Proposed Exemptions NBD Bancorp

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-09986, et al.]

Proposed Exemptions NBD Bancorp

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

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SUMMARY: This document contains notices of pendency before the

Department of Labor (the Department) of proposed exemptions from

certain of the prohibited transaction restriction of the Employee

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

Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

Unless otherwise stated in the Notice of Proposed Exemption, all

interested persons are invited to submit written comments, and with

respect to exemptions involving the fiduciary prohibitions of section

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

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

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

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

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

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

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

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

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

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

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

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

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

Department of Labor, 200 Constitution Avenue, 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 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.

NBD Bancorp; Located in Detroit, Michigan; Proposed Exemption

[Application No. D-09986]

The Department is considering granting an exemption under the

authority of section 408(a) of the Act and in accordance with the

procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836,

32847, August 10, 1990). If the exemption is granted, the restrictions

of section 406(b)(2) of the Act shall not apply to the merger of the

INB Principal Stability Fund (the PS Fund) into the NBD Stable Asset

Income Fund (the SAI Fund).\1\

\1\ For purposes of this proposed exemption, the PS Fund and the

SAI Fund described herein are collectively referred to as the Funds.

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The proposed exemption is conditioned upon satisfaction of the

following requirements:

(1) On the date the merger is executed, the assets in the PS Fund

and the assets in the SAI Fund will be valued in the same manner, under

identical guidelines, by the same individuals;

(2) Upon completion of the merger of the PS Fund into the SAI Fund,

the aggregate fair market value of the interests of the employee

benefit plans (the Plans) participating in the SAI Fund immediately

following the merger, together with any cash received in lieu of

fractional units, equals the aggregate fair market value of each

participating Plans' interest in such Funds immediately before the

merger;

(3) The assets of each of the participating Plans are invested in

the same type of investments both before and after the proposed merger;

(4) Neither NBD Bancorp nor any of its affiliates receives fees or

commissions in connection with the merger;

[[Page 8671]]

(5) The Plans will pay no sales commissions or fees, as a result of

the transaction; and

(6) A fiduciary who is acting on behalf of each affected Plan and

who is independent of and unrelated to NBD Bancorp and any of its

affiliates receives advance written notice of the merger of the PS Fund

into the SAI Fund.

Summary of Facts and Representations

1. The Plans involved in this proposed exemption are certain

pension, profit sharing, or stock bonus plans which are exempt from

Federal income taxation under section 501(a) of the Code by reason of

qualifying under section 401(a) of the Code.

2. The proposed exemption is requested on behalf of National Bank

of Detroit (herein referred to as NBD Michigan) and on behalf of NBD

Bank, N.A. (herein referred to as NBD Indiana). NBD Michigan and NBD

Indiana are national banking associations and members of an

``affiliated group,'' as defined in section 1504 of the Code. NBD

Michigan is a wholly-owned subsidiary of NBD Bancorp, a bank holding

company with principal offices in Detroit, Michigan. NBD Indiana, with

principal offices in Indianapolis, Indiana, is a wholly-owned

subsidiary of NBD Indiana, Inc., another bank holding company. It is

represented that since 1992, NBD Indiana, Inc. has also been wholly-

owned by NBD Bancorp.

3. The SAI Fund and the PS Fund are common funds maintained for the

collective investment of monies contributed thereto by the Plans. NBD

Michigan and NBD Indiana, respectively, serve as trustees for the SAI

Fund and the PS Fund. The SAI Fund is one of twenty-five (25) separate

collective investment funds under a group trust now known as the

National Bank of Detroit Investment Fund for Employee Benefit Plans

(the NBD Pooled Fund) which was established on May 12, 1960, by the

National Bank of Detroit, a predecessor of NBD Michigan, and which, as

amended, is now maintained by NBD Michigan. The PS Fund is one of the

collective investment funds under a group trust known as the INB

National Bank Group Trust for Employee Pension and Profit-Sharing

Trusts B (the INB Group Trust) which was established on July 18, 1990,

by INB National Bank, a predecessor of NBD Indiana, and which, as

amended, is now maintained by NBD Indiana.

4. Both the SAI Fund and the PS Fund have substantially identical

investment objectives, and the assets of each are invested in similar

types of guaranteed insurance contracts. As of September 26, 1994,

approximately 405 Plans participated in the SAI Fund, and 83 Plans

participated in the PS Fund. As of January 23, 1996, it is represented

that there were 44 Plans participating in the PS Fund. The aggregate

fair market value of the SAI Fund, as of September 30, 1994, was

$189,876,000. As of November 30, 1994, the aggregate fair market value

of the PS Fund was approximately $12,829,000.

5. In order to improve the administration of the SAI Fund and the

PS Fund, thereby improving service to the Plans participating in those

Funds, NBD Michigan and NBD Indiana desire to merge the SAI Fund and

the PS Fund, with the SAI Fund being the surviving fund. It is

represented that the trustees of the Plans which participate in the PS

Fund were notified of the proposed merger of the PS Fund into the SAI

Fund on or about July 1994. Such notification advised the Plans

participating in the PS Fund of the right to withdraw from such fund

and the rules and procedures applicable to such withdrawal. Plans under

the terms of the guaranteed investment contracts held by the Funds are

permitted to withdraw any or all of their investment upon twelve (12)

months prior written notice. It is represented that from the time the

notification was sent in July 1994, none of the Plans participating in

the PS Fund expressed concern regarding the merger. It is represented

that, if it had been inclined to do so, a Plan participating in the PS

Fund could have submitted its withdrawal request at the time the

notification was given in July 1994, (or even several months later),

and could already have received a distribution of its interest in the

PS Fund. In this regard, it is represented that none of the Plans

participating in the PS Fund subsequently elected to withdraw as a

result of the proposed merger.

Because NBD Michigan exercises authority and control over the

assets of the SAI Fund, it is deemed to be a fiduciary with respect to

each of the Plans participating in the SAI Fund. Similarly, because NBD

Indiana exercises authority and control over the assets of the PS Fund,

it is deemed to be a fiduciary with respect to each of the Plans

participating in the PS Fund.

6. As fiduciaries, NBD Michigan and NBD Indiana believe that

because of their affiliation in executing the merger of the PS Fund

into the SAI Fund, they each may be acting on behalf of adverse parties

to the Plans each represents; and thus, a violation of section

406(b)(2) of the Act may occur. Accordingly, NBD Michigan and NBD

Indiana have requested an administrative exemption from the

prohibitions as set forth in section 406(b)(2) of the Act for the

proposed transaction.

7. It is represented that the proposed merger is administratively

feasible in that it constitutes a single transaction, the terms of

which can be reviewed and approved in advance by the Department.

Further, NBD Michigan and NBD Indiana will bear the cost of filing the

application for exemption, the cost of notifying interested persons,

and the expenses associated with the proposed transaction.

8. NBD Michigan and NBD Indiana have determined that the merger

would be in the best interest of the Plans participating in the SAI

Fund and the PS Fund. In this regard, the merger of the PS Fund and the

SAI Fund will create a larger pool of assets which will result in

better investment diversity and will increase the bargaining power of

the SAI Fund when purchasing new contracts. It is anticipated that the

increased size of the SAI Fund will create certain administrative

efficiencies, and will serve to avoid or postpone any future fee

increases. In addition, inasmuch as the SAI Fund has substantially

greater liquidity than the PS Fund, Plans wishing to withdraw from the

SAI Fund after the merger may be able to do so in as little as ninety

(90) days), rather than twelve (12) months.

9. NBD Michigan and NBD Indiana have determined that the rights of

the Plans participating in the Funds are protected in that the fair

market value of the investment of each of the Plans in the Funds

involved in the proposed transaction will not be changed as a result of

the merger. In this regard, it is represented that the valuation

methodology followed by both the PS Fund and the SAI Fund is identical,

in that both of the Funds are valued daily and processed under the same

guidelines by precisely the same individuals.

More specifically, it is represented that there are only two

classes of assets in each of the Funds. The first class consists of

cash held by each of the Funds in short-term money market funds. In

this regard, the applicants maintain that although the interest rate

earned in these money market fund varies, such money market funds are

valued as cash. The second class of assets consists of various fixed

rate and variable rate guaranteed investment contracts purchased by the

Funds from highly rated insurance companies and held to term. It is

represented that both the Funds hold fixed rate guaranteed investment

contracts, and that only the SAI Fund holds variable rate guaranteed

investment contracts. It is represented

[[Page 8672]]

that no default presently exists, nor has there previously been any

default, under any guaranteed investment contract held by the Funds.

It is represented that these guaranteed investment contracts held

by the Funds have been and will continue to be valued on the basis of

the principal value plus accrued interest to the date of valuation

calculated at the rate applicable to each contract through the date of

valuation. In this regard, with respect to the four (4) variable rate

guaranteed investment contracts held by the SAI Fund, it is represented

that the rate of interest applicable to such contracts is determined

and announced by the issuing insurance company on a monthly basis, and

that the rate so determined is fixed for the following thirty (30) day

period. For example, if the merger date were specified to be December

31, 1996, the applicable rate under each of these four (4) contracts as

of that date would be fixed and certain, such that the contracts could

be valued to that date using the established rate. Accordingly, the

applicants represent that there is no significant benefit to be derived

from an independent valuation of the assets held in the Funds, because

the straightforward method by which the value of both the fixed rate

and variable rate guaranteed investment contracts is determined can be

readily verified by the Department and by the investors in the Funds.

