Proposed Exemptions; NCNB Real Estate Fund, et al.

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-09358, et al.]

Proposed Exemptions; NCNB Real Estate Fund, et al.

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

All interested persons are invited to submit written comments or

request for a hearing on the pending exemptions, unless otherwise

stated in the Notice of Proposed Exemption, 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, N.W., Washington, D.C.

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 [[Page 14781]] Administration, U.S.

Department of Labor, Room N-5507, 200 Constitution Avenue, N.W.,

Washington, D.C. 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.

NCNB Real Estate Fund (the Fund), NationsBank Pension Plan, NationsBank

Retirement Savings Plan

Located in Charlotte, North Carolina

[Exemption App. Nos. D-09358, D-09359 and D-09360, respectively]

Proposed Exemption

Based on the facts and representations set forth in the

application, the Department and the Service are considering granting

the following requested exemptions 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, August 10, 1990) and Revenue Procedure 75-26, 1975-1 C.B. 722.

Section I: Covered Transactions

1. If the exemption is granted, 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 proposed

sale (the Sale) of units in the Fund (Units) by plans participating in

the Fund (the Plans) pursuant to an Option election made available by

NationsBank of North Carolina, N.A. (the Bank), to a standby trust (the

Standby Trust) established and maintained by NationsBank, Corporation

(the Holding Company), a party in interest with respect to the Plans.

This proposed exemption is subject to the conditions set forth in

Section II.

2. If the exemption is granted, 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 any

decision by the Bank to sell a property held by the Fund to a third

party, and jointly owned by the Plans and the Holding Company, provided

that: each Plan receives no less than fair market value for its

interest in the property; and the Independent Fiduciary approves the

reasonableness and propriety of the sale of the property.

Section II: Conditions

(a) The properties held by the Fund (the Properties) shall be

appraised by an independent and qualified appraiser within twelve

months and updated within fifteen days before the Settlement Valuation

Date.

(b) The Plans selling Units pursuant to the Options will receive a

price equal to the value of each Unit sold based on the value of the

Fund as of the Settlement Valuation Date (the Unit Purchase Price) plus

the Interest Amount which will be calculated by the Bank and reviewed

and approved by the Independent Fiduciary who has been retained to

represent the interests of the Plans with respect to the Sale and the

subsequent activities of the Fund related to the Fund's liquidation.

(c) Plans selling Units pursuant to Options 1 or 2 will receive the

Unit Purchase Price plus the Interest Amount for each Unit sold on the

settlement date (Settlement Date) which will be no more than 120 days

after the Settlement Valuation Date.

(d) If Options 2 or 4 are elected, the Plans involved will receive

the final payment, if any, within sixty days after, the two year

anniversary of the Settlement Valuation date for Option 2, or the date

of complete liquidation of the Fund for Option 4.

(e) Prior to the Settlement Valuation Date, the Bank will provide

each Plan with written information regarding the terms of the Sale.

Such information includes, but is not limited to:

(i) notice that each Plan will be entitled to elect one or more

Options which will permit the Plan to sell all or part of its Units to

the Stand-by Trust, or to continue to hold all or part of its Units in

the Fund until the Fund's liquidation is complete, provided that if

multiple Options are elected they must be uniform with respect to the

grant, or failure to grant, a Release to the Bank,

(ii) a description of each Option,

(iii) the date by which a Plan must elect an Option (Option

Election Date), and

(iv) forms for electing the Options.

(f) Except for Plans with respect to which the Bank or any of its

Affiliates is an employer, the decision whether to authorize the

Independent Fiduciary to make an Option election on behalf of the Plan

will be made by a fiduciary independent of the Bank and its Affiliates

and the Independent Fiduciary.

(g) The Bank and any Affiliate which is an employer with respect to

a Plan will authorize the Independent Fiduciary to choose among all of

the Options.

(h) A Plan's Option election will be made by a Plan fiduciary who

is independent of the Bank and its Affiliates or by the Independent

Fiduciary.

(i) The Independent Fiduciary's duties and responsibilities

include, but are not limited to:

(1) Reviewing and determining whether to approve the appraisals of

the Properties;

(2) Ordering a new appraisal in cases in which it has determined

not to approve an existing appraisal;

(3) Reviewing and approving all of the disclosures, written

explanations, and forms furnished to the Plans by the Bank;

(4) Furnishing information to an independent Plan fiduciary, in

advance of any date by which the independent Plan fiduciary is required

to respond in order to authorize the Independent Fiduciary to make a

decision on behalf of the Plan. Such information includes, but is not

limited to:

(i) the Unit Purchase Price;

(ii) a description and explanation of the Options;

(iii) dates by which the Plans must act in order to make Option

elections and authorize the Independent Fiduciary to make Option

elections on behalf of the Plan;

(iv) information summarizing: the effect of failing to authorize

the Independent Fiduciary to make Option elections on behalf of the

Plan, the effect [[Page 14782]] of failing to make an Option election

after informing the Independent Fiduciary that the independent Plan

fiduciary would make the decision to select an Option election, and the

availability and effect of the different Option election authorizations

which the Plan may provide to the Independent Fiduciary, in language

calculated to be reasonably understood by the average independent Plan

fiduciary responsible for making decisions on behalf of a Plan with

regard to Units of the Fund held by the Plan;

(4) making Option elections on behalf of any Plan if: (a) The Bank

or any of its Affiliates is an employer with respect to the Plan; (b)

the independent Plan fiduciary authorizes the Independent Fiduciary to

make an Option elections on behalf of that Plan; or (c) the independent

Plan fiduciary does not reserve the right to make an Option election

and fails to make an Option election prior to the Option Election Date;

(5) providing guidance regarding the four Options, to those

independent Plan fiduciaries who wish to make their own Option

elections;

(6) reviewing and determining whether to approve the Unit Purchase

Price as of the Settlement Valuation Date, and the value of a Unit in

the Fund as of two years from the Sale of the Units by the Plans to the

Standby Trust (for purposes of determining the amount which is due to

those Plans electing Option 2);

(7) reviewing and determining whether to approve the Interest

Amount payable to any Plan which elected either Option 1 or 2;

(8) exercising its veto authority with regard to the proposed Unit

Purchase Price, Interest Amount, or value of Fund Units pursuant to

Option 2, which it has determined not to approve;

(9) monitoring the Bank's efforts to dispose of the Properties

during the liquidation of the Fund;

(10) approving the reasonableness and propriety of sales of the

Properties during the period in which the Standby Trust owns units in

the Fund.

(j) The Independent Fiduciary may be removed by a majority vote of

the Plans ``for cause.''

(i) The term ``for cause'' shall mean that there must be sufficient

and reasonable grounds for removal and the grounds must be related to

the ability and fitness of the Independent Fiduciary to perform his

required duties.

(ii) Each Plan's vote for or against removal will be proportionate

to it's ownership interest in the Fund exclusive of Units owned by the

Standby Trust.

(k) The Bank and the Holding Company will be bound by the decisions

and determinations made by the Independent Fiduciary.

(l) The Bank will continue its efforts, with due diligence to

liquidate the Fund.

(m) Any distributions made by the Fund will be made pro rata, in

cash.

(n) Any payment made pursuant to any of the Options will be made in

cash.

(o) The Independent Fiduciary is responsible for monitoring

compliance with the terms and conditions of the exemption at all times.

Section II. Definitions

For purposes of this exemption:

(a) Affiliate of the Bank includes:

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

intermediaries controlling, controlled by, or under common control with

the Bank;

(2) Any officer, director or employee of the Bank, or of a person

described in paragraph (a)(1) of Section II; and

(3) Any partnership in which the Bank is a partner;

(b) Control means the power to exercise a controlling influence

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

(c) Affiliate of the Independent Fiduciary includes:

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

intermediaries controlling, controlled by, or under common control with

the Independent Fiduciary;

(2) Any officer or director of the Independent Fiduciary;

(3) Any partner in the Independent Fiduciary, or any other related

individual, with the authority to make, or who actually makes,

fiduciary decisions which are within the scope of the Independent

Fiduciary's duties and responsibilities under this exemption, or who

holds a five percent (5%) or greater interest in the Independent

Fiduciary;

(d) Independent Fiduciary means a person who:

(1) Is not an Affiliate of the Bank as defined in section II(a);

(2) does not have an ownership interest in the Bank or its

Affiliates;

(3) is not a corporation or partnership in which the Bank or any of

its Affiliates has an ownership interest;

(4) is not a fiduciary with respect to any of the Plans other than

in connection with the transactions described in this exemption;

(5) has acknowledged in writing acceptance of fiduciary

responsibility;

(6) is either:

(i) A business organization which has at least (5) years of

experience with respect to commercial real estate investments or other

relevant experience;

(ii) a committee comprised of three to five individuals who each

have at least five (5) years of experience with respect to commercial

real estate investments or other relevant experience; or

(iii) a committee comprised both of a business organization or

organizations and individuals having the qualifications described in

paragraphs (d)(1) through (6)(ii) above.

(7) An individual acting in a fiduciary capacity with respect to

the Fund on behalf of, and at the direction of, an Independent

Fiduciary meeting the conditions of paragraphs (d)(1) through (6)(iii)

above shall be considered an Independent Fiduciary.

For purposes of this definition, no organization or individual may

serve as an Independent Fiduciary for the Fund for any fiscal year, if

the gross income received by such organization or individual (or by any

partnership or corporation of which such organization or individual is

an officer, director, or ten percent (10%) or more partner or

shareholder) from the Bank, or any Affiliate, for that fiscal year

exceeds five percent (5%) of its or his annual gross income from all

sources for the prior fiscal year. If such organization or individual

has no income for the prior fiscal year, the 5% limitation shall be

applied with reference to the fiscal year in which such organization or

individual serves as an independent fiduciary. The income limitation

will include income received for services rendered to the Plans and the

Fund as Independent Fiduciary, as described in this exemption.

In addition, no organization or individual who is an Independent

Fiduciary or an Affiliate of such Independent Fiduciary, and no

partnership or corporation of which such Independent Fiduciary is an

officer, director, or ten percent (10%) or more partner or shareholder

with the authority to cause such corporation or partnership to engage

in the following transactions, or who exercises such authority in

conjunction with others, may:

(1) Acquire any property from, sell any property to, or borrow any

funds from, the Bank, its Affiliates, or any collective investment

vehicle or separate trust maintained or advised by the Bank or its

Affiliates, during the period that such organization or individual

serves as an Independent fiduciary and continuing for a period of six

(6) months after such organization or [[Page 14783]] individual ceases

to be an Independent Fiduciary; or

(2) Negotiate any such transaction, described above in paragraph

(1) above during the period that such organization or individual serves

as Independent Fiduciary.

