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Secretary of Labor Thomas E. Perez
Notice of Proposed Exemptions. [Notices] [03/21/2001]

EBSA (Formerly PWBA) Federal Register Notice

Notice of Proposed Exemptions. [03/21/2001]

[PDF Version]

Volume 66, Number 55, Page 15897-15907


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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10942, et al.]

 
Proposed Exemptions; Bank of America, et al.

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 restrictions of the Employee 
Retirement Income Security Act of 1974 (the Act) and/or the Internal 
Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

    All interested persons are invited to submit written comments or 
request for a hearing on the pending exemptions, unless otherwise 
stated in the Notice of Proposed Exemption, within 45 days from the 
date of publication of this Federal Register Notice. Comments and 
requests 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.

ADDRESSES: All written comments and request for a hearing (at least 
three copies) should be sent to the Pension and Welfare Benefits 
Administration, Office of Exemption Determinations, Room N-5649, U.S. 
Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C. 
20210. Attention: Application No. __, stated in each Notice of Proposed 
Exemption. The applications for exemption and the comments received 
will be available for public inspection in the Public Documents Room of 
the Pension and Welfare Benefits Administration, U.S. Department of 
Labor, Room N-1513, 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, 5 U.S.C. App. 1 (1996), 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.

Bank of America (BofA), Located in Bethesda, Maryland

[Application No. D-10942]

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 32,836, 32,847, August 10, 1990). If the 
exemption is granted, the restrictions of section 406(a) of the Act and 
the sanctions resulting from the application of section 4975 of the 
Code, by reason of section 4975(c)(1)(A) through (D) of the Code, shall 
not apply to (1) the proposed granting to BofA by the Westbrook Real 
Estate Fund IV, L.P. (LP), a Delaware Limited Partnership, of a first, 
exclusive, and prior security interest in the capital commitments 
(Capital Commitments), reserve amounts (Reserve Amounts) and capital 
contributions (Capital Contributions), whether now owned or after-
acquired, of certain employee benefit plans (Plans) investing in the 
LP; (2) the proposed collateral assignment and pledge by the LP to BofA 
of its security interest in each Plan's limited partnership interest, 
whether now owned or after-acquired; (3) the proposed granting by the 
LP of a first, exclusive, and prior security interest in a borrower 
collateral account to which all Capital Contributions will be deposited 
when paid (Borrower Collateral Account); (4) the proposed granting to 
BofA by Westbrook Real Estate Partners Management IV, L.L.C., a 
Delaware limited liability company and the general partner of the LP 
(the General Partner), of its right to make calls for cash 
contributions (Drawdowns) under the Amended and Restated Agreement of 
Limited Partnership of Westbrook Real Estate Fund IV, L.P., dated as of 
September 15, 2000 (Agreement), where BofA is the representative of 
certain lenders (the Lenders) that will fund a so-called ``credit 
facility'' (Credit Facility) providing credit to the LP, and the 
Lenders are parties in interest with respect to the Plans; and (5) the 
execution of a partner agreement and estoppel (Estoppel) under which 
the Plans agree to honor the Drawdowns; provided that (i) the proposed 
grants, assignments, and Estoppels are on terms no less favorable to 
the Plans than those which the Plans could obtain in arm's-length 
transactions with unrelated parties; (ii) the decisions on behalf of 
each Plan to invest in the LP and to execute such Estoppels in favor of 
BofA, for the benefit of each Lender, are made by a fiduciary which is 
not included among, and is independent of and unaffiliated with, the 
Lenders and BofA; (iii) with respect to Plans that may invest in the LP 
in the future, such Plans will have assets of not less than $100 
million \1\ and not more than 5% of the

[[Page 15898]]

assets of such Plan will be invested in the LP; and (iv) the General 
Partner is unrelated to any Plan and any Lender.
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    \1\ In the case of multiple plans maintained by a single 
employer or a single group of employers treated as a single employer 
under Sections 414(b), 414(c), 414(m), and 414(o) of the Code, the 
assets of which are invested on a commingled basis (e.g., through a 
master trust), this $100 million threshold will be applied to the 
aggregate assets of all such plans.
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Summary of Facts and Representations

    1. The LP was formed by the General Partner (as sponsor and sole 
general partner) with the intent of seeking capital commitments from a 
limited number of prospective investors who would become partners 
(Limited Partner) of the LP. There are thirteen current and prospective 
Limited Partners having, in the aggregate, irrevocable, unconditional 
capital commitments of approximately $600 million.
    2. The LP will target investments in a broad range of real-estate 
related assets, portfolios, and companies where the General Partner 
believes superior risk-adjusted returns are attainable. The LP 
generally will seek compounded annual returns on its investments in 
excess of 18%, a portion of which is expected to be comprised of 
current income.
    3. Proceeds from investments may be reinvested to the extent they 
do not exceed the aggregate Capital Contributions with respect to such 
investment. To the extent they are not reinvested, net proceeds will be 
distributed to the Partners on at least a quarterly basis. Under the 
terms of the Agreement, the LP is expected to dissolve in the year 
2008.
    4. The Agreement requires each Limited Partner to execute a 
subscription agreement that obligates the Limited Partner to make 
contributions of capital up to a specified maximum. The Agreement 
requires Limited Partners to make Capital Contributions to fulfill this 
obligation upon receipt of notice from the General Partner. Under the 
Agreement, the General Partner may make Drawdowns up to the total 
amount of a Limited Partner's Capital Commitment upon 10 business days' 
notice. The Limited Partners' Capital Commitments are structured as 
unconditional, binding commitments to contribute equity when Drawdowns 
are made by the General Partner. In the event of a default by a Limited 
Partner, the LP may exercise any of a number of specific remedies.
    The Limited Partners constituting over 90% of the equity interest 
and their investments in the LP are:

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                                                              Capital
                     Name of partner                        commitment
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Allstate Insurance Company..............................     $15,000,000
The BellSouth Corporation Health Care Trust--Retirees...       5,000,000
The BellSouth Corporation Representable Employees'           $10,000,000
 Health Care Trust--Retirees............................
The BellSouth Corporation RFA VEBA Trust................     $10,000,000
The BellSouth Corporation RFA VEBA Trust for Non-             $3,000,000
 Representable Employees................................
BellSouth Master Pension Trust..........................     $92,000,000
IBM Personal Pension Plan Trust.........................     $50,000,000
NC/TREIT................................................    $100,000,000
New York State Common Retirement Fund...................    $100,000,000
Teachers' Retirement System of Louisiana................    $100,000,000
State of Wisconsin Investment Board.....................    $100,000,000
Bankers Trust Company, as Trustee for the Walt Disney        $10,000,000
 Company Retirement Plan Master Trust...................
Westbrook Real Estate Partners Management IV, L.L.C.....      $9,060,914
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    5. The applicant states that the LP will incur indebtedness in 
connection with many of its investments. In addition to mortgage 
indebtedness, the LP will incur short-term indebtedness for the 
acquisition of particular investments. This indebtedness will take the 
form of the Credit Facility secured by, among other things, a pledge 
and assignment of each Limited Partner's Capital Commitment. This type 
of facility will allow the LP to consummate investments quickly without 
having to finalize the debt/equity structure for an investment or 
having to arrange for interim or permanent financing prior to making an 
investment, and will have additional advantages to the Limited Partners 
and the LP. Under the Agreement, the General Partner may encumber each 
Limited Partner's Capital Commitments, Reserve Amounts, and Capital 
Contributions, including the right to make Drawdowns, to one or more 
financial institutions as security for the Credit Facility. Each of the 
Limited Partners has appointed the General Partner as its attorney-in-
fact to execute all documents and instruments of transfer necessary to 
implement the provisions of the Agreement. In connection with this 
Credit Facility, each of the Limited Partners is required to execute 
documents customarily required in secured financings, including an 
agreement to honor Drawdowns unconditionally.
    6. BofA will become agent for a group of Lenders providing a $450 
million revolving Credit Facility to the LP. BofA will also be a 
participating Lender. Some of the Lenders may be parties in interest 
with respect to some of the Plans that invest in the LP by virtue of 
such Lenders' (or their affiliates') provisions of fiduciary services 
to such Plans for assets other than the Plans' interests in the LP. 
BofA is requesting an exemption to permit the Plans to enter into 
security agreements with BofA, as the representative of the Lenders, 
whereby such Plans' Capital Commitments, Reserve Amounts, and Capital 
Contributions to the LP, as well as the Plans' limited partnership 
interests, will be used as collateral for loans made by the Credit 
Facility to the LP, when such loans are funded by Lenders who are 
parties in interest to one or more of the Plans.
    The Credit Facility will be used to provide immediate funds for 
real estate acquisitions made by the LP, as well as for the payment of 
LP expenses. Repayments will be secured generally by the LP from the 
Limited Partners' Capital Contributions, Reserve Amounts, Drawdowns on 
the Limited Partners' Capital Commitments, and the Limited Partners' 
limited partnership interests. The stated maturity date of the Credit 
Facility is August 15, 2003. The LP can use its credit under the Credit 
Facility by direct or indirect borrowings or by requesting that letters 
of credit be issued. All Lenders will participate on a pro rata basis 
with respect to all cash loans and letters of credit up to the maximum 
of the Lenders' respective commitments. All such loans and letters of 
credit will be issued to or for the benefit of the LP or an entity in 
which the LP owns a direct or indirect interest (a Qualified Borrower), 
and not to any individual Limited Partner. All payments of principal 
and interest made by the LP or a Qualified Borrower will be allocated 
pro rata among all Lenders.
    7. The Credit Facility will be a recourse obligation of the 
Partnership. To secure the Credit Facility, the LP will grant to BofA, 
for the benefit of each Lender, a first, exclusive, and prior: (1) 
security interest and lien in and to the Capital Commitments, Reserve 
Amounts, and Capital Contributions of the Limited Partners; (2) 
collateral assignment and pledge of the LP's security interest in each 
Limited Partner's limited partnership interest; and (3) security 
interest and lien in the Borrower Collateral Account. Additionally, to 
secure the Credit Facility, the General Partner shall: (1) Pledge, 
through a partner agreement and estoppel, its partnership interest to 
BofA

[[Page 15899]]

for the benefit of each Lender; and (2) grant to BofA, for the benefit 
of each Lender, its right to make Drawdowns of the Capital Commitments 
and Reserve Amounts, and all other rights, titles, powers and 
privileges related to, appurtenant to or arising out of General 
Partner's right under the Agreement to require or demand that Limited 
Partners make Capital Contributions and fund Drawdowns.
    8. It is contemplated each Limited Partner will execute an 
agreement pursuant to which it acknowledges that the LP and the General 
Partner have pledged and assigned to BofA, for the benefit of each 
Lender, all of their rights under the Agreement relating to Capital 
Commitments, Reserve Amounts, Drawdown notices, and Capital 
Contributions. Such agreement will include an acknowledgment and 
covenant by the Limited Partner that, if an event of default exists, 
such Limited Partner will, consistent with its obligations under the 
Partnership Agreement, honor any Drawdown made by BofA in accordance 
with the Agreement. Such an agreement and covenant by a Limited Partner 
effectively limits the assertion of any defense which the Partner might 
have against the LP or the General Partner with respect to the funding 
of any Drawdown made by BofA.
    9. The applicant represents that at the present time the following 
Plans are Partners in the LP:
    (a) The BellSouth Master Pension Trust (BellSouth Pension Trust) 
holds the assets of two defined benefit plans (BellSouth Pension Plans) 
which own interests in the LP. The BellSouth Pension Trust has made a 
Capital Commitment of approximately $92 million to the LP. The 
applicant states that some of the Lenders may be parties in interest 
with respect to some of the BellSouth Pension Plans in the BellSouth 
Pension Trust by virtue of such Lenders' (or their affiliates') 
provisions of fiduciary services to such BellSouth Pension Plans with 
respect to BellSouth Pension Trust assets other than their limited 
partnership interests in the LP. Thus, BofA states that there is an 
immediate need for the BellSouth Pension Trust to enter into the 
Estoppel under the terms and conditions described herein. The total 
number of participants in the two BellSouth Pension Plans is 
approximately 137,703, and the approximate fair market value of the 
total assets of the BellSouth Pension Plans held in the BellSouth 
Pension Trust as of December 31, 1998 is $17.9 billion.
    The applicant represents that the fiduciary generally responsible 
for investment decisions in real estate matters on behalf of both 
BellSouth Pension Plans is the BellSouth Corporation Treasurer. The 
fiduciary responsible for reviewing and authorizing the investment in 
the LP is the BellSouth Corporation Treasurer.
    (b) The BellSouth Corporation Representable Employees Health Care 
Trust--Retirees (BellSouth Health Care Trust) holds the assets of two 
welfare benefit plans (BellSouth Health Care Plans) which own interests 
in the LP. The BellSouth Health Care Trust has made a Capital 
Commitment of approximately $10 million to the LP. The applicant states 
that some of the Lenders may be parties in interest with respect to 
some of the BellSouth Health Care Plans in the BellSouth Health Care 
Trust by virtue of such Lenders' (or their affiliates') provisions of 
fiduciary services to such BellSouth Health Care Plans with respect to 
BellSouth Health Care Trust assets other than their limited partnership 
interests in the LP. Thus, BofA states that there is an immediate need 
for the BellSouth Health Care Trust to enter into the Estoppel under 
the terms and conditions described herein. The total number of 
participants in the two BellSouth Health Care Plans is approximately 
130,795. The approximate fair market value of the total assets of the 
BellSouth Health Care Plans held in the BellSouth Health Care Trust as 
of December 31, 1998 was $1.2 billion. The approximate fair market 
value of the assets in the BellSouth Health Care Plans was $1.8 
billion.
    The applicant represents that the fiduciary generally responsible 
for investment decisions in real estate matters on behalf of both 
BellSouth Health Care Plans is the BellSouth Corporation Treasurer. The 
fiduciary responsible for reviewing and authorizing the investment in 
the LP is the BellSouth Corporation Treasurer.
    (c) The IBM Personal Pension Plan Trust (the IBM Trust) holds the 
assets of one defined benefit plan (the IBM Plan) which owns interests 
in the LP. The IBM Trust has made a Capital Commitment of $50 million 
to the LP. The applicant states that some of the Lenders may be parties 
in interest with respect to the IBM Plan by virtue of such Lenders' (or 
their affiliates') provisions of fiduciary services to the IBM Plan 
with respect to the IBM Trust assets other than its limited partnership 
interests in the LP. Thus, BofA states that there is an immediate need 
for the IBM Trust to enter into the Estoppel under the terms and 
conditions described herein. The total number of participants in the 
IBM Plan is approximately 333,295, and the approximate fair market 
value of the total assets of the IBM Plan as of December 31, 1999 was 
$45.6 billion.
    The applicant represents that the fiduciary generally responsible 
for investment decisions in real estate matters on behalf of the IBM 
Plan is the Retirement Plans Committee, IBM Corporation. The fiduciary 
responsible for reviewing and authorizing the investment in the LP is 
the Retirement Plan Committee, IBM Corporation.
    (d) The Walt Disney Company Retirement Plan Master Trust (Walt 
Disney Master Trust) holds the assets of five defined benefit plans 
(Walt Disney Pension Plans) which own interests in the LP. The Walt 
Disney Master Trust has made a Capital Commitment of $10 million to the 
LP. The applicant states that some of the Lenders may be parties in 
interest with respect to some of the Walt Disney Pension Plans in the 
Walt Disney Master Trust by virtue of such Lenders' (or their 
affiliates') provisions of fiduciary services to such Walt Disney 
Pension Plans with respect to Walt Disney Master Trust assets other 
than their limited partnership interests in the LP. Thus, BofA states 
that there is an immediate need for the Walt Disney Master Trust to 
enter into the Estoppel under the terms and conditions described 
herein. The total number of participants in the five Walt Disney 
Pension Plans is approximately 67,188 and the approximate fair market 
value of the total assets of the Walt Disney Pension Plans held in the 
Walt Disney Master Trust as of December 31, 1998 was $1.37 billion.
    The applicant represents that the fiduciary generally responsible 
for investment decisions in real estate matters on behalf of the Walt 
Disney Pension Plans is the Retirement Plans Committee, Walt Disney 
Company. The fiduciary responsible for reviewing and authorizing the 
investment in the LP is the Retirement Plans Committee, Walt Disney 
Company.
    10. The applicant represents that the Plans in the trusts (the 
Trusts) listed in Rep. 9 are currently the only employee benefit plans 
subject to the Act that are Limited Partners of the LP and will be 
included in this exemption. However, the applicant states that it is 
possible that one or more other Plans will become Limited Partners of 
the LP in the future. Thus, the applicant requests relief for any such 
Plan under this proposed exemption, provided the Plan meets the 
standards and conditions set forth herein. In this regard, such Plan 
must be represented by an independent fiduciary and the General Partner 
must

