Proposed Exemptions; Budge Clinic Profit Sharing Plan and Trust (the Plan)

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10142, et al.]

Proposed Exemptions; Budge Clinic Profit Sharing Plan and Trust

(the Plan)

AGENCY: Pension and Welfare Benefits Administration, Labor.

[[Page 10015]]

ACTION: Notice of proposed exemptions.

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SUMMARY: This document contains notices of pendency before the

Department of Labor (the Department) of proposed exemptions from

certain of the prohibited transaction restriction of the Employee

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

Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

Unless otherwise stated in the Notice of Proposed Exemption, all

interested persons are invited to submit written comments, and with

respect to exemptions involving the fiduciary prohibitions of section

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

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

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

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

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

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

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

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

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

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

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

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

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

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

20210. Attention: Application No. stated in each Notice of Proposed

Exemption. The applications for exemption and the comments received

will be available for public inspection in the Public Documents Room of

Pension and Welfare Benefits Administration, U.S. Department of Labor,

Room N-5507, 200 Constitution Avenue, NW., Washington, DC 20210.

Notice to Interested Persons

Notice of the proposed exemptions will be provided to all

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

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

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

exemption as published in the Federal Register and shall inform

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

(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in

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

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

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

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

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

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

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

exemption are issued solely by the Department.

The applications contain representations with regard to the

proposed exemptions which are summarized below. Interested persons are

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

statement of the facts and representations.

Budge Clinic Profit Sharing Plan and Trust (the Plan), Located in

Logan, Utah

[Application No. D-10142]

Proposed Exemption

The Department is considering granting an exemption under the

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

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

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

is granted the restrictions of 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 located in Logan, Utah (the Property) by the Plan to IHC

Health Services, Inc., a party in interest with respect to the Plan;

provided that the following conditions are satisfied:

(A) All terms and conditions of the transaction are no less

favorable to the Plan than those which the Plan could obtain in an

arm's-length transaction with an unrelated party;

(B) The Plan receives a cash purchase price for the Property which

is no less than the fair market value of the Property as of the sale

date; and

(C) The Plan does not incur any expenses or suffer any loss with

respect to the transaction.

Summary of Facts and Representations

1. The Plan is a defined contribution pension plan with 111

participants and total assets of $7,070,904 as of December 31, 1994.

The Plan is sponsored by the Budge Clinic, Inc. (the Employer), a Utah

professional corporation engaged in the provision of medical services

in Logan, Utah. Effective September 12, 1995, substantially all of the

assets of the Employer were acquired (the Acquisition) by IHC Health

Services, Inc. (IHC). IHC is a wholly-owned subsidiary of Intermountain

Health Care, Inc., the subsidiaries and affiliates of which provide

health care through a system of hospitals, clinics, HMOs, and PPOs in

Utah, Wyoming and Idaho. The Plan's trustee is Neal Byington (the

Trustee), an employee of the Employer.

2. The Employer's place of business is a clinic facility (the

Clinic) located at 225 East 400 North in Logan, Utah. The Clinic

consists of a 22,374 square foot medical clinic building (the Building)

and adjacent parking area situated on a commercially-zoned lot (the

Land) measuring 74,923 square feet. The Employer owns 24,298 square

feet of the Land, which is additional parking space at the rear of the

Clinic lot (the Employer Property). The remaining 50,625 square feet of

the Land, occupied by paved parking space and the Building (together,

the Plan Property), are owned by the Plan and leased to the Employer

pursuant to a 21-year lease (the Lease) executed on January 1, 1980.

The Employer's lease of the Property from the Plan is exempt from the

prohibited transactions provisions of the Act by virtue of an

individual administrative exemption, Prohibited Transaction Exemption

81-97 (PTE 81-97, 46 FR 53815, October 30, 1981). The interests of the

Plan under the Lease are represented by an independent fiduciary (the

Fiduciary), who protects the Plan's interests and monitors the

Employer's compliance with the terms and conditions of the Lease. Upon

commencement of the Lease, the Fiduciary was Roland R. Hancey, an

officer with Zion's First National Bank (the Bank) in Logan, Utah, but

Mr. Hancey has retired. The successor to Mr. Hancey as independent

fiduciary is Karl Ward, a trust officer with the Bank who continues to

serve as Fiduciary under the Lease and for purposes of PTE 81-97.

3. The Employer represents that as part of the Acquisition,

virtually all of the employees of the Employer have become employees of

IHC. The Employer and IHC have agreed that the Plan will be terminated

effective December 31, 1995, and they intend to offer all Plan

participants the opportunity to receive a cash distribution of their

account balances in the Plan or to ``roll over'' their account balances

into an I.R.A. or into the defined contribution plan maintained by IHC.

As part of the Acquisition, IHC

[[Page 10016]]

has agreed to purchase the Plan Property from the Plan, in order to

enable the rapid liquidation of that Plan asset and to secure for the

Employer the continued use and occupancy of the Plan Property. The

Employer and IHC are requesting an exemption to permit this purchase

transaction under the terms and conditions described herein.

4. It is proposed that IHC will make a single cash payment to the

Plan for the Plan Property in the amount of no less than the fair

market value of the Plan Property as of the sale date, but in no event

less than $1,180,000. The Plan Property has been appraised by Thomas D.

Singleton, MAI (Singleton), a professional independent real estate

appraiser in Logan, Utah. Singleton represents that as of December 31,

1994, the Plan Property had a fair market value of $1,180,000.

