[Federal Register Volume 60, Number 53 (Monday, March 20, 1995)]
[Notices]
[Pages 14780-14795]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-6728]



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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Application No. D-09358, et al.]


Proposed Exemptions; NCNB Real Estate Fund, et al.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

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SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the prohibited transaction 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

    All interested persons are invited to submit written comments or 
request for a hearing on the pending exemptions, unless otherwise 
stated in the Notice of Proposed Exemption, within 45 days from the 
date of publication of this Federal Register Notice. Comments and 
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 [[Page 14781]] 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.
NCNB Real Estate Fund (the Fund), NationsBank Pension Plan, NationsBank 
Retirement Savings Plan

Located in Charlotte, North Carolina
[Exemption App. Nos. D-09358, D-09359 and D-09360, respectively]

Proposed Exemption

    Based on the facts and representations set forth in the 
application, the Department and the Service are considering granting 
the following requested exemptions 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, August 10, 1990) and Revenue Procedure 75-26, 1975-1 C.B. 722.
Section I: Covered Transactions
    1. If the exemption is granted, the restrictions of sections 
406(a), 406 (b)(1) and (b)(2) of the Act and the sanctions resulting 
from the application of section 4975 of the Code, by reason of section 
4975(c)(1) (A) through (E) of the Code shall not apply to the proposed 
sale (the Sale) of units in the Fund (Units) by plans participating in 
the Fund (the Plans) pursuant to an Option election made available by 
NationsBank of North Carolina, N.A. (the Bank), to a standby trust (the 
Standby Trust) established and maintained by NationsBank, Corporation 
(the Holding Company), a party in interest with respect to the Plans. 
This proposed exemption is subject to the conditions set forth in 
Section II.
    2. If the exemption is granted, the restrictions of sections 
406(a)(1)(D), 406 (b)(1) and (b)(2) of the Act and the sanctions 
resulting from the application of section 4975 of the Code, by reason 
of section 4975(c)(1) (D) and (E) of the Code shall not apply to any 
decision by the Bank to sell a property held by the Fund to a third 
party, and jointly owned by the Plans and the Holding Company, provided 
that: each Plan receives no less than fair market value for its 
interest in the property; and the Independent Fiduciary approves the 
reasonableness and propriety of the sale of the property.
Section II: Conditions
    (a) The properties held by the Fund (the Properties) shall be 
appraised by an independent and qualified appraiser within twelve 
months and updated within fifteen days before the Settlement Valuation 
Date.
    (b) The Plans selling Units pursuant to the Options will receive a 
price equal to the value of each Unit sold based on the value of the 
Fund as of the Settlement Valuation Date (the Unit Purchase Price) plus 
the Interest Amount which will be calculated by the Bank and reviewed 
and approved by the Independent Fiduciary who has been retained to 
represent the interests of the Plans with respect to the Sale and the 
subsequent activities of the Fund related to the Fund's liquidation.
    (c) Plans selling Units pursuant to Options 1 or 2 will receive the 
Unit Purchase Price plus the Interest Amount for each Unit sold on the 
settlement date (Settlement Date) which will be no more than 120 days 
after the Settlement Valuation Date.
    (d) If Options 2 or 4 are elected, the Plans involved will receive 
the final payment, if any, within sixty days after, the two year 
anniversary of the Settlement Valuation date for Option 2, or the date 
of complete liquidation of the Fund for Option 4.
    (e) Prior to the Settlement Valuation Date, the Bank will provide 
each Plan with written information regarding the terms of the Sale. 
Such information includes, but is not limited to:
    (i) notice that each Plan will be entitled to elect one or more 
Options which will permit the Plan to sell all or part of its Units to 
the Stand-by Trust, or to continue to hold all or part of its Units in 
the Fund until the Fund's liquidation is complete, provided that if 
multiple Options are elected they must be uniform with respect to the 
grant, or failure to grant, a Release to the Bank,
    (ii) a description of each Option,
    (iii) the date by which a Plan must elect an Option (Option 
Election Date), and
    (iv) forms for electing the Options.
    (f) Except for Plans with respect to which the Bank or any of its 
Affiliates is an employer, the decision whether to authorize the 
Independent Fiduciary to make an Option election on behalf of the Plan 
will be made by a fiduciary independent of the Bank and its Affiliates 
and the Independent Fiduciary.
    (g) The Bank and any Affiliate which is an employer with respect to 
a Plan will authorize the Independent Fiduciary to choose among all of 
the Options.
    (h) A Plan's Option election will be made by a Plan fiduciary who 
is independent of the Bank and its Affiliates or by the Independent 
Fiduciary.
    (i) The Independent Fiduciary's duties and responsibilities 
include, but are not limited to:
    (1) Reviewing and determining whether to approve the appraisals of 
the Properties;
    (2) Ordering a new appraisal in cases in which it has determined 
not to approve an existing appraisal;
    (3) Reviewing and approving all of the disclosures, written 
explanations, and forms furnished to the Plans by the Bank;
    (4) Furnishing information to an independent Plan fiduciary, in 
advance of any date by which the independent Plan fiduciary is required 
to respond in order to authorize the Independent Fiduciary to make a 
decision on behalf of the Plan. Such information includes, but is not 
limited to:
    (i) the Unit Purchase Price;
    (ii) a description and explanation of the Options;
    (iii) dates by which the Plans must act in order to make Option 
elections and authorize the Independent Fiduciary to make Option 
elections on behalf of the Plan;
    (iv) information summarizing: the effect of failing to authorize 
the Independent Fiduciary to make Option elections on behalf of the 
Plan, the effect [[Page 14782]] of failing to make an Option election 
after informing the Independent Fiduciary that the independent Plan 
fiduciary would make the decision to select an Option election, and the 
availability and effect of the different Option election authorizations 
which the Plan may provide to the Independent Fiduciary, in language 
calculated to be reasonably understood by the average independent Plan 
fiduciary responsible for making decisions on behalf of a Plan with 
regard to Units of the Fund held by the Plan;
    (4) making Option elections on behalf of any Plan if: (a) The Bank 
or any of its Affiliates is an employer with respect to the Plan; (b) 
the independent Plan fiduciary authorizes the Independent Fiduciary to 
make an Option elections on behalf of that Plan; or (c) the independent 
Plan fiduciary does not reserve the right to make an Option election 
and fails to make an Option election prior to the Option Election Date;
    (5) providing guidance regarding the four Options, to those 
independent Plan fiduciaries who wish to make their own Option 
elections;
    (6) reviewing and determining whether to approve the Unit Purchase 
Price as of the Settlement Valuation Date, and the value of a Unit in 
the Fund as of two years from the Sale of the Units by the Plans to the 
Standby Trust (for purposes of determining the amount which is due to 
those Plans electing Option 2);
    (7) reviewing and determining whether to approve the Interest 
Amount payable to any Plan which elected either Option 1 or 2;
    (8) exercising its veto authority with regard to the proposed Unit 
Purchase Price, Interest Amount, or value of Fund Units pursuant to 
Option 2, which it has determined not to approve;
    (9) monitoring the Bank's efforts to dispose of the Properties 
during the liquidation of the Fund;
    (10) approving the reasonableness and propriety of sales of the 
Properties during the period in which the Standby Trust owns units in 
the Fund.
    (j) The Independent Fiduciary may be removed by a majority vote of 
the Plans ``for cause.''
    (i) The term ``for cause'' shall mean that there must be sufficient 
and reasonable grounds for removal and the grounds must be related to 
the ability and fitness of the Independent Fiduciary to perform his 
required duties.
    (ii) Each Plan's vote for or against removal will be proportionate 
to it's ownership interest in the Fund exclusive of Units owned by the 
Standby Trust.
    (k) The Bank and the Holding Company will be bound by the decisions 
and determinations made by the Independent Fiduciary.
    (l) The Bank will continue its efforts, with due diligence to 
liquidate the Fund.
    (m) Any distributions made by the Fund will be made pro rata, in 
cash.
    (n) Any payment made pursuant to any of the Options will be made in 
cash.
    (o) The Independent Fiduciary is responsible for monitoring 
compliance with the terms and conditions of the exemption at all times.
Section II. Definitions
    For purposes of this exemption:
    (a) Affiliate of the Bank includes:
    (1) Any person directly or indirectly through one or more 
intermediaries controlling, controlled by, or under common control with 
the Bank;
    (2) Any officer, director or employee of the Bank, or of a person 
described in paragraph (a)(1) of Section II; and
    (3) Any partnership in which the Bank is a partner;
    (b) Control means the power to exercise a controlling influence 
over the management or policies of a person other than an individual.
    (c) Affiliate of the Independent Fiduciary includes:
    (1) Any person directly or indirectly through one or more 
intermediaries controlling, controlled by, or under common control with 
the Independent Fiduciary;
    (2) Any officer or director of the Independent Fiduciary;
    (3) Any partner in the Independent Fiduciary, or any other related 
individual, with the authority to make, or who actually makes, 
fiduciary decisions which are within the scope of the Independent 
Fiduciary's duties and responsibilities under this exemption, or who 
holds a five percent (5%) or greater interest in the Independent 
Fiduciary;
    (d) Independent Fiduciary means a person who:
    (1) Is not an Affiliate of the Bank as defined in section II(a);
    (2) does not have an ownership interest in the Bank or its 
Affiliates;
    (3) is not a corporation or partnership in which the Bank or any of 
its Affiliates has an ownership interest;
    (4) is not a fiduciary with respect to any of the Plans other than 
in connection with the transactions described in this exemption;
    (5) has acknowledged in writing acceptance of fiduciary 
responsibility;
    (6) is either:
    (i) A business organization which has at least (5) years of 
experience with respect to commercial real estate investments or other 
relevant experience;
    (ii) a committee comprised of three to five individuals who each 
have at least five (5) years of experience with respect to commercial 
real estate investments or other relevant experience; or
    (iii) a committee comprised both of a business organization or 
organizations and individuals having the qualifications described in 
paragraphs (d)(1) through (6)(ii) above.
    (7) An individual acting in a fiduciary capacity with respect to 
the Fund on behalf of, and at the direction of, an Independent 
Fiduciary meeting the conditions of paragraphs (d)(1) through (6)(iii) 
above shall be considered an Independent Fiduciary.
    For purposes of this definition, no organization or individual may 
serve as an Independent Fiduciary for the Fund for any fiscal year, if 
the gross income received by such organization or individual (or by any 
partnership or corporation of which such organization or individual is 
an officer, director, or ten percent (10%) or more partner or 
shareholder) from the Bank, or any Affiliate, for that fiscal year 
exceeds five percent (5%) of its or his annual gross income from all 
sources for the prior fiscal year. If such organization or individual 
has no income for the prior fiscal year, the 5% limitation shall be 
applied with reference to the fiscal year in which such organization or 
individual serves as an independent fiduciary. The income limitation 
will include income received for services rendered to the Plans and the 
Fund as Independent Fiduciary, as described in this exemption.
    In addition, no organization or individual who is an Independent 
Fiduciary or an Affiliate of such Independent Fiduciary, and no 
partnership or corporation of which such Independent Fiduciary is an 
officer, director, or ten percent (10%) or more partner or shareholder 
with the authority to cause such corporation or partnership to engage 
in the following transactions, or who exercises such authority in 
conjunction with others, may:
    (1) Acquire any property from, sell any property to, or borrow any 
funds from, the Bank, its Affiliates, or any collective investment 
vehicle or separate trust maintained or advised by the Bank or its 
Affiliates, during the period that such organization or individual 
serves as an Independent fiduciary and continuing for a period of six 
(6) months after such organization or [[Page 14783]] individual ceases 
to be an Independent Fiduciary; or
    (2) Negotiate any such transaction, described above in paragraph 
(1) above during the period that such organization or individual serves 
as Independent Fiduciary.
    No Plan fiduciary or sponsor of a Plan or a designee of such Plan 
fiduciary, sponsor or Plan may serve as the Independent Fiduciary with 
respect to the Fund.
    (e) Option(s) means the following:
    Option 1: A Plan will accelerate the liquidation of its investment 
in the Fund by selling each of its Units subject to this Option to the 
Standby Trust for an amount equal to the Unit Purchase Price plus the 
Interest Amount. A Plan electing this Option will reserve all rights it 
may have with respect to the Fund, the Bank and other appropriate 
persons. However, with respect to a participant directed account Plan, 
the Plan sponsor and an authorized independent Plan fiduciary will 
provide a Release to the Fund, the Bank and other appropriate persons 
without any affect on the rights of the participants or beneficiaries 
regarding the matters covered by the Release.
    Option 2: A Plan will accelerate the liquidation of its investment 
in the Fund by selling each of its Units subject to this Option to the 
Standby Trust for an amount equal to the Unit Purchase Price plus the 
Interest Amount. In addition, the Bank will pay promptly following the 
second anniversary of the Settlement Valuation Date, an amount equal to 
the excess, if any, of (A) the sum of (1) the value that the Unit would 
have had at the Valuation Date two years after the Settlement Valuation 
Date if such Unit had not been sold, plus (2) the amount of any 
distributions made with respect to such Unit during such two year 
period, over (B) the Unit Purchase Price plus the Interest Amount. The 
Bank will pay Litigation Expenses to the Plan, if any. Under this 
Option, a Plan will release the Fund, the Bank and other appropriate 
persons with respect to all matters relating to the investment in the 
Fund occurring prior to the Sale.
    Option 3: A Plan will continue its investment in the Fund through 
the end of the liquidation process. Under this Option, a Plan reserves 
all rights with respect to the Fund, the Bank and all other appropriate 
persons. However, with respect to a participant directed account Plan, 
the Plan sponsor and an authorized independent Plan fiduciary will 
provide a Release to the Fund, the Bank and other appropriate persons 
without any affect on the rights of the participants or beneficiaries 
regarding the matters covered by the Release.
    Option 4: A Plan will continue its investment in the Fund through 
the end of the liquidation process. For a Plan electing this Option, 
the Bank will agree to pay promptly following the completion of the 
liquidation of the Fund, with respect to each Unit subject to this 
Option, an amount equal to the excess, if any, of the (i) the value of 
a Unit on September 28, 1990 over (ii) the value of all distributions 
made to the Plan with respect to such Unit since September 29, 1990 and 
during the liquidation of the Fund. The Bank will also pay Litigation 
Expenses to the Plan, if any. Plans electing this Option will release 
the Fund, the Bank and other appropriate persons with respect to all 
matters related to the investment in the Fund occurring prior to the 
Sale.
    (f) Unit Purchase Price means the amount which is calculated by 
dividing the value of all of the assets of the Fund, as reviewed and 
approved by the Independent Fiduciary, by the total number of units in 
the Fund.
    (g) Interest Amount means the amount approved by the Independent 
Fiduciary, equal to the net income earned on a Fund unit during the 
period commencing on the Settlement Valuation Date and ending on the 
day immediately preceding the Settlement Date, exclusive of realized or 
unrealized appreciation or depreciation.
    (h) Settlement Valuation Date means the date on which the value of 
the Fund will be determined by the Bank in order to establish the Unit 
Purchase Price in connection with the Sale. The Settlement Valuation 
Date will be the last business day of the calendar month following the 
calendar month in which final prospective approval will be granted by 
the Office of the Comptroller of the Currency subsequent to a final 
grant of this proposed exemption and approval of the transaction which 
is the subject of this proposed exemption by the Federal Reserve Board.
    (i) Litigation Expenses means the out-of-pocket expenses of 
litigation instituted before November 24, 1992 by or on behalf of a 
Plan against the Bank or the Fund with respect to the Plan's investment 
in the Fund exclusive of any expense of litigation with respect to a 
case which has proceeded to trial, or with respect to which there is a 
judgment against the Bank or the Fund, prior to the Option Election 
Date, plus interest. The total amount of Litigation Expenses, the rate 
of interest and the period for which interest is paid must be agreed to 
in writing between the Bank and the Plan prior to the Plan's election 
of Options 2 or 4. However, in the event there has never been a written 
settlement agreement specifying the amount of Litigation Expenses, 
prior to the date on which the Plan elects Option 2 or 4, Litigation 
Expenses will be the amounts requested by the Plan, unless such 
expenses are unreasonable.
    (j) Option Election Date means the date as communicated to the 
Plans, at least Ninety (90) days subsequent to the Settlement Valuation 
Date and at least sixty (60) days subsequent to the completion of the 
mailing of the general post Settlement Valuation Date disclosure to all 
of the Plans by the Independent Fiduciary, on or prior to which a Plan 
must submit its Option election forms to the Bank.
    (k) Settlement Date means the date, no more than 120 days after the 
Settlement Valuation Date, on which the transfer of the Units to the 
Standby Trust and delivery of Releases to the Bank will be effected 
pursuant to the Options.
    (l) Release means a release covering activities and transactions in 
connection with the Fund prior to, and during, the Fund's liquidation, 
but in no case shall be effective on or after the Settlement Date. In 
this regard, the Release does not cover activities and transactions 
necessary to comply with the exemption, the conditions of the 
exemption, and the material representations made in connection 
therewith, which form the basis for the Department's decision to 
propose an exemption for the Sale and subsequent dispositions of 
properties owned by the Fund.

