[Federal Register Volume 60, Number 153 (Wednesday, August 9, 1995)]
[Notices]
[Pages 40615-40622]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-19663]



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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-09981, et al.]


Proposed Exemptions; Boston Safe Deposit

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, 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.

Boston Safe Deposit and Trust Company Located in Boston, 
Massachusetts; Proposed Exemption

[Application No. D-9981] 

[[Page 40616]]

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted, the restrictions of sections 406(a), 406(b)(1) and 
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, shall not apply as of January 12, 1995, to the cash 
sale of certain commercial paper notes (the Notes) for $25,031,269 by 
the Common Trust Cash Investment Fund (the Fund) to Boston Safe Deposit 
and Trust Company (Boston Safe), a party in interest with respect to 
employee benefit plans invested in the Fund, provided that the 
following conditions are met:
    (a) The sale was a one-time transaction for cash;
    (b) The Fund received an amount which was equal to the greater of 
either (i) the amortized cost of the Notes, plus accrued but unpaid 
interest, as of the date of sale, or (ii) the fair market value of the 
Notes, as determined by an independent pricing service at the time of 
sale;
    (c) The Fund did not pay any commissions or other expenses in 
connection with the sale;
    (d) Boston Safe, as trustee of the Fund, determined that the sale 
of the Notes was appropriate for and in the best interests of the Fund, 
and the employee benefit plans invested in the Fund, at the time of the 
transaction;
    (e) Boston Safe took all appropriate actions necessary to safeguard 
the interests of the Fund, and the employee benefit plans invested in 
the Fund, in connection with the transactions; and
    (f) If the exercise of any of Boston Safe's rights, claims or 
causes of action in connection with its ownership of the Notes results 
in Boston Safe recovering from the issuer of the Notes, or any third 
party, an aggregate amount that is more than the sum of:
    (1) the purchase price paid for the Notes by Boston Safe (i.e. 
$25,031,269);
    (2) the original issue discount on the Notes which remained 
unamortized as of the date Boston Safe acquired the Notes from the 
Fund; and
    (3) the interest due on the Notes from and after the date Boston 
Safe purchased the Notes from the Fund, at the rate specified in the 
Notes, Boston Safe will refund such excess amounts promptly to the Fund 
(after deducting all reasonable expenses incurred in connection with 
the recovery).

EFFECTIVE DATE: The proposed exemption, if granted, will be effective 
as of January 12, 1995.

Summary of Facts and Representations

    1. Boston Safe is a Massachusetts trust company which provides a 
wide range of banking and fiduciary services to a broad array of 
clients, including employee benefit plans subject to the Act. The Fund 
is a common trust fund established and maintained by Boston Safe as 
trustee for the collective investment and reinvestment of assets 
contributed thereto by Boston Safe and its affiliates on behalf of 
their trust services clients, including employee benefit plans. The 
Fund is exempt from federal income tax pursuant to section 584 of the 
Code. As of December 6, 1994, the value of the Fund's portfolio 
(including the Notes) was approximately $935 million. As of such date, 
participating investors in the Fund included seventeen employee benefit 
plans (primarily voluntary employees' beneficiary associations).
    2. The Fund purchased the Notes on August 1, 1994 for $24,988,375. 
The Notes were one year debentures with a par value of $25 million, 
issued by Orange County, California (the Issuer) on July 8, 1994 with a 
maturity date of July 10, 1995. The aggregate principal amount of the 
entire series of the Notes was $600 million. Interest on the Notes was 
taxable and payable monthly at a variable rate which was reset on the 
first day of each month. The interest rate was equal to the one-month 
London Interbank Offered Rate (LIBOR) set forth on the second business 
day prior to the reset date. The interest on the Notes was payable on 
the first business day of every month and at maturity. The principal of 
and unpaid accrued interest on the Notes were payable at maturity.
    The Notes were secured by a repayment fund (the Repayment Fund) 
established by the Issuer at the time the Notes were issued. The assets 
of the Repayment Fund were invested in the Orange County Investment 
Pool (the Orange County Pool), an investment fund established by the 
Issuer for the collective investment of the assets of the Issuer and 
its several governmental sub-divisions.
    3. The decision to invest Fund assets in the Notes was made by 
Boston Safe as trustee of the Fund. Prior to the investment, Boston 
Safe conducted an investigation of the potential investment, including 
an examination of the financial condition of the Issuer. Boston Safe 
represents that the Fund's investment in the Notes was consistent with 
the Fund's investment policies and objectives.\1\ At the time the Fund 
acquired the Notes, the Notes were rated ``A-1 plus'' by Standard & 
Poor's Corporation and ``P-1'' by Moody's Investor Services, Inc.

