Proposed Exemptions; PMS Profit Sharing and Retirement Savings Plan and Trust (the Plan)

DEPARTMENT OF LABOR

[Application No. D-09824, et al.]

Proposed Exemptions; PMS Profit Sharing and Retirement Savings

Plan and Trust (the Plan)

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

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SUMMARY: This document contains notices of pendency before the

Department of Labor (the Department) of proposed exemptions from

certain of the prohibited transaction restriction of the Employee

Retirement Income Security Act of 1974 (the Act) and/or the Internal

Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

Unless otherwise stated in the Notice of Proposed Exemption, all

interested persons are invited to submit written comments, and with

respect to exemptions involving the fiduciary prohibitions of section

406(b) of the Act, requests for hearing within 45 days from the date of

publication of this Federal Register Notice. Comments and request for a

hearing should state: (1) the name, address, and telephone number of

the person making the comment or request, and (2) the nature of the

person's interest in the exemption and the manner in which the person

would be adversely affected by the exemption. A request for a hearing

must also state the issues to be addressed and include a general

description of the evidence to be presented at the hearing. A request

for a hearing must also state the issues to be addressed and include a

general description of the evidence to be presented at the hearing.

ADDRESSES: All written comments and request for a hearing (at least

three copies) should be sent to the Pension and Welfare Benefits

Administration, Office of Exemption Determinations, Room N-5649, U.S.

Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210.

Attention: Application No. stated in each Notice of Proposed Exemption.

The applications for exemption and the comments received will be

available for public inspection in the Public Documents Room of Pension

and Welfare Benefits Administration, U.S. Department of Labor, Room N-

5507, 200 Constitution Avenue NW., Washington, DC 20210.

Notice to Interested Persons

Notice of the proposed exemptions will be provided to all

interested persons in the manner agreed upon by the applicant and the

Department within 15 days of the date of publication in the Federal

Register. Such notice shall include a copy of the notice of proposed

exemption as published in the Federal Register and shall inform

interested persons of their right to comment and to request a hearing

(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in

applications filed pursuant to section 408(a) of the Act and/or section

4975(c)(2) of the Code, and in accordance with procedures set forth in

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

Effective December 31, 1978, section 102 of Reorganization Plan No. 4

of 1978 (43 FR 47713, October 17, 1978) transferred the authority of

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

to the Secretary of Labor. Therefore, these notices of proposed

exemption are issued solely by the Department.

The applications contain representations with regard to the

proposed exemptions which are summarized below. Interested persons are

referred to the applications on file with the Department for a complete

statement of the facts and representations.

PMS Profit Sharing and Retirement Savings Plan and Trust (the Plan),

Located in Cleveland, Ohio

[Exemption Application No. D-09824]

Proposed Exemption

The Department is considering granting an exemption under the

authority of section 408(a) of the Act and section 4975(c)(2) of the

Code and in accordance with the procedures set forth in 29 CFR Part

2570, Subpart B (55 FR 32826, 32847, August 10, 1990). If the exemption

is granted, the

[[Page 35942]]

restrictions of sections 406(a), 406(b) (1) and (2) 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 proposed sale (the Sale) of a certain parcel of improved real

property (the Property) from the Plan to M. A. Hanna Company (Hanna), a

party in interest with respect to the Plan provided that the following

conditions are met:

(1) The fair market value of the Property is established by a

qualified and independent real estate appraiser;

(2) Hanna pays the greater of $990,800 or the current fair market

value of the Property;

(3) The Sale is a one time transaction for cash;

(4) The Plan pays no fees or commissions related to the Sale; and

(5) Hanna pays any excise taxes to the Internal Revenue Service

owed pursuant to section 4975(a) of the Code resulting from Hanna's

lease of the Property from the Plan through the date of publication in

the Federal Register of the final grant of the exemption within 90 days

of such date.

Summary of Facts and Representations

1. Hanna is a Delaware Corporation with its principal office and

place of business in Cleveland, Ohio. In November 1987, Hanna acquired

all of the outstanding capital stock of PMS Consolidated, Inc. The

Hanna/PMS Consolidated, Inc. merger was effective April 1, 1993. PMS

Consolidated is the original plan sponsor.

2. The Plan is a defined contribution pension plan. As of April 1,

1995, the Plan had 706 participants and total assets of $14,240,928.

Wells Fargo Bank has served as Plan trustee since January 1, 1992. The

PMS Committee for Employee Benefits Administration is the Plan

fiduciary responsible for selecting the Plan's investments. Currently,

only one individual serves on this committee. He is an employee and

officer of the PMS Division of Hanna.