[[Page 15900]]

receive from the Plan one of the following:
    (1) a representation letter from the applicable fiduciary with 
respect to such Plan substantially identical to the representation 
letter submitted by the fiduciaries of the other Plans, in which case 
this proposed exemption, if granted, will apply to the investments made 
by such Plan if the conditions required herein are met; or
    (2) evidence that such Plan is eligible for a class exemption or 
has obtained an individual exemption from the Department covering the 
potential prohibited transactions which are the subject of this 
proposed exemption.
    11. BofA represents that the LP will obtain an opinion of counsel 
that the LP constitutes an ``operating company'' under the Department's 
plan asset regulations (see 29 C.F.R. 2510.3--101(c)).\2\
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    \2\ The Department notes that the term ``operating company'' as 
used in the Department's plan asset regulation cited above includes 
an entity that is considered a ``real estate operating company'' as 
described therein (see 29 CFR 2510.3-101(e)). However, the 
Department expresses no opinion in this proposed exemption regarding 
whether the LP would be considered either an operating company or a 
real estate operating company under such regulations. In this 
regard, the Department notes that it is providing no relief for 
either internal transactions involving the operation of the LP or 
for transactions involving third parties other than the specific 
relief proposed herein. In addition, the Department encourages 
potential Plan investors and their independent fiduciaries to 
carefully examine all aspects of the LP's proposed real estate 
investment program in order to determine whether the requirements of 
the Department's regulations will be met.
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    12. BofA represents that the security and Estoppel constitutes a 
form of credit security which is customary among financing arrangements 
for real estate limited partnerships or limited liability companies, 
wherein the financing institutions do not obtain security interests in 
the real property assets of the partnership or limited liability 
companies. BofA also represents that the obligatory execution of the 
Estoppel by the Limited Partners for the benefit of the Lenders was 
fully disclosed in the LP's Private Placement Memorandum as a requisite 
condition of investment in the LP during the private placement of the 
limited partnership interests. BofA represents that the only direct 
relationship between any of the Limited Partners and any of the Lenders 
is the execution of the Estoppel. All other aspects of the transaction, 
including the negotiation of all terms of the Credit Facility, are 
exclusively between the Lenders and the LP. BofA represents that the 
proposed execution of the Estoppel will not affect the abilities of the 
Trusts to withdraw from investment and participation in the LP. The 
only Plan assets to be affected by the proposed transactions are any 
funds which must be contributed to the LP in accordance with 
requirements under the Agreement to make Drawdowns to honor a Limited 
Partner's Capital Commitments.
    13. BofA represents that neither it nor any Lender acts or has 
acted in any fiduciary capacity with respect to the Plans' investment 
in the LP and that BofA is independent of and unrelated to the 
fiduciaries (the Trust Fiduciaries) responsible for authorizing and 
overseeing the Trusts' investments in the LP. The Trust Fiduciaries 
represent independently that their authorization of the Trusts' 
investments in the LP was free of any influence, authority or control 
by the Lenders. The Trust Fiduciaries represent that the Trusts' 
investments in and Capital Commitments to the LP were made with the 
knowledge that each Limited Partner would be required subsequently to 
grant a security interest in Drawdowns and Capital Commitments to the 
Lenders and to honor unconditionally Drawdowns made on behalf of the 
Lenders without recourse to any defenses against the General Partner. 
The Trust Fiduciaries individually represent that they are independent 
of and unrelated to BofA and the Lenders and that the investment by the 
Trusts for which the Trust Fiduciaries are responsible continues to 
constitute a favorable investment for the Plans participating in that 
Trust and that the execution of the Estoppel is in the best interests 
and protective of the participants and beneficiaries of such Plans. In 
the event another Plan proposes to become a Limited Partner, the 
applicant represents that it will require similar representations to be 
made by such Plan's independent fiduciary. Any Plan proposing to become 
a Limited Partner in the future and needing to avail itself of the 
exemption proposed herein will have assets of not less than $100 
million,\3\ and not more than 5% of the assets of such Plan will be 
invested in the LP.
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    \3\ See supra note 1.
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    14. In summary, the applicant represents that the proposed 
transactions satisfy the criteria of section 408(a) of the Act for the 
following reasons: (1) the Plans' investments in the LP were authorized 
and are overseen by the Trust Fiduciaries, which are independent of the 
Lenders, and other Plan investments in the LP from other employee 
benefit plans subject to the Act will be authorized and monitored by 
independent Plan fiduciaries; (2) none of the Lenders have any 
influence, authority or control with respect to the Trusts' investment 
in the LP or the Trusts' execution of the Estoppel; (3) the Trust 
Fiduciaries invested in the LP on behalf of the Plans with the 
knowledge that the Estoppel is required of all Limited Partners 
investing in the LP, and all other Plan fiduciaries that invest their 
Plan's assets in the LP will be treated the same as other Limited 
Partners are currently treated with regard to the Estoppel; (4) any 
Plan which may invest in the LP in the future, which needs to avail 
itself of the exemption proposed herein, will have assets of not less 
than $100 million,\4\ and not more than 5% of the assets of any such 
Plan will be invested in the LP, and (5) the General Partner is 
unrelated to any Plan and any Lender.
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    \4\ Id.

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

Independent Fiduciary Services, Inc. (IFS)

    Located in Washington, DC

[Exemption Application Nos: D-10960 and D-10971]

Proposed Exemption

    The Department of Labor 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 29 C.F.R. Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990).\5\
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    \5\ For purposes of this proposed exemption, references to 
specific provisions of Title I of the Act, unless otherwise 
specified, refer to the corresponding provisions of the Code.
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I. General Transactions

    If the exemption is granted, the restrictions of section 
406(a)(1)(A) through (D) and the sanctions resulting from the 
application of section 4975 of the Code by reason of section 
4975(c)(1)(A) through (D), shall not apply, effective from November 3, 
2000, until November 3, 2005, to a transaction between a party in 
interest with respect to the Plumbers and Pipe Fitters National Pension 
Fund (the Fund) and an account (the Diplomat Account) that holds 
certain assets of the Fund managed by IFS while serving as independent 
named fiduciary (the Named Fiduciary) in connection with Prohibited 
Transaction Exemption 99-46 (PTE 99-46) \6\; provided that the 
following conditions are satisfied:
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    \6\ 64 FR 61944, November 15, 1999.
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    (a) IFS, as Named Fiduciary of the Diplomat Account, is an 
investment

