[Federal Register: October 11, 2000 (Volume 65, Number 197)]
[Notices]               
[Page 60456-60470]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11oc00-99]                         

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10538, et al.]

 
Proposed Exemptions; Sei Investments Company (SEI Investments), 
SEI Investments Management Corporation (SIMC) and SEI Trust Company 
(STC)

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 restrictions of the Employee 
Retirement Income Security Act of 1974 (the Act) and/or the Internal 
Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

    All interested persons are invited to submit written comments or 
request for a hearing on the pending exemptions, unless otherwise 
stated in the Notice of Proposed Exemption, within 45 days from the 
date of publication of this Federal Register Notice. Comments and 
requests 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.

ADDRESSES: All written comments and request for a hearing (at least 
three copies) should be sent to the Pension and Welfare Benefits 
Administration, Office of Exemption Determinations, Room N-5649, U.S. 
Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C. 
20210. Attention: Application No. ______, stated in each Notice of 
Proposed Exemption. The applications for exemption and the comments 
received will be available for public inspection in the Public 
Documents Room of the Pension and Welfare Benefits Administration, U.S. 
Department of Labor, Room N-5638, 200 Constitution Avenue, N.W., 
Washington, D.C. 20210.

Notice to Interested Persons

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

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in 
applications filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 1990). 
Effective December 31, 1978, section 102 of Reorganization Plan No. 4 
of 1978, 5 U.S.C. App. 1 (1996), 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

[[Page 60457]]

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.

SEI Investments Company (SEI Investments), SEI Investments 
Management Corporation (SIMC) and SEI Trust Company (STC), Located 
in Oaks, PA

[Application No. D-10538]

Proposed Exemption

    Based on the facts and representations set forth in the 
application, the Department is considering granting an exemption under 
the authority of section 408(a) of the Act (or ERISA) 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). 
\1\
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    \1\ For purposes of this proposed exemption, references to 
provisions of Title I of the Act, unless otherwise specified, refer 
also to corresponding provisions of the Code.
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Section I. Proposed Exemption for the Purchase of Fund Shares With 
Assets Transferred in Kind From a Plan Account
    If the exemption is granted, the restrictions of section 406(a) and 
section 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, effective June 
19, 1996, to the purchase of shares of one or more open-end management 
investment companies (the Fund or Funds) registered under the 
Investment Company Act of 1940 (the ICA), to which SEI Investments, 
SIMC, STC, or any of their affiliates (collectively, SEI) serve as 
investment adviser and may provide other services, by an employee 
benefit plan (the Plan or Plans) whose assets are held by SEI as 
trustee, investment manager, or as a discretionary fiduciary, in 
exchange for securities held by the Plan in an account (the Account) 
with SEI (the Purchase Transaction), provided the following conditions 
are met:
    (a) A fiduciary (the Second Fiduciary) who is acting on behalf of 
each affected Plan and who is independent of and unrelated to SEI, as 
defined in paragraph (g) of Section III below, receives advance written 
notice of the Purchase Transaction and full and written information 
concerning the Funds which includes the following:
    (1) A current prospectus for each Fund to which the Plan's assets 
may be transferred;
    (2) A statement describing the fees to be charged to, or paid by, 
the Plan and the Funds to SEI, including the nature and extent of any 
differential between the rates of the fees paid by the Fund and the 
rates of the fees otherwise payable by the Plan to SEI;
    (3) A statement of the reasons why SEI may consider the Purchase 
Transaction to be appropriate for the Plan;
    (4) A statement of whether there are any limitations on SEI with 
respect to which Plan assets may be invested in the Funds;
    (5) The identity of all securities that are deemed suitable by the 
Funds' sub-advisers for transfer to the Funds;
    (6) The identity of all such securities that will be valued in 
accordance with the procedures set forth in Rule 17a-7(b)(4) under the 
ICA; and
    (7) Upon such fiduciary's request, copies of the proposed and final 
exemptions pertaining to the exemptive relief provided herein for 
Purchase Transactions occurring after the date of the final exemption.
    (b) On the basis of the foregoing information, the Second Fiduciary 
gives SEI prior written approval with respect to--
    (1) Each Purchase Transaction, consistent with the 
responsibilities, obligations, and duties imposed on fiduciaries by 
Part 4 of Title I of the Act;
    (2) The transaction date proposed by SEI; and
    (3) The receipt of confirmation statements, described below in 
paragraph (g)(1) and (g)(2), by facsimile or electronic mail.
    (c) No sales commissions or other fees are paid by the Plans in 
connection with a Purchase Transaction.
    (d) All transferred assets are securities for which market 
quotations are readily available, or cash.
    (e) The transferred assets consist of assets transferred to the 
Plan's Account at the direction of the Second Fiduciary and constitute 
all of the assets held in the Account immediately prior to the transfer 
(other than Fund shares already held in the Account). With respect to 
any Plan assets transferred in-kind to an Account wich are not suitable 
for acquisition by the Funds, such assets are liquidated as soon as 
reasonably practicable and the cash proceeds are invested directly in 
Fund shares.
    (f) With respect to assets transferred in-kind, each Plan receives 
shares of a Fund which have a total net asset value that is equal to 
the value of the assets of the Plan exchanged for such shares, based on 
the current market value of such assets at the close of the business 
day on which such Purchase Transaction occurs, using independent 
sources in accordance with the procedures set forth in Rule 17a-7b 
(Rule 17a-7) under the ICA and the procedures established by the Funds 
pursuant to Rule 17a-7 for the 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 
last business day prior to the Purchase Transaction determined on the 
basis of reasonable inquiry from at least three sources that are 
broker-dealers or pricing services independent of SEI.
    (g) SEI sends by regular mail or personal delivery or, if 
applicable, by facsimile or electronic mail to the Second Fiduciary of 
each Plan that engages in a Purchase Transaction, the following 
information:
    (1) Not later than 30 business days after completion of each 
Purchase Transaction, a written confirmation which contains--
    (A) The identity of each of the assets that was valued for purposes 
of the transaction in accordance with Rule 17a-7(b)(4) under the ICA;
    (B) The current market price, as of the date of the Purchase 
Transaction, of each of the assets involved in the Purchase 
Transaction; and
    (C) The identity of each pricing service or market maker consulted 
in determining the value of such assets.
    (2) Not later than 90 days after completion of each Purchase 
Transaction, a written confirmation which contains--
    (A) The aggregate dollar value of the assets held in the Account 
immediately before the Purchase Transaction; and
    (B) The number of shares of the Funds that are held by the Account 
following the Purchase Transaction (and the related per share net asset 
value and the aggregate dollar value of the shares received).
    (h) With respect to each of the Funds in which a Plan continues to 
hold shares acquired in connection with a Purchase Transaction, SEI 
provides the Second Fiduciary with--
    (1) A copy of an updated prospectus of such Fund, at least 
annually; and
    (2) Upon request of the Second Fiduciary, a report or statement 
(which

[[Page 60458]]

may take the form of the most recent financial report, the current 
statement of additional information, or some other statement) 
containing a description of all fees paid by the Fund to SEI.
    (i) As to each Plan, the combined total of all fees received by SEI 
for the provision of services to the Plan, and in connection with a 
Purchase Transaction, is not in excess of ``reasonable compensation'' 
within the meaning of section 408(b)(2) of the Act.
    (j) All dealings in connection with the Purchase Transaction 
between the Plan and the Fund are on a basis no less favorable to the 
Plan than dealings between the Fund and other shareholders.
    (k) Between June 19, 1996 and the date this final exemption is 
granted, no Plan may enter into more than one Purchase Transaction with 
the Funds. However, subsequent to the granting of this exemption, a 
Second Fiduciary may engage in more than one Purchase Transaction 
provided that such Second Fiduciary allocates additional securities 
representing a different asset class to a Plan Account.
    (l) SEI maintains for a period of six years, in a manner that is 
accessible for audit and examination, the records necessary to enable 
the persons, as described in paragraph (m) of this Section I, to 
determine wither the conditions of this proposed 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 SEI, the 
records are lost or destroyed prior to the end of the six year period; 
and
    (2) No party in interest, other than SEI, 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 (m) of this Section I.
    (m)(1) Except as provided in paragraph (m)(2) of this Section II 
and notwithstanding any provisions of subsections (a)(2) and (b) of 
section 504 of the Act, the records referred to in paragraph (l) of 
Section I above are unconditionally available at their customary 
location for examination during normal business hours by--
    (A) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service or the Securities and Exchange 
Commission (the SEC);
    (B) Any fiduciary of each of the Plans who has authority to acquire 
or dispose of shares of any of the Funds owned by such a Plan, or any 
duly authorized employee or representative of such fiduciary; and
    (C) Any participant or beneficiary of the Plans or duly authorized 
employee or representative of such participant or beneficiary.
    (2) None of the persons described in paragraph (m)(1)(B) or (C) of 
this Section I shall be authorized to examine the trade secrets of SEI 
or commercial or financial information which is privileged or 
confidential.
Section II. Availability of Prohibited Transaction Exemption (PTE) 77-4
    Any purchase of Fund shares that complies with the conditions of 
Section I of this proposed exemption shall be treated as a ``purchase 
or sale'' of shares of an open-end investment company for purposes of 
PTE 77-4 and shall be deemed to have satisfied paragraphs (a), (d) and 
(e) of Section II of PTE 77-4 (42 FR 18732, April 3, 1977).\2\
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    \2\ In relevant part, PTE 77-4 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 such plan is 
also the investment adviser for the mutual fund. Section II(a) of 
PTE 77-4 requires that a plan does not pay a sales commission in 
connection with such purchase or sale. Section II(d) describes the 
disclosures that are to be received by an independent plan 
fiduciary. For example, the plan fiduciary must receive a current 
prospectus for the mutual fund as well as full and detailed written 
disclosure of the investment advisory and other fees that are 
charged to or paid by the plan and the investment company. Section 
II(e) requires that the independent plan fiduciary approve, in 
writing, purchases and sales of mutual fund shares on the basis of 
the disclosures give.
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Section III. Definitions
    For purposes of this proposed exemption,
    (a) The term ``SEI'' means SEI Investments Company, SEI Investments 
Management Corporation, SEI Trust Company and any affiliate of SEI, as 
defined in paragraph (b) of this Section III.
    (b) An ``affiliate'' of a person includes:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person;
    (2) Any officer, director, employee, relative, or partner in any 
such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (c) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (d) The term ``Fund'' or ``Funds'' means any open-end investment 
company or companies registered under the ICA for which SEI serves as 
investment adviser, and may also provide custodial or other services as 
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 a Fund's prospectus 
and statement of additional information, and other assets belonging to 
each of the portfolios in such Fund, less the liabilities charged to 
each portfolio, by the number of outstanding shares.
    (f) The term ``relative'' means a ``relative'' as that term is 
defined in section 3(15) of the Act (or a ``member of the family'' as 
that term is defined in section 4975(e)(6) of the Code), or a brother, 
a sister, or a spouse of a brother or a sister.
    (g) The term ``Second Fiduciary'' means a fiduciary of a plan who 
is independent of and unrelated to SEI. For purposes of this exemption, 
the Second Fiduciary will not be deemed to be independent of and 
unrelated to SEI if--
    (1) Such Second Fiduciary directly or indirectly controls, is 
controlled by, or is under common control with SEI;
    (2) Such Second Fiduciary, or any officer, director, partner, 
employee, or relative of such Second Fiduciary is an officer, director, 
partner, or employee of SEI (or is a relative of such persons); or
    (3) Such Second Fiduciary directly or indirectly receives any 
compensation or other consideration from SEI 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 SEI (or a relative 
of such persons), is a director of such Second Fiduciary, and if he or 
she abstains from participation in (A) the choice of the Plan's 
investment manager/adviser; (B) the approval of any purchase, continued 
holding or redemption by the Plan of shares of the Funds; and (C) the 
approval of any change of fees charged to or paid by the Plan, in 
connection with the transactions described above in Section I, then 
paragraph (g)(2) of this Section III, shall not apply.
    Effective Date: If granted, this proposed exemption will be 
effective as of June 19, 1996, with the exception of Section I(a)(7), 
which will applicable for Purchase Transactions occurring after the 
date of the final exemption.

