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Secretary of Labor Thomas E. Perez
Proposed Exemptions; The Chicago Corporation [Notices] [01/14/1997]

EBSA (Formerly PWBA) Federal Register Notice

Proposed Exemptions; The Chicago Corporation [01/14/1997]

[PDF Version]

Volume 62, Number 9, Page 1913-1925

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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-10172, et al.]

 
Proposed Exemptions; The Chicago Corporation

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of Proposed Exemptions.

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

Written Comments and Hearing Requests

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

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

Notice to Interested Persons

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

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

The Chicago Corporation (TCC) Located in Chicago, IL

[Application No. D-10172]

Proposed Exemption

    Based on the facts and representations set forth in the 
application, the Department is considering granting an exemption under 
the authority of section 408(a) of the Act and section 4975(c)(2) of 
the Code and in accordance with the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990.) \1\
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    \1\ For purposes of this proposed exemption, references to the 
provisions of Title I of the Act, unless otherwise specified, refer 
also to corresponding provisions of the Code.
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Section I. Covered Transactions

    If the exemption is granted, 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 party 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.

[[Page 1914]]

    This proposed exemption is subect 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 descriptions 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 (PTE) 86-128 (51 FR 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 (the 
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 (the 
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--

[[Page 1915]]

    (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) 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 (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 Fiduciary;
    (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 proposed 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 a 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.

Preamble

    On September 22, 1993, the Department granted PTE 93-63 (58 FR 
49322), a temporary exemption which is effective for a period of eight 
years from the date of the grant. PTE 93-63 permits a series of 
transactions relating to the (a) sale by the Bank Fund III Group Trust 
(the BF III Group Trust) in which Plans invest, of certain Securities 
which have been issued by Bank Companies and are held in the BF III 
Group Trust's portfolio, to a party in interest with respect to a Plan, 
where the party in interest proposes to acquire or merge with the Bank 
Company that issued such securities. In addition, PTE 93-63 permits the 
BF III Group Trust to purchase Bank Company Securities from the Midwest 
Bank Fund I Limited Partnership (MBF I LP) and the Midwest Bank Fund 
II, Limited Partnership (MBF II LP), two entities organized by TCC. 
Further, PTE 93-63, allows Plans investing in the BF III Group Trust to 
pay a Performance Fee to TCC.
    The pooled investment fund that is described herein (i.e., the BF 
IV Group Trust) is virtually identical to the pooled investment fund 
that is described in PTE 93-63 as well as other funds organized by TCC. 
The transactions described herein are generally patterned after the 
exemptive relief described in PTE 93-63. However, no cross-trading 
transactions under this exemption will be permitted. Also, permanent 
exemptive relief is being provided.

Summary of Facts and Representations

    1. TCC is an investment services firm founded in 1965 in Chicago, 
Illinois to serve the needs of financial institutions, corporations, 
governments, individual investors, fiduciaries and securities and 
commodities dealers. TCC is a registered investment adviser under the 
Investment Advisers Act of 1940, as amended. It is also registered as a 
broker-dealer under the Securities Exchange Act of 1934 and is a member 
in good standing with various national and regional securities 
exchanges. By virtue of its exchange memberships, TCC is an exchange 
specialist for many securities as well as an over-the-counter market 
maker in other securities. As of March 31, 1995, TCC had total assets 
of $507 million.
    TCC has four principal lines of business. First TCC provides 
institutional investors with investment research and trade execution 
services for listed and unlisted equity and fixed income securities, 
options and futures. Second, TCC's investment banking group provides 
corporations with assistance in capital planning and in facilitating 
and arranging for corporate mergers and acquisitions as well as 
underwriting. Third, TCC's asset management group provides investment 
management services to a broad range of clients, including Plans, 
through separate accounts. In this regard, TCC currently manages $3.545 
billion in client Plan assets in 259 separate accounts. Fourth, TCC 
provides securities firms, futures commission merchants and 
professional investors with exchange floor execution and clearing 
services.
    TCC's relevant specialty is provided by its banking group which, in 
addition to the services described above, provides management, 
investment and capital formation services to collective investment 
vehicles which invest in commercial banks and other financial 
institutions. The banking group possesses detailed knowledge of the 
banking industry and other financial institutions such as consumer 
finance companies and stock insurance companies. It researches 
financial institutions, underwrites the securities of these 
institutions and acts as consultants or organizers of merger and 
acquisition projects.
    During 1997, it is anticipated that TCC's parent will be acquired 
by ABN AMRO North America, Inc., a subsidiary of ABN AMRO Bank N.V., a 
global bank headquartered in the Netherlands. The acquisition will not 
involve the purchase of the assets of TCC's parent and TCC will retain 
its separate corporate identity.
    2. In 1989, TCC organized the MBF II LP as a limited partnership 
with the investors acting as the limited partners. The general partners 
of MBF II LP are partnerships (MidBanc I and MidBanc II), whose general 
partners are corporate affiliates of TCC and whose limited partners are 
the members of TCC staff who are responsible for managing the MBF II 
LP. Less than 25 percent of the funds invested in the MBF II LP have 
been provided by Plans. According to the applicant, the portfolios of 
these funds do not constitute ``plan assets'' within the meaning of 29 
CFR 2510.3-101 and TCC has not assumed the role of a fiduciary with 
respect to these investing Plans.\2\
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    \2\ TCC also organized the MBF I LP in 1986. This limited 
partnership shared the same general partners and types of 
investments as MBF II LP. Moreover, less than 25 percent of its 
assets were provided by Plans. On January 1, 1995, MBF I LP reached 
the end of its term and final liquidations were made.

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[[Page 1916]]