[[Page 15901]]

adviser registered under the Investment Advisers Act of 1940, as 
amended, (the Advisers Act) that has, as of the last day of its most 
recent fiscal year, shareholders' equity or partners' equity, as 
defined in Section III(h), below, in excess of $750,000;
    (b) At the time of the transaction, as defined in Section III(i), 
below, the party in interest or its affiliate, as defined in Section 
III(a), below, does not have, and during the immediately preceding one 
(1) year has not exercised, the authority to--
    (1) appoint or terminate the Named Fiduciary as a manager of the 
Diplomat Account, or
    (2) negotiate the terms of the management agreement with the Named 
Fiduciary (including renewals or modifications thereof) on behalf of 
the Fund;
    (c) The transaction is not described in--
    (1) Prohibited Transaction Class Exemption 81-6 (PTCE 81-6) \7\ 
(relating to securities lending arrangements);
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    \7\ 46 FR 7527, January 23, 1981.
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    (2) Prohibited Transaction Class Exemption 83-1 (PTCE 83-1) \8\ 
(relating to acquisitions by plans of interests in mortgage pools), or
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    \8\ 48 FR 895, January 7, 1983.
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    (3) Prohibited Transaction Class Exemption 82-87 (PTCE 82-87) \9\ 
(relating to certain mortgage financing arrangements);
---------------------------------------------------------------------------

    \9\ 47 FR 21331, May 18, 1982.
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    (d) The terms of the transaction are negotiated on behalf of the 
Diplomat Account under the authority and general direction of the Named 
Fiduciary, and either the Named Fiduciary, or (so long as the Named 
Fiduciary retains full fiduciary responsibility with respect to the 
transaction) a property manager acting in accordance with written 
guidelines established and administered by the Named Fiduciary, makes 
the decision on behalf of the Diplomat Account to enter into the 
transaction, provided that the transaction is not part of an agreement, 
arrangement, or understanding designed to benefit a party in interest;
    (e) The party in interest dealing with the Diplomat Account is 
neither the Named Fiduciary nor a person related to the Named 
Fiduciary, as defined in Section III(f), below;
    (f) At the time the transaction is entered into, and at the time of 
any subsequent renewal or modification thereof that requires the 
consent of the Named Fiduciary, the terms of the transaction are at 
least as favorable to the Diplomat Account as the terms generally 
available in arm's length transactions between unrelated parties;
    (g) Neither the Named Fiduciary nor any affiliate thereof, as 
defined in Section III(b), below, nor any owner, direct or indirect, of 
a 5 percent (5%) or more interest in the Named Fiduciary is a person 
who, within the ten (10) years immediately preceding the transaction, 
has been either convicted or released from imprisonment, whichever is 
later, as a result of:
    (1) any felony involving abuse or misuse of such person's employee 
benefit plan position or employment, or position or employment with a 
labor organization;
    (2) any felony arising out of the conduct of the business of a 
broker, dealer, investment adviser, bank, insurance company, or 
fiduciary;
    (3) income tax evasion;
    (4) any felony involving the larceny, theft, robbery, extortion, 
forgery, counterfeiting, fraudulent concealment, embezzlement, 
fraudulent conversion, or misappropriation of funds or securities; 
conspiracy or attempt to commit any such crimes or a crime in which any 
of the foregoing crimes is an element; or
    (5) any other crimes described in section 411 of the Act.
    For purposes of this Section I(g), a person shall be deemed to have 
been ``convicted'' from the date of the judgment of the trial court, 
regardless of whether the judgment remains under appeal.

II. Specific Exemption Involving Places of Public Accommodation.

    If the exemption is granted, the restrictions of sections 
406(a)(1)(A) through (D) and 406(b)(1) and 406(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, effective from November 3, 2000, until November 3, 2005, to the 
furnishing of services, facilities, and any goods incidental thereto by 
a place of public accommodation owned by the Diplomat Account managed 
by IFS, acting as the Named Fiduciary, to a party in interest with 
respect to the Fund, if the services, facilities, and incidental goods 
are furnished on a comparable basis to the general public.

III. Definitions

    (a) For purposes of Section I(b), above, of this proposed 
exemption, 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 corporation, partnership, trust, or unincorporated 
enterprise of which such person is an officer, director, 5 percent (5%) 
or more partner, or employee (but only if the employer of such employee 
is the plan sponsor), and
    (3) any director of the person or any employee of the person who is 
a highly compensated employee, as described in section 4975(e)(2)(H) of 
the Code, or who has direct or indirect authority, responsibility, or 
control regarding the custody, management, or disposition of plan 
assets. A named fiduciary (within the meaning of section 402(a)(2) of 
the Act) of a plan, and an employer any of whose employees are covered 
by the plan will also be considered affiliates with respect to each 
other for purposes of Section I(b) if such employer or an affiliate of 
such employer has the authority, alone or shared with others, to 
appoint or terminate the named fiduciary or otherwise negotiate the 
terms of the named fiduciary's employment agreement.
    (b) For purposes of Section I(g), above, of this proposed 
exemption, 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 director of, relative of, or partner in, any such person,
    (3) any corporation, partnership, trust, or unincorporated 
enterprise of which such person is an officer, director, or a 5 percent 
(5%) or more partner or owner, and
    (4) any employee or officer of the person who--
    (A) Is a highly compensated employee (as described in section 
4975(e)(2)(H) of the Code) or officer (earning 10 percent (10%) or more 
of the yearly wages of such person) or
    (B) Has direct or indirect authority, responsibility or control 
regarding the custody, management, or disposition of Fund assets.
    (c) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (d) The term ``goods'' includes all things which are movable or 
which are fixtures used by the Diplomat Account but does not include 
securities, commodities, commodities futures, money, documents, 
instruments, accounts, chattel paper, contract rights, and any other 
property, tangible or intangible, which, under the relevant facts and 
circumstances, is held primarily for investment.

[[Page 15902]]

    (e) The term ``party in interest'' means a person described in 
section 3(14) of the Act and includes a ``disqualified person,'' as 
defined in section 4975(e)(2) of the Code.
    (f) The Named Fiduciary is ``related'' to a party in interest for 
purposes of Section I(e), above, of this proposed exemption, if the 
party in interest (or a person controlling, or controlled by, the party 
in interest) owns a 5 percent (5%) or more interest in the Named 
Fiduciary, or if the Named Fiduciary (or a person controlling, or 
controlled by, the Named Fiduciary) owns a 5 percent (5%) or more 
interest in the party in interest. For purposes of this definition:
    (1) The term ``interest'' means with respect to ownership of an 
entity--
    (A) The combined voting power of all classes of stock entitled to 
vote or the total value of the shares of all classes of stock of the 
entity if the entity is a corporation,
    (B) The capital interest or the profits interest of the entity if 
the entity is a partnership; or
    (C) The beneficial interest of the entity if the entity is a trust 
or unincorporated enterprise; and
    (2) A person is considered to own an interest held in any capacity 
if the person has or shares the authority--
    (A) To exercise any voting rights, or to direct some other person 
to exercise the voting rights relating to such interest, or
    (B) To dispose or to direct the disposition of such interest.
    (g) The term ``relative'' means a relative as that term is defined 
in section 3(15) of the Act, or a brother, sister, or a spouse of a 
brother or sister.
    (h) For purposes of Section I(a) of this proposed exemption, the 
term ``shareholders' equity'' or ``partners' equity'' means the equity 
shown in the most recent balance sheet prepared within the two (2) 
years immediately preceding a transaction undertaken pursuant to this 
proposed exemption, in accordance with generally accepted accounting 
principles.
    (i) The ``time'' as of which any transaction occurs is the date 
upon which the transaction is entered into. In addition, in the case of 
a transaction that is continuing, the transaction shall be deemed to 
occur until it is terminated. If any transaction is entered into during 
the period from November 3, 2000, until November 3, 2005, or if a 
renewal that requires the consent of the Named Fiduciary occurs during 
the period from November 3, 2000, until November 3, 2005, and the 
requirements of this proposed exemption are satisfied at the time the 
transaction is entered into or renewed, then the requirements will be 
deemed to continue to be satisfied thereafter with respect to the 
transaction. Nothing in this subsection shall be construed as exempting 
a transaction which becomes a transaction described in section 406 of 
the Act or section 4975 of the Code while the transaction is 
continuing, unless the conditions of this proposed exemption were met 
either at the time the transaction was entered into or at the time the 
transaction would have become prohibited but for this proposed 
exemption.

