Grant of Individual Exemptions; Mellon Bank, N.A., and Its Affiliated (Collectively, Mellon), et al.

[[Page 35933]]

DEPARTMENT OF LABOR

[Prohibited Transaction Exemption 95-56; Exemption Application No. D-

09724, et al.]

Grant of Individual Exemptions; Mellon Bank, N.A., and Its

Affiliated (Collectively, Mellon), 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.

Mellon Bank, N.A., and Its Affiliates (Collectively, Mellon) Located in

Pittsburgh, Pennsylvania

[Prohibited Transaction Exemption 95-56; Application No. D-09724]

Exemption

Section I--Exemption for Cross-Trading Between Certain Accounts

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 securities (including the stock of

Mellon Bank Corporation (MBC)) between Indexed Accounts, as defined in

Section IV(a); and (2) the purchase and sale of securities, including

the common stock of MBC, between Indexed Accounts and various large

accounts (the Large Accounts) pursuant to portfolio restructuring

programs of the Large Accounts; provided that the following conditions

and the General Conditions of Section III are met:

(a) The Indexed Account is based on an index which represents the

investment performance of a specific segment of the public market for

equity or debt 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 Mellon

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

index of securities which is not specifically tailored for the use of

Mellon or its affiliates.

(b) The price for the securities is set at the current market value

for the securities on the date of the transactions. For equity

securities, the price shall be the closing price for the security on

the day of trading; unless the security was added to or deleted from an

index underlying an Indexed Account after the close of trading, in

which case the price shall be the opening price for that security on

the next business day after the announcement of the addition or

deletion. For debt securities, the price shall be the fair market value

determined as of the close of the day of trading pursuant to Rule 17a-

7(b) issued by the Securities and Exchange Commission under the

Investment Company Act of 1940.

(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 weighting of the index

underlying an Indexed Account by the organization creating and

maintaining the index;

(2) A change in the overall level of investment in an Indexed

Account as a result of investments and withdrawals made on the

Account's opening date, where the Indexed Account is a collective

investment fund, or on any relevant date, where the Indexed Account is

not a collective investment fund; provided, however, that Mellon does

not change the level of investment in the Indexed Account through

investments or withdrawals of assets of any employee benefit plan

maintained by Mellon or its affiliates (the Mellon Plans) other than

any Mellon Plan which is a defined contribution plan under which

participants direct the investment of their accounts among various

investment options, including Indexed Accounts; or

(3) A declaration by Mellon (recorded on Mellon's records) that a

``triggering event'' has occurred, which will be made upon an

accumulation of cash in an Indexed Account attributable to interest or

dividends on, and/or tender offers for, portfolio securities equal to

not more than .5 percent of the Indexed Account's total value.

(d) With respect to any Indexed Account that is model-driven, no

cross-trades are engaged in by the Account for 10 business days

subsequent to any change made by Mellon to the model underlying the

Account.

(e) In the event that the amount of a particular security which all

of the Indexed Accounts or Large Accounts propose to sell on a given

day is less than the amount of such security which all of the Indexed

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

cross-trade opportunity must be allocated by Mellon among potential

buyers or sellers of the security on a pro rata basis.

(f) An Indexed Account does not participate in a cross-trade if

more than 10 percent of the assets of the Indexed Account at the time

of the proposed cross-trade are comprised of assets of Mellon Plans for

which Mellon exercises investment discretion.

[[Page 35934]]

(g) Prior to any proposed cross-trading by an Indexed Account or a

Large Account, Mellon provides to each employee benefit plan invested

in the Account 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

securities purchased or sold by the Accounts, and the allocation

methods and other procedures which will be implemented by Mellon for

its cross-trading practices. Any employee benefit plan which

subsequently invests in the Indexed Account or Large Account shall be

provided the same information prior to or immediately after the plan's

initial investment in the Account.

(h) With respect to cross-trade transactions involving a Large

Account:

(1) Total assets of the Large Account are in excess of $50 million.

(2) Fiduciaries or other appropriate decisionmakers of the Large

Account who are independent of Mellon are, prior to any cross-trade

transactions, fully informed of the cross-trade technique and provide

advance written approval of the cross-trade transactions.

