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Secretary of Labor Thomas E. Perez
Proposed Exemptions; Budge Clinic Profit Sharing Plan and Trust [Notices] [03/12/1996]

EBSA (Formerly PWBA) Federal Register Notice

Proposed Exemptions; Budge Clinic Profit Sharing Plan and Trust [03/12/1996]

[PDF Version]

Volume 61, Number 49, Page 10014-10025

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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-10142, et al.]

 
Proposed Exemptions; Budge Clinic Profit Sharing Plan and Trust 
(the Plan)

AGENCY: Pension and Welfare Benefits Administration, Labor.


[[Page 10015]]

ACTION: Notice of proposed exemptions.

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

Written Comments and Hearing Requests

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

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

Notice to Interested Persons

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

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

Budge Clinic Profit Sharing Plan and Trust (the Plan), Located in 
Logan, Utah

[Application No. D-10142]

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 to the proposed sale of certain improved real 
property located in Logan, Utah (the Property) by the Plan to IHC 
Health Services, Inc., a party in interest with respect to the Plan; 
provided that the following conditions are satisfied:
    (A) All terms and conditions of the transaction are no less 
favorable to the Plan than those which the Plan could obtain in an 
arm's-length transaction with an unrelated party;
    (B) The Plan receives a cash purchase price for the Property which 
is no less than the fair market value of the Property as of the sale 
date; and
    (C) The Plan does not incur any expenses or suffer any loss with 
respect to the transaction.

Summary of Facts and Representations

    1. The Plan is a defined contribution pension plan with 111 
participants and total assets of $7,070,904 as of December 31, 1994. 
The Plan is sponsored by the Budge Clinic, Inc. (the Employer), a Utah 
professional corporation engaged in the provision of medical services 
in Logan, Utah. Effective September 12, 1995, substantially all of the 
assets of the Employer were acquired (the Acquisition) by IHC Health 
Services, Inc. (IHC). IHC is a wholly-owned subsidiary of Intermountain 
Health Care, Inc., the subsidiaries and affiliates of which provide 
health care through a system of hospitals, clinics, HMOs, and PPOs in 
Utah, Wyoming and Idaho. The Plan's trustee is Neal Byington (the 
Trustee), an employee of the Employer.
    2. The Employer's place of business is a clinic facility (the 
Clinic) located at 225 East 400 North in Logan, Utah. The Clinic 
consists of a 22,374 square foot medical clinic building (the Building) 
and adjacent parking area situated on a commercially-zoned lot (the 
Land) measuring 74,923 square feet. The Employer owns 24,298 square 
feet of the Land, which is additional parking space at the rear of the 
Clinic lot (the Employer Property). The remaining 50,625 square feet of 
the Land, occupied by paved parking space and the Building (together, 
the Plan Property), are owned by the Plan and leased to the Employer 
pursuant to a 21-year lease (the Lease) executed on January 1, 1980. 
The Employer's lease of the Property from the Plan is exempt from the 
prohibited transactions provisions of the Act by virtue of an 
individual administrative exemption, Prohibited Transaction Exemption 
81-97 (PTE 81-97, 46 FR 53815, October 30, 1981). The interests of the 
Plan under the Lease are represented by an independent fiduciary (the 
Fiduciary), who protects the Plan's interests and monitors the 
Employer's compliance with the terms and conditions of the Lease. Upon 
commencement of the Lease, the Fiduciary was Roland R. Hancey, an 
officer with Zion's First National Bank (the Bank) in Logan, Utah, but 
Mr. Hancey has retired. The successor to Mr. Hancey as independent 
fiduciary is Karl Ward, a trust officer with the Bank who continues to 
serve as Fiduciary under the Lease and for purposes of PTE 81-97.
    3. The Employer represents that as part of the Acquisition, 
virtually all of the employees of the Employer have become employees of 
IHC. The Employer and IHC have agreed that the Plan will be terminated 
effective December 31, 1995, and they intend to offer all Plan 
participants the opportunity to receive a cash distribution of their 
account balances in the Plan or to ``roll over'' their account balances 
into an I.R.A. or into the defined contribution plan maintained by IHC. 
As part of the Acquisition, IHC

[[Page 10016]]
has agreed to purchase the Plan Property from the Plan, in order to 
enable the rapid liquidation of that Plan asset and to secure for the 
Employer the continued use and occupancy of the Plan Property. The 
Employer and IHC are requesting an exemption to permit this purchase 
transaction under the terms and conditions described herein.
    4. It is proposed that IHC will make a single cash payment to the 
Plan for the Plan Property in the amount of no less than the fair 
market value of the Plan Property as of the sale date, but in no event 
less than $1,180,000. The Plan Property has been appraised by Thomas D. 
Singleton, MAI (Singleton), a professional independent real estate 
appraiser in Logan, Utah. Singleton represents that as of December 31, 
1994, the Plan Property had a fair market value of $1,180,000. 
Singleton's appraisal recognizes the Employer's ownership of an 
adjacent parcel, the Employer Property, as well as the Employer's 
proposal to purchase the Plan Property, and the resulting valuation 
reflects a premium price for the Plan Property because of the 
Employer's current and proposed occupancy of the Property and its 
ownership of the adjacent parcel. Singleton states that he based the 
appraisal on the assumption that the Employer will continue to lease/
occupy the Plan Property because the value would likely decrease if the 
Employer were to vacate and move elsewhere, due to (a) the local 
market's inability to support more than one clinic of a size comparable 
to the Employer, and (b) the market trend toward greater centralization 
of medical facilities near major hospital campuses, such as the Logan 
Hospital which has relocated to a different part of the city. Regarding 
the Employer's ownership of the adjacent Employer Property, Singleton 
determined that it would not be economically feasible to separate the 
adjoining parcels physically or to consider them separately for 
valuation purposes. Singleton determined the value of the Plan Property 
by deducting from his valuation of the entire combined parcel his 
estimate of the value of the Employer Property. As part of the proposed 
purchase transaction, Singleton's appraisal will be updated as of the 
purchase date, and the purchase price will be the greater of $1,180,000 
or the fair market value as of the sale date in accordance with the 
update of Singleton's appraisal. The Plan will not incur any expenses 
related to the transaction. The Employer will continue to occupy the 
Plan Property under the Lease through the date of the proposed 
transaction, and thereafter the Employer will occupy the Clinic under 
the authority of IHC. The Employer represents that the proposed 
transaction is in the best interests and protective of the participants 
and beneficiaries of the Plan because it will enable the Plan to make 
allocations of cash to the Accounts representing their pro-rata 
interests in the Plan Property as a Plan asset, and the Plan will 
receive a purchase price of no less than the fair market value of the 
Plan Property at the time of the transaction.
    5. The Fiduciary represents that there have been no events of 
default by the Employer under the Lease and that each rental payment 
due under the Lease has been timely made to the Plan. The Fiduciary 
states that he has caused the Plan Property to be appraised 
periodically for its fair market rental value as required under the 
Lease and that the rent payable under the Lease has been increased in 
accordance with such appraisals. The Fiduciary represents that in all 
respects the Employer has been and continues to be in compliance with 
the terms and conditions of the Lease. The Trustee also represents that 
there have never been any events of default under the Lease.
    6. In summary, the applicant represents that the proposed 
transaction satisfies the criteria of section 408(a) of the Act for the 
following reasons: (a) The Plan, which is terminating, will receive 
cash for the Plan Property for allocation to the Accounts on a pro-rata 
basis, to enable Plan participants to receive cash distributions or to 
``roll over'' into another plan or an I.R.A; (b) The purchase price 
will be no less than the fair market value of the Plan Property as of 
the sale date as determined by Singleton's updated appraisal, and in no 
event less than $1,180,000; and (c) the Plan will not incur any 
expenses related to the proposed transaction.

