Proposed Exemptions; Keystone Financial, Inc.

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10372, et al.]

Proposed Exemptions; Keystone Financial, Inc.

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

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

exemption as published in the Federal Register and shall inform

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

(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in

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

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

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

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

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

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

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

exemption are issued solely by the Department.

The applications contain representations with regard to the

proposed exemptions which are summarized below. Interested persons are

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

statement of the facts and representations.

Keystone Financial, Inc., and Certain of Its Affiliates (Keystone),

Located in Harrisburg, Pennsylvania

[Application Nos. D-10372]

Proposed Exemption

The Department is considering granting an exemption under the

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

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

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

Section I--Proposed Exemption for In-Kind Transfers of CIF Assets

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

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

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

(F) of the Code, shall not apply to the past in-kind transfers of

assets of various employee benefit plans for which Keystone served as a

fiduciary (the Client Plans), that

[[Page 65250]]

were held in certain collective investment funds (CIFs) maintained by

Keystone, in exchange for shares of the KeyPremier Funds (the Funds),

an open-ended investment company registered under the Investment

Company Act of 1940 (the ICA), for which Keystone is an investment

adviser and may provide other services (i.e., Secondary Services, as

defined below in Section II(h)), which occurred on December 2, 1996,

February 3, 1997 and July 1, 1997,1 provided that the

following conditions were met:

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\1\ In this regard, Keystone represents that any further in-kind

transfers of CIF assets to the Funds will comply with the conditions

of Prohibited Transaction Exemption (PTE) 97-41 (62 FR 42830, August

8, 1997.) PTE 97-41 permits the purchase by an employee benefit plan

(i.e. a Client Plan) of shares of one or more open-end management

investment companies (i.e mutual funds) registered under the ICA, in

exchange for assets of the Client Plan transferred in-kind to the

mutual fund from a collective investment fund (i.e. a CIF)

maintained by a bank or a plan adviser, where the bank or plan

adviser is the investment adviser to the mutual fund and also a

fiduciary to the Client Plan, if the conditions of the exemption are

met. However, as noted further below, Keystone distributed written

confirmation to the Client Plans regarding the in-kind transfer of

CIF assets made to the Funds within 120 days, rather than within the

105-day period required by Section I(g) of PTE 97-41. Thus, an

individual exemption to cover these specific CIF conversions is

necessary to provide the appropriate retroactive relief.

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(a) A fiduciary (the Second Fiduciary) who was acting on behalf of

each affected Client Plan and who was independent of and unrelated to

Keystone, as defined in Section II(g) below, received advance written

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

shares of the Fund and the disclosures described in paragraph (c)

below.

(b) On the basis of the information described in paragraph (c)

below, the Second Fiduciary provided prior written authorization for

the in-kind transfer of the Client Plan's CIF assets in exchange for

shares of the Funds, the investment of such assets in corresponding

portfolios of the Funds, and the fees to be received by Keystone in

connection with its services to the Fund. Such authorization by the

Second Fiduciary must have been consistent with the responsibilities,

obligations, and duties imposed on fiduciaries by Part 4 of Title I of

the Act.

(c) The Second Fiduciary who was acting on behalf of a Client Plan

received in advance of the investment by the Plan in any of the Funds,

a full and detailed written disclosure of information concerning the

Funds which included, but was not limited to:

(1) A current prospectus for each portfolio of each of the Funds in

which such Client Plan was considering investing;

(2) A statement describing the fees for investment management,

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

Secondary Services, as defined in Section II(h) below, including the

nature and extent of any differential between the rates of such fees;

(3) The reasons why Keystone considered such investments to be

appropriate for the Client Plan; and

(4) A statement describing whether there were any limitations

applicable to Keystone with respect to which assets of the Client Plan

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

limitations.

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

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

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

the Client Plans invested, was not in excess of ``reasonable

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

(e) Neither Keystone nor an Affiliate received any fees payable

pursuant to Rule 12b-1 under the ICA (the 12b-1 Fees) in connection

with the transactions.

(f) All dealings between the Client Plans and any of the Funds were

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

Funds and other shareholders holding the same class of shares as the

Client Plans.

(g) No sales commissions were paid by the Client Plans in

connection with the in-kind transfers of CIF assets in exchange for

shares of the Funds.

(h) The transferred assets constituted the Client Plan's pro rata

portion of all assets that were held by the CIF immediately prior to

the transfer.

(i) Following the termination of each CIF, each Client Plan

received shares of the Funds that had a total net asset value equal to

the Client Plan's pro rata share of the assets of the CIFs that were

exchanged for such Fund shares on the date of transfer.

(j) With respect to each in-kind transfer of CIF assets to a Fund,

each Client Plan received shares of the Fund which had a total net

asset value that was equal to the value of the Plan's pro rata share of

the assets of the corresponding CIF on the date of the transfer, based

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

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

same business day with respect to all such Plans participating in the

transaction on such day, using independent sources in accordance with

the procedures set forth by the Securities and Exchange Commission

(SEC) Rule 17a-7(b) under the ICA (Rule 17a-7) for the valuation of

such assets. Such procedures must have required that all securities for

which a current market price was not obtained by reference to the last

sale price for transactions reported on a recognized securities

exchange or NASDAQ 2 were to 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 Keystone.

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\2\ The National Association of Securities Dealers Automated

Quotation Nation Market System.

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(k) Not later than thirty (30) days after completion of each in-

kind transfer of CIF assets in exchange for shares of the Funds which

occurred on December 2, 1996, February 3, 1997, and July 1, 1997,

Keystone sent by regular mail to the Second Fiduciary, a written

confirmation which contained:

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

of the transaction in accordance with SEC Rule 17a-7(b)(4) under the

ICA;

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

and

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

consulted in determining the value of such assets.

(l) For each in-kind transfer of CIF assets, Keystone sent by

regular mail to the Second Fiduciary, no later than one-hundred and

twenty (120) days after completion of the asset transfer made in

exchange for shares of the Funds,3 a written confirmation

which contained:

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\3\ See Footnote 1 above.

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(1) The number of CIF units held by each affected Client Plan

immediately before the in-kind transfer, the related per unit value,

and the aggregate dollar value of the units transferred; and

(2) The number of shares in the Funds that were held by each

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

related per share net asset value, and the aggregate dollar value of

the shares received.

(m) Keystone maintains for a period of six (6) years the records

necessary to enable the persons, as described in paragraph (n) below,

to determine whether the conditions of the exemption have been, except

that:

(1) A prohibited transaction will not be considered to have

occurred if, due to circumstances beyond the control of Keystone, the

records are lost or

[[Page 65251]]

destroyed prior to the end of the six (6) year period, and

(2) No party in interest, other than Keystone, shall be subject to

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

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

records are not maintained, or are not available for examination as

required by paragraph (n) below.

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

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

referred to in paragraph (n) above are unconditionally available at

their customary location for examination during normal business hours

by--

(i) Any duly authorized employee or representative of the

Department or the Internal Revenue Service;

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

acquire or dispose of shares of any of the Funds owned by such Plan, or

any duly authorized employee or representative of such fiduciary; and

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

authorized employee or representative of such participant or

beneficiary; and

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

of this Section I shall be authorized to examine trade secrets of

Keystone, or commercial or financial information which is privileged or

confidential.

Section II--Definitions

For purposes of this proposed exemption,

(a) The term ``Keystone'' means Keystone Financial, Inc., and

affiliates, as defined in Section II(b)(1).

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

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

intermediaries, controlling, controlled by, or under common control

with the person;

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

such person; and

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

officer, director, partner, or employee.

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

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

individual.

(d) The term ``Fund'' or ``Funds'' means the KeyPremier Funds for

which Keystone served as investment adviser, and provided certain

``Secondary Services'' (as defined paragraph (h) below), for the Funds

that were involved in the in-kind transfers of CIF assets which

occurred on December 2, 1996, February 3, 1997, and July 1, 1997.

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

pricing all purchases and sales of Fund Shares, as 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 ``relative'' means a ``relative'' as that term is

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

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

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

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

Plan who was independent of and unrelated to Keystone at the time of

the subject transaction. For purposes of this proposed exemption, the

Second Fiduciary will not be deemed to have been independent of and

unrelated to Keystone if:

(1) Such Second Fiduciary was directly or indirectly controlled,

was controlled by, or was under common control with Keystone;

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

employee, or relative of such Second Fiduciary was an officer,

director, partner, or employee of Keystone (or is a relative of such

persons);

(3) Such Second Fiduciary directly or indirectly received any

compensation or other consideration for his or her own personal account

in connection with any transaction described in this proposed

exemption.

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

or employee of Keystone (or a relative of such persons), was a director

of such Second Fiduciary, and if he or she abstained from participation

in (i) the choice of the Plan's investment manager/advisor, (ii) the

approval of any purchase or sale by the Plan of shares of the Funds,

and (iii) the approval of any fees charged to or paid by the Plan, in

connection with any of the transactions described in Section I above,

then Section II(g)(2) above shall not apply.

