95-16063. Proposed Exemptions; Retirement Plan for Employees of United Jewish Appeal-Federation of Jewish Philanthropies of New York and Affiliated Agencies and Institutions (the Plan)

[Federal Register Volume 60, Number 125 (Thursday, June 29, 1995)]
[Notices]
[Pages 33859-33872]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16063]

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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-09582, et al.]

Proposed Exemptions; Retirement Plan for Employees of United
Jewish Appeal-Federation of Jewish Philanthropies of New York and
Affiliated Agencies and Institutions (the Plan)

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

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

Written Comments and Hearing Requests

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

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

[[Page 33860]]

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.

Retirement Plan for Employees of United Jewish Appeal-Federation of
Jewish Philanthropies of New York, Inc. and Affiliated Agencies and
Institutions (the Plan) Located in New York, New York

[Application No. D-09582]

Proposed Exemption

The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR part
2570, subpart B (55 FR 32836, 32847, August 10, 1990.) If the exemption
is granted, the restrictions of sections 406(a), 406(b)(1) and (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 effective May 29, 1990, to the past purchase and
sale of certain securities (the Securities) on May 29, 1990, between
the Plan and the endowment fund (the Fund) of the United Jewish Appeal-
Federation of Jewish Philanthropies of New York, Inc. (the Federation),
a sponsor of the Plan and a party in interest with respect to the Plan;
provided that the following conditions are satisfied:
(a) The transfer of the Securities was a one-time cash transaction;
(b) The transaction was at fair market value as determined by the
closing prices on May 25, 1990, on the New York Stock Exchange (NYSE)
and the American Stock Exchange (AMEX);
(c) The Plan paid no commissions with respect to the transaction;
(d) The Federation determined upon consultation with Delaware
Investment Advisors (Delaware) to engage in the transaction;
(e) The Securities transferred from the Fund to the Plan were all
listed on either the NYSE or AMEX, and constituted exactly a 50% pro
rata share of all the securities then owned by the Fund; and
(f) Over a three plan year period, the Federation will contribute
$513,009.39 to the Plan to make up the loss sustained by the Plan when
the Securities were sold out of the Plan portfolio.

EFFECTIVE DATE: If granted this exemption will be effective as of May
29, 1990.

Summary of Facts and Representations

1. The Plan is a defined benefit multiple employer plan. As of
September 30, 1993, the Plan had $76,919,425 million in net assets, and
as of October 1, 1994, the Plan had approximately 5634 participants.
Chemical Bank (formerly Manufacturers Hanover Trust Company) is the
Plan's trustee.
2. The Federation is a not-for-profit corporation which is exempt
from federal tax under section 501(c)(3) of the Code. The Federation is
a private, local voluntary human service organization. The Fund is a
special general asset account of the Federation.^{1

\1\ The Federation's consolidated assets are composed of amounts
received from donor-created endowments and funds designated by the
Federation's Board of Directors to provide for the Federation's
long-term needs.
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3. The investment committee (the Investment Committee) of the
Federation appoints investment managers to manage the Fund's and the
Plan's assets. The members of the Investment Committee are appointed by
the Board of Directors of the Federation. Delaware Investment Advisors
(Delaware), a division of Delaware Management Company Inc., served as
an investment manager for the Fund from 1983 through January of 1993,
and managed the Fund's assets of approximately $30 million. Fiduciary
Trust Co. was the custodian for this account.
4. The applicant represents that early in 1990, the Investment
Committee decided that it wanted to hire Delaware to replace another
investment manager, Delphi Management (Delphi), with respect to the
management of approximately $10 million of the Plan's assets. At that
time, the Investment Committee also determined that the total amount of
the Federation related assets, including the assets of the Plan and the
Fund, managed by any one investment manager should be limited. This
would limit the risk to the portfolios of the Fund and the Plan and
further protect the Federation, which as the Plan sponsor was
ultimately responsible for any losses to the Plan. Because Delaware was
already managing a desired maximum level of the Fund's assets, it was
determined that one half of this desired maximum should be managed by
Delaware for the Plan and one half managed by Delaware for the Fund.
Fees charged by Delaware for its investment management services
consisted of an annual charge (billed in quarterly installments) based
upon the amount of assets under management.
5. In April of 1990, James L. Rothkopf (Mr. Rothkopf), the chief
financial officer of the Federation, informed Delaware that the
Investment Committee wanted a portion of the Plan's assets at that time
managed by Delphi, to be invested with Delaware. Mr. Rothkopf also
indicated that to keep the total Federation related assets under
Delaware management at the same level, the Fund investment with
Delaware would be reduced to one-half the previous level and that one-
half of the Fund's investments would be transferred pro-rata to the
Plan portfolio. Delaware indicated to the Investment Committee that it
wanted the Plan's portfolio to be virtually identical to the Fund's
portfolio.
6. The purchase of Securities by the Plan from the Fund took place
on May 29, 1990, at the direction of the Assistant Comptroller of the
Federation. In order to accomplish the prescribed allocation, and to
avoid the Plan paying any commissions on the acquisition of the
Securities, approximately fifty percent (50%) of the amount of each
Security held in the Fund portfolio was transferred from Fiduciary
Trust Co., custodian for the Fund, into the Plan account at
Manufacturers Hanover Trust Company, the custodian of the Plan's
assets, and cash representing the fair market value of these Securities
($10,577,756.77) was transferred to a portion of the Fund asset
portfolio not

[[Page 33861]]
managed by Delaware. All the Securities involved in the transaction
were securities of companies listed on the NYSE, with the exception of
one Security listed on the AMEX. The fair market value of the
Securities was determined by using the exchanges' closing prices on
Friday, May 25, 1990. It is represented that the Plan did not pay any
fees related to the subject transaction.
7. The applicant represents that the actual transfer of the
Securities took place on Tuesday, May 29, 1990, because the prior
business day Monday, May 28 was a legal holiday and therefore, there
was no trading. The applicant represents that the closing price of the
Securities on Friday, May 25, 1990, was effectively equal to the
opening price of the Securities on Tuesday, May 29, 1990. Upon
completion of the transaction, the Plan held legal title to the
Securities acquired from the Fund. It is represented that at the time
of the transfer, approximately 17% of the Plan's assets were involved
in the transaction.
8. Delaware represents that the Federation consummated the
transaction upon facilitation by Delaware and approved the transfer of
the Securities from the Fund to the Plan. In an affidavit submitted to
the Department, Mr. Rothkopf of the Federation stated that Mr. Marion
Dixon, a former money manager with Delaware who was responsible for the
Fund portfolio and subsequently for the Plan portfolio, advised him
that the initial Plan portfolio should represent 50 percent (50%) of
the existing Fund portfolio. This would enable the Fund and the Plan to
have identical investment portfolios, thereby achieving the portfolio
structures desired by Mr. Dixon, and would also save brokerage
commissions. Delaware represents that Mr. Dixon agreed that the initial
portfolio for the Plan should contain substantially the same securities
as were in the Fund portfolio at that time. Delaware represents that
they were of the opinion then, as well as now, that the transfer
transaction was in the best interest and protective of the Plan.
9. The applicant states that between June 1990 and January 1993,
Delaware sold all the Securities purchased by the Plan in the
transaction subject to this exemption request. The determination of
gains and losses on the sale of the Securities by the Plan was
calculated on a ``first in first out'' basis. The total difference
between the aggregate purchase price of the Securities by the Plan and
the aggregate sale price of the Securities by the Plan, was an
aggregate loss of $513,009.39. The applicant maintains that the Plan
portfolio was a managed portfolio with transactions not necessarily
based on individual stock profit or loss positions, but based on the
portfolio's desired position. As such, stock was sold for a number of
reasons, including availability of stock with a better return potential
or less downside risk, diversity, cyclical markets, and a variety of
other factors. In this regard, stocks were often sold prior to a profit
realization because preferable alternative investments were available
or concentrations of stock needed to be changed. However, the applicant
represents that the Federation is now prepared to contribute to the
Plan an amount equal to $513,009.39 over a three plan year period (the
Contribution), in order to make up for the loss to the Plan. The
Contribution will be made at the same time that the last installment of
each annual contribution is made to the Plan for the applicable plan
year.
10. The applicant represents that subsequent to the transaction,
both the Plan and the Federation were audited by a ``Big Six''
accounting firm, and the transaction was not identified by the auditors
as being prohibited during either audit. In the summer of 1993, counsel
for the Federation contacted the law firm of Proskauer Rose Goetz &
Mendelson ^{2 (PRG&M) to discuss the Fund's and the Plan's claims in
a class action settlement against the issuer of one of the Securities
involved in the subject transaction. When the facts of the transaction
surfaced in the discussion, it was questioned whether a prohibited
transaction had occurred as a result of the Plan's purchase of the
Securities from the Fund. PRG&M then commenced an investigation of the
facts surrounding the transaction and the ERISA provisions involved.
The applicant then filed an exemption request in this matter.

