[Federal Register Volume 59, Number 158 (Wednesday, August 17, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-20010]


[[Page Unknown]]

[Federal Register: August 17, 1994]


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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-9240, et al.]

 

Proposed Exemptions; The Bank of California

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of Proposed Exemptions.

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SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the prohibited transaction restriction 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 request 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. A request 
for a hearing must also state the issues to be addressed and include a 
general description of the evidence to be presented at the hearing.

ADDRESSES: All written comments and request for a hearing (at least 
three copies) should be sent to the Pension and Welfare Benefits 
Administration, Office of Exemption Determinations, Room N-5649, U.S. 
Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C. 
20210. Attention: Application No. stated in each Notice of Proposed 
Exemption. The applications for exemption and the comments received 
will be available for public inspection in the Public Documents Room of 
Pension and Welfare Benefits Administration, U.S. Department of Labor, 
Room N-5507, 200 Constitution Avenue, N.W., Washington, D.C. 20210.

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all 
interested persons in the manner agreed upon by the applicant and the 
Department within 15 days of the date of publication in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and to request a hearing 
(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in 
applications filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990). 
Effective December 31, 1978, section 102 of Reorganization Plan No. 4 
of 1978 (43 FR 47713, October 17, 1978) transferred the authority of 
the Secretary of the Treasury to issue exemptions of the type requested 
to the Secretary of Labor. Therefore, these notices of proposed 
exemption are issued solely by the Department.
    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

The Bank of California, N.A., Located in San Francisco, California; 
Proposed Exemption

[Application No. D-9240]

    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 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 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--Exemption for 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, effective November 12, 1993, 
to the in-kind transfer to any diversified open-end investment company 
(the Fund or Funds) registered under the Investment Company Act of 1940 
to which the Bank of California, N.A. or any of its affiliates 
(collectively, the Bank) serves as investment adviser and may provide 
other services of the assets of various employee benefit plans (the 
Plan or Plans) that are either held in certain collective investment 
funds (the CIF or CIFs) maintained by the Bank or otherwise held by the 
Bank as trustee, investment manager, or in any other capacity as 
fiduciary on behalf of the Plans, in exchange for shares of such Funds; 
provided that the following conditions are met:
    (a) A fiduciary (the Second Fiduciary) who is acting on behalf of 
each affected Plan and who is independent of and unrelated to the Bank, 
as defined in paragraph (g) of section III below, receives advance 
written notice of the in-kind transfer of assets of the Plans or the 
CIFs in exchange for shares of the Fund and the disclosures described 
in paragraph (g) of section II below;
    (b) On the basis of the information described in paragraph (g) of 
section II below, the Second Fiduciary authorizes in writing the in-
kind transfer of assets of the Plans in exchange for shares of the 
Funds, the investment of such assets in corresponding portfolios of the 
Funds, and the fees received by the Bank in connection with its 
services to the Fund. Such authorization by the Second Fiduciary to be 
consistent with the responsibilities, obligations, and duties imposed 
on fiduciaries by Part 4 of Title I of the Act;
    (c) No sales commissions are paid by the Plans in connection with 
the in-kind transfers of asset of the Plans or the CIFs in exchange for 
shares of the Funds;
    (d) All or a pro rata portion of the assets of the Plans held in 
the CIFs or all or a pro rata portion of the assets of the Plans held 
by the Bank in any capacities as fiduciary on behalf of such Plans are 
transferred in-kind to the Funds in exchange for shares of such Funds,
    (e) The Plans or the CIFs receive shares of the Funds that are 
equal in value to the assets of the Plans or the CIFs exchanged for 
such shares;
    (f) The value of the assets of the Plans or the CIFs to be 
transferred in-kind and the net asset value of the Funds receiving 
those assets in exchange for shares is 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(b) (Rule 
17a-7) under the Investment Company Act of 1940, as amended from time 
to time or any successor rule, regulation, or similar pronouncement;
    (g) Not later than thirty (30) days after completion of each in-
kind transfer of assets of the Plans or the CIFs in exchange for shares 
of the Funds, the Bank sends by regular mail to the Second Fiduciary, 
who is acting on behalf of each affected Plan and who is independent of 
and unrelated to the Bank, as defined in paragraph (g) of section III 
below, a written confirmation that contains 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 of 1940;
    (2) the price of each of the assets involved in the transaction; 
and
    (3) the identity of each pricing service or market maker consulted 
in determining the value of such assets; and
    (h) For all conversion transactions that occur after the date of 
this proposed exemption, the Bank, no later than ninety (90) days after 
completion of each in-kind transfer of assets of the Plans or the CIFs 
in exchange for shares of the Funds, will send by regular mail to the 
Second Fiduciary, who is acting on behalf of each affected Plan and who 
is independent of and unrelated to the Bank, as defined in paragraph 
(g) of section III below, a written confirmation that contains the 
following information:
    (1) the number of CIF units held by each affected Plan immediately 
before the conversion (and the related per unit value or the aggregate 
dollar value of the units transferred); and
    (2) the number of shares in the Funds that are held by each 
affected Plan following the conversion (and the related per share net 
asset value or the aggregate dollar value of the shares received).
    (i) The conditions set forth in paragraphs (d), (e), (f), (o), (p), 
(q) and (r) of section II below are satisfied;

Section II--Exemption for Receipt of Fees From Funds

    If the exemption is granted, effective November 12, 1993, 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)(D) through (F) of the Code shall not 
apply to the receipt of fees by the Bank from the Funds for acting as 
the investment adviser, custodian, sub-administrator, and other service 
provider for the Funds in connection with the investment in the Funds 
by the Plans for which the Bank acts as a fiduciary provided that:
    (a) No sales commissions are paid by the Plans in connection with 
purchases or sales of shares of the Funds and no redemption fees are 
paid in connection with the sale of such shares by the Plans to the 
Funds;
    (b) The price paid or received by the Plans for shares in the Funds 
is the net asset value per share, as defined in paragraph (e) of 
section III, at the time of the transaction and is the same price which 
would have been paid or received for the shares by any other investor 
at that time;
    (c) The Bank, its affiliates, and officers or directors have not 
and will not purchase from or sell to any of the Plans shares of any of 
the Funds;
    (d) The combined total of all fees received by the Bank 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, are not in excess of ``reasonable compensation'' within the 
meaning of section 408(b)(2) of the Act;
    (e) The Bank does not receive any fees payable, pursuant to Rule 
12b-1 under the Investment Company Act of 1940 (the 12b-1 Fees) in 
connection with the transactions;
    (f) The Plans are not sponsored by the Bank;
    (g) A Second Fiduciary who is acting on behalf of a Plan and who is 
independent of and unrelated to the Bank, as defined in paragraph (g) 
of section III below, receives in advance of the investment by a Plan 
in any of the Funds a full and detailed written disclosure of 
information concerning such Fund including, but not limited to:
    (1) a current prospectus for each portfolio of each of the Funds in 
which such Plan is considering 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 
III below, and all other fees to be charged to or paid by the Plan and 
by such Funds to the Bank, including the nature and extent of any 
differential between the rates of such fees,
    (3) the reasons why the Bank may consider such investment to be 
appropriate for the Plan,
    (4) a statement describing whether there are any limitations 
applicable to the Bank with respect to which assets of a Plan may be 
invested in the Funds, and, if so, the nature of such limitations; and
    (5) upon request of the Second Fiduciary, a copy of the proposed 
exemption and/or a copy of the final exemption, if granted.
    (h) On the basis of the information described in paragraph (g) of 
this section II, the Second Fiduciary authorizes in writing: (1) the 
investment of assets of the Plans in shares of the Fund, in connection 
with the transaction set forth in section II; (2) the investment 
portfolios of the Funds in which the assets of the Plans may be 
invested; and (3) the fees received by the Bank in connection with its 
services to the Funds; such authorization by the Second Fiduciary to be 
consistent with the responsibilities obligations, and duties imposed on 
fiduciaries by Part 4 of Title I of the Act;
    (i) The authorization, described in paragraph (h) of this section 
II, is terminable at will by the Second Fiduciary of a Plan, without 
penalty to such Plan. Such termination will be effected by the Bank 
selling the shares of the Fund held by the affected Plan within one 
business day following receipt by the Bank, either by mail, hand 
delivery, facsimile, or other available means at the option of the 
Second Fiduciary, of the termination form (the Termination Form), as 
defined in paragraph (i) of section III below, or any other written 
notice of termination; provided that if, due to circumstances beyond 
the control of the Bank, the sale cannot be executed within one 
business day, the Bank shall have one additional business day to 
complete such sale;
    (j) Plans do not pay any plan-level investment management fees, 
investment advisory fees, or similar fees to the Bank with respect to 
any of the assets of such Plans which are invested in shares of any of 
the Funds. This condition does not preclude the payment of investment 
advisory fees or similar fees by the Funds to the Bank under the terms 
of an investment advisory agreement adopted in accordance with section 
15 of the Investment Company Act of 1940 or other agreement between the 
Bank and the Funds;
    (k) In the event of an increase in the rate of any fees paid by the 
Funds to the Bank regarding any investment management services, 
investment advisory services, or fees for similar services that the 
Bank provides to the Funds over an existing rate for such services that 
had been authorized by a Second Fiduciary, in accordance with paragraph 
(h) of this section II, the Bank will, at least thirty (30) days in 
advance of the implementation of such increase, provide a written 
notice (which may take the form of a proxy statement, letter, or 
similar communication that is separate from the prospectus of the Fund 
and which explains the nature and amount of the increase in fees) to 
the Second Fiduciary of each of the Plans invested in a Fund which is 
increasing such fees. Such notice shall be accompanied by the 
Termination Form, as defined in paragraph (i) of section III below;
    (l) In the event of an addition of a Secondary Service, as defined 
in paragraph (h) of section III below, provided by the Bank to the Fund 
for which a fee is charged or an increase in the rate of any fee paid 
by the Funds to the Bank for any Secondary Service, as defined in 
paragraph (h) of section III below, that results either from an 
increase in the rate of such fee or from the decrease in the number or 
kind of services performed by the Bank for such fee over an existing 
rate for such Secondary Service which had been authorized by the Second 
Fiduciary of a Plan, in accordance with paragraph (h) of this section 
II, the Bank will at least thirty (30) days in advance of the 
implementation of such additional service for which a fee is charged or 
fee increase, provide a written notice (which may take the form of a 
proxy statement, letter, or similar communication that is separate from 
the prospectus of the Fund and which explains the nature and amount of 
the additional service for which a fee is charged or the nature and 
amount of the increase in fees) to the Second Fiduciary of each of the 
Plans invested in a Fund which is adding a service or increasing fees. 
Such notice shall be accompanied by the Termination Form, as defined in 
paragraph (i) of section III below.
    (m) The Second Fiduciary is supplied with a Termination Form at the 
times specified in paragraphs (k), (l), and (n) of this section II, 
which expressly provides an election to terminate the authorization, 
described above in paragraph (h) of this section II, with instructions 
regarding the use of such Termination Form including statements that:
    (1) the authorization is terminable at will by any of the Plans, 
without penalty to such Plans. Such termination will be effected by the 
Bank selling the shares of the Fund held by the Plans requesting 
termination within one business day following receipt by the Bank, 
either by mail, hand delivery, facsimile, or other available means at 
the option of the Second Fiduciary, of the Termination Form or any 
other written notice of termination; provided that if, due to 
circumstances beyond the control of the Bank, the sale of shares of 
such Plans cannot be executed within one business day, the Bank shall 
have one additional business day to complete such sale; and
    (2) failure by the Second Fiduciary to return the Termination Form 
on behalf of a Plan will be deemed to be an approval of the additional 
Secondary Service for which a fee is charged or increase in the rate of 
any fees, if such Termination Form is supplied pursuant to paragraphs 
(k) and (l) of this section II, and will result in the continuation of 
the authorization, as described in paragraph (h) of this section II, of 
the Bank to engage in the transactions on behalf of such Plan;
    (n) The Second Fiduciary is supplied with a Termination Form, 
annually during the first quarter of each calendar year, beginning with 
the first quarter of the calendar year that begins after the date the 
grant of this proposed exemption is published in the Federal Register 
and continuing for each calendar year thereafter; provided that the 
Termination Form need not be supplied to the Second Fiduciary, pursuant 
to paragraph (n) of this section II, sooner than six months after such 
Termination Form is supplied pursuant to paragraphs (k) and (l) of this 
section II, except to the extent required by said paragraphs (k) and 
(l) of this section II to disclose an additional Secondary Service for 
which a fee is charged or an increase in fees;
    (o)(1) With respect to each of the Funds in which a Plan invests, 
the Bank will provide the Second Fiduciary of such Plan:
    (A) at least annually with a copy of an updated prospectus of such 
Fund;
    (B) upon the request of such Second Fiduciary, 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 
the Bank; and
    (2) With respect to each of the Funds in which a Plan invests, in 
the event such Fund places brokerage transactions with the Bank, the 
Bank will provide the Second Fiduciary of such Plan at least annually 
with a statement specifying:
    (A) the total, expressed in dollars, brokerage commissions of each 
Fund's investment portfolio that are paid to the Bank by such Fund;
    (B) the total, expressed in dollars, of brokerage commissions of 
each Fund's investment portfolio that are paid by such Fund to 
brokerage firms unrelated to the Bank;
    (C) the average brokerage commissions per share, expressed as cents 
per share, paid to the Bank by each portfolio of a Fund; and
    (D) the average brokerage commissions per share, expressed as cents 
per share, paid by each portfolio of a Fund to brokerage firms 
unrelated to the Bank;
    (p) All dealings between the Plans and any of the Funds are 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;
    (q) The Bank maintains for a period of six (6) years the records 
necessary to enable the persons, as described in paragraph (r) of 
section II below, 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 the Bank, the 
records are lost or destroyed prior to the end of the six (6) year 
period, and
    (2) no party in interest, other than the Bank, shall be subject to 
the civil penalty that may be assessed under section 502(i) of the Act, 
or to the taxes imposed by section 4975 (a) and (b) of the Code, if the 
records are not maintained, or are not available for examination as 
required by paragraph (r) of section II below;
    (r)(1) Except as provided in paragraph (r)(2) of this section II 
and notwithstanding any provisions of subsection (a)(2) and (b) of 
section 504 of the Act, the records referred to in paragraph (q) of 
section II above are unconditionally available at their customary 
location for examination during normal business hours by--
    (i) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service;
    (ii) Any fiduciary of each of the 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
    (iii) 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 (r)(1)(ii) and 
(r)(1)(iii) of section II shall be authorized to examine trade secrets 
of the Bank, or commercial or financial information which is privileged 
or confidential.

