Proposed Exemptions; Aetna Inc.

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10504, et al.]

Proposed Exemptions; Aetna 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

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

statement of the facts and representations.

Aetna Inc. (Aetna), Located In Hartford, Connecticut

Application No. D-10504

Proposed Exemption

The Department of Labor 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).1

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\1\ For purposes of this exemption, references to specific

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

also to the corresponding provisions of the Code.

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I. Transactions

If the exemption is granted, the restrictions of section

406(a)(1)(A) through (D) and 406(b) of the Act and

[[Page 25917]]

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 following transactions, if the conditions set forth in

Section II and Section III, below, are satisfied:

(a) The receipt, directly or indirectly, by a sales agent (Sales

Agent or Sales Agents), as defined in Section IV(l) below, of a sales

commission from Aetna in connection with the purchase, with plan assets

of an insurance contract (the Insurance Contract or Insurance

Contracts), as defined in Section IV(h) below;

(b) The receipt of a sales commission by Aetna, as principal

underwriter for a mutual fund registered under the Investment Company

Act of 1940, in connection with the purchase, with plan assets, of

securities issued by such mutual fund (the Aetna Fund or Aetna Funds),

as defined in Section IV(c) below;

(c) The effecting by Aetna, as a principal underwriter, of a

transaction for the purchase, with plan assets, of securities issued by

an Aetna Fund, and the effecting by a Sales Agent of a transaction for

the purchase, with plan assets, of an Insurance Contract; and

(d) The purchase, with plan assets, of an Insurance Contract from

Aetna.

II. General Conditions

(a) The transactions are effected by Aetna in the ordinary course

of Aetna's business as an insurance company, or as a principal

underwriter to an Aetna Fund, or in the case of a Sales Agent, in the

ordinary course of the Sales Agent's business as a Sales Agent.

(b) The transactions are on terms at least as favorable to the plan

as an arm's length transaction with an unrelated party would be.

(c) The combined total of all fees, sales commissions, and other

consideration received by Aetna or a Sales Agent: (1) for the provision

of services to the plan, and (2) in connection with a purchase of an

Insurance Contract or securities issued by an Aetna Fund, is not in

excess of ``reasonable compensation'' within the contemplation of

section 408(b)(2) and (c)(2) of the Act and section 4975(d)(2) and

(d)(10) of the Code. If such total is in excess of ``reasonable

compensation'' the ``amount involved'' for purposes of the civil

penalties of section 502(i) of the Act and excise taxes imposed by

section 4975(a) and (b) of the Code is the amount of compensation in

excess of ``reasonable compensation.''

III. Specific Conditions

(a) Aetna or the Sales Agent is not--

(1) A trustee of the plan (other than a non-discretionary trustee

who does not render investment advice with respect to any assets of the

plan, or a trustee to an investment trust (the Investment Trust), as

defined in Section IV(g) below, which will not purchase Insurance

Contracts or securities issued by an Aetna Fund pursuant to this

proposed exemption);

(2) A plan administrator (within the meaning of section 3(16)(A) of

the Act and section 414(g) of the Code);

(3) A fiduciary who is expressly authorized in writing to manage,

acquire, or dispose of, on a discretionary basis, those assets of the

plan that are or could be invested in Insurance Contracts, securities

issued by an Aetna Fund, or an Investment Trust; or

(4) An employer any of whose employees are covered by the plan.

(b)(1) Prior to the execution of a transaction involving the

receipt of sales commissions by a Sales Agent in connection with the

plan's purchase of an Insurance Contract, Aetna or the Sales Agent

provides to an independent plan fiduciary (the Independent Plan

Fiduciary), as defined in Section IV(f) below, disclosures of the

following information concerning the Insurance Contract in writing and

in a form calculated to be understood by a plan fiduciary who has no

special expertise in insurance or investment matters:

(A) An explanation of: (i) the nature of the affiliation or

relationship between Aetna and the Sales Agent recommending the

Insurance Contract; and, (ii) the nature of any limitations that such

affiliation or relationship, or any agreement between the Sales Agent

and Aetna places on the Sales Agent's ability to recommend Insurance

Contracts;

(B) The sales commission, expressed as a percentage of gross annual

premium payments for the first year and for each of the succeeding

renewal years, that will be paid by Aetna to the Sales Agent in

connection with the purchase of the recommended Insurance Contract,

together with a description of any factors that may affect the

commission; and

(C) A full and detailed description of any charges, fees,

discounts, penalties, or adjustments which may be paid by the plan

under the recommended Insurance Contract in connection with the plan's

purchase, holding, exchange, termination, or sale of the Insurance

Contract, including a description of any factors that may affect the

level of charges, fees, discounts, or penalties paid by the plan.

(2) Following receipt of the information required to be provided to

the Independent Plan Fiduciary, as described in Section III(b)(1)

above, and before the execution of the transaction, the Independent

Plan Fiduciary acknowledges in writing receipt of such information and

approves the transaction on behalf of the plan. The Independent Plan

Fiduciary may be an employer of employees covered by the plan but may

not be a Sales Agent involved in the transaction. The Independent Plan

Fiduciary may not receive, directly or indirectly (e.g. through an

affiliate), any compensation or other consideration for his or her own

personal account from any party dealing with the plan in connection

with the transaction.

(3) With respect to additional purchases of Insurance Contracts,

the written disclosure required under Section III(b)(1) need not be

repeated, unless--

(A) More than three years have passed since such disclosure was

made with respect to the same kind of Insurance Contract, or

(B) The Insurance Contract being recommended for purchase or the

commission with respect thereto is materially different from that for

which the approval described under Section III(b)(2) was obtained.

(c)(1) With respect to purchases with plan assets of securities

issued by an Aetna Fund, or the receipt of sales commissions by Aetna

in connection with such purchases, Aetna provides to an Independent

Plan Fiduciary prior to the execution of the transaction the following

information concerning the Aetna Fund in writing and in a form

calculated to be understood by a plan fiduciary who has no special

expertise in insurance or investment matters:

(A) A description of: (i) the investment objectives and policies of

the Aetna Fund, (ii) the principal investment strategies that the Aetna

Fund may use to obtain its investment objectives, (iii) the principal

risk factors associated with investing in the Aetna Fund, (iv)

historical investment return information for the Aetna Fund, (v) fees

and expenses of the Aetna Fund, including annual operating expenses

(e.g., management fees, distribution fees, service fees, and other

expenses) and fees paid by shareholders (e.g., sales charges and

redemption fees), (vi) the identity of the Aetna Fund adviser, and

(vii) the procedures for purchases of securities issued by the Aetna

Fund (including any applicable minimum investment requirements and

sales charges);

(B) A description of: (i) the expenses of the recommended Aetna

Fund, including investment management,

[[Page 25918]]

investment advisory, or similar services, any fees for secondary

services (e.g., for services other than investment management,

investment advisory, or similar services, including but not limited to

custodial, administrative, or other services), and (ii) any charges,

fees, discounts, penalties, or adjustments that may be paid by the plan

in connection with the purchase, holding, exchange, termination, or

sale of shares of the recommended Aetna Fund securities, together with

a description of any factors that may affect the level of charges,

fees, discounts, or penalties paid by the plan or the Aetna Fund;

(C) An explanation of (i) the nature of the affiliation or

relationship between Aetna and the Aetna Fund, and (ii) the limitation,

if any, that such affiliation, relationship, or any agreement between

Aetna and the Aetna Fund places on Aetna's ability to recommend

securities issued by other investment companies;

(D) The sales commission, if any, that Aetna will receive in

connection with the purchase of securities of the recommended Aetna

Fund, expressed as a percentage of the dollar amount of the plan's

gross payments and the amount actually invested, together with a

description of any factors that may affect the commission; and

(E) A description of the procedure or procedures for redeeming the

Aetna Fund securities.