^{2 This law firm was not counsel to the Federation nor the
Plan at the time of the transaction.
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11. The applicant has requested retroactive relief for the
transaction which occurred on May 29, 1990, noting, among other things
that: (1) The transaction was a one-time transfer of the Securities for
cash; (2) the transaction was in the interest and protective of the
Plan because the Plan was able to acquire the Securities at fair market
value and not pay any commissions; and (3) the Securities represented a
well-diversified portfolio of stock of recognized companies.
12. In summary, the applicant represents that the transaction
satisfies the statutory criteria of section 408(a) of the Act and
section 4975(c)(2) of the Code because:
(a) The transfer of the Securities was a one-time cash transaction;
(b) The transaction was at fair market value as evidenced by the
closing prices on May 25, 1990 on the NYSE and the AMEX;
(c) The Plan paid no commissions with respect to the transaction;
(d) The Federation determined upon consultation with Delaware to
engage in the transaction;
(e) The Securities transferred from the Fund to the Plan were all
listed on either the NYSE or AMEX and constituted exactly a 50% pro
rata share of all the securities then owned by the Fund; and
(f) Over a three plan year period, the Federation will contribute
$513,009.39 to the Plan to make up the loss sustained by the Plan when
the Securities were sold out of the Plan portfolio.

FOR FURTHER INFORMATION CONTACT: Ekaterina A. Uzlyan of the Department
at (202) 219-8883. (This is not a toll-free number.)

General Motors Hourly-Rate Employes Pension Plan, General Motors
Retirement Program for Salaried Employees (the Salaried Plan), Saturn
Individual Retirement Plan for Represented Team Members, Saturn
Personal Choices Retirement Plan for Non-Represented Team Members, and
Employees' Retirement Plan for GMAC Mortgage Corporation (collectively,
the Plans) Located in New York, New York

[Application Nos. D-09859 through D-09863]

Proposed Exemption

[[Page 33862]]
could obtain in an arm's-length transaction with an unrelated party;
(B) Metropolitan is not, and has not been, a fiduciary with respect
to any assets of the Plans involved in the transaction;
(C) The transaction was a one-time transaction for cash in which
the purchase price did not exceed the fair market value of the
Interests;
(D) The methodology for determining the fair market value of the
Interests was in accordance with standards maintained by professional
venture capital valuation specialists for the valuation of limited
partnership interests in venture capital partnerships; and
(E) Metropolitan did not participate in the Plans' determination of
the fair market value of the Interests.

EFFECTIVE DATE: This exemption, if granted, will be effective as of
April 9, 1994.

Summary of Facts and Representations

Introduction: In April 1994, the Plans acquired limited partnership
interests (the Interests) in A.P. Excelsior III, Limited Partnership
(the Partnership) from Metropolitan Life Insurance Company
(Metropolitan). This transaction occurred without a determination
having been made that Metropolitan was a party in interest with respect
to the Plans. Subsequently, the parties discovered that the entity from
which the Plan acquired the Interests, Metropolitan, is a service-
provider party in interest with respect to certain of the Plans, and an
exemption is now requested for the Plans' past acquisition of the
Interests from Metropolitan, under the terms and conditions described
herein.
1. The Plans are defined benefit and defined contribution employee
benefit plans maintained by General Motors Corporation and its
affiliates (GM), with approximately 831,530 participants as of October
1, 1994. The approximate fair market value of the total assets of the
Plans as of May 31, 1994 was $41 billion. The assets of the Plans are
maintained in two trusts (the Plans' Trusts): The General Motors
Salaried Employees Pension Trust, which holds the assets of the
Salaried Plan, and the General Motors Hourly-Rate Employees Pension
Trust, which holds the assets of the other four Plans. The named
fiduciary with respect to each Plan is the Finance Committee of the
board of directors of GM (the Finance Committee).
2. The Finance Committee has delegated certain fiduciary
responsibilities to the Pension Investment Committee (the PIC),
including the responsibility for allocating funds among asset classes
in accordance with broad investment guidelines established by the
Finance Committee and overseeing in-house investing for a portion of
the assets of the trusts which fund the Plans. The PIC is comprised of
executive officers of GM. The PIC carries out its investment oversight
responsibility through the General Motors Investment Management
Corporation (GMIMCO), a registered investment adviser under the
Investment Advisers Act of 1940, as amended. Certain members of the PIC
serve on the board of directors of GMIMCO. The Finance Committee
reviews the actions of the PIC and GMIMCO on a periodic basis to
evaluate performance and to assure that the Finance Committee's
delegation of authority continues to be prudent.
3. GMIMCO is involved in all aspects of the management of the
Plans' assets, and its functions with respect to the Plans' involvement
in private market transactions are executed by its private market
investments staff (PMI Staff). The PMI Staff consists of twelve
professionals (the PMI Staff) who research, document and negotiate
private market transactions on behalf of the Plans, with the assistance
of GMIMCO's legal staff. Under current procedures, all private market
transactions subject to final approval by GM's in-house investment
management function are directed to the PMI Staff for review, analysis
and, if needed development. After an investment has been reviewed,
analyzed and favorably approved by the PMI Staff, the additional levels
of approval required for authorization of the investment depends upon
the amount of the investment. Final approval authority for private
market transactions rests with the PIC, for investments of amounts of
$75 million and under, and the Finance Committee, for investments of
amounts over $75 million. The PIC's final approval authority for the
investment of amounts of $30 million or less is exercised by a special
PIC subgroup, the Private Investment Review Team (the PIRT).
4. The current assets of the Plans under the authority of the PIC
include the Plans' Trusts' interests in the First Plaza Group Trust
(First Plaza). First Plaza, which invests solely in private market
investments, is a group trust maintained by GM on behalf of the Plans'
Trusts, each of which owns approximately 50 percent. The trustee of
First Plaza is Mellon Bank, N.A. (Mellon Bank). On April 19, 1994,
pursuant to the direction of the PIC and GMIMCO, First Plaza invested
$2,465,784 in the APA Excelsior III, L.P. (the Partnership) by
purchasing limited partnership interests (the Interests) from
Metropolitan Life Insurance Company (Metropolitan). The Interests
purchased by the Plan represent 4.2 percent of the Partnership's total
limited partnership interests. The Partnership is a venture capital
operating company, the purpose of which is to generate long-term
capital appreciation by acquiring a broad portfolio of equity-oriented
investment positions in quoted and nonquoted companies in a variety of
industries in the United States. As a result of such purchase, First
Plaza succeeded to the obligation to make additional capital
contributions of $1,150,000 to the Partnership. GM represents that the
Interests represent a total capital contributions commitment of $5
million to the Partnership, $3,850,000 of which had been paid by
Metropolitan prior to First Plaza's purchase of the Interests. GM
states that the difference between the $2,465,784 paid for the
Interests by First Plaza and the $3,850,000 invested in the Interests
by Metropolitan represents (a) distributions Metropolitan had already
received from the Partnership, and (b) a discount negotiated by GMIMCO
on behalf of First Plaza. GM represents that in June 1994, the PIC and
GMIMCO and Metropolitan became aware that the transaction was a
prohibited transaction under the Act, due to the fact that Metropolitan
is a service-provider party in interest with respect to the Plans. The
PIC and GMIMCO are requesting an exemption for the Plans' past purchase
of the Interests from Metropolitan, effective April 9, 1994, under the
terms and conditions described herein.
5. Metropolitan is a mutual life insurance company organized under
the laws of the state of New York, with total assets under management
of approximately $163.4 billion as of December 31, 1993. Metropolitan
represents that it offers a wide variety of insurance products, asset
management and administrative services for thousands of employee
benefit plans subject to the Act. GM and Metropolitan represent that
Metropolitan is totally independent from GM, except as provider to the
Plans of services which are not involved in the subject transaction. GM
represents that Metropolitan's services to the Plans are described as
follows:
(a) In 1940, the General Motors Retirement Program for Salaried
Employee's was funded by a deferred group annuity contract under which
annuities were purchased from Metropolitan and other insurance
companies. Effective January 1, 1977,

