Proposed Exemptions; The Retirement Plan for Salaried and Certain Hourly Employees of Keebler Company (the Plan)

DEPARTMENT OF LABOR

[Application No. D-10253, et al.]

Proposed Exemptions; The Retirement Plan for Salaried and Certain

Hourly Employees of Keebler Company (the Plan)

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

Unless otherwise stated in the Notice of Proposed Exemption, all

interested persons are invited to submit written comments, and with

respect to exemptions involving the fiduciary prohibitions of section

406(b) of the Act, requests for hearing within 45 days from the date of

publication of this Federal Register Notice. Comments and request for a

hearing should state: (1) the name, address, and telephone number of

the person making the comment or request, and (2) the nature of the

person's interest in the exemption and the manner in which the person

would be adversely affected by the exemption. A request for a hearing

must also state the issues to be addressed and include a general

description of the evidence to be presented at the hearing. A request

for a hearing must also state the issues to be addressed and include a

general description of the evidence to be presented at the hearing.

ADDRESSES: All written comments and request for a hearing (at least

three copies) should be sent to the Pension and Welfare Benefits

Administration, Office of Exemption Determinations, Room N-5649, U.S.

Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C.

20210. Attention: Application No. stated in each Notice of Proposed

Exemption. The applications for exemption and the comments received

will be available for public inspection in the Public Documents Room of

Pension and Welfare Benefits Administration, U.S. Department of Labor,

Room N-5507, 200 Constitution Avenue, N.W., Washington, D.C. 20210.

Notice to Interested Persons

Notice of the proposed exemptions will be provided to all

interested persons in the manner agreed upon by the applicant and the

Department within 15 days of the date of publication in the Federal

Register. Such notice shall include a copy of the notice of proposed

exemption as published in the Federal Register and shall inform

interested persons of their right to comment and to request a hearing

(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in

applications filed pursuant to section 408(a) of the Act and/or section

4975(c)(2) of the Code, and in accordance with procedures set forth in

29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990).

Effective December 31, 1978, section 102 of Reorganization Plan No. 4

of 1978 (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.

[[Page 68792]]

The Retirement Plan for Salaried and Certain Hourly Employees of

Keebler Company (the Plan), Located in Elmhurst, Illinois

[Application No. D-10253]

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 leasing by the Plan of certain

improved real property (the Property) to Keebler Company (the

Employer), a party in interest with respect to the Plan, (2) the

potential future purchase of the Property by the Employer pursuant to

the Employer's right of first refusal, as stipulated in the lease, and

(3) the ``make whole agreement,'' and any payments thereunder, whereby

the Employer will make the Plan whole, in the event that the Plan sells

the Property to an unrelated party at a net loss.

This proposed exemption is subject to the following conditions:

(1) The Plan is represented for all purposes with respect to the

lease by a qualified, independent fiduciary;

(2) The terms and conditions of the lease are and continue to be at

least as favorable to the Plan as those the Plan could obtain in a

comparable arm's length transaction with an unrelated party;

(3) The rent paid to the Plan under the lease is and continues to

be no less than the fair market rental value of the Property, as

established by a qualified, independent appraiser;

(4) The rent is adjusted, at a minimum, every three years (upwards

only), based upon an updated independent appraisal;

(5) The lease is a net lease, under which the Employer as the

tenant is obligated for all operating expenses, including maintenance,

taxes, insurance, and utilities;

(6) The independent fiduciary for the Plan represents that it has

reviewed the terms and conditions of the lease on behalf of the Plan

and believes the lease is in the best interests of and appropriate for

the Plan;

(7) The independent fiduciary monitors and enforces compliance with

the terms and conditions of the lease and of the exemption for the

duration of the lease;

(8) The independent fiduciary expressly approves any improvements

by the Employer over $100,000 to the Property and any renewal of the

lease beyond the initial term;

(9) In the event that the Employer exercises its right of first

refusal under the lease, the Employer purchases the Property from the

Plan for an amount which is the greater of: (a) the original

acquisition cost of the Property, plus the cost of any improvements,

paid by the Plan, or (b) the fair market value of the Property as of

the date of the sale, as established by a qualified, independent

appraiser selected by the independent fiduciary;

(10) In the event that the Plan sells the Property to an unrelated

party at a net loss (taking into account the cost of any improvements

and all selling expenses paid by the Plan), the Employer makes the Plan

whole, within 15 days after the date of such sale, by paying the Plan

cash in an amount equal to the difference between: (a) the original

acquisition cost of the Property, plus the cost of any improvements and

all selling expenses, paid by the Plan, and (b) the amount of the sale

proceeds received by the Plan; and

(11) At all times, the fair market value of the Property represents

no more than 25 percent of the total assets of the Plan.

EFFECTIVE DATE: This exemption, if granted, will be effective as of

April 15, 1996.

Summary of Facts and Representations

1. The Plan is a defined benefit plan sponsored by the Employer.

The Employer, a Delaware corporation, is engaged in the business of

making cookies, crackers, ice cream cones, and snacks and is located in

Elmhurst, Illinois. The Plan had total assets of $200,697,537, as of

December 31, 1994. The Plan had 7,496 participants and beneficiaries,

as of April 1, 1996. The trustee of the Plan is the Northern Trust

Company (Northern Trust). The Chicago Trust Company (Chicago Trust),

the successor to the Chicago Title & Trust company, is the Subtrustee

with respect to the Plan's investment in employer real property by

virtue of a Subtrust Agreement with Northern Trust, entered into as of

January 5, 1981 and amended as of April 10, 1985.

2. Among the assets of the Plan is the Property, which is currently

being leased to the Employer. The Property consists of a land area of

7.36 acres and a one-story multi-purpose warehouse and manufacturing

facility of 100,676 sq. ft. The Property is located at 2201 Cabot

Boulevard West, Langhorne, Pennsylvania. It is represented that the

Property is not near any other real property owned or used by the

Employer. It is further represented that the Property is not subject to

any debt.

3. The Property was appraised by Messrs. Christopher J. Hall and L.

Edward Klein, M.A.I., of Binswanger Real Estate Appraisal, both

independent general real estate appraisers certified in the State of

Pennsylvania. Messrs. Hall and Klein employed all three basic valuation

methodologies (cost, sales comparison, and income) utilized in the

appraisal field and concluded that the fair market value of the fee

simple interest of the Property was $2,550,000, as of December 1, 1995.

Messrs. Hall and Klein also examined four other comparable leases and

concluded, as of that same date, that the Property had a fair market

rental value of $3.25 per sq. ft. ($327,200 per annum, rounded), if

leased on a net basis. Finally, Messrs. Hall and Klein concluded that

the fair market value of the leased fee interest of the Property, which

is being leased to the Employer pursuant to a 15-year lease at above

market rent, was $4,100,000, as of December 1, 1995.

The appraisal states that the zoning of the Property is M-1, Light

Manufacturing, which restricts its use to various industrial and office

uses. The highest and best use of the Property, if vacant, is as an

industrial building. The highest and best use of the Property, as

improved, is its continued use as a warehouse/distribution facility.

4. As previously noted, the Property is being leased to the

Employer pursuant to a 15-year lease, whose term commenced on September

13, 1991. Until recently, the Plan was also leasing to the Employer a

second parcel of real property located in Valencia, California (the

California Property) for an 11-year term expiring on March 31, 1996. It

is represented that together such leases, because they involved

``qualifying employer real property,'' were statutorily exempt under

section 408(e) of the Act.1 However, on April 15, 1996, the

California Property was sold by the Plan to the Employer for

$2,350,000, again, pursuant to a statutory exemption under section

408(e) of the Act.2 Prior

[[Page 68793]]

to that date, the applicant submitted a request for an administrative

exemption from the Department for the continued leasing to the Employer

of the sole remaining parcel of real property in the Plan, retroactive

to the date of the sale of the California Property.