3. In November of 1968, the Plan acquired the Property as

undeveloped land from PMS Consolidated for $10,050, and subsequently

built the building for $550,887. The Plan has invested a total of

$560,937 in the Property. The Property is located in Coral Springs,

Florida. In July 1969, the Plan leased the Property to PMS

Consolidated. (the Lease). The Lease was last renewed on January 1,

1989 for a five year period, and currently is on a month to month

basis. All property taxes and insurance costs were paid by PMS

Consolidated for the duration of the Lease. PMS Consolidated also has

incurred $509,967 in leasehold improvements over the term of the

lease.1 At the time the Hanna/PMS Consolidated merger became

effective, Hanna became aware of the Lease. Unsuccessful efforts were

made to sell the Property to an unrelated third party. As a result the

Plan proposes to sell the Property to Hanna.2

\1\ The terms of the lease provides that leasehold improvements

revert to the Plan upon the termination of the lease.

\2\ The applicant recognizes that the lease by the Plan of the

Property to Hanna constitutes a prohibited transaction under section

406(a) of the Act and section 4975 of the Code. Accordingly, Hanna

has filed a form 5330 with the Internal Revenue Service and paid the

Internal Revenue Service the excise taxes that are applicable under

section 4975(a) of the Code through the date on which the

application was filed. Further, Hanna represents that it will pay

the additional excise taxes due through the date of the grant of

final exemption within 90 days of its publication in the Federal

Register.

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4. The Property was appraised by two independent qualified

appraisers. Both appraisers utilized the market value approach which is

defined as the most probable price which the appraised property will

bring in a competitive market under all conditions requisite to a fair

sale. On October 24, 1994, C.R. Johnson & Associates, Inc., certified

MAI real estate appraisers determined the value of the Property to be

$706,000. AMH Appraisal Consultants appraised the Property at $850,000

as of November 2, 1994.

The rental rate under the Lease was at fair market rental rates.

The rental rate under the Lease was $5.78 per square foot. In

developing a value for the Property, AMH considered four comparable

properties which had rental rates ranging from $3.50 to $6.00 per

square foot. C.R. Johnson considered six properties, noting that one

property was the ``most comparable.'' The rental rate for this property

was $5.75 per square foot.

5. The Plan proposes to sell the Property for $990,800. This

purchase price, which reflects Hanna's internal valuation of the

Property, is substantially in excess of appraisals referred to above.

Hanna has agreed to pay $990,800 in order to ensure that Plan

participants and beneficiaries are not disadvantaged by reason of the

Plan's previous holding of the Property or the Sale of the Property.

The Sale will be for cash, and the Plan will pay no fees or commissions

with regard to the transaction.

6. In summary, the applicant represents that the proposed

transaction satisfies the criteria of section 408(a) of the Act

because: (1) the Sale is a one-time transaction for cash, and no

commissions will be paid upon the Sale; (2) the Plan will be receiving

at least fair market value for the Property as determined by an

independent qualified real estate appraiser; and (3) Hanna will pay all

applicable excise taxes which are due by reason of the Lease within 90

days of the publication in the Federal Register of the exemption

proposed herein.

Tax Consequences of Transaction

The Department of the Treasury has determined that if a transaction

between a qualified employee benefit plan and its sponsoring employer

(or affiliate thereof) results in the plan either paying less than or

receiving more than fair market value, such excess may be considered to

be a contribution by the sponsoring employer to the plan and therefore

must be examined under applicable provisions of the Code including

sections 401(a)(4), 404 and 415.

For Further Information Contact: Allison Padams of the Department,

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

Apartment Laundries, Inc., Profit Sharing Plan (the Plan), Located in

Tulsa, Oklahoma; Proposed Exemption

[Application No.: D-09835]

The Department is considering granting an exemption under the

authority of section 408(a) of the Act and section 4975(c)(2) of the

Code and in accordance with the procedures set forth in 29 CAR Part

2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption

is granted, the restrictions of section 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 lease (the Lease) of improved property (the

Property) by the individual account of James L. Sharp (the Account) in

the Plan to Apartment Laundries, a party in interest with respect to

the Plan provided that the following conditions are met: (1) the terms

of the Lease are and will remain at least as favorable as the Plan

could obtain in an arm's length transaction with an unrelated party;

(2) the fair market rental value has been and will continue to be

determined on an annual basis by a qualified, independent appraiser;

and (3) the fair market value of the Property, as determined by a

qualified, independent appraiser, represents no more than 25% of value

of the assets in the Account.

Summary of Facts of Representations

1. Apartment Laundries (the Employer) is an Oklahoma corporation

[[Page 35943]]

engaged in the business of furnishing coin-operated laundry machines to

apartment complexes. James L. Sharp is the sole shareholder of the

Employer. The Plan is a profit sharing plan having 49 participants and

assets valued at $658,839 as of October 31, 1994. The Plan's trustee is

Mr. Sharp. As of October 31, 1994, the Account's balance equaled

$251,243, but Mr. Sharp represents that he will roll over from his

individual retirement account into the Account an amount so that the

fair market value of the Property will not exceed 25% of the value of

the Account's assets.

2. On July 1, 1991, the Account purchased the Property from an

unrelated third party for $131,221. The Property consists of a

warehouse building situated on .71 acres. The Property is contiguous to

property which Mr. Sharp personally owns and presently leases to the

Employer.\3\ The Account proposes to lease the Property to the

Employer. The proposed lease will be for one year with annual renewals.