Summary of Facts and Representatives

    1. The applicants are the Bank and The Holding Company. The Holding 
Company is a North Carolina corporation registered under the Bank 
Holding Company Act of 1956, as amended. The Holding Company maintains 
its principal office in Charlotte, North Carolina. The Holding Company 
represents that it is the largest banking company in the south and 
southwest and the fourth largest in the United States with banking 
subsidiaries providing full-service banking centers in nine states: 
Florida, Georgia, Kentucky, Maryland, North Carolina, South Carolina, 
Tennessee, Texas, Virginia and the District of Columbia. As of December 
31, 1992, total assets of the Holding Company and its subsidiaries were 
approximately $118 billion.
    2. The Bank is a wholly-owned subsidiary of the Holding Company 
with its principal offices in Charlotte, North Carolina. As of 
September 30, 1993 the Bank had total assets of approximately $20 
billion. On February 28, 1974, the Bank established the Fund 
[[Page 14784]] as a common trust fund exempt from federal income 
taxation under section 584 of the Internal Revenue Code, and serves as 
trustee of the Fund. The Fund is a vehicle for the collective 
investment of tax-qualified retirement plans with respect to which the 
Bank or its affiliates are trustees. The Fund is divided into units of 
equal value (Units). The proportionate interest of each Plan is 
represented by the number of Units owned by that Plan.
    3. As of March 1992, approximately 589 defined benefit plans and 
defined contribution plans held Units in the Fund. Some of these Plans 
include participant directed accounts and may elect to meet the 
requirements of section 404(c) of the Act (Section 404(c) Plans). In 
relevant part, section 404(c) of the Act and the regulations 
promulgated thereunder at 57 FR 46906 (October 13, 1992) provide that 
where a participant or beneficiary of a Section 404(c) Plan in fact 
exercises control over the assets in his or her account, then (1) the 
participant or beneficiary shall not be deemed to be a fiduciary by 
reason of his or her exercise of control; and (2) no person who is 
otherwise a fiduciary shall be liable under the fiduciary 
responsibility provisions of the Act for any loss, or by reason of any 
breach which results from such participant's or beneficiary's exercise 
of control.
    Because section 404(c) of the Act applies only to the provisions of 
Part 4 of Title I, there is no provision in the Code corresponding to 
section 404(c). Thus, there is no statutory exemption from the excise 
taxes imposed under section 4975 of the Code with respect to prohibited 
transactions involving a Section 404(c) Plan. In this regard, the 
Department notes that the authority to grant administrative exemptions 
for section 404(c) transactions remains with the Treasury Department 
pursuant to Reorganization Plan No. 4 of 1978 (43 FR 47713, October 17, 
1978). Accordingly, the Department has no authority to provide 
exemptive relief with respect to a transaction that results from a 
participant's or beneficiary's exercise of control within the meaning 
of section 404(c) and applicable regulations. In this regard, the 
Department has solicited the views of the Service with respect to the 
transactions described herein as they relate to Section 404(c) Plans. 
The Service has reviewed this notice of proposed exemption and concurs 
with the exemptive relief provided. Accordingly, the Service has 
determined that it will join the Department in publishing this pendency 
notice in the Federal Register.1

