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Secretary of Labor Thomas E. Perez
Grant of Individual Exemptions; Masters, Mates and Pilots [Notices] [10/02/1996]

EBSA (Formerly PWBA) Federal Register Notice

Grant of Individual Exemptions; Masters, Mates and Pilots [10/02/1996]

[PDF Version]

Volume 61, Number 192, Page 51463-51470

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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 96-73; Exemption Application No. D-
10198, et al.]

 
Grant of Individual Exemptions; Masters, Mates and Pilots

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemptions.

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SUMMARY: This document contains exemptions issued by the Department of 
Labor (the Department) 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).
    Notices were published in the Federal Register of the pendency 
before the Department of proposals to grant such exemptions. The 
notices set forth a summary of facts and representations contained in 
each application for exemption and referred interested persons to the 
respective applications for a complete statement of the facts and 
representations. The applications have been available for public 
inspection at the Department in Washington, D.C. The notices also 
invited interested persons to submit comments on the requested 
exemptions to the Department. In addition the notices stated that any 
interested person might submit a written request that a public hearing 
be held (where appropriate). The applicants have represented that they 
have complied with the requirements of the notification to interested 
persons. No public comments and no requests for a hearing, unless 
otherwise stated, were received by the Department.
    The notices of proposed exemption were issued and the exemptions 
are being granted solely by the Department

[[Page 51464]]

because, effective December 31, 1978, section 102 of Reorganization 
Plan No. 4 of 1978 (43 FR 47713, October 17, 1978) transferred the 
authority of the Secretary of the Treasury to issue exemptions of the 
type proposed to the Secretary of Labor.

Statutory Findings

    In accordance with section 408(a) of the Act and/or section 
4975(c)(2) of the Code and the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon 
the entire record, the Department makes the following findings:

    (a) The exemptions are administratively feasible;
    (b) They are in the interests of the plans and their 
participants and beneficiaries; and
    (c) They are protective of the rights of the participants and 
beneficiaries of the plans.

The Masters, Mates and Pilots Pension Plan (the Pension Plan) and 
Individual Retirement Account Plan (the IRAP; together, the Plans) 
Located in Linthicum Heights, Maryland

[Prohibited Transaction Exemption 96-73; Exemption Application Nos. D-
10198 and D-10199]

Exemption

    The restrictions of sections 406(a), 406(b)(1) and (b)(2) and 
407(a) of the Act and the sanctions resulting from the application of 
section 4975 of the Code, by reason of section 4975(c)(1)(A) through 
(E) of the Code, shall not apply to the continued holding by the Plans 
of their shares of stock (the Stock) in American Heavy Lift Shipping 
Company (AHL), provided that (a) the Plans' independent fiduciary has 
determined that the Plans' holding of the Stock is appropriate for the 
Plans and in the best interests of the Plans' participants and 
beneficiaries; and (b) the Plans' independent fiduciary continues to 
monitor the Plans' holding of the Stock and determines at all times 
that such transaction remains in the best interests of the Plans.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on May 6, 1996 at 61 FR 
20284.
    Temporary Nature of Exemption: This exemption is effective until 
the later of: (1) December 31, 1997, or (2) December 31, 1998 provided 
another application for exemption is filed with the Department prior to 
December 31, 1997.
    Notice to Interested Persons: The applicant represents that it was 
unable to comply with the notice to interested persons requirement 
within the time frame stated in its application. However, the applicant 
