Grant of Individual Exemptions; Bank South, N.A. et al.

DEPARTMENT OF LABOR

[Prohibited Transaction Exemption 95-33; Exemption Application No. D-

09626, et al.]

Grant of Individual Exemptions; Bank South, N.A. 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.

Bank South, N.A. (the Bank) Located in Atlanta, GA

[Prohibited Transaction Exemption 95-33; Application No. D-09626]

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

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 February 11, 1994, to the in-kind transfer of assets of

plans for which the Bank serves as a fiduciary (the Client Plans),

other than plans established and maintained by the Bank, that are held

in certain collective investment funds maintained by the Bank (the

CIFs), in exchange for shares of the Peachtree Funds (the Funds), an

open-end investment company registered under the Investment Company Act

of 1940 (the 1940 Act) for which the Bank acts as investment adviser,

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 the Bank.

(c) A second fiduciary who is independent of and unrelated to the

Bank (the Independent 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 transfers of CIF assets to a Fund following the

publication of the proposed exemption in the Federal Register (i.e.

January 30, 1995), the Bank sends by regular mail to each affected

Client Plan the following information: [[Page 20774]]

(1) Within 30 days after completion of the transaction, a written

confirmation containing:

(i) The identity of each security that was valued for purposes of

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

(ii) The price of each such security involved in the transaction;

(iii) The identity of each pricing service or market maker

consulted in determining the value of such securities; and

(2) Within 90 days after completion of each transfer, a written

confirmation that contains:

(i) 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

(ii) 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.

(e) The conditions set forth in paragraphs (e), (f), and (m) 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 February 11, 1994, to the receipt of fees by the Bank from

the Funds for acting as investment adviser to the Funds in connection

with the investment in the Funds by Client Plans for which the Bank

acts as a fiduciary, including any Client Plan invested in a CIF which

transfers its assets to a Fund, provided that the following conditions

and the general conditions of Section III are met:

(a) No sales commissions, loads, charges or similar fees are paid

by the Client Plans for the purchase or sale of shares of the Funds and

no redemption fees are paid for 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 the Bank nor an affiliate, including any officer or

director of the Bank, purchases or sells shares of the Funds from or to

any Client Plan.

(d) The Client 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 Client 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 1940 Act or any other

agreement between the Bank and the Funds which is in compliance with

the 1940 Act.

(e) The combined total of all fees received by the Bank 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) The Bank 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 the Bank.

(h) The Independent Fiduciary receives, in advance of any

investment by the Client Plan in a Fund, full and detailed written

disclosure of information concerning the Funds, including, but not

limited to:

(1) A current prospectus for each Fund in which a Client Plan is

considering investing;

(2) A statement describing the fees for investment advisory or

similar services, as well as all other fees to be charged to or paid by

the Client Plan and by the Funds, 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 Client Plan;

(4) A statement describing whether there are any limitations

applicable to the Bank with respect to which assets of a Client Plan

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

limitations; and

(5) Upon request of the Independent Fiduciary, a copy of the

proposed exemption and/or a copy of the final exemption, once such

documents become available.

(i) On the basis of the information described above in paragraph

(h) of this Section II, the Independent Fiduciary authorizes in writing

the investment of assets of the Client Plan in each Fund, and the fees

to be paid by such Funds to the Bank.

(j) All authorizations made by an Independent Fiduciary regarding

investments in a Fund and the fees paid to the Bank are subject to an

annual reauthorization wherein any such prior authorization referred to

in paragraph (i) of Section II shall be terminable at will by the

Client Plan, without penalty to the Client Plan, upon receipt by the

Bank of written notice of termination. A form expressly providing an

election to terminate the authorization described in paragraph (i) of

Section II above (the Termination Form) with instructions on the use of

the form must be supplied to the Independent 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 Plan, upon receipt by the Bank of written notice

from the Independent Fiduciary; and

(2) Failure to return the Termination Form will constitute

continued authorization of the Bank to engage in the transactions

described in paragraph (i) of Section II on behalf of the Client Plan.

(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 an Independent Fiduciary, in accordance with

paragraph (i) 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 Independent Fiduciary of each of the Client Plans invested in a

Fund which is increasing such fees. Such notice shall be accompanied by

a Termination Form. However, if the Termination Form has been provided

to the Independent Fiduciary pursuant to this paragraph, then the

Termination Form need not be provided again for an annual

reauthorization pursuant to paragraph (j) above unless at least six

months has elapsed since the form was provided in connection with the

fee increase.

(l) On an annual basis, the Bank provides the Independent 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 the Bank; and [[Page 20775]]

(2) upon the request of such Independent Fiduciary, a report or

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

the current Statement of Additional Information for the Fund, or some

other written statement) that contains a description of all fees paid

by the Fund to the Bank.