Singleton's appraisal recognizes the Employer's ownership of an

adjacent parcel, the Employer Property, as well as the Employer's

proposal to purchase the Plan Property, and the resulting valuation

reflects a premium price for the Plan Property because of the

Employer's current and proposed occupancy of the Property and its

ownership of the adjacent parcel. Singleton states that he based the

appraisal on the assumption that the Employer will continue to lease/

occupy the Plan Property because the value would likely decrease if the

Employer were to vacate and move elsewhere, due to (a) the local

market's inability to support more than one clinic of a size comparable

to the Employer, and (b) the market trend toward greater centralization

of medical facilities near major hospital campuses, such as the Logan

Hospital which has relocated to a different part of the city. Regarding

the Employer's ownership of the adjacent Employer Property, Singleton

determined that it would not be economically feasible to separate the

adjoining parcels physically or to consider them separately for

valuation purposes. Singleton determined the value of the Plan Property

by deducting from his valuation of the entire combined parcel his

estimate of the value of the Employer Property. As part of the proposed

purchase transaction, Singleton's appraisal will be updated as of the

purchase date, and the purchase price will be the greater of $1,180,000

or the fair market value as of the sale date in accordance with the

update of Singleton's appraisal. The Plan will not incur any expenses

related to the transaction. The Employer will continue to occupy the

Plan Property under the Lease through the date of the proposed

transaction, and thereafter the Employer will occupy the Clinic under

the authority of IHC. The Employer represents that the proposed

transaction is in the best interests and protective of the participants

and beneficiaries of the Plan because it will enable the Plan to make

allocations of cash to the Accounts representing their pro-rata

interests in the Plan Property as a Plan asset, and the Plan will

receive a purchase price of no less than the fair market value of the

Plan Property at the time of the transaction.

5. The Fiduciary represents that there have been no events of

default by the Employer under the Lease and that each rental payment

due under the Lease has been timely made to the Plan. The Fiduciary

states that he has caused the Plan Property to be appraised

periodically for its fair market rental value as required under the

Lease and that the rent payable under the Lease has been increased in

accordance with such appraisals. The Fiduciary represents that in all

respects the Employer has been and continues to be in compliance with

the terms and conditions of the Lease. The Trustee also represents that

there have never been any events of default under the Lease.

6. In summary, the applicant represents that the proposed

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

following reasons: (a) The Plan, which is terminating, will receive

cash for the Plan Property for allocation to the Accounts on a pro-rata

basis, to enable Plan participants to receive cash distributions or to

``roll over'' into another plan or an I.R.A; (b) The purchase price

will be no less than the fair market value of the Plan Property as of

the sale date as determined by Singleton's updated appraisal, and in no

event less than $1,180,000; and (c) the Plan will not incur any

expenses related to the proposed transaction.

FOR FURTHER INFORMATION CONTACT: Ronald Willett of the Department,

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

C.C.L. Label, Inc., 401(k) Profit-Sharing Plan (the Plan), Located in

Grand Rapids, Michigan

[Application No. D-10168]

Proposed Exemption

The Department is considering granting an exemption under the

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

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

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

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

publicly traded limited partnership interests (the Interests) to CCL

Label, Inc. (CCL), a party in interest with respect to the Plan,

provided that the following conditions are satisfied: (1) the sale is a

one-time transaction for cash; (2) the Plan pays no commissions nor

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

greater of: (a) the fair market value of the Interests as of the date

of the sale, or (b) the original acquisition cost of the Interests.

Summary of Facts and Representations

1. The Plan is a profit sharing plan sponsored by CCL. CCL, a

Michigan corporation, is a member of a controlled group of corporations

and is engaged in the manufacture of decorative labels. The Plan has

approximately 481 participants and beneficiaries. As of December 31,

1994, the Plan had total assets of approximately $9,914,333.31. The

trustee of the Plan is Comerica Bank, N.A.

2. Among the assets of the Plan are the Interests, which are 5,644

shares of the Aetna Real Estate Association Partnership (the

Partnership). The Plan acquired the Interests on January 1, 1989, when

the American Design, Inc. Profit Sharing Retirement Plan (the American

Design Plan) was merged into, and survived by, the Plan. The American

Design Plan acquired the Interests in 1986 for a total of $112,880 ($20

per share). The Partnership has made cash distributions with respect to

the Interests in the cumulative amount of $52,037.68 ($9.22 per share),

as of November 15, 1995.

The Partnership is open-ended, with no set term. The Partnership

originally invested in 15 properties, two of which have been sold,

leaving thirteen. The applicant represents that the Partnership intends

to continue holding the remaining 13 properties until the real estate

market has completely rebounded from the depressed prices of the past

few years.

3. The applicant represents that although the Interests are

publicly traded, they are very thinly traded and generally sell for

considerably less than their net asset value.1 Moreover, the net

asset value of the Interests has been

[[Page 10017]]

declining. As of December 31, 1994, the net asset value of the

Interests as determined by Independent Property Appraisals, an

independent valuation service, was $14.96 per share, a total of

$84,434.24. A summary of the trades of other shares of the Partnership

on the secondary market for the period between February 1, 1995 and

February 28, 1995 as reported in the Investment Advisor shows that the

average price per share during that period was $7.52, which would make

the Interests worth $42,443.

1 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.