    \1\ The Department is expressing no opinion in this proposed 
exemption regarding whether the acquisition and holding of the Notes 
by the Fund violated any of the fiduciary responsibility provisions 
of Part 4 of Title I of the Act.
    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. 
Section 404(a) of the Act also states that a plan fiduciary should 
diversify the investments of a plan so as to minimize the risk of 
large losses, unless under the circumstances it is clearly prudent 
not to do so.
    In this regard, the Department is not providing any opinion as 
to whether a particular category of investments or investment 
strategy would be considered prudent or in the best interests of a 
plan as required by section 404 of the Act. The determination of the 
prudence of a particular investment or investment course of action 
must be made by a plan fiduciary after appropriate consideration to 
those facts and circumstances that, given the scope of such 
fiduciary's investment duties, the fiduciary knows or should know 
are relevant to the particular investment or investment course of 
action involved, including a plan's potential exposure to losses and 
the role the investment or investment course of action plays in that 
portion of the plan's portfolio with respect to which the fiduciary 
has investment duties (see 29 CFR 2550.404a-1). The Department also 
notes that in order to act prudently in making investment decisions, 
a plan fiduciary must consider, among other factors, the 
availability, risks and potential return of alternative investments 
for the plan. Thus, a particular investment by a plan, which is 
selected in preference to other alternative investments, would 
generally not be prudent if such investment involves a greater risk 
to the security of a plan's assets than other comparable investments 
offering a similar return or result.
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    4. On December 6, 1994, due to large trading losses in the Orange 
County Pool, the Issuer filed two voluntary petitions under Chapter 9 
of the Bankruptcy Code--one on behalf of the Issuer and the other on 
behalf of the Orange County Pool. Responding to these events, after 
written notice to participating investors, Boston Safe transferred the 
Notes to a liquidating account (the Liquidating Account) maintained on 
behalf of the participating investors then having an interest in the 
Fund. This transfer was effective December 6, 1994. As of such date, 
the seventeen employee benefit plans held approximately 15% of the 
interests in the Liquidating Account.
    Boston Safe states that placing the Notes in the Liquidating 
Account allowed for the continued operation of the Fund because the 
segregation of the Notes from the other assets in the Fund confined the 
potential investment losses resulting from the Notes to those investors 
participating in the Fund as of December 6, 1994. Boston Safe was able 

[[Page 40617]]
to continue to permit additions and withdrawals from the Fund at $1.00 
per share and investments in the Fund after December 6, 1994 were not 
affected by the Notes.
    5. Boston Safe determined that, as a result of the trading losses 
incurred by the Orange County Pool and the subsequent bankruptcy filing 
by the Issuer, the security for the Notes had become inadequate and 
that full repayment of the Notes was questionable. Boston Safe also 
determined that the purchase of the Notes by Boston Safe would be 
permissible under the regulations of the Office of the Comptroller of 
Currency relating to common trust funds. Therefore, in order to protect 
the Fund and the participating investors (including the employee 
benefit plans) having an interest in the Liquidating Account from 
potential investment losses, Boston Safe decided to purchase the Notes 
from the Fund. Notice of this resolution was given to the appropriate 
representative of each of the participating investors having an 
interest in the Liquidating Account by telephone prior to the date of 
the transaction.
    6. The purchase of the Notes was consummated on January 12, 1995 
when Boston Safe purchased the Notes from the Fund for a lump sum cash 
payment of $25,031,269. This sum represented the amortized cost of the 
Notes (i.e. $24,993,915) plus the accrued interest owing on the Notes 
(i.e. $37,354) as of January 12, 1995, the date of the transaction. 
Therefore, Boston Safe states that the amount received by the Fund for 
the Notes represented the book value of the Notes on the date of the 
sale. This amount reflected the discounts received by the Fund when it 
purchased the Notes at a price that was slightly less than the par 
value of the Notes. The amortized cost of the Notes was determined by 
Boston Safe using the standard accounting methods employed by the Fund.
    In this regard, Boston Safe used the straight-line method of 
amortization in calculating the amortized cost of the Notes as of 
January 12, 1995, the date of sale. The amortized cost of the Notes was 
determined using a series of computations.
    First, the discount on the Notes at purchase was calculated as the 
difference between the par value of the Notes (i.e., the principal 
amount which the Issuer is obligated to repay upon the maturity of the 
Notes) and the price at which the Fund originally purchased the Notes 
on August 1, 1994. Thus, $25,000,000 (par value) -$24,988,375 (purchase 
price) = $11,625 (discount).
    Second, in order to accrete the discount equally over the life of 
the Notes, Boston Safe computed the amount of the discount to be 
accreted on a daily basis by dividing the discount by the number of 
days the Fund anticipated holding the Notes (i.e., from August 1, 1994, 
the date of purchase, until maturity on July 10, 1995). Thus, $11,625 
(discount) divided by 342 (number of days) 2 = $33.99123 (daily 
accretion factor).

