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Secretary of Labor Thomas E. Perez
Grant of Individual Exemptions; The Chicago Corporation (TCC), et al. [Notices] [03/05/1997]

EBSA (Formerly PWBA) Federal Register Notice

Grant of Individual Exemptions; The Chicago Corporation (TCC), et al. [03/05/1997]

[PDF Version]

Volume 62, Number 43, Page 10078-10085

[DOCID:fr05mr97-110]

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DEPARTMENT OF LABOR
[Prohibited Transaction Exemption 97-15; Exemption Application No. D-
10172, et al.]

 
Grant of Individual Exemptions; The Chicago Corporation (TCC), et 
al.

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

[[Page 10079]]

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, DC. 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 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

    <bullet> 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 Chicago Corporation (TCC), Located in Chicago, IL

(Prohibited Transaction Exemption 97-15; Application No. D-10172)

Exemption

Section I. Covered Transactions

    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 proposed sale, for cash or other consideration, by the Midwest Banc 
Fund IV Group Trust (the BF IV Group Trust) in which employee benefit 
plans (the Plans) invest, of certain securities (the Securities) that 
are held in the BF IV Group Trust Portfolio, to a party in interest 
with respect to a participating Plan, where the part in interest 
proposes to acquire or merge with a bank company (the Bank Company) or 
a financial services company (the Financial Services Company) that 
issued such securities.
    In addition, the restrictions of section 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)(E) of the Code, shall 
not apply to the payment of a performance fee (the Performance Fee) by 
Plans investing in the BF IV Group Trust to TCC.
    This exemption is subject to the following conditions as set forth 
below in Section II.

Section II. General Conditions

    (a) Prior to a Plan's investment in the BF IV Group Trust, a Plan 
fiduciary which is independent of TCC and its affiliates (the 
Independent Fiduciary) approves such investment on behalf of the Plan.
    (b) Each Plan investing in the BF IV Group Trust has total assets 
that are in excess of $50 million.
    (c) No Plan invests more than 10 percent of its assets in 
beneficial interests (the Beneficial Interests) in the BF IV Group 
Trust and such Beneficial Interests held by the Plan may not exceed 25 
percent of the Group Trust.
    (d) No Plan may invest more than 25 percent of its assets in 
investment vehicles (i.e., collective investment funds or separate 
accounts) managed or sponsored by TCC and/or its affiliates.
    (e) Prior to investing in the BF IV Group Trust,
    (1) Each Independent Fiduciary receives a Private Placement 
Memorandum and its supplement containing description of all material 
facts concerning the purpose, structure and the operation of the BF IV 
Group Trust.
    (2) An Independent Fiduciary who expresses further interest in the 
BF IV Group Trust receives--
    (A) A copy of the Group Trust Agreement outlining the 
organizational principles, investment objectives and administration of 
the BF IV Group Trust, the manner in which Beneficial Interests may be 
redeemed, the duties of the parties retained to administer the BF IV 
Group Trust and the manner in which BF IV Group Trust assets will be 
valued;
    (B) A copy of the Investment Management Agreement describing the 
duties and responsibilities of TCC, as investment manager of the BF IV 
Group Trust, the rate of compensation that it will be paid and 
conditions under which TCC may be terminated; and
    (C) Copies of the proposed exemption and grant notice covering the 
exemptive relief provided herein.
    (3) If accepted as an investor in the Group Trust, the Independent 
Fiduciary is--
    (A) Furnished with the names and addresses of all other 
participating Plans;
    (B) Required to acknowledge, in writing, prior to purchasing a 
Beneficial Interest in the BF IV Group Trust that such Independent 
Fiduciary has received copies of such documents; and
    (C) Required to acknowledge, in writing, to TCC that such fiduciary 
is independent of TCC and its affiliates, capable of making an 
independent decision regarding the investment of Plan assets, 
knowledgeable with respect to the Plan in administrative matters and 
funding matters related thereto, and able to make an informed decision 
concerning participation in the BF IV Group Trust.
    (f) Each Plan, including the trustee (the Trustee) of the BF IV 
Group Trust, receives the following written disclosures from TCC with 
respect to its ongoing participation in the BF IV Group Trust:
    (1) Within 120 days after the end of each fiscal year of the BF IV 
Group Trust as well as at the time of termination, an annual financial 
report containing a balance sheet for the BF IV Group Trust as of the 
end of such fiscal year and a statement of changes in the financial 
position for the fiscal year, as audited and reported upon by 
independent, certified public accountants. The annual report will also 
disclose the fees paid or accrued to TCC.
    (2) Within 60 days after the end of each quarter (except in the 
last quarter) of each fiscal year of the BF IV Group Trust, an 
unaudited quarterly financial report consisting of at least a balance 
sheet for the BF IV Group Trust as of the end of such quarter and a 
profit and loss statement for such quarter. The quarterly report will 
also specify the fees that are actually paid to or accrued to TCC.
    (3) Such other information as may be reasonably requested by the 
Plans or the Trustee (e.g., certain trading activity and portfolio 
status reports provided to the Trustee as required by Prohibited 
Transaction Exemption 86-128 (51 FR

