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

DEPARTMENT OF LABOR

[Prohibited Transaction Exemption 97-15; Exemption Application No. D-

10172, et al.]

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

al.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemptions.

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SUMMARY: This document contains exemptions issued by the Department of

Labor (the Department) from certain of

[[Page 10079]]

the prohibited transaction restrictions of the Employee Retirement

Income Security Act of 1974 (the Act) and/or the Internal Revenue Code

of 1986 (the Code).

Notices were published in the Federal Register of the pendency

before the Department of proposals to grant such exemptions. The

notices set forth a summary of facts and representations contained in

each application for exemption and referred interested persons to the

respective applications for a complete statement of the facts and

representations. The applications have been available for public

inspection at the Department in Washington, DC. The notices also

invited interested persons to submit comments on the requested

exemptions to the Department. In addition the notices stated that any

interested person might submit a written request that a public hearing

be held (where appropriate). The applicants have represented that they

have complied with the requirements of the notification to interested

persons. No public comments and no requests for a hearing, unless

otherwise stated, were received by the Department.

The notices of proposed exemption were issued and the exemptions

are being granted solely by the Department because, effective December

31, 1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR

47713, October 17, 1978) transferred the authority of the Secretary of

the Treasury to issue exemptions of the type proposed to the Secretary

of Labor.

Statutory Findings

In accordance with section 408(a) of the Act and/or

section 4975(c)(2) of the Code and the procedures set forth in 29 CFR

part 2570, subpart B (55 FR 32836, 32847, August 10, 1990) and based

upon the entire record, the Department makes the following findings:

(a) The exemptions are administratively feasible;

(b) They are in the interests of the plans and their participants

and beneficiaries; and

(c) They are protective of the rights of the participants and

beneficiaries of the plans.

The Chicago Corporation (TCC), Located in Chicago, IL

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

Exemption

Section I. Covered Transactions

The restrictions of section 406(a) of the Act and the sanctions

resulting from the application of section 4975 of the Code, by reason

of section 4975(c)(1) (A) through (D) of the Code, shall not apply to

the proposed sale, for cash or other consideration, by the Midwest Banc

Fund IV Group Trust (the BF IV Group Trust) in which employee benefit

plans (the Plans) invest, of certain securities (the Securities) that

are held in the BF IV Group Trust Portfolio, to a party in interest

with respect to a participating Plan, where the part in interest

proposes to acquire or merge with a bank company (the Bank Company) or

a financial services company (the Financial Services Company) that

issued such securities.

In addition, the restrictions of section 406 (b)(1) and (b)(2) of

the Act and the sanctions resulting from the application of section

4975 of the Code by reason of section 4975(c)(1)(E) of the Code, shall

not apply to the payment of a performance fee (the Performance Fee) by

Plans investing in the BF IV Group Trust to TCC.

This exemption is subject to the following conditions as set forth

below in Section II.

Section II. General Conditions

(a) Prior to a Plan's investment in the BF IV Group Trust, a Plan

fiduciary which is independent of TCC and its affiliates (the

Independent Fiduciary) approves such investment on behalf of the Plan.

(b) Each Plan investing in the BF IV Group Trust has total assets

that are in excess of $50 million.

(c) No Plan invests more than 10 percent of its assets in

beneficial interests (the Beneficial Interests) in the BF IV Group

Trust and such Beneficial Interests held by the Plan may not exceed 25

percent of the Group Trust.

(d) No Plan may invest more than 25 percent of its assets in

investment vehicles (i.e., collective investment funds or separate

accounts) managed or sponsored by TCC and/or its affiliates.

(e) Prior to investing in the BF IV Group Trust,

(1) Each Independent Fiduciary receives a Private Placement

Memorandum and its supplement containing description of all material

facts concerning the purpose, structure and the operation of the BF IV

Group Trust.

(2) An Independent Fiduciary who expresses further interest in the

BF IV Group Trust receives--

(A) A copy of the Group Trust Agreement outlining the

organizational principles, investment objectives and administration of

the BF IV Group Trust, the manner in which Beneficial Interests may be

redeemed, the duties of the parties retained to administer the BF IV

Group Trust and the manner in which BF IV Group Trust assets will be

valued;

(B) A copy of the Investment Management Agreement describing the

duties and responsibilities of TCC, as investment manager of the BF IV

Group Trust, the rate of compensation that it will be paid and

conditions under which TCC may be terminated; and

(C) Copies of the proposed exemption and grant notice covering the

exemptive relief provided herein.

(3) If accepted as an investor in the Group Trust, the Independent

Fiduciary is--

(A) Furnished with the names and addresses of all other

participating Plans;

(B) Required to acknowledge, in writing, prior to purchasing a

Beneficial Interest in the BF IV Group Trust that such Independent

Fiduciary has received copies of such documents; and

(C) Required to acknowledge, in writing, to TCC that such fiduciary

is independent of TCC and its affiliates, capable of making an

independent decision regarding the investment of Plan assets,

knowledgeable with respect to the Plan in administrative matters and

funding matters related thereto, and able to make an informed decision

concerning participation in the BF IV Group Trust.