Summary of Facts and Representations

Description of the Parties
    1. SEI Investments, which is located in Oaks, Pennsylvania, is a 
financial

[[Page 60459]]

services company that was founded in 1968. SEI Investments and its 
affiliates provide a broad range of financial services to banks, 
institutional investors, investment advisers, and insurance companies, 
including funds evaluation services, trust accounting systems and 
brokerage and information services and has offices located throughout 
the United States and Canada. As of December 31, 1999, SEI Investments 
had total assets of $253,779,000.
    2. SIMC, a wholly owned subsidiary of SEI Investments and also 
located in Oaks, Pennsylvania, currently provides the Funds described 
herein with overall investment management services (including selection 
and supervision of investment advisers), and regulatory reporting 
services. In addition, SIMC serves as transfer agent with respect to 
certain classes of Fund shares and as investment adviser to certain 
Fund portfolios. Further, SIMC serves as manager or administrator to 
more than 40 investment companies and portfolios as well as to various 
Plans. As of December 31, 1999, SIMC had total assets under management 
of approximately $64.3 billion.
    3. STC, a state-chartered trust company incorporated under the laws 
of the Commonwealth of Pennsylvania, is located in Oaks, Pennsylvania. 
Formerly known as Eagle Trust Company, STC is a wholly owned subsidiary 
of SEI Investments and serves as trustee/investment manager of the 
Plans. As of December 31, 1999, STC had custody of approximately $35.5 
billion in assets.
    4. The Plans, as to which SIMC may serve as an investment manager 
or STC may serve as a trustee, consist of retirement plans qualified 
under section 401(a) of the Code which constitute ``pension plans'' as 
defined in section 3(2) of the Act, certain welfare plans as defined 
under section 3(1) of the Act and ``plans'' as defined in section 
4975(e)(1) of the Code. The Plans do not include any plans sponsored by 
SEI.
    5. The Funds to which the requested exemption will apply currently 
consist of the separate portfolios of the SEI Institutional Investments 
Trust (the Investments Trust), the SEI Institutional Managed Trust (the 
Managed Trust) and the SEI Institutional International Trust (the SIT), 
all of which are investment companies registered under the ICA.\3\ The 
Funds are further described as follows:
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    \3\ Because SEI would like the exemption to apply prospectively 
to any Fund in which a Plan invests and with respect to which SEI or 
any of its affiliates may provide services, SEI represents that all 
other future Funds that utilize the requested exemption will assume 
similar structures and the Plan investments therein will be subject 
to the terms and conditions of this exemption.
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    (a) The Investments Trust is a Massachusetts business trust 
established on March 1, 1995. It is a no-load, open-end management 
investment company which is available only to Plans and other 
institutional investors that retain SIMC as investment manager. 
Currently, nine portfolios comprise the Investments Trust. They are the 
Large Cap Fund, the Large Cap Value Fund, the Large Cap Growth Fund, 
the Small Cap Fund, the International Equity Fund, the Core Fixed 
Income Fund, the Emerging Markets Equity Fund, the High Yield Bond Fund 
and the International Fixed Income Fund.\4\ Each of the portfolios of 
the Investments Trust issues only one class of beneficial interests 
(i.e., shares). No sales loads or fees payable under Rule 12b-1 of the 
ICA (the Rule 12b-1 Fees) are paid with respect to Investments Trust 
shares.
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    \4\ It should be noted that although the Emerging Markets Equity 
Fund, the High Yield Bond Fund and the International Fixed Income 
Fund constitute part of the Investments Trust, these Funds are no 
longer open.
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    (b) The Managed Trust is a Massachusetts business trust that was 
established on October 20, 1986. It is a no-load, open-end management 
investment company currently having the following twelve portfolios: 
the Large Cap Value Fund, the Large Cap Growth Fund, the Tax-Managed 
Large Cap Fund, the Small Cap Value Fund, the Small Cap Growth Fund, 
the Capital Appreciation Fund, the Balanced Fund, the Mid-Cap Fund, the 
Equity Income Fund, the Core Fixed Income Fund, the Bond Fund and the 
High Yield Bond Fund.\5\ Each of the Fund portfolios of the Managed 
Trust issues two classes of shares, only one of which, Institutional 
Class A shares, is offered to institutional investors, including Plans. 
No sales loads or Rule 12b-1 Fees are paid with respect to such shares.
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    \5\ It should be noted that the Bond Fund is presently closed.
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    (c) SIT, a Massachusetts business trust established on June 30, 
1988, currently offers the following four portfolios: the International 
Equity Fund, the Emerging Markets Equity Fund, the Emerging Markets 
Debt Fund and the International Fixed Income Fund. Each of the 
portfolios of the International Trust issues two classes of shares, 
only one of which, Institutional Class A shares, is offered to 
institutional investors including Plans. No sales loads or Rule 12b-1 
fees are paid with respect to such shares.
    6. SIMC (including its subsidiaries) acts as the administrator of 
all of the Funds and serves as investment adviser to all of the Funds 
with the exception of the International Trust's International Fixed 
Income Fund, which is advised by Strategic Fixed Income LLC, an 
unaffiliated investment adviser. However, for this Fund, SIMC retains 
overall investment advisory supervision including the formulation of 
investment policy. In addition, SIMC generally follows a ``manager of 
managers'' approach to the Funds whereby all of the assets of the Funds 
are advised by sub-advisers which are independent of SIMC.
    As administrator and investment adviser, SIMC retains independent 
sub-advisers, makes overall investment decisions with respect to the 
assets of each Fund, and continuously reviews, supervises and 
administers each Fund's investment program. SIMC receives an investment 
advisory fee from each Fund for such services and is responsible for 
paying the sub-advisers. The Funds may also pay certain transfer agent 
and administrative fees to SIMC or to other SEI affiliates.
    The Funds are offered and sold exclusively through the use of 
prospectuses and materials (which have been, or will be, filed, as 
required, with the various federal and state securities regulatory 
authorities prior to their distribution) and are offered and sold in 
full compliance with regulations of the SEC. Shareholders of the Funds 
periodically receive the following disclosures concerning the Funds as 
mandated by the SEC: (a) a copy of the prospectus, which is updated 
annually; (b) an annual report containing audited financial statements 
of the Funds and information regarding such Funds' performance (unless 
such performance information is included in the prospectus of such 
Funds); and (c) a semi-annual report containing unaudited financial 
statements. With respect to the Plans, SIMC or the custodian reports 
all transactions in shares of the Funds in periodic account statements 
provided to each of the Plans.
The Asset Allocation Strategy (the Strategy)
    7. According to SEI, the Strategy can be viewed as a series of 
separate, but interrelated, asset allocation transactions provided by 
SIMC and its affiliates to a Plan. In effect, the Strategy constitutes 
a set of investment guidelines established in advance by the Second 
Fiduciary, under which SIMC may be retained to exercise investment 
discretion with respect to all of the Plan's assets covered by such 
Strategy.
    As Representations 7 and 8 illustrate, the specific steps involved 
in creating

[[Page 60460]]

and implementing the Strategy generally can be described as follows:

    (a) The development of a Plan-level asset allocation policy, 
i.e., the selection of broad asset classes and percentages of Plan 
assets to be allocated among those asset classes (e.g., one such 
class may be ``domestic equities'').
    (b) The development of a more refined asset allocation policy 
within each asset class (e.g., ``domestic equities'' may be further 
divided into ``large-cap,'' ``small-cap,'' ``growth,'' etc.).
    (c) The Second Fiduciary's determination of what asset classes 
SIMC will manage.
    (d) With respect to each asset class that will be invested in 
shares of the Funds, the selection and liquidation of securities, 
and the purchase of Fund shares (in-kind or in cash).
    (e) The retention of SIMC as the discretionary asset manager 
with respect to the Plan or specified asset classes.

Theoretically, a Plan may retain SIMC to perform one or more component 
Strategy functions separately, even though they are all offered as part 
of the same package (in other words, tasks (a) through (e) may be 
purchased separately), and the Strategy steps may occur in different 
orders or concurrently.
    Thus, as a preliminary step, SIMC, as investment adviser, must 
first develop the overall asset allocation. Using its own proprietary 
software, SIMC will work with a Second Fiduciary of the Plan \6\ to 
develop an asset allocation strategy that is based upon various 
objective and measurable criteria such as the Plan's employee 
population information, investment goals and risk tolerance. For this 
purpose, SIMC will assume that the Plan will implement the Strategy by 
investing assets in the Funds, irrespective of whether the Strategy is 
being implemented through in-kind or cash transfers.
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    \6\ The Strategy services that are subject to this exemption 
relate only to defined benefit plans, welfare plans and fiduciary-
managed defined contribution plans but they do not cover 
participant-directed accounts.
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    A Strategy will represent a different asset allocation model. If 
SIMC manages all of the Plan's assets, there will be only one Strategy 
per Plan. \7\ Once the Strategy is proposed, it must be reviewed, 
approved and adopted by the Second Fiduciary. Although certain 
information is obtained in writing, generally this will be done in 
narrative format through a series of meetings and interviews. If two 
Plans provide the same inputs, SIMC's software will present both 
investors with the same generic Strategy.
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    \7\ To the extent that SIMC is asked to manage only a portion of 
a Plan, it may develop one or more specific strategies, e.g., an 
Equity Strategy or a Fixed Income Strategy.
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    Once a Strategy is selected by the Second Fiduciary, it may be 
modified only by such Second Fiduciary. No separate fee is being 
charged for an asset allocation. The fee for such services is included 
in SEI's Plan-level investment management fee.
    After reviewing the Strategy, the Plan's Second Fiduciary must 
decide whether it will ask SIMC to manage part or all of the Plan's 
assets in accordance with the Strategy. For example, the Strategy may 
have a fixed income allocation and an equity allocation. Thus, it is 
possible that the Second Fiduciary may retain SIMC to manage Plan 
assets that are allocated to only one asset allocation.
The Purchase Transaction
    8. In conjunction with the hiring of SIMC and the development and 
adoption of the Strategy, the Second Fiduciary will allocate certain 
assets of the Plan to an Account that is maintained by SIMC. In many 
cases, this transfer of fiduciary authority involves the Second 
Fiduciary's termination of one or more pre-existing agreements with 
investment managers who are not affiliated with SIMC. In other 
situations, it may involve a Second Fiduciary's decision to retain SIMC 
to manage only a portion (or portions) of the Plan's investment 
portfolio and the continued use of unaffiliated investment managers. 
Accordingly, the assets to be transferred to the Account may include an 
existing portfolio of securities representing a distinct asset class. 
However, because it invests Plan assets in the Funds rather than in 
individual securities and because of fiduciary liability concerns 
raised by taking responsibility for an existing portfolio of securities 
acquired at the direction of a different investment manager, SIMC 
prefers that such assets be liquidated before they are transferred to 
the Account.
    In many cases, an existing securities portfolio may include 
securities that are suitable for investment by the Funds. Therefore, 
SEI recognizes that it may be appropriate to transfer such securities 
in-kind directly to the relevant Fund(s) in order to avoid transaction 
costs and potential market disruption that could occur from a sale of 
those securities by the Plan and the nearly simultaneous repurchase of 
those same securities by the Fund. Rather than require that the 
existing portfolio be liquidated before it is allocated to the Account, 
SIMC will accept an in-kind allocation of such securities to an 
Account, at the request of the Second Fiduciary. Whatever portfolio 
securities may be acceptable for an in-kind transfer will be determined 
by the sub-advisers to the Funds.
    Specifically, upon obtaining a new client Plan that proposes to 
engage in a Purchase Transaction, SIMC will present to all Fund sub-
advisers \8\ a list of the Plan's portfolio securities.\9\ Each sub-
adviser will be asked to indicate which of those securities (and in 
what quantities) it would be interested in acquiring in connection with 
the Fund portfolio for which it is responsible. SIMC will then compile 
the results and forward them to the Second Fiduciary for approval or 
rejection.
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    \8\ Although the requested exemption currently covers 
unaffiliated sub-advisers, SEI represents that it may wish to retain 
affiliated sub-advisers for the Funds in the future so that the 
benefits of the Purchase Transactions will not be diluted. SEI 
points out that the only theoretical way that an affiliated sub-
adviser could act to the detriment of a Plan would be to agree to 
accept a security for in-kind transfer on terms that favored the 
Fund over the Plan. However, SEI believes that several factors 
protect the Plan from this action. First, when an affiliated sub-
adviser checks off the securities it is willing to take in-kind, it 
is bidding for the same securities against unaffiliated sub-
advisers. Second, when the sub-adviser determines which securities 
it is willing to take, it does not set a price at that time but 
agrees to take them at their fair market value. Third, the price on 
such transfer date (SEI will propose the transaction date but the 
Second Fiduciary will make the actual determination.) will be 
objectively determined in accordance with Rule 17a-7 (see 
Representation 13).
    \9\ A Sub-adviser will not be presented with the option of 
purchasing securities held in a Plan's portfolio for which there is 
no corresponding Fund. Instead, only those sub-advisers of Funds 
that may be used to implement the Strategy will be presented with a 
list of the Plan's securities for possible Purchase Transactions. 
Each sub-adviser will then be limited to acquiring only those 
securities which do not exceed in value the amount of Fund shares 
the Plan will be purchasing.
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    In addition, SIMC will accept the entire securities portfolio, 
including those securities that are not suitable for investment by the 
Funds. Subsequently, any securities that are acceptable to the Funds 
will be transferred in-kind in exchange for Fund shares. Any securities 
that are not acceptable will be liquidated at the direction of 
SIMC.\10\ Once SIMC has directed the liquidation of any securities of 
the Account that are not suitable for transfer to the Funds, SIMC will 
use the cash proceeds to buy Fund shares directly on behalf of the 
Plan.
---------------------------------------------------------------------------

