Proposed Exemptions; Sanwa Bank California

Federal RegisterMay 29, 1998

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10503, et al.]

Proposed Exemptions; Sanwa Bank California

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 restrictions of the Employee

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

Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

All interested persons are invited to submit written comments or

request for a hearing on the pending exemptions, unless otherwise

stated in the Notice of Proposed Exemption, within 45 days from the

date of publication of this Federal Register Notice. Comments and

requests 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.

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

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.

Sanwa Bank California (Sanwa Bank) Located in Los Angeles, CA

[Application No. D-10503]

Proposed Exemption

Section I. Proposed Exemption for the In-Kind Transfers of Assets

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

section 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) shall not apply, effective October 31, 1997,

to the purchase, by an employee benefit plan established and maintained

by parties other than Sanwa Bank (the Client Plan) or by Sanwa Bank

(the Bank Plan) 1 of shares of one or more open-end

management investment companies (the Fund or Funds), registered under

the Investment Company Act of 1940, as amended (the 1940 Act), in

exchange for assets of the Plan transferred in-kind to the Fund by a

collective investment fund (the CIF) maintained by Sanwa Bank, where

Sanwa Bank is the investment adviser and may provide other services to

the Fund (the Secondary Services), as defined in Section III(i), and

where Sanwa Bank is also a fiduciary of the Plan, in connection with

the termination of such CIFs.

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\1\ Unless otherwise noted, the Client Plans and the Bank Plans

are collectively referred to as the Plans.

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This proposed exemption is subject to the following conditions:

(a) A fiduciary (the Second Fiduciary), as defined in Section

III(h), which is acting on behalf of each affected Plan and which is

independent of and unrelated to Sanwa Bank, receives advance written

notice of the in-kind transfer of assets of the CIFs in exchange for

shares of the Funds and full written disclosures of information

concerning the Funds which includes the following:

(1) A current prospectus for each Fund in which the Client Plan may

invest;

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

other similar services, any fees for Secondary Services, as defined in

Section III(i), and all other fees to be charged to or paid by the

Client Plan and by such Funds to Sanwa Bank, including the nature and

extent of any differential between the rates of such fees;

(3) A statement of the reasons why Sanwa Bank may consider such

investment to be appropriate for the Client Plan;

(4) A statement of whether there are any limitations applicable to

Sanwa Bank with respect to which assets of a Client Plan may be

invested in Fund shares, and, if so, the nature of such limitations;

and

(5) A copy of the proposed exemption and/or a copy of the final

exemption upon the request of the Second Fiduciary.

(b) On the basis of the foregoing information, the Second Fiduciary

gives prior approval in writing for each purchase of Fund shares in

exchange for the Plan's assets transferred from the CIF, consistent

with the responsibilities, obligations and duties imposed on

fiduciaries by Part 4 of Title I of the Act. In addition, the Second

Fiduciary gives prior approval in writing of the receipt of

confirmation statements described in Section I(g) by facsimile or

electronic mail if the Second Fiduciary elects to receive such

statements in that form.

connection with the purchase of Fund shares.

(d) All transferred assets are securities for which market

quotations are readily available, or cash.

(e) The transferred assets constitute a pro rata portion of all

assets of a Plan held in the CIF immediately prior to the transfer.

Notwithstanding the foregoing, the allocation of fixed-income

securities held by a CIF among Plans on the basis of each Plan's pro

rata share of the aggregate value of such securities will not fail to

meet the requirements of this subsection if:

[[Page 29444]]

(1) The aggregate value of such securities does not exceed one (1)

percent of the total value of the assets held by the CIF immediately

prior to the transfer, in connection with the termination of such CIF;

and

(2) Such securities have the same coupon rate and maturity, and at

the time of the transfer, the same credit ratings from nationally

recognized statistical rating agencies.

(f) Each Plan receives Fund shares that have a total net asset

value equal to the value of the Plan's transferred assets on the date

of the transfer, as determined with respect to securities in a single

valuation performed in the same manner and at the close of business on

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

of Sanwa Bank and the Fund) and the procedures established by the Funds

pursuant to Rule 17a-7. 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 last business day prior to

the in-kind transfers, determined on the basis of reasonable inquiry

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

independent of Sanwa Bank.

(g) Sanwa Bank sends by regular mail or, if applicable, by

facsimile or electronic mail, to the Second Fiduciary of each affected

Plan that purchases Fund shares in connection with the in-kind

transfer, the following information:

(1) No later than 30 days after the completion of the purchase, a

written confirmation which contains--

(A) The identity of each transferred security that was valued for

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

(B) The current market price, as of the date of the in-kind

transfer, of each such security involved in the transaction; and

in determining the current market price of such securities.

(2) No later than 105 days after the completion of each purchase, a

written confirmation which contains --

(A) The number of CIF units held by each affected Plan immediately

before the in-kind transfer, the related per unit value, and the total

dollar amount of such CIF units; and

affected Plan immediately following the in-kind transfer, the related

per share net asset value and the total dollar amount of such shares.

(h) The conditions set forth in Sections II(d), (e), (n)(1), (o),

(p) and (q) are satisfied.

Section II. Proposed Exemption for the Receipt of fees From the

Funds

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

section 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, effective

October 31, 1997, to (1) the receipt of fees by Sanwa Bank from the

Funds for investment advisory services provided to the Funds; and (2)

the receipt or retention of fees by Sanwa Bank from the Funds for

acting as a custodian or shareholder serving agent to the Funds, as

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

investment advisory services (i.e., the Secondary Services), as defined

in Section III(i), in connection with the investment of shares in the

Funds by the Client Plans for which Sanwa Bank acts as a

fiduciary,2 provided that the following conditions are met:

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\2\ Sanwa Bank is not requesting an exemption for investments in

the Funds by the Bank Plans. Sanwa Bank represents that the Bank

Plans may acquire or sell shares of the Funds pursuant to Prohibited

Transaction Exemption (PTE) 77-3 (42 FR 18734, April 8, 1977). 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 expresses no opinion on

whether any transactions with the Funds by the Bank Plans would be

covered by PTE 77-3.

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

with purchases or redemptions of shares of the Funds and no redemption

fees are paid in connection with the sale of such shares by the Client

Plans to the Funds.

(b) The price paid or received by the Client Plans for shares in

the Funds is the net asset value per share, as defined in Section

III(e), at the time of the transaction and is the same price which

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

at that time.

directors do not purchase from or sell to any of the Client Plans

shares of any of the Funds.

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

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

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

the Client Plans may invest, is not in excess of ``reasonable

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

(e) Sanwa Bank does not receive any fees payable, pursuant to Rule

12b-1 (the 12b-1 Fees) under the 1940 Act in connection with the

transactions involving the Funds.

(f) A Second Fiduciary with respect to a Client Plan receives in

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

full and detailed written disclosure of information concerning such

Fund including, but not limited to the disclosures described above in

Section I(a).

(g) On the basis of the foregoing information, the Second Fiduciary

authorizes in writing--

(1) The investment of assets of the Client Plan in shares of the

Fund;

(2) The Funds in which the assets of the Client Plan may be

invested; and

(3) The fees received by Sanwa Bank in connection with investment

advisory services and Secondary Services provided to the Funds, such

authorization by the Second Fiduciary to be consistent with the

responsibilities obligations, and duties imposed on fiduciaries by Part

4 of Title I of the Act.

(h) The authorization, described in Section II(g) is terminable at

will by the Second Fiduciary of a Client Plan, without penalty to such

Client Plan. Such termination will be effected by Sanwa Bank redeeming

the shares of the Funds held by the affected Client Plan within one

business day following receipt by Sanwa Bank, either by mail, hand

delivery, facsimile, or other available means at the option of the

Second Fiduciary, of written notice of termination (the Termination

Form), as defined in Section III(j); provided that if, due to

circumstances beyond the control of Sanwa Bank, the redemption cannot

be executed within one business day, Sanwa Bank shall have one

additional business day to complete such redemption.

(i) The Client Plans do not pay any Plan-level investment advisory

fees to Sanwa Bank with respect to any of the assets of such Client

Plans which are invested in shares of the Funds. This condition does

not preclude the payment of investment advisory fees by the Funds to

Sanwa Bank under the terms of an investment advisory agreement adopted

in accordance with section 15 of the 1940 Act or other agreement

between Sanwa Bank and the Funds or the retention by Sanwa Bank of fees

for Secondary Services paid to Sanwa Bank by the Funds.

[[Page 29445]]

(j) In the event of an increase in the rate of any fees paid by the

Funds to Sanwa Bank regarding investment advisory services that Sanwa

Bank provides to the Funds over an existing rate for such services that

had been authorized by a Second Fiduciary of a Client Plan, in

accordance with Section II(g), Sanwa Bank will, at least 30 days in

advance of the implementation of such 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 increase in fees) to

the Second Fiduciary of each Client Plan invested in a Fund which is

increasing such fees. Such notice shall be accompanied by the

Termination Form, as defined in Section III(j).

(k) In the event of an (1) addition of a Secondary Service, as

defined in Section III(i), provided by Sanwa Bank to the Funds for

which a fee is charged or (2) an increase in the rate of any fee paid

by the Funds to Sanwa Bank for any Secondary Service that results

either from an increase in the rate of such fee or from the decrease in

the number or kind of services performed by Sanwa Bank for such fee

over an existing rate for such Secondary Service which had been

authorized by the Secondary Fiduciary in accordance with Section II(g),

Sanwa Bank will, at least 30 days in advance of the implementation of

such Secondary Service 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 Funds and

which explains the nature and amount of the additional Secondary

Service for which a fee is charged or the nature and amount of the

increase in fees) to the Second Fiduciary of each of the Client Plans

invested in a Fund which is adding a service or increasing fees. Such

notice shall be accompanied by the Termination Form, as defined in

Section III(j).

(l) The Second Fiduciary is supplied with a Termination Form at the

times specified in Sections II(j),(k) and (m), which expressly provides

an election to terminate the authorization, described above Section

II(g), with instructions regarding the use of such Termination Form

including statements that--

(1) The authorization is terminable at will by any of the Client

Plans, without penalty to such Plans. The termination will be effected

by Sanwa Bank redeeming shares of the Funds held by the Client Plans

requesting termination within the period of time specified by the

Client Plan, but not later than one business day following receipt by

Sanwa Bank from the Second Fiduciary of the Termination Form or any

written notice of termination; provided that if, due to circumstances

beyond the control of Sanwa Bank, the redemption of shares of such

Client Plan cannot be executed within one business day, Sanwa Bank

shall have one additional business day to complete such redemption; and

(2) Failure by the Second Fiduciary to return the Termination Form

on behalf of the Client Plan will be deemed to be an approval of the

additional Secondary Service for which a fee is charged or an increase

in the rate of any fees and will result in the continuation of the

authorization, as described in Section II(g), of Sanwa Bank to engage

in the transactions on behalf of the Client Plan;

(m) The Second Fiduciary is supplied with a Termination Form at

least once in each calendar year, beginning with the calendar year that

begins after the grant of this proposed exemption is published in the

Federal Register and continuing for each calendar year thereafter,

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 Sections II(j) and (k),

except to the extent required by Sections II(j) and (k) to disclose an

additional Secondary Service for which a fee is charged or an increase

in fees.

(n)(1) With respect to each of the Funds in which a Client Plan

invests, Sanwa Bank will provide the Second Fiduciary of such Plan the

following information:

(A) At least annually, a copy of an updated prospectus of such

Fund; and

(B) Upon the request of the Second Fiduciary, a report or statement

(which may take the form of the most recent financial report, the

current statement of additional information, or some other written

statement) which contains a description of all fees paid by the Fund to

Sanwa Bank.

