Proposed Exemptions; First Security Corporation (FSC) et al.

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10021, et al.]

Proposed Exemptions; First Security Corporation (FSC) et al.

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

Unless otherwise stated in the Notice of Proposed Exemption, all

interested persons are invited to submit written comments, and with

respect to exemptions involving the fiduciary prohibitions of section

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

publication of this Federal Register Notice. Comments and 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, NW., Washington, DC

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

Exemption. The applications for exemption and the comments received

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

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

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

Notice to Interested Persons

Notice of the proposed exemptions will be provided to all

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

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

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

exemption as published in the Federal Register and shall inform

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

(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in

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

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

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

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

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

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

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

exemption are issued solely by the Department.

The applications contain representations with regard to the

proposed exemptions which are summarized below. Interested persons are

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

[[Page 19808]]

statement of the facts and representations.

First Security Corporation (FSC) Located in Salt Lake City, UT

[Application No. D-10021]

Proposed Exemption

Based on the facts and representations set forth in the

application, 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).1

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\1\ For purposes of this proposed exemption, reference to

specific provisions of Title I of the Act, unless otherwise

specified, refer also to the corresponding provisions of the Code.

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

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

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

application of section 4975 of the Code by reason of section

4975(c)(1)(A) through (F) shall not apply to the in-kind transfers,

that occurred on December 28, 1994, to any open-end investment company

(the Fund or Funds) registered under the Investment Company Act of 1940

(the Investment Company Act) to which FSC or any of its affiliates

(collectively, First Security) serves as investment adviser and/or may

provide other services, of the assets of various employee benefit plans

(the Plan or Plans) that are held in certain collective investment

funds (the CIF or CIFs) maintained by First Security, in exchange for

shares of such Funds, provided that the following conditions were met:

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

of each affected Plan and which was independent of and unrelated to

First Security, as defined in paragraph (g) of Section II below,

received advance written notice of the in-kind transfer of assets of

the CIFs in exchange for shares of the Funds, a full and detailed

written disclosure of information concerning any such Fund including,

but not limited to--

(1) A current prospectus for each of the Funds in which such Plan

considered investing;

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

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

services (Secondary Services), as defined in paragraph (h) of Section

II below, and all other fees charged to or paid by the Plan and by the

Funds to First Security, including the nature and extent of any

differential between the rates of such fees;

(3) The reasons why First Security considered such investment to be

appropriate for the Plan;

(4) A statement describing whether there were any limitations

applicable to First Security with respect to which assets of a Plan may

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

and

(5) When available, upon request of the Second Fiduciary, a copy of

the proposed exemption and/or a copy of the final exemption, if

granted.

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

(a) of this Section I, the Second Fiduciary authorized in writing--

(1) The investment of assets of the Plans in shares of the Fund, in

connection with the transactions set forth in Section I;

(2) the investment portfolios of the Funds in which the assets of

the Plans were invested; and

(3) the fees received by First Security in connection with its

services to the Funds. Such authorization by the Second Fiduciary was

consistent with the responsibilities, obligations and duties imposed on

fiduciaries by Part 4 of Title I of the Act.

(c) All transferred assets were securities for which market

quotations were readily available, or cash.

(d) No sales commissions or redemption fees, including fees that

are payable pursuant to Rule 12b-1 of the Investment Company Act (the

12b-1 Fees), were paid by the Plans in connection with the in-kind

transfers of the assets of the CIFs in exchange for shares of the

Funds.

(e) Neither First Security nor its affiliates, including any

officers or directors, would be permitted to purchase from or sell to

any of the Plans shares of any of the Funds.

(f) The Plans were not sponsored or maintained by First Security.

(g) The transferred assets in exchange for shares of such Funds

constituted the Plan's pro rata portion of all assets that were held by

the CIFs prior to the transfer. A Plan not electing to invest in the

Fund received a cash payment representing a pro rata portion of the

assets of the terminating CIF before the final liquidation took place.

(h) The CIFs received shares of the Funds that had a total net

asset value equal to the value of the transferred assets of the CIFs

exchanged for such shares on the date of transfer.

(i) The current market value of the assets of the CIFs transferred

in-kind in exchange for shares of the Funds was determined in a single

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

the same day, using independent sources in accordance with the

procedures set forth in Rule 17a-7(b) (Rule 17a-7) under the Investment

Company Act, as amended from time to time or any successor rule,

regulation, or similar pronouncement and the procedures established

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

procedures required that all securities for which a current market

price could not be obtained by reference to the last sale price for

transactions reported on a recognized securities exchange or NASDAQ

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 preceding the CIF transfers

determined on the basis of reasonable inquiry from at least three

sources that are broker-dealers or pricing services independent of

First Security.

(j) Not later than 30 days after completion of each in-kind

transfer of assets of the CIFs in exchange for shares of the Funds,

First Security sent by regular mail to the Second Fiduciary, which was

acting on behalf of each affected Plan and which was independent of and

unrelated to First Security, as defined in paragraph (g) of Section II

below, a written confirmation that contained the following information:

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

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

Investment Company Act;

(2) The current market price, as of the date of the transfer, of

each such security involved in the purchase of Fund shares; and

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

in determining the value of such assets.

(k) Not later than 90 days after completion of each in-kind

transfer of assets of the CIFs in exchange for shares of the Funds,

First Security sent by regular mail to the Second Fiduciary, which was

acting on behalf of each affected Plan and which was independent of and

unrelated to First Security, as defined in paragraph (g) of Section II

below, a written confirmation that contained the following information:

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

before the conversion (and 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 Plan

[[Page 19809]]

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

the aggregate dollar value of the shares received).

(l) As to each individual Plan, the combined total of all fees

received by First Security for the provision of services to the Plans,

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

which the Plans hold shares acquired in connection with an in-kind

transfer transaction, was not in excess of ``reasonable compensation''

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

(m) On an ongoing basis, First Security has provided and will

continue to provide a Plan investing in a Fund--

(1) At least annually with a copy of an updated prospectus of such

Fund; and

(2) at least annually with a report or statement (which may take

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

additional information, or some other written statement) which contains

a description of all fees paid by the Fund to First Security, upon the

request of such Second Fiduciary.

(n) All dealings between the Plans and any of the Funds have been

and will remain 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 Plans.