    \10\ SEI represents that brokerage transactions with respect to 
an Account may be executed by an affiliate of SIMC in accordance 
with the terms of PTE 86-128 (51 FR 41686, November 18, 1986). 
However, the Department expresses no opinion herein on whether such 
transactions will satisfy the terms and conditions of PTE 86-128.
---------------------------------------------------------------------------

    9. SEI maintains that the in-kind transfers of Account assets in 
exchange for shares of the Funds will be ministerial transactions 
performed in

[[Page 60461]]

accordance with pre-established objective procedures which are approved 
by the board of trustees of each Fund. Such procedures require that 
assets transferred to a Fund (a) be consistent with the investment 
objectives, policies and restrictions of the corresponding portfolios 
of the Fund, as determined by the Funds' sub-advisers; (b) satisfy the 
applicable requirements of the ICA and the Code; and (c) have a readily 
ascertainable market value. In addition, any assets that are 
transferred will be liquid and will not be subject to restrictions on 
resale. Assets which do not meet these requirements will be sold in the 
open market prior to any transfer in-kind. Further, prior to entering 
into an in-kind transfer, each affected Plan will receive certain 
disclosures from SIMC and approve such transaction in writing.
    10. With certain exceptions, SEI represents that the Purchase 
Transactions are similar to the in-kind exchange transactions described 
in PTE 93-72 (58 FR 51109, September 30, 1993) involving Western Asset 
Management Co. (WAMC). The first exception relates to the fact that 
SIMC proposes that a Plan participate in more than one Purchase 
Transaction over time, i.e., as the Second Fiduciary decides to 
allocate additional securities representing a different asset class to 
the Account, perhaps in connection with changing the Strategy.\11\ In 
WAMC, concern was expressed by the Department about WAMC's ability to 
exercise its fiduciary authority to engage in (or to influence) 
exchanges in a manner that would allow WAMC to ``time'' transactions. 
In contrast to WAMC, SEI notes that SIMC does not (except for the 
limited purpose of disposing of those assets that are not suitable for 
in-kind transfer to the Funds) manage assets both ``inside'' and 
``outside'' the Funds and all fiduciary discretion over which Plan 
assets will be allocated to the Funds remains with the Plan's Second 
Fiduciary.\12\ According to SEI, the second exception relates to the 
valuation of the securities to be transferred. In this regard, SEI is 
following the valuation procedures under Rule 17a-7 of the ICA as set 
forth in Representation 13.
---------------------------------------------------------------------------

    \11\ For example, a Second Fiduciary may hire SIMC to manage a 
domestic equity Account only so the initial Strategy would provide 
for allocation among domestic equity Funds. If the Second Fiduciary 
subsequently decides to expand the scope of SIMC's management 
authority to include international equities, it will transfer to the 
Account an existing portfolio of international equity securities in 
another Purchase Transaction. At a later date, the Second Fiduciary 
may decide to retain SIMC to manage the Plan's fixed income 
securities. So, the Second Fiduciary would engage in still another 
Purchase Transaction.
    Under the foregoing circumstances, subsesquent transfers of 
similar types of securities are not contemplated. Instead, SEI 
represents that a Second Fiduciary will be able to make a one-time, 
in-kind transfer of a distinct portion of the Plan's asset 
portfolio.
    \12\ It is represented that SIMC does not become a fiduciary 
until after the Second Fiduciary has specified which portion of the 
Plan's assets (including which specific assets) will be allocated to 
the Account. It is also represented that SEI may become a fiduciary 
with respect to a particular pool of assets (e.g., helping the Plan 
develop its Strategy) before those assets are ``converted'' into 
Fund shares.
---------------------------------------------------------------------------

    Notwithstanding the above, SEI represents that it will not permit a 
Plan to engage in more than one Purchase Transaction prior to the 
granting of this exemption so as to conform the Purchase Transaction 
more closely to PTE 93-72, the WAMC exemption, and the Rule 17a-7 
valuation procedures that are set forth in the Department's 
``conversion'' exemptions.\13\
---------------------------------------------------------------------------

    \13\ See, for example, PTE 94-82 involving Marshall & Ilsley 
Trust Company (59 FR 62422, December 5, 1994); PTE 94-86 involving 
The Bank of California, N.A. (59 FR 65403, December 19, 1994); PTE 
95-33 involving Bank South, N.A. (60 FR 20773, April 27, 1995); PTE 
95-48 involving Mellon Bank, N.A. (60 FR 32995, June 26, 1995); and 
PTE 95-49 involving Norwest Bank (60 FR 33000, June 26, 1995).
---------------------------------------------------------------------------

    Accordingly, SEI requests that the exemption apply retroactively 
and be made effective as of June 19, 1996 with respect to Purchase 
Transactions occurring at that time.\14\ The Department concurs with 
this retroactivity date. However, it has imposed a requirement to the 
effect that Section I(a)(7) of the proposal, relating to SEI's 
dissemination to Second Fiduciaries of copies of the proposed and final 
exemptions, will be applicable to Purchase Transactions occurring after 
the exemption is granted.
---------------------------------------------------------------------------

    \14\ SEI represents that SIMC accepted two or three new Plan 
clients which elected to engage in Purchase Transactions. In each 
case, the Plan (or its outside manager) expressly retained 
responsibility for (a) selecting the securities to be transferred 
and directing their transfer; (b) directing the sale of all other 
securities through SEI's brokerage affiliates; and (c) determining 
whether the securities were valued in accordance with Rule 17a-7 for 
purposes of the transfer. SEI further notes that its fiduciary 
responsibilities only commenced after the completion of the Purchase 
Transactions. Accordingly, SEI does not believe that exemptive 
relief is necessary with respect to these Purchase Transactions. 
However, because the determination of its fiduciary status is 
uncertain, SEI requests that the exemption be made retroactive to 
June 19, 1996 to cover the Purchase Transactions that occurred at 
that time.
---------------------------------------------------------------------------

Rebalancing
    11. The Investment Management Agreement requires SIMC to rebalance 
the Account periodically among the Funds. In this regard, SIMC uses 
close-of-business values to determine the daily net asset value of 
assets held in an Account. Each Account has a pre-set ``trigger'' point 
for rebalancing purposes. Although the exact trigger may vary from 
Account to Account, SIMC typically rebalances an Account if an 
investment allocation varies by more than 4 percent from the target 
allocation. Generally, rebalancing occurs automatically and on the last 
day of any calendar month if any allocation deviates from its target 
percentage by more than an agreed upon percentage.
Advance Disclosure/Approval
    12. Under the Investment Management Agreement, a Second Fiduciary 
will receive all of the disclosures required by PTE 77-4. In this 
regard, such information includes, but is not limited to, (a) a current 
prospectus for the Fund in which the Plan's assets may be transferred; 
(b) a statement describing the fees to be charged to, or paid by, the 
Plan and the Fund to SEI, including the nature and extent of any 
differential between the rates of the fees paid by the Fund and the 
rates of the fees otherwise payable by the Plan to SEI; (c) a statement 
of the reasons why SEI may consider the Purchase Transaction to be 
appropriate for the Plan; (d) a statement of whether there are any 
limitations on SEI with respect to which Plan assets may be invested in 
the Funds; (e) the identity of all securities that are deemed suitable 
by the Funds' sub-advisers for transfer to the Funds; and (f) the 
identity of all such securities that will be valued in accordance with 
Rule 17a-7(b)(4). In addition, for Purchase Transactions occurring 
after the date of the grant notice, SEI will provide copies of the 
proposed and final exemptions to the Second Fiduciary, upon request.
    Based on these disclosures, the Second Fiduciary by executing the 
Investment Management Agreement will approve, in writing, the transfer 
of the Plan's assets to the corresponding Fund in exchange for shares 
of such Fund and the receipt by SEI of fees for services to the Fund. 
If the Second Fiduciary does not approve the use of the Funds as Plan 
investments, it will not retain SIMC as the Plan's investment manager. 
Additionally, if the Second Fiduciary does not approve the Purchase 
Transaction, the securities held by the Plan will be sold for cash on 
the open market and the transaction will proceed in accordance with PTE 
77-4.
Valuation Procedures
    13. The assets transferred by an Account to the Funds in connection 
with a Purchase Transaction will consist entirely of cash and 
marketable

[[Page 60462]]

securities. For this purpose, the value of the securities in the 
Account will be determined based on market value as of the close of 
business on the last business date prior to the transfer (the Account 
Valuation Date). The values on the Account Valuation Date will be 
determined in a single valuation using the valuation procedures 
described in Rule 17a-7 under the '40 Act. In this regard, the 
``current market price'' for specific types of Account securities will 
be determined as follows:

    (a) If the security is a ``reported security'' as the term is 
defined in Rule 11Aa3-1 under the 1934 Act, the last sale price with 
respect to such security reported in the consolidated transaction 
reporting system (the Consolidated System) for the Account Valuation 
Date; 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 1934 Act), as of the close of 
business on the Account Valuation Date; or
    (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 on the Account Valuation Date; or if there is 
no reported transaction on such exchange that day, the average of 
the highest current independent bid and lowest current independent 
offer on such exchange as of the close of business on the Account 
Valuation Date; or
    (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 Account 
Valuation Date; or
    (d) For all other securities, the average of the highest current 
independent bid and lowest current independent offer as of the close 
of business on the Account Valuation Date, determined on the basis 
of reasonable inquiry. For securities in this category, SIMC intends 
to obtain quotations from at least three sources that are either 
broker-dealers or pricing services independent of and unrelated to 
SEI and, where more than one valid quotation is available, use the 
average of the quotations to value the securities, in conformance 
with interpretations by the SEC and practice under Rule 17a-7.\15\
---------------------------------------------------------------------------

    \15\ Securities of non-U.S. issuers may be traded on U.S. 
exchanges or the NASDAQ, directly or in the form of ADRs, or may be 
acquired on foreign exchanges or foreign over-the-counter markets. 
In the latter case, valuation will be in accordance with 
Representation 13(d).