Section III--Definitions

    For purposes of this proposed exemption,
    (a) The term ``Bank'' means The Bank of California, N.A. and any 
affiliate of the Bank, as defined in paragraph (b) of this section III.
    (b) An ``affiliate'' of a person includes: (1) Any person directly 
or indirectly through one or more intermediaries, controlling, 
controlled by, or under common control with the person;
    (2) any officer, director, employee, relative, or partner in any 
such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (c) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual;
    (d) The term ``Fund or Funds'' means any diversified open-end 
investment company or companies registered under the Investment Company 
Act of 1940 for which the Bank serves as investment adviser, and may 
also provide custodial or other services as approved by such Funds;
    (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 the Bank. For purposes of this 
exemption, the Second Fiduciary will not be deemed to be independent of 
and unrelated to the Bank if:
    (1) Such Second Fiduciary directly or indirectly controls, is 
controlled by, or is under common control with the Bank;
    (2) Such Second Fiduciary, or any officer, director, partner, 
employee, or relative of such Second Fiduciary is an officer, director, 
partner, or employee of the Bank (or is a relative of such persons);
    (3) Such Second Fiduciary directly or indirectly receives any 
compensation or other consideration for his or her own personal account 
in connection with any transaction described in this proposed 
exemption.
    If an officer, director, partner, or employee of the Bank (or a 
relative of such persons), is a director of such Second Fiduciary, and 
if he or she abstains from participation in (i) the choice of the 
Plan's investment manager/advisor, (ii) the approval of any purchase or 
sale by the Plan of shares of the Funds, and (iii) the approval of any 
change of fees charged to or paid by the Plan, in connection with any 
of the transactions described in sections I and II above, then 
paragraph (g)(2) of section III above, 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 the Bank to the Funds, including but not limited to 
custodial, accounting, brokerage, administrative, or any other service.
    (i) The term, ``Termination Form,'' means the form supplied to the 
Second Fiduciary, at the times specified in paragraphs (k), (l), and 
(n) of section II above, which expressly provides an election to the 
Second Fiduciary to terminate on behalf of the Plans the authorization, 
described in paragraph (h) of section II. Such Termination Form may be 
used at will by the Second Fiduciary to terminate such authorization 
without penalty to the Plans and to notify the Bank in writing to 
effect such termination by selling the shares of the Fund held by the 
Plans requesting termination within one business day following receipt 
by the Bank, either by mail, hand delivery, facsimile, or other 
available means at the option of the Second Fiduciary, of written 
notice of such request for termination; provided that if, due to 
circumstances beyond the control of the Bank, the sale cannot be 
executed within one business day, the Bank shall have one additional 
business day to complete such sale.

EFFECTIVE DATE: If the proposed exemption is granted, the exemption 
will be effective retroactively, as of November 12, 1993.

Summary of Facts and Representations

    1. The Bank is a national banking association having its principal 
office at 400 California Street, San Francisco, California. The Bank 
offers a wide range of banking services to its clients in California, 
Oregon, Washington, and around the world. The Mitsubishi Bank Limited, 
a Japanese bank with principal offices in Tokyo, owns either directly 
or indirectly through its wholly owned subsidiary, BanCal Tri-State 
Corporation, all of the outstanding stock of the Bank. The Bank has 
total trust and non-trust assets of approximately $19.5 billion and 
$8.4 billion, respectively. Merus Capital Management (MERUS), a 
division of the Bank, belongs to the Bank's Trust and Investment 
Management Group which manages approximately $5.5 billion of the assets 
held in trust by the Bank.
    2. The Plans involved in the transactions for which the Bank 
requests exemptive relief are numerous Plans for which the Bank has 
acted or will act as fiduciary and has exercised or will exercise 
investment discretion with respect to all or a portion of the assets of 
such Plans.2 For this reason, certain specific information 
relating to each individual involved Plan does not appear in the 
application. However, it is anticipated that the Plans include or will 
include various employee benefit plans, as defined by section 3(3) of 
the Act, and certain plans or trusts, as described in section 
4975(e)(1) of the Code. These Plans are sponsored or maintained by 
parties unrelated to the Bank.3 Such Plans include, among others: 
(1) pension, profit sharing, stock bonus, and other retirement plans 
which are qualified for tax purposes under section 401(a) of the Code, 
(2) voluntary employees' beneficiary associations and other welfare 
benefit plans, and (3) individual retirement accounts and simplified 
employee pension plans, as described in section 408 of the Code. The 
Bank serves as fiduciary to these Plans through the management of the 
CIFs in which the Plans invest or through providing individual 
management or advice to the Plans.
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    \2\The Department herein is not proposing relief for 
transactions afforded relief by Section 404(c) of the Act.
    \3\The Department, herein, is not proposing relief for 
transactions involving any plan sponsored by the Bank or its 
affiliates.
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    It is represented that the Bank, as of October 23, 1992, had under 
management approximately $760 million in assets from approximately 400 
Plans. The Bank receives compensation for serving as fiduciary with 
respect to these Plans in accordance with standard published fee 
schedules or as otherwise agreed upon by the Bank and the sponsors of 
such Plans.4
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    \4\The Department expresses no opinion as to whether the 
provision of services by the Bank or its affiliates to the Plans 
satisfies the requirements for statutory exemption, as set forth in 
section 408(b)(2) of the Act and 29 CFR 2550.408(b)(2) of the 
Department's regulation. To the extent that such provision of 
services to the Plan by the Bank or its affiliates does not satisfy 
the requirements of section 408(b)(2) of the Act, the Department, 
herein, is offering no relief.
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    3. The Bank or its affiliates also provide services to numerous 
Funds. The Funds are open-end investment companies registered under the 
Investment Company Act of 1940. Because the Bank would like the 
exemption to apply prospectively to any Fund to which the Bank or any 
of its affiliates may provide services, the Bank represents that it 
cannot supply detailed information on each such future Fund. However, 
the Bank has provided a detailed description with respect to a certain 
Fund, the HighMark Group (HighMark), which is currently operating and 
to which it provides services. The Bank represents that all future 
Funds will assume similar structures and Plan investments therein will 
be subject to the terms and conditions of this exemption. The structure 
of HighMark is summarized in paragraph 4 below. To the extent Plans for 
which the Bank serves as fiduciary are currently invested in HighMark, 
the Bank represents that such investments were made in compliance with 
Prohibited Transaction Class Exemption 77-4 (PTCE 77-4).5
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    \5\PTCE 77-4 was granted April 8, 1977, at 42 FR 732 and was 
proposed November 16, 1976, at 41 FR 50516.
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    4. HighMark, a Massachusetts business trust organized on March 10, 
1987, is registered under the Investment Company Act of 1940 as a 
diversified, open-end, management investment company. HighMark is 
governed by a board of trustees (the HighMark Trustees), all of whom 
are independent of the Bank. MERUS, a division of the Bank, acts as 
investment adviser to HighMark. In the context of registered investment 
companies, the term ``investment adviser'' generally refers to the 
entity that has investment management authority with respect to the 
assets of the investment company. In this regard, subject to the 
general supervision of the HighMark Trustees, MERUS manages each of the 
separate investment portfolios within HighMark in accordance with the 
investment objectives, and policies of each portfolio, makes decisions 
with respect to and places orders for all purchases and sales of 
securities, and maintains records with respect thereto. In addition, 
the Bank serves as custodian, sub-administrator, sub-transfer agent, 
and sub-accountant to HighMark. It is represented that the Bank may in 
the future seek to serve in additional capacities for and to provide 
additional services to HighMark.
    HighMark consists of separate investment portfolios with combined 
total net assets of approximately $1 billion. It is represented that 
currently there are eight (8) portfolios in HighMark. Three of these 
portfolios are invested in money market instruments (the Money Market 
Portfolios), and three are invested primarily in non-money market debt 
or equity securities (the Non-Money Market Portfolios). The remaining 
two portfolios of HighMark are the California Tax-Free Fund, and the 
Tax-Free Fund.6 In addition to these portfolios, HighMark is in 
the process of establishing two additional portfolios, the Balanced 
Fund and the Growth Fund, and may establish other portfolios.
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    \6\It is represented that the Tax-Free Fund has been the subject 
of an inquiry by the Securities and Exchange Commission (SEC) 
concerning a municipal bond backed by Mutual Benefit Life Insurance 
Company held in the Tax-Free Fund. In July 1991, when Mutual Benefit 
Life Insurance Company was seized by its regulator, the Bank was 
serving as accountant for the Tax-Free Fund. It is represented that 
due to a clerical data entry error and the failure of an employee to 
follow established procedures, the impact of the seizure on the 
value of the bond was not brought to the attention of the management 
of the Bank until August 1991. At that time, the Bank represents 
that it informed the SEC, purchased the bond from the Tax-Free Fund 
at par plus accrued interest, and informed shareholders by mailing 
to them a special prospectus, dated September 5, 1991. As the 
situation was corrected promptly, the Bank believes that this should 
not affect the merits of the application or the availability of the 
Tax-Free Fund for investment by the Plan, if deemed appropriate 
under the circumstances as authorized by the Second Fibuciary, and 
if based on criteria set forth in section 404 of the Act.
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    In the future HighMark may modify, reorganize, or terminate any or 
all of its portfolios. All existing portfolios and any portfolios 
established or modified in the future will be available for investment 
by the Plans, if deemed appropriate under the circumstances, as 
authorized by the Second Fiduciary, and if based on criteria set forth 
in section 404 of the Act. However, it is represented that the Bank 
does not expect the Plans ordinarily to be invested in tax-free funds.
    Winsbury Company (Winsbury), located in Columbus, Ohio, serves as 
the general manager, administrator, and principal underwriter of 
HighMark. For these administrative services, Winsbury receives fees 
computed daily at .20% of the average net assets of each portfolio of 
HighMark. Winsbury also receives fees from HighMark for serving as the 
distributor of shares in HighMark. Pursuant to a plan of distribution 
implemented only with respect to the Class A shares for the Money 
Market Portfolios, HighMark pays out of the assets attributable to such 
shares monthly fees to Winsbury in accordance with Rule 12b-1 of the 
Investment Company Act of 1940 (the 12b-1 Fees) equal to .25% of the 
average daily net assets attributable to such shares.7 An 
affiliate of Winsbury, the Winsbury Service Corporation (Winsbury 
Service), is the transfer agent, accountant, and shareholder servicing 
agent of HighMark. Winsbury and Winsbury Service are unrelated to the 
Bank.
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    \7\It is represented that the Plans currently are invested only 
in shares of HighMark that are not subject to 12b-1 Fees and that 
there is no present intention to change this arrangement. The 
Department notes that proposed relief is limited to the transactions 
described herein, and no relief has been provided in connection with 
the payment of distribution expenses, pursuant to Rule 12b-1 under 
the Investment Company Act.
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    5. Because the Bank recognizes that (1) in-kind transfers to Funds 
that the Bank services or advises of all or a pro rata portion of Plan 
assets in the CIFs or all or a pro rata portion of Plan assets that the 
Bank otherwise manages, and (2) the approval process for additional 
services for which a fee is charged and fee increases by the Bank for 
these services may be outside the scope of PTCE 77-4, the Bank has 
requested relief for the transactions described in section I and II. 
Each of these transactions is discussed more fully in paragraphs 6, 7, 
8, and 9 below. The exemption for each of the transactions involving 
HighMark is conditioned on the satisfaction of certain requirements and 
compliance with various general conditions which are also discussed 
below. It is the Bank's expressed intention that the description of 
these transactions and the conditions of the requested exemption with 
respect to such transactions were and will be applicable uniformly to 
HighMark and to any of the other Funds for which the Bank serves as the 
investment advisor and in which the Plans invest.