[[Page 33863]]
the funding under the deferred group annuity was changed to a deposit
administration contract with immediate participation guarantee. It
remains in effect but no additional funds have been deposited in the
contract since 1985.
(b) Metropolitan coordinates the transfer of all insured after-tax
employee contributions to the Plans' trustee for distribution upon a
Plan participant's retirement.
(c) Since 1988, Metropolitan has served as recordkeeper under the
Saturn Individual Retirement Plan for Represented Team Members and,
upon request, provides annuities with respect to employee contributions
under the Saturn Personal Choices Retirement Plan for Non-Represented
Team Members.
GM represents that neither Metropolitan nor any of its affiliates
is a fiduciary with respect to any of the Plans' assets which were used
to purchase the Interests or any assets to be used to pay the remaining
capital contributions with respect to the Interests. Metropolitan
represents that it maintains procedures for determining whether a
proposed transaction is prohibited under the Act, and that such
procedures were inadvertently not utilized in advance of the subject
transaction.
6. GM and Metropolitan represent that the transaction was
negotiated at arm's length and in good faith upon the mistaken
assumption that Metropolitan was not a party in interest with respect
to the Plans, and, accordingly, that the parties were unaware that the
transaction with First Plaza was prohibited under section 406(a) of the
Act. GM represents that the PIC and GMIMCO maintain comprehensive and
up-to-date lists of parties in interest with respect to the Plans in
order to guard against inadvertent party in interest transactions, and
that Metropolitan was reflected in such lists due to its holding and
investment of employee after-tax contributions under the Plans under
both separate account and general account arrangements. GM maintains
that, as with all investments directed by the PIC and GMIMCO, the
normal due diligence procedures were followed. GM notes that the
investment contracts with Metropolitan were entered into almost 50
years ago and are not administered by the PMI Staff, which effected the
purchase of the Interests from Metropolitan. As a result, Metropolitan
was not recognized by the PMI Staff as a party in interest, and the PMI
staff did not refer to the party in interest list in advance of the
transaction. GM also notes that the current party in interest list
indicates 1,375 entities which are parties in interest with respect to
the Plans. GM represents that the staffs and attorneys of the PIC and
GMIMCO and the PIRT each believed that another responsible party had
reviewed the party in interest list as the transaction proceeded.
7. GM represents that the potential purchase of the Interests by
First Plaza was an opportunity which was brought to the PMI Staff by
the general partner of the Partnership, and not by Metropolitan. GM
states that this recommendation was subject to the same thorough
investigation and analysis by the PMI Staff as any other private market
transaction proposed for the Plans. GM represents that all aspects of
the investment analysis, the determination and negotiation of the
purchase, and the continued monitoring of the investment have proceeded
strictly in accordance with the procedures which the PIC and GMIMCO
maintain to ensure that such investments meet the Plans' investment
criteria and do not subject the Plans to any unnecessary risk.
8. Valuation of the Interests: GM represents that the purchase
price paid for the Interests was not in excess of the fair market value
of the Interests as of the sale date, as determined by GMIMCO's PMI
Staff contemporaneously with the transaction. In this regard, GM
represents that the PMI Staff utilized the valuation methodology
utilized by GMIMCO in any transaction requiring the calculation of the
fair market value of interests in a venture capital fund. GM describes
the method of determining the fair market value of the Interests as
follows:
The PMI Staff requested and received from the general partner of
the Partnership (the General Partner) the most recent statement of the
value of Metropolitan's capital account in the Partnership. The PMI
Staff adjusted this value by adding all drawdowns to the Partnership by
Metropolitan, and subtracting all distributions from the Partnership to
Metropolitan, since the date of the statement. Each public company in
the Partnership's portfolio was valued using the latest available
public market value, and then an appropriate liquidity discount was
taken. The specific discount rate applied to each such portfolio
company depended on how soon it was then anticipated that its security
would be distributed from the Partnership to the limited partners.
The PMI Staff requested and received information from the General
Partner regarding the private (i.e. non-publicly-traded) investments in
the Partnership. Using this information and other information which the
PMI Staff was able to obtain from other sources, the private
investments in the Partnership's portfolio were valued by the PMI
Staff. In valuing each such company, the PMI Staff elected to use
conservative standards and, in fact, valued some companies at zero, not
because that was the actual value, but because there was not enough
information available at that time to make a reasonable determination
of fair market value. GM represents that such ``zero valuation'' is
standard practice of financial analysis in the venture capital
industry.
With respect to the Partnership's holdings of interests in
publicly-traded companies and those non-public companies for which
significant financial performance information was available, the PMI
Staff projected what each company would be worth in the future and then
discounted that amount back to the present using an appropriate
discount rate. The future projections were based on the PMI Staff's
knowledge of each particular company, including projected cash flow of
the company, probability of when and if the company would be going
public, the company's business plan, the anticipated timing of
distribution of a company's securities after the company has gone
public or the sale proceeds from the sale of the company to a third
party, and information regarding the General Partner.
After determining the discounted values of the portfolio companies
and the adjusted book value of the Partnership's limited partnership
interests, the PMI Staff entered into negotiations with Metropolitan
which resulted in a purchase price which was not more than the PMI
Staff's determination of the fair market value of the Interests.
9. GM represents that the process and methodology utilized by the
PMI Staff, described above, reflects the venture capital industry
standards for evaluation. Specifically, GM states that GMIMCO developed
this methodology in consultations with two widely-known sponsors of
venture capital funds, Brinson Partners, Inc. (Brinson) and Chancellor
Capital Management, Inc., each of which uses the same methodology when
purchasing limited partnership interests in the secondary market.
Brinson, a registered investment adviser which maintains a fund
investing solely in limited partnership interests sold on the secondary
market, has reviewed and evaluated the methodology utilized by the PMI
Staff in determining the fair market value of the Interests for
purposes of First Plaza's

[[Page 33864]]
purchase of the Interests from Metropolitan. Brinson represents that
the methodology used by the PMI Staff was appropriate and reasonable,
and that this conclusion is based on Brinson's experience as a seasoned
long-term venture capital and secondary partnership investor. GM
represents that at no time was Metropolitan a part of the process by
which the PMI Staff determined the fair market value of the Interests.
10. In summary, the applicants represent that the criteria of
section 408(a) of the Act are satisfied in the subject transaction for
the following reasons: (1) The transaction was a one-time transaction
for cash; (2) Metropolitan was not and is not a fiduciary with respect
to any assets involved in the transaction; (3) The purchase price did
not exceed the Interests' fair market value, as determined by the PMI
Staff; (4) The fair market value of the Interests was determined by the
PMI Staff according to GMIMCO's standard procedures for valuation of
interests in venture capital funds; and (5) Brinson determined that the
methodology utilized by the PMI Staff in determining the Interests'
fair market value was appropriate and reasonable.

FOR FURTHER INFORMATION CONTACT: Ronald Willett of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
First and Farmers Bank of Somerset, Inc. (the Bank) Located in
Somerset, Kentucky

[Application Numbers D-09921 through D-09926]

Proposed Exemption

The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption
is granted, the restrictions of sections 406(a), 406(b)(1) and
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 April 25, 1995, to the
cash sale of certain collateralized mortgage obligations (CMOs) held by
six employee benefit plans for which the Bank acts as trustee (the
Plans) to the Bank, a party in interest with respect to the Plans.
This proposed exemption is subject to the following conditions: (1)
Each sale was a one-time transaction for cash; (2) Each Plan received
an amount that was equal to the greater of: (a) the outstanding
principal balance for each CMO owned by the Plans, plus accrued but
unpaid interest, at the time of the sale, (b) the amortized cost for
each CMO owned by the Plans, plus accrued but unpaid interest, as
determined by the Bank on the date of the sale; or (c) the fair market
value of each CMO owned by the Plans as determined by the Bank on the
basis of reasonable inquiry from at least three sources that are
broker-dealers or pricing services independent of the Bank at the time
of the sale; (3) The Plans did not pay any commissions or other
expenses with respect to the sale; (4) The Bank, as trustee of the
Plans, determined that the sale of the CMOs is in the best interests of
each of the Plans and their participants and beneficiaries at the time
of the transaction; (5) The Bank took all appropriate actions necessary
to safeguard the interests of the Plans and their participants and
beneficiaries in connection with the transactions; and (6) Each Plan
received a reasonable rate of return on the CMOs during the period of
time that it held the CMOs.

EFFECTIVE DATE: If granted, this proposed exemption would be effective
April 25, 1995.

Summary of Facts and Representations

1. The Bank is a Kentucky chartered commercial bank that was
organized in November of 1870. First and Farmers Bancshares, Inc., a
one-bank holding company incorporated in Kentucky in 1983, owns 80.43
percent of the Bank. The Bank offers the traditional services of a
community bank (e.g., checking, savings, loans and trusts) to both
individuals and entities in the Somerset area. The Bank serves as
trustee of the Plans and has investment discretion with respect to the
assets of the Plans.
The Plans are the Adams and Adams Keogh Retirement Plan (the Adams
Plan); the Lake Cumberland Home Health Agency Employee Retirement Plan
(the Lake Plan); the Bank of Cumberland Money Purchase Pension Plan
(the Cumberland Plan); the Childrens Clinic Money Purchase Pension Plan
(the Clinic Plan); the Ruckels Farm Supply Defined Contribution Plan
(the Ruckels Plan); and the First and Farmers Bank Employee Retirement
Plan (the Bank Plan). All of the Plans are defined contribution plans
except the Bank Plan, which is a defined benefit plan.
As of December 30, 1994, the Adams Plan had seven participants and
total assets of $377,074; the Lake Plan had 271 participants and total
assets of $939,926; the Cumberland Plan had twenty-one participants and
total assets of $520,996; the Clinic Plan had fifteen participants and
total assets of $593,925; the Ruckels Plan had ten participants and
total assets of $147,207; and the Bank Plan had 124 participants and
total assets of $662,513. Thus, as of December 30, 1994, the Plans had
448 participants and total assets of approximately $3,241,641.
2. The Bank represents that at various times during September,
November and December of 1993, assets of the Plans were invested in the
CMOs, which were purchased from broker-dealers that were independent of
the Plans as well as the Bank and its affiliates. The CMOs are
investment products through which investors purchase mortgage-backed
securities that represent interests in a pool of residential mortgage
loans. In general, investors receive payments of principal and interest
or, in some cases, either principal or interest only, depending upon
the type of security purchased. Interest payments change monthly in
relation to a specific index, such as the London Interbank Offered Rate
(LIBOR), contained in a formula used to calculate the interest rate for
such securities. Principal payments vary in amount and timing depending
upon how quickly the various mortgage-backed securities prepay due to
the prepayment speed of the mortgages in the mortgage pools. The
repayment of principal and interest is usually guaranteed by various
U.S. Government Agencies, such as the Federal National Mortgage
Association (FNMA or ``Fannie Mae'').
3. The CMOs are described as follows: (a) CUSIP 31358JAU5, FNMA
Guaranteed REMIC Pass-Through Certificates, Fannie Mae REMIC Trust
1991-110, Class E; (b) CUSIP 31358NCV2, FNMA Guaranteed REMIC Pass-
Through Certificates, Fannie Mae REMIC Trust 1992-96, Class E; (c)
CUSIP 31359GDX1, FNMA Guaranteed REMIC Pass-Through Certificates,
Fannie Mae REMIC Trust 1993-225, Class SM; (d) CUSIP 31359GDTO, FNMA
Guaranteed REMIC Pass-Through Certificates, Fannie Mae REMIC Trust
1993-225, Class SO.^{3