No Plan fiduciary or sponsor of a Plan or a designee of such Plan

fiduciary, sponsor or Plan may serve as the Independent Fiduciary with

respect to the Fund.

(e) Option(s) means the following:

Option 1: A Plan will accelerate the liquidation of its investment

in the Fund by selling each of its Units subject to this Option to the

Standby Trust for an amount equal to the Unit Purchase Price plus the

Interest Amount. A Plan electing this Option will reserve all rights it

may have with respect to the Fund, the Bank and other appropriate

persons. However, with respect to a participant directed account Plan,

the Plan sponsor and an authorized independent Plan fiduciary will

provide a Release to the Fund, the Bank and other appropriate persons

without any affect on the rights of the participants or beneficiaries

regarding the matters covered by the Release.

Option 2: A Plan will accelerate the liquidation of its investment

in the Fund by selling each of its Units subject to this Option to the

Standby Trust for an amount equal to the Unit Purchase Price plus the

Interest Amount. In addition, the Bank will pay promptly following the

second anniversary of the Settlement Valuation Date, an amount equal to

the excess, if any, of (A) the sum of (1) the value that the Unit would

have had at the Valuation Date two years after the Settlement Valuation

Date if such Unit had not been sold, plus (2) the amount of any

distributions made with respect to such Unit during such two year

period, over (B) the Unit Purchase Price plus the Interest Amount. The

Bank will pay Litigation Expenses to the Plan, if any. Under this

Option, a Plan will release the Fund, the Bank and other appropriate

persons with respect to all matters relating to the investment in the

Fund occurring prior to the Sale.

Option 3: A Plan will continue its investment in the Fund through

the end of the liquidation process. Under this Option, a Plan reserves

all rights with respect to the Fund, the Bank and all other appropriate

persons. However, with respect to a participant directed account Plan,

the Plan sponsor and an authorized independent Plan fiduciary will

provide a Release to the Fund, the Bank and other appropriate persons

without any affect on the rights of the participants or beneficiaries

regarding the matters covered by the Release.

Option 4: A Plan will continue its investment in the Fund through

the end of the liquidation process. For a Plan electing this Option,

the Bank will agree to pay promptly following the completion of the

liquidation of the Fund, with respect to each Unit subject to this

Option, an amount equal to the excess, if any, of the (i) the value of

a Unit on September 28, 1990 over (ii) the value of all distributions

made to the Plan with respect to such Unit since September 29, 1990 and

during the liquidation of the Fund. The Bank will also pay Litigation

Expenses to the Plan, if any. Plans electing this Option will release

the Fund, the Bank and other appropriate persons with respect to all

matters related to the investment in the Fund occurring prior to the

Sale.

(f) Unit Purchase Price means the amount which is calculated by

dividing the value of all of the assets of the Fund, as reviewed and

approved by the Independent Fiduciary, by the total number of units in

the Fund.

(g) Interest Amount means the amount approved by the Independent

Fiduciary, equal to the net income earned on a Fund unit during the

period commencing on the Settlement Valuation Date and ending on the

day immediately preceding the Settlement Date, exclusive of realized or

unrealized appreciation or depreciation.

(h) Settlement Valuation Date means the date on which the value of

the Fund will be determined by the Bank in order to establish the Unit

Purchase Price in connection with the Sale. The Settlement Valuation

Date will be the last business day of the calendar month following the

calendar month in which final prospective approval will be granted by

the Office of the Comptroller of the Currency subsequent to a final

grant of this proposed exemption and approval of the transaction which

is the subject of this proposed exemption by the Federal Reserve Board.

(i) Litigation Expenses means the out-of-pocket expenses of

litigation instituted before November 24, 1992 by or on behalf of a

Plan against the Bank or the Fund with respect to the Plan's investment

in the Fund exclusive of any expense of litigation with respect to a

case which has proceeded to trial, or with respect to which there is a

judgment against the Bank or the Fund, prior to the Option Election

Date, plus interest. The total amount of Litigation Expenses, the rate

of interest and the period for which interest is paid must be agreed to

in writing between the Bank and the Plan prior to the Plan's election

of Options 2 or 4. However, in the event there has never been a written

settlement agreement specifying the amount of Litigation Expenses,

prior to the date on which the Plan elects Option 2 or 4, Litigation

Expenses will be the amounts requested by the Plan, unless such

expenses are unreasonable.

(j) Option Election Date means the date as communicated to the

Plans, at least Ninety (90) days subsequent to the Settlement Valuation

Date and at least sixty (60) days subsequent to the completion of the

mailing of the general post Settlement Valuation Date disclosure to all

of the Plans by the Independent Fiduciary, on or prior to which a Plan

must submit its Option election forms to the Bank.

(k) Settlement Date means the date, no more than 120 days after the

Settlement Valuation Date, on which the transfer of the Units to the

Standby Trust and delivery of Releases to the Bank will be effected

pursuant to the Options.

(l) Release means a release covering activities and transactions in

connection with the Fund prior to, and during, the Fund's liquidation,

but in no case shall be effective on or after the Settlement Date. In

this regard, the Release does not cover activities and transactions

necessary to comply with the exemption, the conditions of the

exemption, and the material representations made in connection

therewith, which form the basis for the Department's decision to

propose an exemption for the Sale and subsequent dispositions of

properties owned by the Fund.

Summary of Facts and Representatives

1. The applicants are the Bank and The Holding Company. The Holding

Company is a North Carolina corporation registered under the Bank

Holding Company Act of 1956, as amended. The Holding Company maintains

its principal office in Charlotte, North Carolina. The Holding Company

represents that it is the largest banking company in the south and

southwest and the fourth largest in the United States with banking

subsidiaries providing full-service banking centers in nine states:

Florida, Georgia, Kentucky, Maryland, North Carolina, South Carolina,

Tennessee, Texas, Virginia and the District of Columbia. As of December

31, 1992, total assets of the Holding Company and its subsidiaries were

approximately $118 billion.

2. The Bank is a wholly-owned subsidiary of the Holding Company

with its principal offices in Charlotte, North Carolina. As of

September 30, 1993 the Bank had total assets of approximately $20

billion. On February 28, 1974, the Bank established the Fund

[[Page 14784]] as a common trust fund exempt from federal income

taxation under section 584 of the Internal Revenue Code, and serves as

trustee of the Fund. The Fund is a vehicle for the collective

investment of tax-qualified retirement plans with respect to which the

Bank or its affiliates are trustees. The Fund is divided into units of

equal value (Units). The proportionate interest of each Plan is

represented by the number of Units owned by that Plan.

3. As of March 1992, approximately 589 defined benefit plans and

defined contribution plans held Units in the Fund. Some of these Plans

include participant directed accounts and may elect to meet the

requirements of section 404(c) of the Act (Section 404(c) Plans). In

relevant part, section 404(c) of the Act and the regulations

promulgated thereunder at 57 FR 46906 (October 13, 1992) provide that

where a participant or beneficiary of a Section 404(c) Plan in fact

exercises control over the assets in his or her account, then (1) the

participant or beneficiary shall not be deemed to be a fiduciary by

reason of his or her exercise of control; and (2) no person who is

otherwise a fiduciary shall be liable under the fiduciary

responsibility provisions of the Act for any loss, or by reason of any

breach which results from such participant's or beneficiary's exercise

of control.

Because section 404(c) of the Act applies only to the provisions of

Part 4 of Title I, there is no provision in the Code corresponding to

section 404(c). Thus, there is no statutory exemption from the excise

taxes imposed under section 4975 of the Code with respect to prohibited

transactions involving a Section 404(c) Plan. In this regard, the

Department notes that the authority to grant administrative exemptions

for section 404(c) transactions remains with the Treasury Department

pursuant to Reorganization Plan No. 4 of 1978 (43 FR 47713, October 17,

1978). Accordingly, the Department has no authority to provide

exemptive relief with respect to a transaction that results from a

participant's or beneficiary's exercise of control within the meaning

of section 404(c) and applicable regulations. In this regard, the

Department has solicited the views of the Service with respect to the

transactions described herein as they relate to Section 404(c) Plans.

The Service has reviewed this notice of proposed exemption and concurs

with the exemptive relief provided. Accordingly, the Service has

determined that it will join the Department in publishing this pendency

notice in the Federal Register.1

\1\Neither the Department nor the Service is expressing an

opinion as to whether the investment decision made by a participant

of a Plan which holds an interest in the Fund would be subject to

relief provided by section 404(c) of the Act or applicable

regulations.

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4. The assets of the Fund have been primarily invested in real

estate and real estate related securities. According to the Bank, the

Fund experienced excellent returns through the second quarter of 1990.

However, due to market conditions and investor uncertainty, the Fund

experienced increased withdrawal requests and decreased new investment

commitments during the third quarter of 1990. As a result, the Bank

suspended admissions to and withdrawals from the Fund, and no Unit

transactions have been effected since June 30, 1990.

After considering several alternative courses of action, the Bank

determined in July of 1991 that it was in the best interests of the

Plans to terminate the Fund. Accordingly, the Fund is in the process of

liquidating pursuant to a Plan of liquidation which provides for the

orderly disposition of the assets of the Fund and periodic partial

liquidating distributions to Plans on a pro rata basis until the Fund

has been completely liquidated. As of December 31, 1993, the value of

the Fund was $172,907,000. As part of its plan of liquidation, during

the year ending on December 31, 1992, the Fund distributed assets worth

$222,000,000. The Bank anticipates that the liquidation will take

several more years.

6. Due to the inability to liquidate their investments in the Fund,

many Plans have experienced administrative difficulties. Certain Plans

have made claims and filed lawsuits against the Bank alleging breach of

fiduciary duty by the Bank in its management of the Fund.2

Consequently, some Plans have expressed a desire to accelerate the

liquidation of their investment in the Fund by selling all or part of

their Units for cash equal to the current value of the Plan's Units,

and in lieu of receiving proceeds during the liquidation process.

\2\On December 14, 1992, the Bank entered into an agreement

settling claims relating to the Fund with Teamsters Joint Council

No. 83 of Virginia Pension Fund. In addition, NationsBank of

Florida, N.A., an affiliate of the Bank and wholly owned subsidiary

of the Holding Company, entered into a settlement agreement with

Kenny Nachwalter Seymour & Crichlow, P.A. Employees' Trust and its

trustees. The terms of the settlement agreements contain the same

terms and conditions provided in this notice of proposed exemption,

and are contingent upon the granting of the exemption.