The Employer will pay monthly rent in the amount of $1310, and the

Account shall have the right to terminate the Lease at any time on

thirty days notice.

\3\ The Department is expressing no opinion as to whether or not

the acquisition of the Property violated section 404 of the Act.

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3. The Property was appraised by Gene Meazell, a certified general

appraiser, of Appraisers Unlimited on October 2, 1993. Mr. Meazell

determined that the fair market value of the Property was $140,000, and

the fair market rental value of the Property is $1,070 per month. Mr.

Meazell updated his appraisal on August 14, 1994 and determined that

fair market value and fair market rental value remained unchanged.

Naifef, Weikel and Rouse, independent certified public accountants

calculated that the value of the Property to the Employer is enhanced

by 20 to 25% because it is adjacent to the Employer's warehouse. Using

this assumption, the fair market monthly rental rate for the Employer

would be between $1,284 and $1,337. Thus, the proposed rental rate of

$1,310 would be at fair market value.

4. In summary, the applicant represents that the proposed

transaction satisfies the criteria of section 408(a) of the Act

because: (1) the terms of the Lease are and will remain at least as

favorable as the Plan could obtain in an arm's length transaction with

an unrelated party; (2) the fair market rental value has been and will

continue to be determined on an annual basis by a qualified,

independent appraiser; and (3) the fair market value of the Property,

as determined by a qualified, independent appraiser, will represent no

more than 25% of value of the assets in the Account.

Notice to Interested Persons: Because Mr. Sharp is the only

participant in the Plan whose individual account will be affected by

the proposed transaction, it has been determined that there is no need

to distribute the notice of proposed exemption to interested persons.

Therefore, written comments and requests for a public hearing are due

30 days from the date of publication of this notice of proposed

exemption in the Federal Register.

For Further Information Contact: Allison Padams, of the Department,

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

Adel E. Zaki Money Purchase Pension Plan (the Plan) Located in Los

Angeles, California

[Exemption Application No. D-09883]

Proposed Exemption

The Department is considering granting an exemption under the

authority of section 408(a) of the Act and section 4975(c)(2) of the

Code and in accordance with the procedures set forth in 29 CFR Part

2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption

is granted the restrictions of section 406(a), 406(b)(1), 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) through (E) of

the Code \4\ shall not apply to the proposed cash sale of a parcel of

improved real property (the Property) by the Plan to Adel E. Zaki, M.D.

(Dr. Zaki), a party in interest with respect to the Plan; provided that

(1) the sale will be a one-time transaction for cash; (2) as a result

of the sale, the Plan receives in cash the greater of $710,000 or the

fair market value of the Property, as determined by an independent,

qualified appraiser, as of the date of the sale; (3) the Plan pays no

commissions, fees, or other expenses as a result of the transaction;

and (4) the terms of the sale are no less favorable to the Plan than

those it would have received in similar circumstances when negotiated

at arm's length with unrelated third parties.

\4\ For purposes of this exemption, references to specific

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

also to the corresponding provisions of the Code.

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Summary of Facts and Representations

1. The Plan is a tax-qualified defined contribution profit sharing

plan sponsored by Adel E. Zaki M.D., A Professional Corporation (the

Employer). As of October 24, 1994, there were four (4) participants and

beneficiaries in the Plan, including Dr. Zaki. As of the same date, the

assets of the Plan totaled approximately $1,745,500. It is represented

that Dr. Zaki's account in the Plan consists of approximately 99

percent (99%) of the assets of the Plan with the remaining one percent

(1%) allocated among the other three participants. The Plan's assets

are invested in the Property and cash or cash equivalents, such as bank

certificates of deposit. It is represented that, as of October 24,

1994, the Property constituted approximately 41 percent (41%) of the

assets of the Plan. Dennis Mehringer serves as contract administrator

for the Plan. Dr. Zaki serves as trustee and fiduciary for the Plan

with discretion over the assets of the Plan affected by the proposed

transaction and is an officer and the sole shareholder of the Employer.

The Employer engages in the private medical practice in general surgery

from an office located at 1233 North Vermont Avenue in Los Angeles,

California.

2. On June 26, 1985, Dr. Zaki, acting as trustee, purchased the

Property as an investment for the Plan from A.M.S. Partnership, an

unrelated third party, at a purchase price of $1,200,000, plus escrow

closing costs of $2,183. It is represented that most of the assets of

the Plan, plus some or all of the rollover assets from a Keogh plan and

a terminated defined benefit plan, were used to acquire the Property.