In-Kind Transfers to Funds

    6. It is represented that the Bank has maintained CIFs in which the 
Plans have invested in accordance with Regulation 9 promulgated by the 
Comptroller of the Currency and the Internal Revenue Service. The Bank 
has decided to terminate certain CIFs and to offer to the Plans 
participating in such CIFs appropriate interests in certain Funds as 
alternative investments. Because interests in CIFs generally must be 
liquidated or withdrawn to effect distributions, the Bank believes that 
the interests of the Plans invested in CIFs would be better served by 
investment in shares of the Funds which can be distributed in-kind. 
Also, the Bank believes that the Funds offer the Plans numerous 
advantages as pooled investment vehicles. In this regard, the Plans, as 
shareholders of a Fund, have the opportunity to exercise voting and 
other shareholder rights.
    The Plans, as shareholders of the Funds, as mandated by the SEC, 
periodically receive certain disclosures concerning the Funds: (1) a 
copy of the prospectus which is updated annually; (2) an annual report 
containing audited financial statements of the Funds and information 
regarding such Funds performance (unless such performance information 
is included in the prospectus of such Funds); (3) a semi-annual report 
containing unaudited financial statements; and (4) at the option of the 
Funds other pertinent information. With respect to the Plans, the Bank 
reports all transactions in shares of the Funds in periodic account 
statements provided the Second Fiduciary of each of the Plans. Further, 
the Bank maintains that the investment performance of the portfolios of 
the Funds can be monitored daily from information available in 
newspapers of general circulation.
    In order to avoid the potentially large brokerage expenses that 
would otherwise be incurred, the Bank proposes that from time to time 
assets of the CIFs be transferred in-kind to corresponding portfolios 
of the Funds in exchange for shares of such Funds. In this regard, some 
Funds may, as in the case of HighMark, be in existence and operating at 
the time of the in-kind transfer of such assets. Some Funds may be 
created to assume the assets of the terminating CIF. Similarly, the 
Bank proposes that from time to time it may be appropriate for an 
individual Plan for which the Bank serves as fiduciary to transfer all 
or a pro rata share of its assets in-kind to any of the Funds in 
exchange for shares of such Funds. In this regard, for example, in the 
case of an in-kind exchange between an individual Plan whose portfolio 
consists of common stock, money market securities, and real estate, and 
a Fund that, under its investment policy, invests only in common stock 
and money market securities, the exchange would involve all or a pro 
rata share of the common stock and money market securities held by the 
Plan, if such stock and securities are eligible for purchase by the 
Fund,\8\ and would not involve the transfer or exchange of the real 
estate holdings of such Plan. No brokerage commission or other fees or 
expenses (other than customary transfer charges paid to parties other 
than the Bank or its affiliates) have been or will be charged to the 
Plans or the CIFs in connection with the in-kind transfers of assets 
into the Funds and the acquisition of shares of the Funds by the Plans 
or the CIFs. Thus, in addition to retroactive relief, the Bank has 
requested prospective relief for transactions which would involve: (1) 
the in-kind transfer by the CIFs of all or a pro rata portion of the 
assets of any of the Plans held in such CIFs to the Funds in exchange 
for shares of the Fund which subsequently are distributed to the Plans; 
or (2) the in-kind transfer of all or a pro rata portion of the assets 
of any of the Plans held by the Bank in any capacity as fiduciary on 
behalf of such Plans to the Funds in exchange for shares of such Funds; 
provided that conditions described in section I above are satisfied.
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    \8\It is represented that a Fund's eligible investments are 
described under ``Investment Policies and Fund Portfolio'' of its 
prospectus.
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    The Bank maintains that the transfers in-kind of assets in exchange 
for shares of the Funds are ministerial transactions performed in 
accordance with pre-established objective procedures which are approved 
by the board of trustees of each Fund. Such procedures require that 
assets transferred to a Fund: (1) are consistent with the investment 
objectives, policies, and restrictions of the corresponding portfolios 
of such Fund, (2) satisfy the applicable requirements of the Investment 
Company Act of 1940 and the Code, (3) have a readily ascertainable 
market, (4) are liquid, and (5) are not subject to restrictions on 
resale. It is represented that assets which do not meet these 
requirements will be sold in the open market through an unaffiliated 
brokerage firm prior to any transfer in-kind. Further, as described in 
section I, prior to entering into an in-kind transfer each affected 
Plan receives certain disclosures from the Bank and approves such 
transaction in writing.
    The Bank represents that valuation of assets transferred in-kind to 
the Funds will be established by reference to independent sources. In 
this regard, for purposes of the transaction, it is represented that 
all assets transferred in-kind are valued in accordance with the 
valuation procedures described in Rule 17a-7(b) under the Investment 
Company Act of 1940, as amended from time to time or any successor 
rule, regulation, or similar pronouncement. Further, the Bank 
represents that within thirty (30) days of the completion of a transfer 
in-kind, it will provide to Plans written confirmation of the identity 
of each security valued under Rule 17a-7(b)(4), the price of each 
security, and the identity of each pricing service or market maker 
consulted in determining the value of the assets transferred. The 
securities subject to valuation under Rule 17(a)-7(b)(4) include all 
securities other than ``reported securities,'' as the term is defined 
in Rule 11Aa3-1 under the Securities Exchange Act of 1934 (the 1934 
Act), or those quoted on the NASDAQ system or for which the principal 
market is an exchange.
    It is represented that the value of the assets transferred in-kind 
will be equal to the aggregate value of the corresponding portfolios 
shares of the Fund at the close of business on the date of the 
transaction. In this regard, it is represented that for all conversion 
transactions that occur after the date of this proposed exemption, the 
Bank, no later than ninety (90) days after completion of each in-kind 
transfer of assets of the Plans or the CIFs in exchange for shares of 
the Funds, will mail to the Second Fiduciary a written confirmation of 
the number of CIF units held by each affected Plan immediately before 
the conversion (and the related per unit value or the aggregate dollar 
value of the units transferred), and the number of shares in the Funds 
that are held by each affected Plan following the conversion (and the 
related per share net asset value or the aggregate dollar value of the 
shares received).
    7. The Bank has requested retroactive relief, for the in-kind 
transfer to HighMark that occurred over the weekend of November 12, 
1993. It is represented that on the weekend of November 12, 1993, all 
of the assets of five CIFs\9\, which were maintained by the Bank and in 
which the Plans held interests, were transferred to HighMark in 
exchange for an appropriate number of shares of certain portfolios of 
HighMark which have investment objectives and policies substantially 
identical to those of the CIFs. At the same time, the five CIFs were 
terminated and the assets of each, then consisting of shares in 
portfolios of HighMark, were distributed in-kind to the Plans 
participating in such CIFs based on each Plan's pro rata share of the 
assets of the CIFs on the date of the transaction.
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    \9\It is represented that the CIFs maintained by the Bank which 
engaged in the transfer in-kind on November 12, 1993, were the 
Balanced Fund, the Flexible Bond Fund A, the Government Fund, the 
Income and Growth Equity Fund, and the Income Equity Fund A.
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    The Bank provided to the Second Fiduciary for each affected Plan 
disclosures that announced the termination of the CIFs, summarized the 
transaction, and otherwise complied with provisions of Section I. It is 
represented that based on these disclosures, the Second Fiduciary from 
each affected Plan approved in writing the transfer of the CIFs assets 
to the corresponding portfolios of HighMark, the investment of the 
assets of the Plans in shares of HighMark, and the receipt by the Bank 
of fees for services to HighMark and to the Plans. It is represented 
that the assets of Plans that did not approve investment in HighMark 
were withdrawn from the CIFs and held or invested in appropriate 
alternative investments in accordance with the terms of such Plans.
    Prior to the transaction, the assets of the five CIFs were reviewed 
to confirm that such were appropriate investments for the corresponding 
portfolios of HighMark into which such assets were transferred. If any 
of the assets of the five CIFs were not appropriate for HighMark, it is 
represented that the Bank sold such assets in the open market through 
an unaffiliated brokerage firm prior to the transfer.
    It is represented that the assets transferred by the five CIFs to 
HighMark consisted entirely of cash and marketable securities. For 
purposes of the transfer in-kind, the value of the securities in each 
of the five CIFs were determined based on market values as of the close 
of business on November 12, 1993, the last business date prior to the 
transfer. It is represented that the values were determined in a single 
valuation using the valuation procedures described in Rule 17a-7 under 
the Investment Company Act of 1940. In this regard, it is represented 
that the ``current market price'' for specific types of CIF securities 
involved in the transaction was determined as follows:
    (1) If the security was a ``reported security'' as the term is 
defined in Rule 11Aa3-1 under the 1934 Act, the last sale price with 
respect to such security reported in the consolidated transaction 
reporting system (the Consolidated System) for November 12, 1993; or if 
there were no reported transactions in the Consolidated System that 
day, the average of the highest independent bid and the lowest 
independent offer for such security (reported pursuant to Rule 11Ac1-1 
under the 1934 Act), as of the close of business on November 12, 1993; 
or
    (2) 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 November 12, 1993; or if there were no reported 
transactions on such exchange that day, the average of the highest 
independent bid and lowest independent offer on such exchange as of the 
close of business on November 12, 1993; or
    (3) If the security was not a reported security and was quoted in 
the NASDAQ system, then the average of the highest independent bid and 
lowest independent offer reported on Level 1 of NASDAQ as of the close 
of business on November 12, 1993; or
    (4) For all other securities, the average of the highest 
independent bid and lowest independent offer as of the close of 
business on November 12, 1993, determined on the basis of reasonable 
inquiry. For securities in this category, the Bank represents that it 
obtained quotations from at least three sources that were either 
broker-dealers or pricing services independent of and unrelated to the 
Bank and, where more than one valid quotation was available, used the 
average of the quotations to value the securities, in conformance with 
interpretations by the SEC and practice under Rule 17a-7.
    It is represented that the securities received by the corresponding 
portfolio of HighMark were valued by such portfolio for purposes of the 
transfer 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 HighMark issued to the CIFs were based on the corresponding 
portfolio's then current net asset value. It is represented that the 
aggregate value of the shares of the corresponding portfolio of 
HighMark issued to the CIFs were equal to the value of the assets (cash 
and marketable securities) transferred to such portfolio as of the 
close of business on November 12, 1993. It is also represented that the 
value of a Plan's investment in shares of a corresponding portfolio of 
HighMark as of the opening of business on the first business day after 
the transaction (November 15, 1993) was equal to the value of such 
Plan's investment in the CIF as of the close of business on the last 
business day prior to the transaction (November 12, 1993).
    It is represented that not later than thirty (30) days after 
completion of the transaction (December 15, 1993), the Bank sent by 
regular mail a written confirmation of the transaction to each affected 
Plan. Such confirmation contained: (1) the identity of each security 
that was valued in accordance with Rule 17a7(b)(4), as described in the 
paragraph 7(4) above; (2) the price of each such security for purposes 
of the transaction; and (3) the identity of each pricing service or 
market maker consulted in determining the value of such securities. To 
reiterate the above discussion, and in accordance with the conditions 
under section I, similar procedures will occur upon any future in-kind 
exchanges between CIFs maintained by the Bank, Plans, and the Funds.