(o) First Security has maintained and will maintain for a period of

6 years the records necessary to enable the persons, as described below

in paragraph (p)(1) of this Section I, to determine whether the

conditions of this proposed exemption have been met, except that:

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

occurred if, due to circumstances beyond the control of First Security,

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

period; and

(2) no party in interest, other than First Security, 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 below by paragraph (p) of this Section I.

(p)(1) Except as provided in paragraph (p)(2) of this Section I and

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

504 of the Act, the records referred to in paragraph (o) of Section II

above are unconditionally available at their customary location for

examination during normal business hours by--

(A) Any duly authorized employee or representative of the

Department, the Internal Revenue Service or the Securities and Exchange

Commission (the SEC);

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

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

duly authorized employee or representative of such fiduciary; and

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

employee or representative of such participant or beneficiary.

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

(p)(1)(C) of this Section I shall be authorized to examine trade

secrets of First Security, or commercial or financial information which

is privileged or confidential.

Section II. Definitions

For purposes of this proposed exemption--

(a) The term ``First Security'' means FSC and any affiliate of FSC,

as defined in paragraph (b) of this Section II.

(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,'' ``Funds'' or ``Affiliated Funds'' means any

open-end management investment company or companies registered under

the Investment Company Act for which First Security serves as

investment adviser and/or provides any Secondary Service as approved by

such Funds. As noted in the Preamble, the Funds are also referred to as

the ``Affiliated Funds'' to distinguish them from certain third party

funds (the Third Party Funds) for which First Security and its

affiliates provide subadministrative services and which are not

involved in conversion transactions that are described herein.

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

pricing all purchases and sales calculated by dividing the value of all

securities, determined by a method as set forth in 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 plan who

is independent of and unrelated to First Security. For purposes of this

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

and unrelated to First Security if:

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

controlled by, or is under common control with First Security;

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

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

partner, or employee of First Security (or is a relative of such

persons); or

(3) Such Second Fiduciary directly or indirectly receives any

compensation or other consideration for his or her own personal account

in connection with the transactions described in this proposed

exemption.

If an officer, director, partner, or employee of First Security (or

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

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

Plan's investment manager/adviser or (B) the approval of any purchase

or sale by the Plan of shares of the Funds, in connection with the

transactions described in Section I, then paragraph (g)(2) of this

Section II, shall not apply.

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

investment management, investment advisory, or similar service, which

is provided by First Security to the Funds, including but not limited

to custodial, accounting, brokerage, administrative, or any other

service.

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

as of December 28, 1994.

Preamble

First Security initially filed a request for retroactive and

prospective exemptive relief (Exemption Application No. D-09916) with

the Department to permit the in-kind transfer of Plan assets held in

CIFs maintained by First Security to any Affiliated Fund for which

First Security might serve as investment adviser and/or provide other

fiduciary services. In addition, First Security requested that the

exemption cover any fees it might receive from the Affiliated Funds as

well as from certain Third Party Funds

[[Page 19810]]

for which it might serve as a custodian, subadministrator or other

service provider. If granted, the exemption would have been effective

as of December 28, 1994.

Upon further consideration, First Security decided to withdraw the

fee transaction aspect of its exemption request and continue to rely on

its interpretation of Prohibited Transaction Exemption (PTE) 77-4 (42

FR 18732, April 8, 1977) with respect to its receipt of fees from the

Affiliated Funds. In pertinent part, PTE 77-4 permits the purchase and

sale by an employee benefit plan of shares of a mutual fund when a

fiduciary with respect to the plan is also the investment adviser of

the investment company. In addition, Section II(c) of PTE 77-4

requires, in part, that a plan may pay an investment advisory fee to

the plan fiduciary based on total plan assets from which a credit has

been subtracted representing the plan's pro rata share of investment

advisory fees paid by the plan to the mutual fund.

The Department expresses no opinion herein on whether interim and

subsequent fee arrangements adopted by First Security comply with the

relevant provisions of PTE 77-4. As a result of the uncertainty

regarding the application of PTE 97-41 2 to the original

exemption request, the Department has made a determination to propose

the exemption and limit the scope of exemptive relief to the three

conversion transactions described below.

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\2\ PTE 97-41 is a class exemption which permits an employee

benefit plan (the Client Plan) to purchase shares of one or more

open-end management investment companies (i.e., Funds) registered

under the Investment Company Act, the investment adviser for which

is a bank (the Bank) or a plan adviser (the Plan Adviser) registered

under the Investment Advisers Act of 1940 (the Advisers Act), that

also serves as a fiduciary of the Client Plan, in exchange for plan

assets transferred in-kind to the Fund from a CIF maintained by the

Bank or the Plan Adviser, in connection with the complete withdrawal

of a Client Plan's assets from the CIF.

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Summary of Facts and Representations

1. The parties involved in the in-kind transfer transactions that

are discussed herein are described as follows:

(a) FSC is a national association bank holding company/financial

services corporation incorporated under the laws of the State of

Delaware and headquartered in the State of Utah. FSC's affiliates

include the following banks: First Security Bank of New Mexico, N.A.;

First Security Bank of Oregon; First Security Bank of Utah, N.A. (FSB

Utah); First Security Bank of Idaho, N.A. (FSB Idaho); First Security

Trust Company of Nevada (FSB Nevada); First Security Bank of Wyoming;

and First Security Investment Management, Inc. (FSIM), an indirect,

wholly owned subsidiary registered as an investment adviser under the

Advisers Act. As of December 31, 1997, First Security had aggregate

assets under management of approximately $5.2 billion. FSB Utah

formerly served as trustee with respect to the CIFs described herein

and FSIM serves as investment adviser to the Funds also described

herein.

(b) The Plans consist of retirement plans qualified under section

401(a) of the Code, pension plans as defined in section 3(2) of the

Act, ``plans'' as defined in section 4975(e)(1) of the Code, including

certain individual retirement accounts (the IRAs) that are subject to

section 408(a) of the Code and certain Keogh Plans that are qualified

under section 401(a) of the Code. For these Plans, First Security

serves as a directed trustee, a discretionary trustee, an investment

manager or a fiduciary. The Plans also include participant-directed

plans subject to the provisions of section 404(c) of the Act

3 but they do not include any plans sponsored by First

Security.4 Whether a Plan would be an investor in a CIF at

the time of a conversion transaction or elect to invest in any Fund

depended solely on the decision of a Plan fiduciary which was

independent of First Security.