Further, in 1995 through 1996, the Plan made additional improvements to

the Property at a cost of $28,228. Since the acquisition of the

Property by the Plan, Dr. Zaki has managed the Property and leased it

to unrelated third party tenants. It is represented that the capital

investment in the Property has been returned to the Plan. It is further

represented that the value of the Property, as reported yearly on forms

5500-C/R, steadily increased to a high of $1,496,676 in 1991. However,

in April of 1992, the riots in Los Angeles caused property damage in

the neighborhood around the Property. While the Property did not suffer

extensive damage, it is represented that the riots caused many

merchants to leave the area, the rental rates to decrease, and the

property values to decline. Consequently, the value of the Property

dropped to $1,250,000 in 1992. In 1993, Los Angeles County Tax Assessor

estimated the value of the Property to be $932,410. As of the end of

1993, the Plan had total assets of $1,937,410 of which the value of the

[[Page 35944]]

Property constituted approximately 48 percent (48%).\5\

\5\ The Department notes that the decision of Dr. Zaki, acting

as fiduciary on behalf of the Plan, in connection with the

acquisition and holding of the Property are governed by the

fiduciary responsibility requirements of part 4, subpart B, of Title

I. The Department expresses no opinion herein, as to whether any of

the relevant provisions of part 4, subpart B, of title I have been

violated regarding the Plan's investment in and subsequent holding

of the Property, and no exemption from such provisions is proposed

herein.

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3. The Property is described as one story L-shaped strip shopping

center on a corner lot at the intersection of Vermont and Lexington

Avenues in Los Angeles, California. The Property consists of 14,300

square feet of land improved by a retail center that contains 7,747

square feet of rentable space divided into seven units. The Property

has fifteen (15) parking spaces which is represented to be an existing

legal non-conforming use. The Property is located at 1183-1193 North

Vermont Avenue and is situated across Lexington Avenue one half block

from the Employer's office. Dr. Zaki represents that the Property is

not contiguous with his medical office as the two are separated by

Lexington Avenue and has no bearing on his practice. For this reason,

Dr. Zaki maintains that no premium value is created by the proximity of

the Property to his medical office.

4. This exemption is requested to permit the Plan to sell the

Property to Dr. Zaki for the greater of $710,000 or the appraised fair

market value of the Property on the date of sale.

Dr. Zaki represents that since 1992 he has attempted to sell the

Property to unrelated third parties but has received no offers, because

banks are reluctant to finance commercial properties in neighborhoods

subject to crime and riots. Further, it is represented that the

Property is in need of substantial improvements, especially in the area

of tenant security. In Dr. Zaki's opinion it would be inappropriate for

the Plan to expend additional capital for such improvements.

It is represented that the proposed transaction is feasible in that

it involves a one-time sale of the Property for cash. In addition, the

proposed transaction is in the interest of the Plan in that the price

offered by Dr. Zaki could not be obtained otherwise. In this regard,

Dr. Zaki maintains that his offer is a highly advantageous one for the

Plan, as the Property continues to decline in value. Further, the Plan

will be able to sell the Property without incurring the expense of

searching for a buyer and without paying brokerage commission, fees, or

other expenses as a result of the transfer. It is represented that the

proportionate share of the proceeds from the sale of the Property will

be allocated to the accounts of each of the participants in the Plan.

Then once the Property is sold, it is represented that the Plan can

invest such cash proceeds in a more conservative investment mix in the

future.

In the opinion of Dr. Zaki, the proposed transaction is necessary

to protect the participants and beneficiaries of the Plan from the

deteriorating real estate market. It is represented that selling the

Property to Dr. Zaki will put an end to the continued loss of benefits

to participants in the Plan that result from the continuing decline in

the value of the Property.

Further, in addition to purchasing the Property from the Plan, Dr.

Zaki proposes to personally indemnify the accounts of the other

participants of the Plan against past losses. Specifically,

simultaneous with his purchase of the Property from the Plan, Dr. Zaki

will make a one-time non-tax deductible personal payment to the

Plan.\6\ It is represented that a proportionate amount of such payment

(approximately $4,086 in the aggregate) will be allocated to the

accounts of each of the participants, other than Dr. Zaki, in order to

restore the cumulative loss through December 31, 1994, of such

participants' accounts in the Plan to their share of the highest

appraised value of $1,496,676 for the Property, as reported on the

forms 5500-C/R for the calendar year 1991, and to credit such

participants' accounts with interest on such highest appraised value

through December 31, 1994, at the average certificate of deposit rates

of the Bank of America during the period from the highest appraisal

date to December 31, 1994. It is further represented that such interest

on the balance due to participants, other than Dr. Zaki, will continue

to accrue at the same rate from December 31, 1994, through the actual

date of the closing on the transactions. In this way only Dr. Zaki's

account in the Plan will suffer the loss that results from the proposed

transaction.

\6\ It is represented that note of the transactions will cause

the participants to exceed their section 415 limitations. It is

represented that the restoration of value will be done

proportionately without discrimination and will not exceed the

limits of contribution under section 415 of the Code.