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

investment management, investment advisory, or similar service, which

was provided by Keystone to the Funds involved in the subject

transaction, including but not limited to custodial, accounting,

administrative, brokerage or any other service.

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

as of December 2, 1996, February 3, 1997 and July 1, 1997, for

transactions described in Section I.

Summary of Facts and Representations

1. Keystone. Keystone Financial, Inc., is a bank holding company

with its principal offices in Harrisburg, Pennsylvania. Keystone's

subsidiaries include Mid-State Bank and Trust Company, Northern Central

Bank and Trust Company, and Martindale Andres & Company, Inc.

(collectively, Keystone). Keystone provides trust and banking services

to individuals, corporations, and institutions, both nationally and

internationally. Keystone serves as trustee, investment manager, and/or

custodian to the Plans described below and as an investment adviser to

certain of the Funds. As of August 31, 1996, Keystone had total assets

under management of approximately $754 million.

Other Affiliates of Keystone including Mid-State Bank and Trust

Company, and Pennsylvania National Bank and Trust Company, Inc., may

offer shares of the Funds to their fiduciary customers. However, these

Affiliates did not have Client Plan assets or any other customer assets

invested in the CIFs that were involved in the subject in-kind transfer

of assets to the Funds which occurred on December 2, 1996, February 3,

1997 and July 1, 1997.

2. The Client Plans. The Client Plans were retirement plans

qualified under section 401(a) of the Code for which Keystone served as

a trustee or investment manager. The Client Plans were considered

``pension plans'' under section 3(2) of the Act. The Client Plans

covered by this proposed exemption were those Plans invested in the

subject CIFs at the time of each in-kind transfer of CIF assets to the

Funds. The Client Plans participated in the conversion of the CIFs to

the Funds based solely upon the decisions made in each case by a Plan

fiduciary independent of Keystone (collectively, the Second

Fiduciaries). In addition to the Client Plans, the CIFs also held

assets of two qualified retirement plans sponsored by Keystone

(collectively, the Bank Plans), which participated in the subject CIF

asset transfer to the Funds. The Bank Plans were:

(i) The Keystone Financial Pension Plan (the Keystone DB Plan); and

(ii) The Keystone Financial 401(k) Plan (the Keystone DC Plan).

However, as discussed further below, the Bank Plans are not

included in the relief that would be provided by this proposed

exemption.

[[Page 65252]]

3. The CIFs. The CIFs comprised certain individual portfolios of

the Client Plans and the Bank Plans.

Specifically, the CIFs were: (i) the Employee Benefit Intermediate

Term Income Fund (Intermediate Term Income Fund); (ii) the Employee

Benefit Core Equity Fund (Core Equity Fund); (iii) the Employee Benefit

Growth Equity Fund (Growth Equity Fund); and (iv) the Short-Term Income

Fund (Short Term Fund).

As a result of the transfer of CIF assets to the Funds, each of

these CIFs have been terminated and the assets are now held in one of

the corresponding Funds described below. These Funds are: (i) the

KeyPremier Intermediate Term Income Fund (``Intermediate Income'');

(ii) the KeyPremier Established Growth Fund (``Growth Fund''); and

(iii) the KeyPremier Aggressive Growth Fund (``Aggressive Growth'');

(iv) the KeyPremier Limited Duration Fund (``Limited Duration Fund'').

The applicant states that each CIF's assets were transferred to a new

Fund that had investment objectives corresponding directly to the

investment objectives of the terminating CIF.

The following table shows which particular CIF assets were

transferred to which particular Fund.

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CIF Corresponding fund portfolio

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Intermediate Term................... KeyPremier.

Intermediate Term.

Income Fund.

Core Equity Fund.................... KeyPremier.

Established Growth.

Fund.

Growth Equity Fund.................. KeyPremier.

Aggressive Growth.

Fund.

Short Term Income................... KeyPremier Limited.

Duration Government.

Bond Fund.

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4. The Funds. The Funds are all part of the KeyPremier Funds of the

Session Group (collectively referred to as the ``Trust''), an open-end

investment company registered under the ICA. The Trust is comprised of

a series of Funds (each a ``Fund''). Each Fund is a separate investment

portfolio available to the Client Plans, as well as certain other

investors. Keystone also performs certain Secondary Services for the

Funds, including co-administration and shareholder services, for which

it receives fees.

Martindale Andres & Company, Inc. (Martindale), a wholly-owned

subsidiary of Keystone, serves as investment advisor to the Funds.

Various parties unrelated to Keystone also provide Secondary

Services to the Funds, including custodial, transfer agent,

recordkeeping, and other non-advisory services.

Description of the Transactions

5. Keystone represents that the CIFs in which the Client Plans

invested were maintained in accordance with the laws that apply to

collective investment trusts. Keystone decided to terminate the CIFs

and offer to the Client Plans participating therein shares of the

corresponding Funds as alternative investments. Because interests in a

CIF generally must be liquidated or withdrawn to effect distributions,

Keystone believed that the interests of the Client Plans invested in

the CIFs would be better served by investment in shares of the Funds

which could be distributed in-kind. Keystone also believed that the

Funds offered the Client Plans advantages over the CIFs as pooled

investment vehicles. For example, as shareholders of the Funds, the

Client Plans have opportunities to exercise voting and other

shareholder rights. In addition, Client Plans can benefit from lower

fees, daily valuation available with the Funds as well as more

investment information.

The Plans, as Fund shareholders, periodically receive certain

disclosures concerning the Funds. Such information includes: (i) a copy

of the Fund prospectus, which is updated at least annually; (ii) an

annual report containing audited financial statements of the Funds and

information regarding such Funds' investment performance; and (iii) a

semi-annual report containing unaudited financial statements. With

respect to the Client Plans, Keystone reports all transactions in

shares of the Funds in periodic account statements provided to each

Client Plan. Further, Keystone maintains that the net asset value of

the portfolios of the Funds can be monitored daily from information

available in newspapers of general circulation.

Keystone states that the transfers in-kind of the CIF assets in

exchange for Fund shares were ministerial transactions which were

performed in accordance with pre-established objective procedures which

were approved by the Board of Trustees of each Fund. Such procedures

required that assets transferred to a Fund: (i) must be consistent with

the investment objectives, policies, and restrictions of the Fund; (ii)

must be marketable securities; (iii) must satisfy the applicable

requirements of the ICA and the Code; and (iv) must have a readily

ascertainable market value. Prior to entering into an in-kind transfer,

a Second Fiduciary of each affected Client Plan received certain

disclosures from Keystone and approved the transaction in writing.

6. The Conversion Transactions. Keystone specifically requests a

retroactive exemption for the in-kind transfers of CIF assets to

certain corresponding Funds which have already occurred with respect to

Client Plans. With respect to the Bank Plans, Keystone states that the

in-kind transfer of CIF assets to the Funds representing the interest

held by the Bank Plans in such CIFs met the conditions of Prohibited

Transaction Exemption (PTE) 77-3 (42 FR 18734, April 8, 1977). \4\

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\4\ The Department is expressing no opinion as to whether the

terms and conditions of PTE 77-3 were met with respect to the

conversion of the Bank Plans' pro rata share of CIF assets to the

Funds.

In this regard, Keystone filed a request for exemptive relief on

October 23, 1996, which included the in-kind transfer of assets of

the Bank Plans held in CIFs that were exchanged for shares of the

Funds. However, on July 30, 1998, the Department issued Advisory

Opinion 98-06 (A.O. 98-6). A.O. 98-06 states that PTE 77-3 provides

relief for the acquisition of a proprietary mutual fund's shares by

an in-house plan (i.e. an employee benefit plan sponsored by the

mutual fund's investment adviser or an affiliate of such adviser) in

exchange for assets that are transferred from a CIF, if the

conditions of that exemption are met. As a result, Keystone withdrew

its request for an individual exemption to cover the in-kind

transfer of CIF assets by the Bank Plans.

The Department notes that prior to Keystone's withdrawal of its

request for relief to cover the Bank Plans, Keystone retained

Wilmington Trust Company (WTC) as a Second Fiduciary for the Bank

Plans in connection with the in-kind transfer of CIF assets to the

Funds. WTC is a banking corporation with trust powers, organized

under the laws of the State of Delaware. As of December 31, 1995,

WTC exercised discretionary authority over approximately $29.8

billion of fiduciary assets, including approximately $15.5 billion

of benefit plan investors. WTC made the same determination and

approval for the Bank Plans' participation in the CIF asset

transfers, prior to each transaction, as were made by the Second

Fiduciary of each Client Plan. Accordingly, Keystone states that a

proportionate share of each CIF's assets representing the interests

of the Bank Plans therein was transferred to the corresponding Fund.