    \2\ For this purpose, Boston Safe represents that it is standard 
practice to determine the number of days by excluding the date of 
purchase and the date of maturity on the Notes.
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    Third, the accreted discount on the Notes as of January 12, 1995, 
the date of sale, was calculated by multiplying the daily accretion 
factor by the number of days the Fund had actually held the Notes on 
such date. Thus, $33.99123 (daily accretion factor)  x  163 (number of 
days) = $5,540 (accreted discount).
    Finally, the accreted discount was then added to the purchase price 
paid by the Fund for the Notes, with the final figure being the 
amortized cost of the Notes as of January 12, 1995. Thus, $5,540 
(accreted discount) + $24,988,375 (purchase price) = $24,993,915 
(amortized cost).
    7. Prior to the consummation of the transaction, Boston Safe 
obtained valuations of the Notes as of the date of the sale from two 
independent pricing services, Kenny S&P Evaluation Services, Inc., and 
Muller Data Corporation. Boston Safe states that these pricing services 
are the industry standards with respect to the pricing of municipal 
bonds. The valuations of the Notes obtained from these independent 
pricing services were 85.50 percent of par value and 86.40 percent of 
par value, respectively. On the basis of these valuations, Boston Safe 
determined that the purchase price paid by Boston Safe to the Fund 
exceeded the aggregate fair market value of the Notes as of the date of 
the transaction. The purchase price was paid to the Liquidating Account 
and then distributed to participating investors holding interests in 
the Liquidating Account.
    Boston Safe represents that the purchase price paid for the Notes 
was distributed to each of the participating investors in the 
Liquidating Account, including the employee benefit plans, based on 
their respective interests in that account. Such interests were 
determined based solely upon the relative values, including accrued 
interest on the Notes, of the investors' interests in the Fund on 
December 6, 1994. The value of an investor's interest in the Fund on 
December 6, 1994 was equal to the amounts deposited by or on behalf of 
the investor as of such date, plus its allocable share of the income of 
the Fund, less any withdrawals or distributions.
    8. Boston Safe, as trustee of the Fund, believed that the sale of 
the Notes to Boston Safe was in the best interests of the Fund, and the 
employee benefit plans invested in the Fund, at the time of the 
transaction. Boston Safe states that any sale of the Notes on the open 
market would have produced significant losses for the Fund and for the 
individual employee benefit plan investors involved. Boston Safe 
represents that the sale of the Notes by the Fund to Boston Safe 
benefitted the participating investors in the Fund having an interest 
in the Liquidating Account by placing such investors, including the 
employee benefit plans, in the same economic position they would have 
occupied absent the insolvency of the Issuer. The participating 
investors in the Fund benefitted further because the purchase price 
paid by Boston Safe for the Notes substantially exceeded the aggregate 
fair market value of the Notes, as determined by the two independent 
pricing services from whom valuations were obtained. In addition, 
Boston Safe states that the transaction was a one-time sale for cash in 
connection with which the Fund did not bear any brokerage commissions, 
fees, or other expenses.
    9. Boston Safe represents that it took all appropriate actions 
necessary to safeguard the interests of the Fund investors, including 
the employee benefit plans, in connection with the sale of the Notes. 
Boston Safe ensured that each Fund investor with interests in the 
Liquidating Account received the appropriate amount of cash from Boston 
Safe representing its respective interest in the Liquidating Account.
    10. Boston Safe states that the sale of the Notes by the Fund to 
Boston Safe resulted in an assignment of all of the Fund's rights, 
claims, and causes of action against the Issuer or any third party 
arising in connection with or out of the issuance of the Notes or the 
purchase of the Notes by the Fund. Boston Safe states further that if 
the exercise of any of the foregoing rights, claims or causes of action 
results in Boston Safe recovering from the Issuer or any third party an 
aggregate amount that is more than the sum of: (a) the purchase price 
paid for the Notes by Boston Safe (i.e. $25,031,269); (b) the original 
issue discount on the Notes which remained unamortized as of the date 
Boston Safe acquired the Notes 

[[Page 40618]]
from the Fund (i.e. $6085); 3 and (c) the interest due on the 
Notes from and after the date Boston Safe purchased the Notes from the 
Fund, at the rate specified in the Notes, Boston Safe will refund such 
excess amounts promptly to the Fund (after deducting all reasonable 
expenses incurred in connection with the recovery).

    \3\ This amount represents the difference between the original 
discount received by the Fund on the purchase of the Notes ($11,625) 
and the accreted discount received by the Fund for purposes of the 
sale of the Notes to Boston Safe at the amortized cost ($5,540). 
Thus, $11,625 - $5,540 = $6085.
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    11. In summary, the applicant represents that the transaction 
satisfied the statutory criteria of section 408(a) of the Act and 
section 4975 of the Code because: (a) The sale of the Notes by the Fund 
was a one-time transaction for cash; (b) the Fund received an amount 
equal to the amortized cost of the Notes, plus accrued but unpaid 
interest, at the time of sale, which was greater than the aggregate 
fair market value of the Notes as determined by independent pricing 
services at the time of sale; (c) the Fund did not pay any commissions 
or other expenses with respect to the sale; (d) Boston Safe, as trustee 
of the Fund, determined that the sale of the Notes was in the best 
interests of the Fund, and the employee benefit plans invested in the 
Fund, at the time of the transaction; (e) Boston Safe took all 
appropriate actions necessary to safeguard the interests of the Fund in 
connection with the transactions and ensured that each Fund investor 
having an interest in the Liquidating Account received the appropriate 
amount of cash representing its respective interest in the Liquidating 
Account; and (f) Boston Safe will promptly refund to the Fund any 
amounts recovered from the Issuer or any third party in connection with 
its exercise of any rights, claims or causes of action as a result of 
its ownership of the Notes, if such amounts are in excess of: (i) The 
purchase price paid for the Notes by Boston Safe (i.e. $25,031,269); 
plus (ii) the original issue discount on the Notes which remained 
unamortized as of the date Boston Safe acquired the Notes from the Fund 
(i.e. $6085); plus (iii) the interest due on the Notes from and after 
the date Boston Safe purchased the Notes from the Fund, at the rate 
specified in the Notes.