The disclosures required under Section III(c)(1) above shall be

deemed to be completed only if, with respect to fees and expenses of an

Aetna Fund, the type of each fee or expense (e.g. management fees,

administrative fees, fund operating expenses, and other fees, including

but not limited to fees payable for marketing and distribution services

pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the

12b-1 Fees)) and the rate or amount charged for a specified period

(e.g. annually) is provided in a written document separate from the

prospectus of such Aetna Fund.

(2) Following receipt of the information required to be provided to

the Independent Plan Fiduciary, as described in Section III(c)(1)

above, and before execution of the transaction, the Independent Plan

Fiduciary approves the specific transaction on behalf of the plan.

Unless facts and circumstances would indicate the contrary, such

approval may be presumed if the Independent Plan Fiduciary directs the

transaction to proceed after Aetna has delivered the written

disclosures to the Independent Plan Fiduciary. The Independent Plan

Fiduciary may be an employer of employees covered by the plan but may

not be Aetna. The Independent Plan Fiduciary may not receive, directly

or indirectly (e.g. through an affiliate), any compensation or other

consideration for his or her own personal account from any party

dealing with the plan in connection with the transaction.

(3) With respect to additional purchases of Aetna Fund securities,

Aetna: (A) provides reasonable advance notice of any material change

with respect to the Aetna Fund securities being purchased or the

commission with respect thereto, and (B) repeats the written disclosure

required under Section III(c)(1) (A), (C), (D) and (E) once every three

years.

(d)(1) Aetna shall retain or cause to be retained for a period of

six (6) years from the date of any transaction covered by this

exemption the following:

(A) The information disclosed with respect to such transaction

pursuant to Sections III (b), and (c);

(B) Any additional information or documents provided to the

Independent Plan Fiduciary with respect to the transaction; and

(C) Written acknowledgments, as described in Section III(b)(2)

above.

(2) A prohibited transaction shall not be deemed to have occurred

if, due to circumstances beyond the control of Aetna, such records are

lost or destroyed before the end of such six-year period.

(3) Notwithstanding anything to the contrary in sections 504(a)(2)

and (b) of the Act, such records shall be unconditionally available for

examination during normal business hours by duly authorized employees

or representatives of the Department of Labor, the Internal Revenue

Service, plan participants and beneficiaries, any employer of plan

participants and beneficiaries, and any employee organization any of

whose members are covered by the plan.

IV. Definitions

For purposes of this exemption--

(a) Aeltus means the Aeltus Trust Company.

(b) Aetna means the Aetna Life Insurance Company, the Aetna Life

Insurance and Annuity Company, and any of their affiliates, including

but not limited to Aeltus;

(c) Aetna Fund means any investment company registered under the

Investment Company Act of 1940 for which Aetna serves as investment

adviser and as principal underwriter (as that term is defined in

section 2(a)(29) of the Investment Company Act of 1940, 15 U.S.C.

Sec. 80a-2(a)(29)).

(d) an affiliate of a person means (1) any person directly or

indirectly controlling, controlled by, or under common control with

such person, (2) any officer, director, employee, or relative of any

such person, or any partner in such person, and (3) any corporation or

partnership of which such person is an officer, director, or employee,

or in which such person is a partner. For purposes of this definition,

an ``employee'' includes (A) any registered representative of Aetna,

where Aetna or an affiliate is principal underwriter, and (B) any

insurance agent or broker or pension consultant acting under a written

agreement as Aetna's agent in connection with the sale of an Insurance

Contract, whether or not such registered representative or insurance

agent or broker or pension consultant is a common law employee of

Aetna.

(e) The term, control, means the power to exercise a controlling

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

individual;

(f) Independent Plan Fiduciary means a fiduciary with respect to a

plan, which fiduciary has no relationship to, or interest in, Aetna

that might affect the exercise of such fiduciary's best judgment as a

fiduciary.

(g) Investment Trust means (1) any collective investment fund or

group trust qualifying for tax-exempt status under the provisions of

the Internal Revenue Code of 1986 and regulations and rulings

thereunder, of which Aeltus, as defined in Section IV(a) above, or its

successor or affiliate serves as trustee, or (2) any single-customer

trust account for which Aeltus serves as trustee, provided that Aeltus

has no discretionary authority or responsibility with respect to the

management or administration of, and does not provide any investment

advice with respect to, any plan assets not invested in such single-

customer trust account or another Investment Trust.

(h) Insurance Contract or Insurance Contacts means an insurance or

annuity contract issued by Aetna.2

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\2\ The Department expresses no opinion as to whether any so

called ``synthetic guaranteed insurance contracts'' offered by Aetna

constitutes an Insurance Contract within the meaning of this

proposed exemption. The Department further notes that Prohibited

Transaction Class Exemption 84-24, upon which this individual

proposal is modeled, provides relief from the self-dealing and

conflict of interest provisions of the Act in connection with the

sale of insurance contracts to plans by fiduciaries. It does not

provide relief from any acts of self-dealing that do not arise

directly in connection with the purchase of specific insurance

products. Thus, for example, no relief is provided under this

proposal for any act of self-dealing that may arise in connection

with the ongoing operation or administration of the insurance

contract.

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[[Page 25919]]

(i) A nondiscretionary trustee of a plan is a trustee whose powers

and duties with respect to any assets of the plan are limited to: (1)

the provision of nondiscretionary trust services, as defined in Section

IV(j) below, to such plan, and (2) the duties imposed on the trustee by

any provision or provisions of the Act or the Code.

(j) Nondiscretionary trust services means custodial services and

services ancillary to custodial services, none of which services are

discretionary.

(k) A 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 Code section 4975(e)(6)), or a brother, a sister, or a spouse of a

brother or a sister;

(l) Sales Agent means any insurance agent, broker, or pension

consultant or any affiliate thereof that is affiliated with Aetna

either through ownership or by contractual arrangement.