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6. An appraisal of the Property was prepared by Donald P. Condit,

Jr. (Mr. Condit) SRPA, SRA and Stuart D. Holtzmann of The Condit

Appraisal Company, located in Santa Monica, California. It is

represented that the appraisers have the appropriate knowledge and

experience to complete the appraisal assignment competently, in that

they are both California State certified general real estate

appraisers, and in that Mr. Condit is a member of professional

organizations. It is represented that the appraisers are independent in

that they have no present or prospective interest in the Property and

have no personal interest or bias with respect to the participants in

the transaction. The appraisers represent that neither their employment

nor compensation was conditioned upon the appraisal producing a

specific value or a value within a given range. After physically

inspecting the Property, and reconciling values for the Property

established by the cost approach, income approach, and sales comparison

approach, the appraisers determined that the fair market value of the

leased fee interest in Property was $710,000, as of September 8, 1994.

7. In summary, Dr. Zaki represents that the proposed transaction

meets the statutory criteria for an exemption under section 408(a) of

the Act because:

(a) the sale of the Property will be a one-time transaction for

cash; (b) as a result of the sale, the Plan will receive in cash the

greater of $710,000 or the fair market value of the Property, as

determined by an independent, qualified appraiser, as of the date of

the sale; (c) the Plan will pay no commissions, fees, or other expenses

as a result of the transaction; (d) the terms of the sale will be no

less favorable to the Plan than those it would have received in similar

circumstances when negotiated at arm's length with unrelated third

parties; (e) the Plan will be able to invest the proceeds from the sale

of the Property in more profitable assets; (f) the Plan will be able to

dispose of the Property which continues to decline in value; and (g)

with the exception of Dr. Zaki, the accounts of the participants in the

Plan will be compensated for any losses which resulted from the decline

in value of the Property.

For Further Information Contact: Angelena C. Le Blanc of the

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

The Bank of New York (the Bank) Located in New York, New York

[Application No. D-10030]

Proposed Exemption

Section I--Exemption for the Acquisition, Holding and Disposition of

BNY Stock

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

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

4975 of the

[[Page 35945]]

Code by reason of section 4975(c)(1) (D) and (E) of the Code, shall not

apply to the acquisition, holding or disposition of the common stock of

the Bank's parent corporation, The Bank of New York Company, Inc. (BNY

Stock), by Index or Model-Driven Funds, if the following conditions and

the General Conditions of Section II 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 or information, or (3) a

public stock exchange or association of securities dealers. The index

must be created and maintained by an organization independent of the

Bank and its affiliates. The index must be a generally accepted

standardized index of securities which is not specifically tailored for

the use of the Bank or its affiliates.

(b) The acquisition or disposition of the BNY Stock is for the sole

purpose of maintaining strict quantitative conformity with the relevant

index upon which the Index or Model-Driven Fund is based.

(c) All acquisitions comply with Rule 10b-18 of the Securities and

Exchange Commission, including the limitations regarding the price paid

or received for such stock.

(d) Aggregate daily purchases of BNY Stock constitute no more than

the greater of: (1) 10 percent of the stock's average daily trading

volume for the previous five days; or (2) 10 percent of the stock's

trading volume on the date of the transaction.

(e) If the necessary number of shares of BNY Stock cannot be

acquired within 10 business days from the date of the event which

causes the particular Index or Model-Driven Funds to require BNY Stock,

the Bank appoints a fiduciary which is independent of the Bank and its

affiliates to design acquisition procedures and monitor the Bank's

compliance with such procedures.

(f) All purchases and sales of BNY Stock are executed on the

national exchange on which BNY Stock is primarily traded.

(g) No transactions involve purchases from, or sales to, the Bank

or any affiliate (including officers, directors and employees of the

Bank, as defined in Section III(c) below), or any party in interest

with respect to a plan which has invested in an Index or Model-Driven

Fund.

(h) No more than five (5) percent of the total amount of BNY Stock

issued and outstanding at any time is held in the aggregate by the

Index and Model-Driven Funds.

(i) BNY Stock constitutes no more than two (2) percent of the value

of any independent third-party index on which the investments of an

Index or Model-Driven Fund are based.

(j) A plan fiduciary independent of the Bank and its affiliates

authorizes the investment of such plan's assets in an Index or Model-

Driven Fund which purchases and/or holds BNY Stock.

(k) A fiduciary independent of the Bank and its affiliates directs

the voting of the BNY Stock held by an Index or Model-Driven Fund on

any matter in which shareholders of BNY Stock are required or permitted

to vote.

Section II--General Conditions

(a) The Bank 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 (b) of this Section to

determine whether the conditions of the 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-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 this Section are available at their

customary location for examination during normal business hours by--

(A) Any duly authorized employee or representative of the

Department of Labor or the Internal Revenue Service,

(B) 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,

(C) Any contributing employer with respect to any plan

participating in an Index or Model-Driven Fund or any duly authorized

employee or representative of such employer, and

(D) 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 paragraph (b)(1) (B) through

(D) shall be authorized to examine trade secrets of the Bank, any of

its affiliates, or commercial or financial information which is

privileged or confidential.