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

invests, in the event such Fund places brokerage transactions with

Sanwa Bank, Sanwa Bank will provide the Second Fiduciary of such Client

Plan at least annually with a statement specifying--

(A) The total, expressed in dollars, brokerage commissions of each

Fund that are paid to Sanwa Bank by such Fund;

(B) The total, expressed in dollars, brokerage commissions of each

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

Bank;

per share, paid to Sanwa Bank by each Fund; and

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

per share, paid by each Fund to brokerage firms unrelated to Sanwa

Bank.

(o) All dealings between the Client Plans and any of the Funds are

on a basis no less favorable to such Client Plans than dealings between

the Funds and other non-Plan shareholders holding the same class of

shares as the Client Plans.

(p) Sanwa Bank maintains for a period of 6 years, in a manner that

is accessible for audit and examination, the records necessary to

enable the persons, described in Section II(q), 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 Sanwa Bank, the

records are lost or destroyed prior to the end of the 6 year period;

and

(2) No party in interest, other than Sanwa 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 Section II(q).

(q)(1) Except as provided in paragraph (q)(2) of this Section II

and notwithstanding any provisions of subsection (a)(2) and (b) of

section 504 of the Act, the records referred to in Section II(p) are

unconditionally available at their customary location for examination

during normal business hours by--

(A) Any duly authorized employee or representative of the

Department, the Internal Revenue Service (the Service) or the

Securities and Exchange Commission (the SEC);

(B) Any fiduciary of each of the Client Plans who has authority to

acquire or dispose of shares of any of the Funds owned by such Client

Plan, or any duly authorized employee or representative of such

fiduciary; and

employee or representative of such participant or beneficiary.

(2) None of the persons described in paragraph (q)(1)(B) and

(q)(1)(C) of Section II shall be authorized to examine trade secrets of

Sanwa Bank, or commercial or financial information which is privileged

or confidential.

[[Page 29446]]

Section III. Definitions

For purposes of this proposed exemption,

(a) The term ``Sanwa Bank'' means Sanwa Bank California and any

affiliate of Sanwa Bank, as defined in Section III(b).

(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.

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

individual;

(d) The terms ``Fund or Funds'' mean any open-end management

investment company or companies registered under the 1940 Act for which

Sanwa Bank serves as investment adviser and may also provide custodial

or other services, such as Secondary Services, as approved by such

Funds.

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

pricing all purchases and redemptions calculated by dividing the value

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

prospectus and statement of additional information, and other assets

belonging to each of the portfolios in such Fund, less the liabilities

charged to each portfolio, by the number of outstanding shares.

(f) The term ``Plan'' means a welfare plan described in 29 CFR

2510.3-1, as amended; a pension plan described in 29 CFR 2510.3-2, as

amended; a plan described in section 4975(e)(1) of the Code; and a

retirement plan qualified under section 401(a) of the Code with respect

to which Sanwa Bank serves or will serve as trustee, investment manager

or custodian, and which constitutes an ``employee benefit plan'' under

section 3(3) of the Act. The term ``Client Plan'' includes a Plan

maintained by an entity other than Sanwa Bank. The term ``Bank Plan''

includes a Plan maintained by Sanwa Bank, including, but not limited

to, the Sanwa Bank California Retirement Plan (the SBC Retirement Plan)

and the Sanwa Bank California Premiere Savings Plan (the SBC Savings

Plan).

(g) 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.

(h) The term ``Second Fiduciary'' means a fiduciary of a plan who

is independent of and unrelated to Sanwa Bank. For purposes of this

exemption, the Second Fiduciary will not be deemed to be independent of

and unrelated to Sanwa Bank if--

(1) Such Second Fiduciary directly or indirectly controls, is

controlled by or is under common control with Sanwa Bank;

(2) Such Second Fiduciary, or any officer, director, partner,

employee or relative of such Second Fiduciary is an officer, director,

partner or employee of Sanwa Bank (or is a relative of such persons);

and

(3) Such Second Fiduciary directly or indirectly receives any

compensation or other consideration in connection with any transaction

described in this exemption; provided, however, that, with respect to

the Bank Plans, the Second Fiduciary may receive compensation from

Sanwa Bank in connection with the transactions contemplated herein, but

the amount or payment of such compensation may not be contingent upon

or in any way affected by the Second Fiduciary's ultimate decision

regarding whether the Bank Plans participate in the transactions and

may not exceed 5 percent of such Second Fiduciary's gross annual

revenues.

With respect to the Client Plans, if an officer, director, partner,

or employee of Sanwa Bank (or a relative of such persons), is a

director of such Second Fiduciary, and if he or she abstains from

participation in the choice of the Plan's investment manager/adviser,

the approval of any purchase or redemption by the Plan of shares of the

Funds, and the approval of any increase of fees, in connection with any

of the transactions described in Sections I and II, then Section

III(h)(2) shall not apply.

(i) The term ``Secondary Service'' means a service, other than an

investment advisory or similar service, which is provided by Sanwa Bank

to the Funds, including but not limited to, accounting, administrative,

brokerage or custodial services.

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

Second Fiduciary of a Client Plan, at the times specified in Section

II(j), (k), and (m), which expressly provides an election to the Second

Fiduciary to terminate on behalf of the Plans the authorization,

described in Section II(g). Such Termination Form may be used at will

by the Second Fiduciary to terminate such authorization without penalty

to the Client Plan and to notify Sanwa Bank in writing to effect such

termination by redeeming shares of the Fund held by the Plans

requesting termination not later than one business day following

receipt by Sanwa Bank of written notice, either by mail, hand delivery,

facsimile or other available means at the option of the Second

Fiduciary, of such request for termination; provided that if, due to

circumstances beyond the control of Sanwa Bank, the redemption cannot

be executed within one business day, Sanwa Bank shall have one

additional business day to complete such redemption.

(k) The term ``fixed-income security'' means any interest-bearing

or discounted government or corporate security with a face amount of

$1,000 or more that obligates the issuer to pay the holder a specified

sum of money, at specific intervals, and to repay the principal amount

of the loan at maturity.

(l) The term ``security'' shall have the same meaning as defined in

section 2(36) of the 1940 Act, as amended, 15 USC 80a-2(36) (1996).

(m) The term ``business day'' means a banking day as defined by

federal or state banking regulations.

EFFECTIVE DATE: If granted, this proposed exemption will be effective

as of October 31, 1997.

Summary of Facts and Representations

1. Description of the Parties

The parties involved in the subject transactions are described as

follows:

(a) Sanwa Bank, a California-chartered bank, is a wholly owned

subsidiary of The Sanwa Bank, Limited, which is headquartered in Japan.

Sanwa Bank provides trust and banking services to individuals,

corporations and institutions, both nationally and internationally.

Sanwa Bank serves as trustee, investment manager or custodian to the

Plans described herein and will serve as investment adviser to the

Funds described more fully below. As of December 31, 1997, Sanwa Bank

held total trust and fiduciary assets of approximately $10.2 billion.

(b) The Plans include welfare plans described in 29 CFR 2510.3-1,

as amended; pension plans described in 29 CFR 2510.3-2, as amended;

plans described in section 4975(e)(1) of the Code; and retirement plans

qualified under section 401(a) of the Code with respect to which Sanwa

Bank serves or will serve as trustee, investment manager or custodian,

and which constitute ``employee benefit plans'' under section 3(3) of

the Act. As of December 31, 1997, Sanwa Bank served

[[Page 29447]]

as trustee, investment manager or custodian for approximately 856

Client Plans with total assets of approximately $1.7 billion. In

addition, Sanwa Bank had investment responsibility with respect to

approximately $95 million in Client Plan assets, of which approximately

$25 million represented assets invested in converting CIFs. Whether any

Client Plan will participate in a conversion transaction will depend

solely on the decision of a fiduciary which is independent of Sanwa

Bank (i.e., a Second Fiduciary).3

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\3\ The Department is not proposing exemptive relief herein for

transactions afforded relief by section 404(c) of the Act.

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The Plans also include certain Bank Plans that are maintained by

Sanwa Bank. Specifically, the Bank Plans presently include the SBC

Retirement Plan and SBC Savings Plan. As of December 31, 1997, the SBC

Retirement Plan and the SBC Savings Plan had total assets of

approximately $175 million and $68 million, respectively. As of August

28, 1997, the SBC Retirement Plan had 4,500 participants and the SBC

Savings Plan had 3,500 participants. Whether a Bank Plan may

participate in a conversion transaction will also be determined by a

Second Fiduciary which has been appointed to represent the interests of

the Bank Plans.

known as ``The Sanwa Bank California Common Trust Fund.'' The CIFs that

were converted in the initial conversion transaction were the

following: 4

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\4\ Sanwa Bank maintains CIFs other than those involved in the

subject transactions. Some of these CIFs, which were converted

contemporaneously with the CIFs, do not hold Plan assets while

others do. As such, it is proposed that those CIFs holding plan

assets be covered by the requested exemption if and when they are

converted in the future.

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ITS Asset Allocation Investment Fund, also known as

Balanced Fund J (the Asset Allocation Fund)

ITS Common Stock Investment Fund, also known as Equity

Fund D (the Equity Fund)

ITS Bond Investment Fund, also known as Fixed Income Fund

C (the Fixed Income Fund)

ITS International Common Stock Fund, also known as

International Equity Fund G (the International Equity Fund)

ITS Money Market Investment Fund, also known as Money

Market Fund E (the Money Market Fund)

The general investment policy and objective of these CIFs

correspond substantially to the Funds described below.

(d) The Funds, otherwise referred to as ``The Eureka Funds,''

constitute an open-end management investment company registered under

the 1940 Act, as amended. The Funds are and will be separate investment

portfolios or ``series'' of The Eureka Funds that will be offered to

investors at ``no-load.'' Therefore, Sanwa Bank requests that the

exemption apply both retroactively to the existing Funds and

prospectively to any similar Fund with respect to which Sanwa Bank or

its affiliates may provide services.

The Eureka Funds initially will consist of five Funds, each to be

offered and sold in compliance with SEC rules and regulations. These

five Funds are listed as follows:

The Eureka Global Asset Allocation Fund

The Eureka Equity Fund

The Eureka Investment Grade Bond Fund

The Eureka Prime Money Market Fund

The Eureka U.S. Treasury Obligations Fund 5

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\5\ The U.S. Treasury Obligations Fund was not involved in the

conversion transaction described in this proposed exemption.

However, this Fund would be covered by the requested exemption to

the extent that a converting CIF were to transfer its assets to such

Fund or a Plan or Plans were to invest in this Fund in the future.

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Sanwa Bank serves as investment adviser to the Funds. For such

services performed, Sanwa Bank will receive annualized investment

advisory fees currently ranging from 0.10 percent for the U.S. Treasury

Obligations Fund to 0.80 percent for the Global Asset Allocation Fund.

Although parties unrelated to Sanwa Bank will typically provide

custody, transfer agent, recordkeeping and other services (i.e.,

Secondary Services) to the Funds, it is possible that Sanwa Bank or an

affiliate may undertake to provide such services to a Fund in the

future.

(f) Actuarial Sciences Associates, Inc. (ASA) has been retained

temporarily by Sanwa Bank to serve as the Second Fiduciary for Bank

Plans investing in the Funds. ASA, which is located in Somerset, New

Jersey, is an affiliate of AT&T Investment Management Corporation

(ATTIMCO). ATTIMCO is a wholly owned subsidiary of AT&T and is a

registered investment adviser under the 1940 Act. As of November 1997,

ATTIMCO exercised discretionary authority with respect to over

approximately $40 billion in assets. ASA, ATTIMCO and their affiliates

are independent of and unrelated to Sanwa Bank and its affiliates. The

fees received by ASA from Sanwa Bank currently represent less than one-

tenth of one percent of the gross revenues of ASA and are not likely to

exceed 5 percent of ASA's gross revenues in the foreseeable future.