(m) Principal underwriter is defined in the same manner as that

term is defined in section 2(a)(29) of the Investment Company Act of

1940 (15 U.S.C. 8a-2(a)(29)).

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

as of August 28, 1997, the date of the filing of the application for

exemption.

Summary of Facts and Representations

1. It is anticipated that the plans which participate in the

transactions which are the subject of this proposed exemption are

employee benefit plans subject to the Act, including defined benefit

and defined contribution retirement plans (the Plan or Plans). Due to

the nature of the requested exemption, the applicants, Aetna and its

affiliates, maintain that they are unable to provide any of the

following specific identifying information about the Plans that may

engage in the proposed transactions: (A) the number of participants;

(B) an estimate of the percentage of assets of each Plan affected by

the requested exemption or transactions; or (C) the approximate

aggregate fair market value of the total assets of each affected Plan.

However, the applicants generally do not anticipate that Plans covered

by the requested exemption will be participant-directed plans, pursuant

to section 404(c) of the Act. In addition, the applicants have not

requested an exemption, and no relief is provided, herein, for any plan

covering employees of Aetna or its affiliates.

2. Aetna, is a publicly-traded Connecticut company with its

principal place of business in Hartford, Connecticut. Aetna indirectly

owns all of the outstanding shares of Aetna Life Insurance and Annuity

Company (ALIAC) and the Aetna Life Insurance Company (ALIC). ALIC and

ALIAC are Connecticut stock life insurance companies licensed to

transact life, accident, and health insurance business in all fifty

states of the United States and the District of Columbia. ALIAC is also

registered as an investment adviser and a broker-dealer with the

Securities and Exchange Commission (SEC). As of December 31, 1996, the

total consolidated assets of ALIC was approximately $43.9 billion, and

the total consolidated assets of ALIAC was approximately $28.8 billion.

3. ALIC and ALIAC offer a variety of insurance and annuity products

to Plans some of which may serve as funding vehicles for retirement

plan benefits. It is represented that all such insurance contracts are

reviewed and approved under the laws of one or more states. In addition

to providing insurance products, ALIC and ALIAC offer other services to

Plans, including actuarial, record-keeping, and other plan

administration services.

4. It is represented that the Insurance Contracts which are the

subject of this proposed exemption are sold by Sales Agents. Sales

Agents include insurance agents, brokers, or pension consultants or any

affiliate thereof that is affiliated with Aetna either through

ownership or by contractual arrangement. In connection with sales of

Insurance Contracts, Sales Agents may receive commissions or other

compensation.

5. The Aetna Funds referred to in this proposed exemption include

the Aetna Variable Funds, the Aetna Series Funds, and Portfolio

Partners, Inc. It is represented that all such funds are open-end

investment companies registered with the SEC under the Investment

Company Act of 1940. Each such investment company offers a number of

different investment portfolios with different investment objectives

and guidelines. The Aetna Funds are offered to Plans directly and

through variable annuity contracts issued in connection with ALIAC's

separate accounts.

6. Aetna Investment Services, Inc. (AISI), Aetna Financial

Services, Inc. (AFSI), Aeltus Capital, Inc. (Aeltus Capital), and

Financial Network Investment Corporation (FNIC) are each registered

broker-dealers with the SEC and are wholly-owned affiliates of ALIC and

ALIAC. ALIC, ALIAC, AISI, AFSI, Aeltus Capital, and FNIC and their

successors (the Aetna Companies) have provided and will provide a

variety of services to the Aetna Funds.

7. In this regard, as disclosed in the prospectus materials for

each of the Aetna Funds, ALIAC is the investment adviser to all of the

Aetna Funds. In addition, ALIAC provides other services (the Secondary

Services) to Aetna Funds, including accounting, shareholder

administration, sub-accounting, and other administrative services.

Further ALIAC is the principal underwriter to the Aetna Variable Funds

and Portfolio Partners, Inc., and AISI is the principal underwriter to

the Aetna Series Funds. In this regard, it is represented that as

principal underwriters, ALIAC and AISI distribute Aetna Fund shares on

an agency basis.3 It is further represented that ALIAC may

engage affiliated or unaffiliated sub-advisers to the Aetna Funds from

time to time.

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\3\ As it is represented that ALIAC and AISI distribute shares

in Aetna Funds on an agency basis, and as generally an Aetna Fund

would not be a party in interest to a Plan, the applicant maintains

that a Plan's purchase of shares in an Aetna Fund, in and of itself,

should not involve any prohibitions under section 406(a) of the Act.

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Under the terms of services agreements between ALIAC and an Aetna

Fund, ALIAC may receive management fees and fees for Secondary

Services. In addition, ALIAC or AISI may receive sales commissions and

distribution fees, including for some classes of shares issued by

certain Aetna Funds 12b-1 Fees.4 It is represented that the

prospectus materials for each of the Aetna Funds disclose whether such

fees are paid and the basis under which such fees are paid.

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\4\ The Department notes that the relief provided by this

exemption does not preclude the receipt of 12b-1 Fees by Aetna or

its affiliates to the extent that the payment of such 12b-1 Fees

cannot be functionally distinguished from the payment of a sales

commission in connection with the purchase, with plan assets, of

securities issued by an Aetna Fund.

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8. Aeltus is a wholly-owned subsidiary of Aeltus Investment

Management, Inc., an affiliate of the Aetna Companies. Aeltus is a

limited purpose trust company chartered in the state of Connecticut and

subject to the regulation and control of the Connecticut Commissioner

of Banking. Aeltus may from time to time serve as a nondiscretionary

trustee to Plans.

As of August 1, 1997, Aeltus maintains one or more collective

investment funds that qualify for tax-exempt status under the

provisions of the Code which are offered to Plans.5 In

[[Page 25920]]

addition, Aeltus may maintain custody of, and provide investment

management services for, a portion of the assets of a Plan in a single

customer investment trust. As trustee to an Investment Trust (either a

collective investment fund or a single-customer investment fund),

Aeltus has discretionary authority to manage and invest the assets of

the Plan invested in the Investment Trust.6 However, it is

represented that Aeltus does not provide and will not provide

investment advice (as described by section 3(21)(A)(ii) of the Act and

the regulations thereunder) or otherwise have any discretionary

authority, responsibility, or control with respect to any plan assets

not invested in an Investment Trust, or in connection with the decision

by a Plan to invest plan assets in an Investment Trust, in an Insurance

Contract, or in shares of an Aetna Fund.