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1 Section 408(e) of the Act provides an exemption from

sections 406 and 407 of the Act for certain transactions involving

``qualifying employer real property,'' as that term is defined in

section 407(d)(4) of the Act. However, the Department expresses no

opinion herein as to whether the leasing of either the Property or

the California Property to the Employer complied with the

requirements of section 408(e) of the Act.

2 The Department expresses no opinion herein as to whether

the sale of the California Property complied with the requirements

of section 408(e) of the Act. Further, the Department expresses no

opinion herein as to whether the acquisition and holding of either

the Property or the California Property by the Plan violated any of

the provisions of Part 4 of Title I in the Act.

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5. The interests of the Plan with respect to the lease are

represented by the Subtrustee Chicago Trust, acting as an independent

fiduciary for the Plan. Chicago Trust, whose fees are paid by the Plan,

represents that it is unrelated to and independent of the Employer.

Chicago Trust represents that it has extensive experience as a

fiduciary under the Act, that it is knowledgeable as to the subject

transactions, and that it acknowledges and accepts its duties,

responsibilities, and liabilities in acting as a fiduciary with respect

to the Plan.

6. The lease provides for a primary term of 15 years, which may be

extended at the option of the lessee for three successive terms of five

years each, upon the express approval of the independent fiduciary. It

is represented that the Employer currently pays to the Plan rent in the

amount of $5.12 per sq. ft. ($515,497 per annum), which significantly

exceeds the fair market rental value of $327,200 per annum established

for the Property. The lease provides for annual rent increases based

upon a return of income as a percentage of the Plan's original

disbursement of $4.3 million for the Property (with such percentage

ranging from 10.0% in 1992 to 14.01% in 2006, the final lease year).

The fair market rental value of the Property is to be redetermined

every three years, based upon an updated independent appraisal. If the

appraised fair market rental value exceeds the rent being paid by the

Employer, the rent will be increased to a level that is not less than

the appraised fair market rental value. If the appraised value is less

than the rent being paid by the Employer, the then current rent will

remain in effect.

The lease is a net lease, under which the rent is an absolutely net

return to the Plan as landlord and is not subject to deductions for any

expenses relating to the Property. The Employer as tenant is obligated

for all operating expenses, including maintenance, taxes, insurance,

and utilities. The lease permits the Employer to remodel and make

structural changes and additions to the Property at the Employer's

expense, so long as such improvements comply with all applicable

governmental regulations. Any expense over $100,000 must be expressly

approved by the independent fiduciary. Any improvements or renovations

of the property will belong to the Plan upon termination of the lease.

The Employer will indemnify and hold the Plan harmless for all claims

and demands arising from or in any way relating to the Property.

7. In the event that the independent fiduciary determines it is in

the best interests of the Plan to sell the Property, the lease grants

the Employer the right of first refusal. If the Employer exercises its

right of first refusal, the Employer will purchase the Property from

the Plan for an amount which is the greater of: (a) the original

acquisition cost of the Property, plus the cost of any improvements,

paid by the Plan, or (b) the fair market value of the Property as of

the date of the sale, as established by a qualified, independent

appraiser selected by the independent fiduciary. Any such sale would be

a one-time transaction for cash, and the Plan would incur no expenses

relating to the sale.

If the Plan sells the Property to an unrelated party during the

term of the lease, the Employer will continue to be bound as tenant

under the lease for the duration of the lease. Further, if the Plan

sells the Property to an unrelated party at a net loss (taking into

account the cost of any improvements and all selling expenses paid by

the Plan), the Employer will make the Plan whole, within 15 days after

the date of such sale, by paying the Plan cash in an amount equal to

the difference between: (a) the original acquisition cost of the

Property, plus the cost of any improvements and all selling expenses,

paid by the Plan, and (b) the amount of the sale proceeds received by

the Plan.

8. Chicago Trust, acting as an independent fiduciary for the Plan,

represents that it has reviewed the terms and conditions of the lease

on behalf of the Plan and determined that such terms and conditions are

at least as favorable to the Plan as those the Plan could obtain in a

comparable arm's length transaction with an unrelated party. Chicago

Trust further represents it believes that the lease is in the best

interests of and appropriate for the Plan and that it will monitor and

enforce compliance with the terms and conditions of the lease and of

the exemption for the duration of the lease.

The initial decision to invest a portion of the Plan's assets in

real estate was made by the Employer. In its role as Subtrustee,

Chicago Trust has the exclusive authority to hold and manage the Plan's

employer real property. Accordingly, Chicago Trust made the decisions

to sell the California Property and to retain the Property for the

Plan. With respect to the latter, Chicago Trust took into account the

fact that a forced sale of the Property to an unrelated party would

have caused the Plan to incur a substantial loss, as well as depriving

the Plan of rental income at an above market rate (yielding a net

investment return not less than 10.0% in the first year and not less

than 14.01% in the final lease year). Chicago Trust has also examined

the financial viability of the Employer, determined that the Employer's

past performance under the lease has been in accordance with its

contractual obligations, and concluded that the Employer will continue

to be a good tenant.

9. In summary, the applicant represents that the proposed

transactions satisfy the statutory criteria for an exemption under

section 408(a) of the Act for the following reasons: (1) the Plan is

represented for all purposes with respect to the lease by a qualified,

independent fiduciary; (2) the terms and conditions of the lease are

and will continue to be at least as favorable to the Plan as those the

Plan could obtain in a comparable arm's length transaction with an

unrelated party; (3) the rent charged by the Plan under the lease is

and will continue to be no less than the fair market rental value of

the Property, as established by a qualified, independent appraiser; (4)

the rent will be adjusted, at a minimum, every three years (upwards

only), based upon an updated independent appraisal; (5) the lease is a

net lease, under which the Employer as the tenant is obligated for all

operating expenses, including maintenance, taxes, insurance, and

utilities; (6) the independent fiduciary for the Plan represents that

it has reviewed the terms and conditions of the lease on behalf of the

Plan and believes the lease is in the best interests of and appropriate

for the Plan; (7) the independent fiduciary will monitor and enforce

compliance with the terms and conditions of the lease and of the

exemption for the duration of the lease; (8) the independent fiduciary

will expressly approve any improvements by the Employer over $100,000

to the Property and any renewal of the lease beyond the initial term;

(9) in the event that the Employer exercises its right of first refusal

under the lease, the Employer will purchase the Property from the Plan

for an amount which is the greater of: (a) the original acquisition

cost of the Property, plus the cost of any improvements, paid by the

Plan, or (b) the fair market value of the Property as of the date of

the sale, as established by

[[Page 68794]]

a qualified, independent appraiser selected by the independent

fiduciary; (10) in the event that the Plan sells the Property to an

unrelated party at a net loss (taking into account the cost of any

improvements and all selling expenses paid by the Plan), the Employer

will make the Plan whole, within 15 days after the date of such sale,

by paying the Plan cash in an amount equal to the difference between:

(a) the original acquisition cost of the Property, plus the cost of any

improvements and all selling expenses, paid by the Plan, and (b) the

amount of the sale proceeds received by the Plan; and (11) at all

times, the fair market value of the Property will represent no more

than 25 percent of the total assets of the Plan.

Notice to Interested Persons

Notice of the proposed exemption shall be given to all interested

persons by first-class mail or by posting the required information at

the Employer's offices 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 proposed exemption as published in the Federal

Register and shall inform interested persons of their right to comment

and/or request a hearing with respect to the proposed exemption.

Comments and requests for a hearing are due within 60 days of the date

of publication of this notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the Department,

telephone (202) 219-8881. (This is not a toll-free number.)