Description of the Transactions

2. Sanwa Bank requests exemptive relief with respect to the in-kind

transfer, of all or a pro rata portion of a Plan's assets that were

invested in the terminating CIFs (identified above) to the Funds, in

exchange for shares of the Funds. In addition, Sanwa Bank requests

exemptive relief for the receipt of fees from the Funds, in connection

with the investment of assets of Client Plans for which Sanwa Bank acts

as a trustee, investment manager, or custodian, in shares of the Funds

in instances where Sanwa Bank is an investment adviser, custodian, and

shareholder servicing agent for the Funds.6 The exemptive

relief provided for the receipt of fees would cover Client Plans of

Sanwa Bank only. If granted, the exemption would be effective as of

October 31, 1997 and would apply to similar transactions that may arise

in the future.

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\6\ As previously noted, Sanwa Bank is not requesting an

exemption for investments in the Funds by the Bank Plans. Sanwa Bank

represents that the Bank Plans may acquire or sell shares of the

Funds pursuant to PTE 77-3.

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In-Kind Transfers by the Plans

3. Sanwa Bank decided to terminate the aforementioned CIFs and

offer to the Plans participating therein the opportunity to acquire

shares in their corresponding Funds as alternative investments. Because

the interests in CIFs generally must be liquidated or withdrawn to

effect distributions, Sanwa Bank believes that the interests of the

Plans participating in the CIFs (and similar CIFs that may convert in

the future) would be better served by investment in shares of the

Funds, which can be distributed in-kind.

In addition, Sanwa Bank believes that the Funds may offer

advantages over the CIFs such as pooled investment vehicles in that

Plans, as shareholders of a Fund, will have the opportunity to exercise

voting and other shareholder rights. Plans, as shareholders of the

Funds, also will receive periodic disclosures concerning the Funds, as

mandated by the SEC, including a prospectus, which is updated at least

annually, an annual report containing audited financial statements of

the Funds and information regarding such Funds' performance (unless

such performance information is included in the prospectus of such

Funds), and a semiannual report containing unaudited financial

statements. Further, the Plans will be able to monitor the net asset

value of the

[[Page 29448]]

Funds daily from information available in newspapers of general

circulation.

Sanwa Bank believes that if the assets of a terminating CIF are

transferred in-kind to a corresponding Fund in exchange for shares of

such Fund, potentially large brokerage expenses can be avoided. These

consist mainly of expenses that otherwise would be incurred if the CIF

assets were liquidated and the proceeds used to purchase Fund shares

that are substantially identical to the CIFs. No brokerage commissions

or other fees (other than customary transfer charges paid to parties

other than Sanwa Bank or its affiliates) have been charged or will be

charged to the Plans or the CIFs with respect to the conversions or in

connection with any other acquisition or redemption of Fund shares by

the Plans. In addition, no Fund has paid or will pay any 12b-1 Fees to

Sanwa Bank or its affiliates.

It is represented that the in-kind transfers of CIF assets in

exchange for shares of the Funds are ministerial transactions performed

in accordance with pre-established objective procedures approved by the

Funds' board of trustees. Such procedures require that assets

transferred to a corresponding Fund (a) be consistent with the

investment objectives, policies and restrictions of the Fund, (b)

satisfy the applicable requirements of the 1940 Act and the Code and,

4. Except as indicated below with respect to the International

Equity CIF, on October 31, 1997, Sanwa Bank transferred Plan assets

held in the affected CIFs to the corresponding Funds as shown in the

table.

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

CIF portfolio Corresponding fund portfolio

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

Asset Allocation Fund..................... Global Asset Allocation

Fund.

Equity Fund............................... Equity Fund.

Fixed Income Fund......................... Investment Grade Bond Fund.

International Equity Fund................. Global Asset Allocation

Fund.

Money Market Fund......................... Prime Money Market Fund.

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With regard to the International Equity CIF, the participants, of

which include the SBC Retirement Plan, the SBC Savings Plan and a

number of Client Plans, the conversion of the CIF was processed as

follows:

(a) The SBC Savings Plan's interest in the International Equity CIF

was liquidated and reinvested in shares of a mutual fund investing

primarily in foreign securities sponsored and advised by a third party

unrelated to Sanwa Bank, which replaced the CIF as an investment option

under the SBC Savings Plan. SBC Savings Plan participants who did not

wish to invest in a new mutual fund were given the option of electing

instead to have their interest in the International Equity CIF

reinvested in another option under the Plan.7

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\7\ In response to the Department's inquiry as to why the SBC

Savings Plan's interest in the CIF was liquidated and reinvested in

a third party fund or in another investment option offered under the

Plan, ASA states that none of the Funds offered to the SBC Savings

Plan had the same investment policies and objectives that had been

offered to participants of such Plan. In this regard, it was

determined that in light of the termination of the International

Equity CIF, it would be in the interest of participants in the SBC

Savings Plan to have monies previously invested in such CIF

transferred to a third-party, international equity fund managed by

Vanguard, which had objectives similar to the International Equity

CIF, rather than to the Global Asset Allocation Fund. According to

ASA, the Global Asset Allocation Fund is not solely an international

equity fund. Instead, it is a balanced fund with a portion of its

assets invested in United States investments. ASA states that the

fiduciary of the SBC Savings Plan thought it more appropriate to

invest that Plan's assets in an exclusively international equity

fund instead of in a balanced fund having some United States

investments. ASA further represents that it concurs with the

fiduciary's investment decision.

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(b) Subject to approval of the appropriate Second Fiduciaries, the

SBC Retirement Plan and the Client Plan participated in the conversion

of the International Equity CIF to Global Asset Allocation Fund, to the

extent of their respective interests therein.8

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\8\ It is represented that Sanwa Bank was of the view that the

Global Asset Allocation Fund would be advantageous to current

participants in the International Equity CIF in that the Fund would

offer enhanced liquidity and economies of scale resulting from a

larger fund and an efficient method of diversifying among domestic

and international asset classes and reducing risks for participants

in the SBC Retirement Plan. In this regard, ASA states that the

fiduciary of the SBC Retirement Plan had rebalanced other portions

of that Plan's portfolio to reflect the United States and non-equity

investments found in the Global Asset Allocation Fund, thereby

making the conversion to the Global Asset Allocation Fund for the

SBC Retirement Plan an appropriate investment decision. ASA

represents that it concurs with this investment decision.

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5. The initial conversion was completed in a single transaction

occurring after the close of business on October 31, 1997 and prior to

the opening of business on November 3, 1997. The initial conversion was

accomplished by an in-kind transfer of all of the assets of the

converting CIF to the corresponding Fund, in exchange for an

appropriate number of shares of that Fund. The affected CIF was then

terminated and its assets, consisting of Fund shares, were distributed

in-kind to the Plans formerly participating in the CIF based on each

Plan's pro rata share of the CIF's assets on the date of the

conversion.9

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\9\ Although different CIFs may be converted by Sanwa Bank in

the future on different dates, similar procedures will apply.

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6. Prior to the conversion, the assets of each converting CIF were

reviewed to confirm that they were appropriate investments for the

receiving Fund. If any of the assets of a CIF were not appropriate for

its corresponding Fund, such assets were sold in the open market

through a brokerage firm unaffiliated with Sanwa Bank prior to the date

of the conversion.

7. Sanwa Bank provided to each affected Plan disclosures that

announced the termination of the CIF, summarized the transaction and

otherwise complied with the provisions of Section I of this proposed

exemption. Based on these disclosures, the Second Fiduciary for each

affected Plan approved, in writing, the conversion transaction,

including the fees that were to be paid by the Funds to Sanwa Bank and

its affiliates. A Plan electing not to participate in the conversion

transaction received a cash payment representing the Plan's pro rata

share of the assets of the converting CIF before the transaction

occurred.

8. In the case of the Bank Plans, ASA was required to make an

independent determination in its fiduciary capacity that participation

in the conversion transaction was in the best interest of the Bank

Plans, including the decision whether to participate therein. As part

of its written report setting out the conclusions discussed in

Representation 12 below, ASA was required to confirm both its

independence from Sanwa Bank and its qualifications to serve as the

Second Fiduciary for the Bank Plans. In addition, ASA represented that

it would not derive more than 5 percent of its gross annual revenues

from Sanwa Bank in connection with such in-kind transfers.

9. The assets transferred by a converting CIF to its corresponding

Fund consisted entirely of cash and securities for which market

quotations were readily available. For this purpose, the value of the

CIF's securities was determined based on the market value as of the

close of business on the business day prior to the in-kind transfer of

such securities to the corresponding Fund (the Valuation Date). The

value of the CIF assets on the Valuation Date was determined using the

valuation procedures described in SEC Rule 17a-7 under the 1940 Act. In

this regard, the ``current market price'' for specific types of

securities was determined as follows:

[[Page 29449]]

(a) If the security was a ``reported security'' as the term is

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

(1934 Act), the last sale price with respect to such security

reported in the consolidated transaction reporting system (the

Consolidated System) for the Valuation Date; or if there were 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 1934 Act), as of the close of business on the

Valuation Date.

(b) If the security was not a reported security, and the

principal market for such security was an exchange, then the last

sale on such exchange on the Valuation Date; or if there were no

reported transactions on such exchange that day, the average of the

highest current independent bid and lowest current independent offer

on such exchange as of the close of business on the Valuation Date.

in the NASDAQ system, then the average of the highest current

independent bid and lowest current independent offer reported on

NASDAQ as of the close of business on the Valuation Date.

(d) For all other securities, the average of the highest current

independent bid and lowest current independent offer as of the close

of business on the Valuation Date, determined on the basis of

reasonable inquiry. (For securities in this category, Sanwa Bank

represents that it obtained quotations from at least three sources

which were either broker-dealers or pricing services independent of

and unrelated to Sanwa Bank and, where more than one valid quotation

was available, used the average of the quotations to value the

securities, in conformance with interpretations by the SEC and

practice under Rule 17a-7.) 10

\10\ Securities of non-U.S. issuers may be traded on U.S.

exchanges or NASDAQ, directly or in the form of ADRs, or may be

traded on foreign exchanges or foreign over-the-counter markets. In

the latter case, valuation was performed in accordance with (d)

above.

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10. The securities received by a corresponding Fund were valued by

such Fund for purposes of the in-kind transfer in the same manner and

as of the same day as such securities were valued by the CIF. The value

of the shares of each Fund issued to the CIF was based on the

corresponding Fund's then-current net asset value. Since the Funds did

not have assets in more than a nominal amount prior to the conversion,

each Fund's net asset value was expected to be equal to the value of

the assets received from the transferring CIF. Sanwa Bank represents

that the value of a Plan's investment in shares of each Fund as of the

opening of business was equal to the value of such Plan's investment in

each corresponding CIF as of the close of business on the business day

before the conversion.

11. Following the initial in-kind transfers, Sanwa Bank sent ASA,

as the Second Fiduciary for the Bank Plans, as well as the Second

Fiduciaries of the Client Plans, written confirmations of the

transactions. In this regard, no later than 30 days after the

completion of the conversion, Sanwa Bank sent by regular mail to the

Second Fiduciary written confirmation which contains (a) the identity

of each transferred security that was valued for purposes of the

conversion in accordance with Rule 17a-7(b)(4), as described above, (b)

the current market price, as of the Valuation Date, of each such

security involved in the conversion, and (c) the identity of each

pricing services or market maker consulted in determining the current

market price of such securities.11 In addition, no later

than 105 days after the completion of the conversion, Sanwa Bank sent

by regular mail a written confirmation to the Second Fiduciary of each

affected Plan showing (a) the number of CIF units held by the Plan

immediately before the conversion, (i) the related per unit value, (ii)

the total dollar amount of the units transferred; and (b) the number of

shares of the Funds that are held by such Plan following the

conversion, (i) the related per share net asset value, and (ii) the

total dollar amount of such shares.

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\11\ The securities subject to valuation under Rule 17(a)-

7(b)(4) include all securities other than ``reported securities,''

as the term is defined in Rule 11Aa3-1 under the Securities Exchange

Act of 1934, or those quoted on the NASDAQ system or for which the

principal market is an exchange.