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\5\ It is represented that no relief is requested or required

for the investment by Plans in the Investment Trust. The applicants

represent that in all cases, the decision to invest in the

Investment Trust and, thereby, to engage Aeltus to provide

investment management services to the Plan would be made by an

independent plan fiduciary. Further, the applicants maintain that

where the Investment Trust is a collective investment fund (a

Collective Trust), any potential violations of section 406(a) or (b)

of the Act in connection with a plan's investment in such Collective

Trust would be exempt provided that certain conditions are

satisfied, pursuant to section 408(b)(8) of the Act. In this regard,

the applicants represent that any investments in the Collective

Trust by Plans will comply with the conditions of section 408(b)(8)

of the Act. The Department expresses no opinion, herein, as to

whether any of the relevant provisions of part 4, subpart B, of

Title I have been violated, regarding investment by Plans in the

Investment Trust, nor as to whether the conditions of section

408(b)(8) have been or will be satisfied.

\6\ The Department notes that, pursuant to Section III(a)(1) of

this proposed exemption, relief would not be available for the

purchase by Aeltus for such Investment Trust of Insurance Contracts,

as defined in Section IV(h) below; or of securities issued by an

Aetna Fund.

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9. With respect to any Plan that participates in an Investment

Trust, Aeltus will be a service provider and a fiduciary, pursuant to

section 3(14)(A) and (B) of the Act. The Aetna Companies, as service

providers to Plans, may also be parties in interest with respect to

such Plans, pursuant to section 3(14)(B) of the Act. In addition, in

some cases, one or more of the Aetna Companies could be deemed to be a

party in interest with respect to a Plan by virtue of an ownership

relationship of such Aetna Companies to Aeltus, pursuant to section

3(14)(G), (H), and (I) of the Act. Further, under circumstances where a

Sales Agent could be deemed to provide investment advice, as described

in section 3(21)(A)(ii) of the Act, to a Plan in connection with the

purchase by such Plan of an Insurance Contract or the purchase of

shares of an Aetna Fund, the Sales Agent may be deemed to be a

fiduciary to such Plan, pursuant to section 3(14)(A) of the Act.

Where one of the Aetna Companies is a party in interest to a Plan,

then purchases by such Plan of Insurance Contracts or purchases by such

Plan of shares of Aetna Funds may be prohibited under section 406(a) of

the Act. In addition in the event that a Sales Agent is deemed to be

providing investment advice (as described in section 3(21)(A)(ii) of

the Act and the regulations thereunder) to a Plan in connection with

such Plan's purchases of Insurance Contracts or purchases of shares of

Aetna Funds, the receipt of commissions by such Sales Agents may be

prohibited under section 406(b) of the Act.

10. The applicants request relief from these transactions because

of the uncertainty of the applicability of Class Exemption 84-24 (PTCE

84-24) to the transactions. In this regard, PTCE 84-24 provides relief

from the prohibitions of sections 406(a)(1)(A) through (D) and 406(b)

of the Act, and from the taxes imposed by section 4975 of the Code for

certain classes of transactions involving purchases by plans of

insurance or annuity contracts and purchases by plans of securities

issued by registered investment companies, and the receipt of sales

commissions in connection therewith by an insurance agent, broker,

pension consultant, or investment company principal underwriter.

However, no relief is available under PTCE 84-24, if the insurance

agent, broker, pension consultant, or the investment company principal

underwriter or its affiliate is a plan trustee, other than a non-

discretionary trustee who does not render investment advice with

respect to any assets of the plan. Even though, Aeltus has represented,

that it does not and will not provide investment advice or exercise or

have any discretionary authority over whether a Plan purchases

Insurance Contracts or shares of an Aetna Fund, the exemption provided

under PTCE 84-24 may not be available for such purchases where the

assets of such Plan are under management with Aeltus, as trustee of an

Investment Trust.

Aeltus has represented that as of the date the application for

exemption was filed with the Department, that the transactions that are

the subject of this proposed exemption had not occurred. However, it is

anticipated that Plans participating in the Investment Trust may begin

to purchase Insurance Contracts or to purchase shares of Aetna Funds at

any time. Because the applicant believes that PTCE 84-24 may not cover

a transaction between a plan and a party in interest whose affiliate

provides trustee services, other than nondiscretionary trustee services

to the Plan, Aetna has requested an exemption from section 406(a) and

(b) of the Act with respect to the proposed transactions and the

corresponding provisions of section 4975(c)(1) of the Code

retroactively to August 28, 1997, the date of the filing of the

application for exemption.

11. In support of their request for individual exemption, Aetna

represents that the transactions are on terms which are at least as

favorable to the Plan as those negotiated at arm's length with an

unrelated party, and such transactions are effected by Aetna or a Sales

Agent in the ordinary course of the respective business of such

parties. With respect to the receipt of sales commissions by Aetna or a

Sales Agent for the provision of services to a Plan, and in connection

with a purchase of an Insurance Contract or securities issued by an

Aetna Fund, the combined total of all fees, sales commissions, and

other consideration received by Aetna or a Sales Agent will not be in

excess of ``reasonable compensation'' within the contemplation of

section 408(b)(2) and (c)(2) of the Act and section 4975(d)(2) and

(d)(10) of the Code.

12. The applicants maintain that the requested exemption is

administratively feasible. In this regard, compliance with the terms of

the exemption is monitored by an Independent Plan Fiduciary, so that

the level of oversight required by the Department is minimal. In this

regard, an Independent Plan Fiduciary of each Plan that participates in

the Investment Trust will receive notice regarding this proposed

exemption. Further, the Aetna Companies will maintain records necessary

to verify compliance with the conditions of this exemption.

13. The applicants maintain that the proposed exemption is in the

interest of the Plans which participate in the subject transactions,

because Plans will be able to take advantage of the full range of

insurance and investment products offered by the Aetna Companies. For

example, an Independent Plan Fiduciary of a defined benefit plan

investing some or all of the assets of such Plan in an Investment Trust

will also be able to purchase annuities or other insurance products for

the Plan from Aetna.

14. The applicants maintain that the proposed exemption is designed

to protect the rights and interests of the participants and

beneficiaries of the Plans. In this regard, Aetna is required to make

certain disclosures in writing and in a form calculated to be

understood by a plan fiduciary who has no special expertise in

insurance or in

[[Page 25921]]

investment matters. Specifically, before a Plan purchases an Insurance

Contract, the Independent Plan Fiduciary must receive and acknowledge

the written disclosures, described in Section III(b) above and must

approve the transaction on behalf of the Plan. Similarly, before a Plan

purchases shares of an Aetna Fund, the Independent Plan Fiduciary must

receive the disclosures, described in Section III(c) above. Approval

with respect to a Plan's purchase of shares of an Aetna Fund will be

presumed, unless facts and circumstances indicate the contrary, if the

Independent Plan Fiduciary directs the transaction to proceed after

receiving the written disclosures from Aetna. Further, prior to a

purchase of shares of an Aetna Fund, Aetna must disclosure in a written

document separate from the prospectus information with respect to

specific types of fees or expenses paid from the assets of an Aetna

Fund, including information about the rate or amount of each fee or

expense charged for a specified period,.