[[Page 10080]]

41686, November 16, 1986) in order to comply with the reporting 
requirements of the Act and the Code.
    (g) At least annually, TCC holds a meeting of the participating 
Plans at which time the Independent Fiduciaries of investing Plans are 
given the opportunity to decide on whether the BF IV Group Trust, the 
Trustee or TCC should be terminated as well as to discuss any aspect of 
the BF IV Group Trust and the agreements promulgated thereunder with 
TCC.
    (h) During each year of the BF IV Group Trust's existence, TCC 
representatives are available to confer by telephone or in person with 
Independent Fiduciaries on matters concerning such Group Trust.
    (i) The terms of all transactions that are entered into on behalf 
of the BF IV Group Trust by TCC remain at least as favorable to an 
investing Plan as those obtainable in arm's length transactions with 
unrelated parties. In this regard, the valuation of assets in the BF IV 
Group Trust that is done in connection with the payment of Performance 
Fees is based upon independent market quotations or (where the same are 
unavailable) determinations made by an independent appraiser.
    (j) In the case of the sale by the BF IV Group Trust of Securities 
to a party in interest with respect to a participating Plan, the party 
in interest is not TCC, any employer of a participating Plan, or any 
affiliated thereof, and the BF IV Group Trust receives the same terms 
as is offered to other shareholders of a Bank Company or a Financial 
Services Company.
    (k) As to each Plan, the total fees paid to TCC and its affiliates 
constitute no more than ``reasonable compensation'' within the meaning 
of section 408(b)(2) of the Act.
    (l) TCC's Performance Fee is based upon a predetermined percentage 
of net realized gains minus net unrealized losses. In this regard.
    (1) The Performance Fee is not to be paid before December 31, 2001, 
which represents the completion of the projected acquisition phase of 
the BF IV Group Trust, and not until all participating Plans have 
received distributions equal to 100 percent of their capital 
contributions made to the BF IV Group Trust.
    (2) Prior to the termination of the BF IV Group Trust, no more than 
75 percent of the Performance Fee credited to TCC is withdrawn from 
such Group Trust.
    (3) The Performance Fee account established for TCC is credited 
with realized gains and losses and charged for net unrealized losses 
and fee payments.
    (4) No portion of the Performance Fee is withdrawn if the 
Performance Fee Account is in a deficit position.
    (5) TCC repays all deficits in its Performance Fee account and it 
maintains a 25 percent cushion in such account before receiving any 
further fee payment.
    (m) Either TCC or the Trustee, on behalf of Plans participating in 
the BF IV Group Trust, may terminate the Investment Management 
Agreement at any time pursuant to the provisions in such agreement.
    (n) TCC maintains, for a period of six years, the records necessary 
to enable the persons described in paragraph (o) of this Section II to 
determine whether the conditions of this exemption have been met, 
except that--
    (1) A prohibited transaction will not be considered to have 
occurred if, due to circumstances beyond the control of TCC and/or its 
affiliates, the records are lost or destroyed prior to the end of the 
six year period; and
    (2) No party in interest other than TCC shall be subject to the 
civil penalty that may be assessed under section 502(i) or 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 (o) below.
    (o)(1) Except as provided in section (o)(2) of this paragraph and 
notwithstanding any provisions of subsections (a)(2) and (b) of section 
504 of the Act, the records referred to in paragraph (n) of this 
Section II shall be unconditionally available at their customary 
location during normal business hours by:
    (A) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service;
    (B) Any Independent Fiduciary of a participating Plan or any duly 
authorized representative of such Independent Fudiciary;
    (C) Any contributing employer to any participating Plan or any duly 
authorized employee representative of such employer; and
    (D) Any participant or beneficiary of any participating Plan, or 
any duly authorized representative of such participant or beneficiary.
    (o)(2) None of the persons described above in subparagraphs (B)-(D) 
of this paragraph shall be authorized to examine the trade secrets of 
TCC or commercial or financial information which is privileged or 
confidential.