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The in-kind transfers of assets with respect to the CIFs occurred

on December 2, 1996, February 3, 1998, and July 1, 1997, respectively

(the CIF Conversions). Each was a complete termination of the assets

held in the CIFs by the Client Plans that elected to participate in the

CIF Conversions. No brokerage commissions, fees or expenses (other than

customary transfer charges paid to parties other than Keystone) were

charged to the Plans or the CIFs in connection with the in-kind

transfers of CIF assets to the Funds in exchange for shares of the

Funds.

Each in-kind transfer of the assets of each of the CIFs was

completed in a single transaction on a single day. In each case, the

in-kind transfer transactions were accomplished by

[[Page 65253]]

transferring from the converting CIF a Client Plan's proportionate

share of all of the assets then held by the CIF to the corresponding

Fund in exchange for an appropriate number of Fund shares. Once all of

a CIF's assets were transferred to a Fund, the CIF was terminated and

its assets, then consisting of Fund shares, were distributed in-kind to

the Plans participating in the CIFs based on each Plan's pro rata share

of the assets of the CIFs on the date of the transaction.

7. Advance Disclosure/Approval for Client Plans. Keystone

represents that it provided disclosures to each affected Plan in

connection with the termination of the particular CIF, summarized the

transaction, and complied with all of the provisions of Section I of

this proposed exemption. Based on these disclosures, the Second

Fiduciary for each affected Client Plan approved in writing the Plan's

participation in the CIF Conversion, including the fees that were to be

paid by the Funds to Keystone as a result of the CIF Conversion.

8. Valuation Procedures. The assets transferred by a CIF to its

corresponding Fund consisted entirely of cash and marketable

securities. For purposes of a transfer in-kind, the value of the

securities in the CIFs were determined based on their market value as

of the close of business on the last business date prior to the

transfer (the CIF Valuation Date). The values on the CIF Valuation Date

were determined using the valuation procedures described in SEC Rule

17a-7 under the ICA. In this regard, the ``current market price'' for

specific types of CIF securities involved in the transaction was

determined as follows:

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

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

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

reported in the consolidated transaction reporting system (the

Consolidated System) for the CIF 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 '34 Act), as of the close of business on the

CIF 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 CIF 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 the exchange as of the close of business on the CIF Valuation

Date.

c. If the security was not a reported security and was quoted 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 CIF 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 CIF valuation date, determined on the basis

of reasonable inquiry. For securities in this category, Keystone

obtained quotations from at least three sources that were either

broker-dealers or pricing services independent of and unrelated to

Keystone and, when 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 practices under SEC

Rule 17a-7.

The securities received by a transferee Fund portfolio were valued

by such portfolio for purposes of the transfer in the same manner and

as of the same day as such securities were valued by the corresponding

transferor CIF. The per share value of the shares of each Fund

portfolio issued to the CIFs was based on the corresponding portfolio's

then-current net asset value. Thus, the value of a Plan's investment in

shares of each Fund was, as of the opening of business on the first

business day after the CIF Conversion, equal to the value of such

Plan's investment in the CIFs as of the close of business on the last

business day prior to the CIF Conversion.

Not later than thirty (30) business days after completion of each

in-kind transfer transaction, Keystone sent by regular mail to each

affected Client Plan a written statement that included a confirmation

of the transaction. Such confirmation contained: (i) the identity of

each security that was valued in accordance with SEC Rule 17a-7(b)(4),

as described above; (ii) the price of each such security for purposes

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

market-maker consulted in determining the value of such securities.

Not later than one-hundred and twenty (120) days after completion

of each in-kind transfer of CIF assets in exchange for shares of the

Funds, Keystone mailed to the Client Plans a written confirmation of

the number of CIF units held by each affected Client Plan immediately

before the CIF Conversion (and the related per unit value and the

aggregate dollar value of the units transferred), and the number of

shares in the Funds that were held by each affected Plan following the

CIF Conversion (and the related per share net asset value and the

aggregate dollar value of the shares received). In this regard,

Keystone represents that with respect to the CIF Conversions described

herein, it was unable to distribute such confirmation to the Client

Plans within 105 days, as required by Section I(g) of PTE 97-41.

However, for purposes of future CIF Conversions, Keystone represents

that it will meet this condition (as required by Section II(g) for

transactions which occur after August 8, 1997), as well as the other

conditions of PTE 97-41.

Receipt of Fees by Keystone From the Funds

9. Keystone represents that PTE 77-4 (42 FR 18732, April 8, 1977)

5 permits it to receive fees from the Funds which result

from investments made by the Client Plans in the Funds, if the

conditions of that exemption are met. Section II(c) of PTE 77-4

requires that either: (i) the Client Plan may 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 such

investment; or (ii) the Client Plan may pay investment management,

investment advisory, or similar fees to Keystone based on the total

assets of such Plans invested in shares of a Fund from which a credit

has been subtracted representing such Plan's pro rata share of such

investment advisory fees paid to Keystone by the Fund. Further, Section

II(f) of PTE 77-4 requires that the second fiduciary be notified of any

change in the rates of fees charged by the Fund and approve in writing

the continued holding of shares acquired by the plan prior to such

change.

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\5\ PTE 77-4, in pertinent part, permits the purchase and sale

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

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

the investment adviser for the investment company, provided that the

conditions of the exemption are met.

In addition, 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.

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Keystone represents that its fee structure and any future approval

of fee increases with respect to investments by the Client Plans in the

Funds will comply with PTE 77-4.6 Accordingly, the Applicant

has not requested an individual exemption for the receipt of fees by

Keystone from the Funds for

[[Page 65254]]

investment management, investment advisory, or similar services

provided to the Funds, or for the receipt of fees for any Secondary

Services provided by Keystone. Thus, the Department is not providing

relief for the receipt of such fees attributable to investment in the

Funds by the Client Plans in this proposed exemption.

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\6\ In this regard, the Department is expressing no opinion in

this proposed exemption regarding whether any of the transactions

with the Funds by Keystone involving either the Bank Plans or the

Client Plans met the conditions of PTE 77-3 or PTE 77-4,

respectively.

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10. In summary, Keystone represents that the transactions described

herein satisfy the statutory criteria for an exemption under section

408(a) of the Act because:

(a) The Funds provide the Client Plans with a more effective

investment vehicle than the CIFs that were maintained by Keystone.

(b) With respect to each in-kind transfer of a Client Plan's CIF

assets into a Fund in exchange for Fund shares, a Second Fiduciary for

the Client Plan authorized, in writing, such transfer prior to the

transaction only after receiving full written disclosure of information

concerning the Fund.

(c) Each Client Plan received shares of the Funds, in connection

with the in-kind transfer of CIF assets, which had a total net asset

value that was equal to the value of the Client Plan's pro rata share

of the CIF 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 SEC Rule 17a-7 of the ICA,

as amended, for the valuation of such assets.

(d) For all in-kind transfers of CIF assets to a Fund covered by

the proposed exemption, Keystone sent to each affected Client Plan

written confirmation by regular mail, not later than 30 days after the

completion of the transaction, that contained the following

information: (1) the identity of each security that was valued for

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

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

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

maker consulted in determining the value of such securities.

(e) For all in-kind transfers of CIF assets to a Fund, made on

behalf of Client Plans, Keystone sent by regular mail, no later than

120 days after completion of each CIF asset transfer, a written

confirmation that contained the following information: (1) the number

of CIF units held by the Client Plan immediately before the transfer,

the related per unit value and the total dollar amount of such CIF

units; and (2) the number of shares in the Funds that were held by the

Client Plan following the Conversion, the related per share net asset

value and the total dollar amount of such shares.

(f) The price paid or received by a Client Plan for shares of the

Funds was the net asset value per share at the time of the transaction

and was the same price for the Fund shares which was paid or received

by any other investor at that time.

(g) The transferred assets constituted the Client Plan's pro rata

portion of all assets that were held by the CIF immediately prior to

the transfer.

(h) No sales commissions were paid by a Client Plan in connection

with the in-kind transfers of CIF assets in exchange for shares of the

Funds.

(i) Keystone did not receive any 12b-1 fees in connection with the

transactions.

(j) All dealings between the Client Plans and any of the Funds were

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

Funds and other shareholders holding the same class of shares as the

Client Plans.

Notice to Interested Persons

Notice of the proposed exemption should be given to Client Plans

that had investments in the terminating CIFs, including the Second

Fiduciaries from whom approval was sought for the in-kind transfer of

Client Plan assets to the Funds. Notice will be provided to each Second

Fiduciary by first class mail within 30 days following the publication

of this notice of pendency of the proposed exemption in the Federal

Register. The notice should include a copy of this notice of proposed

exemption, as published herein, and make interested persons aware of

their right to comment or request a hearing on the proposed exemption.