Section III--Definitions

(a) Index Fund--Any investment fund, account or portfolio

sponsored, maintained and/or trusteed by the Bank, or an affiliate of

the Bank, in which one or more investors invest which is designed to

replicate the capitalization-weighted composition of a stock index

which satisfies the conditions of Section I (a) and (i).

(b) Model-Driven Fund--Any investment fund, account or portfolio

sponsored, maintained and/or trusteed by the Bank, or an affiliate of

the Bank, 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 the conditions of

Section I(a) and (i).

(c) Affiliate--Any person directly or indirectly, through one or

more intermediaries, controlling, controlled by, or under common

control with such person; 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 a sister of such person; and any

corporation or partnership of which such person is an officer,

director, or partner.

Summary of Facts and Representations

1. The Bank is the principal subsidiary of The Bank of New York

Company, Inc., the 16th largest bank holding company in the United

States, with total assets of approximately $49 billion at the end of

1994. The Bank is one of the largest commercial banks in the country,

and with its sister bank and trust company subsidiaries is one of the

largest providers of securities processing, money management and other

administrative and management services to institutional investors,

including employee benefit plans subject to the Act.

2. In furnishing investment management services, the Bank acts as a

fiduciary to its employee benefit plan customers. A principal vehicle

employed by the Bank in furnishing investment management services is

its Collective Trust. The Collective Trust accepts investment from

employee benefit plans subject to the Act as well

[[Page 35946]]

as governmental plans and governmental units not subject to the Act.

The Collective Trust is exempt from federal income taxation pursuant to

IRS Rev. Rul. 81-100.

The Collective Trust consists of a series of separate investment

funds, each with a separate investment objective and portfolio of

assets. It is possible for a plan to invest solely in one, or in

several but less than all, of the investment funds, as selected and in

such amounts as determined by the plan's named fiduciary. The value of

a plan's investment in any given fund depends solely on the investment

performance of that fund, unrelated to the investment performance of

the other funds within the Collective Trust.

3. Among the new funds established within the Collective Trust

early in 1994 is the Bank's Mid Cap Index Fund, whose objective is to

replicate as closely as may be practicable the performance of the

Standard & Poor's (S&P) MidCap 400 Index. The Bank initially requested

an exemption to permit the acquisition, holding and disposition of BNY

Stock by the Bank's Mid Cap Index Fund because the BNY Stock was

included in the S&P MidCap 400 Index. However, effective March 30,

1995, the BNY Stock was added to the S&P 500 Index. Since the Bank also

maintains within the Collective Trust a large S&P 500 Index Fund, the

Bank now requests an exemption to permit the acquisition, holding and

disposition of BNY Stock by the Bank's S&P 500 Index Fund.

4. The S&P 500 Index is an index of 500 stocks that are traded on

the New York Stock Exchange (NYSE), the American Stock Exchange, and

the NASDAQ National Market System. It is a market value-weighted index,

multiplying shares outstanding times stock price, in which each

company's influence on index performance is directly proportional to

its market value. The 500 companies chosen by the S&P Index Committee

for the index are not the 500 largest companies but, instead, are the

companies that tend to be leaders in key industries within the U.S.

economy, as determined by the Committee.

The Bank's S&P 500 Index Fund was established in 1989. Its

objective is to track as closely as possible the total return of the

S&P 500 Index. The Fund currently has total assets of approximately

$554 million as of May 9, 1995 and approximately 16 employee benefit

plan investors.

5. The Bank requests that the exemption cover the acquisition,

holding and disposition of BNY Stock by any Index or Model-Driven Fund

sponsored, maintained and/or trusteed by the Bank or an affiliate. The

Bank represents that such Index Funds will include any investment fund,

account or portfolio in which one or more investors invest which is

designed to replicate the capitalization-weighted composition of an

independent third-party stock index. In addition, the Bank represents

that such Model-Driven Funds will include any investment fund, account

or portfolio 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. All independent third-party stock

indexes used by the Bank for an Index or Model-Driven Fund will

represent 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 will be:

(a) engaged in the business of providing financial information,

evaluation, advice or securities brokerage services to institutional

clients; (b) a publisher of financial news or information; or (c) a

public stock exchange or association of securities dealers. The index

will be created and maintained by an organization independent of the

Bank and its affiliates. The index will be a generally accepted

standardized index of securities which is not specifically tailored for

the use of the Bank or its affiliates.

6. With respect to Model-Driven Funds, the Bank represents that the

portfolio of such a Fund would be determined by the details of a

computer model, which would examine structural aspects of the stock

market, rather than the underlying stock values. An example of a Model-

Driven would include a fund which ``transforms'' the S&P 500 Index,

making investments according to a computer model which uses such data

as the following: (a) earnings, dividends and price-earnings ratios for

common stocks in the S&P 500 Index; (b) current yields on corporate

bonds and money market instruments; and (c) historical standard

deviations and correlations of and between asset classes. However, like

Index Funds, the Model-Driven Funds would be passively managed, in that

decisions of which stocks to buy or sell would not be the result of

active evaluation of the investments by an investment manager, but

would be determined in accordance with a predetermined computer model.