    In 1993, TCC completed the organization of the BF III Group Trust 
and the Bank Fund III Limited Partnership (the BF III LP) \3\ whose 
objectives were somewhat identical to those formulated for the MBF II 
LP. Taxable investors acquired an interest in the BF III LP, the 
general partner of which is MidBanc III, L.P., a limited partnership of 
which Chicorp Management III, Inc. is the general partner.\4\
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    \3\ The BF III Group Trust and the BF III LP are collectively 
referred to herein as BF III.
    \4\ The limited partners of the MidBanc III, L.P. are the 
individuals who are responsible for the management of BF III. 
Chicorp Management III, Inc. is a wholly owned subsidiary of 
Chicorp, Inc., which is the holding company of TCC.
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    3. The MBF II LP and the BF III invest in subregional banks that 
are located in the United States.\5\ In this regard, these entities 
acquire minority investments in Bank Companies that may be potential 
candidates for acquisition by other entities or at public offerings. 
Interests in Bank Companies can be acquired in freely-traded public 
securities, on either exchanges or in the over-the-counter markets, or 
in private transactions.
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    \5\ In the case of MBF II LP, these banks are located in the 
Midwestern United States. In the case of BF III and proposed BF IV 
Group Trust, there are no geographic restrictions.
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    4. The MBF II LP and BF III have pre-defined terms of existence and 
defined activity periods within those terms. For example, the MBF II LP 
has an eight year term between organization and liquidation. The first 
five years represent the acquisition phase (the Acquisition phase). 
Once those five years elapse, no further acquisitions of Bank Company 
Securities can be made except under limited circumstances. The last 
three years of the term of the MFB II LP will be used to liquidate the 
portfolio.
    5. TCC proposes to organize Banc Fund IV (BF IV) as two separate 
and distinct entities sharing the same investment philosophy and 
strategy, similar (if not identical) portfolios and operational methods 
as those formulated for the MBF II LP and the BF III. Taxable investors 
will acquire an interest in the Banc Fund IV Limited Partnership (the 
BF IV LP). The general partner of the BF IV LP will be MidBanc IV, 
L.P., a limited partnership of which Chicorp Management IV, Inc., a 
wholly owned subsidiary of TCC's parent corporation, is the general 
partner.
    In addition to the BF IV LP, approximately 5-10 Plans will acquire 
Beneficial Interests in the BF IV Group Trust which will be a tax-
exempt entity pursuant to Revenue Ruling 81-100, 1981-1 C.B. 326.\6\ 
The BF IV Group Trust and the BF IV LP will not be organized unless $50 
million in capital contribution commitments are subscribed for by 
investors in both entities. Unless extended, the BF IV Group Trust and 
the BF IV LP will terminate on December 31, 2003.
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    \6\ TCC believes it is appropriate to organize the BF IV Group 
Trust separate from the BF IV LP in order that the assets of the 
Group Trust may be regarded as ``plan assets'' and the requirements 
of the Act may otherwise be complied with in a separate entity.
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    Investments by both the BF IV Group Trust and the BF IV LP may be 
made in the equities and debt instruments of Bank Companies such as 
commercial banks and other depository institutions. BF IV may also 
acquire interests in Financial Services Companies such as consumer 
finance companies and demutualizing insurance companies. All of these 
entities will be located in the United States.
    6. It is anticipated that Citibank will act as the trustee of the 
BF IV Group Trust. In this capacity, the Trustee will be responsible 
for retaining TCC or such other investment manager for the BF IV Group 
Trust. The Trustee will also be responsible for monitoring TCC's 
compliance with the established investment philosophy of the BF IV 
Group Trust and for policing TCC's adherence to the provisions of the 
Investment Management Agreement.
    For services rendered, the Trustee is entitled to receive the 
following annualized fees that will be paid quarterly and in arrears: 
(a) a base fee of $1,500; (b) a proportionate fee based upon the 
combined market value of the BF IV Group Trust and the BF IV LP at the 
beginning of the quarter representing (i) 0.02 percent of the first 
$100 million and (ii) 0.01 percent of any amount over $100 million; and 
a transaction fee of $12 per purchase or sale and a disbursement fee of 
$8 per payment of funds from the BF IV Group Trust. In accordance with 
the provisions of the Group Trust Agreement, the Trustee may be removed 
by a vote of Plans holding a majority of the Beneficial Interests in 
the BF IV Group Trust, provided such Plans give the Trustee 30 days' 
advance written notice of their intent to terminate the Trustee.
    Although TCC may have and may have had business relationships with 
the Trustee, there will be no control relationship or ownership-based 
affiliation between TCC and the Trustee. Further, no Plan sponsored by 
TCC will be permitted to invest in the BF IV Group Trust.\7\
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    \7\ Although TCC and the Trustee will not be affiliated with, or 
under the control of or controlling any participating Plan, the 
applicant represents that it is likely that certain participating 
Plans may have a pre-existing relationship with TCC in the form of 
investment in the MBF II LP or the BF III. The applicant believes it 
is possible that a Plan participating in the BF IV Group Trust may 
utilize the services of the Trustee with respect to certain of its 
other assets that are not invested in such Group Trust. In this 
regard, the applicant is not requesting, nor is the Department 
providing, exemptive relief with respect therefor.
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    7. Interests in the BF IV Group Trust are referred to as 
``Beneficial Interests.'' \8\ All investors that are beneficiaries of 
the BF IV Group Trust must evidence the following characteristics in 
order to acquire Beneficial Interests: (a) Each must commit to making 
at least $1 million in initial capital contributions; (b) each investor 
must be a Plan; (c) each Plan mut have at least $50 million in assets; 
(d) each Plan must agree to incorporate the terms of the Group Trust 
Agreement into its own trust agreement; (e) no Plan may invest more 
than 10 percent of its assets in Beneficial Interests in the BF IV 
Group Trust and such Beneficial Interests held by a Plan may not exceed 
25 percent of such Group Trust; and (f) no Plan may subscribe for 
Beneficial Interests which, when aggregated with all other Plan assets 
that are subject to investment funds or separate accounts managed by 
TCC and/or its affiliates, is valued in excess of 25 percent of such 
Plan's net assets.
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    \8\ The Department is not proposing, nor in the applicant 
requesting herein, exemptive relief for the purchase and sale of 
Beneficial Interests in the BF IV Group Trust between the Trustee 
and the investing Plans beyond that provided under section 408(b)(8) 
of the Act.
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    8. The Group Trust Agreement provides that each Plan's commitment 
to contribute will be divided into 20 equal segments. TCC, as 
investment manager, may call any amount of these installments, upon 14 
days' advance written notice, when cash is needed to fund the 
acquisition of the Securities.\9\ However, there are two limitations 
upon TCC's power to call contributions. First,

[[Page 1917]]

no more than 50 percent of the contribution commitment may be called in 
any twelve month period. Second, TCC cannot call any contributions 
after the sixth anniversary date of the inception of the BF IV Group 
Trust (the period running from the date on which initial capital 
contributions are made to such sixth anniversary being referred to as 
``the Acquisition Period'').
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    \9\ If an investing Plan cannot or does not meet a capital call, 
the Trust Agreement provides that ten days after the investor 
receives notice of default on a capital call, TCC may (a) permit the 
investor's continued participation in the BF IV Group Trust with a 
commensurate reduction in both the investor's proportionate interest 
in such Group Trust and aggregate size of the Group Trust; (b) 
declare the investor's entire capital commitment due and pursue 
collection of the same; or (c) expel, at fair market value, the 
defaulting investor and offer its interest in the BF IV Group Trust 
first to the non-defaulting investors and then to non-investors who 
are qualified to invest in such Group Trust. In making the choice 
between these alternatives, it is represented that TCC will be 
guided by then-current investment strategies and the best interest 
of the non-defaulting investors.
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    9. The terms of the BF IV Group Trust prescribe the content of the 
Investment Management Agreement. For example, TCC, at its own expense, 
will provide the BF IV Group Trust with personnel who are able to 
perform the administrative functions of the Group Trust. In addition, 
TCC, at its own expense, will provide the BF IV Group Trust with office 
space, telephones, copying machines, postage and all other necessary 
items of office services. Further, TCC will control proxy voting on all 
portfolio securities.\10\
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    \10\ The Department is not providing exemptive relief herein for 
any prohibited transactions that may arise as a result of proxy 
voting on the part of TCC. The Department also notes that the 
general standards of fiduciary conduct promulgated under the Act 
would apply to such voting practices.
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    The Investment Management Agreement permits TCC to provide 
brokerage services in an agency capacity. To the extent that TCC 
utilizes its own services in connection with brokerage services 
provided to the BF IV Group Trust, it will comply fully with state and 
federal securities laws as well as with PTE 86-128.\11\
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    \11\ The Department expresses no opinion on whether the 
effecting of securities transactions by TCC will comply with the 
terms and conditions of PTE 86-128.
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    The Investment Management Agreement may be terminated by either the 
Trustee, on behalf of the Plans, or by TCC at any time, subject to the 
following provisions. If the termination is a ``Justified 
Termination,'' \12\ the Investment Management Agreement can be 
terminated by the Trustee unilaterally. However, if the termination is 
a ``Non-Justified Termination,'' it cannot be terminated unilaterally 
by the Trustee. In such case, the Trustee must first obtain the 
approval of Plans holding at least two-thirds of the Beneficial 
Interests in the BF IV Group Trust. Further, as a precondition to a 
``Non-Justified Termination,'' the terminating party must provide the 
other party with 60 days' advance written notice of its intent to 
terminate.
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    \12\ A Justified Termination will occur if it is caused by: (a) 
a material breach of the Investment Management Agreement by the 
party that is not seeking to terminate such Agreement; (b) a 
material violation of the Act that has already occurred or will 
occur absent termination of the Investment Management Agreement; or 
(c) the disassociation of key personnel (i.e., those upon whom the 
Plans relied in making their investment) from TCC without being 
replaced by individuals who are approved by a majority of the Plans.
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    10. In general, Beneficial Interests in the BF IV Group Trust will 
not be assignable, and no Plan may assign or otherwise transfer, pledge 
or otherwise encumber any or all of its interest in the Group Trust 
except for the purpose of redemption. Redemptions are limited to 
situations where (a) a replacement Plan is available from either 
current Plans investing in BF IV or there are new, qualified investors; 
(b) a Plan submits to TCC and the Trustee, a written opinion of counsel 
to the effect that the Plan's continued participation in the BF IV 
Group Trust would violate the Act and that relief from the violation 
cannot be obtained; (c) the Plan loses its tax-exempt status and that 
loss threatens the tax-exempt status of the BF IV Group Trust; and (d) 
the BF IV Group Trust loses its tax-exempt status or fails to obtain 
the exemptive relief proposed herein for the necessary operation of 
such Group Trust. This information will be disclosed to investors.
    11. The decision to participate in the BF IV Group Trust will be 
made by a plan fiduciary who is independent of TCC and the Trustee. In 
each instance, the Plan fiduciary who makes the investment decision 
will agree not to rely on either the advice of TCC or the Trustee as 
the primary basis for a Plan's investment and the Independent Fiduciary 
will be specifically required to do so in every instance.\13\ TCC 
represents that the decision of a Plan to invest in the BF IV Group 
Trust will be made by an unrelated Plan fiduciary acting on the basis 
of his or her own investigation into the advisability of investing in 
the Group Trust.\14\
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    \13\ The Department notes that the general standards of 
fiduciary conduct promulgated under the Act would apply to the 
participation in the BF IV Group Trust by an Independent Fiduciary. 
Section 404 of the Act requires that a fiduciary discharge his 
duties respecting a plan solely in the interest of the plan's 
participants and beneficiaries and in a prudent fashion. 
Accordingly, an Independent Fiduciary must act prudently with 
respect to the decision to invest in the BF IV Group Trust. The 
Department expects that an Independent Fiduciary, prior to investing 
in the BF IV Group Trust, to fully understand all aspects of such 
investment following disclosure by TCC of all relevant information. 
(For a further discussion of these disclosures, see Representation 
12 above.)
    \14\ The Department is not expressing an opinion on whether TCC 
or the Trustee would be deemed to be fiduciaries under section 
3(21)(A)(ii) of the Act with respect to a Plan's investment in the 
BF IV Group Trust. The Department is also not proposing relief for 
the rendering of investment advice in connection with the 
acquisition of Beneficial Interests in the BF IV Group Trust.
---------------------------------------------------------------------------