3 The applicant states further that if a plan acquires a
``guaranteed governmental mortgage pool certificate'', the plan's
assets include the certificate but not any of the mortgages
underlying such certificate (see 29 CFR 2510.3-101(i)). A
``guaranteed governmental mortgage pool certificate'' is a
certificate (i) that is backed by, or evidences an interest in,
specified mortgages or participation interests, and (ii) whose
interest and principal payments are guaranteed by the Government
National Mortgage Association (GNMA), the Federal Home Loan Mortgage
Corporation (FHLMC or ``Freddie Mac''), or FNMA. Thus, the applicant
represents that since all of the CMOs have interest and principal
payments payable under the CMOs guaranteed by FNMA, the

[[Page 33865]]
assets of the Plans do not include any of the mortgages underlying such
CMOs.
---------------------------------------------------------------------------

All of the CMOs mentioned above are structured as a real estate
mortgage investment conduits (``REMIC'') under section 860D of the
Code. The various classes of certificates receive principal and,
possibly, interest payments in differing portions and at differing
times from the cash flows provided from the monthly payments received
on the underlying mortgages.
The repayment of principal from the underlying mortgages fluctuates
significantly. To facilitate the structuring of such REMICs, the
prepayments on the pools of mortgages are commonly measured relative to
a variety of prepayment models. The model used for these REMICs is the
Public Securities Association's standard prepayment model or ``PSA''.
This model assumes that mortgages will prepay at an annual rate of .2
percent in the first month after origination, then the prepayment rate
increases at an annual rate of .2 percent per month up to the 30th
month after origination and then the prepayment rate is constant at 6
percent per annum in the 30th and later months. This assumption is
called 100 PSA.
The REMIC structure allocates principal payments to the various
classes or ``tranches'' in varying amounts as principal payments are
made accordingly to the allocations specified in the prospectuses. The
exact date of repayment of all principal to any REMIC class is not
known until the mortgage-backed securities are paid in full. The
maturity for the various classes is referred to as the ``weighted
average life'' (WAL). The WAL of a class refers to the average amount
of time, expressed in years, which will elapse from the date of its
issuance until each dollar of principal has been repaid to the investor
based on the PSA assumption. The holders of all classes will receive
all of their principal back. However, the timing of when that principal
is returned is dependent on how quickly the underlying mortgages are
repaid or refinanced. In no event will the time for the recovery of
principal exceed the final maturity date of the underlying mortgages.
Each month the monthly payments on the underlying mortgages are
collected and distributed to the holders of the various REMIC classes.
Depending upon the structure of the REMIC, interest may be paid monthly
according to a specific formula. The CMOs owned by the Plans, described
in further detail below, are either ``principal only'' or ``inverse
floaters'' indexed to one month LIBOR.
Principal only bonds are similar to Series E savings bonds in that
the investor purchases the bond at a discount and receives the
principal cash flow off the collateral. The difference in the principal
amount invested and the face value equates to the investment's yield.
The timing of the cash flows received determines the ultimate yield on
the investment. With a principal only bond, the faster the collateral
pays down, the higher the yield the investor receives. Income is
recognized by accreting the discount over the expected life of the
security; however, there are no regular interest payments received on
principal only bonds. There is no loss of principal because the
investor will ultimately receive face value. However, because there is
no guarantee as to the timing of the cash flows, the bond's ultimate
yield is unknown.
The remaining CMOs are ``inverse floaters'' so described, because
the formulas used to calculate the interest payments, which adjust
monthly for each certificate, usually raise the rate when the index
falls and lower the rate when the index rises. ``LIBOR'' refers to the
arithmetic mean of the London Interbank offered quotations for one-
month Eurodollar deposits. LIBOR moves up or down as interest rates
move up or down. The movement of LIBOR has an inverse relationship with
the interest paid on all inverse floating rate classes.
The Bank, as trustee of the Plans, purchased all of the CMOs from
Andrew F. Cashiola of Government Securities Corporation of Texas,
located in Houston, Texas, and Randy Stevens of Hart Securities, Inc.,
located in Houston, Texas. The Bank states that neither the brokers
(i.e. Mr. Cashiola or Mr. Stevens) nor their brokerage firms have any
relationship to the Plans, the employers that maintain the Plans, the
Bank or any of its affiliates.
A description of each CMOs, including the respective interest rate
formulas, WAL and PSA assumptions are set forth below in the Appendix.
4. At the time of the purchase of the CMOs by the Bank, as trustee
of the Plans, the Bank anticipated that each CMO would be retired
within one to three years of the date of purchase due to prepayments of
the underlying mortgages in each pool as obligors refinanced their
mortgages at lower interest rates. Because of recent increases in
interest rates, the market value of the CMOs had decreased
significantly. On April 25, 1995, the Bank obtained bids to determine
the fair market value of each CMO held by the Plans on the date of sale
from three different independent broker-dealers--PNC Securities in
Louisville, Kentucky; Commerce Union Investments in Memphis, Tennessee;
and First Tennessee Corporation in Memphis, Tennessee (the Broker-
Dealers). The Bank states that as of the date of the sale, the Broker-
Dealers were not related to, or associated with, the Bank or the Plans.
The Broker-Dealers provided the following bids as of April 25, 1995:
^{4

4 The Broker-Dealers' bids shown in the table represent a price
quoted per $100 of principal. To determine the fair market value for
each CMO based on the average bid quoted, the par value of the CMO
would be multiplied by the particular quote, expressed as a
percentage of 100. For example, if the par value of the CMO was
$10,000 and the average bid for the CMO on April 25, 1995 was $39.50
per $100 of principal, the quoted price would have been $3950 since
$10,000 x .3950 = $3950.

----------------------------------------------------------------------------------------------------------------
Average
CUSIP No. PNC Securities Commerce Union First Tennessee bid
----------------------------------------------------------------------------------------------------------------
31358JAU5................................... 35.00 37.00 46.50 39.50
31358NCV2................................... 42.00 37.00 39.50 39.50
31359GDT0................................... 29.00 29.75 27.25 28.67
31359GDX1................................... 14.00 20.00 24.50 19.50
----------------------------------------------------------------------------------------------------------------

Based on the pricing information obtained from the Broker-Dealers,
the Bank represents that the fair market value of the CMOs was
significantly below the original purchase price of the CMOs (as noted
in the first table below in Representation #7). The expectation of
additional interest rate increases in the near future caused the Bank
to believe that the CMOs would not appreciate in the near term. As a
result of these changing market conditions, the Bank anticipated that
the CMOs will not be retired for fifteen to twenty years due to the
slowing of the prepayment speed because of the recent increases in the
interest rates.^{5

[[Page 33866]]

5 The Department is expressing no opinion in this proposed
exemption regarding whether the acquisition and holding of the CMOs
by the Plans 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 the plan's potential exposure to losses
and the role the investment or investment course of action plays in
that portion of the plan's investment 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
such 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
comparable investments offering a similar return or result.
---------------------------------------------------------------------------

5. Under the terms of the Plans and the applicable law, a Plan
participant who retires or terminates employment is eligible to receive
a distribution of the value of his or her account in the Plan, sometime
immediately following retirement or termination. For purposes of this
distribution, the value of the participant's account is the value of
the account as of the Plan's last valuation date. If the Plans
continued to hold the CMOs, the value of each participant's account, as
of the valuation date, would reflect the recent decreases in fair
market value of the CMOs. In order to mitigate such potential losses,
the Bank purchased the CMOs on April 25, 1995 from the Plans at an
amount, which in each case was equal to the greater of: (a) The
outstanding principal balance for each CMO owned by the Plans, plus
accrued but unpaid interest, at the time of the sale, (b) the amortized
cost for each CMO owned by the Plans, plus accrued but unpaid interest,
as determined by the Bank on the date of sale; or (c) the fair market
value of each CMO owned by the Plans on the basis of reasonable inquiry
from at least three sources that are broker-dealers or pricing services
independent of the Bank.
6. The Bank calculated the value of the CMOs held by the Plans, as
of April 25, 1995, using an amortized cost computation. The Bank states
that the computation of the amortized cost was arrived at by a series
of computations. First, the Bank determined the amount of the discount
paid upon purchase (Purchase price--100 = Discount). The par value or
face value of each CMO was 100. The Bank states that any discount must
be allocated monthly in order to be properly matched to the principal
payments to be received over the life of the investment. Also, any
discount must be allocated monthly in order to properly account for the
income to be earned over the life of the investment. The number of
months to which the Bank allocated each discount was determined by the
WAL for each CMO at the time of purchase (expressed in years)
multiplied by twelve (WAL x 12 = amortizing months).^{6 Then, the
Bank determined the amount of each discount to be allocated to each
month by dividing each discount by the number of amortizing months. The
Bank determined the number of months remaining in the life of each CMO
by subtracting from the number of amortizing months the number of
months that the Plan actually held each CMO. The Bank states that the
remaining months were then multiplied by each monthly discount amount
to arrive at the discount balance for each CMO. The discount balance
was added to the par value for each CMO (i.e., 100) to arrive at the
amortized cost remaining for each CMO. Thus, the Bank states that the
formula it used for calculating amortized cost was as follows: ^{7

