[Federal Register Volume 60, Number 133 (Wednesday, July 12, 1995)]
[Notices]
[Pages 35941-35948]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-17074]



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

DEPARTMENT OF LABOR
[Application No. D-09824, et al.]


Proposed Exemptions; PMS Profit Sharing and Retirement Savings 
Plan and Trust (the Plan)

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

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

SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the prohibited transaction restriction of the Employee 
Retirement Income Security Act of 1974 (the Act) and/or the Internal 
Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

    Unless otherwise stated in the Notice of Proposed Exemption, all 
interested persons are invited to submit written comments, and with 
respect to exemptions involving the fiduciary prohibitions of section 
406(b) of the Act, requests for hearing within 45 days from the date of 
publication of this Federal Register Notice. Comments and request for a 
hearing should state: (1) the name, address, and telephone number of 
the person making the comment or request, and (2) the nature of the 
person's interest in the exemption and the manner in which the person 
would be adversely affected by the exemption. A request for a hearing 
must also state the issues to be addressed and include a general 
description of the evidence to be presented at the hearing. A request 
for a hearing must also state the issues to be addressed and include a 
general description of the evidence to be presented at the hearing.

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

Notice to Interested Persons

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

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

PMS Profit Sharing and Retirement Savings Plan and Trust (the Plan), 
Located in Cleveland, Ohio

[Exemption Application No. D-09824]

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 32826, 32847, August 10, 1990). If the exemption 
is granted, the 

[[Page 35942]]
restrictions of sections 406(a), 406(b) (1) and (2) 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 a certain parcel of improved real 
property (the Property) from the Plan to M. A. Hanna Company (Hanna), a 
party in interest with respect to the Plan provided that the following 
conditions are met:
    (1) The fair market value of the Property is established by a 
qualified and independent real estate appraiser;
    (2) Hanna pays the greater of $990,800 or the current fair market 
value of the Property;
    (3) The Sale is a one time transaction for cash;
    (4) The Plan pays no fees or commissions related to the Sale; and
    (5) Hanna pays any excise taxes to the Internal Revenue Service 
owed pursuant to section 4975(a) of the Code resulting from Hanna's 
lease of the Property from the Plan through the date of publication in 
the Federal Register of the final grant of the exemption within 90 days 
of such date.

Summary of Facts and Representations

    1. Hanna is a Delaware Corporation with its principal office and 
place of business in Cleveland, Ohio. In November 1987, Hanna acquired 
all of the outstanding capital stock of PMS Consolidated, Inc. The 
Hanna/PMS Consolidated, Inc. merger was effective April 1, 1993. PMS 
Consolidated is the original plan sponsor.
    2. The Plan is a defined contribution pension plan. As of April 1, 
1995, the Plan had 706 participants and total assets of $14,240,928. 
Wells Fargo Bank has served as Plan trustee since January 1, 1992. The 
PMS Committee for Employee Benefits Administration is the Plan 
fiduciary responsible for selecting the Plan's investments. Currently, 
only one individual serves on this committee. He is an employee and 
officer of the PMS Division of Hanna.
    3. In November of 1968, the Plan acquired the Property as 
undeveloped land from PMS Consolidated for $10,050, and subsequently 
built the building for $550,887. The Plan has invested a total of 
$560,937 in the Property. The Property is located in Coral Springs, 
Florida. In July 1969, the Plan leased the Property to PMS 
Consolidated. (the Lease). The Lease was last renewed on January 1, 
1989 for a five year period, and currently is on a month to month 
basis. All property taxes and insurance costs were paid by PMS 
Consolidated for the duration of the Lease. PMS Consolidated also has 
incurred $509,967 in leasehold improvements over the term of the 
lease.1 At the time the Hanna/PMS Consolidated merger became 
effective, Hanna became aware of the Lease. Unsuccessful efforts were 
made to sell the Property to an unrelated third party. As a result the 
Plan proposes to sell the Property to Hanna.2

    \1\ The terms of the lease provides that leasehold improvements 
revert to the Plan upon the termination of the lease.
    \2\ The applicant recognizes that the lease by the Plan of the 
Property to Hanna constitutes a prohibited transaction under section 
406(a) of the Act and section 4975 of the Code. Accordingly, Hanna 
has filed a form 5330 with the Internal Revenue Service and paid the 
Internal Revenue Service the excise taxes that are applicable under 
section 4975(a) of the Code through the date on which the 
application was filed. Further, Hanna represents that it will pay 
the additional excise taxes due through the date of the grant of 
final exemption within 90 days of its publication in the Federal 
Register.
---------------------------------------------------------------------------