    \1\Neither the Department nor the Service is expressing an 
opinion as to whether the investment decision made by a participant 
of a Plan which holds an interest in the Fund would be subject to 
relief provided by section 404(c) of the Act or applicable 
regulations.
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    4. The assets of the Fund have been primarily invested in real 
estate and real estate related securities. According to the Bank, the 
Fund experienced excellent returns through the second quarter of 1990. 
However, due to market conditions and investor uncertainty, the Fund 
experienced increased withdrawal requests and decreased new investment 
commitments during the third quarter of 1990. As a result, the Bank 
suspended admissions to and withdrawals from the Fund, and no Unit 
transactions have been effected since June 30, 1990.
    After considering several alternative courses of action, the Bank 
determined in July of 1991 that it was in the best interests of the 
Plans to terminate the Fund. Accordingly, the Fund is in the process of 
liquidating pursuant to a Plan of liquidation which provides for the 
orderly disposition of the assets of the Fund and periodic partial 
liquidating distributions to Plans on a pro rata basis until the Fund 
has been completely liquidated. As of December 31, 1993, the value of 
the Fund was $172,907,000. As part of its plan of liquidation, during 
the year ending on December 31, 1992, the Fund distributed assets worth 
$222,000,000. The Bank anticipates that the liquidation will take 
several more years.
    6. Due to the inability to liquidate their investments in the Fund, 
many Plans have experienced administrative difficulties. Certain Plans 
have made claims and filed lawsuits against the Bank alleging breach of 
fiduciary duty by the Bank in its management of the Fund.2 
Consequently, some Plans have expressed a desire to accelerate the 
liquidation of their investment in the Fund by selling all or part of 
their Units for cash equal to the current value of the Plan's Units, 
and in lieu of receiving proceeds during the liquidation process.

    \2\On December 14, 1992, the Bank entered into an agreement 
settling claims relating to the Fund with Teamsters Joint Council 
No. 83 of Virginia Pension Fund. In addition, NationsBank of 
Florida, N.A., an affiliate of the Bank and wholly owned subsidiary 
of the Holding Company, entered into a settlement agreement with 
Kenny Nachwalter Seymour & Crichlow, P.A. Employees' Trust and its 
trustees. The terms of the settlement agreements contain the same 
terms and conditions provided in this notice of proposed exemption, 
and are contingent upon the granting of the exemption.
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    7. In order to accommodate the Plans and to respond to those claims 
against the Bank and the Holding Company, the Bank proposes the Sale 
whereby the Holding Company would establish the Stand-by Trust and 
contribute funds in a sufficient amount to enable the Stand-by Trust to 
acquire the Units held by the Plans desiring to accelerate liquidation 
of their Fund investment.3 The trustee of the Stand-by Trust will 
be NationsBank of Tennessee, N.A., a national banking association 
organized under the laws of the United States with its principal office 
located in Nashville, Tennessee. NationsBank of Tennessee, N.A., as 
trustee of the Standby Trust, is to execute Sale transactions pursuant 
to the Option election forms timely filed. The Grantor of the trust is 
the Holding Company which has agreed to provide assets sufficient for 
the Stand-by Trust to meet its obligations.

    \3\The Department notes that the exemptive relief being granted 
herein extends only to those transactions described above. Also, the 
Applicants represent that the Bank is a national bank which is 
subject to the authority of the Office of the Comptroller of the 
Currency (the OCC). The OCC has informed the Department that a 
transaction that may be prohibited under the Act may also be a 
violation of the National Bank Act or constitute an unsafe or 
unsound banking practice. The proposed exemption does not address 
the safety and soundness or the legality of the transaction under 
the National Bank Act. Accordingly, the Bank should satisfy itself 
that the transaction does not violate the National Bank Act or 
constitute an unsafe or unsound banking practice.
    In this regard, the applicants represent that they are currently 
obtaining any and all regulatory approvals from applicable 
governmental agencies, in order to effect the Sale, including 
approval from the Office of the Comptroller of the Currency, the 
Internal Revenue Service and the Federal Reserve Board.
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    8. Following the establishment of the Stand-by Trust, each Plan 
will be offered the opportunity to select from four Options which will 
permit each Plan to elect to sell all or part of its Units in the Fund 
to the Stand-by Trust, or to continue to hold all or part of its Units 
in the Fund. Options 1 and 2 involve selling the Fund units to the 
Standby Trust. Options 3 and 4 involve continuation of a Plan's 
investment in the Fund.
    Options 2 and 4 always involve the provision of a Release\4\ 
whereby the Plan sponsor, an authorized independent Plan fiduciary and 
the [[Page 14785]] participants and beneficiaries release the Fund, the 
Bank and other appropriate persons with respect to matters relating to 
the Fund which occurred prior to the Settlement Date in exchange for 
certain consideration provided by the Bank.\5\

    \4\The Bank represents that there are only four litigants which 
potentially will be eligible to receive Litigation Expenses. In this 
regard, only four lawsuits were filed (on a consolidated basis) 
before November 24, 1992. Three of the four lawsuits have been 
settled conditioned on the opportunity to sell units to the Standby 
Trust. Each settlement agreement provides that payment of Litigation 
Expenses will be made with respect to the election of Option 2 or 
Option 4 by, or on behalf of, the Plan within ten days after the 
Bank and the Independent Fiduciary determine that all payments under 
the relevant Option have been paid. In this regard, the Department 
expects that a settlement of the fourth law suit would provide terms 
at least as favorable to the Plan as the arrangement described in 
this proposed exemption.
    \5\The Department notes that the selection of the Options made 
by the independent Plan fiduciaries or the Independent Fiduciary is 
governed by the fiduciary responsibility provisions of Part 4, 
Subtitle B, Title I of the Act. Section 404 of the Act requires, in 
part, that a fiduciary of a plan act prudently, solely in the 
interest of and for the exclusive purpose of providing benefits to 
participants and beneficiaries. In this regard, the Department notes 
that in order to act prudently, a fiduciary must consider, among 
other factors, the risk and potential return of the alternative 
Options for its Plan.
    Further, the Department is expressing no opinion, herein, on the 
decision by a fiduciary in electing an Option involving the Release. 
In this regard, the Department notes that the election by a plan 
fiduciary of an Option involving the Release does not preclude the 
Department from taking any action with respect to past transactions 
involving the Fund.
    Finally, the Department notes that a determination by a Plan 
fiduciary to settle litigation and enter into an agreement which 
provides for the release of the Bank and the Fund is subject to the 
fiduciary responsiblity requirements of section 404 of the Act.
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    No release is involved in Options 1 or 3 except with respect to 
participant directed account Plans. In this regard, in connection with 
Options 1 and 3, the Plan sponsor and an authorized independent Plan 
fiduciary will provide a Release to the Fund, the Bank and other 
appropriate persons, without any affect on the rights of participants 
or beneficiaries with respect to the matters covered by the Release.
    A Plan may elect one Option with respect to its entire investment 
in the Fund. Alternatively, a Plan may elect one Option with respect to 
a portion of that Plan's investment in the Fund and another Option with 
respect to the remainder. However, if a Plan elects multiple Options, 
it must be a combination of either Options 1 and 3 or Options 2 and 4.
    The Independent Fiduciary will provide each Plan with the 
information necessary to evaluate the four Options. Plans which desire 
to liquidate all or part of their investment in the Fund by selling 
their Units to the Stand-by Trust may elect a combination of the four 
Options by submitting an Option election form prior to the Option 
Election Date. For those Plan sponsors of participant directed Plans 
who wish to allow the participants and beneficiaries of their Plans to 
make their own Option elections, the Plan sponsor will establish four 
sub trusts each of which will accommodate the participants' and 
beneficiaries' election of the different Options.\6\ Each participant's 
election of an Option will then be represented by an interest in the 
sub trust designated for that Option. If a Plan sponsor does not elect 
to have participants and beneficiaries make Option elections, then the 
Plan will be treated as any other Plan, and Option elections will be 
made by the independent Plan fiduciary or the Independent Fiduciary.