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7. In order to accommodate the Plans and to respond to those claims

against the Bank and the Holding Company, the Bank proposes the Sale

whereby the Holding Company would establish the Stand-by Trust and

contribute funds in a sufficient amount to enable the Stand-by Trust to

acquire the Units held by the Plans desiring to accelerate liquidation

of their Fund investment.3 The trustee of the Stand-by Trust will

be NationsBank of Tennessee, N.A., a national banking association

organized under the laws of the United States with its principal office

located in Nashville, Tennessee. NationsBank of Tennessee, N.A., as

trustee of the Standby Trust, is to execute Sale transactions pursuant

to the Option election forms timely filed. The Grantor of the trust is

the Holding Company which has agreed to provide assets sufficient for

the Stand-by Trust to meet its obligations.

\3\The Department notes that the exemptive relief being granted

herein extends only to those transactions described above. Also, the

Applicants represent that the Bank is a national bank which is

subject to the authority of the Office of the Comptroller of the

Currency (the OCC). The OCC has informed the Department that a

transaction that may be prohibited under the Act may also be a

violation of the National Bank Act or constitute an unsafe or

unsound banking practice. The proposed exemption does not address

the safety and soundness or the legality of the transaction under

the National Bank Act. Accordingly, the Bank should satisfy itself

that the transaction does not violate the National Bank Act or

constitute an unsafe or unsound banking practice.

In this regard, the applicants represent that they are currently

obtaining any and all regulatory approvals from applicable

governmental agencies, in order to effect the Sale, including

approval from the Office of the Comptroller of the Currency, the

Internal Revenue Service and the Federal Reserve Board.

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8. Following the establishment of the Stand-by Trust, each Plan

will be offered the opportunity to select from four Options which will

permit each Plan to elect to sell all or part of its Units in the Fund

to the Stand-by Trust, or to continue to hold all or part of its Units

in the Fund. Options 1 and 2 involve selling the Fund units to the

Standby Trust. Options 3 and 4 involve continuation of a Plan's

investment in the Fund.

Options 2 and 4 always involve the provision of a Release\4\

whereby the Plan sponsor, an authorized independent Plan fiduciary and

the [[Page 14785]] participants and beneficiaries release the Fund, the

Bank and other appropriate persons with respect to matters relating to

the Fund which occurred prior to the Settlement Date in exchange for

certain consideration provided by the Bank.\5\

\4\The Bank represents that there are only four litigants which

potentially will be eligible to receive Litigation Expenses. In this

regard, only four lawsuits were filed (on a consolidated basis)

before November 24, 1992. Three of the four lawsuits have been

settled conditioned on the opportunity to sell units to the Standby

Trust. Each settlement agreement provides that payment of Litigation

Expenses will be made with respect to the election of Option 2 or

Option 4 by, or on behalf of, the Plan within ten days after the

Bank and the Independent Fiduciary determine that all payments under

the relevant Option have been paid. In this regard, the Department

expects that a settlement of the fourth law suit would provide terms

at least as favorable to the Plan as the arrangement described in

this proposed exemption.

\5\The Department notes that the selection of the Options made

by the independent Plan fiduciaries or the Independent Fiduciary is

governed by the fiduciary responsibility provisions of Part 4,

Subtitle B, Title I of the Act. Section 404 of the Act requires, in

part, that a fiduciary of a plan act prudently, solely in the

interest of and for the exclusive purpose of providing benefits to

participants and beneficiaries. In this regard, the Department notes

that in order to act prudently, a fiduciary must consider, among

other factors, the risk and potential return of the alternative

Options for its Plan.

Further, the Department is expressing no opinion, herein, on the

decision by a fiduciary in electing an Option involving the Release.

In this regard, the Department notes that the election by a plan

fiduciary of an Option involving the Release does not preclude the

Department from taking any action with respect to past transactions

involving the Fund.

Finally, the Department notes that a determination by a Plan

fiduciary to settle litigation and enter into an agreement which

provides for the release of the Bank and the Fund is subject to the

fiduciary responsiblity requirements of section 404 of the Act.

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No release is involved in Options 1 or 3 except with respect to

participant directed account Plans. In this regard, in connection with

Options 1 and 3, the Plan sponsor and an authorized independent Plan

fiduciary will provide a Release to the Fund, the Bank and other

appropriate persons, without any affect on the rights of participants

or beneficiaries with respect to the matters covered by the Release.

A Plan may elect one Option with respect to its entire investment

in the Fund. Alternatively, a Plan may elect one Option with respect to

a portion of that Plan's investment in the Fund and another Option with

respect to the remainder. However, if a Plan elects multiple Options,

it must be a combination of either Options 1 and 3 or Options 2 and 4.

The Independent Fiduciary will provide each Plan with the

information necessary to evaluate the four Options. Plans which desire

to liquidate all or part of their investment in the Fund by selling

their Units to the Stand-by Trust may elect a combination of the four

Options by submitting an Option election form prior to the Option

Election Date. For those Plan sponsors of participant directed Plans

who wish to allow the participants and beneficiaries of their Plans to

make their own Option elections, the Plan sponsor will establish four

sub trusts each of which will accommodate the participants' and

beneficiaries' election of the different Options.\6\ Each participant's

election of an Option will then be represented by an interest in the

sub trust designated for that Option. If a Plan sponsor does not elect

to have participants and beneficiaries make Option elections, then the

Plan will be treated as any other Plan, and Option elections will be

made by the independent Plan fiduciary or the Independent Fiduciary.

\6\The Department expects that each participant or beneficiary

of a participant directed account Plan will be treated similarly

with respect to the availability of the opportunity to elect

Options, and those participants and beneficiaries who are

responsible for making Option elections will receive information

that is adequate to make an informed decision with regard to the

Options.

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The Bank will be directed with respect to each Plan's election of

one or more Options by an independent Plan fiduciary or by the

Independent Fiduciary who will represent the Plans interest for

purposes of the Sale.

9. In order to determine the value of the Units which will be sold

pursuant to the Option elections, the Unit Purchase Price, the assets

of the Fund will be appraised by independent and qualified appraisers

selected by the Bank. Such appraisals will be completed within twelve

months of and updated within fifteen days of the Sale. The Independent

Fiduciary will review and approve the professional qualifications of

the appraisers and their technical analyses and methodologies employed.

As part of this approval process, the Independent Fiduciary will

determine whether such appraisals are reasonable and adequate to

establish the fair market value of the Properties. Additionally, the

Independent Fiduciary will review and consider any capital improvement

programs, environmental issues, preemptive liens, debt obligations and

accrued expenses which may impact the value of the Properties. In the

event that the Independent Fiduciary finds that any appraisal is

deficient or unsuitable, the Independent Fiduciary has the authority to

request the revision of such appraisal or the commission of a new

appraisal. These appraisals will then be used by the Bank to calculate

the overall value of the Fund.

The Bank will calculate the Unit Purchase Price based on the value

of the Fund on the Settlement Valuation Date. The Unit Purchase Price

will be approved by the Independent Fiduciary. Such approval will be

accomplished by reviewing the appraisals of the assets of the Fund and

the procedures and methodologies to be employed by the Bank in

determining the Unit Purchase Price. Further, if the Independent

Fiduciary believes that the Unit Purchase Price proposed by the Bank is

not accurate, the Independent Fiduciary has the authority to order the

Bank to recalculate the Unit Purchase Price. In addition, the

Independent Fiduciary will review and approve the Bank's calculation of

the Interest Amount payable to those Plans which elected Options 1 or

2. The Independent Fiduciary will also participate in the quarterly

meetings held by the Bank in order to remain current on issues and

developments relating to the Fund.

10. Arthur Andersen, LLP (Arthur Andersen) has been retained to

serve as the Independent Fiduciary on behalf of the Plans with respect

to the Sale. Arthur Andersen represents that it has extensive

experience in the business of commercial real estate consulting,

appraisal and related activities. Arthur Andersen is an experienced

counselor to institutional owners of real estate and has negotiated

terms and conditions of various real estate transactions. Specifically,

Arthur Andersen has served as independent fiduciary on behalf of

numerous clients. In addition, Arthur Andersen acknowledges that in

acting as the Independent Fiduciary, it is a fiduciary within the

meaning of section 3(21) of the Act.

11. In its capacity as the Independent Fiduciary, Arthur Andersen

will review all disclosures made by the Bank to the Plans in connection

with the Sale. In addition, Arthur Andersen will distribute to all

Plans written disclosures providing general information regarding the

proposed transaction, the circumstances under which the Independent

Fiduciary will make an Option election for the Plan, and among which

Options the Independent Fiduciary may elect for the Plan under various

circumstances. Arthur Andersen will also provide general information to

all Plans regarding the various factors that each Plan may wish to

consider in deciding whether to authorize Arthur Andersen to select

from the four Options. This information will include the cost/benefit

considerations relating to pursuing an action against the Bank if the

independent Plan fiduciary does not release the Bank, and the relative

attractiveness of the additional features of Options 2 and 4. In

addition, Arthur Andersen will send a survey/profile to all Plans to

determine the type of Plan, degree of participant involvement in

investment elections, Plan liquidity needs and the preferences of the

independent Plan fiduciary. However, an independent Plan fiduciary that

decides to make its own decision and [[Page 14786]] declines to receive

the survey/profile will not receive it.

12. Arthur Andersen will make Option elections for (1) Any Plan

with respect to which the Bank or its Affiliates is an employer; (2)

Plans that have authorized Arthur Andersen to make an Option election

on their behalf; or (3) Any Plan which does not reserve the right to

make an Option election and fails to make an Option election prior to

the Option Election Date.

If the Plan reserves the right to make its own Option election and

subsequently fails to make an Option election by the Option Election

Date, the Plan will be deemed to have elected Option 3. If the Plan

does not reserve the right to make its own Option election and the Plan

fails to make: a sufficiently broad authorization; any authorization at

all; or fails to complete the profile survey, Arthur Andersen will

elect only between Options 1 and 3 for the Plan. However, Arthur

Andersen will choose among all four Options if the independent Plan

fiduciary completes and returns timely all required parts of the

profile/survey and the related authorization form expressly authorizing

Arthur Andersen to choose among all four Options. The Bank represents

that it will authorize Arthur Andersen to choose among all four Options

for Plans with respect to which the Bank or any of its Affiliates is an

employer.

Arthur Andersen will review all surveys returned by the Plans for

completeness and contact Plan fiduciaries regarding any unclear or

incomplete information. In the event that the Plan fiduciaries do not

respond to the surveys, Arthur Andersen will make the Option election

based on the information available, and will notify each Plan of the

Option election which it has selected for the Plan and the basis for

such election in writing.

With respect to those independent Plan fiduciaries who notify

Arthur Andersen that they will be making their own Option elections,

Arthur Andersen is prepared to counsel any Plan fiduciary regarding the

election process.

Finally, as the Independent Fiduciary, Arthur Andersen's duties

will also include monitoring property sales and disposition activities

during the liquidation of the Fund.