Receipt of Fees From Funds

    8. It is represented that the Bank currently invests assets of the 
Plans it manages in shares of the Funds in accordance with the 
conditions set forth in PTCE 77-4. Under certain conditions, PTCE 77-4 
permits the Bank to receive fees from the Funds under either of two 
circumstances: (a) where a Plan does not pay any investment management, 
investment advisory, or similar fees with respect to the assets of such 
Plan invested in shares of a Fund for the entire period of such 
investment; or (b) where a Plan pays investment management, investment 
advisory, or similar fees to the Bank based on the total assets of such 
Plan from which a credit has been subtracted representing such Plan's 
pro rata share of such investment advisory fees paid to the Bank by the 
Fund. As such, it is represented that there are two levels of fees--
those fees which the Bank charges to the Plans for serving as trustee 
with investment discretion or as investment manager (the Plan-level 
fees); and those fees the Bank charges to the Funds (the Fund-level 
fees) for serving as investment advisor, custodian, or service 
provider.
    It is represented that at present the vast majority of Plans for 
which the Bank acts as a fiduciary do not pay any separate Plan-level 
investment management, investment advisory, or similar fees with 
respect to the assets of such Plans invested in shares of the Funds. A 
few Plans, however, continue to pay Plan-level investment management, 
investment advisory, and similar fees and receive credits which 
represent each of the Plans pro rata share of investment advisory fees 
paid to the Bank by the Funds. The Bank represents that Plan-level fees 
currently charged are paid monthly and are calculated as a percentage 
of the market value of the assets of a Plan with respect to which the 
Bank provides services. It is represented that Plan-level investment 
management, investment advisory or similar fees for all of the services 
provided by the Bank, including services in connection with the 
automated cash ``sweep'' arrangement, are charged in the form of a 
single asset-based fee. It is represented that Plan-level fees are 
subject to annual minimums for administration and management expressed 
as flat dollar amounts and are subject to the application of certain 
``break points.'' In addition to the Plan-level fees for investment 
management, investment advisory, or similar services, a one-time fee 
(also a flat dollar amount) may be charged in connection with the 
establishment of an account for a Plan, and separate transaction fees 
may be charged for various administrative transactions, such as for 
example, a participant loan. It is represented that depending on the 
terms of the governing documents of the Plan, Plan-level fees are paid 
to the Bank either by the sponsor of the Plan or from the assets of the 
Plan.
    As mentioned above, the Bank also receives Fund-level fees. Such 
Fund-level fees can be divided into: (1) fees paid to the Bank by a 
Fund for investment management, investment advisory, or similar 
services provided to such Fund, and (2) fees paid to the Bank for 
administrative, custodial, transfer, accounting, and other Secondary 
Services provided either to such Fund or to the distributor of shares 
of such Funds and its affiliates. For example, with respect to 
investment management/advisory services and Secondary Services, the 
current fee arrangements between the Bank and HighMark provide for: (1) 
MERUS, a division of the Bank, to receive fees from HighMark for acting 
as investment advisor, (2) the Bank to receive custodian fees from 
HighMark, (3) the Bank to receive fees from Winsbury for serving as 
sub-administrator to HighMark, and (4) the Bank to receive fees from 
Winsbury Services for services as sub-accountant and sub-transfer agent 
provided to HighMark. It is represented that this compensation paid to 
the Bank for investment advisory services and Secondary Services is in 
accordance with various agreements between Winsbury, Winsbury Service, 
HighMark, and the Bank. In this regard, it is represented that the 
HighMark Trustees and the shareholders of HighMark approve the 
compensation that the Bank receives from HighMark. Also, the HighMark 
Trustees approve any changes in the compensation paid to the Bank for 
services rendered to HighMark.
    It is represented that the Fund-level fees from HighMark are 
computed daily and billed monthly. The Bank represents that at the end 
of each month and promptly upon receipt of the Fund-level fees from 
HighMark, for those Plans which pay to the Bank Plan-level investment 
management, investment advisory, or similar fees, the Bank currently 
credits to each Plan its pro rata share of all investment management, 
investment advisory, or similar fees charged by the Bank to HighMark.
    9. Under the fee structure proposed in this exemption, it is 
represented that the arrangement for Plan-level fees where assets of 
the Plans managed by the Bank are invested in the Funds is different in 
several respects from that described in paragraph 8 above. In this 
regard, a separate Plan-level fee will be charged to the Plans for 
basic administrative services not including investment management.\10\ 
Such administrative services would include, among others, the Bank's 
acting as custodian of the assets of a Plan, maintaining the records of 
a Plan, preparing periodic reports concerning the status of the Plan 
and its assets, and accounting for contributions, benefit 
distributions, and other receipts and disbursements. It is represented 
that these functions performed by the Bank on the Plan-level are 
separate and distinct from those performed on the Fund-level by the 
Bank, by Winsbury, and by Winsbury Services.
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    \10\The fact that certain transactions and fee arrangements are 
the subject of an administrative exemption does not relieve the 
fiduciaries of the Plans from the general fiduciary responsibility 
provisions of section 404 of the Act. Thus, the Department cautions 
the fiduciaries of the Plans investing in the Funds that they have 
an ongoing duty under section 404 of the Act to monitor the services 
provided to the Plans to assure that the fees paid by the Plans for 
such services are reasonable in relation to the value of the 
services provided. Such responsibilities would include 
determinations that the services provided are not duplicative and 
that the fees are reasonable in light of the level of services 
provided.
    In addition, the Department notes that the combined total of all 
fees received by the Bank directly or indirectly from the Plan for 
the provision of services to the Plan and/or to the Fund should not 
be in excess of ``reasonable compensation'' within the meaning of 
section 408(b)(2) of the Act.
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    It is represented that the Bank will continue to receive 
compensation from the Plans for investment management services provided 
with respect to assets of the Plans not invested in shares of any of 
the Funds. However, under the proposed fee structure, the Bank will no 
longer credit to any of the Plans their pro rata share of the 
investment advisory fees, as described in paragraph 8 above, because 
the Plans will no longer pay Plan-level fees to the Bank for investment 
advisory services with respect to any of the assets of the Plans 
invested in shares of any of the Funds. Instead, the compensation 
received by the Bank for investment advisory services will be that 
which is paid by the Funds to the Bank for such services rendered to 
such Funds. In addition, the Bank will continue to retain fees for 
providing Secondary Services to the Funds.
    The applicant maintains that this proposed fee arrangement complies 
with PTCE 77-4. However, there is one difference from PTCE 77-4 
requested by the Bank for which an exemption is required. In this 
regard, one of the requirements of PTCE 77-4 has been that any change 
in any of the rates of fees would require prior written approval by the 
Second Fiduciary of the Plans participating in the Funds. The applicant 
maintains that where many Plans participate in a Fund, the addition of 
a service or any good faith increase in fees could not be implemented 
until written approval of such change is obtained from every Second 
Fiduciary. The applicant proposes an alternative which the Bank 
maintains provides the basic safeguards for the Plans and is more 
efficient, cost effective, and administratively feasible than those 
contained in PTCE 77-4.
    It is represented that in the event of an increase in the rate of 
any investment management fees, investment advisory fees, or similar 
fees, the addition of a Secondary Service for which a fee is charged, 
or an increase in the fees for Secondary Services paid by the Funds to 
the Bank over an existing rate that had been authorized by the Second 
Fiduciary, the Bank will provide, at least thirty (30) days in advance 
of the implementation of such additional service or fee increase, to 
the Second Fiduciary of all the Plans invested in such Fund a written 
notice of such additional service or fee increase, (which may take the 
form of a proxy statement, letter, or similar communication that is 
separate from the prospectus of the Fund and which explains the nature 
and amount of the additional service or the nature and amount of the 
increase in fees). In this regard, such increase in fees for Secondary 
Services can result either from an increase in the rate of such fee or 
from the decrease in the number or kind of services performed by the 
Bank for such fee over that which had been authorized by the Second 
Fiduciary of a Plan. It is represented that providing notice in this 
way will give the Second Fiduciary of each of the Plans adequate 
opportunity to decide whether or not to continue the authorization of a 
Plan's investment in any of the portfolios of the Funds in light of the 
increase in investment management fees, investment advisory fees, or 
similar fees, the additional Secondary Service for which a fee is 
charged, or the increase in fees for any Secondary Services. In 
addition, the Bank represents that such fee increase will be disclosed 
to the Secondary Fiduciaries in a supplement to the Fund's prospectus 
in the case of an increase in fees for investment management, 
investment advisory, or similar services and in the Fund's Statement of 
Additional Information in the case of an additional Secondary Service 
for which a fee is charged or an increase in the fees for Secondary 
Services.
    10. It is represented that the written notice of an additional 
service for which a fee is charged or a fee increase, as described in 
paragraph 9 above, will be accompanied by a Termination Form, as 
defined in paragraph (i) of section III, and by instructions on the use 
of such form, as described in paragraph (m) of section II, which 
expressly provide an election to the Second Fiduciaries to terminate at 
will any prior authorizations without penalty to the Plans. In 
addition, it is represented that the Second Fiduciary will be supplied 
with a Termination Form annually during the first quarter of each 
calendar year, beginning with the first quarter of the calendar year 
that begins after the date the grant of this proposed exemption is 
published in the Federal Register and continuing for each calendar year 
thereafter, regardless of whether there have been any changes in the 
fees payable to the Bank or changes in other matters in connection with 
services rendered to the Funds. However, if the Termination Form has 
been provided to the Second Fiduciary in the event of an increase in 
the rate of any investment management fees, investment advisory fees, 
or similar fees, an addition of a Secondary Service for which a fee is 
charged, or an increase in any fees for Secondary Services paid by the 
Fund to the Bank, then such Termination Form need not be provided again 
to the Second Fiduciary until at least six months have elapsed, unless 
such Termination Form is required to be sent sooner as a result of 
another increase in any investment management fees, investment advisory 
fees, or similar fees, the addition of a Secondary Service for which a 
fee is charged, or an increase in any fees for Secondary Services.
    The Termination Form will contain instructions regarding its use 
which will state expressly that the authorization is terminable at will 
by a Second Fiduciary, without penalty to any Plan, and that failure to 
return the form will be deemed to be an approval of the additional 
Secondary Service or the increase in the rate of any fees and will 
result in the continuation of all authorizations previously given by 
such Second Fiduciary. It is represented that termination by any Plan 
of authorization to invest in the Funds will be effected by the Bank 
selling the shares of the Fund held by the affected Plan within one 
business day following receipt by the Bank, either by mail, hand 
delivery, facsimile, or other available means at the option of the 
Second Fiduciary, of the Termination Form or any other written notice 
of termination. If, due to circumstances beyond the control of the 
Bank, the sale cannot be executed within one business day, the Bank 
shall have one additional business day to complete such sale.
    11. It is represented that the rates paid by each of the portfolios 
of the Funds to the Bank for services rendered may differ depending on 
the fee schedule for each portfolio and on the daily net assets in each 
portfolio. The investment advisory fees paid to the Bank by the Funds 
will be based on the different fee rates of each of the portfolios into 
which the assets of the Plans are allocated. For example, for services 
provided to the Money Market Portfolios, the California Tax Free Fund, 
and the Tax Free Fund, the Bank receives the following fees from 
HighMark based on each portfolio's average daily net assets: (a) .40% 
of the first $500 million; (b) .35% of the next $500 million; and (c) 
.30% of the remaining average daily net assets. For services provided 
to the Non-Money Market Portfolios, the Bank receives the following 
fees from HighMark based on each portfolio's average daily net assets: 
(a) 1.00% of the first $40 million; and (b) .60% on the remaining 
average daily net assets. It is represented that the Bank currently 
allocates investments by the Plans among the portfolios offered by 
HighMark, and proposes to continue to allocate the assets of the Plans 
among the portfolios of HighMark and/or any of the Funds under the 
terms of this proposed exemption.
    It is represented that the impact of the change in fee structures, 
described in paragraph 9 above, on aggregate fees received by the Bank 
is difficult to determine, because various factors and variables are 
unique to each Plan. These factors include the size of the Plan, the 
extent to which Plan assets are invested in the Funds, and the 
application of certain ``break points'' in the schedule of Plan-level 
fees. Further, Fund size and the application of certain ``break 
points'' in the rate schedule of Fund-level fees, the identity of the 
particular investment portfolio of the Fund into which the Plan assets 
are allocated, and voluntary waivers by the Bank of Fund-level fees are 
likely to be different in each situation and may affect the aggregate 
amount of fees received by the Bank. In this regard, it is represented 
that the combined total of all Plan-level and Fund-level fees received 
by the Bank for the provision of services to the Plans and to the 
Funds, respectively, are not in excess of ``reasonable compensation'' 
within the meaning of section 408(b)(2) of the Act.
    12. The exemption is subject to satisfaction of certain general 
conditions. Chief among such conditions is the requirement that the 
proposed 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 the Bank. It is represented 
that the Second Fiduciary will generally be the administrator, sponsor, 
or a committee appointed by the sponsor to act as a named fiduciary for 
a Plan.
    With respect to disclosure, the Second Fiduciary of such Plan will 
receive in writing in advance of the investment by a Plan in any of the 
Funds: (1) a current prospectus for each portfolio of each of the Funds 
in which such Plan may invest, (2) a statement describing the 
investment management fees, investment advisory fees, or similar fees, 
any fees for Secondary Services, and all other fees to be charged to or 
paid by the Plan and by such Funds to the Bank, including the nature 
and extent of any differential between the rates of such fees, (3) the 
reasons why the Bank may consider such investment(s) to be appropriate 
for the Plan, (4) a statement describing whether there are any 
limitations applicable to the Bank with respect to which assets of a 
Plan may be invested in the Funds, and, if so, the nature of such 
limitations, and (5) upon request of the Second Fiduciary a copy of the 
proposed exemption and/or the final exemption, if granted.
    In addition to the disclosures provided to the Plan prior to 
investment in any of the Funds, the Bank 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 of 1940 and the SEC rules promulgated 
thereunder. Further, the Second Fiduciary will be supplied, upon 
request, with a report or statement (which may take the form of the 
most recent financial report of such Funds, the current statement of 
additional information, or some other written statement) which contains 
a description of all fees paid by the Fund.
    It is represented that the Bank does not now execute nor in the 
future intend to execute securities brokerage transactions for the 
investment portfolios of any of the Funds, except as and to the extent 
permitted by the Investment Company Act of 1940 and applicable rules of 
the Securities and Exchange Commission. In the event the Bank ever 
performs brokerage services for which a fee is paid to the Bank by the 
investment portfolio of any of the Funds, the Bank represents that it 
will at least thirty (30) days in advance of the implementation of such 
additional service provide a written notice which explains the nature 
of such additional brokerage service and the amount of the fees. 
Further, the Bank represents that it will provide at least annually to 
the Second fiduciary of any Plan that invests in such Funds with a 
written disclosure indicating (a) the total, expressed in dollars, of 
brokerage commissions of each Fund's investment portfolio that are paid 
to the Bank by such Fund; (b) the total, expressed in dollars, of 
brokerage commissions of each Fund's investment portfolio that are paid 
by such Fund to brokerage firms unrelated to the Bank; (c) the average 
brokerage commissions per share, expressed as cents per share, paid to 
the Bank by each portfolio of a Fund; and (d) the average brokerage 
commissions per share, expressed as cents per share, paid by each 
portfolio of a Fund to brokerage firms unrelated to the Bank.
    On the basis of the information disclosed, it is represented that 
the Second Fiduciary will authorize in writing (i) the investment of 
assets of the Plans in shares of the Fund in connection with the 
transactions set forth herein; (ii) the investment portfolios of the 
Funds in which the assets of the Plans may be invested; and (iii) the 
compensation received by the Bank in connection with its services to 
the Funds. It is represented that written authorization will extend to 
only those investment portfolios of the Funds with respect to which the 
Second Fiduciary has received the written disclosures referred to above 
and which are specifically mentioned in such authorization. Having 
obtained the authorization of the Second Fiduciary, the Bank will be 
permitted to invest the assets of a Plan among the portfolios and in 
the manner covered by the authorization, subject to satisfaction of the 
other terms and conditions of this proposed exemption. However, the 
Bank will not be permitted to invest assets of a Plan in any portfolio 
not specifically mentioned in the written authorization. For example, 
if the written authorization of the Second Fiduciary covered only three 
of six portfolios then existing, the Bank could only invest the assets 
of such Plans in those three portfolios specifically authorized. 
Further, if a new portfolio were established under any of the Funds, 
the Bank could invest assets of a Plan in such new portfolio only after 
providing the required disclosures and obtaining from the Second 
Fiduciary a separate written authorization which specifically mentions 
the new portfolio.
    13. The receipt of fees, as described above, are generated in 
connection with the investment in the Funds by the Plans. These 
investments are the result of purchases of shares in the Funds and 
exchanges of assets of the Plans, including those in CIFs, for shares 
in the Funds.
    It is represented: (1) that Plans and other investors will 
purchases or sell shares in the Funds in accordance with standard 
procedures described in the prospectus for each portfolio of the Funds; 
(2) that the Plans will pay no sales commissions or redemption fees in 
connection with purchase or sales of shares in the Funds by the Plans; 
(3) that the Bank will not purchase from or sell to any of the Plans 
shares of any of the Funds; and (4) the price paid or received by the 
Plans for shares of the Funds will be the net asset value per share at 
the time of such purchase or sale and will be the same price as any 
other investor would have paid or received at that time.11
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    \1\1In this regard, it is represented that the value of 
HighMark's shares and the value of each of HighMark's portfolios are 
determined on a daily basis. In the case of the Non-Money Market 
Portfolios, assets are valued at fair or market value, as required 
by Rule 2a-4 under the Investment Company Act. In the case of the 
Money Market Portfolios, the assets are valued based on the 
amortized cost method authorized by SEC Rule 2a-7, in order to 
maintain net asset value at $1.00 per share. Both the Money Market 
Portfolios and the Non-Money Market Portfolios determine the net 
asset value per share for purposes of pricing purchases and sales by 
dividing the value of all securities, determined by a method as set 
forth in the prospectus for each HighMark portfolio, and other 
assets belonging to each of the portfolios, less the liabilities 
charged to each portfolio, by the number of each portfolio's 
outstanding shares.
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    14. Purchases and sales of shares in any of the Funds by the Plans 
may also occur in connection with daily automated cash ``sweep'' 
arrangements. However, agreement to such arrangement is not a condition 
for the Plan otherwise choosing to invest in shares of the Fund, nor 
will the reverse be required.
    It is represented that at the time the application was filed, all 
of the Plans served by the Bank had elected to participate in automated 
cash ``sweep'' arrangements with HighMark. Further, it is represented 
that the ``sweep'' procedures, as described below with respect to 
HighMark, will remain in effect under the proposed exemption for any of 
the Funds.
    Under the automated cash ``sweep'' arrangement, a Plan may 
participate in the ``sweep'' program only with the initial written 
approval of the Second Fiduciary and only after certain disclosures 
have been provided by the Bank. If such approval is given, cash 
balances of the Plan held from time to time thereafter pending other 
investment or distribution are invested automatically in shares of one 
or more of HighMark's Money Market Portfolios selected by the Second 
Fiduciary on behalf of a Plan at the time of the initial authorization. 
It is represented that the automated cash ``sweep'' arrangement would 
not involve shares of HighMark's Non-Money Market Portfolios.
    After the Money Market Portfolios have been selected by the Second 
Fiduciary on behalf of the Plan, otherwise uninvested cash down to the 
last $1.00 balance of the Plans may be invested automatically on a 
nightly basis. It is represented that the Bank has no discretion with 
respect to the timing of the ``sweep'' either into or out of HighMark. 
Under the automated cash ``sweep'' arrangement, the Bank's computerized 
cash management system automatically scans the accounts of the Plans, 
as of the end of each business day to determine whether such accounts 
have positive or negative net cash balances. Based on this information 
the system automatically invests the cash of the Plans having positive 
balances in shares of the selected Money Market Portfolios. In the case 
of a Plan having a negative cash balance, the system automatically 
liquidates HighMark shares as necessary to eliminate such negative 
balance.
    It is represented that Plans may terminate their participation in 
the automated cash ``sweep'' arrangement and withdraw at any time by 
notifying the Bank. Such termination will be affected by the Bank 
selling the shares of HighMark held by the Plan requesting termination 
within one business day following receipt by the Bank, either by mail, 
hand delivery, facsimile, or other available means at the option of the 
Second Fiduciary, of the Termination Form or any other written notice 
of termination. However, if due to circumstances beyond the control of 
the Bank, the sale of shares of such Plan cannot be executed within one 
business day, the Bank shall have one additional business day to 
complete such sale.
    It is represented that no fee, charge, or penalty of any kind is 
charged in connections with a termination by a Plan of participation in 
the automated cash ``sweep arrangement'' in HighMark or in any of the 
Funds. It is further represented that the Bank does not charge separate 
or additional fees to Plans in order to participate in the daily 
automated cash ``sweep'' arrangement, nor is such additional 
compensation contemplated by the proposed exemption.12
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    \1\2The Department in a letter, dated August 1, 1986, to Robert 
S. Plotkin, Assistant Director, Division of Banking Supervision and 
Regulation, Board of Governors of the Federal Reserve System, 
addressed the application of section 408(b)(2) of the Act to 
arrangements involving ``sweep services.'' In that letter the 
Department set forth several examples to illustrate various 
circumstances under which violations of section 406(b) of the Act 
would arise with respect to such arrangements. Conversely, the 
letter provided that, if a bank provides ``sweep'' services without 
the receipt of additional compensation or other consideration (other 
than reimbursement of direct expenses properly and actually incurred 
in the performance of such services), then the provision of 
``sweep'' services by the bank would not, in itself, constitute a 
violation of section 406(b) of the Act. Moreover, including 
``sweep'' services under a single fee arrangement for investment 
management services which is calculated as a percentage of the 
market value of the total assets under management would not, in 
itself, constitute an act described in section 406(b)(1), because 
the bank would not be exercising its fiduciary authority or control 
to cause a plan to pay an additional fee.
    In addition, the letter also discusses the applicability of the 
statutory exemptions under section 408(b)(6) fees for ``ancillary 
services'' and under section 408(b)(8) for collective trust funds 
maintained by such bank of the Act to such ``sweep'' service 
arrangements.
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    15. In summary, the Bank represents that the proposed transactions 
meet the statutory criteria of section 408(a) of the Act because:
    (a) Neither the Plans nor the CIFs have paid or will 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 or in 
connection with purchases or sales by the Plans of shares of the Funds, 
including purchases and sales handled through daily automated cash 
``sweep'' arrangements;
    (b) The Plans or the CIFs have received and will receive shares of 
the Funds that are equal in value to the assets of the Plans or the 
CIFs exchanged for such shares, as 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 of 1940, as amended from time to time or any 
successor rule, regulation, or similar pronouncement;
    (c) Not later than thirty (30) days after completion of each in-
kind transfer of assets in exchange for share of the Funds, the Second 
Fiduciaries for affected Plans have received and will receive written 
confirmation of the assets involved in the exchange, the price of such 
assets, and the identity of the pricing service or market maker 
consulted;
    (d) For all conversion transactions that occur after the date of 
this proposed exemption, the Bank, no later than ninety (90) days after 
completion of each in-kind transfer of assets of the Plans or the CIFs 
in exchange for shares of the Funds, will mail to the Second Fiduciary 
a written confirmation of the number of CIF units held by each affected 
Plan immediately before the conversion (and the related per unit value 
or the aggregate dollar value of the units transferred), and the number 
of shares in the Funds that are held by each affected Plan following 
the conversion (and the related per share net asset value or the 
aggregate dollar value of the shares received);
    (e) The price that has been or will be paid or received by the 
Plans for shares in the Funds is the net asset value per share at the 
time of the transaction and is the same price for the shares which 
would have been paid or received by any other investor at that time;
    (f) The Bank, its affiliates, and officers or directors have not 
and will not purchase from or sell to any of the Plans shares of any of 
the Funds;
    (g) The combined total of all fees received by the Bank 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, has not been and will not be in excess of ``reasonable 
compensation'' within the meaning of section 408(b)(2) of the Act;
    (h) The Bank has not and will not receive any 12b-1 Fees in 
connection with the transactions;
    (i) Prior to investment by a Plan in any of the Funds, in 
connection with transactions, the Second Fiduciary has received and 
will receive a full and detailed written disclosure of information 
concerning such Fund;
    (j) subsequent to the investment by a Plan in any of the Funds, the 
Bank will provide the Second Fiduciary of such Plan, among other 
information, at least annually with an updated copy of the prospectus 
for each of the Funds in which the Plan invests;
    (k) in the event such Fund places brokerage transactions with the 
Bank, the Bank will provide the Second Fiduciary of such Plan at least 
annually with a statement specifying the total, expressed in dollars, 
of brokerage commissions of each Fund's investment portfolio that are 
paid by such Fund to the Bank and to unrelated brokerage firms and the 
average brokerage commissions per share, expressed as cents per share, 
by each portfolio of a Fund paid to the Bank and to brokerage firms 
unrelated to the Bank;
     (l) On the basis of the disclosures, the Second Fiduciary has 
authorized and will authorize the transactions;
    (m) The authorization by the Second Fiduciary has been and will be 
terminable at will without penalty to such Plans, and has been and will 
be effected within one business day following receipt by the Bank, 
either by mail, hand delivery, facsimile, or other available means at 
the option of the Second Fiduciary, of the Termination Form or any 
other written notice of termination, unless circumstances beyond the 
control of the Bank delay execution for no more than one additional 
business day;
    (n) The Plans do not pay any investment management, investment 
advisory, or similar fees to the Bank with respect to any of the assets 
of such Plans which are invested in shares of any of the Funds;
    (o) the Second Fiduciary has received and will receive a written 
notice accompanied by a Termination Form with instructions regarding 
the use of such form, at least thirty (30) days in advance of the 
implementation of any increase in the rate of any fees for investment 
management, investment advisory, or similar fees, any additional 
Secondary Service for which a fee is charged, or any increase in fees 
for Secondary Services that the Bank provides to the Funds; and
    (p) All dealings between the Plans and any of the Funds have been 
and will 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.