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4. In order to divest the Plan of an under-performing asset, CCL

proposes to purchase the Interests from the Plan for the greater of:

(a) The fair market value of the Interests as of the date of the sale,

or (b) the Interests' original acquisition cost to the American Design

Plan. Because the fair market value of the Interests is less than their

acquisition cost, CCL will purchase the Interests from the Plan for the

latter amount. Accordingly, CCL will pay the Plan a purchase price of

$112,880. Taking into account a purchase price of $112,880 and all cash

distributions received, the applicant represents that the Interests

will provide a simple average annual return of approximately five

percent for each of the nine years that the Plan (and its predecessor)

have held the Interests. The sale will be a one-time transaction for

cash, and the Plan will pay no commissions nor other expenses relating

to the sale.

The applicant represents that the proposed transaction is in the

interests of the Plan because the Plan cannot sell the Interests on the

open market without incurring a substantial loss. The proceeds from the

sale are to be redirected into more productive investments.

5. In summary, the applicant represents that the proposed

transaction satisfies the statutory criteria for an exemption under

section 408(a) of the Act for the following reasons: (1) The sale will

be a one-time transaction for cash; (2) the Plan will pay no

commissions nor other expenses relating to the sale; and (3) the

purchase price will be the greater of: (a) The fair market value of the

Interests as of the date of the sale, or (b) the original acquisition

cost of the Interests.

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: Ms. Karin Weng of the Department,

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

Dauphin Deposit Bank and Trust Company, Located in Harrisburg,

Pennsylvania

[Application No. D-10187]

Proposed Exemption

The Department is considering granting an exemption under the

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

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

2570, Subpart B (55 FR 32836, August 10, 1990).

Section I--Exemption for In-Kind Transfer of CIF Assets

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 to the proposed in-kind

transfer of assets of plans for which Dauphin Deposit Bank and Trust

Company (Dauphin) acts as a fiduciary (the Client Plans), other than

plans established and maintained by Dauphin (the Banks Plans), that are

held in certain collective investment funds maintained by Dauphin

(CIFs) in exchange for shares of the Marketvest Funds (the Funds),

open-end investment companies registered under the Investment Company

Act of 1940 (the 1940 Act), in situations where Dauphin acts as

investment advisor for the Fund and may provide some other ``Secondary

Service'' to the Fund as defined in Section V(h), in connection with

the termination of such CIFs, provided that the following conditions

and the general conditions of Section III 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 payable in

connection with the sale of such shares by the Client Plans to the

Funds.

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

net asset value that is equal to the value of the 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 that business

day using independent sources in accordance with Rule 17a-7 of the

Securities and Exchange Commission (SEC) under the 1940 Act (see 17 CFR

270. 17a-7) and the procedures established by the Funds pursuant to

Rule 17a-7 for the independent 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 Dauphin.

(c) All or a pro rata portion of the assets of a Client Plan held

in a CIF are transferred in-kind to the Funds in exchange for shares of

such Funds.

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

Dauphin (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 Dauphin considers investing in the Fund is an

appropriate investment decision for the Client Plan;

[[Page 10018]]

(4) A statement describing whether there are any limitations

applicable to Dauphin 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, Dauphin

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 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 to the proposed receipt of fees by

Dauphin from the Funds for acting as an investment adviser for the

Funds as well as for providing other services to the Funds which are

``Secondary Services'' as defined in Section V(h), 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) Each Client Plan satisfies either (but not both) of the

following:

(1) The Client Plan receives a cash credit of such Plan's

proportionate share of all fees charged to the Funds by Dauphin for

investment advisory services, including any investment advisory fees

paid by Dauphin to third party sub-advisers, no later than the same day

as the receipt of such fees by Dauphin. The crediting of all such fees

to the Client Plans by Dauphin is audited by an independent accounting

firm on at least an annual basis to verify the proper crediting of the

fees to each Plan.

(2) The Client Plan does not pay any Plan-level investment

management fees, investment advisory fees, or similar fees to Dauphin

with respect to any of the assets of such Plan which are invested in

shares of any of the Funds. This condition does not preclude the

payment of investment advisory or similar fees by the Funds to Dauphin

under the terms of an investment management agreement adopted in

accordance with section 15 of the 1940 Act, nor does it preclude the

payment of fees for Secondary Services to Dauphin pursuant to a duly

adopted agreement between Dauphin and 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 V(e), and is the same price which would have been

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

(c) Dauphin, including any officer or director of Dauphin, does not

purchase or sell shares of the Funds from or to any Client Plan.

(d) 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.

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

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

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

Client Plan may invest, are not in excess of ``reasonable

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

(f) Dauphin 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 Dauphin.

(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 Dauphin may consider such investment to be

appropriate for the Client Plan;

(4) A statement describing whether there are any limitations

applicable to Dauphin 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 and the

fees to be paid by such Funds to Dauphin.

(j) All authorizations made by a Second Fiduciary regarding

investments in a Fund and the fees paid to Dauphin 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 Dauphin 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

[[Page 10019]]

Dauphin of written notice from the Second Fiduciary; and

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

authorization of Dauphin to engage in the transactions described in

paragraph (i) on behalf of the Client Plan.

(k) For each Client Plan using the fee structure described in

paragraph (a)(1) above with respect to investments in a particular

Fund, the Second Fiduciary of the Client Plan receives full written

disclosure in a Fund prospectus or otherwise of any increases in the

rates of fees charged by Dauphin to the Funds for investment advisory

services.