    \6\The Department expects that each participant or beneficiary 
of a participant directed account Plan will be treated similarly 
with respect to the availability of the opportunity to elect 
Options, and those participants and beneficiaries who are 
responsible for making Option elections will receive information 
that is adequate to make an informed decision with regard to the 
Options.
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    The Bank will be directed with respect to each Plan's election of 
one or more Options by an independent Plan fiduciary or by the 
Independent Fiduciary who will represent the Plans interest for 
purposes of the Sale.
    9. In order to determine the value of the Units which will be sold 
pursuant to the Option elections, the Unit Purchase Price, the assets 
of the Fund will be appraised by independent and qualified appraisers 
selected by the Bank. Such appraisals will be completed within twelve 
months of and updated within fifteen days of the Sale. The Independent 
Fiduciary will review and approve the professional qualifications of 
the appraisers and their technical analyses and methodologies employed. 
As part of this approval process, the Independent Fiduciary will 
determine whether such appraisals are reasonable and adequate to 
establish the fair market value of the Properties. Additionally, the 
Independent Fiduciary will review and consider any capital improvement 
programs, environmental issues, preemptive liens, debt obligations and 
accrued expenses which may impact the value of the Properties. In the 
event that the Independent Fiduciary finds that any appraisal is 
deficient or unsuitable, the Independent Fiduciary has the authority to 
request the revision of such appraisal or the commission of a new 
appraisal. These appraisals will then be used by the Bank to calculate 
the overall value of the Fund.
    The Bank will calculate the Unit Purchase Price based on the value 
of the Fund on the Settlement Valuation Date. The Unit Purchase Price 
will be approved by the Independent Fiduciary. Such approval will be 
accomplished by reviewing the appraisals of the assets of the Fund and 
the procedures and methodologies to be employed by the Bank in 
determining the Unit Purchase Price. Further, if the Independent 
Fiduciary believes that the Unit Purchase Price proposed by the Bank is 
not accurate, the Independent Fiduciary has the authority to order the 
Bank to recalculate the Unit Purchase Price. In addition, the 
Independent Fiduciary will review and approve the Bank's calculation of 
the Interest Amount payable to those Plans which elected Options 1 or 
2. The Independent Fiduciary will also participate in the quarterly 
meetings held by the Bank in order to remain current on issues and 
developments relating to the Fund.
    10. Arthur Andersen, LLP (Arthur Andersen) has been retained to 
serve as the Independent Fiduciary on behalf of the Plans with respect 
to the Sale. Arthur Andersen represents that it has extensive 
experience in the business of commercial real estate consulting, 
appraisal and related activities. Arthur Andersen is an experienced 
counselor to institutional owners of real estate and has negotiated 
terms and conditions of various real estate transactions. Specifically, 
Arthur Andersen has served as independent fiduciary on behalf of 
numerous clients. In addition, Arthur Andersen acknowledges that in 
acting as the Independent Fiduciary, it is a fiduciary within the 
meaning of section 3(21) of the Act.
    11. In its capacity as the Independent Fiduciary, Arthur Andersen 
will review all disclosures made by the Bank to the Plans in connection 
with the Sale. In addition, Arthur Andersen will distribute to all 
Plans written disclosures providing general information regarding the 
proposed transaction, the circumstances under which the Independent 
Fiduciary will make an Option election for the Plan, and among which 
Options the Independent Fiduciary may elect for the Plan under various 
circumstances. Arthur Andersen will also provide general information to 
all Plans regarding the various factors that each Plan may wish to 
consider in deciding whether to authorize Arthur Andersen to select 
from the four Options. This information will include the cost/benefit 
considerations relating to pursuing an action against the Bank if the 
independent Plan fiduciary does not release the Bank, and the relative 
attractiveness of the additional features of Options 2 and 4. In 
addition, Arthur Andersen will send a survey/profile to all Plans to 
determine the type of Plan, degree of participant involvement in 
investment elections, Plan liquidity needs and the preferences of the 
independent Plan fiduciary. However, an independent Plan fiduciary that 
decides to make its own decision and [[Page 14786]] declines to receive 
the survey/profile will not receive it.
    12. Arthur Andersen will make Option elections for (1) Any Plan 
with respect to which the Bank or its Affiliates is an employer; (2) 
Plans that have authorized Arthur Andersen to make an Option election 
on their behalf; or (3) Any Plan which does not reserve the right to 
make an Option election and fails to make an Option election prior to 
the Option Election Date.
    If the Plan reserves the right to make its own Option election and 
subsequently fails to make an Option election by the Option Election 
Date, the Plan will be deemed to have elected Option 3. If the Plan 
does not reserve the right to make its own Option election and the Plan 
fails to make: a sufficiently broad authorization; any authorization at 
all; or fails to complete the profile survey, Arthur Andersen will 
elect only between Options 1 and 3 for the Plan. However, Arthur 
Andersen will choose among all four Options if the independent Plan 
fiduciary completes and returns timely all required parts of the 
profile/survey and the related authorization form expressly authorizing 
Arthur Andersen to choose among all four Options. The Bank represents 
that it will authorize Arthur Andersen to choose among all four Options 
for Plans with respect to which the Bank or any of its Affiliates is an 
employer.
    Arthur Andersen will review all surveys returned by the Plans for 
completeness and contact Plan fiduciaries regarding any unclear or 
incomplete information. In the event that the Plan fiduciaries do not 
respond to the surveys, Arthur Andersen will make the Option election 
based on the information available, and will notify each Plan of the 
Option election which it has selected for the Plan and the basis for 
such election in writing.
    With respect to those independent Plan fiduciaries who notify 
Arthur Andersen that they will be making their own Option elections, 
Arthur Andersen is prepared to counsel any Plan fiduciary regarding the 
election process.
    Finally, as the Independent Fiduciary, Arthur Andersen's duties 
will also include monitoring property sales and disposition activities 
during the liquidation of the Fund.
    13. The Bank represents that it will provide securities disclosure 
forms and option elections forms, reviewed and approved by Arthur 
Andersen, to the Plan within ten days after the date on which final 
approval for the Sale will be granted by the Office of the Comptroller 
of the Currency which will be subsequent to a final grant of this 
proposed exemption and approval of the transactions covered by this 
proposed exemption by the Federal Reserve Board (the Initiation Date).
    The Bank represents that the Settlement Valuation Date will be the 
last business day of the calendar month following the calendar month in 
which the Initiation Date occurs.
    The Bank states that the Independent Fiduciary will mail a notice 
of right to make election, forms, supplemental disclosures and profile/
surveys within thirty (30) days subsequent to the Settlement Valuation 
Date. The Plans will have at least thirty (30) days subsequent to the 
mailing of the Option Election Information to return the profile/survey 
to the Independent Fiduciary. The Plans will have at least sixty (60) 
days after the date on which the Option Election Information is mailed 
by the Independent Fiduciary in order to make their own Option 
elections.
    The Bank states that the date on which the Plans will receive in 
cash the Unit Purchase Price plus the Interest Amount for their units 
in the Fund will be no more than 120 days after the Settlement 
Valuation Date.
    14. The Standby Trustee will be obligated to acquire the Units in 
accordance with the Option Election Forms, and sales will be effected 
only pursuant to the Option Election Forms filed with the Bank on or 
prior to the Option Election Date. A Plan may rescind an Option 
election at any time prior to the Option Election Date.
    15. The Bank agrees to be bound by the decisions and determinations 
made by Arthur Andersen, as the Independent Fiduciary. In the event 
that any action or inaction by the Bank or by the Holding Company with 
respect to the liquidation of the Fund or the Stand-by Trust is 
determined by the Independent Fiduciary to impede or conflict with any 
action or inaction required of the Independent Fiduciary in order to 
carry out and comply with the terms and provisions of this proposed 
transaction, the Independent Fiduciary shall so notify the Bank and 
demand that the Bank cease and desist from such action or take such 
action as is requested by the Independent Fiduciary.
    16. In summary, it is represented that the proposed transaction 
will meet the statutory criteria for an exemption under section 408(a) 
of the Act and section 4975(c)(2) of the Code because: (a) The 
Properties will be appraised by an independent and qualified appraiser; 
(b) The Plans selling Units pursuant to the Options will receive a 
price at least equal to the Unit Purchase Price plus the Interest 
Amount; (c) Prior to the Sale, the Plans will receive written 
information regarding the terms of the Sale; (d) An Independent 
Fiduciary has been retained to represent the Plans' interests with 
respect to the Sale and ongoing disposition of the Properties in the 
Fund; (e) The duties of the Independent Fiduciary shall include: 
reviewing and approving the appraisals of the Properties; monitoring 
the sales of, and disposition activities with respect to, the 
Properties during the Fund's liquidation; making Option elections on 
behalf of any Plan if the Bank or its affiliates have sole investment 
discretion with respect to that Plan, the independent plan Fiduciary 
authorizes the Independent Fiduciary to make an Option election on 
behalf of that Plan, the independent Plan fiduciary does not indicate 
whether the Independent Fiduciary is authorized to make an Option 
election on behalf of the Plan, or the Bank or any Affiliate is an 
employer with respect to the Plan; (f) The Bank and the Holding Company 
will be bound by the decisions and determinations made by the 
Independent Fiduciary; and (g) The Bank will continue its efforts to 
liquidate the Fund.

FURTHER INFORMATION CONTACT: Eric Berger of the Department, telephone 
(202) 219-8971. (This is not a toll-free number.)