Comments and requests for a public hearing must be received by the

Department within 60 days of the publication date for this proposed

exemption in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Ms. Janet L. Schmidt of the

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

Bankers Trust Company (BTC), Located in New York, New York

[Application Nos. D-10592 through D-10594]

Proposed Exemption

The Department is considering granting an exemption under the

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

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

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

is granted, the restrictions of section 406(a) 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 (D) of the Code, shall not

apply to (1) the proposed granting to BTC by certain employee benefit

plans (the Plans) investing in Hometown America L.L.C. (the LLC) of

security interests in the capital commitments of the Plans to the LLC,

where BTC is the representative of certain lenders (the Lenders) that

will fund a so-called ``credit facility'' providing loans to the LLC,

and the Lenders are parties in interest with respect to the Plans; and

(2) the proposed agreements by the Plans to honor capital calls made to

the Plans by BTC, in lieu of the LLC's sole managing member, in

connection with the Plan's capital commitments to the LLC where such

capital calls relate to the security interests in the capital

commitments previously granted to BTC; provided that (a) the proposed

grants and agreements are on terms no less favorable to the Plans than

those which the Plans could obtain in arm's-length transactions with

unrelated parties; (b) the decisions on behalf of each Plan to invest

in the LLC and to execute such grants and agreements in favor of BTC

are made by a fiduciary which is not included among, and is independent

of and unaffiliated with, the Lenders and BTC; and (c) with respect to

Plans that may invest in the LLC in the future, such Plans will have

assets of not less than $100 million and not more than 5% of the assets

of such Plan will be invested in the LLC.

Summary of Facts and Representations

1. The LLC is a Delaware limited liability company, the sole

managing member of which is Hometown America Communities, Inc. (the

Manager), a Delaware corporation. The Manager is a separate affiliate

of Transwestern Investment Company, L.L.C. (TWIC), a Delaware limited

liability company, which is the sponsor of the LLC. The LLC shall have

a perpetual existence until it is dissolved, wound up or liquidated in

accordance with the agreement dated December 10, 1997 which established

its organization and functions (the Agreement). The LLC was formed by

the Manager (as sole managing member) and Transwestern Hometown

America, L.L.C. (TWHA), an affiliate of TWIC (as non-managing member),

with the intent of seeking capital commitments from a limited number of

prospective investors who would become members (the Members) of the

LLC. There are six current and prospective Members having, in the

[[Page 65255]]

aggregate, irrevocable, unconditional capital commitments of at least

$100,000,000; and there are four other Members who have contributed

property to the LLC.

2. The LLC has been organized to establish an integrated, self-

administered and self-managed real estate operating company (see rep.

11, below) to acquire manufactured housing communities. The LLC will

make acquisitions and provide property management services. As

described in the Private Placement Memorandum, the LLC believes that

significant opportunities exist to achieve superior risk-adjusted

returns on its investments in excess of 15% over a five-year period.

The LLC will identify and commit to all investments within five years

of closing (the Investment Period). Strategies to maximize proceeds and

create liquidity for the LLC include single asset sales, portfolio

transactions, formation and exchange of assets for equity and a public

offering for shares of the Manager in which Members will be granted the

right to convert their membership interests into shares of the Manager.

3. The LLC may issue a variety of securities in connection with its

investment activities, including operating company units, preferred

operating company units, convertible preferred operating company units,

warrants, options, debt, participating debt, convertible debt and other

securities; the LLC may also purchase real estate manufactured housing-

related securities, including publicly-traded or private debt or equity

instruments. The LLC will distribute to the Members 100% of the LLC's

taxable income from operations, dispositions, financing of investments

and other events giving rise to distributable proceeds. Until a public

offering occurs, Members will have the right (but not an obligation) to

reinvest all or any part of any such distributions for an increased

interest in the LLC.

4. The Agreement requires each Member to execute a subscription

agreement that obligates the Member to make contributions of capital up

to a specified maximum. The Agreement requires Members to make capital

contributions to fulfill this obligation upon receipt of notice from

the Manager. Under the Agreement, the Manager may make calls for cash

contributions (Capital Calls) up to the total amount of a Member's

capital commitment upon 10 business days' notice, subject to certain

limitations. The Members' capital commitments are structured as

unconditional, binding commitments to contribute equity when Capital

Calls are made by the Manager. In the event of a default by a Member,

the LLC may exercise any of a number of specific remedies.

The Members constituting over 90% of the equity interests and their

investments in the LLC are:

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

Capital

commitment

Name of member (in

millions)

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

Northwestern Mutual Life Ins. Co............................ $20

Public Employees' Ret. Assn. of CO.......................... 25

Allstate Life Ins. Co....................................... 25

Ameritech Pension Trust..................................... 25

The Manager................................................. 1

TWHA........................................................ 4

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

5. The applicant states that the LLC will incur indebtedness in

connection with many of its investments. In addition to mortgage

indebtedness, the LLC will incur short-term indebtedness for the

acquisition of particular investments. This indebtedness will take the

form of a credit facility (the Credit Facility) secured by, among other

things, a pledge and assignment of each Member's capital commitment.

This type of facility will allow the LLC to consummate investments

quickly without having to finalize the debt/equity structure for an

investment or having to arrange for interim or permanent financing

prior to making an investment, and will have additional advantages to

the Members and the LLC. Under the Agreement, the Manager may encumber

Member's capital commitments, including the right to call for capital

contributions, to one or more financial institutions as security for

the Credit Facility. Each of the Members has appointed the Manager as

its attorney-in-fact to execute all documents and instruments of

transfer necessary to implement the provisions of the Agreement. In

connection with this Credit Facility, each of the Members is required

to execute documents customarily required in secured financings,

including an agreement to unconditionally honor Capital Calls.

6. BTC will become agent for a group of Lenders providing a $63

million revolving Credit Facility to the LLC. BTC will also be a

participating Lender. Some of the Lenders may be parties in interest

with respect to some of the Plans that invest in the LLC by virtue of

such Lenders' (or their affiliates') provisions of fiduciary services

to such Plans for assets other than the Plans' interests in the LLC.

BTC is requesting an exemption to permit the Plans to enter into

security agreements with BTC, as the representative of the Lenders,

whereby such Plans' capital commitments to the LLC will be used as

collateral for loans made by the Credit Facility to the LLC, when such

loans are funded by Lenders who are parties in interest to one or more

of the Plans.

The Credit Facility will be used to provide immediate funds for

real estate acquisitions made by the LLC, as well as for the payment of

LLC expenses. Repayments will be secured generally by the LLC from the

Members' capital contributions, and Capital Calls on the Members'

capital commitments. The Credit Facility is intended to be available

until December 11, 2000. The LLC can use its credit under the Credit

Facility either by direct or indirect borrowings or by requesting that

letters of credit be issued. All Lenders will participate on a pro rata

basis with respect to all cash loans and letters of credit up to the

maximum of the Lenders' respective commitments. All such loans and

letters of credit will be issued to the LLC or an entity in which the

LLC owns a direct or indirect interest (a Qualified Borrower), and not

to any individual Member. All payments of principal and interest made

by the LLC or a Qualified Borrower will be allocated pro rata among all

Lenders. The applicant represents that the aggregate capital

commitments to be pledged will be at least 1.5 times the maximum amount

of the credit available under the Credit Facility.

7. The Credit Facility will be a recourse obligation of the LLC,

the repayment of which is secured primarily by the grant of a security

interest to BTC, as agent under the Credit Facility for the benefit of

the Lenders, from the LLC, in both: (a) the Members' capital

commitments and (b) a collateral account (the Borrower Collateral

Account) under which the LLC must deposit all Members' capital

contributions when paid. In addition, the LLC and the Manager will

grant BTC, as agent under the Credit Facility for the benefit of the

Lenders, a security interest in: (a) the right to call capital under

the Agreement; (b) Capital Call notices; and (c) the Members' capital

commitments. The Borrower Collateral Account will be assigned to BTC to

secure repayment of the indebtedness incurred under the Credit

Facility. BTC has the right to apply any or all funds in the Borrower

Collateral Account toward payment of the indebtedness in any manner it

may elect. The capital commitments are fully recourse to all the

Members and to the Manager. In the event of default under the Credit

Facility, the agent (i.e., BTC) has the right to unilaterally make

capital calls on the Members to pay their unfunded

[[Page 65256]]

capital commitments, and will apply cash received from such capital

calls to any outstanding debt.

8. Under the Credit Facility, each Member that is a Plan will

execute an acknowledgment (the Estoppel) pursuant to which it

acknowledges that the LLC and the Manager have pledged and assigned to

BTC, for the benefit of each Lender which may be a party in interest

(as defined in Act section 3(14)) of such Member, all of their rights

under the Agreement relating to capital commitments and Capital Call

notices. The Estoppel will include an acknowledgment and covenant by

the Plan that, if an event of default exists, such Plan will

unconditionally honor any capital call made by BTC in accordance with

the Agreement up to the unfunded capital commitment of such Plan to the

LLC.