(l) (1) For each Client Plan using the fee structure described in

paragraph (a)(2) above with respect to investments in a particular

Fund, an increase in the rate of fees paid by the Fund to Dauphin

regarding any investment management services, investment advisory

services, or similar services that Dauphin provides to the Fund over an

existing rate for such services that had been authorized by a Second

Fiduciary in accordance with paragraph (i) above; or

(2) For any Client Plan under this proposed exemption, an addition

of a Secondary Service (as defined in Section IV(h) below) provided by

Dauphin to the Fund for which a fee is charged, or an increase in the

rate of any fee paid by the Funds to Dauphin for any Secondary Service

that results either from an increase in the rate of such fee or from

the decrease in the number of kind of services performed by Dauphin for

such fee over an existing rate for such Secondary Service which had

been authorized by the Second Fiduciary of a Client Plan in accordance

with paragraph (i) above;

Dauphin will, at least 30 days in advance of the implementation of

such additional service for which a fee is charged or fee increase,

provide a written notice (which may take the form of a proxy statement,

letter, or similar communication that is separate from the prospectus

of the Fund and which explains the nature and amount of the additional

service for which a fee is charged or of the increase in fees) to the

Second Fiduciary of the Client Plan. Such notice shall be accompanied

by a Termination Form with instructions as described in paragraph (i)

above.

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

Client Plan investing in the Funds with:

(1) A copy of the current prospectus for the Funds in which the

Client Plan invests 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 Dauphin;

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

Dauphin 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) With respect to each of the Funds in which a Client Plan

invests, in the event such Fund places brokerage transactions with

Dauphin, Dauphin will provide the Second Fiduciary of such Plan at

least annually with a statement specifying:

(1) The total, expressed in dollars, of brokerage commissions of

each Fund that are paid to Dauphin by such Fund;

(2) The total, expressed in dollars, of brokerage commissions of

each Fund that are paid by such Fund to brokerage firms unrelated to

Dauphin;

(3) The average brokerage commissions per share, expressed as cents

per share, paid to Dauphin by each Fund; and

(4) The average brokerage commissions per share, expressed as cents

per share, paid by each Fund to brokerage firms unrelated to Dauphin.

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

basis no less favorable to the Plans than dealings with other

shareholders of the Funds.

Section III--General Conditions

(a) Dauphin 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 Dauphin, the

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

and (2) no party in interest other than Dauphin or an affiliate 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 below in paragraph (b)(2) and

notwithstanding any provisions of section 504(a)(2) 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;

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

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

commercial or financial information which is privileged or

confidential.

Section IV--Definitions

For purposes of this proposed exemption:

(a) The term ``Dauphin'' means Dauphin Deposit Bank and Trust

Company and any affiliate thereof as defined below in paragraph (b) 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 Marketvest

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

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

investment adviser and may also serve as a custodian, dividend

disbursing agent, shareholder servicing agent, transfer agent, Fund

accountant, 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

[[Page 10020]]

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 Dauphin. For purposes of

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

independent of and unrelated to Dauphin if:

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

by, or is under common control with Dauphin;

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

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

of Dauphin (or is a relative of such persons);

(3) Such fiduciary directly or indirectly receives any compensation

or other consideration for his or her own personal account in

connection with any transaction described in this proposed exemption.

If an officer, director, partner or employee of Dauphin (or

relative of such persons), is a director of such Second Fiduciary, and

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

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

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

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

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

above, then paragraph (g)(2) of 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 Dauphin to the Funds. However, for purposes of Section

II(k), the term ``Secondary Service'' will not include any brokerage

services provided to the Funds by Dauphin 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 (h) 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 Dauphin 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 Dauphin of the form; provided that if, due to

circumstances beyond the control of Dauphin, the sale cannot be

executed within one business day, Dauphin shall have one additional

business day to complete such sale.

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

will be effective as of March 29, 1996.

Summary of Facts and Representations

1. Dauphin is a banking corporation of the Commonwealth of

Pennsylvania that serves as trustee, investment manager and/or

custodian to employee benefit plans. As of December 31, 1994, Dauphin

provided trust services to approximately 1,000 employee benefit trusts,

and had total assets under management of approximately $723 million.

2. Dauphin acts as a trustee, directed trustee, investment manager,

and/or custodian for the Client Plans. The Client Plans may include

various pension, profit sharing, and stock bonus plans as well as

voluntary employees' beneficiary associations, supplemental

unemployment benefit plans, simplified employee benefit plans,

retirement plans for self-employed individuals (i.e. Keogh Plans) and

individual retirement accounts (IRAs). Some of the Client Plans may be

participant-directed individual account plans.

As custodian of a Client Plan, Dauphin is responsible for

maintaining custody over all or a portion of the Client Plan's assets,

for providing trust accounting and valuation services, for asset and

transaction reporting, and for execution and settlement of directed

transactions. Where Dauphin serves as trustee or directed trustee, it

is responsible for ownership of the assets of the Client Plan, and may

provide additional trust services such as benefit payments, loan

processing, and participant accounting. Where Dauphin is also acting as

the investment manager, Dauphin has investment discretion over the

Client Plan's assets and is responsible for implementing the Plan's

funding policies and investment objectives, executing transactions, and

periodic performance measurements.

The Client Plans pay fees in accordance with fee schedules

negotiated with Dauphin. Fees vary from fixed amounts to asset-based

amounts, depending on the level of services provided, and may include

further charges for additional trust services such as processing

benefit payments.

Dauphin maintains three CIFs specifically for its employee benefit

plan trust customers, such as the Client Plans. These CIFs are: (a) The

Employee Benefit Equity Fund; (b) the Employee Benefit Fixed Income

Fund; and (c) the Employee Benefit Short-Term Fixed Income Fund. The

CIFs are utilized for those Client Plans for which Dauphin serves as

trustee and/or investment manager. The applicant states that the CIFs

allow Dauphin to provide professional investment management with

appropriate degrees of investment diversification to Client Plans of

all sizes.