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In accordance with the conditions under Section I of this proposed

exemption, similar procedures will be adopted upon any future in-kind

exchanges between CIFs maintained by Sanwa Bank and the

Funds.12

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\12\ Although not contemplated by the initial conversion

transaction, the requested exemption includes certain procedures

that are consistent with PTE 97-41 (62 FR 42830, August 8, 1997),

PTE 97-41 permits a client plan to purchase shares of a mutual fund

for which a bank or an investment adviser serves as a fiduciary to

the client plan, in exchange for plan assets transferred in-kind

from a CIF. Specifically, the procedures relate to the methods of

communicating the confirmations described above by personal

delivery, facsimile or electronic mail (see Section I(b) and (g) of

this proposed exemption).

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Representations of the Second Fiduciary for the Bank Plans Regarding

the In-Kind Transfers

12. As stated above, Sanwa Bank retained ASA as the Second

Fiduciary for the limited purpose of overseeing the initial in-kind

transfers of CIF assets to the Funds as such transactions would affect

the Bank Plans. In such capacity, ASA represented that it consulted

with its own counsel regarding the fiduciary provisions of the Act and

stated that it understood and accepted the duties, responsibilities and

liabilities in acting as a fiduciary under the Act for the Bank Plans.

In a written report dated September 30, 1997, ASA stated that it

considered the effect of the in-kind transfer transactions on the Bank

Plans and the implications of such transactions for Plans invested in

the CIFs. Based on its review of fees to be charged by the Funds, the

investment guidelines for the Funds and the performance data available

on the CIFs, ASA concluded that the terms of the in-kind transfers were

fair to the participants of the Bank Plans and no less favorable than

the terms that would have been reached among unrelated parties.

13. Based on representations obtained from officers for Sanwa Bank

regarding the termination of the CIFs as well as considering the

effects of the in-kind transfers, ASA represented that the transactions

were in the best interest of the Bank Plans and their participants and

beneficiaries for the following reasons:

(a) In terms of the investment policies and objectives pursued, the

Funds have investment objectives comparable to the CIFs and satisfy the

stated investment policies of the Bank Plans. Thus, in terms of

investment policies and objectives, the impact of the in-kind transfer

transactions on the Bank Plans and their participants and beneficiaries

would be de minimus; 13

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\13\ Although the Bank Plans represent a larger portion of the

CIFs that were terminated as well as a larger portion of the Funds,

ASA does not believe the Bank Plans' percentage ownership of the

Funds immediately after the conversion is determinative of whether

the conversion was proper.

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(b) The Funds will probably continue to experience relative

performance similar in nature to the CIFs given the comparability of

investment objectives and policies and the fact that the same portfolio

management personnel will provide portfolio management oversight;

flows, liquidity or investment diversification of the Bank Plans; and

(d) By investing in the Funds, the Bank Plans would receive a

larger investment base, cost savings to participants over time through

economies of scale, more choices for participants exercising investment

control, the ability to obtain investment information through readily

available sources and fees that would be reasonable and within industry

standards.

14. In forming an opinion as to the appropriateness of the in-kind

transfers, ASA conducted an overall review of the

[[Page 29450]]

Bank Plans, including the Bank Plan documents. ASA stated that it also

examined the investment portfolios of the Bank Plans to ascertain

whether or not the such Plans were in compliance with their investment

objectives and policies. Further, ASA stated that it examined the cash

flow and liquidity requirements of the Bank Plans and the

diversification provided by the investment portfolios of the Bank

Plans. Based on its review and analysis of the foregoing, ASA

represented that the in-kind transfer transactions would not adversely

affect the total investment portfolios of the Bank Plans, compliance by

such Plans with their stated investment objectives and policies, the

cash flows liquidity or diversification requirements of the Bank Plans.

15. As Second Fiduciary, ASA represented that Sanwa Bank would

provide it with any documents it considered necessary to perform its

duties as Second Fiduciary. In this regard, ASA was advised that within

30 days following the initial in-kind transfer transactions, Sanwa Bank

would provide it with the written confirmation statements described

herein. In addition, ASA stated that it would supplement its findings

following the review of the confirmation statements to verify whether

the in-kind transfer transactions had resulted in the receipt by the

Bank Plans of shares in the Funds that were equal in value to such

Plans' pro rata share of assets of the CIFs on the conversion date.

Further, ASA represented that it would take such actions as it deemed

necessary to safeguard the interests of the Bank Plans in the event the

confirmation statements did not verify the foregoing. Finally, ASA

explained that it would maintain, for a period of six years from the

time of the initial conversion transaction (and make available for

review), all relevant records with respect to the performance of its

duties as Second Fiduciary for the Bank Plans.

Receipt of Fees by Sanwa Bank

16. Under certain conditions, PTE 77-4 (42 FR 18732, April 8, 1977)

permits Client Plans of Sanwa Bank to engage in the purchase and sale

of shares of a registered, open-end investment company when Sanwa Bank,

a fiduciary with respect to such Client Plans, is also the investment

adviser for the investment company, provided (a) the Client Plan does

not pay any investment management, investment advisory or similar fees

for the assets of such Plan invested in shares of a Fund for the entire

period of the investment; or (b) where the Client Plan pays investment

management, investment advisory or similar fees to Sanwa Bank based on

the total assets of such Client Plan from which a credit has been

subtracted representing such Plan's pro rata share of such investment

advisory fees paid to Sanwa Bank by the Fund. As such, with respect to

the Client Plans, there may be two levels of fees--(a) those fees which

Sanwa Bank may charge to Client Plans for serving as trustee,

investment manager or custodian for such Plans (the Plan-level fees);

and (b) those fees which Sanwa Bank may charge to the Fund (the Fund-

level fees) for serving as an investment adviser for the Fund as well

as for being custodian of the Fund or for providing other Secondary

Services to the Fund.

17. Since October 31, 1997, Sanwa Bank no longer charges each

Client Plan a Plan-level fee for its services as trustee, investment

manager or custodian based on Sanwa Bank's standard fee schedules and

the terms of specific agreements negotiated between each Client Plan

and Sanwa Bank. Such Plan-level fees included asset-based charges that

were expressed as a percentage of Client Plan assets. Instead, as

permitted by PTE 77-4, for investment advisory services provided to the

Funds, Sanwa Bank is receiving Fund-level advisory fees from each of

the Funds. As stated above in Representation 1(d), these fees, which

are also expressed as a percentage of a Fund's assets currently range

from 0.10 percent to 0.80 percent per annum of the daily average assets

of the U.S. Treasury Obligations Fund and the Global Asset Allocation

Fund, respectively.14

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\14\ It should be noted that Sanwa Bank has agreed to

temporarily waive the amount of its investment advisory fees through

the end of the Funds' initial fiscal year. Without the waiver, the

per annum investment advisory fees for the U.S. Treasury Obligations

Fund and the Global Asset Allocation Fund would range from 0.20

percent to 0.90 percent per annum of the Fund's daily average

assets.

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In addition to charging Fund-level investment advisory fees, Sanwa

Bank is charging Client Plans for Plan-level recordkeeping,

administrative, accounting and custodial services which do not involve

investment management, such as custody of plan assets, maintaining plan

records, preparing periodic reports of plan assets and participant

accounts, effecting participant investment directions, processing

participant loans and accounting for contributions, payments of

benefits and other receipts and distributions. Sanwa Bank's fees for

such Plan-level services will continue to be negotiated with each

Client Plan and its fees for such services for Bank Plans will continue

to be limited to the reimbursement of direct expenses properly and

actually incurred in the performance of the services.15

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\15\ Sanwa Bank represents that it is relying upon section

408(b)(2) with respect to its receipt of fees for such

administrative services. The Department expresses no opinion herein

on whether the provision of such services will satisfy section

408(b)(2) of the Act.

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At present, all services other than investment advisory services

are provided to the Funds or their distributor by unrelated parties.

However, as stated above, Sanwa Bank represents that the Funds may, in

the future, wish to contract with it or an affiliate to provide

administrative, custodial, transfer, accounting or similar services

(i.e., Secondary Services) to the Funds or their

distributor.16

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\16\ The fact that certain transactions and fee arrangements are

the subject of an administrative exemption does not relieve the

fiduciaries of the Client Plans from the general fiduciary

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

Department cautions Second 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 such 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. These

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.

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Future Fee Changes and Client Plan Authorization Requirements

18. Sanwa Bank notes that one of the requirements of PTE 77-4 is

that any change in any of the rates of fees requires the prior written

approval by the Second Fiduciary of the Plans participating in the

Funds. Where many Plans participate in a Fund, Sanwa Bank observes that

the addition of a service or any good faith increase in fees could not

be implemented until written approval of such change is obtained from

every Second Fiduciary. As an alternative, Sanwa Bank proposes to

follow the ``negative consent'' procedure which it believes provides

the basic safeguards for the Plans and is more efficient, cost

effective and administratively feasible that required by PTE 77-4.

The negative consent procedure would apply in the following

circumstances: (a) an increase in the rate of any Fund-level investment

management, investment advisory or similar fees; (b) a proposal by

Sanwa Bank or an affiliate to provide a Secondary Service to a Fund for

a fee; and (c) an increase in the fee for a Secondary Service paid by a

Fund to Sanwa Bank or its affiliates over an existing rate that had

been authorized by the Second Fiduciary. In this regard, an increase in

fees for Secondary Services can result either from an increase in the

rate of such fee or from

[[Page 29451]]

a decrease in the number or kind of services performed by Sanwa Bank or

its affiliates for such fee over that which had been authorized by the

Second Fiduciary of a Client Plan. Under such circumstances, Sanwa Bank

will provide at least 30 days advance notice of the implementation of a

proposed fee increase to Client Plans invested in the affected Fund.

The notice will take the form of a proxy statement, letter or similar

communication which is separate from the Fund's prospectus and which

explains the nature and amount of the additional service or the nature

and amount of the fee increase.17

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\17\ The Department notes that an increase in the amount of a

fee for an existing investment advisory service or a 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 an investment

advisory fee or a fee for a Secondary Service has already been

described in writing to the Second Fiduciary and the Second

Fiduciary has provided authorization for the amount of such fee, and

such fee has been waived, no further action by Sanwa Bank will be

required in order for Sanwa Bank to receive such fee at a later

time. Thus, for example, no further disclosure would be necessary if

Sanwa Bank has received authorization for a fee for custodial

services from a Client Plan investor and subsequently determined to

waive the fee for a period of time in order to attract new investors

but later charged the fee. However, reinstituting the fee at an

amount greater than previously disclosed would necessitate Sanwa

Bank providing notice of the fee increase and a Termination Form in

the manner described above.

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19. The written notice of a fee increase or additional Secondary

Service for which a fee is charged will be accompanied by a Termination

Form. The Termination Form will enable the Second Fiduciary to

terminate any prior authorization to invest Client Plan assets in a

Fund or Funds without penalty to the affected Client Plan. In addition,

each Client Plan will be supplied with a Termination Form annually

during the first quarter of each calendar year, regardless of whether

there has been any fee increase or additional Secondary Service for

which a fee is charged. If, however, the Termination Form has been

provided to the Client Plan in connection with a fee increase or an

additional Secondary Service for which a fee is charged, the

Termination Form need not be provided again to the client Plan until at

least six months have elapsed, unless such Termination Form is required

to be sent sooner as a result of another fee increase or an addition of

such Secondary Services.

The Termination Form will be accompanied by instructions which

state that any relevant authorization previously given by the Second

Fiduciary is terminable at will be the Second Fiduciary, without

penalty to the Plan, and that failure to return the Form will be deemed

to be an approval of the fee increase or the additional Secondary

Service and will result in the continuation of such authorization.

Termination of an authorization to invest Client Plan assets in the

Funds will result in the redemption of shares of the Fund held by the

Plan by the close of business on the business day following the date of

receipt by Sanwa Bank of the Termination Form or any other written

notice of termination, either by mail, hand delivery, facsimile or

other available means of written communication at the option of the

Second Fiduciary. If, due to circumstances beyond the control of Sanwa

Bank, the redemption cannot be effected within one business day, Sanwa

Bank will have one additional business day to complete such redemption.