has represented that it notified all interested persons, in the manner 
agreed upon between the applicant and the Department, by June 27, 1996. 
Interested persons were informed that they had until July 31, 1996 to 
comment or request a public hearing with respect to the proposed 
exemption. No requests for a public hearing were received by the 
Department, but two comments were submitted.
    One commentator stated that no exemption should be necessary in the 
case of the IRAP, which is an eligible individual account plan as 
defined in section 407(d)(3)(B) of the Act. Such eligible individual 
account plans are permitted to hold employer stock, provided the 
holding of such stock is explicitly provided for by the plan documents. 
The commentator pointed out that the IRAP documents do expressly permit 
the holding of AHL Stock. The applicant responded by stating that while 
the commentator might be technically correct, the commentator had 
ignored the background under which the exemption was originally 
requested. The investment in AHL Stock was the subject of protracted 
litigation between the Department, the Plans and certain of their 
trustees, a former investment adviser to the Plans, and certain Plan 
participants. [See In re Masters, Mates & Pilots Pension Plan and IRAP 
Litigation, Lead File No. 85 Civ. 9545 (VLB) (S.D.N.Y.)]. This 
litigation was ultimately settled with the Department pursuant to a 
Court Order (the Court Order) entered by the United States District 
Court for the Southern District of New York on November 4, 1992. The 
Court Order required both Plans to seek an exemption with respect to 
the holding of the AHL Stock. In compliance with the Court Order, the 
Named Fiduciary for the Plans' Special Assets Portfolio, Bear Stearns 
Fiduciary Services, Inc. (BSFS), has consistently sought, and been 
granted, exemptions with respect to both the Pension Plan and the IRAP 
[see Prohibited Transaction Exemption 94-85 (PTE 94-85), 59 FR 65403, 
December 19, 1994].
    The second commentator stated that he was opposed to the granting 
of the exemption for the following reasons: (a) The financial recovery 
of AHL is attributable to the management and employees of AHL rather 
than BSFS and the investment manager chosen to oversee the day-to-day 
operations of AHL, Potomac Asset management (Potomac); (b) BSFS has 
failed to respond favorably to a proposed acquisition of AHL Stock by 
an employee stock ownership plan (the ESOP); and (c) the extension of 
PTE 94-85 will ``unfairly'' extend the opportunity for BSFS or Potomac 
to find a buyer that is willing to pay a higher price for AHL than the 
ESOP.
    The applicant responded by stating that the assertions have no 
bearing on whether it is appropriate to extend PTE 94-85. While AHL's 
employees and management have made important contributions to AHL's 
recovery, it does not follow that the Plans should dispose of some or 
all of their AHL investment. In furtherance of their fiduciary duty to 
the Plans' participants and beneficiaries, Potomac (with the oversight 
of BSFS) is obliged to protect the value of the Plans' investment in 
the Stock. Potomac believes that the value of AHL is most likely to be 
enhanced by focusing in the short term on AHL's economic recovery with 
a view to the ultimate disposition of the Stock. BSFS and Potomac have 
no fixed plan regarding the nature or terms of such a disposition and 
will continue to consider carefully all reasonable offers and proposals 
to purchase AHL, including the ESOP proposal, if and when such a 
proposal were accepted, fully negotiated and approved by the AHL Board. 
However, the applicant represents that it would be a violation of 
fiduciary duty to favor the ESOP proposal merely to compensate the 
employees for their ``sacrifice''. Far from being ``unfair'', the 
obligation to sell AHL at the best possible price is imposed upon the 
Plans' fiduciaries by the Act.
    The Department has considered the entire record, including the 
comments submitted and the applicant's responses thereto, and has 
determined to grant the exemption as proposed.