The specific Client Plans of Dauphin to which this proposed

exemption, if granted, would apply are those: (a) Whose assets are

invested in the CIFs and will be transferred to the Funds; or (b) whose

assets will be invested directly in the Funds.

However, Dauphin does not seek relief for investments in the Funds

by the Bank Plans.\2\

\2\ Dauphin represents that it will comply with the requirements

of Prohibited Transaction Exemption (PTE) 77-3, 42 FR 18734 (April

8, 1977), with respect to any investments in the Funds made by the

Bank Plans. 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. The Department is expressing no opinion

in this proposed exemption regarding whether any of the transactions

with the Funds by the Bank Plans would be covered by PTE 77-3.

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3. The Funds will be a Maryland corporation registered as an open-

end investment company with the SEC under the 1940 Act. The Funds will

consist of a series of investment portfolios (each a ``Fund'')

representing distinct investment vehicles, which will have their own

prospectuses or joint prospectuses with one or more other Funds. The

shares of each Fund will represent a proportionate interest in the

assets of that Fund.

The Funds that will be available for investment in connection with

the transactions described herein are the following: (a) The Equity

Fund; (b) the Short-Term Bond Fund; and (c) the Intermediate U.S.

Government Bond Fund. Additional Funds may be created in the future

which could be used for investment by the Client Plans.

The overall management of the Funds, including the negotiation of

investment advisory contracts, will rest with each Fund's Board of

Directors, more than a majority of whose members will be independent of

Dauphin. The Board of Directors will be elected by the shareholders of

the Funds.

Dauphin will serve as the investment adviser to each Fund and will

receive maximum investment advisory fees from each Fund that will vary

between 0.75% and 1.00% of the Fund's average net assets on an annual

basis, depending on the particular Fund. However, these

[[Page 10021]]

fees will be subject to voluntary waivers by Dauphin and initially will

be between 0.49% and 0.80% of the Fund's average net assets. Dauphin

also will serve as custodian of the Funds and will receive a custodial

services fee.

The other service-providers to the Funds will be independent of and

unaffiliated with Dauphin. Such service-providers currently will

include: (a) Federated Administrative Services, which will act as the

Fund's administrator; (b) Edgewood Services, Inc., a subsidiary of

Federated Investors, which will act as the Fund's distributor; and (c)

Federated Services Co., which will act as the transfer agent, dividend

disbursing agent and portfolio accountant for the Fund.

The Funds will be able to charge a distribution fee of 0.25% of a

Fund's average net assets, pursuant to Rule 12b-1 under the 1940 Act.

Dauphin represents that such 12b-1 fees will be dormant at the outset

of the Funds and will not be charged to the investments of any of the

Client Plans. Dauphin states that if the 12b-1 fee is activated at any

time, the Funds will create a separate class of shares not subject to

the 12b-1 fee, and the Client Plans will be invested in that separate

class of shares. Therefore, Dauphin will not receive any fees payable

pursuant to Rule 12b-1 under the 1940 Act in connection with the

transactions.

The Funds will also be able to charge fees of 0.25% under a

shareholder services plan. However, the Client Plans will not be

subject to these shareholder services fees.

4. Dauphin will be making the Funds available to the Client Plans

as replacements for the CIFs. Dauphin believes that there are material

advantages to the Client Plans from the use of the Funds, and Dauphin's

customers are interested in having mutual funds available as investment

vehicles for their employee benefit plan trust accounts. Mutual funds

are valued on a daily basis, whereas the CIFs were valued monthly. The

daily valuation permits: (i) Immediate investment of Plan contributions

in varied types of investments; (ii) greater flexibility in

transferring assets from one type of investment to another; and (iii)

daily redemption of investments for purposes of making distributions.

In addition, information concerning the investment performance of

mutual funds is generally available each day in newspapers of general

circulation, which will allow Client Plan sponsors and participants to

monitor the performance of their investments on a daily basis.

Furthermore, unlike CIF units, mutual fund shares can be given to

participants in plan distributions, thus avoiding the expense and delay

of liquidating plan investments and facilitating roll-overs into IRAs.

Investments by Client Plans in the Funds will occur in two ways.

First, the CIFs which are maintained by Dauphin for the Client Plans

are scheduled to be terminated on March 29, 1996, and the assets of the

CIFs will be transferred in-kind to the corresponding Funds on behalf

of those Client Plans for which independent fiduciary approval for the

transfer is obtained. Second, Client Plans will also be able to make

direct purchases of Fund shares for cash on an ongoing basis.

Dauphin states that the price that will be 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 V(e), and will be

the same price which will be paid or received for the shares by any

other investor at that time. In addition, Dauphin states that no sales

commissions or redemption fees will be charged in connection with the

purchase or sale of Fund shares by the Client Plans.

5. Until March 29, 1996, Dauphin generally will invest assets of

Client Plans for which it acts as a trustee with investment discretion

in the CIFs. In addition, certain Client Plans where investment

decisions are directed by a Second Fiduciary may use a CIF as an

investment option for individual accounts in the Client Plans. However,

on Friday, March 29, 1996, Dauphin plans to terminate its three CIFs.