    4. The Property was appraised by two independent qualified 
appraisers. Both appraisers utilized the market value approach which is 
defined as the most probable price which the appraised property will 
bring in a competitive market under all conditions requisite to a fair 
sale. On October 24, 1994, C.R. Johnson & Associates, Inc., certified 
MAI real estate appraisers determined the value of the Property to be 
$706,000. AMH Appraisal Consultants appraised the Property at $850,000 
as of November 2, 1994.
    The rental rate under the Lease was at fair market rental rates. 
The rental rate under the Lease was $5.78 per square foot. In 
developing a value for the Property, AMH considered four comparable 
properties which had rental rates ranging from $3.50 to $6.00 per 
square foot. C.R. Johnson considered six properties, noting that one 
property was the ``most comparable.'' The rental rate for this property 
was $5.75 per square foot.
    5. The Plan proposes to sell the Property for $990,800. This 
purchase price, which reflects Hanna's internal valuation of the 
Property, is substantially in excess of appraisals referred to above. 
Hanna has agreed to pay $990,800 in order to ensure that Plan 
participants and beneficiaries are not disadvantaged by reason of the 
Plan's previous holding of the Property or the Sale of the Property. 
The Sale will be for cash, and the Plan will pay no fees or commissions 
with regard to the transaction.
    6. In summary, the applicant represents that the proposed 
transaction satisfies the criteria of section 408(a) of the Act 
because: (1) the Sale is a one-time transaction for cash, and no 
commissions will be paid upon the Sale; (2) the Plan will be receiving 
at least fair market value for the Property as determined by an 
independent qualified real estate appraiser; and (3) Hanna will pay all 
applicable excise taxes which are due by reason of the Lease within 90 
days of the publication in the Federal Register of the exemption 
proposed herein.

Tax Consequences of Transaction

    The Department of the Treasury has determined that if a transaction 
between a qualified employee benefit plan and its sponsoring employer 
(or affiliate thereof) results in the plan either paying less than or 
receiving more than fair market value, such excess may be considered to 
be a contribution by the sponsoring employer to the plan and therefore 
must be examined under applicable provisions of the Code including 
sections 401(a)(4), 404 and 415.
    For Further Information Contact: Allison Padams of the Department, 
telephone (202) 219-8971. (This is not a toll-free number.)
Apartment Laundries, Inc., Profit Sharing Plan (the Plan), Located in 
Tulsa, Oklahoma; Proposed Exemption

[Application No.: D-09835]

    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 CAR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted, the restrictions of section 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 lease (the Lease) of improved property (the 
Property) by the individual account of James L. Sharp (the Account) in 
the Plan to Apartment Laundries, a party in interest with respect to 
the Plan provided that the following conditions are met: (1) the terms 
of the Lease are and will remain at least as favorable as the Plan 
could obtain in an arm's length transaction with an unrelated party; 
(2) the fair market rental value has been and will continue to be 
determined on an annual basis by a qualified, independent appraiser; 
and (3) the fair market value of the Property, as determined by a 
qualified, independent appraiser, represents no more than 25% of value 
of the assets in the Account.

Summary of Facts of Representations

    1. Apartment Laundries (the Employer) is an Oklahoma corporation 

[[Page 35943]]
    engaged in the business of furnishing coin-operated laundry machines to 
apartment complexes. James L. Sharp is the sole shareholder of the 
Employer. The Plan is a profit sharing plan having 49 participants and 
assets valued at $658,839 as of October 31, 1994. The Plan's trustee is 
Mr. Sharp. As of October 31, 1994, the Account's balance equaled 
$251,243, but Mr. Sharp represents that he will roll over from his 
individual retirement account into the Account an amount so that the 
fair market value of the Property will not exceed 25% of the value of 
the Account's assets.
    2. On July 1, 1991, the Account purchased the Property from an 
unrelated third party for $131,221. The Property consists of a 
warehouse building situated on .71 acres. The Property is contiguous to 
property which Mr. Sharp personally owns and presently leases to the 
Employer.\3\ The Account proposes to lease the Property to the 
Employer. The proposed lease will be for one year with annual renewals. 
The Employer will pay monthly rent in the amount of $1310, and the 
Account shall have the right to terminate the Lease at any time on 
thirty days notice.

    \3\ The Department is expressing no opinion as to whether or not 
the acquisition of the Property violated section 404 of the Act.
---------------------------------------------------------------------------

    3. The Property was appraised by Gene Meazell, a certified general 
appraiser, of Appraisers Unlimited on October 2, 1993. Mr. Meazell 
determined that the fair market value of the Property was $140,000, and 
the fair market rental value of the Property is $1,070 per month. Mr. 
Meazell updated his appraisal on August 14, 1994 and determined that 
fair market value and fair market rental value remained unchanged. 
Naifef, Weikel and Rouse, independent certified public accountants 
calculated that the value of the Property to the Employer is enhanced 
by 20 to 25% because it is adjacent to the Employer's warehouse. Using 
this assumption, the fair market monthly rental rate for the Employer 
would be between $1,284 and $1,337. Thus, the proposed rental rate of 
$1,310 would be at fair market value.
    4. In summary, the applicant represents that the proposed 
transaction satisfies the criteria of section 408(a) of the Act 
because: (1) the terms of the Lease are and will remain at least as 
favorable as the Plan could obtain in an arm's length transaction with 
an unrelated party; (2) the fair market rental value has been and will 
continue to be determined on an annual basis by a qualified, 
independent appraiser; and (3) the fair market value of the Property, 
as determined by a qualified, independent appraiser, will represent no 
more than 25% of value of the assets in the Account.
    Notice to Interested Persons: Because Mr. Sharp is the only 
participant in the Plan whose individual account will be affected by 
the proposed transaction, it has been determined that there is no need 
to distribute the notice of proposed exemption to interested persons. 
Therefore, written comments and requests for a public hearing are due 
30 days from the date of publication of this notice of proposed 
exemption in the Federal Register.
    For Further Information Contact: Allison Padams, of the Department, 
telephone (202) 219-8971. (This is not a toll-free number.)
Adel E. Zaki Money Purchase Pension Plan (the Plan) Located in Los 
Angeles, California