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

Chicago Trust Company (Chicago Trust) Located in Chicago, IL

[Prohibited Transaction Exemption 96-74; Exemption Application No. D-
10222]

Exemption

Section I. Exemption for the In-Kind Transfer of Assets
    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) shall not apply, 
effective September 21, 1995, to the in-kind transfer to any 
diversified open-end investment company (the Fund or Funds) registered 
under the Investment Company Act of 1940 (the

[[Page 51465]]

'40 Act) to which Chicago Trust or any of its affiliates (collectively, 
Chicago Trust) serves as investment adviser and/or may provide other 
services, of the assets of various employee benefit plans (the Client 
Plans), including plans established or maintained by Chicago Trust (the 
In-House Plans; collectively, the Plans) that are either held in 
certain collective investment funds (the CIF or CIFs) maintained by 
Chicago Trust as trustee or investment manager, in exchange for shares 
of such Funds, provided that the following conditions are met:
    (a) A fiduciary (the Second Fiduciary) who is acting on behalf of 
each affected In-House Plan or Client Plan and who is independent of 
and unrelated to Chicago Trust, as defined in paragraph (h) of Section 
III below, receives advance written notice of the in-kind transfer of 
assets of the CIFs in exchange for shares of the Funds and the 
disclosures described in paragraph (f) of Section II below.
    (b) On the basis of the information described in paragraph (f) of 
Section II below, the Second Fiduciary authorizes in writing the in-
kind transfer of assets of an In- House Plan or a Client Plan in 
exchange for shares of the Funds, the investment of such assets in 
corresponding portfolios of the Funds, and, in the case of a Client 
Plan, the fees received by Chicago Trust pursuant to its investment 
advisory agreement with the Funds. Such authorization by the Second 
Fiduciary is to be consistent with the responsibilities, obligations 
and duties imposed on fiduciaries by Part 4 of Title I of the Act.
    (c) No sales commissions or redemption fees are paid by an In-House 
Plan or a Client Plan in connection with the in-kind transfers of 
assets of the CIFs in exchange for shares of the Funds.
    (d) All or a pro rata portion of the assets of an In-House Plan or 
a Client Plan held in the CIFs are transferred in-kind to the Funds in 
exchange for shares of such Funds. A Plan not electing to participate 
in the Funds receives a cash payment representing a pro rata portion of 
the assets of the terminating CIF before the final liquidation takes 
place.
    (e) The CIFs receive shares of the Funds that have a total net 
asset value equal in value to the assets of the CIFs exchanged for such 
shares on the date of transfer.
    (f) The current value of the assets of the CIFs to be transferred 
in-kind in exchange for shares is determined in a single valuation 
performed in the same manner and at the close of business on the same 
day, using independent sources in accordance with the procedures set 
forth in Rule 17a-7(b) (Rule 17a-7) under the '40 Act, as amended from 
time to time or any successor rule, regulation, or similar 
pronouncement and the procedures established 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 Friday preceding the weekend 
of the CIF transfers determined on the basis of reasonable inquiry from 
at least three sources that are broker-dealers or pricing services 
independent of Chicago Trust.
    (g) Not later than 30 days after completion of each in-kind 
transfer of assets of the CIFs in exchange for shares of the Funds, 
Chicago Trust sends by regular mail to the Second Fiduciary, who is 
acting on behalf of each affected Plan and who is independent of and 
unrelated to Chicago Trust, as defined in paragraph (h) of Section III 
below, a written confirmation that contains the following information:
    (1) 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 '40 
Act;
    (2) The price of each such assets for purposes of the transaction; 
and
    (3) The identity of each pricing service or market maker consulted 
in determining the value of such assets.
    (The confirmation described in this paragraph I(g) is not required 
if no assets were valued in accordance with the last sentence of 
paragraph (f) of Section I.)
    (h) Not later than 90 days after completion of each in-kind 
transfer of assets of the CIFs in exchange for shares of the Funds, 
Chicago Trust sends by regular mail to the Second Fiduciary, who is 
acting on behalf of each affected In-House Plan or Client Plan and who 
is independent of and unrelated to Chicago Trust, as defined in 
paragraph (h) of Section III below, a written confirmation that 
contains the following information:
    (1) The number of CIF units held by each affected Plan immediately 
before the in-kind transfer (and the related per unit value and the 
aggregate dollar value of the units transferred); and
    (2) The number of shares in the Funds that are held by each 
affected Plan following the conversion (and the related per share net 
asset value and the aggregate dollar value of the shares received).
    (i) The conditions set forth in paragraphs (c), (d), (e), (p) and 
(q) of Section II below as they would relate to all Plans are 
satisfied.
Section II. Exemption for the Receipt of Fees From Funds
    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 September 21, 1995, to (1) the receipt of fees by 
Chicago Trust from the Funds for investment advisory services to the 
Funds; and (2) the receipt or retention of fees by Chicago Trust from 
the Funds for acting as custodian or shareholder servicing agent to the 
Funds, as well as any other services provided to the Funds which are 
not investment advisory services (i.e., the Secondary Services), in 
connection with the investment of shares in the Funds by the Client 
Plans for which Chicago Trust acts as a fiduciary, provided that--
    (a) No sales commissions are paid by the Client Plans in connection 
with purchases or sales of shares of the Funds and no redemption fees 
are paid in connection with the redemption of such shares by the Client 
Plans to the Funds.
    (b) The price paid or received by the Client Plans for shares in 
the Funds is the net asset value per share, as defined in paragraph (e) 
of Section III, at the time of the transaction and is the same price 
which would have been paid or received for the shares by any other 
investor at that time.
    (c) Chicago Trust, any of its affiliates or their officers or 
directors do not purchase from or sell to any of the Client Plans 
shares of any of the Funds.
    (d) For each Client Plan, the combined total of all fees received 
by Chicago Trust for the provision of services to such Plan, and in 
connection with the provision of services to any of the Funds in which 
the Client Plans may invest, is not in excess of ``reasonable 
compensation'' within the meaning of section 408(b)(2) of the Act.
    (e) Chicago Trust does not receive any fees payable, pursuant to 
Rule 12b-1 (the 12b-1 Fees) under the '40 Act in connection with the 
transactions involving the Funds.
    (f) A Second Fiduciary who is acting on behalf of a Client Plan and 
who is independent of and unrelated to Chicago Trust, as defined in 
paragraph (h) of Section III below, receives in advance of the 
investment by a Client Plan in any of the Funds a full and detailed 
written disclosure of