Section III. Definitions

    For purposes of this exemption,
    (a) the term ``TCC'' means The Chicago Corporation and any 
affiliate of TCC as defined in paragraph (b) of Section III.
    (b) An ``affiliate'' of TCC includes--
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with TCC.
    (2) Any officer, director or partner in such person, and
    (3) Any corporation or partnership of which such person is an 
officer, director or a 5 percent partner or owner.
    (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) An ``Independent Fiduciary'' is Plan fiduciary who is 
independent of TCC and its affiliates and is either a Plan 
administrator, trustee, named fiduciary, as the recordholder of 
Beneficial Interests in the BF IV Group Trust or an investment manager.
    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 on January 14, 1997 at 62 FR 1913.

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

United States Trust Company of New York and Certain of Its Affiliates, 
Located in New York, New York

(Prohibited Transaction Exemption 97-17; Application Nos. D-10234 and 
D-10235)

Section I--Exemption for In-Kind Transfers of Assets

    The restrictions of section 406(a) and 406(b) of the Act and the 
sanctions resulting from the application of section 4975 of the Code, 
by reason of section 4975(c)(1) (A) through (F) of the Code, shall not 
apply, effective as of May 31, 1996, 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 ICA) to which the United 
States Trust Company of New York or any of its affiliates 
(collectively, US Trust) serves as investment adviser and may provide 
other services (i.e. ``Secondary Services'' as defined in Section 
III(h) below, of the assets of various employee benefit plans (the Plan 
or Plans) that are either held in certain collective investment funds 
(the CIF or CIFs) maintained by US Trust or

[[Page 10081]]

otherwise held by US Trust as trustee, investment manager, or in any 
other capacity as fiduciary on behalf of the Plans, in exchange for 
shares of such Funds; provide that 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 US Trust, 
as defined in Section III(g) below, receives advance written notice of 
the in-kind transfer of assets of the Plans or the CIFs in exchange for 
shares of the Fund and the disclosures described in Section II(f) 
below.
    (b) On the basis of the information described in Section II(f) 
below, the Second Fiduciary authorizes in writing the in-kind transfer 
of CIF or Plan assets in exchange for shares of the Funds, the 
investment of such assets in corresponding portfolios of the Funds, and 
the fees received by US Trust in connection with its services to the 
Fund. 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 are paid by the Plans in connection with 
the in-kind transfers of CIF or Plan assets in exchange for shares of 
the Funds.
    (d) All or a pro rata portion of the assets of the Plans held in 
the CIFs or all or a pro rata portion of the assets of the Plans held 
by US Trust in any capacities as fiduciary on behalf of such Plans are 
transferred in-kind to the Funds in exchange for shares of such Funds. 
Notwithstanding the foregoing, solely for purposes of this paragraph 
(d), assets of the 401(k) Plan and ESOP of United States Trust Company 
of New York and Affiliated Companies (the UST DC Plan) held by US Trust 
as trustee and allocated to the U.S. Government Short/Intermediate Term 
Investment Fund shall be treated as assets held in a CIF.
    (e) The Plans or the CIFs receive shares of the Funds that have a 
total net asset value equal in value to the assets of the Plans or the 
CIFs exchanged for such shares on the date of transfer.
    (f) With respect to any in-kind transfer of CIF assets to a Fund, 
each Plan receives shares of a Fund which have a total net asset value 
that is equal to the value of the Plan's pro rata share of the assets 
of the corresponding CIF on the date of the transfer, based on the 
current market value of the CIF's assets, as determined in a single 
valuation performed in the same manner as of the close of the same 
business day with respect to all such Plans participating in the 
transaction on such day, using independent sources in accordance with 
the procedures set forth in Rule 17a-7(b) under the ICA (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 in-kind transfers, determined on the basis of reasonable inquiry 
from at least three sources that are broker-dealers or pricing services 
independent of US Trust.
    (g)(1) Not later than thirty (30) days after completion of each in-
kind transfer of CIF or Plan assets in exchange for shares of the Funds 
(except for certain transactions described in paragraph (g)(2) below), 
US Trust sends by regular mail to the Second Fiduciary, a written 
confirmation containing:
    (i) the identity of each of the assets that are valued for purposes 
of the transaction in accordance with Rule 17a-7(b)(4) under the ICA;
    (ii) the price of each of the assets involved in the transaction; 
and
    (iii) the identity of each pricing service or market maker 
consulted in determining the value of such assets;
    (2) For the in-kind transfer of CIF assets to the Funds which 
occurred on June 28 and July 31, 1996, the written confirmations 
described above in paragraph (g)(1) were made by US Trust to all Second 
Fiduciaries of the appropriate Plans by October 15, 1996.
    (h) For all in-kind transfer of CIF assets, US Trust sends by 
regular mail to the Second Fiduciary, no later than ninety (90) days 
after completion of the asset transfer made in exchange for shares of 
the Funds, a written confirmation containing:
    (1) the number of CIF units held by each affected Plan immediately 
before the in-kind transfer, 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 in-kind transfer, the related per share net 
asset value, and the aggregate dollar value of the shares received.
    (i) The conditions set forth in paragraphs (d), (e), (f), (o), (p), 
and (q) of Section II below are satisfied.