\6\ As noted previously in Representation #3, the WAL for a CMO
is determined at the time of purchase based on various assumptions
about the speed of principal repayments and interest rate changes,
using financial data provided by independent sources (such as
Bloomberg Financial Markets). The Bank states that changes to the
formula for calculating the amortized cost based on WAL assumptions
other than at the time of purchase would not provide an
administratively acceptable method of allocating the discount for a
CMO because such a method would require constant adjustments which
are not material to the concept of income recognition as it relates
to CMOs.
\7\ For example, assume that a particular CMO investment has
been held by a Plan for 6 months. If the WAL was 2.02 years and the
cost was 90 based on the par value being 100, the formula would be:
[[(90-100)/(2.02 x 12)] x [(2.02 x 12) - 6)]] + 100
= [(-10/24.24) x (24.24 - 6)] + 100
= (-.4125413 x 18.24) + 100
= -7.5247533 + 100
= 92.475247

As the formula indicates, the amortized cost using the average
life at purchase would be $92.475247 as compared to the actual cost
of $90.00. Therefore, the Bank states that the amortized cost
formula will cause the Plan to be paid an amount for this CMO
investment which is slightly more than the Plan's original cost
(i.e. basis).
---------------------------------------------------------------------------

7. The Bank also calculated the remaining principal balance, plus
accrued but unpaid interest, on the CMO investments held by each Plan
as of April 25, 1995, based on the original cost of the securities and
the principal and interest payments received by the Plans through that
date. As shown on the table below, the Bank represents that, as of
April 25, 1995, all of the Plans would have received more than the
remaining principal balances (plus accrued but unpaid interest) on
their CMO investments by using the Bank's amortized cost computation
for the CMOs. In addition, the table below shows the fair market values
of the CMOs held by each Plan, based on the Bank's solicitation of bids
from the Broker-Dealers.

------------------------------------------------------------------------
Plan Amort. cost Prin. bal. Mkt. value
------------------------------------------------------------------------
Adams Plan....................... $62,321 $53,845 $19,650
Lake Plan........................ 259,723 225,534 80,643
Cumberland Plan.................. 132,126 111,662 34,889
Clinic Plan...................... 139,288 116,543 30,108
Ruckels Plan..................... 14,466 11,698 2,925
Bank Plan........................ 243,234 210,076 72,895
------------------------------------------------------------------------

The Bank also determined that, as of April 25, 1995, a sales price
for the CMOs held by each Plan based on amortized cost, plus the total
principal and interest payments received by the Plans through the date
of sale, produced a total return to the Plans that exceeded the Plans'
total original cost for the CMOs.

[[Page 33867]]
----------------------------------------------------------------------------------------------------------------
Interest Principal Total Original
Plan received received Amort. cost receipts cost
----------------------------------------------------------------------------------------------------------------
Adams Plan..................................... $4,080 ........... $62,321 $66,401 $57,925
Lake Plan...................................... 18,117 15,689 259,723 293,529 259,273
Cumberland Plan................................ 10,199 18,826 132,126 161,151 140,688
Clinic Plan.................................... 12,376 ........... 139,288 151,664 128,884
Ruckels Plan................................... 1,531 ........... 14,466 15,997 13,228
Bank Plan...................................... 17,513 20,395 243,234 281,142 247,927
----------------------------------------------------------------------------------------------------------------

The Bank represents that each Plan received a reasonable rate of
return on the CMOs during the period of time that it held the CMOs. In
this regard, the Bank states that the annualized weighted average rate
of return received by each Plan on its CMOs, net of the principal
investment, was as follows: (i) 14.28% for the Adams Plan; (ii) 13.57%
for the Lake Plan; (iii) 16.62% for the Cumberland Plan; (iv) 17.91%
for the Clinic Plan; (v) 21.53% for the Ruckels Plan; and (vi) 14.16%
for the Bank Plan.^{8

\8\ The formula for the annualized rate of return for the months
held was computed for each CMO as follows: [[((Interest Collected +
Accretion Income) / Number of Months Held) x 12] / Total Cost].
The term ``Accretion Income'' represents the accretion of the
discount received off of the face value of each CMO allocated to the
number of months each CMO was held. To arrive at an annualized
weighted average rate of return for each Plan, the annualized rate
of return for each CMO was calculated to reflect the return of each
CMO held by each Plan. The individual CMOs held by each Plan were
``weighted'' according to the amount invested to compute the total
weighted average rate of return for each Plan.
---------------------------------------------------------------------------

Based on the Bank's determination that the amortized cost method
resulted in the greatest sales price as of April 25, 1995, the Bank
purchased the CMOs from the Plans on April 25, 1995 at each CMOs'
amortized cost for a total of $851,158.
8. The Bank, as trustee of the Plans, states that the sale of the
CMOs was in the best interests of the Plans and their participants and
beneficiaries. The Bank states that the sale allowed the Plan
participants to insulate themselves from further decreases in the fair
market value of the CMOs and to mitigate any losses. In addition, the
Bank states that the sale of the CMOs shifted the consequences
associated with selling the CMOs before their retirement from the Plan
participants to the Bank.
9. The Bank represents that it took all appropriate actions
necessary to safeguard the interests of the Plans and their
participants and beneficiaries in connection with the sale of the CMOs.
The Bank ensures that each Plan received the appropriate amount of cash
from the Bank in exchange for such Plan's CMOs on April 25, 1995. The
Bank also ensures that the Plans did not pay any commissions or other
expenses in connection with the sale of the CMOs to the Bank.
10. In summary, the Bank represents that the sale satisfied the
statutory criteria of section 408(a) of the Act and section 4975 of the
Code because: (a) Each sale was a one-time transaction for cash; (b)
Each Plan received an amount that was equal to the greater of: (i) The
outstanding principal balance for each CMO owned by the Plan, plus
accrued but unpaid interest, at the time of the sale; (ii) the
amortized cost for each CMO owned by the Plans, plus accrued but unpaid
interest, as determined by the Bank on the date of sale; or (iii) the
fair market value of each CMO owned by the Plan as determined by the
Bank on the basis of reasonable inquiry from at least three sources
that are broker-dealers or pricing services independent of the Bank;
(c) The Plans did not pay any commissions or other expenses with
respect to the sale; (d) The Bank, as trustee of the Plans, determined
that the sale of the CMOs would be in the best interests of each Plan
and its participants and beneficiaries; (e) The Bank took all
appropriate actions necessary to safeguard the interests of the Plans
and their participants and beneficiaries in connection with the
proposed transactions; and (f) Each Plan received a reasonable rate of
return on the CMOs during the period of time it held the CMOs.

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 within
fifteen 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 days following the
publication of the proposed exemption in the Federal Register.

Appendix

A. The FNMA Guaranteed REMIC Pass-Through Certificates, Fannie Mae
REMIC Trust 1991-110, Class E were issued by Fannie Mae as part of an
issue of pass-through certificates with nine various classes in the
total amount of $200,010,000. The Bank, as trustee of the Plans,
purchased portions of one of those classes. The Certificates are
secured by first lien residential mortgages with an original term to
maturity of 360 months or less.
This REMIC uses a 300 PSA assumption regarding principal repayment
(3 times 100 PSA). The WAL for the E class based on a 300 PSA was 10.9
years at the time of purchase.
This REMIC is a principal only bond and, therefore, does not bear
interest. The initial interest rate and final distribution date for
class E was 9.1 percent and May of 2021, respectively.
B. The FNMA Guaranteed REMIC Pass-Through Certificates, Fannie Mae
REMIC Trust 1992-96, Class B were issued by Fannie Mae as part of an
issue of pass-through certificates with six various classes in the
total amount of $300 million. The Bank, as trustee of the Plans,
purchased portions of one of those classes. The Certificates are
secured by first lien residential mortgages with an original term to
maturity of 360 months or less.
This REMIC uses a 375 PSA assumption regarding principal repayment
(3.75 times 100 PSA). The WAL for the B class based on a 375 PSA was
5.9 years at the time of purchase.
This REMIC is a principal only bond and, therefore, does not bear
interest. The initial interest rate and final distribution date for
class B was 8.3 percent and May of 2022, respectively.
C. The FNMA Guaranteed REMIC Pass-Through Certificates, Fannie Mae
REMIC Trust 1993-225, Classes SM and SO were issued by Fannie Mae as
part of an issue of pass-through certificates with 130 various classes
in the total amount of $3,102,000,000. The Bank, as trustee of the
Plans, purchased a portion of one class. The Certificates are secured
by first lien residential mortgages with an original term to maturity
of 360 months or less.