Notice to Interested Persons

    The applicant states that notice of the proposed exemption shall be 
made by first class mail to the appropriate plan fiduciaries for each 
employee benefit plan that was a Fund investor with an interest in the 
Liquidating Account at the time of the transaction. Notice to the plan 
fiduciaries shall be made within fifteen (15) days following the 
publication of the proposed exemption in the Federal Register. This 
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 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.)
Times Mirror Savings Plus Plan (the Plan) Located in Los Angeles, 
California; Proposed Exemption

[Application No. D-10019]
    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted the restrictions of sections 406(a) and 406 (b)(1) and 
(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 (1) the proposed extensions of 
credit (the Loans) to the Plan by the Times Mirror Company (the 
Employer), the sponsor of the Plan, with respect to three guaranteed 
investment contracts issued by Confederation Life Insurance Company of 
Canada (Confederation); (2) the Plan's potential repayment of the 
Loans; and (3) the potential purchase of the GICs from the Plan by the 
Employer for cash; provided the following conditions are satisfied:
    (a) All terms and conditions of the transactions are no less 
favorable to the Plan than those which the Plan could receive in arm's-
length transactions with unrelated parties;
    (b) No interest and/or expenses are paid by the Plan in connection 
with the transactions;
    (c) Repayment of the Loans will be restricted to the GIC Proceeds, 
defined as cash proceeds obtained by the Plan from Confederation, state 
guaranty funds, any successor to Confederation, or any other third 
party making payments with respect to the obligations of Confederation 
under the GICs;
    (d) Repayment of the Loans will be waived to the extent that the 
Loans exceed the GIC Proceeds; and
    (e) In any sale of the GICs to the Employer, the Plan will receive 
a purchase price which is the higher of (1) the fair market value of 
the GIC less any amounts previously received by the Plan with respect 
to the GIC, or (2) the value of the GIC as set forth in paragraph 6 of 
this Proposed Exemption, with such purchase price determination to be 
made by the Bank of America, the Plan's Trustee (the Trustee).

Summary of Facts and Representations

    1. The Plan is a defined contribution profit sharing plan which 
includes a cash or deferred arrangement which is intended to qualify 
under sections 401(a) and 401(k) of the Code. In addition to salary 
deferral contributions, the Plan provides for voluntary participant 
contributions and Employer matching contributions from company profits. 
The employees eligible to participate in the Plan are employees of the 
Employer and seventeen subsidiaries including the Baltimore Sun 
Company, Matthew Bender & Company, Newsday, Inc., and the Sporting News 
Publishing Company. The Plan currently has approximately 17,600 
participants, and Plan assets totalled $397.9 million as of December 
31, 1994.
    Individual participant accounts are maintained within the Plan. The 
Plan also holds accounts attributable to a payroll-based tax credit 
employee stock ownership plan on behalf of certain participants (PAYSOP 
Accounts), although no contributions have been made to the PAYSOP 
Accounts with respect to participant compensation paid after December 
31, 1986. The PAYSOP Accounts are invested in Employer stock. All other 
accounts are invested at the direction of individual Plan participants 
among five investment funds, one of which is the Income Fund. The 
Income Fund invests in fixed income contracts, including the GICs, and 
short-term marketable securities. As of December 31, 1994, the Income 
Fund had assets of $103.4 million, and 9,473 Plan participants had a 
portion of their account balances invested in the Income Fund.
    The Employer is the Plan administrator and named fiduciary under 
the Act. The Employer's authority to control and manage the Plan is 
delegated to the Retirement Plan Administrative Committee, the members 
of which are appointed by the Retirement Plan Committee, a sub-
committee of the Board of Directors of the Employer. The assets of the 
Plan are held in Trust by the Bank of America. Investment authority is 
held by the 

[[Page 40619]]
Retirement Plan Committee which may invest Plan assets or may appoint 
an investment manager or managers. In any event, the Retirement Plan 
Committee is charged with the responsibility to monitor the investment 
performance of Plan assets.
    2. The Employer is organized under the laws of the state of 
Delaware with its principal offices located in Los Angeles, California. 
It is publicly owned, and its shares are traded on the New York Stock 
Exchange. The Employer's primary business activities are newspaper 
publishing and the publication of professional information.
    3. Among the assets of the Income Fund are the three GICs issued by 
Confederation. The GICs were purchased in April 1990, June 1990 and 
April 1991. Each of the GICs has a length of five years, and have 
interest rates of 9.43%, 9.21%, and 8.38% respectively. The GICs 
purchased in June 1990 and April 1991 permit benefit responsive 
withdrawals to fund benefit payments, investment fund transfers and 
hardship and other in-service withdrawals. The GIC purchased in April 
1990 does not permit withdrawals without penalty. The terms of each GIC 
provide that a payment is to be made to the Plan each year consisting 
of the interest earned for the year less any withdrawals during the 
year. All interest payments due from Confederation through 1994 have 
been paid to the Plan. A final payment of principal and interest is due 
on the maturity date of each GIC. The final payment on the GIC 
purchased in April of 1990 was due on April 12, 1995, and the final 
payment on the GIC purchased in June of 1990 was due on July 1, 1995. 
Such payments have not been made by Confederation, nor has 
Confederation paid the April 1995 interest payment due on the GIC 
purchased in April 1991. As of August 12, 1994 the three GICs had a 
total book value (principal payments plus accrued interest) of $7.14 
million.
    4. On August 11, 1994, Canadian insurance company regulators seized 
the assets of Confederation. On the following day, the State of 
Michigan Insurance Commissioner seized the U.S. assets of Confederation 
and commenced legal action to place the U.S. operations of 
Confederation in a rehabilitation proceeding.4 As a result of 
these actions, withdrawals and interest payments have been suspended, 
except to the extent the Plan holds a benefit-responsive contract. In 
the latter case, the Plan may withdraw up to 1.5% of the contract value 
each year for the purpose of making participant-requested withdrawals. 
A Special Deputy Rehabilitator (the Rehabilitator) has been appointed 
by the State of Michigan to oversee the rehabilitation of 
Confederation. The Rehabilitator will set the interest rate to be paid 
on Confederation contracts following the seizure by the Michigan 
authorities. The applicant represents that it is not possible to 
determine the extent to which earnings under the Rehabilitation Plan 
will fall short of the interest rates stated in each GIC, when interest 
and maturity payments will resume, and the extent to which the Plan 
will suffer a loss of principal. In order to relieve the uncertainty 
with respect to the GICs, and to prevent losses that may result from 
the Rehabilitation of Confederation, the Employer proposes to enter 
into the transactions described below.