9. The applicant represents that at the present time the Ameritech

Pension Trust (the Ameritech Trust) holds the assets of three defined

benefit plans (the Ameritech Plans), which own interests in the LLC.

The Ameritech Trust has made a capital commitment of $25 million to the

LLC. The applicant states that some of the Lenders may be parties in

interest with respect to some of the Ameritech Plans in the Ameritech

Trust by virtue of such Lenders' (or their affiliates') provisions of

fiduciary services to such Ameritech Plans with respect to Ameritech

Trust assets other than their membership interests in the LLC. Thus,

BTC states that there is an immediate need for the Ameritech Trust to

enter into the Estoppel under the terms and conditions described

herein. The total number of participants in the three Ameritech Plans

is approximately 108,000, and the approximate fair market value of the

total assets of the Ameritech Plans held in the Ameritech Trust as of

December 31, 1996 is $12.15 billion.

The applicant represents that the fiduciary of the Ameritech Plans

generally responsible for investment decisions in real estate assets

which are managed internally could be, depending on the size and type

of the investment, the Ameritech Corporation Asset Management

Committee, the Chief Investment Officer of Ameritech Corporation, or

the Ameritech Corporation Investment Management Department's Real

Estate Committee (comprised of the staff real estate professionals and

another Investment Management Department director). The fiduciaries

responsible for reviewing and authorizing the investments in the LLC

under this proposed exemption currently are William M. Stephens, Chief

Investment Officer of Ameritech Corporation, and the Ameritech

Corporation Investment Management Department's Real Estate Committee.

10. The applicant represents that the Ameritech Plans are currently

the only employee benefit plans subject to the Act that are Members of

the LLC. However, the applicant states that it is possible that one or

more other Plans will become Members of the LLC in the future. Thus,

the applicant requests relief for any such Plan under this proposed

exemption, provided the Plan meets the standards and conditions set

forth herein. In this regard, such Plan must be represented by an

independent fiduciary, and the Manager must receive from the Plan one

of the following:

(1) A representation letter from the applicable fiduciary with

respect to such Plan substantially identical to the representation

letter submitted by the fiduciaries of the Ameritech Trust, in which

case this proposed exemption, if granted, will apply to the investments

made by such Plan if the conditions required herein are met; or

(2) Evidence that such Plan and its responsible fiduciaries are

eligible for relief under Prohibited Transaction Exemption 96-23 (PTE

96-23, 61 FR 15975, April 10, 1996), the class exemption for

transactions by a plan with certain parties in interest where such

plan's assets are managed by an in-house asset manager (INHAM) that has

total assets under its management, attributable to plans maintained by

its affiliates, in excess of $50 million (see Part IV(a) of PTE 96-23);

or

(3) Evidence that such Plan is eligible for another class exemption

or has obtained an individual exemption from the Department covering

the potential prohibited transactions which are the subject of this

proposed exemption.

11. BTC represents that the LLC will obtain an opinion of counsel

that the LLC will constitute an ``operating company'' under the

Department's plan asset regulations [see 29 CFR 2510.3-101(c)] if the

LLC is operated in accordance with the Agreement and the private

placement memorandum distributed in connection with the private

placement of the LLC membership interests.7

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\7\ The Department notes that the term ``operating company'' as

used in the Department's plan asset regulation cited above includes

an entity that is considered a ``real estate operating company'' as

described therein (see 29 CFR 2510.3-101(e)). However, the

Department expresses no opinion in this proposed exemption regarding

whether the LLC would be considered either an operating company or a

real estate operating company under such regulations. In this

regard, the Department notes that it is providing no relief for

either internal transactions involving the operation of the LLC or

for transactions involving third parties other than the specific

relief proposed herein. In addition, the Department encourages

potential Plan investors and their independent fiduciaries to

carefully examine all aspects of the LLC's proposed real estate

investment program in order to determine whether the requirements of

the Department's regulations will be met.

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12. BTC represents that the Estoppel constitutes a form of credit

security which is customary among financing arrangements for real

estate limited partnerships or limited liability companies, wherein the

financing institutions do not obtain security interests in the real

property assets of the partnership or limited liability companies. BTC

also represents that the obligatory execution of the Estoppel by the

Members for the benefit of the Lenders was fully disclosed in the

Private Placement Memorandum as a requisite condition of investment in

the LLC during the private placement of the membership interests. BTC

represents that the only direct relationship between any of the Members

and any of the Lenders is the execution of the Estoppel. All other

aspects of the transaction, including the negotiation of all terms of

the Credit Facility, are exclusively between the Lenders and the LLC.

BTC represents that the proposed execution of the Estoppel will not

affect the abilities of the Trust to withdraw from investment and

participation in the LLC. The only Plan assets to be affected by the

proposed transactions are any funds which must be contributed to the

LLC in accordance with requirements under the Agreement to make Capital

Calls to honor a Member's capital commitments.

13. BTC represents that neither it nor any Lender acts or has acted

in any fiduciary capacity with respect to the Ameritech Trust's

investment in the LLC and that BTC is independent of and unrelated to

those fiduciaries (the Ameritech Trust Fiduciaries) responsible for

authorizing and overseeing the Ameritech Trust's investments in the

LLC. Each Ameritech Trust Fiduciary represents independently that its

authorization of Trust investments in the LLC was free of any

influence, authority or control by the Lenders. The Ameritech Trust

Fiduciaries represent that the Ameritech Trust's investments in and

capital commitments to the LLC were made with the knowledge that each

Member would be required subsequently to grant a security interest in

Capital Calls and capital commitments to the Lenders and to honor

requests for cash contributions, also known as ``drawdowns'', made on

behalf of the Lenders without recourse to any defenses against the

Manager. Each Ameritech Trust Fiduciary

[[Page 65257]]

individually represents that it is independent of and unrelated to BTC

and the Lenders and that the investment by the Ameritech Trust for

which that Ameritech Trust Fiduciary is responsible continues to

constitute a favorable investment for the Ameritech Plans participating

in that Trust and that the execution of the Estoppel is in the best

interests and protective of the participants and beneficiaries of such

Ameritech Plans. In the event another Plan proposes to become a Member,

the applicant represents that it will require similar representations

to be made by such Plan's independent fiduciary. Any Plan proposing to

become a Member in the future and needing to avail itself of the

exemption proposed herein will have assets of not less than $100

million, and not more than 5% of the assets of such Plan will be

invested in the LLC.

14. In summary, the applicant represents that the proposed

transactions satisfy the criteria of section 408(a) of the Act for the

following reasons: (1) The Ameritech Plans' investments in the LLC were

authorized and are overseen by the Ameritech Trust Fiduciaries, which

are independent of the Lenders, and other Plan investments in the LLC

from other employee benefit plans subject to the Act will be authorized

and monitored by independent Plan fiduciaries; (2) None of the Lenders

have any influence, authority or control with respect to the Ameritech

Trust's investment in the LLC or the Ameritech Trust's execution of the

Estoppel; (3) The Ameritech Trust Fiduciaries invested in the LLC on

behalf of the Ameritech Plans with the knowledge that the Estoppel is

required of all Members investing in the LLC, and all other Plan

fiduciaries that invest their Plan's assets in the LLC will be treated

the same as other Members are currently treated with regard to the

Estoppel; and (4) Any Plan which may invest in the LLC in the future,

which needs to avail itself of the exemption proposed herein, will have

assets of not less than $100 million, and not more than 5% of the

assets of any such Plan will be invested in the LLC.

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

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

Toledo Clinic, Inc. Employees 401(k) and Profit Sharing Plan (the

T/C Plan); Hart Associates, Inc.; Profit Sharing Plan (the H/A

Plan); and Midwest Fluid Power Company, Inc. Savings and Profit

Sharing Plan and Trust (the M/F Plan, collectively; the Plans),

Located in Toledo, Ohio

[Application Nos. D-10633, D-10634 and D-10635, respectively]

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 cash sale of certain shares of

preferred stock (the Preferred Stock) issued by TTC Holdings Inc.

