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Secretary of Labor Thomas E. Perez
Grant of Individual Exemptions; The Savings Plan for Employees of Florida Progress Corporation (the Plan) et al. [Notices] [10/22/2001]

EBSA (Formerly PWBA) Federal Register Notice

Grant of Individual Exemptions; The Savings Plan for Employees of Florida Progress Corporation (the Plan) et al. [10/22/2001]

[PDF Version]

Volume 66, Number 204, Page 53438-53454

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Prohibited Transaction Exemption 2001-38; Exemption Application No. D-
10953, et al.]

 
Grant of Individual Exemptions; The Savings Plan for Employees of 
Florida Progress Corporation (the Plan) et al.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemptions.

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SUMMARY: This document contains exemptions issued by the Department of 
Labor (the Department) from certain of the prohibited transaction 
restrictions of the Employee Retirement Income Security Act of 1974 
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
    Notices were published in the Federal Register of the pendency 
before the Department of proposals to grant such exemptions. The 
notices set forth a summary of facts and representations contained in 
each application for exemption and referred interested persons to the 
respective applications for a complete statement of the facts and 
representations. The applications have been available for public 
inspection at the Department in Washington, DC. The notices also 
invited interested persons to submit comments on the requested 
exemptions to the Department. In addition the notices stated that any 
interested person might submit a written request that a public hearing 
be held (where appropriate). The applicants have represented that they 
have complied with the requirements of the notification to interested 
persons. No public comments and no requests for a hearing, unless 
otherwise stated, were received by the Department.
    The notices of proposed exemption were issued and the exemptions 
are being granted solely by the Department because, effective December 
31, 1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. 
App. 1 (1996), transferred the authority of the Secretary of the 
Treasury to issue exemptions of the type proposed to the Secretary of 
Labor.

Statutory Findings

    In accordance with section 408(a) of the Act and/or section 
4975(c)(2) of the Code and the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon 
the entire record, the Department makes the following findings:
    (a) The exemptions are administratively feasible;
    (b) They are in the interests of the plans and their participants 
and beneficiaries; and
    (c) They are protective of the rights of the participants and 
beneficiaries of the plans.

The Savings Plan for Employees of Florida Progress Corporation (the 
Plan)Located in St. Petersburg, FL

[Prohibited Transaction Exemption 2001-38; Exemption Application No. D-
10953]

Exemption

    The restrictions of sections 406(a), 406(b)(1) and (b)(2) and 
section 407(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 (E) of the Code, shall not apply, effective 
November 30, 2000, to (1) the receipt, by the Plan, of contingent value 
obligations (the CVOs), as a result of the Plan's ownership of certain 
common stock (the Florida Progress Stock) in Florida Progress 
Corporation (Florida Progress), the Plan sponsor;
    (2) the continued holding of the CVOs by the Plan; and the (3) 
potential resale of the CVOs by the Plan to Progress Energy, Inc. 
(Progress Energy), a party in interest with respect to the Plan.
    This exemption is subject to the following conditions:
    (a) The Plan received one CVO for each share of Florida Progress 
Stock on the effective date of the share exchange between Florida 
Progress and CP&L Energy, Inc. (CP&L Energy), the predecessor entity to 
Progress Energy.
    (b) All Florida Progress shareholders, including Plan participants, 
received the CVOs in the same manner, so that the Plan participants and 
beneficiaries were not in a less advantageous position than other 
Florida Progress shareholders.
    (c) The Plan's receipt of the CVOs, including other share exchange

[[Page 53439]]

consideration consisting of cash and/or shares of CP&L Energy stock, 
resulted from shareholder approval and did not relate to any unilateral 
exercise of discretion by a Plan fiduciary.
    (d) Salomon Smith Barney, Inc. (Salomon Smith Barney) advised 
Florida Progress that the consideration to be received by Florida 
Progress shareholders in exchange for their shares of Florida Progress 
Stock was ``fair,'' from a financial point of view.
    (e) The Plan did not pay any fees or commissions in connection with 
the acquisition of the CVOs, nor will it pay any fees or commissions in 
connection with the holding or potential sale of the CVOs to Progress 
Energy.
    (f) An independent fiduciary, United States Trust Company, N.A.,
    (1) Has overseen, and continues to oversee, the Plan's holding or 
disposition of any CVOs for which the Plan does not receive any 
investment direction and determines whether it is appropriate for the 
Plan to sell the CVOs; and
    (2) Retains the services of an independent appraiser to calculate 
the price at which the CVOs are sold to Progress Energy in order to 
ensure that adequate consideration is received.
    (g) Plan participants have the same rights and flexibility as 
unrelated parties and they may sell their CVOs at any time.
    Effective Date:This exemption is effective as of November 30, 2000.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on July 30, 2001 at 66 FR 
39363.

Written Comments

    During the comment period, the Department received one written 
comment with respect to the proposed exemption and no requests for a 
public hearing. The comment was submitted by the Plan's legal counsel 
and is intended to clarify the Summary of Facts and Representations 
(the Summary) of the proposal in two areas. First, in Representation 3 
of the Summary, the third sentence of the initial paragraph states, at 
39363, that at the time of the share exchange transaction, Progress 
Energy, then known as CP&L Energy, Inc., operated through three 
subsidiaries, CP&L, North Carolina Power & Gas, Inc. and Interpath 
Communications, Inc. The applicant suggests that this sentence be 
revised to read as follows to correct certain minor inaccuracies:

    At the time of the share exchange transaction described in this 
notice of proposed exemption, Progress Energy, then known as CP&L 
Energy, Inc., operated primarily through three major subsidiaries, 
CP&L, North Carolina Power & Gas, Inc. and Interpath Communications, 
Inc. (ICI).

    Second, in Representation 12 of the proposed exemption, the last 
sentence of the paragraph states, at 39366, that Salomon Smith Barney 
advised Florida Progress, in an opinion letter dated July 5, 2000 to 
the company's Board of Directors, that due to the low trading volume in 
the ``when, as and if issued'' market, a mass sale of the CVOs by the 
Plan would likely depress the value of the CVOs, thereby adversely 
affecting the interests of the Plan participants. The applicant 
requests that the phrase ``in an opinion letter dated July 5, 2000 to 
the company's Board of Directors'' be deleted since the letter related 
solely to the fairness of the corporate transaction to the Florida 
Progress shareholders from a financial point of view, whereas the 
referenced advice was given separately. Therefore, the applicant 
recommends that the sentence be revised to read as follows:

    However, Salomon Smith Barney advised Florida Progress that due 
to the low trading volume in the ``when, as and if issued'' market, 
a mass sale of the CVOs by the plan would likely affect the value of 
the CVOs, thereby adversely affecting the interests of the Plan 
participants.

    In response to the applicant's comment letter, the Department has 
noted the foregoing changes to the Summary. For further information 
regarding the applicant's comment and other matters discussed herein, 
interested persons are encouraged to obtain copies of the exemption 
application file (Exemption Application No. D-10953) the Department is 
maintaining in this case. The complete application file, as well as all 
supplemental submissions received by the Department, are made available 
for public inspection in the Public Disclosure Room of the Pension and 
Welfare Benefits Administration, Room N-1513, U.S. Department of Labor, 
200 Constitution Avenue, N.W., Washington, D.C. 20210.
    Accordingly, after giving full consideration to the entire record, 
including the applicant's comment, the Department has decided to grant 
the exemption.

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

Independent Fiduciary Services, Inc. (IFS) Located in Washington, 
DC

[Prohibited Transaction Exemption (PTE) 2001-39; Exemption Application 
Nos. D-10960 and D-10971]

Exemption

I. General Transactions
    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),\1\ shall not apply, 
effective from November 3, 2000, 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 PTE 99-46 \2\; 
provided that the following conditions are satisfied:
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    \1\ For purposes of this exemption, references to specific 
provisions of Title I of the Act, unless otherwise specified, refer 
to the corresponding provisions of the Code.
    \2\ 64 FR 61944, November 15, 1999.
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    (a) IFS, as Named Fiduciary of the Diplomat Account, is an 
investment 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)\3\ 
(relating to securities lending arrangements);
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    \3\ 46 FR 7527, January 23, 1981.
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    (2) Prohibited Transaction Class Exemption 83-1 (PTCE 83-1)\4\ 
(relating to acquisitions by plans of interests in mortgage pools), or
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    \4\ 48 FR 895, January 7, 1983.
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    (3) Prohibited Transaction Class Exemption 82-87 (PTCE 82-87)\5\

[[Page 53440]]

(relating to certain mortgage financing arrangements);
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    \5\ 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
    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, 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 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 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.
    (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 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.

[[Page 53441]]

    (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 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 
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 on or 
after the effective date of this exemption, or if a renewal that 
requires the consent of the Named Fiduciary occurs on or after the 
effective date of this exemption, and the requirements of this 
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 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 exemption.
    Effective Date: This exemption is effective November 3, 2000, the 
date when IFS was appointed to serve as the independent Named Fiduciary 
for the Fund with respect to the Diplomat Account.

