[Federal Register Volume 59, Number 180 (Monday, September 19, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-23121]


[[Page Unknown]]

[Federal Register: September 19, 1994]


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DEPARTMENT OF LABOR
[Application No. D-9178, et al.]

 

Proposed Exemptions; Banque Paribas (the Bank) and Paribas Asset 
Management, Inc. (the Manager; collectively the Applicants)

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.

ADDRESS: 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.

Banque Paribas (the Bank) and Paribas Asset Management, Inc., (the 
Manager; collectively, the Applicants), Located, respectively, in 
Paris, France and New York, New York

[Application Nos. D-9178 and D-9179]

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) 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 guarantee by the Bank to an employee benefit plan 
that retains the Manager as investment manager for such plan (the Plan) 
of the value of the Plan's principal investment with the Manager, 
provided that each of the following conditions is satisfied: (1) the 
fiduciaries of the Plan who are responsible for the selection and 
retention of the Manager as investment manager for the Plan, and for 
the selection of the guarantee from the Bank, are independent of the 
Manager, the Bank, and their affiliates; (2) no separate fee or 
remuneration is payable by the Plan or any other person to the Manager, 
the Bank, or any of their affiliates for the guarantee; (3) the Plan is 
entitled to cancel the investment management agreement with the 
Manager, and/or the guarantee provided by the Bank, at any time upon 
reasonable notice; (4) the Agreement between each Plan and the Manager 
and the Bank will be amended to provide that, for purposes of enforcing 
the Bank's guarantee, the determination of the value of a Plan's assets 
under the Manager's investment management at any relevant time shall be 
made pursuant to objective standards determined jointly by the Manager 
and the Plan's custodian, which is the bank or other entity holding the 
assets of the Plan or other Plan fiduciary responsible for causing the 
Plan to enter into the Agreement; (5) however, if the Manager and the 
Plan's custodian are unable to agree as to the value of the Plan's 
account, they will jointly select a qualified appraiser to make this 
determination; if they are unable to agree on an appraiser, the Manager 
and the Plan's custodian will each select a qualified appraiser and the 
value will be determined by mutual agreement of such appraisers or, if 
they cannot agree, by a third qualified appraiser designated by the two 
appraisers, and all such appraisers will be independent of the Manager; 
and (6) the investment management agreement between each Plan and the 
Manager and the Bank will provide (a) that income from any lending from 
a Plan's account will be credited to the Plan's account and not to the 
Manager's account, and (b) that no lending of this type will occur 
under circumstances where the borrower is a party in interest or 
disqualified person with respect to the Plan unless the conditions of 
Prohibited Transaction Exemptions 81-6 (52 FR 18754, May 19, 1987) and 
82-63 (47 FR 14084, April 6, 1982, as corrected by 47 FR 16437, April 
16, 1982)] are satisfied.
    For purposes of this proposed exemption, the term ``affiliate'' of 
another person means any person directly or indirectly, through one or 
more intermediaries, controlling, controlled by, or under common 
control with such person, provided that the Manager shall not be deemed 
an affiliate of another person solely because the Manager has 
investment management authority or discretion over the assets of the 
other person. For purposes of the foregoing, the term ``control'' means 
the power to exercise a controlling influence over the management or 
policies of a person other than an individual. Further, for purposes of 
this proposed exemption, a Plan fiduciary shall be deemed 
``independent'' of a person only if: (1) the fiduciary is not an 
affiliate, as defined above, of such person; and (2) the fiduciary has 
no other relationship to or interest in such persons that might affect 
the exercise of such fiduciary's best judgment as a fiduciary.