Notice to Interested Persons

    Those persons who may be interested in the pendency of the 
requested exemption include the fiduciaries of Plans which have 
invested, as of the effective date of this exemption, in HighMark and/
or in any of the Funds, where the Bank served as investment adviser to 
such Funds and also served in any capacity as fiduciary for such Plans. 
In addition, it is represented that many other Plans for which the Bank 
serves in any capacity as a fiduciary may from time to time invest in 
HighMark and/or in any of the Funds to which the Bank may serve as 
investment adviser in the future. For this reason, the Bank does not 
know the number of Plans which may therefore be affected by this 
proposed exemption. Accordingly, the Department has determined that the 
only practical form of providing notice to interested persons is the 
distribution by the Bank by first class mail of a copy of the notice of 
pendency of this proposed exemption (the Notice) within thirty (30) 
days of the date of the publication of such Notice in the Federal 
Register to the fiduciaries of any of the Plans which are invested, on 
the date of the publication of the Notice in the Federal Register, in 
HighMark and/or any the Funds to which the Bank serves as investment 
adviser. Such distribution to interested persons shall include a copy 
of the Notice, as published in the Federal Register, plus a copy of the 
supplemental statement, as required, pursuant to 29 CFR 2570.43(b)(2), 
which shall inform such interested persons of their right to comment 
and to request a hearing. The Bank also represents that it will provide 
a copy of the proposed exemption and/or a copy of the final exemption, 
if granted, to any Second Fiduciary of a Plan upon request.

FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the 
Department, telephone (202) 219-8883 (this is not a toll-free number.)

Marshall & Ilsley Trust Company Located in Milwaukee, Wisconsin; 
Proposed Exemption

[Application No. D-9257]

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990).

Section I--Exemption for In-Kind Transfer of CIF Assets

    If the exemption is granted, the restrictions of section 406(a) and 
406(b) of the Act and the sanctions resulting from the application of 
section 4975 of the Code, by reason of section 4975(c)(1)(A) through 
(F) of the Code, shall not apply, as of November 20, 1992, to the in-
kind transfer of assets of plans for which Marshall & Ilsley Trust 
Company or an affiliate (collectively, M&I) serves as a fiduciary (the 
Client Plans), other than plans established and maintained by M&I, that 
are held in certain collective investment funds maintained by M&I (the 
CIFs), in exchange for shares of the Marshall Funds, Inc. (the Funds), 
an open-end investment company registered under the Investment Company 
Act of 1940 (the 1940 Act), for which M&I acts as investment adviser, 
custodian, and/or shareholder servicing agent, in connection with the 
termination of such CIFs, provided that the following conditions and 
the general conditions of Section III below are met:
    (a) No sales commissions or other fees are paid by the Client Plans 
in connection with the purchase of Fund shares through the in-kind 
transfer of CIF assets and no redemption fees are paid in connection 
with the sale of such shares by the Client Plans to the Funds.
    (b) Each Client Plan receives shares of a Fund which have a total 
net asset value that is equal to the value of the Client Plan's pro 
rata share of the assets of the CIF on the date of the transfer, based 
on the current market value of the CIF's assets, as determined in a 
single valuation performed in the same manner at the close of the same 
business day, using independent sources in accordance with Rule 17a-
7(b) of the Securities and Exchange Commission under the 1940 Act and 
the procedures established by the Funds for the valuation of such 
assets. Such procedures must require that all securities for which a 
current market price cannot be obtained by reference to the last sale 
price for transactions reported on a recognized securities exchange or 
NASDAQ be valued based on an average of the highest current independent 
bid and lowest current independent offer, as of the close of business 
on the Friday preceding the weekend of the CIF transfers, determined on 
the basis of reasonable inquiry from at least three sources that are 
broker-dealers or pricing services independent of M&I.
    (c) A second fiduciary who is independent of and unrelated to M&I 
(the Second Fiduciary) receives advance written notice of the in-kind 
transfer of assets of the CIFs and full written disclosure of 
information concerning the Funds (including a current prospectus for 
each of the Funds and a statement describing the fee structure) and, on 
the basis of such information, authorizes in writing the in-kind 
transfer of the Client Plan's CIF assets to a corresponding Fund in 
exchange for shares of the Fund.
    (d) For all subsequent transfers of CIF assets to a Fund following 
the publication of this proposed exemption in the Federal Register, M&I 
sends by regular mail to each affected Client Plan a written 
confirmation, not later than 30 days after completion of the 
transaction, containing the following information:
    (1) The identity of each security that was valued for purposes of 
the transaction in accordance with Rule 17a-7(b)(4);
    (2) The price of each such security involved in the transaction; 
and
    (3) The identity of each pricing service or market maker consulted 
in determining the value of such securities.
    (e) For all subsequent transfers of CIF assets to a Fund following 
the publication of this proposed exemption in the Federal Register, M&I 
sends by regular mail to the Second Fiduciary no later than 90 days 
after completion of each transfer a written confirmation that contains 
the following information:
    (1) The number of CIF units held by the Client Plan immediately 
before the transfer, the related per unit value, and the total dollar 
amount of such CIF units; and
    (2) The number of shares in the Funds that are held by the Client 
Plan following the transfer, the related per share net asset value, and 
the total dollar amount of such shares.
    (f) The conditions set forth in paragraphs (e), (f) and (l) of 
Section II below are satisfied.

Section II--Exemption for Receipt of Fees

    If the exemption is granted, the restrictions of sections 406(a) 
and 406(b) of the Act and the sanctions resulting from the application 
of section 4975 of the Code, by reason of section 4975(c)(1) (A) 
through (F) of the Code, shall not apply as of November 20, 1992, to: 
(1) The receipt of fees by M&I from the Funds for acting as an 
investment adviser to the Funds in connection with the investment by 
the Client Plans in shares of the Funds; and (2) the receipt and 
proposed retention of fees by M&I from the Funds for acting as 
custodian and shareholder servicing agent to the Funds as well as for 
any other services to the Funds which are not investment advisory 
services (i.e. ``secondary services'') in connection with the 
investment by the Client Plans in shares of the Funds, provided that 
the following conditions and the general conditions of Section III are 
met:
    (a) No sales commissions are paid by the Client Plans in connection 
with the purchase or sale of shares of the Funds and no redemption fees 
are paid in connection with the sale of shares by the Client Plans to 
the Funds.
    (b) The price paid or received by a Client Plan for shares in a 
Fund is the net asset value per share at the time of the transaction, 
as defined in Section IV(e), and is the same price which would have 
been paid or received for the shares by any other investor at that 
time.
    (c) Neither M&I nor an affiliate, including any officer or director 
of M&I, purchases or sells shares of the Funds to any Client Plan.
    (d) Each Client Plan receives a credit, either through cash or the 
purchase of additional shares of the Funds pursuant to an annual 
election made by the Client Plan, of such Plan's proportionate share of 
all fees charged to the Funds by M&I for investment advisory services, 
within no more than one business day of the receipt of such fees by 
M&I.
    (e) The combined total of all fees received by M&I for the 
provision of services to a Client Plan, and in connection with the 
provision of services to the Funds in which the Client Plan may invest, 
are not in excess of ``reasonable compensation'' within the meaning of 
section 408(b)(2) of the Act.
    (f) M&I does not receive any fees payable pursuant to Rule 12b-1 
under the 1940 Act in connection with the transactions.
    (g) The Client Plans are not employee benefit plans sponsored or 
maintained by M&I.
    (h) The Second Fiduciary receives full and detailed written 
disclosure of information concerning the Funds (including a current 
prospectus for each of the Funds and statement describing the fee 
structure) in advance of any investment by the Client Plan in a Fund.
    (i) On the basis of the information described above in paragraph 
(h), the Second Fiduciary authorizes in writing the investment of 
assets of the Client Plan in each particular Fund, the fees to be paid 
by such Funds to M&I, and the purchase of additional shares of a Fund 
by the Client Plan with the fees credited to the Client Plan by M&I.
    (j) All authorizations made by a Second Fiduciary regarding 
investments in a Fund and the fees paid to M&I are subject to an annual 
reauthorization wherein any such prior authorization referred to in 
paragraph (i) shall be terminable at will by the Client Plan, without 
penalty to the Client Plan, upon receipt by M&I of written notice of 
termination. A form expressly providing an election to terminate the 
authorization described in paragraph (i) above (the Termination Form) 
with instructions on the use of the form must be supplied to the Second 
Fiduciary no less than annually. The instructions for the Termination 
Form must include the following information:
    (1) The authorization is terminable at will by the Client Plan, 
without penalty to the Client Plan, upon receipt by M&I of written 
notice from the Second Fiduciary; and
    (2) Failure to return the Termination Form will result in continued 
authorization of M&I to engage in the transactions described in 
paragraph (i) on behalf of the Client Plan.
    (k) The Second Fiduciary of each Client Plan invested in a 
particular Fund receives full written disclosure, in a statement 
separate from the Fund prospectus, of any proposed increases in the 
rates of fees charged by M&I to the Funds for secondary services (as 
defined in Section IV(h) below) at least 30 days prior to the effective 
date of such increase, accompanied by a copy of the Termination Form, 
and receives full written disclosure in a Fund prospectus or otherwise 
of any increases in the rates of fees charged by M&I to the Funds for 
investment advisory services even though such fees will be credited as 
required by paragraph (d) above.
    (l) All dealings between the Client Plans and the Funds are on a 
basis no less favorable to the Client Plans than dealings with other 
shareholders of the Funds.

Section III--General Conditions

    (a) M&I maintains for a period of six years the records necessary 
to enable the persons described below in paragraph (b) to determine 
whether the conditions of this exemption have been met, except that: 
(1) a prohibited transaction will not be considered to have occurred 
if, due to circumstances beyond the control of M&I, the records are 
lost or destroyed prior to the end of the six-year period, and (2) no 
party in interest other than M&I shall be subject to the civil penalty 
that may be assessed under section 502(i) of the Act or to the taxes 
imposed by section 4975 (a) and (b) of the Code if the records are not 
maintained or are not available for examination as required by 
paragraph (b) below.
    (b) (1) Except as provided in paragraph (b)(2) and notwithstanding 
any provisions of section 504 (a)(2) and (b) of the Act, the records 
referred to in paragraph (a) are unconditionally available at their 
customary location for examination during normal business hours by--
    (i) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service,
    (ii) Any fiduciary of the Client Plans who has authority to acquire 
or dispose of shares of the Funds owned by the Client Plans, or any 
duly authorized employee or representative of such fiduciary, and
    (iii) Any participant or beneficiary of the Client Plans or duly 
authorized employee or representative of such participant or 
beneficiary;
    (2) None of the persons described in paragraph (b)(1)(ii) and (iii) 
shall be authorized to examine trade secrets of M&I, or commercial or 
financial information which is privileged or confidential.