[Exemption Application No. D-09883]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted the restrictions of section 406(a), 406(b)(1), and 406(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 \4\ shall not apply to the proposed cash sale of a parcel of 
improved real property (the Property) by the Plan to Adel E. Zaki, M.D. 
(Dr. Zaki), a party in interest with respect to the Plan; provided that 
(1) the sale will be a one-time transaction for cash; (2) as a result 
of the sale, the Plan receives in cash the greater of $710,000 or the 
fair market value of the Property, as determined by an independent, 
qualified appraiser, as of the date of the sale; (3) the Plan pays no 
commissions, fees, or other expenses as a result of the transaction; 
and (4) the terms of the sale are no less favorable to the Plan than 
those it would have received in similar circumstances when negotiated 
at arm's length with unrelated third parties.

    \4\ For purposes of this exemption, references to specific 
provisions of Title I of the Act, unless otherwise specified, refer 
also to the corresponding provisions of the Code.
---------------------------------------------------------------------------

Summary of Facts and Representations

    1. The Plan is a tax-qualified defined contribution profit sharing 
plan sponsored by Adel E. Zaki M.D., A Professional Corporation (the 
Employer). As of October 24, 1994, there were four (4) participants and 
beneficiaries in the Plan, including Dr. Zaki. As of the same date, the 
assets of the Plan totaled approximately $1,745,500. It is represented 
that Dr. Zaki's account in the Plan consists of approximately 99 
percent (99%) of the assets of the Plan with the remaining one percent 
(1%) allocated among the other three participants. The Plan's assets 
are invested in the Property and cash or cash equivalents, such as bank 
certificates of deposit. It is represented that, as of October 24, 
1994, the Property constituted approximately 41 percent (41%) of the 
assets of the Plan. Dennis Mehringer serves as contract administrator 
for the Plan. Dr. Zaki serves as trustee and fiduciary for the Plan 
with discretion over the assets of the Plan affected by the proposed 
transaction and is an officer and the sole shareholder of the Employer. 
The Employer engages in the private medical practice in general surgery 
from an office located at 1233 North Vermont Avenue in Los Angeles, 
California.
    2. On June 26, 1985, Dr. Zaki, acting as trustee, purchased the 
Property as an investment for the Plan from A.M.S. Partnership, an 
unrelated third party, at a purchase price of $1,200,000, plus escrow 
closing costs of $2,183. It is represented that most of the assets of 
the Plan, plus some or all of the rollover assets from a Keogh plan and 
a terminated defined benefit plan, were used to acquire the Property. 
Further, in 1995 through 1996, the Plan made additional improvements to 
the Property at a cost of $28,228. Since the acquisition of the 
Property by the Plan, Dr. Zaki has managed the Property and leased it 
to unrelated third party tenants. It is represented that the capital 
investment in the Property has been returned to the Plan. It is further 
represented that the value of the Property, as reported yearly on forms 
5500-C/R, steadily increased to a high of $1,496,676 in 1991. However, 
in April of 1992, the riots in Los Angeles caused property damage in 
the neighborhood around the Property. While the Property did not suffer 
extensive damage, it is represented that the riots caused many 
merchants to leave the area, the rental rates to decrease, and the 
property values to decline. Consequently, the value of the Property 
dropped to $1,250,000 in 1992. In 1993, Los Angeles County Tax Assessor 
estimated the value of the Property to be $932,410. As of the end of 
1993, the Plan had total assets of $1,937,410 of which the value of the 


[[Page 35944]]
Property constituted approximately 48 percent (48%).\5\

    \5\ The Department notes that the decision of Dr. Zaki, acting 
as fiduciary on behalf of the Plan, in connection with the 
acquisition and holding of the Property are governed by the 
fiduciary responsibility requirements of part 4, subpart B, of Title 
I. The Department expresses no opinion herein, as to whether any of 
the relevant provisions of part 4, subpart B, of title I have been 
violated regarding the Plan's investment in and subsequent holding 
of the Property, and no exemption from such provisions is proposed 
herein.
---------------------------------------------------------------------------