Such authorization shall be terminable at will by the Large Account

upon receipt by Mellon 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 form 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 Mellon of written

notice from the authorizing Large Account fiduciary; and

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

continued authorization of Mellon 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, the Large Account's fiduciaries shall

be fully apprised in writing of the transaction results. However, if

the program takes longer than three months to complete, interim reports

of the transaction results will be made within 30 days of the end of

each three month period.

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

Mellon has been authorized to restructure all or a portion of the Large

Account's portfolio into an Indexed Account (including a separate

account based on an index or computer model) or to act as a ``trading

adviser'' in carrying out a Large Account-initiated liquidation or

restructuring of its portfolio.

(i) Mellon receives no additional direct or indirect compensation

as a result of any cross-trade transactions.

(j) Mellon does not purchase or sell any debt securities issued by

Mellon or an affiliate for the Indexed Accounts.

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

MBC 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 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 MBC (the MBC Stock) by Indexed Accounts, if the

following conditions and the General Conditions of Section III are met:

(a) The acquisition or disposition of the MBC stock is for the sole

purpose of maintaining strict quantitative conformity with the relevant

index upon which the Indexed Account is based.

(b) In the event that MBC Stock is added to an index on which an

Indexed Account is based or is added to the portfolio of the Indexed

Account which tracks an index that includes MBC Stock, all acquisitions

necessary to bring the Indexed Account's holdings of MBC Stock to its

capitalization weighting in the index, other than cross-trade

transactions meeting the conditions of Section I, shall comply with

Rule 10b-18 of the Securities and Exchange Commission (SEC) under the

Securities Exchange Act of 1934, including the limitations regarding

the price paid for such stock.

(c) Subsequent to acquisitions necessary to bring the Indexed

Account's holdings of MBC Stock to its capitalization weighting in the

index pursuant to the restrictions of SEC Rule 10b-18, all aggregate

daily purchases of MBC stock, other than cross-trade purchases meeting

the conditions of Section I, shall not constitute more than the greater

of: (1) 15 percent of the stock's average daily trading volume for the

previous five days; or (2) 15 percent of the stock's trading volume on

the date of the transaction.

(d) If the necessary number of shares of MBC stock cannot be

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

causes the particular Indexed Account to require MBC stock, Mellon

shall appoint a fiduciary which is independent of Mellon and its

affiliates to design acquisition procedures and monitor Mellon's

compliance with such procedures.

(e) All purchases and sales of MBC stock, other than cross-trades

meeting the conditions of Section I, shall be executed on the national

exchange on which MBC stock is primarily traded.

(f) No transactions shall involve purchases from, or sales to,

Mellon or any affiliate, officer, director or employee of Mellon or any

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

Indexed Account.1 This requirement does not preclude purchases and

sales of MBC stock in cross-trade transactions meeting the conditions

of Section I, provided that the Indexed Accounts are not maintained by

Mellon primarily for the investment of assets of Mellon or any

affiliate, including officers, directors or employees of Mellon other

than in connection with a Mellon Plan.

\1\ The Department notes that ``blind transactions'', in which

the identity of the purchaser or seller is not known because the

transaction is executed by an independent broker, acting as agent,

on a national securities exchange, would not be subject to this

requirement.

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(g) No more than five (5) percent of the total amount of MBC stock

issued and outstanding at any time shall be held in the aggregate by

the Indexed Accounts which hold plan assets.

(h) MBC stock shall constitute no more than two (2) percent of the

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

an Indexed Account are based.

(i) A plan fiduciary independent of Mellon authorizes the

investment of such plan's assets in an Indexed Account which purchases

and/or holds MBC stock.

(j) A fiduciary independent of Mellon and its affiliates shall

direct the voting of the MBC stock held by an Indexed Account on any

matter in which shareholders of MBC stock are required or permitted to

vote.

Section III--General Conditions

(a) Mellon 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 Mellon, the records are lost

or destroyed prior to the end of the six-year period, and (2) no party

in interest other than Mellon shall be subject to the civil penalty

that may be assessed under section 502(i) of the

[[Page 35935]]

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 Indexed Account 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 Indexed Account or any duly authorized employee or

representative of such employer, and

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

Indexed Account, 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 Mellon, any of its

affiliates, or commercial or financial information which is privileged

or confidential.

Section IV--Definitions

(a) Indexed Account--Any Index Fund or Model-Driven Fund.