The Bank states that it does not currently maintain any Model-

Driven Funds of the type described above, but is considering

establishing such funds in the future. Prior to May 1, 1995, the Bank

maintained a South Africa Constrained Index Fund, whose objective was

to track the S&P 500 Index by excluding certain stocks of companies

that had direct equity investment in the Republic of South Africa and

were not signatories to a Statement of Principles for South Africa as

of April 28, 1994. However, the South Africa Constrained Index Fund was

discontinued by the Bank as of April 28, 1995.

7. With respect to the proposed purchase of BNY Stock by the Funds,

the Bank states that all such acquisitions will comply with Rule 10b-18

of the Securities and Exchange Commission (SEC), including the

limitations regarding the price paid or received for such stock. SEC

Rule 10b-18 provides a ``safe harbor'' for issuers of securities from

section 9(a)(2) of the Securities Exchange Act of 1934 and SEC Rule

10b-5 (which generally prohibits persons from manipulating the price of

a security and engaging in fraud in connection with the purchase or

sale of a security).

The Bank states that the conditions imposed by Rule 10b-18 for

purchases of BNY Stock would be as follows: (a) all purchases would be

made from or through only one broker on any single day; (b) no

purchases would constitute the opening transaction in BNY Stock; (c)

purchases would not occur within one-half hour before the scheduled

close of trading on the NYSE; (d) the price would not be higher than

the current independent bid quotation or the last independent sale

price on the exchange, whichever is higher; and (e) if the purchases of

BNY Stock are not block purchases as defined by Rule 10b-18(b)(4), the

total amount of purchases on any one day would not exceed the higher of

one round lot or the number of round lots closest to 25 percent of the

trading volume for BNY Stock on that day.

However, notwithstanding the restrictions of Rule 10b-18, the Bank

states that aggregate daily purchases of BNY Stock will constitute no

more than the greater of: (a) 10 percent of the stock's average daily

trading volume for the previous five days; or (b) 10 percent of the

stock's trading volume on the date of the transaction.

8. The Bank states that all purchases and sales of BNY Stock will

be executed on the national exchange on which BNY Stock is primarily

traded. In addition, no transactions will involve purchases from, or

sales to, the Bank or any affiliate (including officers, directors and

employees of the Bank, as defined in Section III(c) above), or any

party in interest with respect to a plan which has invested in an Index

or Model-Driven

[[Page 35947]]

Fund. The Bank states further that no more than five (5) percent of the

total amount of BNY Stock issued and outstanding at any time will be

held in the aggregate by the Index and Model-Driven Funds. Finally, the

Bank represents that it will ensure that BNY Stock does not constitute

more than two (2) percent of the value of any independent third-party

index on which the investments of an Index or Model-Driven Fund are

based. In this regard, the weight currently assigned to BNY Stock in

the S&P 500 Index is approximately 0.169 percent. Prior to the addition

of the BNY Stock to the S&P 500 Index, the Bank states that the BNY

Stock comprised approximately 1.27 percent of the S&P MidCap 400 Index.

9. The Bank states that if the necessary number of shares of BNY

Stock cannot be acquired within 10 business days from the date of the

event which causes the particular Index or Model-Driven Funds to

require BNY Stock, the Bank will appoint a fiduciary which is

independent of the Bank and its affiliates to design acquisition

procedures and monitor the Bank's compliance with such procedures. In

addition, the Bank states a fiduciary independent of the Bank and its

affiliates will direct the voting of the BNY Stock held by an Index or

Model-Driven Fund on any matter in which shareholders of BNY Stock are

required or permitted to vote. Finally, the Bank represents that a plan

fiduciary independent of the Bank and its affiliates will authorize the

investment of such plan's assets in an Index or Model-Driven Fund which

purchases and/or holds BNY Stock.

10. With respect to acquisitions of BNY Stock by the Funds, the

independent fiduciary and its principals will be completely independent

from the Bank and its affiliates and will be experienced in developing

and operating investment strategies, including index funds. The

independent fiduciary will be responsible for accurately representing

that during the operation of any trading program based upon acquisition

procedures developed by the fiduciary, no principal employee of the

fiduciary nor the fiduciary itself will engage in any trading of any

kind in BNY Stock. Furthermore, the independent fiduciary will not act

as the broker for any purchases or sales of BNY Stock and will not

receive any commissions as a result of the trading program.

In connection with the initial acquisition of BNY Stock by the

Bank's S&P 500 Index Fund, the Bank calculates that the number of

shares that would have to be bought by such Fund would not exceed

28,000. This estimate is based on the figures for the size of the

Bank's S&P 500 Index Fund and the weight assigned to BNY Stock in the

S&P 500 Index.