    The securities received by a transferee Fund portfolio will be 
valued by such portfolio for purposes of the transfer in the same 
manner and as of the same day as such securities will be valued by the 
corresponding transferor Account. The per share value of the shares of 
each Fund portfolio issued to the Accounts will be based on the 
corresponding portfolio's then-current net asset value.
    SEI will send by regular mail or personal delivery, or if 
applicable, by facsimile or electronic mail, the following information 
to the Second Fiduciary of a Plan that engages in a Purchase 
Transaction:

    (a) Not later than 30 business days after completion of the 
transaction, a written confirmation of the transaction to each 
affected Plan. Such confirmation will contain (1) the identity of 
each security that is valued in accordance with Rule 17a-7(b)(4), as 
described above; (2) the price of each such security for purposes of 
the transaction; and (3) the identity of each pricing service or 
market maker consulted in determining the value of such securities.
    (b) Not later than 90 days after completion of each Purchase 
Transaction, a written confirmation which contains (1) the aggregate 
dollar value of the assets held in the Account immediately before 
the Purchase Transaction; and (2) the number of shares of the Funds 
that are held by the Account following the Purchase Transaction (and 
the related per net asset value and the aggregate dollar value of 
the shares received).
Compliance With PTE 77-4
    14. It is anticipated that most Purchase Transactions will occur 
when a Plan retains SIMC as a discretionary fiduciary under the 
Investment Management Agreement in connection with an existing 
portfolio of assets or possibly, STC may serve as a directed trustee 
and be instructed by a Plan to engage in a Purchase Transaction.\16\ 
Thus, once the Purchase Transactions are completed, SIMC intends to 
continue to manage an Account in accordance with the terms of the 
Investment Management Agreement and under the exemptive relief afforded 
by PTE 77-4 with respect to future purchases and sales of Fund shares 
as well as with respect to the receipt of fees by SEI or its affiliates 
in connection with such transactions. Therefore, SEI is not requesting 
further administrative exemptive relief from the Department with 
respect to such transactions after they are completed as described 
above.
---------------------------------------------------------------------------

    \16\ If STP is separately retained by a Plan as a non-
discretionary trustee or a custodian, STC will take legal title to 
the Fund shares being acquired. Otherwise, it will have no role with 
respect to the Purchase Transactions and will act solely at the 
directions of the Second Fiduciary and/or SIMC.
---------------------------------------------------------------------------

    Besides engaging in a Purchase Transaction, SEI may invest a Plan's 
cash assets in the Funds as a directed or discretionary fiduciary, 
pursuant to the terms of PTE 77-4. Under certain conditions, PTE 77-4 
permits SEI to receive fees from the Funds (a) where the Plan does not 
pay any investment management, investment advisory or similar fees with 
respect to the assets of such Plan invested in shares of the Fund for 
the entire period of the investment; or (b) where the Plan pays 
investment management, investment advisory or similar fees to SEI based 
on the total assets of such Plans from which a credit has been 
subtracted representing such Plan's pro rata share of such investment 
advisory fees.
    Each individual Plan (or Plan sponsor) that retains SIMC as an 
investment manager pays directly to SIMC a Plan-level investment 
management fee covering all services of SIMC and its subsidiaries. With 
respect to any Plan assets invested in the Funds, SEI follows the 
second approach of PTE 77-4. Thus, each Plan's pro rata share of 
investment advisory fees paid to SEI by the Funds is applied as a 
credit against Plan-level fees.\17\ Investment management fees charged 
with respect to the Funds vary and are described in the Fund 
prospectuses.
---------------------------------------------------------------------------

    \17\ Fees paid to third party sub-advisers that are retained by 
SIMC are paid by SIMC out of its own pocket and are not deducted 
prior to applying the credit. Under such circumstances, SIMC credits 
back a ``gross'' investment advisory fee to the Plan as opposed to a 
``net'' investment advisory fee.
---------------------------------------------------------------------------

    SEI's Plan-level investment management fees may also include a 
performance fee which is calculated and payable to it or its affiliates 
in accordance with advisory opinions issued by the Department to 
Batterymarch Financial Management (ERISA Advisory Opinion 86-20A, 
August 29, 1986); BDN Advisers, Inc. (ERISA Advisory Opinion 86-21A, 
August 29, 1986); and Alliance Capital Management Corporation (ERISA 
Advisory Opinion 89-28A, September 25, 1989).\18\ The Fund-level fees 
which do not include any performance fee component, are applied as a 
credit against such Plan-level fees.
---------------------------------------------------------------------------

    \18\ In an arrangement involving a performance fee, SEI may 
charge a Plan, at the Plan-level, an annualized minimum (floor) fee 
calculated as a fixed percentage of the Plan's assets under SEI's 
management and ranging from 40 to 60 basis points. Typically, the 
performance fee is calculated based on the Plan's return in excess 
of an annual hurdle rate which represents a weighted average of 
several generally recognized external mutual fund indices. Both the 
weighting and the choice of indices are negotiated between the Plan 
and SEI. The performance fee may represent a percentage of the 
excess return to the Plan, a fixed amount or ``scaled'' and have 
multiple hurdle rates. Thus, SEI states that there is no standard or 
model performance fee arrangement.
    The Department expresses no opinion herein on whether SEI's 
performance fee arrangements comply with the advisory opinions cited 
above.
---------------------------------------------------------------------------

    In addition, STC may be separately retained by the Plan (in which 
case it may be paid an additional Plan-level fee) as a non-
discretionary trustee or custodian where it is directed to invest in 
the Funds by SIMC (if SIMC is the

[[Page 60463]]

investment manager), by a fiduciary independent of SEI, or by Plan 
participants and beneficiaries pursuant to section 404(c) of the Act. 
As a non-discretionary trustee or custodian, STC receives no Plan-level 
fees for investment management or investment advisory services; its 
fees are strictly for non-discretionary administrative, custodial and 
similar services.
    SEI may also receive other Fund-level fees for administrative, 
transfer, accounting, and other secondary services (the Secondary 
Services) \19\ provided to such Fund or to the distributor of shares of 
such Funds and its affiliates. However, no such fees will be paid to 
SEI pursuant to a 12b-1 Plan. SEI represents that the Funds' Trustees 
and the shareholders of the Funds approve the compensation that SEI 
receives from the Funds. Also, the Funds' Trustees approve any changes 
in the compensation paid to SEI for services rendered to the Funds. 
Although currently under the Investment Management Agreement all such 
fees for Secondary Services are credited back to the Plans in the same 
manner as SEI credits back its Fund-level advisory fees, it reserves 
the right to retain such fees in the future in accordance with the 
Department's advisory opinions involving PNC Financial Corp (ERISA 
Advisory Opinion 93-12A, April 27, 1993) and the Frank Russell Company 
(ERISA Advisory Opinion 93-13A, April 27, 1993).
---------------------------------------------------------------------------

    \19\ The term ``Secondary Service'' means a service, other than 
an investment management, investment advisory or similar service 
which is provided by SEI to the Funds, including, but not limited to 
custodial, accounting, administrative, brokerage or any other 
service.
---------------------------------------------------------------------------

    SEI represents that, after all of the foregoing credits are taken 
into account, the combined total of all Plan-level and Fund-level fees 
received by SEI for the provision of services to the Plans and to the 
Funds, respectively, are not in excess of ``reasonable compensation'' 
within the meaning of section 408(b)(2) of the Act.
Conditions for Exemption
    15. If granted, this proposed exemption will be subject to the 
satisfaction of certain general conditions that will further protect 
the interests of the Plans. For example, the transactions are subject 
to the prior authorization of a Second Fiduciary, acting on behalf of 
each of the Plans, who has been provided with full written disclosure 
by SEI. The Second Fiduciary will generally be the administrator, 
sponsor, or a committee appointed by the sponsor to act as a named 
fiduciary for a Plan.
    With respect to disclosure, the Second Fiduciary of such Plan will 
receive advance written notice of the in-kind transfer of assets of the 
Accounts and full written disclosure of information concerning the 
Funds as set forth in the Investment Management Agreement, including 
(a) a current prospectus for each Fund to which the Plan's assets may 
be transferred; (b) a statement describing the fees to be charged to, 
or paid by, the Plan and the Funds to SEI, including the nature and 
extent of any differential between the rates of the fees paid by the 
Fund and the rates of the fees otherwise payable by the Plan to SEI; 
(c) a statement of the reasons why SEI may consider the Purchase 
Transaction to be appropriate for the Plan; (d) a statement of whether 
there are any limitations on SEI with respect to which Plan assets may 
be invested in the Funds; (e) the identity of all securities that are 
deemed suitable by the Funds' sub-advisers for transfer to the Funds; 
(f) the identity of all such securities that will be valued in 
accordance with the procedures set forth in Rule 17a-7(b)(4) under the 
ICA; and (g) upon such fiduciary's request, copies of the proposed and 
final exemptions pertaining to the exemptive relief provided herein for 
Purchase Transactions occurring after the date of the grant notice.
    On the basis of the information disclosed, the Second Fiduciary, by 
executing the Investment Management Agreement, will authorize in 
writing the investment of assets of the Plans in shares of the Fund in 
connection with the transactions set forth herein (including the 
transaction date proposed by SEI), the compensation received by SEI in 
connection with its services to the Funds, and the receipt of 
confirmation statements by facsimile or electronic mail. The Second 
Fiduciary's written authorization will extend to those investment 
portfolios of the Funds referenced in the Investment Management 
Agreement, contingent upon delivery of a prospectus to such Second 
Fiduciary. Having obtained the authorization of the Second Fiduciary, 
SEI will invest the assets of a Plan among the portfolios and in the 
manner provided in the Investment Management Agreement and the 
Strategy, subject to satisfaction of the other terms and conditions of 
this proposed exemption.
    In addition to the disclosures provided to the Plan prior to 
investment in any of the Funds, SEI represents that it will routinely 
provide at least annually to the Second Fiduciary updated prospectuses 
of the Funds in accordance with the requirements of the ICA and the SEC 
rules promulgated thereunder. Further, the Second Fiduciary will be 
supplied, upon request, with a report or statement (which may take the 
form of the most recent financial report of such Funds, the current 
statement of additional information, or some other written statement) 
which contains a description of all fees paid by the Fund to SEI. \20\
---------------------------------------------------------------------------

    \20\ In some cases, SEI executes brokerage transactions for the 
investment portfolios of certain of the Funds as a Secondary 
Service. To the extent that SEI does not presently execute 
securities brokerage transactions with respect to any Fund for which 
an investment advisory fee is paid to SEI, but proposes to do so in 
the future, for any Plan that invests in the Fund (other than an 
SEI-sponsored Plan investing in the Fund pursuant to PTE 77-3), SEI 
will, at least 30 days in advance of the implementation of such 
additional service, provide a written notice to the Plan's Second 
Fiduciary which explains the nature of such additional brokerage 
service and the amount of the fees. Further, with respect to any 
Fund for which SEI does or will provide such brokerage services, SEI 
will provide, at least annually to each such Plan, a written 
disclosure indicating (a) the total, expressed in dollars, of 
brokerage commissions of each Fund's investment portfolio that are 
paid to SEI by such Fund; (b) the total, expressed in dollars, of 
brokerage commissions of each Fund's investment portfolio that are 
paid by such Fund to brokerage firms unrelated to SEI; (c) the 
average brokerage commissions per share, expressed as cents per 
share, paid to SEI by each portfolio of a Fund; and (d) the average 
brokerage commissions per share, expressed as cents per share, paid 
by each portfolio of a Fund to brokerage firms unrelated to SEI.
---------------------------------------------------------------------------