Travelers Group Inc. 401(k) Savings Plan (the Plan), Located in New

York, New York

[Exemption Application No. D-10269]

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)(1) (A) through (E),

406(a)(2), 406(b)(1), 406(b)(2), and 407(a)(1) 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 3

shall not apply, as of the effective date of this exemption: (1) to the

in-kind contribution by Travelers Group Inc. (TGI) of certain options

(the Stock Option or Stock Options) into the accounts in the Plan of

eligible employees of TGI and its subsidiaries and affiliates (the

Employees or Employee); (2) to the holding of the Stock Options by such

accounts; and (3) to the exercise of such Stock Options by Employees in

order to purchase shares of common stock of TGI (the Stock), provided

that: (a) all Employees will be treated in the same manner for the

purpose of the allocation of Stock Options to the accounts of such

Employees, except that certain highly-paid officers of TGI who are

subject to the reporting requirements of section 16(a) of the

Securities and Exchange Act of 1934 will not be eligible to receive

such contributions of Stock Options; (b) the allocation of the Stock

Options to the Plan and the acquisition of such options by the accounts

of Employees will occur automatically each year on a uniform basis

without any action required by such Employees, and the determination of

the number of Stock Options granted to the accounts of each such

Employee will be based solely on the compensation earned by such

Employee; (c) contributions of Stock Options by TGI to Employees'

accounts in the Plan will not be contingent upon contributions by

Employees to such Plan; (d) Employees acquire TGI Stock without using

cash balances from the Plan or selling assets of the Plan, other than

selling a portion of the TGI Stock acquired from the exercise of such

Stock Options; (e) no party, other than the individual Employee with

respect to his or her own account, or upon the death of such Employee,

his or her beneficiary(ies), or in the event of an assignment under a

qualified domestic relations order the alternative payee, will have any

discretion over the decision to exercise the Stock Options held in such

account; (f) the price at which the Stock Options can be exercised will

be established by the market value of the TGI Stock as listed on the

New York Stock Exchange (NYSE) at the close of the business day prior

to the date each Stock Option is granted; (g) the terms and conditions

of each of the Stock Options contributed by TGI into Employees'

accounts in the Plan will be no less favorable to the Plan than terms

obtainable by the Plan under similar circumstances when negotiated at

arm's length with unrelated third parties; (h) an independent trustee

(the Trustee) will facilitate the sale of the Stock in connection with

the exercise of the Stock Options under ``sell to cover'' transactions,

as described herein; (i) the Plan incurs no fees, commissions, or other

charges or expenses as a result of its acquisition, holding, or

exercise of the Stock Options, other than brokerage fees payable to an

unrelated third party broker; and (j) the terms and conditions

described herein are at all times satisfied.

\3\ For purposes of this exemption, references to specific

provisions of Title I of the Act, unless otherwise specified, refer

also to the corresponding provisions of the Code.

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EFFECTIVE DATE: This proposed exemption will be effective, as of the

beginning of the 1997 plan year.4

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\4\ It is represented that the plan year is the calendar year.

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Summary of Facts and Representations

1. The applicant is TGI, a Delaware corporation. TGI is a

diversified financial services holding company engaged, through its

subsidiaries, principally in four business segments: (a) investment

services; (b) consumer finance services; (c) life insurance services;

(d) property and casualty insurance services. TGI is a party in

interest with respect to the Plan, pursuant to section 3(14)(C) of the

Act. The principal subsidiaries of TGI may also be parties in interest

with respect to the Plan. These subsidiaries include but are not

limited to, Smith Barney Inc. (Smith Barney), Commercial Credit

Company, Primerica Financial Services, Travelers Insurance Company, and

Travelers/Aetna Property Casualty Corporation (TAP).

2. The Plan is sponsored and maintained by TGI for its Employees

and those of its participating affiliates and subsidiaries. The Plan is

an employee benefit plan qualified under section 401(a) of the Code and

401(k) of the Code and is a trust exempt from taxation under section

501(a) of the Code. The administrator of the Plan is a committee (the

Plan Administration Committee) appointed by the Board of Directors of

TGI.

It is represented that the proposed transactions will only affect

those individuals who are actively employed by TGI and its subsidiaries

and affiliates. As of April 30, 1996, it is represented that there were

60,000 active Employees of which approximately 70 percent (70%)

contributed to the Plan. Further, it is represented that there are

13,265 beneficiaries and participants in the Plan who are not actively

employed by TGI and its subsidiaries and affiliates.

It is represented that the Plan is invested in common stock and

preferred shares issued by TGI or its subsidiaries and affiliates,

fixed income contracts and certain mutual funds and collective trust

funds. Several of the fixed income contracts and mutual funds are

issued

[[Page 68795]]

and distributed by certain subsidiaries of TGI. As of January 31, 1996,

the date of the most recent Plan valuation, the approximate aggregate

fair market value of the assets of the Plan was $2,256,356,498. Of this

$2.3 billion in assets of the Plan, approximately $600 million is

invested in TGI Stock, $45 million is invested in common stock of TAP,

and $168 million is invested in preferred shares of TGI.

3. TGI requests an exemption from the prohibitions of the Act in

order to permit the contribution to the Plan of the Stock Options, the

holding by the Plan of such contributed Stock Options, and the

subsequent exercise of such Stock Options by eligible Employees under

certain conditions which are discussed below. The Stock Options

contributed to the Plan may not be sold, exchanged, assigned, or

otherwise transferred. In this regard, all or a portion of the Stock

Options contributed to the Plan either: (a) will be exercised by the

Employees; or (b) if unexercised, will expire at the end of the option

term, as discussed more fully below.

4. It is represented that Stock Options will be contributed

annually into the Plan beginning in the 1997 plan year. It is

represented that, in order to facilitate the proposed in-kind

contribution of the Stock Options to the Plan, the Plan Administration

Committee will create an account in the Plan for each Employee who is

eligible to participate in the Plan and is active on the date of each

grant of such Stock Options. An eligible Employee is one who had at

least one (1) year of service on December 31, of the plan year prior to

the year in which the Stock Options are granted, regardless of whether

such Employee is otherwise participating in the Plan. However, it is

represented that certain highly-paid officers who are subject to the

reporting requirements of section 16(a) of the Securities and Exchange

Act of 1934 will not be eligible to receive in-kind contributions of

Stock Options.

5. The Stock Options will permit each Employee to purchase TGI

Stock at the closing price of such Stock (the Exercise Price) on the

NYSE on the business day immediately preceding the date of the grant of

such Stock Option. The term of each Stock Option will be ten (10)

years. In this regard, each Stock Option will expire, if it has not

previously been exercised, on the tenth (10th) anniversary of the date

upon which such Stock Option was granted.

6. It is anticipated that the number of shares of TGI Stock

permitted to be purchased with each Stock Option contributed to an

Employee's account will be based on the compensation earned by such

Employee in the plan year prior to the year in which the Stock Option

is granted, regardless of whether such Employee is otherwise actively

participating in the Plan. In this regard, it is anticipated that the

number of shares of TGI Stock in a Stock Option contributed to an

Employee's account will equal ten percent (10%) of such Employee's

eligible pay, divided by the option price. For purposes of this

exemption, ``eligible pay'' is defined as an Employee's base pay and/or

commissions for the prior year, plus any bonus accrued by such Employee

for the prior year, which is paid in the plan year in which the Stock

Option is granted, not to include compensation in excess of $40,000.

For example, assume an Employee is employed on December 31, 1996,

and is otherwise eligible to participate in the Plan. Further, assume

the price of TGI Stock on the NYSE on March 28, 1997, at the close of

business is $60. If such Employee's compensation was $30,000, then 10

percent (10%) of such compensation would equal $3,000. Accordingly, TGI

would contribute to the Employee's account a Stock Option which would

entitle that Employee upon exercise of such Stock Option to purchase

fifty (50) shares of TGI Stock ($3,000 $60 per share).