Temporary Nature of Exemption

    The Department has determined that the relief provided to IFS by 
this proposed exemption will be temporary in nature. The exemption, if 
granted, will be effective for a period of five (5) years, beginning on 
November 3, 2000, and ending on November 3, 2005, so long as IFS 
retains full fiduciary responsibility with respect to the transactions 
which are the subject of this exemption. Accordingly, the relief 
provided by this proposed exemption will not be available upon 
expiration of such five-year period for any transactions (or renewal 
that requires the consent of IFS, acting as the Named Fiduciary) first 
entered into after November 3, 2005. Should IFS wish to extend, beyond 
the five-year period, the relief provided by this proposed exemption, 
it may submit another application for exemption.

Preamble

    In October 1997, the Department received an exemption application 
(D-10514) from the Fund requesting relief from the prohibited 
transaction provisions of section 406(a) and (b) of the Act and 4975 of 
the Code. The Department published a notice of proposed exemption in 
the Federal Register on May 29, 1998.\10\ The final exemption, 
Prohibited Transaction Exemption 99-46 (PTE 99-46), was published in 
the Federal Register on November 15, 1999.\11\
---------------------------------------------------------------------------

    \10\ 63 FR 29453.
    \11\ 64 FR 61944.
---------------------------------------------------------------------------

    PTE 99-46 provides an exemption, effective October 9, 1997, for the 
transfer to the Fund by the United Association of Journeymen and 
Apprentices of the Plumbing and Pipe Fitting Industry of the United 
States and Canada, AFL-CIO (the Union), a party in interest with 
respect to the Fund, of the Union's limited partnership interests in 
the Diplomat Properties, Limited Partnership (the Partnership), the 
sole asset of which is commonly known as the Diplomat Resort and 
Country Club (the Property), and the transfer to the Fund of the 
Union's stock in Diplomat Properties, Inc., the corporate general 
partner of the Partnership (the General Partner), provided certain 
conditions are satisfied.
    In addition to the conditions contained in PTE 99-46, the Fund 
agreed by way of a Term Sheet (the Term Sheet), dated October 13, 1999, 
to several additional undertakings, including the appointment of 
Actuarial Sciences Associates, Inc. (ASA), to oversee the Fund's 
investment in the Partnership and the continuing development of the 
Property. Further, pursuant to the Term Sheet, the Board of Trustees of 
the Fund (the Trustees) agreed to a percentage limitation on the total 
Fund investment in the development of the Property. Effective November 
8, 1999, the Trustees appointed ASA to serve as the Named Fiduciary of 
the Diplomat Account which holds the Fund's interest in the 
Partnership, the General Partner, and other Fund assets invested in or 
awaiting investment in the Property.
    Pursuant to the provisions of the Term Sheet, ASA could be replaced 
by the Trustees only upon the concurrence of the Department or pursuant 
to a court order for cause. Accordingly, when ASA established a wholly-
owned subsidiary, ASA Fiduciary Counselors, Inc. (ASA Counselors), to 
provide investment advisory services, ASA sought approval from the 
Trustees and the Department prior to assigning ASA Counselors the 
investment advisory services that ASA had previously performed. After 
ASA Counselors became a registered investment adviser, ASA assigned its 
responsibilities to ASA Counselors, with the consent of the Trustees of 
the Fund and the Department.
    On March 15, 2000, the Department received an exemption application 
(D-10879) from ASA and ASA Counselors requesting relief from the 
prohibited transaction provisions of section 406(a) and (b) of the Act 
and 4975 of the Code. The Department published a notice of proposed 
exemption in the Federal Register on June 26, 2000.\12\ The final 
exemption, Prohibited Transaction Exemption 2000-49 (PTE 2000-49), was 
published in the Federal Register on October 11, 2000.\13\
---------------------------------------------------------------------------

    \12\ 65 FR 39435.
    \13\ 65 FR 60454.
---------------------------------------------------------------------------

    PTE 2000-49 permitted ASA, effective from November 8, 1999, to 
December 20, 1999, and thereafter ASA Counselors, while serving as the 
Named Fiduciary of the Diplomat Account, to engage on behalf of the 
Diplomat

[[Page 15903]]

Account in certain transactions with parties in interest with respect 
to the Fund. In the case of transactions involving places of public 
accommodation, the exemption permitted, effective November 8, 1999, the 
furnishing of services, facilities, and any goods incidental thereto by 
a place of public accommodation owned by the Diplomat Account that is 
managed by ASA or ASA Counselors, when acting as the Named Fiduciary, 
to parties in interest with respect to the Fund, if such services, 
facilities, and incidental goods are furnished on a comparable basis to 
the general public.
    Subsequently, ASA Counselors resigned its appointment as Named 
Fiduciary with respect to the Fund and the Diplomat Account, effective 
as of November 3, 2000. Prior to that date, the Trustees entered into 
an agreement with IFS, dated September 12, 2000, the terms of which 
were reviewed and found acceptable by the Department prior to 
execution. Pursuant to the terms of such agreement IFS was appointed, 
effective November 3, 2000, as successor Named Fiduciary of the Fund 
with respect to the Diplomat Account.
    On December 21, 2000, the Department received an exemption 
application (D-10960) in which IFS requested relief from the prohibited 
transaction provisions of section 406(a) and (b) of the Act and section 
4975 of the Code which is identical to that provided to ASA and ASA 
Counselors, pursuant to PTE 2000-49.
    On February 23, 2001, the Department received another exemption 
application (D-10971) from IFS, acting as Named Fiduciary on behalf of 
the Fund. IFS requested a modification to a provision of the Term Sheet 
which the Trustees had agreed to in connection with PTE 99-46. The 
relevant provision provides that:

    [t]he Trustees will instruct the custodian of the Fund to 
transfer to the Diplomat Account any additional amounts requested by 
ASA for the operations or expenses of the Diplomat Account or the 
Partnership, so long as the total amount of the Fund assets at risk 
(i.e., the Fund's investment in the Partnership plus any recourse 
debt in excess of the value of the assets in the Partnership) does 
not exceed 13 percent of the Fund assets at the time of the 
transfer.

    The requested change to PTE 99-46 would modify the 13 percent 
allocation limit (the 13% Limitation). Because both applications were 
filed by IFS and involve the assets of the Fund in the Diplomat 
Account, the Department has determined to consider the relief requested 
in both applications at the same time.