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

sponsored, maintained, trusteed, or managed by Mellon or an affiliate

in which one or more investors invest that is designed to replicate the

capitalization-weighted composition of an independently maintained

securities index which satisfies the conditions of Section I(a) and

Section II(h).

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

sponsored, maintained, trusteed, or managed by Mellon or an affiliate,

in which one or more investors invest which is based on computer models

using prescribed objective criteria to transform an independently

maintained securities index which satisfies the conditions of Section

I(a) and Section II(h).

(d) Opening date--The date on which investments in or withdrawals

from an Indexed Account that is a collective investment fund may be

made.

(e) Large Account--An account of an investor that is either: (1) an

employee benefit plan within the meaning of section 3(3) of the Act

that has $50 million or more in total assets; or (2) an institutional

investor, other than an investment company registered under the

Investment Company Act of 1940 (i.e. a mutual fund) advised or

sponsored by Mellon, such as an insurance company separate account or

general account, a governmental plan, a university endowment fund, a

charitable foundation fund, or a trust or other fund which is exempt

from taxation under section 501(a) of the Code, that has total assets

in excess of $50 million. As noted in Section I(g)(4), a ``Large

Account'' shall only be an account to which Mellon has been authorized

to restructure all or a portion of the portfolio for such account into

an Indexed Account or to which Mellon has been authorized to act as a

``trading adviser'' (as defined below) in connection with a specific

liquidation or restructuring program for the account.

(f) Trading adviser--A person whose role is limited to arranging a

Large Account-initiated liquidation or restructuring of an equity or

debt portfolio within a stated period of time so as to minimize

transaction costs. The person must not be a fiduciary with investment

discretion for any underlying asset allocation, restructuring or

liquidation decisions for the account in connection with such

transactions.

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

more intermediaries, controlling, controlled by, or is under common

control with Mellon (except Mellon/McMahon Real Estate Advisors, 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 April 7, 1995, at 60 FR

17814.

WRITTEN COMMENTS AND MODIFICATIONS: The applicant submitted the

following comments and requests for modifications regarding the notice

of proposed exemption (the Proposal).

With respect to the heading used in the Proposal, the applicant

states that the term ``Mellon'' refers specifically to Mellon Bank,

N.A., but not to its affiliates. The applicant notes that in various

places throughout the Proposal, the relevant provisions refer to

``Mellon and its affiliates''. However, in numerous other provisions of

the Proposal the reference is simply to Mellon which, as designated in

the heading, is too narrow since the affiliates should also be covered.

The applicant requests that the reference to ``Mellon'' in the heading

be changed to include both Mellon Bank, N.A. and its affiliates. The

Department concurs with the applicant's requested clarification and has

so modified the heading of the Proposal.

With respect to the definition of a ``triggering event'' in Section

I(c) of the Proposal, the applicant states that subparagraph (2) limits

investments and withdrawals from an Indexed Account to those occurring

on a ``regularly scheduled opening date'' for the Indexed Account. The

applicant represents that the concept of ``an opening date'', as

defined in Section IV(d) of the Proposal, is not applicable to Indexed

Accounts that are not collective investment funds, such as separate

accounts for both employee benefit plans and other institutional

clients. Since separate accounts would be encompassed within the

definition of an Indexed Account under Section IV(a) of the Proposal,

the applicant requests that an appropriate clarification be made. In

addition, with respect to the concept of a ``regularly scheduled''

opening date, the applicant represents that the trend for collective

investment funds is toward more frequent, and in many cases daily,

opening dates. Thus, the applicant requests that the words ``regularly

scheduled'' be deleted from Section I(c)(2) of the Proposal.

The Department concurs with the applicant's requested

clarifications and has modified the language of Sections I(c)(2) and

IV(d) of the Proposal. In this regard, Section I(c)(2) has been

modified as follows:

* * * A change in the overall level of investment in an Indexed

Account as a result of investments and withdrawals made on the

Account's [regularly scheduled] opening date, where the Indexed

Account is a collective investment fund, or on any relevant date,

where the Indexed Account is not a collective investment fund * * *.