    \4\ The Department notes that the decisions to acquire and hold 
the GICs are governed by the fiduciary responsibility provisions of 
Part 4 of Title I of the Act. In this proposed exemption, the 
Department is not proposing relief for any violations of Part 4 
which may have arisen as a result of the acquisition and holding of 
the GICs.
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    5. The Employer proposes to make Loans to the Plan pursuant to a 
written agreement (the Agreement) under which the Loans will be non-
interest bearing and non-recourse against the Plan and its participants 
and beneficiaries, except for the GIC Proceeds. In addition, the Plan 
will incur no expenses related to the Loans. The Loans will be made 
over at least the remaining terms of the GICs to fund any withdrawals, 
including investment fund transfers, and hardship and other in-service 
withdrawals, (offset by amounts paid for withdrawals by Confederation, 
see 4 above). In addition, the Employer will make Loans to enable the 
Income Fund to receive the interest payments due under the GICs. 
Interest through October 31, 1994, will be calculated at the rate 
specified in each GIC. Interest from November 1, 1994 until the date 
the Rehabilitator announces an interest rate for the GICs will be a 
Market Rate of interest described below. Interest for the period 
following the Rehabilitator's announcement will be at the rate set by 
the Rehabilitator. The Market Rate of interest for each month will be 
the rate reported for one year GICs in the Wall Street Journal on the 
last business day of the prior month. If the interest rate announced by 
the Rehabilitator exceeds the Market Rate, the Employer will advance 
the difference for the period the Market Rate was used. Further, the 
Employer may, at any time, lend the Plan the entire amount of principal 
and interest, as computed above, due under the GICs to allow the Plan 
to reinvest the proceeds and increase the return to Plan participants.
    The Agreement also provides that repayment may only be made from 
the GIC Proceeds. To the extent the GIC proceeds are insufficient to 
repay the Loans, repayment will be waived by the Employer.
    6. In addition to the Loans, the Agreement provides that Employer 
may purchase the GICs from the Plan. Upon the maturity date of each 
GIC, the Employer has the option of continuing to make the Loans to 
fund withdrawals and interest payments or to purchase the GICs as 
described herein. Within 60 days of the latest of: (a) The maturity 
date of the GIC; (b) the announcement of the Rehabilitation interest 
rate, or (c) the date of grant of this proposed exemption; the Employer 
may purchase each GIC from the Plan for the principal amount of each 
GIC plus interest at the contract rate through October 31, 1994, and 
the higher of the Market Rate or the Rehabilitation Rate from November 
1, 1994 through the date of sale, less previous withdrawals and 
outstanding Loans (exclusive of Loans made to fund withdrawals) with 
respect to that GIC. In no event will the sales price for each GIC be 
less than the fair market value of the GIC less amounts previously 
received by the Plan with respect to the GIC.
    7. The Trustee has determined that the proposed transactions are in 
the best interests of the Plan and its participants and beneficiaries. 
Further, should the Employer decide to purchase the GICs, such purchase 
price will be the higher of (a) the fair market value of the GICs (less 
amounts previously received by the Plan), or (b) the value as computed 
in 6. above, as determined by the Trustee.
    8. In summary, the Employer represents that the proposed 
transactions satisfy the criteria of section 408(a) of the Act for the 
following reasons: (a) The transactions will enable the Plan to recover 
all amounts due with respect to the GICs; (b) the Loans will able the 
Plan to resume the ability to fund benefit payments, participant loans, 
hardship withdrawals and investment fund transfers within the Plan; (c) 
repayment of the Loans will be restricted to the GIC proceeds; (d) 
repayment will be waived to the extent the Loans exceed the GIC 
proceeds; (e) no interest or expenses will be incurred by the Plan with 
respect to the transactions; and (f) the Trustee has determined that 
the proposed transactions are in the best interests of the Plan and its 
participants and beneficiaries, and in the event of a 

[[Page 40620]]
sale of the GICs to the Employer, the price will be determined by the 
Trustee.

NOTICE TO INTERESTED PERSONS: Notice to interested persons will be 
provided within 30 days of the date of publication of this Notice in 
the Federal Register. Comments and requests for a hearing are due 60 
days from the date of publication of this Notice.