    In addition to the foregoing, SEI represents that (a) Plans and 
other investors will purchase or redeem shares in the Funds in 
accordance with standard procedures adopted by each Fund's board of 
directors; (b) the Plans will pay no sales commissions or redemption 
fees in connection with purchase or redemption of shares in the Funds 
by the Plans; (c) SEI will not purchase from or sell to any of the 
Plans shares of any of the Funds; and (d) the price paid or received by 
the Plans for shares of the Funds will be the net asset value per share 
at the time of such purchase or redemption and will be the same price 
as any other investor would have paid or received at that time. The 
value of the Funds' shares and the value of each Funds' portfolios are 
determined on a daily basis. Assets are valued at fair market value, as 
required by Rule 17a-7. Net asset value per share for purposes of 
pricing purchases and redemptions is determined by dividing the value 
of all securities and other assets of each portfolio, less the 
liabilities charged to each portfolio, by the number of each 
portfolio's outstanding shares.
    16. In summary, it is represented that the transactions have 
satisfied or will satisfy the statutory criteria for an

[[Page 60464]]

exemption under section 408(a) of the Act because:
    (a) A Second Fiduciary has authorized or will authorize, in 
writing, a Purchase Transaction prior to its consummation after such 
Second Fiduciary has received or will receive full written disclosure 
of information concerning a Fund.
    (b) Each Plan has received or will receive shares of a Fund, in 
connection with a Purchase Transaction, that are equal in value to the 
assets of the Plan exchanged for such shares, as determined in a single 
valuation performed in the same manner and as of the close of business 
on the same day in accordance with the procedures set forth in Rule 
17a-7 under the ICA, as amended from time to time or any successor 
rule, regulation or similar pronouncement.
    (c) Not later than 30 business days after completion of a Purchase 
Transaction, a Second Fiduciary of a Plan has received or will receive 
written confirmation of the securities involved in the exchange which 
were valued in accordance with Rule 17a-7(b)(4), the price of such 
securities and the identity of the pricing service or market maker 
consulted in determining the current market price of such securities.
    (d) Not later than 90 days after completion of a Purchase 
Transaction, a Second Fiduciary of a Plan has received or will receive 
written confirmation of the aggregate dollar value of the assets held 
by the Plan in its Account immediately before the Purchase Transaction 
(and the related per share net asset value and the aggregate dollar 
value of the shares received).
    (e) The price that has been or will be paid or received by the 
Plans for shares in the Funds is the net asset value per share at the 
time of the transaction and will be the same price for the shares which 
would have been paid or received by any other investor for shares of 
the same class at that time.
    (f) As to each individual Plan, the combined total of all fees 
received by SEI for the provision of services to a Plan, and in 
connection with the provision of services to any of the Funds in which 
the Plan may invest, has not been or will not be in excess of 
``reasonable compensation'' within the meaning of section 408(b)(2) of 
the Act.
    (g) No sales commissions or Rule 12b-1 Fees have been paid or will 
be paid by a Plan in connection with a Purchase Transaction.
    (h) With respect to each Purchase Transaction, the Second Fiduciary 
has received or will receive a full and detailed written disclosure of 
information concerning such Fund, including a current prospectus and a 
statement describing the fee structure, and such Second Fiduciary has 
authorized or will authorize, in writing, the investment of the Plan's 
assets in the Fund and the fees paid by the Fund to SEI.
    (i) In accordance with the requirements of PTE 77-4 and advisory 
opinions issued by the Department thereunder, (1) the Plans have 
received or will receive a full credit against Plan-level fees of any 
investment management, investment advisory or similar fees to SEI with 
respect to any of the assets of such Plans that are or will be invested 
in shares of any of the Funds; and (2) SEI may retain fees for certain 
Secondary Services it performs on behalf of the Funds.
    (j) SEI has provided or will provide ongoing disclosures to Second 
Fiduciaries of Plans so that such fiduciaries may, among other things, 
verify the fees charged by SEI to the Funds.
    (k) All dealings between the Plans and any of the Funds have been 
or will be on a basis that is no less favorable to such Plans than 
dealings between the Funds and other shareholders holding shares of the 
same class as the Plans.

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

The David Mandelbaum IRA Rollover Account (the IRA), Located in 
West Orange, New Jersey

[Application No. D-10765]

Proposed Exemption

    The Department is considering granting an exemption under section 
4975(c)(2) of the Code and in accordance with the procedures set forth 
in 29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 1990). 
If the exemption is granted the sanctions resulting from the 
application of section 4975 of the Code, by reason of section 
4975(c)(1)(A) through (F) of the Code shall not apply to the proposed 
cash sale by the IRA to the David Mandelbaum Family Trust (the Family 
Trust) of a 50 percent (50%) undivided interest in two (2) parcels of 
improved real property subject to a long term lease (the Property); 
provided the following conditions are satisfied:
    (1) The sale is a one time transaction for cash; (2) the terms and 
conditions of the sale are at least as favorable to the IRA, as the 
terms of similar transactions negotiated at arm's length with unrelated 
third parties; (3) the IRA receives the greater of $4,307,000 dollars 
or the fair market value of the IRA's undivided interest in the 
Property, as of the date of the sale; (4) the fair market value of the 
IRA's undivided interest in the Property is determined by an 
independent, qualified appraiser, as of the date of the sale; and (5) 
the IRA does not pay any commissions, costs, finder's fees, or other 
expenses in connection with such sale.

Summary of Facts and Representations

    1. The IRA is a self-directed individual retirement account, as 
described under section 408(a) of the Code.\21\ David Mandelbaum is the 
owner of the IRA and retains discretion with respect to the investment 
of the assets in the IRA. As such, David Mandelbaum is a fiduciary with 
regard to the IRA and a disqualified person, pursuant to section 
4975(e)(2)(A) of the Code. The primary beneficiaries under the terms of 
the IRA are David Mandelbaum's four (4) sons, and as such they are 
disqualified persons with respect to the IRA, pursuant to section 
4975(e)(2)(F) of the Code.
---------------------------------------------------------------------------

    \21\ Pursuant to the provisions contained in 29 CFR 2510.3-2(d), 
the IRA is not subject to Title I of the Employee Retirement Income 
Security Act of 1974 (the Act). However, the IRA is subject to Title 
II of the Act, pursuant to section 4975 of the Code.
---------------------------------------------------------------------------

    The IRA was established in 1989 with the roll over distributions 
from the Mandelbaum & Mandelbaum, P.A. Employees Retirement Plan (the 
M&M Plan). As of December 31, 1998, the IRA held assets of 
approximately $19.6 million dollars with an estimated annual income of 
$777,722. The custodian of the IRA is Summit Bank (formerly Summit 
Trust Company) of Summit, New Jersey.
    2. The M&M Plan was a tax qualified money purchase plan which was 
sponsored by Mandelbaum & Mandelbaum P.A. Both David Mandelbaum and his 
brother, Nathan Mandelbaum, were participants in the M&M Plan. The M&M 
Plan was terminated, effective June 30, 1983. On July 8, 1983, the M&M 
Plan acquired the Property which is the subject of this exemption, as a 
real estate investment from Frank X. Weny and Mary E. Weny, unrelated 
third parties. The M&M Plan was subsequently liquidated in December of 
1989.
    3. The Property, located in the Municipality of Wayne, Passaic 
County, New Jersey, consists of two parcels of improved commercial real 
estate which function as a single economic unit of approximately 49.48 
acres. Each of the parcels is subject to a long term triple net lease 
totaling 99 years, consisting of an initial term that extends from 
December 1, 1965, through November

[[Page 60465]]

30, 2015; four (4) option periods of ten (10) years each; and a final 
option period of nine (9) years. Pursuant to such leases, the right to 
use and occupy the Property was conveyed to Westbelt Realty Associates, 
an unrelated third party.
    The improvements on the Property consist of a shopping center, 
which was built in 1974 and subsequently renovated and expanded in 1989 
and 1997, professional landscaping, exterior lighting, and a 38,000 
space parking lot. The shopping center is an enclosed mall, commonly 
known as Wayne Towne Center (a/k/a the Westbelt Mall) which offers 
approximately 650,000 square feet of rental space to anchor tenants, 
such as Fortunoff's, J. C. Penney, Borders Books and Music, Loehmann's, 
and Old Navy. It is represented that no related party owns any interest 
in the buildings or improvements on the Property.
    4. As a result of the liquidation of the M&M Plan in 1989, David 
Mandelbaum and Nathan Mandelbaum each received a lump sum in-kind 
distribution of an undivided interest in the ownership of the Property. 
In this regard, together the brothers owned 100 percent (100%) of the 
interests in the Property, with David and Nathan Mandelbaum receiving a 
distribution of a 62.4% interest and a 37.6% interest, respectively, in 
such Property.
    5. On December 7, 1989, RMJJ Associates (RMJJ) purchased a 20 
percent (20%) interest in the Property from David and Nathan 
Mandelbaum. RMJJ is a New Jersey partnership, the partners of which 
consist of four (4) trusts, each of which own a 25 percent (25%) 
interest in RMJJ. Each trust was established to benefit one of David 
Mandelbaum's four sons. From a total purchase price of $950,000 paid by 
RMJJ for its interest in the Property, David Mandelbaum received 
$589,000 and Nathan Mandelbaum received $361,000. Further, it is 
represented that, pursuant to section 402(c)(6) of the Code, David and 
Nathan Mandelbaum timely rolled over into their respective individual 
retirement accounts the proceeds from the sale to RMJJ and their 
remaining interests in the Property. Accordingly, it is represented 
that, as of the filing of the application for exemption, the IRA, RMJJ, 
and the Nathan Mandelbaum IRA, respectively, owned a 50 percent (50%), 
a 20 percent (20%), and a 30 percent (30%) undivided interest in the 
Property, as tenants in common. It is represented that the fair market 
value of the IRA's 50 percent (50%) undivided interest in the Property 
constitutes 21.9% of the assets of such IRA.
    It is represented that the sole purpose of RMJJ is to facilitate 
collection and proper disbursement of rents. In this regard, RMJJ 
collects rents from various properties owned by Mandelbaum family 
members, including the Property which is the subject of this exemption. 
It is represented that the Property has produced annual rental income 
averaging $1,114,212 over the past four (4) years. It is further 
represented that such rental income has been apportioned and 
distributed among the owners of the Property in accordance with each 
owner's interest.\22\
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    \22\ The applicant maintains that if RMJJ is deemed to be a 
disqualified person with respect to the IRA, pursuant to section 
4975(e)(2)(B) of the Code, the provision of services RMJJ renders to 
the IRA and to other parties would qualify for statutory exemption, 
pursuant to section 4975(d)(2) of the Code. In this regard, it is 
represented that RMJJ receives no compensation for the services 
rendered to the IRA and others in connection with the collection and 
distribution of rents. The Department is not opining, herein, 
whether RMJJ is a disqualified person with respect to the IRA, nor 
has the Department determined that the conditions, as set forth in 
section 4975(d)(2) of the Code, have been satisfied. Further, the 
Department is offering no relief for transactions other than those 
proposed.
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    6. Louis S. Izenberg (Mr. Izenberg), MAI, SRPA, SRA, and Steven J. 
Wetstein (Mr. Wetstein), both state certified general real estate 
appraisers associated with Izenberg Appraisal Associates in Parsippany, 
New Jersey, were hired to determine the value of the leased fee 
interest in the Property. Mr. Izenberg and Mr. Wetstein represent that 
they are qualified real estate appraisers with approximately twenty 
(20) years and twelve (12) years of experience, respectively, and are 
familiar with the Property and with similar properties located in the 
surrounding area. In addition, Mr. Izenberg and Mr. Wetstein represent 
that they are independent in that they have no present or prospective 
interest in the Property and have no personal interest or bias with 
respect to the parties involved, and are unrelated to David Mandelbaum.
    Mr. Izenberg's and Mr. Wetstein's appraisal of the leased fee 
interest in the Property relied primarily on the income capitalization 
approach to establish the fair market value. Based on this analysis and 
their inspection of the Property, Mr. Izenberg and Mr. Wetstein 
concluded that the fair market value of the leased fee interest in the 
Property, as of May 27, 1998, was $16,565,000 dollars. It is 
represented that Mr. Izenberg and Mr. Wetstein will update their 
appraisal of the value of the leased fee interest in the Property at 
the time of the actual sale by the IRA of its interest in the Property 
to the Family Trust.
    7. Because Mr. Izenberg's and Mr. Wetstein's appraisal was based on 
the fair market value of the leased fee interest in the entire 
Property, Frank E. Koehl, Jr. (Mr. Koehl) ASA, a certified business 
valuation appraiser, and Michael F. Nelson (Mr. Nelson), a valuation 
analyst, both of Management Planning, Inc. (MPI) were retained to 
undertake a financial analysis of undivided fractional interests in the 
Property and to determine the fair market value of the 50 percent (50%) 
undivided interest in the Property owned by the IRA. In this regard, it 
is represented that MPI has been preparing financial analyses of 
closely held businesses and evaluating the securities of such 
businesses since 1939. Mr. Koehl and Mr. Nelson maintain they are 
qualified in that they, respectively have eighteen (18) years and three 
(3) years of experience as employees of MPI. It is represented that 
neither MPI nor its employees have any present or contemplated future 
financial interest in the Property or any other interest that might 
affect their performance in a disinterested manner.
    The analysis of the value of the IRA's 50 percent (50%) undivided 
interest in the Property included a discount of 20 percent (20%) for 
lack of control. In the appraisal report Mr. Koehl and Mr. Nelson noted 
that a majority ownership position does not constitute control where 
co-tenants of an undivided interest in real property have equal rights 
and cannot act upon those rights without the consent of the other co-
tenants. For this reason, Mr. Koehl and Mr. Nelson determined that a 
discount for lack of control was appropriate to the IRA's undivided 
ownership interest in the Property, even though Mr. Koehl and Mr. 
Nelson acknowledged that all of the co-tenants of the Property are 
members of the Mandebaum family.
    The analysis of the value of the IRA's 50 percent (50%) undivided 
interest in the Property also included a discount of 35 percent (35%) 
for lack of marketability. In this regard, Mr. Koehl and Mr. Nelson 
stated in their report that a willing buyer would be aware that the 
Property has three owners; there is no ready market for fractional 
interests; and that such buyer would be buying an asset that could be 
sold only in a private transaction.
    Based on their analysis, Mr. Koehl and Mr. Nelson concluded that 
the fair market value of the IRA's 50 percent (50%) undivided interest 
in the Property is $4,307,000 dollars, as of December 31, 1998. In this 
regard, it is represented that Mr. Koehl and Mr. Nelson will update 
their appraisal at the time of the actual sale of the IRA's 50