20. Although an investment in the Funds may result in an overall

cost increase to many of the Client Plans, the Second Fiduciary will be

obligated to take such impact into account in determining whether to

authorize the Plans' investment in the Funds. In any event, such

additional costs will be consistent with the costs of similar

alternative investments that will be available to the Plans upon the

termination of the CIFs. In this respect, Sanwa Bank believes that as

to each Plan, the combined total of all Plan-level and Fund-level fees

received by Sanwa Bank for the provision of services to the Client

Plans and to the Funds, respectively, will not be in excess of

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

the Act.

21. The requested exemption will be subject to the satisfaction of

certain general conditions that will further protect the interests of

the Plans. For example, the transactions will be subject to the prior

authorization of a Second Fiduciary, acting on behalf of each Plan, who

has been provided with the written disclosures described above. The

Second Fiduciary generally will be the administrator, sponsor or a

committee appointed by the sponsor to act as a named fiduciary for a

Client Plan or, in the case of the Bank Plans, a qualified party

independent of Sanwa Bank.

22. With respect to disclosure, the Second Fiduciary of each Plan

will receive advance written notice of the in-kind transfer of assets

of the CIFs and written disclosure of information concerning the Funds

consistent with PTE 77-4 and PTE 97-41. Among the disclosures that will

be given to the Second Fiduciary include, but are not limited to, the

following: (a) a current prospectus for each portfolio of each of the

Funds in which the Client Plan may invest; (b) a statement describing

the fees for investment advisory or other similar services, any fees

for Secondary Services, and all other fees to be charged to or paid by

the Client Plan and by such Funds to Sanwa Bank, including the nature

and extent of any differential between the rates of such fees; (c) a

statement of the reasons why Sanwa Bank may consider such investment to

be appropriate for the Client Plan; (d) a statement of whether there

are any limitations applicable to Sanwa Bank with respect to which

assets of a Client Plan may be invested in Fund shares, and, if so, the

nature of such limitations; and (e) a copy of the proposed exemption

and/or a copy of the final exemption upon the request of the Second

Fiduciary.

On the basis of the disclosures, the Second Fiduciary must

authorize in writing the investment of Plan assets in shares of the

Fund in connection with the transactions described herein as well as

the compensation received by Sanwa Bank (or its affiliates) in

connection with its services to the Funds. Such written authorization

will extend to only those Funds with respect to which the Plan has

received the written disclosures referred to above and which are

specifically mentioned in such disclosures.

Having obtained the authorization of the Second Fiduciary, Sanwa

Bank will invest the assets of a Plan among the Funds, subject to

satisfaction of the other terms and conditions of the requested

exemption. Sanwa Bank will not, however, invest the assets of a Plan in

any Fund not specifically mentioned in the written disclosure and

authorization described above. If a new Fund were established, Sanwa

Bank would invest assets of a Plan in such new Fund under the requested

exemption only after providing the required disclosures and obtaining a

separate written authorization from the Second Fiduciary which

specifically mentions the new Fund.

23. In addition to the disclosures provided to the Plan prior to

investment in a Fund, Sanwa Bank will provide, at least annually to the

Second Fiduciary of each Client Plan, an updated prospectus of each

Fund in accordance with the requirements of the 1940 Act and applicable

SEC rules. Further, the Second Fiduciary will be supplied, upon

request, with a report or statement (which may take the form of the

most recent financial report of the Funds, the current statement of

additional information or some other written statement) containing a

description of

[[Page 29452]]

all fees paid by the Funds. Finally, all dealings by or between the

Client Plans and any Fund will be on a basis which is no less favorable

to such Plans than dealings between the Fund and other non-Plan

shareholders holding the same class of shares as the Client Plans.

Although it does not anticipate doing so initially, Sanwa Bank or

an affiliate may in the future execute securities brokerage

transactions for some or all of the Funds, as and to the extent

permitted by the 1940 Act and applicable SEC rules. If and when Sanwa

Bank proposes to provide brokerage services to any Fund for

compensation, Sanwa Bank will, at least 30 days in advance of the

implementation of such service, provide written notice to the Client

Plans explaining the nature of such brokerage services and the amount

of the fees to be paid therefor. Further, with respect to any Fund for

which Sanwa Bank provides brokerage services, Sanwa Bank will provide,

at least annually to each Client Plan that invests in such Fund a

written disclosure indicating (a) the total brokerage commissions paid

by the Fund to Sanwa Bank, expressed in dollars; (b) the total

brokerage commissions paid by the Fund to brokerage firms unrelated to

Sanwa Bank, expressed in dollars; (c) the average brokerage commissions

per share paid by the Fund to Sanwa Bank, expressed as cents per share;

and (d) the average brokerage commissions per share paid by the Fund to

brokerage firms unrelated to Sanwa Bank, expressed as cents per share.

24. In addition to the foregoing, the requested exemption will be

subject to the following requirements: (a) the Plans and other

investors will purchase or redeem Fund shares in accordance with

standard procedures described in the prospectus for each Fund; (b) no

Plan will pay a sales commission or redemption fee in connection with

the purchase or redemption of Fund shares; (c) Sanwa Bank will not

purchase from or sell to any Plan shares of the Fund; (d) the price

paid or received by the Plans for Fund shares will be the net asset

value per share at the time of such purchase or redemption and will be

the same price as any other investor would pay or receive for shares of

the same class.

25. In summary, it is represented that the transactions have

satisfied or will satisfy the statutory criteria for an exemption under

section 408(a) of the Act because:

(a) With respect to the in-kind transfer of the assets of a Plan

invested in a CIF in exchange for shares of a Fund, a Second Fiduciary

has authorized or will authorize in writing, such in-kind transfer

prior to the transaction only after receiving full written disclosure

of information concerning the Fund.

(b) Each Plan has received or will receive shares of the Funds in

connection with the transfer of assets of a terminating CIF which have

a total net asset value that is equal to the value of such Plan's pro

rata share of the CIF assets on the date of the transfer as determined

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

the business day, using independent sources in accordance with

procedures established by the Funds which comply with Rule 17a-7 of the

1940 Act, as amended, and the procedures established by the Funds

pursuant to Rule 17a-7 for the valuation of such assets.

delivery, or, if applicable, by facsimile or electronic mail, no later

than 30 days after completion of each in-kind transfer of CIF assets in

exchange for shares of the Funds, a written confirmation containing the

following information: (1) the identity of each transferred security

that was valued for purposes of the transaction in accordance with Rule

17a-7(b)(4) of the 1940 Act; (2) the current market price, as of the

date of the in-kind transfer, of each such security involved in the

transaction; and (3) the identity of each pricing service or market

maker consulted in determining the current market price of such

securities.

(d) Sanwa Bank has sent or will send by regular mail, or personal

delivery, or, if applicable, by facsimile or electronic mail, no later

than 105 days after completion of each transfer, a written confirmation

that contains the following information: (1) the number of CIF units

held by a Plan immediately before the conversion (and the related per

unit value and the total dollar amount of such CIF units); and (2) the

number of shares in the Funds that are held by the Plan following the

conversion (and the related per share net asset value and the total

dollar amount of the shares received).

(e) The price that has been or will be paid or received by a Plan

for shares of the Funds is the net asset value per share at the time of

the transaction and is the same price for the shares which will be paid

or received by any other investor at that time.

(f) No sales commissions or redemption fees have been or will be

paid by a Plan or a CIF in connection with the in-kind transfer of

assets to the Fund, in exchange for shares of the Funds or in

connection with the purchase or redemption of Fund shares by a Plan.

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

by Sanwa Bank for the provision of Plan-level services, and in

connection with the provision of investment advisory services or

Secondary Services to any of the Funds in which Plans may invest, is

not and will not be in excess of ``reasonable compensation'' within the

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

(h) Sanwa Bank has not received and will not receive any 12b-1 Fees

in connection with the transactions.

(i) Any authorizations made by a Client Plan regarding investments

in the Funds and the fees paid to Sanwa Bank (including increases in

the contractual rates of fees for Secondary Services that are retained

by the Sanwa Bank) will be terminable at will by the Client Plan,

without penalty to the Client Plan and will be effected within one

business day following receipt by Sanwa Bank, from the Second

Fiduciary, of the Termination Form or any other written notice of

termination, unless circumstances beyond the control of Sanwa Bank

delay execution for no more than one additional business day.

(j) The Second Fiduciary will receive written notice accompanied by

the Termination Form with instructions on the use of the form at least

30 days in advance of the implementation of any increase in the rate of

any fees paid by the Funds to Sanwa Bank regarding investment advisory

services, fees for Secondary Services or an additional Secondary

Service for which a fee is charged which exceed the rates authorized

for Sanwa Bank by the Second Fiduciary.

(k) All dealings by or between the Client Plans and any Fund have

been and will remain on a basis which is no less favorable to such

Client Plans than dealings between the Fund and other non-Plan

shareholders holding the same class of shares as the Client Plans.

Notice to Interested Persons

Sanwa Bank proposes to provide notice of the proposed exemption to

the Second Fiduciary of the Bank Plans, active participants in the Bank

Plans and the Second Fiduciary of each affected Client Plan. Notice

will be provided to each Second Fiduciary by first class mail and to

active participants in the Bank Plans by posting at major job sites.

Such notice will be given to interested persons within 30 days

following the publication of the notice of pendency in the Federal

exemption as published in the Federal Register as

[[Page 29453]]

well as a supplemental statement, as required, pursuant to 29 CFR

2570.43(b)(2), which shall inform interested persons of their right to

comment on and/or to request a hearing. Comments and requests for a

public hearing are due within 60 days of the publication of the notice

of proposed exemption in the Federal Register.

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

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

Plumbers and Pipe Fitters National Pension Fund (the Fund) Located

in Crofton, MD

[Exemption Application No. D-10514]

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)(1)(A), 406(a)(1)(B),

406(a)(1)(D), 406(b)(1), and 406(b)(2) of the Act and the sanctions

resulting from the application of section 4975 of the Code, by reason

of section 4975(c)(1)(A) through (E) of the Code 18 shall

not apply, effective October 9, 1997, to the transfer to the Fund from

the United Association of Journeymen and Apprentices of the Plumbing

and Pipe Fitting Industry of the United States and Canada, AFL-CIO (the

Union), a party in interest with respect to the Fund, of the Union's

limited partnership interests in Diplomat Properties, Limited

Partnership, (the Partnership), the sole asset of which is a certain

resort hotel and country club complex (the Property); and to the

transfer to the Fund of Union's holding of stock in Diplomat

Properties, Inc. (the Stock), the corporate general partner of such

Partnership, in consideration for a capital contribution by the Fund to

the Partnership in the amount of $40 million dollars, plus reasonable

costs incurred by the Union in purchasing the Property, and in

consideration for the release of a certain loan obligation (the Loan)

of the Partnership which was guaranteed by the Union and collateralized

by Union assets; provided that:

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\18\ For purposes of this exemption, references to specific

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

also to the corresponding provisions of the Code.

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

(1) the transaction was a one-time transaction;

(2) an I/F which has the following qualifications acted on behalf

of the Fund:

(a) the I/F is an individual, group of individuals, or a business

entity which has substantial experience and expertise in the commercial

real estate field;

(b) neither the I/F nor any of its affiliates have any ownership or

other interest in the Union or its affiliates, nor does the Union or

any of its affiliates have any ownership interest in the I/F or its

affiliates; and

transactions with the Union or its affiliates.

