Grant of Individual Exemptions; Sanwa Bank California, et al.

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Prohibited Transaction Exemption 98-46; Exemption Application No. D-

10503, et al.]

Grant of Individual Exemptions; Sanwa Bank California, et al.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemptions.

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

SUMMARY: This document contains exemptions issued by the Department of

Labor (the Department) from certain of the prohibited transaction

restrictions of the Employee Retirement Income Security Act of 1974

(the Act) and/or the Internal Revenue Code of 1986 (the Code).

Notices were published in the Federal Register of the pendency

before the Department of proposals to grant such exemptions. The

notices set forth a summary of facts and representations contained in

each application for exemption and referred interested persons to the

respective applications for a complete statement of the facts and

representations. The applications have been available for public

inspection at the Department in Washington, DC. The notices also

invited interested persons to submit comments on the requested

exemptions to the Department. In addition the notices stated that any

interested person might submit a written request that a public hearing

be held (where appropriate). The applicants have represented that they

have complied with the requirements of the notification to interested

persons. No public comments and no requests for a hearing, unless

otherwise stated, were received by the Department.

The notices of proposed exemption were issued and the exemptions

are being granted solely by the Department because, effective December

31, 1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR

47713, October 17, 1978) transferred the authority of the Secretary of

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

of Labor.

Statutory Findings

In accordance with section 408(a) of the Act and/or section

4975(c)(2) of the Code and the procedures set forth in 29 CFR Part

2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon

the entire record, the Department makes the following findings:

(a) The exemptions are administratively feasible;

(b) They are in the interests of the plans and their participants

and beneficiaries; and

(c) They are protective of the rights of the participants and

beneficiaries of the plans.

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

[Prohibited Transaction Exemption 98-46; Exemption Application No. D-

10503]

Exemption

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

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.

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

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

are collectively referred to as the Plans.

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

This 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;

[[Page 53723]]

(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.

(c) No sales commissions or other fees are paid by the Plan in

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:

(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; 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 Securities and Exchange Commission

(SEC) Rule 17a-7 under the 1940 Act, as amended (Rule 17a-7), (using

sources independent of Sanwa Bank and the Fund) and the procedures

established by the Funds pursuant to Rule 17a-7.

(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

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

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

(B) The number of shares in the Funds that are held by each

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. Exemption for the Receipt of Fees from the Funds

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, provided that the following conditions are met:

(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 of the same class by

any other investor at that time.

(c) Sanwa Bank, any of its affiliates or their officers or

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

[[Page 53724]]

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.

(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 on the date established by the Client Plan on

the Termination Form or, if the Client Plan does not specify a date,

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 on the date specified by the Client Plan or within one

business day when the Client Plan does not specify a date, 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 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;

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

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

[[Page 53725]]

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 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

(C) Any participant or beneficiary of the Plans or duly authorized

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.

Section III. Definitions

For purposes of this 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.

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

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

individual;

(d) The 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 and the Sanwa Bank

California Premiere 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 on the date established by the Client Plan on

the Termination Form or, if the Client Plan does not specify a date,

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 on the date

specified by the Client Plan or within one business day when the Client

Plan does not specify a date, 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: This exemption is effective as of October 31, 1997.

For a more complete statement of the facts and representations

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

the notice of proposed exemption (the Notice) published on May 29, 1998

at 63 FR 29443.

[[Page 53726]]

Written Comments

The Department received two written comments with respect to the

Notice and no requests for a public hearing. The first comment was

submitted by an educational association (the Association) whose

retirement plan (the Association Plan) is administered by Sanwa Bank as

directed trustee. The comment raised numerous concerns, many of which

did not relate to the investment in the Funds by the Association Plan

and recommended that the exemption be denied. The second comment, which

was submitted by Sanwa Bank, suggested modifications to the Notice and

the Summary of Facts and Representations (the Summary) in several

areas.

Following is a discussion of the comments received, including Sanwa

Bank's responses to the Association's comment as well as the

Department's responses to the modifications to the proposed exemption

suggested by Sanwa Bank.

The Association's Comment

In its comment, the Association requests that the exemption be

denied primarily because the notice of proposed exemption provided by

Sanwa Bank to its clients ``did not consist of a complete disclosure of

the nature of the relationship between Sanwa Bank and the Eureka

Funds,'' specifically with respect to the fees. The Association states

that documents provided to the Association Plan were ``automatically

completed'' by Sanwa Bank to show the conversion of the Funds. As a

result, the Association represents that it did not give its informed

consent to Sanwa Bank.