(f) Each Plan, including the trustee (the Trustee) of the BF IV

Group Trust, receives the following written disclosures from TCC with

respect to its ongoing participation in the BF IV Group Trust:

(1) Within 120 days after the end of each fiscal year of the BF IV

Group Trust as well as at the time of termination, an annual financial

report containing a balance sheet for the BF IV Group Trust as of the

end of such fiscal year and a statement of changes in the financial

position for the fiscal year, as audited and reported upon by

independent, certified public accountants. The annual report will also

disclose the fees paid or accrued to TCC.

(2) Within 60 days after the end of each quarter (except in the

last quarter) of each fiscal year of the BF IV Group Trust, an

unaudited quarterly financial report consisting of at least a balance

sheet for the BF IV Group Trust as of the end of such quarter and a

profit and loss statement for such quarter. The quarterly report will

also specify the fees that are actually paid to or accrued to TCC.

(3) Such other information as may be reasonably requested by the

Plans or the Trustee (e.g., certain trading activity and portfolio

status reports provided to the Trustee as required by Prohibited

Transaction Exemption 86-128 (51 FR

[[Page 10080]]

41686, November 16, 1986) in order to comply with the reporting

requirements of the Act and the Code.

(g) At least annually, TCC holds a meeting of the participating

Plans at which time the Independent Fiduciaries of investing Plans are

given the opportunity to decide on whether the BF IV Group Trust, the

Trustee or TCC should be terminated as well as to discuss any aspect of

the BF IV Group Trust and the agreements promulgated thereunder with

TCC.

(h) During each year of the BF IV Group Trust's existence, TCC

representatives are available to confer by telephone or in person with

Independent Fiduciaries on matters concerning such Group Trust.

(i) The terms of all transactions that are entered into on behalf

of the BF IV Group Trust by TCC remain at least as favorable to an

investing Plan as those obtainable in arm's length transactions with

unrelated parties. In this regard, the valuation of assets in the BF IV

Group Trust that is done in connection with the payment of Performance

Fees is based upon independent market quotations or (where the same are

unavailable) determinations made by an independent appraiser.

(j) In the case of the sale by the BF IV Group Trust of Securities

to a party in interest with respect to a participating Plan, the party

in interest is not TCC, any employer of a participating Plan, or any

affiliated thereof, and the BF IV Group Trust receives the same terms

as is offered to other shareholders of a Bank Company or a Financial

Services Company.

(k) As to each Plan, the total fees paid to TCC and its affiliates

constitute no more than ``reasonable compensation'' within the meaning

of section 408(b)(2) of the Act.

(l) TCC's Performance Fee is based upon a predetermined percentage

of net realized gains minus net unrealized losses. In this regard.

(1) The Performance Fee is not to be paid before December 31, 2001,

which represents the completion of the projected acquisition phase of

the BF IV Group Trust, and not until all participating Plans have

received distributions equal to 100 percent of their capital

contributions made to the BF IV Group Trust.

(2) Prior to the termination of the BF IV Group Trust, no more than

75 percent of the Performance Fee credited to TCC is withdrawn from

such Group Trust.

(3) The Performance Fee account established for TCC is credited

with realized gains and losses and charged for net unrealized losses

and fee payments.

(4) No portion of the Performance Fee is withdrawn if the

Performance Fee Account is in a deficit position.

(5) TCC repays all deficits in its Performance Fee account and it

maintains a 25 percent cushion in such account before receiving any

further fee payment.

(m) Either TCC or the Trustee, on behalf of Plans participating in

the BF IV Group Trust, may terminate the Investment Management

Agreement at any time pursuant to the provisions in such agreement.

(n) TCC maintains, for a period of six years, the records necessary

to enable the persons described in paragraph (o) of this Section II to

determine whether the conditions of this exemption have been met,

except that--

(1) A prohibited transaction will not be considered to have

occurred if, due to circumstances beyond the control of TCC and/or its

affiliates, the records are lost or destroyed prior to the end of the

six year period; and

(2) No party in interest other than TCC shall be subject to the

civil penalty that may be assessed under section 502(i) or the Act, or

to the taxes imposed by section 4975 (a) and (b) of the Code, if the

records are not maintained, or are not available for examination as

required by paragraph (o) below.

(o)(1) Except as provided in section (o)(2) of this paragraph and

notwithstanding any provisions of subsections (a)(2) and (b) of section

504 of the Act, the records referred to in paragraph (n) of this

Section II shall be unconditionally available at their customary

location during normal business hours by:

(A) Any duly authorized employee or representative of the

Department or the Internal Revenue Service;

(B) Any Independent Fiduciary of a participating Plan or any duly

authorized representative of such Independent Fudiciary;

(C) Any contributing employer to any participating Plan or any duly

authorized employee representative of such employer; and

(D) Any participant or beneficiary of any participating Plan, or

any duly authorized representative of such participant or beneficiary.

(o)(2) None of the persons described above in subparagraphs (B)-(D)

of this paragraph shall be authorized to examine the trade secrets of

TCC or commercial or financial information which is privileged or

confidential.

Section III. Definitions

For purposes of this exemption,

(a) the term ``TCC'' means The Chicago Corporation and any

affiliate of TCC as defined in paragraph (b) of Section III.