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\3\ The Department is not providing exemptive relief to such

Plans to the extent such transactions are covered under section

404(c) of the Act.

\4\ The applicants have not requested exemptive relief with

respect to any investment in the Funds by Plans sponsored by First

Security. The applicants note that First Security-sponsored plans

might acquire or redeem shares in the Funds pursuant to Prohibited

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

77-3 permits the acquisition or sale of a registered, open-end

investment company by an employee benefit plan covering only

employees of such investment company, employees of the investment

adviser or principal underwriter for such investment company, or

employees of any affiliated person (as defined therein) of such

investment adviser or principal underwriter, provided certain

conditions are met. The Department is expressing no opinion in this

proposed exemption regarding whether any transactions with the Funds

by First Security-sponsored Plans would be covered by PTE 77-3.

Similarly, First Security has not requested exemptive relief

with respect to future purchases or sales of shares of a Fund by

Plans since it believes such transactions would be covered by PTE

77-4.

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(c) The CIFs consisted of certain portfolios of the Affiliated

Banks of First Security Corporation Investment Trust for Employee

Benefit Plans. These portfolios were the Common Stock Trust, the Two

Year Bond Trust and the Intermediate Corporate/Government Bond Trust.

As of September 30, 1994, the aggregate fair market value of these CIFs

was approximately $66 million. Participation in the CIFs was open to

any Plan with respect to which a First Security bank was a fiduciary.

As described below, the three CIFs were terminated as of December 28,

1994 following the conversion transactions.

(d) The Funds consist of separate portfolios of open-end investment

companies registered under the Investment Company Act. The Funds

constitute part of the Achievement Funds Trust, a registered, open-end

series management investment company which has been organized under

Massachusetts law as an unincorporated business trust. The Funds are

identified as follows: the Short Term Bond Fund, the Intermediate Bond

Fund, the Equity Fund, the Balanced Fund, the Idaho Municipal Bond Fund

and the Short Term Municipal Fund.5

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\5\ Although the Idaho Municipal Fund and the Short Term

Municipal Fund are included within the Achievements Fund Trust,

these Funds are not offered to Plan investors.

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FSIM serves as investment adviser to the Funds. In this capacity,

FSIM makes investment decisions with respect to the assets of each Fund

and reviews, supervises and administers each Fund's investment program.

In the future, First Security proposes to serve as the subadministrator

for the Funds and will provide Secondary Services to the Funds.

Two classes of beneficial interests (i.e., shares) in the Funds

have been issued. Retail Class A Shares are offered primarily to

individuals (including certain non-fiduciary IRA and Keogh accounts).

Retail Class D Shares are offered to individuals, Plans and IRAs

through intermediaries such as banks or investment managers. Except for

their fee structures, the two classes are identical and hold interests

in the same underlying Fund assets.

2. First Security represents that it has maintained CIFs as

investment options for Plans in accordance with requirements under

Federal or state banking laws that apply to collective investment

trusts. However for business reasons, it decided to terminate the

Common Stock Trust, the Two Year Bond Trust and the Intermediate

Corporate/Government Bond Trust and to offer Plans formerly

participating in such CIFs alternative investments in certain Funds.

Because interests in CIFs generally must be liquidated or withdrawn to

effect distributions, First Security believed that the interests of the

Plans investing in CIFs would be better served by in-kind transfers to

the Funds. Overall, First Security believed that the Funds would offer

Plans

[[Page 19811]]

numerous advantages as pooled investment vehicles, including daily

valuations reported in newspapers of general circulation, increased

liquidity, portability, investment consolidation, voting and other

shareholder rights. Further, First Security wished to expand the range

of investment options available to Plans by offering other Funds (i.e.,

the Balanced Fund, the International Equity Portfolio and the Small Cap

Growth Portfolio) that did not correspond to its existing CIFs.

3. First Security also noted that Plans investing in the Funds

would periodically receive certain disclosures concerning the Funds.

Such disclosures would include, but would not be limited to, (a) an

updated copy of the prospectus provided on an annual basis; and (b) an

annual report containing audited financial statements of the Funds and

information regarding such Funds' performance (unless such information

is included in the prospectus of the Funds) and the fees paid to First

Security, depending upon the type of Plan account that was established.

Further, First Security represented that it would report all

transactions in shares of the Funds in periodic account statements

provided to the Second Fiduciary of each of the Plans.

4. Thus, to avoid the potentially large brokerage expenses, on

December 28, 1994, First Security transferred the assets of the three

affected CIFs, which assets consisted of cash and marketable

securities, to corresponding portfolios of the Funds, in exchange for

shares of such Funds. First Security represents that the in-kind

transfers were ministerial transactions performed in accordance with

pre-established, objective procedures which were approved by the board

of trustees of each Fund. Such procedures require that assets

transferred to a Fund (a) be consistent with the investment objectives,

policies, and restrictions of the corresponding portfolios of such

Fund, (b) satisfy the applicable requirements of the Investment Company

Act and the Code, and (c) have a readily ascertainable market value

established by independent sources. In addition, any assets that were

transferred were required to be liquid and would not be subject to

restrictions on resale. Assets which did not meet these criteria were

required to be sold in the open market through an unaffiliated

brokerage firm prior to any transfer in-kind. Further, prior to

entering into and following an in-kind transfer transaction, each

affected Plan would be required to receive certain disclosures from

First Security and approve such transactions in writing. Accordingly,

First Security requests retroactive exemptive relief from the

Department.

5. In accordance with the criteria described above in

Representation 4, First Security stated that it conducted the in-kind

transfer transactions as follows:

Prior to each in-kind transfer, the assets of the three CIFs were

reviewed to confirm that they were appropriate investments for the

corresponding portfolios of the Funds. If any of the assets of such

CIFs were not appropriate for the Funds, First Security sold the assets

in the open market through an unaffiliated brokerage firm.