The Bank states that based on recent figures for the high, low and

average daily trading volume for the BNY Stock on the NYSE, the initial

requirements of the Bank's S&P 500 Index Fund could be met by the Bank

placing a market-on-close order on the NYSE on a single business day--

or at the most two successive business days. Under the established

rules of the NYSE, the price on such an order would be set

automatically, permitting no discretion on the part of the order

placing party. The Bank represents that the impact of such purchases on

the market for BNY Stock would be minimal, and that under such

circumstances the full and proper protection of the interests of plan

investors would not require or warrant the retention of an independent

fiduciary to develop a trading program for the initial acquisitions of

BNY Stock.

11. With respect to the voting of BNY Stock, the independent

fiduciary chosen by the Bank will be a firm knowledgeable and

experienced in corporate governance issues and proxy voting on behalf

of public and private pension funds, banks, trust companies, money

managers, insurance companies and other institutional investors with

large equity portfolios. The independent fiduciary will develop, and

supply to the Bank, written material dealing with corporate ownership,

which will act as a guideline to the voting of proxies by institutional

fiduciaries, and their current voting guidelines. The Bank will provide

the independent fiduciary with all necessary information regarding the

Funds that hold BNY Stock, the amount of BNY Stock held by such funds

on the record date for shareholder meetings of The Bank of New York

Company, Inc., and all proxy and consent materials for BNY Stock. The

independent fiduciary will maintain records of its activities as an

independent fiduciary on behalf of the Funds, including the number of

shares of BNY Stock voted, the manner in which they were voted, and the

rationale for the vote if it was not consistent with the independent

fiduciary's corporate ownership material and current voting guidelines

in effect at the time of the vote. The independent fiduciary will

supply the Bank with the information after each shareholder meeting and

will acknowledge that it will be acting as a fiduciary with respect to

the plans that invest in the Funds which own BNY Stock, when voting

such stock.

12. In summary, the applicant represents that the proposed

transactions will satisfy the criteria of section 408(a) of the Act for

the following reasons: (a) the acquisition, holding and disposition of

BNY Stock will occur solely to maintain strict quantitative conformance

by an Index or Model-Driven Fund to its underlying index or model; (b)

all acquisitions and dispositions of BNY Stock will occur in the open

market and will comply with SEC Rule 10b-18; (c) aggregate daily

purchases of BNY Stock will constitute no more than the greater of

either 10 percent of the stock's average daily trading volume for the

previous five days, or 10 percent of the stock's trading volume on the

date of the transaction; (d) no more than 5 percent of the total

outstanding shares of BNY Stock will be held in the aggregate by the

Funds; (e) BNY Stock will constitute no more than 2 percent of the

value of any independent third-party index on which the investments of

an Index or Model-Driven Fund are based; (f) if the necessary number of

shares of BNY Stock cannot be acquired within 10 business days from the

date of the event which causes the particular Index or Model-Driven

Funds to require BNY Stock, the Bank will appoint a fiduciary which is

independent of the Bank and its affiliates to design acquisition

procedures and monitor the Bank's compliance with such procedures; (g)

a fiduciary independent of the Bank and its affiliates will direct the

voting of any BNY Stock held by the Funds; and (h) a plan fiduciary

independent of the Bank and its affiliates will authorize the

investment of such plan's assets in an Index or Model-Driven Fund which

purchases and/or holds BNY Stock.

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

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

General Information

The attention of interested persons is directed to the following:

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

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

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

person from certain other provisions of the Act and/or the Code,

including any prohibited transaction provisions to which the exemption

does not apply and the general fiduciary responsibility provisions of

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

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

participants and beneficiaries of the plan and in a

[[Page 35948]]

prudent fashion in accordance with section 404(a)(1)(b) of the act; nor

does it affect the requirement of section 401(a) of the Code that the

plan must operate for the exclusive benefit of the employees of the

employer maintaining the plan and their beneficiaries;

(2) Before an exemption may be granted under section 408(a) of the

Act and/or section 4975(c)(2) of the Code, the Department must find

that the exemption is administratively feasible, in the interests of

the plan and of its participants and beneficiaries and protective of

the rights of participants and beneficiaries of the plan;

(3) The proposed exemptions, if granted, will be supplemental to,

and not in derogation of, any other provisions of the Act and/or the

Code, including statutory or administrative exemptions and transitional

rules. Furthermore, the fact that a transaction is subject to an

administrative or statutory exemption is not dispositive of whether the

transaction is in fact a prohibited transaction; and

(4) The proposed exemptions, if granted, will be subject to the

express condition that the material facts and representations contained

in each application are true and complete and accurately describe all

material terms of the transaction which is the subject of the

exemption. In the case of continuing exemption transactions, if any of

the material facts or representations described in the application

change after the exemption is granted, the exemption will cease to

apply as of the date of such change. In the event of any such change,

application for a new exemption may be made to the Department.

Signed at Washington, DC, this 7th day of July, 1995.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 95-17074 Filed 7-11-95; 8:45 am]

BILLING CODE 4510-29-P