    3. The Property is described as one story L-shaped strip shopping 
center on a corner lot at the intersection of Vermont and Lexington 
Avenues in Los Angeles, California. The Property consists of 14,300 
square feet of land improved by a retail center that contains 7,747 
square feet of rentable space divided into seven units. The Property 
has fifteen (15) parking spaces which is represented to be an existing 
legal non-conforming use. The Property is located at 1183-1193 North 
Vermont Avenue and is situated across Lexington Avenue one half block 
from the Employer's office. Dr. Zaki represents that the Property is 
not contiguous with his medical office as the two are separated by 
Lexington Avenue and has no bearing on his practice. For this reason, 
Dr. Zaki maintains that no premium value is created by the proximity of 
the Property to his medical office.
    4. This exemption is requested to permit the Plan to sell the 
Property to Dr. Zaki for the greater of $710,000 or the appraised fair 
market value of the Property on the date of sale.
    Dr. Zaki represents that since 1992 he has attempted to sell the 
Property to unrelated third parties but has received no offers, because 
banks are reluctant to finance commercial properties in neighborhoods 
subject to crime and riots. Further, it is represented that the 
Property is in need of substantial improvements, especially in the area 
of tenant security. In Dr. Zaki's opinion it would be inappropriate for 
the Plan to expend additional capital for such improvements.
    It is represented that the proposed transaction is feasible in that 
it involves a one-time sale of the Property for cash. In addition, the 
proposed transaction is in the interest of the Plan in that the price 
offered by Dr. Zaki could not be obtained otherwise. In this regard, 
Dr. Zaki maintains that his offer is a highly advantageous one for the 
Plan, as the Property continues to decline in value. Further, the Plan 
will be able to sell the Property without incurring the expense of 
searching for a buyer and without paying brokerage commission, fees, or 
other expenses as a result of the transfer. It is represented that the 
proportionate share of the proceeds from the sale of the Property will 
be allocated to the accounts of each of the participants in the Plan. 
Then once the Property is sold, it is represented that the Plan can 
invest such cash proceeds in a more conservative investment mix in the 
future.
    In the opinion of Dr. Zaki, the proposed transaction is necessary 
to protect the participants and beneficiaries of the Plan from the 
deteriorating real estate market. It is represented that selling the 
Property to Dr. Zaki will put an end to the continued loss of benefits 
to participants in the Plan that result from the continuing decline in 
the value of the Property.
    Further, in addition to purchasing the Property from the Plan, Dr. 
Zaki proposes to personally indemnify the accounts of the other 
participants of the Plan against past losses. Specifically, 
simultaneous with his purchase of the Property from the Plan, Dr. Zaki 
will make a one-time non-tax deductible personal payment to the 
Plan.\6\ It is represented that a proportionate amount of such payment 
(approximately $4,086 in the aggregate) will be allocated to the 
accounts of each of the participants, other than Dr. Zaki, in order to 
restore the cumulative loss through December 31, 1994, of such 
participants' accounts in the Plan to their share of the highest 
appraised value of $1,496,676 for the Property, as reported on the 
forms 5500-C/R for the calendar year 1991, and to credit such 
participants' accounts with interest on such highest appraised value 
through December 31, 1994, at the average certificate of deposit rates 
of the Bank of America during the period from the highest appraisal 
date to December 31, 1994. It is further represented that such interest 
on the balance due to participants, other than Dr. Zaki, will continue 
to accrue at the same rate from December 31, 1994, through the actual 
date of the closing on the transactions. In this way only Dr. Zaki's 
account in the Plan will suffer the loss that results from the proposed 
transaction.

    \6\ It is represented that note of the transactions will cause 
the participants to exceed their section 415 limitations. It is 
represented that the restoration of value will be done 
proportionately without discrimination and will not exceed the 
limits of contribution under section 415 of the Code.
---------------------------------------------------------------------------

    6. An appraisal of the Property was prepared by Donald P. Condit, 
Jr. (Mr. Condit) SRPA, SRA and Stuart D. Holtzmann of The Condit 
Appraisal Company, located in Santa Monica, California. It is 
represented that the appraisers have the appropriate knowledge and 
experience to complete the appraisal assignment competently, in that 
they are both California State certified general real estate 
appraisers, and in that Mr. Condit is a member of professional 
organizations. It is represented that the appraisers are independent in 
that they have no present or prospective interest in the Property and 
have no personal interest or bias with respect to the participants in 
the transaction. The appraisers represent that neither their employment 
nor compensation was conditioned upon the appraisal producing a 
specific value or a value within a given range. After physically 
inspecting the Property, and reconciling values for the Property 
established by the cost approach, income approach, and sales comparison 
approach, the appraisers determined that the fair market value of the 
leased fee interest in Property was $710,000, as of September 8, 1994.
    7. In summary, Dr. Zaki represents that the proposed transaction 
meets the statutory criteria for an exemption under section 408(a) of 
the Act because:
    (a) the sale of the Property will be a one-time transaction for 
cash; (b) as a result of the sale, the Plan will receive in cash the 
greater of $710,000 or the fair market value of the Property, as 
determined by an independent, qualified appraiser, as of the date of 
the sale; (c) the Plan will pay no commissions, fees, or other expenses 
as a result of the transaction; (d) the terms of the sale will be no 
less favorable to the Plan than those it would have received in similar 
circumstances when negotiated at arm's length with unrelated third 
parties; (e) the Plan will be able to invest the proceeds from the sale 
of the Property in more profitable assets; (f) the Plan will be able to 
dispose of the Property which continues to decline in value; and (g) 
with the exception of Dr. Zaki, the accounts of the participants in the 
Plan will be compensated for any losses which resulted from the decline 
in value of the Property.
    For Further Information Contact: Angelena C. Le Blanc of the 
Department, telephone (202) 219-8883 (This is not a toll-free number.)
The Bank of New York (the Bank) Located in New York, New York