    12. An Independent Fiduciary of each Plan proposing to invest in 
the BF IV Group Trust will be provided with a copy of the Private 
Placement Memorandum by TCC. The Private Placement Memorandum will 
describe all material facts concerning the purpose, structure and 
operation of the BF IV Group Trust. If the Independent Fiduciary 
expresses further interest in participating in the BF IV Group Trust, 
such Independent Fiduciary will be provided with copies of the Group 
Trust Agreement outlining the organization principles, investment 
objectives and administration of the BF IV Group Trust, the procedure 
for the redemption of Beneficial Interests, the duties of the parties 
retained to administer the BF IV Group Trust and the manner in which 
Group Trust assets will be valued. The Independent Fiduciary will also 
be provided with a copy of the Investment Management Agreement which 
describes the duties and responsibilities of TCC, as investment manager 
of the BF IV Group Trust, the fees that will be paid to TCC, the 
conditions under which TCC may be terminated and the functions of the 
Independent Appraiser which may be retained under certain 
circumstances. Once the Independent Fiduciary has made a decision to 
invest in the BF IV Group Trust, TCC will provide such Independent 
Fiduciary with the names and addresses of all other participating 
Plans. The Independent Fiduciary will be required to acknowledge, in 
writing, prior to purchasing a Beneficial Interest in the BF IV Group 
Trust that such fiduciary has received copies of such documents.
    The Independent Fiduciary will also be 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.
    13. TCC will prepare, or cause to be prepared on behalf of the BF 
IV Group Trust, the following reports with respect to the ongoing 
operations of the Group Trust: (a) Trading Activity and Portfolio 
Status Reports, for the Trustees, as required by PTE 86-128; (b) annual 
audited financial statements for the Trustee and the Plans; and (c) 
quarterly unaudited financial statements for the Trustee and Plan 
investors. The annual financial statements will contain a balance sheet 
for the BF IV Group Trust as of the end of the applicable fiscal year 
and a statement describing changes in the financial position for the 
fiscal year, as audited and reported upon by independent, certified 
public accountants. The annual financial report

[[Page 1918]]

will also specify the fees that are payable or accruable to TCC. TCC 
will make the annual financial report available to the Trustee and each 
Plan within 120 days after the end of each fiscal year of the BF IV 
Group Trust. Within 60 days after the end of each quarter (except in 
the last quarter) of each fiscal year of the BF IV Group Trust, TCC 
will prepare and distribute an unaudited quarterly financial report to 
the Trustee and each Plan investor. The report will consist of at least 
a balance sheet for the BF IV Group Trust as of the end of fiscal year 
quarter and a profit and loss statement for such quarter. The quarterly 
financial report will also disclose the fees that are payable or 
accruable to TCC.
    In addition to the foregoing reports, TCC will prepare and 
distribute to the BF IV Group Trust and each Plan such other 
information as may be reasonably requested by the Plans, including such 
information as a Plan may request in order to comply with the reporting 
requirements of the Act or Code.
    14. A meeting of the participating Plans and TCC will be held at 
least annually. The meeting will afford Independent Fiduciaries an 
opportunity to decide on whether the BF IV Group Trust should be 
terminated, whether the Trustee should be removed or whether the 
Investment Management Agreement should be terminated, if the situation 
warrants. However, before any termination can take place, the advance 
notification requirements for termination discussed above must be 
complied with. Also at the annual meeting, TCC representatives will be 
available to discuss any aspect of the BF IV Group Trust and the 
agreements promulgated thereunder with Independent Fiduciaries. Such 
meetings will be conducted in either TCC's offices or in the offices of 
the Independent Fiduciaries.
    15. During the Acquisition Phase for the BF IV Group Trust, any net 
gains realized on portfolio sales will be distributed to Plan investors 
but the original cost of the Security that is sold will be 
reinvested.\15\ From the seventh year of the Group Trust through its 
termination, the net proceeds from sales of portfolio Securities will 
be distributed unless the proceeds are needed to honor pre-seventh year 
investment commitments or to protect pre-seventh year investments.\16\
---------------------------------------------------------------------------

    \15\ According to the applicant, cash dividends that are 
received by the BF IV Group Trust from investments in Securities 
will be distributed to investors on an annual basis. Stock dividends 
will be retained by the BF IV Group Trust until the original 
portfolio investment is sold.
    \16\ The applicant explains that these exceptions to the general 
distribution rules are disclosed to investors in the Group Trust 
Agreement. With respect to the commitment exception, the applicant 
states that it is meant to cover situations where the BF IV Group 
Trust enters into an installment-type purchase agreement or some 
other contingency contract prior to the seventh year of its 
existence. In this connection, the applicant explains that TCC may 
have determined that the BF IV Group Trust should own a certain 
percentage of the Securities of a Bank Company or a Financial 
Services Company, but the requisite number of shares might not be 
available at that time. Under these circumstances, the applicant 
states that the BF IV Group Trust might enter into an agreement to 
purchase such Securities as they become available, even if the 
availability does not occur until after the sixth year.
---------------------------------------------------------------------------

    16. Under the Investment Management Agreement, two types of fees 
will be payable to TCC by the BF IV Group Trust. These fees are the 
Management Fee and the Performance Fee, the components of which are 
described below. TCC's Management Fee, which is independent of the 
Performance Fee, is intended to cover the day-to-day operating expenses 
of the BF IV Group Trust. TCC represents that the Management Fee is 
covered by the statutory exemptive relief available under section 
408(b)(2) of the Act.\17\ With respect to the Performance Fee, TCC is 
requesting administrative exemptive relief from the Department.
---------------------------------------------------------------------------

    \17\ The Department expresses no opinion herein on whether TCC's 
receipt of the Management Fee will satisfy the terms and conditions 
of section 408(b)(2) of the Act.
---------------------------------------------------------------------------