Summary of Facts and Representations

    1. The Bank is a bank organized under the laws of the Republic of 
France and is a subsidiary of Compagnie Financiere de Paribas, 
represented to be one of the world's leading banking and financial 
groups. The Bank, through its subsidiaries, branches and offices, 
operates in over 60 countries, including the United States, spanning 
the whole range of banking activities. The Bank's operations are 
structured in four principal groups: corporate banking, capital 
markets, corporate advisory services, and investment management. As of 
December 31, 1990, the Bank's consolidated assets totalled 
approximately FF 568 billion (US $111 billion), with consumer loans 
totalling approximately FF 176 billion (US $34 billion) and customer 
deposits totalling approximately FF 228 billion (US $44 billion).
    2. The Manager, a corporation organized under the laws of the State 
of Delaware and an indirect wholly owned subsidiary of the Bank, is 
responsible for defining the Bank's overall investment objectives and 
managing its pooled investment products (including specialized country 
or regional funds, diversified growth and income funds, and fixed 
income funds). Worldwide, the Manager and the Bank's institutional 
management team had total assets under management of almost FF 55 
billion (US $11 billion) at the 1990 year end. The Manager is a 
registered investment adviser under the Investment Advisers Act of 1940 
(the Advisers Act) and, according to the Applicants, qualifies as an 
investment manager under section 3(38) of the Act.1 The Manager's 
principal business activity in the United States is the provision of 
investment management services for various clients, including the 
trustees or other fiduciaries of plans governed by the Act. The Manager 
currently serves in such capacity with respect to five U.S.-based 
clients, including three Plans, involving approximately US $190 million 
in assets under management (including approximately US $85 million of 
Plan assets). The investment media in which the Manager will invest a 
Plan's assets is generally subject to specific investment guidelines 
and restrictions prescribed by the Plan fiduciaries, but may include 
fixed income instruments (such as bonds, mortgage-backed securities, 
Treasury bills, and commercial paper), options on fixed income 
securities, forward rate agreements, floating rate notes, and currency 
hedging instruments. According to the applicant fixed income related 
instruments are intended to be used as a hedge or as an alternative to 
bonds.
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    \1\The Department expresses no opinion herein as to whether or 
not the Manager qualifies as an investment manager under section 
3(38) of the Act.
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    3. The Manager and the Bank have entered into investment management 
agreements with certain non-Plan clients which provide that the Bank 
will guarantee the value of the client's initial principal investment, 
if the client does not cancel the agreement before the first 
anniversary of its effective date and not over 50 percent of such 
investment has been withdrawn by that date. Mechanically, the Bank 
would contribute its own funds to the client's account with the 
Manager, for distribution to the client, in the event the client 
elected to cancel the agreement or to withdraw funds from the account 
at a time when the value of such account was less than the amount of 
the client's principal investment therein. Such agreements terminate 
after one year, subject to renewal by written agreement of the parties 
thereto.
    4. The Manager and the Bank would like to offer a similar guarantee 
to the Manager's Plan clients. The parties to the investment management 
agreement (the Agreement) would be the Bank, the Manager, and the Plan 
client. Section 6.1 of the prototype Agreement provides that the Bank 
unconditionally guarantees the return to the client at the termination 
of the Agreement of an amount equal to the amount invested by the 
client (the Qualifying Deposit) under the Agreement (either initially 
or after the date of any renewal of the Agreement). Qualifying Deposit 
means any amount invested by the client not more than half of which is 
withdrawn before the first anniversary of the date of the Agreement 
(or, in the case of a renewal of the Agreement, not more than half of 
which is withdrawn before the first anniversary of the date of such 
renewal). However, pursuant to section 6.2 of the Agreement, the above 
mentioned guarantee (the Guarantee) does not apply if the client 
terminates the Agreement before such first anniversary. The Guarantee 
does apply, however, to any principal withdrawn by the client if (and 
after): (i) the credit rating assigned to the Bank's unsecured 
unsubordinated debt securities by either Standard and Poor's 
Corporation or Moody's Investors Service, Inc. is reduced below AA- or 
Aa3, respectively; or (ii) the Manager or the Bank notifies the client 
that the Agreement will terminate prior to its agreed upon term. There 
is no time period limiting the application of the Guarantee with 
respect to the circumstances described in (i) and (ii), above.
    The applicant states that if a client were to deposit additional 
amounts under the Agreement after the date of the initial Qualifying 
Deposit but before the first anniversary of the date of the Agreement 
(or before the first anniversary of any renewal of the Agreement), such 
additional deposits would also be guaranteed by the Bank, but such 
additional deposits would be subject to the same one-year holding 
period requirement (measured from the date of such additional deposit) 
for the Guarantee to apply.
    Section 6.1 of the Agreement further provides that if, at the 
termination of the Agreement, the client has not received an amount 
equal to its Qualifying Deposit, the Bank shall, upon written demand by 
the client, pay to the client the entire unpaid principal balance of 
such Qualifying Deposit. This section permits the client to withdraw up 
to half of the Qualifying Deposit at any time subject to two weeks 
advance written notice. However, if at the time of such partial 
withdrawal the net asset value of the portfolio is lower than the 
Qualifying Deposit, section 6.1 of the Agreement provides that the 
Guarantee shall be reduced by a proportion equal to the amount of such 
withdrawal divided by the net asset value of the portfolio at that 
time. If at the time of the withdrawal the net asset value of the 
portfolio is higher than the Qualifying Deposit, the Guarantee shall be 
reduced by a proportion equal to the amount of such withdrawal divided 
by the Qualifying Deposit.
    The applicant has provided three examples illustrating how the 
Guarantee operates in the case of partial withdrawals when the net 
asset value of the portfolio has (1) decreased, (2) not changed, and 
(3) increased. All three examples assume a Qualifying Deposit of $20 
million and a withdrawal of $10 million after the one-year period 
mentioned above. In the first example, the net asset value of the 
Qualifying Deposit had fallen to $15 million at the withdrawal date, 
leaving only $5 million (in net asset value) after the withdrawal. In 
this example, the Guarantee would be reduced by 67% (i.e., $10 million 
withdrawn divided by $15 million pre-withdrawal net asset value at time 
of withdrawal). Therefore, although $5 million would be the total net 
asset value remaining in the client's account under the Agreement after 
the $10 million withdrawal, the Guarantee would apply to $6,666,667 of 
the Qualifying Deposit (i.e., 33% of the $20 million Qualifying 
Deposit).
    In the second example, the net asset value of the Qualifying 
Deposit remained at $20 million at the withdrawal date, leaving $10 
million (in net asset value) after the withdrawal. In this example, the 
Guarantee would be reduced by 50% (i.e., $10 million withdrawn divided 
by $20 million pre-withdrawal net asset value at time of withdrawal). 
Therefore, $10 million would be the total net asset value remaining in 
the client's account under the Agreement after the $10 million 
withdrawal, and the Guarantee would apply to $10 million of the 
Qualifying Deposit (i.e., 50% of the $20 million Qualifying Deposit).
    In the third example, the net asset value of the Qualifying Deposit 
had risen to $25 million at the withdrawal date, leaving $15 million 
(in net asset value) after the withdrawal. In this example, the 
Guarantee would be reduced by 50% (i.e., $10 million withdrawn divided 
by the $20 million Qualifying Deposit). Thus, although $15 million 
would be the total net asset value remaining in the client's account 
under the Agreement after the $10 million withdrawal, the Guarantee 
would apply to $10 million of the Qualifying Deposit.
    Income on the account would not be currently distributed to the 
client. Rather, income would be held in the account until termination 
of the Agreement and may become part of a new Qualifying Deposit upon 
renewal of the Agreement. As discussed above, it is anticipated most 
Agreements would have a renewable term of one year.
    5. The applicant states that the investment management fee 
negotiated by the Manager with each of its clients does not change by 
reason of the Bank's Guarantee. The applicant represents that the 
Manager offers the client two management fees: a combined arrangement 
or a base fee only. The combined arrangement includes (a) a fixed fee 
of 0.30% per annum of the net asset value of the client's portfolio, 
payable quarterly in arrears based on the net asset value of the 
client's portfolio as of the end of the quarter (adjusted for 
additional withdrawals) and (b) a performance schedule fee equal to 25% 
of an amount equal to the aggregate net realized and unrealized 
appreciation in the value of the assets in the client's portfolio 
(including net investment income) in excess of a benchmark (the 
Benchmark) equal to the U.S. 3-month Treasury bill rate plus 100 basis 
points.2
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    \2\The applicant represents that the performance schedule fee 
component of the combined arrangement will be substantially the same 
in all material respects as the performance fee arrangement 
described in advisory opinion letter 86-21A issued by the Department 
on August 29, 1986. That letter concerns the payment of incentive 
compensation to Batterymarch Financial Management by employee 
benefit plans.
    The Department expressed its view that, based on the 
representations contained in the Batterymarch submissions, the 
payment of an incentive fee to Batterymarch pursuant to the 
arrangement described therein would not, in itself, constitute 
violations of sections 406(b)(1) or 406(b)(2) of the Act. The 
Department noted, however, that, because violations of sections 
406(b)(1) and 406(b)(2) could occur in the course of the provision 
of services by Batterymarch, the Department was not prepared to rule 
that the described arrangement, in operation, would not violate 
those sections. In any event, the relief provided by this exemption 
does not extend to the receipt of fees by the Manager pursuant to 
the above performance schedule.
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    The performance schedule fee is assessed and billed on the one-year 
anniversary of the date of the Agreement and at the end of each 
calendar quarter thereafter during the term of the Agreement, which may 
be renewed by written agreement of the parties. Each assessment of the 
performance fee is based on the performance of the client's portfolio 
over the 12 months ending on the last day of the period for which the 
fee is being paid. If the Agreement terminates at a time other than at 
the end of a calendar quarter, the performance fee for such quarter is 
payable upon termination, based on the performance of the client's 
portfolio over the 12 months ending on the termination date.
    The Benchmark is calculated using the average of the U.S. 3-month 
Treasury bill rate on the first and last day of each quarter within the 
12-month period in question. In calculating the performance fee, the 
basis for determining the amount of appreciation is the starting value 
of the assets in the client's portfolio at the beginning of the 12-
month period. Every time a performance fee is paid out, the basis for 
assessing the performance is adjusted to reflect the net asset value 
after such fee payment. According to section 4.4 of the Agreement, any 
underperformance in a given quarter must be made up before any new 
performance fees are payable.
    Section 4.4 of the Agreements currently in effect with non-Plan 
clients states that the valuation of the performance of the account 
will be provided by the Manager; however, the applicant represents that 
this section will be amended to provide that the valuation of the 
performance of the account will be jointly determined by the Manager 
and the Plan's custodian, which is the bank or other entity holding the 
assets of the Plan or other Plan fiduciary responsible for causing the 
Plan to enter into the Agreement. The applicant further represents 
that, if the Manager and the Plan's custodian are unable to agree as to 
the value of the Plan's account, they will jointly select a qualified 
appraiser to make this determination. If they are unable to agree on an 
appraiser, the Manager and the Plan's custodian will each select a 
qualified appraiser and the value will be determined by mutual 
agreement of such appraisers or, if they cannot agree, by a third 
qualified appraiser designated by the two appraisers. All such 
appraisers will be independent of the Manager.
    Under the alternative arrangement, the client pays only a fixed fee 
equal to 0.40% per annum of the net asset value of the portfolio, 
payable quarterly in arrears based on the net asset value of the 
portfolio as of the end of the quarter, adjusted for additional 
withdrawals.
    The applicant represents that the fees are disclosed in information 
materials furnished to the client, including the presentation flip book 
and the distributors' product overview letter. The applicant represents 
that the Manager's fees under the Agreement are competitive with the 
fees charged by competitors offering no guarantee.
    6. As stated, the Manager and the Bank would like to offer the same 
Guarantee to the Manager's Plan clients which are not investing in 
pooled funds. The Plan fiduciaries would not be required to select the 
Guarantee, or if selected such fiduciaries would still retain the right 
to cancel the investment management agreement or the Guarantee feature 
at any time upon reasonable prior notice. A Plan will be permitted to 
cancel the investment management agreement with the Manager on 30 days' 
prior notice. In addition, a Plan will be permitted to cancel the 
Guarantee immediately upon notice of cancellation being given; that is, 
no period of advance notice will be required for cancellation of the 
Guarantee. No separate fee or remuneration would be paid by the Plan or 
any other person to the Manager, the Bank, or any of their affiliates 
for the Guarantee. The same negotiated investment management fees would 
be charged by the Manager whether or not the Plan fiduciaries accept 
the Bank's Guarantee.
    For purposes of determining when the Guarantee would be enforced, 
and in what amount, records will be kept by both the Manager and the 
Plan's custodian. The applicant represents that the Plan's custodian 
has no relationship to the Bank, the Manager, and its affiliates. The 
records of these two parties will be reconciled monthly. The applicant 
represents that in determining the value of the Plan's account, the 
value of a security will initially be determined by the Plan's 
custodian. The value will then be checked by the Manager using the 
following sources depending on the sector and the markets in which the 
security is trading: the closing price shown on the Reuters and/or 
Bloomberg screens; or if the security is not so displayed, mid-market 
prices obtained from at least two brokers with these prices then being 
averaged. If the value as so determined by the Manager is not 
significantly different from the value determined by the Plan's 
custodian, the latter value will be used. If there is a significant 
difference, the Manager will consult with the Plan's custodian in order 
to reach a mutually agreeable valuation. Thus, the final value of the 
Plan's account is determined jointly by the Manager and the Plan's 
custodian. However, it is represented that, if the Manager and the 
Plan's custodian are unable to agree as to the value of the Plan's 
account, they will jointly select a qualified appraiser to make this 
determination. If they are unable to agree on an appraiser, the Manager 
and the Plan's custodian will each select a qualified appraiser and the 
value will be determined by mutual agreement of such appraisers or, if 
they cannot agree, by a third qualified appraiser designated by the two 
appraisers. All such appraisers will be independent of the Manager.
    7. Section 7 of the Agreement currently in effect with non-Plan 
clients permits the Manager to lend the securities held in the 
portfolio and to receive income from this process for its own account. 
However, this section also provides that any such lending by the 
Manager shall be entirely at the Manager's own risk and that the 
Manager shall indemnify the client for any loss sustained by the 
portfolio as a result of such activities. The applicant represents that 
this section of the Agreement will be amended to provide (a) that 
income from any such lending from a Plan's account will be credited to 
the Plan's account and not to the Manager's account, and (b) that no 
lending of this type will occur under circumstances where the borrower 
is a party in interest or disqualified person with respect to the Plan 
unless the conditions of Prohibited Transaction Exemptions 81-6 (52 FR 
18754, May 19, 1987) and 82-63 (47 FR 14084, April 6, 1982, as 
corrected by 47 FR 16437, April 16, 1982) are satisfied.
    8. The Applicants assert that by entering into an arrangement with 
the Manager and the Bank containing the proposed Guarantee, a Plan 
would receive protection against the risk of any loss in the value of 
its investment, provided by the proposed Guarantee, while also enjoying 
the benefit of potential income and gains realized by the Manager's 
individually tailored, active management of the Plan assets covered by 
the investment management agreement. They represent that these 
advantages are substantially similar to the benefits that may be 
achieved by so-called ``managed guaranteed investment contracts'' and 
similar investment products currently offered by certain insurance 
companies and banks. The Applicants state that since the terms and 
conditions of the investment management services provided by the 
Manager to its clients are subject to regulation by the Securities and 
Exchange Commission under the Advisers Act, and since the Bank must 
account for the Guarantee on its books and records in the same manner 
as any other Guarantee issued in the course of its banking business 
subject to the regulation of the French banking authorities (as well as 
the regulation of banking authorities in other countries, including the 
United States, in which the Bank maintains banking operations through 
its subsidiaries, branches, and offices), substantial regulatory 
oversight exists to ensure protection of the rights of Plans and their 
participants and beneficiaries with respect to the Guarantee.
    By letter dated March 23, 1992, Jean-Pierre Mattout, Head of the 
Bank's Legal Department, stated his opinion that the Guarantee 
constitutes a valid and legally binding obligation of the Bank. The 
applicant points out that as the Bank has a branch doing business in 
the United States, the Bank is subject to the jurisdiction of the 
courts of the United States and a Plan could bring an action against 
the Bank in the courts of the United States to enforce the Guarantee. 
By letter dated September 15, 1993, the attorney representing the 
applicant with respect to the exemption application, explains that the 
Guarantee, a contract right created pursuant to the Agreement, would be 
a client Plan asset. He states that the Bank is subject to the 
jurisdiction of the courts of the United States and that a plan could 
bring an action against the Bank in the district courts of the United 
States to enforce the Guarantee. He expresses the opinion that for 
these reasons, the indicia of ownership of this contract right (the 
Guarantee) would be maintained within the jurisdiction of the district 
courts of the United States, consistent with the requirements of 29 CFR 
2550.404b-1.\3\
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    \3\29 CFR 2550.404b-1 provides, in pertinent part, that no 
fiduciary may maintain the indicia of ownership of any assets of a 
plan outside the jurisdiction of the district courts of the United 
States, unless specified conditions are satisfied. The Department is 
expressing no opinion herein as to whether or not the Agreement 
complies with the requirements of this section of the regulations.
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    9. Although the Applicants anticipate that the proposed Guarantee 
would be provided principally to plans sponsored by major corporations, 
generally with assets of at least US $200 million for each such plan, 
the Bank and the Manager wish to be able to offer the proposed 
Guarantee to any plan investing its assets with the Manager (but not 
investing in pooled funds) pursuant to an investment management 
agreement providing for such Guarantee, but only if the plan 
fiduciaries responsible for making the decisions (1) to select and 
retain the Manager as investment Manager, and (2) to select the 
Guarantee, are independent of the Bank, the Manager, and their 
affiliates. The Applicants represent that they do not presently know 
the identity of any plan that may select the Manager as investment 
manager and thereby may receive the Guarantee from the Bank under the 
applicable investment management agreement. The Applicants will bear 
all costs in connection with the filing of this exemption application.
    10. In summary, the Applicants represent that the proposed 
transaction satisfies the exemption criteria set forth in section 
408(a) of the Act because: (a) the proposed transaction will enable a 
Plan to receive protection against the risk of any loss in the value of 
its investment in the Portfolio while also enjoying the benefit of 
potential income and gains realized by the Manager's individually 
tailored, active management of the Plan assets covered by the 
Agreement; (b) fiduciaries of the Plan who are independent of the 
Manager, the Bank, and their affiliates are responsible for the 
selection and retention of the Manager as investment manager for the 
Plan, and for the decision to acquire the Guarantee from the Bank; (c) 
no separate fee or remuneration is payable by the Plan or any other 
person to the Manager, the Bank, or any of their affiliates for the 
Guarantee; (d) the Plan is entitled to cancel the investment management 
agreement with the Manager, and/or the Guarantee provided by the Bank, 
at any time upon reasonable notice; and (e) the determination of the 
value of a Plan's assets under the Manager's investment management at 
any relevant time shall be made pursuant to objective standards jointly 
by the Manager and the Plan's custodian; however, if the Manager and 
the Plan's custodian are unable to agree as to the value of the Plan's 
account, they will jointly select a qualified appraiser to make this 
determination; if they are unable to agree on an appraiser, the Manager 
and the Plan's custodian will each select a qualified appraiser and the 
value will be determined by mutual agreement of such appraisers or, if 
they cannot agree, by a third qualified appraiser designated by the two 
appraisers, and all such appraisers will be independent of the Manager.