(3) prior to the Fund entering the transaction, the I/F reviewed

and approved the terms of the transaction, determined that the

transaction was an appropriate investment for the Fund, that the amount

paid by the Fund to acquire ownership of the Property through the

Partnership was appropriate and fair, that the total costs incurred

were necessary for the acquisition of the Property and were reasonable,

and that the transaction was in the best interest of the Fund and its

participants and beneficiaries;

(4) the fair market value of the Property held by the Partnership

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

of the transaction;

(5) the Fund paid no fees or commissions as a result of the

transaction; and

(6) the terms of the transaction were no less favorable to the Fund

than those it would have received under similar circumstances when

negotiated at arm's length with unrelated third parties.

Summary of Facts and Representations

1. The Fund is a Taft-Hartley multi-employer defined benefit

pension fund, as defined in section 3(37) of the Act.19 The

Fund is funded solely by employer contributions negotiated under

collective bargaining agreements with the Union. As of January 1997, it

is represented that the Fund received contributions from 5,187 active

employers. As of October 3, 1997, there were estimated to be 97,988

participants and beneficiaries of the Fund. As of June 30, 1997, the

Fund had assets of approximately $3.166 billion. It is represented that

the transaction which is the subject of this proposed exemption

involved less than 2 percent (2%) of the total assets of the Fund.

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\19\ It is represented that the Fund is the successor to the

former Sabine Area Pipefitters Local No. 195 Pension Trust Fund,

which was involved in the correction of a 1988 prohibited

transaction that had occurred before the former Local 195 Pension

Fund merged into the Fund in 1990. It is represented that the

correction of the prohibited transaction did not involve any assets

of the National Pension Fund except to the extent that the Local 195

Joint Apprenticeship Committee was assessed first tier excise taxes

under section 4975 of the Code for its use of assets of the former

Local 195 Pension Fund.

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The Fund is administered from its offices in Crofton, MD by the

plan administrator. Six (6) individuals serve as members of the Board

of Trustees (the Trustees) of the Fund. Three of the Trustees are

appointed by employers who contribute to the Fund, and three of the

Trustees are appointed by the Union. The three Trustees selected by the

Union also serve as officers of the Union. As fiduciaries to the Fund,

the Trustees are parties in interest with respect to the Fund within

the meaning of section 3(14)(A) of the Act.

2. The Union is an employee organization some of whose members

participate in the Fund. As such, the Union is a party in interest with

respect to the Fund within the meaning of section 3(14) of the Act.

3. The Property, located in Hollywood and Hallandale, Florida, was

constructed in the late 1950's and consists of several parcels,

including a oceanfront hotel, a vacant parcel of oceanfront real

estate, a motel, a golf course, a clubhouse with tennis courts, and a

marina. The hotel consists of two towers containing a total of 655

rooms. The north tower is the older of the towers and is in poor

condition. The south tower has 256 rooms, large convention areas, and a

parking garage. It is represented that the hotel at one time operated

as a premier hotel and country club catering to the middle income

convention trade, but due to a decline in the market, the hotel has

been closed since 1992.

The vacant parcel, located on a 2.99-acre oceanfront site,

functions as a parking lot. The motel, located on the Intracoastal

Waterway and across the street from the hotel, has approximately 300

rooms, only 150 of which are operational. The golf course, containing

122.91 acres, is represented to be in relatively good shape and

continues to function as a low budget operation. It is represented that

the clubhouse and tennis courts are in need of upgrading. In the

alternative, the real estate underlying the clubhouse and tennis courts

could be re-zoned for residential use. The marina, the newest addition

to the Property, provides a 52-slip facility, offering a number of

finger piers, and a covered gazebo. It is represented that twelve (12)

of the boat slips are under annual leases, and that the marina is

subject to a long-term lease with a local yacht club.

4. The Union Labor Life Insurance Company (ULLICO) acquired,

through

[[Page 29454]]

foreclosure, ownership of the Property as a result of a default by an

unrelated third party on a mortgage loan. In this regard, in May 1991,

title to the Property was transferred to TNDL Limited (TNDL), a wholly-

owned subsidiary of ULLICO.

Early in 1997, TNDL placed the Property on the market for sale. It

is represented that as a result of this public solicitation, TNDL

received seven or eight bids from prospective purchasers, including the

Union and at least one from a well-known hotel chain.

It is represented that when the Property was offered for sale, the

Trustees of the Fund were interested in acquiring it as an investment

for the Fund. However, a non-negotiable condition in the sale offer by

TNDL excluded assets of any employee benefit fund subject to the Act

from being used to purchase the Property.

5. The successful bidder on the Property was the Union which

purchased the Property on October 1, 1997, for $40 million in cash,

plus expenses incurred by the Union in acquiring the Property. Upon the

advice of counsel, the Union chose to acquire and hold title to the

Property through its wholly-owned subsidiary, the Partnership, in order

to avoid state real property transfer taxes that would otherwise arise

upon any subsequent sale of the Property.

It is represented that the Partnership obtained the money to

purchase the Property from the proceeds of the Loan from the National

City Bank of Cleveland, Ohio (the Bank). It is represented that

repayment of the Loan by the Partnership was guaranteed by the Union.

The Loan was secured by cash, cash equivalents, and securities owned by

the Union and held by the Bank in a custodial account.

The term of the Loan was two (2) years with no prepayment penalty.

The payment schedule consisted of payments only of interest for 23

months with a balloon payment of the principal amount, plus accrued

interest in the 24th month. The interest rate on the Loan was the

Bank's 7-day money market rate, adjusted weekly. It is represented that

the $25,000 origination loan fee charged by the Bank on the Loan was

withheld from the $40 million dollar Loan made to the Partnership by

the Bank.

6. At the time the Partnership acquired the Property, an appraisal

of the Property was prepared by Bruce C. Roe (Mr. Roe), President, and

Zillah L. Tarkoe, Senior Analyst, of Roe Research, Inc., in Ft.

Lauderdale, Florida. It is represented that the appraisers are

qualified in that each is licensed by the State of Florida as a state-

certified general real estate appraiser. It is further represented that

Mr. Roe is a Member of the American Society of Real Estate Counselors

(CRE) and a Member of the Appraisal Institute (MAI).

It is represented that the appraisers are independent in that

neither has a present or prospective interest in the Property, nor has

either any personal interest or bias with respect to the parties

involved. Neither the employment nor the compensation of the appraisers

was conditioned upon the reporting of a predetermined value or

direction in value of the Property.

After physically inspecting the Property and reconciling the values

for the Property established by the cost approach, income approach, and

sales comparison approach, the appraisers established a separate value,

based on fee simple interest ``as is,'' for each of the parcels which

make up the Property, including the oceanfront hotel, the vacant

oceanfront parcel, the motel, the golf course and club house, and the

marina. The sum of these separate values for each of the parcels was

$44,350,000, as of August 8, 1997. Including a 10 percent (10%)

discount for a bulk sale of all of the parcels of the Property ``as

is'' to a single purchaser, the fair market value of the Property, was

determined by the appraisers to be $40 million, as of August 8, 1997.

7. It is represented that on October 9, 1997, the Union and the

Fund closed on the transaction that is the subject of this proposed

exemption. Accordingly, the Fund, as applicant, has requested a

retroactive exemption, effective October 9, 1997, to permit the past

transfer from the Union to the Fund of the Union's limited partnership

interests in the Partnership and the Stock in the corporate general

partner of the Partnership which was owned by the Union. In this

regard, it is represented that the Union owned 100 percent of the Stock

of the corporate general partner of the Partnership. As general

partner, the corporation owned one percent (1%) of the outstanding

interest in the Partnership. The other 99 percent (99%) of the

interests in the Partnership were owned by the Union, as limited

partner.

It is represented that at the time of the sale of the Property to

the Partnership, there existed no agreement pursuant to which the

Partnership was obligated to sell the Property to any third party or

pursuant to which any third party was obligated to buy the Property,

including the Fund. Further, at the time of the sale of the Property to

the Partnership, there existed no agreement pursuant to which the Union

was obligated to sell its interest in the Partnership to any third

party or pursuant to which a third party was obligated to buy the

Union's interest in the Partnership, including the Fund. Finally, there

never existed any agreement or understanding between TNDL and the Fund

with respect to the purchase of the Property by the Fund. In this

regard, it is represented that TNDL's representatives were unaware that

the Trustees of the Fund were contemplating purchasing the Property

after it was sold by TNDL to the Union.

It is represented that in consideration for the transfer by the

Union of the Stock and the limited partnership interests, the Fund made

a capital contribution to the Partnership in the amount of $40 million

dollars. In addition, the Fund agreed to reimburse the Union for the

following expenditures (totaling $367,605) which were incurred by the

Union in purchasing the Property: (a) attorney hourly fees, travel, and

other expenses ($215,756) paid to persons unrelated to the Fund; (b)

due diligence fees (e.g., geotechnical, evaluation, updated boundary

surveys, appraisal fees) ($42,643); (c) a letter of credit fee ($8,406)

paid to the issuer, NationsBank; and (d) earnest money deposit of

$100,000 paid into escrow and credited to the Partnership at closing,

plus $800 of interest accrued in escrow. It is represented that the

letter of credit fee resulted from a term in the sale contract with

TNDL, the seller of the Property, which required that the earnest money

deposit be in the form of a letter of credit. Further, some due

diligence and other fees not included in the amounts set forth above

were incurred by the Union prior to the establishment of the

Partnership. It is represented that these due diligence and other fees

include the following: (a) $647.50 custodian fee paid to National City

Bank; (b) $2,978 paid to CT Corporation for assistance in establishing

the Partnership and the corporate general partner of the Partnership;

and (c) $75,000 to the I/F for the initial opinion on the value of the

Property. It is represented that these amounts were paid by the

Partnership and/or the Fund subsequent to the closing on the Property

and the transfer of the ownership of the Partnership to the

Fund.20

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\20\ The Department notes that the actions of the Trustees

relying on the advice of the I/F and acting on behalf of the Fund,

in connection with its consideration of the merits of the

acquisition of the limited partnership interests in the Partnership

and the Stock of the corporate general partner of the Partnership as

an investment for the Fund and the subsequent acquisition and

holding of the Property are governed by the fiduciary responsibility

requirements of part 4, subpart B, of Title I. The Department

expresses no opinion herein, as to whether any of the relevant

provisions of part 4, subpart B, of Title I have been violated

regarding the Fund's investment in the Partnership and subsequent

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

proposed herein.

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[[Page 29455]]

Because the Property was the sole asset of the Partnership, it is

represented that the economic effect of the transfer which is the

subject of this proposed exemption for all practical purposes was the

same as a sale of the Property by the Union to the Fund. Subsequent to

the transfer, it is represented that the capital contribution made by

the Fund to the Partnership was used to retire the Loan between the

Bank and the Partnership. In this regard, it is represented that on

October 10, 1997, the Fund transferred directly to the Bank sufficient

assets to pay off the Loan.

8. It is represented that the transaction which is the subject of

this proposed exemption was in the interest of the Fund, because it

provided a valuable investment opportunity to the Fund which it is

represented will result in a superior return.

Further, it is represented that the cities of Hollywood and

Hallandale support the redevelopment of the Property. In this regard,

it is represented that additional funding for the development of the

Property is under consideration by the U.S. Department of Housing and

Urban Development through a community development loan guarantee

program for projects that produce full time job opportunities for low

income residents. Additionally, it is represented that the Fund's

ownership of the Property through the limited partnership structure

will permit the Fund to avoid the liabilities associated with a more

direct ownership of real estate and will not threaten the tax exempt

status of the Fund.

9. In the opinion of the Trustees, an important safeguard in this

proposed exemption is that an I/F, acting on behalf of the Fund,

reviewed and approved the subject transaction, and that such I/F

concluded that the transaction was prudent and in the interests of the

participants and beneficiaries of the Fund. It is represented that, as

of September 22, 1997, Chadwick, Saylor & Co. Inc. (CSC) was retained

by the Trustees to act as I/F on behalf of the Fund. As a result, CSC

provided the Trustees with a report of its opinion of the subject

transaction, dated September 29, 1997, a supplemental report of the

same date, a subsequent report, dated December 15, 1997, and an

additional letter dated, May 11, 1998.