[[Page 33868]]

This REMIC uses a 200 PSA assumption regarding principal repayment
(2 times 100 PSA). The WAL for class SM and SO based on a 200 PSA was
20.2 years and 9.4 years, respectively, at the time of purchase.
The formula for the interest on class SM is
27.7289%-(LIBOR x 4.26589) with a minimum rate of 0.0% and a maximum
rate of 27.7289%.^{9 For class SO, the interest is 23.1358% -
(LIBOR x 3.30495) with a minimum rate of 0.0% and a maximum rate of
23.135. As an inverse floater, the movement of LIBOR has an inverse
relationship on the interest paid on all inverse floating rate classes.
The initial interest rates for the SM and SO classes were 14.92206% and
12.60047, respectively. The final distribution dates for the SM and SO
classes were December 2023 and November 2022, respectively. The
interest rate for the SM class can drop to 0.0% if LIBOR reaches 6.5%
or higher. The interest rate for the SO class can drop to 0.0% if LIBOR
reaches 7.0% or higher.

\9\ ``LIBOR'' refers to the arithmetic mean of the London
interbank offered quotations for one-month Eurodollar deposits.
LIBOR moves up or down as interest rates move up or down. The
movement of LIBOR has an inverse relationship on the interest paid
on all inverse floating rate classes.
---------------------------------------------------------------------------

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

[Application No. D-09953]

Proposed Exemption

Summary of Facts and Representations

Introduction: General Electric Company (G.E.), an approximately 22
percent owner of PaineWebber Group Inc. (P.G.I.), has been convicted
during the past ten years of certain felonies relating to G.E.'s
government contracts operations prior to its acquisition of interests
in P.G.I. Because G.E. acquired ownership interests in P.G.I. during
1994, the felony convictions could bar P.G.I. and its wholly-owned
subsidiaries from acting as ``qualified professional asset managers''
(QPAMs) under Prohibited Transaction Class Exemption 84-14 (PTCE 84-14,
49 FR 9494, March 13, 1984). Part I(g) of PTCE 84-14 requires that no
person owning, directly or indirectly, 5 percent or more of the QPAM
has been convicted of certain felonies within ten years preceding the
transaction for which the QPAM intends to utilize PTCE 84-14.
PaineWebber Incorporated (PaineWebber), a wholly-owned subsidiary of
P.G.I, and two of PaineWebber's wholly-owned subsidiaries
(collectively, the Applicants) are requesting an exemption to enable
them to qualify as QPAMs without regard to any failure to satisfy part
I(g) of PTCE 84-14 by reason of G.E.'s ownership of P.G.I., under the
terms and conditions described herein.
1. PaineWebber, a Delaware corporation which is wholly owned by
P.G.I., engages in a variety of securities services, with its principal
place of business in New York, New York. PaineWebber is registered as a
broker-dealer and an investment adviser, maintaining memberships on all
principal securities and commodities exchanges in the United States as
well as the National Association of Securities Dealers, Inc.
PaineWebber represents that it provides investment advisory services
relating to a wide variety of securities, including but not limited to
the following: Exchange-listed, over-the-counter and foreign
securities; rights and warrants; securities options and futures;
corporate and governmental debt securities; commodities futures,
contracts and options; bankers' acceptances; and mutual fund shares.
PaineWebber is joined in requesting the exemption by two of its wholly-
owned subsidiaries: (a) Mitchell Hutchins Asset Management Inc. (MHAM),
located in New York, is an investment management services provider
which has sponsored and offers interests in a number of limited
partnerships and offshore funds; and (b) Mitchell Hutchins
Institutional Investors Inc. (MHII), located in New York, provides
discretionary investment management services and non-discretionary
investment advisory services. MHII provides investment advice relating
to privately-placed alternative asset investment vehicles, including
funds specializing in venture capital, distressed debt, leveraged
buyouts and restructurings, and privately-placed securities.
The Applicants represent that the clientele served by the
operations of PaineWebber and its subsidiaries, especially MHAM and
MHII, include substantial numbers of large employee benefit plans
subject to the Act. The applicants maintain that, given the size and
number of the plans which the Applicants represent, the large number of
financial service providers engaged by such plans, the breadth of the
definition of ``party in interest'' under the Act, and the wide array
of services offered by the Applicants, it would not be uncommon for an
Applicant to propose a transaction involving a party in interest with
respect to a plan for which the Applicant is acting in a fiduciary
capacity. The Applicants represent that the proposing of such
transactions is occasionally necessary to offer plan clients adequate
investment diversification opportunities, and that such opportunities
will be missed if the Applicants are not permitted to function as QPAMs
pursuant to PTCE 84-14.
2. PaineWebber represents that prior to October 17, 1994, G.E. did
not have any ownership interests in any of the Applicants. On October
17, 1994, an agreement was executed (the Agreement) between P.G.I.,
G.E. and G.E.'s wholly-owned subsidiary Kidder Peabody Group Inc.
(Kidder). Pursuant to the Agreement, P.G.I. acquired certain assets of
Kidder, and G.E. acquired 21,500,00 shares of P.G.I. common stock,
which is the sole outstanding class of P.G.I. securities entitled to
vote in the election of P.G.I. directors. The Agreement also resulted
in G.E.'s receipt of 2,500,000 shares of redeemable preferred P.G.I.
stock, which does not confer the right to vote for directors or any
right to convert to shares of common stock, and 1,000,000 shares of
convertible preferred P.G.I. stock, which does not confer any right to
vote for directors. G.E. has the right, subject to approval of the
shareholders of P.G.I., to convert its shares of convertible preferred
stock into P.G.I. common stock, and G.E. submitted a proposal at

[[Page 33869]]
the May 1995 annual P.G.I. shareholders meeting to enable the
conversion of G.E.'s convertible preferred stock into common stock. The
Applicants represent that it is estimated that G.E. would acquire an
additional 5,521,811 shares of P.G.I. common stock through the
conversion of the convertible preferred stock, resulting in G.E.'s
ownership in the aggregate of approximately 27,021,811 shares, or
approximately 26.4 percent of the outstanding shares, of P.G.I. common
stock.
3. On three occasions from 1986 through 1992, G.E. pled guilty or
was convicted of felonies relating to the government contract
activities of G.E. and its subsidiaries (the G.E. Felonies). The
Applicants represent that the G.E. Felonies did not in any way relate
to any employee benefit plan or any person's authority with respect to
an employee benefit plan. The Applicants describe the G.E. Felonies
more specifically as follows:
(a) On May 13, 1986, G.E. pled guilty to four counts of filing
false claims with the United States Air Force and 104 counts of filing
false statements with the United States Air Force in connection with
work performed in 1980 by G.E.'s Re- Entry Systems Operation. The
Applicants represent that these counts primarily related to individual
time cards that were improperly charged to certain government
contracts.
(b) On February 2, 1990, G.E. was convicted of mail fraud and
violations of the False Claims Act relating to the conduct in 1983 of
two contract employees of a G.E. subsidiary, Management and Technical
Services Co., involving failure to notify the United States Army that
subcontractors had agreed to prices lower than those contained in
projections for the project. The Applicants represent that neither G.E.
nor any officer or employee of G.E. was accused of having knowledge of
the discrepancy and withholding it from the United States Army.
(c) On July 22, 1992 G.E. pled guilty to violations of 18 U.S.C.
287 (submitting false claims against the United States), 18 U.S.C. 1957
(engaging in monetary transactions in criminally derived property), 15
U.S.C. 78m(b)(2)(A) and 78ff(a) (inaccurate books and records), and 18
U.S.C. 371 (conspiracy to defraud and commit offenses against the
United States). The Applicants represent that these violations related
to a series of events between 1984 and 1990, involving false statements
made by employees of G.E. Aircraft Engines Division to a foreign
government that led such foreign government to submit false claims to
the United States relating to the purchase of weapons.
4. The Applicants represent that the G.E. Felonies did not relate
in any way to the conduct or business of PaineWebber, any PaineWebber
securities broker or dealer, investment adviser, bank, insurance
company or fiduciary. The Applicants maintain, however, that although
none of the unlawful conduct involved the Applicants' investment
management activities or any plans covered by the Act, the criminal
activities described above could preclude each component of
PaineWebber, as an affiliate of G.E., from serving as a ``qualified
professional asset manager'' (QPAM), due to the provisions of sections
I(g) and V(d) of PTCE 84-14. Section I(g) of PTCE 84-14 precludes a
person who otherwise qualifies as a QPAM from serving as a QPAM if such
person or an affiliate thereof has within the 10 years immediately
preceding the transaction been either convicted or released from
imprisonment as a result of certain criminal activity, including any
crime described in section 411 of the Act. Because the G.E. Felonies
involved crimes described in section 411 of the Act and monies
transferred to or claimed by G.E., the Applicants represent that they
may be barred from qualifying as QPAMs.
5. Accordingly, the Applicants request an exemption to enable
PaineWebber and its components and subsidiaries to function as QPAMs
despite their failure to satisfy section I(g) of PTCE 84-14 solely
because of the G.E. Felonies and the Applicants' affiliation with G.E.
The Applicants request that the exemption also apply to wholly-owned
PaineWebber subsidiaries that are created or acquired in the future.
The transactions covered by the proposed exemption would include the
full range of transactions that can be executed by investment managers
who qualify as QPAMs pursuant to PTCE 84-14. If granted, the exemption
will enable PaineWebber and its direct and indirect wholly-owned
subsidiaries to qualify as QPAMs by satisfying all conditions of PTCE
84-14, except that G.E.'s convictions and guilty pleas in connection
with the G.E. Felonies shall not prevent satisfaction of the condition
stated in section I(g) of PTCE 84-14 because of affiliation with G.E.
The exemption, if granted, will relate only to the Applicants'
affiliation with G.E. and not to their affiliation with any other
persons or entities.\10\