7. It is represented that Stock Options will vest immediately upon

issuance to the Plan, but will not be immediately exercisable. In this

regard, it is represented that an Employee may exercise the Stock

Options only in accordance with certain conditions. Generally, once a

Stock Option has been contributed to the account of an Employee in the

Plan, such Stock Option may only be exercised while such Employee is

actively employed by TGI or by any of its subsidiaries or affiliates.

While actively employed, an Employee can exercise a Stock Option at a

rate of 20 percent (20%) a year, beginning as of the first anniversary

of the grant date of such Stock Option. It is represented that an

Employee can exercise eligible Stock Options at any time thereafter

until the end of the ten (10) year option term, as long as he or she is

employed by TGI or employed by any of TGI's subsidiaries or affiliates.

In the event of an Employee's separation from service for reasons other

than by disability, death, or retirement, all Stock Options which are

unexercised and unexpired shall remain in the Employee's account until

the later of: (a) the normal retirement age of 65 of the Employee; (b)

the tenth (10th) anniversary of such Employee's participation in the

Plan; or (c) the separation from service of the Employee with an

employer participating in the Plan; at which time the Stock Option

shall be distributed upon the request of such Employee, in accordance

with section 401(a)(14) of the Code.

After terminating employment with TGI or its subsidiaries or

affiliates, Employees may not exercise Stock Options, except in the

circumstances, as described below. In the event an Employee terminates

service by reason of his or her disability, any Stock Options that have

not expired and are exercisable immediately before disability shall

continue to be exercisable during the period of disability, until such

Stock Option expire. In the event of an involuntary termination of

employment of an employee, for a period of thirty days following their

involuntary termination, participants may exercise options that were

exercisable immediately before they were involuntarily terminated. Upon

the death of an Employee, prior to his or her termination of

employment, all Stock Options that have not expired and were

exercisable before such Employee's death continue to be exercisable by

the beneficiary(ies) of such Employee until such Stock Options expire.

However, the Stock Options will not continue to accrue exercisability

after death. In the event an Employee retires at the age of 55 with 5

years of service, all Stock Options that have not expired shall remain

exercisable in accordance with the exercisability percentage achieved

at the termination of service for a period of three (3) years, or until

such Stock Options expire, whichever is shorter. In the event an

Employee terminates service on or after attaining normal retirement age

of 65 or terminates service after attaining age 59\1/2\ with ten (10)

of service, all Stock Options that have not expired will continue to

accrue exercisability and can be exercised by such Employee for a

period of four (4) years or until such Stock Options expire, whichever

is shorter.

8. TGI believes that Employees will have the opportunity to

exercise eligible Stock Options on a daily basis, where all exercise

elections are received before a set time each day. However, should the

requirements imposed by the recordkeeper of the Plan prevent the daily

exercise of the Stock Options, then it is represented that the

frequency of the Employee's ability to exercise Stock Options will be

limited to a period of not more often than weekly and not less often

than monthly.

9. It is represented that the Employee's decision to exercise a

Stock Option will be carried out in the following manner. TGI will

designate an

[[Page 68796]]

agent to receive the exercise instructions from Employees. In this

regard, TGI anticipates that the recordkeeper for the Stock Options

will serve as its agent for this purpose. In order to exercise a Stock

Option, the Employee will contact the recordkeeper for the Stock

Options. Upon receipt of election requests from Employees, it is

represented that the recordkeeper intends to aggregate all exercise

requests.

It is represented that if an Employee contacts the recordkeeper by

the recordkeeper's deadline for aggregation, the entire transaction

from exercise request to settlement and receipt of the Stock by the

Plan, will require three (3) business days from such deadline. However,

if an Employee with an election request contacts the recordkeeper after

the recordkeeper's deadline for aggregation, it is represented that the

entire process will require, respectively, one (1), five (5), or twenty

(20) additional business day(s) for completion, depending on whether

the recordkeeper for the Plan establishes a daily, weekly, or monthly

deadline for aggregation.

10. After aggregating the Employees' requests to exercise Stock

Options, the recordkeeper will contact the Trustee to arrange for the

exercise of such Stock Options. Typically, when an option holder

exercises his or her right under an option to purchase shares of stock,

he or she must pay in cash the exercise price, as set forth in such

option. However, if this exemption is granted, Employees will only be

allowed to exercise contributed Stock Options through a cashless form

of exercise known as a ``sell to cover'' transaction and may not use

any other funds to exercise the Stock Options. Therefore, no other

assets that are in the accounts of Employees prior to the ``sell to

cover'' transactions will be used to exercise the Stock Options. In

this regard, a ``sell to cover'' transaction would permit any Employee

who decides to exercise one of the Stock Options contributed by TGI to

his or her account to authorize the Trustee of the Plan to sell the

appropriate number of shares received upon the exercise of such Stock

Option in order to obtain cash to pay the Exercise Price to TGI. In

this regard, the shares of Stock necessary to be sold to pay for the

exercise of Stock Options would be sold on the open market. TGI would

receive payment equal to the Exercise Price for the shares of such

Stock, and the Plan would receive from TGI the incremental shares of

Stock representing the gain realized from the exercise of the Stock

Option. In this regard, it is represented that TGI is the source of the

Stock transferred to the Plan as a result of the exercise of a Stock

Option, and that such Stock will be either treasury stock or previously

unissued stock of TGI.

For example, suppose an Employee has a Stock Option to purchase 100

shares of Stock from TGI at $60 per share, and the current market price

for such Stock is $75 per share. A ``sell to cover'' transaction would

involve the Employee's exercise of such Stock Option for an Exercise

Price of $6,000 (100 shares times $60 per share). To cover this

Exercise Price, the Employee would authorize the Trustee to sell on the

market eighty (80) of the 100 shares of Stock which were acquired by

the Employee from TGI through the exercise of the Stock Option at the

current market price of $75 per share ($6,000 $75). TGI would

receive cash in the amount of $6,000 (80 shares times $75 per share),

and the Employee's account in the Plan would retain twenty (20) of the

100 shares of Stock acquired from TGI through the exercise of such

Stock Option (100 shares minus 80 shares).

11. It is represented that all sales of Stock in connection with

``sell to cover'' transactions will be executed through a broker either

on the NYSE or other nationally recognized exchange on which shares of

TGI Stock are traded. In this regard, it is represented that the

exclusive purpose of the broker in the ``sell to cover'' transactions

will be to effect sales of the appropriate number of shares of the

Stock in order to obtain the Exercise Price in connection with the

exercise of Stock Options by the Plan.

It is represented that Smith Barney, a related broker, may be

selected by TGI to provide brokerage services to the Plan in connection

with the exercise of Stock Options and the sale of Stock to cover the

Exercise Price. If brokerage services are provided to the Plan by Smith

Barney or other related brokers, it is represented that such brokerage

services will be provided without the receipt of commissions, fees, or

other compensation by Smith Barney or such related brokers.5

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\5\ TGI maintains that the statutory exemption, pursuant to

section 408(b)(2) of the Act, is available to provide exemptive

relief for the provision of brokerage services to the Plan by Smith

Barney or other related brokers, where Smith Barney or such related

brokers do not receive commissions, fees, or other compensation for

such services. The Department is offering no view, herein, as to

whether the provision of brokerage services to the Plan by Smith

Barney or other related brokers, as described, is covered by the

statutory exemption provided in section 408(b)(2), nor is the

Department providing any relief herein with respect to such

brokerage services.

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In the event that Smith Barney is not chosen by TGI to effect sales

of TGI Stock in connection with the exercise of Stock Options by the

Plan and the sale of Stock to cover the Exercise Price, it is

represented that TGI will authorize the Trustee of the Plan to select a

broker, either related or unrelated, to execute such sales of Stock.

Once such authorization is given to the Trustee by TGI with respect to

a particular ``sell to cover'' transaction, such authorization will be

irrevocable. In this regard, it is represented that under no

circumstances will TGI or its subsidiaries and affiliates have the

ability to direct the Trustee's selection of which broker will receive

the brokerage business of the Plan.