Section II--Exemption for 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 as of June 30, 1996, to the receipt of fees by US 
Trust from the Funds for acting as the investment adviser for the Funds 
as well as for acting as the custodian, transfer agent, sub-
administrator or for providing other ``Secondary Services'' (as defined 
in Section III(h) below) to the Funds in connection with the investment 
in the Funds by Plans for which US Trust acts as a fiduciary (Client 
Plans), other than Plans established and maintained by US Trust for the 
benefit of its employees and their beneficiaries (Bank Plans), provided 
that the following conditions are met:
    (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 sale of such shares by the 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 Section 
III(e), 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) Neither US Trust nor any affiliate (including officers, 
directors and other persons, as defined in Section III(b) below) 
purchases from or sells to the Client Plans any shares of the Funds.
    (d) For each Client Plan, the combined total of all fees received 
by US Trust for the provision of services to the Client Plan, and in 
connection with the provision of services to any of the Funds in which 
the Plan may invest, are not in excess of ``reasonable compensation'' 
within the meaning of section 408(b)(2) of the Act.
    (e) US Trust or an affiliate does not receive any fees payable, 
pursuant to Rule 12b-1 under the ICA (the 12b-1 Fees) in connection 
with the transactions.
    (f) The Second Fiduciary who is acting on behalf of a Client Plan 
receives in advance of the investment by a Plan in any of the Funds a 
full and detailed written disclosure of 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 management, 
investment advisory, or other similar services, any fees for Secondary 
Services, as defined in Section III(h) below, and all other fees to be 
charged to or paid by the

[[Page 10082]]