\10\ For example, any affiliation of the Applicants with any
company or individual convicted of any of the felonies described in
section 411 of the Act, other than G.E. with respect to the G.E.
Felonies described herein, is not within the scope of the exemption
proposed herein. Furthermore, any future convictions of or guilty
pleas by G.E. for felonies described in part I(g) of PTCE 84-14 are
not within the scope of the exemption proposed herein.
---------------------------------------------------------------------------

6. The Applicants maintain that because of restrictions on G.E.'s
ability to influence the management or policies of the Applicants,
there is no cause for concern that the affiliation with G.E. will in
any way affect the suitability of any of the Applicants to act as a
QPAM. The Applicants represent that the Agreement contains the
following restrictions and prohibitions which effectively preclude G.E.
from controlling the Applicants: (a) At the annual meeting of P.G.I.'s
shareholders, G.E. is required to present its shares to establish a
quorum and may only vote its shares either as directed by P.G.I.'s
board of directors or in proportion as all other shares are voted on a
matter; (b) G.E. has only one representative on P.G.I.'s board of
directors, comprised of 15 persons, and no representative on P.G.I.'s
executive committee; (c) G.E. is given no right, power or privilege to
be consulted on decisions of P.G.I. or to be involved in the day-to-day
management of P.G.I.; (d) G.E. has not been given any veto power over
any corporate action by P.G.I.; and (e) G.E. is prohibited from
soliciting proxies or otherwise obtaining proxies in opposition to the
P.G.I. board of directors. The Applicants emphasize that G.E.'s
acquisition of an ownership interesting P.G.I. did not result in any
integration of the separate businesses of G.E. and the Applicants. To
the contrary, the Applicants represent that G.E. merely became a
shareholder of P.G.I., and the Applicants' businesses remain entirely
separate from G.E.'s business.
Furthermore, the Applicants state that they are committed to a
strong legal compliance program, involving their own policies and
procedures to promote compliance with applicable laws including the
Act. In this regard, the Applicants represent that their internal
compliance procedures currently are undergoing revision and updating,
including an expansion of the materials relating to fiduciary
responsibilities and prohibited transactions under the Act, in order to
prevent illegal activity in the conduct of their business. The
Applicants state that such expanded discussion of the Act will be
reflected in newly-promulgated revisions to P.G.I.'s sales practice
policy manual and the branch office managers' supervisory manual, each
of which will feature updated legal developments and illustrative
examples to make sales staff

[[Page 33870]]
aware of the restrictions involved in dealing with employee benefit
plans.
7. In summary, the Applicants represent that the criteria of
section 408(a) of the Act are satisfied for the following reasons: (a)
The G.E. Felonies occurred prior to any affiliation between G.E. and
the Applicants, and did not involve any conduct on the part of the
Applicants; (b) G.E. does not have control or influence over the
operations of the Applicants; (c) The Applicants are undertaking reform
and revision of their policies and procedures to prevent illegal
activity; and (d) The exemption will permit the Applicants to engage in
a broader variety of investments and services on behalf of client
employee benefit plans which demand diverse investment opportunities.

FOR FURTHER INFORMATION CONTACT: Ronald Willett of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
LEGENT Retirement Security Plan (the Plan) Located in Pittsburgh, PA

[Application No. D-10015]

Proposed Exemption

Summary of Facts and Representations

1. The Plan is a defined contribution plan sponsored by LEGENT, a
publicly-held Pennsylvania corporation engaged in supplying systems
management solutions to large users of computer technology. As of
September 30, 1993, the Plan had net assets available for benefits that
totaled $49,202,389 and 1,890 participants.
Prior to September 1, 1993, Mellon Bank (Mellon Bank) served as the
Plan trustee. Effective September 1, 1993, Fidelity Investments became
the trustee of all of the Plan's assets with the exception of certain
limited partnership interests (the Interests). Although Mellon Bank
continues to serve as Plan trustee with respect these Interests, which
the Plan holds as general assets, effective 1989, the Plan has
permitted each participant to direct the investments held in his or her
individual account among several funds selected by LEGENT.
2. On July 1, 1977, Morino Inc. (Morino), a Delaware corporation
engaged in supplying systems management solutions to users of computer
technology, adopted the Morino Associates, Inc. Money Purchase Pension
Plan (Morino Pension Plan) and the Morino Associates, Inc. Profit
Sharing Plan (Morino Profit Sharing Plan; collectively, the Morino
Plans). On October 1, 1989, Morino merged with Duquesne Systems, Inc.
(Duquesne) and formed LEGENT. Effective October 1, 1989, the Morino
Pension Plan merged into the Duquesne Systems, Inc. Pension Plan and
the Morino Profit Sharing Plan merged into the Duquesne Systems, Inc.
Profit Sharing Plan. The resulting merged plans were amended and
restated effective October 1, 1989 as the LEGENT Corporation Pension
Plan and the LEGENT Corporation Savings Plan, respectively.
Subsequently on October 1, 1992, the LEGENT Corporation Savings Plan
was amended and restated as the Plan to reflect the merging of the
LEGENT Corporation Pension Plan and the Goal Systems International,
Inc. Profit Sharing Plan into the LEGENT Corporation Savings Plan due
to the merger of Goal Systems International, Inc. into LEGENT.
3. Among the assets of the Plan is a 6 percent limited partnership
interest in BPT, a Tennessee limited partnership that was organized to
acquire, own, operate and sell a strip shopping center located in Union
City, Tennessee. BPT is an unrelated party. In a private offering
memorandum dated June 5, 1985, BPT made an aggregate offering to
investors of $1,548,680. In accordance with the terms of the
memorandum, BPT offered to sell 35 limited partnership units for a per
unit purchase price of $25,677 and 35 participation notes for an
issuance price per note of $18,571. The participation notes consist of
second deeds of trust on real property and they mature on July 31,
1995.
The Morino Pension Plan and the Morino Profit Sharing Plan acquired
two and three participation notes, respectively, from unrelated parties
on August 30, 1985 for a total purchase price of $92,855. The
acquisition of the BPT Interest was made at the direction of Morino.
Although the Plan received income totaling $20,341 from BPT for the
years 1990 and 1991, no further income payments were made to the Plan
after 1991.
To the extent known, none of the obligors of the notes are parties
in interest with respect to the Plan. In addition, the general partners
of BPT and the investors in such limited partnership are not related to
the Plan or its predecessors. Further, it is represented that LEGENT
has never invested in BPT.
4. When Morino was merged with Duquesne, the existing Plan accounts
invested in the BPT Interest were not intially frozen. Because the
former Morino Plans did not offer individual participant investment
elections, the Plan has held the BPT Interest as a general asset with a
portion of such Interest being allocated to all participants in the
Morino Plans. As these participants terminated their employment with
Duquesne, their allocable portion of the BPT Interest was purchased by
the Plan using the cash generated from such Interest. The remaining
portions of the participant accounts that were invested in the BPT
Interest were frozen when Mellon Bank determined that the BPT Interest
had no value and there was insufficient cash to purchase any additional
portions from terminating employees. Accordingly, LEGENT froze the
remaining accounts invested in the BPT Interest. As of January 13,
1995, the BPT Interest was allocated to the accounts of eighty-six
former Morino employees.
5. LEGENT represents that the BPT Interest is a highly illiquid
investment for which there is a very limited secondary market.\11\
Mellon Bank represents, in a letter dated November 29, 1993, that it
has made every effort to sell the BPT Interest to unrelated parties.
However, due to the insufficient secondary market, no purchaser has

[[Page 33871]]
been found. Accordingly, LEGENT requests an administrative exemption
from the Department in order to purchase the BPT Interest from the
Plan.