(b) An ``affiliate'' of TCC includes--

(1) Any person directly or indirectly through one or more

intermediaries, controlling, controlled by, or under common control

with TCC.

(2) Any officer, director or partner in such person, and

(3) Any corporation or partnership of which such person is an

officer, director or a 5 percent partner or owner.

(c) The term ``control'' means the power to exercise a controlling

influence over the management or policies of a person other than an

individual.

(d) An ``Independent Fiduciary'' is Plan fiduciary who is

independent of TCC and its affiliates and is either a Plan

administrator, trustee, named fiduciary, as the recordholder of

Beneficial Interests in the BF IV Group Trust or an investment manager.

For a more complete statement of the facts and representations

supporting the Department's decision to grant this exemption, refer to

the notice of proposed exemption on January 14, 1997 at 62 FR 1913.

FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,

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

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

Located in New York, New York

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

D-10235)

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

The restrictions of section 406(a) and 406(b) of the Act and the

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

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

apply, effective as of May 31, 1996, to the in-kind transfer to any

diversified open-end investment company (the Fund or Funds) registered

under the Investment Company Act of 1940 (the ICA) to which the United

States Trust Company of New York or any of its affiliates

(collectively, US Trust) serves as investment adviser and may provide

other services (i.e. ``Secondary Services'' as defined in Section

III(h) below, of the assets of various employee benefit plans (the Plan

or Plans) that are either held in certain collective investment funds

(the CIF or CIFs) maintained by US Trust or

[[Page 10081]]

otherwise held by US Trust as trustee, investment manager, or in any

other capacity as fiduciary on behalf of the Plans, in exchange for

shares of such Funds; provide that the following conditions are met:

(a) A fiduciary (the Second Fiduciary) who is acting on behalf of

each affected Plan and who is independent of and unrelated to US Trust,

as defined in Section III(g) below, receives advance written notice of

the in-kind transfer of assets of the Plans or the CIFs in exchange for

shares of the Fund and the disclosures described in Section II(f)

below.

(b) On the basis of the information described in Section II(f)

below, the Second Fiduciary authorizes in writing the in-kind transfer

of CIF or Plan assets in exchange for shares of the Funds, the

investment of such assets in corresponding portfolios of the Funds, and

the fees received by US Trust in connection with its services to the

Fund. Such authorization by the Second Fiduciary is to be consistent

with the responsibilities, obligations, and duties imposed on

fiduciaries by Part 4 of Title I of the Act.

(c) No sales commissions are paid by the Plans in connection with

the in-kind transfers of CIF or Plan assets in exchange for shares of

the Funds.

(d) All or a pro rata portion of the assets of the Plans held in

the CIFs or all or a pro rata portion of the assets of the Plans held

by US Trust in any capacities as fiduciary on behalf of such Plans are

transferred in-kind to the Funds in exchange for shares of such Funds.

Notwithstanding the foregoing, solely for purposes of this paragraph

(d), assets of the 401(k) Plan and ESOP of United States Trust Company

of New York and Affiliated Companies (the UST DC Plan) held by US Trust

as trustee and allocated to the U.S. Government Short/Intermediate Term

Investment Fund shall be treated as assets held in a CIF.

(e) The Plans or the CIFs receive shares of the Funds that have a

total net asset value equal in value to the assets of the Plans or the

CIFs exchanged for such shares on the date of transfer.

(f) With respect to any in-kind transfer of CIF assets to a Fund,

each Plan receives shares of a Fund which have a total net asset value

that is equal to the value of the Plan's pro rata share of the assets

of the corresponding CIF on the date of the transfer, based on the

current market value of the CIF's assets, as determined in a single

valuation performed in the same manner as of the close of the same

business day with respect to all such Plans participating in the

transaction on such day, using independent sources in accordance with

the procedures set forth in Rule 17a-7(b) under the ICA (Rule 17a-7)

for the valuation of such assets. Such procedures must require that all

securities for which a current market price cannot be obtained by

reference to the last sale price for transactions reported on a

recognized securities exchange or NASDAQ be valued based on an average

of the highest current independent bid and lowest current independent

offer, as of the close of business on the last business day prior to

the in-kind transfers, determined on the basis of reasonable inquiry

from at least three sources that are broker-dealers or pricing services

independent of US Trust.

(g)(1) Not later than thirty (30) days after completion of each in-

kind transfer of CIF or Plan assets in exchange for shares of the Funds

(except for certain transactions described in paragraph (g)(2) below),

US Trust sends by regular mail to the Second Fiduciary, a written

confirmation containing:

(i) the identity of each of the assets that are valued for purposes

of the transaction in accordance with Rule 17a-7(b)(4) under the ICA;

(ii) the price of each of the assets involved in the transaction;

and

(iii) the identity of each pricing service or market maker

consulted in determining the value of such assets;

(2) For the in-kind transfer of CIF assets to the Funds which

occurred on June 28 and July 31, 1996, the written confirmations

described above in paragraph (g)(1) were made by US Trust to all Second

Fiduciaries of the appropriate Plans by October 15, 1996.