(emphasis added)

In addition, Section IV(d) has been modified as follows:

* * * Opening date--The [regularly-scheduled] date on which

investments in or withdrawals from an Indexed Account that is a

collective investment fund may be made. (emphasis added)

With respect to the proviso in Section I(c)(2) of the Proposal

relating to any Mellon Plans for which Mellon has investment

discretion, the applicant states that its understanding of the intent

of this proviso is to exclude from the definition of a ``triggering

event'' those investments into or withdrawals from an Indexed Account

which result from Mellon's exercise of its discretion

[[Page 35936]]

for a Mellon Plan. However, the applicant states that this proviso was

not intended to cover changes in the level of investment in an Indexed

Account which result from investment elections made by individual

participants in a Mellon Plan (i.e. a defined contribution plan) that

permits such participants to direct the investment of their accounts

among various available investment options, including Indexed Accounts.

Thus, the applicant maintains that the language of the proviso is too

broad in that it would apply to any Mellon Plan as to which Mellon

exercises any investment discretion, including discretion for the

management of assets which have been allocated to an Indexed Account,

even though participants have directed the investment of their assets

to such Indexed Accounts. Therefore, the applicant suggests that this

proviso be clarified by deleting the phrase ``* * * for which Mellon

has investment discretion'' and substituting therefor the following:

* * * other than any Mellon Plan which is a defined contribution

plan under which participants direct the investment of their

accounts among various investment options, including Indexed

Accounts.

The Department concurs with the applicant's requested clarification

and has so modified the language of Section I(c)(2) of the Proposal.

With respect to Section II(f) of the Proposal, the applicant states

that the first sentence sets forth a requirement that transactions by

an Indexed Account involving MBC Stock not be with any affiliate,

officer, director or employee of Mellon or any party in interest for

any plan which has invested in the Indexed Account. The applicant

requests that it be made clear that this limitation does not apply to

any transaction on an exchange executed by an independent broker acting

as agent, given that such transactions would be considered to be

``blind transactions'' for this purpose.

In this regard, the Department concurs with the applicant's

requested clarification and has added a footnote at the end of the

first sentence of Section II(f) stating that ``blind transactions''

executed on a national securities exchange by an independent broker

will not be subject to the requirements of Section II(f).

Finally, with respect to the definition of ``Large Account'' in

Section IV(e) of the Proposal, the applicant states that the definition

excludes any investment company registered under the Investment Company

Act of 1940 (i.e. any mutual fund). The applicant represents that

Mellon had previously agreed to exclude only affiliated mutual funds

(i.e. mutual funds advised or sponsored by Mellon or an affiliate) from

the definition of ``Large Account''. The Department acknowledges this

error in the Proposal and concurs with the applicant's clarification.

Thus, the Department has modified the language of Section IV(e)(2) of

the Proposal by inserting the phrase ``* * * advised or sponsored by

Mellon'' following the reference to mutual funds in the definition of

``Large Account''.

No other comments, and no requests for a hearing, were received by

the Department during the comment period.

Accordingly, based on the current exemption application file and

record, the Department has determined to grant the proposed exemption

as modified herein.

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

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

T.J. Lambrecht Construction, Inc.; Employees' Profit Sharing Plan and

Trust; Brown & Lambrecht Earthmovers, Inc.; Employees' Profit Sharing

Plan and Trust (collectively, the Plans) Located in Joliet, Illinois

[Prohibited Transaction Exemption 95-57; Application Nos. D-09872 and

D-09873]

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 cash sale (the Sale) by each of the Plans of a

12.5% partnership interest in Prime Industries (the Partnership

Interest) to Mr. Thomas J. Lambrecht, a party in interest with respect

to the Plans; provided the following conditions are satisfied: (1) The

Sale is a one-time transaction for cash; (2) the sale price for each

Partnership Interest will be the higher of (a) the fair market value of

the Partnership Interest as determined by a qualified independent

appraiser at the time of the Sale or, (b) each Plan's total investment

in the Partnership Interest ($300,000); and (3) the Plans do not suffer

any loss nor incur any expenses in connection with the transaction.

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 May 10, 1995 at 60 FR

24899.