If brokerage services are provided to the Plan by an independent,

unrelated broker, it is represented that the Plan will incur expenses

for the commission due to such broker. It is further represented that

brokerage commissions associated with such execution will be deducted

from the gross proceeds of the trade. In this regard, the amount of

commission expense incurred will depend on the number of shares of

Stock involved in a ``sell to cover'' transaction, as negotiated

between such independent, unrelated broker and the Trustee.

12. It is represented that the shares of TGI Stock realized by an

Employee through the exercise of the Stock Options in his or her

individual account in the Plan will be tradable at the direction of

such Employee and will not be subject to any restriction on the length

of time such shares of TGI Stock must be held before such shares are

sold and the proceeds invested in an alternative investment choice

within the Plan. In this regard, it is represented that at least

monthly Employees will have an opportunity to sell Stock acquired

through the exercise of the Stock Options in accordance with the terms

of the Plan.

13. TGI believes that the transactions which are the subject of

this proposed exemption may be prohibited, pursuant to sections

406(a)(1) (A) through (E), 406(a)(2), 406(b)(1), 406(b)(2), and

407(a)(1) of the Act and section 4975(c)(1) (A) through (E) of the

Code, and, accordingly, requests exemptive relief. In this regard, TGI

believes that its contribution of Stock Options to the Plan and the

holding of the Stock Options by the Plan may constitute violations of

section 407(a)(1), section 406(a)(1)(E), and section 406(a)(2) of the

Act, because the definition of a ``qualifying employer security,'' as

set forth in section 407(a) of the Act, includes stock, but does not

include stock options or other stock rights. In addition, because TGI

may be a fiduciary with respect to the Plan, TGI

[[Page 68797]]

believes that the exercise of the Stock Options contributed to the Plan

and the concurrent transfer of cash to TGI to pay for the exercise of

such Stock Options may violate section 406(b)(1) of the Act and section

4975(c)(1)(E) of the Code, for which relief is requested. With respect

to section 406(b)(2) of the Act, TGI does not believe that there is a

potential for conflicts of interest to occur with respect to the

proposed transactions, as the exercise of the Stock Options will be

transacted only at the direction of Employees and the necessary sales

of TGI Stock to cover the Exercise Price will occur on the open market.

Nevertheless, TGI requests relief from the prohibitions imposed by

section 406(b)(2) of the Act, in the event it is determined that a

transaction may occur with a party whose interests are adverse to the

interests of the Plan and of its participants and beneficiaries.

14. TGI maintains that the proposed transactions are in the

interest of the Plan and its participants and beneficiaries in that the

contribution of the Stock Options will enhance the value of the assets

of the Plan. Further, it is represented that the exercise of the Stock

Options by the accounts of Employees in the Plan offers an opportunity

for economic gain in that the Employees could exercise the Stock

Options and purchase Stock from TGI at favorable prices. In this

regard, it is represented that during the past nine (9) years TGI Stock

has appreciated at a compounded annual rate of nearly 23 percent (23%),

excluding dividends.

TGI believes that ownership of TGI Stock by Employees is desirable.

In this regard, it is represented that the proposed transactions

facilitate the acquisition of TGI Stock into the accounts of lower paid

Employees who otherwise would not have the resources to buy such Stock.

In addition, Employees acquire TGI Stock without using cash balances in

the Plan or the sale of assets of the Plan, other than the sale of the

Stock acquired from the exercise of the Stock Options. Further, in the

opinion of TGI the ``leveraging'' effect of the Stock Options, is such

that increases in the price of the Stock would create larger increases

in the values of the accounts of Employees' than the current match

formulas used by TGI in other programs that provide opportunities for

Employees to own shares of TGI Stock. In addition, the proposed

transactions would encourage long term retirement savings and would

permit an Employee to defer paying taxes on the appreciation of the

value of the Stock, thus, increasing his or her retirement savings.

15. It is represented that the exemption is protective of the

rights of participants and beneficiaries. In this regard, the timing of

the decision to exercise the Stock Options is at the discretion of the

Employee into whose account such Stock Options have been contributed or

is at the discretion of such Employee's beneficiary(ies) or alternative

payee, and is only subject to the restrictions on exercisability

imposed by TGI, the issuer.

It is further represented that the price at which the Stock Options

are exercised will be based on an objective third party source. In this

regard, the Exercise Price for the Stock Options will be established by

using the closing price for TGI Stock from the NYSE on the business day

prior to the grant of such Stock Option. All transactions with respect

to the exercise of the Stock Options and the subsequent sale of the TGI

Stock realized from such exercise will be executed through the NYSE or

other nationally recognized stock exchange.

TGI maintains that additional protection for the Plan and its

participants is provided by the appointment of an independent qualified

party to be responsible for certain aspects of the proposed

transactions. In this regard, as of December 31, 1994, TGI retained

Citibank, N.A., an independent party, to serve as the Trustee for the

Plan. It is represented that the Trustee's role with respect to the

proposed transactions will be to facilitate the sale of shares of Stock

in ``sell to cover'' transactions in connection with the exercise of

the Stock Options. In this regard, it is represented that the Trustee

will be responsible for selecting and retaining a broker to execute

such transactions, unless Smith Barney, a related broker, is selected

by TGI to provide brokerage services for the ``sell to cover''

transactions.

16. TGI maintains that the proposed transactions are

administratively feasible in that the level of monitoring required of

the Department with respect to this exemption will be minimal. In

addition, TGI will bear all of the costs of the exemption application,

and TGI will be responsible for the costs associated with notifying

interested persons.

17. In summary, TGI represents that the proposed transactions

satisfy the criteria of section 408(a) of the Act because: (a) All

Employees will be treated in the same manner for the purpose of the

allocation of Stock Options to the accounts of such Employees, except

that certain highly-paid officers will not be eligible to receive such

contribution of Stock Options; (b) lower paid Employees of TGI and its

subsidiaries and affiliates will be able to take advantage of the

opportunity to acquire TGI Stock; (c) contribution of Stock Options by

TGI to the accounts of Employees in the Plan will not be contingent on

contributions by Employees to such Plan; (d) the allocation of the

Stock Options to the Plan and the acquisition of such options by the

accounts of Employees will occur automatically each year on a uniform

basis without any action required by such Employees, and the

determination of the number of Stock Options granted to the accounts of

each Employee will be based solely on the compensation earned by such

Employee; (e) Employees will acquire TGI Stock without using cash

balances from the Plan or the proceeds from the sale of assets of the

Plan, other than the TGI Stock acquired from the exercise of the Stock

Options; (f) the contribution of the Stock Options will enhance the

value of the assets in the accounts of Employees in the Plan; (g) no

party, other than the individual Employee with respect to his or her

own account, or upon the death of such Employee his or her beneficiary

or in the event of an assignment under a qualified domestic relations

order the alternative payee, will have any discretion over the decision

to exercise the Stock Options held in such account; (h) the price at

which the Stock Options can be exercised will be established by the

market value of the TGI Stock as listed on NYSE at the close of

business on the day prior to the date each Stock Option is granted; (i)

the terms and conditions of each of the Stock Options contributed by

TGI into Employees' accounts in the Plan will be no less favorable to

the Plan than terms obtainable by the Plan under similar circumstances

when negotiated at arm's length with unrelated third parties; (j) the

Trustee will facilitate the purchase and sale of the Stock in

connection with the exercise of the Stock Options under ``sell to

cover'' transaction, as described herein; (k) the Plan will incur no

fees, commissions, or other charges or expenses as a result of its

acquisition, holding, or exercise of the Stock Options, other than

brokerage fees payable to the unrelated third party broker; (l) shares

of TGI Stock realized by an Employee through the exercise of the Stock

Options in his or her individual account in the Plan will be tradable

at the direction of such Employee at least monthly and will not be

subject to any restriction on the length of time such shares can be

held before being sold and the proceeds

[[Page 68798]]

invested in alternative investment choices in the Plan; and (m) the

terms and conditions described herein will at all times be satisfied.