(TTC), by the individually-directed account of Dr. Edward Orrechio in

the T/C Plan (the Orrechio Account), by the individually-directed

account of Michael Hart in the H/A Plan (the Hart Account), and by the

individually-directed account of Larry Peterson in the M/F Plan (the

Peterson Account; collectively, the Accounts) to TTC, a party in

interest with respect to the H/A Plan and M/F Plan; and (2) the

arrangement for the subsequent purchase of certain shares of Common

Stock (the Common Stock) issued by TTC by Messrs. Orecchio, Hart and

Peterson (collectively; the Participants), in their own name, from TTC

pursuant to an agreement with TTC that the purchase will occur

immediately after the sale of the Preferred Stock by the Plans to TTC;

provided that the following conditions are met:

1. The sale of the Preferred Stock to TTC by the Accounts and the

purchase of the Common Stock from TTC by the Participants, in their

individual capacity, are one-time transactions for cash;

2. The transactions described in (1) above take place on the same

business day;

3. The amount paid to the Accounts by TTC is the fair market value

of the Preferred Stock, as determined by a qualified independent

appraiser at the time of the sale;

4. The Participants, in their individual capacity, purchase from

TTC shares of the Common Stock which are equal in number to the shares

of Preferred Stock sold by the Accounts to TTC;

5. A qualified independent fiduciary (the Independent Fiduciary)

determines that the transactions described herein are in the best

interest and protective of the Accounts at the time of the

transactions; and

6. The Independent Fiduciary supervises the transactions; assures

that the conditions of this proposed exemption are met; and takes

whatever actions are necessary to protect the interests of the

Accounts, including reviewing amounts paid by TTC for the Preferred

Stock.

EFFECTIVE DATE: This exemption, if granted, will be effective as of

December 1, 1998.

Summary of Facts and Representations

1. The Plans are profit sharing, defined contribution plans that

provide for individually directed accounts.

The T/C Plan is sponsored by the Toledo Clinic, Inc. (the Toledo

Clinic), an Ohio corporation with its principal place of business in

Toledo, Ohio. The Toledo Clinic is a large consortium of physicians and

medical specialists which provide a broad range of health and medical

services. Dr. Edward Orrechio (Dr. Orrechio) is a physician employed by

the Toledo Clinic.

United Missouri Bank of Kansas City, N.A. is the trustee of the T/C

Plan. As of July 1998, the T/C Plan had 490 participants and

approximately $79,000,000 in assets. Dr. Orrechio is a participant in

the T/C Plan. The Orrechio Account referred to herein is his

individually-directed account in the T/C Plan.

2. TTC, the issuer of the Preferred Stock, is an Ohio corporation

that was incorporated in April 1990. The Trust Company of Toledo

(TTCOT) is a wholly-owned subsidiary of TTC. The applicant represents

that TTCOT is a ``bank'' as that term is defined in Section 202(a)(2)

of the Investment Advisers Act of 1940.8

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\8\ The applicant represents that under Section 202(a)(2) of the

Investment Advisers Act of 1940, a ``Bank'' means (A) banking

institution organized under the laws of the United States, (B) a

member bank of the Federal Reserve System, (C) any other institution

or trust company, whether incorporated or not, doing business under

the laws of any State of the United States, a substantial portion of

the business of which consists of receiving deposits or exercising

fiduciary powers similar to those permitted to national banks under

the authority of the U.S. Comptroller of the Currency, and which is

supervised and examined by State or Federal authority having

supervision over banks, and which is not operated for the purpose of

evading the provisions of this subchapter, and (D) a receiver,

conservator, or other liquidating agent of any institution or firm

included in clauses (A), (B), or (C) of this paragraph.

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[[Page 65258]]

3. The H/A Plan is sponsored by Hart Associates, Inc. (the Hart

Associates), an Ohio corporation in the business of marketing and

public relations. Michael Hart (Mr. Hart) is the president and chief

executive officer of Hart Associates.

TTCOT became the directed trustee for the H/A Plan effective March

31, 1991. As of July 1998, the H/A Plan had 30 participants and

approximately $2,000,000 in assets. Mr. Hart is a participant in the H/

A Plan. The Hart Account referred to herein is his individually-

directed account in the H/A Plan.

4. The M/F Plan is sponsored by Midwest Fluid Power Company, Inc.

(the MFP Company), an Ohio corporation which is a distributor of

industrial materials and parts used in fluid power applications in

certain industries. Larry Peterson (Mr. Peterson) is the president and

chief executive officer of the MFP Company.

As of July 1998, the M/F Plan had 70 participants and approximately

$4,800,000 in assets. TTCOT became the directed trustee for the M/F

Plan effective July 1, 1993. Mr. Peterson is a participant in the M/F

Plan. The Peterson Account referred to herein is his individually-

directed account in the M/F Plan.

5. The following table illustrates the percentage of assets of each

Account which was represented by the shares of Preferred Stock at the

time of original acquisition by the Accounts, and at the time of the

sale of such Preferred Stock by the Accounts to TTC. In addition, this

table shows the percentage of each Account's assets which was

represented by the related debentures (the Debentures, as discussed

below) at the time of original acquisition and prior to the sale of the

Preferred Stock.

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

Shares of % assets at

Accounts in the plans preferred Cost Debenture orig. % assets at

stock purchase sale

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

Orrechio....................................... 200 $20,000 $10,000 9.0 6.4

Hart........................................... 200 $20,000 10,000 55.5 18.1

Peterson....................................... 200 $20,000 10,000 16.5 10.6

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

6. It is represented that the Participants did not own shares of

Preferred Stock as individuals prior to the subject transactions. In

addition, the purchasing of shares of the Common Stock by the

Participants from TTC did not cause any of the Participants to become

majority shareholders of TTC. None of the Participants was or is

currently an officer, director, principal or employee of TTC or TTCOT.

At the time of original acquisition of the Preferred Stock by the

Accounts, neither TTC nor TTCOT was a fiduciary or other party in

interest under the Act with respect to the Plans.

Further, it is represented that TTCOT does not have the authority

to make investment decisions for any of the Plans to which it acts as

directed trustee (i.e., the H/A Plan and the M/F Plan) without written

directions from the Participants.

7. TTC had two classes of Stock--the Preferred Stock and the Common

Stock. There were 3,531 shares of the Common Stock outstanding prior to

the subject transactions, which were owned in equal amounts by Theodore

T. Hahn, Julie B. Higgins and David A. Snavely. These individuals are

the three founders, principals and partners of TTC.

In addition, there were 20,000 shares of Preferred Stock

outstanding prior to the subject transactions, which were held by 65

different shareholders. Among the shareholders of the Preferred Stock

were the Orrechio Account in the T/C Plan, the Hart Account in the H/A

Plan, and the Peterson Account in the M/F Plan.

8. The Preferred Stock was issued by TTC through a private offering

that was made in 1990. The Initial Offering Memorandum (the Memorandum)

was prepared on May 31, 1990. The offering allowed an investor to

acquire 200 shares of Preferred Stock and a $10,000 subordinated

debenture (the Debenture). The Debenture was issued in October 1990,

with a due date of December 31, 2000. The Debenture accrued a nine

percent (9%) per annum coupon rate, which was payable, along with

installments of principal, on a semiannual basis. The Stock and the

Debenture were offered to investors as constituent parts of a single

offering unit which could not be severed by the investor. The price for

each unit was $30,000, of which $20,000 was allocated to the Preferred

Stock and $10,000 was allocated to the Debenture. Thus, each of the

Accounts paid TTC $30,000 in cash and purchased one unit which

consisted of 200 shares of the Preferred Stock and the Debenture, as

described above.

Under the information described in the Memorandum, dividends were

not expected to be paid on the Preferred Stock, and no dividends were

paid on such shares.

It is represented that the Participants were aware of the identity

of TTC as the issuer of the Preferred Stock and the Debentures. As a

result of the acquisitions of the Preferred Stock, each of the Accounts

became a minority shareholder in TTC. No fees or commissions were

incurred or paid in connection with the acquisition of the Preferred

Stock or the Debenture. No subsequent acquisitions of Preferred Stock

or other Debentures were made by the Accounts.

The outstanding principal amount of the Debentures held by the

Accounts and other investors will be prepaid by TTC in December 1998,

prior to the subject transactions, in accordance with terms of the

Debentures. 9

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\9\ The Department notes that the holding of the Debentures by

the Plans at any time during which TTCOT was a directed trustee to

the Plans would have resulted in a prohibited transaction under

section 406(a)(1)(B) of the Act because TTC, the parent corporation

of TTCOT, was the issuer of the Debentures. TTCOT, as the directed

trustee of the H/A Plan and the M/F Plan, was a party in interest

with respect to these Plans under section 3(14)(B) of the Act. Thus,

TTC was a party in interest under section 3(14)(H) of the Act as a

10 percent or more shareholder of a person described in section

3(14)(B). However, TTC was not a ``disqualified person'' under

section 4975(e)(2)(H) of the Code because that provision of the Code

does not include the parent corporation of a service provider within

the definition of that term. As a result, the holding of the

Debentures would not constitute a prohibited transaction under

section 4975(c)(1)(B) of the Code. In addition, the Department notes

that under section 502(i) of the Act, no civil penalty shall apply

to a transaction with respect to a plan described under section

4975(e)(1) of the Code. In any event, no relief is being provided

herein for the past acquisition and holding of the Debentures.