FOR FURTHER INFORMATION CONTACT: Virginia J. Miller of the Department,

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

Guarantee Mutual Life Company (Guarantee Mutual) Located in Omaha,

NE

[Prohibited Transaction Exemption 95-58; Exemption Application No. D-

09941]

Exemption

Section I. Covered Transaction

The restrictions of section 406(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 (D) of the Code, shall not apply to

the proposed receipt of common stock of The Guarantee Life Companies

Inc., or the receipt of cash or policy credits by an eligible

policyholder (the Eligible Policyholder) of Guarantee Mutual which is

an employee benefit plan (the Plan), other than an Eligible

Policyholder which is a plan sponsored by Guarantee Mutual for its own

employees, in exchange for the termination of such Eligible Plan

Policyholder's membership interest in Guarantee Mutual, in accordance

with the terms of a plan of demutualization (the Plan of Conversion or

the Conversion Plan) adopted by Guarantee Mutual and implemented

pursuant to the Nebraska Insurers Demutualization Act, Nebraska Revised

Statutes, Sections 44-6101 through 44-6120.

The exemption is subject to the general conditions set forth below

in Section II.

Section II. General Conditions

(a) The Conversion Plan is implemented in accordance with

procedural and substantive safeguards that are imposed under Nebraska

law and is subject to the review and supervision by the Director of the

Department of Insurance of the State of Nebraska (the Director).

(b) The Director reviews the terms of the options that are provided

to Eligible Policyholders of Guarantee Mutual, as part of such

Director's review of the Conversion Plan, and the Director only

approves the Conversion Plan following a determination that such

Conversion Plan is fair and equitable to all Eligible Policyholders.

(c) Each Eligible Policyholder has an opportunity to comment on the

Conversion Plan and decide whether to vote to approve such Conversion

Plan after full written disclosure is given such Eligible Policyholder

by Guarantee Mutual, of the terms of the Conversion Plan.

(d) Any election by an Eligible Plan Policyholder to receive stock,

cash or policy credits, pursuant to the terms of the Conversion Plan is

made by one or more independent fiduciaries of such

[[Page 35937]]

Plan and neither Guarantee Mutual nor any of its affiliates exercises

any discretion or provides investment advice with respect to such

election.

(e) After each Eligible Policyholder entitled to receive stock is

allocated at least 10 shares of common stock, additional consideration

is allocated to Eligible Policyholders who own participating policies

based on actuarial formulas that take into account each participating

policy's contribution to the surplus of Guarantee Mutual which formulas

have been approved by the Director.

(f) All Eligible Plan Policyholders participate in the transactions

on the same basis within their class groupings as other Eligible

Policyholders that are not Plans.

(g) No Eligible Policyholder pays any brokerage commissions or fees

in connection with their receipt of stock or in connection with the

implementation of the commission-free sales program.

(h) All of Guarantee Mutual's policyholder obligations remain in

force and are not affected by the Conversion Plan.

Section III. Definitions

For purposes of this proposed exemption:

(a) The term ``Guarantee Mutual'' means Guarantee Mutual Insurance

Company and any affiliate of Guarantee Mutual as defined in paragraph

(b) of this Section III.

(b) An ``affiliate'' of Guarantee Mutual includes--

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

intermediaries, controlling, controlled by, or under common control

with Guarantee Mutual. (For purposes of this paragraph, the term

``control'' means the power to exercise a controlling influence over

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

(2) Any officer, director or partner in such person, and

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

officer, director or a 5 percent partner or owner.

(c) The term ``Eligible Policyholder'' means a policyholder who is

eligible to vote and to receive consideration in a demutualization.

Such policyholder is a policyholder of the mutual insurer on the day

the plan of conversion is adopted by the board of directors of the

insurer.

(d) The term ``policy credit'' means an increase in accumulation

account value (to which no surrender or similar charges are applied) in

the general account or an increase in a dividend accumulation on a

policy.

Written Comments

The Department received three written comments with respect to the

notice of proposed exemption. Two comments were submitted by Plan

policyholders of Guarantee Mutual. Of the comments in this category,

one was withdrawn. The third comment was submitted by Guarantee Mutual.

Following is a discussion of the Plan policyholder comment that was

not withdrawn and the response made by Guarantee Mutual with respect to

this comment. Also discussed is the comment that was submitted by

Guarantee Mutual and the Department's response to that comment.

Plan Policyholder Comment

The commentator states that he is opposed to the conversion because

he does not believe there are adequate safeguards to ensure that

management of Guarantee Mutual will not use the demutualization process

as an opportunity to further their personal interests. The commentator

explains that owners of corporations are no better off than owners of a

mutual company in terms of democratic rule over the company. The

commentator further asserts that managers should not be permitted to

convert or change organizational structures of companies until

corporate democratic principles can be guaranteed. Therefore, the

commentator does not recommend that the Department approve the proposed

exemption.