The First National Bank of Boston and Its Affiliates (Collectively, the 
Bank)

Located in Boston, Massachusetts
[App. No. D-09682]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990).
Section I--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 April 1, 1994 to: (1) the 
receipt by the Bank of fees from the 1784 Funds (the Funds), investment 
companies registered under the Investment Company Act of 1940 (the 1940 
Act), for acting as an investment adviser to the Funds in connection 
with the investment by plans for which the Bank serves as a fiduciary 
(the Client Plans) in shares of the Funds; and (2) the receipt and 
retention of fees by the [[Page 14787]] Bank from the Funds for acting 
as custodian and accountant to the Funds as well as for any other 
services to the Funds which are not investment advisory services (i.e. 
``secondary services'' as defined in Section III(h) below) 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 II below 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 III(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 the Bank nor an affiliate, including any officer or 
director of the Bank, purchases or sells shares of the Funds to any 
Client Plan.
    (d) Each Client Plan receives a credit, through a cash rebate, of 
such Plan's proportionate share of all fees charged to the Funds by the 
Bank for investment advisory services, including any investment 
advisory fees paid by the Bank to third party sub-advisors, no later 
than one business day after the receipt of such fees by the Bank. The 
crediting of all investment advisory fees to the Client Plans by the 
Bank is audited by an independent accounting firm on at least an annual 
basis to verify the proper crediting of the fees to each Client Plan.
    (e) The combined total of all fees received by the Bank 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.7

     7In addition, the Department notes that Section 404(a) of the 
Act requires, among other things, that a fiduciary of a plan act 
prudently, solely in the interest of the plan's participants and 
beneficiaries, and for the exclusive purpose of providing benefits 
to participants and beneficiaries when making investment decisions 
on behalf of a plan. Thus, the Department believes that the Bank 
should ensure, prior to any investments made by a Client Plan for 
which it acts as a trustee or investment manager, that all fees paid 
by the Funds, including fees paid to parties unrelated to the Bank 
and its affiliates, are reasonable. In this regard, the Department 
is providing no opinion as to whether the total fees to be paid by a 
Client Plan to the Bank, its affiliates, and third parties under the 
arrangements described herein would be either reasonable or in the 
best interests of the participants and beneficiaries of the Client 
Plans.
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    (f) The Bank 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 the Bank.
    (h) A second fiduciary acting for the Client Plan which is 
independent of and unrelated to the Bank (the Second Fiduciary) 
receives, in advance of any investment by the Client Plan in a Fund, 
full and detailed written disclosure of information concerning the 
Funds, including but not limited to:
    (1) A current prospectus for each Fund in which a Client Plan is 
considering investing;
    (2) A statement describing the fees for investment advisory or 
similar services, any secondary services as defined in Section III(h), 
and all other fees to be charged to or paid by the Client Plan and by 
the Funds, 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 Client Plan;
    (4) A statement describing whether there are any limitations 
applicable to the Bank with respect to which assets of a Client 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, once such 
documents are published in the Federal Register.
    (i) On the basis of the information described above in paragraph 
(h) of Section I, 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 Fund to the Bank, and the cash rebate to the 
Client Plan of fees received by the Bank from the Funds for investment 
advisory services.
    (j) All authorizations made by a Second Fiduciary regarding 
investments in a Fund and the fees paid to the Bank are subject to an 
annual reauthorization wherein any such prior authorization referred to 
in paragraph (i) of Section I shall be terminable at will by the Client 
Plan, without penalty to the Client Plan, upon receipt by the Bank 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 the Bank of written 
notice from the Second Fiduciary; and
    (2) Failure to return the Termination Form will result in continued 
authorization of the Bank to engage in the transactions described in 
paragraph (i) of Section 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 the Bank to the Funds for secondary services 
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 the Bank to the Funds for investment 
advisory services even though such fees will be rebated as required by 
paragraph (d) of Section I above.
    (l) In the event that the Bank provides an additional secondary 
service to a Fund for which a fee is charged or there is an increase in 
the amount of fees paid by the Funds to the Bank for any secondary 
services resulting from a decrease in the number or kind of services 
performed by the Bank for such fees in connection with a previously 
authorized secondary service, the Bank will, at least thirty days in 
advance of the implementation of such additional service or fee 
increase, provide written notice to the Second Fiduciary explaining the 
nature and the amount of the additional service for which a fee will be 
charged or the nature and amount of the increase in fees of the 
affected Fund. Such notice shall be accompanied by the Termination 
Form, as defined in Section III(i) below. However, if the Termination 
Form has been provided to the Second Fiduciary pursuant to this 
paragraph or paragraph (k) above, then the Termination Form need not be 
provided again for an annual reauthorization pursuant to paragraph (j) 
above unless at least six months has elapsed since the form was 
provided in connection with the fee increase.
    (m) On an annual basis, the Bank provides the Second Fiduciary of a 
Client Plan investing in the Funds with:
    (1) A copy of the current prospectus for the Funds and, upon such 
fiduciary's request, a copy of the Statement of Additional Information 
for such Funds which contains a description of all fees paid by the 
Funds to the Bank; [[Page 14788]] 
    (2) A copy of the annual financial disclosure report prepared by 
the Bank which includes information about the Fund portfolios as well 
as audit findings of an independent auditor within 60 days of the 
preparation of the report; and
    (3) Oral or written responses to inquiries of the Second Fiduciary 
as they arise.
    (n) 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 II--General Conditions
    (a) The Bank maintains for a period of six years the records 
necessary to enable the persons described below in paragraph (b) of 
Section II 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 
the Bank, the records are lost or destroyed prior to the end of the 
six-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 (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) of Section II 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 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 First National Bank of Boston and 
any affiliate thereof as defined below in paragraph (b) of 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'' shall include the 1784 Funds, 
Inc., or any other diversified open-end investment company registered 
under the 1940 Act for which the Bank serves as an investment adviser 
and may also serve as a custodian, Fund accountant, 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 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 fiduciary directly or indirectly controls, is controlled 
by, or is under common control with the Bank;
    (2) Such fiduciary, or any officer, director, partner, employee, or 
relative of the fiduciary is an officer, director, partner, employee or 
affiliate of the Bank (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, affiliate or employee of the Bank 
(or 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 
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 Section III 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. However, for purposes of this 
exemption, the term ``secondary service'' will not include any 
brokerage services provided to the Funds by the Bank 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. The Termination Form shall be 
used at will by the Second Fiduciary to terminate an authorization 
without penalty to the Client Plan and to notify the Bank 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 the Bank of the form; 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 April 1, 1994.

Summary of Facts and Representations

    1. The Bank is a national banking association with its principal 
offices located at 100 Federal Street, Boston, Massachusetts, and is a 
subsidiary of Bank of Boston Corporation, a registered bank holding 
company. The Bank and various affiliates (referred to herein as ``the 
Bank''),8 serve as trustee, directed trustee, investment manager, 
or custodian for approximately 800 [[Page 14789]] employee benefit 
plans. As of April 1, 1994, the Bank had total assets under management 
of approximately $1.3 billion.

    \8\The Bank's current affiliates include: Rhode Island Hospital 
Trust National Bank; Bank of Boston, Connecticut; Casco Northern 
Bank, N.A.; Bank of Boston, Florida, N.A.; South Shore Bank; 
Multibank West; and Mechanics Bank.
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    The Bank 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, the Bank 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, the 
Bank 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 retirement plans for self-employed individuals 
(i.e., Keogh plans), and individual retirement accounts (IRAs). The 
Bank, in its capacity as a fiduciary of the Client Plans, may exercise 
investment discretion for all or a portion of the assets of such Client 
Plans.
    2. The Bank invests assets of Client Plans for which it acts as a 
fiduciary in shares of the Funds in instances where the Bank provides 
investment advisory and other services to the Funds. The Client Plans' 
pro rata share of fees paid by the Funds to the Bank for investment 
advisory services are rebated to all Client Plans, subject to the 
conditions of the proposed exemption, with respect to the assets of the 
Client Plans involved in such Fund investments. All investments in the 
Funds on behalf of the Client Plans are made by the Bank pursuant to an 
initial written authorization, and an annual reauthorization (as 
discussed below), of the investment by an independent Plan fiduciary 
(i.e., the Second Fiduciary). The Bank 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 such authorization is effective.
    3. The Funds are a Massachusetts business trust organized on 
February 5, 1993, as an open-end, diversified management investment 
company registered under the 1940 Act. The Funds consist of twelve 
separate series of funds or investment portfolios with combined assets 
of approximately $897 million. Each share of each Fund represents an 
undivided, proportionate interest in the assets of that Fund. The 
current Funds are: (i) The 1784 Growth and Income Fund; (ii) The 1784 
Asset Allocation Fund; (iii) The 1784 U.S. Government Medium-Term 
Income Fund; (iv) The 1784 Tax-Exempt Medium-Term Income Fund; (v) The 
1784 Massachusetts Tax-Exempt Income Fund; (vi) The 1784 U.S. Treasury 
Money Market Fund; (vii) The 1784 Institutional U.S. Treasury Money 
Market Fund; (viii) The 1784 Tax-Free Money Market Fund; (ix) The 1784 
Short-Term Income Fund; (x) The 1784 Income Fund; (xi) The Connecticut 
Tax-Exempt Income Fund; and (xii) The 1784 Rhode Island Tax-Exempt 
Income Fund.9 The Bank states that shares of the Funds are offered 
to the Bank'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 offered to other customers of the Bank.

     9Since the Client Plans generally are not subject to 
federal or state income taxes and do not need to seek tax-free 
income, the Bank does not anticipate that the Client Plans will 
invest in The 1784 Tax-Exempt Medium-Term Income Fund, The 1784 
Massachusetts Tax-Exempt Income Fund, The 1784 Tax-Free Money Market 
Fund, The Connecticut Tax-Exempt Income Fund, The 1784 Rhode Island 
Tax- Exempt Income Fund or any other tax-exempt Fund.
---------------------------------------------------------------------------