[Application No. D-10030]

Proposed Exemption

Section I--Exemption for the Acquisition, Holding and Disposition of 
BNY Stock

    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 

[[Page 35945]]
Code by reason of section 4975(c)(1) (D) and (E) of the Code, shall not 
apply to the acquisition, holding or disposition of the common stock of 
the Bank's parent corporation, The Bank of New York Company, Inc. (BNY 
Stock), by Index or Model-Driven Funds, if the following conditions and 
the General Conditions of Section II are met:
    (a) The Index or Model-Driven Fund is based on an index which 
represents the investment performance of a specific segment of the 
public market for equity securities in the United States and/or foreign 
countries. The organization creating and maintaining the index must be 
(1) engaged in the business of providing financial information, 
evaluation, advice or securities brokerage services to institutional 
clients, (2) a publisher of financial news or information, or (3) a 
public stock exchange or association of securities dealers. The index 
must be created and maintained by an organization independent of the 
Bank and its affiliates. The index must be a generally accepted 
standardized index of securities which is not specifically tailored for 
the use of the Bank or its affiliates.
    (b) The acquisition or disposition of the BNY Stock is for the sole 
purpose of maintaining strict quantitative conformity with the relevant 
index upon which the Index or Model-Driven Fund is based.
    (c) All acquisitions comply with Rule 10b-18 of the Securities and 
Exchange Commission, including the limitations regarding the price paid 
or received for such stock.
    (d) Aggregate daily purchases of BNY Stock constitute no more than 
the greater of: (1) 10 percent of the stock's average daily trading 
volume for the previous five days; or (2) 10 percent of the stock's 
trading volume on the date of the transaction.
    (e) If the necessary number of shares of BNY Stock cannot be 
acquired within 10 business days from the date of the event which 
causes the particular Index or Model-Driven Funds to require BNY Stock, 
the Bank appoints a fiduciary which is independent of the Bank and its 
affiliates to design acquisition procedures and monitor the Bank's 
compliance with such procedures.
    (f) All purchases and sales of BNY Stock are executed on the 
national exchange on which BNY Stock is primarily traded.
    (g) No transactions involve purchases from, or sales to, the Bank 
or any affiliate (including officers, directors and employees of the 
Bank, as defined in Section III(c) below), or any party in interest 
with respect to a plan which has invested in an Index or Model-Driven 
Fund.
    (h) No more than five (5) percent of the total amount of BNY Stock 
issued and outstanding at any time is held in the aggregate by the 
Index and Model-Driven Funds.
    (i) BNY Stock constitutes no more than two (2) percent of the value 
of any independent third-party index on which the investments of an 
Index or Model-Driven Fund are based.
    (j) A plan fiduciary independent of the Bank and its affiliates 
authorizes the investment of such plan's assets in an Index or Model-
Driven Fund which purchases and/or holds BNY Stock.
    (k) A fiduciary independent of the Bank and its affiliates directs 
the voting of the BNY Stock held by an Index or Model-Driven Fund on 
any matter in which shareholders of BNY Stock are required or permitted 
to vote.

Section II--General Conditions

    (a) The Bank maintains or causes to be maintained for a period of 
six years from the date of the transaction the records necessary to 
enable the persons described in paragraph (b) of this Section to 
determine whether the conditions of the exemption have been met, except 
that (1) a prohibited transaction will not be considered to have 
occurred if, due to circumstances beyond the control of the Bank, the 
records are lost or destroyed prior to the end of the six-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 this Section are available at their 
customary location for examination during normal business hours by--
    (A) Any duly authorized employee or representative of the 
Department of Labor or the Internal Revenue Service,
    (B) Any fiduciary of a plan participating in an Index or Model-
Driven Fund who has authority to acquire or dispose of the interests of 
the plan, or any duly authorized employee or representative of such 
fiduciary,
    (C) Any contributing employer with respect to any plan 
participating in an Index or Model-Driven Fund or any duly authorized 
employee or representative of such employer, and
    (D) Any participant or beneficiary of any plan participating in an 
Index or Model-Driven Fund, or any duly authorized employee or 
representative of such participant or beneficiary.
    (2) None of the persons described in paragraph (b)(1) (B) through 
(D) shall be authorized to examine trade secrets of the Bank, any of 
its affiliates, or commercial or financial information which is 
privileged or confidential.