10. It is represented that the merger will not create any

additional fees for the Plans participating in the Funds. In this

regard, neither NBD Michigan, NBD Indiana, nor any affiliated party

will receive any fees or commissions with respect to the proposed

merger, nor will the Plans pay any sales commissions or fees, as a

result of the proposed transaction. Other than the incidental

administrative efficiencies which will result from the merger of the PS

Fund and the SAI Fund, it is represented that neither NBD Michigan and

NBD Indiana nor any affiliated party will derive any financial benefit

from the merger of the Funds.

It is represented that at the present time, NBD Michigan has

employee benefit trust customers, including the Plans, which have

assets invested in the SAI Fund, but NBD Michigan has no employee

benefit trust customers invested in the PS Fund. It is further

represented that at the present time, NBD Indiana has employee benefit

trust customers, including the Plans, which have assets invested in the

PS Fund, and some employee benefit trust customers which have already

invested assets in the SAI Fund. The annual investment fee charged by

NBD Indiana to participants in either the SAI Fund or the PS Fund

consists of an annual base fee of $400, plus a market value based fee

determined as follows: .85% on the first $1 million; .50% on the next

$2 million; .35% on the next $2 million; .25% on the next $5 million;

.15% on the next $10 million; and .10% on the excess over $20 million.

The annual investment fee charged by NBD Michigan to participants in

the SAI Fund is currently .75% of the market value of the SAI Fund.\2\

\2\ It is represented that NBD Michigan and NBD Indiana rely

upon the statutory exemption, as set forth in section 408(b)(2) of

the Act, for the receipt of fees for investment management services

provided with respect to the Funds. The Department, herein,

expresses no opinion as to whether the provision of services by NBD

Michigan and NBD Indiana to the Funds and the compensation received

therefore satisfy the terms and conditions, as set forth in section

408(b)(2) of the Act.

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Following the merger of the PS Fund into the SAI Fund, both NBD

Michigan and NBD Indiana will have employee benefit trust customers,

including the Plans, participating in the SAI Fund. In this regard, it

is represented that NBD Indiana and NBD Michigan will continue to

service their respective employee benefit trust customers, including

the Plans, and the investment fees charged to those Plans will be

determined by the NBD Bancorp subsidiary (i.e. NBD Indiana or NBD

Michigan) which originated that customer. Accordingly, it is

represented that the investment fees, as described above, charged to

the Plans by NBD Michigan and NBD Indiana, to the respective Plans that

each services will not change following the merger of the PS Fund and

the SAI Fund.

With respect to the amount of the investment fees charged to the

Plans by NBD Michigan and NBD Indiana, the applicants point out that,

although owned by a common parent corporation, NBD Michigan and NBD

Indiana are separate corporations (one state-chartered and one

federally-chartered) with separate fee schedules and separate customers

served by employees of their separate trust departments. The applicants

state that the fees charged by each bank include compensation for

services relating to the administration of each of the Funds, such as

acquiring the guaranteed investment contracts, performing valuations,

and satisfying reporting and recordkeeping requirements, as well as

compensation for the sales and consulting services provided by the

separate staff of each bank to its respective trust clients. It is

represented that the level of services, the personnel providing these

services, and the overhead costs (e.g. rent, compensation levels, etc.)

associated with the provision of such services is entirely different

for each bank. Further, it is represented that the separate fee

schedules of NBD Michigan and NBD Indiana, as described above, are

primarily a function of the different markets served by each bank, and

are intended to be responsive to and competitive with the fees charged

by other financial institutions in the area in which each bank

operates. In this regard, both NBD Michigan and NBD Indiana maintain

that their respective fee structures are reasonable and competitive

with the other institutions in the markets they each serve.\3\

\3\ ERISA's general standards of fiduciary conduct would apply

to the investment of plan assets in the SAI Fund. Accordingly, the

plan fiduciary must act prudently with respect to its decision to

enter into a new compensation arrangement, which under the

particular facts and circumstances, may result in the plan paying

additional amounts for similar investment services.

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11. To accomplish the merger of the SAI Fund and the PS Fund, the

assets of the Funds (including all accrued income) will be valued as of

the date the merger is executed (the Merger Date). The Merger Date will

be declared by NBD Michigan and NBD Indiana following the grant of this

proposed exemption. As of the Merger Date, NBD Indiana will transfer

all of the assets of the PS Fund to NBD Michigan, as trustee of the SAI

Fund. It is represented that all of the assets of the PS Fund meet the

investment criteria of the SAI Fund, and accordingly, the SAI Fund will

accept the transfer of all of the assets of the PS Fund, without

exception. As all of the assets of the PS Fund will be transferred to

the SAI Fund, the PS Fund will cease to exist immediately following the

merger.

The transferred assets will be commingled for investment following

the Merger Date, and all income will be deemed to have been earned in

the SAI Fund. The Plans which participated in the PS Fund immediately

preceding the merger will become participants in the SAI Fund, as of

the Merger Date. Each of the Plans participating in the PS Fund

immediately preceding the merger will have allocated to it, as of the

Merger Date, the proportion of the allocated units in the SAI Fund

equal to its proportion of units in the PS Fund immediately preceding

the merger. No fractional units of participation in the SAI Fund will

be issued in the merger. The SAI Fund will pay cash equal to the fair

market value of any such fractional unit to which each of the

participating Plans in the PS Fund would otherwise be entitled.

[[Page 8673]]

12. In summary, it is represented that the proposed transactions

will satisfy the statutory criteria for an exemption under section

408(a) of the Act because:

(a) on the date the merger is executed, the assets in the PS Fund

and the assets in the SAI Fund will be valued in the same manner, under

identical guidelines, by the same individuals;

(b) the fair market value of the interests of the Plans

participating in the affected Funds will remain unchanged as a result

of the proposed merger;

(c) the assets of each participating Plan will be invested in the

same type of investment both before and after the execution of the

merger;

(d) the proposed merger will result in greater operational

efficiencies and economies of scale, as well as greater opportunities

for investment diversification;

(e) neither NBD Bancorp nor any of its affiliates will receive any

fees or commissions in connection with the proposed merger;

(f) the Plans will pay no sales commissions or fees, as a result of

the transaction; and

(g) A fiduciary who is acting on behalf of each affected Plan and

who is independent of and unrelated to NBD Bancorp and any of its

affiliates has received advance written notice of the merger of the PS

Fund into the SAI Fund.

Notice to Interested Persons

The applicant maintains that persons who may be interested in the

pendency of the requested exemption include the independent fiduciaries

of all of the Plans participating under the NBD Pooled Fund and the INB

Group Trust. It is represented within fifteen (15) days of the date of

publication of the Notice of Proposed Exemption (the Notice) in the

Federal Register, that notification in writing of the Notice will be

provided by mail to the independent fiduciaries of all of the Plans

participating under the NBD Pooled Fund and the INB Group Trust. Such

notification will include a copy of the Notice, as published in the

Federal Register, and a copy of the supplemental statement, as

required, pursuant to 29 CFR 2570.43(b)(2). The notification will

inform such interested persons of their right to comment or request a

hearing within a time period specified in the notification.

FOR FURTHER INFORMATION CONTACT: Ms. Angelena C. Le Blanc of the

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

Biscayne Bay Pilots, Inc. Money Purchase Pension Plan (M/P Plan) and

Biscayne Bay Pilots, Inc. 401(k) Profit Sharing Plan (P/S Plan;

Collectively, the Plans); Located in Miami, Florida; Proposed Exemption

[Application Nos. D-10036 and D-10037]

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 improved real

property (the Property) by a trust (the HK Trust) established on behalf

of Helge Krarup (Mr. Krarup) within the Plans to Mr. Krarup, a party in

interest with respect to the Plans; provided that the following

conditions are satisfied:

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

(b) the HK Trust will receive the current fair market value for the

Property established at the time of the sale by an independent

qualified appraiser;

(c) the HK Trust will pay no expenses associated with the sale;

(d) the sale will provide the HK Trust with liquidity; and

(e) only the assets in the HK Trust will be affected by the

transaction.

Summary of Facts and Representations

1. The Plans were established January 1, 1989. The M/P Plan and the

P/S Plan are defined contribution plans. As of March 31, 1995, the M/P

Plan had 25 participants and the P/S Plan had 26 participants. As of

March 31, 1995, the Plans had aggregate net assets of $944,804.67.

Biscayne Bay Pilots, Inc. (Biscayne Bay) is the sponsor of the Plans.

Biscayne Bay is a Florida corporation in the business of providing

support services to Biscayne Bay Pilots Association (the Association),

which furnishes harbor pilot support services to ships in the Port of

Miami. Once a pilot is licensed by the State of Florida, a pilot sets

up a corporation of which he is the sole officer, director, shareholder

and employee. Currently, there are fifteen separate pilot corporations

(the Pilot Corporations), which make up the partners of the

Association. Biscayne Bay and the Pilot Corporations constitute an

affiliated service group under section 414(m) of the Internal Revenue

Code of 1986.

Biscayne Bay and the Pilot Corporations have all adopted the Plans.

The Plans' trustees are Stephen E. Nadeau, William M. Breese and John

R. Fernandez, who respectively are the President, the Vice-President,

and the Secretary of Biscayne Bay. Each participant in the Plans can

elect to, among other things, establish their own trust within the

Plans using only their funds to fund the trust. This trust contains the

participant's funds within the two Plans, and the participants are

required to bear the expenses associated with investing in their own

trust. HK Trust is such a trust containing only the assets in Mr.

Krarup's accounts in the Plans.

2. Helge Krarup, Inc. (HK Inc.) is a Florida corporation that was

formed on August 26, 1981. Mr. Krarup is the sole officer, director and

shareholder of HK Inc. On June 9, 1989, HK Inc. established the HK

Trust as a trust within the Plans. HK Trust has one participant, Mr.