[[Page 60466]]

percent (50%) interest in the Property to the Family Trust.\23\
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    \23\ The Department notes that the appraisers have included in 
their calculations of the fair market value of the IRA's 50 percent 
(50%) interest in the Property substantial discounts for lack of 
control (20%) and lack of marketability (35%). In this regard, the 
Department states that relief from the prohibited transactions 
provisions of the Code provided by this exemption would not be 
available, if the amount received by the IRA for the sale of its 
interest in the Property is not equal to the greater of $4,307,000 
dollars or the fair market value of the IRA's 50 percent (50%) 
undivided interest in the Property, as determined by an independent, 
qualified appraiser, as of the date of the sale of such Property to 
the Family Trust.
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    8. The Family Trust is an irrevocable trust established by David 
Mandelbaum, as the grantor. The trustee of the Family Trust is Ronald 
Targan. One hundred percent (100%) of the interest of the Family Trust 
is held for the benefit of David Mandelbaum's grandchildren. David 
Mandelbaum's grandchildren, as lineal descendants of a fiduciary, are 
members of the family, within the meaning of section 4975(e)(6) of the 
Code, and disqualified persons, pursuant to section 4975(e)(2)(F) of 
the Code.
    9. David Mandelbaum requests an exemption for the sale by the IRA 
of a 50 percent (50%) undivided interest in the Property to the Family 
Trust. In this regard, the sale by the IRA to the Family Trust would be 
an indirect sale by a plan to the members of a fiduciary's family, 
pursuant to section 4975(c)(1)(A) of the Code, and a direct transfer of 
a plan's assets for the benefit of such fiduciary's family, under 
section 4975(c)(1)(D) of the Code. Although David Mandelbaum, the 
fiduciary of the IRA, is not a beneficiary of the Family Trust, he has 
an interest in his grandchildren who are the beneficiaries of the 
Family Trust which may effect his best judgment as a fiduciary. 
Accordingly, the application describes a transaction for which relief 
from the prohibitions of section 4975(c)(1)(A)-(F) of the Code is 
requested.
    10. The applicant maintains that the proposed transaction is 
feasible in that it involves a one-time sale of the IRA's interest in 
the Property in exchange for cash. In this regard, it is represented 
that the IRA will not pay any commissions, costs, finder's fees, or 
other expenses in connection with such sale. Further, David Mandelbaum 
shall personally bear the cost of filing the exemption application.
    11. The transaction is in the interest of the IRA, in that the IRA 
will be able to dispose of an illiquid asset which would otherwise be 
difficult to sell, especially in a period of economic downturn. In this 
regard, the IRA will receive for its undivided interest in the Property 
a price equal to the greater of $4,307,000 dollars or the fair market 
value of the such interest, as of the date of the sale. It is 
represented that the Property has appreciated in value, and that the 
IRA will realize a gain on the sale from the purchase price to be paid 
by the Family Trust. Further, in selling at this time the IRA will 
avoid the costly annual appraisals which have been required by the 
IRA's trustees and custodian, as a condition of the IRA's continuing to 
hold the asset.
    12. The transaction is structured to include certain safeguards for 
the protective of the participant and beneficiaries of the IRA. In this 
regard, the terms of the transaction will be at least as favorable as 
arm's length terms negotiated with unrelated parties. Further, the fair 
market value of the Property has been determined by independent, 
qualified appraisers, and such value will be updated at the time the 
transaction is entered. In addition, independent qualified financial 
analysts have issued a certified business valuation appraisal of the 
fair market value of the IRA's 50 percent (50%) undivided interest in 
the Property, and an updated appraisal will be used at the time of the 
sale to determine the purchase price to be paid by the Family Trust.
    13. In summary, the applicant represents that the proposed 
transaction will meet the statutory criteria of section 4975(c)(2) of 
the Code because: (a) The sale by the IRA of the undivided interest in 
the Property to the Family Trust will be a one-time transaction for 
cash; (b) the terms and conditions of the sale are at least as 
favorable to the IRA as similar terms negotiated at arm's length with 
unrelated parties; (c) the IRA will receive the greater of $4,307,000 
dollars or the fair market value of the IRA's undivided interest in the 
Property, as of the date of the sale; (d) the fair market value of the 
Property and the fair market value of the IRA's undivided interest in 
the Property will be determined by independent, qualified appraisers, 
as of the date of the sale; and (e) the IRA will not pay any 
commissions, costs, finder's fees, or other expenses in connection with 
the sale.

Notice to Interested Persons

    Because David Mandelbaum is the only participant in the IRA, it has 
been determined that there is no need to distribute the notice of 
proposed exemption (the Notice) to interested persons. Comments and 
requests for a hearing must be received by the Department within thirty 
(30) days of the date of publication of the Notice in the Federal 
Register.

FOR FURTHER INFORMATION CONTACT: Ms. Angelena C. Le Blanc of the 
Department, telephone (202) 219-8883. (This is not a toll-free number.)

HSBC Holdings plc, Located in London, England

[Exemption Application No.: D-10910]

Proposed Exemption

    The Department of Labor 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 29 CFR Part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990).\24\ If the 
exemption is granted, HSBC Asset Management Americas, Inc. (AMUS), HSBC 
Asset Management Hong Kong, Ltd. (AMHK), HSBC Bank USA (Bank USA), any 
current affiliate of HSBC Holdings plc (HSBC) that in the future 
becomes eligible to serve as a qualified professional asset manager, as 
defined in Prohibited Transaction Class Exemption 84-14 (PTCE 84-14) 
(QPAM),\25\ HSBC, itself, if in the future it becomes a QPAM, and any 
newly acquired or newly established affiliate of HSBC that is a QPAM or 
in the future becomes a QPAM, other than the Bangkok Metropolitan Bank 
PLC (BMB), shall not be precluded from functioning as a QPAM, pursuant 
to the terms and conditions of PTCE 84-14, for the period beginning on 
June 16, 2000, and ending ten (10) years from the date the final 
exemption is published in the Federal Register, solely because of a 
failure to satisfy Section I(g) of PTCE 84-14, as a result of an 
affiliation with BMB; provided that:
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    \24\ For purposes of this exemption, references to specific 
provisions of Title I of the Act, unless otherwise specified, refer 
to the corresponding provisions of the Code.
    \25\ 49 FR 9494 (March 13, 1984), as amended, 50 FR 41430 
(October 10, 1985).
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    (a) BMB has not in the past acted, nor does it now act, nor will it 
act as a fiduciary with respect to any employee benefit plans subject 
to the Act;
    (b) This exemption is not applicable if HSBC and/or any successor 
or affiliate becomes affiliated with any person or entity convicted of 
any of the crimes described in Section I(g) of PTCE 84-14, other than 
BMB; and
    (c) This exemption is not applicable if HSBC and/or any successor 
or affiliate is convicted of any of the crimes described in Section 
I(g) of PTCE 84-14, including any such crimes subsequently committed by 
BMB.
    Effective Date: If granted, this proposed exemption will be 
effective for the period beginning on June 16, 2000, the date the 
application for exemption

[[Page 60467]]

was filed with the Department, and ending ten (10) years from the date 
of publication of the final exemption in the Federal Register.