Background

    The Diplomat Resort and Country Club (the Property) is located in 
Hollywood and Hallandale, Florida. Constructed in the late 1950's, the 
Property functioned as a premier hotel and resort in the decades from 
the 1950's to the 1980's. During this period, the Property was in the 
possession of the family of Samuel Friedland. After the death of Mr. 
Friedland in 1985, his son-in-law, Irving Cowan, bought out the 
interests in the Property held by other family members. In 1987, a 
consortium of trade union pension funds, led by the Union Labor Life 
Insurance Company (ULLICO) loaned Mr. Cowan $44 million to continue 
operation of the Property. In 1991, ULLICO foreclosed on the loan to 
Mr. Cowan and, as a result, acquired title to the Property through a 
subsidiary. In 1991, the hotel on the Property was closed for 
renovations and did not reopen. In 1997, ULLICO placed the entire 
Property on the market for sale.\6\
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    \6\ In this regard, for information on the history of the 
Property, please refer to an article by Jeff Shields, published in 
the Hollywood, Florida Sun-Sentinel on May 13, 2001, which was sent 
to the Department attached to a letter from a commentator.
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    When ULLICO offered the Property for sale, it is represented that 
the Trustees of the Fund were interested in acquiring it as an 
investment for the Fund. However, a non-negotiable condition of the 
sale offer excluded assets of any employee benefit fund subject to the 
Act from being used to purchase the Property, and prevented the Fund 
from buying the Property. As a result of the offer to sell the 
Property, it is represented that ULLICO's subsidiary received seven or 
eight bids from prospective purchasers, including the United 
Association of Journeymen and Apprentices of the Plumbing and Pipe 
Fitting Industry of the United States and Canada, AFL-CIO (the Union).
    As the successful bidder on the Property, the Union acquired title 
to the Property on October 1, 1997. In this regard, a wholly-owned 
subsidiary of the Union, the Diplomat Properties Limited Partnership 
(the Partnership), purchased the Property from ULLICO's wholly-owned 
subsidiary for a purchase price of $40 million, plus closing costs and 
related expenses. The Partnership financed the purchase of the Property 
by obtaining a loan from National City Bank of Cleveland, Ohio (NCB) 
which was guaranteed by the Union and collateralized by Union assets 
consisting of cash, cash equivalents, and securities held by NCB in a 
custodial account.
    On October 3, 1997, the Department received an exemption 
application (D-10514) from the Fund. The transaction for which relief 
was requested was initially described in the application, as the 
purchase by the Fund from the Union of title to the Property for $40 
million, plus the closing costs and related expenses incurred by the 
Union in purchasing the Property from ULLICO's subsidiary. Upon 
submission of application D-10514, the Fund had not yet consummated the 
transaction, but planned to close the deal within a few days of filing 
the application with the Department. Accordingly, the Fund requested 
retroactive relief.
    The closing occurred on October 9, 1997. Specifically, the 
transactions involved in the closing included: (a) The transfer by the 
Union to the Fund of the Union's limited partnership interests in the 
Partnership, the sole asset of which was the Property, and (b) the 
transfer to the Fund of 100 percent (100%) of the stock in Diplomat 
Properties, Inc., the corporate general partner of the Partnership (the 
General Partner), which was owned by the Union. In consideration of 
these transfers, the Fund made a capital contribution to the 
Partnership in the amount of $40 million, plus reasonable costs 
incurred by the Union in purchasing the Property, on behalf of the 
Partnership, from ULLICO's subsidiary. On October 10, 1997, the Fund's 
capital contribution to the Partnership was used to pay off the loan 
from NCB that the Union, on behalf of the Partnership, had incurred in 
acquiring the Property. Once the loan was paid off, Union assets were 
no longer pledged as collateral for the loan, and the Union was 
released from its guaranty.
    During the eight (8) months from October 3, 1997, when application 
D-10514 was filed until May 29, 1998, when the proposed exemption was 
published, the Department, in considering the application, received a 
number of submissions from the Fund, in response to questions from the 
Department about the details of the transactions and the 
appropriateness of the acquisition of the Property by the Fund. 
Representations were made that the $40 million purchase price paid by 
the Fund would constitute less than 2% of the assets of the Fund 
(approximately $3.1 billion in 1997). Application D-10514 included 
several reports prepared by Chadwick, Saylor & Co., Inc. (CSC), an 
investment advisor registered under the Investment Advisors Act of 
1940. In this regard, CSC represented that it was independent and 
qualified to serve as the independent fiduciary acting on behalf of the 
Fund with regard to the acquisition by the Fund of the Property. In its 
reports to the Department, CSC stated that, subject to certain 
assumptions, the acquisition price of the Property was fair, the 
transaction was a prudent investment for the Fund, and the transaction 
was in the best interest of the participants and beneficiaries of the 
Fund. Application D-10514 also contained a copy of an independent 
appraisal report, dated August 22, 1997, prepared for the Union by Roe 
Research, Inc., stating that, as of August 8, 1997, the fair market 
value of the Property was $40 million ``as is'' in a ``bulk sale of all 
parcels to a single purchaser.'' The appraiser indicated that the 
highest and best use of the Property would be to renovate or to 
demolish and replace some or all of the existing improvements on the 
Property. In this

[[Page 53442]]

regard, when application D-10514 was filed, CSC represented in a letter 
dated September 29, 1997, that ``even though redevelopment/construction 
cost budgets and time schedules and projected operating budgets and 
cash flow for the development/redevelopment and operational phases of 
the project were not available, CSC believes that such budgets, 
schedules and projections, if available, would support the opinion 
offered herein.'' Thereafter, in response to questions from the 
Department, CSC addressed, in a letter dated, December 15, 1997, ``* * 
* the appropriateness of the acquisition of the Property and the 
contemplated development and redevelopment related to the return and 
risk characteristics of the Fund.'' In this regard, CSC represented 
that nothing came to CSC's attention in reviewing a substantial amount 
of physical property, area, governmental and legal information that 
indicated that matters related to budgeting, scheduling and operation 
could not be favorably resolved. Further, CSC stated its expectation 
that such matters would be favorably resolved based on the work 
undertaken at the Property since the issuance of the September 29, 
1997, opinion letter.
    On May 29, 1998, the Department published in the Federal Register a 
notice of proposed exemption for the acquisition of the Property by the 
Fund, effective October 9, 1997, from the prohibited transaction 
provisions of section 406(a) and (b) of the Act and 4975 of the Code. 
Notice of the publication of the proposed exemption for application D-
10514 was provided to all interested persons with respect to the Fund. 
All comments and requests for a hearing were due on August 3, 1998. 
During the comment period, the Department received comments from 65 
commentators. It was during this comment period that the Department was 
made aware from commentators that the hotel on the Property had been 
demolished and that the amount of the Fund's assets to be invested in 
the Property was likely to exceed the $40 million capital contribution 
made by the Fund to acquire the Union's interest in the Partnership 
which owned the Property.
    In response to this issue raised by the commentators, 
representatives of the Fund advised the Department in a letter, dated 
August 12, 1998, that the Fund had committed to the Partnership a total 
of $100 million (including the $40 million acquisition cost). It was 
represented that the additional $60 million had been placed in a 
separate account (i.e.; the Diplomat Account) to be drawn down by the 
Partnership, as necessary. It was represented that, while redevelopment 
plans for the Property were not yet final, the total cost was 
anticipated to be approximately $400 million. However, it was 
represented that there were no plans for the Fund to invest more than 
the $100 million already committed.
    On September 14, 1998, an additional submission from the applicant 
included the Partnership's proposed investment structure for the 
redevelopment of the Property which indicated equity capital of $100 
million from the Fund, anticipated equity investment from third party 
investors of $100 million, and a balance of $325 million to come from 
debt financing. It was represented in this letter that any decision to 
commit more of the Fund's assets to the redevelopment of the Property 
would be subject to the approval of an independent fiduciary retained 
by the Fund to monitor the investment. On September 24, 1998, an 
additional submission from the applicant included a clarification that, 
to date, less than $60 million (including the Fund's initial capital 
contribution of $40 million to the Partnership) had been spent on the 
Property.
    Because of the facts that came to the Department's attention 
regarding the Fund's involvement in the redevelopment of the Property, 
the Department suspended processing the exemption application on 
February 2, 1999, pending an investigation into the facts surrounding 
the redevelopment of the Property. Further, the Department began 
discussions with the Board of Trustees of the Fund (the Trustees) about 
additional safeguards for inclusion in the final exemption.
    In this regard, the Trustees agreed by way of a Term Sheet dated 
October 13, 1999 (the Term Sheet), to several undertakings in addition 
to the conditions published in the Notice of Proposed Exemption. The 
Department was not a party to the Term Sheet. One such safeguard agreed 
to by the Trustees, pursuant to the Term Sheet, was a percentage 
limitation on the amount of the total assets of the Fund to be invested 
in the redevelopment of the Property. The relevant provision of the 
Term Sheet states that:

    [t]he Trustees will instruct the custodian of the Fund to 
transfer to the Diplomat Account any additional amounts * * * 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 13% Limitation).

    Further, the Trustees agreed, pursuant to the Term Sheet, to the 
appointment of a Named Fiduciary to oversee the Fund's investment in 
the Partnership and to oversee the continuing redevelopment of the 
Property. In this regard, on November 8, 1999, the Trustees appointed 
Actuarial Sciences Associates, Inc. (ASA), to serve as the Named 
Fiduciary of the Diplomat Account, an account which was established to 
hold the Fund's interest in the Partnership, the Fund's interest in the 
General Partner, and any other Fund assets invested in or awaiting 
investment in the Property. ASA's service contract was subject to the 
approval of the Secretary of Labor. The performance of ASA's services 
and responsibilities commenced on the date when the final exemption was 
executed by the Secretary of Labor or her delegate.
    The final exemption for application D-10514 was published in the 
Federal Register by the Department on November 15, 1999, as Prohibited 
Transaction Exemption 99-46 (PTE 99-46).\7\ PTE 99-46 provided 
retroactive relief, effective October 9, 1997, from the prohibited 
transaction provisions of section 406(a) and (b) of the Act and section 
4975 of the Code. In this regard, the transaction for which retroactive 
relief was granted involved the transfer to the Fund by the Union of 
the Union's limited partnership interests in the Partnership, the sole 
asset of which is the Property, and the transfer to the Fund of the 
Union's stock in the General Partner, in consideration of a capital 
contribution by the Fund to the Partnership in the amount of $40 
million, plus reasonable costs incurred by the Union in purchasing the 
Property, and in consideration of the release of a certain loan 
obligation of the Partnership which was guaranteed by the Union and 
collateralized by Union assets; provided that certain conditions were 
satisfied. The Department noted in the final exemption that the 
additional undertakings agreed to by the Trustees, pursuant to the Term 
Sheet, including the appointment of ASA, to serve as Named Fiduciary on 
behalf of the Fund, were material factors in the Department's 
determination to grant PTE 99-46. Accordingly, the provisions of the 
Term Sheet, which were described in the written comment section of the 
final exemption, were incorporated by reference into PTE 99-46.
---------------------------------------------------------------------------

    \7\ 64 FR 61944.

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

[[Page 53443]]

    Pursuant to the provisions of the Term Sheet, ASA, as the Named 
Fiduciary of the Fund, could be replaced by the Trustees only upon the 
concurrence of the Department or pursuant to a court order for cause. 
Subsequently, when ASA established a wholly-owned subsidiary, ASA 
Fiduciary Counselors, Inc. (ASA Counselors) to provide the investment 
advisory services previously performed by ASA for the Diplomat Account, 
ASA sought and received the consent of the Trustees of the Fund and the 
Department before assigning those responsibilities to ASA Counselors.
    On March 15, 2000, the Department received an exemption application 
(D-10879) from ASA and from ASA Counselors, requesting retroactive 
relief from the prohibited transaction provisions of section 406(a) and 
(b) of the Act and section 4975 of the Code. The requested relief was 
similar to that available under Prohibited Transaction Class Exemption 
84-14 (PTCE 84-14),\8\ to a qualified professional asset manager 
(QPAM), provided certain conditions are satisfied. As neither ASA nor 
ASA Counselors were able to satisfy all of the requirements of PTCE 84-
14, reliance on the class exemption was not available, and accordingly, 
an administrative exemption was requested. The Department published a 
Notice of Proposed Exemption for application D-10879 in the Federal 
Register on June 26, 2000.\9\ The comment period for application D-
10879 ended on August 31, 2000. All comments and requests for hearing 
from interested persons were due for application D-10879 on August 31, 
2000. During the comment period, the Department received eleven (11) 
letters from commentators. Generally, the commentators expressed 
concern over the acquisition by the Fund of the Property, and over ASA 
Counselors' authority to use assets of the Fund for the operation of 
the Property.
---------------------------------------------------------------------------

    \8\ 50 FR 41430, October 10, 1985.
    \9\ 65 FR 39435.
---------------------------------------------------------------------------