\11\ The Department expresses no opinion, in this proposed
exemption, on whether Plan fiduciaries violated any of the fiduciary
responsibility provisions of Part 4 of Title I of the Act in
acquiring and holding the BPT Interest.
---------------------------------------------------------------------------

6. Mellon Bank proposes to sell the BPT Interest to LEGENT for not
less than the greater of: (a) The fair market value of the BPT Interest
as determined by a qualified, independent appraiser, or (b) the total
acquisition cost and opportunity costs attributable to the BPT
Interest. The proposed sale will be a one-time transaction for cash. In
addition, the Plan will not be required to pay any fees, commissions or
expenses in connection with the sale. Mellon Bank represents that it
will determine, prior to the sale, whether such transaction is
appropriate for the Plan and is in the best interests of the Plan and
its participants and beneficiaries.
7. In an appraisal report dated October 20, 1994, G. Dan Poag,
President of Bright, Poag & Thompson, Inc., the general partner of BPT,
states that the BPT Interest has no fair market value. Mr. Poag
explains that the investor notes are subordinate to the first mortgage
and have not been serviced in some time. In an addendum to his
appraisal report of April 17, 1995, Mr. Poag again confirms that the
BPT Interest has a current fair market value of zero as of that date.
8. Because the fair market value of the BPT Interest is less than
its acquisition cost, LEGENT will purchase the BPT Interest from the
Plan for the latter amount. In addition, LEGENT represents that because
the Plan did not receive an adequate rate of return on the BPT
Interest, it will pay $18,922 to make up for the Plan's lost
opportunity costs.^{12

12 LEGENT represents that the average rates of return for the
remaining assets that were held each year by its predecessor Plans
is a fair measure of the Plan's lost opportunity costs. Therefore,
LEGENT has calculated interest on the amount invested in the BPT
Interest for the Plan Years beginning after September 30, 1991 since
BPT paid dividends to the Plan through 1991. Using this method of
calculation, LEGENT represents that the BPT Interest would have
earned aggregate opportunity costs of $18,922.
---------------------------------------------------------------------------

Accordingly, LEGENT will purchase the BPT Interest from the Plan
for an aggregate purchase price of $111,777.^{13

13 The applicant represents that the amount by which the
purchase price for the BPT Interest exceeds its fair market value,
if treated as an employer contribution to the Plan, when added to
the balance of the annual additions to such Plan, will not exceed
the limitation prescribed by section 415 of the Code.
---------------------------------------------------------------------------

9. In summary, it is represented that the transaction will satisfy
the statutory criteria for an exemption under section 408(a) of the Act
because: (a) All terms and conditions of the sale will be at least as
favorable to the Plan as those obtainable in an arm's length
transaction with an unrelated party; (b) the sale will be a one-time
transaction for cash; (c) the Plan will not be required to pay any
commissions, costs or other expenses in connection with the sale; (d)
the Plan will receive a sales price not less than the greater of: (1)
The fair market value of the BPT Interest as determined by a qualified,
independent appraiser, or (2) the total acquisition cost plus
opportunity costs that are attributable to the BPT Interest; and (e)
Mellon Bank will determine that the sale is appropriate transaction for
the Plan and in the best interests of the Plan and its participants and
beneficiaries.

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.

Notice to Interested Persons

Notice of the proposed exemption will be given to all interested
persons by first-class mail within 30 days of the date of publication
of the notice of pendency in the Federal Register. Such notice will
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 on and/or to request a hearing. Comments with respect to the
notice of proposed exemption are due within 60 days after the date of
publication of this proposed exemption in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
KeyCorp 401(k) Savings Plan (the Plan) Located in Cleveland, Ohio

[Application No. D-10023]

Proposed Exemption

The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR part
2570, subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption
is granted, the restrictions of sections 406(a) 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 loan of funds (the
Loan) to the Plan by KeyCorp (the Employer), the sponsor of the Plan,
with respect to Guaranteed Investment Contract No. 62149 (the GIC)
issued by Confederation Life Insurance Company of Canada
(Confederation), and the potential repayment by the Plan of the Loan
upon receipt of payments under the GIC; provided the following
conditions are satisfied: (a) No interest and/or other expenses are
paid by the Plan in connection with the Loan; (b) All of the terms and
conditions of the proposed Loan are no less favorable to the Plan than
those which the Plan could obtain in an arm's-length transaction with
an unrelated party; (c) The Loan will be no less than the amount
described in this Notice of Proposed Exemption; (d) The repayment of
the Loan will not exceed the total amount of the Loan; (e) The
repayment of the Loan by the Plan will be restricted to funds paid to
the Plan under the GIC by Confederation or other responsible third
parties with respect to the GIC; and (f) The repayment of the Loan will
be waived to the extent the amount of the Loan exceeds the proceeds the
Plan receives from the GIC.

Summary of Facts and Representatives

1. The Employer is a financial service holding company
headquartered in Cleveland, Ohio, and registered under the Federal Bank
Holding Company Act of 1956. The Key Trust Company of Ohio (Key Bank)
is a wholly owned subsidiary of the Employer. Society Corporation
merged with and into KeyCorp effective March 1, 1994, with Society
Corporation becoming the legal successor-in-interest. Also on March 1,
1994, Society Corporation changed its name to KeyCorp. The Society
National Bank, formerly a subsidiary of Society Corporation, is now Key
Bank.
2. The Plan is a defined contribution profit sharing plan with a
cash or deferred arrangement as provided in section 401(k) of the Code,
and an employee stock ownership plan as provided in section 4975(e)(7)
of the Code. Participants are permitted to direct the investment of
their individual accounts among five investment funds, the Equity Fund,
the Money Market Fund, the Balanced Fund, the Bond Fund, and the
Corporation Stock Fund. Key Bank is the trustee for four of the five
investment funds, and Wachovia Bank of North Carolina is the Trustee of
the Plan's Corporation Stock Fund. Approximately 21,000 employees of
the

[[Page 33872]]
Employer and its affiliates participate in the Plan. The Plan had
assets of $80.8 million as of April 24, 1995.
3. On April 19, 1990, Society National Bank (now, Key Bank) as
trustee for the Society Corporation Employee Stock Purchase and Savings
Plan (now, the Plan) entered into an agreement with Confederation's
Atlanta, Georgia office to purchase the GIC. Under the terms of the
GIC, the Plan deposited $1 million at a guaranteed interest rate of
9.4% for 5 years. Pursuant to the terms of the GIC, interest of $94,000
was to be paid on April 16 of each year until the expiration date of
the GIC on April 16, 1995. On April 16, 1995 a final payment of
$1,094,000 was due to the Plan. In accordance with the terms of the
GIC, all interest due was paid to the Plan through April 1994.
On August 11, 1994, the Canadian operations of Confederation were
placed in conservatorship and rehabilitation by Canadian regulators.
The next day, August 12, 1994, the Michigan Insurance Commission
similarly placed Confederation's United States operations into
conservatorship and rehabilitation.^{14 Consequently, on April 16,
1995, the final payment of $1,094,000 due the Plan under the GIC was
not paid. In addition, the applicant represents that it is uncertain as
to what portion of the defaulted interest and principal will be paid to
the Plan and what timeframe and payment terms will be forthcoming as
part of the rehabilitation proceedings.

^{14 The Department notes that the decisions to acquire and
hold the GIC are governed by the fiduciary responsibility provisions
of Part 4, Subtitle B, of 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.
---------------------------------------------------------------------------

4. In order to prevent any loss to the Plan, the Employer wishes to
make the Loan under the terms described herein. The amount of the Loan
will be the final payment due the Plan under the GIC ($1,094,000) plus
interest on such amount from April 16, 1995, at the rate of interest
earned by the Plan's Bond Fund to the date of the Loan.
The applicant represents that the Bond Fund is primarily invested
in the Victory Limited Term Income Fund which is an open-end mutual
fund (the Mutual Fund). The Mutual Fund prospectus states that the
Mutual Fund invests in high grade fixed income securities with an
average maturity of between two and five years. In addition, the Bond
Fund holds a second GIC which is not the subject of this proposed
exemption. For the three month period ended March 31, 1995, the Bond
Fund had a return of 2.87%.
5. No interest or other expenses will be paid by the Plan pursuant
to the transaction. Repayment of the Loan is limited to the amounts
received by the Plan from Confederation or any other responsible third
parties making payment on behalf of Confederation. The Employer will
have no recourse against the Plan or any participants or beneficiaries
for additional funds to repay the Loan. To the extent the amounts
received from Confederation and responsible third parties are
insufficient to repay the Loan, repayment will be waived. In no event
will the repayment exceed the amount of the Loan.
6. In summary, the applicant represents that the proposed
transaction will satisfy the criteria of section 408(a) of the Act
because: (a) The Plan will receive the full amount due under the GIC
plus interest from the GIC's maturity date to the date of the Loan; (b)
no interest or other expenses will be paid by the Plan; (c) the
repayment of the Loan is restricted to amounts received from
Confederation and other responsible third parties with respect to the
GIC; (d) the repayment will not exceed the amount of the Loan; and (e)
repayment will be waived to the extent that the proceeds received with
respect to the GIC are less than the amount of the Loan.

NOTICE TO INTERESTED PERSONS: Notice to interested persons will be
provided within 30 days of the 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 in the Federal Register.FOR FURTHER
INFORMATION CONTACT: Charles S. Edelstein 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 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 26th day of June, 1995.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, Department of Labor.
[FR Doc. 95-16063 Filed 6-28-95; 8:45 am]
BILLING CODE 4510-29-P}}}}}}}}}}}}}}

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Document Information

Effective Date:: 5/29/1990
Published:: 06/29/1995
Department:: Pension and Welfare Benefits Administration
Entry Type:: Notice
Action:: Notice of proposed exemptions.
Document Number:: 95-16063
Dates:: If granted this exemption will be effective as of May 29, 1990.
Pages:: 33859-33872 (14 pages)
Docket Numbers:: Application No. D-09582, et al.
PDF File:: 95-16063.pdf