NOTICE TO INTERESTED PERSONS: Since the identities of Plans that might 
select the Manager as investment manager, and thereby receive the 
proposed Guarantee pursuant to the Agreement, are presently unknown, 
the only practicable means of notifying potential interested persons is 
the publication of this notice of proposed exemption in the Federal 
Register and presentation of the notice to plan fiduciaries who enter 
into the investment management agreement. However, the Manager 
represents that notice of the proposed exemption will be furnished by 
first class mail to all known prospective plan clients.

FOR FURTHER INFORMATION CONTACT: Louis Campagna of the Department, 
telephone (202) 219-8883. (This is not a toll-free number.)

L.H. Chapman Investment Company, Pension Plan (the Plan), Located 
in Columbus, Ohio

[Exemption Application No. D-9676]

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 the purchase (the Purchase) by Margaret 
Chapman, Loyal Chapman, and Lou Chapman Koester's individually-directed 
accounts (the Accounts) in the Plan from Indianapolis Life Insurance 
Company and Columbus Mutual Life Insurance Company of certain undivided 
interests (the Interests) in certain promissory notes (the Notes) of 
which the obligor is L.H. Chapman Investment Company, a party in 
interest with respect to the Plan.
    This proposed exemption is conditioned on the following 
requirements: (1) the terms of the Purchase are at least as favorable 
to the Accounts as those obtainable in an arm's-length transaction with 
an unrelated party; (2) the Purchase price is equal to the Accounts' 
pro rata share of the aggregate outstanding principal balances of the 
Notes on the day of the Purchase; (3) the Purchase occurs only if such 
outstanding principal balances are not greater than the fair market 
values of the Interests on the day of the Purchase as determined by a 
qualified, independent appraiser; (4) the Purchase does not involve 
more than twenty-five percent of the assets in each of the Accounts; 
and (5) the Accounts are not required to pay any fees, commissions or 
expenses in connection with the Purchase.