In addition, the Association states that it is not clear whether

there has been a reduction in both the trust and custodial

administrative charges resulting from ``duplicative'' management fees.

If there has been a fee offset, the Association believes that it has

been in Sanwa Bank's favor as the Plan-level trust fund fee is 6 basis

points and the Fund-level fee is in the neighborhood of 100 basis

points.

Further, the Association finds the ``negative consent'' procedure

described in the Notice problematic because it is not clear whether the

fees would be offset fairly and equally. The Association represents

that there may also be pressure by a Plan to consent to the negative

consent procedure. If a Plan refused to use the Funds, the Association

believes that Sanwa Bank may decline to act as trustee or custodian of

other client funds.

In response to the Association's comment, Sanwa Bank notes at the

outset that it did not receive any objections from any other Plans

participating in the conversion transactions and that the comment is

the first indication it has received about the Association concerns,

despite the fact that investments by the Association Plan in the Funds

have been reported in periodic statements provided to the Association

by Sanwa Bank since the conversion transactions. In Sanwa Bank's view,

the Association's comment reflects misunderstandings regarding the

procedures that were followed in connection with the conversion

transactions as well as the purposes and scope of the proposed

exemption.

As directed trustee of the Association Plan, Sanwa Bank represents

that it has been subject to investment directions of an independent

investment manager appointed by the Association. However, prior to the

conversion transactions, Sanwa Bank explains that the investment

manager authorized and directed the investment of the cash balances of

the Association Plan in one of its CIFs, the ITS Money Market

Investment Fund (the Money Market CIF). In August-September 1997, the

Sanwa Bank states that it provided the investment manager written

notices (a) announcing the termination and conversion of the Money

Market CIF and Sanwa Bank's other CIFs, (b) explaining that the Money

Market CIF would be converted to the Eureka Prime Money Market Fund

(the Prime Fund), (c) describing the nature and extent of Sanwa Bank's

relationship with the Prime Fund and other Funds (and containing

disclosures required by the proposed exemption), and (d) asking the

investment manager to choose a new cash management vehicle for the

Association Plan from among four separate alternatives which included,

in addition to the Prime Fund, the Eureka U.S. Treasury Obligations

Fund, a money market mutual fund advised by a party unrelated to Sanwa

Bank and an insured deposit at Sanwa Bank. By letter dated October 14,

1997, Sanwa Bank explains that the investment manager gave it standing

authorization to invest cash balances of the Association Plan in the

Prime Fund. Sanwa Bank states that it has informed the investment

manager that if the use of the Prime Fund is not satisfactory to either

the Association or the investment manager, it is prepared to carry out

authorized directions regarding an alternative disposition of cash

balances of the Association Plan.

In response to the Association's assertion that notices provided by

Sanwa Bank regarding the conversion transactions did not ``consist of a

complete disclosure of the nature of the relationship between Sanwa

Bank and the Funds,'' Sanwa Bank states that it provided written notice

to the investment manager prior to the conversion transactions

disclosing that Sanwa Bank was to serve as investment adviser to the

Funds as well as the rate of compensation it was to receive from each

of the Funds for its services as investment adviser.

In response to the Association's comment suggesting that trust and

custodial administration charges be reduced or offset, Sanwa Bank

explains that these fees are, in no way, duplicative of the fees it

receives from the Funds for performing investment advisory services.

This is reflected in the proposed exemption which requires that no

investment management or similar fees be charged to a Client Plan with

respect to Plan assets invested in the Funds. Further, Sanwa Bank

points out that the proposed exemption does not require, and was never

intended to require, the reduction or offsetting of trust or custodial

administration fees that Sanwa Bank receives from Client Plans for

trust and custodial administrative services.2

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

\2\ Sanwa Bank notes that the Association was in error in

stating that Fund-level fees paid to Sanwa Bank were in the

neighborhood of 100 basis points. Sanwa Bank explains that the Prime

Fund prospectus indicates that the total expenses of that Fund,

including Sanwa Bank's compensation (after voluntary waivers) and

expenses and fees paid to third parties unrelated to Sanwa Bank,

only amount to 55 basis points per annum.