[[Page 51466]]

information concerning such Fund including, but not limited to--
    (1) A current prospectus for each portfolio of each of the Funds in 
which such Client Plan is considering investing;
    (2) A statement describing the fees for investment advisory or 
other similar services, any fees for Secondary Services, as defined in 
paragraph (i) of Section III below, and all other fees to be charged to 
or paid by the Client Plan and by such Funds to Chicago Trust, 
including the nature and extent of any differential between the rates 
of such fees;
    (3) The reasons why Chicago Trust may consider such investment to 
be appropriate for the Client Plan;
    (4) A statement describing whether there are any limitations 
applicable to Chicago Trust with respect to which assets of a Client 
Plan may be invested in the Funds, and, if so, the nature of such 
limitations;
    (5) A copy of the proposed exemption and/or a copy of the final 
exemption upon the request of the Second Fiduciary; and
    (6) The last date as of which consent to an in-kind transfer may be 
given by the Second Fiduciary, along with the disclosure that if 
consent is not given by that date, the Second Fiduciary will be deemed 
to have withheld consent to an in-kind transfer.
    (g) On the basis of the information described in paragraph (f) of 
this Section II, the Second Fiduciary authorizes in writing--
    (1) The investment of assets of the Client Plan in shares of the 
Fund, in connection with the transaction set forth in Section II;
    (2) The Funds in which the assets of the Client Plan may be 
invested; and
    (3) The fees received by Chicago Trust in connection with 
investment advisory services and Secondary Services provided to the 
Funds; such authorization by the Second Fiduciary to be consistent with 
the responsibilities obligations, and duties imposed on fiduciaries by 
Part 4 of Title I of the Act.
    (h) The authorization, described in paragraph (g) of this Section 
II, is terminable at will by the Second Fiduciary of a Client Plan, 
without penalty to such Client Plan. Such termination will be effected 
by Chicago Trust selling the shares of the Funds held by the affected 
Client Plan within one business day following receipt by Chicago Trust, 
either by mail, hand delivery, facsimile, or other available means at 
the option of the Second Fiduciary, of written notice of termination 
(the Termination Form), as defined in paragraph (i) of Section III 
below; provided that if, due to circumstances beyond the control of 
Chicago Trust, the sale cannot be executed within one business day, 
Chicago Trust shall have one additional business day to complete such 
sale.
    (i) The Client Plans do not pay any Plan-level investment advisory 
fees to Chicago Trust with respect to any of the assets of such Client 
Plans which are invested in shares of the Funds. This condition does 
not preclude the payment of investment advisory fees by the Funds to 
Chicago Trust under the terms of an investment advisory agreement 
adopted in accordance with section 15 of the '40 Act or other agreement 
between Chicago Trust and the Funds or the retention by Chicago Trust 
of fees for Secondary Services paid to Chicago Trust by the Funds.
    (j) In the event of an increase in the rate of any fees paid by the 
Funds to Chicago Trust regarding investment advisory services that 
Chicago Trust provides to the Funds over an existing rate for such 
services that had been authorized by a Second Fiduciary of a Client 
Plan, in accordance with paragraph (g) of this Section II, Chicago 
Trust will, at least 30 days in advance of the implementation of such 
increase, provide a written notice (which may take the form of a proxy 
statement, letter, or similar communication that is separate from the 
prospectus of the Fund and which explains the nature and amount of the 
increase in fees) to the Second Fiduciary of each Client Plan invested 
in a Fund which is increasing such fees. Such notice shall be 
accompanied by the Termination Form, as defined in paragraph (j) of 
Section III below;
    (k) In the event of an (1) addition of a Secondary Service, as 
defined in paragraph (h) of Section III below, provided by Chicago 
Trust to the Funds for which a fee is charged or (2) an increase in the 
rate of any fee paid by the Funds to Chicago Trust for any Secondary 
Service that results either from an increase in the rate of such fee or 
from the decrease in the number or kind of services performed by 
Chicago Trust for such fee over an existing rate for such Secondary 
Service which had been authorized by the Secondary Fiduciary in 
accordance with paragraph (g) of this Section II, Chicago Trust will, 
at least 30 days in advance of the implementation of such Secondary 
Service or fee increase, provide a written notice (which may take the 
form of a proxy statement, letter, or similar communication that is 
separate from the prospectus of the Funds and which explains the nature 
and amount of the additional Secondary Service for which a fee is 
charged or the nature and amount of the increase in fees) to the Second 
Fiduciary of each of the Client Plans invested in a Fund which is 
adding a service or increasing fees. Such notice shall be accompanied 
by the Termination Form, as defined in paragraph (j) of Section III 
below.
    (l) The Second Fiduciary is supplied with a Termination Form at the 
times specified in paragraphs (j) and (k) of this Section II, which 
expressly provides an election to terminate the authorization, 
described above in paragraph (g) of this Section II, with instructions 
regarding the use of such Termination Form including statements that--
    (1) The authorization is terminable at will by any of the Client 
Plans, without penalty to such Plans. The termination will be effected 
by Chicago Trust selling the shares of the Funds held by the Client 
Plans requesting termination within the period of time specified by the 
Client Plan, but not later than one business day following receipt by 
Chicago Trust from the Second Fiduciary of the Termination Form or any 
written notice of termination; provided that if, due to circumstances 
beyond the control of Chicago Trust, the sale of shares of such Client 
Plan cannot be executed within one business day, Chicago Trust shall 
have one additional business day to complete such sale; and
    (2) Failure by the Second Fiduciary to return the Termination Form 
on behalf of the Client Plan will be deemed to be an approval of the 
additional Secondary Service for which a fee is charged or increase in 
the rate of any fees and will result in the continuation of the 
authorization, as described in paragraph (g) of this Section II, of 
Chicago Trust to engage in the transactions on behalf of the Client 
Plan;
    (m) The Second Fiduciary is supplied with a Termination Form at 
least once in each calendar year, beginning with the calendar year that 
begins after the grant of this proposed exemption is published in the 
Federal Register and continuing for each calendar year thereafter; 
provided that the Termination Form need not be supplied to the Second 
Fiduciary, pursuant to this paragraph, sooner than six months after 
such Termination Form is supplied pursuant to paragraphs (j) and (k) of 
this Section II, except to the extent required by said paragraphs (j) 
and (k) of this Section II to disclose an additional Secondary Service 
for which a fee is charged or an increase in fees;
    (n)(1) With respect to each of the Funds in which a Client Plan 
invests, Chicago Trust will provide the Second Fiduciary of such Plan--