(h) For all in-kind transfer of CIF assets, US Trust sends by

regular mail to the Second Fiduciary, no later than ninety (90) days

after completion of the asset transfer made in exchange for shares of

the Funds, a written confirmation containing:

(1) the number of CIF units held by each affected Plan immediately

before the in-kind transfer, the related per unit value, and the

aggregate dollar value of the units transferred; and

(2) the number of shares in the Funds that are held by each

affected Plan following the in-kind transfer, the related per share net

asset value, and the aggregate dollar value of the shares received.

(i) The conditions set forth in paragraphs (d), (e), (f), (o), (p),

and (q) of Section II below are satisfied.

Section II--Exemption for Receipt of Fees From Funds

The restrictions of section 406(a) and section 406(b) of the Act

and the sanctions resulting from the application of section 4975 of the

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

not apply, effective as of June 30, 1996, to the receipt of fees by US

Trust from the Funds for acting as the investment adviser for the Funds

as well as for acting as the custodian, transfer agent, sub-

administrator or for providing other ``Secondary Services'' (as defined

in Section III(h) below) to the Funds in connection with the investment

in the Funds by Plans for which US Trust acts as a fiduciary (Client

Plans), other than Plans established and maintained by US Trust for the

benefit of its employees and their beneficiaries (Bank Plans), provided

that the following conditions are met:

(a) No sales commissions are paid by the Client Plans in connection

with purchases or sales of shares of the Funds and no redemption fees

are paid in connection with the sale of such shares by the Plans to the

Funds.

(b) The price paid or received by the Client Plans for shares in

the Funds is the net asset value per share, as defined in Section

III(e), at the time of the transaction and is the same price which

would have been paid or received for the shares by any other investor

at that time.

(c) Neither US Trust nor any affiliate (including officers,

directors and other persons, as defined in Section III(b) below)

purchases from or sells to the Client Plans any shares of the Funds.

(d) For each Client Plan, the combined total of all fees received

by US Trust for the provision of services to the Client Plan, and in

connection with the provision of services to any of the Funds in which

the Plan may invest, are not in excess of ``reasonable compensation''

within the meaning of section 408(b)(2) of the Act.

(e) US Trust or an affiliate does not receive any fees payable,

pursuant to Rule 12b-1 under the ICA (the 12b-1 Fees) in connection

with the transactions.

(f) The Second Fiduciary who is acting on behalf of a Client Plan

receives in advance of the investment by a Plan in any of the Funds a

full and detailed written disclosure of information concerning such

Fund including, but not limited to:

(1) a current prospectus for each portfolio of each of the Funds in

which such Client Plan is considering investing;

(2) a statement describing the fees for investment management,

investment advisory, or other similar services, any fees for Secondary

Services, as defined in Section III(h) below, and all other fees to be

charged to or paid by the

[[Page 10082]]

Client Plan and by such Funds to US Trust, including the nature and

extent of any differential between the rates of such fees;

(3) the reasons why US Trust may consider such investment to be

appropriate for the Client Plan;

(4) a statement describing whether there are any limitations

applicable to US Trust with respect to which assets of a Client Plan

may be invested in the Funds, and, if so, the nature of such

limitations; and

(5) upon request of the Second Fiduciary, a copy of the proposed

exemption and/or a copy of the final exemption (once such documents are

published in the Federal Register).

(g) On the basis of the information described in Section II(f)

above, the Second Fiduciary authorizes in writing the investment of

assets of the Client Plan in shares of the Fund and the fees to be paid

to US Trust in connection with its services to the Funds. The

authorization may be the Second Fiduciary must be consistent with the

duties, responsibilities and obligations imposed on fiduciaries by Part

4 of Title I of the Act.

(h) The authorization described above in Section II(g) is

terminable at will by the Second Fiduciary of a Client Plan, without

penalty to such Plan, upon receipt by US Trust of written notice of

termination. Such termination will be effected by US Trust selling the

shares of the Fund held by the affected Client Plan within one business

day following receipt by US Trust of the termination form (the

Termination Form), as defined in Section III(i) below, or any other

written notice of termination; provided that if, due to circumstances

beyond the control of US Trust, the sale cannot be executed within one

business day, US Trust shall have one additional business day to

complete such sale.

(i) Each Client Plan receives a credit, either through cash or, if

applicable, the purchase of additional shares of the Funds, pursuant to

an annual election, which may be revoked at any time, made by the

Client Plan, of such Plan's proportionate share of all investment

advisory fees charged to the Funds by US Trust, including any

investment advisory fees paid by US Trust to third party sub-advisers,

within not more than one business day after the receipt of such fees by

US Trust. The crediting of all such fees to the Client Plans by US

Trust is audited by an independent accounting firm on at least an

annual basis to verify the proper crediting of the fees to each Client

Plan.

(j) In the event of an increase in the rate of any fees paid by the

Funds to US Trust regarding any investment management services,

investment advisory services, or fees for similar services that US

Trust provides to the Funds over an existing rate for such services

that had been authorized by a Second Fiduciary, in accordance with

Section II(g), US Trust will, at least thirty (30) days in advance of

the implementation of such increase, provide a written notice (separate

from the Fund prospectus) to the Second Fiduciary of each of the Client

Plans invested in a Fund which is increasing such fees.