Section III--Definitions

    (a) Index Fund--Any investment fund, account or portfolio 
sponsored, maintained and/or trusteed by the Bank, or an affiliate of 
the Bank, in which one or more investors invest which is designed to 
replicate the capitalization-weighted composition of a stock index 
which satisfies the conditions of Section I (a) and (i).
    (b) Model-Driven Fund--Any investment fund, account or portfolio 
sponsored, maintained and/or trusteed by the Bank, or an affiliate of 
the Bank, in which one or more investors invest which is based on 
computer models using prescribed objective criteria to transform an 
independent third-party stock index which satisfies the conditions of 
Section I(a) and (i).
    (c) Affiliate--Any person directly or indirectly, through one or 
more intermediaries, controlling, controlled by, or under common 
control with such person; any officer, director, partner, employee, 
relative (as defined in section 3(15) of the Act), a brother, a sister, 
or a spouse of a brother or a sister of such person; and any 
corporation or partnership of which such person is an officer, 
director, or partner.
Summary of Facts and Representations

    1. The Bank is the principal subsidiary of The Bank of New York 
Company, Inc., the 16th largest bank holding company in the United 
States, with total assets of approximately $49 billion at the end of 
1994. The Bank is one of the largest commercial banks in the country, 
and with its sister bank and trust company subsidiaries is one of the 
largest providers of securities processing, money management and other 
administrative and management services to institutional investors, 
including employee benefit plans subject to the Act.
    2. In furnishing investment management services, the Bank acts as a 
fiduciary to its employee benefit plan customers. A principal vehicle 
employed by the Bank in furnishing investment management services is 
its Collective Trust. The Collective Trust accepts investment from 
employee benefit plans subject to the Act as well 

[[Page 35946]]
as governmental plans and governmental units not subject to the Act. 
The Collective Trust is exempt from federal income taxation pursuant to 
IRS Rev. Rul. 81-100.
    The Collective Trust consists of a series of separate investment 
funds, each with a separate investment objective and portfolio of 
assets. It is possible for a plan to invest solely in one, or in 
several but less than all, of the investment funds, as selected and in 
such amounts as determined by the plan's named fiduciary. The value of 
a plan's investment in any given fund depends solely on the investment 
performance of that fund, unrelated to the investment performance of 
the other funds within the Collective Trust.
    3. Among the new funds established within the Collective Trust 
early in 1994 is the Bank's Mid Cap Index Fund, whose objective is to 
replicate as closely as may be practicable the performance of the 
Standard & Poor's (S&P) MidCap 400 Index. The Bank initially requested 
an exemption to permit the acquisition, holding and disposition of BNY 
Stock by the Bank's Mid Cap Index Fund because the BNY Stock was 
included in the S&P MidCap 400 Index. However, effective March 30, 
1995, the BNY Stock was added to the S&P 500 Index. Since the Bank also 
maintains within the Collective Trust a large S&P 500 Index Fund, the 
Bank now requests an exemption to permit the acquisition, holding and 
disposition of BNY Stock by the Bank's S&P 500 Index Fund.
    4. The S&P 500 Index is an index of 500 stocks that are traded on 
the New York Stock Exchange (NYSE), the American Stock Exchange, and 
the NASDAQ National Market System. It is a market value-weighted index, 
multiplying shares outstanding times stock price, in which each 
company's influence on index performance is directly proportional to 
its market value. The 500 companies chosen by the S&P Index Committee 
for the index are not the 500 largest companies but, instead, are the 
companies that tend to be leaders in key industries within the U.S. 
economy, as determined by the Committee.
    The Bank's S&P 500 Index Fund was established in 1989. Its 
objective is to track as closely as possible the total return of the 
S&P 500 Index. The Fund currently has total assets of approximately 
$554 million as of May 9, 1995 and approximately 16 employee benefit 
plan investors.
    5. The Bank requests that the exemption cover the acquisition, 
holding and disposition of BNY Stock by any Index or Model-Driven Fund 
sponsored, maintained and/or trusteed by the Bank or an affiliate. The 
Bank represents that such Index Funds will include any investment fund, 
account or portfolio in which one or more investors invest which is 
designed to replicate the capitalization-weighted composition of an 