Krarup. Mr. Krarup's account balances in the Plans were deposited in

the HK Trust. The trustees of the HK Trust are Mr. Krarup and his wife

Bente Krarup. As of December 31, 1994, the HK Trust had net assets of

$565,444.

3. In December 1983, the Helge Krarup, Inc. Defined Benefit Pension

Plan (the HK Plan) \4\ purchased the Property from Kenneth and Eunice

Stein (the Steins), who were unrelated third parties, for $245,000 plus

appropriate closing costs. The Property contains a residence (the

Residence) which is located on two acres of land. The HK Plan made a

down payment in the amount of $40,000 and took a mortgage secured by

the Property for the remaining $205,000 from the Steins. The mortgage

had a duration of fifteen years (15) and an interest rate of 12% per

annum. The applicant represents that accelerated payments were made

under the mortgage and the mortgage was paid off by August 15, 1987.

Mr. Krarup as the trustee and the sole participant of the HK Plan, made

the decision to purchase the Property as a long-term investment for the

HK Plan. It is represented that the Property is not adjacent to any

real property owned by Mr. Krarup or any other party in interest, and

that the Property has never been used by a party in interest. As of

December 31, 1983, the Property

[[Page 8674]]

represented in excess of 90% of the HK Plan's total assets.\5\

\4\ Mr. Krarup was the only participant in the HK Plan.

\5\ The Department notes that the decisions to transfer and hold

the Property by the HK Trust, as well as the maintaining and renting

of the Property by the HK Trust are governed by the fiduciary

responsibility requirements of Part 4, Subtitle B, Title I of the

Act, and the Department herein is not providing relief for any

violations of Part 4 which may have arisen as a result of these

fiduciary decisions. Accordingly, this exemption extends relief only

for the proposed sale of the Property to Mr. Krarup.

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4. When the HK Plan was terminated, the two deeds evidencing the

Property were transferred to the HK Trust on February 28, 1990. The

applicant represents that there were two deeds because the Property was

described on the original deed in two parcels. Accordingly, one deed

was done for each parcel. The applicant states that at the time of the

transfer, the Property constituted approximately 65% of the HK Trust's

total assets. Currently, the Property is not encumbered by debt and is

owned outright by the HK Trust.

5. The Property, located at 1510 NE Dixie Highway, Jensen Beach,

Florida, was appraised on June 19, 1995 (the Appraisal). The Appraisal

was prepared by Mary Ann Haskell and by Daniel K. Deighan, MAI,

independent Florida state certified appraisers (the Appraisers), who

are with Deighan Appraisal Associates, Inc. The Appraisers indicated

that the Residence on the Property has not been adequately maintained,

and as of the date of inspection there was evidence of roof leaks in

both of the upstairs bedrooms and of extensive wood rot on the enclosed

porch. Because of deferred maintenance and other deficiencies, the

structure of the Residence is considered to be in ``tear down''

condition and contributes little to the overall value of the Property.

The Appraisers relied primarily on the Sales Comparison approach, as

supported by the Cost Approach, and determined that as of June 19,

1995, the ``as is'' market value of the Property was $210,000. The

Appraisers stated that the Income approach was considered inapplicable

due to insufficient rental data in this market.

6. Furthermore, the applicant also contacted Johnson & Johnson, a

local real estate firm (the J&J Firm), regarding prospects of

increasing rentals on the Property or selling the Property. In this

regard, Ms. Kim Johnson of the J&J Firm, made the following

observations: among other things, the Residence is very old and

rundown, and any prospective purchaser would buy the Property solely

for the land value and would not consider the Residence to be of any

value. Furthermore, the shape of the Property is very irregular and it

might be difficult to fit a large house on the Property, even though

the Property is over two acres in size. In the last year in the

immediate area of the Property, there has been only one purchase of a

large ocean front lot, which was on the market for a significant period

of time before it sold. Ms. Johnson believes that the Property could

take a year or more to sell for approximately $300,000, and the real

estate commission would be approximately 6% and the closing costs would

be approximately 1% to be paid by the seller.

6. The applicant represents that the Property has been leased since

April 1984 to unrelated third parties. The Property is currently leased

under a month-to-month agreement to Kim Johnson and Chris Tyler, who

are unrelated third parties, for a rental amount of $650 per month. The

applicant maintains that the fair rental value of the Property was

determined by establishing the rentals charged for houses of similar

size and with similar amenities in the area. Because the Property has

been rented, the applicant submitted a ``return on investment''

analysis for the Property, covering the period 1984 through 1994.

Return on investment value ratios were derived by the applicant by

dividing net income by the original acquisition price of the Property

for each year of ownership. An average of the ``return on investment''

figures was determined to be approximately one percent (1%). Also, in

this regard, the total expenses during the period 1984-94 sustained by

the HK Trust for the Property were approximately $51,303, and the total

income received by the HK Trust during this period was approximately

$67,116. Therefore, the net income received by the HK Trust for the

Property during 1984-94 was $15,813 ($67,116-$51,303).

7. Mr. Krarup now proposes to purchase the Property from the HK

Trust in a one-time cash transaction. The applicant represents that the

proposed transaction is in the best interest and protective of the HK

Trust because the HK Trust will pay no expenses or commissions

associated with the sale. Also, the fair market value of the Property

has been determined by the independent qualified Appraisers to be

$210,000. In this regard, Mr. Krarup will pay the HK Trust the current

fair market value for the Property established at the time of the sale

by the independent qualified Appraisers. The sale of the Property will

increase the liquidity of the HK Trust's portfolio. The sale will also

enable the HK Trust to sell an illiquid asset which currently

represents approximately 45% of the HK Trust's total assets and which

has depreciated in value over time. It is represented that because the

HK Trust is a one participant trust within the Plans, no other

participant in the Plans will be affected by the proposed transaction.

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:

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

(b) the HK Trust will receive the current fair market value for the

Property established at the time of the sale by the independent

qualified Appraisers;

(c) the HK Trust will pay no expenses associated with the sale;

(d) the sale will provide the HK Trust with liquidity; and

(e) only the assets in the HK Trust will be affected by the

transaction.

Notice To Interested Persons

Because Mr. Krarup is the sole participant of the HK Trust, 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 from the date of publication of this notice in

the Federal Register.

FOR FURTHER INFORMATION CONTACT: Ekaterina A. Uzlyan of the Department

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

Society National Bank; KeyTrust Company of Ohio; Society Asset

Management, Inc; and KeyCorp; Located in Cleveland, Ohio; Proposed

Exemption

[Application No. D-10063]

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 In-Kind Transfer of CIF Assets

If the exemption is granted, the restrictions of section 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 December 1, 1993, to the in-kind

transfer of assets of plans for which Society National Bank, KeyTrust

Company of Ohio, N.A., Society Asset Management, Inc., and KeyCorp or

an affiliate (collectively, the Bank) serves as a fiduciary (the Client

Plans), other

[[Page 8675]]

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

certain collective investment funds maintained by the Bank (the CIFs),

in exchange for shares of The Victory Portfolios (collectively, the

Funds), an open-end investment company registered under the Investment

Company Act of 1940 (the 1940 Act), for which the Bank acts as an

investment adviser as well as a custodian, sub-administrator, and/or

shareholder servicing agent, or provides some other ``secondary

service'' as defined in Section IV(h), in connection with the

termination of such CIFs, provided that the following conditions and

the general conditions of Section III below are met:

(a) No sales commissions or other fees are paid by the Client Plans

in connection with the purchase of Fund shares through the in-kind

transfer of CIF assets and no redemption fees are paid in connection

with the sale of such shares by the Client Plans to the Funds.

(b) All or a pro rata portion of the assets of a CIF are

transferred to a Fund in exchange for shares of such Fund.

(c) Each Client Plan receives shares of a Fund which have a total

net asset value that is equal to the value of the Client Plan's pro

rata share of the assets of the CIF on the date of the transfer, based

on the current market value of the CIF's assets, as determined in a

single valuation performed in the same manner at the close of the same

business day, using independent sources in accordance with Rule 17a-

7(b) of the Securities and Exchange Commission (SEC) under the 1940 Act

and the procedures established by the Funds pursuant to Rule 17a-7 for

the valuation of such assets. Such procedures must require that all

securities for which a current market price cannot be obtained by

reference to the last sale price for transactions reported on a

recognized securities exchange or NASDAQ be valued based on an average

of the highest current independent bid and lowest current independent

offer, as of the close of business on the Friday preceding the weekend

of the CIF transfers, determined on the basis of reasonable inquiry

from at least three sources that are broker-dealers or pricing services

independent of the Bank.

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

Bank (the Second Fiduciary) receives advance written notice of the in-

kind transfer of assets of the CIFs and full written disclosure of

information concerning the Funds, including:

(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 IV(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 considers investing in the Fund is an

appropriate investment decision 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 a Fund, 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.

(e) After consideration of the foregoing information, the Second

Fiduciary authorizes in writing the in-kind transfer of the Client

Plan's CIF assets to a corresponding Fund in exchange for shares of the

Fund.

(f) For all in-kind transfers of CIF assets to a Fund following the

publication of this proposed exemption in the Federal Register, the

Bank sends by regular mail to each affected Client Plan the following

information:

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

confirmation containing:

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

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

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

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

consulted in determining the value of such securities; and

(2) Within 90 days after completion of each in-kind transfer, a

written confirmation containing:

(i) The number of CIF units held by the Client Plan immediately

before the transfer, the related per unit value, and the total dollar

amount of such CIF units; and

(ii) The number of shares in the Funds that are held by the Client

Plan following the transfer, the related per share net asset value, and

the total dollar amount of such shares.