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

C.C.L. Label, Inc., 401(k) Profit-Sharing Plan (the Plan), Located in 
Grand Rapids, Michigan

[Application No. D-10168]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted, the restrictions of section 406(a), 406 (b)(1) and (b)(2) 
of the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the 
Code, shall not apply to the proposed sale by the Plan of certain 
publicly traded limited partnership interests (the Interests) to CCL 
Label, Inc. (CCL), a party in interest with respect to the Plan, 
provided that the following conditions are satisfied: (1) the sale is a 
one-time transaction for cash; (2) the Plan pays no commissions nor 
other expenses relating to the sale; and (3) the purchase price is the 
greater of: (a) the fair market value of the Interests as of the date 
of the sale, or (b) the original acquisition cost of the Interests.

Summary of Facts and Representations

    1. The Plan is a profit sharing plan sponsored by CCL. CCL, a 
Michigan corporation, is a member of a controlled group of corporations 
and is engaged in the manufacture of decorative labels. The Plan has 
approximately 481 participants and beneficiaries. As of December 31, 
1994, the Plan had total assets of approximately $9,914,333.31. The 
trustee of the Plan is Comerica Bank, N.A.
    2. Among the assets of the Plan are the Interests, which are 5,644 
shares of the Aetna Real Estate Association Partnership (the 
Partnership). The Plan acquired the Interests on January 1, 1989, when 
the American Design, Inc. Profit Sharing Retirement Plan (the American 
Design Plan) was merged into, and survived by, the Plan. The American 
Design Plan acquired the Interests in 1986 for a total of $112,880 ($20 
per share). The Partnership has made cash distributions with respect to 
the Interests in the cumulative amount of $52,037.68 ($9.22 per share), 
as of November 15, 1995.
    The Partnership is open-ended, with no set term. The Partnership 
originally invested in 15 properties, two of which have been sold, 
leaving thirteen. The applicant represents that the Partnership intends 
to continue holding the remaining 13 properties until the real estate 
market has completely rebounded from the depressed prices of the past 
few years.
    3. The applicant represents that although the Interests are 
publicly traded, they are very thinly traded and generally sell for 
considerably less than their net asset value.<SUP>1 Moreover, the net 
asset value of the Interests has been

[[Page 10017]]
declining. As of December 31, 1994, the net asset value of the 
Interests as determined by Independent Property Appraisals, an 
independent valuation service, was $14.96 per share, a total of 
$84,434.24. A summary of the trades of other shares of the Partnership 
on the secondary market for the period between February 1, 1995 and 
February 28, 1995 as reported in the Investment Advisor shows that the 
average price per share during that period was $7.52, which would make 
the Interests worth $42,443.

     <SUP>1  The Department expresses no opinion herein on whether 
the acquisition and holding of the Units by the Plan violated any of 
the provisions of Part 4 of Title I in the Act.
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    4. In order to divest the Plan of an under-performing asset, CCL 
proposes to purchase the Interests from the Plan for the greater of: 
(a) The fair market value of the Interests as of the date of the sale, 
or (b) the Interests' original acquisition cost to the American Design 
Plan. Because the fair market value of the Interests is less than their 
acquisition cost, CCL will purchase the Interests from the Plan for the 
latter amount. Accordingly, CCL will pay the Plan a purchase price of 
$112,880. Taking into account a purchase price of $112,880 and all cash 
distributions received, the applicant represents that the Interests 
will provide a simple average annual return of approximately five 
percent for each of the nine years that the Plan (and its predecessor) 
have held the Interests. The sale will be a one-time transaction for 
cash, and the Plan will pay no commissions nor other expenses relating 
to the sale.
    The applicant represents that the proposed transaction is in the 
interests of the Plan because the Plan cannot sell the Interests on the 
open market without incurring a substantial loss. The proceeds from the 
sale are to be redirected into more productive investments.
    5. In summary, the applicant represents that the proposed 
transaction satisfies the statutory criteria for an exemption under 
section 408(a) of the Act for the following reasons: (1) The sale will 
be a one-time transaction for cash; (2) the Plan will pay no 
commissions nor other expenses relating to the sale; and (3) the 
purchase price will be the greater of: (a) The fair market value of the 
Interests as of the date of the sale, or (b) the original acquisition 
cost of the Interests.

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 shall be given to all interested 
persons by personal delivery and by first-class mail within 10 days of 
the date of publication of the notice of pendency 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/or to request a 
hearing with respect to the proposed exemption. Comments and requests 
for a hearing are due within 40 days of the date of publication of this 
notice in the Federal Register.

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

Dauphin Deposit Bank and Trust Company, Located in Harrisburg, 
Pennsylvania

[Application No. D-10187]

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, August 10, 1990).

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

    If the exemption is granted, the restrictions of sections 406(a) 
and 406(b) of the Act and the sanctions resulting from the application 
of section 4975 of the Code, by reason of section 4975(c)(1) (A) 
through (F) of the Code, shall not apply to the proposed in-kind 
transfer of assets of plans for which Dauphin Deposit Bank and Trust 
Company (Dauphin) acts as a fiduciary (the Client Plans), other than 
plans established and maintained by Dauphin (the Banks Plans), that are 
held in certain collective investment funds maintained by Dauphin 
(CIFs) in exchange for shares of the Marketvest Funds (the Funds), 
open-end investment companies registered under the Investment Company 
Act of 1940 (the 1940 Act), in situations where Dauphin acts as 
investment advisor for the Fund and may provide some other ``Secondary 
Service'' to the Fund as defined in Section V(h), in connection with 
the termination of such CIFs, provided that the following conditions 
and the general conditions of Section III are met:
    (a) No sales commissions or other fees are paid by the Client Plans 
in connection with the purchase of Fund shares through the in-kind 
transfer of CIF assets, and no redemption fees are payable in 
connection with the sale of such shares by the Client Plans to the 
Funds.
    (b) Each Client Plan receives shares of a Fund which have a total 
net asset value that is equal to the value of the Plan's pro rata share 
of the assets of the CIF on the date of the in-kind transfer, based on 
the current market value of the CIF's assets as determined in a single 
valuation performed in the same manner at the close of that business 
day using independent sources in accordance with Rule 17a-7 of the 
Securities and Exchange Commission (SEC) under the 1940 Act (see 17 CFR 
270. 17a-7) and the procedures established by the Funds pursuant to 
Rule 17a-7 for the independent valuation of such assets. Such 
procedures must require that all securities for which a current market 
price cannot be obtained by reference to the last sale price for 
transactions reported on a recognized securities exchange or NASDAQ be 
valued based on an average of the highest current independent bid and 
lowest current independent offer, as of the close of business on the 
Friday preceding the weekend of the CIF transfers, determined on the 
basis of reasonable inquiry from at least three sources that are 
broker-dealers or pricing services independent of Dauphin.
    (c) All or a pro rata portion of the assets of a Client Plan held 
in a CIF are transferred in-kind to the Funds in exchange for shares of 
such Funds.
    (d) A second fiduciary who is independent of and unrelated to 
Dauphin (the Second Fiduciary) receives advance written notice of the 
in-kind transfer of assets of the CIFs and full written disclosure of 
information concerning the Funds, including:
    (1) A current prospectus for each Fund in which a Client Plan is 
considering investing;
    (2) A statement describing the fees for investment advisory or 
similar services, any secondary services as defined in Section IV(h), 
and all other fees to be charged to or paid by the Client Plan and by 
the Funds, including the nature and extent of any differential between 
the rates of such fees;
    (3) The reasons why Dauphin considers investing in the Fund is an 
appropriate investment decision for the Client Plan;