Client Plan and by such Funds to US Trust, including the nature and 
extent of any differential between the rates of such fees;
    (3) the reasons why US Trust may consider such investment to be 
appropriate for the Client Plan;
    (4) a statement describing whether there are any limitations 
applicable to US Trust with respect to which assets of a Client Plan 
may be invested in the Funds, and, if so, the nature of such 
limitations; and
    (5) upon request of the Second Fiduciary, a copy of the proposed 
exemption and/or a copy of the final exemption (once such documents are 
published in the Federal Register).
    (g) On the basis of the information described in Section II(f) 
above, the Second Fiduciary authorizes in writing the investment of 
assets of the Client Plan in shares of the Fund and the fees to be paid 
to US Trust in connection with its services to the Funds. The 
authorization may be the Second Fiduciary must be consistent with the 
duties, responsibilities and obligations imposed on fiduciaries by Part 
4 of Title I of the Act.
    (h) The authorization described above in Section II(g) is 
terminable at will by the Second Fiduciary of a Client Plan, without 
penalty to such Plan, upon receipt by US Trust of written notice of 
termination. Such termination will be effected by US Trust selling the 
shares of the Fund held by the affected Client Plan within one business 
day following receipt by US Trust of the termination form (the 
Termination Form), as defined in Section III(i) below, or any other 
written notice of termination; provided that if, due to circumstances 
beyond the control of US Trust, the sale cannot be executed within one 
business day, US Trust shall have one additional business day to 
complete such sale.
    (i) Each Client Plan receives a credit, either through cash or, if 
applicable, the purchase of additional shares of the Funds, pursuant to 
an annual election, which may be revoked at any time, made by the 
Client Plan, of such Plan's proportionate share of all investment 
advisory fees charged to the Funds by US Trust, including any 
investment advisory fees paid by US Trust to third party sub-advisers, 
within not more than one business day after the receipt of such fees by 
US Trust. The crediting of all such fees to the Client Plans by US 
Trust is audited by an independent accounting firm on at least an 
annual basis to verify the proper crediting of the fees to each Client 
Plan.
    (j) In the event of an increase in the rate of any fees paid by the 
Funds to US Trust regarding any investment management services, 
investment advisory services, or fees for similar services that US 
Trust provides to the Funds over an existing rate for such services 
that had been authorized by a Second Fiduciary, in accordance with 
Section II(g), US Trust will, at least thirty (30) days in advance of 
the implementation of such increase, provide a written notice (separate 
from the Fund prospectus) to the Second Fiduciary of each of the Client 
Plans invested in a Fund which is increasing such fees.
    (k) In the event of an addition of a Secondary Service, as defined 
in Section III(h) below, provided by US Trust to the Fund for which a 
fee is charged or an increase in the rate of any fee paid by the Funds 
to US 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 US Trust for such fee over an existing 
rate for such Secondary Service which had been authorized by the Second 
Fiduciary of a Client Plan, in accordance with Section II(g), US Trust 
will at least thirty (30) days in advance of the implementation of such 
additional service for which a fee is charged or fee increase, provide 
a written notice (separate from the Fund prospectus) 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 Section III(i) below.
    (l) The Second Fiduciary is supplied with a Termination Form at the 
times specified in paragraphs (k), (l), and (m) of this Section II, 
which expressly provides an election to terminate the authorization, 
described above in Section II(g), 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. Such termination will be effected 
by US Trust selling the shares of the Fund held by the Client Plans 
requesting termination within one business day following receipt by US 
Trust, either by mail, hand delivery, facsimile, or other available 
means at the option of the Second Fiduciary, of the Termination Form or 
any other written notice of termination; provided that if, due to 
circumstances beyond the control of US Trust, the sale of shares of 
such Client Plans cannot be executed within one business day, U.S. 
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 a 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, if such Termination Form is supplied pursuant to 
paragraphs (k) and (l) of this section II, and will result in the 
continuation of the authorization, as described in Section II(g), of US 
Trust to engage in the transactions on behalf of such Client Plan.
    (m) The Second Fiduciary is supplied with a Termination Form, 
annually during the first quarter of each calendar year, beginning with 
the first quarter of the calendar year that begins after the date this 
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 (m), 
sooner than six months after a Termination Form is supplied pursuant to 
Section II (k) and (l), except to the extent required by such 
paragraphs 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, US Trust will provide the Second Fiduciary of such Plan:
    (A) at least annually with a copy of an updated prospectus of such 
Fund;
    (B) upon the request of such Second Fiduciary, with 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 
US Trust; and
    (2) With respect to each of the Funds in which a Client Plan 
invests, in the event such Fund places brokerage transactions with US 
Trust, US Trust will provide the Second Fiduciary of such Plan at least 
annually with a statement specifying:
    (A) the total, expressed in dollars, brokerage commissions of each 
Fund's investment portfolio that are paid to US Trust 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 US Trust;
    (C) the average brokerage commissions per share, expressed as cents 
per share, paid to US Trust 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 US Trust.
    (o) All dealings between the Client Plans and any of the Funds are 
on a

[[Page 10083]]

basis no less favorable to such Plans that dealings between the Funds 
and other shareholders holding the same class of shares as the Plans.
    (p) US Trust maintains for a period of six (6) years the records 
necessary to enable the persons, as described in Section II(q) below, 
to determine whether the conditions of the 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 US Trust, the 
records are lost or destroyed prior to the end of the six (6) year 
period, and
    (2) no party in interest, other than US 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 Section II(q) below.
    (q)(1) Except as provided in Section II(q)(2) and notwithstanding 
any provisions of Section 504 (a)(2) and (b) of the Act, the records 
referred to in Section II(p) above are unconditionally available at 
their customary location for examination during normal business hours 
by--
    (i) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service;
    (ii) Any fiduciary of 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
    (iii) 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 (q)(1)(ii) and 
(q)(1)(iii) of Section II shall be authorized to examine trade secrets 
of US Trust, or commercial or financial information which is privileged 
or confidential.