FOR FURTHER INFORMATION CONTACT: Charles S. Edelstein of the 
Department, (202) 219-8881. (This is not a toll-free number.)
Acushnet Company Employee Savings Plan (the Plan) Located in Fairhaven, 
Massachusetts; Proposed Exemption

[Application No. D-10026]
    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted, the restrictions of sections 406(a) and 406(b)(1) and 
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, shall not apply to the proposed cash sale by 
the Plan of guaranteed investment contract No. GA-5244 (the GIC) issued 
by Mutual Life Insurance Company of New Jersey (Mutual Benefit), to the 
Acushnet Company (the Employer), a Delaware corporation and a party in 
interest with respect to the Plan, provided the following conditions 
are met: (1) The sale is a one-time transaction for cash; (2) the Plan 
experiences no loss and incurs no expense from the sale; (3) the Plan 
receives as consideration for the sale the greater of either (a) the 
fair market value of the GIC on the date of the sale, or (b) the 
accumulated book value of the GIC as set forth in paragraph 3 of this 
Notice, with such determination to be made by the State Street Bank and 
Trust Company, the Plan fiduciary with respect to the GIC.

Summary of Facts and Representations

    1. The Employer is a Delaware corporation with its principal 
offices in Fairhaven, Massachusetts. It is a wholly- owned subsidiary 
of American Brands, Inc. a publicly held corporation whose stock is 
traded on the New York Stock Exchange. The Employer is engaged in the 
manufacture and distribution of golf balls, golf shoes, gloves and 
related products.
    2. The Plan is a defined contribution plan with individual accounts 
for Plan participants which is intended to qualify under sections 
401(a) and 401(k) of the Code. Participants have the right to self 
direct the investment of the assets in their individual accounts. Plan 
assets totaled $70.6 million as of February 28, 1995. Also as of 
February 28, 1995, there were 2,183 Plan participants and beneficiaries 
who will be affected by the proposed transaction.
    Prior to July 1, 1991, the Plan permitted investments in two 
investment funds. One of the investment funds, the Fixed Fund, was 
invested in several guaranteed investment contracts including the GIC 
issued by Mutual Benefit. The GIC was purchased effective December 1, 
1990, with a maturity date of September 30, 1992, and an interest rate 
of 8%. The GIC was to be paid in full by Mutual Benefit on its maturity 
date. The GIC represented approximately 10% of the Fixed Fund's assets. 
Effective July 1, 1991, the Plan was amended to transfer the GIC from 
the Fixed Fund to a new investment fund called the Frozen Mutual 
Benefit GIC Fund (the Frozen GIC Fund). The sole asset of the Frozen 
GIC Fund is the GIC which is the subject of this proposed exemption. 
The Plan was also amended to prohibit: (1) Investments into the Frozen 
GIC Fund; (2) investment transfers from the Frozen GIC Fund into other 
investment funds; and (3) withdrawals from the Frozen GIC Fund for loan 
requests. On April 1, 1992, the Fixed Fund was discontinued and six new 
funds were made available to Plan participants for the investment of 
their individual accounts.
    3. On July 16, 1991, the New Jersey Department of Insurance took 
control of Mutual Benefit pursuant to an order of the Superior Court of 
New Jersey. The court imposed a moratorium on cash withdrawals from 
Mutual Benefit's GICs.5 On November 10, 1993, the New Jersey 
Superior Court approved a rehabilitation plan for Mutual Benefit (the 
Rehabilitation Plan). On April 29, 1994, the GIC was restructured and 
transferred to MBL Life Assurance Corporation (MBLLAC). Pursuant to the 
Rehabilitation Plan, principal payments with respect to the GIC will 
generally not be made until December 31, 1999, a lower rate of interest 
will be credited on the GIC for periods after December 31, 1991 than is 
guaranteed under the terms of the GIC and interest will be credited 
each year after 1994 based on MBLLAC's investment performance.

    \5\ The Department notes that the decision to acquire and hold 
the GIC is governed by the fiduciary responsibility provisions of 
Part 4, Subtitle B, Title I of the Act. In this regard, the 
Department is not herein proposing relief for any violations of Part 
4 which may have arisen as a result of the acquisition and holding 
of the GIC by the Plan.
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    In lieu of subjecting participants of the Plan to the investment 
risks associated with retaining the GIC, and to permit the participants 
to redirect the funds invested in the Mutual Benefit GIC to safer 
investments without loss to the individual accounts of the participants 
in the Plan, the Employer proposes to purchase the GIC from the 
Plan.6 In this regard, the Employer proposes to pay the Plan, in a 
one-time cash sale transaction, an amount that is not less than the 
accumulated book value of the GIC, which was $3,722,435 as of May 31, 
1995. The accumulated book value is the total amount paid by the Plan 
for the GIC plus interest, less prior withdrawals. Interest will be 
calculated at the contract rate of 8% until September 30, 1992 which 
was the maturity date of the GIC. For the period beginning on October 
1, 1992 through December 31, 1992, interest will be credited at a rate 
equal to 4%. For the period beginning on January 1, 1993 through 
December 31, 1994, interest will be credited at an annual rate equal to 
3.5%. For 1995, interest will be credited at 3.55%. The rates of 
interest for periods after the maturity date of the GIC are the rates 
applicable to the GIC for those periods according to the Rehabilitation 
Plan. No expenses will be incurred by the Plan for the proposed 
transaction. In no event will the purchase price be less than the fair 
market value of the GIC on the date of sale.