13. The Bank represents that it will provide securities disclosure

forms and option elections forms, reviewed and approved by Arthur

Andersen, to the Plan within ten days after the date on which final

approval for the Sale will be granted by the Office of the Comptroller

of the Currency which will be subsequent to a final grant of this

proposed exemption and approval of the transactions covered by this

proposed exemption by the Federal Reserve Board (the Initiation Date).

The Bank represents that the Settlement Valuation Date will be the

last business day of the calendar month following the calendar month in

which the Initiation Date occurs.

The Bank states that the Independent Fiduciary will mail a notice

of right to make election, forms, supplemental disclosures and profile/

surveys within thirty (30) days subsequent to the Settlement Valuation

Date. The Plans will have at least thirty (30) days subsequent to the

mailing of the Option Election Information to return the profile/survey

to the Independent Fiduciary. The Plans will have at least sixty (60)

days after the date on which the Option Election Information is mailed

by the Independent Fiduciary in order to make their own Option

elections.

The Bank states that the date on which the Plans will receive in

cash the Unit Purchase Price plus the Interest Amount for their units

in the Fund will be no more than 120 days after the Settlement

Valuation Date.

14. The Standby Trustee will be obligated to acquire the Units in

accordance with the Option Election Forms, and sales will be effected

only pursuant to the Option Election Forms filed with the Bank on or

prior to the Option Election Date. A Plan may rescind an Option

election at any time prior to the Option Election Date.

15. The Bank agrees to be bound by the decisions and determinations

made by Arthur Andersen, as the Independent Fiduciary. In the event

that any action or inaction by the Bank or by the Holding Company with

respect to the liquidation of the Fund or the Stand-by Trust is

determined by the Independent Fiduciary to impede or conflict with any

action or inaction required of the Independent Fiduciary in order to

carry out and comply with the terms and provisions of this proposed

transaction, the Independent Fiduciary shall so notify the Bank and

demand that the Bank cease and desist from such action or take such

action as is requested by the Independent Fiduciary.

16. In summary, it is represented that the proposed transaction

will meet the statutory criteria for an exemption under section 408(a)

of the Act and section 4975(c)(2) of the Code because: (a) The

Properties will be appraised by an independent and qualified appraiser;

(b) The Plans selling Units pursuant to the Options will receive a

price at least equal to the Unit Purchase Price plus the Interest

Amount; (c) Prior to the Sale, the Plans will receive written

information regarding the terms of the Sale; (d) An Independent

Fiduciary has been retained to represent the Plans' interests with

respect to the Sale and ongoing disposition of the Properties in the

Fund; (e) The duties of the Independent Fiduciary shall include:

reviewing and approving the appraisals of the Properties; monitoring

the sales of, and disposition activities with respect to, the

Properties during the Fund's liquidation; making Option elections on

behalf of any Plan if the Bank or its affiliates have sole investment

discretion with respect to that Plan, the independent plan Fiduciary

authorizes the Independent Fiduciary to make an Option election on

behalf of that Plan, the independent Plan fiduciary does not indicate

whether the Independent Fiduciary is authorized to make an Option

election on behalf of the Plan, or the Bank or any Affiliate is an

employer with respect to the Plan; (f) The Bank and the Holding Company

will be bound by the decisions and determinations made by the

Independent Fiduciary; and (g) The Bank will continue its efforts to

liquidate the Fund.

FURTHER INFORMATION CONTACT: Eric Berger of the Department, telephone

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

The First National Bank of Boston and Its Affiliates (Collectively, the

Bank)

Located in Boston, Massachusetts

[App. No. D-09682]

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).

Section I--Exemption for Receipt of Fees

If the exemption is granted, the restrictions of sections 406(a)

and 406(b) of the Act and the sanctions resulting from the application

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

(F) of the Code, shall not apply as of April 1, 1994 to: (1) the

receipt by the Bank of fees from the 1784 Funds (the Funds), investment

companies registered under the Investment Company Act of 1940 (the 1940

Act), for acting as an investment adviser to the Funds in connection

with the investment by plans for which the Bank serves as a fiduciary

(the Client Plans) in shares of the Funds; and (2) the receipt and

retention of fees by the [[Page 14787]] Bank from the Funds for acting

as custodian and accountant to the Funds as well as for any other

services to the Funds which are not investment advisory services (i.e.

``secondary services'' as defined in Section III(h) below) in

connection with the investment by the Client Plans in shares of the

Funds, provided that the following conditions and the General

Conditions of Section II below are met:

(a) No sales commissions are paid by the Client Plans in connection

with the purchase or sale of shares of the Funds and no redemption fees

are paid in connection with the sale of shares by the Client Plans to

the Funds.

(b) The price paid or received by a Client Plan for shares in a

Fund is the net asset value per share at the time of the transaction,

as defined in Section III(e), and is the same price which would have

been paid or received for the shares by any other investor at that

time.

(c) Neither the Bank nor an affiliate, including any officer or

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

Client Plan.

(d) Each Client Plan receives a credit, through a cash rebate, of

such Plan's proportionate share of all fees charged to the Funds by the

Bank for investment advisory services, including any investment

advisory fees paid by the Bank to third party sub-advisors, no later

than one business day after the receipt of such fees by the Bank. The

crediting of all investment advisory fees to the Client Plans by the

Bank is audited by an independent accounting firm on at least an annual

basis to verify the proper crediting of the fees to each Client Plan.

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

provision of services to a Client Plan, and in connection with the

provision of services to the Funds in which the Client Plan may invest,

are not in excess of ``reasonable compensation'' within the meaning of

section 408(b)(2) of the Act.7

7In addition, the Department notes that Section 404(a) of the

Act requires, among other things, that a fiduciary of a plan act

prudently, solely in the interest of the plan's participants and

beneficiaries, and for the exclusive purpose of providing benefits

to participants and beneficiaries when making investment decisions

on behalf of a plan. Thus, the Department believes that the Bank

should ensure, prior to any investments made by a Client Plan for

which it acts as a trustee or investment manager, that all fees paid

by the Funds, including fees paid to parties unrelated to the Bank

and its affiliates, are reasonable. In this regard, the Department

is providing no opinion as to whether the total fees to be paid by a

Client Plan to the Bank, its affiliates, and third parties under the

arrangements described herein would be either reasonable or in the

best interests of the participants and beneficiaries of the Client

Plans.

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(f) The Bank does not receive any fees payable pursuant to Rule

12b-1 under the 1940 Act in connection with the transactions.

(g) The Client Plans are not employee benefit plans sponsored or

maintained by the Bank.

(h) A second fiduciary acting for the Client Plan which is

independent of and unrelated to the Bank (the Second Fiduciary)

receives, in advance of any investment by the Client Plan in a Fund,

full and detailed written disclosure of information concerning the

Funds, including but not limited to:

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

considering investing;

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

similar services, any secondary services as defined in Section III(h),

and all other fees to be charged to or paid by the Client Plan and by

the Funds, including the nature and extent of any differential between

the rates of such fees;

(3) The reasons why the Bank may consider such investment to be

appropriate for the Client Plan;

(4) A statement describing whether there are any limitations

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

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

limitations; and

(5) Upon request of the Second Fiduciary, a copy of the proposed

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

documents are published in the Federal Register.

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

(h) of Section I, the Second Fiduciary authorizes in writing the

investment of assets of the Client Plan in each particular Fund, the

fees to be paid by such Fund to the Bank, and the cash rebate to the

Client Plan of fees received by the Bank from the Funds for investment

advisory services.

(j) All authorizations made by a Second Fiduciary regarding

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

annual reauthorization wherein any such prior authorization referred to

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

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

written notice of termination. A form expressly providing an election

to terminate the authorization described in paragraph (i) above (the

Termination Form) with instructions on the use of the form must be

supplied to the Second Fiduciary no less than annually. The

instructions for the Termination Form must include the following

information:

(1) The authorization is terminable at will by the Client Plan,

without penalty to the Client Plan, upon receipt by the Bank of written

notice from the Second Fiduciary; and

(2) Failure to return the Termination Form will result in continued

authorization of the Bank to engage in the transactions described in

paragraph (i) of Section I on behalf of the Client Plan.

(k) The Second Fiduciary of each Client Plan invested in a

particular Fund receives full written disclosure, in a statement

separate from the Fund prospectus, of any proposed increases in the

rates of fees charged by the Bank to the Funds for secondary services

at least 30 days prior to the effective date of such increase,

accompanied by a copy of the Termination Form, and receives full

written disclosure in a Fund prospectus or otherwise of any increases

in the rates of fees charged by the Bank to the Funds for investment

advisory services even though such fees will be rebated as required by

paragraph (d) of Section I above.

(l) In the event that the Bank provides an additional secondary

service to a Fund for which a fee is charged or there is an increase in

the amount of fees paid by the Funds to the Bank for any secondary

services resulting from a decrease in the number or kind of services

performed by the Bank for such fees in connection with a previously

authorized secondary service, the Bank will, at least thirty days in

advance of the implementation of such additional service or fee

increase, provide written notice to the Second Fiduciary explaining the

nature and the amount of the additional service for which a fee will be

charged or the nature and amount of the increase in fees of the

affected Fund. Such notice shall be accompanied by the Termination

Form, as defined in Section III(i) below. However, if the Termination

Form has been provided to the Second Fiduciary pursuant to this

paragraph or paragraph (k) above, then the Termination Form need not be

provided again for an annual reauthorization pursuant to paragraph (j)

above unless at least six months has elapsed since the form was

provided in connection with the fee increase.

(m) On an annual basis, the Bank provides the Second Fiduciary of a

Client Plan investing in the Funds with:

(1) A copy of the current prospectus for the Funds and, upon such

fiduciary's request, a copy of the Statement of Additional Information

for such Funds which contains a description of all fees paid by the

Funds to the Bank; [[Page 14788]]

(2) A copy of the annual financial disclosure report prepared by

the Bank which includes information about the Fund portfolios as well

as audit findings of an independent auditor within 60 days of the

preparation of the report; and

(3) Oral or written responses to inquiries of the Second Fiduciary

as they arise.

(n) All dealings between the Client Plans and the Funds are on a

basis no less favorable to the Client Plans than dealings with other

shareholders of the Funds.

Section II--General Conditions

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

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

Section II to determine whether the conditions of this exemption have

been met, except that (1) a prohibited transaction will not be

considered to have occurred if, due to circumstances beyond the control

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

six-year period, and (2) no party in interest other than the Bank shall

be subject to the civil penalty that may be assessed under section

502(i) of the Act or to the taxes imposed by section 4975(a) and (b) of

the Code if the records are not maintained or are not available for

examination as required by paragraph (b) below.