Section IV--Definitions

    For purposes of this proposed exemption:
    (a) The term ``M&I'' means the Marshall & Ilsley Trust Company and 
any affiliate thereof as defined below in paragraph (b) of this 
section.
    (b) An ``affiliate'' of a person includes:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person;
    (2) Any officer, director, employee, relative, or partner in any 
such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (c) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (d) The term ``Fund'' or ``Funds'' shall include the Marshall 
Funds, Inc., or any other diversified open-end investment company or 
companies registered under the 1940 Act for which M&I serves as an 
investment adviser and may also serve as a custodian, shareholder 
servicing agent, transfer agent or provide some other ``secondary 
service'' (as defined below in paragraph (h) of this Section) which has 
been approved by such Funds.
    (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 the Fund's 
prospectus and statement of additional information, and other assets 
belonging to the Fund or portfolio of the Fund, less the liabilities 
charged to each such portfolio or Fund, by the number of outstanding 
shares.
    (f) The term ``relative'' means a ``relative'' as that term is 
defined in section 3(15) of the Act (or a ``member of the family'' as 
that term is defined in section 4975(e)(6) of the Code), or a brother, 
a sister, or a spouse of a brother or a sister.
    (g) The term ``Second Fiduciary'' means a fiduciary of a Client 
Plan who is independent of and unrelated to M&I. For purposes of this 
exemption, the Second Fiduciary will not be deemed to be independent of 
and unrelated to M&I if:
    (1) Such fiduciary directly or indirectly controls, is controlled 
by, or is under common control with M&I
    (2) Such fiduciary, or any officer, director, partner, employee, or 
relative of the fiduciary is an officer, director, partner or employee 
of M&I (or is a relative of such persons);
    (3) Such fiduciary directly or indirectly receives any compensation 
or other consideration for his or her own personal account in 
connection with any transaction described in this exemption.
    If an officer, director, partner or employee of M&I (or relative of 
such persons), is a director of such Second Fiduciary, and if her or 
she abstains from participation in: (i) The choice of the Client Plan's 
investment adviser, (ii) the approval of any such purchase or sale 
between the Client Plan and the Funds, and (iii) the approval of any 
change in fees charged to or paid by the Client Plan in connection with 
any of the transactions described in Sections I and II above, then 
paragraph (g)(2) of this section 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 M&I to the Funds. However, for purposes of this 
exemption, the term ``secondary service'' will not include any 
brokerage services provided to the Funds by M&I for the execution of 
securities transactions engaged in by the Funds.
    (i) The term ``Termination Form'' means the form supplied to the 
Second Fiduciary which expressly provides an election to the Second 
Fiduciary to terminate on behalf of a Client Plan the authorization 
described in paragraph (j) of Section II. Such Termination Form may be 
used at will by the Second Fiduciary to terminate an authorization 
without penalty to the Client Plan and to notify M&I in writing to 
effect a termination by selling the shares of the Funds held by the 
Client Plan requesting such termination within one business day 
following receipt by M&I of the form; provided that if, due to 
circumstances beyond the control of M&I, the sale cannot be executed 
within one business day, M&I shall have one additional business day to 
complete such sale.

EFFECTIVE DATE: If the proposed exemption is granted, the exemption 
will be effective November 20, 1992.