Participants in the affected CIFs who did not elect to participate

in the conversion transactions received distributions of the value of

their interests therein. However, with respect to participants in the

CIFs who elected to participate in the in-kind transfers and transfer

their interests to the Funds, the transferred assets constituted the

participants' and Plans' pro rata portion of all assets that were held

by the CIF immediately prior to the transfer. Further, the Funds had

investment objectives and policies that were substantially identical to

those of the CIFs. Following the in-kind transfers, the affected CIFs

were terminated.

No brokerage commissions, redemption fees, 12b-1 Fees or expenses

(other than customary transfer charges paid to parties other than First

Security or its affiliates) were charged to the Plans or the CIFs in

connection with the in-kind transfers of assets into the Funds or would

be charged with respect to the redemption of shares of such Funds.

Further, neither First Security nor its affiliates, including any

officers or directors, were (nor would be) permitted to purchase from

or sell to any of the Plans shares of the Funds.

6. First Security provided the Second Fiduciary, as defined in

Section II(g), for each affected Plan with disclosures announcing the

termination of the CIFs, summarized the transaction, and otherwise

complied with provisions of Section I of this proposed exemption. Based

on these disclosures, the Second Fiduciary from each Plan approved, in

writing, the in-kind transfer of the CIFs assets to the corresponding

Funds, in exchange for shares of the Funds, and the receipt by First

Security of fees for services provided to such Funds.

7. The assets transferred by the affected CIFs to the Funds

consisted entirely of cash and securities for which market quotations

were readily available. The value of the securities in each of the

three CIFs was determined based on market values as of the close of

business on December 27, 1994, the last business date prior to the

transfer. Such values were determined in a single valuation performed

in the same manner and at the close of business on the same day, using

independent sources in accordance with the procedures described in Rule

17a-7 under the Investment Company Act, as amended from time to time or

any successor rule, regulation or similar pronouncement and the

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

valuation of such assets. 6 In this regard, First Security

represents that the ``current market price'' for specific types of CIF

securities involved in the transactions was determined as follows:

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\6\ Rule 17a-7 provides an exemption from section 17(a) of the

Investment Company Act, which prohibits, among other things,

principal transactions between an investment company and its

investment adviser or affiliates of the investment adviser. Among

the conditions of Rule 17a-7 is the requirement that the transaction

be effected at the ``independent current market price'' for specific

types of CIF or Plan assets involved in the in-kind transfer.

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

reported in the consolidated transaction reporting system (the

Consolidated System) for December 27, 1994; or if there were no

reported transactions in the Consolidated System that day, the

average of the highest current independent bid and the lowest

current independent offer for such security (reported pursuant to

Rule 11Ac1-1 under the 1934 Act), as of the close of business on

December 27, 1994.

(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 December 27, 1994; or if there were no

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

highest current independent bid and lowest current independent offer

on such exchange as of the close of business on December 27, 1994.

(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

Level 1 of NASDAQ as of the close of business on December 27, 1994.

(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 December 27, 1994, determined on the basis of

reasonable inquiry. (For securities in this category, First Security

represents that it obtained quotations from at least three sources

that were either broker-dealers or pricing services independent of

and unrelated to First Security and used the average of the

quotations to value the securities, in

[[Page 19812]]

conformance with interpretations by the SEC and practice under Rule

17a-7.)

8. The securities received by the corresponding portfolios of the

Funds were valued by each such portfolio for purposes of the in-kind

transfers in the same manner and on the same day as such securities

were valued by the CIFs. The per share value of the shares of each

portfolio of the Funds issued to the CIFs was based on the

corresponding portfolio's then current net asset value. As a result of

this procedure, the aggregate value of the shares of the corresponding

Fund issued to the CIF was equal to the value of the assets (cash and

marketable securities) transferred to such portfolio as of the opening

of business on December 28, 1994. In addition, the value of a Plan's

investment in shares of a corresponding portfolio, as of the opening of

business on the date of the transactions (December 28, 1994), was equal

to the value of such Plan's investment in the corresponding CIFs as of

the close of business on the last business day prior to the transaction

(December 27, 1994).

9. Not later than 30 days after completion of the in-kind transfer

transaction, First Security sent by regular mail a written confirmation

of the transaction to each affected Plan. Such confirmation contained:

(a) the identity of each security that was valued in accordance with

Rule 17a-7(b)(4), as described above; (b) the price of each such

security for purposes of the transaction; and (c) the identity of each

pricing service or market maker consulted in determining the value of

such securities.

In addition, not later than 90 days after completion of each in-

kind transfer transaction, First Security sent, by regular mail to the

Second Fiduciary of each affected Plan, a written confirmation

containing the following information: (a) the number of CIF units held

by each affected Plan immediately before the conversion (and the

related per unit value and the aggregate dollar value of the units

transferred); and (b) the number of shares in the Funds that were held

by each affected Plan following the conversion (and the related per

share net asset value and the aggregate dollar value of the shares

received).

10. The requested exemption is also subject to the satisfaction of

certain general conditions. For example, the transactions are subject

to the prior authorization of a Second Fiduciary, acting on behalf of

each of the Plans, who has been provided with full written disclosure

by First Security. The Second Fiduciary is generally the administrator,

sponsor or a committee appointed by the sponsor to act as a named

fiduciary for a Plan.

With respect to disclosures, the Second Fiduciary of such Plan

received, in writing, in advance of the investment by a Plan in any of

the Funds: (a) a current prospectus for each of the Funds in which such

Plan might invest; (b) a statement describing the fees for investment

management, investment advisory, or other similar services, any fees

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

the Plan and by such Funds to First Security, including the nature and

extent of any differential between the rates of such fees, (c) the

reasons why First Security considered such investment to be appropriate

for the Plan, (d) a statement describing whether there were any

limitations applicable to First Security with respect to which assets

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

limitations. Upon written request, the Second Fiduciary will be

provided with a copy of the proposed exemption and/or the final

exemption, if granted.

On the basis of the information disclosed, the Second Fiduciary of

a Plan authorized, in writing, the investment of assets of the Plan in

shares of a Fund in connection with the transactions set forth herein,

the investment portfolios of the Funds in which the assets of the Plans

may be invested and the compensation received by First Security in

connection with its services to the Funds. In addition, the Second

Fiduciary received each Fund's current prospectus and the written

disclosures referred to above which specifically referenced the Fund

and afforded such fiduciary the opportunity to select the Fund for its

prior authorization. Having obtained the authorization of the Second

Fiduciary, First Security invested the assets of a Plan among the

portfolios and in the manner covered by the authorization, subject to

the satisfaction of the other terms and conditions of the proposed

exemption.