If a Plan purchases additional Insurance Contracts, Aetna does not

have to repeat the written disclosure required under Section III(b)(1),

unless more than three years have passed since such disclosure was made

with respect to the same kind of Insurance Contract, or unless the

Insurance Contract being recommended for purchase or the commission

thereto is materially different from that for which the approval was

obtained. With respect to additional purchases of Aetna Fund

securities, Aetna has represented that it will provide reasonable

advance notice of any material change to the Aetna Fund securities

being purchased or the commission thereto, and will repeat the written

disclosure required under Section III(c)(1)(A), (C), (D), and (E) at

least once every three (3) years.

Where Aeltus is a trustee other than a nondiscretionary trustee to

a Plan, solely because it serves as a trustee to an Investment Trust in

which such Plan participates, the applicants maintain that the proposed

transactions do not appear to involve the types of abuse that the

Department intended to address by limiting the availability of PTCE 84-

24 where a party in interest or its affiliate is a trustee to a plan.

Specifically, notwithstanding the fact that Aeltus is trustee to an

Investment Trust, Aeltus is not acting as a fiduciary with discretion

over whether a Plan purchases Insurance Contracts or shares of Aetna

Funds, nor is Aeltus in a position to improperly influence or control

such decision made by the Independent Plan Fiduciaries.

15. In summary, the applicant represents that the proposed

transactions meet the statutory criteria for an exemption under section

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

(a) Plans can take advantage of the full range of insurance and

investment products offered by the Aetna Companies;

(b) The transactions are effected by Aetna or by a Sales Agent in

the ordinary course of business;

(c) The transactions are on terms at least as favorable to the Plan

as an arm's length transaction with an unrelated party would be;

(d) The combined total of all fees, sales commissions, and other

consideration received by Aetna or a Sales Agent for the provision of

services to a Plan, and in connection with the proposed transactions is

not in excess of ``reasonable compensation'' within the contemplation

of section 408(b)(2) and (c)(2) of the Act and section 4975(d)(2) and

(d)(10) of the Code;

(e) Neither Aetna nor the Sales Agent is a trustee of the Plan

(other than a non-discretionary trustee who does not render investment

advice with respect to any assets of the Plan or a trustee to an

Investment Trust which will not purchase Insurance Contracts or

securities issued by an Aetna Fund); a plan administrator; a fiduciary

who is expressly authorized in writing to manage, acquire, or dispose

of, on a discretionary basis, those assets of the Plan that are or

could be invested in Insurance Contracts, securities issued by an Aetna

Fund, or an Investment Trust; or an employer any of whose employees are

covered by the Plan;

(f) With respect to the proposed transactions, Aetna provides the

Independent Plan Fiduciary with certain disclosures in writing and in a

form calculated to be understood by a plan fiduciary who has no special

expertise in insurance or investment matters; and provides disclosure

in a written document separate from the prospectus of information

regarding specific types of fees or expenses paid from the assets of an

Aetna Fund and the rate or amount of each fee or expense charged for a

specified period;

(g) Following receipt of the required disclosures and prior to

entering the transaction, the Independent Plan Fiduciary approves the

transaction on behalf of the Plan; and

(h) Aetna shall retain or cause to be retained certain records for

a period of six (6) years from the date of any transaction covered by

this exemption.

Notice to Interested Persons

Because of the large number of potentially interested persons, the

applicants maintain that it is not possible to provide a separate copy

of the Notice of Proposed Exemption (the Notice) to each Plan eligible

to engage in the transactions covered by the requested exemption. In

this regard however, Aetna intends to provide in writing by first-class

mail to the Independent Plan Fiduciary of each Plan that participates

in an Investment Trust within fifteen (15) days of the date of

publication of the Notice in the Federal Register, a copy of the

Notice, as published in the Federal Register, and a copy of the

supplemental statement, as required, pursuant to 29 CFR 2570.43(b)(2).

The notification will inform such interested persons of their right to

comment and/or request a hearing within thirty (30) days of receipt of

a copy of the Notice.

Apart from the notification described in the paragraph above, the

applicants represent that the only practical form of providing notice

to interested persons is by means of publication of the Notice in the

Federal Register.

FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the Department,

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

UNOVA, Inc. (UNOVA), Located in Beverly Hills, California

(Application Nos. D-10663 and D-10664)

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 (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, as of December 17, 1998, to: (1) the acquisition

by the UNOVA, Inc. Pension Plan and the Landis Tool Pension Plan

(collectively, the Plans) of certain improved real property (the

Property) from an unrelated party for a sales price of $15,250,000 (the

Purchase); and (2) the leasing of a portion of the Property (the Lease)

by the Plans to UNOVA, a party in interest with respect to the Plans,

provided that the following conditions are satisfied:

(a) The Plans paid an amount for the Property which was no more

than the

[[Page 25922]]

fair market value of the Property at the time of the transaction;

(b) The interest in the Property owned by each Plan represented no

more than 15% of the value of either Plan's total assets at the time of

the Purchase;

(c) The Property, and the amount of space in the Property leased to

UNOVA under the Lease (the Leased Space), represents no more than 15%

of the value of either Plan's total assets throughout the duration of

the Lease;

(d) The terms and conditions of the Lease are at least as favorable

to the Plans as those obtainable in an arm's-length transaction with an

unrelated party;

(e) The fair market rental value of the Leased Space has been, and

every three years during the Lease will continue to be, determined by a

qualified, independent appraiser;

(f) The amount of rent paid by UNOVA to the Plans for the Leased

Space throughout the duration of the Lease will be no less than the

greater of the initial rent paid by UNOVA or the current fair market

rental value of the Leased Space as determined every three years by a

qualified independent appraiser;

(g) The Plans' independent fiduciary has determined that the

Purchase and Lease are appropriate for the Plans and in the best

interests of the Plans' participants and beneficiaries; and

(h) The Plans' independent fiduciary will monitor the Lease, as

well as the conditions of this proposed exemption (if granted), and

will take whatever actions are necessary to safeguard the interests of

the Plans throughout the duration of the Lease.

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

as of December 17, 1998.

Summary of Facts and Representations

1. UNOVA is an industrial automation, automated data collection,

and mobile computing company located in Beverly Hills, California. The

Plans consist of the UNOVA, Inc. Pension Plan and the Landis Tool

Pension Plan. The UNOVA, Inc. Pension Plan is a defined benefit plan

which had 7,425 participants and approximately $263,299,725 in total

assets, as of September 30, 1998. The Landis Tool Pension Plan, which

covers the employees of the Landis Tool and Gardner Machine divisions

of UNOVA, is a defined benefit plan which had 1,328 participants and

approximately $61,067,477 in total assets, as of September 30, 1998.

2. The Property is located at 21900 Burbank Boulevard in Los

Angeles, California. The Property consists of a 2.15 acre lot improved

by a three-story multi-tenant office building having 89,203 square feet

of rental space. The Plans purchased the Property from the Variable

Annuity Life Insurance Company, a party unrelated to the Plans, for

$15,250,000 on December 17, 1998.