Summary of Facts and Representations

    1. The Fund is a Taft-Hartley multi-employer defined benefit 
pension fund. The Fund has approximately 123,000 participants and 
beneficiaries, as of December 28, 2000. As of December 31, 2000, and 
February 17, 2001, the approximate aggregate fair market value of the 
total assets of the Fund was $4.3 billion and $4.2 billion, 
respectively. The assets of the Fund include interests in the 
Partnership and its corporate General Partner which the Fund acquired 
pursuant to PTE 99-46.
    The sole asset of the Partnership consists of the Property located 
in Hollywood and Hallandale, Florida. The Property, among other things, 
consists of several improved parcels, including an oceanfront hotel 
complex, a convention center, a golf course, a country club, a marina, 
a parcel of oceanfront real estate zoned for development as 
condominiums units, another parcel currently unentitled and being used 
for construction trailers, and certain other related assets.
    The Fund currently owns 100 percent (100%) of the equity interest 
in the Partnership. Such interest in the Partnership is not a publicly 
offered security. Pursuant to regulations issued by the Department, 29 
CFR Sec. 2510.3-101 (the Plan Assets Regulation), when a plan acquires 
an equity interest in an entity, which interest is not a publicly 
offered security or a security issued by an investment company 
registered under the Investment Company Act of 1940, the underlying 
assets of the entity will be deemed to include plan assets, unless 
certain exceptions apply. However, when 100 percent (100%) of the 
outstanding equity interests in such entity are owned by a plan or a 
related group of plans, such exceptions do not apply (see 29 CFR 
Sec. 2510.3-101(h)(3) of the Plan Asset Regulation). Accordingly, in 
the situation described herein the applicant represents that the 
Property, which is the sole asset of the Partnership, would be deemed 
to be an asset of the Fund; and any transaction involving the Property 
is treated as a transaction involving Fund assets for purposes of the 
Act.
    2. The current requests for relief from the prohibited transaction 
provisions of the Act were filed by IFS. IFS is a Delaware corporation 
which provides a broad range of benefit consulting services to both 
public and private employee benefit plans with assets ranging from 
several million to several billion dollars. IFS is a registered 
investment adviser under the Advisers Act. Among the individuals 
employed by IFS who are primarily responsible for the development of 
the Property (the Project) are Samuel W. Halpern, Esq. (Mr. Halpern) 
and Francis X. Lilly, Esq. (Mr. Lilly), who are the sole shareholders 
of IFS. It is represented that Mr. Lilly has broad expertise in a wide 
range of subjects, including developing investment policy and analysis 
and regulation of investment activity by pension funds. Mr. Halpern is 
experienced in a wide variety of issues related to pension plans, 
including the financial and fiduciary aspects of pension fund 
investing. It is represented that the fee charged by IFS is paid by the 
Fund.
    3. IFS has requested a general exemption, rather than an exemption 
involving a specific transaction with a particular party in interest. 
In this regard, it is represented that due to the size and complexity 
of the Fund, the identities of the parties in interest which may be 
involved in the subject transactions were not known at the time the 
application was filed. With approximately $4.2 billion in assets, it is 
represented that the Fund has relationships with a variety of financial 
institutions and a multitude of other service providers who are now or 
may become parties in interest or disqualified persons, as those terms 
are defined respectively, in section 3(14) of the Act or 4975(e)(2) of 
the Code. Further, because the Project involves a complex real estate 
development, including a variety of commercial spaces and public 
accommodation, relief from the prohibited transaction provisions of the 
Act has been requested for transactions with parties in interest that 
are expected to occur in the ordinary course of operation.
    4. The requested exemption would permit IFS for a period of five 
(5) years, beginning November 3, 2000, and ending November 3, 2005, 
while serving as the Named Fiduciary of the Diplomat Account, to engage 
on behalf of the Diplomat Account in certain transactions with parties 
in interest with respect to the Fund, without violating section 
406(a)(1)(A) through (D) of the Act. Further, in the case of 
transactions involving places of public accommodation, the requested 
exemption would permit, effective November 3, 2000, through November 3, 
2005, the furnishing of services, facilities, and any goods incidental 
thereto by a place of public accommodation owned by the Diplomat 
Account that is managed by the Named Fiduciary, to a party in interest 
with respect to the Fund.
    With respect to the furnishing of services, facilities, and any 
goods incidental thereto by places of public

[[Page 15904]]

accommodation owned by the Diplomat Account, IFS maintains that, absent 
this exemption, it would not be feasible to monitor routine 
transactions in the operation of the hotel complex, the golf course, 
and the other components of the Property. In this regard, given the 
large number of participants and beneficiaries of the Fund, as well as 
the large number of contributing employers and service providers to the 
Fund, and their affiliates, it is not possible to prevent party in 
interest transactions from occurring. Accordingly, if granted, this 
exemption will permit the furnishing of services, facilities, and any 
goods incidental thereto by places of public accommodation owned by the 
Diplomat Account, and managed by IFS, to parties in interest with 
respect to the Fund, if such services, facilities and incidental goods 
are furnished on a comparable basis to the general public.
    With respect to transactions with parties in interest, other than 
those involving places of public accommodation, the requested 
exemption, if granted, would provide relief to IFS, while serving as 
Named Fiduciary of the Diplomat Account, which is similar to the relief 
provided to qualified professional asset managers (QPAMs or a QPAM) 
under Prohibited Transaction Class Exemption 84-14 (PTCE 84-14).\14\ In 
general, PTCE 84-14 permits various parties in interest with respect to 
an employee benefit plan to engage, under certain conditions, in 
transactions involving plan assets, if the assets are managed by 
persons defined under the exemption as QPAMs.
---------------------------------------------------------------------------

    \14\ 49 FR 9494 (March 13, 1984), as corrected, 50 FR 41430 
(October 10, 1985).
---------------------------------------------------------------------------

    It is represented that until December 14, 2000, the Fund engaged CS 
Capital Management Inc. (CSC), as a QPAM to manage the Project.\15\ 
Subsequently, pursuant to its authority as Named Fiduciary, IFS removed 
CSC as the QPAM and appointed LaSalle Investment Management, Inc. 
(LaSalle) as replacement QPAM, effective December 14, 2000. It is 
represented that LaSalle meets the definition of a QPAM for all 
purposes under PTCE 84-14.\16\
---------------------------------------------------------------------------

    \15\ IFS represents that CSC may not have qualified for the 
general exemption under Part I of PTCE 84-14, because the assets of 
the Fund managed by CSC may have represented more than 20 percent 
(20%) of the total client assets managed by CSC. The Department is 
offering no view, herein, as to whether CSC has met the definition 
of a QPAM, as set forth in Part V(a) of PTCE 84-14, and has 
satisfied all of the conditions, as set forth in Part I of PTCE 84-
14, nor is the Department, herein, providing CSC any relief for 
transactions with parties in interest with respect to the Fund while 
the assets of the Fund were under the management of CSC.
    \16\ The Department is offering no view, herein, as to whether 
LaSalle has met the definition of a QPAM, as set forth in Part V(a) 
of PTCE 84-14, and has satisfied all of the conditions, as set forth 
in Part I of PTCE 84-14, nor is the Department, herein, providing 
LaSalle any relief for transactions with parties in interest with 
respect to the Fund while assets of the Fund are under the 
management of LaSalle.
---------------------------------------------------------------------------

    Although, in many cases the Fund will be able to rely on the 
ability of LaSalle to qualify as a QPAM under PTCE 84-14, IFS believes 
that there may be instances in which it will become necessary or 
desirable for IFS to act more directly with respect to a transaction 
(if, for example, the transaction is with an entity in some way related 
to LaSalle or if IFS determines it is prudent to retain discretion with 
respect to certain significant transactions). Accordingly, IFS has 
requested relief under conditions which are similar to those required 
in Part I of PTCE 84-14.\17\
---------------------------------------------------------------------------

    \17\ The Department, herein, is not proposing an exemption for 
the type of transactions which are described in Part II and Part III 
of PTCE 84-14.
---------------------------------------------------------------------------

    In this regard, Part I of PTCE 84-14 provides relief from the 
restrictions of section 406(a)(1)(A)-(D) of the Act and 4975(c)(1)(A)-
(D) of the Code for transactions between a party in interest with 
respect to an employee benefit plan and an investment fund in which 
such plan has an interest which is managed by a QPAM; provided certain 
conditions are met. One such condition (the Diverse Clientele Test), as 
set forth in Part I(e) of PTCE 84-14, requires that:

    The transaction is not entered into with a party in interest 
with respect to any plan whose assets managed by the QPAM, when 
combined with the assets of other plans established or maintained by 
the same employer (or affiliate thereof * * *) or by the same 
employee organization, and managed by the QPAM, represent more than 
20 percent of the total client assets managed by the QPAM at the 
time of the transaction.