[[Page 10018]]

    (4) A statement describing whether there are any limitations 
applicable to Dauphin with respect to which assets of a Client Plan may 
be invested in a Fund, and, if so, the nature of such limitations; and
    (5) Upon request of the Second Fiduciary, a copy of the proposed 
exemption and/or a copy of the final exemption, if granted, once such 
documents are published in the Federal Register.
    (e) After consideration of the foregoing information, the Second 
Fiduciary authorizes in writing the in-kind transfer of the Client 
Plan's CIF assets to a corresponding Fund in exchange for shares of the 
Fund.
    (f) For all in-kind transfers of CIF assets to a Fund, Dauphin 
sends by regular mail to each affected Client Plan the following 
information:
    (1) Within 30 days after completion of the transaction, a written 
confirmation containing:
    (i) The identity of each security that was valued for purposes of 
the transaction in accordance with Rule 17a-7(b)(4);
    (ii) The price of each such security involved in the transaction;
    (iii) The identity of each pricing service or market-maker 
consulted in determining the value of such securities; and
    (2) Within 90 days after completion of each in-kind transfer, a 
written confirmation containing:
    (i) The number of CIF units held by the Client Plan immediately 
before the transfer, the related per unit value, and the total dollar 
amount of such CIF units; and
    (ii) The number of shares in the Funds that are held by the Client 
Plan following the transfer, the related per share net asset value, and 
the total dollar amount of such shares.
    (g) The conditions set forth in paragraphs (e), (f) and (n) of 
Section II below are satisfied.

Section II--Exemption for Receipt of Fees

    If the exemption is granted, the restrictions of section 406(a) and 
406(b) of the Act and the sanctions resulting from the application of 
section 4975 of the Code, by reason of section 4975(c)(1) (A) through 
(F) of the Code, shall not apply to the proposed receipt of fees by 
Dauphin from the Funds for acting as an investment adviser for the 
Funds as well as for providing other services to the Funds which are 
``Secondary Services'' as defined in Section V(h), in connection with 
the investment by the Client Plans in shares of the Funds, provided 
that the following conditions and the general conditions of Section III 
are met:
    (a) Each Client Plan satisfies either (but not both) of the 
following:
    (1) The Client Plan receives a cash credit of such Plan's 
proportionate share of all fees charged to the Funds by Dauphin for 
investment advisory services, including any investment advisory fees 
paid by Dauphin to third party sub-advisers, no later than the same day 
as the receipt of such fees by Dauphin. The crediting of all such fees 
to the Client Plans by Dauphin is audited by an independent accounting 
firm on at least an annual basis to verify the proper crediting of the 
fees to each Plan.
    (2) The Client Plan does not pay any Plan-level investment 
management fees, investment advisory fees, or similar fees to Dauphin 
with respect to any of the assets of such Plan which are invested in 
shares of any of the Funds. This condition does not preclude the 
payment of investment advisory or similar fees by the Funds to Dauphin 
under the terms of an investment management agreement adopted in 
accordance with section 15 of the 1940 Act, nor does it preclude the 
payment of fees for Secondary Services to Dauphin pursuant to a duly 
adopted agreement between Dauphin and the Funds.
    (b) The price paid or received by a Client Plan for shares in a 
Fund is the net asset value per share at the time of the transaction, 
as defined in Section V(e), and is the same price which would have been 
paid or received for the shares by any other investor at that time.
    (c) Dauphin, including any officer or director of Dauphin, does not 
purchase or sell shares of the Funds from or to any Client Plan.
    (d) No sales commissions are paid by the Client Plans in connection 
with the purchase or sale of shares of the Funds and no redemption fees 
are paid in connection with the sale of shares by the Client Plans to 
the Funds.
    (e) For each Client Plan, the combined total of all fees received 
by Dauphin for the provision of services to a Client Plan, and in 
connection with the provision of services to the Funds in which the 
Client Plan may invest, are not in excess of ``reasonable 
compensation'' within the meaning of section 408(b)(2) of the Act.
    (f) Dauphin does not receive any fees payable pursuant to Rule 12b-
1 under the 1940 Act in connection with the transactions.
    (g) The Client Plans are not employee benefit plans sponsored or 
maintained by Dauphin.
    (h) The Second Fiduciary receives, in advance of any initial 
investment by the Client Plan in a Fund, full and detailed written 
disclosure of information concerning the Funds, including but not 
limited to:
    (1) A current prospectus for each Fund in which a Client Plan is 
considering investing;
    (2) A statement describing the fees for investment advisory or 
similar services, any secondary services as defined in Section IV(h), 
and all other fees to be charged to or paid by the Client Plan and by 
the Funds, including the nature and extent of any differential between 
the rates of such fees;
    (3) The reasons why Dauphin may consider such investment to be 
appropriate for the Client Plan;
    (4) A statement describing whether there are any limitations 
applicable to Dauphin with respect to which assets of a Client Plan may 
be invested in the Funds, and if so, the nature of such limitations; 
and
    (5) Upon request of the Second Fiduciary, a copy of the proposed 
exemption and/or a copy of the final exemption, if granted, once such 
documents are published in the Federal Register.
    (i) After consideration of the information described above in 
paragraph (h), the Second Fiduciary authorizes in writing the 
investment of assets of the Client Plan in each particular Fund and the 
fees to be paid by such Funds to Dauphin.
    (j) All authorizations made by a Second Fiduciary regarding 
investments in a Fund and the fees paid to Dauphin are subject to an 
annual reauthorization wherein any such prior authorization referred to 
in paragraph (i) shall be terminable at will by the Client Plan, 
without penalty to the Client Plan, upon receipt by Dauphin of written 
notice of termination. A form expressly providing an election to 
terminate the authorization described in paragraph (i) above (the 
Termination Form) with instructions on the use of the form must be 
supplied to the Second Fiduciary no less than annually; provided that 
the Termination Form need not be supplied to the Second Fiduciary 
pursuant to this paragraph sooner than six months after such 
Termination Form is supplied pursuant to paragraph (l) below, except to 
the extent required by such paragraph in order to disclose an 
additional service or fee increase. The instructions for the 
Termination Form must include the following information:
    (1) The authorization is terminable at will by the Client Plan, 
without penalty to the Client Plan, upon receipt by