Section III--Definitions

    For purposes of this exemption,
    (a) The term ``US Trust'' means the United States Trust Company of 
New York and an affiliate, as defined in Section III(b)(1).
    (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 diversified open-end 
investment company or companies registered under the ICA for which US 
Trust 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 US Trust. For purposes of this 
exemption, the Second Fiduciary will not be deemed to be independent of 
and unrelated to US Trust if:
    (1) Such Second Fiduciary directly or indirectly controls, is 
controlled by, or is under common control with US Trust;
    (2) Such Second Fiduciary, or any officer, director, partner, 
employee, or relative of such Second Fiduciary is an officer, director, 
partners, or employee of US Trust (or is a relative of such persons);
    (3) Such Second Fiduciary directly or indirectly receives any 
compensation or other consideration for his or her own personal account 
in connection with any transaction described in this exemption; 
provided, however, that with respect to the Bank Plans, the Second 
Fiduciary may receive compensation from US Trust in connection with the 
transactions contemplated herein, but the amount or payment of such 
compensation may not be contingent upon or be in any way affected by 
the Second Fiduciary's ultimate decision regarding whether the Bank 
Plans participate in the transactions.
    With the exception of the Bank Plans, if an officer, director, 
partner, or employee of US Trust (or a relative of such persons), is a 
director of such Second Fiduciary, and if he or she abstains from 
participation in (i) the choice of the Plan's investment manager/
advisor, (ii) the approval of any purchase or sale by the Plan of 
shares of the Funds, and (iii) 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 Section 
III(g)(2) above shall not apply.
    (h) The term, ``Secondary Service,'' means a service, other than an 
investment management, investment advisory, or similar service, which 
is provided by US Trust to the Funds, including but not limited to 
custodial, accounting, administrative, or any other service. However, 
for purposes of transactions which occurred prior to the date this 
exemption is granted, the term ``Secondary Service'' does not include 
any brokerage services provided by US Trust to the Funds.
    (i) The term ``Termination Form,'' means the form supplied to the 
Second Fiduciary, at the times specified in paragraph (k), (l), 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 Section II(g). Such Termination Form may be used at will 
by the Second Fiduciary to terminate such authorization without penalty 
to the Plans and to notify US Trust in writing to effect such 
termination by selling the shares of the Fund held by the Plans 
requesting termination within one business day following receipt by US 
Trust, either by mail, hand delivery, facsimile, or other available 
means at the option of the Second Fiduciary, of written notice of such 
request for termination; provided that if, due to circumstances beyond 
the control of US Trust, the sale cannot be executed within one 
business day, US Trust shall have one additional business day to 
complete such sale.
    (j) The term ``UST DB Plan'' means the Employees' Retirement Plan 
of United States Trust Company of New York and Affiliated Companies.
    (k) The term ``UST DC Plan'' means the 401(k) Plan and ESOP of 
United States Trust Company of New York and Affiliated Companies.
    (l) The term ``Bank Plan'' means the UST DB Plan and the UST DC 
Plan.
    (m) The term ``Client Plan'' means any ``employee benefit plan'' 
within the meaning of section 3(3) of the Act and/

[[Page 10084]]

 or any ``plan'' within the meaning of Code section 4975 (e)(1).\1\

    \1\ For purposes of this exemption, references to Title I of the 
Act, unless otherwise specified, refer also to the corresponding 
provisions of the Code.
---------------------------------------------------------------------------

EFFECTIVE DATE: This exemption is effective as of May 31, 1996, for 
transactions described in Section I, and June 30, 1996, for 
transactions described in Section II.
    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 December 17, 1996, at 61 
FR 66320.