Summary of Facts and Representations

    1. Marshall & Ilsley Trust Company (M&I Trust) is a Wisconsin 
corporation with its principal offices located at 770 North Water 
Street, Milwaukee, Wisconsin, and is a subsidiary of Marshall & Ilsley 
Corporation (M&I Corp.), a bank holding company. M&I Corp. and various 
affiliates (referred to herein as ``M&I''), serve as trustee, directed 
trustee, investment manager, or custodian for approximately 1,163 
employee benefit plans. As of September 30, 1992, M&I had total assets 
of approximately $25.3 million and total assets under management of 
approximately $4.86 billion.
    M&I represents that its status as a fiduciary with investment 
discretion for a Client Plan arises out of its relationship as a 
trustee or investment manager for such Plan, but does not result from 
the rendering of any investment advice to a Plan fiduciary that has 
investment discretion for the Client Plan. As a custodian or directed 
trustee of a Client Plan, M&I has custody of Plan assets, collects all 
income, performs bookkeeping and accounting services, generates 
periodic statements of account activity and other reports, and makes 
payments or distributions from the account as directed. However, M&I 
has no duty as custodian or directed trustee to review investments or 
make recommendations, acting only as directed by an authorized Second 
Fiduciary.
    The Client Plans include various pension, profit sharing, and stock 
bonus plans as well as voluntary employees' beneficiary associations, 
supplemental unemployment benefit plans, simplified employee benefit 
plans, retirement plans for self-employed individuals (i.e., Keogh 
plans), and individual retirement accounts (IRAs).13 M&I, in its 
capacity as a fiduciary of the Client Plans, may exercise investment 
discretion for all or a portion of he assets of such Client Plans.
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    \1\3M&I states that only pension, profit sharing and Keogh plans 
were invested in the CIFs at the time of the transfers of assets 
from the CIFs to the Funds.
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    2. M&I requests an exemption for investments in a Fund which occur 
through an in-kind transfer of a Client Plan's pro rata share of assets 
from a terminating CIF to a corresponding Fund in exchange for shares 
of such Fund.14 M&I also requests an exemption for the receipt of 
fees from the Funds in connection with the investment of assets of a 
Client Plan (including any assets of a Client Plan which were held in a 
terminating CIF) for which it acts as a trustee, directed trustee, 
investment manager, or custodian, in shares of the Funds in instances 
where M&I is an investment adviser, custodian, and shareholder 
servicing agent for the Funds. The exemption would include Client Plans 
for which M&I exercises investment discretion as well as Client Plans 
where investment decisions are directed by a Second Fiduciary.
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    \1\4M&I is not requesting an exemption for any investment in the 
Funds by the M&I Plans. M&I represents that the M&I Plans may 
acquire or sell shares of the Funds pursuant to Prohibited 
Transaction Exemption 77-3 (PTE 77-3, 42 FR 18734, April 8, 1977). 
PTE 77-3 permits the acquisition or sale of shares of a registered, 
open-end investment company by an employee benefit plan covering 
only employees of such investment company, employees of the 
investment adviser or principal underwriter for such investment 
company, or employees of any affiliated person (as defined therein) 
of such investment adviser or principal underwriter, provided 
certain conditions are met. The Department is expressing no opinion 
in this proposed exemption regarding whether any transactions with 
the Funds by the M&I Plans would be covered by PTE 77-3.
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    The Client Plans' pro rata share of fees paid by the Funds to M&I 
for investment advisory services are credited to the Client Plans, in 
accordance with the conditions of the proposed exemption (as discussed 
in Item 7 below), with respect to the assets of the Client Plans 
involved in Fund investments. Any amounts received by M&I for serving 
as a custodian and shareholder servicing agent of the Funds are also 
currently credited to the Client Plans to the extent that such amounts 
exceed M&I's direct expenses for providing the service to the Funds. 
However, M&I proposes to retain such fees in the future. All 
investments in the Funds are made by M&I pursuant to an initial written 
authorization and an annual reauthorization of the investment by the 
Second Fiduciary. M&I invests assets of a Client Plan in any of the 
Funds for which it has received prior written authorization for such 
investment from the Second Fiduciary during the period that the 
authorization is effective.
    3. The Funds are a Wisconsin corporation organized as an open-end 
investment company registered under the 1940 Act. The Funds currently 
consist of five Funds or ``portfolios'', each having a separate 
prospectus and representing a distinct investment vehicle. The shares 
of each Fund represent a proportionate interest in the assets of that 
Fund. The existing Funds include the Marshall Money Market Fund, the 
Marshall Government Income Fund, the Marshall Intermediate Bond Fund, 
the Marshall Short-Term Income Fund, and the Marshall Stock Fund. M&I 
states that additional Funds may be established in the future. Shares 
of the Funds are offered and sold to eligible investors. Certain 
shares, identified by each prospectus as Trust Shares, are offered to 
trust accounts of M&I as a means of acquiring an interest in a 
diversified porfolio of investments. M&I states that the Trust Shares 
are offered to M&I's trust customers, including the Client Plans, under 
terms and conditions which are at least as favorable to such customers 
as the terms and conditions involved in any other class of Fund shares. 
If the proposed exemption is granted, the exemption would cover only 
investments by Client Plans in Trust Shares. Thus, all references 
herein to the transactions involving the Client Plans refer only to the 
Trust Shares described by the prospectus for each Fund.
    Investments of Client Plan assets in the Funds occur either through 
a transfer of assets from a terminating CIF, the direct purchase of 
shares of the Funds for a Client Plan by M&I, the transfer by M&I of 
Client Plan assets from one Fund to another Fund, or a daily automated 
sweep of uninvested cash of a Client Plan by M&I into one or more Funds 
previously designated by the Client Plan for sweeping such cash.15 
All such investments for the Client Plans are made pursuant to the 
Second Fiduciary's prior written authorization and annual 
reauthorization to M&I (as described in Item 8 below).
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    \1\5M&I states that an automated sweep of uninvested cash is 
currently available as a means of investment by the Client Plans 
into either the Marshall Money Market Fund, the Marshall Government 
Income Fund, and the Marshall Short-Term Income Fund.
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    4. Federated Securities Corporation (FSC) is the principal 
distributor for all shares of the Funds including Trust Shares which 
are sold to the Client Plans.16 There are no fees for distribution 
expenses, pursuant to Rule 12b-1 under the 1940 Act, paid to FSC with 
respect to the Trust Shares. In addition, M&I does not and will not 
receive fees payable pursuant to Rule 12b-1 in connection with 
transactions involving any shares of the Funds. The Trust Shares are 
charged for certain administrative expenses of the Funds. FSC is a 
subsidiary of Federated Investors (Federated) which, through other 
subsidiaries, acts as the transfer and dividend disbursing agent for 
the Funds and provides certain personnel and administrative services 
for the Funds. Federated and its subsidiaries are unrelated to M&I. 
However, M&I Trust is the custodian for the securities and cash of the 
Funds and Marshall Funds Investor Services (MFIS), another affiliate of 
M&I Corp., is the shareholder servicing agent for the Funds.
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    \1\6According to the Fund prospectuses, investors may purchase 
shares of the Funds through M&I Brokerage Services, Inc. (M&I 
Brokerage Services), an affiliate of M&I Corp. However, the 
involvement of M&I Brokerage Services in selling Fund shares is 
limited to transactions through M&I ``retail'' accounts--i.e., 
accounts other than those accounts handled by M&I Trust or other M&I 
affiliated trust companies. M&I represents that purchases and sales 
of Fund shares for all M&I trust accounts, including the Client 
Plans, are handled by M&I trust officers dealing directly with 
Federated, the Funds' distributor.
    In addition, M&I Brokerage Services does not provide portfolio 
execution services for the Funds. M&I states that securities 
transactions for a Fund's portfolio are executed by broker-dealers 
unrelated to M&I and do not generate commissions or other fees to 
M&I Brokerage Services or any affiliate. The Department notes that 
for purposes of this exemption the term ``secondary service'' does 
not include any brokerage services provided to the Funds by M&I for 
the execution of securities transactions engaged in by the Funds 
(see Section IV(h) above).
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    5. M&I Investment Management Corp. (M&I Management), a wholly-owned 
subsidiary of M&I Corp., serves as the investment adviser for the Funds 
pursuant to investment advisory agreements with the Funds (the 
Agreements) which allow M&I Management to receive monthly investment 
advisory fees based on a percentage of the average daily net assets of 
each of the Funds. The Agreements and the fees received by M&I 
Management are approved by the Board of Directors of the Funds (the 
Funds' Directors), in accordance with the applicable provisions of the 
1940 Act. Any changes in the fees are approved by the Funds' Directors. 
All of the Funds' Directors are independent of M&I.
    6. Prior to November 20, 1992, M&I generally invested assets of 
Client Plans for which it acted as a trustee with investment discretion 
in a series of CIFs. In addition, certain Client Plans where investment 
decisions are directed by a Second Fiduciary generally used an M&I CIF 
as an investment option for individual accounts in the Client Plans. 
However, on Friday, November 20, 1992, M&I terminated three of its 
CIFs--the M&I Employee Benefit Money Market Fund, the M&I Employee 
Benefit Bond Fund, and the M&I Employee Benefit Stock Fund. The assets 
in these CIFs were transferred to the Marshall Money Market Fund, the 
Marshall Intermediate Bond Fund, and the Marshall Stock Fund, 
respectively. Each CIF transferred its assets to the corresponding Fund 
in exchange for Trust Shares of that Fund at the then current market 
value of the CIF assets, in accordance with Rule 17a-7 under the 1940 
Act (as discussed below).17 The CIFs were liquidated and the Trust 
Shares were distributed to the Client Plans, subject to the prior 
written consent of the Second Fiduciary for the Client Plan. Any Client 
Plan that had not provided prior written approval for the transfer of 
its CIF assets to the Funds, by the deadline set for such approvals, 
received a cash distribution of its pro rata share of the CIF assets no 
later than Friday, November 20, 1992, preceding the transfers.
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    \1\7Rule 17a-7 permits transactions between investment funds 
that use the same investment adviser, subject to certain conditions. 
Rule 17a-7 requires, among other things, that such transactions be 
effected at the ``independent current market price'' for each 
security, involve only securities for which market quotations are 
readily available, involve no brokerage commissions or other 
remuneration, and comply with valuation procedures adopted by the 
board of directors of the investment company to ensure that all 
requirements of the Rule are satisfied.
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    The assets of the CIFs were reviewed by M&I Management as 
investment adviser to the Funds, in coordination with Federated 
Administrative Services (FAS), the Funds' third party administrator, to 
determine that the assets were appropriate investments for the 
corresponding Funds. FAS created a portfolio accounting system to track 
the securities to be acquired by the Funds. Prior to the transfer of 
CIF assets to the Funds, the Funds did not hold any securities or other 
assets except cash or, as in the case of the Marshall Money Market 
Fund, U.S. Treasury Bills.
    The transfer transactions occurred using market values as of the 
close of business on Friday, November 20, 1992. The securities 
transferred from the CIFs were the same as the securities received by 
the Funds. The applicant states that the value of the securities was 
determined in a single valuation by M&I as investment adviser for the 
Funds, in accordance with the requirement of Rule 17a-7(b) that 
transactions be effected at the ``independent current market price'' of 
the securities. The valuation of the securities was performed in the 
same manner for both the CIF and the corresponding Fund at the close of 
the same business day. Specifically, as required by the Rule, 
securities listed on exchanges were valued at their closing prices on 
Friday, November 20, and unlisted securities were valued based on the 
average of bid and ask quotations at the close of the market on Friday, 
November 20, obtained from three brokers independent of M&I. Any fees 
charged by the independent brokers for the bid and ask prices were paid 
by M&I.
    Each Client Plan that approved the CIF asset transfers to the Funds 
received account statements describing the asset transfers either in 
mid-December 1992, if such Plans were on a monthly account statement 
schedule, or mid-January 1993, if such Plans were on a quarterly 
account statement schedule. The statements showed the disposition of 
the CIF units from the Client Plan account and the acquisition by the 
account of Fund shares, both posted as of Monday, November 23, 
1992.\18\ This information provided the affected Client Plans with 
written confirmation of the number of CIF units held by the Client Plan 
immediately before the transfer, the related per unit value and the 
total dollar amount of such CIF units as well as the number of shares 
of the Funds held by the Client Plan following the transfer, the 
related per share net asset value, and the total dollar amount of such 
shares.
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    \1\8The applicant has provided the following example: Assume a 
Client Plan held 12,506 units of the M&I Employee Benefit Stock Fund 
prior to the asset transfers. The account statement showed a 
disposition of 12,506 units of M&I Employee Benefit Stock Fund, at a 
value of $72.08 per unit, on November 23, 1992, with total proceeds 
of $901,432.18. The statement also showed a purchase on that same 
date of 90,143.218 shares of the Marshall Stock Fund, the Fund 
corresponding to the M&I Employee Benefit Stock Fund, at $10 per 
share, at a total cost of $901,432.18, the same amount as the 
proceeds of the disposition from the M&I Employee Benefit Stock 
Fund.
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    Thus, the applicant represents that as of November 23, 1992, Client 
Plans that were formerly invested in the terminated CIFs held Trust 
Shares of the corresponding Funds which were of the same value, based 
on the Client Plans' pro rata share of the underlying market value of 
the securities transferred to the Funds, as their assets in the CIF as 
of the close of business on Friday, November 20, 1992. M&I represents 
that the other CIFs may be terminated in the future and that all such 
terminations and subsequent transfers of CIF assets for Trust Shares of 
the Funds will comply with Rule 17a-7 as described above and the 
conditions of this proposed exemption.19
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    \1\9On Friday, October 1, 1993, M&I terminated the M&I Dividend 
Fund and transferred its assets upon written approval from the 
investors to a new Marshall Fund, the Marshall Equity Income Fund. 
The transfer of assets occurred in the same manner as the asset 
transfers which occurred on November 20, 1992.
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    M&I states that for all subsequent transfers of CIF assets to a 
Fund following the publication of this proposed exemption in the 
Federal Register, M&I will send by regular mail to each affected Client 
Plan a written confirmation, not later than 30 days after completion of 
the transaction, containing the following information:
    (1) The identity of each security that was valued for purposes of 
the transaction in accordance with Rule 17a-7(b)(4);
    (2) The price of each such security involved in the transaction; 
and
    (3) The identity of each pricing service or market maker consulted 
in determining the value of such securities. Securities which are 
valued in accordance with Rule 17a-7(b)(4) are securities for which the 
current market price cannot be obtained by reference to the last sale 
price for transactions reported on a recognized securities exchange or 
the NASDAQ system. M&I states that such securities are valued based on 
an average of the highest current independent bid and lowest current 
independent offer, as of the close of business on the Friday preceding 
the weekend of the CIF transfers, determined on the basis of reasonable 
inquiry from at least three sources that are broker-dealers or pricing 
services independent of M&I.
    In addition, for all in-kind transfers of CIF assets to a Fund that 
occur after the date this proposed exemption is published in the 
Federal Register, M&I will send by regular mail to the Second Fiduciary 
no later than 90 days after completion of each transfer a written 
confirmation that contains the following information:
    (1) The number of CIF units held by the Client Plan immediately 
before the transfer, the related per unit value, and the total dollar 
amount of such CIF units; and
    (2) The number of shares in the Funds that are held by the Client 
Plan following the transfer, the related per share net asset value, and 
the total dollar amount of such shares.
    M&I believes that the interests of the Client Plans are better 
served by the collective investment of assets of the Client Plans in 
the Funds rather than in the CIFs. The Funds are valued on a daily 
basis, whereas the majority of the CIFs are valued monthly. The daily 
valuation permits: (i) Immediate investment of Client Plan 
contributions in various types of investments; (ii) greater flexibility 
in transferring assets from one type of investment to another; and 
(iii) daily redemption of investments for purposes of making 
distributions. In addition, information concerning the investment 
performance of the Funds will be available in newspapers of general 
circulation which will allow Client Plan fiduciaries to monitor the 
performance of investments on a daily basis and make more informed 
investment decisions.
    7. For investments in the Funds on behalf of Client Plans 
subsequent to the transfer of the CIF assets to the Funds where the 
assets involved were not previously invested in any CIFs, M&I currently 
offsets its investment management or advisory fees for assets invested 
in the Funds in accordance with one of the methods for offsetting 
double investment advisory fees described in Prohibited Transaction 
Exemption 77-4 (PTE 77-4, 42 FR 18732, April 8, 1977).\20\ 
Consequently, the applicant represents that the fee structure for these 
investments complies with the fee structure under PTE 77-4, and that 
the other conditions of PTE 77-4 are met.\21\ However, for Client Plan 
investments in the Funds with respect to assets that were previously 
held in the CIFs prior to the investment of such assets in the Funds, 
M&I uses the fee structure (the Fee Structure) described below. M&I 
anticipates using the Fee Structure for future Client Plan investments 
in the Funds where the assets involved were not previously invested in 
the CIFs if the Second Fiduciary for the Client Plan elects to use the 
Fee Structure in lieu of the offset or credit methods prescribed by PTE 
77-4. M&I states that the Fee Structure preserves a Client Plan's 
existing fee rates for investment management services by M&I when such 
Plan invests in the Funds or when such Plan's assets are transferred 
from the CIFs to the Funds. The Fee Structure is described as follows:
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    \2\0PTE 77-4, in pertinent part, permits the purchase and sale 
by an employee benefit plan of shares of a registered, open-end 
investment company when a fiduciary with respect to the plan is also 
the investment adviser for the investment company, provided that, 
among other things, the plan does not pay an investment management, 
investment advisory or similar fee with respect to the plan assets 
invested in such shares for the entire period of such investment. 
Section II(c) of PTE 77-4 states that this condition does not 
preclude the payment of investment advisory fees by the investment 
company under the terms of an investment advisory agreement adopted 
in accordance with section 15 of the Investment Company Act of 1940. 
Section II(c) states further that this condition does not preclude 
payment of an investment advisory fee by the plan 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 
investment company.
    \2\1The Department is expressing no opinion in this proposed 
exemption regarding whether any transactions with the Funds under 
the circumstances described herein would be covered by PTE 77-4.
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    (a) M&I charges its standard fees to all the Client Plans for 
serving as a trustee, directed trustee, investment manager, or 
custodian for the Client Plans.\22\ All fees are billed on a quarterly 
basis. The annual charges for a Client Plan account are based on fee 
schedules negotiated with M&I. For example, if the fee is unbundled, 
the standard charge by M&I to a Client Plan for serving as a trustee 
with solely custodial responsibilities varies from 17.5 basis points 
for account assets under $5 million to 5 basis points for account 
assets over $75 million, subject to a base annual charge of $1,500 and 
additional charges for specific services. Where M&I serves as 
investment manager to a Client Plan account, depending on the type of 
portfolio, the charge may vary from 30 basis points up to 80 basis 
points. This charge is separate from, and would be in addition to, the 
fee for custodial services described above. M&I provides services to 
the Client Plans for which it acts as a trustee with investment 
discretion, including sweep services for uninvested cash balances in 
such Plans, under a bundled or single fee arrangement which is 
calculated as a percentage of the market value of the Plan assets under 
management. Thus, in such instances, there are no separate charges for 
the provision of particular services to the Client Plans. However, for 
Client Plans where investment decisions are directed by a Second 
Fiduciary, a separate charge is assessed for particular services, 
including sweep services, where the Second Fiduciary specifically 
agrees to have M&I provide such services to the Client Plan.\23\ M&I 
states that in many cases fees charged by M&I to a Client Plan are paid 
by the Client Plan sponsor rather than by the Client Plan.
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    \2\2The applicant represents that all fees paid by Client Plans 
directly to M&I for services performed by M&I are exempt from the 
prohibited transaction provisions of the Act by reason of section 
408(b)(2) of the Act and the regulations thereunder (see 29 CFR 
2550.408b-2). The Department notes that to the extent there are 
prohibited transactions under the Act as a result of services 
provided by M&I directly to the Client Plans which are not covered 
by section 408(b)(2), no relief is being proposed herein for such 
transactions.
    \2\3See DOL Letter dated August 1, 1986 to Robert S. Plotkin, 
Assistant Director, Division of Banking Supervision and Regulation, 
Board of Governors of the Federal Reserve System, stating the 
Department's views regarding the application of the prohibited 
transaction provisions of the Act to sweep services provided to 
plans by fiduciary banks and the potential applicability of certain 
statutory exemptions as described therein.
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    (b) M&I Management charges the Funds for its services to the Funds 
as investment adviser, in accordance with the Agreements between M&I 
and the Funds. Under the Agreements, M&I Management charges fees at a 
different rate for each Fund, computed based on the average daily net 
assets for the respective Fund. The fee differentials among the Funds 
result from the particular level of services rendered by M&I Management 
to the Funds.
    (c) The investment advisory and other fees paid by each of the 
existing Funds are accrued on a daily basis and billed by M&I 
Management to the Funds at the beginning of the month following the 
month in which the fees accrued. The applicant states that any 
additional Funds will follow the same monthly billing arrangement.
    (d) At the beginning of each month (pursuant to the terms of the 
applicable Agreements) and essentially simultaneously with the billing 
described in (c) above, but in no event more than one business day 
following the receipt of such fees by M&I Management, M&I credits to 
each Client Plan directly with cash such Plan's pro rata share of all 
investment advisory fees charged by M&I Management to the Funds (the 
Credit Program). In addition, M&I currently credits to each Client Plan 
any amounts it is paid for providing custody and shareholder services 
to the Funds in the same manner as the investment advisory fees but 
only to the extent that these amounts exceed M&I's direct expenses for 
providing such services. However, M&I proposes in the future to retain 
any fees received by M&I from the Funds for custody and shareholder 
services or other secondary services.24
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    \2\4M&I states that such secondary services are distinct from 
the services provided by M&I as trustee to a Client Plan. Trustee 
services rendered at the Plan-level include maintaining custody of 
the assets of the Client Plan (including the Fund shares, but not 
the assets underlying the Fund shares), processing benefit payments, 
maintaining participant accounts, valuing plan assets, conducting 
non-discrimination testing, preparing Forms 5500 and other required 
filings, and producing statements and reports regarding overall plan 
and individual participant holdings. These trustee services are 
necessary regardless of whether the Client Plan's assets are 
invested in the Funds. Thus, M&I represents that its proposed 
receipt of fees for both secondary services at the Fund-level and 
trustee services at the Plan-level would not involve the receipt of 
``double fees'' for duplicative services to the Client Plans because 
a Fund is charged for custody and other services relative to the 
individual securities owned by the Fund, while a Client Plan is 
charged for the maintenance of Plan accounts reflecting ownership of 
the Fund shares and other assets.
    In this regard, the Department notes that the combined total of 
all fees received by M&I directly and indirectly from the Client 
Plans for the provision of services to the Plans and/or to the Funds 
should not be in excess of ``reasonable compensation'' within the 
meaning of section 408(b)(2) of the Act.
    In addition, the fact that certain transactions and fee 
arrangements are the subject of an administrative exemption does not 
relieve a Client Plan fiduciary from the general fiduciary 
responsibility provisions of section 404 of the Act. Thus, the 
Department cautions the fiduciaries of the Client Plans investing in 
the Funds that they have an ongoing duty under section 404 of the 
Act to monitor the services provided to the Client Plans to assure 
that the fees paid by the Client Plans for such services are 
reasonable in relation to the value of the services provided. Such 
responsibilities would include determinations that the services 
provided are not duplicative and that the fees are reasonable in 
light of the level of services provided.
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    M&I represents that the credited fees are currently paid to the 
Client Plan only in cash, but that the credits may be effectuated in 
the future through the purchase of additional shares of the Funds 
pursuant to an annual election made by the Second Fiduciary for the 
Client Plan. The purchase of the shares will occur in lieu of a cash 
credit on the same day that such credit would have been paid to the 
Client Plan. M&I states that the fee credits were initially made in 
cash to the Client Plans so that no authorizations for crediting fees 
in the form of additional shares of the Funds would be involved at the 
time of the transfers of the CIF assets to the Funds. All decisions 
regarding the use of the credited fees to purchase additional shares of 
the Funds, including annual reauthorizations for such credits, will be 
made by a Second Fiduciary for the Client Plan.
    The Credit Program ensures that M&I does not receive any additional 
investment management, advisory or similar fees from the Funds as a 
result of investments in the Funds by the Client Plans. Thus, M&I 
represents that the Fee Structure is at least as advantageous to the 
Client Plans as an arrangement pursuant to the conditions of PTE 77-4 
whereby investment advisory fees paid by the Funds to M&I Management 
would be offset or credited against investment management fees charged 
directly by M&I to the Client Plans. In this regard, M&I states that 
the Credit Program essentially has the same effect in offsetting M&I 
Management's investment advisory fees as an arrangement under PTE 77-4, 
section II(c), allowing for a credit by subtracting the amount of such 
fees from the investment management fees charged directly by M&I to the 
Client Plans (the Subtraction Method). M&I states further that in many 
instances the Credit Program is more advantageous to a Client Plan than 
an arrangement using the Subtraction Method because under the Credit 
Program a Client Plan receives a credit in either cash or shares on the 
same day (or within one business day after) the fees are received by 
M&I Management from the Funds. However, under the Subtraction Method, a 
Client Plan would not receive a credit on the same day (or within one 
business day after) the fees are paid to M&I Management from the Funds 
if the billing period for services to the Funds is different than the 
billing period for M&I's fiduciary services to the Client Plan. The Fee 
Structure with the Credit Program allows M&I to maintain a fixed 
fiduciary fee schedule for services to the Client Plans without any 
adjustments in billing for such services, as required under the 
Subtraction Method. M&I notes that the Fee Structure also allows the 
Client Plan sponsor the option to pay the Client Plan's fees to M&I for 
serving as a trustee, directed trustee, investment manager, or 
custodian and have the Client Plan receive a credit of the Plan's pro 
rata share of the investment advisory fees paid to M&I.25
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    \2\5To the extent that the Department of the Treasury determines 
that this arrangement should be deemed a contribution by an employer 
to a Client Plan of the credited fees, the transaction must be 
examined under the applicable provisions of the Internal Revenue 
Code, including sections 401(a)(4), 404 and 415.
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    M&I is responsible for establishing and maintaining a system of 
internal accounting controls for the Credit Program. In addition, M&I 
has retained the services of Arthur Anderson & Co. of Milwaukee, 
Wisconsin (the Auditor), an independent accounting firm, to audit 
annually the crediting of fees to the Client Plans under the Credit 
Program. M&I states that such audits provide independent verification 
of the proper crediting to the Client Plans of fees charged by M&I to 
the Funds. M&I states further that information obtained from the audits 
is used in the preparation of required financial disclosure reports to 
the Client Plans' fiduciaries.
    By letter dated November 6, 1992, the Auditor describes the 
procedures that are used in the annual audit of the Credit Program. The 
Auditor obtains: (i) A calculation of the daily actual balances for all 
the Funds and for the total Client Plan shareholders of such Funds; 
(ii) a detailed list of the expenses charged to the Funds' shareholders 
by type of expense; and (iii) calculations of the total expenses 
charged by M&I to each Fund which are reimbursable to the Client Plans. 
On the basis of such information, the Auditor: (i) Reviews and tests 
compliance with the Credit Program's operational controls and 
procedures established by M&I (ii) verifies the daily credit factors 
transmitted to M&I from the Funds, including the proper assignment of 
identification numbers to all Client Plan shareholders; and (iii) 
verifies the credits paid in total to the sum of all credits paid to 
each Client Plan. The Auditor recomputes, in total, the cash received 
in connection with the credit of each Client Plan's expenses to ensure 
that the proper amount of cash was issued to the Client Plan. Finally, 
the Auditor recomputes on a test basis the amount of credits received 
by selected Client Plan shareholders of the Funds to verify that such 
credits were properly made. In this regard, the Auditor obtains a 
listing of the credits paid to each Client Plan regarding its shares in 
each of the Funds to determine that the total credit paid to the Client 
Plan by M&I equals the total amount that was required to be credited. 
At such time as M&I offers Client Plans the option to have the fees 
credited as additional Fund shares, the Auditor will also recompute the 
number of Fund shares issued to the Client Plans to ensure that each 
Client Plan received the proper number of shares.
    In the event either the internal audit by M&I or the independent 
audit by the Auditor identifies that an error has been made in the 
crediting of fees to the Client Plans, M&I will correct the error. With 
respect to any shortfall in credited fees to a Client Plan involving 
cash credits, M&I will make a cash payment to the Client Plan equal to 
the amount of the error plus interest paid at money market rates 
offered by M&I for the period involved. With respect to a shortfall in 
credited fees involving a Client Plan where the Second Fiduciary's 
election is to have credited fees invested in shares of a particular 
Fund, M&I will make a cash payment equal to at least the amount of the 
error plus interest based on the greater of either: (i) The money 
market rates offered by M&I for the period involved, or (ii) the total 
rate of return for shares of the Fund that would have been acquired 
during such period. Any excess credits made to a Client Plan will be 
corrected by an appropriate deduction and reallocation of cash during 
the next payment period to reflect accurately the amount of total 
credits due to the Client Plan for the period involved.
    8. With respect to any transfer of a Client Plan's CIF assets to a 
Fund, M&I states that a Second Fiduciary for the Client Plan receives 
advance written notice of the in-kind transfer of assets of the CIFs 
and full written disclosure of information concerning the Fund. On the 
basis of such information, the Second Fiduciary authorizes in writing 
the in-kind transfer of the Client Plan's CIF assets to a Fund in 
exchange for shares of the Fund. With respect to the receipt of fees by 
M&I from a Fund in connection with any Client Plan's investment in the 
Fund, M&I states that a Second Fiduciary receives full and detailed 
written disclosure of information concerning the Fund in advance of any 
investment by the Client Plan in the Fund. On the basis of such 
information, the Second Fiduciary authorizes in writing the investment 
of assets of the Client Plan in the Fund and the fees to be paid by the 
Fund to M&I. Such authorization will include in the future an election 
for the Second Fiduciary to purchase additional shares of the Fund with 
the fees credited to the Client Plan by M&I. In addition, M&I 
represents that the Second Fiduciary of each Client Plan invested in a 
particular Fund will receive full written disclosure, in a statement 
separate from the Fund prospectus, of any proposed increases in the 
rates of fees charged by M&I to the Funds for secondary services which 
are above the rate reflected in the prospectus for the Fund, at least 
30 days prior to the effective date of such increase. The Second 
Fiduciary will also receive full written disclosure in a Fund 
prospectus or otherwise of any increases in the rate of fees charged by 
M&I to the Funds for investment advisory services even though such fees 
will be credited, as required by Section II(d) above.
    Any authorizations by a Second Fiduciary regarding the investment 
of a Client Plan's assets in a Fund and the fees to be paid to M&I, 
including any future increases in rates of fees for secondary services, 
are or will be terminable at will by the Second Fiduciary, without 
penalty to the Client Plan, upon receipt by M&I of written notice of 
termination. A Termination Form expressly providing an election to 
terminate the authorization with instructions on the use of the form is 
supplied to the Second Fiduciary no less than annually. The 
instructions for the Termination Form include the following 
information:
    (a) The authorization is terminable at will by the Client Plan, 
without penalty to the Client Plan, upon receipt by M&I of written 
notice from the Second Fiduciary; and
    (b) Failure to return the form will result in continued 
authorization of M&I to engage in the subject transactions on behalf of 
the Client Plan.
    M&I states that the Termination Form may be used at will by the 
Second Fiduciary to terminate an authorization without penalty to the 
Client Plan and to notify M&I in writing to effect a termination by 
selling the shares of the Funds held by the Client Plan requesting such 
termination within one business day following receipt by M&I of the 
form; provided that if, due to circumstances beyond the control of M&I, 
the sale cannot be executed within one business day, M&I shall have one 
additional business day to complete such sale.
    Any disclosure of information regarding a proposed increase in the 
rate of any fees for secondary services will be accompanied by an 
additional Termination Form with instructions on the use of the form as 
described above. Therefore, the Second Fiduciary will have prior notice 
of the proposed increase and an opportunity to withdraw from the Funds 
in advance of the date the increase becomes effective. Although the 
Second Fiduciary will also have notice of any increase in the rates of 
fees charged by M&I to the Funds for investment advisory services, 
through an updated prospectus or otherwise, such notice will not be 
accompanied by an additional Termination Form since all increases in 
investment advisory fees will be credited by M&I to the Client Plans 
and will be subject to an annual reauthorization as described above.
    M&I states that the Second Fiduciary always receives a current 
prospectus for each Fund and a written statement giving full disclosure 
of the Fee Structure prior to any investment in the Funds. The 
disclosure statement explains why M&I believes that the investment of 
assets of the Client Plan in the Funds is appropriate. The disclosure 
statement also describes whether there are any limitations on M&I with 
respect to which Client Plan assets may be invested in shares of the 
Funds and, if so, the nature of such limitations.26
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    \2\6See section II(d) of PTE 77-4 which requires, in pertinent 
part, that an independent plan fiduciary receive a current 
prospectus issued by the investment company and a full and detailed 
written disclosure of the investment advisory and other fees charged 
to or paid by the plan and the investment company, including a 
discussion of whether there are any limitations on the fiduciary/
investment adviser with respect to which plan assets may be invested 
in shares of the investment company and, if so, the nature of such 
limitations.
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    M&I states further that the Second Fiduciary receives an updated 
prospectus for each Fund at least annually and either annual or semi-
annual reports for each Fund. M&I provides monthly reports to the 
Second Fiduciary of all transactions engaged in by the Client Plan, 
including purchases and sales of Fund shares.
    9. No sales commissions are paid by the Client Plans in connection 
with the purchase or sale of shares of the Funds. In addition, no 
redemption fees are paid in connection with the sale of shares by the 
Client Plans to the Funds. The applicant states that all other dealings 
between the Client Plans and the Funds, M&I Management or any 
affiliate, are on a basis no less favorable to the Client Plans than 
such dealings are with the other shareholders of the Funds.
    10. In summary, M&I represents that the transactions described 
herein satisfy the statutory criteria of section 408(a) of the Act 
because: (a) The Funds provide the Client Plans with a more effective 
investment vehicle than the CIFs maintained by M&I without any increase 
in investment management, advisory or similar fees paid to M&I (b) 
with respect to the transfer of a Client Plan's CIF assets into a Fund 
in exchange for Fund shares, a Second Fiduciary authorizes in writing 
such transfer prior to the transaction only after full written 
disclosure of information concerning the Fund; (c) each Client Plan 
receives shares of a Fund in connection with the transfer of assets of 
a terminating CIF which have a net asset value that is equal to the 
value of the Client Plan's pro rata share of the CIF assets on the date 
of the transfer, based on the current market value of such assets as 
determined in a single valuation at the close of the same business day 
using independent sources in accordance with procedures established by 
the Fund which comply with Rule 17a-7 of the 1940 Act; (d) with respect 
to any investments in a Fund by the Client Plans and the payment of any 
fees by the Fund to M&I, a Second Fiduciary receives full written 
disclosure of information concerning the Fund, including a current 
prospectus and a statement describing the Fee Structure, and authorizes 
in writing the investment of the Client Plan's assets in the particular 
Fund and the fees paid by such Fund to M&I (e) any authorizations made 
by a Client Plan regarding investments in a Fund and fees paid to M&I, 
or any increases in the rates of fees for secondary services which are 
retained by M&I, are or will be terminable at will by the Client Plan, 
without penalty to the Client Plan, upon receipt by M&I of written 
notice of termination from the Second Fiduciary; (f) M&I requires 
annual audits by an independent accounting firm to verify the proper 
crediting to the Client Plans of fees charged by M&I to the Funds; (g) 
no commissions or redemption fees are paid by the Client Plan in 
connection with either the acquisition of Fund shares, through either a 
direct purchase of the shares or a transfer of CIF assets in exchange 
for the shares, or the sale of Fund shares; and (h) all dealings 
between the Client Plans, the Funds and M&I, are on a basis which is at 
least as favorable to the Client Plans as such dealings are with other 
shareholders of the Funds.