    After giving full consideration to the entire record for 
application D-10879, including the comments from commentators and the 
response to such comments from ASA and ASA Counselors, the Department 
determined to grant the requested relief. The final exemption for 
application D-10879, was published in the Federal Register on October 
11, 2000, as Prohibited Transaction Exemption 2000-49 (PTE 2000-
49).\10\ 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 Fund with respect to the Diplomat Account, to 
engage, on behalf of the Diplomat Account, in certain transactions with 
parties in interest with respect to the Fund. In the case of 
transactions involving places of public accommodation, PTE 2000-49 also 
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.
---------------------------------------------------------------------------

    \10\ 65 FR 60454.
---------------------------------------------------------------------------

    Effective as of November 3, 2000, ASA Counselors resigned its 
appointment as Named Fiduciary with respect to the Fund and the 
Diplomat Account. 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. Pursuant to the terms 
of such agreement IFS was appointed, effective November 3, 2000, as the 
successor Named Fiduciary of the Fund. On December 7, 2000, IFS hired 
LaSalle Investment Management, Inc., a member of the Jones, Lang, 
LaSalle group, to act as the investment manager with respect to the 
Property.
    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. IFS, as successor Named Fiduciary of the Fund, sought 
relief identical to that received by its predecessors, ASA and ASA 
Counselors, pursuant to PTE 2000-49. In this regard, although IFS could 
not satisfy certain conditions of PTCE 84-14, IFS requested an 
administrative exemption which would permit IFS to be treated as a QPAM 
for certain purposes related to the redevelopment and operation of the 
Property (the Project).
    On January 10, 2001, officials of the Department met with IFS to 
discuss IFS' concern that completion of construction of improvements on 
the Property would not be possible under a conservative interpretation 
of the 13% Limitation,\11\ contained in the Term Sheet described in PTE 
99-46. Subsequently, on February 23, 2001, the Department received an 
exemption application (D-10971) from IFS, acting as Named Fiduciary on 
behalf of the Fund, in which IFS requested a modification of the 13% 
Limitation in the Term Sheet. Because applications D-10960 and D-10971 
were both filed by IFS and involved the assets of the Fund in the 
Diplomat Account, the Department determined to combine its 
consideration of the relief requested in both applications. In this 
regard, the Notice of Proposed Exemption (the Notice) for applications 
D-10960 and D-10971 was published in the Federal Register on March 21, 
2001.\12\
---------------------------------------------------------------------------

    \11\ IFS seeks the relief requested because of its concern that 
one possible interpretation of the 13% Limitation could result in 
the Fund exceeding such Limitation.
    \12\ 66 FR 15900.
---------------------------------------------------------------------------

Written Comments

    In the Notice, the Department invited all interested persons to 
submit written comments and requests for a hearing on the proposed 
exemption for applications D-10960 and D-10971 within forty-five (45) 
days of the date of the publication of the Notice in the Federal 
Register on March 21, 2001. All comments and requests for hearing on 
the proposed exemption for applications D-10960 and D-10971 were due by 
April 30, 2001.
    In notifying interested persons of the pendency of the proposed 
exemption for applications D-10960 and D-10971 and notifying such 
interested persons of the right to comment and/or request a hearing on 
the proposed exemption, IFS furnished by first class mailing, within 
ten (10) days of the publication of the Notice in the Federal Register, 
a copy of the Notice along with a copy of the supplemental statement, 
as described at 29 CFR Sec. 2570.43(b)(2), to the Trustees of the Fund 
and to the interested persons who had commented in writing to the 
Department in connection with PTE 99-46. In this regard, IFS believes 
that providing notification to the Trustees of the Fund and to 
interested persons who commented in writing to the Department in 
connection with PTE 99-46 was sufficient, because the requested relief 
was technical in nature, and because it was unlikely that individuals 
other than the Trustees and those who commented on PTE 99-46 would be 
concerned with such an exemption.
    During the comment period, certain commentators objected to the 
fact that IFS had only provided notification of the pendency of the 
proposed exemption for applications D-10960 and D-10971 to the Trustees 
of the Fund and to those interested persons who had commented on PTE 
99-46. In this regard, these commentators believe

[[Page 53444]]

that such notification was inadequate where the requested relief, 
specifically the modification of the provision of the Term Sheet 
concerning the 13% Limitation, might seriously affect the stability of 
the Fund. Accordingly, these commentators suggested that the Department 
require that every participant and beneficiary in the Fund be notified 
of the publication of the proposed exemption for applications D-10960 
and D-10971 in the Federal Register.
    The Department has considered the concern raised by commentators 
that the notification provided by IFS to interested persons was 
inadequate because the requested relief might seriously affect the 
stability of the Fund. In this regard, the Department notes that the 
administrative record for applications D-10960 and D-10971 includes a 
letter, dated April 2, 2001, from the Fund's counsel which addressed 
the impact of the proposed exemption on the stability of the Fund. In 
this regard, the April 2 letter indicates that the Fund's administrator 
has determined that granting the requested modification to the 
provisions of the Term Sheet concerning the 13% Limitation would not 
adversely affect the liquidity of the Fund and/or the ability of the 
Fund to pay benefits when due.
    Further, the Department has considered the expense to the Fund 
involved in providing notification of the publication of the proposed 
exemption for applications D-10960 and D-10971 to all the participants 
and beneficiaries of the Fund. In this regard, the expense of mailing 
first class to the approximately 123,000 participants and beneficiaries 
of the Fund would constitute an additional burden to the Fund. 
Accordingly, the Department has determined that the notification to 
interested persons as provided by IFS with regard to the publication of 
the proposed exemption for applications D-10960 and D-10971 was 
adequate and reasonable under the circumstances.
    During the comment period, the Department received four (4) 
requests from commentators that the Department hold a hearing to 
evaluate the merits of the representations from IFS with respect to the 
proposed transactions. In this regard, the commentators requested that 
the Department delay approval of the requested exemption until all 
participants and beneficiaries had a chance to review the materials and 
to present objections to the proposed transactions at a hearing.
    The Department has carefully considered the concerns expressed by 
the individuals who requested a hearing. After a review of these 
concerns, the Department does not believe that there are material 
factual issues relating to the proposed exemption that were raised by 
commentators during the comment period which would require the 
convening of a hearing. Thus, the Department has determined not to 
delay consideration of the final exemption by holding a hearing on 
applications D-10960 and D-10971.
    During the comment period, the Department received eleven (11) 
letters from nine (9) interested persons commenting on the transactions 
involved in applications D-10960 and D-10971. At the close of the 
comment period, the Department forwarded copies of these comment 
letters to IFS and requested that IFS address in writing the various 
issues raised by the commentators.
    As an initial matter, IFS noted in responding to the Department's 
request, that none of the comments was directed at application D-10960. 
Rather, the comments relate to application D-10971 in which IFS 
requested modification of a provision of the Term Sheet concerning the 
13% Limitation. Accordingly, the responses provided by IFS, herein, 
generally discuss D-10971, but to the extent applicable, are intended 
by IFS to provide responses with respect to both applications. A 
description of the comments and the responses from IFS thereto are 
summarized in the numbered paragraphs, below.
    1. A number of commentators expressed concern that the decision to 
invest the Fund's assets in the Partnership has not been and would not 
be, made solely to benefit the participants and beneficiaries of the 
Fund, and that the investment by the Fund in the Partnership has not 
been, and would not become, profitable.
    As an initial matter, IFS notes ``that these comments are 
inapposite to the extent that they relate to the Fund's investment in 
the Project up to the 13% Allocation Limit.'' In this regard, IFS 
maintains that, pursuant to PTE 99-46, the Department has already 
sanctioned the investment of Fund assets in the Partnership to that 
extent.\13\
---------------------------------------------------------------------------

    \13\ The Department notes that, in granting PTE 99-46, the 
Department exempted the initial investment by the Fund in the 
Partnership. The 13% Limitation or any other limitation on Fund 
expenditures relating to the Property should not be viewed as an 
endorsement by the Department of either the amount of the 
expenditures or its appropriateness. The appointment of an 
independent named fiduciary and the 13% Limitation were agreed to by 
the Trustees of the Fund in response to commentator concerns about 
the risks and costs involved in acquiring and redeveloping the 
Property. The Department further notes that the fact that a 
transaction is the subject of an exemption under section 408(a) of 
the Act does not relieve a fiduciary or other party in interest from 
the general fiduciary responsibility provisions of section 404 of 
the Act. Section 404 (a)(1)(A) and (B) of the Act requires, among 
other things, that a fiduciary discharge his duties with respect to 
a plan solely in the interest of the plan's participants and 
beneficiaries in a prudent fashion. Accordingly, it is the 
responsibility of the Fund's fiduciaries to develop the Property in 
a manner designed to maximize the Fund's rate of return, consistent 
with their fiduciary duties under section 404 of the Act.
---------------------------------------------------------------------------

    With regard to whether an additional investment by the Fund above 
the 13% Limitation would be in the interest of participants and 
beneficiaries of the Fund, IFS maintains that the requested 
modification to the provision of the Term Sheet concerning the 13% 
Limitation will allow an additional investment that can be reasonably 
expected to enhance the Fund's overall investment and, likely will 
reduce the risk that the Fund will suffer a significant financial loss.
    As indicated in the applications, IFS represents that the Project, 
since December 14, 2000, has been under the management of LaSalle 
Investment Management, Inc. (LaSalle), acting as a QPAM within the 
meaning of PTCE 84-14 with respect to the Project. In its capacity as 
an independent expert in the hospitality, real property, and 
construction industries, and after an extensive review of the status of 
the Project, it is represented that LaSalle (with the assistance of 
various divisions of the Jones Lang LaSalle group, including the Jones 
Lang LaSalle Hotels group) has concluded, based on its acknowledged 
expertise, that a further investment in the Project by the Fund would 
likely maximize the benefits to the Fund and would, therefore, be in 
the interest of participants and beneficiaries of such Fund.
    It is represented that LaSalle has determined that, due to risk 
factors inherent in the development process and the still uncompleted 
state of the Project, the current value of the partially-completed 
Property (expressed as a percentage of completion) is well below its 
conceptual completion value, and that an appraiser, bank, or 
prospective purchaser would discount significantly the current value of 
the Property for purposes of an appraisal, loan, or purchase, 
respectively. It is further represented that LaSalle believes, based on 
its significant expertise within the hospitality and real estate 
industries, that most investors interested in the Project would view 
any current effort to sell the Property as akin to a distressed sale 
and therefore would be looking for a very high opportunistic