[[Page 10019]]
Dauphin of written notice from the Second Fiduciary; and
    (2) Failure to return the Termination Form will result in continued 
authorization of Dauphin to engage in the transactions described in 
paragraph (i) on behalf of the Client Plan.
    (k) For each Client Plan using the fee structure described in 
paragraph (a)(1) above with respect to investments in a particular 
Fund, the Second Fiduciary of the Client Plan receives full written 
disclosure in a Fund prospectus or otherwise of any increases in the 
rates of fees charged by Dauphin to the Funds for investment advisory 
services.
    (l) (1) For each Client Plan using the fee structure described in 
paragraph (a)(2) above with respect to investments in a particular 
Fund, an increase in the rate of fees paid by the Fund to Dauphin 
regarding any investment management services, investment advisory 
services, or similar services that Dauphin provides to the Fund over an 
existing rate for such services that had been authorized by a Second 
Fiduciary in accordance with paragraph (i) above; or
    (2) For any Client Plan under this proposed exemption, an addition 
of a Secondary Service (as defined in Section IV(h) below) provided by 
Dauphin to the Fund for which a fee is charged, or an increase in the 
rate of any fee paid by the Funds to Dauphin for any Secondary Service 
that results either from an increase in the rate of such fee or from 
the decrease in the number of kind of services performed by Dauphin for 
such fee over an existing rate for such Secondary Service which had 
been authorized by the Second Fiduciary of a Client Plan in accordance 
with paragraph (i) above;
    Dauphin will, at least 30 days in advance of the implementation of 
such additional service for which a fee is charged or fee increase, 
provide a written notice (which may take the form of a proxy statement, 
letter, or similar communication that is separate from the prospectus 
of the Fund and which explains the nature and amount of the additional 
service for which a fee is charged or of the increase in fees) to the 
Second Fiduciary of the Client Plan. Such notice shall be accompanied 
by a Termination Form with instructions as described in paragraph (i) 
above.
    (m) On an annual basis, Dauphin provides the Second Fiduciary of a 
Client Plan investing in the Funds with:
    (1) A copy of the current prospectus for the Funds in which the 
Client Plan invests and, upon such fiduciary's request, a copy of the 
Statement of Additional Information for such Funds which contains a 
description of all fees paid by the Funds to Dauphin;
    (2) A copy of the annual financial disclosure report prepared by 
Dauphin which includes information about the Fund portfolios as well as 
audit findings of an independent auditor within 60 days of the 
preparation of the report; and
    (3) Oral or written responses to inquiries of the Second Fiduciary 
as they arise.
    (n) With respect to each of the Funds in which a Client Plan 
invests, in the event such Fund places brokerage transactions with 
Dauphin, Dauphin will provide the Second Fiduciary of such Plan at 
least annually with a statement specifying:
    (1) The total, expressed in dollars, of brokerage commissions of 
each Fund that are paid to Dauphin by such Fund;
    (2) The total, expressed in dollars, of brokerage commissions of 
each Fund that are paid by such Fund to brokerage firms unrelated to 
Dauphin;
    (3) The average brokerage commissions per share, expressed as cents 
per share, paid to Dauphin by each Fund; and
    (4) The average brokerage commissions per share, expressed as cents 
per share, paid by each Fund to brokerage firms unrelated to Dauphin.
    (o) All dealings between the Client Plans and the Funds are on a 
basis no less favorable to the Plans than dealings with other 
shareholders of the Funds.

Section III--General Conditions

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

Section IV--Definitions

    For purposes of this proposed exemption:
    (a) The term ``Dauphin'' means Dauphin Deposit Bank and Trust 
Company and any affiliate thereof as defined below in paragraph (b) of 
this section.
    (b) An ``affiliate'' of a person includes:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person;
    (2) Any officer, director, employee, relative, or partner in any 
such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (c) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (d) The term ``Fund'' or ``Funds'' shall include the Marketvest 
Funds, Inc. or any other diversified open-end investment company or 
companies registered under the 1940 Act for which Dauphin serves as an 
investment adviser and may also serve as a custodian, dividend 
disbursing agent, shareholder servicing agent, transfer agent, Fund 
accountant, or provide some other ``Secondary Service'' (as defined 
below in paragraph (h) of this Section) which has been approved by such 
Funds.
    (e) The term ``net asset value'' means the amount for purposes of 
pricing all purchases and sales calculated by dividing the value of all 
securities, determined by a method as set forth in the Fund's 
prospectus and statement of additional information, and other assets 
belonging to the Fund or portfolio of the Fund, less the liabilities 
charged to each such portfolio or Fund, by the number of outstanding 
shares.
    (f) The term ``relative'' means a ``relative'' as that term is 
defined in section 3(15) of the Act (or a ``member

[[Page 10020]]
of the family'' as that term is defined in section 4975(e)(6) of the 
Code), or a brother, a sister, or a spouse of a brother or a sister.
    (g) The term ``Second Fiduciary'' means a fiduciary of a Client 
Plan who is independent of and unrelated to Dauphin. For purposes of 
this exemption, the Second Fiduciary will not be deemed to be 
independent of and unrelated to Dauphin if:
    (1) Such fiduciary directly or indirectly controls, is controlled 
by, or is under common control with Dauphin;
    (2) Such fiduciary, or any officer, director, partner, employee, or 
relative of the fiduciary is an officer, director, partner or employee 
of Dauphin (or is a relative of such persons);
    (3) Such fiduciary directly or indirectly receives any compensation 
or other consideration for his or her own personal account in 
connection with any transaction described in this proposed exemption.
    If an officer, director, partner or employee of Dauphin (or 
relative of such persons), is a director of such Second Fiduciary, and 
if he or she abstains from participation in (i) the choice of the 
Client Plan's investment adviser, (ii) the approval of any such 
purchase or sale between the Client Plan and the Funds, and (iii) the 
approval of any change in fees charged to or paid by the Client Plan in 
connection with any of the transactions described in Sections I and II 
above, then paragraph (g)(2) of this section shall not apply.
    (h) The term ``Secondary Service'' means a service other than an 
investment management, investment advisory, or similar service, which 
is provided by Dauphin to the Funds. However, for purposes of Section 
II(k), the term ``Secondary Service'' will not include any brokerage 
services provided to the Funds by Dauphin for the execution of 
securities transactions engaged in by the Funds.
    (i) The term ``Termination Form'' means the form supplied to the 
Second Fiduciary which expressly provides an election to the Second 
Fiduciary to terminate on behalf of a Client Plan the authorization 
described in paragraph (h) of Section II. Such Termination Form may be 
used at will by the Second Fiduciary to terminate an authorization 
without penalty to the Client Plan and to notify Dauphin in writing to 
effect a termination by selling the shares of the Funds held by the 
Client Plan requesting such termination within one business day 
following receipt by Dauphin of the form; provided that if, due to 
circumstances beyond the control of Dauphin, the sale cannot be 
executed within one business day, Dauphin shall have one additional 
business day to complete such sale.

EFFECTIVE DATE: If the proposed exemption is granted, the exemption 
will be effective as of March 29, 1996.

Summary of Facts and Representations

    1. Dauphin is a banking corporation of the Commonwealth of 
Pennsylvania that serves as trustee, investment manager and/or 
custodian to employee benefit plans. As of December 31, 1994, Dauphin 
provided trust services to approximately 1,000 employee benefit trusts, 
and had total assets under management of approximately $723 million.
    2. Dauphin acts as a trustee, directed trustee, investment manager, 
and/or custodian for the Client Plans. The Client Plans may include 
various pension, profit sharing, and stock bonus plans as well as 
voluntary employees' beneficiary associations, supplemental 
unemployment benefit plans, simplified employee benefit plans, 
retirement plans for self-employed individuals (i.e. Keogh Plans) and 
individual retirement accounts (IRAs). Some of the Client Plans may be 
participant-directed individual account plans.
    As custodian of a Client Plan, Dauphin is responsible for 
maintaining custody over all or a portion of the Client Plan's assets, 
for providing trust accounting and valuation services, for asset and 
transaction reporting, and for execution and settlement of directed 
transactions. Where Dauphin serves as trustee or directed trustee, it 
is responsible for ownership of the assets of the Client Plan, and may 
provide additional trust services such as benefit payments, loan 
processing, and participant accounting. Where Dauphin is also acting as 
the investment manager, Dauphin has investment discretion over the 
Client Plan's assets and is responsible for implementing the Plan's 
funding policies and investment objectives, executing transactions, and 
periodic performance measurements.
    The Client Plans pay fees in accordance with fee schedules 
negotiated with Dauphin. Fees vary from fixed amounts to asset-based 
amounts, depending on the level of services provided, and may include 
further charges for additional trust services such as processing 
benefit payments.
    Dauphin maintains three CIFs specifically for its employee benefit 
plan trust customers, such as the Client Plans. These CIFs are: (a) The 
Employee Benefit Equity Fund; (b) the Employee Benefit Fixed Income 
Fund; and (c) the Employee Benefit Short-Term Fixed Income Fund. The 
CIFs are utilized for those Client Plans for which Dauphin serves as 
trustee and/or investment manager. The applicant states that the CIFs 
allow Dauphin to provide professional investment management with 
appropriate degrees of investment diversification to Client Plans of 
all sizes.
    The specific Client Plans of Dauphin to which this proposed 
exemption, if granted, would apply are those: (a) Whose assets are 
invested in the CIFs and will be transferred to the Funds; or (b) whose 
assets will be invested directly in the Funds.
    However, Dauphin does not seek relief for investments in the Funds 
by the Bank Plans.\2\