After the Purchase, a portion of the Property's $15,250,000 total

asset value (the Property's Value) was allocated to each of the Plans

(the Allocation). The Allocation apportioned approximately 81% of the

Property's Value, or approximately $12,378,936, to the UNOVA, Inc.

Pension Plan, and approximately 19% of the Property's Value, or

approximately $2,871,064, to the Landis Tool Pension Plan. The

Allocation was made for the purpose of ensuring that the interest in

the Property owned by each Plan represented the exact same percentage

of each Plan's overall assets at the time of the Allocation. As a

result, at the time the Allocation was made, the Property comprised

approximately 4.7% of the Landis Tool Pension Plan's assets and

approximately 4.7% of the UNOVA, Inc. Pension Plan's assets.

3. After the Purchase, the Plans leased a portion of the Property

to UNOVA, effective as of December 17, 1998 (i.e. the Lease). The

leased portion of the Property comprises the entire third floor of the

Property or 32,314 square feet (i.e. the Leased Space). Thus, the

Leased Space represents approximately 36.2% of the Property's total

square feet of rental space.

According to the terms of the Lease, the base rent paid by UNOVA is

$17.32 per square foot annually. Under the Lease, UNOVA is required to

reimburse the Plans for all of the expenses the Plans incur through

UNOVA's leasing of the Property. The expenses to be paid to the Plans

by UNOVA, as lessee, are $7.88 per square foot annually, subject to

future adjustments each year based on the Plans' actual annual

expenses.7 As a result, the total amount of rental income

that the Plans are entitled to receive from UNOVA in the first year of

the Lease is $814,312.80, or $25.20 per square foot annually. The

applicant states that this amount represents the fair market value for

the Leased Space, in accordance with rents currently being charged for

similar properties in the local real estate market (see discussion in

Paragraphs 7 and 8 below).

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\7\ In the event that UNOVA incurs an actual annual expense in

excess of $7.88 per square foot, UNOVA will reimburse the Plans the

full amount of the excess expense. After a year in which UNOVA

incurs an excess expense, the following year's annual expense amount

will be adjusted upward to reflect the actual amount paid in the

previous year. This formula will be continued in subsequent years.

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4. The Lease is for an initial term of ten years. The Lease

requires the Plans to reimburse UNOVA $20.00 per square foot for

UNOVA's expenses relating to UNOVA's installation as a tenant (the

Reimbursement).8 In this regard, the applicant represents

that leases for properties similar to the Leased Space typically

contain reimbursement provisions similar to the Reimbursement. The

duration of the Lease may be extended upon written notice by UNOVA to

the Plans at least three months prior to the expiration of the Lease's

initial term or the Lease's three renewal terms (the Renewals). In each

instance, the Renewal will be for an additional five years and will be

subject to the approval of an independent qualified fiduciary (see

Paragraphs 8, 9, and 10 below). As part of such approval, the

independent fiduciary must determine that the Lease payments will equal

the current fair market rental value of the Leased Space and that all

of the other conditions of the Lease will remain in the best interest

and protective of the Plans.

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\8\ The Department expresses no opinion in this proposed

exemption as to whether the expenses incurred by the Plans relating

to the tenant improvements made to the Leased Space on behalf of

UNOVA would violate any provision of Part 4 of Title I of the Act.

In this regard, the Department notes that section 404(a) of the Act

requires, among other things, that plan fiduciaries act prudently

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

beneficiaries when making investment decisions on behalf of a plan.

In addition, section 404(a) of the Act requires that plan

fiduciaries act for the exclusive purpose of providing benefits to

participants and beneficiaries and defraying the reasonable expenses

of administering the plan.

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5. The applicant states that an independent qualified real estate

appraiser will determine the fair market rental value of the Leased

Space every three years. If the independent appraiser determines that

the fair market value of the Leased Space is greater than the $25.20

per square foot per year as specified in the Lease, UNOVA will be

required to pay a new rental rate equal to the fair market rental value

of the Leased Space. However, under no circumstances will a new rental

rate be reduced below the initial rental rate. Thus, in accordance with

this procedure, all rents paid by UNOVA will be no less than the

greater of $814,312.80 per year, as provided for in the Lease, or the

fair market rental value of the Leased Space as determined every three

years by the independent qualified appraiser.

Additionally, the amount of rent the Plans receive from UNOVA will

periodically be adjusted (the Adjustments) to reflect increases in the

[[Page 25923]]

Consumer Price Index (CPI). The first Adjustment will occur after the

Lease has been in effect for five years. At that time, the actual

rental rate for the Leased Space will be increased by a percentage

equal to 90% of the percentage increase in the CPI during that period.

Thereafter, additional Adjustments, which will be calculated in the

same manner as the first Adjustment, will occur at five year intervals

upon any Renewal.

6. The Property has been appraised (the Appraisal) by Eric Stucky,

MAI (the Appraiser), a certified appraiser for CB Richard Ellis, Inc.

Appraisal Services, an independent real estate appraisal company

located in Los Angeles, California. The Appraiser considered both the

sales comparison approach and the income capitalization approach to

value the Property. However, the Appraiser's conclusions were based on

the income capitalization approach. The Appraiser concluded that the

Property had a fair market value of $15,600,000, as of August 13, 1998.

The Appraiser additionally analyzed the fair market rental rate of

the Leased Space and the Reimbursement provision of the Lease. The

Appraiser's analysis involved reviewing recent leases in the Property,

analyzing rental rates of recently leased properties similar to the

Leased Space, and interviewing market participants. After this

analysis, the Appraiser concluded that the Leased Space's initial

rental rate of $25.20 per square foot annually represented the current

fair market value of the Leased Space. The Appraiser additionally

concluded that the Reimbursement was within the range of allowances for

tenant reimbursement found in leases involving properties similar to

the Leased Space.

7. The Appraisal was reviewed by Andrew Minstein and Phil Gottfried

(the Reviewers), each a certified real estate appraiser for AGM and

Associates (AGM), an independent appraisal company. The Reviewers

represent that they have no financial interest in the Property. Upon

their review of the Appraisal, the Reviewers concluded that the

Appraiser's valuation of the Property was reasonable. In addition, the

Reviewers represent that the rental rate to be paid by UNOVA for the

Leased Space during the first year of the Lease is at the high end of

the range of rents currently being paid for similar properties in the

local real estate market.

8. UNOVA represents that Harvey A. Bookstein of Roth Bookstein &

Zaslow, LLP (Roth Bookstein & Zaslow) located in Los Angeles,

California, was appointed on August 21, 1998, to serve as the Plans'

independent fiduciary with respect to the Purchase and Lease. Mr.

Bookstein has been a Certified Public Accountant for over 25 years. Mr.

Bookstein states that he is experienced and knowledgeable in matters

concerning real estate and qualified retirement plans.