[[Page 53445]]

rate of return on their investment. Accordingly, it is represented that 
to sell the Property at this stage (rather than to complete it) would 
likely lead to substantial losses for the Partnership.
    In addition, it is represented that if the Project were abandoned 
or interrupted, because additional investment from the Fund was not 
permitted by the Department, there would be significant costs 
associated with shutting down the Project, including operational, 
legal, contractual, and degradation avoidance costs, many of which 
costs would not otherwise be incurred. LaSalle has estimated that these 
costs alone could cause the Fund to substantially exceed the 13% 
Limitation in any event.
    In contrast, it is represented that if additional cash infusions 
from the Fund enable the Project to be completed and if, as LaSalle 
expects, the Project subsequently achieves stabilized income, LaSalle 
projects that the increased value of the Project from completion and 
income stabilization, less the remaining cost of completion, will 
likely be significantly higher than the value of the Project, if the 
Fund was forced to abandon or sell it as a distressed asset. In 
addition, opening the Property would give the Partnership the 
opportunity to receive cash flow from operations, as well as to 
establish a ``track record'' of performance in actual operation, which 
is likely to enhance the sale value of the Property. Thus, it is 
represented that, if the Project were not completed, significant losses 
would be incurred by the Fund, and the Fund would be prevented from 
enjoying the benefits of completion, which LaSalle has concluded likely 
would significantly outweigh the additional costs of completion.
    As discussed in the applications, the three principal financing 
alternatives to further cash infusion from the Fund include outside 
debt financing (on a non-recourse basis), outside equity investment, 
and sale of a portion of the assets of the Property. In this regard, it 
is represented that LaSalle has concluded, based on a conservative 
interpretation of the 13% Limitation, that completion of the Project is 
not feasible, absent a modification to that Limitation because none of 
these three alternatives would be sufficient to provide the requisite 
financing. First, in light of the status of construction and retention 
of an operator, it is represented that the Partnership could not timely 
obtain the requisite non-recourse financing to remain within the 13% 
Limitation (assuming that non-recourse financing could be obtained at 
all). Second, it is represented that bringing in an equity partner at 
this juncture (assuming that one could be found) would take an 
unacceptable amount of time (thereby delaying completion of the Project 
significantly) and would likely result in an extremely unfavorable 
business arrangement for the Fund because any equity investor would 
likely treat this as a distressed sale. Finally, it is represented that 
asset sales of components of the Project, such as future development 
sites and the country club hotel, would not provide sufficient capital 
to avoid exceeding the 13% Limitation, and could ultimately reduce the 
overall return to the Fund.
    For the foregoing reasons, IFS maintains that regardless of the 
merit of the initial investment by the Fund in the Partnership, it is 
clear that an additional investment by the Fund in the Partnership 
would be in the interest of participants and beneficiaries and would 
improve the Fund's investment return on the Project, based on LaSalle's 
conclusion that such an investment would permit the Fund to realize the 
substantial benefits of completion (including avoidance of the losses 
attendant to abandonment, sale, or interruption of the Project at this 
stage) which are projected to outweigh the completion costs.
    2. A number of commentators indicated a concern about a lack of 
diversification in the Fund's investments resulting from its investment 
in the Project.
    In the opinion of IFS, ``[b]y granting PTE 99-46, the Department 
effectively determined that an investment in the Partnership of 13 
percent of Fund assets would not result in a lack of 
diversification.''\14\ Accordingly, IFS maintains that the only matter 
raised by the commentators, that is relevant to application D-10971, is 
whether the marginal increase in the Fund's investment (i.e., the 
amount by which $800 million exceeds 13 percent (13%) of Fund assets) 
results in a violation of section 404(a)(1)(C) of the Act.
---------------------------------------------------------------------------

    \14\ The Department wishes to correct IFS' apparent 
misunderstanding of the Department's authority under section 408(a) 
of the Act. As previously noted, in footnote 13, an exemption under 
section 408(a) of the Act does not relieve a fiduciary from certain 
other provisions of the Act, including the general fiduciary 
responsibility provisions of section 404 of the Act. Section 
404(a)(1)(C) of the Act requires, among other things, that a plan 
fiduciary diversify plan assets in order to minimize the risk of 
large losses unless, under the circumstances, it is clearly prudent 
not to do so. It is the responsibility of the appropriate Fund 
fiduciary or fiduciaries to determine whether the diversification 
requirements of section 404(a)(1)(C) have been satisfied.
---------------------------------------------------------------------------

    IFS notes that neither section 408(a) of the Act nor the 
regulations thereunder require a showing of compliance with section 
404(a)(1)(C) of the Act in an application for a prohibited transaction 
exemption.\15\ In addition, IFS maintains that it is the independent 
Named Fiduciary of the Fund only with respect to the Fund's investment 
in the Project and, as such, is not charged with making any decisions 
with respect to the overall diversification of the Fund's assets or the 
Fund's compliance with section 404(a)(1)(C) of the Act. It is the 
understanding of IFS that this decision generally is made by the 
Trustees.\16\
---------------------------------------------------------------------------

    \15\ Conversely, it is the Department's position that both 
section 408(a) of the Act and the regulations promulgated thereunder 
make clear that the fiduciaries of a plan that has received an 
administrative exemption are not insulated from responsibility and/
or potential liability under section 404 of the Act.
    \16\ The Department is expressing no views, herein, as to the 
person or persons ultimately responsible under the Fund for the 
overall diversification of the Fund assets.
---------------------------------------------------------------------------

    IFS notes that, even in light of the recent significant downturn in 
the equity markets, an $800 million investment in the Partnership 
represents less than 18.5% of the Fund's assets. In addition, based on 
information provided by the Fund, IFS understands that most of the 
remaining Fund assets are invested in a broad range of diversified 
investments, including investment in at least three other asset classes 
(domestic and international fixed income, domestic and international 
equity and alternative investments).
    Even if it could be argued that the Fund's investments would not be 
sufficiently diversified as a result of an additional investment in the 
Project, IFS points out that one could conclude that it would 
nevertheless be prudent under the Act to have less diversification, 
because of the unique circumstances involving the Project. In this 
regard, independent of any consideration of the overall portfolio of 
the Fund, LaSalle has concluded that an additional investment in the 
Partnership would be prudent because of the substantial economic harm 
to the Fund and the Partnership that would result if application D-
10971 were denied. It is represented that if the additional investment 
were not made (which could be the case if application D-10971 was not 
granted), the Project likely would not be completed even though the 
projected benefits of completion (including avoidance of the loss 
attendant to interruption and/or abandonment) significantly outweigh 
the additional costs of completion.
    In contrast, it is represented that granting the exemption would 
allow the Project to be completed which, in turn, should allow the 
Partnership (and,

[[Page 53446]]

therefore, the Fund) to realize the expected significant net economic 
gain of completion, without incurring the potentially substantial costs 
of interruption or abandonment of the Project.
    3. One commentator noted that application D-10514 indicated that 
the Project was ``camouflaged * * * to be about a $40 million 
project.''
    As noted above, IFS maintains that the subject of application D-
10971 is not whether the Fund's initial investment in the Partnership 
was appropriate. Rather, IFS seeks an amendment to the 13% Limitation, 
because the increase to that limitation (i.e., the amount by which $800 
million exceeds 13 percent (13%) of the assets of the Fund) would, for 
the reasons set forth above, be in the interest of participants and 
beneficiaries. Therefore, in the opinion of IFS no further response to 
this comment would appear to be necessary.
    4. Various commentators expressed concern about past actions of the 
Trustees and the prior independent Named Fiduciary, including whether 
Fund assets have been wasted or mismanaged with respect to the Project. 
Other commentators questioned how information could be obtained 
regarding how the Fund's investment in the Project has been expended, 
and claimed that IFS did not provide an adequate explanation of the 
steps to be taken to protect the interests of participants and 
beneficiaries.
    As the current independent named fiduciary, IFS is charged with the 
responsibility of appropriately reviewing prior (and future) management 
and expenditure of Fund assets with respect to the Project. It is 
represented that such review is currently being conducted. However, in 
the opinion of IFS, the subject of these applications is not whether 
the Fund's Trustees, the prior Named Fiduciary, service providers, or 
other fiduciaries mismanaged assets but whether an additional 
investment by the Fund, as determined by the current independent Named 
Fiduciary, should be permitted on the grounds that it would clearly be 
in the interest of the participants and beneficiaries of the Fund.
    As discussed in application D-10960, the interests of participants 
and beneficiaries are protected because IFS is acting prudently as an 
independent Named Fiduciary under an Independent Named Fiduciary 
Agreement, dated September 12, 2000 (the IFS Agreement), the terms of 
which were reviewed and approved by the Department prior to its 
execution.
    Under the IFS Agreement, IFS has a continuing responsibility to 
furnish the Trustees and the Department with monthly written reports 
concerning the progress of the Project (including, inter alia, the 
operations, assets, receipts, and disbursements with respect to the 
Project). The IFS Agreement also requires IFS to provide the Department 
with certain documents upon request and to meet with the Department and 
its agents as reasonably requested. This will enable the Department to 
exercise continuing oversight regarding IFS' performance of services 
under the IFS Agreement, and with respect to the Project overall.
    Additionally, there are very strict limitations on the ability of 
the Trustees to remove IFS from its position as independent Named 
Fiduciary, which allow IFS to maintain strict independence from the 
Trustees. Section 14 of the IFS Agreement provides that, until November 
5, 2002, no termination of IFS:

shall become effective until the effective date of the appointment 
of a replacement independent named fiduciary that is acceptable to 
the U.S. Department of Labor and, in the case of a termination by 
the Trustees or their duly appointed delegate, such termination 
shall not be effective unless (i) it has received the concurrence of 
the U.S. Department of Labor, or (ii) it is pursuant to a court 
order obtained for ``cause''* * * after reasonable notice to the 
Secretary of Labor * * *

    IFS recognizes the concern expressed by these commentators that, 
unless an independent named fiduciary, such as IFS, remains involved in 
the Project for an extended time period, the Trustees could again 
control the Project. However, IFS understands that, if the applications 
are granted, the Trustees have agreed that the Project will be managed 
by an independent party for so long as the Fund has a controlling 
interest in the underlying assets of the Partnership or its 
successors.\17\
---------------------------------------------------------------------------

    \17\ In this regard, the Department notes that the chairman of 
the Trustees executed such an agreement on May 31, 2001.
---------------------------------------------------------------------------

    IFS respectfully requests that any exemption granted in connection 
with application D-10960 be coextensive with IFS' service as 
independent Named Fiduciary, rather than be limited to five (5) years, 
from November 3, 2000, until November 3, 2005 (as proposed), because 
the revised arrangement between the Trustees and the Department 
contemplates a long-term relationship between the Fund and an 
independent named fiduciary, and because it would be expensive for the 
Fund to incur the costs of subsequent applications to renew or modify 
the exemption.
    It is anticipated that the existence of an independent named 
fiduciary on a long-term basis will help assure completely independent 
fiduciary decision-making with respect to all aspects of the Project, 
and will further protect the interests of participants and 
beneficiaries of the Fund. In addition, the concerns expressed in the 
comments regarding prior actions by the Trustees or other fiduciaries 
of, or service providers to, the Fund are inapposite, because IFS will, 
with the assistance of LaSalle, other industry professionals, and legal 
counsel independent of the Trustees, continue to exercise its fiduciary 
discretion independent of any influence from such individuals.
    The Department concurs with IFS' request that the effectiveness of 
the final exemption not be limited to the five (5) year period, from 
November 3, 2000, until November 3, 2005. Accordingly, the Department 
has modified the final exemption, as follows:
    (a) By deleting the phrase, ``until November 3, 2005,'' from 
Section I, as published in the Federal Register on page 15900, column 
1, lines 21-22 of the Notice; and from Section II, as published in the 
Federal Register on page 15901, column 2, lines 51-53 of the Notice;
    (b) By deleting in its entirety the paragraph entitled, ``Temporary 
Nature of Exemption,'' as published in the Federal Register on page 
15902, column 2, of the Notice; and adding in place of such paragraph 
the sentence, EFFECTIVE DATE: This exemption is effective November 3, 
2000, the date upon which IFS was appointed to serve as the Named 
Fiduciary for the Fund with respect to the Diplomat Account; and
    (c) by modifying a sentence in the definition of the ``time'' as of 
which any transaction occurs, as published in Section III(i) of the 
Notice on page 15902, column 1, lines 60-69, and column 2, lines 1-3 of 
the Federal Register. In this regard, words that have been deleted from 
Section III(i) have been stricken from the language, below, and phrases 
which have been added to the language appear in brackets, below:

    If any transaction is entered into [on or after the effective 
date of this exemption] or if a renewal that requires the consent of 
the Named Fiduciary occurs [on or after the effective date of this 
exemption] 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.