    \2\ Dauphin represents that it will comply with the requirements 
of Prohibited Transaction Exemption (PTE) 77-3, 42 FR 18734 (April 
8, 1977), with respect to any investments in the Funds made by the 
Bank Plans. PTE 77-3 permits the acquisition or sale of shares of a 
registered, open-end investment company by an employee benefit plan 
covering only employees of such investment company, employees of the 
investment adviser or principal underwriter for such investment 
company, or employees of any affiliated person (as defined therein) 
of such investment adviser or principal underwriter, provided 
certain conditions are met. The Department is expressing no opinion 
in this proposed exemption regarding whether any of the transactions 
with the Funds by the Bank Plans would be covered by PTE 77-3.
---------------------------------------------------------------------------

    3. The Funds will be a Maryland corporation registered as an open-
end investment company with the SEC under the 1940 Act. The Funds will 
consist of a series of investment portfolios (each a ``Fund'') 
representing distinct investment vehicles, which will have their own 
prospectuses or joint prospectuses with one or more other Funds. The 
shares of each Fund will represent a proportionate interest in the 
assets of that Fund.
    The Funds that will be available for investment in connection with 
the transactions described herein are the following: (a) The Equity 
Fund; (b) the Short-Term Bond Fund; and (c) the Intermediate U.S. 
Government Bond Fund. Additional Funds may be created in the future 
which could be used for investment by the Client Plans.
    The overall management of the Funds, including the negotiation of 
investment advisory contracts, will rest with each Fund's Board of 
Directors, more than a majority of whose members will be independent of 
Dauphin. The Board of Directors will be elected by the shareholders of 
the Funds.
    Dauphin will serve as the investment adviser to each Fund and will 
receive maximum investment advisory fees from each Fund that will vary 
between 0.75% and 1.00% of the Fund's average net assets on an annual 
basis, depending on the particular Fund. However, these

[[Page 10021]]
fees will be subject to voluntary waivers by Dauphin and initially will 
be between 0.49% and 0.80% of the Fund's average net assets. Dauphin 
also will serve as custodian of the Funds and will receive a custodial 
services fee.
    The other service-providers to the Funds will be independent of and 
unaffiliated with Dauphin. Such service-providers currently will 
include: (a) Federated Administrative Services, which will act as the 
Fund's administrator; (b) Edgewood Services, Inc., a subsidiary of 
Federated Investors, which will act as the Fund's distributor; and (c) 
Federated Services Co., which will act as the transfer agent, dividend 
disbursing agent and portfolio accountant for the Fund.
    The Funds will be able to charge a distribution fee of 0.25% of a 
Fund's average net assets, pursuant to Rule 12b-1 under the 1940 Act. 
Dauphin represents that such 12b-1 fees will be dormant at the outset 
of the Funds and will not be charged to the investments of any of the 
Client Plans. Dauphin states that if the 12b-1 fee is activated at any 
time, the Funds will create a separate class of shares not subject to 
the 12b-1 fee, and the Client Plans will be invested in that separate 
class of shares. Therefore, Dauphin will not receive any fees payable 
pursuant to Rule 12b-1 under the 1940 Act in connection with the 
transactions.
    The Funds will also be able to charge fees of 0.25% under a 
shareholder services plan. However, the Client Plans will not be 
subject to these shareholder services fees.
    4. Dauphin will be making the Funds available to the Client Plans 
as replacements for the CIFs. Dauphin believes that there are material 
advantages to the Client Plans from the use of the Funds, and Dauphin's 
customers are interested in having mutual funds available as investment 
vehicles for their employee benefit plan trust accounts. Mutual funds 
are valued on a daily basis, whereas the CIFs were valued monthly. The 
daily valuation permits: (i) Immediate investment of Plan contributions 
in varied types of investments; (ii) greater flexibility in 
transferring assets from one type of investment to another; and (iii) 
daily redemption of investments for purposes of making distributions. 
In addition, information concerning the investment performance of 
mutual funds is generally available each day in newspapers of general 
circulation, which will allow Client Plan sponsors and participants to 
monitor the performance of their investments on a daily basis. 
Furthermore, unlike CIF units, mutual fund shares can be given to 
participants in plan distributions, thus avoiding the expense and delay 
of liquidating plan investments and facilitating roll-overs into IRAs.
    Investments by Client Plans in the Funds will occur in two ways. 
First, the CIFs which are maintained by Dauphin for the Client Plans 
are scheduled to be terminated on March 29, 1996, and the assets of the 
CIFs will be transferred in-kind to the corresponding Funds on behalf 
of those Client Plans for which independent fiduciary approval for the 
transfer is obtained. Second, Client Plans will also be able to make 
direct purchases of Fund shares for cash on an ongoing basis.
    Dauphin states that the price that will be paid or received by a 
Client Plan for shares in a Fund will be the net asset value per share 
at the time of the transaction, as defined in Section V(e), and will be 
the same price which will be paid or received for the shares by any 
other investor at that time. In addition, Dauphin states that no sales 
commissions or redemption fees will be charged in connection with the 
purchase or sale of Fund shares by the Client Plans.
    5. Until March 29, 1996, Dauphin generally will invest assets of 
Client Plans for which it acts as a trustee with investment discretion 
in the CIFs. In addition, certain Client Plans where investment 
decisions are directed by a Second Fiduciary may use a CIF as an 
investment option for individual accounts in the Client Plans. However, 
on Friday, March 29, 1996, Dauphin plans to terminate its three CIFs. 
The assets in the CIFs will be transferred to the Marketvest Equity 
Fund, the Marketvest Intermediate U.S. Government Bond Fund, and the 
Marketvest Short-Term Bond Fund. Each CIF will transfer its assets to 
the corresponding Fund in exchange for shares of the Fund at the then 
current market value of the CIF assets, in accordance with Rule 17a-7 
under the 1940 Act (as discussed below).<SUP>3 The in-kind transfer of 
a Client Plan's CIF assets to the Funds will be subject to the prior 
written consent of the Second Fiduciary for the Client Plan. Any Client 
Plan that does not provide prior written approval for the transfer of 
its CIF assets to the Funds, by the deadline set for such approvals, 
will receive a cash distribution of its pro rata share of the CIF 
assets no later than Friday, March 29, 1996, preceding the transfers.