Mr. Bookstein states further that he is unrelated to both the Plans

and UNOVA. In this regard, Mr. Bookstein represents that throughout the

duration of the Lease and any of the Renewals thereof, Roth Bookstein

and Zaslow will receive less than one percent of its annual gross

income from any of the parties involved in the proposed transaction.

Mr. Bookstein has acknowledged his duties, liabilities and

responsibilities as a fiduciary for the Plans for purposes of the

subject transactions.

9. In order to ensure that the Purchase and Lease were in the best

interest of the Plans, Mr. Bookstein:

(a) Reviewed the terms of the Purchase and Lease to determine

whether the transactions would be at least as favorable to the Plans as

those terms and conditions which would exist in similar transactions

between unrelated parties;

(b) Confirmed that the Purchase and Lease conformed to the

diversification and investment objectives of the Plans;

(c) Reviewed the terms of the Lease, including the provisions

relating to the initial rental rate, the Reimbursement, the Renewals,

and the Adjustments, to confirm that the terms and conditions of the

Lease would be in the best interests of the Plans and their

participants and beneficiaries;

(d) Compared the terms and conditions of the Lease, including the

provisions relating to the initial rental rate, the Reimbursement, the

Renewals, and the Adjustments, to the terms and conditions of arm's-

length leases involving similar properties, to ensure that the overall

investment return that the Plans will receive from the Lease will be

comparable to the overall investment return for similar leases

involving unrelated parties;

(e) Confirmed that the Lease reflected the current fair market

rental rate for the Leased Space at the time of the transaction, as

determined by an independent qualified appraiser; and

(f) Confirmed that the Purchase and Lease would be in the best

interests of the Plans' participants and beneficiaries.

10. Mr. Bookstein represents that he completed an analysis of the

Purchase and Lease (the Analysis) prior to the date in which the Plans

and UNOVA entered into the transactions.

Mr. Bookstein states that after conducting the Analysis, he

determined that such transactions were in the best interests of the

Plans' participants and beneficiaries. In addition, Mr. Bookstein

determined that the terms and conditions of the Lease would be at least

as favorable to the Plans as those obtainable in an arm's-length

transaction with an unrelated party.

Mr. Bookstein additionally analyzed the overall investment

portfolio of the Plans (the Investment Analysis) prior to the

transactions. Upon completion of the Investment Analysis, Mr. Bookstein

determined that the Purchase and Lease would be consistent with the

Plans' investment objectives and policies.

Mr. Bookstein also prepared a net present value (NPV) analysis (the

NPV Analysis) of the Lease. 9 Mr. Bookstein represents that

his analysis involved comparing the NPV of the Lease to the NPV of

leases that pre-dated the Plan's purchase of the Property. Mr.

Bookstein represents that this comparison included using a discount

rate of 10 percent (which operates as the rate of return objective) and

deducting from the income stream all expenses related to such leases

and their proportionate share of the Property's expenses to the extent

that these expenses exceeded those of their base year. Mr. Bookstein

represents that the results of the NPV Analysis is consistent with his

conclusion that the terms and conditions of the Lease are in the best

interests of the Plan.10

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\9\ The NPV is the difference between the present value of all

expected investment benefits (or positive cash flows), and the

present value of capital outlays (or negative cash flows), over the

entire period of the investment.

\10\ In this regard, the Mr. Bookstein's conclusions with

respect to the NPV Analysis depends on the fact that the current

rental rate being charged to UNOVA represents the fair market value

of the Leased Space, and that there will be appropriate

readjustments to the rent to reflect any increases in the fair

market rental value of the Leased Space at least once every three

years by an independent appraiser.

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

Mr. Bookstein represents that he will monitor the Lease throughout

its duration, as well as the conditions of this proposed exemption (if

granted), and will take whatever action is necessary to protect the

Plans' rights under the Lease and safeguard the interests of the Plans.

Additionally, Mr. Bookstein represents that he will ensure that the

Plans' rental income from the Lease, or upon any Renewal, reflects the

Leased Space's fair market rental value at the time. Mr. Bookstein

further represents that the Plans will not enter into any Renewals

without his approval.

11. The Applicant represents that in the event of a termination of

Mr.

[[Page 25924]]

Bookstein's appointment as independent fiduciary to the Plans with

respect to the Lease, any successor to Mr. Bookstein will have

responsibilities, independence and experience similar to those

described in Paragraphs 8, 9, and 10 above. In this regard, the

Applicant states that if it becomes necessary to appoint a successor

independent fiduciary (the Successor) to replace Mr. Bookstein, a

letter will be sent to the Department at least thirty (30) days prior

to the appointment. The letter will specify that the Successor has

responsibilities, experience and independence similar to those of Mr.

Bookstein. If the Department does not object to the Successor, the new

appointment will become effective on the 30th day after the Department

receives such letter.

12. In summary, UNOVA represents that the subject transactions

satisfy the statutory criteria contained in section 408(a) of the Act

for the following reasons:

(a) The Plans paid an amount for the Property which was no more

than the fair market value of the Property at the time of the Purchase;

(b) The interest in the Property owned by each Plan represented no

more than 15% of the value of either Plan's total assets at the time of

the Purchase;

(c) The Property and the Leased Space represented no more than 15%

of the value of either Plan's total assets at the time of the

transactions and will remain less than that percentage throughout the

duration of the Lease;

(d) The terms and conditions of the Lease are, and will remain, at

least as favorable to the Plans as those obtainable in an arm's-length

transaction with an unrelated party;

(e) The fair market rental value of the Leased Space has been, and

every three years during the Lease will continue to be, determined by a

qualified, independent appraiser;

(f) The amount of rent paid by UNOVA to the Plans for the Leased

Space throughout the duration of the Lease will be no less than the

greater of the initial rent paid by UNOVA or the fair market rental

value of the Leased Space as determined every three years by a

qualified independent appraiser;

(g) Mr. Bookstein, as the Plans' independent fiduciary, has

determined that the transactions are appropriate for the Plans and in

the best interests of the Plans' participants and beneficiaries; and

(h) Mr. Bookstein, as the Plans' independent fiduciary, will

monitor the Lease, as well as the conditions of this proposed exemption

(if granted), and will take whatever actions are necessary to safeguard

the interests of the Plans under the Lease.

FOR FURTHER INFORMATION CONTACT: Christopher J. Motta of the

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

Daniel N. Cunningham IRA (the Cunningham IRA); Sidney B. Cox IRA

(the Cox IRA) (collectively, the IRAs), Located in Fresno,

California

[Exemption Application Numbers: D-10723 and D-10724]

Proposed Exemption

The Department is considering granting an exemption under the

authority of section 4975(c)(2) of the Code and in accordance with the

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

August 10, 1990). If the exemption is granted, the sanctions resulting

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

4975(c)(1)(A) through (E) of the Code, shall not apply to the purchase

(the Purchase) by each IRA 11 of certain shares of Clovis

Community Bank common stock (the Stock) from Mr. Daniel N. Cunningham

and Mr. Sidney B. Cox (the Account Holders), disqualified persons with

respect to the IRAs, provided that the following conditions are met:

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\11\ Because each IRA has only one participant, there is no

jurisdiction under 29 CFR Sec. 2510.3-3(b). However, there is

jurisdiction under Title II of the Act pursuant to section 4975 of

the Code.