In response, Guarantee Mutual states that the comment does not

address the merits of the proposed transaction. Guarantee Mutual notes

that before the Conversion Plan can proceed, it must be approved by the

Director of the Nebraska Department of Insurance after a public

hearing. According to Guarantee Mutual, the public hearing was held on

April 13, 1995 and June 12, 1995 in Lincoln, Nebraska. Notice of the

hearing was mailed to each Eligible Policyholder and published in the

Omaha World-Herald, the Lincoln Journal-Star and the Omaha Daily

Record.

Guarantee Mutual points out that the next step of the Conversion

Plan is for the Director to approve such Plan and find that (a) the

Conversion Plan is fair and equitable to policyholders, (b) the

Conversion Plan does not deprive policyholders of property rights or

due process of law and (c) the new stock insurer would meet the minimum

requirements to be issued a certificate of authority by the Director to

transact business in Nebraska and the continued operations of the new

stock insurer would not be hazardous to future policyholders and the

public. Guarantee Mutual notes that the Director will continue to

monitor the demutualization through the effective date of the

conversion and, with respect to other matters, after the effective

date. In addition, Guarantee Mutual points out that Nebraska law

requires that two-thirds of voting Eligible Policyholders vote for the

adoption of the Conversion Plan before the demutualization can occur.

With respect to the commentator, Guarantee Mutual explains that he,

along with other Eligible Policyholders, was mailed a notice of the

public hearing and has been afforded the opportunity to express his

views to the Director either in writing or at the public hearing.

Guarantee Mutual also explains that the commentator will be given the

opportunity to vote for or against the Conversion Plan. Accordingly,

Guarantee Mutual believes that the commentator is being offered all of

the procedural safeguards inherent in the Nebraska conversion statute

and that the comment should not affect the Department's granting of the

exemption.

Guarantee Mutual's Comment

Guarantee Mutual's comment is intended to clarify information

contained in a footnote to the Summary of Facts and Representations of

the proposed exemption. In this regard, Footnote 16 of the Notice

states, in pertinent part, that prior to the public hearing, Guarantee

Mutual

* * * will provide each Eligible Policyholder with a summary of

the Conversion Plan, a notice of the public hearing and a more

detailed policyholder information statement.

Guarantee Mutual notes, however, that the Director will first

conduct the public hearing, and later, if the Director makes an initial

determination to approve Guarantee Mutual's application, a policyholder

vote will take place. Guarantee Mutual explains that Eligible

Policyholders will receive the more detailed policyholder statement

before the vote, but not before the hearing. Therefore, Guarantee

Mutual requests that Footnote 16 be modified to read as follows:

Guarantee Mutual also represents that prior to the public

hearing, it will provide each Eligible Policyholder with a summary

of the Conversion Plan and a notice of the public hearing and that

prior to the policyholder meeting and vote, it will provide each

Eligible Policyholder with a more detailed policyholder information

statement.

In addition, Guarantee Mutual requests certain modifications in

[[Page 35938]]

references to Guarantee Mutual and The Guarantee Life Companies Inc. In

this regard, Guarantee Mutual notes that Representations 10 (c), (d)

and (h) of the Summary of Facts and Representations refer to ``State

Mutual'' but not to ``Guarantee Mutual.'' Therefore, Guarantee Mutual

requests that these references be corrected. Further, Guarantee Mutual

explains that the reference to ``The Guarantee Companies, Inc.'' in

Section I of the proposed exemption should be modified by deleting the

comma after the word ``Companies.''

Finally, it is noted that Guarantee Mutual did not comply with the

notice to interested persons requirement within the time frame stated

in the exemption application. By letter dated May 25, 1995, Guarantee

Mutual certifies that it extended the comment period until June 5, 1995

by mailing postcards to the same group of Eligible Policyholders it had

previously notified of the proposed exemption. Other than the two

comments that were submitted by the Plan policyholders of Guarantee

Mutual and the comment submitted by Guarantee Mutual, no additional

comments were received by the Department.

The Department does not object to any of the clarifications or

modifications to the proposed exemption. After giving full

consideration to the entire record, including the written comments that

were submitted, the Department has decided to grant the exemption as

described and revised above. The comment letters have been included as

part of the public record of the exemption application. The complete

application file, including all supplemental submissions received by

the Department, is made available for public inspection in the Public

Documents Room of the Pension and Welfare Benefits Administration, Room

N-5638, U.S. Department of Labor, 200 Constitution Avenue, N.W.,

Washington, D.C. 20210.