(k) In the event of an addition of a Secondary Service, as defined

in Section III(h) below, provided by US Trust to the Fund for which a

fee is charged or an increase in the rate of any fee paid by the Funds

to US Trust for any Secondary Service that results either from an

increase in the rate of such fee or from the decrease in the number or

kind of services performed by US Trust for such fee over an existing

rate for such Secondary Service which had been authorized by the Second

Fiduciary of a Client Plan, in accordance with Section II(g), US Trust

will at least thirty (30) days in advance of the implementation of such

additional service for which a fee is charged or fee increase, provide

a written notice (separate from the Fund prospectus) to the Second

Fiduciary of each of the Client Plans invested in a Fund which is

adding a service or increasing fees. Such notice shall be accompanied

by the Termination Form, as defined in Section III(i) below.

(l) The Second Fiduciary is supplied with a Termination Form at the

times specified in paragraphs (k), (l), and (m) of this Section II,

which expressly provides an election to terminate the authorization,

described above in Section II(g), with instructions regarding the use

of such Termination Form including statements that:

(1) The authorization is terminable at will by any of the Client

Plans, without penalty to such Plans. Such termination will be effected

by US Trust selling the shares of the Fund held by the Client Plans

requesting termination within one business day following receipt by US

Trust, either by mail, hand delivery, facsimile, or other available

means at the option of the Second Fiduciary, of the Termination Form or

any other written notice of termination; provided that if, due to

circumstances beyond the control of US Trust, the sale of shares of

such Client Plans cannot be executed within one business day, U.S.

shall have one additional business day to complete such sale; and

(2) Failure by the Second Fiduciary to return the Termination Form

on behalf of a Client Plan will be deemed to be an approval of the

additional Secondary Service for which a fee is charged or increase in

the rate of any fees, if such Termination Form is supplied pursuant to

paragraphs (k) and (l) of this section II, and will result in the

continuation of the authorization, as described in Section II(g), of US

Trust to engage in the transactions on behalf of such Client Plan.

(m) The Second Fiduciary is supplied with a Termination Form,

annually during the first quarter of each calendar year, beginning with

the first quarter of the calendar year that begins after the date this

exemption is published in the Federal Register and continuing for each

calendar year thereafter; provided that the Termination Form need not

be supplied to the Second Fiduciary, pursuant to this paragraph (m),

sooner than six months after a Termination Form is supplied pursuant to

Section II (k) and (l), except to the extent required by such

paragraphs to disclose an additional Secondary Service for which a fee

is charged or an increase in fees.

(n)(1) With respect to each of the Funds in which a Client Plan

invests, US Trust will provide the Second Fiduciary of such Plan:

(A) at least annually with a copy of an updated prospectus of such

Fund;

(B) upon the request of such Second Fiduciary, with a report or

statement (which may take the form of the most recent financial report,

the current statement of additional information, or some other written

statement) which contains a description of all fees paid by the Fund to

US Trust; and

(2) With respect to each of the Funds in which a Client Plan

invests, in the event such Fund places brokerage transactions with US

Trust, US Trust will provide the Second Fiduciary of such Plan at least

annually with a statement specifying:

(A) the total, expressed in dollars, brokerage commissions of each

Fund's investment portfolio that are paid to US Trust by such Fund;

(B) the total, expressed in dollars, of brokerage commissions of

each Fund's investment portfolio that are paid by such Fund to

brokerage firms unrelated to US Trust;

(C) the average brokerage commissions per share, expressed as cents

per share, paid to US Trust by each portfolio of a Fund; and

(D) the average brokerage commissions per share, expressed as cents

per share, paid by each portfolio of a Fund to brokerage firms

unrelated to US Trust.

(o) All dealings between the Client Plans and any of the Funds are

on a

[[Page 10083]]

basis no less favorable to such Plans that dealings between the Funds

and other shareholders holding the same class of shares as the Plans.

(p) US Trust maintains for a period of six (6) years the records

necessary to enable the persons, as described in Section II(q) below,

to determine whether the conditions of the exemption have been met,

except that:

(1) a prohibited transaction will not be considered to have

occurred if, due to circumstances beyond the control of US Trust, the

records are lost or destroyed prior to the end of the six (6) year

period, and

(2) no party in interest, other than US Trust, shall be subject to

the civil penalty that may be assessed under section 502(i) of the Act,

or to the taxes imposed by section 4975 (a) and (b) of the Code, if the

records are not maintained, or are not available for examination as

required by Section II(q) below.

(q)(1) Except as provided in Section II(q)(2) and notwithstanding

any provisions of Section 504 (a)(2) and (b) of the Act, the records

referred to in Section II(p) above are unconditionally available at

their customary location for examination during normal business hours

by--

(i) Any duly authorized employee or representative of the

Department or the Internal Revenue Service;

(ii) Any fiduciary of each of the Plans who has authority to

acquire or dispose of shares of any of the Funds owned by such a Plan,

or any duly authorized employee or representative of such fiduciary;

and

(iii) Any participant or beneficiary of the Plans or duly

authorized employee or representative of such participant or

beneficiary;

(2) None of the persons described in paragraph (q)(1)(ii) and

(q)(1)(iii) of Section II shall be authorized to examine trade secrets

of US Trust, or commercial or financial information which is privileged

or confidential.