[[Page 51467]]

    (A) At least annually with a copy of an updated prospectus of such 
Fund;
    (B) A report or statement (which may take the form of the most 
recent financial report, the current statement of additional 
information, or some other written statement) which contains a 
description of all fees paid by the Fund to Chicago Trust within 15 
days of such document's availability; and
    (2) With respect to each of the Funds in which a Client Plan 
invests, in the event such Fund places brokerage transactions with 
Chicago Trust or any adviser or sub-adviser to a Fund or any of their 
affiliates (collectively, Related Party Brokerage), Chicago Trust will 
provide the Second Fiduciary of such Client Plan at least annually with 
a statement specifying--
    (A) The total, expressed in dollars, attributable to each Fund's 
investment portfolio which represent Related Party Brokerage;
    (B) The total, expressed in dollars, of brokerage commissions 
attributable to each Fund's investment portfolio other than Related 
Party Brokerage;
    (C) The average brokerage commissions per share, expressed as cents 
per share, paid for Related Party Brokerage by each Fund; and
    (D) The average brokerage commissions per share, expressed as cents 
per share, paid by each Fund for brokerage other than Related Party 
Brokerage.
    (o) All dealings between the Client Plans and any of the Funds are 
on a basis no less favorable to such Client Plans than dealings between 
the Funds and other shareholders holding the same class of shares as 
the Client Plans.
    (p) Chicago Trust maintains for a period of 6 years the records 
necessary to enable the persons, as described in paragraph (q) of 
Section II below, to determine whether 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 Chicago Trust, 
the records are lost or destroyed prior to the end of the 6 year 
period; and
    (2) No party in interest, other than Chicago Trust, 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 (q) of Section II below.
    (q)(1) Except as provided in paragraph (q)(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 (p) of 
Section II 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 (the Service) or the 
Securities and Exchange Commission (the SEC);
    (B) Any fiduciary of each of the Client Plans who has authority to 
acquire or dispose of shares of any of the Funds owned by such Client 
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 paragraphs (q)(1)(B) and 
(q)(1)(C) of Section II shall be authorized to examine trade secrets of 
Chicago Trust, or commercial or financial information which is 
privileged or confidential.
Section III. Definitions
    For purposes of this exemption,
    (a) The term ``Chicago Trust'' means Chicago Trust Company and any 
affiliate of Chicago Trust, 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 terms ``Fund or Funds'' mean any diversified open-end 
investment company or companies registered under the '40 Act for which 
Chicago Trust serves as investment adviser and may also provide 
custodial or other services such as Secondary 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 ``Plan'' means any ``employee benefit pension plan'' 
within the meaning of section 3(2) of the Act or any ``plan'' within 
the meaning of section 4975(e)(1) of the Code. The term ``Plan'' 
includes any plan maintained by an entity other than Chicago Trust 
(referred to collectively herein as the ``Client Plans'') and any of 
the following Plans sponsored or maintained by Chicago Trust (referred 
to collectively as the ``In-House Plans''): The Chicago Title & Trust 
Pension Plan, the Chicago Title & Trust Savings and Profit Sharing 
Plan, the Celite Employees' Thrift Plan, the Celite Hourly Retirement 
Savings 401(k) Plan, the Celite Employees' Retirement Plan, the Celite 
Hourly Retirement Plan and the Heads & Threads Savings and Profit 
Sharing Plan.
    (g) 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.
    (h) The term ``Second Fiduciary'' means a fiduciary of a plan who 
is independent of and unrelated to Chicago Trust. For purposes of this 
exemption, the Second Fiduciary will not be deemed to be independent of 
and unrelated to Chicago Trust if--
    (1) Such Second Fiduciary directly or indirectly controls, is 
controlled by or is under common control with Chicago Trust;
    (2) Such Second Fiduciary, or any officer, director, partner, 
employee or relative of such Second Fiduciary is an officer, director, 
partner or employee of Chicago Trust (or is a relative of such 
persons); and
    (3) Such Second Fiduciary directly or indirectly receives any 
compensation or other consideration in connection with any transaction 
described in this exemption; provided, however, that nothing shall 
prevent a Second Fiduciary's receipt of its customary fees from a Plan 
or the Plan's sponsoring employer for serving as a fiduciary to such 
Plan.
    If an officer, director, partner, or employee of Chicago Trust (or 
a relative of such persons), is a director of such Second Fiduciary, 
and if he or she abstains from participation in the choice of the 
Plan's investment manager/adviser, the approval of any purchase or sale 
by the Plan of shares of the Funds, and the approval of any change of 
fees charged to or paid by the Plan, in connection with any of the 
transactions described in Sections I and II above, then paragraph 
(h)(2) of Section III above, shall not apply.