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9. The subject transactions were precipitated by TTC's desire to

amend its Articles of Incorporation (the Articles). The amendment of

the Articles enabled TTC to change its tax status to a Subchapter ``S''

corporation in accordance with Section 1362(a) of the Code. The change

in tax status will be effective as of January 1, 1999. The Board of

Directors of TTC determined that by eliminating its ``C'' Corporation

tax status, TTC could increase the return to its shareholders.

Furthermore, the switch by TTC to a Subchapter ``S''

[[Page 65259]]

status under the Code (the Conversion) required the conversion of the

outstanding shares of the Preferred Stock into Common Stock.

The applicant states that the Participants and their respective

Accounts in the Plans would have suffered adverse federal income tax

consequences if they had continued to hold shares of the Preferred

Stock in their Accounts after the Conversion. The Participants were

informed by TTC that if the Plans continued to hold shares of the

Preferred Stock after the Conversion, the Plans would be subject to

unrelated business taxable income on all Subchapter ``S''

distributions, which could have resulted in a loss of each Plan's tax-

free status under section 501(a) of the Code.

Accordingly, the Participants concluded that it was in the best

interest of their Accounts and of the Plans to dispose of the

investment in the Preferred Stock, to avoid the tax liabilities that

would be incurred, once TTC becomes a Subchapter ``S'' corporation.

10. On May 1, 1998, TTC sent certain documents to its shareholders,

including the Participants, as a result of their ownership of Preferred

Stock and the Debentures in the Accounts. The documents stated that TTC

desired to redeem, via cancellation, all shares of the Preferred Stock

which were held by any shareholders that would have adverse tax

consequences from continued ownership of shares in an ``S'' corporation

after the conversion.

TTC has provided a mechanism whereby eligible shareholders and

those who own shares through exempt employee benefit plans (i.e., the

Accounts in the Plans) would designate a related party to purchase

shares of TTC Stock equal to the number of shares sold by the Accounts

in the Plans. Such purchase would be for cash and would be at the same

price per share as that paid by TTC for redemption of the Stock.

11. Therefore, the Participants and TTC are requesting relief for

the following transactions: (1) the proposed cash sale of shares of the

Preferred Stock by the Orrechio Account in the T/C Plan, by the Hart

Account in the H/A Plan, and by the Peterson Account in the M/F Plan to

TTC; and (2) the arrangement for the subsequent purchase under the

above described agreement with TTC of an equal number of shares of the

Common Stock by Messrs. Orecchio, Hart and Peterson (i.e., the

Participants), in their own name, from TTC immediately after the sale

by the Accounts to TTC.

12. The redemption price for the shares of the Preferred Stock was

determined by the parties based upon a written valuation dated May 6,

1998, prepared by Austin Financial Services, Inc. (Austin), a

consulting firm with experience in the financial services industry.

Austin was retained by the Board of Directors of TTC for the purpose of

valuing TTC and its shares of Preferred Stock and Common Stock

(together, the Stock). In determining fair market value of the Stock,

Austin relied on the discounted cash flow method and the capitalization

of earnings method. After weighing these two methods, Austin determined

that the fair market value of all the outstanding shares of the Stock

was approximately $7,263,035. This amount equates to $308.66 per share

for each outstanding share of Preferred and Common Stock. Austin's

valuation of the Stock was updated at the time of the transaction, but

its conclusions for the fair market value of the Stock were unchanged.

Therefore, based on the Austin valuation, each Account received a total

of $61,732 for its shares of Preferred Stock, as of the date of

Conversion.

13. TTC also engaged the law firm of Callister Nebeker & McCullough

of Salt Lake City, Utah (CNM) to serve as the Independent Fiduciary for

the Plans to review the offer of redemption of the Preferred stock, to

render an opinion as to the prudence of the investment decisions

relating thereto, and to direct the sale of shares as appropriate. In a

report dated April 29, 1998 (the Report), CNM acknowledged its

appointment as the Independent Fiduciary for the Plans in connection

with TTC's proposed change from a Subchapter ``C'' corporation to a

Subchapter ``S'' corporation.

As the Independent Fiduciary for the Plans, CNM determined whether

the subject transactions, and the actions taken by the Plans in

connection with the transactions, were in the best interest of such

Plans and the Accounts, in accordance with the requirements of the Act.

In this regard, each of the Participants (i.e., Dr. Orrechio, Mr. Hart

and Mr. Peterson) made separate determinations that the proposed

transactions would be in the best interests of their Accounts. Upon

arriving at this conclusion, a determination was made to retain CNM as

an independent fiduciary for the Plans in order to ensure that the

terms of such transactions, including the appraisal made of the fair

market value of the Stock, would be protective of the Plans and the

Accounts.

In a supplemental statement dated August 25, 1998 (the Statement),

CNM acknowledged its duties as an independent fiduciary for the

transactions described herein. CNM represented that it had experience

in acting as an independent fiduciary for employee benefit plans. CNM

concluded that the subject transactions would be prudent and in the

best interest of each of the Accounts. CNM represented that it would

ensure, among other things, that the fair market value of the Stock, as

determined by Austin, would be updated on the date of the transactions,

and that each Account would receive the correct amount of cash for its

shares of Preferred Stock. Thus, the Independent Fiduciary supervised

the subject transactions to protect the interests of the Plans and the

Accounts.

14. The applicant also obtained an opinion regarding the subject

transactions from Houlihan Valuation Advisors dated June 16, 1998 (the

Fairness Opinion). The Fairness Opinion stated that the Preferred Stock

was essentially equivalent to the Common Stock because the Preferred

Stock: (i) was convertible at the option of the holder into Common

Stock; (ii) had voting privileges identical to the Common Stock; and

(iii) paid no preferred dividends. The differences between the

Preferred Stock and the Common Stock in terms of the liquidation value

of the Preferred Stock was determined to be meaningless because the

fair market value of the Preferred and Common Stock is much higher than

its liquidation value.

The Fairness Opinion concluded that the sale of the Preferred Stock

by the Accounts to TTC would be fair to the Accounts because the

Accounts would receive adequate consideration for their shares of the

Preferred Stock, based on an independent appraisal.

15. In summary, the applicant represents that the subject

transactions satisfied the statutory criteria of section 408(a) of the

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

a. The sale of the Preferred Stock to TTC by the Accounts and the

purchase of the Common Stock from TTC by the Participants were one-time

transactions for cash;

b. The transactions described in (1) above took place on the same

business day;

c. The amount paid to the Accounts by TTC was the fair market value

of the Preferred Stock, as determined by a qualified independent

appraiser at the time of the sale; and

d. The Independent Fiduciary determined that the subject

transactions were in the best interest and protective of the Accounts.

The Independent

[[Page 65260]]

Fiduciary supervised the subject transactions to protect the interests

of the Accounts.

Notice to Interested Persons

Because the only assets of the Plans' involved in the subject

transactions are those held in the Accounts, and no other participants

in the Plans are affected by the transactions, it has been determined

that there is no need to distribute this notice of proposed exemption

to any interested persons other than the Participants. Comments and

requests for a hearing on the proposed exemption are due 30 days after

the date of publication of this notice in the Federal Register.

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

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

Sprinx Inc. Retirement Plan (the Plan), Located in Grand Prairie,

Texas

[Application No. D-10660]

Proposed Exemption

The Department is considering granting an exemption under the

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

Code and in accordance with the procedures set forth in 29 C.F.R. Part

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

is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2)

of the Act and the sanctions resulting from the application of section

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

Code, shall not apply to: (1) the proposed loan of $90,000 (the Loan)

by the Plan to Sprinx, Inc. (the Employer), the sponsor of the Plan;

and (2) the guarantee of repayment of the Loan by Harry D. Spring, a

party in interest with respect to the Plan; provided that the following

conditions are satisfied:

1. The Loan does not exceed 25% of the total assets of the Plan at

any time;

2. The terms of the Loan are at least as favorable to the Plan as

those terms which would exist in an arm's-length transaction with an

unrelated party;

3. The Loan is secured by common stock issued by the Employer,

which has a fair market value, as determined by an independent

qualified appraiser, which will remain at least 200% of the outstanding

principal balance of the Loan throughout its duration;

4. The Plan has a first priority perfected security interest in the

Stock, which is properly filed and perfected under applicable state

law;

5. An independent fiduciary reviews the terms and conditions of the

Loan and determines that the Loan is in the best interest and

protective of the Plan and its participants and beneficiaries;

6. An independent fiduciary monitors the Loan throughout its

duration and takes whatever action is necessary to protect the

interests of the Plan; and

7. The independent fiduciary monitors the parties' compliance with

the terms and conditions of this proposed exemption, if granted.

Summary of Facts and Representations

1. The Plan is a pension plan that was established on August 18,

1993. The Plan currently has approximately eighteen (18) participants

and beneficiaries. As of June 30, 1998, the Plan had total assets of

$435,368. Harry D. Spring (Mr. Spring) is the trustee of the Plan.