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

In regard to the Association's concern that the ``negative

consent'' procedure places implicit pressure on a Plan to agree to the

procedure or face the consequence that Sanwa Bank might decline to act

as trustee or custodian, Sanwa Bank states that consistent with other

individual exemptions granted by the Department, the proposed exemption

allows the Second Fiduciary to decide whether or not to accept a fee

increase. In this regard, Sanwa Bank explains that the Second Fiduciary

is free to accept a fee increase by failing to object to such increase

or may object to the increase and request the redemption of Fund shares

held by the Plan. Therefore, Sanwa Bank represents that it sees no

reason to alter the basic principle established in several other

exemptions that the negative consent procedure is appropriate and is

protective of the rights of affected plans.

In conclusion, Sanwa Bank does not believe the Association's

comment justifies denying the exemption or otherwise changing it.

Further, Sanwa Bank notes that a Plan is free to terminate its

relationship with a Fund at any time without penalty. Therefore,

[[Page 53727]]

Sanwa Bank requests that the Department grant the exemption.

Sanwa Bank's Comment

1. Section I of the Notice

Sanwa Bank states that language at the end of the introductory

paragraph of Section I of the Notice provides that the exemption will

apply to transactions that occur ``in connection with the termination

of the CIFs'' and that similar language appears in Section I(e)(1) of

the Notice. Sanwa Bank represents that the although the CIFs involved

in the conversion transactions that occurred on October 31, 1997 did,

in fact, terminate, it specifically requested that the exemption extend

not only to conversion transactions in which the affected CIFs

terminate but to conversion transactions where the CIFs do not

terminate. Sanwa Bank explains that this is the rationale for including

the procedures set forth in Section I(e). For example, assets

transferred in-kind from a non-terminating CIF to a Fund would consist

of the pro rata share of the CIF's assets attributable to those Plans

electing to participate in the conversion transaction if not all of the

Plans elected to participate. Sanwa Bank notes that such transfers from

non-terminating CIFs are permitted in prior individual exemptions and

in Prohibited Transaction Exemption (PTE) 97-41, the Department's class

exemption for Collective Investment Fund Conversion Transactions (62 FR

42830, August 8, 1997). Therefore, Sanwa Bank requests that the clause

``in connection with the termination of such CIFs'' be deleted entirely

from the introductory paragraph of Section I and Section I(e)(1) of the

Notice.

In addition, Sanwa Bank requests that the first sentence of Section

I(e) of the Notice be amended to read as follows:

The transferred assets constitute all or a pro rata portion of

all assets of a Plan held in the CIF immediately prior to the

transfer.

The Department does not concur with the requested clarification and

has not made the change suggested by Sanwa Bank. The Department notes

that when a Plan elects to transfer assets from a non-terminating CIF

to a Fund, the Plan's proportionate share of all of its assets in the

CIF must be transferred to the Fund such that none of the Plan's assets

must remain in the CIF. Therefore, the Department has left the

condition, as originally proposed, intact.

2. Footnote 12 of the Summary

Sanwa Bank states that the last sentence of Footnote 12 of the

Summary should be revised to read as follows:

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) and to pro rata allocations of CIF assets

where the CIF making an in-kind transfer does not terminate in

connection with the transaction (see section I(e) of this proposed

exemption).

In response to this comment, the Department has decided not to make

the requested revision for the reasons cited above in Item 1.

3. Section I(f) of the Notice

Sanwa Bank suggests that the initial reference to Rule 17a-7 in

Section I(f) be amended to read as follows: ``Securities and Exchange

Commission (SEC) Rule 17a-7 under the 1940 Act, as amended (Rule 17a-

7). In response, the Department concurs with this revision and has

amended the Notice, accordingly.

Sanwa Bank also states that Section I(f) of the Notice provides

that the assets transferred to a Fund are to be valued using sources

independent of Sanwa Bank in accordance with Rule 17a-7 and procedures

established by the Fund pursuant to Rule 17a-7. Specifically, Sanwa

Bank represents that the last sentence of Section I(f) states that

``such procedures must require'' that securities for which there is no

market price must be valued pursuant to certain specified procedures.