Summary of Facts and Representations

    1. HSBC, a publicly owned holding company headquartered in London, 
England, provides banking and financial services worldwide. The 
exemption is requested for affiliates of HSBC, AMUS, AMHK, and Bank 
USA, as well as for any current affiliate of HSBC that in the future 
becomes eligible to serve as a QPAM, HSBC, itself, if it becomes a 
QPAM, and any newly acquired or newly established affiliate of HSBC 
that is a QPAM or in the future becomes a QPAM (collectively, the 
Applicants), other than BMB.
    It is represented that HSBC's affiliate, Bank USA, is a bank as 
defined in section 202(a)(2) of the Investment Advisers Act of 1940 
(the Advisers Act) and is subject to the anti-fraud provisions of the 
Advisers Act, as well as the fiduciary standards imposed by the Office 
of the Comptroller of Currency and pursuant to state law. Further, Bank 
USA has equity capital in excess of $1,000,000. Accordingly, the 
Applicants represent that Bank USA qualifies as a QPAM, pursuant to 
Section V (a)(1) of PTCE 84-14.
    Two other HSBC affiliates, AMUS and AMHK, each are also currently 
qualified to serve as a QPAM.\26\ In this regard, both AMUS and AMHK 
are investment advisers registered under the Advisers Act, and, as 
such, are subject to the jurisdiction of the Securities and Exchange 
Commission and to the substantive requirements of the Advisers Act. It 
is represented that AMUS has total assets under its management and 
control well in excess of $50,000,000. In this regard, $6.4 million, as 
of March 31, 2000, is attributable to three (3) accounts subject to the 
Act. As of March 31, 2000, AMHK had total funds under management of 
$13.1 billion of which $462 million was attributable to two (2) 
accounts subject to the Act. It is represented that consistent with the 
requirements of PTCE 84-14, a fiduciary independent of the Applicants 
(typically a named fiduciary other than a trustee) is or will be 
involved in the appointment of a QPAM with respect to the assets of any 
plan that is or will be affected by this proposed exemption.
---------------------------------------------------------------------------

    \26\ The Department expresses no opinion as to whether AMUS, 
AMHK, or Bank USA would qualify as a QPAM for purposes of PTCE 84-
14.
---------------------------------------------------------------------------

    2. The proposed exemption would apply with respect to any employee 
benefit plans to which the Applicants now or in the future provide 
investment management services, (collectively, the ERISA Plan 
Clients).\27\ Given the changing identity of such plans, the Applicants 
maintain that such plans could not definitely be identified at the time 
the application was filed.
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    \27\ It is represented that with respect to transactions 
concerning employee benefit plans that cover employees of one or 
more of the Applicants, the Applicants will rely on Prohibited 
Transaction Class Exemption 96-23.
---------------------------------------------------------------------------

    3. BMB is a commercial bank incorporated in Thailand. Prior to 
1994, BMB maintained two agencies in the United States (the US 
Agencies), one in New York and one in California. In 1994, regulators 
in the United States identified approximately twenty (20) aspects of 
BMB's operations in the United States that fell short of acceptable 
standards. Under the terms of a written agreement dated July 29, 1994, 
between BMB and its regulators, BMB agreed to rectify these 
deficiencies. Following BMB's failure to correct such deficiencies in 
accordance with such agreement, BMB's license to maintain its US 
Agencies in the United States was revoked and its operations wound up 
under the terms of a Consent Order, dated July 25, 1996.
    In a Joint Statement issued concurrently with the Consent Order, 
the Board of Governors of the Federal Reserve System, the California 
State Banking Department, and the New York State Banking Department 
concluded that BMB should no longer have a banking presence in the 
United States. This conclusion was based on the following: (1) Both US 
Agencies made loans knowing that the stated purposes of the loans were 
false; (2) both US Agencies made loans that were diverted from their 
stated purposes, sometimes to benefit insiders; (3) senior management 
of BMB could not satisfactorily explain the appearance of involvement 
in a money laundering scheme; (4) officials and employees at BMB and 
the US Agencies were not forthright with examiners; (5) both US 
Agencies had misleading books and records; (6) officers of the US 
Agencies admitted that BMB's home office mandated that certain 
transactions occur in a manner contrary to safe and sound banking 
practices; and (7) management at BMB and its US Agencies failed to 
rectify problems identified by regulators.
    In addition to the Consent Order, under the terms of a plea 
agreement with the United States Attorney for the Southern District of 
New York and for the Northern District of California, BMB also pleaded 
guilty to four criminal offenses in relation to the activities of its 
US Agencies. In this regard, BMB pleaded guilty to one count of 
obscuring the examination of a fiscal institution in violation of 18 
U.S.C. Sec. 1517 and three (3) counts of falsifying its books, reports, 
and statements in violation of 18 U.S.C. 1005.
    4. After the Asian economic crisis, it is represented that the Thai 
government took control of 99 percent (99%) of the voting shares of 
BMB, and subsequently, conducted an auction sale of its interests in 
BMB. It is represented that HSBC was the winning bidder at the auction 
sale and that HSBC expects to finalize its acquisition of BMB within 
the next several months. As of June 16, 2000, the date the application 
was submitted, HSBC represents that no transaction that is the subject 
of this proposed exemption had been consummated or is planned to be 
consummated. However, it is represented that the size and diversity of 
the operations of the Applicants make it impossible to say that a 
transaction requiring the requested relief will not be consummated 
before the final decision is made on this proposed exemption. 
Accordingly, the Applicants seek retroactive relief, effective June 16, 
2000, from the restrictions of section 406(a)(1)(A)-(D), 406(b)(1), 
406(b)(2), and 407(a) of the Act and 4975(c)(1)(A)-(E) of the Code for 
the subject transactions.
    5. The requested exemption would apply to a full range of 
transactions on and after the acquisition by HSBC of BMB from the Thai 
government. Such transactions include, but are not limited to sale and 
exchange transactions, derivative transactions, leasing and other real 
estate transactions, foreign currency trading transactions, and 
transactions involving the furnishing of goods, services, and 
facilities to an investment fund managed on a discretionary basis by 
the Applicants. It is represented that such transactions will be 
evaluated by the Applicants, consistent with their fiduciary 
responsibilities under the Act.\28\
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    \28\ The Department notes that the general standards of 
fiduciary conduct under the Act would apply to the investment 
transactions permitted by this proposed exemption, and that 
satisfaction of the conditions of this proposed exemption should not 
be viewed as an endorsement of any particular investment by the 
Department. Section 404 of the Act requires, among other things, 
that a fiduciary discharge his duties with respect to a plan solely 
in the interest of the plan's participants and beneficiaries and in 
a prudent fashion. Accordingly, the manager or other plan fiduciary 
must act prudently with respect to the decision to enter into an 
investment transaction, as well as to the negotiation of the 
specific terms under which the plan will engage in such transaction. 
The Department further emphasizes that it expects a manager or other 
plan fiduciary to fully understand the benefits and risks associated 
with engaging in a specific transaction. In addition, such manager 
or plan fiduciary must be capable of periodically monitoring the 
investment, including any changes in the value of the investment and 
the creditworthiness of the issuer or other party to the 
transaction. Thus, in considering whether to enter into a 
transaction, a fiduciary should take into account its ability to 
provide adequate oversight of the particular investment.

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[[Page 60468]]

    6. The Applicants represent that it would not be uncommon for one 
of the Applicants, as a fiduciary for one of the ERISA Plan Clients, to 
propose a transaction, such as those described above, that involve a 
party in interest, as defined under section 3(14) of the Act. The 
proposed exemption would apply to all current and future parties in 
interest with respect to the ERISA Plan Clients. Given the size and 
number of such ERISA Plan Clients and the large number of service 
providers (particularly financial institutions) that such ERISA Plan 
Clients engage, it is impractical for the Applicants to identify all 
the parties in interest that might be involved in transactions covered 
by the requested exemption. Accordingly, the Applicants have not 
attempted to do so in the application file.
    7. The proposed exemption, if granted, will be subject to terms and 
conditions, similar to those, as set forth PTCE 84-14. PTCE 84-14, in 
general, permits various parties in interest with respect to an 
employee benefit plan to engage in certain transactions involving plan 
assets if, among other conditions, the assets are managed by a QPAM, 
who is independent and who meets specified financial standards and 
other conditions. One such condition, Section I(g)of PTCE 84-14, 
requires that neither the QPAM nor any affiliate of the QPAM were 
convicted of certain felonies \29\ within a ten (10) year period 
preceding the subject transaction. Section V(d) of PTCE 84-14, defines 
an ``affiliate'' of a person to mean--
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    \29\ The term, ``felony,'' as set forth in Section I(g) of PTCE 
84-14 includes: (1) Any felony involving abuse or misuse of such 
person's employee benefit plan position or employment, or position 
or employment with a labor organization; (2) any felony arising out 
of the conduct of the business of a broker, dealer, investment 
adviser, bank, insurance company, or fiduciary; (3) income tax 
evasion; (4) any felony involving the larceny, theft, robbery, 
extortion, forgery, counterfeiting, fraudulent concealment, 
embezzlement, fraudulent conversion, or misappropriation of funds or 
securities; conspiracy or attempt to commit any such crimes or a 
crime in which any of the foregoing crimes is an element; or (5) any 
other crimes described in section 411 of the Act.

    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person, (2) Any director of, relative of, or partner in, 
any such person, (3) Any corporation, partnership, trust, or 
unincorporated enterprise of which such person is an officer, 
director, or a 5 percent (5%) or more partner or owner, and (4) Any 
employee or officer of the person who --(A) Is a highly compensated 
employee (as defined in section 4975(e)(2)(H) of the Code) or 
officer (earning 10 percent (10%) or more of the yearly wages of 
such person), or (B) Has direct or indirect authority, 
responsibility or control regarding the custody, management, or 
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disposition of plan assets.

Section V(e) of PTCE 84-14 states that the term, ``control,'' means the 
power to exercise a controlling influence over the management or 
disposition of plan assets.
    8. Upon acquisition of BMB by HSBC from the Thai government, the 
Applicants will become affiliates of BMB, pursuant to the definition of 
``affiliate,'' as set forth in Section V(d) of PTCE 84-14. Further, 
because BMB, in 1996, entered a plea of guilty with respect to a felony 
described in Section I(g) of PTCE 84-14, the Applicants, as affiliates 
of BMB, could not satisfy Section I(g) of PTCE 84-14. Furthermore, even 
though BMB's plea occurred well before HSBC acquisition of BMB, any of 
the Applicants which qualify as a QPAM (e.g., AMUS, AMHK and Bank USA) 
would be precluded from acting or continuing to act as a QPAM. In order 
to avoid this result, the Applicants have requested the proposed 
exemption.
    9. The Applicants maintain that the requested exemption should be 
granted notwithstanding the guilty plea entered by BMB. In support of 
their position, the Applicants state that no entity affiliated with 
HSBC, other than BMC, nor any employee of HSBC was involved in the 
conduct that formed the basis of the guilty plea. In this regard, it is 
represented that the individuals responsible for BMB's misconduct have 
not been and will not be employed at any time by HSBC or any of its 
affiliates.
    None of the acts underlying the guilty plea involved any investment 
management activities of BMB; nor did such acts involve any assets of 
plans subject to the Act. Further, all of the acts that formed the 
factual basis of the guilty plea occurred prior to HSBC's acquisition 
and control of BMB.
    With regard to the future, it is represented that BMB will not 
influence or control the management or policies of the Applicants, nor 
will BMB be involved in the investment management activities relating 
to any ERISA Plan Clients. In this regard, BMB employees will not have 
any involvement in the investment management activities of the 
Applicants. Finally, it is represented that BMB has not in the past 
acted, nor does it now act, nor does it intend to act in the future as 
a fiduciary with respect to any employee benefit plans subject to the 
Act.
    10. The Applicants maintain that the requested exemption will 
afford protection similar to that provided in PTCE 84-14. In this 
regard, other than Section I(g) of PTCE 84-14, all of the conditions of 
PTCE 84-14 will apply to this proposed exemption. Further, it is 
represented that many of the Applicants' ERISA Plan Clients have 
significant assets, and hence are sophisticated and have access to 
resources necessary to monitor effectively the performance of the 
investment manager.
    The proposed exemption also contains conditions, in addition to 
those imposed by PTCE 84-14, which are designed to ensure the presence 
of adequate safeguards to protect the interests of the ERISA Plan 
Clients against wrongdoers now and in the future. In this regard, the 
proposed exemption will not be applicable if any of the Applicants is 
convicted of or becomes affiliated with any person or entity convicted 
of any of the crimes described in Section I(g) of PTCE 84-14, including 
any such crimes subsequently committed by BMB.
    11. The Applicants represent that the requested exemption is 
administratively feasible because the relief would not impose any 
administrative burdens on the Department which are not already imposed 
by PTCE 84-14. In the opinion of the Applicants, the administrative 
feasibility of the requested exemption is also demonstrated by the fact 
that the Department has previously granted other individual exemptions 
for a variety of similarly situated entities under substantially the 
same circumstances.\30\
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    \30\ Bankers Trust Co., BT Alex Brown, Inc., and Deutsche Bank, 
Prohibited Transaction Exemption 99-29, 64 FR 40623 (July 22, 1999); 
PanAngora Management, Inc., Prohibited Transaction Exemption 97-10, 
62 FR 4813 (Jan. 31, 1997; American Express Company and Affiliates, 
Prohibited Transaction Exemption 94-34, 59 FR 19247 (April 22, 
1994); CS Holding and its Worldwide Affiliates, Prohibited 
Transaction Exemption 94-31, 59 FR 17590 (April 13, 1994).
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    12. The requested exemption would allow the Applicants' ERISA Plan 
Clients to enter into transactions which are in the best interest of 
such plans. In this regard, such plans would not be precluded from 
engaging in transactions with parties in interest, where the terms of 
such transactions are at least as favorable to such plans as those of a 
similar transaction with an unrelated party. Absent the proposed 
exemption, the Applicants would be required to examine each transaction 
involving