    \3\ Rule 17a-7 permits transactions between investment funds 
that use the same investment adviser, subject to certain conditions. 
Rule 17a-7 requires, among other things, that such transactions be 
effected at the ``independent current market price'' for each 
security, involve only securities for which market quotations are 
readily available, involve no brokerage commissions or other 
remuneration, and comply with valuation procedures adopted by the 
board of directors of the investment company to ensure that all 
requirements of the Rule are satisfied.
---------------------------------------------------------------------------

    The in-kind transfers of the CIF assets will occur using market 
values for such assets as of the close of business on Friday, March 29, 
1996. The securities transferred from the CIFs will be the same as the 
securities received by the Funds. The value of the securities will be 
determined in a single valuation by Dauphin as investment adviser for 
the Funds, in accordance with the requirement of Rule 17a-7(b) that 
transactions be effected at the ``independent current market price'' of 
the securities.
    Under Rule 17a-7, the ``independent current market price'' for 
specific types of CIF securities involved in the transactions will be 
determined by Dauphin as follows:
    a. If the security is a ``reported security'' as the term is 
defined in Rule 11Aa3-1 under the Securities Exchange Act of 1934 (the 
'34 Act), the last sale price with respect to such security reported in 
the consolidated transaction reporting system (the Consolidated 
System); or, if there are no reported transactions in the Consolidated 
System that day, the average of the highest current independent bid and 
the lowest current independent offer for such security (reported 
pursuant to Rule 11Ac1-1 under the '34 Act), as of the close of 
business on the CIF valuation date.
    b. If the security is not a reported security, and the principal 
market for such security is an exchange, then the last sale on such 
exchange or, if there are no reported transactions on such exchange 
that day, the average of the highest current independent bid and lowest 
current independent offer on the exchange as of the close of business 
on the CIF valuation date.
    c. If the security is not a reported security and is quoted in the 
NASDAQ system, then the average of the highest current independent bid 
and lowest current independent offer reported on Level 1 of NASDAQ as 
of the close of business on the CIF valuation date.
    d. For all other securities, the average of the highest current 
independent bid and lowest current independent offer determined on the 
basis of reasonable inquiry from at least three independent sources as 
of the close of business on the CIF valuation date.
    Dauphin states that it will also send by regular mail to each 
affected Client Plan, not later than 30 days after completion of the 
transactions, a written

[[Page 10022]]
confirmation containing the following information:
    (1) The identity of each security that was valued for purposes of 
the transaction in accordance with Rule 17a-7(b)(4);
    (2) The price of each such security involved in the transaction; 
and
    (3) The identity of each pricing service or market-maker consulted 
in determining the value of such securities. In this regard, securities 
which will be valued in accordance with Rule 17a-7(b)(4) are securities 
for which the current market price cannot be obtained by reference to 
the last sale price for transactions reported on a recognized 
securities exchange or the NASDAQ system. As noted above, such 
securities will be valued based on an average of the highest current 
independent bid and lowest current independent offer, as of the close 
of business on the Friday preceding the weekend of the CIF transfers, 
determined on the basis of reasonable inquiry from at least three 
sources that are broker-dealers or pricing services independent of 
Dauphin.
    Each Client Plan that approves the CIF asset transfers to the Funds 
will receive account statements describing the asset transfers either 
on such Plan's monthly account statement or quarterly account 
statement. These statements will show the disposition of the CIF units 
from the Client Plan account and the acquisition by the account of Fund 
shares. This information will be provided to the affected Client Plans 
with written confirmation of the number of CIF units held by the Client 
Plan immediately before the transfer, the related per unit value and 
the total dollar amount of such CIF units as well as the number of 
shares of the Funds held by the Client Plan following the transfer, the 
related per share net asset value, and the total dollar amount of such 
shares.
    Thus, Dauphin represents that as of Monday, April 1, 1996, Client 
Plans formerly invested in the terminated CIFs will hold Fund shares 
which have the same value, based on the Client Plans' pro rata share of 
the underlying market value of the securities transferred to the Funds, 
as their assets in the CIF as of the close of business on Friday, March 
29, 1996.
    6. Prior to investing a Client Plan's assets in a Fund through an 
in-kind transfer of CIF assets or otherwise, Dauphin will obtain the 
approval of a Second Fiduciary acting for the Client Plan. The Second 
Fiduciary generally will be the Client Plan's named fiduciary, trustee 
(if other than Dauphin), or the sponsoring employer. Dauphin will 
provide the Second Fiduciary with a current prospectus for the Fund and 
a written statement giving full disclosure of the fee structure under 
which either Dauphin's investment advisory and other fees will be 
credited back to the Client Plan or the Plan-level investment 
management fees will be waived. The disclosure statement and the letter 
that precedes the disclosure statement will describe why Dauphin 
believes the investment of a Client Plan's assets in the Funds may be 
appropriate. Dauphin states that these disclosures will be based on the 
requirements of PTE 77-4 (42 FR 18732, April 8, 1977).<SUP>4

    \4\ PTE 77-4, in pertinent part, permits the purchase and sale 
by an employee benefit plan of shares of a registered, open-end 
investment company when a fiduciary with respect to the plan is also 
the investment adviser for the investment company, provided that, 
among other things, the plan does not pay an investment management, 
investment advisory or similar fee with respect to the plan assets 
invested in such shares for the entire period of such investment. 
Section II(c) of PTE 77-4 states that this condition does not 
preclude the payment of investment advisory fees by the investment 
company under the terms of an investment advisory agreement adopted 
in accordance with section 15 of the Investment Company Act of 1940. 
Section II(c) states further that this condition does not preclude 
payment of an investment advisory fee by the plan based on total 
plan assets from which a credit has been subtracted representing the 
plan's pro rata share of investment advisory fees paid by the 
investment company.
---------------------------------------------------------------------------

    On the basis of such information, the Second Fiduciary will 
authorize Dauphin to invest the Client Plan's assets in the Funds and 
to receive fees from the Funds. In connection with the proposed in-kind 
asset transfers from the CIFs, if a Client Plan's Second Fiduciary does 
not provide Dauphin with its approval of the investment in a 
corresponding Fund by the deadline established for approvals of the 
transfers from a CIF, the Client Plan will receive a distribution from 
the CIF prior to such transfers and the distribution will be invested 
in an appropriate investment vehicle for the Client Plan, in accordance 
with the terms of the Plan.
    8. Dauphin will charge investment advisory fees to the Funds in 
accordance with the investment advisory agreements between Dauphin and 
the Funds. These agreements will be approved by the independent members 
of the Board of Directors of the Funds, in accordance with the 
applicable provisions of the 1940 Act, and any subsequent changes in 
the fees will have to be approved by such Directors. These fees also 
will not be increased without the approval of the shareholders of the 
affected Funds. The fees will be paid monthly by the Funds. In 
addition, Dauphin will charge fees for custody services it will provide 
to the Funds in accordance with a custodial services agreement with the 
Funds.
    Dauphin will avoid charging the Client Plans duplicative investment 
management fees by either: (a) Crediting the Client Plan's pro rata 
share of the Fund advisory fees back to the Client Plan; or (b) waiving 
any investment management fee for the Client Plan at the Plan-level.
    The ``crediting'' fee structure will be designed to preserve the 
negotiated fee rates of the Client Plans so as to minimize the impact 
of the change to the Funds on a Client Plan's fees. Dauphin will charge 
a Client Plan its standard fees as applicable to the particular Client 
Plan for serving as trustee, directed trustee, investment manager or 
custodian. At the beginning of each month, and in no event later than 
the same day as the payment of investment advisory fees by the Funds to 
Dauphin for the previous month, Dauphin will credit to each Client Plan 
in cash its proportionate share of all investment advisory fees charged 
by Dauphin to the Funds for the previous month. The credit will include 
the Client Plan's share of any investment advisory fees paid by Dauphin 
to third party sub-advisors.
    Dauphin states that the credit will not include the custodial fees 
payable by the Funds to Dauphin because the custodial services rendered 
at the Fund-level will not be duplicative of any services provided 
directly to the Client Plan. The custodial services to the Fund will 
involve maintaining custody and providing reporting relative to the 
individual securities owned by the Fund. The services to the Client 
Plan will involve maintaining custody over all or a portion of the 
Client Plan's assets (which may include Fund shares, but not the assets 
underlying the Fund shares), providing trust accounting and participant 
accounting (if applicable), providing asset and transaction reporting, 
execution and settlement of directed transactions, processing benefit 
payments and loans, maintaining participant accounts, valuing plan 
assets, conducting non-discrimination testing, preparing Forms 5500 and 
other required filings, and producing statements and reports regarding 
overall plan and individual participant holdings. Dauphin states that 
these trust services will be necessary regardless of whether the Client 
Plan's assets are invested in the Funds. Thus, Dauphin represents that 
its proposed receipt of fees for both secondary services at the Fund-
level and trustee services at the Plan-level will not involve the 
receipt of ``double fees'' for duplicative services to the Client Plans 
because a Fund will be