In addition to the above, as to each individual Plan, the combined

total of all fees received by First Security for the provision of

services to the Plans, and in connection with the provision of services

to any of the Funds in which the Plans hold shares acquired in

connection with the in-kind transfers, were required not to be in

excess of ``reasonable compensation'' within the meaning of section

408(b)(2) of the Act. Further, all dealings by or between the Plans and

the Funds were required to remain on a basis which would be at least as

favorable to the Plans as such dealings are with other shareholders of

the Funds.

11. Besides the disclosures provided to the Plan prior to

investment in any of the Funds, First Security represents that it will

routinely provide, at least annually to the Second Fiduciary, updated

prospectuses of the Funds in accordance with the requirements of the

Investment Company Act and the SEC rules promulgated thereunder.

Further, the Second Fiduciary will be supplied, at least annually, with

a report or statement (which may take the form of the most recent

financial report of such Funds, the current statement of additional

information, or some other written statement) containing a description

of all fees paid by the Fund.

12. In summary, First Security represents that the in-kind transfer

transactions satisfied the statutory criteria for an exemption under

section 408(a) of the Act because:

(a) The CIFs did not pay sales commissions or redemption fees in

connection with the in-kind transfer of assets to the Funds in exchange

for shares of the Funds.

(b) With respect to any in-kind transfer of assets, the CIFs

received shares of the Funds that were equal in value to the assets of

the CIFs exchanged for such shares, the latter values determined in a

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

business on the same day in accordance with the procedures set forth in

Rule 17a-7 under the Investment Company Act, as amended from time to

time or any successor rule, regulation, or similar pronouncement.

(c) Not later than 30 days after completion of each in-kind

transfer of assets in exchange for shares of the Funds, the Second

Fiduciaries of the affected Plans received written confirmation of the

assets involved in the exchange which were valued by a third-party

source (e.g., pricing service or market maker) in accordance with Rule

17a-7(b)(4), the price of such assets and the identity of the pricing

service or market maker consulted.

(d) Not later than 90 days after completion of each in-kind

transfer of assets of the CIFs in exchange for shares of the Funds,

First Security mailed to each affected Plan a written confirmation of

the number of CIF units held by such Plan immediately before the

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 the Plan following the conversion (and the related

per share net asset value or the aggregate dollar value of the shares

received).

[[Page 19813]]

(e) The price paid or received by the Plans for shares in the Funds

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

was the same price for the shares which would have been paid or

received by any other investor at that time.

(f) First Security, its affiliates, and officers or directors would

not be permitted to purchase or sell to any of the Plans shares of any

of the Funds.

(g) As to each individual Plan, the combined total of all fees

received by First Security for the provision of services to the Plans,

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

which the Plans may invest, was not in excess of ``reasonable

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

(h) Prior to investment by a Plan in any of the Funds, in

connection with transactions, the Second Fiduciary received a full and

detailed written disclosure of information concerning such Fund.

(i) Subsequent to the investment by a Plan in any of the Funds,

First Security would provide the Second Fiduciary of such Plan with an

updated copy of the prospectus for each of the Funds in which the Plan

invests, at least annually as well as other pertinent information.

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

remain 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 Plans.

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

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

San Diego Electrical Pension Trust, (the Pension Plan); and San

Diego Joint Apprenticeship and Training Trust (the Training Plan;

collectively, the Plans) Located in San Diego, California

[Application Nos. D-10581 and L-10582]

Proposed Exemption

The Department is considering granting an exemption under the

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

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

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

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

purchase by the Training Plan from the Pension Plan of a minority

interest (the Minority Interest) in certain improved real property (the

Property) jointly owned by the Plans, provided that the following

conditions are satisfied:

(1) The purchase is a one-time transaction for cash;

(2) The terms and conditions of the transaction are not less

favorable to either Plan than those each could obtain in a comparable

arm's length transaction with an unrelated party;

(3) The Training Plan pays no more, and the Pension Plan receives

no less, than the fair market value of the Minority Interest, as of the

date of the transaction, as determined by a qualified, independent

appraiser;

(4) Neither the Pension Plan nor the Training Plan pays any

commissions or fees in connection with the transaction;

(5) The trustees of the Plans (other than their common trustees),

the Pension Plan's investment manager, and a qualified, independent

fiduciary that has been retained to represent the Training Plan, have

reviewed the terms and conditions of the transaction and determined

that such terms and conditions are in the best interests of, and

appropriate for, their respective Plans; and

(6) The independent fiduciary for the Training Plan monitors the

proposed transaction and takes whatever actions necessary to safeguard

the interests of the Training Plan.

Summary of Facts and Representations

1. The Plans are multiple employer, jointly trusteed employee

benefit plans, established pursuant to collective bargaining agreements

between Local 569, the International Brotherhood of Electrical Workers,

and the National Electrical Contractors Association, San Diego Chapter,

Inc. The Plans cover members of Local 569.

The Pension Plan is a defined benefit plan and, as of January 9,

1998, had approximately 2,790 participants and beneficiaries. As of

September 30, 1997, the fair market value of the assets of the Pension

Plan was $181,250,000.

The Training Plan is a welfare plan that operates a five-year

apprenticeship program approved and regulated by the Division of

Industrial Relations, State of California. As of January 9, 1998, the

approximate number of apprentices participating in the Training Plan

was 230. As of December 31, 1997, the fair market value of the assets

of the Training Plan was $2,930,680.

Each of the Plans is managed by a board of trustees, with eight

trustees on each board. Currently, there are three trustees who serve

on both boards: Mr. Michael Sparks, Mr. Ronald Cooper, and Mr. James

Aylsworth. These individuals have each signed a sworn affidavit

removing themselves from all considerations in connection with the

purchase of the Minority Interest by the Training Plan from the Pension

Plan.

2. The Property consists of a two-story commercial office building

located at 4675 Viewridge Avenue, San Diego, California. The Property

consists of a land area of 77,101 gross sq. ft. and a building area of

31,435 gross sq. ft.