The assets in the CIFs will be transferred to the Marketvest Equity

Fund, the Marketvest Intermediate U.S. Government Bond Fund, and the

Marketvest Short-Term Bond Fund. Each CIF will transfer its assets to

the corresponding Fund in exchange for shares of the Fund at the then

current market value of the CIF assets, in accordance with Rule 17a-7

under the 1940 Act (as discussed below).3 The in-kind transfer of

a Client Plan's CIF assets to the Funds will be subject to the prior

written consent of the Second Fiduciary for the Client Plan. Any Client

Plan that does not provide prior written approval for the transfer of

its CIF assets to the Funds, by the deadline set for such approvals,

will receive a cash distribution of its pro rata share of the CIF

assets no later than Friday, March 29, 1996, preceding the transfers.

\3\ Rule 17a-7 permits transactions between investment funds

that use the same investment adviser, subject to certain conditions.

Rule 17a-7 requires, among other things, that such transactions be

effected at the ``independent current market price'' for each

security, involve only securities for which market quotations are

readily available, involve no brokerage commissions or other

remuneration, and comply with valuation procedures adopted by the

board of directors of the investment company to ensure that all

requirements of the Rule are satisfied.

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The in-kind transfers of the CIF assets will occur using market

values for such assets as of the close of business on Friday, March 29,

1996. The securities transferred from the CIFs will be the same as the

securities received by the Funds. The value of the securities will be

determined in a single valuation by Dauphin as investment adviser for

the Funds, in accordance with the requirement of Rule 17a-7(b) that

transactions be effected at the ``independent current market price'' of

the securities.

Under Rule 17a-7, the ``independent current market price'' for

specific types of CIF securities involved in the transactions will be

determined by Dauphin 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.

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.

Dauphin states that it will also send by regular mail to each

affected Client Plan, not later than 30 days after completion of the

transactions, a written

[[Page 10022]]

confirmation containing the following information:

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

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

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

and

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

in determining the value of such securities. In this regard, securities

which will be valued in accordance with Rule 17a-7(b)(4) are securities

for which the current market price cannot be obtained by reference to

the last sale price for transactions reported on a recognized

securities exchange or the NASDAQ system. As noted above, such

securities will 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

Dauphin.

Each Client Plan that approves the CIF asset transfers to the Funds

will receive account statements describing the asset transfers either

on such Plan's monthly account statement or quarterly account

statement. These statements will show the disposition of the CIF units

from the Client Plan account and the acquisition by the account of Fund

shares. This information will be provided to the affected Client Plans

with written confirmation of 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 as well as the number of

shares of the Funds held by the Client Plan following the transfer, the

related per share net asset value, and the total dollar amount of such

shares.

Thus, Dauphin represents that as of Monday, April 1, 1996, Client

Plans formerly invested in the terminated CIFs will hold Fund shares

which have the same value, based on the Client Plans' pro rata share of

the underlying market value of the securities transferred to the Funds,

as their assets in the CIF as of the close of business on Friday, March

29, 1996.

6. Prior to investing a Client Plan's assets in a Fund through an

in-kind transfer of CIF assets or otherwise, Dauphin will obtain the

approval of a Second Fiduciary acting for the Client Plan. The Second

Fiduciary generally will be the Client Plan's named fiduciary, trustee

(if other than Dauphin), or the sponsoring employer. Dauphin will

provide the Second Fiduciary with a current prospectus for the Fund and

a written statement giving full disclosure of the fee structure under

which either Dauphin's investment advisory and other fees will be

credited back to the Client Plan or the Plan-level investment

management fees will be waived. The disclosure statement and the letter

that precedes the disclosure statement will describe why Dauphin

believes the investment of a Client Plan's assets in the Funds may be

appropriate. Dauphin states that these disclosures will be based on the

requirements of PTE 77-4 (42 FR 18732, April 8, 1977).4

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

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

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

the investment adviser for the investment company, provided that,

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

investment advisory or similar fee with respect to the plan assets

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

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

preclude the payment of investment advisory fees by the investment

company under the terms of an investment advisory agreement adopted

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

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

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

plan assets from which a credit has been subtracted representing the

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

investment company.

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On the basis of such information, the Second Fiduciary will

authorize Dauphin to invest the Client Plan's assets in the Funds and

to receive fees from the Funds. In connection with the proposed in-kind

asset transfers from the CIFs, if a Client Plan's Second Fiduciary does

not provide Dauphin with its approval of the investment in a

corresponding Fund by the deadline established for approvals of the

transfers from a CIF, the Client Plan will receive a distribution from

the CIF prior to such transfers and the distribution will be invested

in an appropriate investment vehicle for the Client Plan, in accordance

with the terms of the Plan.

8. Dauphin will charge investment advisory fees to the Funds in

accordance with the investment advisory agreements between Dauphin and

the Funds. These agreements will be approved by the independent members

of the Board of Directors of the Funds, in accordance with the

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

the fees will have to be approved by such Directors. These fees also

will not be increased without the approval of the shareholders of the

affected Funds. The fees will be paid monthly by the Funds. In

addition, Dauphin will charge fees for custody services it will provide

to the Funds in accordance with a custodial services agreement with the

Funds.

Dauphin will avoid charging the Client Plans duplicative investment

management fees by either: (a) Crediting the Client Plan's pro rata

share of the Fund advisory fees back to the Client Plan; or (b) waiving

any investment management fee for the Client Plan at the Plan-level.