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(a) The Purchase of the Stock by each IRA is a one-time transaction

for cash;

(b) Each IRA purchases the Stock for a price not exceeding the fair

market value of the Stock at the time of each Purchase;

(c) The terms and conditions of each Purchase are at least as

favorable as those available in an arm's length transaction with an

unrelated third party;

(d) Each IRA does not pay any commissions or other expenses in

connection with each Purchase;

(e) The IRA assets invested in the Stock do not exceed 25% of the

total assets of each IRA at the time of the transaction; and

(f) Each IRA, at all times, will hold less than one percent (1%) of

the outstanding shares of the Stock.

Effective Date: If this proposed exemption is granted, the

exemption will be effective as of April X, 1999.

Summary of Facts and Representations

1. The applicants describe the Account Holders, their holdings of

the Stock, and the IRAs as follows:

(a) Daniel N. Cunningham currently serves on the Board of Directors

of Clovis Community Bank (Clovis). As of December 31, 1998, he held

96,494 shares (48,851 directly and 47,643 indirectly) in his individual

capacity. The Cunningham IRA is an individual retirement account,

trusteed by Wheat First Union, established under Code section 408(e).

As of September 30, 1998, the IRA held assets valued at $1,483,007.

(b) Sidney B. Cox currently serves on the Board of Directors at

Clovis. As of December 22, 1998, he held 12,522 shares in his

individual capacity. The Cox IRA is an individual retirement account,

trusteed by Smith Barney, established under Code section 408(e). As of

September 30, 1998, the IRA held assets valued at $195,819.37.

2. The Stock consists of shares issued by Clovis. Clovis is a

California state-licensed bank with deposit accounts insured by the

Federal Deposit Insurance Corporation (the FDIC). Clovis is subject to

the regulation, supervision and periodic examination by the California

Department of Financial Institutions and the FDIC. Clovis is not a

member of the Federal Reserve system, but is nevertheless subject to

certain regulations relating thereto.

3. The Stock is common stock with no par value and the only class

authorized in the Clovis articles of incorporation. Currently, there

are 1,069,067 shares outstanding. The Stock is not listed on any

exchange, nor is it listed with NASDAQ. Trading of the Stock is limited

in volume with transactions coordinated between buyers and sellers

utilizing brokers. Bid and asked prices for the Stock are quoted weekly

in ``The Fresno Bee'' and the National Daily Quotation Service's ``pink

sheets.'' 12

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\12\ As of April 2, 1999, the Bid price was $21\1/2\ and the Ask

price was $23.

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4. The applicants request an exemption for the Purchase of the

Stock by each individual IRA from its respective participant. Each

Account Holder serves on the Board of Directors of Clovis 13

and has, in the past, been granted options to purchase shares of the

Stock. Each Account Holder has exercised such options and proposes

selling these newly acquired shares to his respective IRA. Sidney Cox

proposes selling to the Cox IRA the lesser of (1) 2,530 shares or (2)

an amount not exceeding 25% of the total assets of the

[[Page 25925]]

Cox IRA. Daniel Cunningham proposes selling 9,000 shares to the

Cunningham IRA.

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\13\ The applicants state that Mr. Cunningham's and Mr. Cox's

appointments to the Board of Directors of Clovis and their

continuing service thereon is not in any way related to the

acquisition and holding of the Stock by their IRAs. In addition, the

applicants represent that the purchase of the Stock by the IRAs will

not enable Mr. Cunningham or Mr. Cox to achieve any personal

financial objectives unrelated to the interests of the IRAs.

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

5. The applicants represent that each IRA will pay no commissions

or other expenses in connection with the Purchase. The Purchase will

involve a one-time transaction for cash. Each IRA will pay a share

price based on the average of the highest current independent bid and

lowest current independent offer as of the close of the business day

preceding the proposed Purchase, on the basis of a reasonable inquiry

from at least three broker-dealers or pricing services independent of

Clovis. The applicants further represent that the Stock will not exceed

25% of the value of the assets of each IRA at the time of the proposed

transaction. Finally, the applicants state that each IRA at all times

will hold less than one percent (1%) of the outstanding number of

Clovis shares.

6. The applicants represent that the proposed transactions are

feasible in that each transaction will involve a one-time transaction

for cash. Furthermore, the applicants state the proposed transactions

will be in the best interests of each IRA in that the Purchases will

enable each IRA to invest in a promising security at fair market value

without incurring any commissions. Finally, the applicants represent

that the transactions will be protective of the rights of each

participant because, at the time of the transaction, the investment

will not exceed 25% of the assets of each IRA.

7. In summary, the applicants represent that the proposed

transactions satisfy the statutory criteria of section 4975(c)(2) of

the Code because: (a) The Purchase of the Stock by each IRA will be a

one-time transaction for cash; (b) Each IRA will purchase the Stock for

a price not exceeding the fair market value of the Stock at the time of

Purchase; (c) The terms and conditions of each Purchase will be at

least as favorable as those available in an arm's length transaction

with an unrelated third party; (d) Each IRA will not pay any

commissions or other expenses in connection with each Purchase; (e) The

IRA assets invested in the Stock will not exceed 25% of the total

assets of each IRA at the time of the transaction; and (f) Each IRA, at

all times, will hold less than one percent (1%) of the outstanding

shares of the Stock.

NOTICE TO INTERESTED PERSONS: Because the applicants are the only

participants in the IRAs, it has been determined that there is no need

to distribute the notice of proposed exemption (the Notice) to

interested persons. Comments and requests for a hearing are due thirty

(30) days after publication of the Notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Mr. James Scott Frazier, telephone

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

General Information

The attention of interested persons is directed to the following:

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

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

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

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

including any prohibited transaction provisions to which the exemption

does not apply and the general fiduciary responsibility provisions of

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

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

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

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

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

for the exclusive benefit of the employees of the employer maintaining

the plan and their beneficiaries;

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

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

that the exemption is administratively feasible, in the interests of

the plan and of its participants and beneficiaries and protective of

the rights of participants and beneficiaries of the plan;

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

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

Code, including statutory or administrative exemptions and transitional

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

administrative or statutory exemption is not dispositive of whether the

transaction is in fact a prohibited transaction; and

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

express condition that the material facts and representations contained

in each application are true and complete and 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 7th day of May, 1999.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 99-12101 Filed 5-12-99; 8:45 am]

BILLING CODE 4510-22-P