Title to the Property is jointly held, with the Training Plan

having a 77.6475% interest and the Pension Plan having a 22.3525%

interest.7 The land relating to the Property was purchased

by the Plans in August, 1981, from Booth Enterprises, Inc., an

unrelated party, for a total of $810,168. The Pension Plan and the

Training Plan subsequently held the land as tenants-in-common, with a

view to developing the land to provide administrative offices for both

Plans, as well as training facilities for the Training Plan. The

building was constructed in 1983, with the majority of the cost

ultimately paid by the Training Plan, based upon its percentage

interest in the Property.

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\7\ The Department expresses no opinion herein as to whether the

joint ownership of the Property by the Pension Plan and the Training

Plan may have violated any of the fiduciary responsibility

provisions of Part 4 of Title I of the Act.

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The Property is the location of the classrooms and administrative

offices of the Training Plan, as well as the administrative offices for

the Pension Plan and the San Diego Electrical Health and Welfare Trust

(the Health Plan). The Health Plan, like the Pension Plan and the

Training Plan, is a multiple employer plan that covers members of Local

569. The Pension Plan has been leasing office space in the Property to

its sister plans (i.e., the Training Plan and the Health

Plan).8

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\8\ Prohibited Transaction Class Exemption (PTCE) 77-10 (42 FR

33918, July 1, 1977) provides an exemption, under certain

conditions, from section 406(b)(2) of the Act for the leasing of

office space by a multiple employer plan to another such plan with

common trustees. No individual exemptive relief is proposed herein

for the leasing of office space in the Property by the Pension Plan

to the Training Plan and the Health Plan. It is represented that

such leasing has been done in accordance with the conditions of PTCE

77-10. However, the Department expresses no opinion herein as to

whether the conditions of PTCE 77-10 have been satisfied.

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3. The Property has been appraised by Lipman Stevens Marshall &

Thene, Inc. (Lipman, Inc.), a qualified, independent appraiser. Mr.

Walter J. Stevens, MAI and Vincent G. Ferrer, of Lipman, Inc., are both

certified real estate appraisers in the State of California. Utilizing

the sales comparison and the income capitalization approaches to value

the Property, Messrs. Stevens and Ferrer concluded that the fair market

value of the Property was $2,000,000, as of August 1, 1997.

The Minority Interest in the Property has been appraised by

American Realty

[[Page 19814]]

Advisors (ARA), the Pension Plan's real estate investment

manager.9 ARA concluded that the fair market value of the

Minority Interest was $415,756.50, as of November 11, 1997. ARA first

determined a value of $2,000,000 for the Property overall, utilizing

the following approaches (but giving greatest weight to the first as

most accurate): (1) Discounted cash flow analysis; (2) direct

capitalization analysis; and (3) sales comparison analysis. With

respect to the Minority Interest, ARA applied a 7% discount factor to

reflect its illiquidity and derived a value for the Minority Interest

as follows.

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\9\ It is represented that ARA is a ``qualified professional

asset manager'' (QPAM), as defined in PTCE 84-14 (49 FR 9494, March

13, 1984), for the Pension Plan. PTCE 84-14, a/k/a the QPAM Class

Exemption, permits, under certain conditions, parties in interest to

engage in various transactions with plans whose assets are managed

by persons, defined for purposes of the exemption as QPAMs, which

are independent of the parties in interest (with certain limited

exceptions) and which meet specified financial standards.

Property Value............................................ $2,000,000

Less: 7% Discount......................................... (140,000)

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

1,800,000

22.3525% Minority Interest................................ 415,756.50

In its report, ARA explains that a discount factor must be applied

because investors typically wish to purchase a controlling interest in

real estate, not minority positions, and the majority owner is the most

logical purchaser of a minority interest. Thus, ARA concludes that the

7% discount is appropriate in a purchase of the Minority Interest by

the Training Plan, as the majority owner of the Property, and no

premium would be associated with such purchase.

Mr. Stevens, of Lipman, Inc., reviewed ARA's report and, in a

letter to the Department dated March 20, 1998, confirmed that the

valuation methodology used and the fair market value arrived at by ARA

for the Minority Interest was fair and reasonable.

4. It is proposed that the Pension Plan and the Training Plan enter

into a transaction wherein the Training Plan will purchase for cash all

of the Minority Interest in the Property held by the Pension Plan. The

purchase price will be an amount equal to the fair market value of the

Minority Interest ($415,756.50, as of November 11, 1997) as of the date

of the sale, based on an updated independent appraisal. Neither the

Pension Plan nor the Training Plan will pay any commissions or fees in

connection with the transaction.

The trustees of both Plans, other than their common trustees, have

reviewed the terms and conditions of the transaction and determined

that such terms and conditions are in the best interests of, and

appropriate for, their respective Plans. The Pension Plan trustees

desire to divest the Pension Plan of its otherwise illiquid Minority

Interest, while the Training Plan trustees desire to acquire the

Minority Interest so that the Training Plan will have total ownership

and control of the Property, over 80% of whose space the Training Plan

occupies.

5. The Pension Plan's real estate investment manager, ARA, not only

has appraised the fair market value of the Minority Interest but, in

its report dated November 11, 1997, has expressed its approval of the

proposed sale, which is consistent with ARA's investment strategy of

ultimately liquidating all of the Pension Plan's direct real estate

investments. ARA has determined that due to the size of the Pension

Plan and its ongoing need for liquidity, direct investments in real

estate are not appropriate for the Pension Plan in the long term. ARA

is monitoring the three major real estate assets that it manages for

the Pension Plan to time their disposition. Given the even greater

illiquidity of a minority interest in real estate, ARA has concluded

that the Training Plan should take advantage of this opportunity to

sell its Minority Interest in the Property at fair market value to the

majority owner.

6. Amresco Advisors, Inc. (Amresco), a registered investment

advisor, has been retained to act as an independent fiduciary to

represent the Training Plan's interests with respect to the proposed

purchase. Amresco represents that it has extensive experience as a

fiduciary under the Act and that it is knowledgeable as to the subject

transaction. Amresco acknowledges and accepts its duties, liabilities,

and responsibilities in acting as a fiduciary with respect to the

Training Plan.