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

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

referred to in paragraph (a) of Section II are unconditionally

available at their customary location for examination during normal

business hours by--

(i) Any duly authorized employee or representative of the

Department or the Internal Revenue Service,

(ii) Any fiduciary of the Client Plans who has authority to acquire

or dispose of shares of the Funds owned by the Client Plans, or any

duly authorized employee or representative of such fiduciary, and

(iii) Any participant or beneficiary of the Client Plans or duly

authorized employee or representative of such participant or

beneficiary;

(2) None of the persons described in paragraph (b)(1) (ii) and

(iii) shall be authorized to examine trade secrets of the Bank, or

commercial or financial information which is privileged or

confidential.

Section III--Definitions

For purposes of this proposed exemption:

(a) The term ``Bank'' means the First National Bank of Boston and

any affiliate thereof as defined below in paragraph (b) of Section III.

(b) An ``affiliate'' of a person includes:

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

intermediaries, controlling, controlled by, or under common control

with the person;

(2) Any officer, director, employee, relative, or partner in any

such person; and

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

officer, director, partner, or employee.

(c) The term ``control'' means the power to exercise a controlling

influence over the management or policies of a person other than an

individual.

(d) The term ``Fund'' or ``Funds'' shall include the 1784 Funds,

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

under the 1940 Act for which the Bank serves as an investment adviser

and may also serve as a custodian, Fund accountant, transfer agent or

provide some other ``secondary service'' (as defined below in paragraph

(h) of this Section) which has been approved by such Funds.

(e) The term ``net asset value'' means the amount for purposes of

pricing all purchases and sales calculated by dividing the value of all

securities, determined by a method as set forth in the Fund's

prospectus and statement of additional information, and other assets

belonging to the Fund or portfolio of the Fund, less the liabilities

charged to each such portfolio or Fund, by the number of outstanding

shares.

(f) The term ``relative'' means a ``relative'' as that term is

defined in section 3(15) of the Act (or a ``member of the family'' as

that term is defined in section 4975(e)(6) of the Code), or a brother,

a sister, or a spouse of a brother or a sister.

(g) The term ``Second Fiduciary'' means a fiduciary of a Client

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

this exemption, the Second Fiduciary will not be deemed to be

independent of and unrelated to the Bank if:

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

by, or is under common control with the Bank;

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

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

affiliate of the Bank (or is a relative of such persons);

(3) Such fiduciary directly or indirectly receives any compensation

or other consideration for his or her own personal account in

connection with any transaction described in this exemption.

If an officer, director, partner, affiliate or employee of the Bank

(or relative of such persons), is a director of such Second Fiduciary,

and if he or she abstains from participation in (i) the choice of the

Client Plan's investment adviser, (ii) the approval of any such

purchase or sale between the Client Plan and the Funds, and (iii) the

approval of any change in fees charged to or paid by the Client Plan in

connection with any of the transactions described in Sections I and II

above, then paragraph (g)(2) of Section III shall not apply.

(h) The term ``secondary service'' means a service other than an

investment management, investment advisory, or similar service, which

is provided by the Bank to the Funds. However, for purposes of this

exemption, the term ``secondary service'' will not include any

brokerage services provided to the Funds by the Bank for the execution

of securities transactions engaged in by the Funds.

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

Second Fiduciary which expressly provides an election to the Second

Fiduciary to terminate on behalf of a Client Plan the authorization

described in paragraph (j) of Section II. The Termination Form shall be

used at will by the Second Fiduciary to terminate an authorization

without penalty to the Client Plan and to notify the Bank in writing to

effect a termination by selling the shares of the Funds held by the

Client Plan requesting such termination within one business day

following receipt by the Bank of the form; provided that if, due to

circumstances beyond the control of the Bank, the sale cannot be

executed within one business day, the Bank shall have one additional

business day to complete such sale.

EFFECTIVE DATE: If the proposed exemption is granted, the exemption

will be effective April 1, 1994.

Summary of Facts and Representations

1. The Bank is a national banking association with its principal

offices located at 100 Federal Street, Boston, Massachusetts, and is a

subsidiary of Bank of Boston Corporation, a registered bank holding

company. The Bank and various affiliates (referred to herein as ``the

Bank''),8 serve as trustee, directed trustee, investment manager,

or custodian for approximately 800 [[Page 14789]] employee benefit

plans. As of April 1, 1994, the Bank had total assets under management

of approximately $1.3 billion.

\8\The Bank's current affiliates include: Rhode Island Hospital

Trust National Bank; Bank of Boston, Connecticut; Casco Northern

Bank, N.A.; Bank of Boston, Florida, N.A.; South Shore Bank;

Multibank West; and Mechanics Bank.

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The Bank represents that its status as a fiduciary with investment

discretion for a Client Plan arises out of its relationship as a

trustee or investment manager for such Plan, but does not result from

the rendering of any investment advice to a Plan fiduciary that has

investment discretion for the Client Plan. As a custodian or directed

trustee of a Client Plan, the Bank has custody of Plan assets, collects

all income, performs bookkeeping and accounting services, generates

periodic statements of account activity and other reports, and makes

payments or distributions from the account as directed. However, the

Bank has no duty as custodian or directed trustee to review investments

or make recommendations, acting only as directed by an authorized

Second Fiduciary.

The Client Plans include various pension, profit sharing, and stock

bonus plans as well as retirement plans for self-employed individuals

(i.e., Keogh plans), and individual retirement accounts (IRAs). The

Bank, in its capacity as a fiduciary of the Client Plans, may exercise

investment discretion for all or a portion of the assets of such Client

Plans.

2. The Bank invests assets of Client Plans for which it acts as a

fiduciary in shares of the Funds in instances where the Bank provides

investment advisory and other services to the Funds. The Client Plans'

pro rata share of fees paid by the Funds to the Bank for investment

advisory services are rebated to all Client Plans, subject to the

conditions of the proposed exemption, with respect to the assets of the

Client Plans involved in such Fund investments. All investments in the

Funds on behalf of the Client Plans are made by the Bank pursuant to an

initial written authorization, and an annual reauthorization (as

discussed below), of the investment by an independent Plan fiduciary

(i.e., the Second Fiduciary). The Bank invests assets of a Client Plan

in any of the Funds for which it has received prior written

authorization for such investment from the Second Fiduciary during the

period that such authorization is effective.

3. The Funds are a Massachusetts business trust organized on

February 5, 1993, as an open-end, diversified management investment

company registered under the 1940 Act. The Funds consist of twelve

separate series of funds or investment portfolios with combined assets

of approximately $897 million. Each share of each Fund represents an

undivided, proportionate interest in the assets of that Fund. The

current Funds are: (i) The 1784 Growth and Income Fund; (ii) The 1784

Asset Allocation Fund; (iii) The 1784 U.S. Government Medium-Term

Income Fund; (iv) The 1784 Tax-Exempt Medium-Term Income Fund; (v) The

1784 Massachusetts Tax-Exempt Income Fund; (vi) The 1784 U.S. Treasury

Money Market Fund; (vii) The 1784 Institutional U.S. Treasury Money

Market Fund; (viii) The 1784 Tax-Free Money Market Fund; (ix) The 1784

Short-Term Income Fund; (x) The 1784 Income Fund; (xi) The Connecticut

Tax-Exempt Income Fund; and (xii) The 1784 Rhode Island Tax-Exempt

Income Fund.9 The Bank states that shares of the Funds are offered

to the Bank's trust customers, including the Client Plans, under terms

and conditions which are at least as favorable to such customers as the

terms and conditions offered to other customers of the Bank.

9Since the Client Plans generally are not subject to

federal or state income taxes and do not need to seek tax-free

income, the Bank does not anticipate that the Client Plans will

invest in The 1784 Tax-Exempt Medium-Term Income Fund, The 1784

Massachusetts Tax-Exempt Income Fund, The 1784 Tax-Free Money Market

Fund, The Connecticut Tax-Exempt Income Fund, The 1784 Rhode Island

Tax- Exempt Income Fund or any other tax-exempt Fund.

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Additional Funds are in the process of registration and other

series of Funds may be established in the future. The Bank intends to

offer such Funds to the Client Plans, if deemed appropriate by the

Second Fiduciary, as a means of obtaining an interest in a diversified

portfolio of debt or equity investments consistent with the investment

policies and objectives of the Client Plans.

The Bank believes that there are material advantages to the Client

Plans from the use of the Funds. The Funds are valued on a daily basis,

in contrast to certain collective investment funds maintained by the

Bank which are valued monthly. The daily valuation permits (i)

immediate investment of Client Plan contributions in various types of

investments; (ii) greater flexibility in transferring assets from one

type of investment to another; and (iii) daily redemption of

investments for purposes of making distributions under the Client Plan.

In addition, information concerning the investment performance of the

Funds is available in newspapers of general circulation which allows

Client Plan fiduciaries to monitor the investment performance of such

assets on a daily basis rather than monthly.

All investments of Client Plan assets in the Funds will occur

either through the direct purchase of shares of the Funds for a Client

Plan by the Bank, the transfer by the Bank of Client Plan assets from

one Fund to another Fund, or a daily automated sweep of uninvested cash

of a Client Plan by the Bank into one or more Funds previously

designated by the Client Plan for sweeping such cash. Any such

investments for the Client Plans will be made pursuant to the Second

Fiduciary's prior written authorization and annual reauthorization to

the Bank.

4. No sales commissions or redemption fees are charged in

connection with the purchase or sale of shares of the Funds. However,

the Bank states that the Funds may pay a distribution fee to the Funds'

distributor, provided that such distributor is unrelated to the Bank

and the Client Plans. Thus, the Bank does not and will not receive fees

payable pursuant to Rule 12b-1 in connection with transactions

involving any shares of the Funds. The current distributor for the

Funds is SEI Financial Services Company (the Distributor), a wholly-

owned subsidiary of SEI Corporation (SEI). According to the

distribution plan adopted by the Funds pursuant to Rule 12b-1 under the

1940 Act, the Distributor receives a distribution fee equal to an

annual rate of 0.25% of each of the Funds' average daily net assets.

The distribution fee is calculated daily and paid monthly. For all of

the current Funds, the distribution fees have been waived by the

Distributor since the formation of the Funds.

SEI Financial Management Corporation, a wholly-owned subsidiary of

SEI, also serves as the administrator, dividend disbursing agent,

shareholder servicing agent, and transfer agent for the current Funds.

The Bank states that SEI and its subsidiaries are unrelated to the Bank

and its affiliates.10

\10\With respect to any fees paid by the Funds to parties

unrelated to the Bank and its affiliates, the Department notes that

the Bank, as a trustee or investment manager for a Client Plan's

assets that are invested in the Funds, has a fiduciary duty to

ensure that the fees indirectly paid by a plan to third parties are

reasonable. The Department notes further that the Bank should ensure

that services performed by the Bank or an affiliate for a Fund are

not duplicative of any similar services performed by third parties.