2. The sponsor of the Plan is Sprinx, Inc. (the Employer). The

Employer is a Subchapter ``S'' corporation, incorporated in the State

of Texas. The Employer is in the business of health care consulting and

billing. A primary part of the Employer's business is consulting with

medical service companies to bill the health care services provided by

these companies. Mr. Spring is an officer and director of the Employer,

and is the sole shareholder of the Stock.

3. The Loan will have a principal amount of $90,000 and a ten year

duration. The Loan will bear an interest rate equal to the lesser of

(i) nine and one-half percent (9.5%) per annum, or (ii) the highest

lawful non-usurious rate of interest permitted under Texas law provided

that such rate is never less than 9.5% per annum.\10\ The Loan provides

for equal amortization of principal and interest, and will be payable

in forty (40) quarterly installments. The first thirty-nine (39)

installments, based on an interest rate of 9.5% per annum, will be

equal to $3,510.20. The 40th and final installment on the Loan will be

equal to the total unpaid balance at that time. The applicant

represents that the Loan will at all times represent less than twenty-

five percent (25%) of the Plan's total assets.

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\10\ The Department agreed to this provision at the request of

the applicant in order to comply with Texas usury law. However, for

purposes of this proposed exemption, the Department understands that

the rate on this Loan will in no event be less than 9.5% per annum.

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

The Loan proceeds will be used to purchase additional equipment for

the Employer, and to hire additional employees.

4. The Loan will be secured at all times by the total outstanding

shares of the Stock, all of which is owned by Mr. Spring. The Plan will

have a first priority perfected security interest in the Stock, which

will be properly filed and perfected under applicable state law.

The Stock was appraised by Saville, Dodgen & Company, Professional

Corporation, Cerified Public Accountants (the SDC Appraisal) as of June

30, 1998, as having a fair market value of $3.8 million. The SDC

Appraisal used the capitalization of earnings method to estimate the

fair market value of the Stock, and the Employer's business as

evidenced thereby. The capitalization of earnings method is based on

the future estimated earnings of the Employer. The SDC Appraisal has

been supplemented by a statement from Clint Pugh (Mr. Pugh) of Saville,

Dodgen & Company, P.C. (SDC) which states that the procedures and

analysis utilized in the SDC Appraisal represent a reasonable estimate

of fair market value of the Stock and the Employer's business at the

present time. There are currently 10,800 shares of the Stock with an

estimated value per share of $351.85, based on the SDC Appraisal.

In a further statement dated November 5, 1998, Mr. Pugh represents

that SDC is independent of the Employer and Mr. Spring. In this regard,

SDC performs tax compliance work for the Employer, but the fees

collected from the Employer for these services represent less than one

percent (1%) of the total annual revenue of SDC. Mr. Pugh also states

that he is a qualified appraiser of the Stock and that he has been

performing appraisals for ten (10) years for various corporations. Mr.

Pugh represents that he adheres to the guidelines provided by the

American Institute of Certified Public Accountants for business

valuations.

5. Frost National Bank (the Bank) has examined the terms of the

Loan. By letter dated August 19, 1998, the Bank represents that it

would make the same loan on the same terms to the Employer, based on

its assumptions regarding the creditworthiness of the Employer and Mr.

Spring.

6. The Loan will be monitored by Richard S. Tucker (Mr. Tucker),

who will serve as the independent fiduciary (the Independent Fiduciary)

on behalf of the Plan for purposes of the Loan. Mr. Tucker has

submitted a statement in which he discusses his proposed role as the

Independent Fiduciary. Mr. Tucker states that the Loan will be in the

best interest of the Plan and its participants and beneficiaries. Mr.

Tucker believes that the Loan will be an appropriate investment for the

Plan with adequate safeguards and protections to ensure repayment of

all principal and interest. The Loan will also permit the Employer to

satisfy its needs for additional

[[Page 65261]]

equipment and employees, which will increase its profitability.

Mr. Tucker states that the Loan will be protective of the Plan

because the principal amount of the Loan will be adequately secured and

will represent less than twenty-five percent (25%) of the Plan's total

assets. The Stock, as collateral for the Loan, will have a fair market

value which exceeds the outstanding principal amount of the Loan by at

least two hundred percent (200%) at all times.

With respect to Mr. Tucker's qualifications to act as the

Independent Fiduciary for the Plan for purposes of the Loan, Mr. Tucker

represents that he is attorney with experience in evaluating

transactions, such as the Loan, and ensuring that such transactions

have proper legal documentation. Thus, Mr. Tucker states that he has

experience in protecting the rights of the parties involved in such

transactions.

Mr. Tucker represents that he is independent of the Employer, Mr.

Spring and their affiliates for purposes of his proposed duties as the

Independent Fiduciary. In this regard, Mr. Tucker states that he

performs legal services for the Employer. However, Mr. Tucker's fees

from the Employer for such services are less than one percent (1%) of

his total revenues. In addition, the fees generated from the Employer

represent less than one percent (1%) of the annual revenues received by

Mr. Tucker's firm.

Mr. Tucker represents that he has been apprised of the duties and

responsibilities of a fiduciary under the Act. Mr. Tucker states that

he will obtain, if necessary, appropriate advice from an experienced

ERISA counsel as to what is required to properly execute the duties of

an independent fiduciary for the Plan. Mr. Tucker acknowledges and

accepts his responsibilities and duties as the Independent Fiduciary

for this Loan transaction.

As the Independent Fiduciary, Mr. Tucker will represent the

interests of the Plan at all times. Mr. Tucker will monitor compliance

by the Employer with the terms and conditions of the Loan, and take

whatever action is necessary to safeguard the interests of the Plan and

its participants and beneficiaries.11

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\11\ In this regard, the applicant makes a request regarding a

successor independent fiduciary. Specifically, if it becomes

necessary in the future to appoint a successor independent fiduciary

(the Successor) to replace Mr. Tucker, the applicant will notify the

Department sixty (60) days in advance of the appointment of the

Successor. Any Successor will have the responsibilities, experience

and independence similar to those of Mr. Tucker.

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

7. Mr. Spring also unconditionally guarantees the prompt and full

repayment of the Loan, pursuant to the terms of a written guarantee

agreement (the Guarantee). Mr. Tucker, as the Independent Fiduciary,

has examined the terms of the Guarantee. Mr. Tucker believes that the

Guarantee is in the best interest of the Plan for several reasons: (a)

it is an unconditional Guarantee, which is not conditioned on any other

actions that may occur on the part of the Plan or the Employer; (b) the

Guarantee covers the full amount of the indebtedness, including any

additional costs or expenses associated with the liability; (c) if

there are any changes in the collateral provided by the Employer for

the Loan (i.e., the Stock), such changes will not affect the

obligations of Mr. Spring under the Guarantee; and (d) the Guarantee is

a guarantee of payment, under which the guarantor (i.e., Mr. Spring) is

immediately required to perform by making payments.

Mr. Tucker represents that the Guarantee satisfies the applicable

requirements for such agreements under Texas law and is protective of

the Plan because it creates the maximum enforceable rights against Mr.

Spring, as the Loan guarantor. Mr. Spring represents that he has an

adequate net worth to honor the Guarantee, if necessary. Mr. Tucker

states that Mr. Spring has sufficient personal assets, in addition to

the Stock, to satisfy his obligations under the Guarantee. Mr. Tucker

also states that he will monitor the financial status of Mr. Spring, as

guarantor, and will ensure that the Loan remains adequately secured by

the Stock and the Guarantee.

8. In summary, the applicant represents that the proposed

transaction satisfies the statutory criteria of section 408(a) of the

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

a. The Loan will not exceed 25% of the total assets of the Plan at

any time;

b. The terms of the Loan are at least as favorable to the Plan as

those terms which would exist in an arm's-length transaction with an

unrelated party;

c. The Loan will be secured by the Stock, which has a fair market

value, as determined by an independent qualified appraiser, of at least

200% of the outstanding principal balance of the Loan;

d. The Plan has a first priority perfected security interest in the

Stock, which will be properly filed and perfected under applicable

state law;

e. Mr. Tucker, as the Independent Fiduciary, has reviewed the

proposed terms and conditions of the Loan and determined that the Loan

would be in the best interest and protective of the Plan and its

participants and beneficiaries;

f. Mr. Tucker, as the Independent Fiduciary, will monitor the Loan

throughout its duration and take whatever actions are necessary to

safeguard the interests of the Plan and its participants and

beneficiaries; and

g. The Loan is personally and unconditionally guaranteed by Mr.

Spring, who has an adequate net worth to honor the Guarantee, if

necessary.

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

telephone (202) 219-8883. (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

[[Page 65262]]

describes all material terms of the transaction which is the subject of

the exemption.

Signed at Washington, DC, this 20th day of November, 1998.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 98-31511 Filed 11-24-98; 8:45 am]

BILLING CODE 4510-29-P