    Additional Funds are in the process of registration and other 
series of Funds may be established in the future. The Bank intends to 
offer such Funds to the Client Plans, if deemed appropriate by the 
Second Fiduciary, as a means of obtaining an interest in a diversified 
portfolio of debt or equity investments consistent with the investment 
policies and objectives of the Client Plans.
    The Bank believes that there are material advantages to the Client 
Plans from the use of the Funds. The Funds are valued on a daily basis, 
in contrast to certain collective investment funds maintained by the 
Bank which 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 under the Client Plan. 
In addition, information concerning the investment performance of the 
Funds is available in newspapers of general circulation which allows 
Client Plan fiduciaries to monitor the investment performance of such 
assets on a daily basis rather than monthly.
    All investments of Client Plan assets in the Funds will occur 
either through the direct purchase of shares of the Funds for a Client 
Plan by the Bank, the transfer by the Bank of Client Plan assets from 
one Fund to another Fund, or a daily automated sweep of uninvested cash 
of a Client Plan by the Bank into one or more Funds previously 
designated by the Client Plan for sweeping such cash. Any such 
investments for the Client Plans will be made pursuant to the Second 
Fiduciary's prior written authorization and annual reauthorization to 
the Bank.
    4. No sales commissions or redemption fees are charged in 
connection with the purchase or sale of shares of the Funds. However, 
the Bank states that the Funds may pay a distribution fee to the Funds' 
distributor, provided that such distributor is unrelated to the Bank 
and the Client Plans. Thus, the Bank does not and will not receive fees 
payable pursuant to Rule 12b-1 in connection with transactions 
involving any shares of the Funds. The current distributor for the 
Funds is SEI Financial Services Company (the Distributor), a wholly-
owned subsidiary of SEI Corporation (SEI). According to the 
distribution plan adopted by the Funds pursuant to Rule 12b-1 under the 
1940 Act, the Distributor receives a distribution fee equal to an 
annual rate of 0.25% of each of the Funds' average daily net assets. 
The distribution fee is calculated daily and paid monthly. For all of 
the current Funds, the distribution fees have been waived by the 
Distributor since the formation of the Funds.
    SEI Financial Management Corporation, a wholly-owned subsidiary of 
SEI, also serves as the administrator, dividend disbursing agent, 
shareholder servicing agent, and transfer agent for the current Funds. 
The Bank states that SEI and its subsidiaries are unrelated to the Bank 
and its affiliates.10

    \10\With respect to any fees paid by the Funds to parties 
unrelated to the Bank and its affiliates, the Department notes that 
the Bank, as a trustee or investment manager for a Client Plan's 
assets that are invested in the Funds, has a fiduciary duty to 
ensure that the fees indirectly paid by a plan to third parties are 
reasonable. The Department notes further that the Bank should ensure 
that services performed by the Bank or an affiliate for a Fund are 
not duplicative of any similar services performed by third parties.
---------------------------------------------------------------------------

    5. The Bank serves as the investment advisor for the Funds and 
charges the Funds for this service in accordance with investment 
advisory agreements (the Agreements) between the Bank and each Fund. 
The Bank is currently the sole investment adviser to the Funds' 
existing portfolios and presently contemplates no change for such 
portfolios. However, the Bank states that it may utilize third party 
sub-advisers in the future to enhance the investment 
[[Page 14790]] alternatives and the investment advisory services 
available to the Funds for certain new portfolios. The Agreements allow 
the Bank 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 the Bank are approved by the Board 
of Directors of the Funds (the Funds' Directors), in accordance with 
the applicable provisions of the 1940 Act. The Bank also serves as the 
custodian and accountant for the Funds for which it is entitled to 
receive additional fees. Any changes in the fees received by the Bank 
from the Funds are approved by the Funds' Directors. All of the Funds' 
Directors are independent of the Bank.
    The Bank states that while it may be engaged by the Funds in the 
future to perform additional secondary services, it will not provide 
brokerage services to the Funds. Therefore, all securities transactions 
for a Fund's portfolio will be executed by broker-dealers unrelated to 
the Bank and will not generate commissions or other fees to the Bank.
    6. The Bank represents that it has designed a fee structure (the 
Fee Structure) which is at least as advantageous to the Client Plans as 
an offset or credit arrangement, similar to that described in 
Prohibited Transaction Exemption 77-4 (PTE 77-4, 42 FR 18732, April 8, 
1977), whereby investment advisory fees paid by the Funds to the Bank 
would be offset against fees paid directly to the Bank by the Client 
Plans.11

    \11\PTE 77-4, in pertinent part, permits the purchase and sale 
by an employee benefit plan of shares of a registered, open-end 
investment company when a fiduciary with respect to the plan is also 
the investment adviser for the investment company, provided that, 
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 1940 Act. 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.
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    Under the Fee Structure, the Bank charges its standard fees to the 
Client Plans for serving as either a trustee, directed trustee, 
investment manager, or custodian.12 All fees are billed on a 
quarterly basis. The annual charges for a Client Plan account are 
individually negotiated with the Bank based on the Bank's standard fee 
schedules. The Bank 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 where the Second Fiduciary specifically agrees to 
have the Bank provide such services to the Client Plan. With respect to 
sweep services, the Bank represents that such services are generally 
provided at no additional charge and, in any event, are provided only 
if approved by a Second Fiduciary for the Client Plan after disclosure 
of the services to be provided.13 The Bank states that in some 
cases fees charged by the Bank to a Client Plan are paid by the Client 
Plan sponsor rather than by the Client Plan.

    \12\The applicant represents that all fees paid by Client Plans 
directly to the Bank for services performed by the Bank 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 the Bank directly to the Client Plans which are not 
covered by section 408(b)(2), no relief is being proposed herein for 
such transactions.
    \13\See 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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    The Bank charges the Funds for its services to the Funds as 
investment adviser, in accordance with the Agreements between the Bank 
and the Funds. Under the Agreements, the Bank 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 the Bank to 
the Funds.
    The investment advisory and other fees paid by each of the existing 
Funds are accrued on a daily basis and billed by the Bank 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.
    At the beginning of each month (pursuant to the terms of the 
applicable Agreements) and in no event more than one business day 
following the receipt of such fees by the Bank, the Bank rebates to 
each Client Plan directly with cash such Plan's pro rata share of all 
investment advisory fees charged by the Bank to the Funds (the Rebate 
Program). The Bank represents that each Client Plan's rebate of such 
investment advisory fees will include any investment advisory fees paid 
by the Bank to third party sub-advisers.
    The Bank retains fees received from the Funds for custody and 
shareholder services and will retain additional fees received in the 
future for other secondary services. The Bank states that such 
secondary services are distinct from the services provided by the Bank 
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, the Bank 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.14

    \14\In this regard, the Department notes that the combined total 
of all fees received by the Bank 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.
    Finally, the Department notes that the Bank, as a trustee and 
investment manager for a Client Plan in connection with the decision 
to invest Client Plan assets in the Funds, has a fiduciary duty to 
monitor all fees paid by a Fund to the Bank, its affiliates, and 
third parties for services provided to the Fund to ensure that the 
totality of such fees is reasonable and would not involve the 
payment of any ``double'' fees for duplicative services to the Fund 
by such parties.

[[Page 14791]]

    The Bank states that the Rebate Program ensures that the Bank does 
not receive any investment advisory fees from the Funds as a result of 
the investment in the Funds by the Client Plans. Thus, the Fee 
Structure with the Rebate Program essentially has the same effect in 
offsetting the Bank's investment advisory fees received from the Funds 
as an arrangement allowing for a credit of such fees against investment 
management fees charged directly to the Client Plans. The Bank prefers 
the Fee Structure with the Rebate Program because it allows fees for 
fiduciary services charged at the Plan-level to remain fixed without 
any adjustments to such fees based on the investment advisory fees paid 
by the Funds to the Bank. The Bank notes that the Fee Structure also 
allows a Client Plan sponsor to pay the Client Plan's fees to the Bank 
for fiduciary services and still allows the Client Plan to receive a 
rebate of such Plan's pro rata share of the investment advisory fees 
paid by the Funds to the Bank.15

    \15\To 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 rebated 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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    7. The Bank has established a system of internal accounting 
controls for the Rebate Program. In addition, the Bank has retained the 
services of Coopers & Lybrand of Boston, Massachusetts (the Auditor), 
an independent accounting firm, to audit annually the rebating of fees 
to the Client Plans under the Rebate Program. The Bank states that such 
audits provide independent verification of the proper rebating to the 
Client Plans of the investment advisory fees charged by the Bank to the 
Funds. The Bank 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 March 29, 1994, the Auditor describes the 
procedures that will be used in any annual audit of the Rebate 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 the Bank to each Fund which are reimbursable to the Client 
Plans. The Auditor states that every audit will include, but not 
necessarily be limited to, an examination of: (i) The daily rebate 
factors; (ii) the proper identification of Client Plan customers; (iii) 
the calculation of the ratio used to determine the amount of expenses 
to be rebated to each Client Plan; (iv) the total rebates paid and a 
comparison of this amount to the sum of all rebates paid to each Client 
Plan;16 and (v) the amount of rebated fees determined for selected 
Client Plan customers of the Funds to ensure that the rebated amounts 
were made to the proper Client Plan account.

    \16\In this regard, the Auditor recomputes cash received in 
connection with the rebate of each Client Plan's fees to ensure the 
proper amount of cash was issued to the Client Plan under the Rebate 
Program.
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    In the event either the internal audit by the Bank or the 
independent audit by the Auditor identifies that an error has been made 
in the rebating of fees to the Client Plans, the Bank will correct the 
error. With respect to any shortfall in rebated fees to a Client Plan, 
the Bank will make a cash payment to the Plan equal to the amount of 
the error with interest computed on the same yield as that paid by The 
1784 Institutional U.S. Treasury Money Market Fund for the period 
involved. Any excess rebates made to a Client Plan will be corrected, 
to the extent possible, by an appropriate reduction of cash to the 
Client Plan during the next payment period to accurately reflect the 
proper amount of total rebates due to the Client Plan for the period 
involved.
    8. With respect to the receipt of fees by the Bank from a Fund in 
connection with any Client Plan's investment in the Fund, the Bank 
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 the Bank. In addition, the Bank 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 
the Bank 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. In the event that the Bank provides an 
additional secondary service to a Fund for which a fee is charged or 
there is an increase in the amount of fees paid by the Funds to the 
Bank for any secondary services, resulting from a decrease in the 
number or kind of services performed by the Bank for such fees in 
connection with a previously authorized secondary service, the Bank 
will, at least thirty days in advance of the implementation of such 
additional service or fee increase, provide written notice to the 
Second Fiduciary explaining the nature and the amount of the additional 
service for which a fee will be charged or the nature and amount of the 
increase in fees of the affected Fund.17 Such notice will be made 
separate from the Fund prospectus and will be accompanied by a 
Termination Form. 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 the Bank to the Funds for investment advisory 
services even though such fees will be credited, as required by Section 
I(d) above.