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5. The Bank serves as the investment advisor for the Funds and

charges the Funds for this service in accordance with investment

advisory agreements (the Agreements) between the Bank and each Fund.

The Bank is currently the sole investment adviser to the Funds'

existing portfolios and presently contemplates no change for such

portfolios. However, the Bank states that it may utilize third party

sub-advisers in the future to enhance the investment

[[Page 14790]] alternatives and the investment advisory services

available to the Funds for certain new portfolios. The Agreements allow

the Bank to receive monthly investment advisory fees based on a

percentage of the average daily net assets of each of the Funds. The

Agreements and the fees received by the Bank are approved by the Board

of Directors of the Funds (the Funds' Directors), in accordance with

the applicable provisions of the 1940 Act. The Bank also serves as the

custodian and accountant for the Funds for which it is entitled to

receive additional fees. Any changes in the fees received by the Bank

from the Funds are approved by the Funds' Directors. All of the Funds'

Directors are independent of the Bank.

The Bank states that while it may be engaged by the Funds in the

future to perform additional secondary services, it will not provide

brokerage services to the Funds. Therefore, all securities transactions

for a Fund's portfolio will be executed by broker-dealers unrelated to

the Bank and will not generate commissions or other fees to the Bank.

6. The Bank represents that it has designed a fee structure (the

Fee Structure) which is at least as advantageous to the Client Plans as

an offset or credit arrangement, similar to that described in

Prohibited Transaction Exemption 77-4 (PTE 77-4, 42 FR 18732, April 8,

1977), whereby investment advisory fees paid by the Funds to the Bank

would be offset against fees paid directly to the Bank by the Client

Plans.11

\11\PTE 77-4, in pertinent part, permits the purchase and sale

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

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

the investment adviser for the investment company, provided that,

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

investment advisory or similar fee with respect to the plan assets

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

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

preclude the payment of investment advisory fees by the investment

company under the terms of an investment advisory agreement adopted

in accordance with section 15 of the 1940 Act. Section II(c) states

further that this condition does not preclude payment of an

investment advisory fee by the plan based on total plan assets from

which a credit has been subtracted representing the plan's pro rata

share of investment advisory fees paid by the investment company.

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Under the Fee Structure, the Bank charges its standard fees to the

Client Plans for serving as either a trustee, directed trustee,

investment manager, or custodian.12 All fees are billed on a

quarterly basis. The annual charges for a Client Plan account are

individually negotiated with the Bank based on the Bank's standard fee

schedules. The Bank provides services to the Client Plans for which it

acts as a trustee with investment discretion, including sweep services

for uninvested cash balances in such Plans, under a bundled or single

fee arrangement which is calculated as a percentage of the market value

of the Plan assets under management. Thus, in such instances, there are

no separate charges for the provision of particular services to the

Client Plans. However, for Client Plans where investment decisions are

directed by a Second Fiduciary, a separate charge is assessed for

particular services where the Second Fiduciary specifically agrees to

have the Bank provide such services to the Client Plan. With respect to

sweep services, the Bank represents that such services are generally

provided at no additional charge and, in any event, are provided only

if approved by a Second Fiduciary for the Client Plan after disclosure

of the services to be provided.13 The Bank states that in some

cases fees charged by the Bank to a Client Plan are paid by the Client

Plan sponsor rather than by the Client Plan.

\12\The applicant represents that all fees paid by Client Plans

directly to the Bank for services performed by the Bank are exempt

from the prohibited transaction provisions of the Act by reason of

section 408(b)(2) of the Act and the regulations thereunder (see 29

CFR 2550.408b-2). The Department notes that to the extent there are

prohibited transactions under the Act as a result of services

provided by the Bank directly to the Client Plans which are not

covered by section 408(b)(2), no relief is being proposed herein for

such transactions.

\13\See DOL Letter dated August 1, 1986 to Robert S. Plotkin,

Assistant Director, Division of Banking Supervision and Regulation,

Board of Governors of the Federal Reserve System, stating the

Department's views regarding the application of the prohibited

transaction provisions of the Act to sweep services provided to

plans by fiduciary banks and the potential applicability of certain

statutory exemptions as described therein.

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The Bank charges the Funds for its services to the Funds as

investment adviser, in accordance with the Agreements between the Bank

and the Funds. Under the Agreements, the Bank charges fees at a

different rate for each Fund, computed based on the average daily net

assets for the respective Fund. The fee differentials among the Funds

result from the particular level of services rendered by the Bank to

the Funds.

The investment advisory and other fees paid by each of the existing

Funds are accrued on a daily basis and billed by the Bank to the Funds

at the beginning of the month following the month in which the fees

accrued. The applicant states that any additional Funds will follow the

same monthly billing arrangement.

At the beginning of each month (pursuant to the terms of the

applicable Agreements) and in no event more than one business day

following the receipt of such fees by the Bank, the Bank rebates to

each Client Plan directly with cash such Plan's pro rata share of all

investment advisory fees charged by the Bank to the Funds (the Rebate

Program). The Bank represents that each Client Plan's rebate of such

investment advisory fees will include any investment advisory fees paid

by the Bank to third party sub-advisers.

The Bank retains fees received from the Funds for custody and

shareholder services and will retain additional fees received in the

future for other secondary services. The Bank states that such

secondary services are distinct from the services provided by the Bank

as trustee to a Client Plan. Trustee services rendered at the Plan-

level include maintaining custody of the assets of the Client Plan

(including the Fund shares, but not the assets underlying the Fund

shares), processing benefit payments, maintaining participant accounts,

valuing plan assets, conducting non-discrimination testing, preparing

Forms 5500 and other required filings, and producing statements and

reports regarding overall plan and individual participant holdings.

These trustee services are necessary regardless of whether the Client

Plan's assets are invested in the Funds. Thus, the Bank represents that

its proposed receipt of fees for both secondary services at the Fund-

level and trustee services at the Plan-level would not involve the

receipt of ``double fees'' for duplicative services to the Client Plans

because a Fund is charged for custody and other services relative to

the individual securities owned by the Fund, while a Client Plan is

charged for the maintenance of Plan accounts reflecting ownership of

the Fund shares and other assets.14

\14\In this regard, the Department notes that the combined total

of all fees received by the Bank directly and indirectly from the

Client Plans for the provision of services to the Plans and/or to

the Funds should not be in excess of ``reasonable compensation''

within the meaning of section 408(b)(2) of the Act.

In addition, the fact that certain transactions and fee

arrangements are the subject of an administrative exemption does not

relieve a Client Plan fiduciary from the general fiduciary

responsibility provisions of section 404 of the Act. Thus, the

Department cautions the fiduciaries of the Client Plans investing in

the Funds that they have an ongoing duty under section 404 of the

Act to monitor the services provided to the Client Plans to assure

that the fees paid by the Client Plans for such services are

reasonable in relation to the value of the services provided. Such

responsibilities would include determinations that the services

provided are not duplicative and that the fees are reasonable in

light of the level of services provided.

Finally, the Department notes that the Bank, as a trustee and

investment manager for a Client Plan in connection with the decision

to invest Client Plan assets in the Funds, has a fiduciary duty to

monitor all fees paid by a Fund to the Bank, its affiliates, and

third parties for services provided to the Fund to ensure that the

totality of such fees is reasonable and would not involve the

payment of any ``double'' fees for duplicative services to the Fund

by such parties.

[[Page 14791]]

The Bank states that the Rebate Program ensures that the Bank does

not receive any investment advisory fees from the Funds as a result of

the investment in the Funds by the Client Plans. Thus, the Fee

Structure with the Rebate Program essentially has the same effect in

offsetting the Bank's investment advisory fees received from the Funds

as an arrangement allowing for a credit of such fees against investment

management fees charged directly to the Client Plans. The Bank prefers

the Fee Structure with the Rebate Program because it allows fees for

fiduciary services charged at the Plan-level to remain fixed without

any adjustments to such fees based on the investment advisory fees paid

by the Funds to the Bank. The Bank notes that the Fee Structure also

allows a Client Plan sponsor to pay the Client Plan's fees to the Bank

for fiduciary services and still allows the Client Plan to receive a

rebate of such Plan's pro rata share of the investment advisory fees

paid by the Funds to the Bank.15

\15\To the extent that the Department of the Treasury determines

that this arrangement should be deemed a contribution by an employer

to a Client Plan of the rebated fees, the transaction must be

examined under the applicable provisions of the Internal Revenue

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

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7. The Bank has established a system of internal accounting

controls for the Rebate Program. In addition, the Bank has retained the

services of Coopers & Lybrand of Boston, Massachusetts (the Auditor),

an independent accounting firm, to audit annually the rebating of fees

to the Client Plans under the Rebate Program. The Bank states that such

audits provide independent verification of the proper rebating to the

Client Plans of the investment advisory fees charged by the Bank to the

Funds. The Bank states further that information obtained from the

audits is used in the preparation of required financial disclosure

reports to the Client Plans' fiduciaries.

By letter dated March 29, 1994, the Auditor describes the

procedures that will be used in any annual audit of the Rebate Program.

The Auditor obtains: (i) A calculation of the daily actual balances for

all the Funds and for the total Client Plan shareholders of such Funds;

(ii) a detailed list of the expenses charged to the Funds' shareholders

by type of expense; and (iii) calculations of the total expenses

charged by the Bank to each Fund which are reimbursable to the Client

Plans. The Auditor states that every audit will include, but not

necessarily be limited to, an examination of: (i) The daily rebate

factors; (ii) the proper identification of Client Plan customers; (iii)

the calculation of the ratio used to determine the amount of expenses

to be rebated to each Client Plan; (iv) the total rebates paid and a

comparison of this amount to the sum of all rebates paid to each Client

Plan;16 and (v) the amount of rebated fees determined for selected

Client Plan customers of the Funds to ensure that the rebated amounts

were made to the proper Client Plan account.

\16\In this regard, the Auditor recomputes cash received in

connection with the rebate of each Client Plan's fees to ensure the

proper amount of cash was issued to the Client Plan under the Rebate

Program.

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In the event either the internal audit by the Bank or the

independent audit by the Auditor identifies that an error has been made

in the rebating of fees to the Client Plans, the Bank will correct the

error. With respect to any shortfall in rebated fees to a Client Plan,

the Bank will make a cash payment to the Plan equal to the amount of

the error with interest computed on the same yield as that paid by The

1784 Institutional U.S. Treasury Money Market Fund for the period

involved. Any excess rebates made to a Client Plan will be corrected,

to the extent possible, by an appropriate reduction of cash to the

Client Plan during the next payment period to accurately reflect the

proper amount of total rebates due to the Client Plan for the period

involved.