Section III--Definitions

For purposes of this exemption,

(a) The term ``US Trust'' means the United States Trust Company of

New York and an affiliate, as defined in Section III(b)(1).

(b) An ``affiliate'' of a person includes:

(1) Any person directly or indirectly through one or more

intermediaries, controlling, controlled by, or under common control

with the person;

(2) any officer, director, employee, relative, or partner in any

such person; and

(3) Any corporation or partnership of which such person is an

officer, director, partner, or employee.

(c) The term ``control'' means the power to exercise a controlling

influence over the management or policies of a person other than an

individual.

(d) The term ``Fund or Funds'' means any diversified open-end

investment company or companies registered under the ICA for which US

Trust serves as investment adviser, and may also provide custodial or

other services as approved by such Funds.

(e) The term, ``net asset value'' means the amount for purposes of

pricing all purchases and sales calculated by dividing the value of all

securities, determined by a method as set forth in a Fund's prospectus

and statement of additional information, and other assets belonging to

each of the portfolios in such Fund, less the liabilities charged to

each portfolio, by the number of outstanding shares.

(f) The term, ``relative,'' means a ``relative'' as that term is

defined in section 3(15) of the Act (or a ``member of the family'' as

that term is defined in section 4975(e)(6) of the Code), or a brother,

a sister, or a spouse of a brother or a sister.

(g) The term, ``Second Fiduciary,'' means a fiduciary of a plan who

is independent of and unrelated to US Trust. For purposes of this

exemption, the Second Fiduciary will not be deemed to be independent of

and unrelated to US Trust if:

(1) Such Second Fiduciary directly or indirectly controls, is

controlled by, or is under common control with US Trust;

(2) Such Second Fiduciary, or any officer, director, partner,

employee, or relative of such Second Fiduciary is an officer, director,

partners, or employee of US Trust (or is a relative of such persons);

(3) Such Second Fiduciary directly or indirectly receives any

compensation or other consideration for his or her own personal account

in connection with any transaction described in this exemption;

provided, however, that with respect to the Bank Plans, the Second

Fiduciary may receive compensation from US Trust in connection with the

transactions contemplated herein, but the amount or payment of such

compensation may not be contingent upon or be in any way affected by

the Second Fiduciary's ultimate decision regarding whether the Bank

Plans participate in the transactions.

With the exception of the Bank Plans, if an officer, director,

partner, or employee of US Trust (or a relative of such persons), is a

director of such Second Fiduciary, and if he or she abstains from

participation in (i) the choice of the Plan's investment manager/

advisor, (ii) the approval of any purchase or sale by the Plan of

shares of the Funds, and (iii) the approval of any change of fees

charged to or paid by the Plan, in connection with any of the

transactions described in sections I and II above, then Section

III(g)(2) above shall not apply.

(h) The term, ``Secondary Service,'' means a service, other than an

investment management, investment advisory, or similar service, which

is provided by US Trust to the Funds, including but not limited to

custodial, accounting, administrative, or any other service. However,

for purposes of transactions which occurred prior to the date this

exemption is granted, the term ``Secondary Service'' does not include

any brokerage services provided by US Trust to the Funds.

(i) The term ``Termination Form,'' means the form supplied to the

Second Fiduciary, at the times specified in paragraph (k), (l), and (m)

of Section II above, which expressly provides an election to the Second

Fiduciary to terminate on behalf of the Plans the authorization,

described in Section II(g). Such Termination Form may be used at will

by the Second Fiduciary to terminate such authorization without penalty

to the Plans and to notify US Trust in writing to effect such

termination by selling the shares of the Fund held by the Plans

requesting termination within one business day following receipt by US

Trust, either by mail, hand delivery, facsimile, or other available

means at the option of the Second Fiduciary, of written notice of such

request for termination; provided that if, due to circumstances beyond

the control of US Trust, the sale cannot be executed within one

business day, US Trust shall have one additional business day to

complete such sale.

(j) The term ``UST DB Plan'' means the Employees' Retirement Plan

of United States Trust Company of New York and Affiliated Companies.

(k) The term ``UST DC Plan'' means the 401(k) Plan and ESOP of

United States Trust Company of New York and Affiliated Companies.

(l) The term ``Bank Plan'' means the UST DB Plan and the UST DC

Plan.

(m) The term ``Client Plan'' means any ``employee benefit plan''

within the meaning of section 3(3) of the Act and/

[[Page 10084]]

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

\1\ For purposes of this exemption, references to Title I of the

Act, unless otherwise specified, refer also to the corresponding

provisions of the Code.

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

EFFECTIVE DATE: This exemption is effective as of May 31, 1996, for

transactions described in Section I, and June 30, 1996, for

transactions described in Section II.

For a more complete statement of the facts and representations

supporting the Department's decision to grant this exemption, refer to

the notice of proposed exemption published on December 17, 1996, at 61

FR 66320.