    The Department emphasizes that the relief provided for the 
transactions

[[Page 53447]]

described in the final exemption will be available to IFS, only for the 
period of time that IFS serves as the independent Named Fiduciary for 
the Fund with respect to the Diplomat Account. In the event that IFS, 
resigns, is removed, or is replaced as the independent Named Fiduciary 
for the Fund, IFS may no longer rely on the relief provided by this 
exemption for the transactions, described in application D-10960.
    Under the agreement, executed by the chairman of the Trustees on 
May 31, 2001, it is the Department's understanding that the Diplomat 
Account will be managed by an independent Named Fiduciary for so long 
as the Fund has a controlling interest in the Project. Accordingly, 
upon the resignation, replacement, or removal of IFS, as independent 
Named Fiduciary with respect to the Diplomat Account, any successor to 
IFS who will serve as the independent Named Fiduciary for the Fund with 
respect to the Diplomat Account, may submit an application for 
exemption to the extent that such successor independent Named Fiduciary 
does not qualify as a QPAM and would need an exemption to be treated as 
if they were a QPAM.
    The relief requested in application D-10971 pertains to the 
modification of the 13% Limitation described in PTE 99-46. The 
requested modification involves setting the limitation at $800 million 
rather than the 13% Limitation, as set forth in the Term Sheet. If the 
modification is approved by the Department by the granting of the 
subject exemption, IFS and any successor to IFS who serves as the 
independent Named Fiduciary for the Fund with respect to the Diplomat 
Account would be subject to the $800 million fixed amount. By letter 
dated October 11, 2001, IFS indicated that, if the proposed amendment 
to PTE 99-46 is granted, it does not foresee any circumstances under 
which it will request from the Department any additional amendments to 
PTE 99-46 that would have the effect of increasing the maximum amount 
of assets of the Fund that may be invested in the Project.
    5. Various commentators requested information regarding the 
Department's investigation of the use of Fund assets in the development 
of the Project. Other commentators indicated that IFS is required to 
submit copies of all correspondence regarding the substantive issues 
involved in that investigation.
    With respect to the commentators' indication that IFS did not 
submit copies of all correspondence regarding the substantive issues 
involved in the Department's investigation of the use of Fund assets in 
connection with the development of the Project, IFS noted that it was 
not, at the time the applications were submitted, aware of any 
correspondence with the Department that addresses the substantive 
issues related to the investigation and that is required to be provided 
to the Department, pursuant to 29 CFR Sec. 2570.35(a)(7) of the 
Department's regulations.
    Since the applications were submitted, IFS has become aware of 
certain correspondence that cannot clearly be classified as substantive 
correspondence related to any investigation. However, IFS has submitted 
certain correspondence that, based on a conservative interpretation of 
29 CFR Sec. 2570.35(a)(7), arguably may be appropriate to provide to 
the Department in connection with the applications. It is IFS' position 
that the request concerning the release of information about the 
Department's investigation is solely within the purview of the 
Department.
    The Department notes that the disclosure required by 29 CFR 
Sec. 2570.35(a)(7) of the Department's regulation (relating to 
investigations, examinations, litigation, and continuing controversy by 
or with certain specified Federal agencies), is necessary to ensure 
that the Department's exemption activities do not compromise its 
enforcement efforts. In this regard, the Department does not require 
submission by an applicant of copies of all correspondence, but only 
requires submission of copies of correspondence relating to substantive 
issues involved in such investigation, examination, litigation, or 
controversy. Once copies of such correspondence become part of the 
administrative record of an application for exemption, 29 CFR 
Sec. 2570.51 of the Department's regulations provides that the public 
may examine and copy the administrative record of each exemption 
application and all correspondence and documents submitted in 
connection therewith.
    To the extent that information submitted in connection with an 
investigation, examination, litigation, or continuing controversy by or 
with certain specified Federal agencies, is not contained in the 
administrative record of an application for exemption, such information 
is not available to the public and is not considered by the Department 
in making its determination that the transaction for which relief has 
been requested is administratively feasible and in the interest of, and 
protective of a plan, and its participants and beneficiaries, pursuant 
to section 408(a) of the Act. Thus, the Department's final decision on 
any exemption is based on the information contained in the official 
exemption application file. The Department further notes that an 
exemption does not take effect or protect parties in interest from 
liability with respect to the exemption transaction unless the material 
facts and representations contained in the application, and in any 
materials and documents submitted in support of the application, are 
true and complete (see 29 CFR Sec. 2570.49(a)).
    The final decision on the merits of a requested exemption by the 
Department entails an administrative process which is based on a 
careful review of the entire public record of facts and representations 
as documented in the application file. The Department may not grant an 
exemption, pursuant to section 408(a) of the Act, unless a 
determination is made on the record with respect to the findings that 
such an exemption is administratively feasible, in the interest of the 
plan and of its participants and beneficiaries, and protective of the 
rights of the participants and beneficiaries of such plan.
    6. One commentator questioned whether IFS and ASA ``have a clue 
about what is going on, except spending the Pension Fund's money.''
    In response to such comment, IFS notes that neither ASA nor ASA 
Counselors now has any ongoing relationship with the Fund or the 
Project. As noted in application D-10960, IFS replaced ASA Counselors 
as independent Named Fiduciary of the Fund. Pursuant to its authority 
as independent Named Fiduciary, effective December 14, 2000, IFS 
appointed LaSalle as QPAM, pursuant to PTCE 84-14, with respect to the 
Project.
    It is represented that both IFS and LaSalle have devoted 
significant personnel and enormous amounts of time to the Project. In 
this regard, IFS, the most senior officers of which are personally 
involved in the Project on a daily basis, has broad expertise in a wide 
range of subjects and, in particular, the financial and fiduciary 
aspects of pension fund investing.
    It is further represented that LaSalle is a leading global real 
estate investment manager that frequently acts as a fiduciary. In 
addition, LaSalle is a member of the Jones Lang LaSalle group, various 
divisions of which have assisted (and will continue to assist) LaSalle 
in connection with the Project. These divisions, including Jones Lang 
LaSalle Hotels, the Project and Development Management Group, the Risk 
Management Group, and Jones

[[Page 53448]]

Lang LaSalle Capital Markets, are staffed with industry professionals 
collectively familiar with all major aspects of the Project.
    IFS' conclusions set forth in application D-10971 regarding the 
benefit to participants and beneficiaries of further investment in the 
Project are premised in large part on expert conclusions by LaSalle. In 
this regard, (based on its careful review of the status of the Project 
and its extensive expertise as a real estate investment manager), 
LaSalle has concluded that the Fund is likely to suffer significant 
economic harm, if the Fund was not able to complete the Project (which 
would be the case if the Fund could not invest further assets in the 
Partnership because of the 13% Limitation). It is represented that the 
various reports prepared by both LaSalle and IFS with respect to the 
Project are clear evidence of the considerable knowledge of both 
entities with respect to the Project.
    7. One commentator requested information on whether there is a 
criminal investigation regarding the Project.
    IFS has not been formally advised that there is any pending 
criminal investigation with respect to the Project.
    8. Various commentators indicated that IFS did not provide an 
adequate explanation of whether the exemption transaction is customary 
in the industry.
    IFS disagrees with the contention of the commentators in that 
regard. It is IFS' view that in granting PTE 99-46, the Department has 
implicitly determined that the underlying transaction (i.e., the Fund's 
purchase of the Property and investment in the Partnership) is 
customary in the industry.\18\
---------------------------------------------------------------------------

    \18\ In granting an exemption, the Department expresses no 
opinion as to whether or not a particular transaction for which 
relief is provided is customary in the industry. In this regard, the 
Department notes that pursuant to 29 CFR Sec. 2570.34(a)(6) of the 
Department's regulations, it is the responsibility of the applicant 
to inform the Department whether the transaction for which relief is 
requested is customary for the industry or class involved.
---------------------------------------------------------------------------

    Furthermore, as noted in application D-10971, it is customary for 
an equity investor to use its capital to financially support a real 
estate project (so long as the investor believes that the incremental 
investment will either earn a reasonable return or avoid significant 
losses) and establish an operating history before abandoning the 
project or engaging in a distressed sale of assets or obtaining equity 
co-investment on onerous terms that may result in a substantial 
economic loss that exceeds the benefit of completion of the project. It 
is represented that the requested amendment would permit the Fund to 
continue to financially support the Project to completion, without 
incurring the risk of possibly violating PTE 99-46.
    In summary, IFS maintains that if the relief requested in 
application D-10971 is not granted, the Fund may not be able to make an 
additional investment in the Partnership, because of the 13% 
Limitation. It is represented that after a careful review of the 
Project, LaSalle has concluded that such an additional investment 
should (i) allow the Partnership to realize a stabilized value of the 
Property in excess of its estimated current market value (if the 
Property were sold today in a distressed sale) plus the costs of 
completion; (ii) allow the Partnership to receive from operations a 
current cash yield on its investment; (iii) allow the Partnership to 
avoid the costs of interruption or abandonment of the Project; and (iv) 
prevent the Partnership from being forced to sell the Property as a 
distressed asset and at a significantly reduced amount. Thus, it is 
represented that LaSalle (and, based on LaSalle's advice, IFS) has 
concluded that, if the requested relief is not granted, the 
Partnership, and, through it, the Fund, could suffer significant 
adverse consequences, which clearly would not be in the interest of 
participants and beneficiaries.
    9. In a letter dated June 15, 2001, IFS notified the Department of 
a development regarding the Property that, in the opinion of IFS, 
further supports LaSalle's conclusion that completing the Project is 
likely to lead to a more financially attractive result for the Fund 
than not completing it. In this regard, it is represented that LaSalle 
has conducted a competitive process for the selection of a hotel 
operator in which a field of ten (10) candidates was narrowed to three 
(3) major operators. Further, interviews and negotiations with each of 
the three finalists resulted in the selection of Starwood Hotels and 
Resorts Worldwide (Starwood) through its corporate vehicle, Westin 
Management Company East, Inc. It is represented that Starwood is the 
owner of such well-known brands as Sheraton, Westin, and St. Regis.
    Further, it is represented that on June 5, 2001, LaSalle signed a 
brand and management agreement (together, the Operating Agreement) with 
Starwood to brand and operate the Property as the Westin Diplomat 
Resort and Spa and to operate the country club, pursuant to a parallel 
operating agreement, as a member of Starwood's Luxury Collection. It is 
represented that the terms of the 15-year Operating Agreement evidence 
Starwood's significant, long-term business and financial commitment to 
the Property. In this regard, it is represented that the Operating 
Agreement requires Starwood to provide a substantial amount of ``key 
money'' to pay for various pre-opening expenses and to provide loans, 
at very attractive terms, to the Property (without recourse to the 
Fund), in certain circumstances, including the occurrence of actual 
future cash flow shortfalls related to either the operation of the 
Property or its ability to service debt.
    It is represented that the willingness of a major international 
hotel management company to enter into a long-term agreement, the terms 
of which are very favorable to the Partnership and the Property should 
be viewed as further evidence of the economic viability of the Property 
and the commercial reasonableness of permitting the Fund to fund the 
development of the Property to completion.
    As a result of the terrorist attacks of September 11, 2001 and its 
potential impact on the hotel and convention industry, the Department 
specifically requested that IFS, as the independent Named Fiduciary of 
the Fund, confirm that the most prudent course of action for the Fund 
to follow is completion of the Project. In response to this request, 
IFS, in a letter dated October 5, 2001, noted that it sought the views 
of LaSalle and Starwood. Both LaSalle and Starwood, in letters dated 
October 4, 2001 and October 5, 2001, respectively, indicated that none 
of the groups that had booked space cancelled their reservations 
subsequent to the September 11, 2001 events. Both parties also noted 
that it is not possible to do an assessment of the impact of these 
events on the The Westin Diplomat Resort and Spa's future hotel and 
convention business--other than to note the absence of cancellations--
because the hotel will not begin operations until January 2002. In a 
letter dated October 5, 2001, LaSalle stated that it has not changed 
its opinion that the prudent course of action is to complete 
construction of the Property as soon as possible. In a separate letter 
dated October 5, 2001, IFS states that ``IFS has discussed this opinion 
with appropriate parties and finds this conclusion reasonable.''
    Accordingly, after full consideration and review of the entire 
administrative record, including the written comments from the 
commentators and the responses thereto by IFS, the Department has 
determined to grant the exemption, as modified and amended herein.