    \6\ The applicant previously applied for an administrative 
exemption to permit the Employer to make interest-free loans to the 
Plan which would enable the Plan to make benefit distributions to 
Plan participants (Exemption Application D-9146). The Department 
responded by letter dated August 5, 1992, that such loans may be 
encompassed by Prohibited Transaction Class Exemption (PTCE) 80-26 
(45 FR 28545, April 29, 1980), and thus to the extent the 
transactions satisfy the conditions of PTCE 80-26, an administrative 
exemption is not necessary. The applicant represents that the 
Employer has not implemented the interest-free loan program 
described in application D-9146.
    4. The State Street Bank and Trust Company of Boston, 
Massachusetts, (State Street) which was the Plan trustee at the time 
the GIC was purchased, is the current Plan fiduciary with respect to 
the GIC. At the time of the consummation of the transaction, State 
Street as Plan fiduciary will determine the purchase price for the GIC 
with such price to be the higher of (a) The fair market value of the 
GIC, or (b) the accumulated book value of the GIC as described in 3. 
above.
    5. In summary, the applicant represents that the proposed 
transaction will satisfy the criteria of section 408(a) 

[[Page 40621]]
of the Act because: (a) The proposed transaction is a one-time 
transaction for cash; (b) the proposed transaction will enable the Plan 
and its participants and beneficiaries to avoid any risks associated 
with the continued holding of the GIC; (c) the Plan will receive the 
higher of: (1) The fair market value of the GIC or (2) the accumulated 
book value of the GIC, with such determination be made by State Street; 
and (d) the Plan will not incur any expenses or loss from the proposed 
transaction.

FOR FURTHER INFORMATION CONTACT: Charles S. Edelstein of the 
Department, telephone (202) 219-8881. (This is not a toll-free number.)

New Bedford Institution for Savings Employee Stock Ownership Plan (the 
Plan) Located in New Bedford, Massachusetts; Proposed Exemption

[Application No. D-10033]
    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted, the restrictions of sections 406(a), 406 (b)(1) and (b)(2), 
and 407(a) 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 past acquisition and 
holding by the plan of certain stock warrants (the Warrants) in 
connection with a merger (the Merger) of NBB Bancorp, Inc. (NBB), the 
parent company of the Plan's sponsor, New Bedford Institution for 
Savings (NBB Bank), with Fleet Financial Group, Inc. (Fleet), provided 
the following conditions were satisfied: (a) The Plan's acquisition and 
holding of the Warrants occurred in connection with the Merger pursuant 
to which (i) all shares of common stock of NBB (NBB Stock) were 
converted, at the election of the shareholder, into cash or shares of 
common stock of Fleet (Fleet Stock) and (ii) each shareholder received 
0.28 Warrants for each share of NBB Stock; (b) the acquisition and 
holding of the Warrants resulted from the independent action of NBB as 
a corporate entity, and all holders of NBB Stock, including the Plan, 
were treated in the same manner with respect to the Merger; and (c) the 
Warrants were automatically issued to the Plan, which made no 
affirmative election to acquire the Warrants.

Effective Date: If the proposed exemption is granted, the exemption 
will be effective January 27, 1995.

Summary of Facts and Representations

    1. The Plan is an employee stock ownership plan which, prior to the 
Merger, was maintained by NBB Bank, a Massachusetts savings bank and 
wholly owned subsidiary of NBB, a Delaware corporation. As of September 
30, 1994, the Plan had 349 participants and total assets of 
approximately $7 million. As of that date, the assets of the Plan 
consisted of NBB Stock and cash.7 The Plan is administered by a 
committee (the ESOP Committee) which, prior to the Merger, was 
appointed by the Board of Directors of NBB Bank and is currently 
composed of members appointed by Fleet Bank of Massachusetts, N.A. 
(Fleet Bank). The trustee of the Plan is Investors Bank and Trust 
Company (the Trustee), a Massachusetts trust company.

    \7\ The applicant represents that the NBB Stock constituted 
``qualifying employer securities'' within the meaning of section 
407(d)(5) of the Act, and therefore, the Plan's ownership of such 
stock satisfied the requirements of section 407(a) of the Act. In 
this proposed exemption, the Department expresses no opinion as to 
whether the requirements of section 407 of the Act were satisfied.
---------------------------------------------------------------------------

    2. Fleet is a Rhode Island corporation which is parent company to a 
number of direct and indirect wholly-owned subsidiary banks, including 
Fleet Bank. On May 9, 1994, Fleet entered into an Agreement and Plan of 
Merger with NBB (the Agreement), providing for the Merger. As part of 
the Merger, Fleet Bank and NBB Bank entered into a separate merger 
agreement providing for the merger of NBB Bank with and into Fleet 
Bank. As a result of the Merger, Fleet Bank became the sponsor of the 
Plan.8

    \8\ The applicant represents that each shareholder of NBB Bank, 
including the Plan, was entitled to vote on the Merger. The right to 
vote the Plan's NBB Stock was passed through to the participants.
---------------------------------------------------------------------------