    (a) The annualized Management Fee will be payable to TCC monthly in 
arrears during each fiscal year the BF IV Group Trust is in existence. 
The Management Fee will be based upon a percentage of the aggregate 
capital contributions committed to both the BF IV Group Trust and the 
BF IV LP (the Management Fee Base). It will be equal to (1) the sum of 
5 percent of the first $35 million of the Management Fee Base plus (2) 
0.84 percent of the Management Fee Base in excess of $35 million, 
multiplied by (3) a fraction (the Trust Share), the numerator of which 
is the amount of capital contributions committed to the BF IV Group 
Trust and the denominator of which is the aggregate of the capital 
contributions made to the BF IV Group Trust and the BF IV LP.\18\ The 
Management Fee will not exceed 2 percent of committed capital when all 
capital is contributed, even if BF IV is capitalized at less than $125 
million.
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    \18\ By aggregating capital contributions that are made by the 
BF IV Group Trust with those made to the BF IV LP and by allocating 
the dollar amount between both entities in proportion to their 
respective size, TCC represents that all investors will be charged a 
lower Management Fee. TCC believes that by computing the Management 
Fee in this manner more appropriately reflects the unified 
investment management of the BF IV Group Trust and the BF IV LP. The 
Department, however, expresses no opinion as to whether this 
arrangement for computing the Management Fee satisfies the 
``reasonable compensation'' requirements of section 408(b)(2) of the 
Act and the applicable regulations.
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    After the end of the Acquisition Phase, the Management Fee will be 
subject to certain adjustments, particularly as distributions are made 
to Plan investors.\19\ If, as a result of distributions to Plan 
investors, capital contributions made by Plans are reduced to 50 
percent or less of the original aggregate capital contributions to the 
BF IV Group Trust, the Trust Share of the Management Fee will be 
reduced to 70 percent of the amount otherwise payable, effective for 
fiscal years subsequent to the year in which said payment was 
completed, and upon the payment to the Plans of an amount sufficient to 
reduce to 25 percent or less of their total capital contributions to 
the BF IV Group Trust, the Trust Share of the Management Fee will be 
reduced to 50 percent of the amount otherwise payable, effective for 
fiscal years subsequent to the year in which said payment was 
completed.
---------------------------------------------------------------------------

    \19\ All distributions, with the exception of interest income 
and cash dividends, count as returns of capital.
---------------------------------------------------------------------------

    (b) The Performance Fee that will be accruable to TCC for each 
fiscal year of the Group Trust, will be equal to 20 percent of ((1) the 
excess, if any of (a) the cumulative total of realized capital gains 
from the inception of the BF IV Group Trust through the end of such 
fiscal year over (b) the cumulative total of realized capital losses 
during the term, less (2) any unrealized losses in the BF IV Group 
Trust portfolio at the end of such period in excess of unrealized 
appreciation in the Portfolio) and, the amount of such fee previously 
accrued. The amount of the annual Performance Fee that is accruable to 
TCC will be determined after the annual audit of the BF IV Group Trust 
as described in Representation 13. The calculation of the Performance 
Fee will be made within 60 days of the BF IV Group Trust's fiscal year 
end. Specifically, Securities will be valued as of the close of 
business on the last day of the Group Trust's fiscal year.
    The Performance Fee will be further subject to the following terms 
and conditions:
    (1) Fee Base. As stated above, the amount credited to TCC as the 
Performance Fee will be equal to a percentage of realized gains minus 
realized and net unrealized losses. Such

[[Page 1919]]

amount will be credited to TCC annually.
    (2) Limited Deferral/Return of Capital. The Performance Fee will be 
paid after December 31, 2001 which is the completion of the Acquisition 
Phase for the BF IV Group Trust and it cannot be paid until all 
participating Plans have received distributions equal to 100 percent of 
their capital contributions made to the BF IV Group Trust.\20\
---------------------------------------------------------------------------

    \20\ For purposes of calculating the Performance Fee, cash 
dividends and interest are not included in the computation of the 
return of capital to Plan investors. As such, cash dividends do not 
affect the calculation of the amount of the Performance Fee or the 
time such fee can be first paid, even if the return of capital 
occurs before December 31, 2001.
---------------------------------------------------------------------------

    (3) Reduced Availability. Prior to the termination of the Group 
Trust, only 75 percent of what is credited to TCC as the Performance 
Fee may be withdrawn from the BF IV Group Trust after the Acquisition 
Phase.
    (4) Charges. The Performance Fee account will be charged for 
realized losses, net unrealized losses and fee payments. Thus, the fee 
cannot be drawn when the Performance Fee account is in a deficit 
position.
    (5) Fee Repayment/25 Percent Cushion. TCC must repay any deficit in 
the Performance Fee account and it must also maintain a 25 percent 
cushion in such account.
    The following examples illustrate the calculation of TCC's 
Performance Fee. Although the Performance Fee is paid annually and 
there are only two years of the BF IV Group Trust's expected term 
during which this fee can be drawn upon (i.e., 2002 and 2003), for 
purposes of illustration, four draw years have been assumed.

                                                   Example #1                                                   
----------------------------------------------------------------------------------------------------------------
                                                           Cumulative    Performance                   Draw or  
                          Year                            net position   fee account  Maximum draw     refund   
----------------------------------------------------------------------------------------------------------------
1.......................................................          $800          $160          $120          $120
2.......................................................           200            40            30          (90)
3.......................................................         1,000           200           150           120
4.......................................................           700           140           105          (45)
----------------------------------------------------------------------------------------------------------------

    Year 1  Assume that when the Performance Fee first becomes payable 
in 2002, the BF IV Group Trust's Cumulative Net Position is $800. TCC's 
Performance Fee is 20% of $200 or $160. TCC may draw 75% of the $160 or 
$120.\21\
---------------------------------------------------------------------------

    \21\ The assumption is, for purposes of this example, that all 
Plans investing in the BF IV Group Trust have received a 100 percent 
return of their capital contributions.
---------------------------------------------------------------------------

    Year 2  The BF IV Group Trust's Cumulative Net Position at the end 
of the Year 2 is $200. The Performance Fee is 20% of $200 or $40. TCC 
is entitled to draw $30, but since it has previously drawn $120, it 
must refund $90.
    Year 3  The BF IV Group Trust now has a Cumulative Net Position of 
$1,000. The Performance Fee is $200 with a permitted draw of $150. 
Because TCC has previously draw a net amount of $30 at the end of Year 
2 (i.e., $120-$90), it may now draw an additional $120.
    Year 4  The BF IV Group Trust's Cumulative Net Position falls to 
$700 and the Performance Fee falls to $140. The 75% draw equals $105, 
but TCC has previously drawn a total of $150 (i.e., $120-$90+$120). 
Therefore, TCC must make a refund to the BF IV Group Trust of $45.

                                                   Example #2                                                   
----------------------------------------------------------------------------------------------------------------
                                                           Cumulative    Performance                   Draw or  
                          Year                            net position   fee account  Maximum draw     refund   
----------------------------------------------------------------------------------------------------------------
1.......................................................        $2,000          $400          $300          $300
2.......................................................         1,000           200           150         (150)
3.......................................................           500           100            75          (75)
4.......................................................           900           180           135            60
----------------------------------------------------------------------------------------------------------------

    Year 1  Assume that when the Performance Fee first becomes payable 
in 2002, the Cumulative Net Position for the BF IV Group Trust is 
$2,000. TCC's Performance Fee is 20% of $2,000 or $400. TCC may draw 
75% of the $400 fee or $300. $100 or 25% of the draw amount must be 
left in the BF IV Group Trust as a cushion.\22\
---------------------------------------------------------------------------

    \22\ The assumption is again, for purposes of this example, that 
all Plans investing in the BF IV Group Trust have received a 100 
percent return of their capital contributions.
---------------------------------------------------------------------------