Notice to Interested Persons

It is represented that the proposed transactions would affect only

participants in the Plan who are actively employed by TGI and its

subsidiaries and affiliates. Accordingly, all employees of TGI and its

subsidiaries and affiliates may be considered interested persons. TGI

represents that all interested persons will be provided with a copy of

the Notice of Proposed Exemption (the Notice), plus a copy of the

supplemental statement (Supplemental Statement), as required, pursuant

to 29 CFR 2570.43(b)(2) within fifteen (15) calendar days of

publication of the Notice in the Federal Register. Notification will be

provided to all interested persons by posting at all worksites a copy

of the Notice, plus a copy of the Supplemental Statement at those

locations within the principal places of employment of employees of TGI

which are customarily used for notices regarding labor-management

matters for review.

It is further represented that if the exemption is granted, TGI,

will, upon request, make available to all interested persons a copy of

the final exemption.

FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the

Department, telephone (202) 219-8883 (This is not a toll-free number.)

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

New Jersey

[Application No. D-10344]

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) and 406(b) (1) and

(b)(2) of the Act and the sanctions resulting from the application of

section 4975 of the Code, by reason of section 4975(c)(1) (A) through

(E) of the Code, shall not apply to the proposed sale for cash (the

Sale) by the Plan to Consolidated Lumber Corp. (the Employer), the

sponsor of the Plan, of certain whole life insurance policies (the

Policies) issued by Confederation Life Insurance Company of Canada

(Confederation); provided the following conditions are satisfied: (A)

All terms and conditions of the Sale are at least as favorable to the

Plan as those which the Plan could obtain in arm's-length transactions

with unrelated parties; (B) The Plan receives cash consideration from

each Sale that is no less than the greater of (1) the fair market value

of each of the Policies as of the date of the Sale, or (2) each of the

Policies' net cash surrender value as of the date of the Sale; and (C)

the Plan does not incur any expenses or suffer any losses with respect

to the proposed transactions.

Summary of Facts and Representations

1. The Employer, a New Jersey corporation, is in the business of

wholesale distribution of lumber and millwork products in the greater

metropolitan area of New York, New York. Messrs. Jess Shirvan, Mark

Shirvan, and Neil Shirvan each own 22.61 percent of the Employer and

the remaining 32.17 percent of the Employer is owned by Mr. Stanley

Shirvan.

The Plan was established by the Employer as of January 1, 1968. As

of December 31, 1990, Consolidated Pine, Inc., an Oregon corporation,

also became a sponsor of the Plan; and as of April 16, 1993,

Consolidated Distribution, Inc., a New Jersey corporation became a

sponsor of the Plan.\6\

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\6\ Consolidated Pine, Inc. is wholly owned by Mr. Stanley

Shirvan. Five percent of Consolidated Distribution, Inc. is owned by

Mr. Stanley Shirvan and Messrs. Neil Shirvan, Jess Shirvan, and Mark

Shirvan, each own 31.667 percent.

---------------------------------------------------------------------------

The Plan is a defined benefit pension plan with 32 participants and

total assets of approximately $218,551.44, as of December 16, 1996. The

trustee of the Plan is the First Fidelity Bank, N.A., New Jersey

located at Newark, New Jersey. The Boards of Directors of the three

sponsoring employers of the Plan have investment discretion over the

assets of the Plan and the trustee of the Plan expedites the

instructions of the Directors of the sponsoring employers.7

---------------------------------------------------------------------------

\7\ Mr. Stanley Shirvan is the sole director of the sponsoring

employers of the Plan. He is also a shareholder and president of the

sponsoring employers.

---------------------------------------------------------------------------

2. The Plan, which provided for the investment of Plan assets in

whole life insurance policies (the Policies), holds 32 Policies issued

by Confederation. The purchasing of Policies by the Plan was

discontinued as of December 31, 1990, and all existing Policies remain

in the Plan. Each Policy provides for death benefits and an investment

feature in the form of its cash surrender value.

On August 11, 1994, the Canadian insurance regulatory authorities

placed Confederation in receivership. On August 12, 1994, the assets of

Confederation in the United States were placed under the regulatory

supervision of the insurance authorities of the State of Michigan.

Rehabilitation proceedings (Proceedings) were instituted by Michigan in

order to protect the interest of all policy owners in the United

States, resulting in all Confederation Policies being subject to

restrictions which prohibit access to the cash surrender value of the

Policies. As a result of the restrictions imposed on Confederation, the

Plan is unable to surrender the Policies to Confederation for their

cash surrender value and make final distributions to Plan participants.

On August 10, 1995, the Plan notified its participants that the

Plan was to terminate as of October 15, 1995. Filings were made on

February 8, 1996, for approval of termination of the Plan with the

Pension Benefit Guaranty Corporation (PBGC) and the Internal Revenue

Service (IRS). The PBGC has a mandatory 60 day review period which

expired April 9, 1996, and thereafter the Plan is required to make

final distribution of its assets within 180 days unless an extension is

obtained from the PBGC. The applicant represents that an extension of

an additional six months until April 7, 1997, for final distribution of

assets was obtained by the Plan from PBGC. The IRS issued an approval

of termination of the Plan as of April 9, 1996.

3. Premium payments on Policies were discontinued by the Plan,

causing the decline in cash surrender values of the Policies as charges

are debited against the cash surrender values. As of November 7, 1996,

the 32 Policies involved in the proposed Sale had a cash surrender

value of $103,485.10 less the debits of $23,017.66 leaving a net cash

value of $80,467.44.

The Employer proposes to purchase the 32 Policies for not less than

the greater of their fair market value on the date of the Sale, or for

their net cash surrender value on the date of the Sale.

The Employer proposes this Sale because the Plan is unable to

determine when or to what extent it will be able to have access to the

net cash surrender values of the Policies under the Michigan

Proceedings. As stated above, the Employer and the affiliated

corporations that sponsor the Plan are in the process of terminating

the Plan and distributing the participants accrued benefits. In order

to accomplish this termination and distribution the Plan needs to

liquidate the Policies. Therefore the Employer is requesting the

proposed exemption in order to liquidate the Policies as soon as

possible. The Employer represents that the proposed transactions are

necessary

[[Page 68799]]

in order for the participants to avoid any risk associated with the

Plan continuing to hold the Policies. The applicant represents that the

Employer will bear all expenses which may be incurred with respect to

the Sale or the proposed exemption.

4. In summary, the applicant represents that the proposed

transaction will satisfy the criteria of section 408(a) of the Act

because (a) the Plan will not incur any expenses with respect to the

proposed transaction; (b) the Plan will receive on the date of Sale the

greater of either the net cash surrender value or the fair market value

of the Policies, and (c) the proposed transaction will enable the Plan

to avoid the possible losses associated with the continued holding of

the Policies.

FOR FURTHER INFORMATION CONTACT: Mr. C.E. Beaver of the Department,

telephone (202) 219-8881. (This is not a toll-free number.)

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

[Application No. D-10348]

Proposed Exemption

The Department is considering granting an exemption under the

authority of section 408(a) of the Act and section 4975(c)(2) of the

Code and in accordance with the procedures set forth in 29 CFR Part

2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption

is granted, the restrictions of section 406(a) of the Act and the

sanctions resulting from the application of section 4975 of the Code,

by reason of section 4975(c)(1) (A) through (D) of the Code, shall not

apply to (1) the proposed granting to Chase, as the representative of

lenders (the Lenders) participating in a credit facility, of security

interests in limited partnership interests in LF Strategic Real Estate

Investors, L.P. (the Partnership) owned by certain employee benefit

plans (the Plans) with respect to which some of the Lenders are parties

in interest; and (2) the proposed agreements by the Plans to honor

capital calls made by Chase in lieu of the Partnership's general

partner; provided that (a) the proposed grants and agreements are on

terms no less favorable to the Plans than those which the Plans could

obtain in arm's-length transactions with unrelated parties; and (b) the

decisions on behalf of each Plan to invest in the Partnership and to

execute such grants and agreements in favor of Chase are made by a

fiduciary which is not included among, and is independent of, the

Lenders and Chase.