    In this regard, IFS represents that due to the nature and scope of 
its responsibilities as the Named Fiduciary, the assets of the Fund 
held by the Diplomat Account managed by IFS exceed 20 percent (20%) of 
the total client assets that it has under management. Accordingly, IFS 
represents that it is unable to satisfy the Diverse Clientele Test 
found in Part I(e) of PTCE 84-14.
    Additionally, pursuant to Part V(a)(4) of PTCE 84-14, in order for 
an investment adviser registered under the Advisers Act to qualify as a 
QPAM, as of the last day of its most recent fiscal year, total client 
assets under its management and control must exceed $50 million (the 
Managed Assets Test). Although IFS serves as an investment advisor or 
(on rare occasions) investment manager with respect to over $8 billion 
of assets, it is represented that the total client assets under its 
direct management and control did not exceed $50 million, as of the 
last day of its most recent fiscal year.\18\ Accordingly, IFS 
represents that it is unable to satisfy the requirements of the Managed 
Assets Test, as set forth in Part V(a)(4) of PTCE 84-14.
---------------------------------------------------------------------------

    \18\ Although IFS represents that it is a fiduciary with respect 
to most of these assets by virtue of providing investment advice for 
a fee, IFS does not generally function as an investment manager, 
within the meaning of section 3(38) of the Act, with respect to 
those assets.
---------------------------------------------------------------------------

    5. Notwithstanding its inability to meet the requirements of the 
Managed Assets Test or to satisfy the Diverse Clientele Test, IFS 
maintains that the requested administrative exemption should be granted 
where it can be demonstrated that IFS, like a QPAM, acts in the best 
interest of plan participants, unencumbered by a relationship with 
parties in interest. With regard to independence, it is represented 
that IFS had no relationship with the Fund or with the Trustees, prior 
to the execution of the agreement appointing IFS as Named Fiduciary. In 
the opinion of IFS, the Department's involvement in the appointment 
process ensured that when selected to serve as the Named Fiduciary of 
the Diplomat Account, IFS was independent and qualified to act in that 
capacity. In addition, it is represented that the reporting obligations 
of IFS to the Department and the restrictions on the removal of IFS, as 
the Named Fiduciary under PTE 99-46, by the Trustees of the Fund 
ensures the continued independence of IFS.
    6. It is represented that the proposed exemption is in the best 
interest of the Fund. In this regard, if granted, the proposed 
exemption would facilitate the management of the Project in the manner 
most efficient and beneficial to the participants and beneficiaries 
that have interests in the Fund. As discussed above, the proposed 
exemption would facilitate routine operations of the Project. In the 
absence of the exemption, it would be burdensome to examine each 
transaction to determine whether such transaction might involve a party 
in interest.
    7. It is represented that without the exemption, the Diplomat 
Account could be prevented from entering into beneficial financial 
transactions with parties in interest that would enhance the return to 
the Fund. As indicated, above, the Fund has party in interest

[[Page 15905]]

relationships with a variety of financial institutions and other 
service providers. In this regard, it is represented that without the 
requested exemption, the pool of possible lenders and equity investors 
would be unduly restricted, because any financial institution that has 
pre-existing relationships with the Fund would be excluded from dealing 
with the Diplomat Account.
    8. IFS maintains that in granting PTCE 84-14, the Department has 
already determined that the requested exemption is administratively 
feasible. Accordingly, in the opinion of IFS, the requested exemption 
would not impose any administrative burdens on the Department which are 
not already imposed by PTCE 84-14 and by PTE 2000-49.
    9. IFS maintains that the proposed exemption would be protective of 
the rights of participants and beneficiaries of the Fund because of the 
on-going oversight of both the Trustees and the Department. In this 
regard, it is represented that under the terms of an agreement with the 
Trustees, IFS has a continuing responsibility to furnish the Trustees 
and the Department with monthly written reports concerning the 
operations, assets, receipts, and disbursements with respect to the 
Project. Furthermore, it is IFS' responsibility to provide the 
Department with certain documents and to meet with Department officials 
upon request.
    10. The proposed exemption contains conditions which are designed 
to ensure the presence of adequate safeguards to protect the interests 
of the Fund regarding the subject transactions. Except for the Diverse 
Clientele Test, as set forth in Part I(e) of PTCE 84-14, and the 
Managed Assets Test, as set forth in Part V(a)(4) of PTCE 84-14, the 
proposed exemption contains conditions substantially similar to those 
in PTCE 84-14. In this regard, IFS represents that it satisfies the 
capitalization requirement for an investment advisor, registered under 
the Advisers Act, to qualify as a QPAM, in that it has shareholder's 
equity of more than $750,000. Further, it is represented that the 
transactions which are the subject of this proposed exemption are not 
part of an agreement, arrangement, or understanding designed to benefit 
a party in interest. In addition, neither the Named Fiduciary nor a 
person related to the Named Fiduciary may engage in transactions with 
the Diplomat Account.
    11. In the absence of the proposed exemption, IFS may be unable to 
exercise the degree of control over the financing and operations of the 
Project, as contemplated by the Department and the Trustees. In this 
regard, pursuant to the Terms of ASA's services contract, ASA had full 
and complete authority, control, and discretion with respect to the 
construction, use, and/or sale of the Project and all of its 
components, including performing whatever tasks might be necessary to 
maximize the financial return to the Fund of its investment in the 
Partnership. ASA's overall authority remained subject to the 
requirement that the total amount of Fund assets at risk (i.e., the 
Fund's investment in the Partnership plus any recourse debt in excess 
of the value of the assets in the Partnership) not exceed 13 percent of 
the Fund assets at the time of the transfer. After ASA assigned its 
responsibilities to ASA Counselors, with the consent of the Trustees 
and the Department, ASA Counselors was obligated to comply with the 13% 
Limitation. Thereafter, when ASA Counselors resigned, and the Trustees 
hired IFS, as successor Named Fiduciary for the Fund with respect to 
the Diplomat Account, IFS did not initially anticipate that any 
transfers would be made to the Diplomat Account in excess of the 13% 
Limitation.
    However, shortly after IFS began functioning as the independent 
Named Fiduciary, IFS alerted the Department of its concern that the 
amount of the Fund's assets invested in the Project, plus recourse 
debt, would soon exceed the 13% Limitation. Indeed, exceeding the 13% 
Limitation seemed likely to IFS, given the difficulty of placing 
sufficient nonrecourse debt on the Project, the projected budget to 
complete construction, and the fluctuating value of the Fund's total 
investment portfolio.
    In this regard, as of February 17, 2001, the Partnership had drawn 
down approximately $522 million from the Fund. It is represented that 
IFS was advised that the total value of the assets of the Fund, as of 
December 31, 2000, was $4.3 billion (13% of which is $559 million), and 
as of February 17, 2001, was $4.2 billion (13% of which is $546 
million). Based on current budget projections, IFS estimates that the 
Fund would likely exceed the 13% Limitation well before the Partnership 
could close on any financing.
    Absent a modification to the 13% Limitation, completion of the 
Project without interruption is not likely, because the Partnership 
could not promptly obtain the requisite financing or sell sufficient 
assets to remain within that limit. In this regard, LaSalle concluded 
that finding alternative debt financing on a best case scenario is 
likely to take at least three (3) to four (4) months. Any financing 
obtained prior to a certificate of occupancy is likely to be advanced 
under onerous terms to the Partnership and would include recourse to 
the Fund. Further, LaSalle has concluded that if, because of the 13% 
Limitation, the Fund now sought to sell the Property, rather than 
complete it, the Fund would suffer substantial losses.
    Instead, LaSalle believes that it would be far more advantageous 
(assuming it is legally permissible) for the Fund to finance the 
Project to completion. In this regard, if construction is completed and 
the Project achieves stabilized income, LaSalle projects that the 
increased value of the Project, as completed, less the cost of 
completion will likely be higher than the value of the Project, if it 
were to be sold as a distressed asset. In addition, if construction 
were abandoned or interrupted now, there would be significant costs 
associated with shutting down the Project (either temporarily or 
permanently) until the Property could be sold that would not otherwise 
be incurred. LaSalle has concluded that the total expenditures that 
would result from the abandonment or interruption of the Project would 
cause the Project to significantly exceed the 13% Limitation.
    Although LaSalle is still completing its review of the budget for 
completion of the Project, it has, nevertheless, concluded that the 
budget prepared by the Partnership on September 30, 2000, which 
estimated the cost of the Project at $614,745,884, does not accurately 
reflect the true situation. It is represented that, in part, this is 
because the September 30 budget excludes approximately $61 million of 
hard cost increases, various other hard costs that have been identified 
since that time, and other normal budget scope items (e.g., start-up 
operating losses). Instead, based on its preliminary review of the 
budget, LaSalle estimates that the total cost of the development of the 
Project and the first year operating losses could total approximately, 
but not more than, $800 million.
    It is the opinion of LaSalle that additional funding by the Fund up 
to a flat dollar amount of sufficient magnitude to allow for the 
completion of the Project is the best financing solution currently 
available to the Partnership. This solution will allow the Partnership 
to extract the most value from its investment in the long run, and 
avoid the inevitable but unnecessary losses that the Fund would face if 
the Project were abandoned now. A flat dollar limitation would also 
remove the uncertainty as to how and if the Project will be financed to 
completion.