    Year 2  The Cumulative Net Position for the BF IV Group Trust at 
the end of Year 2 has fallen to $1,000. The Performance Fee is 20% of 
$1,000 or $200. TCC is entitled to draw $150, but since it has 
previously drawn $300, it must refund $150.
    Year 3  The Cumulative Net Position for the BF IV Group Trust has 
fallen to $500. The Performance Fee now falls to $100 (i.e., 20% of 
$500) with a permitted draw of $75 and a cushion of $25. Because TCC 
has previously drawn $150 ($300-$150), it must make a refund to the BF 
IV Group Trust of $75.
    Year 4  The Cumulative Net Position for the BF IV Group Trust is 
$900 at the end of Year 4. TCC's Performance Fee is 20% of $900 of 
$180. The 75% draw on the Performance Fee equals $135. However, since 
TCC has previously drawn a total of $75 ($300-$150-$75), it may now 
draw a Performance Fee of $60.
    17. In the event of a premature termination of the Investment 
Management Agreement, special fee arrangements will be effective as 
follows:
    (a) If the termination occurs prior to the third full fiscal year 
of the Investment Management Agreement's existence (i.e., before 
January 1, 1999) and it is either a Justified Termination by TCC or a 
non-Justified Termination by the Trustee, TCC will be entitled to 
receive a fee equal to the sum of (1) 20 percent of net realized gains 
to the date the agreement was terminated plus (2) 20 percent of the 
aggregate of unrealized gains net of unrealized losses

[[Page 1920]]

determined on the date the agreement was terminated. (For purposes of 
determining net unrealized gains or net unrealized losses, TCC will 
utilize an independent appraiser to value Securities for which there 
are no independent market quotations.) Payment of this fee will be 
deferred until the termination of the BF IV Group Trust. In addition, 
TCC will not be required to make payments to the BF IV Group Trust in 
the event a loss to such Group Trust occurs.
    (b) If the termination of the Investment Management Agreement 
occurs after the third full fiscal year of the BF IV Group Trust and is 
either a Non-Justified Termination by the Trustee or a Justified 
Termination by TCC, TCC will be entitled to its regular Performance 
Fee. However, payment will be deferred to the termination of the Group 
Trust.
    (c) If TCC declares a Non-Justified Termination at any time, it has 
no enforceable right to receive a Performance Fee under the terms of 
the Investment Management Agreement.
    (d) If the Trustee, on behalf of the BF IV Group Trust, declares a 
Justified Termination at any time, TCC has no enforceable right to 
receive a Performance Fee under the terms of the Investment Management 
Agreement. However, if the Justified Termination involves a violation 
of the Act and such violation has not been caused by TCC's gross 
misconduct (e.g., the law changes in a manner that would prohibit 
prospectively an important part of TCC's management of the BF IV Group 
Trust), TCC will be entitled to the Performance Fee it would have 
earned through the date of the termination of the Investment Management 
Agreement. Payment will again be deferred until the termination of the 
BF IV Group Trust.\23\
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    \23\ If an early termination of the Investment Management 
Agreement occurs, the applicant states that the Trustee, on behalf 
of the BF IV Group Trust, and TCC will initially attempt to agree on 
whether the termination is Justified or Non-Justified. If the 
parties are unable to agree, judicial proceedings will be instituted 
as a final means of resolution.
---------------------------------------------------------------------------

    18. The BF IV Group Trust will terminate upon the earliest to occur 
of (a) the complete distribution of its assets, (b) a vote in favor of 
termination by two-thirds of the Plans holding Beneficial Interests or 
(c) December 31, 2003. The Group Trust may be extended by a two-thirds 
affirmative vote of those Plans holding Beneficial Interests therein. 
(For termination of the Trustee under the Group Trust Agreement and the 
termination of TCC under the Investment Management Agreement, see 
Representations 6, 9 and 17 of this proposed exemption.)
    Upon termination of the BF IV Group Trust, all portfolio positions 
will be liquidated, Group Trust expenses (including TCC's Performance 
Fee) will be paid and distributions will be made. If all assets cannot 
be converted into cash or if it would be disadvantageous to liquidate 
every asset, remaining assets may be distributed in-kind. TCC will then 
receive a fractional portion of its fee in-kind.
    TCC has exclusive authority over the sale of portfolio securities 
so it will make liquidation decisions. The Trustee will pay all 
expenses of the BF IV Group Trust at the direction of TCC. Although TCC 
will be responsible for directing the Trustee to make distributions, 
TCC's discretion will not be unlimited. Rather, as amounts are 
available for distribution, TCC will be required to make distributions 
in accordance with the provisions of the Group Trust Agreement.
    The following example illustrates the manner in which in-kind 
distributions will be made by TCC:
    Assume that all Plans investing in the BF IV Group Trust have 
received a 100% return of capital. Assume also that there are only two 
Plans investing in the BF IV Group Trust. Plan A has a Beneficial 
Interest worth $60 and Plan B has a Beneficial Interest worth $40.
    The BF IV Group Trust holds 100 shares of Securities in Bank X 
which it acquired for $5 per share. Upon termination of the Group 
Trust, Bank X Securities is worth $7 per share.
    The total unrealized gain attributable to Bank X Securities is 
($7-$5) x 100=$200.
    TCC's Performance Fee is equal to $200 x 20%=$40. TCC receives 
$40<divide>$7=5.7 shares of Bank X Securities.
    Plan A receives 60% x 94.3=56.6 shares of Bank X Securities.
    Plan B receives 40% x 94.3=37.7 shares of Bank X Securities.
    19. Valuations of (and for) the BF IV Group Trust will be needed 
for redemptions, acquisitions by the BF IV Group Trust, in connection 
with in-kind distributions and to pay TCC's Performance Fee. The 
valuations will be made by TCC for Securities for which independent 
market quotations are readily available. In situations where no 
independent market quotations are readily available, an Independent 
Appraiser will be appointed as described below.
    (a) National Exchange--Regular Trades. Any Security which is listed 
on a national securities exchange will be valued based on its last 
sales price on the national securities exchange on which the security 
is principally traded on the valuation date.\24\ If the valuation date 
is not a date on which the exchange was open for trading, the value 
will be determined in the same manner as if the valuation date was the 
last prior date on which the exchange was open for trading.
---------------------------------------------------------------------------

    \24\ The applicant explains that the phrase ``principally 
traded'' means that if a Security is traded on more than one 
exchange and if the trade prices differ between exchanges, the value 
will be taken from the exchange on which the largest volume of that 
security has traded.
---------------------------------------------------------------------------

    (b) National Exchange--No Trades. If no sale of a Security listed 
on a national securities exchange occurred on either of the dates 
described in clause (a) above, the security will be valued based on the 
last bid price on the exchange on which the security was publicly-
traded.\25\
---------------------------------------------------------------------------

    \25\ The applicant explains that the most recent trade price is 
not used to value a Security in this instance because it may be too 
dated to provide an accurate estimate of value. Instead, the 
applicant considers the bid price to be indicative of the current 
value at which someone would be willing to acquire a Security on the 
valuation date. The applicant further notes that the use of the bid 
price rather than the previous trading or closing price in valuing a 
Security provides a conservative valuation approach which will 
result, in most instances, in a lower Performance Fee payable to 
TCC.
    The Department assumes that the bid price described herein 
represents active bids and is a true indicator of market prices.
---------------------------------------------------------------------------

    (c) No Independent Market or No Listing--Use of the Independent 
Appraiser. In the event that there is no independent market for a 
Security or the Security is not listed on a national securities 
exchange (e.g., a small bank with 5 shareholders), the Independent 
Appraiser will be required to value such securities. TCC will utilize 
the Independent Appraiser to value Securities in connection with the 
in-kind distributions by the BF IV Group Trust, the redemption of 
Beneficial Interests in the BF IV Group Trust or to determine TCC's 
Performance Fee.
    Although TCC will nominate the Independent Appraiser, Plans will be 
given the option of either approving or disapproving of the nominee. 
The Independent Appraiser will not be appointed absent the affirmative 
written approval of a majority of the Plans investing in the BF IV 
Group Trust. However, the Plans will have no veto power over TCC's 
decision that an Independent Appraiser is required.
    Each member of the Independent Appraiser (currently, the same 
advisory committee serving in this capacity for the MBF II LP and the 
BF III) must be experienced in the valuation of subregional banks as 
well as in the business of performing valuations. In addition, each 
member of the Independent Appraiser must not be