CSC has acknowledged that as I/F it was solely responsible to the

Fund. In this regard, it is represented that the fee of the I/F was

paid by the Fund. It is further represented that CSC is independent in

that there is no relationship between the Union and CSC, and that CSC

is not related to or affiliated with the Fund. Further, CSC represents

that it had no conflicts affecting its ability to serve as the I/F and

to provide an independent evaluation of the transaction which is the

subject of this proposed exemption.

CSC represents that it is an investment advisor registered under

the Investment Advisors Act of 1940; that it possesses substantial

expertise in the area of commercial real estate investments; and that

it is qualified to provide the independent fiduciary services required.

In this regard, either CSC or its principals have represented in excess

of forty (40) tax exempt institutional real estate investors (private

and public pensions, endowments and foundations) in a fiduciary

capacity.

In fulfilling its role as I/F, CSC received and reviewed the Fund's

policy statement and various reports, schedules, and other material

provided by the Fund's consultants, real estate managers, and various

professionals. Included in the information reviewed by CSC is the

following: (a) the sale and purchase agreement between the Union and

TNDL, and attachments and related correspondence; (b) documents, plans,

surveys, and maps pertaining to existing and anticipated improvements

on the Property; (c) documents, maps, and other correspondence

pertaining to the condition of title of the Property, including

encumbrances, taxes and other liens, and information on certain

adjacent sites; (d) ordinances and other information relating to zoning

and building codes; (e) the statement of value of the Property from the

independent appraisers; and (f) preliminary feasibility studies,

status, and condition reports related to the contemplated development

and redevelopment of the Property.

After reviewing the material listed above, CSC is of the opinion

that the Fund's investment in the Partnership represents a moderate

expenditure of capital (based on the Fund's overall investment

portfolio) to produce disproportionately high returns. In this regard,

CSC believes that the probable internal rate of return to the Fund will

be in excess of 15% from its investment in the Property and successful

conclusion of development and redevelopment efforts over the next

several years. It is further represented that this rate of return is

substantially greater than the overall rate of return experienced by

the Fund from its current real estate portfolio. Based on

diversification characteristics of the investment in the Partnership,

CSC believes that the Fund will enjoy a very competitive risk-adjusted

return from its investment.

With respect to diversification of the assets of the Fund, CSC

represents that allowing for the subject transaction, equity real

estate represents less than 6 percent (6%) of the Fund's total

investment portfolio. It is further represented that the total real

estate commitments of the Fund, including the 6% equity position and

non-equity debt type investments (e.g. loans, bonds, mortgages, and

mortgage-backed securities), were slightly in excess of 15 percent

(15%) of the Fund's total investment portfolio, as of June 30, 1997.

CSC recognized the degree of risk assumed by the acquisition of

properties which are generally unoccupied and are in need of

development or redevelopment to become occupied and to generate a

positive cash flow. Based on the risk/reward characteristics of the

subject transaction, CSC is of the opinion that the acquisition cost

(which represents approximately 1.2 percent (1.2%) of the Fund's total

investment portfolio, as of June 30, 1997) is an appropriate

expenditure and does not represent unwarranted risk.

With respect to the appraisal of the Property prepared by Roe

Research, Inc., CSC believes that the $40 million dollar value ascribed

to the Property is appropriate and fair. However, CSC did not subscribe

to the ``bulk sale discount'' for the Property, as set forth in the

appraisal report. In the opinion of CSC, the value of the unique

characteristics of the Property, offering a ``self-contained'' resort

complex, collectively could be greater than the value determined by

individual transactions on the various parcels which make up the

Property.

In the opinion of CSC, the amount (approximately $40 million

dollars, plus reasonable costs) paid by the Fund to acquire the

Property does not exceed the fair market value of such Property at the

time of acquisition, including consideration for miscellaneous costs,

presuming that such costs when fully identified are customary and

reasonable and do not exceed the costs incurred by the Union in its

purchase of the Property from TNDL. With regard to such costs, CSC in

May 1998, after reviewing the total acquisition cost schedule,

including financing related costs, legal fees, property specific

[[Page 29456]]

related costs, and the cost of the I/F's valuation, opined that all

enumerated acquisition costs were reasonable and that the costs that

were incurred were necessary for making a prudent decision on the

acquisition of the Property.

In the opinion of CSC, it is appropriate for the Fund to hold title

to the Property through the Partnership where the Fund owns 100 percent

(100%) of the Stock of the corporate general partner of such

Partnership. In this regard, it is CSC's assumption that the

Partnership may be restructured in the future to accommodate tax or

other issues, to sell a portion of the Property, or to accommodate co-

investor or lender capital funding. In this regard, it is represented

that such holding by the Fund will permit the Fund to avoid liabilities

associated with a more direct ownership of real estate and will not

threaten the tax-exempt status of the Fund.

CSC recognizes that certain aspects of the Fund's investment in the

Partnership could potentially cause unrelated business income tax

(UBTI) to the Fund. In this regard, CSC has been advised by counsel to

the Fund that the structuring of the Fund's ownership, operations, and

sales will be focused on minimizing any tax consequence to the Fund.

Based on this advice of counsel, it is CSC's opinion that the risk-

adjusted returns to the Fund, including consideration for potential

UBTI, fully justify the acquisition, and development/redevelopment

processes planned by the Fund for the Property.

In September 1997, when CSC issued its opinion, certain budgets,

cash flows, or schedules pertaining to the development, redevelopment,

operation and potential of the various components of the Property were

not available. In addition, CSC's opinions as to the fairness of the

transaction were based on certain assumptions related to functions yet

to be performed or completed and certain permits and approvals yet to

be received. Notwithstanding these facts, in the course of its review

of materials with respect to the subject transaction, it is represented

that nothing came to the attention of CSC that indicated that these

matters could not be favorably resolved, and in CSC's opinion, it is

reasonable for the Fund to assume that such matters will be favorable

resolved.

Therefore, based on all of the information CSC reviewed as of the

date of its initial opinion and affirmed in its subsequent report, CSC

concludes, solely on behalf of the Fund, that the acquisition price in

the amount of $40 million, plus reasonable costs is appropriate and

fair. Moreover, based on the foregoing, it is CSC opinion that the

transaction which is the subject of this exemption represents a prudent

investment for the Fund and is in the best interest of the participants

and beneficiaries of the Fund.

10. In summary, the applicant, represents that the proposed

transaction meets the statutory criteria for an exemption under section

408(a) of the Act because:

(1) The transaction was a one-time transaction;

(2) The I/F acted on behalf of the Fund;

(3) Prior to entering the transaction, the I/F reviewed approved

the terms of the transaction, determined that the transaction was an

appropriate investment for the Fund, that the amount paid by the Fund

to acquire ownership of the Property through the Partnership was fair

and reasonable, that the total costs incurred were necessary for the

acquisition of the Property and were reasonable, and that the

transaction was in the best interest of the Fund and its participants

and beneficiaries;

(4) The fair market value of the Property held by the Partnership

was determined by an independent, qualified appraiser;

(5) The Fund paid no fees or commissions as a result of the

transaction; and

(6) The terms of the transaction were no less favorable to the Fund

than those it would have received under similar circumstances when

negotiated at arm's length with unrelated third parties.

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

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

Collection Bureau Services Profit Sharing Plan and Trust (the

Plan), Located in Missoula, MT

[Application No. D-10525]

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 (1) the proposed lease (the Lease) by the

Plan of certain improved real property (the Property) to Collection

Bureau Services (the Employer), a party in interest with respect to the

Plan, and (2) the possible purchase of the Property by the Employer in

the future, pursuant to the Employer's option to purchase the Property

under the Lease.

This proposed exemption is subject to the following conditions:

(1) The Plan is represented for all purposes under the Lease by a

qualified, independent fiduciary;

(2) The terms and conditions of the Lease are at least as favorable

to the Plan as those the Plan could obtain in a comparable arm's length

transaction with an unrelated party;

(3) The rent paid to the Plan under the Lease is no less than the

fair market rental value of the Property, as established by a

qualified, independent appraiser;

(4) The rent is adjusted, at a minimum, every three years, based

upon an updated independent appraisal of the Property, but in no event

shall such adjustments result in the rent being less than the rental

amount for the Property existing for the preceding period;

(5) The Lease is triple net (with all expenses for maintenance,

taxes, and insurance to be borne by the Employer as the tenant);

(6) The independent fiduciary for the Plan (the I/F) reviews the

terms and conditions of the Lease on behalf of the Plan and determines

that the Lease is in the best interests of, and appropriate for, the

Plan;

(7) The I/F monitors and enforces compliance with all of the terms

and conditions of the Lease, and of the exemption (if granted),

throughout the duration of the Lease;

(8) The I/F expressly approves any improvements by the Employer to

the Property, any renewal of the Lease beyond the initial term, and any

sale of the Property to the Employer, pursuant to the Employer's option

to purchase the Property under the Lease;

(9) In the event that the Employer exercises its option to purchase

the Property under the Lease, the Employer pays the Plan an amount

which is the greater of either (a) the original acquisition cost of the

Property, plus holding expenses, or (b) the fair market value of the

Property, as of the date of the sale, as established by a qualified,

independent appraiser; and

(10) At all times throughout the duration of the Lease, the fair

market value of the Property represents no more than 25 percent of the

total assets of the Plan.

Summary of Facts and Representations

1. The Plan is a defined contribution plan sponsored by the

Employer. The

[[Page 29457]]

Employer, a Montana corporation, is engaged in the collection and

credit reporting business. As of October 13, 1997, the Plan had

approximately 26 participants and beneficiaries. As of that date, the

Plan had total assets of $1,131,567. The trustees of the Plan are

Jeffrey J. Koch and Douglas N. Klein.

2. Among the assets of the Plan is the Property, which consists of

a single family residence located at 218 East Spruce, Missoula,

Montana, adjacent to the Employer's premises. The Property is a one

story, two bedroom, one bath structure. The Property was acquired by

the Plan in 1982 from an unrelated party for $32,500 and is not

mortgaged or otherwise subject to any debt. Since September 16, 1996,

the Property has been leased to an unrelated party at the rate of $550

per month.21 The Employer proposes to lease the Property

from the Plan and convert the Property to commercial office space, at

the Employer's own expense (at an estimated cost of approximately

$1,000).

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\21\ From October 1, 1994 to September 16, 1996, the Plan leased

the Property to the Employer for commercial use. In an audit of the

Plan, the Department cited the prohibited lease, among other things,

in a letter dated December 17, 1996, as a violation of the Act. In a

letter dated February 26, 1997, the Department noted that the

Employer had taken all corrective action required by the Department,

including the payment, on January 24, 1997, of $2,585.50 in excise

taxes assessed by the Internal Revenue Service. Since that amount

exceeded the amount of the section 502(l) penalty assessed by the

Department, under the Department's regulations (see 29 CFR 2570.86),

no further payment was due, and the Department closed its

investigation of the Plan.

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3. The Property was appraised in May, 1997, by Pamela A. Lundt and

Lonnie S. Warner of Professional Property Management, Inc. (PPMI). Ms.

Lundt and Ms. Warner (the Appraisers), the partners of PPMI, are both

real estate brokers licensed in the State of Montana. The applicant

represents that both of the Appraisers are highly experienced in

conducting comparative rental market analysis for residential and

commercial properties in Missoula, Montana and the surrounding area. In

addition, PPMI currently manages in excess of 700 residential and

commercial properties in Missoula and the surrounding area.

The Appraisers' valuation of the Property included an analysis of

four other leases of comparable properties in the local market area.

Based upon this market data, the Appraisers concluded that the Property

had a fair market rental value in the range of $575 to $600 per month,

if leased on a triple net basis, as of May 9, 1997.