Summary of Facts and Representations

    1. The Plan is a money purchase pension plan with three 
participants and total assets of $1,647,147 as of August 31, 1993. The 
Plan permits each participant to direct the investments of his or her 
account. The three participants had the following account balances as 
of August 31, 1993:

------------------------------------------------------------------------
                          Account                              Balance  
------------------------------------------------------------------------
Margaret Chapman (Mrs. Chapman)............................   $1,024,482
Loyal Chapman (Mr. Chapman)................................      502,225
Lou Chapman Koester (Mrs. Koester).........................      120,440
                                                            ------------
  Total....................................................    1,647,147
------------------------------------------------------------------------

The trustee of the Plan is Loyal Chapman, who is also the president of 
L.H. Chapman Investment Company (the Employer) and its sole 
shareholder. The sponsor of the Plan is the Employer which is an Ohio 
corporation engaged in the jewelry business.
    2. The Interests are undivided interests in two promissory notes 
(the Notes) which consist of a $400,000 promissory note made payable to 
Indianapolis Life Insurance Company (the Indianapolis Note) and an 
$850,000 promissory note made payable to Columbus Mutual Life Insurance 
Company (the Columbus Note). The Notes ultimately resulted from the 
Employer's acquisition in 1974 of 5.7 acres of real property in 
Washington Court House, Ohio and the subsequent construction of a 
shopping center on the property (the Shopping Center).
    3. The Notes, dated January 10, 1974, are twenty-five year 
promissory notes with interest accruing at a rate of 8-7/8 percent per 
annum. The Notes are secured by a first deed of trust on the Shopping 
Center which was valued at $2,200,000 as of March 1, 1994. The terms of 
the Notes provide that the Employer has the right to prepay the entire 
indebtedness in full with a prepayment premium required only if the 
prepayment of the Notes is made in years eleven through twenty of the 
twenty-five year term. The Employer represents that, as of February 1, 
1994, the Notes were twenty-one years old and, therefore, can be 
purchased by the Employer, without paying a premium, for their 
outstanding principal balances. As of March 29, 1994, the outstanding 
principal balance of the Indianapolis Note was $152,238 and the 
outstanding principal balance of the Columbus Note was $323,515. Prior 
to the Purchase, the Employer proposes to make a $63,966 payment 
towards the Indianapolis Note, thereby reducing its outstanding 
principal balance to $88,272 and the total outstanding principal 
balances of the Notes to $411,787.
    Mrs. and Mr. Chapman and Mrs. Koester (the Applicants) propose to 
have the Employer, acting as agent for the Accounts, purchase the 
Interests for the Accounts for their outstanding principal balances on 
the date of the Purchase provided that the outstanding principal 
balances of the Notes are not greater than the aggregate fair market 
values of the Interests. The Accounts will purchase the Interests based 
upon the proportion of their respective accounts relative to the total 
assets in the Plan. Accordingly, the Accounts will purchase the Notes 
in the following proportions:

------------------------------------------------------------------------
                                                 Indianapolis   Columbia
                                                     note        note   
                    Account                     ------------------------
                                                   (percent)   (percent)
------------------------------------------------------------------------
Mrs. Chapman...................................       62.20       62.20 
Mr. Chapman....................................       30.49       30.49 
Mrs. Koester...................................        7.31        7.31 
                                                ------------------------
  Total........................................         100         100 
------------------------------------------------------------------------

Accordingly, the Applicants request an administrative exemption from 
the Department to permit the Purchase under the terms and conditions 
described herein.
    4. The Employer obtained an appraisal of the Interests dated March 
29, 1994 from John R. Garvin, MAI-GRE of Continental Appraisal Company 
of Columbus, Ohio. Mr. Garvin represents that both he and Continental 
Appraisal are independent of and unrelated to the Applicants and the 
Employer, although he has provided some consulting services for Mr. 
Chapman. Mr. Garvin states that, on average in the past five years, he 
has derived less than one percent of his annual income from the 
Employer and Mr. Chapman.
    Mr. Garvin placed the fair market value of the Notes at $419,948. 
Such amount takes into consideration the $63,966 payment that will be 
made on the Indianapolis Note by the Employer. In assigning fair market 
values to the Interests based upon the value of the Notes, Mr. Garvin 
discounted the two minority interests (Mr. Chapman and Mrs. Koester's 
interests) by five percent to reflect their lack of liquidity. Mr. 
Garvin represents that because the majority interest (Mrs. Chapman's 
interest) could liquidate the investment at any time without the 
consent of the minority interests, there is no basis for any such 
discount with respect to the majority interest. The fair market values 
of the Interests, as of March 29, 1994, are as follows:

------------------------------------------------------------------------
                                                              Amount of 
                         FMV of     FMV after     Percent    outstanding
                        interest     discount                  balance  
------------------------------------------------------------------------
Mrs. Chapman........     $261,197     $261,197       62.20%     $256,132
Mr. Chapman.........      128,045      121,643        30.49      125,553
Mrs. Koester........       30,706       29,171         7.31       30,102
                     ---------------------------------------------------
  Totals............      419,948      412,011       100.00      411,787
------------------------------------------------------------------------

Accordingly, because the outstanding balance of the Notes are less than 
the fair market values of the Interests, the Accounts will purchase the 
Interests for their pro rata share of the outstanding balance.
    5. The Applicants represent that the Purchase is in the best 
interests of the participants because it offers the Accounts the 
opportunity to purchase the Interests at less than their fair market 
values. Also, the Purchase will allow the Accounts to enhance their 
current rate of return without additional risk. The Applicants 
represent that the Purchase will not involve more than twenty-five 
percent of the assets in each of the Accounts. The Accounts are not 
required to pay any fees, commissions or expenses in connection with 
the Purchase.
    6. In summary, it is represented that the proposed transaction will 
satisfy the statutory criteria for an exemption under section 408(a) of 
the Act because: (a) the terms of the Purchase will be at least as 
favorable to the Accounts as those obtainable in an arm's-length 
transaction with an unrelated party; (b) the Purchase price will be 
equal to the outstanding principal balances of the Notes on the day of 
the Purchase; (c) the Purchase will occur only if such outstanding 
principal balances are not greater than the aggregate fair market 
values of the Interests on the day of the Purchase as determined by a 
qualified, independent appraiser; (d) the Purchase will not involve 
more than twenty-five percent of the assets in each of the Accounts; 
and (e) the Accounts will not be required to pay any fees, commissions 
or expenses in connection with the Purchase.

Notice to Interested Persons

    Because the only Plan assets involved in the proposed transaction 
are those in Mrs. Chapman, Mr. Chapman & Mrs. Koester's Accounts and 
they are the only participants affected by the proposed transaction, it 
has been determined that there is no need to distribute the notice of 
proposed exemption to interested persons. Comments and requests for a 
hearing are due thirty days after the date of publication of this 
notice in the Federal Register.

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

AT&T Corporation (AT&T), and AT&T Investment Corporation (ATTIMCO), 
Located in New York, New York

[Application Nos. D-9716 and D-9717]

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 C.F.R. Part 
2570, Subpart B (55 F.R. 32836, 32847, August 10, 1990).

Part I--Exemption for Payment of Certain Fees to Asset Managers

    The restrictions of section 406(b)(1) and (b)(2) of the Act and the 
taxes imposed by section 4975 of the Code, by reason of section 
4975(c)(1)(E) of the Code, shall not apply to the payment of 
Performance Fees by an AT&T Investment Fund to an Asset Manager in 
exchange for real estate management or advisory services rendered 
pursuant to an Agreement, provided that the conditions set forth in 
Parts II and III are satisfied.