(g) The conditions set forth in paragraphs (e), (f) and (n) of

Section II below are satisfied.

Section II--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 October 1, 1995 to: (1)

the receipt of fees by the Bank from the Funds for acting as an

investment adviser to the Funds in connection with the investment by

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

retention of fees by the Bank from the Funds for acting as custodian,

sub-administrator and shareholder servicing agent to the Funds, as well

as for providing any other services to the Funds which are not

investment advisory services (i.e. ``secondary services''), 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 III 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 IV(e), and is the same price which would have

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

time.

(c) The Bank, including any officer or director of the Bank, does

not purchase or sell shares of the Funds to any Client Plan.

(d) Each Client Plan receives a credit, either through cash or the

purchase of additional shares of the Funds pursuant to an annual

election made by the Client Plan, 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, within no more than one business day of the

receipt of such fees by the Bank.

(e) For each Client Plan, the combined total of all fees received

by the Bank for the provision of services to the Client Plan, and in

connection with the provision of services to the Funds in which the

Client Plan may invest, is not in excess of ``reasonable compensation''

within the meaning of section 408(b)(2) of the Act.6

\6\ In 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.

[[Page 8676]]

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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) The Second Fiduciary receives, in advance of any initial

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 IV(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) After consideration of the information described above in

paragraph (h), 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 Funds to the Bank, and the purchase of

additional shares of a Fund by the Client Plan with the fees credited

to the Client Plan by the Bank.

(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) 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; provided that

the Termination Form need not be supplied to the Second Fiduciary

pursuant to this paragraph sooner than six months after such

Termination Form is supplied pursuant to paragraph (l) below, except to

the extent required by such paragraph in order to disclose an

additional service or fee increase. 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) 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

(as defined in Section IV(h) below) 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 credited as required by paragraph (d) 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 IV(i) below.

(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;

(2) A copy of the annual financial disclosure report of the Funds

in which such Client Plan is invested 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 III--General Conditions

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

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

records are lost or destroyed prior to the end of the six-year period,

and (2) no party in interest other than the Bank shall be subject to

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

or to the taxes imposed by section 4975 (a) and (b) of the Code if the

records are not maintained or are not available for examination as

required by paragraph (b) below.

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

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

referred to in paragraph (a) 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;

[[Page 8677]]

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

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

commercial or financial information which is privileged or

confidential.

Section IV--Definitions

For purposes of this proposed exemption:

(a) The term ``Bank'' includes Society National Bank, KeyTrust

Company of Ohio, Society Asset Management, Inc., KeyCorp and any

affiliate thereof as defined below in paragraph (b)(1) of this section.

(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 Victory

Portfolios, or any other diversified open-end investment company or

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

investment adviser and may also serve as a custodian, shareholder

servicing agent, 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 or employee

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

thereof;

(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, employee of the Bank (or relative

of such persons), or affiliate thereof, 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 this section 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. For purposes of this proposed

exemption, the term ``secondary service'' will include securities

lending services provided by the Bank to the Funds, but 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. Such Termination Form may 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: This proposed exemption, if granted, will be effective

as of December 1, 1993, for the transactions described in Section I

above, and October 1, 1995, for the transactions described in Section

II above.

Summary of Facts and Representations

1. The applicants described herein are Society National Bank (SNB),

a national banking association, KeyTrust Company of Ohio, N.A.

(KeyTrust), Society Asset Management, Inc. (SAM), and KeyCorp and its

subsidiaries, including affiliates of SNB, KeyTrust, and SAM.

Specifically, the exemption request is being made on behalf of: (i) SNB

as former trustee of certain collective investment funds under the 1993

Amendment and Restatement of the Plan of the Retirement Trust of the

Ameritrust Company National Association (the SNB-Ameritrust Collective

Trust) and the 1993 Amendment and Restatement of Declaration of Trust

Establishing Society National Bank Multiple Investment Trust for

Employee Benefit Trusts (the SNB Collective Trust); (ii) KeyTrust, a

wholly-owned subsidiary of SNB and, effective January 1, 1995,

successor to SNB's trust operations and successor trustee of SNB-

Ameritrust Collective Trust and SNB Collective Trust (SNB, prior to

January 1, 1995 and KeyTrust, after January 1, 1995, are hereafter

referred to as either ``the Bank'' or ``the Trustee''); (iii) SAM, an

Ohio Corporation, a wholly-owned subsidiary of KeyCorp Asset Management

Holdings, Inc., which is a wholly-owned subsidiary of the Bank; and

(iv) KeyCorp, an Ohio Corporation of which the Bank is a wholly-owned

subsidiary. KeyCorp is a bank holding company that owns directly or

indirectly a number of subsidiaries, which together constitute a

controlled group of corporations within the meaning of section 414(b)

of the Code. Thus, KeyCorp and its various subsidiaries are included

herein within the definition of the term ``Bank'' (see Section IV(a)

above).

2. The Bank is a trustee and, primarily through SAM, is an

investment manager for a number of employee benefit plans subject to

Title I of the Act as well as Keogh plans and individual retirement

accounts (i.e. the Client Plans). The Bank is also trustee of two

employee benefit plans sponsored by the Bank (the Bank Plans). The Bank

has caused these plans to invest in certain collective investment funds

(i.e. the CIFs) which are maintained by the Bank as trustee of the SNB-

Ameritrust Collective Trust and the SNB Collective Trust. In December,

1993, the Bank liquidated certain of the CIFs and, to the extent

practicable, distributed the assets held in such CIFs to the Plans.

[[Page 8678]]

In the case of assets distributed by the CIFs to each Client Plan

with respect to which an independent fiduciary had consented to the

transaction, the Bank immediately used the distributed assets to

purchase shares of the Funds. Before the distribution of assets from

the CIFs and the closing of the purchase transactions (the Fund

Transactions), the applicant states that the Bank complied with the

requirements of Prohibited Transaction Exemption (PTE) 77-3, 42 FR

18734 (April 8, 1977), with respect to the Bank Plans, and PTE 77-4, 42

FR 18732 (April 8, 1977), with respect to the Client Plans.7

Before the Fund Transactions, the CIFs consisted of six separate

collective investment funds maintained by the Bank under the SNB

Collective Trust, and eleven separate collective investment funds

maintained by the Bank under the SNB-Ameritrust Collective Trust. The

assets used to purchase shares of the Funds in the Fund Transactions

consisted of assets distributed by four of the CIFs under the SNB

Collective Trust and eight of the CIFs under the SNB-Ameritrust

Collective Trust.

The Bank contemplates that in the future similar transactions

structured either identically to the Fund Transactions or in the form

of an in-kind transfer of assets from CIFs to the Funds, with no

intermediate distribution to the Client Plans, may be in the best

interests of the Client Plans. In this regard, the Bank proposes to

modify the manner in which it receives approval from independent

fiduciaries of the Client Plans for changes in its fees and any fees

received by other affiliates of the Bank from the Funds (as discussed

below).

3. The Funds are a Massachusetts business trust operating as an

open-end investment management company registered under the 1940 Act.

The Bank, through SAM, serves as the investment adviser to each of the

Funds that received assets from Plans in the Fund Transactions. The

Bank receives investment advisory fees from the Funds for its

investment advisory services under the terms of an investment advisory

agreement adopted in accordance Section 15 of the 1940 Act. The Bank

performs services for the Funds as shareholder servicing agent, sub-

administrator and custodian. Both the Funds and the service agreements

between the Fund and the Bank, including any fee arrangements, are

described in prospectuses for the Funds.

4. The Winsbury Company is the distributor, administrator and

principal underwriter of the Funds. The Winsbury Service Corporation,

an affiliate of The Winsbury Company, serves as transfer agent and

provides accounting services to the Funds. Neither The Winsbury Company

nor The Winsbury Service Corporation are affiliates of the Bank.

The Fund Transactions

5. In December 1993, the Bank, acting as trustee or investment

manager of the Plans, withdrew the assets held in the CIFs for the

benefit of the Plans. For each Client Plan for which the consent of an

independent fiduciary was given, the assets were then used to purchase

shares of a Fund with investment objectives similar to the CIF that had

distributed the assets. Each Client Plan received shares of each Fund

in consideration for, and in proportion to, its share of the assets

used to purchase shares of the Fund and with a value equal to the value

of those assets at the time of the Fund Transactions. The CIFs from

which assets were distributed, and the corresponding Fund, which has

similar investment objectives, are as follows:

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

CIF Fund

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

EB Balanced........................... Fund Balanced Fund.

EB Capital Appreciation Fund.......... Special Growth Stock Fund.

EB Equity Index Fund.................. Stock Index Fund.

EB Fixed Income Fund.................. Investment Quality Bond Fund.

EB Government Mortgage Fund........... U.S. Government Income Fund.

EB Growth Equity Fund................. Growth Stock Fund.

EB Intermediate Bond Fund............. Intermediate Income Fund.

EB Intermediate Fixed Bond Fund....... Intermediate Income Fund.

EB Small Capitalization Growth........ Special Growth Stock Fund.

EB Small Capitalization Value Fund.... Special Value Stock Fund.

EB Technology Fund.................... Special Value Stock Fund.

EB Value Fund......................... Value Stock Fund.

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

All of the Funds, other than the U.S. Government Income Fund, were

established in connection with the Fund Transactions and held no assets

before the Fund Transactions.

\7\ PTE 77-3 permits the acquisition or sale of shares of a

registered, open-end investment company by an employee benefit plan

covering only employees of such investment company, employees of the

investment adviser or principal underwriter for such investment

company, or employees of any affiliated person (as defined therein)

of such investment adviser or principal underwriter, provided

certain conditions are met.