[[Page 1921]]

controlled by (or control) TCC and must not receive more than 5 percent 
of their lowest annual income from TCC or the Trustee, either during 
the term of BF IV or in the three years preceding its creation. 
Individual members of the Independent Appraiser or the entire committee 
may be removed by Plans holding 50 percent or more of the Beneficial 
Interests in the Group Trust. A majority of the Plans and TCC must 
approve a replacement Independent Appraiser. If the Plans and TCC 
cannot agree, upon such replacement, the firm of Peat Marwick Main & 
Co. will be appointed.
    The Independent Appraiser will use the principles set forth in 
Revenue Ruling 59-60 and the Department's proposed ``Adequate 
Consideration'' regulations (53 FR 17632, May 17, 1988) to determine 
fair market value. The valuations made by the Independent Appraiser 
will be binding upon TCC. In addition, the Independent Appraiser will 
issue reports to TCC, the Trustee and the Plans participating in the BF 
IV Group Trust which set forth the Independent Appraiser's pricing 
methodology and rationale for Securities it has been asked to value. 
Such reports will be issued after each required valuation and they will 
comply with the aforementioned regulations.
    20. With respect to transactions which may arise during the 
existence of the BF IV Group Trust and which involve parties in 
interest to participating Plans, TCC requests exemptive relief from the 
Department from the provisions of section 406(a) of the Act. 
Specifically, TCC requests exemptive relief where the BF IV Group Trust 
sells Securities held in its portfolio for cash or other securities to 
a party in interest with respect to a participating Plan in the context 
of an acquisition or a merger by the party in interest, provided the 
party in interest is not an affiliate of TCC. TCC represents that the 
BF IV Group Trust will receive the same offer that other shareholders 
of the Bank Company or Financial Services Company will receive. Because 
the BF IV Group Trust will always be a minority shareholder in such 
situation, TCC states that the BF IV Group Trust will be in the 
position of a beneficiary of the acquisition offer and it will not be 
in the position of an active player in the merger or acquisition 
transactions.
    21. In summary, it is represented that the proposed transactions 
meet the statutory criteria for an exemption under section 408(a) of 
the Act because:
    (a) The participation of Plans in the BF IV Group Trust will be 
approved by an Independent Fiduciary.
    (b) Each Plan investing in the BF IV Group Trust will have assets 
that are in excess of $50 million.
    (c) No Plan will invest more than 10 percent of its assets in 
Beneficial Interests in the BF IV Group Trust and such Beneficial 
Interests held by the Plan will not exceed 25 percent of such Group 
Trust.
    (d) No Plan will invest more than 25 percent of its assets in 
investment vehicles (i.e., collective investment funds and separate 
accounts) managed or sponsored by TCC and/or its affiliates.
    (e) Prior to making an investment in the BF IV Group Trust, each 
Independent Fiduciary contemplating investing therein will receive 
offering materials which disclose all material facts concerning the 
purpose, structure and operation of the Group Trust and the fees paid 
to TCC.
    (f) Each Plan investing in the BF IV Group Trust will be required 
to acknowledge, in writing, prior to purchasing Beneficial Interests 
that such fiduciary has received copies of such documents and to 
acknowledge, in writing, to TCC that such fiduciary is (1) independent 
of TCC and its affiliates, (2) capable of making an independent 
decision regarding the investment of Plan assets and (3) 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.
    (g) TCC will make quarterly and annual written disclosures to 
participating Plans with respect to the financial condition of the BF 
IV Group Trust and the total fees that it will receive for services 
rendered to the BF IV Group Trust.
    (h) TCC will hold annual meetings and conduct periodic discussions 
with Independent Fiduciaries of Plans participating in the BF IV Group 
Trust to address any matters pertaining to such Group Trust.
    (i) The terms of all transactions that are entered into on behalf 
of the BF IV Group Trust by TCC shall 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 of the BF IV 
Group Trust will be based upon independent market quotations or 
determinations made by an Independent Appraiser.
    (j) Either TCC or the Trustee, on behalf of the Plans participating 
in the BF IV Group Trust, may terminate the Investment Management 
Agreement at any time.
    (k) As to each Plan, the total fees paid to TCC and its affiliates 
will constitute no more than reasonable compensation.
    (l) TCC's Performance Fee will be based upon a percentage of net 
realized gains minus net unrealized losses. In this regard,
    (1) The Performance Fee will be paid after December 31, 2001, which 
is the completion of the Acquisition Phase for the BF IV Group Trust, 
and it cannot be paid until all participating Plans have received 
distributions equal to 100 percent of their capital contributions to 
the BF IV Group Trust.
    (2) Prior to the termination of the BF IV Group Trust, only 75 
percent of what is credited to TCC as the Performance Fee may be 
withdrawn by such Group Trust.
    (3) TCC will repay all deficits in its Performance Fee account.

Notice to Interested Persons

    Notice of the proposed exemption will be given to Plans 
participating in the BF IV Group Trust within 5 days as of the date of 
publication of the notice of pendency in the Federal Register. Such 
notice will include a copy of the notice of proposed exemption, as 
published in the Federal Register, as well as a supplemental statement, 
as required pursuant to 29 CFR 2570.43(b)(2), which shall inform 
interested persons of their right to comment on and/or to request a 
hearing. Comments and hearings requests with respect to the proposed 
exemption are due 35 days after the date of publication of the proposed 
exemption in the Federal Register.

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

Hughes Non-Bargaining Retirement Plan, Hughes Bargaining Retirement 
Plan, Hughes Subsidiary Retirement Plan (Collectively, the Plans)

[Applications No. D-10295, D-10296 and D-10297] Located in New York, 
N.Y.

Proposed Exemption

    The Department of Labor (the Department) is considering granting an 
exemption under the authority of section 408(a) of the Act and section 
4975(c)(2) of the Code and in accordance with the procedures set forth 
in 29 CFR, part 2570, Subpart B (55 FR 32847, August 10, 1990). 
Effective October 6, 1995, if the exemption is granted, the 
restrictions of sections 406(a), 406 (b)(1) and (b)(2) of the Act and 
the sanctions resulting from the application of section 4975 of the 
Code, by reason of section 4975(c)(1) (A)

[[Page 1922]]

through (E) of the Code shall not apply to the leasing by the Plans of 
10,106 square feet of office space (Suite 300) in a commercial office 
building which is owned by the Plans (the Building) to Sarofim Realty 
Advisors (SRA), a party in interest with respect to the Plans, for a 
period ending February 28, 2000 pursuant to the terms of a lease 
amendment (the Lease) provided the following conditions are satisfied: 
(1) An independent third party determines that the terms of the Lease 
represent not less than fair rental value as of the date of the Lease; 
(2) the terms of the Lease are reviewed and approved by a qualified 
independent fiduciary of the Plans who determines that the terms of the 
transaction are at least as favorable as the terms generally available 
to the Plans in arm's length transactions between unrelated parties and 
that SRA's improvements to Suite 300 are acceptable; (3) the qualified 
independent fiduciary concludes that the transaction is in the best 
interests of the Plans and the Plans' participants and beneficiaries; 
(4) on behalf of the Plans, the qualified independent fiduciary 
continues to monitor SRA's performance under the Lease; and (5) within 
sixty (60) days of the publication in the Federal Register of a notice 
granting this proposed exemption, SRA will file Form 5330 with the 
Internal Revenue Service and pay the excise taxes applicable under 
section 4975(a) of the Code that are due by reason of the prohibited 
Lease transaction during the period beginning March 1, 1995 and ending 
on the effective date of this exemption.

EFFECTIVE DATE: The effective date of this exemption is October 6, 
1995.