Amresco, in its report dated March 27, 1998, has expressed its

approval of the proposed purchase because, as explained in detail

below, it will immediately provide the Training Plan with an excellent

return on its investment, as well as securing the additional space in

the Property that will be needed in the future for expansion.

Amresco has reviewed the appraisal of Lipman, Inc. and concurs with

their conclusion as to the fair market value of $2,000,000 for the

Property. Amresco has also reviewed the ARA report and concurs with

their valuation methodology and their conclusion as to the fair market

value of $415,756.50 for the Minority Interest.

Amresco notes that with real estate, the whole is more than the sum

of its parts. Because of the extremely limited marketability of an

undivided interest (as opposed to an outright, or whole interest) in

real estate, the Training Plan is able to purchase the Pension Plan's

Minority Interest at a 7% discount from its proportionate value of the

total fee interest in the Property, an economic value that would

immediately accrue to the Training Plan.

In addition, Amresco notes that the Training Plan's space

requirements exceed its approximately 78% proportionate share of the

Property. Thus, the Training Plan currently must lease an additional

1,900 sq. ft. in the Property from the Pension Plan 10 at

the rate of $1,400/mo., or $16,800/yr. This lease rate is projected to

increase soon to approximately $2000/mo., or $24,000/yr. The Training

Plan will require even more space in the future to accommodate an

expanding student body, at ever-increasing rents.

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\10\ See Footnote 1 regarding PTCE 77-10.

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Following the Training Plan's purchase of the Minority Interest, no

immediate change will occur with respect to occupancy of space in the

Property. The Training Plan has no re-development plans for the

Property and, thus, will incur no significant additional expenses, in

connection with the proposed transaction. It is intended that the

Training Plan will lease approximately 4,800 sq. ft. of the Property to

the Pension Plan until such time as the Training Plan needs to fully

utilize this space. The Pension Plan, in turn, will sublease a portion

of its space to the Health Plan.11 At rental rates of

approximately $1.05/sq. ft./mo. and $.35/sq. ft./mo., the lease will

generate approximately $3,350/mo., or $40,320/yr., in net rental income

to the Training Plan.

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\11\ It is represented that the proposed lease of office space

in the Property by the Training Plan to the Pension Plan, if the

exemption is granted, as well as the sublease of office space by the

Pension Plan to the Health Plan, will meet the conditions for

exemptive relief under PTCE 77-10.

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Thus, Amresco states that the combination of a projected $24,000/

yr. savings in rent, plus $40,320/yr. in net rental income, or $64,320/

yr., will provide an immediate 15% return on the Training Plan's

$415,756.50 investment. In addition, the Training Plan, instead of

being a renter, will enjoy the benefits of equity ownership in real

estate, such as any appreciation in value.

In anticipation of the proposed transaction, the collective

bargaining parties have designated new money of $0.37 per hour worked

to fund the purchase price for the Minority Interest. Since the

purchase price is being

[[Page 19815]]

specially funded by an increase in the contribution rate to the

Training Plan required to be met by contributing employers, Amresco

states that the Training Plan will have sufficient cash available to

purchase the Minority Interest without affecting the ordinary

operational costs and liquidity needs of the Training Plan.

Amresco, as the independent fiduciary for the Training Plan, will

monitor the proposed transaction and take whatever actions necessary to

safeguard the interests of the Training Plan.

7. In summary, the applicant represents that the proposed

transaction satisfies the statutory criteria for an exemption under

section 408(a) of the Act for the following reasons:

(a) The purchase will be a one-time transaction for cash; (b) the

terms and conditions of the transaction will not be less favorable to

either Plan than those each could obtain in a comparable arm's length

transaction with an unrelated party; (c) the Training Plan will pay no

more, and the Pension Plan will receive no less, than the fair market

value of the Minority Interest, as of the date of the transaction, as

determined by a qualified, independent appraiser; (d) neither the

Pension Plan nor the Training Plan will pay any commissions or fees in

connection with the transaction; (e) the trustees of the Plans (other

than their common trustees), the Pension Plan's real estate investment

manager (i.e., ARA), and a qualified, independent fiduciary (i.e.,

Amresco) representing the Training Plan, have reviewed the terms and

conditions of the transaction and determined that such terms and

conditions are in the best interests of, and appropriate for, their

respective Plans; and (f) Amresco will monitor the proposed transaction

and take whatever actions necessary to safeguard the interests of the

Training Plan.

FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the epartment,

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

Hanson Operating Company, Inc. Defined Benefit Pension Plan (the

Plan) Located in Roswell, New Mexico

[Application No. D-10702]

Proposed Exemption

The Department is considering granting an exemption under the

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

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

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

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

of the Act and the sanctions resulting from the application of section

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

Code, shall not apply to the proposed sale by the Plan of certain

closely-held stock (the Stock) to Douglas L. McBride and Basil R.

Willis, parties in interest with respect to the Plan, provided that the

following conditions are satisfied: (a) the sale is a one-time

transaction for cash; (b) the Plan pays no commissions nor other

expenses relating to the sale; and (c) the Plan receives an amount that

is no less than the fair market value of the Stock as of the date of

the sale, as determined by a qualified, independent appraiser.

Summary of Facts and Representations

1. The Plan is a defined benefit pension plan established by Hanson

Operating Company, Inc. (the Employer). The Employer, a New Mexico

corporation, is engaged in the business of oil and gas exploration and

is located in Roswell, New Mexico. As of June 30, 1998, the Plan had 12

participants and beneficiaries and total assets of approximately

$808,183.01. The trustees of the Plan are Mr. McBride and Mr. Willis

(the Applicants), who are also officers of the Employer.

2. Among the assets of the Plan is the Stock, which consists of

7,500 shares of common stock of Commerce Bankshares of Roswell Inc.

(CBR), a closely-held one-bank holding company organized under the laws

of the State of New Mexico. CBR's subsidiary bank is the Valley Bank of

Commerce (the Bank), a state-chartered commercial bank. The Applicants

represent that they acquired 7,500 shares of the Stock for the Plan in

1992 in a limited offering at $20 per share, for a total cost of

$150,000. Neither of the Applicants was or is related to CBR or the

Bank.