8. With respect to the receipt of fees by the Bank from a Fund in

connection with any Client Plan's investment in the Fund, the Bank

states that a Second Fiduciary receives full and detailed written

disclosure of information concerning the Fund in advance of any

investment by the Client Plan in the Fund. On the basis of such

information, the Second Fiduciary authorizes in writing the investment

of assets of the Client Plan in the Fund and the fees to be paid by the

Fund to the Bank. In addition, the Bank represents that the Second

Fiduciary of each Client Plan invested in a particular Fund will

receive full written disclosure, in a statement separate from the Fund

prospectus, of any proposed increases in the rates of fees charged by

the Bank to the Funds for secondary services, which are above the rate

reflected in the prospectus for the Fund, at least 30 days prior to the

effective date of such increase. In the event that the Bank provides an

additional secondary service to a Fund for which a fee is charged or

there is an increase in the amount of fees paid by the Funds to the

Bank for any secondary services, resulting from a decrease in the

number or kind of services performed by the Bank for such fees in

connection with a previously authorized secondary service, the Bank

will, at least thirty days in advance of the implementation of such

additional service or fee increase, provide written notice to the

Second Fiduciary explaining the nature and the amount of the additional

service for which a fee will be charged or the nature and amount of the

increase in fees of the affected Fund.17 Such notice will be made

separate from the Fund prospectus and will be accompanied by a

Termination Form. The Second Fiduciary will also receive full written

disclosure in a Fund prospectus or otherwise of any increases in the

rate of fees charged by the Bank to the Funds for investment advisory

services even though such fees will be credited, as required by Section

I(d) above.

\17\With respect to increases in fees, the Department notes that

an increase in the amount of a fee for an existing secondary service

(other than through an increase in the value of the underlying

assets in the Funds) or the imposition of a fee for a newly-

established secondary service shall be considered an increase in the

rate of such fees. However, in the event a secondary service fee has

already been described in writing to the Second Fiduciary and the

Second Fiduciary has provided authorization for the fee, and such

fee was temporarily waived, no further action by the Bank would be

required in order for the Bank to receive such fee at a later time.

Thus, for example, no further disclosure would be necessary if the

Bank had received authorization for a fee for custodial services

from Plan investors and subsequently determined to waive the fee for

a period of time in order to attract new investors but later charged

the fee.

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Any authorizations by a Second Fiduciary regarding the investment

of a Client Plan's assets in a Fund and the fees to be paid to the

Bank, including any future increases in rates of fees for secondary

services, are or will be terminable at will by the Second Fiduciary,

without penalty to the Client Plan, upon receipt by the Bank of written

notice of termination. The Bank states that a Termination Form

expressly providing an election to terminate the authorization with

instructions on the use of the form is supplied to the Second Fiduciary

no less than annually. The instructions for the Termination Form

include the following information:

(a) The authorization is terminable at will by the Client Plan,

without penalty to the Client Plan, upon receipt by the Bank of written

notice from the Second Fiduciary; and

(b) Failure to return the form will result in continued

authorization of the [[Page 14792]] Bank to engage in the subject

transactions on behalf of the Client Plan.

The Termination Form may be used to notify the Bank in writing to

effect a termination by selling the shares of the Funds held by the

Client Plan requesting such termination within one business day

following receipt by the Bank of the form. The Bank states that if, due

to circumstances beyond the control of the Bank, the sale cannot be

executed within one business day, the Bank will complete the sale

within the next business day.

Any disclosure of information regarding a proposed increase in the

rate of any fees for secondary services will be accompanied by an

additional Termination Form with instructions on the use of the form as

described above. Therefore, the Second Fiduciary will have prior notice

of the proposed increase and an opportunity to withdraw from the Funds

in advance of the date the increase becomes effective. Although the

Second Fiduciary will also have notice of any increase in the rates of

fees charged by the Bank to the Funds for investment advisory services,

through an updated prospectus or otherwise, such notice will not be

accompanied by a Termination Form since all increases in investment

advisory fees will be rebated by the Bank to the Client Plans and will

be subject to an annual reauthorization as described above. However, if

the Termination Form has been provided to the Second Fiduciary for the

authorization of a fee increase, then a Termination Form for an annual

reauthorization will not be provided by the Bank for that year unless

at least six months has elapsed since the Termination Form was provided

for the fee increase.

The Bank states that the Second Fiduciary always receives a current

prospectus for each Fund and a written statement giving full disclosure

of the Fee Structure prior to any investment in the Funds. The

disclosure statement explains why the Bank believes that the investment

of assets of the Client Plan in the Funds is appropriate. The

disclosure statement also describes whether there are any limitations

on the Bank with respect to which Client Plan assets may be invested in

shares of the Funds and, if so, the nature of such limitations.18

18See section II(d) of PTE 77-4 which requires, in pertinent

part, that an independent plan fiduciary receive a current

prospectus issued by the investment company and a full and detailed

written disclosure of the investment advisory and other fees charged

to or paid by the plan and the investment company, including a

discussion of whether there are any limitations on the fiduciary/

investment adviser with respect to which plan assets may be invested

in shares of the investment company and, if so, the nature of such

limitations.

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The Bank states further that the Second Fiduciary receives an

updated prospectus for each Fund at least annually and either annual or

semi-annual financial reports for each Fund, which include information

on the Auditor's findings as to the proper rebating of the investment

advisory fees by the Bank to the Client Plan. The Bank also provides

monthly reports to the Second Fiduciary of all transactions engaged in

by the Client Plan, including purchases and sales of Fund shares.

9. No sales commissions are paid by the Client Plans in connection

with the purchase or sale of shares of the Funds. In addition, no

redemption fees are paid in connection with the sale of shares by the

Client Plans to the Funds. As noted above in Paragraph 4, the Bank does

not receive any fees payable pursuant to Rule 12b-1 under the 1940 Act

in connection with the transactions. The applicant states further that

all other dealings between the Client Plans and the Funds, the Bank or

any affiliate, are on a basis no less favorable to the Client Plans

than such dealings are with the other shareholders of the Funds.

10. In summary, the applicant represents that the transactions

described herein satisfy the statutory criteria of section 408(a) of

the Act and section 4975(c)(2) of the Code because: (a) The Funds

provide the Client Plans with a more effective investment vehicle than

collective investment funds maintained by the Bank without any increase

in investment management, advisory or similar fees paid to the Bank;

(b) the Bank requires annual audits by an independent accounting firm

to verify the proper rebating to the Client Plans of investment

advisory fees charged by the Bank to the Funds; (c) with respect to any

investments in a Fund by the Client Plans and the payment of any fees

by the Fund to the Bank, a Second Fiduciary receives full written

disclosure of information concerning the Fund, including a current

prospectus and a statement describing the Fee Structure, and authorizes

in writing the investment of the Client Plan's assets in the Fund and

the fees paid by the Fund to the Bank; (d) any authorizations made by a

Client Plan regarding investments in a Fund and fees paid to the Bank,

or any increases in the rates of fees for secondary services which are

retained by the Bank, are or will be terminable at will by the Client

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

written notice of termination from the Second Fiduciary; (e) no

commissions or redemption fees are paid by the Client Plan in

connection with either the acquisition of Fund shares or the sale of

Fund shares; (f) the Bank does not receive any fees payable pursuant to

Rule 12b-1 under the 1940 Act in connection with the transactions; and

(g) all dealings between the Client Plans, the Funds and the Bank, are

on a basis which is at least as favorable to the Client Plans as such

dealings are with other shareholders of the Funds.

Notice to Interested Persons

Notice of the proposed exemption shall be given to all Second

Fiduciaries of Client Plans that are currently invested in the Funds,

as of the date the notice of the proposed exemption is published in the

Federal Register, where the Bank provides services to the Funds and

receives fees which would be covered by the exemption, if granted.

Notice to interested persons shall be provided by first class mail

within fifteen (15) days following the publication of the proposed

exemption in the Federal Register. Such notice shall include a copy of

the notice of proposed exemption as published in the Federal Register

and a supplemental statement (see 29 CFR 2570.43(b)(2)) which informs

all interested persons of their right to comment on and/or request a

hearing with respect to the proposed exemption. Comments and requests

for a public hearing are due within forty-five (45) days following the

publication of the proposed exemption in the Federal Register.

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

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

Amended Profit Sharing Plan and Trust of Walker Products Co., Inc. (the

P/S Plan)

Located in Lincoln, Kansas

[App. No. D-09798]

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 C.F.R. Part

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

is granted, 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 proposed sale of certain farm land (the

Land) by the [[Page 14793]]

P/S Plan to Mr. Lloyd Walker, a 33\1/3\% shareholder of the P/S Plan

sponsor and a party in interest with respect to the P/S Plan, provided

that the following conditions are satisfied:

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

(2) The P/S Plan will receive the fair market value of the Land as

determined at the time of the sale by an independent, qualified

appraiser; and

(3) The P/S Plan will pay no expenses associated with the sale.

Summary of Facts and Representations

1. The Plan, established in May, 1974, is a profit sharing plan,

which currently has two participants. As of September 1, 1994, the P/S

Plan had $101,468 in total assets. The P/S Plan's trustees are Albert

Walker, Craig Walker and Joyce Walker (the P/S Plan Trustees). Craig

Walker is the president of Walker Products Company Inc. (the Employer).

Lloyd Walker is a 33\1/3\% shareholder of the Employer. However, Lloyd

Walker has retired from the Employer on December 31, 1982, and received

distributions from the P/S Plan on February 28, 1983. The Employer is a

Subchapter ``C'' Kansas corporation which is in the farming business.

The applicant represents that until approximately August, 1985, the

Employer maintained two plans (collectively; the Plans), the P/S Plan

and the Money Purchase Plan (M/P Plan). The M/P Plan was terminated in

August, 1985, and its assets were rolled over into the P/S Plan

approximately May, 1986.

2. On May 5, 1975, the M/P Plan purchased the 79.6 acre tract of

Land for $57,000 in cash from Edward Hamilton, the executor of the

Estate of Marie Jensen, neither of which had any relationship to the

Plans, Lloyd Walker, or the Employer. At the time that the Land was

purchased it represented 78.95% of the M/P Plan's assets. It is

represented that the original decision to purchase the Land was made by

the

M/P Plan Trustees who deemed it a safe investment which could produce

income from farming operations and a reasonable rate of return. The

Land was held by the M/P Plan from the date of original acquisition

until approximately May, 1986, when the M/P Plan's assets, including

the Land, were transferred into the P/S Plan.

3. The Land is currently encumbered with a first mortgage which was

entered into on August 31, 1994, in the principal amount of $30,000.

The applicant represents that the P/S Plan Trustees borrowed the money

(the Loan) in order to pay out distributions. The Loan was made by

Farmers National Bank, which is unrelated to the P/S Plan and the

Employer. The P/S Plan Trustees intend to pay off the Loan with the

proceeds from the proposed sale.