Part II--General Conditions

    (a) The Asset Manager is not an affiliate of AT&T and the terms of 
any Performance Fee are approved in writing by AT&T.
    (b) The terms of any Performance Fee shall be at least as favorable 
to the AT&T Investment Fund as those obtainable in arm's-length 
transactions between unrelated parties.
    (c) No AT&T Trust shall allocate, in the aggregate, more than 
twenty percent of its total assets to Arrangements which are the 
subject of this exemption, determined at the time any such Arrangement 
is established and at the time of any subsequent allocation of 
additional assets (including the reinvestment of assets) to such an 
Arrangement. The foregoing limitation shall not apply to an AT&T Plan 
Assets Entity. However, that percentage of the Assets of an AT&T Plan 
Assets Entity which is deemed to be ``plan assets'' of an AT&T Trust 
invested therein shall be treated as assets of such AT&T Trust for the 
purpose of applying the foregoing limitation to the AT&T Trust.
    (d) AT&T shall receive the following written information with 
respect to assets subject to this exemption (Assets):
    (1) annual audited financial statements prepared by independent 
certified public accountants approved by AT&T
    (2) quarterly and annual reports prepared by the Asset Manager 
relating to the overall financial position of the Assets (Each such 
report shall include a statement regarding the amount of fees paid to 
the Asset Manager during the period covered by such report); and
    (3) annual reports indicating the fair market value of the Assets 
determined on the basis of the most recently available Independent 
Valuations.
    (e) The total fees paid to an Asset Manager shall constitute no 
more than reasonable compensation.
    (f) The Performance Fee shall be payable after Net Proceeds with 
respect to the Assets exceed the Threshold Amount. The Threshold Amount 
and the amount of the Performance Fee, expressed as a percentage (or 
percentages) of the Net Proceeds in excess of the Threshold Amount (or 
Threshold Amounts), shall be established by the Agreement. The 
Threshold Amount for any Performance Fee shall include at least a 
minimum rate of return to the AT&T Investment Fund, as described in 
Part III, Section (q).
    (g) The provisions of this paragraph (g) shall apply only where an 
Asset Manager has discretion to sell Assets without prior approval of 
AT&T. For any sale of an Asset which gives rise to the payment of a 
Performance Fee to an Asset Manager prior to the Termination Date, the 
sales price of the Asset shall be at least equal to a Target Amount in 
order for the Asset Manager to sell the Asset and receive its 
Performance Fee without further approval. If the proposed sales price 
of the Asset is less than the applicable Target Amount, the proposed 
sale shall be disclosed to and subject to the approval of AT&T, in 
which event the Asset Manager shall be entitled to sell the Asset and 
receive its Performance Fee. If the proposed sales price is less than 
the applicable Target Amount and AT&T's approval is not obtained, the 
Asset Manager shall retain the authority to sell the Asset, provided 
that the Performance Fee that would have been payable to the Asset 
Manager by reason of the sale of the Asset shall be paid only at the 
termination of the Arrangement.
    (h) In the event of termination of the Arrangement upon its 
Termination Date, the Asset Manager shall be entitled to receive a 
Performance Fee payable on the Termination Date. The amount of the 
Performance Fee upon termination shall be determined by assuming a sale 
for cash of the remaining Assets at their fair market value (determined 
on the basis of Independent Valuations) and no reinvestment of such 
cash in Assets subject to the Arrangement.
    (i) In the event of the removal or resignation of an Asset Manager 
prior to the Termination Date, the Asset Manager shall be entitled to 
receive a Performance Fee payable on the Termination Date pursuant to 
this paragraph (i). The Performance Fee shall be calculated on a 
preliminary basis at the time of such removal or resignation by 
assuming a sale for cash of the remaining Assets at their fair market 
value (determined on the basis of Independent Valuations) and no 
reinvestment of such cash in Assets subject to the Arrangements. As of 
the Termination Date, the amount so determined on a preliminary basis 
shall be multiplied by a fraction, the numerator of which is the sum of 
(1) the actual sales prices received by the AT&T Investment Fund on 
disposition of all Assets sold after the date of the Asset Manager's 
removal or resignation and prior to the Termination Date, and (2) in 
the case of Assets which have not been sold prior to the Termination 
Date, the value of the Assets as of the Termination Date (determined on 
the basis of Independent Valuations), and the denominator of which is 
the aggregate value of the Assets which was used in connection with the 
preliminary determination of the Performance Fee at the time of removal 
or resignation, provided that this fraction shall never exceed 1.0. The 
resulting amount shall be the Performance Fee payable to the Asset 
Manager upon the Termination Date.
    (j) AT&T shall maintain or cause to be maintained with respect to 
the Assets, for a period of six years, the records necessary to enable 
the persons described in paragraph (k) of this Part 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 AT&T, the records are lost 
or destroyed prior to the end of the six-year period, and (2) no party 
in interest, other than AT&T, 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 Part 
III, Section (k) below.
    (k) Notwithstanding any provisions of Section 504(a)(2) and 504(b) 
of the Act, the records referred to in Section (j) of this Part II 
shall be unconditionally available at their customary location for 
examination during normal business hours by:
    (1) any duly authorized employee or representative of the 
Department or the Internal Revenue Service;
    (2) any contributing employer to any employee benefit plan the 
assets of which are held in the AT&T Investment Fund which has entered 
into the Arrangement or any duly authorized employee or representative 
of such employer;
    (3) any participant or beneficiary of any employee benefit plan the 
assets of which are held in the AT&T Investment Fund or any duly 
authorized representative of such participant or beneficiary; and
    (4) nothing in this paragraph (k) shall authorize any of the 
persons described in subsections (2) and (3) to examine any trade 
secrets of AT&T or information which is privileged or confidential.

Part III--Definitions

    (a) An ``affiliate'' of a person means:
    (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 of, or partner of any 
such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner or employee.
    (b) The term ``Agreement'' means the investment management, trust 
or other agreement entered into between an Asset Manager and AT&T for 
the provision of real estate management or advisory services.
    (c) The term ``Arrangement'' means a fee arrangement entered into 
between AT&T and an Asset Manager pursuant to an Agreement providing 
for the payment of Performance Fees to the Asset Manager by an AT&T 
Investment Fund in exchange for real estate management or advisory 
services.
    (d) The term ``Asset Manager'' means any person or entity providing 
real estate management or advisory services to an AT&T Investment Fund.
    (e) The term ``Assets'' means assets of an AT&T Investment Fund 
which are the subject of an Arrangement with an Asset Manager.
    (f) The term ``AT&T'' means AT&T Corporation, AT&T Investment 
Management Corporation and/or any Subsidiary.
    (g) The term ``AT&T Investment Fund'' means an AT&T Trust or an 
AT&T Plan Assets Entity.
    (h) The term ``AT&T Plan Assets Entity'' means any group trust, 
partnership or other entity (including without limitation the Telephone 
Real Estate Equity Trust), the assets of which are deemed to be ``plan 
assets'' by reason of the application of 29 CFR 2510.3-101, but only if 
(1) fifty percent or more of the interests in such entity are held by 
one or more AT&T Trusts, and (2) AT&T is the named fiduciary or manager 
of the assets of such entity.
    (i) The term ``AT&T Trust'' means the AT&T Master Pension Trust or 
any other trust (other than an AT&T Plan Assets Entity), one hundred 
percent of the assets of which are assets of employee benefit plans 
maintained by AT&T.
    (j) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (k) The term ``Independent Valuations'' means valuations based on 
independent and objective third party sources acceptable to AT&T 
(including without limitation NASDAQ, newspapers, or other general 
publications, or brokers which are independent of the Asset Manager and 
its affiliates), or, if such sources are not available with respect to 
a particular asset or at the option of AT&T, valuations conducted by an 
appraiser independent of the Asset Manager and its affiliates which has 
been approved by AT&T provided, however, that, solely for purposes of 
the reports described in Part II, Section (d)(3) above, no such 
appraisal will be required with respect to any Asset if AT&T 
determines, in its sole discretion, that such an appraisal is 
unnecessary.
    (l) The term ``Net Proceeds'' means, with respect to an 
Arrangement, the aggregate amount of cash and other assets (valued at 
fair market value as determined on the basis of Independent Valuations) 
which cease to be Assets which are subject to such Arrangement, in 
accordance with the terms of the Agreement establishing such 
Arrangement.
    (m) The term ``Performance Fee'' means a fee which equals a pre-
specified percentage (or several pre-specified percentages) of all Net 
Proceeds in excess of the Threshold Amount (or several Threshold 
Amounts), subject to such limitations, if any, as AT&T may approve or 
impose.
    (n) The term ``Subsidiary'' means a corporation, partnership, or 
other entity of which (or in which) fifty percent or more of
    (1) the combined voting power of all classes of stock entitled to 
vote or the total value of shares of all classes of such corporation,
    (2) the capital interest or profits interest of such partnership, 
or
    (3) the beneficial interest of such other entity,

is owned directly or indirectly by AT&T Corporation or AT&T Investment 
Management Corporation.
    (o) The term ``Target Amount'' means a value assigned to each Asset 
either (1) at the time the Asset becomes subject to the Arrangement, by 
mutual agreement between the Asset Manager and AT&T, or (2) pursuant to 
an objective formula approved by the Asset Manager and AT&T at the time 
the Arrangement is established. However, in no event will the value be 
less than the value of the Asset at the time the Asset becomes subject 
to the Arrangement.
    (p) The term ``Termination Date'' means the date, established in 
the Agreement, on which the Arrangement will terminate by reason of the 
passage of time, as the same may be amended from time to time with the 
approval of AT&T.
    (q) The term ``Threshold Amount'' means with respect to any 
Arrangement an amount which equals one hundred percent of the AT&T 
Investment Fund's capital invested in the Assets plus a pre-specified 
annual compounded cumulative rate or rates of return, each of which is 
at least a minimum rate of return determined as follows:
    (1) A non-fixed rate which is a least equal to the rate of change 
in the consumer price index (CPI) during the period from the time the 
Assets become subject to the Arrangement until Net Proceeds equal or 
exceed the applicable Threshold Amount; or
    (2) a fixed rate which is at least equal to the average rate of 
change in the CPI over some period of time specified in the Agreement, 
which shall not exceed ten years.

EFFECTIVE DATE: This exemption, if granted, will be effective as of the 
date this notice of proposed exemption is published in the Federal 
Register.