Sanwa Bank notes that although this language has appeared in prior

individual exemptions but not in PTE 97-41, it does not contemplate the

possibility of future amendments or modifications of the Rule. Sanwa

Bank further notes that in adopting PTE 97-41, the Department noted

that the requirement that valuations be determined in accordance with

Rule 17a-7 was ``designed to provide flexibility for future

transactions.'' Thus, for example, if Rule 17a-7 is subsequently

amended by the SEC to accommodate new pricing systems, banks or plan

advisers could take advantage of the amended Rule without having to

request an amendment to the class exemption. Therefore, Sanwa Bank

requests that the last sentence of Section I(f) be deleted.

In response, the Department concurs with this clarification and has

made the requested change.

4. Section II(b) of the Notice

Sanwa Bank states that the Funds' prospectus and prior

correspondence to the Department indicate that the Funds issue more

than one class of shares. The existence of separate share classes is

also reflected in Section II(o) of the Notice and in paragraph (d) of

Representation 24 of the Summary. Accordingly, Sanwa Bank requests that

Section II(b) of the Notice be modified to read as follows:

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 shares of the same class by any

other investor at that time.

In addition, Sanwa Bank requests that paragraph (e) of

Representation 25 of the Summary be revised to read as follows:

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 shares of the same

class which will be paid or received by any other investor at that

time.

The Department concurs with the revisions and has made the

requested changes.

5. Section II(l) of the Notice

Section II(l) of the Notice provides that, if a Second Fiduciary

terminates a prior authorization to invest in the Funds, Sanwa Bank

must redeem the Client Plan's shares ``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 * * *.'' Sanwa Bank believes this provision is

intended to give Client Plans the flexibility to choose a redemption

that best suits the Plan's needs and circumstances and precludes a

Client Plan from specifying a redemption date beyond one business day

after receipt of the Termination Form.

To provide Client Plans who wish to have the flexibility to choose

another redemption date, Sanwa Bank suggests that the second sentence

of Section II(l) be amended to read as follows (bracketed word and

comma deleted; underlined words added):

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] or, if the

Client Plan does not specify a date, 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

In connection with the foregoing change, Sanwa Bank also suggests

that the second sentence of Section III(j)

[[Page 53728]]

(definition of ``Termination Form'') be amended to read as follows

(underlined words added):

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 within the time period specified by the

Client Plan or, if the Client Plan does not specify a date, 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.

The Department does not completely concur with the requested

modifications made by Sanwa Bank and believes that they could be more

accurately constructed. With respect to Section II(l) of the Notice,

the Department has decided to delete the phrase ``within the time frame

specified by the Client Plan'' and substitute the phrase ``on the date

established by the Client Plan on the Termination Form.'' For purposes

of consistency, the Department has also added the clause ``on the date

specified by the Client Plan or within one business day when the Client

Plan does not specify a date'' after the word ``executed.'' As revised,

Section II(l) would read as follows:

The termination will be effected by Sanwa Bank redeeming shares

of the Funds held by the Client Plans requesting termination on the

date established by the Client Plan on the Termination Form or, if

the Client Plan does not specify a date, 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 on the

date specified by the Client Plan or within one business day when

the Client Plan does not specify a date, Sanwa Bank shall have one

additional business day to complete such redemption; and

Similarly, the Department has revised Section III(j) of the Notice

to read as follows:

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 on the date specified by the Client Plan or

within one business day when the Client Plan does not specify a

date, Sanwa Bank shall have one additional business day to complete

such redemption.

Finally, the Department has modified the first sentence in the

second paragraph of Representation 19 by deleting the word ``by'' and

adding the clause ``on the date established by the Client Plan on the

Termination Form, or if the Client Plan does not specify a date not

later than * * *'' after the word ``Plan.'' In addition, the Department

has revised the last sentence of Representation 19 to read as follows:

If, due to circumstances beyond the control of Sanwa Bank, the

redemption cannot be effected on the date specified by the Client

Plan or within one business day when the Client Plan does not

specify a date, Sanwa Bank will have one additional business day to

complete such redemption.

6. Section II(q)(1) of the Notice

Section II(q)(1) of the Notice provides that the records required

to be maintained in connection with the exemption must be available for

examination by duly authorized representatives of the SEC, as well as

the Department and the Service. Sanwa Bank notes that although the

requirement that records be available for SEC examination was included

in a few individual exemptions granted during 1996 it is not included

in individual exemptions granted prior to that time. Therefore, Sanwa

Bank requests that Section II(q)(1)(A) of the Notice be modified to

provide that the required records must be made available to authorized

representatives of the Department and the Service.