[[Page 15906]]

    First, uncertainty will be reduced by setting the limitation at 
$800 million because this dollar amount should cover the estimated 
completion of the Project with a suitable contingency. In the opinion 
of LaSalle, it would be unwise, due to the history and uncertainties of 
the Project, not to seek an allocation limit that was in excess of what 
it believes to be the required need.
    Second, aside from providing a sufficient increase in the 13% 
Limitation, a flat limitation, rather than a percentage limitation will 
further reduce uncertainty because fluctuations in the total value of 
Fund assets will not result in constant changes to the limitation.
    Elimination of financing uncertainty will, in turn, allow the 
Project team to focus on completing construction, installing the best 
hotel operator, opening the hotel, and generating revenues as soon as 
possible. It would overcome concerns in booking rooms that there will 
not be enough capital to complete the hotel, an issue which the 
marketing team must constantly address.
    In light of LaSalle's conclusions, as summarized above, IFS has 
proposed replacement of the 13% Limitation with the following 
requirement:

    The Trustees will instruct the custodian of the Fund to transfer 
to the Diplomat Account any additional amount requested by the 
independent named fiduciary for the operations or expenses of the 
Diplomat Account or the Partnership, so long as the total amount of 
Fund assets at risk (i.e., the Fund's investment in the Partnership 
plus any recourse debt in excess of the value of the assets in the 
Partnership) does not exceed $800 million at the time of the 
transfer.

    As the Department previously noted in PTE 99-46, the additional 
undertakings agreed to by the Trustees, including the appointment of an 
independent fiduciary and the limitation on the total Fund investment 
in the Project, were and are material factors in the Department's 
determination to grant that exemption, as well as in considering any 
modification thereto.
    Based upon the arguments presented by IFS, the Department has 
tentatively agreed to the proposed modification requested by IFS and 
invites interested persons to comment on such modification.
    12. In summary, IFS represents that the transactions satisfy the 
statutory criteria for an exemption under section 408(a) of the Act and 
section 4975(c)(2) of the Code because, among other things:
    (a) IFS, acting as the Named Fiduciary for the Diplomat Account, is 
an investment adviser registered under the Advisers Act, with 
shareholders' equity in excess of $750,000;
    (b) At the time of the transaction, the party in interest or its 
affiliate does not have, and during the preceding one (1) year has not 
exercised, the authority to appoint or terminate IFS, as the Named 
Fiduciary and manager of the Fund's assets in the Diplomat Account, or 
to negotiate the terms on behalf of the Fund (including renewals or 
modifications) of the management agreement;
    (c) The subject transactions are not those which are described in 
PTCE 81-6; PTCE 83-1; or PTCE 82-87;
    (d) The terms of the transactions were negotiated on behalf of the 
Diplomat Account by, or under the authority and general direction of 
IFS, effective as of November 3, 2000, and either IFS or (so long as 
IFS retains full fiduciary responsibility with respect to the 
transaction, a property manager acting in accordance with written 
guidelines established and administered by IFS, has made or will make 
the decision on behalf of the Diplomat Account to enter into each 
transaction;
    (e) The transactions are not part of an agreement, arrangement, or 
understanding designed to benefit a party in interest;
    (f) At the time each transaction is entered into, renewed, or 
modified, the terms of the transaction are at least as favorable to the 
Diplomat Account as the terms generally available in arm's length 
transactions between unrelated parties;
    (g) Neither IFS, nor any affiliate thereof, nor any owner, direct 
or indirect, of a 5 percent (5%) or more interest in IFS, is a person 
who, within the ten (10) years immediately preceding the transaction 
has been either convicted or released from imprisonment, whichever is 
later, as a result of any felony, as set forth in Section I(g) of this 
proposed exemption;
    (h) Neither IFS, nor a person related thereto, engages in the 
transactions with the Diplomat Account which are the subject of this 
proposed exemption;
    (i) Services, facilities, and any goods incidental thereto, 
provided by a place of public accommodation which is owned by the 
Diplomat Account managed by IFS, as the Named Fiduciary, will be 
furnished to any party in interest on a basis which is comparable to 
the furnishing of such services, facilities and incidental goods to the 
general public;
    (j) Completion of the Project without interruption, absent a 
modification to the 13% Limitation, is not likely, because the 
Partnership could not promptly obtain the requisite financing or sell 
sufficient assets to remain within that limit;
    (k) The Fund would incur significant costs associated with shutting 
down the Project (either temporarily or permanently) until the Property 
could be sold that would not otherwise be incurred;
    (l) A distressed sale of the Property would cause substantial 
losses for the Fund; and
    (m) The increased value of the Project, as completed, less the cost 
of completion will likely be higher than the value of the Project, if 
it were to be sold as a distressed asset.

Notice To Interested Persons

    IFS will furnish a copy of the Notice of Proposed Exemption (the 
Notice) along with the supplemental statement (the Supplemental 
Statement), as described at 29 CFR Sec. 2570.43(b)(2), to the Trustees 
of the Fund and to interested persons who commented in writing to the 
Department in connection with PTE 99-46, to inform such persons of the 
pendency of this exemption. In this regard, some of the Trustees of the 
Fund are also senior officers of the Union. IFS believes that providing 
notice to the Trustees of the Fund and to interested persons who 
commented in writing to the Department in connection with PTE 99-46 
should be sufficient, because the requested exemption involves the 
technical requirements of the Act related to the use of qualified 
professional asset managers and it is unlikely that individuals other 
than the Trustees and those who commented on PTE 99-46 would be 
concerned with such an exemption.
    A copy of the Notice, as it appears in the Federal Register, and a 
copy of the Supplemental Statement, will be provided, by first class 
mailing, within ten (10) days of the publication of the Notice in the 
Federal Register. It is represented that the costs of notifying 
interested persons will be borne by the Fund. Comments and requests for 
a hearing are due on or before 40 days from the date of publication of 
the Notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Ms. Angelena C. Le Blanc of the 
Department, telephone (202) 219-8883 (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

[[Page 15907]]

a fiduciary or other party in interest or 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 that each application 
accurately describes all material terms of the transaction which is the 
subject of the exemption.

    Signed at Washington, DC, this 15th day of March, 2001.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, Department of Labor.
[FR Doc. 01-7044 Filed 3-20-01; 8:45 am]
BILLING CODE 4510-29-P