Notice to Interested Persons

    Notice of the proposed exemption shall be given to all Second 
Fiduciaries of Client Plans described herein that had investments in a 
terminating CIF and from whom approval was sought, or will be sought 
prior to the granting of this proposed exemption, for a transfer of a 
Client Plan's CIF assets to a Fund. In addition, interested persons 
shall include the Second Fiduciaries of all Client Plans which have 
invested in the Funds, from the effective date of the proposed 
exemption (November 20, 1992) until the date the notice of the proposed 
exemption is published in the Federal Register, where M&I has provided 
services to the Funds and received fees which would be covered by the 
exemption, if granted. Notice to interested persons shall be provided 
by first class mail within fifteen (15) days following the publication 
of the proposed exemption in the Federal Register. Such notice shall 
include a copy of the notice of proposed exemption as published in the 
Federal Register and a supplemental statement (see 29 CFR 
2570.43(b)(2)) which informs all interested persons of their right to 
comment on and/or request a hearing with respect to the proposed 
exemption. Comments and requests for a public hearing are due within 
forty-five (45) days following the publication of the proposed 
exemption in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Mr. E. F. Williams of the Department, 
telephone (202) 219-8194. (This is not a toll-free number.)

New Standard Corporation Pension Plan (the Plan) Located in Mt. Joy, 
Pennsylvania; Proposed Exemption

[Application No. D-9698]

    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) and 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 to the sale of a certain parcel of real 
property (the Property) from the Plan to New Standard Corporation (the 
Employer), a party in interest with respect to the Plan, provided that 
the following conditions are met:
    1. The fair market value of the Property is established by a real 
estate appraiser independent of the Plan and the Employer;
    2. The Employer pays the greater of $115,000 or the current fair 
market value of the Property (excluding site improvements) with the 
enhancement value for an adjoining owner as of the date of sale;
    3. The sale is a one-time transaction for cash;
    4. The Plan pays no fees or commissions in regard to the sale; and
    5. The Employer pays any applicable excise taxes to the Internal 
Revenue Service under section 4975(a) of the Code resulting from its 
use of the Property since October 1993.

Summary of Facts and Representations

    1. The Employer is a metal stampings manufacturing concern with 
offices in Mt. Joy and Hellam Township, Pennsylvania. The Plan is a 
defined benefit plan which had approximately 66 participants and total 
assets of approximately $1,083,139 as of the time of filing of the 
exemption application.
    2. The Plan purchased the Property in April 1978 from unrelated 
parties for a purchase price of $22,689 in cash. The Property is a 
vacant lot of about 2.51 acres located in Hellam Township adjacent to 
property of the Employer. The adjacent property includes a one-story 
manufacturing and warehouse complex utilized by the Employer.
    The total cost to the Plan of acquiring and holding the Property 
since the time of purchase has been only the original purchase price. 
All taxes and other costs related to the holding of the Property by the 
Plan have been paid by the Employer. A small portion of the lot was 
recently paved at the expense of the Employer to provide an additional 
parking opportunity to the Employer, and certain other improvements to 
the Property (including storm sewer installation and driveway access) 
have been financed by the Employer. The Employer has expended a total 
of $72,260, including taxes, on the Property since the time it was 
acquired by the Plan.
    3. The applicant obtained an appraisal on the Property dated April 
14, 1994, from B. Daniel Wagner, MAI (Wagner) of Associated Appraisers 
in York, Pennsylvania. The applicant represents that Wagner is 
independent of the Plan and the Employer. Wagner states that he is 
aware that the Employer is the owner of contiguous property and is the 
prospective buyer of the Property. In Wagner's opinion, the fair market 
value of the Property (excluding site improvements which were 
constructed at the expense of the Employer) to an adjoining owner and 
including the enhancement value for such adjoining owner was $115,000 
as of the date of the appraisal.
    4. The Plan now proposes to sell the Property to the Employer. The 
Employer will pay the greater of the current fair market value of the 
Property (excluding site improvements) for an adjoining owner, based on 
an updated independent appraisal, or the total amount the Plan has 
expended on the Property as of the date of sale. The sale of the 
Property will be entirely for cash, and the Plan will pay no fees or 
commissions in regard to the transaction.
    The applicant represents that portion of the Property which was 
paved for parking has been utilized by employees of the Employer. This 
parking area contains 48 spaces and was completed in October 1993. A 
supplement to the above described appraisal, prepared by Wagner on June 
20, 1994, estimates the total fair market rental for such usage to be 
approximately $350 per month. The Employer will compensate the Plan in 
that amount for the period of time the Employer has utilized the 
parking area from October 1993 to the date of sale of the 
Property.27
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    \2\7The applicant recognizes that the use of a portion of the 
Property for parking purposes of the Employer may have constituted 
prohibited transactions under section 406 of the Act and section 
4975 of the Code. Accordingly, the Employer will pay the Internal 
Revenue Service any excise taxes that are applicable under section 
4975(a) of the Code within 90 days of the publication in the Federal 
Register of the grant of this proposed exemption.
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    5. In summary, the applicant represents that the proposed 
transaction will satisfy the statutory criteria of section 408(a) of 
the Act because: (1) The fair market value of the Property will be 
established by a real estate appraiser independent of the Plan and the 
Employer; (2) the Employer will pay the greater of the current fair 
market value of the Property (excluding site improvements) for an 
adjoining owner or the total amount the Plan has expended on the 
Property; (3) the Plan will pay no fees or commissions in connection 
with the sale; and (4) the sale of the Property will be an all cash 
transaction.

FOR FURTHER INFORMATION CONTACT: Paul Kelty of the Department, 
telephone (202) 219-8883. (This is not a toll-free number.)

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest of disqualified 
person from certain other provisions of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
section 404 of the Act, which among other things require a fiduciary to 
discharge his duties respecting the plan solely in the interest of the 
participants and beneficiaries of the plan and in a prudent fashion in 
accordance with section 404(a)(1)(b) of the act; nor does it affect the 
requirement of section 401(a) of the Code that the plan must operate 
for the exclusive benefit of the employees of the employer maintaining 
the plan and their beneficiaries;
    (2) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete and 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 11th day of August, 1994.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 94-20010 Filed 8-16-94; 8:45 am]
BILLING CODE 4510-29-P