[[Page 10023]]
charged for custody and other services relative to the individual 
securities owned by the Fund, while a Client Plan will charged for the 
maintenance of Plan accounts reflecting ownership of the Fund shares 
and other assets.<SUP>5

     5  The Department notes that although certain transactions and 
fee arrangements are the subject of an administrative exemption, a 
Client Plan fiduciary must still adhere to the general fiduciary 
responsibility provisions of section 404 of the Act. Thus, the 
Department cautions the fiduciaries of the Client Plans investing in 
the Funds that they will have an ongoing duty under section 404 of 
the Act to monitor the services provided to the Client Plans to 
assure that the fees paid by the Client Plans for such services are 
reasonable in relation to the value of the services provided. Such 
responsibilities will include determinations that the services 
provided are not duplicative and that the fees are reasonable in 
light of the level of services provided.
    The Department also notes that Dauphin, as a trustee and 
investment manager for a Client Plan in connection with the decision 
to invest Client Plan assets in the Funds, will have a fiduciary 
duty to monitor all fees paid by a Fund to Dauphin, its affiliates, 
and third parties for services provided to the Fund to ensure that 
the totality of such fees will be reasonable and will not involve 
the payment of any ``double'' fees for duplicative services to the 
Fund by such parties.
---------------------------------------------------------------------------

    Dauphin represents that for each Client Plan, the combined total of 
all fees it will receive directly and indirectly from the Client Plans 
for the provision of services to the Plans and/or to the Funds will not 
be in excess of ``reasonable compensation'' within the meaning of 
section 408(b)(2) of the Act.<SUP>6

     6  The Department is expressing no opinion in this proposed 
exemption as to whether the fee arrangements discussed herein will 
comply with section 408(b)(2) of the Act and the regulations 
thereunder (see 29 CFR 2550.408b-2).
---------------------------------------------------------------------------

    9. Dauphin will maintain a system of internal accounting controls 
for the crediting of all fees to the Client Plans. In addition, Dauphin 
will retain the services of KPMG Peat Marwick (the Auditor), an 
independent accounting firm, to audit annually the crediting of fees to 
the Client Plans under this program. Such audits will provide 
independent verification of the proper crediting to the Client Plans.
    In its annual audit of the credit program, the Auditor will: (i) 
Review and test compliance with the specific operational controls and 
procedures established by Dauphin for making the credits; (ii) verify 
on a test basis the monthly credit factors transmitted to Dauphin by 
the Funds; (iii) verify on a test basis the proper assignment of 
identification fields to the Client Plans; (iv) verify on a test basis 
the credits paid in total to the sum of all credits paid to each Client 
Plan; (v) recompute, on a test basis, the amount of the credit 
determined for selected Client Plans and verify that the credit was 
made to the proper Client Plan account.
    In the event either the internal audit by Dauphin or the 
independent audit by the Auditor identifies an error made in the 
crediting of fees to the Client Plans, Dauphin will correct the error. 
With respect to any shortfall in credited fees to a Client Plan, 
Dauphin will make a cash payment to the Client Plan equal to the amount 
of the error plus interest paid at money market rates offered by 
Dauphin for the period involved. Any excess credits made to a Client 
Plan will be corrected by an appropriate deduction from the Client Plan 
account or reallocation of cash during the next payment period after 
discovery of the error to reflect accurately the amount of total 
credits due to the Client Plan for the period involved.
    10. Dauphin represents that the use of the ``crediting'' fee 
structure will be available for any investments made by Client Plans in 
the Funds. The use of this fee structure must be approved prior to the 
Client Plan's initial investment in the Funds by a Second Fiduciary 
acting for the Client Plan. The Second Fiduciary will receive full and 
detailed written disclosure of information concerning the Funds in 
advance of any investment by the Client Plan in the Funds, including 
the Fund prospectuses as well as a separate statement describing the 
crediting fee structure.
    After consideration of such information, the Second Fiduciary will 
authorize in writing the investment of assets of the Client Plan in one 
or more specified Funds and the fees to be paid by the Funds to 
Dauphin. In addition, the Second Fiduciary of each Client Plan invested 
in a particular Fund will receive full written disclosure, in a 
statement separate from the Fund prospectus, of any proposed increases 
in the rates of fees charged by Dauphin to the Funds for secondary 
services which are above the rates reflected in the Fund prospectuses, 
at least thirty (30) days prior to the effective date of such increase.
    In the event that Dauphin provides an additional secondary service 
for which a fee is charged or there is an increase in the rate of fees 
paid by the Funds to Dauphin for any secondary service, including any 
increase resulting from a decrease in the number or kind of services 
performed by Dauphin for such fees in connection with a previously 
authorized secondary service, Dauphin will, at least 30 days in advance 
of the implementation of such additional service or fee increase, 
provide written notice to the Second Fiduciary explaining the nature 
and the amount of the additional service for which a fee will be 
charged or the nature and amount of the increase in fees of the 
affected Fund.<SUP>7 Such notice will be made separate from the Fund 
prospectus and will be accompanied by a Termination Form. The Second 
Fiduciary also will receive full written disclosure in a Fund 
prospectus or otherwise of any increases in the rate of fees charged by 
Dauphin to the Funds for investment advisory services, even though such 
fees will be credited to the investing Client Plans.

     <SUP>7  With respect to increases in fees, the Department notes 
that an increase in the amount of a fee for an existing secondary 
service (other than through an increase in the value of the 
underlying assets in the Funds) or the imposition of a fee for a 
newly-established secondary service shall be considered an increase 
in the rate of such fees. However, in the event a secondary service 
fee has already been described in writing to the Second Fiduciary 
and the Second Fiduciary has provided authorization for the fee, and 
such fee was temporarily waived, no further action by Dauphin would 
be required in order for the Bank to receive such fee at a later 
time. Thus, for example, no further disclosure would be necessary if 
Dauphin had received authorization for a fee for custodial services 
from Plan investors and subsequently determined to waive the fee for 
a period of time in order to attract new investors but later charged 
the fee.
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    The authorizations made by a Second Fiduciary of any Client Plan 
will be terminable at will, without penalty to the Client Plan, upon 
receipt by Dauphin of written notice of termination. A form (the 
Termination Form) expressly providing an election to terminate the 
authorization, with instructions on the use of the form, will be 
supplied to the Second Fiduciary no less than annually. However, the 
Termination Form will not need to be supplied to the Second Fiduciary 
for an annual reauthorization sooner than six months after such 
Termination Form is supplied for an additional service or for an 
increase in fees (as discussed above), unless another Termination Form 
is required to disclose additional services or fee increases. The 
Termination Form will instruct the Second Fiduciary that the 
authorization is terminable at will by the Client Plan, without penalty 
to the Client Plan, upon receipt by Dauphin of written notice from the 
Second Fiduciary, and that failure to return the Termination Form will 
result in the continued authorization of Dauphin to engage in the 
subject transactions on behalf of the Client Plan.
    The Termination Form will be used to notify Dauphin in writing to 
effect a termination by selling the shares of the Funds held by the 
Client Plan, requesting such termination within one business day 
following receipt by Dauphin of the form. If, due to circumstances 
beyond the control of Dauphin, the sale cannot be executed within one 
business day, Dauphin will