[[Page 53449]]

    The comments submitted by the commentators to the Department and 
the response by IFS thereto has been included as part of the public 
administrative record of the exemption application. The complete 
application file, including all supplemental submissions received by 
the Department, is available for public inspection in the Public 
Disclosure Room of the Pension Welfare Benefits Administration, Room N-
1513, U.S. Department of Labor, 200 Constitution Avenue N.W., 
Washington, D.C. 20210.
    For a complete statement of the facts and representations 
supporting the Department's decision to grant this exemption refer to 
the Notice published on March 21, 2001, 66 FR 15900.

FOR FURTHER INFORMATION CONTACT: Ms. Angelena C. Le Blanc of the 
Department, telephone (202) 219-8883. (This is not a toll-free number.)

Sierra Health Services, Inc. Profit Sharing Plan (the Plan)Located 
in Las Vegas, Nevada

[Prohibited Transaction Exemption No. 2001-40; Application No. D-10884]

Exemption

    The restrictions of sections 406(a), 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 to the proposed sale by the Plan of certain 
limited partnership interests (collectively, the Interest(s)) to Sierra 
Health Services, Inc., (the Employer) the sponsor of the Plan and a 
party in interest with respect to the Plan, provided that the following 
conditions are met:
    (a) The sale is a one-time transaction for cash;
    (b) The Plan pays no commissions or any other expenses relating to 
the sale;
    (c) The sales price is the greater of (i) the fair market value of 
the Interests as determined by a qualified, independent, appraiser (ii) 
the value of the Interests, as determined by the general partner of 
each partnership and reported on the most recent account statements 
available at the time of the sale or (iii) the Plan's original 
acquisition and holding costs.
    (d) The Plan suffers no loss, as a result of its acquisition and 
holding of the Interests, taking into account all cash distributions 
received by the Plan as a result of owning the Interests.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the Notice of Proposed Exemption published on July 30, 2001 at 66 FR 
39356.

Written Comments

    The Department received one comment from an interested person on 
the proposed exemption. The Department forwarded a copy of the comment 
to the 401(k) committee (the Committee), which approves the guidelines 
for investment of the Employer directed fund, and requested that the 
Committee respond in writing to the concerns raised by the commentator. 
A description of the comment and the Committee's response are 
summarized below.
    The commentator urged that the exemption not be granted because she 
believed that the Property had been under valued and requested another 
independent appraisal of the Property.
    The Committee, in response represents the following: The valuation 
used for the purchase price is the highest of the following three 
items: (1) The fair market value of the Interests, as determined by a 
qualified independent appraiser; (2) the value of the Interests as 
determined by the General Partner of each partnership; or (3) the 
Plan's original acquisition and holding costs.
    As part of a long-term employee retention strategy, the Employer 
ceased to direct the investment of the employer's contributions to the 
Plan. Prudential Securities was engaged as Trustee, and both the 
employer's and employees' contributions were combined in a single 
account. Every participant now has the ability to direct his/her 
investments, on a daily basis if they so desire. The holding of these 
Interests prevents participants from being able to direct their 
investment to the extent that these Interests constitute a portion of 
their Plan assets.
    The qualified, independent, certified appraisal was completed by 
William P. Geary, a Nevada Certified General Appraiser. The appraisal 
was prepared in conformity with the current requirements of the Uniform 
Standards of Professional Appraisal Practice as published by the 
Appraisal Foundation, and the federal financial institutions regulating 
agencies. The compensation for the appraisal was not contingent upon 
the reporting of a predetermined value or direction in value that 
favors SHS, the amount of the value estimate, the attainment of 
stipulated result or the occurrence of a subsequent event.
    Accordingly, after giving full consideration to the entire record, 
including the comment by the commentator, and the responses of the 
Committee, the Department has determined to grant the exemption as 
proposed. In this regard, the comment submitted to the Department has 
been included as part of the public record of the exemption 
application. The complete application file, including all supplemental 
submissions received by the Department, is made available for public 
inspection in the Public Documents Room of the Pension and Welfare 
Benefits Administration, Room N-1513, U.S. Department of Labor, 200 
Constitution Ave. NW, Washington DC 20210.

FOR FURTHER INFORMATION CONTACT: Khalif Ford of the Department, 
telephone (202) 219-8883 (this is not a toll-free number).

Barclays Bank PLC and Barclays Capital Inc. Located in London, 
England and New York, New York

[Prohibited Transaction Exemption 2001-41; Application No. D-10966]

Exemption

Section I--Transactions
    The restrictions of section 406(a)(1)(A) through (D) 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 as of January 24, 2001, to:
    (a) The lending of securities, under certain exclusive borrowing 
arrangements, to:
    (1) Barclays Bank plc (Barclays);
    (2) Barclays Capital Inc. (BCI) and any other affiliate of Barclays 
that, now or in the future, is a U.S. registered broker-dealer or a 
government securities broker or dealer or U.S. bank;
    (3) Barclays Capital Securities Limited, which is subject to 
regulation in the United Kingdom by the Securities and Futures 
Authority of the United Kingdom (the UK SFA); and
    (4) Any broker-dealer or bank that, now or in the future, is an 
affiliate of Barclays which is subject to regulation by the UK SFA or 
the Bank of England,(each such affiliated foreign broker-dealer or bank 
referred to as a ``Foreign Borrower,'' and, together with Barclays and 
BCI, collectively referred to as the ``Borrowers''), by employee 
benefit plans, including commingled investment funds holding assets of 
such plans (Plans), with respect to which Barclays or any of its 
affiliates is a party in interest; and
    (b) The receipt of compensation by Barclays or any of its 
affiliates in connection with securities lending transactions, provided 
that the following conditions set forth in Section II, below, are 
satisfied.

[[Page 53450]]

Section II--Conditions

    (a) For each Plan, neither the Borrower nor any affiliate has or 
exercises discretionary authority or control over the Plan's investment 
in the securities available for loan, nor do they render investment 
advice (within the meaning of 29 CFR 2510.3-21(c)) with respect to 
those assets.
    (b) The party in interest dealing with the Plan is a party in 
interest with respect to the Plan (including a fiduciary) solely by 
reason of providing services to the Plan, or solely by reason of a 
relationship to a service provider described in section 3(14)(F), (G), 
(H) or (I) of the Act.
    (c) The Borrower directly negotiates an exclusive borrowing 
agreement (the Borrowing Agreement) with a Plan fiduciary which is 
independent of the Borrower and its affiliates.
    (d) The terms of each loan of securities by a Plan to a Borrower 
are at least as favorable to such Plan as those of a comparable arm's-
length transaction between unrelated parties, taking into account the 
exclusive arrangement.
    (e) In exchange for granting the Borrower the exclusive right to 
borrow certain securities, the Plan receives from the Borrower either 
(i) a flat fee (which may be equal to a percentage of the value of the 
total securities subject to the Borrowing Agreement from time to time), 
(ii) a periodic payment that is equal to a percentage of the value of 
the total balance of outstanding borrowed securities, or (iii) any 
combination of (i) and (ii) (collectively, the Exclusive Fee). If the 
Borrower deposits cash collateral, all the earnings generated by such 
cash collateral shall be returned to the Borrower; provided that the 
Borrower may, but shall not be obligated to, agree with the independent 
fiduciary of the Plan that a percentage of the earnings on the 
collateral may be retained by the Plan or the Plan may agree to pay the 
Borrower a rebate fee and retain the earnings on the collateral (the 
Shared Earnings Compensation). If the Borrower deposits non-cash 
collateral, all earnings on the non-cash collateral shall be returned 
to the Borrower; provided that the Borrower may, but shall not be 
obligated to, agree to pay the Plan a lending fee (the Lending Fee)(the 
Lending Fee and the Shared Earnings Compensation are collectively 
referred to as the ``Transaction Lending Fee''). The Transaction 
Lending Fee, if any, shall be either in addition to the Exclusive Fee 
or an offset against such Exclusive Fee. The Exclusive Fee and the 
Transaction Lending Fee may be determined in advance or pursuant to an 
objective formula, and may be different for different securities or 
different groups of securities subject to the Borrowing Agreement. Any 
change in the Exclusive Fee or the Transaction Lending Fee that the 
Borrower pays to the Plan with respect to any securities loan requires 
the prior written consent of the independent fiduciary of the Plan, 
except that consent is presumed where the Exclusive Fee or the 
Transaction Lending Fee changes pursuant to an objective formula. Where 
the Exclusive Fee or the Transaction Lending Fee changes pursuant to an 
objective formula, the independent fiduciary of the Plan must be 
notified at least 24 hours in advance of such change and such 
independent Plan fiduciary must not object in writing to such change, 
prior to the effective time of such change.
    (f) The Borrower may, but shall not be required to, agree to 
maintain a minimum balance of borrowed securities subject to the 
Borrowing Agreement. Such minimum balance may be a fixed U.S. dollar 
amount, a flat percentage or other percentage determined pursuant to an 
objective formula.
    (g) By the close of business on or before the day the loaned 
securities are delivered to the Borrower, the Plan receives from the 
Borrower (by physical delivery, book entry in a securities depository 
located in the United States, wire transfer, or similar means) 
collateral consisting of U.S. currency, securities issued or guaranteed 
by the U.S. Government or its agencies or instrumentalities, 
irrevocable bank letters of credit issued by a U.S. bank other than 
Barclays or any affiliate thereof, or any combination thereof, or other 
collateral permitted under Prohibited Transaction Exemption 81-6 (46 FR 
7527, Jan. 23, 1981, as amended at 52 FR 18754, May 19, 1987) (PTE 81-
6) (as amended or superseded)\19\ Such collateral will be deposited and 
maintained in an account which is separate from the Borrower's accounts 
and will be maintained with an institution other than the Borrower. For 
this purpose, the collateral may be held on behalf of the Plan by an 
affiliate of the Borrower that is the trustee or custodian of the Plan.
---------------------------------------------------------------------------