WRITTEN COMMENTS AND MODIFICATIONS: US Trust submitted the following

comments and requests for modifications regarding the notice of

proposed exemption (the Proposal).

First, US Trust notes that paragraph 17 of the Summary of Facts and

Representations in the Proposal (the Summary) states that to the extent

that US Trust does not currently execute brokerage services for any

Fund, but proposes to do so in the future, US Trust intends to provide

at least 30 days advance written notice of such additional service. US

Trust represents that pursuant to a proposal adopted by the Funds'

boards of directors prior to the December 17th publication of the

Proposal in the Federal Register, the Funds' retained an affiliate of

US Trust to provide such brokerage services. US Trust states that these

brokerage services commenced on January 3, 1997.

US Trust represents that written notice of this additional service

was provided to each Client Plan that was affected by the in-kind

conversion transactions prior to the commencement of such service by US

Trust. However, due to holiday schedules, the notices were sent late

and were not sent at least 3 days in advance of the commencement of the

brokerage services, as was intended by US Trust. In addition to the

late notices, for all Client Plans, US Trust proposes to include

another copy of the notice in each Client Plan's next account

statement.

US Trust notes that section II(n)(2) of the Proposal requires

certain annual disclosures regarding brokerage services (which US Trust

intends to provide). In addition, the definition of ``Secondary

Service'' in section III(h) expressly exempts brokerage services from

the requirements of section II(k), including the 30-day advance notice

requirement for the addition of a Secondary Service. Accordingly, US

Trust proposes no change in the language of the Proposal and merely

notes for the record this change in the facts from those set out in

paragraph 17 of the Summary.

In this regard, the Department acknowledges that advance notices to

the Client Plans regarding the brokerage services were not sent at

least 30 days prior to the commencement of such services by US Trust,

as previously represented. The Department also acknowledges that an

advance notice requirement of brokerage services was not specifically

set forth in the Proposal. However, the Department believes that prior

notice of an additional ``Secondary Service'' to a Fund for which a fee

will be charged should include notice of any brokerage services to be

provided by US Trust to the Fund. Therefore, the Department has

modified the definition of ``Secondary Service'' contained in section

III(h) of the Proposal by deleting the reference which exempted

brokerage services from the notice requirements of section II(k) and

adding the following language:

``* * * However, for purposes of transactions which occurred prior

to the date this exemption is granted, the term `Secondary Service'

does not include any brokerage services provided by US Trust to the

Funds.'' [emphasis added]

Second, US Trust states that the Proposal does not contain a

definition of the term ``Plan'' or ``Client Plan''. US Trust notes that

in paragraph 2 of the Summary, the Plans to which the exemption would

apply presently consist of Code section 401(a) qualified plans that are

``pension plans'' under section 3(2) of the Act. Paragraph 2 states

that US Trust requests that the exemption apply to any ``employee

benefit plan'' within the meaning of section 3(3) of the Act and/or any

``plan'' within the meaning of Code section 4975(e)(1). Thus, US Trust

suggests that the operative language of the exemption be modified to

specify that all such plans will be covered.

In this regard, the Department has added, as section III(m) above,

a definition of the term ``Client Plan'' (with a footnote regarding

references to Title I of the Act and the corresponding provisions of

the Code) in order to respond to the clarification request made by US

Trust.

Third, US Trust also requests that the Department clarify that the

requirement of section II(f)(5)--that US Trust provide each Client

Plan's Second Fiduciary (upon request) with a copy of the proposed and/

or final exemption in advance of the Plan's investment--does not apply

with respect to any Plan that was already invested in the Funds prior

to the date of the Proposal. US Trust states that it has provided the

Proposal to Client Plans as part of the notice to interested persons

described in the Proposal (see 61 FR at 66331). In addition, US Trust

states that it will continue to provide to any Client Plan's Second

Fiduciary copies of the Proposal, upon request, and will provide copies

of the final exemption after it is published in the Federal Register.

In this regard, the Department acknowledges the comments made by US

Trust and, in an attempt to clarify this matter, has amended section

II(f)(5) by adding the parenthetical phrase ``* * * (once such

documents are published in the Federal Register).''

Fourth, US Trust notes that sections II(1) and III(i) state that a

Second Fiduciary will be supplied with a Termination Form ``* * * at

times specified in paragraphs (k), (l), and (m) of section II''.

However, US Trust wishes to clarify that paragraph (1) of section II

does not specify any time for providing such Form distinct from the

times noted in paragraph (k) and (m) of section II. The Department

acknowledges the accuracy of this comment, but does not believe that

any change to the language of these sections is necessary.

Finally, US Trust states that the correct figures in the example

contained in paragraph 8 of the Summary (at the bottom of the second

column on page 66326 of the Federal Register) used to illustrate the

interests of the Bank Plans and Client Plans in a particular CIF at the

time of the conversion, should be 45 percent and 55 percent,

respectively. In this regard, the example in the Summery had

incorrectly stated these percentages as 45 percent and 65 percent. The

Department acknowledges this correction to the record.

Accordingly, the Department has determined to grant the exemption

as modified.