Summary of Facts and Representations

    1. AT&T is a New York corporation which provides a wide variety of 
national and international telecommunications services. ATTIMCO is a 
wholly-owned subsidiary of AT&T which performs investment management 
functions. ATTIMCO is a registered investment adviser under the 
Investment Advisers Act of 1940, as amended. AT&T is the sponsor of the 
AT&T Master Pension Trust (AT&T MPT), a qualified trust holding assets 
of certain employee benefit plans maintained by AT&T. The bulk of the 
real estate assets of the AT&T MPT is held through the Telephone Real 
Estate Equity Trust (TREET), a group trust established in connection 
with AT&T's divestiture in 1984 of the regional telephone holding 
companies, including BellSouth Corporation (BellSouth). The beneficial 
interests in TREET currently are held by the AT&T MPT and the BellSouth 
Master Pension Trust, a qualified trust holding the assets of employee 
benefit plans maintained by BellSouth. As of January 1, 1994, the 
Assets of the AT&T MPT (including its interest in TREET) exceeded $38 
billion.
    2. AT&T is the named fiduciary of both the AT&T MPT and TREET with 
the power to manage and control the assets of such trusts and to 
appoint investment managers of such assets. In order to facilitate 
investment of these and other such funds in potentially beneficial 
transactions and to encourage asset managers to maximize the value of 
assets under management, AT&T seeks the flexibility to enter into 
arrangements described below (the Arrangements) involving the payment 
of performance fees to independent asset managers, pursuant to formal 
agreements with current and future asset managers (the Agreements). 
AT&T is requesting an exemption to permit its payment of performance 
fees to asset managers for services rendered to the funds pursuant to 
Arrangements established by the Agreements, subject to the conditions 
in the proposed exemption, as described herein.
    3. The proposed exemption will be available for Arrangements 
involving any AT&T Investment Fund (collectively, the Funds), a term 
which is defined as (1) the AT&T MPT or any other trust of which one 
hundred percent of the assets are assets of employee benefit plans 
maintained by AT&T, and (2) any group trust, partnership or other 
entity (including without limitation the Telephone Real Estate Equity 
Trust), the assets of which are deemed to be ``plan assets'' by reason 
of the application of 29 C.F.R. 2510.3-101, but only if (1) fifty 
percent or more of the interests in such entity are held by one or more 
AT&T Trusts, and (2) AT&T is the named fiduciary or manager of the 
assets of such entity. Under the Arrangements proposed, an asset 
manager would provide, or continue to provide, real estate management 
or advisory services to one or more Funds. Depending on the terms of 
the particular Agreement, an asset manager may have complete discretion 
with respect to assets of the Fund allocated to its account, including 
discretion to identify appropriate investments, make investment 
decisions, and manage and dispose of investments, or may be limited to 
making investment recommendations subject to the ultimate approval of 
AT&T. Alternatively, the asset manager may be given limited discretion 
with respect to some, but not all, aspects of the management of the 
assets allocated to its account. For example, the asset manager may 
have discretion with respect to all aspects of managing such assets 
except for specific major decisions such as acquisition and 
disposition.
    4. The applicants represent that under the Agreements, assets of 
the Funds will be managed with the investment objective of obtaining 
current income and/or capital appreciation, primarily through 
investment directly or indirectly, in real estate and interests in real 
estate, including without limitation fee simple interests, interests in 
partnerships and joint ventures having an interest in real property, 
mortgages, options to purchase real estate, leaseholds, leasebacks, and 
investments in real estate funds, real estate investment trusts or 
other entities with assets which are invested, directly or indirectly, 
primarily in real estate. Assets potentially to be subject to the 
Arrangements include the following: (a) investments selected or 
recommended by an asset manager after an Agreement is executed, in 
accordance with investment guidelines established by the Agreement; (b) 
pre-identified investments which are particular properties which have 
been identified by the asset manager for investment (or recommended for 
investment) prior to the execution of the Agreement; (c) pre-existing 
assets which are already held by a Fund prior to the execution of the 
Agreement; and (d) combinations of the foregoing.
    5. As proposed by the applicant, the performance fee payable to an 
asset manager under an Agreement (the Performance Fee) is a fee payable 
after net proceeds (Net Proceeds) from the assets under management 
pursuant to the Agreement exceed a certain amount (the Threshold 
Amount).4 Net Proceeds, with respect to an Arrangement, are the 
aggregate amount of cash and other assets (valued at fair market value 
on the basis of independent valuations5) which cease to be assets 
subject to the Arrangement. Each Agreement establishing an Arrangement 
will specifically identify the assets to be subject to the Arrangement, 
and the basis upon which income and earnings on such assets will cease, 
or continue, to be subject to the Arrangement. For example, the 
applicant represents that an Agreement might provide that the assets 
initially allocated to the Arrangement plus all earnings and proceeds 
thereon will be reinvested and remain subject to the Arrangement until 
the Termination Date, whereupon all such assets will cease to be 
subject to the Arrangement. In such case, there will be no Net Proceeds 
during the term of the Arrangement, and therefore no Performance Fee 
would be payable until the Termination Date. Alternatively, the 
applicant represents that an Agreement might provide that all net 
income and other proceeds generated by the assets initially allocated 
to the Arrangement will cease to be subject to the Arrangement and will 
thereby constitute Net Proceeds. In such case, Net Proceeds will be 
generated as and when the initial assets generate net income or other 
proceeds, and a Performance Fee would be payable once the amount of 
these Net Proceeds exceed the Threshold Amount. The Threshold Amount is 
defined as an amount equal to one hundred percent of the Fund's capital 
investment plus a pre-specified annual compounded cumulative rate or 
rates of return each of which is at least a minimum rate of return as 
determined by a formula based on the consumer price index, as required 
in Part III, Sections (q) (1) and (2) of the proposed exemption. The 
proposed exemption provides that the Performance Fee is payable (a) 
after Net Proceeds exceed the Threshold Amount, and/or (b) on the 
Agreement's termination date (the Termination Date, defined as the date 
on which the Arrangement will terminate by reason of the passage of 
time, as the same may be amended from time to time with the approval of 
AT&T), either upon termination of the Arrangement or in the event of 
the prior removal or resignation of an asset manager. The Performance 
Fee will be equal to a pre-specified percentage, or several pre-
specified percentages, of all Net Proceeds in excess of the Threshold 
Amount, or Threshold Amounts, subject to such limitations as AT&T may 
impose. In this regard, AT&T represents that there is a possibility 
that several Threshold Amounts may be established with different 
percentages being utilized to determine the Performance Fee, depending 
upon which Threshold Amount has been exceeded. AT&T states that this 
structure will allow AT&T to negotiate an arrangement on behalf of a 
Fund pursuant to which the amount of the Performance Fee will increase 
as the level of investment performance increases. AT&T states that, as 
an example, AT&T could negotiate a Performance Fee whereby an asset 
manager would receive ten percent of all Net Proceeds in excess of an 
initial Threshold Amount (e.g., all invested capital plus an eight 
percent annual return), and twenty percent of all Net Proceeds once a 
second Threshold Amount (e.g., all invested capital plus a twelve 
percent annual return) has been achieved. Both the annual rate(s) of 
return used in determining the Threshold Amount(s) and the 
percentage(s) used to determine the amount of the Performance Fee will 
be negotiated between AT&T and the asset manager prior to the 
application of any Arrangement to assets under management of the asset 
manager.
---------------------------------------------------------------------------

    \4\The Department herein is proposing an exemption only for the 
payment by AT&T Investment Funds of Performance Fees for services 
rendered to the Funds pursuant to the Agreements, and is not 
proposing any exemption for any other prohibited transactions or any 
violations of Title I, Part 4 of the Act which may arise from any 
other elements of the fee structure established under an Agreement.
    \5\Under the proposed exemption, the term ``independent 
valuations'' means valuations based on independent and objective 
third party sources acceptable to AT&T (including without limitation 
NASDAQ, newspapers, or other general publications, or brokers which 
are independent of the Asset Manager and its affiliates). AT&T 
represents that the assets of AT&T Investment Funds to be subject to 
the Arrangements will consist primarily of real estate or interests 
in real estate which will be valued, as a general matter, by 
independent appraisers. However, a portion of an AT&T Investment 
Fund's assets subject to an Arrangement may consist of real estate-
related securities, such as shares in real estate investment trusts, 
that may be valued using independent sources other than appraisers, 
such as NASDAQ and the other sources described in the definition of 
``independent valuations''.
---------------------------------------------------------------------------

    With respect to the determination of the Threshold Amount, each of 
the pre-specified rates of return will be at least equal to a minimum 
rate of return as specified in Part III, Section (q) of the proposed 
exemption. In determining the Threshold Amount, different assets or 
different groups of assets may be subject to different annual rates of 
return, with the rate of return applicable to any particular asset 
being established by the Agreement.6 Net Proceeds in excess of the 
Funds invested capital plus the minimum return must actually be 
achieved (or deemed achieved upon the Termination Date or the removal 
of the asset manager) in order for the Threshold Amount to be reached. 
The Performance Fee payable to an asset manager may be reduced by all 
or a portion of any fees previously paid to the asset manager with 
respect to the assets under any prior fee arrangement if and to the 
extent such a reduction is called for by the Agreement and shall be 
subject to such other limitations as AT&T may impose.
---------------------------------------------------------------------------