Summary of Facts and Representations

    1. The Plans involved in the transaction, the Hughes Non-Bargaining 
Retirement Plan, the Hughes Bargaining Retirement Plan and the Hughes 
Subsidiary Retirement Plan, are covered by the Hughes Master Retirement 
Trust (the Trust). The Plans are defined benefit plans. The Plans' 
sponsor is Hughes Electronic Corporation (Hughes). Prior to March 29, 
1995, the Plans' sponsor was Hughes Aircraft Company. As of November 
30, 1995, the Plans had a total of 91,006 participants and 
beneficiaries. As of November 30, 1995, the approximate aggregate fair 
market value of the total assets of the Plans was $6.376 billion. The 
Building is a commercial office building known as Preston Sherry Plaza 
with 147,008 square feet of rentable space and located in Dallas, 
Texas. As of November 30, 1995, the value of the Building was .34 
percent of the fair market value of the total assets of the Plans.
    2. SRA states that it is a fiduciary, within the meaning of section 
3(21) of the Act, to the Plans and a party in interest under section 
3(14)(A) of the Act with respect to the Plans by virtue of its 
appointment by the Plans as an investment manager for certain of the 
Plans' real estate investments. SRA is headquartered in Dallas, Texas. 
As of December 31, 1995, SRA employed 18 full-time employees and had 
approximately $772 million in aggregate market value of employee 
benefit plan assets under management. SRA oversees the acquisition, 
development, leasing, management, financing and sale of select property 
types in select regions and major cities throughout the country for the 
Plans and eight other pension plans and endowment funds. SRA provides 
recommendation to the Plans as to the types of properties to be 
purchased, the number and location of the properties, the structure of 
the transactions and the amount of third-party financing, if any, that 
is appropriate. In addition, SRA is responsible for ensuring that the 
Plans' properties are managed in accordance with the Plans' investment 
objectives.
    3. From October 1, 1991 to February 28, 1995, SRA leased 6,018 
square feet of space on the fourth floor of the Building from the 
Plans. SRA represents that its lease of the fourth floor space complied 
with the requirements of Part III of PTE 84-14 which permits a 
qualified professional asset manager (QPAM) to lease not in excess of 
the greater of 7500 square feet or 1 percent of the rentable space of 
the office building in which the investment fund managed by the QPAM 
has the investment.\26\ In order to accommodate another Building tenant 
and to facilitate a cost effective reconfiguration of space within the 
Building to the benefit of the Plans, SRA relocated to the third floor 
of the Building on March 1, 1995. SRA occupied this space pursuant to 
the terms of the Lease entered into on March 1, 1995.
---------------------------------------------------------------------------

    \26\ SRA represents that it is a QPAM as that term is defined in 
PTE 84-14.
---------------------------------------------------------------------------

    4. The Lease relates to 10,106 square feet of office space and is 
for a term of five years ending February 28, 2000, at a base rent of 
$16,000 per square foot. The annual base rent adjusts at a rate of $.25 
per square foot per year to $17.00 per square foot in the year 2000. 
The Lease also provides for a one-time-only tenant improvement or 
construction allowance of $18.25 per square foot. The allowance enabled 
SRA to build additional walls, replace the carpet and repaint the walls 
of the third floor. Under the terms of the Lease, SRA is responsible 
for its proportionate share of common area maintenance, insurance and 
property taxes over the 1994 base year amount. The applicant states 
that the Lease terms are comparable to the terms of the leases of other 
similar tenants in the Building, as well as the terms of leases in 
similar buildings in the area.
    5. The applicant states that the Lease between SRA and the Plans is 
not eligible for relief from the prohibited transaction provisions of 
the Act pursuant to PTE 84-14 because the Lease is for an amount of 
space in excess of the greater of 7,500 square feet or one percent of 
the rentable space in the Building.
    6. The applicant represents that on or about March 8, 1995, SRA 
contacted Price Waterhouse LLP (Price) and requested that Price serve 
as the independent fiduciary with respect to the Lease. The applicant 
states that Price agreed to the engagement and SRA asked Price to begin 
work immediately to determine whether the terms and conditions of the 
Lease represented an arm's length lease of office space between 
unrelated parties and to prepare a report summarizing Price's 
conclusions (Price Report). During the period March 14 to March 31, 
1995, Price performed a market review of the Lease. Price reviewed the 
Lease and the leases of five comparable tenants. Price inspected and 
evaluated the Building and interviewed the Building's management. Price 
performed a present value analysis on the comparable leases in order to 
evaluate the economic terms of the leases. Based on Price's research 
and analysis, the March 31, 1995 Price Report determined that the Lease 
was under terms which are not less than fair market value.
    7. According to the Amendment, the applicant states that SRA 
circulated several drafts of an independent fiduciary agreement to 
Price and to the Plans. On March 30, 1995, the Plans requested that SRA 
revise the independent fiduciary agreement to substitute ``independent 
advisor'' for ``independent fiduciary.'' SRA objected to the change and 
advised the Plans that the agreement should refer to Price as an 
``indendent fiduciary.'' On April 4, 1995, the Plans advised SRA that 
Price could not serve as an independent fiduciary to the Plans because 
Price was not a registered investment adviser under the Investment 
Advisers Act of 1940 and the Plans documents required all fiduciaries 
appointed by the Plans to be registered investment advisers.

[[Page 1923]]