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.

The Department is expressing no opinion in this proposed

exemption regarding whether any of the transactions with the Funds

by the Bank Plans or the Client Plans were covered by either PTE 77-

3 or PTE 77-4, respectively.

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6. The valuation of securities used to purchase shares of the Funds

was implemented pursuant to purchase agreements between the Funds and

the Bank (the Purchase Agreements). In accordance with the Purchase

Agreements, the securities used to purchase shares of the Funds

included only cash and securities that had a readily ascertainable

market value. The securities were valued at their current market value

in accordance with SEC Rule 17a-7(b). Under Rule 17a-7, the ``current

market price'' for specific types of CIF securities involved in the

transactions is determined as follows:

a. If the security is a ``reported security'' as the term is

defined in Rule 11Aa3-1 under the Securities Exchange Act of 1934 (the

'34 Act), the last sale price with respect to such security reported in

the consolidated transaction reporting system (the Consolidated

System); or, if there are no reported transactions in the Consolidated

System that day, the average of the highest current independent bid and

the lowest current independent offer for such security (reported

pursuant to Rule 11Ac1-1 under the '34 Act), as of the close of

business on the CIF valuation date.

[[Page 8679]]

b. If the security is not a reported security, and the principal

market for such security is an exchange, then the last sale on such

exchange or, if there are no reported transactions on such exchange

that day, the average of the highest current independent bid and lowest

current independent offer on the exchange as of the close of business

on the CIF valuation date.

c. If the security is not a reported security and is quoted in the

NASDAQ system, then the average of the highest current independent bid

and lowest current independent offer reported on Level 1 of NASDAQ as

of the close of business on the CIF valuation date.

d. For all other securities, the average of the highest current

independent bid and lowest current independent offer determined on the

basis of reasonable inquiry from at least three independent sources as

of the close of business on the CIF valuation date.

The pricing information required for securities that were either a

``reported security'' (as defined in SEC Rule 11Aa3-1 under the

Securities Exchange Act of 1934) or traded on an exchange or quoted by

the NASDAQ system, was obtained from Interactive Data Corporation, a

recognized independent pricing service.8 Securities which were not

a ``reported security'', and were not traded on an exchange or quoted

by the NASDAQ system, were priced on the date of the transaction by

having the Bank's portfolio managers under the CIFs obtain bid and

offer prices from three independent brokers and using the average of

the highest independent bid and lowest independent offer price.9

\8\ The applicant states that securities held by the CIFs which

were priced by Interactive Data Corporation were the type of

securities described under SEC Rule 17a-7(b) (1)-(3).

\9\ The applicant states that securities held by the CIFs which

were priced by the average between the highest bid and lowest offer

prices quoted by three independent brokers were securities described

under SEC Rule 17a-7(b)(4).

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The Bank represents that these valuation procedures were applied

uniformly for all assets held by the CIFs. A single market value was

used for each unit of the same security distributed from the CIFs. For

the newly established Funds, the value determined for the assets used

to purchase shares of the Funds was also used to determine the net

asset value of the Funds and the pro-rated value of the shares issued

to the Client Plans purchased with the assets distributed from the

CIFs. Immediately following the consummation of the Fund Transactions,

the value of the shares of the Funds, as so determined, held by each

Client Plan was equal to the value of the assets received by the Client

Plans from the CIFs immediately prior to the consummation of the Fund

Transactions.

In connection with the Bank's proposal that assets be used to

purchase shares of the Funds, the Bank delivered to an independent

fiduciary for each Client Plan with assets invested in a CIF (i.e., a

Second Fiduciary) copies of the prospectuses and summaries of

supplemental information relating to the Funds. The Second Fiduciary

for each Client Plan received a schedule of the rates of all trustee,

investment management and other fees charged to the Client Plan by the

Bank. Participation in the Fund Transactions by a Plan was conditioned

upon receipt of a letter (the Consent Letter) executed by the Second

Fiduciary, acknowledging receipt and review of the informational

materials and approving the fees to be paid to the Bank by the Funds

and the Client Plan.

In the case of Client Plans from which the Bank did not receive

Consent Letters, any assets that would otherwise have been distributed

by a CIF to such Plans either were retained in the CIF, if the CIF was

continuing, or were liquidated and the proceeds invested in other CIFs

or in other investments permitted under the terms of the related trust

or investment management agreement with the Bank.

No sales commissions, loads or other fees were charged to, or paid

by, any Client Plan in connection with the Fund Transactions. In

addition, no redemption fees were charged to or paid by any Client Plan

for the redemption of any of its shares in the Funds.

7. In consideration of its management of the Funds, SAM received

investment advisory fees from the Funds that were computed daily and

paid monthly based on the average daily net assets of the Funds. The

portion of those fees attributable to a Client Plan were credited to

the Client Plan each month as an income item and shown separately on

the monthly financial statements prepared for the Client Plan by the

Bank. The fees were allocated among the Client Plans invested in the

Funds based on the value of the Plan's investment in each Fund,

determined daily. Fees for services by the Bank were billed to each

Client Plan monthly or quarterly, after the portion of SAM's investment

advisory fees allocable to the Client Plan for the month or quarter

were credited to the Client Plan. The Bank believes that this fee

structure was consistent with the conditions required by PTE 77-

4.10

\10\ Section II(c) of PTE 77-4, in pertinent part, permits the

payment of investment advisory fees by the investment company to a

plan fiduciary 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 to the plan fiduciary 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 to such plan fiduciary.

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The Bank represents that no fees or other compensation, directly or

indirectly, have been received from the Funds, or from The Winsbury

Company or its affiliates (Winsbury), other than: (i) The investment

advisory fees paid to SAM by the Funds that were credited to the Client

Plans as described above, (ii) fees for investment advisory services

paid to SAM by the Funds that were based on assets of the Funds that

were not attributable to the investment in the Funds by Client Plans,

and (iii) fees paid to the Bank for providing administrative services

as a shareholder servicing agent, custodian and sub-administrator. In

this regard, the Bank has not received any fees payable pursuant to

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

any shares of the Funds.

Prior to the subject exemption request, the Bank states that the

rates of fees charged to or paid by a Client Plan or the Funds to the

Bank in connection with the Client Plan's investment in the Funds were

not changed unless an independent fiduciary of the Plan was notified of

the change in advance and approved, in writing, the continuation of the

Client Plan's investment in the Funds or additional purchases and sales

of shares of the Funds.

Future Conversion Transactions

8. The Bank anticipates that in the future it may engage in

transactions like the Fund Transactions. The Bank represents that such

transactions will be structured either (i) exactly as the Fund

Transactions, with assets being distributed from CIFs to Plans and then

used by the Client Plans to purchase shares of the Funds, or (ii)

without intermediate distribution to the Client Plans, with assets

being transferred in-kind from CIFs to the Funds in exchange for shares

of the Funds. In each instance, all or a pro rata portion of the assets

of a CIF will be transferred to a Fund in exchange for shares of such

Fund.

Prior to any conversion transaction involving a CIF, the Bank will

obtain the approval of an independent fiduciary of the Plan (i.e., a

Second Fiduciary), who will generally be the Client Plan's named

fiduciary, trustee, or sponsoring employer. The Bank will provide the

Second Fiduciary with a current

[[Page 8680]]

prospectus for each Fund and a written statement giving full disclosure

of the fee structure under which investment advisory fees received by

the Bank (i.e., SAM) will be credited back to the Plan. The disclosure

statement will explain why the Bank believes the investment of assets

of the Plan in the Funds is appropriate. The disclosure statement will

also describe, as applicable, any limitations on the Bank regarding

which plan assets may be invested in shares of the Funds and, if so,

the nature of such limitations.

After consideration of such information, the Second Fiduciary may

authorize the Bank to invest plan assets in the Funds, to receive fees

from the Funds, and to purchase additional shares of the Funds with the

fees credited back to the Client Plan by the Bank. The authorization

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.

A form expressly providing an election to terminate the

authorization (a ``Termination Form''), with instructions on the use of

the form, will be supplied to the Second Fiduciary no less than

annually. The Termination Form will instruct the Second Fiduciary that

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 that failure to return the form will

result in the continued authorization of the Bank to engage in the

subject transactions on behalf of the Client Plan and to receive fees

therefor.

The Termination Form may be used to notify the Bank in writing to

effect a termination by selling the shares held by the Client Plan

requesting such termination within one business day following receipt

by the Bank of the form. If, due to circumstances beyond the Bank's

control, the sale cannot be executed within one business day, the Bank

will complete the sale within the next business day.

For all in-kind transfers of CIF assets to a Fund following the

publication of this proposed exemption in the Federal Register, the

Bank will send by regular mail to each affected Client Plan, within 30

days after completion of the transaction, a written confirmation

containing:

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

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

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

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

consulted in determining the value of such securities.

In addition to the information described above, the Bank will send,

within 90 days after completion of each in-kind transfer, a written

confirmation containing:

(i) The number of CIF units held by the Client Plan immediately

before the transfer, the related per unit value, and the total dollar

amount of such CIF units; and

(ii) The number of shares in the Funds that are held by the Client

Plan following the transfer, the related per share net asset value, and

the total dollar amount of such shares.

The price paid or received by a Client Plan for shares in a Fund

will be the net asset value per share at the time of the transaction,

as defined in Section IV(e), and will be the same price which would

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

time.

Current Fee Arrangement

9. Effective as of October 1, 1995, the applicant represents that

the Bank has implemented a new fee structure (the Fee Structure) for

the Client Plans allowing for direct credits to each Client Plan, in

the form of cash or additional Fund shares, of such Plan's

proportionate share of all investment advisory fees received by the

Bank from the Funds. The Bank states that the Fee Structure is at least

as advantageous to the Client Plans as an arrangement, as described in

PTE 77-4, whereby investment advisory fees paid by the Funds to the

Bank are offset against fees paid directly to the Bank by the Client

Plans.