    \6\AT&T represents that under the Agreements, asset managers 
will not have discretion to shift assets within the Arrangement from 
one class to another, and that AT&T will be responsible for 
determining whether assets may be shifted from one class to another 
during the term of the Arrangement.
---------------------------------------------------------------------------

    6. As a specific provision of any Agreement which gives an asset 
manager complete discretion over the acquisition and disposition of 
assets, AT&T will require that for any sale of an asset which causes 
the payment of a Performance Fee and which occurs prior to the 
Termination Date, the sales price for the asset must be at least equal 
to a certain amount (the Target Amount) in order for the asset manager 
to sell the asset and receive the Performance Fee without further 
approvals. The Target Amount for each asset will be assigned either at 
the time the asset becomes subject to the Arrangement, as agreed 
between AT&T and the asset manager, or pursuant to an objective formula 
approved by AT&T and the asset manager at the time the Arrangement is 
established. If the proposed sales price of the asset is less than the 
applicable Target Amount, the proposed sale must be disclosed to AT&T 
for approval in order for the asset manager to receive its Performance 
Fee as a result of the sale. If the proposed sales price is less than 
the applicable Target Amount and AT&T's approval is not obtained, the 
asset manager will continue to have authority to sell the asset but the 
Performance Fee which would have been payable to the asset manager by 
reason of the asset sale will be paid only at the Termination Date. 
Under each Arrangement subject to the proposed exemption, all realized 
income on, and proceeds from the sale of, the assets, net of expenses 
and reasonable reserves, will either (a) be reinvested in assets 
subject to the Arrangement, if the Agreement so provides or if AT&T so 
determines pursuant to the Agreement, or (b) cease to be subject to the 
Arrangement and thereby become Net Proceeds.
    AT&T represents that the Target Amount concept provides protection 
for the AT&T Investment Fund to assure that an asset manager will not 
sell any assets at unduly low prices to trigger immediate payment of 
the related performance fee. AT&T states that this concept is intended 
to provide a floor on the price at which an asset can be sold and the 
performance fee paid immediately without having to obtain AT&T's 
approval. For newly-acquired assets, the minimum floor is deemed to be 
the cost of the asset; for previously acquired assets, the minimum 
floor amount is the value of the asset at the time the asset becomes 
subject to the Arrangement, an approach which AT&T represents to be the 
most logical to establish the minimum Target Amount for previously 
acquired assets. AT&T notes that it has the flexibility to negotiate a 
higher Target Amount in any case where it believes the minimum Target 
Amount permitted by the proposed exemption would be inadequate.
    7. AT&T offers four hypothetical examples to illustrate the 
operation of the proposed exemption with respect to the Target Amount 
concept. In each example, it is assumed that the asset manager has 
discretion to sell the relevant asset without the prior approval of 
AT&T\7\ and that its performance fee is equal to ten percent of all Net 
Proceeds in excess of the Threshold Amount. In each example, the 
Threshold Amount at the time the relevant asset is sold is $110:
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    \7\AT&T represents that under the typical Arrangements 
contemplated, it intends to retain this discretion, in which event 
the Target Amount concept will not apply.
---------------------------------------------------------------------------

    Example 1: AT&T and an asset manager enter into an Arrangement 
whereby the asset manager agrees to manage a portion of the real estate 
investment of an AT&T Investment Fund, including Parcel X, a real 
estate investment to be acquired by the AT&T Investment Funds at the 
time the Arrangement is entered into. The cost of Parcel X is $100 
cash. At the time the Arrangement is entered into, the asset manager 
and AT&T agree that the Target Amount shall be $100. Two years later, 
the asset manager sells Parcel X for $150 without the prior approval of 
AT&T. Having exceeded the Threshold Amount for the Arrangement, the 
asset manager is entitled to a performance fee of $4.00 (i.e., [$150 - 
$110]  x  .10). Since the asset manager exceeded the Target Amount for 
Parcel X, this performance fee is payable at the time of the sale of 
Parcel X.
    Example 2: Assume the same facts as in Example 1 except that Parcel 
X was acquired by the AT&T Investment Fund three years prior to the 
date the Arrangement was entered, that the initial cost of Parcel X was 
$50, and that its value at the time it becomes subject to the 
Arrangement is $100. AT&T and the asset manager agree that the Target 
Amount is $100, the value of Parcel X at the time it becomes subject to 
the Arrangement. Upon the sale of Parcel X for $150, the asset manager 
is entitled to a Performance Fee of $4.00, calculated and payable in 
the same manner as described in Example 1.
     Example 3: Assume the same facts as Example 2 except that the 
original acquisition price of Parcel X three years prior to the 
Arrangement was $120. AT&T and the asset manager agree that the Target 
Amount is $100, the value of Parcel X at the time it becomes subject to 
the Arrangement. Upon the sale of Parcel X, the asset manager is 
entitled to a performance fee equal to $4.00, calculated and payable in 
the same manner as described in Example 1.
     Example 4: Assume the same facts as Example 3 except that the 
asset manager and AT&T agree that the Target Amount for Parcel X is 
$130 and that the asset manager sells Parcel X for $125 without the 
prior approval of AT&T. Upon the sale of Parcel X, the asset manager 
becomes entitled to a performance fee of $1.50 (i.e., [$125 - $110]  x  
.10). However, because AT&T did not approve the sale at a price below 
the Target Amount, payment of the performance fee is deferred until the 
Termination Date of the Arrangement. Had AT&T approved the sale at the 
price below the Target Amount, the performance fee of $1.50 would have 
been payable upon the sale.
    8. An Arrangement will terminate upon the Termination Date set 
forth in the Agreement, which may be changed with the approval of AT&T. 
Upon termination of an Arrangement, the assets under management will be 
either sold or retained by the Fund, and the asset manager will be 
entitled to a Performance Fee or an additional Performance Fee if the 
Threshold Amount has been reached at or before such time. In the case 
of any assets which are not sold upon termination of the Arrangement, 
the Performance Fee will be calculated using the fair market value of 
such assets as determined on the basis of independent valuations.
    9. Each Arrangement will provide that the asset manager may be 
removed by AT&T at any time, without cause, upon AT&T's delivery of a 
notice of removal to the asset manager. An asset manager may resign at 
any time, without cause, upon written notice to AT&T. Upon removal or 
resignation of an asset manager, the asset manager will be entitled to 
receive a Performance Fee if, at the time of the asset manager's 
removal or resignation, Net Proceeds with respect to the assets under 
management would exceed an amount equal to the Threshold Amount. 
However, each Agreement will provide that such a Performance Fee will 
not be payable until the Termination Date and shall be subject to a 
reduction as determined under Part II, Section (i) of the proposed 
exemption. Accordingly, even if the aggregate value of the assets under 
management declines after an asset manager's removal or resignation, 
the asset manager will still receive a Performance Fee for the period 
of time that it provided services under an Arrangement if Net Proceeds, 
based on an assumed sale of the assets at their fair market value, 
exceed an amount equal to the Threshold Amount at the time of the asset 
manager's removal or resignation, subject to the calculation required 
under Part II, Section (i) of the proposed exemption. The applicant 
represents that this provision ensures that an appropriate reduction in 
the Performance Fee will be made if the aggregate value of the assets 
declines after the asset manager resigns or is removed.
    10. No AT&T Trust will be permitted to allocate, in the aggregate, 
more than twenty percent of its total assets to Arrangements which are 
the subject of the proposed exemption, determined at the time any such 
Arrangement is established and at the time of any subsequent allocation 
of additional assets, including the reinvestment of assets, to such 
Arrangement. The foregoing limitation does not apply to an AT&T Plan 
Assets Entity, which is defined as any group trust, partnership or 
other entity, the assets of which are deemed to be ``plan assets'' by 
reason of the application of 29 C.F.R. 2510.3-101, but only if (a) 
fifty percent or more of the interests in such entity are held by one 
or more AT&T Trusts and (b) AT&T is the named fiduciary or manager of 
the assets of such entity. An AT&T Plan Assets Entity may allocate up 
to one hundred percent of its asset to Arrangements subject to the 
proposed exemption. However, solely for determining if an AT&T Trust 
satisfies the twenty percent limitation, the assets of any AT&T Plan 
Assets Entity in which such AT&T Trust has an interest will be deemed 
to be the asset of such AT&T Trust only to the extent of such AT&& 
Trust's interest in the AT&T Plan Assets Entity. As an example, the 
applicant explains a hypothetical situation in which an AT&T Trust has 
total assets of $100 million: This AT&T Trust may allocate up to $20 
million to Arrangements. In the hypothetical example, $15 million of 
the AT&T Trust's assets are invested in an AT&T Plan Assets Entity 
which has total assets of $30 million, fifty percent of which are 
allocated to Arrangements. For the purpose of determining if the AT&T 
Trust satisfies the twenty percent allocation limit, $15 million of the 
assets of the AT&T Plan Assets Entity, representing the AT&T Trust's 
investment therein, are deemed to be assets of the AT&T Trust. Because 
fifty percent of the AT&T Plan Assets Entity's overall assets are 
allocated to Arrangements, fifty percent (or $7.5 million) of this $15 
million is deemed to be allocated to Arrangements. Thus, by virtue of 
its investment in the AT&T Plan Assets Entity, the AT&T Trust is 
treated as having allocated $7.5 million to Arrangements. Accordingly, 
in this hypothetical example, the AT&T Trust may allocate up to $12.5 
million of its remaining assets to Arrangements.
    11. Throughout the term of an Arrangement, AT&T will receive 
quarterly and annual reports prepared by the asset manager relating to 
the overall financial position of the assets under management, 
including a statement regarding the amount of all fees paid to the 
asset manager during the period covered by the report, and annual 
reports indicating the current fair market value of all assets as 
determined on the basis of the most recently available independent 
valuations, as defined in Part III, Section (k) of the proposed 
exemption. AT&T will also receive annual audited financial statements 
prepared by independent certified public accountants approved by AT&T, 
generally within ninety days of the end of the twelve month period 
covered by the statement.
    12. The proposed exemption requires AT&T to provide for the 
maintenance, for six years, of records necessary to enable 
determinations of whether the conditions of the proposed exemption are 
satisfied. Such records must be unconditionally available at their 
customary location for examination during normal business by any duly 
authorized representative of the Department or the Internal Revenue 
Service, any contributing employer (or its representative) with respect 
to an employee benefit plan with assets held in a Fund which has 
entered into an Arrangement, and any participant or beneficiary (or 
his/her representative) of such a plan.
    13. In summary, the applicant represents that the proposed 
transactions satisfy the criteria of section 408(a) of the Act for the 
following reasons: (a) Each Arrangement is authorized in writing by 
AT&T as named fiduciary or manager of the relevant Fund; (b) No AT&T 
Trust may invest, in the aggregate, more than twenty percent of its 
total assets in Arrangements which are the subject of the proposed 
exemption; (c) AT&T will receive written reports with respect to the 
condition of assets and payment of fees under the Arrangements, and 
will maintain accessible records to enable determinations of whether 
the terms of the proposed exemption are satisfied; (d) The fees paid to 
an asset manager under any Arrangement will constitute no more than 
reasonable compensation; (e) The timing and formula for determining 
fees under the Arrangements will be established and approved by AT&T 
prior to a Fund's entering into an Arrangement, and will be based on 
pre-specified percentages of Net Proceeds after the Fund has recovered 
its invested capital plus a minimum pre-specified rate of return; (f) 
The terms of any Performance Fee will be at least as favorable to the 
Fund as those obtainable in arm's-length transactions with unrelated 
parties; and (g) AT&T may remove an asset manager under an Arrangement 
at any time.