    Subsequently, SRA and the Plans discussed several alternatives with 
respect to the appointment of an independent fiduciary. On October 6, 
1995, the Plans and RREEF America L.L.C. (RREEF) entered into an 
agreement for RREEF to act on behalf of the Plans as an independent 
fiduciary to review the Price Report, review and approve the Lease 
terms and monitor SRA's performance under the Lease (the Agreement). 
This Agreement was essentially an extension of RREEF's duties as a 
qualified professional asset manager to the Plans pursuant to the 
agreement dated March 3, 1992 between the Plans and RREEF America 
Partners L.P., now known as RREEF (the Investment Management 
Agreement).
    8. The applicant states that RREEF is a qualified independent 
fiduciary who actively manages commercial real estate in Dallas, Texas. 
Further, neither RREEF nor its affiliates has any ownership interest in 
SRA or its affiliates and neither SRA nor its affiliates has any 
ownership interest in RREEF or its affiliates. The Applicant represents 
that the Plans will pay RREEF's fee for serving as an independent 
fiduciary. In view of RREEF's other unrelated business relationships 
with the Plans, RREEF has agreed to perform these additional services 
for the Plans for the sum of $1.00 per annum in lieu of any additional 
fee which otherwise would be due under the Investment Management 
Agreement.
    9. According to the Statement of Independent Fiduciary dated 
September 12, 1996, RREEF states that it is an investment adviser 
registered under the Investment Advisers Act of 1940 and oversees the 
acquisition, development, leasing, management, financing and sale of 
commercial real estate throughout the country including real estate 
located in Dallas, Texas. RREEF serves as an investment advisor and 
fiduciary for approximately 150 employee benefit plans including the 
Plans. RREEF represents that it understands its ERISA duties and 
responsibilities in acting as a fiduciary with respect to the Plans. 
RREEF states that as of December 31, 1995, it had approximately $6 
billion in aggregate market value of employee benefit plan assets under 
management and that, as of December 31, 1995, RREEF and its affiliates 
received less than 1 percent of their annual income from SRA or its 
affiliates.
    10. The applicant represents that under the Investment Management 
Agreement, RREEF may be removed with or without cause at any time by 
the Plans (acting through fiduciaries of the Plans that are unrelated 
to SRA or RREEF) upon written notice of such termination. Further, 
RREEF's appointment is subject to annual confirmation by the 
fiduciaries of the Plans. The applicant states that RREEF may not be 
removed by SRA and the appointment of RREEF as independent fiduciary 
shall remain in effect until 60 days after receipt by the Plans of a 
notice of resignation from RREEF, or 60 days after RREEF receives a 
notice of removal from the Plans.
    11. The applicant states that upon the termination of RREEF's 
appointment, a successor independent fiduciary (Successor) will be 
designated by the Plans. The Successor will be subject to annual 
confirmation by fiduciaries of the Plans. In addition, any Successor 
must be an individual, group of individuals, or a business entity which 
has substantial experience and expertise in the commercial real estate 
field. Neither the Successor nor any affiliate of the Successor may 
have any ownership interest in SRA or any of its affiliates, nor may 
SRA or any of its affiliates have any ownership interest in the 
Successor or its affiliates. Moreover, neither the Successor itself, 
nor the Successor and its affiliates in the aggregate, may receive more 
than 1 percent of their total annual gross revenues, determined as of 
the end of their last fiscal year, from business transactions with SRA 
or its affiliates. Furthermore, any Successor would be removable with 
or without cause at any time by the Plans acting through a fiduciary or 
fiduciaries unrelated to SRA or the Successor. Any Successor would not 
be removable by SRA for any reason.
    12. RREEF states that on the Plan's behalf, RREEF has reviewed and 
approved the terms of the Lease. RREEF states that is has reviewed: the 
Lease; SRA's proposed improvements to the property; the Price Report 
concerning the proposed transaction, including all accompanying data 
and analyses; physically inspected the property; and compared the Lease 
with other leases for space in the Building and leases for space at 
comparable properties. RREEF also interviewed four local brokers active 
in the Building's submarket to identify comparable market rent terms. 
Based on RREEF's review and analysis, RREEF concluded that the terms of 
the Lease are in the best interest of the Plans and the Plans' 
participants and beneficiaries, the terms of the Lease are at least as 
favorable as the terms generally available to the Plans in arm's length 
transactions between unrelated parties, and that SRA's proposed 
improvements to the office space are acceptable and will not cause the 
premises to be untenantable.
    13. Under the Agreement, RREEF is also obligated to monitor SRA's 
performance under the Lease. RREEF agreed to review any matter which 
requires the approval of the landlord under the terms of the Lease and 
determine on behalf of the Plans whether or not to grant approval and 
take any other action with regard to the Lease which the landlord would 
have the authority and/or obligation to take, on behalf of the Plans.
    14. The applicant represents that the Lease allows the Plans to 
accommodate existing tenants, to retain SRA as a stable and reliable 
tenant, and to realize income that might not otherwise be received. The 
Plans derive a benefit by virtue of SRA's occupancy of space in the 
Building and its ability to better evaluate the day-to-day performance 
of the other tenants, the property manager and the physical upkeep of 
the asset. If the Lease is not granted an exemption, the applicant 
represents that the Plans would be subjected to the risks of downtime 
and additional refit costs for the current SRA space.
    15. The applicant represents that within sixty (60) days of the 
publication in the Federal Register of a notice granting this proposed 
exemption, SRA will file Form 5330 with the Internal Revenue Service 
and pay the excise taxes applicable under section 4975(a) of the Code 
that are due by reason of the prohibited Lease transaction during the 
period beginning the date the Lease was entered into, March 1, 1995, 
and ending on October 6, 1995, the effective date of this exemption, 
the date of the appointment of an independent fiduciary with respect to 
the Lease.
    16. In summary, the applicant represents that the proposed 
exemption meets the criteria of section 408(a) of the Act because: (1) 
Price, an independent third party, has determined that the terms of the 
Lease represent not less than fair rental value as of the date of the 
Lease; (2) the terms of the Lease were reviewed and approved by RREEF, 
a qualified independent fiduciary who determined that the terms of the 
transaction were at least as favorable as the terms generally available 
to the Plans in arm's length transactions between unrelated parties and 
that SRA's improvement to Suite 300 were acceptable; (3) RREEF, a 
qualified independent fiduciary, concluded that the Lease is in the 
best interests of the Plans and the Plans' participants and 
beneficiaries; (4) RREEF, on behalf of the Plans, continues to monitor 
SRA's performance under the Lease; and (5) within sixty (60) days of 
the publication in the Federal Register of a notice granting this 
proposed exemption, SRA

[[Page 1924]]

will file Form 5330 with the Internal Revenue Service and pay the 
excise taxes applicable under section 4975(a) of the Code that are due 
by reason of the prohibited Lease transaction during the period 
beginning March 1, 1995 and ending on the effective date of this 
exemption.

Notice to Interested Persons

    Notice of the proposed exemption will be provided to all interested 
persons by either mail or hand delivery within 30 days of the date of 
publication of the notice of pendency in the Federal Register. Such 
notice shall include a copy of the notice of pendency of the exemption 
as published in the Federal Register and shall inform interested 
persons of their right to comment on and/or to request a hearing with 
respect to the proposed exemption. Comments are due within 60 days of 
the date of publication of the proposed exemption in the Federal 
Register.

Written Comments and Hearing Requests

    All interested persons are invited to submit written comments or 
requests for a hearing on the proposed replacement exemption to the 
address above, within the time period set forth above. All comments 
will be made a part of the record. Comments and requests for a hearing 
should state the reasons for the writer's interest in the proposed 
exemption. Comments received will be available for public inspection 
with the referenced applications at the address set forth above.

FOR FURTHER INFORMATION CONTACT: Wendy McColough of the Department, 
telephone (202) 219-8971. (This is not a toll-free number.)

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

[Application No. D-10375]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2) 
of the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the 
Code, shall not apply to: (1) The proposed 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.

Summary of Facts and Representations

    1. Action Personnel Agency, Inc. d.b.a. United Staffing Services 
(APA), a California Subchapter S Corporation, is the sponsor of the 
Plan. Mr. Petsuch is the 100% owner of APA and, as such, is a party in 
interest with respect to the Plan.
    2. Mr. Petsuch, as the owner of a Subchapter S Corporation, is 
unable to participate in the Plan's participant loan program. Mr. 
Petsuch has a segregated rollover Account in the Plan which had a value 
of $124,875 as of August 23, 1996. This Account is composed of publicly 
traded stock.
    3. Mr. Petsuch has requested an exemption that would permit him to 
borrow $30,000 from his Account in the Plan. Since the Loan is to come 
from his Account, Mr. Petsuch is the only Plan participant who will be 
affected by this proposed transaction. The Loan amount would represent 
less than 25% of the value of the Account. The term of the Loan will be 
for a period of five years at an interest rate of Prime plus two, based 
on the published Prime Rate in the Western Edition of the Wall Street 
Journal, which currently would be 10.75%. The interest rate will be 
adjusted during the term of the Loan whenever there is a change in the 
Prime Rate of Interest. The new interest rate will be effective 
immediately and will remain in effect until the next time the Prime 
Rate changes. The Loan will be repaid in equal monthly installments of 
principal and interest. Ms. Jeanne Marx, Vice President of The Bank of 
San Ramon Valley (the Bank) in San Ramon, California, has represented 
that the Bank would require identical terms to make a five year loan to 
Mr. Petsuch.
    4. In addition to giving his personal guarantee for the Loan, Mr. 
Petsuch will pledge as security for the Loan his interest in a Charles 
Schwab & Co., Inc. (Schwab) investment account. The account consists of 
publicly traded securities, which according to Schwab had a fair market 
value of $84,855 as of August 26, 1996. Thus, the pledged security has 
a fair market value approximately 2.8 times greater than the principal 
amount of the proposed Loan. The applicant represents that the 
collateral-to-Loan ratio will always remain at least 200%. If the 
collateral-to-Loan ratio ever falls below this level, Mr. Petsuch 
represents that he will add additional collateral to the Schwab 
account.
    5. In summary, the applicant represents that the proposed 
transaction satisfies the criteria of section 408(a) of the Code 
because: (a) The Loan represents less than 25% of the assets of the 
Account; (b) the terms of the Loan will be identical to those required 
by a third party lender, the Bank, if it were to make a similar loan; 
(c) the Loan will be secured by Mr. Petsuch's personal guarantee and 
his 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 collateral-to-Loan 
ration will remain not less than 200% throughout the duration of the 
Loan; and (e) Mr. Petsuch is the only Plan participant to be affected 
by the Loan, and he desires that the transaction be consummated.

NOTICE TO INTERESTED PERSONS: Since Mr. Petsuch is the only Plan 
participant to be affected by the proposed transaction, the Department 
has determined that there is no need to distribute the notice of 
proposed exemption to interested persons. Comments and requests for a 
hearing are due within 30 days from the date of publication of this 
notice of proposed exemption in the Federal Register.

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 of disqualified 
person from certain other provisions of the Act and/or the Code, 
including any prohibited transaction

[[Page 1925]]

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

    Signed at Washington, DC, this 9th day of January, 1997.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 97-865 Filed 1-13-97; 8:45 am]
BILLING CODE 4510-29-M