[[Page 51468]]

    (i) The term ``Secondary Service'' means a service, other than an 
investment advisory or similar service, which is provided by Chicago 
Trust to the Funds, including but not limited to custodial, accounting, 
brokerage, administrative, or any other service.
    (j) The term ``Termination Form'' means the form supplied to the 
Second Fiduciary of a Client Plan, at the times specified in paragraphs 
(j), (k), and (m) of Section II above, which expressly provides an 
election to the Second Fiduciary to terminate on behalf of the Plans 
the authorization, described in paragraph (g) of Section II. Such 
Termination Form is to be used at will by the Second Fiduciary to 
terminate such authorization without penalty to the Client Plan and to 
notify Chicago Trust in writing to effect such termination not later 
than one business day following receipt by Chicago Trust of written 
notice of such request for termination; provided that if, due to 
circumstances beyond the control of Chicago Trust, the sale cannot be 
executed within one business day, Chicago Trust shall have one 
additional business day to complete such sale.

EFFECTIVE DATE: This exemption is effective as of September 21, 1995.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption (the Notice) published on April 25, 
1996 at 61 FR 18435.

Written Comments

    The Department received four written comments with respect to the 
Notice and no requests for a public hearing. One comment was submitted 
by an active participant in the Chicago Title & Trust Pension Plan. The 
other three comments were submitted by Chicago Trust. Following is a 
discussion of these comments.

Participant's Comment

    In his comment letter, the CT&T Pension Plan participant complained 
that he had experienced considerable difficulty in obtaining a copy of 
the Notice from Chicago Trust. In this regard, the participant 
indicated that Chicago Trust had not posted the Notice but only the 
supplemental statement which directed interested persons to a toll-free 
telephone number where they might request a copy of the Notice and have 
it mailed to them. The participant indicated that he never received a 
copy of the Notice despite repeated requests. Because the participant 
believed that he had been denied information required to make an 
informed comment, he requested a copy of the Notice and that the 
Department extend the comment period beyond its deadline of June 10, 
1996.
    In response to this comment, the Department had Chicago Trust 
revise the supplemental statement and re-post it along with a copy of 
the Notice. These documents were placed at all job sites where active 
participants in the CT&T Pension Plan and the CT&T Profit Sharing Plan 
are employed. The re-posting occurred on July 15, 1996 and interested 
persons were given until August 15, 1996 to send written comments to 
the Department. As a result of the re-posting, the Department received 
no additional comments or hearing requests.

Chicago Trust's Comments

    Chicago Trust's comments are intended to clarify the Notice in the 
following areas:
    (1) Written Confirmation of Securities for which Market Prices Are 
not Readily Available. Section I(g) of the Notice states that not later 
than 30 days after the completion of each in-kind transfer transaction, 
Chicago Trust will send the Second Fiduciary of each affected Plan 
written confirmation containing (a) the identity of each of the assets 
that was valued for purposes of the transaction in accordance with Rule 
17a-7(b)(4) \1\; (b) the price of each such assets for purposes of the 
transaction; and (c) the identity of each pricing service or market 
maker consulted in determining the value of such assets. Chicago Trust 
requests that the Department modify Section I(g) by clarifying that if 
no CIF assets have been valued for purposes of Rule 17a-7(b)(4), there 
is no need to provide this form of confirmation.
---------------------------------------------------------------------------