    \17\With respect to increases in fees, the Department notes that 
an increase in the amount of a fee for an existing secondary service 
(other than through an increase in the value of the underlying 
assets in the Funds) or the imposition of a fee for a newly-
established secondary service shall be considered an increase in the 
rate of such fees. However, in the event a secondary service fee has 
already been described in writing to the Second Fiduciary and the 
Second Fiduciary has provided authorization for the fee, and such 
fee was temporarily waived, no further action by the Bank would be 
required in order for the Bank to receive such fee at a later time. 
Thus, for example, no further disclosure would be necessary if the 
Bank had received authorization for a fee for custodial services 
from Plan investors and subsequently determined to waive the fee for 
a period of time in order to attract new investors but later charged 
the fee.
---------------------------------------------------------------------------

    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 the 
Bank, 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 the Bank of written 
notice of termination. The Bank states that 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 the Bank of written 
notice from the Second Fiduciary; and
    (b) Failure to return the form will result in continued 
authorization of the [[Page 14792]] Bank to engage in the subject 
transactions on behalf of the Client Plan.
    The Termination Form may be used to notify the Bank 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 the Bank of the form. The Bank states that if, due 
to circumstances beyond the control of the Bank, the sale cannot be 
executed within one business day, the Bank will complete the sale 
within the next business day.
    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 the Bank to the Funds for investment advisory services, 
through an updated prospectus or otherwise, such notice will not be 
accompanied by a Termination Form since all increases in investment 
advisory fees will be rebated by the Bank to the Client Plans and will 
be subject to an annual reauthorization as described above. However, if 
the Termination Form has been provided to the Second Fiduciary for the 
authorization of a fee increase, then a Termination Form for an annual 
reauthorization will not be provided by the Bank for that year unless 
at least six months has elapsed since the Termination Form was provided 
for the fee increase.
    The Bank 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 the Bank 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 the Bank with respect to which Client Plan assets may be invested in 
shares of the Funds and, if so, the nature of such limitations.18

     18See 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.
---------------------------------------------------------------------------

    The Bank states further that the Second Fiduciary receives an 
updated prospectus for each Fund at least annually and either annual or 
semi-annual financial reports for each Fund, which include information 
on the Auditor's findings as to the proper rebating of the investment 
advisory fees by the Bank to the Client Plan. The Bank also 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. As noted above in Paragraph 4, the Bank does 
not receive any fees payable pursuant to Rule 12b-1 under the 1940 Act 
in connection with the transactions. The applicant states further that 
all other dealings between the Client Plans and the Funds, the Bank 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, the applicant represents that the transactions 
described herein satisfy the statutory criteria of section 408(a) of 
the Act and section 4975(c)(2) of the Code because: (a) The Funds 
provide the Client Plans with a more effective investment vehicle than 
collective investment funds maintained by the Bank without any increase 
in investment management, advisory or similar fees paid to the Bank; 
(b) the Bank requires annual audits by an independent accounting firm 
to verify the proper rebating to the Client Plans of investment 
advisory fees charged by the Bank to the Funds; (c) with respect to any 
investments in a Fund by the Client Plans and the payment of any fees 
by the Fund to the Bank, 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 Fund and 
the fees paid by the Fund to the Bank; (d) any authorizations made by a 
Client Plan regarding investments in a Fund and fees paid to the Bank, 
or any increases in the rates of fees for secondary services which are 
retained by the Bank, are or will be terminable at will by the Client 
Plan, without penalty to the Client Plan, upon receipt by the Bank of 
written notice of termination from the Second Fiduciary; (e) no 
commissions or redemption fees are paid by the Client Plan in 
connection with either the acquisition of Fund shares or the sale of 
Fund shares; (f) the Bank does not receive any fees payable pursuant to 
Rule 12b-1 under the 1940 Act in connection with the transactions; and 
(g) all dealings between the Client Plans, the Funds and the Bank, 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 that are currently invested in the Funds, 
as of the date the notice of the proposed exemption is published in the 
Federal Register, where the Bank provides services to the Funds and 
receives 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.)
Amended Profit Sharing Plan and Trust of Walker Products Co., Inc. (the 
P/S Plan)

Located in Lincoln, Kansas
[App. No. D-09798]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 C.F.R. Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990.) If the exemption 
is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2) 
of the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the 
Code, shall not apply to the proposed sale of certain farm land (the 
Land) by the [[Page 14793]] 
P/S Plan to Mr. Lloyd Walker, a 33\1/3\% shareholder of the P/S Plan 
sponsor and a party in interest with respect to the P/S Plan, provided 
that the following conditions are satisfied:
    (1) The proposed sale will be a one-time cash transaction;
    (2) The P/S Plan will receive the fair market value of the Land as 
determined at the time of the sale by an independent, qualified 
appraiser; and
    (3) The P/S Plan will pay no expenses associated with the sale.

Summary of Facts and Representations

    1. The Plan, established in May, 1974, is a profit sharing plan, 
which currently has two participants. As of September 1, 1994, the P/S 
Plan had $101,468 in total assets. The P/S Plan's trustees are Albert 
Walker, Craig Walker and Joyce Walker (the P/S Plan Trustees). Craig 
Walker is the president of Walker Products Company Inc. (the Employer). 
Lloyd Walker is a 33\1/3\% shareholder of the Employer. However, Lloyd 
Walker has retired from the Employer on December 31, 1982, and received 
distributions from the P/S Plan on February 28, 1983. The Employer is a 
Subchapter ``C'' Kansas corporation which is in the farming business. 
The applicant represents that until approximately August, 1985, the 
Employer maintained two plans (collectively; the Plans), the P/S Plan 
and the Money Purchase Plan (M/P Plan). The M/P Plan was terminated in 
August, 1985, and its assets were rolled over into the P/S Plan 
approximately May, 1986.
    2. On May 5, 1975, the M/P Plan purchased the 79.6 acre tract of 
Land for $57,000 in cash from Edward Hamilton, the executor of the 
Estate of Marie Jensen, neither of which had any relationship to the 
Plans, Lloyd Walker, or the Employer. At the time that the Land was 
purchased it represented 78.95% of the M/P Plan's assets. It is 
represented that the original decision to purchase the Land was made by 
the
M/P Plan Trustees who deemed it a safe investment which could produce 
income from farming operations and a reasonable rate of return. The 
Land was held by the M/P Plan from the date of original acquisition 
until approximately May, 1986, when the M/P Plan's assets, including 
the Land, were transferred into the P/S Plan.
    3. The Land is currently encumbered with a first mortgage which was 
entered into on August 31, 1994, in the principal amount of $30,000. 
The applicant represents that the P/S Plan Trustees borrowed the money 
(the Loan) in order to pay out distributions. The Loan was made by 
Farmers National Bank, which is unrelated to the P/S Plan and the 
Employer. The P/S Plan Trustees intend to pay off the Loan with the 
proceeds from the proposed sale.
    4. It is represented that since its original acquisition, the Land 
has been rented or operated.19 Since April, 1985 and currently, 
the Land has been rented on a crop share basis to Lowell Vonada (Mr. 
Vonada), an unrelated third party. Under this arrangement, Mr. Vonada 
as the tenant receives 60% of the crops and the P/S Plan receives 40% 
of the crops. It is also represented that currently there are no crops 
growing on the Land.

    \19\With regard to the Land being operated, the applicant 
represents that for a short period of time the employees of the 
Employer (the Employees) were paid to provide farming services. 
However, the applicant represents that the Employees were not 
compensated for these farming services by either of the Plans. It is 
further represented that no renter, at any time, has been a party in 
interest with respect to the Plans.
    5. Lloyd Walker now desires to purchase the Land from the P/S Plan 
in a one-time cash purchase. The Land was appraised (the Appraisal) on 
October 18, 1994, by Frank L. Princ (Mr. Princ), an independent Kansas 
State Certified General R.E. appraiser. Mr. Princ stated that the 
purpose of the Appraisal is to estimate the market value of the Land on 
an ``as is'' basis. The Land, located in Lincoln County, Kansas, 
contains approximately 82 acres,20 of which 76.2 acres are in 
cultivation, and the remaining acres are primarily woodland and waste. 
In determining the fair market value of the Land, Mr. Princ utilized 
the sales comparison approach and the income approach, but relied 
mainly on the sales approach as the primary basis for the value 
estimate of the Land. Accordingly, as of October 18, 1994, Mr. Princ 
determined the fair market value of the Land to be $64,000.

    \20\The applicant represents that 82 acres shown by Mr. Princ 
probably come from the Lincoln County Appraiser's office. The 
applicant also maintains that their reference to the Land as 
containing 79.6 acres is based on the number of tillable acres on 
the Land.
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    6. The applicant maintains that the Land has yielded revenue for 
the Plans. The applicant submitted a ``return on investment'' analysis 
(the Analysis) on the Land, covering the period 1976 through 1994. 
Return on investment value ratios were derived by the applicant by 
dividing the estimated net income by the original acquisition price of 
the Land for each year of ownership.21 An average of the ``return 
on investment'' figures was determined to be 6.98%. Therefore, 
according to the Analysis, the Plans received an average yield of 6.98% 
for their investment in the Land.