[[Page 60469]]

such ERISA Plan Clients to determine parties in interest, no matter how 
remote, with respect to such plans.
    13. Denial of the exemption, in the opinion of the Applicants, 
would be unduly and disproportionately severe and would have adverse 
consequences for the ongoing business operation of the Applicants. 
Disqualification from serving or continuing to serve as a QPAM would 
deprive the Applicants of their ability to render diversified 
investment advisory services to their ERISA Plan Clients. Further, the 
unavailability of the exemption would work a hardship on the ERISA Plan 
Clients which the Applicants serve. In this regard, such ERISA Plan 
Clients might be forced to forgo certain attractive investment 
opportunities or beneficial transactions that involve parties in 
interest for which no existing class exemptions apply. Finally, the 
ERISA Plan Clients would have to incur higher transaction costs and 
risks on other investments by limiting the number of parties that might 
engage in transactions with such plans and by limiting the number of 
high-credit quality counter-parties available in principal 
transactions.
    14. In summary, the Applicants represent that the proposed 
transactions satisfy the statutory criteria for an exemption under 
section 408(a) of the Act and section 4975(c)(2) of the Code because, 
among other things:
    (a) no entity affiliated with HSBC, other than BMB, nor any 
employee of HSBC was involved in the conduct that formed the basis of 
the guilty plea;
    (b) all of the acts that formed the factual basis of the guilty 
plea occurred before the date that HSBC acquired control of BMB;
    (c) the individuals responsible for BMB misconduct have not been 
and will not be employed at any time by HSBC or any other affiliates;
    (d) absent the proposed exemption, the ERISA Plan Clients may have 
to forgo attractive investment opportunities or incur higher 
transaction costs and risks;
    (e) AMUS and AMHK, as investment advisors registered under the 
Advisers Act, are subject to the jurisdiction of the Securities and 
Exchange Commission and the requirements of the Advisers Act;
    (f) Bank USA is a bank, as defined in section 202(a)(2) of the 
Advisers Act), and is subject to the anti-fraud provisions of the 
Advisers Act, as well as the fiduciary standards imposed by the Office 
of the Comptroller of Currency and pursuant to state law;
    (g) BMB has not in the past acted, nor does it now act, nor will it 
act in the future as a fiduciary with respect to any employee benefit 
plans subject to the Act;
    (h) BMB will not be involved in investment management activities 
relating to the ERISA Plan Clients, nor will BMB influence or control 
the management or policies of HBSC;
    (i) other than Section I(g) of PTCE 84-14, all of the conditions of 
PTCE 84-14 will apply to the transactions covered by this exemption;
    (j) this exemption, if granted, would not be applicable if any of 
the Applicants now or in the future becomes affiliated with any person 
or entity convicted of any of the crimes described in Section I(g) of 
PTCE 84-14, other than BMB; and
    (k) this exemption, if granted, would not be applicable if any of 
the Applicants now or in the future becomes convicted of any of the 
crimes described in Section I(g) of PTCE 84-14, including such crimes 
subsequently committed by BMB.

Notice to Interested Persons

    The Applicants will furnish a copy of the Notice of Proposed 
Exemption (the Notice) along with the supplemental statement (the 
Supplemental Statement), described at 29 CFR 2570.43(b)(2), to the 
trustee or other fiduciary of each of the ERISA Plan Clients for which 
one or more of the Applicants have discretionary investment authority.
    The Notice and the Supplemental Statement will be delivered by hand 
delivery or first class mail, within fifteen (15) days of the 
publication of the Notice in the Federal Register. Comments and 
requests for a hearing are due on or before 45 days from the date of 
publication of the Notice in the Federal Register.
    A copy of the final exemption, if granted, will also be provided to 
the trustee or fiduciary of each of the ERISA Plan Clients for which 
one or more of the Applicants have discretionary investment authority.

FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the Department 
telephone (202) 219-8883. (This is not a toll-free number.)

Pembroke Construction Company, Inc. Employees 401(k) Profit Sharing 
Plan (the Plan), Located in Hampton, Virginia

[Application No. D-10915]

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 a condominium (the Condo) 
by Thomas N. Hunnicutt (Mr. Hunnicutt), and his wife Ann N. Hunnicutt 
(collectively, the Hunnicutts), to Mr. Hunnicutt's self-directed 
individual account (the Account) in the Plan, with respect to which the 
Hunnicutts are parties in interest; provided that the following 
conditions are satisfied:
    (a) the proposed sale will be a one-time cash transaction;
    (b) the Account will pay the current fair market value for the 
Condo, as established at the time of the purchase by an independent 
qualified appraiser;
    (c) the Account will pay no expenses or commissions associated with 
the purchase; and
    (d) the purchase will enable the Account to acquire the Condo, 
which is expected to be a valuable asset that will yield significant 
rental income.

Summary of Facts and Representations

    1. The Plan was established on May 10, 1977, and was amended and 
restated effective January 1, 1992. As of June 30, 1999, the Plan had 
72 participants. As of June 30, 1999, the Plan had $4,899,548 in total 
assets, and the Account had $2,272,573 in total assets. Pembroke 
Construction Company, Inc. (PCC) is the sponsor of the Plan. The 
Hunnicutts are trustees of the Plan as well as employees, officers and 
directors of PCC. PCC was established on September 12, 1961, and is a 
subchapter ``S'' corporation in the Commonwealth of Virginia. PCC is in 
the business of residential and commercial construction.
    2. On or about March 9, 1987, the Hunnicutts purchased the Condo 
from Busch Properties, for $140,000 in cash and credit (i.e., the Condo 
is encumbered by an existing mortgage). However, the applicant states 
that when the Condo will be transferred to the Account, such mortgage 
will be paid off and the Account will own the Condo free and clear of 
any debt. It is represented that the Hunnicutts have not rented or 
leased the Condo to anyone. The Hunnicutts currently use the Condo for 
business purposes, such as for overnight guests. As noted below in 
paragraph 4, the Condo will only be leased to, and used by, independent 
third parties after it is sold to the

[[Page 60470]]

Account. Thus, the Condo will not be used by the Hunnicutts after the 
purchase by the Account.\31\ The applicant represents that the Condo is 
not adjacent to any other property owned by the Hunnicutts.
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    \31\ The Department notes that this proposed exemption would not 
permit any leasing of the Condo to, or use of the condo by, a party 
in interest with respect to the Plan (e.g., employees of PCC).
---------------------------------------------------------------------------

    3. The Property, located at 314 Padgetts Ordinary, Williamsburg, 
Virginia, was appraised on January 27, 2000 (the Appraisal). The 
Appraisal was prepared by R. Epes McMurran, Jr., SRA (Mr. McMurran), 
who is an independent Virginia state certified appraiser. Mr. McMurran 
is employed with Barker and Associates, Inc., a real estate firm 
located in Newport News, Virginia. In the Appraisal, Mr. McMurran 
states that the Condo consists of 1,686 square feet and contains, among 
other things, three bedrooms and three baths. The common elements 
include a storage area, swimming pool, tennis courts, and clubhouse. 
Mr. McMurran represents in the Appraisal that the monthly home owners 
association unit charge for the Condo is $237 (the Condo Fee). Mr. 
McMurran states further that the Condo has been well maintained, has 
received periodic maintenance, and is in readily marketable condition. 
Mr. McMurran relied primarily on the sales comparison approach to value 
the Condo. Based on an analysis of recent sales of similar properties 
in the local real estate area, Mr. McMurran determined that the fair 
market value of the Property was $285,000, as of January 27, 2000.
    4. The applicant maintains that after the Account acquires the 
Condo, the Condo will be leased to independent third parties only. The 
applicant represents that the Condo could yield annual rental income 
for the Account in the range of $80,000 to $85,000. In this regard, the 
applicant submitted a statement dated November 30, 1999, from Barbara 
Eddins (Ms. Eddins), Rental Property Manager of Kingsmill Resort, 
located in Williamsburg, Virginia. Ms. Eddins states that possible 
rental revenue income for 3 bedroom condominiums in the Padgett's 
Ordinary area of Kingsmill Resort may be in the range of $80,000 to 
$85,000 during any calendar year. The applicant also represents that 
after the transaction is consummated, the Account will pay the monthly 
Condo Fee for the Condo.
    5. The applicant now proposes that the Account purchase the Condo 
from the Hunnicutts in a one-time cash transaction. After the proposed 
purchase, the Condo will represent approximately 14% of the Account's 
total assets. The applicant represents that the proposed transaction 
would be in the best interest and protective of the Account and the 
Plan because the Account and the Plan will pay no expenses or 
commissions associated with the purchase. The Account will pay the 
Hunnicutts the current fair market value of the Condo, as determined by 
an independent qualified appraiser at the time of the transaction.
    The acquisition of the Condo by the Account will diversify the 
Account's portfolio, and will enable the Account to realize an annual 
return of approximately 28 percent (28%) if the Condo can be fully 
leased throughout the year.
    6. 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 proposed purchase of the Condo by the Account will be a 
one-time cash transaction;
    (b) The Account will pay the Hunnicutts the current fair market 
value for the Condo, as established at the time of the transaction by 
an independent qualified appraiser;
    (c) The Condo will represent approximately 14% of the Account's 
total assets at the time of the transaction;
    (d) The transaction will enable the Account to acquire the Condo, 
which is expected to be a valuable asset that will yield significant 
rental income; and
    (e) Mr. Hunnicutt is the only participant in the Plan that will be 
affected by this transaction, and he desires that the transaction be 
consummated.

Notice to Interested Persons

    Because Mr. Hunnicutt is the only participant in the Plan that will 
be affected by the proposed transaction, it has been determined that 
there is no need to distribute the notice of proposed exemption to 
interested persons. Comments and requests for a hearing are due thirty 
(30) days from the date of publication of this notice in the Federal 
Register.

FOR FURTHER INFORMATION CONTACT: Ekaterina A. Uzlyan of the Department 
at (202) 219-8883. (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 or disqualified 
person from certain other provisions of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
section 404 of the Act, which, among other things, require a fiduciary 
to discharge his duties respecting the plan solely in the interest of 
the participants and beneficiaries of the plan and in a prudent fashion 
in accordance with section 404(a)(1)(b) of the Act; nor does it affect 
the requirement of section 401(a) of the Code that the plan must 
operate for the exclusive benefit of the employees of the employer 
maintaining the plan and their beneficiaries;
    (2) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries, and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete, and that each application 
accurately describes all material terms of the transaction which is the 
subject of the exemption.

    Signed at Washington, DC, this 4th day of October, 2000.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 00-26028 Filed 10-10-00; 8:45 am]
BILLING CODE 4510-29-P