Summary of Facts and Representations

1. The Partnership is a limited partnership the general partner of

which is LF Strategic Realty Investors L.L.C. (the General Partner).

The General Partner is a New York limited liability company, and all

outstanding membership interests in the General Partner are owned by

Lazard Freres and Company, L.L.C. (Lazard) or its affiliates; the

managers of the General Partner are individuals employed by the General

Partner. The General Partner (or an affiliate) will contribute not less

than $20,000,000 to the Partnership. The Partnership has been created

specifically to invest in a select portfolio of leading real estate

companies (the Selected Companies) which are diversified as to property

type and geographic location, and which have established track records,

experienced management, and large portfolios of high quality real

estate assets. The Partnership will have a maximum term of 10 years,

but it is intended that each real estate investment (an Investment)

will be liquidated within five to seven years.

2. The General Partner intends to raise a maximum of $650,000,000

of subscriptions for limited partnership interests. The minimum capital

commitment (or subscription amount) for each investor in the

Partnership (an Investor) is $25,000,000. Capital committed by an

Investor pursuant to a subscription agreement (the Subscription

Agreement) will be called (a Called Contribution) by the General

Partner from time to time as needed to be invested in Investments.

Investors will be obligated to fund their subscription amounts pursuant

to calls during a three- year period; the General Partner may extend

this period for an additional year, but at the end of the period, the

subscription agreements will be terminated and no further capital calls

may be made thereunder. There are currently 10 Investors having

irrevocable, unconditional capital commitments of at least

$645,000,000.

3. It is contemplated that the General Partner will incur

indebtedness to pay the Partnership's general costs and expenses

incurred in connection with many of its investments. In addition, the

Partnership may utilize borrowings from third parties (a) for the

acquisition of particular investments and for working capital purposes

(with the expectation that such acquisition indebtedness will be repaid

from the Investors' capital commitments and/or from mortgage debt), and

(b) financing and/or credit enhancement in connection with proposed

Investments, including providing financing to or on behalf of Selected

Companies. This indebtedness will take the form of a credit facility

(the Credit Facility) secured by a pledge and assignment of each

Investor's capital commitments and by a security in the Investors'

Partnership interests. This type of facility will allow the General

Partner to consummate Investments quickly without having to finalize

the debt/equity structure for an Investment or having to arrange for

interim or permanent financing prior to making an Investment. In

connection with this Credit Facility, each of the Investors is required

to execute documents customarily required in secured financings,

including an agreement to unconditionally honor capital calls.

4. Chase will become agent for a group of Lenders providing the

Credit Facility to the Partnership. Chase will also be a participating

Lender. Repayments will be made generally by the Partnership from

Called Contributions, the Investors' capital commitments, proceeds from

mortgage financings and proceeds from liquidation of the Partnership's

Investments. The Credit Facility is intended to be a 32-month revolving

credit with restricted availability levels. The Partnership can use its

credit under the Credit Facility either by direct or indirect

borrowings or by requesting that letters of credit be issued. All

Lenders will participate on a pro rata basis with respect to all cash

loans and letters of credit. All such loans and letters of credit will

be issued to the Partnership or an entity in which the Partnership owns

an interest (a Qualified Borrower), and not to any individual Investor.

All payments of principal and interest made by the Partnership or a

Qualified Borrower will be allocated pro rata among all Lenders. The

applicant represents that the aggregate capital commitments to be

pledged will be at least three times the maximum amount of the credit

available under the Credit Facility.

5. The stated maturity date for the Credit Facility will be

September 30, 1998. Until that time, interest only is payable on the

Facility. At the maturity date, the entire unpaid principal balance of

the Credit Facility will be due and payable, unless the Credit Facility

is extended. The Credit Facility will be a limited recourse obligation

of the Partnership, the repayment of which is secured primarily by the

assignment by the Partnership of a security interest in both the

Investors' capital commitments and the General Partner's right to make

capital calls. The capital commitments are fully recourse to all the

Investors and the General Partner.

[[Page 68800]]

The General Partner's right to make capital calls will be assigned by

the Partnership and General Partner to Chase, as agent under the Credit

Facility for the benefit of the Lenders. In the event of default under

the Credit Facility, the agent has the right to unilaterally make

capital calls on the Investors to pay their unfunded capital

commitments, and will apply cash received from such capital calls to

any outstanding debt.

6. Under the Credit Facility, it is contemplated that each Investor

will execute a security agreement (the Security Agreement) pursuant to

which it grants to Chase, for the benefit of each Lender, a security

interest and a lien in its Partnership interest. In addition, each

Investor will covenant with Chase for the benefit of the Lenders that

such Investor will unconditionally honor any capital call made by Chase

in accordance with the Subscription Agreement up to the unfunded

capital commitment of such Investor.

7. The trusts which hold assets of the Plans (the Trusts) own

limited partnership interests as Limited Partners in the Partnership.

Some of the Lenders may be parties in interest with respect to some of

the Plans in the Trusts by virtue of such Lenders' (or their

affiliates') provisions of fiduciary services to such Plans with

respect to Trust assets other than the Partnership interests. Chase is

requesting an exemption to permit the Trusts to enter into the Security

Agreements under the terms and conditions described herein. The Plans

and the other Limited Partners with the largest interests in the

Partnership and the extent of their respective capital commitments to

the Partnership are described as follows:

(a) Alcoa Master Trust. The Alcoa Master Trust holds the assets of

13 defined benefit plans (the Alcoa Plans). The total number of

participants is approximately 33,000, and the approximate fair market

value of the total assets of the Alcoa Plans held in the Master Trust

as of December 31, 1995 is $3.6 billion. The fiduciary of the Alcoa

Plans generally responsible for investment decisions is the Benefit

Investment Committee, which is responsible for reviewing and

authorizing the investment in the Partnership to which this proposed

exemption relates. The Alcoa Master Trust has made a capital commitment

of $25 million to the Partnership.

(b) Polaroid Pension Trust. The Polaroid Pension Trust holds the

assets of the Polaroid Pension Plan, a defined benefit plan with 13,775

participants and assets of approximately $760 million. The fiduciary of

the Polaroid Pension Trust responsible for reviewing and authorizing

the investment in the Partnership to which this proposed exemption

relates is Polaroid Fund Manager. The Polaroid Pension Trust has

undertaken a $25 million capital commitment to the Partnership.

(c) NYNEX Master Pension Trust. The NYNEX Master Pension Trust

holds the assets of the NYNEX Pension Plan and the NYNEX Management

Pension Plan, both defined benefit plans. As of December 31, 1994, the

NYNEX Pension Plan had 97,498 participants and approximately $6.6

billion in total assets. The NYNEX Management Pension Plan had 49,880

participants and approximately $7 billion in assets as of December 31,

1994. The fiduciary of the NYNEX Master Pension Trust generally

responsible for investment decisions is Mr. Frederick V. Salerno,

(Chief Financial Officer/Business Development of NYNEX Corporation).

Mr. Salerno is the fiduciary responsible for reviewing and authorizing

the investment in the Partnership to which this proposed exemption

relates. The NYNEX Master Pension Trust has undertaken a $25 million

capital commitment to the Partnership.