3. The Stock was appraised by Patten, MacPhee & Associates, Inc.

(Patten, MacPhee), a qualified, independent appraiser located in

Denver, Colorado that performs annual valuations of the Stock. In a

cover letter dated August 25, 1998, accompanying the appraisal report,

Ms. E. Jayne MacPhee and Mr. Gary M. Schwartz state that their firm has

performed over 200 common stock and intangible asset valuations for

clients nationwide.

The appraisal states that as of June 30, 1998, the 151,218 shares

of common stock of CBR issued and outstanding were held by 60

shareholders, and the Plan owned 7,500 shares of the Stock, or

approximately 4.96%. As of June 30, 1998, the 7,500 shares of the Stock

had an estimated fair market value of approximately $76.30 per share,

or a total value of $572,250, which represents approximately 71% of the

assets of the Plan.12

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\12\ The Department expresses no opinion herein as to whether

the Plan's acquisition and holding of the Stock violated any of the

general fiduciary responsibility provisions of Part 4 of Title I of

the Act. However, the Department notes that section 404(a) of the

Act requires, among other things, that a plan fiduciary act

prudently and solely in the interest of the plan's participants and

beneficiaries when making investment decisions on behalf of the

plan. Section 404(a) of the Act also requires that a plan fiduciary

diversify the investments of a plan so as to minimize the risk of

large losses, unless under the circumstances it is clearly prudent

not to do so.

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Patten, MacPhee performed another appraisal of the Stock's value,

as of December 31, 1998, for purposes of the Plan's annual report. As

of December 31, 1998, there were 149,208 shares of common stock of CBR

issued and outstanding, which were held by 57 shareholders. As of that

date, the 7,500 shares of the Stock had an estimated fair market value

of approximately $80.95 per share, or a total value of $607,125.

Each appraisal states, in regard to the valuation methodology, that

a number of documents and information sources were considered, as well

as the elements for the valuation of corporate stock as set forth in

the Internal Revenue Service's Revenue Ruling 59-60. Such valuation

elements included: the financial condition of both the Bank and CBR;

strengths of current management, market share, economic conditions, and

competitive factors; the fair market value of the underlying assets and

liabilities of the Bank and CBR; historical and projected earnings; and

sales of other banks and bank holding company stock within the

southwestern United States. The appraisals state that, inasmuch as the

Bank represents the only significant asset and activity of CBR, many of

the foregoing factors were considered solely in regard to the Bank. In

addition, since much of the published information utilized in valuation

relates to the transfer of control, the appraisals focussed on those

issues which influence the market values of minority interests, namely

marketability, liquidity risk, and lack of control.

4. The Applicants propose to purchase 5,500 of the 7,500 shares of

the Stock held by the Plan for the fair market value of the Stock as of

the date of the sale, based upon an updated independent appraisal. Mr.

McBride proposes to purchase 3,000 shares of the Stock, and Mr. Willis

proposes to purchase 2,500 shares of the Stock. Based upon an appraised

value for the Stock, as of December 31, 1998, of

[[Page 19816]]

$80.95 per share, 5,500 shares of the Stock have a total value of

$445,225. The sale will be a one-time transaction for cash, and the

Plan will pay no commissions nor other expenses relating to the sale.

The Applicants represent that following a large benefit

distribution made by the Plan in 1993, the proportion of Plan assets

represented by the Stock rose to 28%. At that time, the Applicants, as

trustees of the Plan, determined that future contributions due to the

Plan from the Employer, plus dividends paid on the Stock, would keep

the assets of the Plan diversified and provide the liquidity needed to

make benefit payments. However, the Stock has appreciated so much over

the last few years that the Plan has been fully funded, and no

additional Employer contributions have been allowed.

Although the Stock has been a good investment for the Plan, the

Applicants, as Plan trustees, have determined that the proposed sale of

5,500 shares of the Stock is in the best interests of, and appropriate

for, the Plan because such sale will enhance the liquidity and

diversification of the assets of the Plan. In addition, the sale will

reduce the risk of loss to the Plan in the event that the market value

of the Stock should decline in the future, or in the event that the

Stock, because it is not publicly traded, cannot be sold expeditiously

when the Plan requires the funds to make benefit payments, forcing a

distress sale in order to generate cash. Finally, the Applicants, as

Plan trustees, have determined that the continued holding by the Plan

of the remaining 2,000 shares of the Stock will not adversely affect

the Plan's liquidity needs.

5. In summary, the Applicants represent that the proposed

transaction satisfies the statutory criteria for an exemption under

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

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

commissions nor other expenses relating to the sale; (c) the Plan will

receive an amount that is no less than the fair market value of the

Stock as of the date of the sale, as determined by a qualified,

independent appraiser; and (d) the sale will enhance the liquidity and

diversification of the assets of the Plan, as well as reduce the risk

of loss to the Plan, in the event that the market value of the Stock

should decline in the future.

FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the Department,

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

General Information

The attention of interested persons is directed to the following:

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

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

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

person from certain other provisions of the Act and/or the Code,

including any prohibited transaction provisions to which the exemption

does not apply and the general fiduciary responsibility provisions of

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

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

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

accordance with section 404(a)(1)(b) of the act; nor does it affect the

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

for the exclusive benefit of the employees of the employer maintaining

the plan and their beneficiaries;

(2) Before an exemption may be granted under section 408(a) of the

Act and/or section 4975(c)(2) of the Code, the Department must find

that the exemption is administratively feasible, in the interests of

the plan and of its participants and beneficiaries and protective of

the rights of participants and beneficiaries of the plan;

(3) The proposed exemptions, if granted, will be supplemental to,

and not in derogation of, any other provisions of the Act and/or the

Code, including statutory or administrative exemptions and transitional

rules. Furthermore, the fact that a transaction is subject to an

administrative or statutory exemption is not dispositive of whether the

transaction is in fact a prohibited transaction; and

(4) The proposed exemptions, if granted, will be subject to the

express condition that the material facts and representations contained

in each application are true and complete and accurately describe all

material terms of the transaction which is the subject of the

exemption. In the case of continuing exemption transactions, if any of

the material facts or representations described in the application

change after the exemption is granted, the exemption will cease to

apply as of the date of such change. In the event of any such change,

application for a new exemption may be made to the Department.

Signed at Washington, DC, this 19th day of April, 1999.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 99-10104 Filed 4-21-99; 8:45 am]

BILLING CODE 4510-29-P