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.11 These fees are usually 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 investment 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 provided at no additional charge where the Bank

exercises investment discretion for the Client Plan's assets 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.12

11 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.

12 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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In addition, the Bank (i.e., SAM or some other affiliate as

described herein) charges the Funds investment advisory fees in

accordance with investment advisory agreements between SAM and the

Funds. These agreements have been approved by the independent members

of the Board of Directors of the Funds (the Directors) in accordance

with the applicable provisions of the 1940 Act, and any changes in the

fees will also be approved by the Directors. These fees are paid on a

monthly basis by the Funds.

At the beginning of each month, and essentially simultaneously with

the payment of the investment advisory fees by the Funds to the Bank

(in no event later than the same business day), the Bank credits to

each Client Plan its proportionate share of all investment advisory

fees charged by the Bank (i.e., SAM or an affiliate) to the Funds,

including any investment advisory fees paid by the Bank to third party

sub- advisors (referred to hereafter as ``the Alternative Credit

Program''). The credited fees are used to acquire additional shares of

the Funds on behalf of the Client Plan or are returned to the Client

Plan's trust account in the form of cash, as directed by the Second

Fiduciary.

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

[[Page 8681]]

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.13

13 The Department notes that although certain transactions and

fee arrangements are the subject of an administrative exemption, a

Client Plan fiduciary must still adhere to 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.

The Department also 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.

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The Bank represents that for each Client Plan, the combined total

of all fees received by the Bank for the provision of services to the

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

Funds in which the Client Plan may invest, will not be in excess of

``reasonable compensation'' within the meaning of section 408(b)(2) of

the Act.14

14 The Department is providing no opinion in this proposed

exemption as to whether the conditions required for exemptive relief

under section 408(b)(2) of the Act, and the regulations thereunder

(see 29 CFR 2550.408b(2), would be met for all fees received by the

Bank for the provision of services to the Client Plans.

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The Bank states that the Alternative Credit 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 Alternative Credit Program essentially has

the same effect in crediting the Bank's investment advisory fees

received from the Funds as an arrangement allowing for an offset of

such fees against investment management fees charged directly to the

Client Plans. The Bank prefers the Fee Structure with the Alternative

Credit 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.

10. The Bank is responsible for establishing and maintaining a

system of internal accounting controls for the crediting of fees under

the Alternative Credit Program. In addition, the Bank has retained the

services of Ernst & Young LLP (E&Y) in Cleveland, Ohio, an independent

accounting firm, to audit annually the crediting of fees to the Client

Plans under this program. In this regard, the Bank states that in the

future either E&Y or some other qualified independent auditor will be

retained by the Bank to perform annual audits of the Alternative Credit

Program (the Auditor). Such audits provide independent verification of

the proper crediting of such fees to the Client Plans. Information

obtained from the audits is used in the preparation of required

financial disclosure reports for the Client Plans. In its annual audit

of the Alternative Credit Program, the Auditor is required to: (i)

review and test compliance with the specific operational controls and

procedures established by the Bank for making the credits; (ii) verify

on a test basis the daily credit factors transmitted to the Bank by the

Funds; (iii) verify on a test basis the proper assignment of credit

identification fields to the Client Plans; (iv) verify on a test basis

the credits paid in total to the sum of all credits paid to each Client

Plan; and (v) recompute the amount of the credits determined for

selected Client Plans and certify that the credits were made to the

proper Client Plan.

The Bank will correct any error identified either by the internal

audit by the Bank or by the independent auditor. With respect to any

shortfall in credited fees to a Client Plan involving cash credits, the

Bank will make a cash payment to the Client Plan equal to the amount of

the error plus interest paid at money market rates offered by the Bank

for the period involved. With respect to any shortfall in credited fees

involving a Client Plan where the Second Fiduciary's election was to

have credited fees invested in shares of the Funds, the Bank will make

a cash payment equal to the amount of the error plus interest based on

the rate of return for shares of the Fund that would have been

acquired. Any excess credits made to a Client Plan will be corrected by

an appropriate deduction and reallocation of cash during the next

payment period to reflect accurately the amount of total credits due to

the Client Plan for the period involved.

11. As discussed above, the Bank currently acts as a custodian,

sub-administrator, and/or shareholder servicing agent for the Funds,

and anticipates providing additional ``secondary services'' to the

Funds in the future. In this regard, the Bank represents that certain

of the Funds may institute a securities lending program (the Program)

which will be administered by SAM or another affiliate of the Bank.

SAM, as the investment adviser for the Fund, would be responsible for

negotiating the terms of the loans, selecting borrowers, and investing

cash collateral. SAM would receive an additional fee for its services

to the Fund in connection with the Program, subject to the supervision

and approval of the Directors. The Bank, under a separate agreement or

an amendment to the current custody agreement with the Fund, would

agree to provide additional custodial and administrative tasks

associated with the Program. The Fund would pay the Bank a fee based on

the number and complexity of the tasks the Bank is required to perform

in connection with the Program, that would take into account the

responsibilities and expenses incurred by the Bank. As custodian for

the Fund under the Program, the Bank would perform the following tasks:

(i) deliver loaned securities from the Fund to borrowers; (ii) arrange

for the return of loaned securities to the Fund at the termination of

the loans; (iii) monitor daily the value of the loaned securities and

collateral; (iv) request that borrowers add to the collateral when

required by the loan agreement; and (v) provide recordkeeping and

accounting services necessary for the operation of the Program. The

Bank proposes to charge fees for its services to the Funds under the

Program no sooner than 30 days following the issuance of a notice and

Termination Form to the Second Fiduciary of each of the Client Plans

invested in the participating Funds.

[[Page 8682]]

The Bank represents that the terms of any securities loan under the

Program would comply with the conditions required for an exemption

under PTE 81-6, 46 FR 7527 (January 23, 1981) as amended (see 52 FR

18754, May 19, 1987), as though the participating Fund were an employee

benefit plan subject to such conditions.15

\15\ PTE 81-6, as amended, permits the lending of securities

that are assets of an employee benefit plan to a broker-dealer

registered under the Securities Exchange Act of 1934 (the 1934 Act)

or exempted from registration under section 15(a)(1) of the 1934 Act

as a dealer in exempted Government securities (as defined in section

3(a)(12) of the 1934 Act) or to a bank. The conditions of PTE 81-6

require, among other things, that the plan receive from the borrower

(either by physical delivery or by book entry in a securities

depository) by the close of the lending fiduciary's business on the

day in which the securities lent are delivered to the borrower,

collateral consisting of cash, securities issued or guaranteed by

the U.S. Government or its agencies or instrumentalities, or

irrevocable bank letters of credit issued by a person other than the

borrower or an affiliate thereof, or any combination thereof,

having, as of the close of business on the preceding business day, a

market value or in the case of letters of credit a stated amount,

equal to not less than 100 percent of the then market value of the

securities lent.

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Therefore, the Bank believes that the interests of the Client

Plans, as Fund investors, will be protected under the Program. The Bank

notes that the SEC issued on May 25, 1995, a ``no-action'' letter in

connection with the Program.

12. 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.16 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

II(d) above.

\16\ 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 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 credited 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.17

\17\ See 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

[[Page 8683]]

Auditor's findings as to the proper crediting 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.

13. 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. The applicant states that the Bank does not,

and will not in the future, 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.

14. 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 crediting 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; (g)

the in-kind transfers of CIF assets into the Funds are done with the

prior written approval of independent fiduciaries (i.e. the Second

Fiduciary) following full and detailed written disclosure concerning

the Funds; (h) each Client Plan receives shares of a Fund which have a

total net asset value that is equal to the value of the Client Plan's

pro rata share of the assets of the CIF on the date of the in-kind

transfer, based on the current market value of the CIF's assets as

determined in a single valuation performed in the same manner at the

close of the same business day in accordance with independent sources

and the procedures established by the Funds for the valuation of such

assets; and (i) 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 described herein that had investments in a

terminating CIF and from whom approval was sought, or will be sought

prior to the granting of this proposed exemption, for a transfer of a

Client Plan's CIF assets to a Fund. In addition, interested persons

shall include the Second Fiduciaries of all Client Plans which 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 received 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.)

Zausner Foods Corp. Savings Plus Plan (the Plan); Located in New

Holland, Pennsylvania; Proposed Exemption

[Application No. D-10064]

The Department is considering granting an exemption under the

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

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

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

is granted, the restrictions of section 406(a), 406(b)(1) and (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 past sale by the Plan of certain units of

limited partnership interests (the Units) to Zausner Foods Corp.

(Zausner Foods), a party in interest with respect to the Plan, provided

that the following conditions were satisfied: (1) the sale was a one-

time transaction for cash; (2) the Plan paid no commissions nor other

expenses relating to the sale; and (3) the purchase price was the

greater of: (a) the fair market value of the Units as determined by a

qualified, independent appraiser, or (b) the original acquisition cost

of the Units plus attributable opportunity costs.

EFFECTIVE DATE: The proposed exemption, if granted, will be effective

as of December 29, 1995.

Summary of Facts and Representations

1. The Plan is a profit sharing plan sponsored by Zausner Foods.

Zausner Foods is a member of a controlled group of corporations that

manufactures and sells various food products, including milk-related

products. As of December 31, 1994, the Plan had 1,021 participants and

total assets of approximately $12,256,538. Prior to January 1, 1996,

Charles Schwab Trust Co. served as the Plan trustee. Effective January

1, 1996, Dreyfus Trust Co. became the Plan trustee.