The Department is not persuaded by this comment and has not made

the requested change to the Notice. Because of the involvement of

mutual funds in the transactions described herein, the Department

believes that the records maintained in connection with the exemption

should be subject to SEC examination.

7. Other Modifications to the Notice

In addition to the changes noted above, Sanwa Bank has requested

(and the Department has agreed to make) several miscellaneous

modifications to the Notice. In this regard, the Department has

redesignated ``Section I(g)(2)(C)'' of the Notice as ``Section

I(g)(2)(B).'' Further, in Section III(d) of the Notice, the Department

has inserted quotation marks after the word ``Fund'' and before the

word ``Funds.''

8. Paragraph (b) of Representation 1 of the Summary

Sanwa Bank represents that the second paragraph of Representation 1

of the Summary should be revised to reflect the fact that as of August

28, 1997, the SBC Savings Plan had 3,000 participants instead of 3,500

participants.

In response, the Department has noted this change and has made the

requested modification.

9. Paragraph 3 of Representation 3 of the Summary

Sanwa Bank confirms that it has not received and will not receive

any 12b-1 fees in connection with the transactions covered by the

proposed exemption. However, Sanwa Bank wishes to point out that

because the Funds issue more than one class of shares, one class of

shares is subject to 12b-1 fees. Thus, although the class of Fund

shares purchased by Plans is not subject to 12b-1 fees, Sanwa Bank

emphasizes that it does receive 12b-1 fees with respect to the another

class of shares purchased by non-Plan investors. Accordingly, Sanwa

Bank notes that the last sentence of the third paragraph of

Representation 3 of the Summary should be clarified to read as follows:

``In addition, no Fund has paid or will pay any 12b-1 fees to Sanwa

Bank or its affiliates in connection with the transactions.''

In response, the Department has made the requested modification.

10. Representation 17 of the Summary

Sanwa Bank notes that the first two sentences of Representation 17

of the Summary, regarding certain Plan-level fees should be clarified

by substituting in their place the following language:

Through October 31, 1997, Sanwa Bank charged 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. Since October 31,

1997, however, Sanwa Bank no longer charges each Client Plan a Plan-

level investment management, investment advisory, or similar fee

with respect to assets of such Client Plan invested in shares of the

Fund.

In response, the Department has made the requested modification.

11. Footnote 14 of the Summary

Sanwa Bank asserts that because Footnote 14 of the Summary might be

construed to imply that Sanwa Bank has waived all investment advisory

fees it

[[Page 53729]]

receives from the Funds through the end of the Funds' initial fiscal

year, it wishes to clarify that it has agreed to waive temporarily a

portion of such investment advisory fees.

The Department has noted this clarification.

For further information regarding the comments or other matters

discussed herein, interested persons are encouraged to obtain copies of

the exemption application file (Exemption Application No. D-10503) the

Department is maintaining in this case. The complete application file,

as well as all supplemental submissions received by the Department, are

made available for public inspection in the Public Documents Room of

the Pension and Welfare Benefits Administration, Room N-5638, U.S.

Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C.

20210.

Accordingly, after giving full consideration to the entire record,

including the written comments provided by the Association and Sanwa

Bank, the Department has made the aforementioned changes to the Notice

and Summary and has decided to grant the exemption subject to the

modifications or clarifications described above.

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

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

Bernard Chaus, Inc., Employee Savings Plan (the Plan), Located in

New York, New York

[Prohibited Transaction Exemption 98-47; Exemption Application No. D-

10606]

Exemption

The restrictions of sections 406(a), 406(b)(1) and (b)(2) and

407(a) of the Act and the sanctions resulting from the application of

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

(E) of the Code, shall not apply, effective December 24, 1997, to: (1)

the past acquisition by the Plan of certain stock rights (the Rights)

pursuant to a stock rights offering (the Offering) by Bernard Chaus,

Inc. (the Employer), the sponsor of the Plan; (2) the past holding of

the Rights by the Plan during the subscription period of the Offering;

(3) the past disposition or exercise of the Rights by the Plan; and (4)

the proposed payment by the Employer to the Plan of an amount necessary

to credit Plan accounts of participants affected by an administrative

error relating to Rights which were not exercised or sold prior to the

expiration of the Rights; provided the following conditions are

satisfied:

(A) The Plan's acquisition and holding of the Rights occurred in

connection with the Offering made available to all shareholders of

common stock of the Employer;

(B) The acquisition and holding of the Rights by the Plan resulted

from an independent act of the Employer as a corporate entity and all

holders of the common stock of the Employer, including the Plan, were

treated in a substantially similar manner with respect to the Offering;

(C) All decisions regarding the holding and disposition of the

Rights by the Plan were made, in accordance with the Plan provisions

for individually-directed investment of participant accounts, by the

individual Plan participants whose accounts in the Plan received Rights

in connection with the Offering, including all determinations regarding

the exercise or sale of the Rights received through the Offering,

except for those participants who failed to file timely and valid

instructions concerning the Rights, in which case the Rights were sold;

and

(D) Within 30 days of the date of publication of this final

exemption in the Federal Register, with respect to the Plan accounts of

participants affected by an administrative error whereby 27 Rights (of

the 17,041 Rights received by the Plan) were not exercised or sold

prior to the expiration of the Rights, the Employer credits the

affected accounts with an amount equal to the value such accounts would

have received if the Rights had been sold on the last day of the

Offering, including interest thereon through the date of such crediting

at a rate equal to the average rate of earnings on all Plan assets

during that period.

EFFECTIVE DATE: This exemption is effective as of December 24, 1997.

For a more complete statement of the summary of facts and

representations supporting the Department's decision to grant this

exemption refer to the Notice of Proposed Exemption published on August

6, 1998 at 63 FR 42077.

FOR FURTHER INFORMATION CONTACT: Ronald Willett of the Department,

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

ACRA Local 725 Health & Welfare Fund (the Welfare Plan) and ACRA

Local 725 Pension Fund (the Pension Plan; together, the Plans),

Located in Dade, Broward and Monroe Counties, Florida

[Prohibited Transaction Exemption 98-48; Exemption Application Nos. L-

10536 and D-10537]

Exemption

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

the payment of interest by the Pension Plan to the Welfare Plan on past

mistaken contributions (the Mistaken Contributions) pursuant to an

indemnification agreement by the Board of Trustees of the Pension Plan

with respect to the Mistaken Contributions, provided the following

conditions are satisfied: (a) The Mistaken Contributions occurred as a

result of an inadvertent clerical error committed by the Plans'

independent third party administrator; (b) the principal amount of the

Mistaken Contributions was repaid as soon as the error was discovered;

and (c) the amount of interest to be paid to the Welfare Plan by the

Pension Plan has been determined by a third party bank to be the fair

market rate of interest.

For a more complete statement of the facts and representations

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

the notice of proposed exemption published on June 29, 1998 at 63 FR

35289.

WRITTEN COMMENTS AND HEARING REQUESTS: The Department received no

hearing requests with respect to the proposed exemption. The only

comment received by the Department was submitted by the applicant to

correct an error that appeared in the proposed exemption. The proposed

exemption had indicated that the Plans were located in Macon, Georgia.

While the Plans' current third party administrative manager, Core

Management Resources, Inc., is located in Macon, the applicant

commented that the Plans' trustees and participants are essentially

located in Dade, Broward and Monroe Counties, Florida. The Department

has amended the exemption accordingly and otherwise granted the

exemption as proposed.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,

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

General Information

The attention of interested persons is directed to the following:

[[Page 53730]]

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

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

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

person from certain other provisions to which the exemptions does not

apply and the general fiduciary responsibility provisions of section

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

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

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

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

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

for the exclusive benefit of the employees of the employer maintaining

the plan and their beneficiaries;

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

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

administrative exemptions and transactional rules. Furthermore, the

fact that a transaction is subject to an administrative or statutory

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

prohibited transaction; and

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

condition that the material facts and representations contained in each

application are true and complete and accurately describe all material

terms of the transaction which is the subject of the exemption. In the

case of continuing exemption transactions, if any of the material facts

or representations described in the application change after the

exemption is granted, the exemption will cease to apply as of the date

of such change. In the event of any such change, application for a new

exemption may be made to the Department.

Signed at Washington, D.C., this 30th day of September, 1998.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 98-26622 Filed 10-5-98; 8:45 am]

BILLING CODE 4510-29-P