    \19\ PTE 81-6 provides an exemption under certain conditions 
from section 406(a)(1)(A) through (D) of the Act and the 
corresponding provisions of section 4975(c) of the Code for the 
lending of securities that are assets of an employee benefit plan to 
a U.S. broker-dealer registered under the Securities Exchange Act of 
1934 (the 1934 Act) (or exempted from registration under the 1934 
Act as a dealer in exempt Government securities, as defined therein) 
or to a U.S. bank, that is a party in interest with respect to such 
plan.
---------------------------------------------------------------------------

    (h) The market value (or in the case of a letter of credit, the 
stated amount) of the collateral initially equals at least 102 percent 
of the market value of the loaned securities on the close of business 
on the day preceding the day of the loan and, if the market value of 
the collateral at any time falls below 100 percent (or such higher 
percentage as the Borrower and the independent fiduciary of the Plan 
may agree upon) of the market value of the loaned securities, the 
Borrower delivers additional collateral on the following day to bring 
the level of the collateral back to at least 102 percent. The level of 
the collateral is monitored daily by the Plan or its designee, which 
may be Barclays or any of its affiliates which provides custodial or 
directed trustee services in respect of the securities covered by the 
Borrowing Agreement for the Plan. The applicable Borrowing Agreement 
shall give the Plan a continuing security interest in and lien on the 
collateral.
    (i) Before entering into a Borrowing Agreement, the Borrower 
furnishes to the Plan the most recent publicly available audited and 
unaudited statements of its financial condition, as well as any 
publicly available information which it believes is necessary for the 
independent fiduciary to determine whether the Plan should enter into 
or renew the Borrowing Agreement.
    (j) The Borrowing Agreement contains a representation by the 
Borrower that, as of each time it borrows securities, there has been no 
material adverse change in its financial condition since the date of 
the most recently furnished statements of financial condition.
    (k) The Plan receives the equivalent of all distributions made 
during the loan period, including, but not limited to, cash dividends, 
interest payments, shares of stock as a result of stock splits, and 
rights to purchase additional securities, that the Plan would have 
received (net of tax withholdings) \20\ had it remained the record 
owner of the securities.
---------------------------------------------------------------------------

    \20\ The Department notes the Applicants' representation that 
dividends and other distributions on foreign securities payable to a 
lending Plan are subject to foreign tax withholdings and that the 
Borrower will always put the Plan back in at least as good a 
position as it would have been had it not loaned securities.
---------------------------------------------------------------------------

    (l) The Borrowing Agreement and/or any securities loan outstanding 
may be terminated by either party at any time without penalty (except 
for, if the Plan has terminated its Borrowing Agreement, the return to 
the Borrower of a pro-rata portion of the Exclusive Fee paid by the 
Borrower to the Plan)

[[Page 53451]]

whereupon the Borrower delivers securities identical to the borrowed 
securities (or the equivalent thereof in the event of reorganization, 
recapitalization, or merger of the issuer of the borrowed securities) 
to the Plan within the lesser of five business days of written notice 
of termination or the customary settlement period for such securities.
    (m) In the event that the Borrower fails to return securities in 
accordance with the Borrowing Agreement, the Plan will have the right 
under the Borrowing Agreement to purchase securities identical to the 
borrowed securities and apply the collateral to payment of the purchase 
price. If the collateral is insufficient to satisfy the Borrower's 
obligation to return the Plan's securities, the Borrower will indemnify 
the Plan in the U.S. with respect to the difference between the 
replacement cost of securities and the market value of the collateral 
on the date the loan is declared in default, together with expenses 
incurred by the Plan plus applicable interest at a reasonable rate, 
including reasonable attorneys' fees incurred by the Plan for legal 
action arising out of default on the loans, or failure by the Borrower 
to properly indemnify the Plan.
    (n) Except as otherwise provided herein, all procedures regarding 
the securities lending activities, at a minimum, conform to the 
applicable provisions of PTE 81-6 (as amended or superseded), as well 
as to applicable securities laws of the United States and/or the United 
Kingdom, as appropriate.
    (o) Only Plans with total assets having an aggregate market value 
of at least $50 million are permitted to lend securities to the 
Borrowers; provided, however, that--
    (1) In the case of two or more Plans which are maintained by the 
same employer, controlled group of corporations or employee 
organization (the Related Plans), whose assets are commingled for 
investment purposes in a single master trust or any other entity the 
assets of which are ``plan assets'' under 29 CFR 2510.3-101 (the Plan 
Asset Regulation), which entity is engaged in securities lending 
arrangements with the Borrowers, the foregoing $50 million requirement 
shall be deemed satisfied if such trust or other entity has aggregate 
assets which are in excess of $50 million; provided that if the 
fiduciary responsible for making the investment decision on behalf of 
such master trust or other entity is not the employer or an affiliate 
of the employer, such fiduciary has total assets under its management 
and control, exclusive of the $50 million threshold amount attributable 
to plan investment in the commingled entity, which are in excess of 
$100 million.
    (2) In the case of two or more Plans which are not maintained by 
the same employer, controlled group of corporations or employee 
organization (the Unrelated Plans), whose assets are commingled for 
investment purposes in a group trust or any other form of entity the 
assets of which are ``plan assets'' under the Plan Asset Regulation, 
which entity is engaged in securities lending arrangements with the 
Borrowers, the foregoing $50 million requirement is satisfied if such 
trust or other entity has aggregate assets which are in excess of $50 
million (excluding the assets of any Plan with respect to which the 
fiduciary responsible for making the investment decision on behalf of 
such group trust or other entity or any member of the controlled group 
of corporations including such fiduciary is the employer maintaining 
such Plan or an employee organization whose members are covered by such 
Plan). However, the fiduciary responsible for making the investment 
decision on behalf of such group trust or other entity--
    (i) Has full investment responsibility with respect to plan assets 
invested therein; and
    (ii) Has total assets under its management and control, exclusive 
of the $50 million threshold amount attributable to plan investment in 
the commingled entity, which are in excess of $100 million. (In 
addition, none of the entities described above are formed for the sole 
purpose of making loans of securities.)
    (p) Prior to any Plan's approval of the lending of its securities 
to the Borrowers, a copy of this exemption (and the notice of pendency) 
is provided to the Plan, and the Borrower informs the independent 
fiduciary that the Borrower is not acting as a fiduciary of the Plan in 
connection with its borrowing securities from the Plan.\21\
---------------------------------------------------------------------------

    \21\ The Department notes the Applicants' representation that, 
under the proposed exclusive borrowing arrangements, neither the 
Borrower nor any of its affiliates will perform the essential 
functions of a securities lending agent, i.e., the Applicants will 
not be the fiduciary who negotiates the terms of the Borrowing 
Agreement on behalf of the Plan, the fiduciary who identifies the 
appropriate borrowers of the securities or the fiduciary who decides 
to lend securities pursuant to an exclusive arrangement. However, 
the Applicants or their affiliates may monitor the level of 
collateral and the value of the loaned securities.
---------------------------------------------------------------------------

    (q) The independent fiduciary of the Plan receives monthly reports 
with respect to the securities lending transactions, including but not 
limited to the information set forth in the following sentence, so that 
an independent Plan fiduciary may monitor such transactions with the 
Borrowers. The monthly report will list for a specified period all 
outstanding or closed securities lending transactions. The report will 
identify for each open loan position, the securities involved, the 
value of the security for collateralization purposes, the current value 
of the collateral, the rebate or premium (if applicable) at which the 
security is loaned, and the number of days the security has been on 
loan. At the request of the Plan, such a report will be provided on a 
daily or weekly basis, rather than a monthly basis. Also, upon request 
of the Plan, the Borrower will provide the Plan with daily 
confirmations of securities lending transactions.
    (r) In addition to the above conditions, all loans involving 
Foreign Borrowers must satisfy the following supplemental requirements:
    (1) Such Foreign Borrower is a bank which is subject to regulation 
by the Bank of England or is a registered broker-dealer subject to 
regulation by the UK SFA;
    (2) Such Foreign Borrower is in compliance with all applicable 
provisions of Rule 15a-6 (17 C.F.R. 240.15a-6) under the Securities 
Exchange Act of 1934 (the 1934 Act) which provides foreign broker-
dealers a limited exception from United States registration 
requirements;
    (3) All collateral is maintained in United States dollars or in 
U.S. dollar-denominated securities or letters of credit, or other 
collateral permitted under PTE 81-6 (as amended or superseded);
    (4) All collateral is held in the United States and the situs of 
the Borrowing Agreement is maintained in the United States under an 
arrangement that complies with the indicia of ownership requirements 
under section 404(b) of the Act and the regulations promulgated under 
29 C.F.R. 2550.404(b)-1; and
    (5) Prior to entering into a transaction involving a Foreign 
Borrower, Barclays or the Foreign Borrower must:
    (i) Agree to submit to the jurisdiction of the United States;
    (ii) Agree to appoint an agent for service of process in the United 
States, which may be an affiliate (the Process Agent);
    (iii) Consent to the service of process on the Process Agent; and
    (iv) Agree that enforcement by a Plan of the indemnity provided by 
Barclays or the Foreign Borrower will occur in the United States 
courts.
    (s) Barclays or the Borrower maintains, or causes to be maintained, 
within the United States for a period of

[[Page 53452]]

six years from the date of such transaction, in a manner that is 
convenient and accessible for audit and examination, such records as 
are necessary to enable the persons described in paragraph (t)(1) to 
determine whether the conditions of the exemption have been met, except 
that--
    (1) A prohibited transaction will not be considered to have 
occurred if, due to circumstances beyond the control of Barclays and/or 
its affiliates, the records are lost or destroyed prior to the end of 
the six year period; and
    (2) No party in interest other than the Borrower 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 below by paragraph (t)(1).
    (t)(1) Except as provided in subparagraph (t)(2) of this paragraph 
and notwithstanding any provisions of subsections (a)(2) and (b) of 
section 504 of the Act, the records referred to in paragraph (s) are 
unconditionally available at their customary location for examination 
during normal business hours by--
    (i) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service or the Securities and Exchange 
Commission (SEC);
    (ii) Any fiduciary of a participating Plan or any duly authorized 
representative of such fiduciary;
    (iii) Any contributing employer to any participating Plan or any 
duly authorized employee representative of such employer; and
    (iv) Any participant or beneficiary of any participating Plan, or 
any duly authorized representative of such participant or beneficiary.
    (2) None of the persons described above in subparagraphs 
(t)(1)(ii)-(t)(1)(iv) are authorized to examine the trade secrets of 
Barclays or its affiliates or commercial or financial information which 
is privileged or confidential.
Section III--Definitions
    (a) An ``affiliate'' of a person means:
    (i) Any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person. (For purposes of this paragraph, the term ``control'' 
means the power to exercise a controlling influence over the management 
or policies of a person other than an individual);
    (ii) Any officer, director, employee or relative (as defined in 
section 3(15) of the Act) of any such other person or any partner in 
any such person; and
    (iii) Any corporation or partnership of which such person is an 
officer, director or employee, or in which such person is a partner.
    (b) The term ``Foreign Borrower'' or ``Foreign Borrowers'' means 
Barclays Capital Securities Limited and any broker-dealer or bank that, 
now or in the future, is an affiliate of Barclays which is subject to 
regulation by the UK SFA or the Bank of England.
    (c) The term ``Borrower'' includes Barclays, BCI, the Foreign 
Borrowers and any other affiliate of Barclays that, now or in the 
future, is a U.S. registered broker-dealer or a government securities 
broker or dealer or U.S. bank.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption (the Notice) published on June 28, 
2001 at 66 FR 34475.
    Effective Date: This exemption will be effective as of January 24, 
2001.