4. It is represented that since its original acquisition, the Land

has been rented or operated.19 Since April, 1985 and currently,

the Land has been rented on a crop share basis to Lowell Vonada (Mr.

Vonada), an unrelated third party. Under this arrangement, Mr. Vonada

as the tenant receives 60% of the crops and the P/S Plan receives 40%

of the crops. It is also represented that currently there are no crops

growing on the Land.

\19\With regard to the Land being operated, the applicant

represents that for a short period of time the employees of the

Employer (the Employees) were paid to provide farming services.

However, the applicant represents that the Employees were not

compensated for these farming services by either of the Plans. It is

further represented that no renter, at any time, has been a party in

interest with respect to the Plans.

5. Lloyd Walker now desires to purchase the Land from the P/S Plan

in a one-time cash purchase. The Land was appraised (the Appraisal) on

October 18, 1994, by Frank L. Princ (Mr. Princ), an independent Kansas

State Certified General R.E. appraiser. Mr. Princ stated that the

purpose of the Appraisal is to estimate the market value of the Land on

an ``as is'' basis. The Land, located in Lincoln County, Kansas,

contains approximately 82 acres,20 of which 76.2 acres are in

cultivation, and the remaining acres are primarily woodland and waste.

In determining the fair market value of the Land, Mr. Princ utilized

the sales comparison approach and the income approach, but relied

mainly on the sales approach as the primary basis for the value

estimate of the Land. Accordingly, as of October 18, 1994, Mr. Princ

determined the fair market value of the Land to be $64,000.

\20\The applicant represents that 82 acres shown by Mr. Princ

probably come from the Lincoln County Appraiser's office. The

applicant also maintains that their reference to the Land as

containing 79.6 acres is based on the number of tillable acres on

the Land.

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6. The applicant maintains that the Land has yielded revenue for

the Plans. The applicant submitted a ``return on investment'' analysis

(the Analysis) on the Land, covering the period 1976 through 1994.

Return on investment value ratios were derived by the applicant by

dividing the estimated net income by the original acquisition price of

the Land for each year of ownership.21 An average of the ``return

on investment'' figures was determined to be 6.98%. Therefore,

according to the Analysis, the Plans received an average yield of 6.98%

for their investment in the Land.

\21\With respect to the Analysis, the applicant represents that

with respect to the period 1986 through 1994, the data was estimated

to reflect pro rata income and expenses for the Land, excluding any

unrealized gain due to the change in fair market value of the Land.

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7. The applicant represents that the transaction is

administratively feasible, in the interest and protective of the

P/S Plan. Lloyd Walker will purchase the Land at its fair market value

in a one-time cash transaction. The transaction is protective and in

the best interest of the P/S Plan because as a result of this

transaction the P/S Plan will receive the fair market value of the Land

as determined at the time of the sale by an independent, qualified

appraiser. The transaction would also be in the interest of the P/S

Plan because it will enable the P/S Plan to sell an illiquid asset

which currently represents in excess of 50% of the P/S Plan's total

assets and which had little appreciation in value over time.22 The

sale will enable the P/S Plan Trustees to pay off the Loan and to

acquire investments with a higher yield. The applicant also represents

that the P/S Plan will incur no expenses as a result of the transaction

described herein.

22The Department expresses no opinion as to whether the

Plan's acquisition and holding of the Land, as well as the operation

of the Land by the Employees, violated any provision of part 4 of

Title I of the Act, and no relief is provided herein.

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8. In summary, the applicant represents that the transaction

satisfies the statutory criteria of section 408(a) of the Act and

section 4975(c)(2) of the Code because:

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

(2) The P/S Plan will receive the fair market value of the Land as

determined at the time of the sale by an independent, qualified

appraiser; and

(3) The P/S Plan will pay no expenses associated with the sale.

FOR FURTHER INFORMATION CONTACT: Ekaterina A. Uzlyan of the Department,

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

Delaware Trust Capital Management, Inc. (DTCM)

Located in Wilmington, Delaware

[App. No. D-09853]

Proposed Exemption

The Department is considering granting an exemption under the

authority of 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 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 by certain rollover individual retirement accounts

(the [[Page 14794]] IRAs) of their interests in certain securities (the

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

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

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

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

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

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

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

determined by a qualified, independent expert.23

23Pursuant to 29 CFR 2510.3-2(d), the IRAs are not within the

jurisdiction of Title I of the Act. However, there is jurisdiction

under Title II of the Act pursuant to section 4975 of the Code.

Summary of Facts and Representations

1. DTCM is a Delaware corporation which is engaged in the business

of providing trust and other fiduciary services to individuals,

businesses and non-profit entities, including employee pension plans

and individual retirement accounts.

2. DTCM was the trustee of the USA Training Academy, Inc. Profit

Sharing Plan (the Plan), and is the trustee of the IRAs, which are

rollover individual retirement accounts for five former participants

(the Affected Participants) in the Plan. DTCM (and its parent company,

Delaware Trust Company) have served as trustee of the Plan and the IRAs

from November 1, 1984 until the present. The applicant is a wholly

owned subsidiary of Delaware Trust Company, which in turn is a wholly

owned subsidiary of Meridian Bancorp, Inc.

3. In 1994, the Plan's Administrator advised the applicant, DTCM,

that the Plan's sponsor intended to terminate the Plan and, in that

connection, would be instructing DTCM to liquidate the Plan assets and

make distributions to the remaining Plan participants. In response,

DTCM informed the Plan Administrator that there was no readily

discernible market for the Securities. The Securities included the

following two obligations:

(a) SEARS ROEBUCK & CO MTG SEC PAR CTF (the Sears Securities),

which are mortgage-backed obligations issued by the Sears Mortgage

Securities Corp. These Securities pay 10.36% in interest and mature

July 25, 2018. The Plan acquired a participating certificate for

198,992 units of these obligations in July, 1988 for $196,200 (unit

cost=$0.99). The Plan has received all scheduled payments of principal

and interest.

(b) AMERICAN SVNGS & LOAN ASSN BRAZOR CNTY PART CTF (the American

Securities), which are mortgage-backed obligations issued by American

Savings and Loan Association of Brazoria County, Texas. Each loan is a

guaranteed FHA Title I loan. These Securities pay 9.5% in interest and

mature January 9, 2002. The Plan acquired 198,161.88 units in April,

1987 at a unit cost of $1 per unit. The Plan has received all scheduled

payments of principal and interest.

4. DTCM determined that as of June 30, 1994, the Sears Securities

had a fair market value of $24,163.78. This fair market value was

established by Sears' mortgage subsidiary, a brokerage house providing

master servicing for Sears' mortgage pass-through certificates which is

a sister subsidiary to Sears Mortgage Securities Corp., the issuer of

the Sears Securities. DTCM also determined that as of June 30, 1994,

the American Securities had a fair market value of $49,416.80. The

applicant represents that this fair market value was established by

A.W. Dougherty, an unrelated brokerage house specializing in fixed-

income securities.

5. DTCM, the Plan sponsor, the Plan and the Affected Participants

entered into an agreement (the Agreement) in 1994 that provided for the

orderly liquidation of the Plan without the delay that would have been

caused by attempting to convert the Securities to cash. Following the

execution of the Agreement on August 30, 1994, the applicant liquidated

the Plan assets (excluding the Securities). The Plan Administrator then

determined the value of each participant's account based upon the cash

proceeds of liquidation and the fair market value of the Securities as

of June 30, 1994 (see rep. 4, above).\24\ The Affected Participants

received pro rata shares of (i) the cash proceeds of the liquidation of

the Plan's assets and (ii) the Securities. The value of each Affected

Participant's account was distributed to the IRAs, individual

retirement rollover accounts established by DTCM on behalf of the

Affected Participants and for which DTCM serves as trustee. The IRAs

currently hold a total of 14,628.32 units of the Sears Securities and

41,501.40 units of the American Securities.

\24\The applicant represents that, based on the valuation

methods described in rep. 4, the fair market value of the Securities

on June 30, 1994, was at least as great as the fair market value of

the Securities on August 31, 1994, the date liquidation of the Plan

commenced.

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6. The applicant has requested an exemption to permit DTCM to

purchase the Securities from the IRAs. DTCM will pay the greater of (i)

the fair market value as of June 30, 1994, increased by any interest

payments in arrears as of the date of purchase by the applicant, and

reduced proportionately for any principal repayments received, or (ii)

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

determined by a qualified, independent expert. The IRAs will pay no

fees, commissions or other expenses in connection with the transaction.

The applicant represents that the Securities have been determined by

Ms. Janet Milanese, Vice President of Starboard Capital Markets, Inc.,

an independent expert in Philadelphia, Pa., as having a fair market

value as of January 31, 1995 which is less per unit than the June 30,

1994 figure determined as described in rep. 4, above. Accordingly, DTCM

proposes to pay to the IRAs the June 30, 1994 fair market value of the

Securities, plus any interest payments in arrears as of the date of the

transaction, less any principal repayments received.

7. The applicant represents that the Plan entered into the

Agreement because it allowed for the orderly liquidation of its assets

and distribution of benefits while at the same time protecting the

Affected Participants because they would receive at least as much as

they would have if the Plan had been able to sell the Securities in an

arm's-length transaction on the date of the Plan's liquidation. The

proposed transaction also benefits the IRAs since it allows the

Securities to be converted to cash prior to maturity at a price at

least as great as could be obtained in an arm's-length transaction.

8. In summary, the applicant represents that the proposed

transaction satisfies the criteria contained in section 4975 (c)(2) of

the Code because: (a) The sale is a one-time transaction for cash; (b)

no commissions or other expenses will be paid by the IRAs in connection

with the sale; (c) the IRAs will be receiving not less than the fair

market value of the Securities as determined by a qualified,

independent expert; and (d) each of the Affected Participants is the

only participant in his/her own IRA, and each has determined that the

proposed transaction is appropriate for and in the best interest of

his/her IRA and desires that the transaction be consummated.

NOTICE TO INTERESTED PERSONS: Because each of the Affected Participants

is the only participant in his/her own IRA, it has been determined that

there is no need to distribute the notice of proposed exemption to

interested persons. Comments and requests for a hearing are due 30 days

after publication of this notice in the Ferderal Register.

[[Page 14795]] FOR FURTHER INFORMATION CONTACT: Gary H. 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 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 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 that each application

accurately describes all material terms of the transaction which is the

subject of the exemption.

Signed at Washington, DC, this 15th day of March, 1995.

Ivan Strasfeld,

Director of Exemption Determinations Pension and Welfare

BenefitsAdministration, U.S. Department of Labor.

[FR Doc. 95-6728 Filed 3-17-95; 8:45 am]

BILLING CODE 4510-29-P