independent third-party stock index. In addition, the Bank represents 
that such Model-Driven Funds will include any investment fund, account 
or portfolio in which one or more investors invest which is based on 
computer models using prescribed objective criteria to transform an 
independent third-party stock index. All independent third-party stock 
indexes used by the Bank for an Index or Model-Driven Fund will 
represent the investment performance of a specific segment of the 
public market for equity securities in the United States and/or foreign 
countries. The organization creating and maintaining the index will be: 
(a) engaged in the business of providing financial information, 
evaluation, advice or securities brokerage services to institutional 
clients; (b) a publisher of financial news or information; or (c) a 
public stock exchange or association of securities dealers. The index 
will be created and maintained by an organization independent of the 
Bank and its affiliates. The index will be a generally accepted 
standardized index of securities which is not specifically tailored for 
the use of the Bank or its affiliates.
    6. With respect to Model-Driven Funds, the Bank represents that the 
portfolio of such a Fund would be determined by the details of a 
computer model, which would examine structural aspects of the stock 
market, rather than the underlying stock values. An example of a Model-
Driven would include a fund which ``transforms'' the S&P 500 Index, 
making investments according to a computer model which uses such data 
as the following: (a) earnings, dividends and price-earnings ratios for 
common stocks in the S&P 500 Index; (b) current yields on corporate 
bonds and money market instruments; and (c) historical standard 
deviations and correlations of and between asset classes. However, like 
Index Funds, the Model-Driven Funds would be passively managed, in that 
decisions of which stocks to buy or sell would not be the result of 
active evaluation of the investments by an investment manager, but 
would be determined in accordance with a predetermined computer model.
    The Bank states that it does not currently maintain any Model-
Driven Funds of the type described above, but is considering 
establishing such funds in the future. Prior to May 1, 1995, the Bank 
maintained a South Africa Constrained Index Fund, whose objective was 
to track the S&P 500 Index by excluding certain stocks of companies 
that had direct equity investment in the Republic of South Africa and 
were not signatories to a Statement of Principles for South Africa as 
of April 28, 1994. However, the South Africa Constrained Index Fund was 
discontinued by the Bank as of April 28, 1995.
    7. With respect to the proposed purchase of BNY Stock by the Funds, 
the Bank states that all such acquisitions will comply with Rule 10b-18 
of the Securities and Exchange Commission (SEC), including the 
limitations regarding the price paid or received for such stock. SEC 
Rule 10b-18 provides a ``safe harbor'' for issuers of securities from 
section 9(a)(2) of the Securities Exchange Act of 1934 and SEC Rule 
10b-5 (which generally prohibits persons from manipulating the price of 
a security and engaging in fraud in connection with the purchase or 
sale of a security).
    The Bank states that the conditions imposed by Rule 10b-18 for 
purchases of BNY Stock would be as follows: (a) all purchases would be 
made from or through only one broker on any single day; (b) no 
purchases would constitute the opening transaction in BNY Stock; (c) 
purchases would not occur within one-half hour before the scheduled 
close of trading on the NYSE; (d) the price would not be higher than 
the current independent bid quotation or the last independent sale 
price on the exchange, whichever is higher; and (e) if the purchases of 
BNY Stock are not block purchases as defined by Rule 10b-18(b)(4), the 
total amount of purchases on any one day would not exceed the higher of 
one round lot or the number of round lots closest to 25 percent of the 
trading volume for BNY Stock on that day.
    However, notwithstanding the restrictions of Rule 10b-18, the Bank 
states that aggregate daily purchases of BNY Stock will constitute no 
more than the greater of: (a) 10 percent of the stock's average daily 
trading volume for the previous five days; or (b) 10 percent of the 
stock's trading volume on the date of the transaction.
    8. The Bank states that all purchases and sales of BNY Stock will 
be executed on the national exchange on which BNY Stock is primarily 
traded. In addition, no transactions will involve purchases from, or 
sales to, the Bank or any affiliate (including officers, directors and 
employees of the Bank, as defined in Section III(c) above), or any 
party in interest with respect to a plan which has invested in an Index 
or Model-Driven 