Written Comments

    The Department received one comment letter with respect to the 
Notice. The comment letter was submitted by Barclays Bank PLC and 
certain of its affiliates (the Applicants). The Applicants made three 
comments that concerned minor modifications to the language of the 
exemption, as proposed.
    First, the Applicants requested that the word ``remaining'' be 
deleted from the second sentence in Section II(e) of the Notice. 
Second, the Applicants requested that the term ``financial statements'' 
in Section II(j) of the Notice be replaced with the term ``statements 
of financial condition'' in the final exemption. Finally, the 
Applicants requested that the following language be added to the end of 
the sentence in Section II(r)(3) of the Notice: ``or such other 
collateral as may be permitted under PTE 81-6 from time to time.''
    The Department concurs with the Applicants' comments and suggested 
changes, and has modified the language of the final exemption 
accordingly.
    After giving full consideration to the entire record, including the 
written comments from the Applicants, the Department has decided to 
grant the exemption, as modified herein.

FOR FURTHER INFORMATION CONTACT: Karen Lloyd of the Department, 
telephone (202) 219-8194. (This is not a toll-free number.)

Columbia Savings Plan (the Plan) Located in Wilmington, DE

[Prohibited Transaction Exemption 2001-42; Exemption Application No. D-
10977]

Exemption

    The restrictions of sections 406(a), 406(b)(1) and (b)(2) and 
section 407(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 (E) of the Code, shall not apply, effective 
November 1, 2000, to (1) the receipt, by the Plan, of Stock 
Appreciation Income Linked Securities (SAILS), in exchange for common 
stock in Columbia Energy Group (Columbia Energy), the Plan sponsor; (2) 
the extension of credit by the Plan to NiSource, Inc. (NiSource), a 
party in interest, in connection with the receipt of the zero coupon 
bond portion of the SAILS; (3) the continued holding of the SAILS by 
the Plan; and (4) the potential sale of the SAILS by the Plan to 
NiSource.
    This exemption is subject to the following conditions:
    (a) The Plan automatically received the SAILS in exchange for its 
shares of Columbia Energy common stock, in accordance with the terms of 
an agreement and plan of merger, and it paid no fees or commissions in 
connection with its receipt of the SAILS and other merger 
consideration.
    (b) All Columbia Energy shareholders, including Plan participants, 
received SAILS in the same manner, so that the Plan participants and 
beneficiaries were not in a less advantageous position than other 
Columbia Energy shareholders.
    (c) The Plan's receipt of the SAILS resulted from shareholder 
approval and did not relate to any unilateral exercise of discretion by 
a Plan fiduciary.
    (d) Morgan Stanley and Salomon Smith Barney, Inc. advised Columbia 
Energy that the consideration consisting of NiSource common stock, 
SAILS and cash for Columbia Energy common stock was ``fair,'' from a 
financial point of view.
    (e) Duff & Phelps, Inc. provided Fidelity Investments, Inc., the 
Plan trustee (the Trustee), and the Plan's Savings Plan Committee with 
independent financial advice concerning the valuation of the SAILS.
    (f) The Plan did not pay any fees or commissions in connection with 
the acquisition and holding of the SAILS, nor will it pay any fees or 
commissions if any SAILS are sold to NISource.
    (g) An independent fiduciary, United States Trust Company, N.A. 
(U.S. Trust),
    (1) Monitored the Plan's holding and disposition of the SAILS;

[[Page 53453]]

    (2) Determined whether it was appropriate for the Plan to dispose 
of the SAILS (either on the open market or through a direct sale to 
NiSource) and instructed the Trustee regarding such disposition;
    (3) Would determine, in the event of a sale of any SAILS to 
NiSource, the fair market value of such SAILS either (i) based on their 
closing price on the New York Stock Exchange (the NYSE) on the date of 
the transaction, or (ii) on the basis of an independent appraisal if 
the SAILS were not carried on the NYSE, or in the event it concluded 
that the closing price on the NYSE was not representative of the fair 
market value of the SAILS as of the transaction date; and
    (4) Disposed of all SAILS held by the Plan on the NYSE before the 
end of calendar year 2001.
    (h) The Plan would not be required to pay any fees or commissions 
in the event any SAILS were sold to NiSource.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on July 30, 2001 at 66 FR 
39367.

Written Comments

    The Department received one written comment with respect to the 
proposed exemption and no requests for a public hearing. The comment 
was submitted by a Plan participant who stated that she was initially 
given the choice of how she wanted her shares of Columbia Energy common 
stock converted. Although the commenter chose to exchange her Columbia 
Energy common stock for NiSource common stock, she ended up receiving 
both NiSource common stock and SAILS. The commenter declared this form 
of consideration to be unacceptable to herself and to other Plan 
participants who were treated similarly. The commenter also questioned 
whether participants who received SAILS would be again taken advantage 
of by not having a choice or say in the matter and she suggested that 
Columbia Energy provide meetings and clearer explanations to questions 
in layman's terms so that all parties involved could make informed 
choices.
    Columbia Energy responded to the commenter's concerns by stating 
that the Trustee and the Plan fiduciaries had acted prudently and in 
the best interests of the Plan participants with respect to the subject 
transactions. In this regard, Columbia Energy noted that the Plan was 
treated in the same manner as any other holder of Columbia Energy 
common stock that had made a valid election to receive NiSource common 
stock in exchange for Columbia Energy common stock, or to receive 
consideration in the form of cash and SAILS, in exchange for Columbia 
Energy common stock. Columbia Energy also noted that due to uncertainty 
on whether the SAILS constituted qualifying employer securities, the 
Trustee was required, under the terms of the Trust Agreement and 
applicable law, to override all Plan participant elections to receive 
cash and SAILS consideration, and to elect, in the alternative NiSource 
common stock. However, because a large number of Columbia Energy's 
shareholders elected to receive NiSource common stock, the stock 
elections had to be prorated. Thus, Columbia Energy explained that the 
Plan (and Plan participants) ultimately received SAILS, in addition to 
shares of NiSource common stock, and cash. The SAILS were held in a 
separate fund, which was not subject to participant direction, and 
disposed of during the 2001 calendar year.
    To protect the interests of the Plan participants, Columbia Energy 
indicated that it retained U.S. Trust to serve on behalf of the Plan as 
an independent fiduciary and oversee the Plan's holding and eventual 
disposition of the SAILS on the NYSE. As a result of such disposition, 
Columbia Energy stated that each Plan participant received the proceeds 
attributable to the number of SAILS held in the participant's SAILS 
account, thereby entitling the participant to direct the proceeds into 
one or more investment options under the Plan.
    Because the Plan has already disposed of all SAILS it held on the 
NYSE rather than selling them directly to NiSource, the Department has 
decided to modify Conditions (g) and (h) of the proposed exemption to 
reflect more accurately the role of U.S. Trust and what actually 
transpired. Thus, Conditions (g) and (h) of the final exemption have 
been revised to read as follows:

    (g) An independent fiduciary, United States Trust Company, N.A. 
(U.S. Trust),
    (1) Monitored the Plan's holding and disposition of the SAILS;
    (2) Determined whether was appropriate for the Plan to dispose 
of the SAILS (either on the open market or through a direct sale to 
NiSource) and instructed the Trustee regarding such disposition;
    (3) Would determine, in the event of a sale of any SAILS to 
NiSource, the fair market value of such SAILS either (i) based on 
their closing price on the New York Stock Exchange (the NYSE) on the 
date of the transaction, or (ii) on the basis of an independent 
appraisal if the SAILS were not carried on the NYSE, or in the event 
it concluded that the closing price on the NYSE was not 
representative of the fair market value of the SAILS as of the 
transaction date; and
    (4) Disposed of all SAILS held by the Plan on the NYSE before 
the end of calendar year 2001.
    (h) The Plan would not be required to pay any fees or 
commissions in the event any SAILS were sold to NiSource.

    Accordingly, after giving full consideration to the entire record, 
including the written comment and clarifications noted above, the 
Department has decided to grant the exemption.
    For further information regarding the comment and other matters 
discussed herein, interested persons are encouraged to obtain copies of 
the exemption application file (Exemption Application No. D-10977) the 
Department is maintaining in this case. The complete application file, 
as well as all supplemental submissions received by the Department, are 
made available for public inspection in the Public Disclosure Room of 
the Pension and Welfare Benefits Administration, Room N-1513, U.S. 
Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210.

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

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions to which the exemptions does not 
apply and the general fiduciary responsibility provisions of section 
404 of the Act, which among other things require a fiduciary to 
discharge his duties respecting the plan solely in the interest of the 
participants and beneficiaries of the plan and in a prudent fashion in 
accordance with section 404(a)(1)(B) of the Act; nor does it affect the 
requirement of section 401(a) of the Code that the plan must operate 
for the exclusive benefit of the employees of the employer maintaining 
the plan and their beneficiaries;
    (2) These exemptions are supplemental to and not in derogation of, 
any other provisions of the Act and/or the Code, including statutory or 
administrative exemptions and transactional rules. Furthermore, the 
fact that a transaction is subject to an administrative or statutory 
exemption is not dispositive of whether the

[[Page 53454]]

transaction is in fact a prohibited transaction; and
    (3) The availability of these exemptions is subject to the express 
condition that the material facts and representations contained in each 
application accurately describes all material terms of the transaction 
which is the subject of the exemption.

    Signed at Washington, DC, this 17th day of October, 2001.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 01-26568 Filed 10-19-01; 8:45 am]
BILLING CODE 4510-29-P