The ``crediting'' fee structure will be designed to preserve the

negotiated fee rates of the Client Plans so as to minimize the impact

of the change to the Funds on a Client Plan's fees. Dauphin will charge

a Client Plan its standard fees as applicable to the particular Client

Plan for serving as trustee, directed trustee, investment manager or

custodian. At the beginning of each month, and in no event later than

the same day as the payment of investment advisory fees by the Funds to

Dauphin for the previous month, Dauphin will credit to each Client Plan

in cash its proportionate share of all investment advisory fees charged

by Dauphin to the Funds for the previous month. The credit will include

the Client Plan's share of any investment advisory fees paid by Dauphin

to third party sub-advisors.

Dauphin states that the credit will not include the custodial fees

payable by the Funds to Dauphin because the custodial services rendered

at the Fund-level will not be duplicative of any services provided

directly to the Client Plan. The custodial services to the Fund will

involve maintaining custody and providing reporting relative to the

individual securities owned by the Fund. The services to the Client

Plan will involve maintaining custody over all or a portion of the

Client Plan's assets (which may include Fund shares, but not the assets

underlying the Fund shares), providing trust accounting and participant

accounting (if applicable), providing asset and transaction reporting,

execution and settlement of directed transactions, processing benefit

payments and loans, 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. Dauphin states that

these trust services will be necessary regardless of whether the Client

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

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

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

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

because a Fund will be

[[Page 10023]]

charged for custody and other services relative to the individual

securities owned by the Fund, while a Client Plan will charged for the

maintenance of Plan accounts reflecting ownership of the Fund shares

and other assets.5

5 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 will 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 will 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 Dauphin, as a trustee and

investment manager for a Client Plan in connection with the decision

to invest Client Plan assets in the Funds, will have a fiduciary

duty to monitor all fees paid by a Fund to Dauphin, its affiliates,

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

the totality of such fees will be reasonable and will not involve

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

Fund by such parties.

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Dauphin represents that for each Client Plan, the combined total of

all fees it will receive directly and indirectly from the Client Plans

for the provision of services to the Plans and/or to the Funds will not

be in excess of ``reasonable compensation'' within the meaning of

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

6 The Department is expressing no opinion in this proposed

exemption as to whether the fee arrangements discussed herein will

comply with section 408(b)(2) of the Act and the regulations

thereunder (see 29 CFR 2550.408b-2).

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9. Dauphin will maintain a system of internal accounting controls

for the crediting of all fees to the Client Plans. In addition, Dauphin

will retain the services of KPMG Peat Marwick (the Auditor), an

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

the Client Plans under this program. Such audits will provide

independent verification of the proper crediting to the Client Plans.

In its annual audit of the credit program, the Auditor will: (i)

Review and test compliance with the specific operational controls and

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

on a test basis the monthly credit factors transmitted to Dauphin by

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

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; (v) recompute, on a test basis, the amount of the credit

determined for selected Client Plans and verify that the credit was

made to the proper Client Plan account.

In the event either the internal audit by Dauphin or the

independent audit by the Auditor identifies an error made in the

crediting of fees to the Client Plans, Dauphin will correct the error.

With respect to any shortfall in credited fees to a Client Plan,

Dauphin 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

Dauphin for the period involved. Any excess credits made to a Client

Plan will be corrected by an appropriate deduction from the Client Plan

account or reallocation of cash during the next payment period after

discovery of the error to reflect accurately the amount of total

credits due to the Client Plan for the period involved.

10. Dauphin represents that the use of the ``crediting'' fee

structure will be available for any investments made by Client Plans in

the Funds. The use of this fee structure must be approved prior to the

Client Plan's initial investment in the Funds by a Second Fiduciary

acting for the Client Plan. The Second Fiduciary will receive full and

detailed written disclosure of information concerning the Funds in

advance of any investment by the Client Plan in the Funds, including

the Fund prospectuses as well as a separate statement describing the

crediting fee structure.

After consideration of such information, the Second Fiduciary will

authorize in writing the investment of assets of the Client Plan in one

or more specified Funds and the fees to be paid by the Funds to

Dauphin. In addition, 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 Dauphin to the Funds for secondary

services which are above the rates reflected in the Fund prospectuses,

at least thirty (30) days prior to the effective date of such increase.

In the event that Dauphin provides an additional secondary service

for which a fee is charged or there is an increase in the rate of fees

paid by the Funds to Dauphin for any secondary service, including any

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

performed by Dauphin for such fees in connection with a previously

authorized secondary service, Dauphin will, at least 30 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.7 Such notice will be made separate from the Fund

prospectus and will be accompanied by a Termination Form. The Second

Fiduciary also will receive full written disclosure in a Fund

prospectus or otherwise of any increases in the rate of fees charged by

Dauphin to the Funds for investment advisory services, even though such

fees will be credited to the investing Client Plans.

7 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 Dauphin 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

Dauphin 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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The authorizations made by a Second Fiduciary of any Client Plan

will be terminable at will, without penalty to the Client Plan, upon

receipt by Dauphin of written notice of termination. A form (the

Termination Form) expressly providing an election to terminate the

authorization, with instructions on the use of the form, will be

supplied to the Second Fiduciary no less than annually. However, the

Termination Form will not need to be supplied to the Second Fiduciary

for an annual reauthorization sooner than six months after such

Termination Form is supplied for an additional service or for an

increase in fees (as discussed above), unless another Termination Form

is required to disclose additional services or fee increases. 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 Dauphin of written notice from the

Second Fiduciary, and that failure to return the Termination Form will

result in the continued authorization of Dauphin to engage in the

subject transactions on behalf of the Client Plan.