2. Among the assets of the Plan were the Units, which were 64

shares of the MLH Income Realty Partnership V (the Partnership). The

Partnership was formed as of December 31, 1983 for purposes of

investing in commercial, industrial, and residential real estate. The

Plan acquired the Units in 1991 when the AltaDena Certified Dairy

(AltaDena) Savings & Investment Plan (the AltaDena Plan) was merged

into, and survived by, the Plan. The AltaDena Plan, on the

recommendation of an investment counselor at Merrill Lynch, acquired at

various public offerings in 1985 a total of 70 Units at a cost of

$1,000 per Unit. When the Plan and the

[[Page 8684]]

AltaDena Plan were merged in 1991, the two owners of AltaDena, who were

also AltaDena Plan participants, received a total of six of the Units

as an in-kind distribution upon the termination of their employment. At

the time of the merger, the Plan's trustees froze the investment in the

Partnership by not permitting participants to invest in it. The

applicant represents that neither Zausner Foods, AltaDena, nor any of

their respective officers or directors separately invested in the

Partnership and that the other investors in the Units are unrelated

third parties. The Partnership had made cash distributions with respect

to the 64 Units in the cumulative amount of $43,042.56 ($672.54 per

Unit), through November 13, 1995.

The Partnership originally intended to lease the properties for a

period of six to ten years from the date of the Partnership's

formation, then sell off the appreciated properties at a gain.

Investors were to receive yearly cash distributions derived from the

rental properties and from the sale proceeds of the properties as they

were liquidated. However, due to subsequent adverse conditions in the

real estate market and the economy in general, the Partnership has been

unable to sell a number of the properties for a profit. The Partnership

has therefore altered its plans and continues to hold these properties.

3. The applicant represents that the Units are a highly illiquid

investment for which there is a very limited secondary market.18

Merrill Lynch provides a service to assist clients wishing to buy and

sell Partnership Units. The applicant represents that at the time the

Plan and the AltaDena Plan were merged in 1991, the Plan's trustees

contacted Merrill Lynch in order to discuss a possible sale of the

remaining 64 Units but were told that there was no interest in the

investments. Recently, Joseph E. Lundy, Vice President at Merrill

Lynch's Lancaster, Pennsylvania office, advised the applicant that

there was no market for the Units, that no market was likely to develop

in the foreseeable future, and that if a purchaser for the Units were

to be found, the price obtained would be approximately $350-$390 per

Unit, less than one-half the original cost of the investment.

18 The Department expresses no opinion herein on whether

the acquisition and holding of the Units by the Plan violated any of

the provisions of Part 4 of Title I in the Act.

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

The applicant also obtained an independent appraisal of the Units

from Jack L. Hess, CPA, of Hess & Hess, Certified Public Accountants,

located in Lancaster, Pennsylvania. After reviewing the pertinent data,

Mr. Hess estimated that the Units' fair market value as of May 9, 1995

was $450 per Unit. Mr. Hess also noted that, as of December 31, 1994,

the Units had a net asset value of $535 per Unit, a figure which is

provided to Merrill Lynch by an independent valuation service on an

annual basis. The appraisal states that the Partnership, which has been

liquidating its holdings, expects to sell its remaining properties over

the next two years. Provided that the Partnership sells its remaining

properties during that period, investors may expect to receive

approximately $500 per Unit in final cash distributions over the next

two years. The value of the Units on the secondary market, estimated at

$450 per Unit, reflects the present value of this expected benefit, as

well as a trading discount.

4. On December 29, 1995, Zausner Foods purchased the Units from the

Plan for $55,118.72, which was allocated on a pro rata basis among the

participants' accounts that had invested in the Units. This amount

represents the greater of: (a) the fair market value of the Units as

determined by a qualified, independent appraiser, or (b) the Units'

original acquisition cost to the AltaDena Plan plus opportunity costs

attributable to the Units. Because the fair market value of the Units

was less than their acquisition cost, Zausner Foods purchased the Units

from the Plan for the latter amount. Taking into account the purchase

price ($55,118.72) and all cash distributions ($43,042.56), the Plan

received a rate of return on the Units' acquisition cost ($64,000)

slightly in excess of five percent for each of the ten years that the

Plan (and its predecessor) had held the Units. The sale was a one-time

transaction for cash, and the Plan paid no commissions nor other

expenses relating to the sale.

The applicant represents that the subject transaction was in the

interests of the Plan because if the Plan had attempted a sale of the

Units on the open market, the Plan would have received substantially

less than the amount the applicant was willing to pay. In addition, the

sale converted the Units into liquid assets that are now available for

any required distributions, as well as being subject to professional

management.

5. In summary, the applicant represents that the subject

transaction satisfied the statutory criteria for an exemption under

section 408(a) of the Act for the following reasons: (1) the sale was a

one-time transaction for cash; (2) the Plan paid no commissions nor

other expenses relating to the sale; (3) the sale enhanced the

liquidity of the assets of the Plan; and (4) the purchase price was the

greater of: (a) the fair market value of the Units as determined by a

qualified, independent appraiser, or (b) the original acquisition cost

of the Units plus attributable opportunity costs.

Tax Consequences of Transaction

The Department of the Treasury has determined that if a transaction

between a qualified employee benefit plan and its sponsoring employer

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

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

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

must be examined under applicable provisions of the Code, including

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

Notice to Interested Persons

Notice of the proposed exemption shall be given to all interested

persons by personal delivery and by first-class mail within 10 days of

the date of publication of the notice of pendency 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/or to request a

hearing with respect to the proposed exemption. Comments and requests

for a hearing are due within 40 days of the date of publication of this

notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Karin Weng of the Department,

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

IRA Rollover FBO John W. Meisenbach (the IRA); Located in Seattle,

Washington; Proposed Exemption

[Application No. D-10114]

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 the IRA of certain stock (the Stock) to John W.

Meisenbach, a disqualified person with respect to the IRA, provided

that the following conditions are satisfied: (a) the sale is a one-time

transaction for cash; (b) the IRA pays no commissions nor other

expenses relating to the sale; and (c) the purchase price is the fair

[[Page 8685]]

market value of the Stock as determined by a qualified, independent

appraiser as as of the date of the sale.19

\19\ Pursuant to 29 CFR 2510.3-2(d), the IRA is 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. The IRA is an individual retirement account, as described under

section 408(a) of the Code. The IRA was established by John W.

Meisenbach, who is the sole participant. As of July 28, 1995, the IRA

had total assets of approximately $7,691,680.45. The trustee of the IRA

is the Delaware Charter Guarantee & Trust Company.

2. Among the assets of the IRA are 422,265 shares of closely-held

Stock in Garden Botanika, Inc. (Garden Botanika), which markets

cosmetic and personal care products featuring natural and herbal

ingredients via a chain of company-owned specialty retail stores. The

applicant represents that the IRA acquired most of the Stock from the

issuer, as well as 40,000 shares from a private individual, at various

times and at various prices during the period from September 9, 1993 to

January 1, 1995. An IRA account statement dated July 28, 1995 lists the

Stock as having an aggregate fair market value of $677,262.50.20

The applicant represents that the total acquisition cost of the Stock

was less than or equal to that amount.

20 The Department notes the applicant's representation

that due to the limited marketability of non-publicly traded stocks,

the value of the Stock is difficult to establish, and, therefore,

the Stock's value appearing on the IRA account statement dated July

28, 1995 represents an approximation of its fair market value.

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

3. The applicant has obtained an independent appraisal of the Stock

from Dennis H. Locke, CFA, ASA, of Management Advisory Service, located

in Seattle, Washington. Relying on the discounted cash flow method of

valuing a business enterprise, Mr. Locke estimated that the Stock's

fair market value as of August 31, 1995 was $2.10 per share (or a total

of $886,756.50), based on 33,822,315 diluted shares outstanding. Mr.

Locke stated that his appraisal takes into account future expectations

for the performance of Garden Botanika and for business and market

conditions in general, as well as a 10% discount to reflect the Stock's

limited marketability.

4. Mr. Meisenbach proposes to purchase the Stock from his own IRA

for the fair market value of the Stock as of the date of the sale,

based on an updated independent appraisal. In light of the extreme

volatility of non-publicly traded stocks, Mr. Meisenbach desires to

divest the IRA of the Stock so as to protect the IRA's current asset

value, create liquidity, and provide for his long-term security. The

applicant, who is now 59 years of age, intends to receive distributions

from the IRA soon after attaining age 59\1/2\. The sale will be a one-

time transaction for cash, and the IRA will pay no commissions nor

other expenses relating to the sale.

The applicant represents that the likelihood of selling such a

large block of the Stock at its appraised value to an unrelated third

party is questionable, due to the limited marketability of the Stock.

In addition, the applicant represents that the proposed transaction is

in the interests of the IRA because the sale will reduce the risk of

large losses in the IRA, as well as the administrative burdens involved

in valuing the IRA assets.

5. In summary, the applicant represents that the proposed

transaction satisfies the statutory criteria for an exemption under

section 4975(c)(2) of the Code for the following reasons: (a) the sale

will be a one-time transaction for cash; (b) the IRA will pay no

commissions nor other expenses relating to the sale; (c) the sale will

enhance the liquidity and protect the current value of the IRA assets;

(d) the purchase price will be the fair market value of the Stock as

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

the sale; and (e) Mr. Meisenbach is the only participant who will be

affected by the proposed transaction.