WRITTEN COMMENTS AND MODIFICATIONS: US Trust submitted the following 
comments and requests for modifications regarding the notice of 
proposed exemption (the Proposal).
    First, US Trust notes that paragraph 17 of the Summary of Facts and 
Representations in the Proposal (the Summary) states that to the extent 
that US Trust does not currently execute brokerage services for any 
Fund, but proposes to do so in the future, US Trust intends to provide 
at least 30 days advance written notice of such additional service. US 
Trust represents that pursuant to a proposal adopted by the Funds' 
boards of directors prior to the December 17th publication of the 
Proposal in the Federal Register, the Funds' retained an affiliate of 
US Trust to provide such brokerage services. US Trust states that these 
brokerage services commenced on January 3, 1997.
    US Trust represents that written notice of this additional service 
was provided to each Client Plan that was affected by the in-kind 
conversion transactions prior to the commencement of such service by US 
Trust. However, due to holiday schedules, the notices were sent late 
and were not sent at least 3 days in advance of the commencement of the 
brokerage services, as was intended by US Trust. In addition to the 
late notices, for all Client Plans, US Trust proposes to include 
another copy of the notice in each Client Plan's next account 
statement.
    US Trust notes that section II(n)(2) of the Proposal requires 
certain annual disclosures regarding brokerage services (which US Trust 
intends to provide). In addition, the definition of ``Secondary 
Service'' in section III(h) expressly exempts brokerage services from 
the requirements of section II(k), including the 30-day advance notice 
requirement for the addition of a Secondary Service. Accordingly, US 
Trust proposes no change in the language of the Proposal and merely 
notes for the record this change in the facts from those set out in 
paragraph 17 of the Summary.
    In this regard, the Department acknowledges that advance notices to 
the Client Plans regarding the brokerage services were not sent at 
least 30 days prior to the commencement of such services by US Trust, 
as previously represented. The Department also acknowledges that an 
advance notice requirement of brokerage services was not specifically 
set forth in the Proposal. However, the Department believes that prior 
notice of an additional ``Secondary Service'' to a Fund for which a fee 
will be charged should include notice of any brokerage services to be 
provided by US Trust to the Fund. Therefore, the Department has 
modified the definition of ``Secondary Service'' contained in section 
III(h) of the Proposal by deleting the reference which exempted 
brokerage services from the notice requirements of section II(k) and 
adding the following language:
    ``* * * However, for purposes of transactions which occurred prior 
to the date this exemption is granted, the term `Secondary Service' 
does not include any brokerage services provided by US Trust to the 
Funds.'' [emphasis added]
    Second, US Trust states that the Proposal does not contain a 
definition of the term ``Plan'' or ``Client Plan''. US Trust notes that 
in paragraph 2 of the Summary, the Plans to which the exemption would 
apply presently consist of Code section 401(a) qualified plans that are 
``pension plans'' under section 3(2) of the Act. Paragraph 2 states 
that US Trust requests that the exemption apply to any ``employee 
benefit plan'' within the meaning of section 3(3) of the Act and/or any 
``plan'' within the meaning of Code section 4975(e)(1). Thus, US Trust 
suggests that the operative language of the exemption be modified to 
specify that all such plans will be covered.
    In this regard, the Department has added, as section III(m) above, 
a definition of the term ``Client Plan'' (with a footnote regarding 
references to Title I of the Act and the corresponding provisions of 
the Code) in order to respond to the clarification request made by US 
Trust.
    Third, US Trust also requests that the Department clarify that the 
requirement of section II(f)(5)--that US Trust provide each Client 
Plan's Second Fiduciary (upon request) with a copy of the proposed and/
or final exemption in advance of the Plan's investment--does not apply 
with respect to any Plan that was already invested in the Funds prior 
to the date of the Proposal. US Trust states that it has provided the 
Proposal to Client Plans as part of the notice to interested persons 
described in the Proposal (see 61 FR at 66331). In addition, US Trust 
states that it will continue to provide to any Client Plan's Second 
Fiduciary copies of the Proposal, upon request, and will provide copies 
of the final exemption after it is published in the Federal Register.
    In this regard, the Department acknowledges the comments made by US 
Trust and, in an attempt to clarify this matter, has amended section 
II(f)(5) by adding the parenthetical phrase ``* * * (once such 
documents are published in the Federal Register).''
    Fourth, US Trust notes that sections II(1) and III(i) state that a 
Second Fiduciary will be supplied with a Termination Form ``* * * at 
times specified in paragraphs (k), (l), and (m) of section II''. 
However, US Trust wishes to clarify that paragraph (1) of section II 
does not specify any time for providing such Form distinct from the 
times noted in paragraph (k) and (m) of section II. The Department 
acknowledges the accuracy of this comment, but does not believe that 
any change to the language of these sections is necessary.
    Finally, US Trust states that the correct figures in the example 
contained in paragraph 8 of the Summary (at the bottom of the second 
column on page 66326 of the Federal Register) used to illustrate the 
interests of the Bank Plans and Client Plans in a particular CIF at the 
time of the conversion, should be 45 percent and 55 percent, 
respectively. In this regard, the example in the Summery had 
incorrectly stated these percentages as 45 percent and 65 percent. The 
Department acknowledges this correction to the record.
    Accordingly, the Department has determined to grant the exemption 
as modified.