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 April 14, 1995 at 60 FR

19096.

FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,

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

Rothschild, Incorporated (Rothschild) Located in New York, New York

[Prohibited Transaction Exemption 95-59; Exemption Application No. D-

09993]

Exemption

I. Transactions

A. The restrictions of sections 406(a) and 407(a) of the Act and

the taxes imposed by section 4975(a) and (b) of the Code by reason of

section 4975(c)(1)(A) through (D) of the Code shall not apply to the

following transactions involving trusts and certificates evidencing

interests therein:

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

certificates in the initial issuance of certificates between the

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

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

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

party in interest with respect to such plan;

(2) The direct or indirect acquisition or disposition of

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

and

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

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

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

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

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

Excluded Plan by any person who has discretionary authority or renders

investment advice with respect to the assets of that Excluded Plan.\2\

\2\ Section I.A. provides no relief from sections 406(a)(1)(E),

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

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

regulation 29 CFR 2510.3-21(c).

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B. The restrictions of sections 406(b)(1) and 406(b)(2) of the Act

and the taxes imposed by section 4975(a) and (b) of the Code by reason

of section 4975(c)(1)(E) of the Code shall not apply to:

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

certificates in the initial issuance of certificates between the

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

authority or renders investment advice with respect to the investment

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

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

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

(a); if:

(i) the plan is not an Excluded Plan;

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

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

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

acquired by persons independent of the members of the Restricted Group

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

acquired by persons independent of the Restricted Group;

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

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

at the time of the acquisition; and

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

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

person has discretionary authority or renders investment advice are

invested in certificates representing an interest in a trust containing

assets sold or serviced by the same entity.\3\ For purposes of this

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

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

trust;

\3\ For purposes of this exemption, each plan participating in a

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

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

proportionate undivided interest in each asset of the commingled

fund as its proportionate interest in the total assets of the

commingled fund as calculated on the most recent preceding valuation

date of the fund.

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(2) The direct or indirect acquisition or disposition of

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

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

and (iv) are met; and

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

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

C. The restrictions of sections 406(a), 406(b) and 407(a) of the

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

reason of section 4975(c) of the Code, shall not apply to transactions

in connection with the servicing, management and operation of a trust,

provided:

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

of a binding pooling and servicing arrangement; and

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

described in all material respects in the prospectus or private

placement memorandum provided to, investing plans before they purchase

certificates issued by the trust.\4\

\4\ In the case of a private placement memorandum, such

memorandum must contain substantially the same information that

would be disclosed in a prospectus if the offering of the

certificates were made in a registered public offering under the

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

placement memorandum must contain sufficient information to permit

plan fiduciaries to make informed investment decisions.

[[Page 35939]]

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

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

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

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

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

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

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

D. The restrictions of sections 406(a) and 407(a) of the Act, and

the taxes imposed by sections 4975(a) and (b) of the Code by reason of

sections 4975(c)(1)(A) through (D) of the Code, shall not apply to any

transactions to which those restrictions or taxes would otherwise apply

merely because a person is deemed to be a party in interest or

disqualified person (including a fiduciary) with respect to a plan by

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

relationship to such service provider described in section 3(14)(F),

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

the Code), solely because of the plan's ownership of certificates.

II. General Conditions

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

following conditions are met:

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

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

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

party;

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

subordinated to the rights and interests evidenced by other

certificates of the same trust;

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

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

generic rating categories from either Standard & Poor's Corporation

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

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

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

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

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

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

and servicing agreement providing for such succession upon the

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

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

underwriters in connection with the distribution or placement of

certificates represents not more than reasonable compensation for

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

to and retained by the sponsor pursuant to the assignment of

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

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

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

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

pooling and servicing agreement and reimbursement of the servicer's

reasonable expenses in connection therewith; and

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

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

Securities and Exchange Commission under the Securities Act of 1933.