The Termination Form will be used to notify Dauphin 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 Dauphin of the form. If, due to circumstances

beyond the control of Dauphin, the sale cannot be executed within one

business day, Dauphin will

[[Page 10024]]

be obligated to complete the sale within the next business day.

11. Dauphin represents that for smaller Client Plans, the Fund-

level investment advisory fees generally do not exceed the Plan-level

investment management fees, so that the Client Plan will not benefit

from a Fund-level fee credit. In these cases, if the Second Fiduciary

authorizes the fee structure, Dauphin will waive the Plan-level

investment management fees that would otherwise be charged for the

Client Plan's assets invested in the Funds, so that the Plan-level fees

will be offset and the Client Plan will pay only one investment

management fee for those assets, at the Fund-level. This fee structure,

which is one of the fee structures described in PTE 77-4, will ensure

that Dauphin does not receive any additional investment management,

advisory or similar fee as a result of investments in the Funds by the

Client Plans.

Disclosures, approvals, and notifications with regard to any

changes in fees or secondary services will be handled in the same

manner as for the fee structure described in paragraph 10 above, with

one exception. The exception is that notifications with regard to

increases in rates of investment advisory fees for the Funds will

conform to the procedures for increases in rates of secondary service

fees as described in paragraph 10. Therefore, in such instances, there

will be prior written notification of the fee increase to the Second

Fiduciary for the Client Plan and a Termination Form will be provided.

The reason for the exception is that the total fees paid by the Client

Plan, under this fee structure, will be directly affected by any

increases in Fund-level investment advisory fees because such fees will

not be credited back to the Client Plan.

12. Dauphin states that a Second Fiduciary will always receive a

written statement giving full disclosure of the fee structures prior to

any investment in the Funds. The disclosure statement will explain why

Dauphin believes that the investment of assets of the Client Plan in

the Funds may be appropriate. The disclosure statement also will

describe whether there are any limitations on Dauphin with respect to

which Client Plan assets may be invested in shares of the Funds and, if

so, the nature of such limitations.8

\8\ 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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13. On an annual basis, the Second Fiduciary of a Client Plan

investing in the Funds will receive copies of the current Fund

prospectuses and, upon such fiduciary's request, a copy of the

Statement of Additional Information for such Funds as well as copies of

the annual financial disclosure reports containing information about

the Fund and independent auditor findings.

In addition, if the Funds obtain brokerage services in the future

from any broker-dealers that are affiliates of Dauphin, Dauphin will

provide at least annually to the Second Fiduciary of Client Plans

investing in the Funds written disclosures indicating the following:

(i) the total, expressed in dollars, of brokerage commissions of each

Fund that are paid to Dauphin by such Fund; (ii) the total, expressed

in dollars, of brokerage commissions of each Fund that are paid by such

Fund to brokerage firms unrelated to Dauphin; (iii) the average

brokerage commissions per share, expressed as cents per share, paid to

Dauphin by each Fund portfolio; and (iv) the average brokerage

commissions per share, expressed as cents per share, paid by each Fund

portfolio to brokerage firms unrelated to Dauphin. All such brokerage

services would be provided in accordance with section 17(e) of the 1940

Act and Rule 17e-1 thereunder. Such provisions require, among other

things, that the commissions, fees or other remuneration for any

brokerage services provided by an affiliate of an investment company's

investment adviser be reasonable and fair compared to what other

brokers receive for comparable transactions involving similar

securities.

14. No sales commissions will be paid by the Client Plans in

connection with the purchase or sale of shares of the Funds. In

addition, no redemption fees will be paid in connection with the sale

of shares by the Client Plans to the Funds. Dauphin states that it will

not receive any fees payable pursuant to Rule 12b-1 under the 1940 Act

in connection with the transactions. Dauphin states further that all

other dealings between the Client Plans and the Funds will be on a

basis no less favorable to the Client Plans than such dealings will be

with the other shareholders of the Funds.

15. In summary, Dauphin represents that the transactions described

herein will satisfy the statutory criteria of section 408(a) of the Act

because: (a) the Funds will provide the Client Plans with a more

effective investment vehicle than collective investment funds

maintained by Dauphin without any increase in investment management,

advisory or similar fees paid to Dauphin; (b) Dauphin will require

annual audits by an independent accounting firm to verify the proper

crediting to the Client Plans of investment advisory fees charged by

Dauphin 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 Dauphin, a

Second Fiduciary will receive full written disclosure of information

concerning the Fund, including a current prospectus and a statement

describing the fee structure, and will authorize in writing the

investment of the Client Plan's assets in the Fund and the fees paid by

the Fund to Dauphin; (d) any authorizations made by a Client Plan

regarding investments in a Fund and fees to be paid to Dauphin, or any

increases in the rates of fees for secondary services which will be

retained by Dauphin, will be terminable at will by the Client Plan,

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

notice of termination from the Second Fiduciary; (e) no commissions or

redemption fees will be paid by the Client Plan in connection with

either the acquisition of Fund shares or the sale of Fund shares; (f)

Dauphin will 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 will be done with the prior

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

Fiduciary) following full and detailed written disclosure concerning

the Funds; (h) all dealings between the Client Plans and the Funds will

be 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 have investments in a

terminating CIF and from whom approval will be sought 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 that are

currently invested in the Funds, as of the date the notice of the

proposed exemption is published in the Federal Register, where Dauphin

is providing services to the Funds and receives fees which would be

covered by the proposed exemption, if granted.

[[Page 10025]]

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.)

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 6th day of March, 1996.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 96-5746 Filed 3-8-96; 8:45 am]

BILLING CODE 4510-29-P