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

Consolidated Lumber Corp. Pension Plan (the Plan), Located in Clifton, 
New Jersey

(Prohibited Transaction Exemption 97-17; Exemption Application No. D-
10344)

Exemption

    The restrictions of sections 406(a) and 406 (b)(1) and (b)(2) of 
the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1) (A) through (E) of 
the Code, shall not apply to the sale for cash (the Sale) by the Plan 
to Consolidated Lumber Corp., the sponsor of the Plan, of certain 
wholelife

[[Page 10085]]

insurance policies (the Policies) issued by Confederation Life 
Insurance Company of Canada provided the following conditions are 
satisfied: (a) All terms and conditions of the Sale are at least as 
favorable to the Plan as those which the Plan could obtain in arm's-
length transactions with unrelated parties; (b) the Plan receives cash 
consideration from each Sale that is no less than the greater of (1) 
the fair market value of the Policies as of the date of the Sale, or 
(2) each of the Policies' net cash surrender value as of the date of 
the Sale; and (C) the Plan does not incur any expenses or suffer any 
losses with respect to the transactions.
    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 December 30, 1996, at 61 
FR 68798.

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

The Chase Manhattan Bank, N.A. (Chase), Located in New York, New York

(Prohibited Transaction Exemption 97-18; Exemption Application No. D-
10348)

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 
(1) the granting to Chase, as the representative of lenders (the 
Lenders) participating in a credit facility, of security interests in 
limited partnership interests in LF Strategic Real Estate Investors, 
L.P. (the Partnership) owned by certain employee benefit plans (the 
Plans) with respect to which some of the Lenders are parties in 
interest; and (2) the agreements by the Plans to honor capital calls 
made by Chase in lieu of the Partnership's general partner; provided 
that (a) the grants and agreements are on terms no less favorable to 
the Plans than those which the Plans could obtain in arm's-length 
transactions with unrelated parties; and (b) the decisions on behalf of 
each Plan to invest in the Partnership and to execute such grants and 
agreements in favor of Chase are made by a fiduciary which is not 
included among, and is independent of, the Lenders and Chase.
    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 December 30, 1996 at 61 
FR 68799.

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

APA, Inc. 401(k) Profit Sharing Plan (the Plan), Located in Pleasant 
Hill, California

(Prohibited Transaction Exemption 97-19; Exemption Application No. D-
10375)

Exemption

    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: (1) The loan (the Loan) of $30,000 to Mr. Gary 
Petsuch (Mr. Petsuch), a party in interest with respect to the Plan, 
from Mr. Petsuch's segregated account (the Account) in the plan, and 
(2) the personal guarantee of the Loan by Mr. Petsuch, provided the 
following conditions are satisfied: (a) The terms of the Loan are at 
least as favorable to the Plan as those obtainable in an arm's-length 
transaction with an unrelated party; (b) the loan does not exceed 25% 
of the assets of the Account; (c) the Loan is secured by a pledge of 
Mr. Petsuch's interest in an investment account which has been 
currently valued by an independent party as having a fair market value 
approximately 280% of the principal amount of the Loan; (d) the account 
collateralizing the Loan will be maintained at a collateral-to-Loan 
ratio of not less than 200% throughout the duration of the Loan; (e) 
Mr. Petsuch has also personally guaranteed the Loan; and (f) Mr. 
Petsuch is the only Plan participant to be affected by the Loan.
    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 January 14, 1997 at 62 FR 
1924.

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 
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 are true and complete and accurately describe all material 
terms of the transaction which is the subject of the exemption. In the 
case of continuing exemption transactions, if any of the material facts 
or representations described in the application change after the 
exemption is granted, the exemption will cease to apply as of the date 
of such change. In the event of any such change, application for a new 
exemption may be made to the Department.

    Signed at Washington, DC, this 28th day of February, 1997.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 97-5431 Filed 3-4-97; 8:45 am]
BILLING CODE 4516-29-M