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

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

authority or renders investment advice with respect to the plan assets

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

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

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

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

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

private placement of certificates, the trustee obtains a representation

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

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

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

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

obtain from its transferee a representation regarding compliance with

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

make a written representation regarding compliance with the condition

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

III. Definitions

For purposes of this exemption:

A. ``Certificate'' means:

(1) a certificate--

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

of a trust; and

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

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

trust; or

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

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

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

Internal Revenue Code of 1986; and

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

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

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

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

selling or placement agent. For purposes of this exemption, references

to ``certificates representing an interest in a trust'' include

certificates denominated as debt which are issued by a trust.

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

in trust and consists solely of:

(1) either

(a) secured consumer receivables that bear interest or are

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

loans and obligations secured by shares issued by a cooperative housing

association);

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

at a discount in transactions by or between business entities

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

leases, as defined in section III.T);

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

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

residential and commercial real property (including obligations secured

by leasehold interests on commercial real property);

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

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

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

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

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

(f) fractional undivided interests in any of the obligations

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

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

subsection B.(1);

(3) undistributed cash or temporary investments made therewith

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

made to certificateholders; and

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

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

guarantees, contracts of suretyship and other credit support

[[Page 35940]]

arrangements with respect to any obligations described in subsection

B.(1).

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

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

of the type which have been included in other investment pools, (ii)

certificates evidencing interests in such other investment pools have

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

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

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

(iii) certificates evidencing interests in such other investment pools

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

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

exemption.

C. ``Underwriter'' means:

(1) Rothschild;

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

intermediaries, controlling, controlled by or under common control with

Rothschild; or

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

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

manager with respect to the certificates.

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

depositing obligations therein in exchange for certificates.

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

pooling and servicing agreement relating to trust assets and is fully

responsible for servicing, directly or through subservicers, the assets

of the trust.

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

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

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

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

the trust, including the master servicer and any subservicer.

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

certificates which are denominated as debt instruments, also means the

trustee of the indenture trust.

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

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

person is not an insurer solely because it holds securities

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

to certificates representing an interest in the same trust.

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

obligated to make payments with respect to any obligation or receivable

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

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

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

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

in the trust.

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

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

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

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

means:

(1) each underwriter;

(2) each insurer;

(3) the sponsor;

(4) the trustee;

(5) each servicer;

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

in the trust constituting more than 5 percent of the aggregate

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

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

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

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

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

intermediaries, controlling, controlled by, or under common control

with such other person;

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

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

brother or sister of such other person; and

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

officer, director or partner.

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

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

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

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

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

who has investment management authority or renders investment advice

with respect to any assets of such person.

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

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

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

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

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

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

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

delivery commitment; and

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

applicable to sales are met.

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

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

agreed future settlement date. The term includes both mandatory

contracts (which contemplate obligatory delivery and acceptance of the

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

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

of certificates from, the other party).

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

defined in 29 CFR 2550.408c-2.

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

following criteria:

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

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

obligations;

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

to act referred to in (1);

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

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

set forth in the pooling and servicing agreement; and

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

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

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

equipment note:

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

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

under the equipment lease; and

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

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

be the case if the equipment note were secured only by the equipment

and not the lease.

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

vehicle where:

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

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

vehicle; and

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

least as protective of the trust's rights as would be the case if the

trust consisted of motor vehicle installment loan contracts.

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

[[Page 35941]]

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

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

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

indenture entered into by the trustee of the trust issuing such

certificates and the indenture trustee.

For a more complete statement of the facts and representations

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

the notice of proposed exemption published on May 22, 1995 at 60 FR

27132.

The Department notes that this exemption is included within the

meaning of the term ``Underwriter Exemption'' as it is defined in

section V(h) of the grant of the Class Exemption for Certain

Transactions Involving Insurance Company General Accounts, for which

the notice of proposed exemption was published on August 22, 1994 at 59

FR 43134.

FOR FURTHER INFORMATION CONTACT: Gary Lefkowitz of the Department,

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

General Information

The attention of interested persons is directed to the following:

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

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

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

person from certain other provisions to which the exemptions does not

apply and the general fiduciary responsibility provisions of section

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

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

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

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

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

for the exclusive benefit of the employees of the employer maintaining

the plan and their beneficiaries;

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

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

administrative exemptions and transactional rules. Furthermore, the

fact that a transaction is subject to an administrative or statutory

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

prohibited transaction; and

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

condition that the material facts and representations contained in each

application 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, D.C., this 7th day of July, 1995.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 95-17075 Filed 7-11-95; 8:45 am]

BILLING CODE 4510-29-P