4. PPMI has also been retained by the Employer to represent the

Plan as an independent fiduciary for the Plan (i.e., the I/F). PPMI

represents that it is unrelated to, and independent of, the Employer

and derives less than 1% of its annual income from the Employer. PPMI

states that it is knowledgeable as to the subject transactions. PPMI

also acknowledges and accepts its duties, responsibilities, and

liabilities in acting as a fiduciary under the Act with respect to the

Plan for purposes of the Lease.22

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\22\ In this regard, PPMI will confer with legal counsel having

expertise with respect to the requirements of the Act, as needed.

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

5. The Lease provides for a rental rate of $600 per month and an

initial term of one year, which may be renewed for additional one year

periods, up to a maximum total of 15 years, upon the express approval

of PPMI, as the I/F for the Plan. The Lease provides for rent

adjustments, at a minimum, every three years, based upon an updated

independent appraisal of the fair market rental value of the Property.

However, in no event shall such adjustments result in the rent being

less than the rental amount for the Property existing for the period

preceding the adjustment.

The Lease is triple net (with all expenses for maintenance, taxes,

and insurance to be borne by the Employer as the tenant). The Lease

permits the Employer to make improvements to the Property at the

Employer's expense, upon the express approval by the I/F. Any such

improvements to the Property will belong to the Plan upon termination

of the Lease. The Employer will indemnify and hold the Plan harmless

for all claims and demands arising from or in any way relating to the

Property.

6. The Lease grants the Employer the option to purchase the

Property from the Plan, subject to approval by PPMI. In this regard,

PPMI, as the I/F for the Plan, must determine that a sale of the

Property would be in the best interests of the Plan. Any such sale

would be a one-time transaction for cash, and the Plan would incur no

expenses relating to the sale.

If the Employer exercises its option, the Employer will purchase

the Property from the Plan for an amount which is the greater of either

(a) the original acquisition cost of the Property, plus holding

expenses, or (b) the fair market value of the Property as of the date

of the sale, as established by a qualified, independent appraiser. The

appraiser must take into account any possible special value that the

Property may have to the Employer, as a result of the Employer's

premises being located adjacent to the Property.

7. PPMI, acting as the I/F for the Plan, represents that it has

reviewed the terms and conditions of the Lease on behalf of the Plan

and determined that such terms and conditions are at least as favorable

to the Plan as those the Plan could obtain in a comparable arm's length

transaction with an unrelated party. PPMI represents that the Lease

would be in the best interests of, and appropriate for, the Plan. PPMI

states that the Lease will generate income for the Plan, and the

Employer will be a stable, long-term tenant. In this regard, PPMI

states that the Employer is capable of meeting its contractual

obligations under the Lease, based upon an examination of the

Employer's financial condition. Finally, PPMI will monitor and enforce

compliance with the terms and conditions of the Lease, and of the

exemption (if granted), throughout the duration of the Lease.

8. In summary, the applicant represents that the proposed

transactions satisfy the statutory criteria for an exemption under

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

be represented for all purposes under the Lease by PPMI, a qualified,

independent fiduciary; (2) the terms and conditions of the Lease will

be at least as favorable to the Plan as those the Plan could obtain in

a comparable arm's length transaction with an unrelated party; (3) the

rent charged by the Plan under the Lease will be no less than the fair

market rental value of the Property, as established by a qualified,

independent appraiser; (4) the rent will be adjusted, at a minimum,

every three years, based upon an updated independent appraisal of the

Property, but in no event shall such adjustments result in the rent

being less than the rental amount for the Property existing for the

preceding period; (5) the Lease will be triple net (with all expenses

for maintenance, taxes, and insurance to be borne by the Employer as

the tenant); (6) PPMI, as the I/F for the Plan has reviewed the terms

and conditions of the Lease on behalf of the Plan and determined the

Lease would be in the best interests of, and appropriate for, the Plan;

(7) PPMI will monitor and enforce compliance with the terms and

conditions of the Lease, and of the exemption (if granted), throughout

the duration of the Lease; (8) PPMI will expressly approve any

improvements by the Employer to the Property, any renewal of the Lease

beyond the initial term, and any sale of the Property to the Employer,

pursuant to the Employer's option to purchase the Property under the

Lease; (9) in the event that the Employer exercises its option to

[[Page 29458]]

purchase the Property under the Lease, the Employer will pay the Plan

an amount which is the greater of either (a) the original acquisition

cost of the Property, plus holding expenses, or (b) the fair market

value of the Property, as of the date of the sale, as established by a

qualified, independent appraiser; and (10) at all times throughout the

duration of the Lease, the fair market value of the Property will

represent no more than 25 percent of the total assets of the Plan.

Notice to Interested Persons

Notice of the proposed exemption shall be given to all interested

persons by first-class mail or by posting the required information at

the Employer's offices 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

and/or 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.)

Breland Investments, Inc. Profit Sharing Plan and Trust (the Plan),

Located in Phoenix, Arizona

[Exemption Application No: D-10529]

Proposed Exemption

The Department is considering granting an exemption under the

authority of section 4975(c)(2) of the Code and in accordance with the

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

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 (1) the

proposed loan (the Loan) by the individually directed account (the

Account in the Plan \23\ of Dr. Albert E. Breland (Dr. Breland), to

Mesa Scholastic Enterprises (Mesa), a disqualified person with respect

to the Plan, and (2) the personal guarantee of the Loan by Dr. Breland,

a disqualified person with respect to the Plan, provided the following

conditions are satisfied:

(a) The terms of the Loan are at least as favorable to the Account

as those obtainable in an arm's length transaction with an unrelated

party;

(b) The amount of the Loan does not exceed 25% of the assets in the

Account;

real property (the Property), which has been appraised by a qualified

independent appraiser to have a fair market value not less than 150% of

the outstanding balance of the Loan throughout its duration;

Summary of Facts and Representations

1. The Plan is a profit sharing plan which provides its

participants with the opportunity to direct the investment of their

individual accounts. Currently it has one participant, Dr. Breland, and

one beneficiary, Mrs. Nancy V. Breland (Mrs. Breland), Dr. Breland's

wife. The aggregate fair market value of the Plan's, and the Account's,

assets as of June 30, 1997 was approximately $900,000. The Plan is

sponsored by Breland Investments, Inc., a corporation wholly owned by

Dr. and Mrs. Breland which manages various investments in real estate,

securities and other assets. The trustees of the Plan are Dr. and Mrs.

Breland.

2. Mesa is an Arizona General Partnership in which Dr. and Mrs.

Breland own a majority interest. Located in Mesa, Arizona, it is

engaged in leasing the Property to the Mesa Montessori Preschool. In

the past three years, Mesa has averaged annual revenues of

approximately $48,300, consisting primarily of the $4,000 per month

received in rent from the Mesa Montessori Preschool.

3. The Loan involves only the Account and is described by the

applicant as follows: An amount of $123,500 will be loaned by the

Account to Mesa for purposes of paying a balloon payment due on a prior

third-party loan related to the Property. The Loan will be repaid over

a 10 year period, with equal payments of principal and interest. The

interest rate will be 10% per annum, which was determined after

contacting three prominent commercial banks in the Phoenix metropolitan

area to survey the applicable interest rates for a similar transaction

between unrelated parties. The Loan will be secured by a first deed of

trust on the Property.\24\

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

Institution Rate Contact

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

Harris Trust Bank of Arizona............ 3% over 10 year Treasury Bill Glenn Elstoen.

rate, plus an initial charge

of 2 points.

Northern Trust.......................... 8.5 to 9%, plus an initial Harold Dorenbecher.

charge of \1/2\ to 1 point.

Wells Fargo............................. 8.475, plus an initial charge Roy Miller.

of 1\1/2\ points.

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

Regarding Mesa's creditworthiness, the applicant represents that

all payments on past and present debt obligations have been paid in a

timely manner. In addition, because the monthly payments on the

proposed Loan will be less than those due under the current loan

related to the Property, and because two additional loans for which

Mesa pays approximately $1,095 per month will be paid off by September

1998, the applicant believes that Mesa will have ample income to ensure

payment of the proposed Loan. Finally, the Brelands, in their

individual capacity, will be responsible for repayment of the Loan in

the event of default by Mesa because of their status as general

partners in Mesa.

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\23\ Because Dr. Breland is the only participant in the Plan,

there is no jurisdiction under 29 CFR 2510.3-3(b). However, there is

jurisdiction under Title II of the Act pursuant to section 4975 of

the Code.

\24\ The applicant contacted the Harris Trust Bank of Arizona,

Northern Trust, and Wells Fargo. The rates obtained were based on

the following information: A loan for commercial real property in

the Phoenix metropolitan area in the amount of $120,000 to $130,000

payable over a 10 year term, and secured by the property which has a

fair market value in excess of twice the loan amount. The following

provides the quoted rates:

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4. The Property consists of a .8469 acre parcel of real property

improved with a 3,243 square foot one-story preschool building located

at 2830 South Carriage Lane in Mesa, Arizona. The parcel was originally

transferred from the Brelands to Mesa in 1983.

5. On May 1, 1997, Mr. Gary E. Ringel (Mr. Ringel) and Mr. Carter

T. Froelich (Mr. Froelich), both employees of U.S.L. Valuation,

appraised the Property. Both Mr. Ringel and Mr. Froelich are State

Certified Real Estate Appraisers in Arizona, and represent that they

have no present or prospective interest in the Property, no personal

interest or bias with respect to the parties involved, and are

otherwise independent. After reviewing and analyzing the data related

to the Property, the appraisers determined that the Property is worth

$406,000, or 3.29 times the amount of the Loan.

In their appraisal, Mr. Ringel and Mr. Froelich relied on both the

sales comparison, or market, approach and

[[Page 29459]]

the income approach in reaching their conclusion as to the value of the

Property. Using the sales comparison approach, the appraisers analyzed

preschool building sales in the Phoenix area and compared those to the

Property with adjustments made for property rights, financing,

conditions of sale, market conditions, location and physical features,

and arrived at a fair market value of $405,000. With respect to the

income approach, Mr. Ringel and Mr. Froelich employed the direct

capitalization method, the preferred technique of preschool investors,

and estimated the value of the subject property to be $407,000. Giving

the two methods equal weight, the appraisers concluded the value of the

Property to be $406,000.

7. In summary, the applicant represents that the proposed

transaction satisfies the criteria of section 4975(c)(2) of the Code

for the following reasons: (a) the terms of the Loan are at least as

favorable to the Account as those obtainable in an arm's length

transaction with an unrelated party; (b) the amount of the Loan does

not exceed 25% of the assets in the Account; and (c) the Loan is

secured by a first deed of trust on the Property, which has been

appraised by a qualified independent appraiser to have a fair market

value not less than 150% of the outstanding balance of the Loan

throughout its duration.

Notice to Interested Persons

Because Dr. Overland is the only participant to be affected by the

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

distribute the notice of proposed exemption (the Notice) to interested

persons. Comments and requests for a hearing are due thirty (30) days

after publication of the Notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Mr. James Scott Frazier, telephone

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

General Information

The attention of interested persons is directed to the following:

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

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

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

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

including any prohibited transaction provisions to which the exemption

does not apply and the general fiduciary responsibility provisions of

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

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

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

accordance with section 404(a)(1)(b) of the act; nor does it affect the

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

for the exclusive benefit of the employees of the employer maintaining

the plan and their beneficiaries;

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

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

that the exemption is administratively feasible, in the interests of

the plan and of its participants and beneficiaries and protective of

the rights of participants and beneficiaries of the plan;

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

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

Code, including statutory or administrative exemptions and transitional

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

administrative or statutory exemption is not dispositive of whether the

transaction is in fact a prohibited transaction; and

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

express condition that the material facts and representations contained

in each application are true and complete, and that each application

accurately describes all material terms of the transaction which is the

subject of the exemption.

Signed at Washington, DC, this 22nd day of May, 1998.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, Department of Labor.

[FR Doc. 98-14196 Filed 5-22-98; 8:45 am]

BILLING CODE 4510-29-P

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.