due

to circumstances beyond the control of Northern Trust or its

affiliates, the records are lost or destroyed prior to the end of the

six-year period.

(j)(1) Except as provided in paragraph (j)(2) and notwithstanding

any provisions of section 504 (a)(2) and (b) of the Act, the records

referred to in paragraph (i) 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 a plan participating in an Index or Model-

Driven Fund who has authority to acquire or dispose of the interests of

the plan, or any duly authorized employee or representative of such

fiduciary,

(iii) Any contributing employer to any plans participating in an

Index or Model-Driven Fund or any duly authorized employee or

representative of such employer, and

(iv) Any participant or beneficiary of any plan participating in an

Index or Model-Driven Fund, or any duly authorized employee or

representative of such participant or beneficiary.

(2) None of the persons described in subparagraphs (ii) through

(iv) of this paragraph (j) shall be authorized to examine trade secrets

of Northern Trust, any of its affiliates, or commercial or financial

information which is privileged or confidential.

Definitions

For purpose of this exemption--

(a) The term ``Index Fund'' means any investment fund, account or

portfolio sponsored, maintained and/or trusteed by Northern Trust or an

affiliate in which one or more investors invest which is designed to

replicate the capitalization-weighted composition of a stock index

which satisfies condition (a) above.

(b) The term ``Model-Driven Fund'' means any investment fund,

account or portfolio sponsored, maintained and/or trusteed by Northern

Trust or an affiliate in which one or more investors invest which is

based on computer models using prescribed objective criteria to

transform an independent third-party stock index which satisfies

condition (a) above.

(c) The term ``Large Account'' means a trust or other fund that is

exempt from taxation under section 501 of the Code, and which has

assets of at least $50 million. A trust that is exempt from taxation

under section 501(a) of the Code may aggregate the assets of one or

more employee benefit plans of a single employer or a controlled-group

of employers the assets of which are invested on a commingled basis

(e.g. through a master trust) for purposes of satisfying the $50

million requirement.

(d) The term ``NTC'' means an ``employee pension benefit plan'' (as

defined in section 3(2) of the Act) maintained by Northern Trust or any

of its affiliates.

(e) The term ``opening date'' means the regularly scheduled date on

which investments in or withdrawals from an Index or Model-Driven Fund

may be made.

(f) The term ``trading adviser'' means a person whose role is

limited to arranging a Large Account-initiated liquidation or equity

restructuring within a stated time so as to minimize transaction costs.

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 December 10, 1993 at 58

FR 64974.

Written Comment and Modifications: The Department received one

comment letter from the applicant regarding the notice of proposed

exemption (the notice).

The applicant's letter concerns the language of condition (c)(3) of

the notice. Condition (c)(3) of the notice inadvertently states that a

``triggering event'' will occur due to a change in the overall level of

investment in a Fund as a result of investments and withdrawals made on

the Fund's regularly scheduled opening date which are not directed by

Northern Trust. The applicant requests that the phrase ``* * * which

are not directed by Northern Trust'' be modified to reflect the fact

that a change in the overall level of investment in a Fund cannot be

directed by Northern Trust in connection with the assets of any NTC

Plan for which Northern Trust exercises investment discretion. In this

regard, the Department has agreed to the applicant's requested

modification by deleting the phrase ``* * * which are not directed by

Northern Trust'' and adding the following:

* * * provided, however, that Northern Trust does not change the

level of investment in the Fund through investments or withdrawals

of assets of any employee benefit plan maintained by Northern Trust

or its affiliates (the NTC Plans) for which Northern Trust has

investment discretion.

In addition, with respect to the allocation of cross-trades by

Northern Trust, the Department has added a new condition (h) to the

Notice which conforms to representations previously made by the

applicant (see Paragraph 10 of the Summary of Facts and Representations

in the notice). As stated above, condition (h) requires that if the

number of shares of a particular stock which all of the Funds or Large

Accounts propose to sell on a given day is less than the number of

shares of such stock which all of the Funds or the Large Accounts

propose to buy, or vice versa, the direct cross-trade opportunity will

be allocated among potential buyers or sellers on a pro rata basis.

This condition ensures that each of the Funds and/or Large Accounts

will have an opportunity to participate on a proportional basis in all

cross-trade transactions during the operation of the cross-trading

program.

The following example illustrates how the pro rata allocation would

work. Suppose there are four Funds that, in order to more accurately

replicate the relevant third-party index, need to purchase shares of

XYZ Corp. stock in the following amounts: 5,000, 10,000, 15,000, and

20,000. Also assume that one of the Large Accounts needs to sell 10,000

shares of XYZ Corp. stock. Under the pro rata system, the cross-trades

would be allocated as follows:

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

Amount Amount Percentage

Buyer needed rec'd of need

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

1..................................... 5,000 1,000 20

2..................................... 10,000 2,000 20

3..................................... 15,000 3,000 20

4..................................... 20,000 4,000 20

Total:.............................. 50,000 10,000 ..........

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

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.)

Wally L. Morgan IRA (the IRA) Located in Dallas, Texas

[Prohibited Transaction Exemption 94-37; Exemption Application No. D-

9581]

Exemption

The sanctions resulting from the application of section 4975 of the

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

not apply to the proposed cash sale of three 50% undivided interests

(the Interests) in each of three parcels of unimproved land by the IRA

to Wally L. Morgan (Mr. Morgan), a disqualified person with respect to

the IRA; provided that the following conditions are satisfied\1\:

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\1\Pursuant to 29 CFR 2510.3-2(d), there is no jurisdiction with

respect to the IRA under Title I of the Act. However, there is

jurisdiction under Title II of the Act pursuant to section 4975 of

the Code.

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(a) The proposed sale will be a one-time cash transaction;

(b) The IRA in this transaction will receive the aggregate current

fair market value of the three 50% Interests as established at the time

of the sale by an independent qualified appraiser;

(c) The IRA will pay no expenses associated with the sale; and

(d) Mr. Morgan as the sponsor of the IRA will be the only

individual affected by the transaction.

For a more complete statement of the facts and representations

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

this notice of proposed exemption published on March 8, 1994 at 59 FR

10838/10839.

For Further Information Contact; Ekaterina A. Uzlyan of the

Department at (202) 219-8883. (This is not a toll-free number.)

General Information

The attention of interested persons is directed to the following:

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

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

does not relieve a fiduciary or other party in interest 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 are true and complete and accurately describe all material

terms of the transaction which is the subject of the exemption. In the

case of continuing exemption transactions, if any of the material facts

or representations described in the application change after the

exemption is granted, the exemption will cease to apply as of the date

of such change. In the event of any such change, application for a new

exemption may be made to the Department.

Signed at Washington, DC, this 19th day of April, 1994.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 94-9829 Filed 4-21-94; 8:45 am]

BILLING CODE 4510-29-P