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

necessary to enable the persons described below in paragraph (b) of

Section III 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

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

six-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 (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) of Section III 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 the Bank, or commercial

or financial information which is privileged or confidential.

Section IV--Definitions

For purposes of this exemption:

(a) The term ``Bank'' means the Bank South, N.A. and any affiliate

thereof as defined below in paragraph (b) of this Section IV.

(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 Peachtree

Funds, Inc., or any other diversified open-end investment company

registered under the 1940 Act for which the Bank serves as an

investment adviser.

(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 ``Independent Fiduciary'' means a fiduciary of a

Client Plan who is independent of and unrelated to the Bank. For

purposes of this exemption, the Independent Fiduciary will not be

deemed to be independent of and unrelated to the Bank if:

(1) Such fiduciary directly or indirectly controls, is controlled

by, or is under common control with the Bank;

(2) Such fiduciary, or any officer, director, partner, employee, or

relative of the fiduciary is an officer, director, partner, employee or

affiliate of the Bank (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 the Bank

(or relative of such persons), is a director of such Independent

Fiduciary, and if he 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 IV shall

not apply.

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

Independent Fiduciary which expressly provides an election to the

Independent Fiduciary to terminate on behalf of a Client Plan the

authorization described in paragraph (j) of Section II. The Termination

Form shall be used at will by the Independent Fiduciary to terminate an

authorization without penalty to the Client Plan and to notify the Bank

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 the Bank of the form; 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 as of February 11, 1994.

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 January 30, 1995, at 60

FR 5713.

Written Comments: The applicant submitted the following comments

regarding the notice of proposed exemption (the Proposal).

With respect to the description of the fee structure, the applicant

states that the Bank is using the fee offset mechanism described in

Section II(d) of the Proposal for Client Plans that first invested in

the Funds after the conversion date (i.e. February 14, 1994). As

described in the Summary of Facts and Representations in the Proposal

(the Summary), Client Plans invested in the CIFs prior to the

conversion transaction (described in Section I of the Proposal)

currently utilize the credit mechanism under which Plan-level trustee

fees are reduced by the investment advisory fees charged at the Fund-

level pursuant to Section II(c) of Prohibited Transaction Exemption

(PTE) 77-4, 42 FR 18732, April 8, 1977.1 The Bank anticipates

[[Page 20776]] that the offset mechanism described in Section II(d) of

the Proposal will be implemented for all Client Plans as soon as

practicable during the current year. Thus, it is the Bank's

understanding that the exemption provided by Section II will be

applicable upon implementation of the fee offset mechanism. The

Department concurs with the applicant's clarification.

\ 1\PTE 77-4, in pertinent part, permits the purchase and sale

by an employee benefit plan of shares of a registered, open-end

investment company when a fiduciary with respect to the plan is also

the investment adviser for the investment company, provided that,

among other things, the plan does not pay an investment management,

investment advisory or similar fee with respect to the plan assets

invested in such shares for the entire period of such investment.

Section II(c) of PTE 77-4 states that this condition does not

preclude the payment of investment advisory fees by the investment

company under the terms of an investment advisory agreement adopted

in accordance with section 15 of the Investment Company Act of 1940.

Section II(c) states further that this condition does not preclude

payment of an investment advisory fee by the plan based on total

plan assets from which a credit has been subtracted representing the

plan's pro rata share of investment advisory fees paid by the

investment company.

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In addition, Sections I(c) and II(h) of the Proposal and Paragraph

8 of the Summary state that each Independent Fiduciary received from

the Bank a written statement giving full disclosure of the fee

structure prior to investment in the Funds. The Bank would like to

clarify that the written statement received by Client Plans that

participated in the conversion transaction described the PTE 77-4

credit mechanism rather than the fee offset mechanism described in

Section II(d) of the Proposal. The applicant states that prior to

implementation of the fee offset mechanism for Client Plans that

participated in the conversion, each Independent Fiduciary will receive

a written statement giving full disclosure of the fee structure

described in Section II(d) of the Proposal, and the Bank will receive

written authorization from the Independent Fiduciary approving the new

fee structure. The Department concurs with the applicant's

clarification.