    \1\ Such procedures must require that all securities for which a 
current market price cannot be obtained by reference to the last 
sale price for transactions reported on a recognized securities 
exchange or NASDAQ be valued based on an average of the highest 
current independent bid and lowest current independent offer, as of 
the close of business on the Friday preceding the weekend of the CIF 
transfers determined on the basis of reasonable inquiry from at 
least three sources that are broker-dealers or pricing services 
independent of Chicago Trust.
---------------------------------------------------------------------------

    In response, the Department has revised paragraph (g) of Section I 
by adding the following language:

(The confirmation described in this paragraph I(g) is not required 
if no assets were valued in accordance with the last sentence of 
paragraph (f) of Section I.)

    (2) In-House Plan References. Chicago Trust has requested that the 
Department revise Section III(f) of the Notice by revising references 
of the Chicago Trust Pension Plan and the Chicago Trust Savings and 
Profit Sharing Plan to the CT&T Pension Plan and the CT&T Savings and 
Profit Sharing Plan. In addition, in the list of In-House Plans Chicago 
Trust requests that the Department include a reference to the Celite 
Hourly Retirement Plan.
    The Department has complied with these requests by amending Section 
III(f) of the Notice.
    (3) Description of Chicago Trust and Its Affiliates. Chicago Trust 
wishes to modify Representation 1(a) of the Notice by amending 
previously-furnished information regarding the description of Chicago 
Trust and its affiliates as follows:

    Chicago Trust is a wholly owned subsidiary of the Alleghany 
Asset Management, Inc. (AAM), which is a wholly owned subsidiary of 
Chicago Title & Trust Company (CT&T), which is a wholly owned 
subsidiary of the Alleghany Corporation (Alleghany) whose principal 
place of business is at 375 Park Avenue, New York, New York. As of 
December 31, 1995, CT&T had approximately $1.5 billion in 
consolidated assets and it engages in two principal lines of 
business, directly or through subsidiaries. In this regard, CT&T is 
the largest real estate title insurer in the world. In addition, 
Chicago Trust, a second-tier subsidiary of CT&T provides trustee, 
investment management and related services, primarily to high net 
worth individuals, families, tax- qualified pension and profit 
sharing plans (including plans subject to provisions of the Act), 
individual retirement accounts and insurance companies. As of 
December 31, 1995, Chicago Trust managed approximately $6 billion in 
client assets.

    (4) Description of Client Plans. Chicago Trust points out that the 
first two sentences of Representation I(b) of the Notice should be 
revised, as follows, in order to clarify previously- furnished 
information:

    The Client Plans consist of 239 separate employee benefit plan 
clients of Chicago Trust which are either employee pension benefit 
plans as defined in section 3(2) of the Act or plans covering only 
partners or proprietors and their spouses, as described in 29 CFR 
2510.3 (b) and (c).

    In addition, Chicago Trust notes that although represented in its 
original exemption application, it has no Client Plans that are IRAs. 
Therefore, Chicago Trust recommends that the Department delete the 
third sentence of Representation I(b).
    The Department has made the aforementioned changes to the Notice.
    (5) Fees for Investment Advisory Services. The last sentence of 
Representation I(d) of the Notice states that Chicago Trust has charged 
no fee for its investment advisory services to certain CIFs but it has 
received reimbursement for its expenses. For further clarification, 
Chicago Trust

[[Page 51469]]

requests that the Department revise this statement to read as follows:

    Chicago Trust has charged no fee for its investment advisory 
services to these CIFs, and it has received reimbursement only for 
expenses of the annual audits of the CIFs.