[[Page 10024]]
be obligated to complete the sale within the next business day.
    11. Dauphin represents that for smaller Client Plans, the Fund-
level investment advisory fees generally do not exceed the Plan-level 
investment management fees, so that the Client Plan will not benefit 
from a Fund-level fee credit. In these cases, if the Second Fiduciary 
authorizes the fee structure, Dauphin will waive the Plan-level 
investment management fees that would otherwise be charged for the 
Client Plan's assets invested in the Funds, so that the Plan-level fees 
will be offset and the Client Plan will pay only one investment 
management fee for those assets, at the Fund-level. This fee structure, 
which is one of the fee structures described in PTE 77-4, will ensure 
that Dauphin does not receive any additional investment management, 
advisory or similar fee as a result of investments in the Funds by the 
Client Plans.
    Disclosures, approvals, and notifications with regard to any 
changes in fees or secondary services will be handled in the same 
manner as for the fee structure described in paragraph 10 above, with 
one exception. The exception is that notifications with regard to 
increases in rates of investment advisory fees for the Funds will 
conform to the procedures for increases in rates of secondary service 
fees as described in paragraph 10. Therefore, in such instances, there 
will be prior written notification of the fee increase to the Second 
Fiduciary for the Client Plan and a Termination Form will be provided. 
The reason for the exception is that the total fees paid by the Client 
Plan, under this fee structure, will be directly affected by any 
increases in Fund-level investment advisory fees because such fees will 
not be credited back to the Client Plan.
    12. Dauphin states that a Second Fiduciary will always receive a 
written statement giving full disclosure of the fee structures prior to 
any investment in the Funds. The disclosure statement will explain why 
Dauphin believes that the investment of assets of the Client Plan in 
the Funds may be appropriate. The disclosure statement also will 
describe whether there are any limitations on Dauphin with respect to 
which Client Plan assets may be invested in shares of the Funds and, if 
so, the nature of such limitations.<SUP>8

    \8\ See section II(d) of PTE 77-4 which requires, in pertinent 
part, that an independent plan fiduciary receive a current 
prospectus issued by the investment company and a full and detailed 
written disclosure of the investment advisory and other fees charged 
to or paid by the plan and the investment company, including a 
discussion of whether there are any limitations on the fiduciary/
investment adviser with respect to which plan assets may be invested 
in shares of the investment company and, if so, the nature of such 
limitations.
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    13. On an annual basis, the Second Fiduciary of a Client Plan 
investing in the Funds will receive copies of the current Fund 
prospectuses and, upon such fiduciary's request, a copy of the 
Statement of Additional Information for such Funds as well as copies of 
the annual financial disclosure reports containing information about 
the Fund and independent auditor findings.
    In addition, if the Funds obtain brokerage services in the future 
from any broker-dealers that are affiliates of Dauphin, Dauphin will 
provide at least annually to the Second Fiduciary of Client Plans 
investing in the Funds written disclosures indicating the following: 
(i) the total, expressed in dollars, of brokerage commissions of each 
Fund that are paid to Dauphin by such Fund; (ii) the total, expressed 
in dollars, of brokerage commissions of each Fund that are paid by such 
Fund to brokerage firms unrelated to Dauphin; (iii) the average 
brokerage commissions per share, expressed as cents per share, paid to 
Dauphin by each Fund portfolio; and (iv) the average brokerage 
commissions per share, expressed as cents per share, paid by each Fund 
portfolio to brokerage firms unrelated to Dauphin. All such brokerage 
services would be provided in accordance with section 17(e) of the 1940 
Act and Rule 17e-1 thereunder. Such provisions require, among other 
things, that the commissions, fees or other remuneration for any 
brokerage services provided by an affiliate of an investment company's 
investment adviser be reasonable and fair compared to what other 
brokers receive for comparable transactions involving similar 
securities.
    14. No sales commissions will be paid by the Client Plans in 
connection with the purchase or sale of shares of the Funds. In 
addition, no redemption fees will be paid in connection with the sale 
of shares by the Client Plans to the Funds. Dauphin states that it will 
not receive any fees payable pursuant to Rule 12b-1 under the 1940 Act 
in connection with the transactions. Dauphin states further that all 
other dealings between the Client Plans and the Funds will be on a 
basis no less favorable to the Client Plans than such dealings will be 
with the other shareholders of the Funds.
    15. In summary, Dauphin represents that the transactions described 
herein will satisfy the statutory criteria of section 408(a) of the Act 
because: (a) the Funds will provide the Client Plans with a more 
effective investment vehicle than collective investment funds 
maintained by Dauphin without any increase in investment management, 
advisory or similar fees paid to Dauphin; (b) Dauphin will require 
annual audits by an independent accounting firm to verify the proper 
crediting to the Client Plans of investment advisory fees charged by 
Dauphin to the Funds; (c) with respect to any investments in a Fund by 
the Client Plans and the payment of any fees by the Fund to Dauphin, a 
Second Fiduciary will receive full written disclosure of information 
concerning the Fund, including a current prospectus and a statement 
describing the fee structure, and will authorize in writing the 
investment of the Client Plan's assets in the Fund and the fees paid by 
the Fund to Dauphin; (d) any authorizations made by a Client Plan 
regarding investments in a Fund and fees to be paid to Dauphin, or any 
increases in the rates of fees for secondary services which will be 
retained by Dauphin, will be terminable at will by the Client Plan, 
without penalty to the Client Plan, upon receipt by Dauphin of written 
notice of termination from the Second Fiduciary; (e) no commissions or 
redemption fees will be paid by the Client Plan in connection with 
either the acquisition of Fund shares or the sale of Fund shares; (f) 
Dauphin will not receive any fees payable pursuant to Rule 12b-1 under 
the 1940 Act in connection with the transactions; (g) the in-kind 
transfers of CIF assets into the Funds will be done with the prior 
written approval of independent fiduciaries (i.e., the Second 
Fiduciary) following full and detailed written disclosure concerning 
the Funds; (h) all dealings between the Client Plans and the Funds will 
be on a basis which is at least as favorable to the Client Plans as 
such dealings are with other shareholders of the Funds.

Notice to Interested Persons

    Notice of the proposed exemption shall be given to all Second 
Fiduciaries of Client Plans described herein that have investments in a 
terminating CIF and from whom approval will be sought for a transfer of 
a Client Plan's CIF assets to a Fund. In addition, interested persons 
shall include the Second Fiduciaries of all Client Plans that are 
currently invested in the Funds, as of the date the notice of the 
proposed exemption is published in the Federal Register, where Dauphin 
is providing services to the Funds and receives fees which would be 
covered by the proposed exemption, if granted.

[[Page 10025]]

    Notice to interested persons shall be provided by first class mail 
within fifteen (15) days following the publication of the proposed 
exemption in the Federal Register. Such notice shall include a copy of 
the notice of proposed exemption as published in the Federal Register 
and a supplemental statement (see 29 CFR 2570.43(b)(2)) which informs 
all interested persons of their right to comment on and/or request a 
hearing with respect to the proposed exemption. Comments and requests 
for a public hearing are due within forty-five (45) days following the 
publication of the proposed exemption in the Federal Register.

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

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 6th day of March, 1996.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 96-5746 Filed 3-8-96; 8:45 am]
BILLING CODE 4510-29-P