FOR FURTHER INFORMATION CONTACT: Mr. E.F. Williams of the Department,

telephone (202) 219-8194. (This is not a toll-free number.)

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

New Jersey

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

10344)

Exemption

The restrictions of sections 406(a) and 406 (b)(1) and (b)(2) of

the Act and the sanctions resulting from the application of section

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

the Code, shall not apply to the sale for cash (the Sale) by the Plan

to Consolidated Lumber Corp., the sponsor of the Plan, of certain

wholelife

[[Page 10085]]

insurance policies (the Policies) issued by Confederation Life

Insurance Company of Canada provided the following conditions are

satisfied: (a) All terms and conditions of the Sale are at least as

favorable to the Plan as those which the Plan could obtain in arm's-

length transactions with unrelated parties; (b) the Plan receives cash

consideration from each Sale that is no less than the greater of (1)

the fair market value of the Policies as of the date of the Sale, or

(2) each of the Policies' net cash surrender value as of the date of

the Sale; and (C) the Plan does not incur any expenses or suffer any

losses with respect to the transactions.

For a more complete statement of the facts and representations

supporting the Department's decision to grant this exemption, refer to

the notice of proposed exemption published on December 30, 1996, at 61

FR 68798.

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

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

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

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

10348)

Exemption

The restrictions of section 406(a) of the Act and the sanctions

resulting from the application of section 4975 of the Code, by reason

of section 4975(c)(1) (A) through (D) of the Code, shall not apply to

(1) the granting to Chase, as the representative of lenders (the

Lenders) participating in a credit facility, of security interests in

limited partnership interests in LF Strategic Real Estate Investors,

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

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

interest; and (2) the agreements by the Plans to honor capital calls

made by Chase in lieu of the Partnership's general partner; provided

that (a) the grants and agreements are on terms no less favorable to

the Plans than those which the Plans could obtain in arm's-length

transactions with unrelated parties; and (b) the decisions on behalf of

each Plan to invest in the Partnership and to execute such grants and

agreements in favor of Chase are made by a fiduciary which is not

included among, and is independent of, the Lenders and Chase.

For a more complete statement of the facts and representations

supporting the Department's decision to grant this exemption, refer to

the notice of proposed exemption published on December 30, 1996 at 61

FR 68799.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,

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

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

Hill, California

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

10375)

Exemption

The restrictions of sections 406(a), 406 (b)(1) and (b)(2) of the

Act and the sanctions resulting from the application of section 4975 of

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

shall not apply to: (1) The loan (the Loan) of $30,000 to Mr. Gary

Petsuch (Mr. Petsuch), a party in interest with respect to the Plan,

from Mr. Petsuch's segregated account (the Account) in the plan, and

(2) the personal guarantee of the Loan by Mr. Petsuch, provided the

following conditions are satisfied: (a) The terms of the Loan are at

least as favorable to the Plan as those obtainable in an arm's-length

transaction with an unrelated party; (b) the loan does not exceed 25%

of the assets of the Account; (c) the Loan is secured by a pledge of

Mr. Petsuch's interest in an investment account which has been

currently valued by an independent party as having a fair market value

approximately 280% of the principal amount of the Loan; (d) the account

collateralizing the Loan will be maintained at a collateral-to-Loan

ratio of not less than 200% throughout the duration of the Loan; (e)

Mr. Petsuch has also personally guaranteed the Loan; and (f) Mr.

Petsuch is the only Plan participant to be affected by the Loan.

For a more complete statement of the facts and representations

supporting the Department's decision to grant this exemption, refer to

the notice of proposed exemption published on January 14, 1997 at 62 FR

1924.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,

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

General Information

The attention of interested persons is directed to the following:

(1) The fact that a transaction is the subject of an exemption

under section 408(a) of the Act and/or section 4975(c)(2) of the Code

does not relieve a fiduciary or other party in interest or disqualified

person from certain other provisions to which the exemptions does not

apply and the general fiduciary responsibility provisions of section

404 of the Act, which among other things require a fiduciary to

discharge his duties respecting the plan solely in the interest of the

participants and beneficiaries of the plan and in a prudent fashion in

accordance with section 404(a)(1)(B) of the Act; nor does it affect the

requirement of section 401(a) of the Code that the plan must operate

for the exclusive benefit of the employees of the employer maintaining

the plan and their beneficiaries;

(2) These exemptions are supplemental to and not in derogation of,

any other provisions of the Act and/or the Code, including statutory or

administrative exemptions and transactional rules. Furthermore, the

fact that a transaction is subject to an administrative or statutory

exemption is not dispositive of whether the transaction is in fact a

prohibited transaction; and

(3) The availability of these exemptions is subject to the express

condition that the material facts and representations contained in each

application are true and complete and accurately describe all material

terms of the transaction which is the subject of the exemption. In the

case of continuing exemption transactions, if any of the material facts

or representations described in the application change after the

exemption is granted, the exemption will cease to apply as of the date

of such change. In the event of any such change, application for a new

exemption may be made to the Department.

Signed at Washington, DC, this 28th day of February, 1997.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 97-5431 Filed 3-4-97; 8:45 am]

BILLING CODE 4516-29-M