[[Page 35947]]
Fund. The Bank states further that no more than five (5) percent of the 
total amount of BNY Stock issued and outstanding at any time will be 
held in the aggregate by the Index and Model-Driven Funds. Finally, the 
Bank represents that it will ensure that BNY Stock does not constitute 
more than two (2) percent of the value of any independent third-party 
index on which the investments of an Index or Model-Driven Fund are 
based. In this regard, the weight currently assigned to BNY Stock in 
the S&P 500 Index is approximately 0.169 percent. Prior to the addition 
of the BNY Stock to the S&P 500 Index, the Bank states that the BNY 
Stock comprised approximately 1.27 percent of the S&P MidCap 400 Index.
    9. The Bank states that if the necessary number of shares of BNY 
Stock cannot be acquired within 10 business days from the date of the 
event which causes the particular Index or Model-Driven Funds to 
require BNY Stock, the Bank will appoint a fiduciary which is 
independent of the Bank and its affiliates to design acquisition 
procedures and monitor the Bank's compliance with such procedures. In 
addition, the Bank states a fiduciary independent of the Bank and its 
affiliates will direct the voting of the BNY Stock held by an Index or 
Model-Driven Fund on any matter in which shareholders of BNY Stock are 
required or permitted to vote. Finally, the Bank represents that a plan 
fiduciary independent of the Bank and its affiliates will authorize the 
investment of such plan's assets in an Index or Model-Driven Fund which 
purchases and/or holds BNY Stock.
    10. With respect to acquisitions of BNY Stock by the Funds, the 
independent fiduciary and its principals will be completely independent 
from the Bank and its affiliates and will be experienced in developing 
and operating investment strategies, including index funds. The 
independent fiduciary will be responsible for accurately representing 
that during the operation of any trading program based upon acquisition 
procedures developed by the fiduciary, no principal employee of the 
fiduciary nor the fiduciary itself will engage in any trading of any 
kind in BNY Stock. Furthermore, the independent fiduciary will not act 
as the broker for any purchases or sales of BNY Stock and will not 
receive any commissions as a result of the trading program.
    In connection with the initial acquisition of BNY Stock by the 
Bank's S&P 500 Index Fund, the Bank calculates that the number of 
shares that would have to be bought by such Fund would not exceed 
28,000. This estimate is based on the figures for the size of the 
Bank's S&P 500 Index Fund and the weight assigned to BNY Stock in the 
S&P 500 Index.
    The Bank states that based on recent figures for the high, low and 
average daily trading volume for the BNY Stock on the NYSE, the initial 
requirements of the Bank's S&P 500 Index Fund could be met by the Bank 
placing a market-on-close order on the NYSE on a single business day--
or at the most two successive business days. Under the established 
rules of the NYSE, the price on such an order would be set 
automatically, permitting no discretion on the part of the order 
placing party. The Bank represents that the impact of such purchases on 
the market for BNY Stock would be minimal, and that under such 
circumstances the full and proper protection of the interests of plan 
investors would not require or warrant the retention of an independent 
fiduciary to develop a trading program for the initial acquisitions of 
BNY Stock.
    11. With respect to the voting of BNY Stock, the independent 
fiduciary chosen by the Bank will be a firm knowledgeable and 
experienced in corporate governance issues and proxy voting on behalf 
of public and private pension funds, banks, trust companies, money 
managers, insurance companies and other institutional investors with 
large equity portfolios. The independent fiduciary will develop, and 
supply to the Bank, written material dealing with corporate ownership, 
which will act as a guideline to the voting of proxies by institutional 
fiduciaries, and their current voting guidelines. The Bank will provide 
the independent fiduciary with all necessary information regarding the 
Funds that hold BNY Stock, the amount of BNY Stock held by such funds 
on the record date for shareholder meetings of The Bank of New York 
Company, Inc., and all proxy and consent materials for BNY Stock. The 
independent fiduciary will maintain records of its activities as an 
independent fiduciary on behalf of the Funds, including the number of 
shares of BNY Stock voted, the manner in which they were voted, and the 
rationale for the vote if it was not consistent with the independent 
fiduciary's corporate ownership material and current voting guidelines 
in effect at the time of the vote. The independent fiduciary will 
supply the Bank with the information after each shareholder meeting and 
will acknowledge that it will be acting as a fiduciary with respect to 
the plans that invest in the Funds which own BNY Stock, when voting 
such stock.
    12. In summary, the applicant represents that the proposed 
transactions will satisfy the criteria of section 408(a) of the Act for 
the following reasons: (a) the acquisition, holding and disposition of 
BNY Stock will occur solely to maintain strict quantitative conformance 
by an Index or Model-Driven Fund to its underlying index or model; (b) 
all acquisitions and dispositions of BNY Stock will occur in the open 
market and will comply with SEC Rule 10b-18; (c) aggregate daily 
purchases of BNY Stock will constitute no more than the greater of 
either 10 percent of the stock's average daily trading volume for the 
previous five days, or 10 percent of the stock's trading volume on the 
date of the transaction; (d) no more than 5 percent of the total 
outstanding shares of BNY Stock will be held in the aggregate by the 
Funds; (e) BNY Stock will constitute no more than 2 percent of the 
value of any independent third-party index on which the investments of 
an Index or Model-Driven Fund are based; (f) if the necessary number of 
shares of BNY Stock cannot be acquired within 10 business days from the 
date of the event which causes the particular Index or Model-Driven 
Funds to require BNY Stock, the Bank will appoint a fiduciary which is 
independent of the Bank and its affiliates to design acquisition 
procedures and monitor the Bank's compliance with such procedures; (g) 
a fiduciary independent of the Bank and its affiliates will direct the 
voting of any BNY Stock held by the Funds; and (h) a plan fiduciary 
independent of the Bank and its affiliates will authorize the 
investment of such plan's assets in an Index or Model-Driven Fund which 
purchases and/or holds BNY Stock.
    For Further Information Contact: Mr. E.F. Williams of the 
Department, telephone (202) 219-8194. (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 

[[Page 35948]]
prudent fashion in accordance with section 404(a)(1)(b) of the act; nor 
does it affect the requirement of section 401(a) of the Code that the 
plan must operate for the exclusive benefit of the employees of the 
employer maintaining the plan and their beneficiaries;
    (2) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete and accurately describe all 
material terms of the transaction which is the subject of the 
exemption. In the case of continuing exemption transactions, if any of 
the material facts or representations described in the application 
change after the exemption is granted, the exemption will cease to 
apply as of the date of such change. In the event of any such change, 
application for a new exemption may be made to the Department.

    Signed at Washington, DC, this 7th day of July, 1995.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 95-17074 Filed 7-11-95; 8:45 am]
BILLING CODE 4510-29-P