    (6) Description of the CIFs. Chicago Trust requests that the 
Department modify portions of Representation I(d) of the Notice as 
follows to update information: (a) The reference to the Chicago Trust 
Company Investment Trust for Employee Benefit Plans, appearing in the 
seventh and eighth lines of paragraph one, should be to the Chicago 
Title and Trust Company Investment Trust for Employee Benefit Plans; 
(b) the reference to the Index Fund in the next to the last line of 
this paragraph, as contained in the original exemption application, 
should be stricken to reflect the Index Fund was liquidated prior to 
the conversion transactions; (c) the reference to the Chicago Trust 
Stated Principal Value Investment Trust for Employee Benefit Plans, 
appearing in the ninth through thirteenth lines of paragraph two, 
should be to the Chicago Title and Trust Company Stated Principal Value 
Trust for Employee Benefit Plans and should also reflect the fact that 
the declaration of trust was restated on November 30, 1995; and (d) the 
reference to the Chicago Trust Company Short Term investment Trust for 
Employee Benefit Plans, appearing in the ninth through eleventh lines 
of paragraph three, should be to the Chicago Title and Trust Company 
Short Term Investment Trust for Employee Benefit Plans. The Department 
has made the requested revisions.
    (7) Description of the Funds. Chicago Trust requests that 
Representation I(e) of the Notice be modified, in part, as follows to 
update information previously furnished the Department in its original 
exemption application: (a) The Funds presently offer eight separate, 
diversified series of shares of mutual fund portfolios and not seven; 
(b) the new Fund is the Chicago Trust Asset Allocation Fund, whose 
investment adviser is Chicago Trust and for which the investment 
advisory fee of 0.70 percent; (c) the Chicago Trust Intermediate Fixed 
Income Fund has been renamed the Chicago Trust Bond Fund; (d) the 
Chicago Trust Intermediate Municipal Bond Fund has been renamed the 
Chicago Trust Municipal Bond Fund; and (e) Montag & Caldwell is a 
wholly owned subsidiary of AAM and not of Chicago Trust. The Department 
has made the requested revisions.
    (8) Initial In-Kind Transfer Transaction. Chicago Trust wishes to 
clarify the last sentence of the second paragraph of Representation 4 
of the Notice to reflect the fact that while Chicago Trust stood ready 
to make cash payments to Plans which elected not to participate in the 
initial in-kind transfer transaction, no Plans made such an election. 
Therefore, no such cash payments were made. In addition, Chicago Trust 
states that since there were no non-conforming assets at the time of 
the September 21, 1995 in-kind transfer transaction, references to the 
initial conversion of such assets which appeared in the last sentence 
of paragraph 9 of Representation 4, the second sentence of paragraph 10 
of Representation 4 and in Representation 9(c), should be deleted.
    In response, the Department has made the requested revisions.
    After giving full consideration to the entire record, the 
Department has decided to grant the exemption subject to the 
modifications or clarifications described above. The comment letters 
have been included as part of the public record of the exemption 
application. The complete application file, including all supplemental 
submissions received by the Department, is made available for public 
inspection in the Public Documents Room of the Pension and Welfare 
Benefits Administration, Room N-5638, U.S. Department of Labor, 200 
Constitution Avenue, NW., Washington, DC 20210.

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

Pacific Mutual Life Insurance Company (PM) Located in Newport Beach, 
California

[Prohibited Transaction Exemption 96-75; Exemption Application No. D-
10258]

Exemption

    The restrictions of section 406(a) of the Act and the sanctions 
resulting from the application of section 4975 of the Code, by reason 
of section 4975(c)(1)(A) through (D) of the Code, shall not apply to 
the sale to employee benefit plans (the Plans) of a synthetic 
guaranteed investment contract (the Buy/Hold Synthetic GIC) offered by 
PM, which is a party in interest with respect to the Plans, provided 
the following conditions are satisfied: (a) Prior to the execution of 
such Buy/Hold Synthetic GIC, an independent fiduciary of such Plan 
receives a full and detailed written disclosure of all material 
features of the Buy/Hold Synthetic GIC, including all applicable fees 
and charges; (b) following receipt of such disclosure, the Plan's 
independent fiduciary approves in writing the execution of the Buy/Hold 
Synthetic GIC on behalf of the Plan; (c) all fees and charges imposed 
under such Buy/Hold Synthetic GIC are reasonable; (d) each Buy/Hold 
Synthetic GIC will specifically provide for an objective means for 
determining the fair market value of the securities owned by the Plan 
pursuant to the Buy/Hold Synthetic GIC; (e) each Buy/Hold Synthetic GIC 
will specifically provide for an objective means for determining the 
interest rates to be credited periodically under the contract; (f) PM 
will maintain books and records of all transactions which will be 
subject to annual audit by independent certified public accountants 
selected by and responsible solely to the Plan; and (g) the Buy/Hold 
Synthetic GICs will only be marketed to Plans or collective investment 
funds which have at least $50 million in assets.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on July 22, 1996 at 61 FR 
37928.

EFFECTIVE DATE: This exemption is effective September 2, 1993.

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

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions to which the exemptions 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) These exemptions are supplemental to and not in derogation of, 
any other provisions of the Act and/or the Code, including statutory or 
administrative exemptions and transactional rules. Furthermore, the

[[Page 51470]]

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
    (3) The availability of these exemptions is subject to the express 
condition that the material facts and representations contained in each 
application accurately describes all material terms of the transaction 
which is the subject of the exemption.

    Signed at Washington, DC, this 26th day of September 1996.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 96-25145 Filed 10-1-96; 8:45 am]
BILLING CODE 4510-29-P