Notice to Interested Persons

Because Mr. Meisenbach is the sole participant in his 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 with respect to the proposed exemption are due within 30 days

of the date of publication of this notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Karin Weng of the Department,

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

Floral Glass and Mirror, Inc. Profit Sharing Plan and Trust (the Plan);

Located in Hauppage, New York; Proposed Exemption

[Application No. D-10144]

The Department is considering granting an exemption under the

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

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

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

is granted, the restrictions of 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 20 shares of stock of

Floral Glass Industries, Inc. (FGI) by the Plan to Mr. Charles

Kaplanek, Jr. (Kaplanek), a party in interest with respect to the Plan,

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

time transaction for cash; (b) the Plan pays no commissions or other

expenses in connection with the transaction; (c) the Plan will receive

the fair market value of the shares as determined by a qualified,

independent appraiser; and (d) all terms and conditions of the sale

will be at least as favorable to the Plan as those obtainable in an

arm's-length transaction with an unrelated party at the time of the

sale.

Summary of Facts and Representations

1. The Plan is sponsored by Floral Glass and Mirror, Inc. (the

Employer), a New York corporation. The Plan is a profit sharing plan

that permits participants to direct the investment of the assets in

their accounts. Participants who do not wish to direct the investments

of their own accounts may, instead, have their accounts invested by the

Plan trustees. The Plan has 29 participants and beneficiaries, and had

assets of $3,203,599 as of March 31, 1995.

2. Kaplanek is an 80% shareholder of the Employer and is also a

trustee of the Plan and a participant in the Plan. On January 1, 1981,

Kaplanek's individual account (the Account) in the Plan purchased, at

Kaplanek's direction, 20 shares of stock in FGI, a Connecticut

corporation with its principal place of business in Cheshire,

Connecticut. The 20 shares represented 100% of the outstanding shares

of FGI. The purchase price of the Stock was $20,000, and the Stock was

acquired from FGI.

3. The Account still owns the 20 shares, or 100% of the shares of

FGI.21 In addition, Kaplanek is 100% owner of two related

corporations, Shapes and Services Limited of Bohemia, New York, and

Floral Glass Industries, Inc. of East Rutherford, New Jersey, as well

as 80%

[[Page 8686]]

owner of the Employer (collectively, the Corporations).

\21\ The Department notes that under section 2510.3-101(h)(3) of

the plan asset regulations, it appears that the Plan's assets

include the stock of FGI and all of the underlying assets of FGI. In

this regard, the applicant has not asked for relief concerning the

operation of FGI, nor is the Department proposing any such relief

herein.

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

4. The Corporations intend to undergo a reorganization pursuant to

which they will be consolidated and/or reorganized into a single

corporation. As part of this reorganization, the 20 shares of FGI would

be exchanged for shares in the surviving or reorganized corporation.

Rather than leaving the 20 shares of FGI in the Plan, Kaplanek instead

proposes to purchase the shares from the Account prior to the

reorganization.22

\22\ The applicant represents that FGI is not a Plan sponsor or

a contributing employer to the Plan, and that the stock of FGI does

not constitute ``qualifying employer securities'' within the meaning

of section 407(d)(5) of the Act.

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

5. FGI is a manufacturer of insulated glass. In addition, it cuts

to size other glass and mirror products and distributes them to the New

England region. FGI's products include several items which are

registered or bear trademarks. Mr. Martin P. Randisi, President of Rand

Consulting Group, Inc., an independent business evaluation and

appraisal firm located in Smithtown, New York, has appraised the shares

of FGI. Mr. Randisi is a member of the American Society of Appraisers

and the American Institute of Certified Public Accountants. Mr. Randisi

has represented that he has performed over 1,000 valuations of closely

held companies since 1982. Mr. Randisi represents that both he and his

firm are independent of, and unrelated to, the Employer and FGI. Mr.

Randisi has concluded that as of March 31, 1995, the 20 shares of FGI

stock had a value of $953,000.

6. In summary, the applicant represents that the proposed

transaction satisfies the criteria contained in section 408(a) of the

Act because: (a) the sale will be a one-time transaction for cash; (b)

the Plan will not be required to pay any commissions, fees or other

expenses in connection with the sale; (c) the Plan will receive as

sales price for the shares the fair market value of the shares as

determined by a qualified, independent appraiser; (d) all terms and

conditions of the sale will be at least as favorable to the Plan as

those obtainable in an arm's-length transaction with an unrelated

party; and (e) Kaplanek's Account in the Plan is the only account to be

affected by the transaction, and Kaplanek has determined that the

transaction is appropriate for his Account and has determined that the

transaction should be consummated.

Notice to Interested Persons: Since Kaplanek is the only Plan

participant to be affected by the proposed transaction, the Department

has determined that there is no need to distribute the notice of

proposed exemption to interested persons. Comments and requests for a

hearing are due within 30 days from the date of publication of this

notice of proposed exemption in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,

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

Coin Acceptors, Inc. Savings and Protection Plan (the Plan); Located in

St. Louis, Missouri; Proposed Exemption

[Application No. D-10183]

The Department is considering granting an exemption under the

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

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

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

is granted, the restrictions of section 406(a), 406(b)(1) and (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 past sale by the Plan of certain publicly

traded securities (the Securities) to Coin Acceptors, Inc. (Coin

Acceptors), a party in interest with respect to the Plan, provided that

the following conditions were satisfied: (1) the sale was a one-time

transaction for cash; (2) the Plan paid no commissions nor other

expenses relating to the sale; (3) the purchase price was the aggregate

fair market value of the Securities as of the date of the sale, as

determined by the Plan's independent investment manager by reference to

the closing prices for the Securities on the New York Stock Exchange

(NYSE); and (4) the terms of the sale were at least as favorable to the

Plan as those obtainable in an arm's length transaction with an

unrelated party.

EFFECTIVE DATE: The proposed exemption, if granted, will be effective

as of September 29, 1995.

Summary of Facts and Representations

1. The Plan is a profit sharing plan with a 401(k) feature

sponsored by Coin Acceptors. Coin Acceptors is engaged in the business

of manufacturing coin and currency handling devices for use in vending

machines. As of September 29, 1995 the Plan had approximately 1,000

participants and total assets of approximately $10,000,000. Effective

September 29, 1995, the Mercantile Bank of St. Louis, N.A. became the

Plan trustee.

2. Among the assets of the Plan were the Securities, which were 14

publicly traded securities originally purchased by the Plan on the open

market. These 14 Securities were: Actava Group, Bristol Myers Squibb

Co., Citicorp, Exide Corp., Grace WR & Co., MBIA, Inc., MGIC Investment

Corp., Mercantile Bancorp, Inc., Merry Land & Investment Co., Pep Boys

Manny Moe & Jack, Sun Microsystems, Inc., Sysco Corp., United

HealthCare Corp., and Verifone, Inc. On September 29, 1995, Coin

Acceptors purchased the Securities from the Plan for a total of

$998,519. The Plan realized, in the aggregate, a gain of approximately

$243,737 as a result of the sale.

The applicant represents that all the Plan's assets were being

liquidated at that time in connection with a modification to the Plan.

Effective October 1, 1995, the Plan permitted participants to direct

the investment of their respective individual accounts among six mutual

funds. Coin Acceptors, which maintains its own investment portfolio,

was interested in purchasing 14 of the Plan's securities which were to

be liquidated. The applicant represents that the purchase price of

$998,519 was the aggregate fair market value of the Securities as of

the date of the sale. The fair market value of the Securities was

determined by Pin Oak Capital, Ltd., one of the Plan's independent

investment managers, by reference to the closing prices of the

Securities on the NYSE on September 28, 1995 quoted in the Wall Street

Journal on September 29, 1995, the date of the sale. The applicant

maintains, therefore, that the terms of the sale were at least as

favorable to the Plan as those obtainable in an arm's length

transaction with an unrelated party. The sale was a one-time

transaction for cash, and the Plan paid no commissions nor other

expenses relating to the sale. Further, the costs of this exemption

application will be borne by the applicant.

The applicant represents that selling the Securities to Coin

Acceptors, in lieu of selling them on the open market, was in the

interests of the Plan because it saved the Plan brokerage commissions

totalling at least $1,458 (based on a commission of $0.06 per share).

In addition, the Plan had the use of the sale proceeds two business

days earlier than if the Plan had sold the Securities on the open

market through a broker.

The applicant represents they were not aware that the sale would

constitute a violation of the prohibited transaction provisions of the

Act until October 24, 1995, when the applicant's accountants conducted

the annual audit of the Plan.

[[Page 8687]]

Outside legal counsel was then consulted, and it was recommended that

Coin Acceptors file an application for a retroactive exemption.

5. In summary, the applicant represents that the subject

transaction satisfied the statutory criteria for an exemption under

section 408(a) of the Act for the following reasons: (1) the sale was a

one-time transaction for cash; (2) the Plan paid no commissions nor

other expenses relating to the sale; (3) the purchase price was the

aggregate fair market value of the Securities as of the date of the

sale, as determined by the Plan's independent investment manager by

reference to the closing prices for the Securities on the NYSE; and (4)

the terms of the sale were at least as favorable to the Plan as those

obtainable in an arm's length transaction with an unrelated party.

Notice to Interested Persons

Notice of the proposed exemption shall be given to all interested

persons by personal delivery and by first-class mail within 15 days of

the date of publication of the notice of pendency 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/or to request a

hearing with respect to the proposed exemption. Comments and requests

for a hearing are due within 45 days of the date of publication of this

notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng 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 accurately describe all

material terms of the transaction which is the subject of the

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

the material facts or representations described in the application

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

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

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

Signed at Washington, DC, this 28th day of February, 1996.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 96-5022 Filed 3-4-96; 8:45 am]

BILLING CODE 4510-29-P