    \21\With respect to the Analysis, the applicant represents that 
with respect to the period 1986 through 1994, the data was estimated 
to reflect pro rata income and expenses for the Land, excluding any 
unrealized gain due to the change in fair market value of the Land.
---------------------------------------------------------------------------

    7. The applicant represents that the transaction is 
administratively feasible, in the interest and protective of the
P/S Plan. Lloyd Walker will purchase the Land at its fair market value 
in a one-time cash transaction. The transaction is protective and in 
the best interest of the P/S Plan because as a result of this 
transaction the P/S Plan will receive the fair market value of the Land 
as determined at the time of the sale by an independent, qualified 
appraiser. The transaction would also be in the interest of the P/S 
Plan because it will enable the P/S Plan to sell an illiquid asset 
which currently represents in excess of 50% of the P/S Plan's total 
assets and which had little appreciation in value over time.22 The 
sale will enable the P/S Plan Trustees to pay off the Loan and to 
acquire investments with a higher yield. The applicant also represents 
that the P/S Plan will incur no expenses as a result of the transaction 
described herein.

     22The Department expresses no opinion as to whether the 
Plan's acquisition and holding of the Land, as well as the operation 
of the Land by the Employees, violated any provision of part 4 of 
Title I of the Act, and no relief is provided herein.
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    8. In summary, the applicant represents that the transaction 
satisfies the statutory criteria of section 408(a) of the Act and 
section 4975(c)(2) of the Code because:
    (1) The proposed sale will be a one-time cash transaction;
    (2) The P/S Plan will receive the fair market value of the Land as 
determined at the time of the sale by an independent, qualified 
appraiser; and
    (3) The P/S Plan will pay no expenses associated with the sale.

FOR FURTHER INFORMATION CONTACT: Ekaterina A. Uzlyan of the Department, 
telephone (202) 219-8883. (This is not a toll-free number.)
Delaware Trust Capital Management, Inc. (DTCM)

Located in Wilmington, Delaware
[App. No. D-09853]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 4975(c)(2) of the Code and in accordance with the 
procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 
32847, August 10, 1990). If the exemption is granted, the sanctions 
resulting from the application of section 4975 of the Code, by reason 
of section 4975(c)(1) (A) through (E) of the Code, shall not apply to 
the proposed sale by certain rollover individual retirement accounts 
(the [[Page 14794]] IRAs) of their interests in certain securities (the 
Securities) to DTCM, a disqualified person with respect to the IRAs, 
provided the following conditions are satisfied: (1) The sale is a one-
time transaction for cash; (2) no commissions or other expenses are 
paid by the IRAs in connection with the sale; (3) the IRAs receive the 
greater of: (a) the fair market value of the Securities as of June 30, 
1994, plus accrued interest, less principal repayments received, or (b) 
the fair market value of the Securities as of the time of the sale as 
determined by a qualified, independent expert.23

     23Pursuant to 29 CFR 2510.3-2(d), the IRAs are not within the 
jurisdiction of Title I of the Act. However, there is jurisdiction 
under Title II of the Act pursuant to section 4975 of the Code.
Summary of Facts and Representations

    1. DTCM is a Delaware corporation which is engaged in the business 
of providing trust and other fiduciary services to individuals, 
businesses and non-profit entities, including employee pension plans 
and individual retirement accounts.
    2. DTCM was the trustee of the USA Training Academy, Inc. Profit 
Sharing Plan (the Plan), and is the trustee of the IRAs, which are 
rollover individual retirement accounts for five former participants 
(the Affected Participants) in the Plan. DTCM (and its parent company, 
Delaware Trust Company) have served as trustee of the Plan and the IRAs 
from November 1, 1984 until the present. The applicant is a wholly 
owned subsidiary of Delaware Trust Company, which in turn is a wholly 
owned subsidiary of Meridian Bancorp, Inc.
    3. In 1994, the Plan's Administrator advised the applicant, DTCM, 
that the Plan's sponsor intended to terminate the Plan and, in that 
connection, would be instructing DTCM to liquidate the Plan assets and 
make distributions to the remaining Plan participants. In response, 
DTCM informed the Plan Administrator that there was no readily 
discernible market for the Securities. The Securities included the 
following two obligations:
    (a) SEARS ROEBUCK & CO MTG SEC PAR CTF (the Sears Securities), 
which are mortgage-backed obligations issued by the Sears Mortgage 
Securities Corp. These Securities pay 10.36% in interest and mature 
July 25, 2018. The Plan acquired a participating certificate for 
198,992 units of these obligations in July, 1988 for $196,200 (unit 
cost=$0.99). The Plan has received all scheduled payments of principal 
and interest.
    (b) AMERICAN SVNGS & LOAN ASSN BRAZOR CNTY PART CTF (the American 
Securities), which are mortgage-backed obligations issued by American 
Savings and Loan Association of Brazoria County, Texas. Each loan is a 
guaranteed FHA Title I loan. These Securities pay 9.5% in interest and 
mature January 9, 2002. The Plan acquired 198,161.88 units in April, 
1987 at a unit cost of $1 per unit. The Plan has received all scheduled 
payments of principal and interest.
    4. DTCM determined that as of June 30, 1994, the Sears Securities 
had a fair market value of $24,163.78. This fair market value was 
established by Sears' mortgage subsidiary, a brokerage house providing 
master servicing for Sears' mortgage pass-through certificates which is 
a sister subsidiary to Sears Mortgage Securities Corp., the issuer of 
the Sears Securities. DTCM also determined that as of June 30, 1994, 
the American Securities had a fair market value of $49,416.80. The 
applicant represents that this fair market value was established by 
A.W. Dougherty, an unrelated brokerage house specializing in fixed- 
income securities.
    5. DTCM, the Plan sponsor, the Plan and the Affected Participants 
entered into an agreement (the Agreement) in 1994 that provided for the 
orderly liquidation of the Plan without the delay that would have been 
caused by attempting to convert the Securities to cash. Following the 
execution of the Agreement on August 30, 1994, the applicant liquidated 
the Plan assets (excluding the Securities). The Plan Administrator then 
determined the value of each participant's account based upon the cash 
proceeds of liquidation and the fair market value of the Securities as 
of June 30, 1994 (see rep. 4, above).\24\ The Affected Participants 
received pro rata shares of (i) the cash proceeds of the liquidation of 
the Plan's assets and (ii) the Securities. The value of each Affected 
Participant's account was distributed to the IRAs, individual 
retirement rollover accounts established by DTCM on behalf of the 
Affected Participants and for which DTCM serves as trustee. The IRAs 
currently hold a total of 14,628.32 units of the Sears Securities and 
41,501.40 units of the American Securities.

    \24\The applicant represents that, based on the valuation 
methods described in rep. 4, the fair market value of the Securities 
on June 30, 1994, was at least as great as the fair market value of 
the Securities on August 31, 1994, the date liquidation of the Plan 
commenced.
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    6. The applicant has requested an exemption to permit DTCM to 
purchase the Securities from the IRAs. DTCM will pay the greater of (i) 
the fair market value as of June 30, 1994, increased by any interest 
payments in arrears as of the date of purchase by the applicant, and 
reduced proportionately for any principal repayments received, or (ii) 
the fair market value of the Securities as of the date of the sale as 
determined by a qualified, independent expert. The IRAs will pay no 
fees, commissions or other expenses in connection with the transaction. 
The applicant represents that the Securities have been determined by 
Ms. Janet Milanese, Vice President of Starboard Capital Markets, Inc., 
an independent expert in Philadelphia, Pa., as having a fair market 
value as of January 31, 1995 which is less per unit than the June 30, 
1994 figure determined as described in rep. 4, above. Accordingly, DTCM 
proposes to pay to the IRAs the June 30, 1994 fair market value of the 
Securities, plus any interest payments in arrears as of the date of the 
transaction, less any principal repayments received.
    7. The applicant represents that the Plan entered into the 
Agreement because it allowed for the orderly liquidation of its assets 
and distribution of benefits while at the same time protecting the 
Affected Participants because they would receive at least as much as 
they would have if the Plan had been able to sell the Securities in an 
arm's-length transaction on the date of the Plan's liquidation. The 
proposed transaction also benefits the IRAs since it allows the 
Securities to be converted to cash prior to maturity at a price at 
least as great as could be obtained in an arm's-length transaction.
    8. In summary, the applicant represents that the proposed 
transaction satisfies the criteria contained in section 4975 (c)(2) of 
the Code because: (a) The sale is a one-time transaction for cash; (b) 
no commissions or other expenses will be paid by the IRAs in connection 
with the sale; (c) the IRAs will be receiving not less than the fair 
market value of the Securities as determined by a qualified, 
independent expert; and (d) each of the Affected Participants is the 
only participant in his/her own IRA, and each has determined that the 
proposed transaction is appropriate for and in the best interest of 
his/her IRA and desires that the transaction be consummated.

NOTICE TO INTERESTED PERSONS: Because each of the Affected Participants 
is the only participant in his/her own IRA, it has been determined that 
there is no need to distribute the notice of proposed exemption to 
interested persons. Comments and requests for a hearing are due 30 days 
after publication of this notice in the Ferderal Register.

[[Page 14795]] FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of 
the Department, telephone (202) 219-8881. (This is not a toll-free 
number.)
General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest of disqualified 
person from certain other provisions of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
section 404 of the Act, which among other things require a fiduciary to 
discharge his duties respecting the plan solely in the interest of the 
participants and beneficiaries of the plan and in a prudent fashion in 
accordance with section 404(a)(1)(b) of the act; nor does it affect the 
requirement of section 401(a) of the Code that the plan must operate 
for the exclusive benefit of the employees of the employer maintaining 
the plan and their beneficiaries;
    (2) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete, and that each application 
accurately describes all material terms of the transaction which is the 
subject of the exemption.

    Signed at Washington, DC, this 15th day of March, 1995.
Ivan Strasfeld,
Director of Exemption Determinations Pension and Welfare 
BenefitsAdministration, U.S. Department of Labor.
[FR Doc. 95-6728 Filed 3-17-95; 8:45 am]
BILLING CODE 4510-29-P