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

Union Electric Savings Investment Plan (the Plan), Located in St. 
Louis, Missouri

[Application No. D-9782]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2) 
of the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the 
Code, shall not apply to (1) the proposed extension of credit to the 
Plan by Boatmen's Trust Company (BTC), a party in interest with respect 
to the Plan, in the form of a payment (the Advance) with respect to 
group annuity contract CG01285B3A (the GIC) issued by Executive Life 
Insurance Company (ELIC); and (2) the Plan's potential repayment of the 
Advance (the Repayments), provided: (a) all terms of such transactions 
are no less favorable to the Plan than those which the Plan could 
obtain in arm's-length transactions with an unrelated party; (b) no 
interest and/or expenses are paid by the Plan; (c) the Advance is made 
with respect to amounts invested by the Plan in the GIC; (d) the 
Repayments are restricted to the amounts, if any, paid to the Plan 
after August 2, 1994, by ELIC or other responsible third parties with 
respect to the GIC (the GIC Proceeds); (e) the Repayments do not exceed 
the total amount of the Advance; and (f) the Repayments are waived to 
the extent the Advance exceeds the GIC Proceeds.

Summary of Facts and Representations

    1. The Plan is a profit sharing plan which had 6,938 participants 
as of March 31, 1994. The approximate aggregate fair market value of 
the Plan's assets as of that date was $313 million. BTC is the trustee 
of the Plan.
    2. On February 12, 1988, $763,683.21 of the Plan's assets were 
invested in the GIC, yielding 8.5% compound interest with a March 1, 
1993 maturity date. As of March 31, 1991, the book value of the GIC 
totalled $987,902.02.
    3. On April 11, 1991, a California court appointed the Insurance 
Commissioner of the State of California as conservator of ELIC. 
Pursuant to this action, payouts on ELIC's GICs were suspended.8 
Subsequently, the California Insurance Commissioner approved a 
Rehabilitation Plan for ELIC (the Rehab Plan), which involved, among 
other things, Aurora National Life Assurance Company (Aurora) assuming 
most of the insurance policy and GIC obligations of ELIC, in some cases 
at discounted values.9 The Rehab Plan also involved liquidation of 
certain assets of ELIC, including real estate and so-called ``junk 
bonds'', to fund various aspects of the Rehab Plan. For holders of ELIC 
GICs, the terms of the Rehab Plan included an election either to:
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    \8\In this proposed exemption, the Department expresses no 
opinion as to whether the acquisition and holding of the GIC 
violated any provisions of Part 4 of Title I of the Act.
    \9\The Department notes that the exemption proposed herein is 
not intended to affect any cause of action by any participant of the 
Plan or the Department with respect to the GIC.
---------------------------------------------------------------------------

    (a) Opt into the Rehab Plan, and receive a replacement GIC from 
Aurora at a discounted value; or
    (b) Opt out of the Rehab Plan, in return for a discounted account 
value (DAV) payable partly in cash now and partly in the form of future 
contingent cash payments from certain ELIC liquidating trusts.
    4. In its capacity as trustee of the Plan, BTC ultimately selected 
the opt out option for the Plan. Under the terms of the Rehab Plan and 
the opt out election, a substantial portion of the DAV ($569,100.82) 
has already been received from ELIC in cash. The balance of the DAV 
($260,801.20) represents the California Insurance Commissioner's 
estimate of the future contingent payments to be received by the Plan 
from the ELIC liquidating trust. It is expected that the remaining 
asset liquidations will take several years. The precise timing and 
amount of future payments is subject to uncertainty.
    5. BTC is willing to make the proposed Advance in order to protect 
plan participants from any loss with respect to their initial principal 
investment in the GIC. The proposed amount of the Advance, $194,582.39, 
represents the difference between the Plan's initial investment in the 
GIC ($763,683.21) and the cash payments which have been received to 
date from ELIC pursuant to the Rehab Plan ($569,100.82). Without the 
Advance, the applicant represents that it is possible that the Plan 
might be unable to meet in timely fashion its obligations to pay 
benefits and make distributions and to accommodate participant-directed 
investment reallocations. BTC proposes the Advance as an alternative to 
being forced to ``freeze'' that portion of the Plan invested in the 
GIC. Moreover, BTC represents that the Advance will protect the Plan 
participants and their beneficiaries from the risk of loss and possible 
reduction of benefits attendant to the investment in the GIC.
    6. The applicant represents that the Advance will be made in a 
single payment of $194,582.39. As a result of the transaction, 
participants will receive at least the original principal amount 
invested in the GIC. The proposed Advance will be made to the Plan on 
an interest-free, unsecured basis. The Plan will incur no expenses in 
connection with the proposed Advance. The proposed Advance may be 
repaid only out of the GIC Proceeds. If the amounts so received are 
less than the amount of the Advance, BTC will bear the loss, having no 
recourse against any other of the Plan's assets. In the event that the 
GIC Proceeds exceed the amount necessary to repay the Advance, the 
excess will be distributed to the Plan for the benefit of participants 
and their beneficiaries. BTC represents that it will maintain records 
of the proposed Advance for a period of seven years, and such records 
will be open for inspection at all times by the Department or any Plan 
participant.
    7. In summary, the applicant represents that the proposed 
transactions will satisfy the criteria contained in section 408(a) of 
the Act because: (a) all terms of the transactions will be no less 
favorable to the Plans than those which the Plans could obtain in an 
arm's-length transaction with an unrelated party; (b) no interest and/
or expenses will be paid by the plans; (c) the Advance will be made 
with respect to amounts invested by the Plan in the GIC; (d) the 
Repayments are restricted to the GIC Proceeds; (e) the Repayments will 
not exceed the total amount of the Advance; and (f) the Repayments are 
waived to the extent the Advance exceeds the GIC Proceeds.

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 14th day of September, 1994.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 94-23121 Filed 9-16-94; 8:45 am]
BILLING CODE 4510-29-P