    3. Under the terms of the Agreement, on the effective date of the 
Merger, January 27, 1995 (the Effective Date), each share of NBB Stock 
issued and outstanding immediately prior to the Effective Date (except 
treasury shares, shares held by NBB, Fleet or any of their subsidiaries 
in a fiduciary capacity or as collateral for a debt, and certain 
dissenting shares) was converted, at the election of the shareholder, 
into either cash in the amount of $48.50 or 1.457 shares of Fleet 
Stock. Each shareholder also received 0.28 Warrants for each share of 
NBB Stock. Each Warrant confers upon its holder the right to acquire 
one share of Fleet Stock at a purchase price of $43.875. Warrants may 
be exercised at any time during the five-year period commencing on the 
first anniversary of the Effective Date. The Warrants are treated as 
separate securities under federal securities laws and are traded on the 
New York Stock Exchange separately from Fleet Stock. The applicant 
represents that the Warrants and Fleet Stock issued in connection with 
the Merger were issued pursuant to an appropriate registration 
statement filed with the U.S. Securities and Exchange Commission prior 
to the Effective Date.
    4. The applicant represents that immediately prior to the Effective 
Date, the Plan held 126,061 shares of NBB Stock, all of which were 
allocated to participants' accounts under the Plan. The Plan's holdings 
represented approximately 1.3% of the total issued and outstanding 
shares of NBB Stock.
    5. The terms of the Agreement required the termination of the Plan 
upon the consummation of the Merger.9 In preparation for the 
termination of the Plan, and the subsequent distribution of the 
participants' accounts, NBB Bank amended the Plan to permit the 
participants to direct the Trustee to exchange the NBB Stock allocated 
to their Plan accounts for cash, Fleet Stock or a combination thereof 
in accordance with the terms of the Agreement. The applicant represents 
that in order to avoid a prohibited transaction under section 406(a)(2) 
of the Act, the Plan was also amended to direct the Trustee to sell the 
Warrants received by the Plan as soon as practicable.10

    \9\ The applicant represents that the Plan was terminated 
effective September 30, 1994. The termination was approved by the 
Internal Revenue Service by letter dated June 12, 1995. The Plan 
currently is in the process of distributing its assets to the 
participants and beneficiaries.
    \10\ In this regard, we note that although Plan provisions 
directed the Trustee to sell the Warrants, the Department has taken 
the position that a trustee may follow such plan provisions only to 
the extent permitted by section 404(a)(1)(D) of the Act, i.e., 
insofar as such plan provisions are consistent with the provisions 
of Titles I and IV of the Act. For example, if a conflict between 
the prudence standard and plan provisions occurs, section 
404(a)(1)(D) requires that plan provisions give way to the statutory 
requirements. Thus, in this case, the Trustee was responsible for 
determining, among other things, whether following such provisions 
would result in an investment decision which would be prudent for 
the Plan and would produce a result which would be for the exclusive 
purpose of providing benefits to the Plan participants and 
beneficiaries.
---------------------------------------------------------------------------

    6. Prior to the Effective Date, each participant in the Plan 
received written information concerning his/her right to elect cash or 
Fleet Stock in exchange for the NBB Stock allocated to his/her account, 
and an election form to be returned to the ESOP Committee.11 The 

[[Page 40622]]
Plan acquired 51,116 shares of Fleet Stock and cash in the amount of 
$4,412,384 as a result of the Merger.12 The Plan also acquired 
35,295 Warrants. The applicant represents that the Warrants were 
automatically issued to each shareholder of NBB Stock in connection 
with the Merger on January 27, 1995. Thus, the Plan did not make any 
affirmative decision to accept the Warrants. Pursuant to the terms of 
the Plan as amended, the Warrants were sold by the Trustee in a blind 
transaction on the open market on April 7, 1995, for a price equal to 
$4.428 per Warrant or $156,301.50 in the aggregate. This amount was 
allocated among the Plan participants' accounts in the same proportion 
as the NBB Stock held in a participant's account immediately prior to 
the Effective Date bore to the total NBB Stock held by the Plan at such 
time.

    \11\ Out of over 300 Plan participants, only 14 failed to make 
an election. As to these participants, the ESOP Committee directed 
that they be treated in the same manner as non-Plan holders of NBB 
Stock who made no election. Accordingly, like the non-Plan holders 
of ``no election'' shares, these participants received Fleet Stock 
in connection with the Merger pursuant to provisions in the 
Agreement requiring that a minimum amount of Fleet Stock be issued 
in connection with the Merger and establishing a procedure for 
allocating such Stock among the holders of NBB Stock.
    \12\ The applicant represents that the Fleet Stock constitutes 
``qualifying employer securities'' within the meaning of section 
407(d)(5) of the Act and, therefore, the Plan's ownership of Fleet 
Stock satisfies the requirements of section 407(a) of the Act. In 
this proposed exemption, the Department expresses no opinion as to 
whether the requirements of section 407(a) of the Act are satisfied.
---------------------------------------------------------------------------

    7. In summary, the applicant represents that the subject 
transaction satisfied the criteria contained in section 408(a) of the 
Act because: (a) The Plan's acquisition and holding of the Warrants 
resulted from an independent action of NBB as a corporate entity; (b) 
all holders of NBB Stock, including the Plan, were treated in the same 
manner in connection with the Merger; and (c) the Warrants were 
automatically issued to the Plan, which made no affirmative election to 
acquire the Warrants.

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 4th day of August, 1995.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 95-19663 Filed 8-8-95; 8:45 am]
BILLING CODE 4510-29-P