With respect to fees payable under Rule 12b-1, Section II(f) of the

Proposal provides that the Bank may not receive any fees payable

pursuant to such Rule in connection with the investment of Plan assets

in the Funds. The applicant notes that this condition is consistent

with the representations made by the Bank. However, the applicant

states that Paragraph 4 of the Summary overstates the representations

made by the Bank with regard to 12b-1 fees and requires minor

clarification. The third sentence of Paragraph 4 states that ``* * * In

addition, the Bank does not and will not receive fees payable pursuant

to Rule 12b-1 in connection with transactions involving any shares of

the Funds.'' The Bank represents that this statement is true with

respect to trust accounts, but should be clarified to limit it to

transactions described under the exemption. The Bank otherwise may

receive 12b-1 fees for sales of Fund shares to investors other than the

Client Plans. The Department concurs with the applicant's

clarification.

With respect to the responsibility for distributing updated

prospectuses, Paragraph 8 of the Summary states that ``* * * Client

Plan fiduciaries will also receive from Federated [Investors], the

Fund's Distributor, an updated prospectus and periodic reports for each

Fund.'' The applicant states that while it is true that Federated will

prepare the updated prospectuses and periodic reports, these items will

be distributed to Client Plans by the Bank, as trustee. The Department

concurs with the applicant's clarification.

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

of the Proposal states that neither the Bank nor any affiliate,

including any officer or director of the Bank, may purchase or sell

shares of the Funds to any Client Plan. In this regard, the applicant

notes that the Fund's distributor will execute all purchases or

redemptions of Fund shares by Client Plans. However, the applicant

states that the Client Plans will place purchase and redemption orders

through the Plan's account representative at the Bank. The Bank wishes

to clarify that Section II(c) of the Proposal does not apply to a

Client Plan's placement of a purchase or redemption order through its

account representative at the Bank where the Fund's distributor

executes the purchase or redemption order. The Department concurs with

the applicant's clarification.

With respect to carrying out termination instructions, Section

IV(h) of the Proposal and Paragraph 8 of the Summary provide that, upon

receipt of an executed Termination Form, the Bank will effect the sale

of Fund shares within one business day following receipt of the form;

provided that if, due to circumstances beyond the Bank's control, the

Bank may have one additional business day to complete the sale. In this

regard, the applicant states that Fund shares may not be able to be

redeemed in the event of extraordinary circumstances that result in

market closure and/or other restrictions on trading mutual fund

shares--e.g. natural disaster, war, etc. The Bank would like the

Department to clarify that, in such event, the conditions of the

exemption are satisfied provided the Bank redeems Fund shares within

one business day after the market re-opens and/or Funds are able to be

traded. The Department concurs with the applicant's clarification.

Accordingly, after consideration of the entire record, the

Department has determined to grant the exemption.

For Further Information Contact: Mr. E.F. Williams of the

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

Delaware Trust Capital Management, Inc. (DTCM), Located in Wilmington,

DE

[Prohibited Transaction Exemption 95-34; Exemption Application No. D-

09853]

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 sale by certain rollover individual retirement

accounts (the IRAs) of their interests in certain securities (the

Securities) to DTCM, a disqualified person with respect to the IRAs,

provided the following conditions are satisfied: 1) the sale is a one-

time transaction for cash; 2) no commissions or other expenses are paid

by the IRAs in connection with the sale; 3) the IRAs receive the

greater of: a) the fair market value of the Securities as of June 30,

1994, plus accrued interest, less principal repayments received, or b)

the fair market value of the Securities as of the time of the sale as

determined by a qualified, independent expert.2

\2\Pursuant to 29 CFR 2510.3-2(d), the IRAs are not within the

jurisdiction of 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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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 March 20, 1995 at 60 FR

14793.

For Further Information Contact: Gary H. Lefkowitz of the

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

Shippers Paper Products Co., 401(k) Plan (the Plan), Located in

Glenview, IL

[Prohibited Transaction Exemption 95-35; Application No. D-09866]

Exemption

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 sale by the Plan of Group Annuity Contract, No.

GA-4725 (the GAC) issued by Mutual Benefit Life Insurance Company

(Mutual Benefit) to Illinois Tool Works [[Page 20777]] Inc., a party in

interest with respect to the Plan; provided the following conditions

are satisfied: (1) The sale is a one-time transaction for cash; (2) the

Plan receives no less than the fair market value of the GAC at the time

of the sale; (3) the Plan's trustee, acting as independent fiduciary

for the Plan, has determined that the proposed sale price is not less

than the current fair market value of the GAC; and (4) the Plan's

trustee has determined that the proposed transaction is appropriate for

and in the best interests of the Plan and its participants and

beneficiaries.

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 February 10, 1995 at 60

FR 8089.

For Further Information Contact: Virginia J. Miller of the

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

General Information

The attention of interested persons is directed to the following:

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

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

Code does not 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, DC, this 24th day of April 1995.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 95-10405 Filed 4-26-95; 8:45 am]

BILLING CODE 4510-29-P