(d) General Motors. General Motors Corporation has established the

Third Plaza Trust (the TP Trust) of which Mellon Bank, N.A. is the

trustee, and the Fourth Plaza Trust (the FP Trust), of which Mellon

Bank, N.A. is also the trustee, to hold, manage and invest funds for

various Plans (the GM Plans). The GM Plans are as follows:

(1) The General Motors Hourly Plan (the GM Hourly Plan), a defined

benefit plan with 609,669 participants as of September 30, 1995, and

assets with a total value of approximately 37.8 billion dollars on that

date. Assets of the GM Hourly Plan are held in the TP Trust. Assets of

the Saturn Individual Retirement Plan for Represented Team Members (a

defined benefit plan with 7,138 participants as of September 30, 1995),

the Saturn Personal Choices Retirement Plan for Non-Represented Team

Members (a defined benefit plan with 1,977 participants as of September

30, 1995), the Employees' Retirement Plan for GMAC Mortgage Corporation

(a defined benefit plan with 3,106 participants as of December 31,

1995), the National Car Rental System Inc. Hourly Paid Employees

Pension Plan (a defined benefit plan with 3,106 participants as of

December 31, 1994) and the National Car Rental System Inc. Salaried

Employees Pension Plan (a defined benefit plan with 1,439 participants

as of December 31, 1994) are also held in the TP Trust. The TP Trust

has undertaken a $75 million commitment to the Partnership.

(2) The General Motors Retirement Program for Salaried Employees

(the Salaried Plan), a defined benefit pension plan with 218,299

participants as of September 30, 1995, and assets with a total value of

approximately 21.7 billion dollars as of that date. Assets of the GM

Salaried Plan are held in the FP Trust. The FP Trust has undertaken a

total capital commitment of $75,000,000 to the Partnership.

The fiduciary responsible for authorizing and overseeing the GM

Plans' investment in the Partnership and, subsequently, for monitoring

such investment, is the General Motors Investment Management

Corporation (GMIMC). GMIMC is a separately incorporated, wholly owned

subsidiary of General Motors Corporation.

(e) The applicant represents that as of the date of the filing of

its application for the exemption proposed herein, the only Plans which

are Investors are described in paragraphs (a) through (d) above, or are

eligible for relief under Prohibited Transaction Exemption 96-23 (PTE

96-23, 61 FR 15975, April 10, 1996), the class exemption for

transactions determined by in-house asset managers.8 The applicant

represents that it is possible that one or more other Plans may become

Investors at some time in the future, and requests relief for any such

Plan under the exemption proposed herein, provided the Plan meets the

standards and conditions set forth herein.

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\8\ The Department expresses no opinion herein with respect to

the applicability of PTE 96-23 to any such Plans.

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8. Investors which are not ERISA-covered plans:

(a) California State Teachers Retirement System, which has

undertaken a total capital commitment of $150,000,000;

(b) Commonwealth of Pennsylvania Public School Employees'

Retirement System, which has undertaken a total capital commitment of

$150,000,000;

(c) New York State Common Retirement Fund, which has undertaken a

total capital commitment of $50,000,000;

(d) Public Employees' Retirement Association of Colorado, which has

undertaken a total capital commitment of $50,000,000; and

(e) Lazard Freres Real Estate Investors, which has undertaken a

total capital commitment of $20,000,000.

9. Chase represents that the Partnership has obtained an opinion of

counsel that the Partnership will constitute a ``venture capital

operating

[[Page 68801]]

company'' under the Department's plan asset regulations [29 CFR 2510.3-

101(c)] if the Partnership is operated in accordance with the

Subscription Agreement and the private placement memorandum distributed

in connection with the private placement of the limited partnership

interests.9

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9 The Department expresses no opinion herein as to whether the

Partnership will constitute a venture capital operating company

under the regulations at 29 CFR 2510.3-101.

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10. Chase represents that the Security Agreement constitutes a form

of credit security which is customary among financing arrangements for

real estate limited partnerships, wherein the financing institutions do

not obtain security interests in the real property assets of the

partnership. Chase also represents that the obligatory execution of the

Security Agreement by the Investors for the benefit of the Lenders was

fully disclosed in the Offering as a requisite condition of investment

in the Partnership during the private placement of the limited

partnership interests. Chase represents that the only direct

relationship between any of the Investors and any of the Lenders is the

execution of the Security Agreements. All other aspects of the

transaction, including the negotiation of all terms of the Facility,

are exclusively between the Lenders and the Partnership. Chase

represents that the proposed executions of the Security Agreements will

not affect the abilities of the Trusts to withdraw from investment and

participation in the Partnership. The only Plan assets to be affected

by the proposed transaction are each Plan's limited partnership

interests in the Partnership and the related Plan obligations as

Investors to respond to drawdowns up to the total amount of each Plan's

capital commitment to the Partnership.

11. Chase represents that neither it nor any Lender acts or has

acted in any fiduciary capacity with respect to any Trust's investment

in the Partnership and that Chase is independent of and unrelated to

those fiduciaries (the Trust Fiduciaries) responsible for authorizing

and overseeing the Trusts' investments in the Partnership. Each Trust

Fiduciary represents independently that its authorization of Trust

investment in the Partnership was free of any influence, authority or

control by the Lenders. The Trust Fiduciaries represent that the

Trust's investments in and capital commitments to the Partnership were

made with the knowledge that each Investor would be required

subsequently to grant a security interest in the Partnership to the

Lenders and to honor drawdowns made on behalf of the Lenders without

recourse to any defenses against the General Partner. Each Trust

Fiduciary individually represents that it is independent of and

unrelated to Chase and the Lenders and that the investment by the Trust

for which that Trust Fiduciary is responsible continues to constitute a

favorable investment for the Plans participating in that Trust and that

the execution of the Security Agreement is in the best interests and

protective of the participants and beneficiaries of such Plans.

12. In summary, the applicants represent that the proposed

transactions satisfy the criteria of section 408(a) of the Act for the

following reasons: (1) The Plans' investments in the Partnership were

authorized and are overseen by the Trust Fiduciaries, which are

independent of the Lenders; (2) None of the Lenders have any influence,

authority or control with respect to the Plans' investments in the

Partnership or the Plans' executions of the Security Agreements; and

(3) The Trust Fiduciaries invested in the Partnership on behalf of the

Plans with the knowledge that the Security Agreements are required of

all Limited Partners investing in the Partnership.

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 provisions to which the exemption

does not apply and the general fiduciary responsibility provisions of

section 404 of the Act, which among other things require a fiduciary to

discharge his duties respecting the plan solely in the interest of the

participants and beneficiaries of the plan and in a prudent fashion in

accordance with section 404(a)(1)(b) of the act; nor does it affect the

requirement of section 401(a) of the Code that the plan must operate

for the exclusive benefit of the employees of the employer maintaining

the plan and their beneficiaries;

(2) Before an exemption may be granted under section 408(a) of the

Act and/or section 4975(c)(2) of the Code, the Department must find

that the exemption is administratively feasible, in the interests of

the plan and of its participants and beneficiaries and protective of

the rights of participants and beneficiaries of the plan;

(3) The proposed exemptions, if granted, will be supplemental to,

and not in derogation of, any other provisions of the Act and/or the

Code, including statutory or administrative exemptions and transitional

rules. Furthermore, the fact that a transaction is subject to an

administrative or statutory exemption is not dispositive of whether the

transaction is in fact a prohibited transaction; and

(4) The proposed exemptions, if granted, will be subject to the

express condition that the material facts and representations contained

in each application are true and complete and accurately describe all

material terms of the transaction which is the subject of the

exemption. In the case of continuing exemption transactions, if any of

the material facts or representations described in the application

change after the exemption is granted, the exemption will cease to

apply as of the date of such change. In the event of any such change,

application for a new exemption may be made to the Department.

Signed at Washington, DC, this 24th day of December, 1996.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 96-33183 Filed 12-27-96; 8:45 am]

BILLING CODE 4510-29-P