Grant of Individual Exemptions; Fidelity Management Trust Company, et al.

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Prohibited Transaction Exemption 94-43; Exemption Application No. D-

9282, et al.]

Grant of Individual Exemptions; Fidelity Management Trust

Company, 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 aplicaitons have been available for public

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

invited interested persons to submit comments on the requested

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

interested person might submit a written request that a public hearing

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

have complied with the requirements of the notification to interested

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

otherwise stated, were received by the Department.

The notices of proposed exemption were issued and the exemptions

are being granted solely by the Department because, effective December

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

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

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

of Labor.

Statutory Findings

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

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

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

the entire record, the Department makes the following findings:

(a) The exemptions are administratively feasible;

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

and beneficiaries; and

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

beneficiaries of the plans.

Fidelity Management Trust Company Located in Boston, Massachusetts

[Prohibited Transaction Exemption 94-43; Exemption Application No. D-

9282]

Exemption

The restrictions of sections 406(a)(1)(A) 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) of the Code, shall not apply

to the cross-trading of securities by Fidelity Management Trust Company

(Fidelity) on behalf of employee benefit plan accounts for which

Fidelity acts as fiduciary.

Part I--General Conditions

(A) Each Plan participating in Fidelity's cross-trading program has

assets of at least $25 million;

(B) A Plan's participation in the cross-trade program is subject to

a written authorization executed in advance by a fiduciary with respect

to each such Plan;

(C) The authorization referred to in section (B) of this Part I is

terminable at will without penalty to such Plan, upon receipt by

Fidelity of written notice of such termination;

(D) Before an authorization is made, the authorizing Plan fiduciary

must be furnished with any reasonably available information necessary

for the authorizing fiduciary to determine whether the authorization

should be made, including (but not limited to) a copy of this

exemption, an explanation of how the authorization may be terminated, a

detailed disclosure of the procedures implemented in Fidelity's cross-

trade practices, and any other reasonably available information

regarding the matter that the authorizing fiduciary requests;

(E) Each cross-trade transaction involves only securities for which

there is a generally recognized market;

(F) Each cross-trade transaction is effected at the current market

value for the security on the date of the transactions, which shall be,

for equity securities, the closing price for the security on the date

of the transaction, and for debt securities, as determined in

accordance with paragraph (b) of Rule 17a-7 issued by the Securities

and Exchange Commission (SEC) under the Investment Company Act of 1940;

(G) Fidelity will not charge any Plan affected by a cross-trade

transaction any fee or commission for such transaction;

(H) At least every three months, and not later than 45 days

following the period to which it relates, Fidelity will furnish the

authorizing Plan fiduciary with a report disclosing (1) a list of all

cross-trade transactions engaged in on behalf of the Plan, and (2) with

respect to each cross-trade transaction, the highest and lowest prices

at which the securities involved in the transaction were traded on the

date of such transaction;

(I) The authorizing Plan fiduciary will be furnished with a summary

of certain additional information at least once per year. The summary

must be furnished within 45 days after the end of the period to which

it relates, and must contain the following: (1) A description of the

total amount of Plan assets involved in cross-trade transactions during

the period, (2) a description of Fidelity's cross-trade practices, (3)

A statement that the Plan fiduciary's authorization of cross-trade

transactions may be terminated upon receipt by Fidelity of the

fiduciary's written notice to that effect, and (4) a statement that the

Plan fiduciary's authorization of the cross-trade transaction will

continue in effect unless it is terminated; and

(J) The Accounts involved in cross-trade transactions will not

include assets of any Plan established or maintained by Fidelity or its

affiliates.

Part II--Specific Conditions

(A) Index Accounts

(1) The index of the Account is based on an index which represents

the investment performance of a specific segment of the public market

for equity or debt securities in the United States and/or foreign

countries. The organization creating and maintaining the index must be

(a) engaged in the business of providing financial information,

evaluations, advice or securities brokerage services to institutional

clients, (b) a publisher of financial news or information, or (c) a

public stock exchange or association of securities dealers. The index

must be created and maintained by an organization independent of

Fidelity and its affiliates. The index must be a generally accepted

standardized index of securities which is not specifically tailored for

the use of Fidelity or its affiliates.

(2) The transaction takes place within three business days of the

``triggering event'' giving rise to the cross-trade transaction. A

triggering event is defined as:

(a) A change in the composition or weighting of the index

underlying an Index Account; or

(b) A change in the overall level of investment in an Index

Account as a result of investments and withdrawals made on the Index

Account's opening date (the regularly-scheduled date on which

investments in or withdrawals from an Index Account may be made).

(3) Fidelity maintains or causes to be maintained for a period of

six years from the date of the transaction the records necessary to

enable the persons described in section (4) of this Part II (A) to

determine whether the conditions of this exemption have been met,

except that a prohibited transaction will not be considered to have

occurred if, due to circumstances beyond the control of Fidelity or its

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

six-year period.

(4) (a) Except as provided in subsection (b) of this section (4)

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

section 504 of the Act, the records referred to in section (3) of this

Part II are unconditionally available at their customary location for

examination during normal business hours by--

(1) Any duly authorized employee or representative of the

Department or the Internal Revenue Service,

(2) Any fiduciary of a Plan participating in an Index Account

who has authority to acquire or dispose of the interests of the Plan

or any duly authorized employee or representative of such fiduciary,

(3) Any contributing employer to any Plan participating in an

Index Account or any duly authorized employee or representative of

such employer, and

(4) Any participant or beneficiary of any Plan participating in

an Index Account, or any duly authorized employee or representative

of such participant or beneficiary.

(b) None of the persons described in paragraphs (2) through (4) of

subsection (a) of this section (4) shall be authorized to examine trade

secrets of Fidelity, any of its affiliates, or commercial or financial

information which is privileged or confidential.

(B) Managed Accounts

(1) An independent fiduciary of each Plan must specifically

authorize each cross-trade transaction in accordance with the following

procedure:

(a) No more than three business days prior to the execution of any

cross-trade transaction, Fidelity must inform an independent fiduciary

of each Plan involved in the cross-trade transaction that Fidelity

proposes to buy or sell specified securities in a cross-trade

transaction if an appropriate opportunity is available, the current

trading price for such securities, and the total number of shares to be

acquired or sold by each such Plan.

(b) Prior to each cross-trade transaction, the transaction must be

authorized either orally or in writing by the independent fiduciary of

each Plan involved in the cross-trade transaction;

(c) If a cross-trade transaction is authorized orally by an

independent fiduciary, Fidelity will provide written confirmation of

such authorization in a manner reasonably calculated to be received by

such independent fiduciary within one business day from the date of

such authorization;

(d) The authorization referred to in this Part II(B) will be

effective for a period of three business days; and

(e) No more than ten days after the completion of a cross-trade

transaction, the independent fiduciary authorizing the cross-trade

transaction must be provided a written confirmation of the transaction

and the price at which the transaction was executed;

(2) A cross-trade transaction will be effected only where the

transaction involves less than five percent of the aggregate average

daily trading volume for the securities involved in the transaction for

the week immediately preceding the authorization of the transaction. A

cross-trade transaction may exceed this limit only by express

authorization of independent fiduciaries on behalf of Plans affected by

the transaction; and

(3) The cross-trade transaction is effected at a price which is

within ten percent of the closing price of the security on the day

before the date on which Fidelity receives authorization by the

independent Plan fiduciary to engage in the cross-trade transaction.

Part III--Definitions

(A) ``Account'' means an account holding assets of one or more

employee benefit plans which are subject to the Act (the Plans), for

which Fidelity or an affiliate of Fidelity acts as a fiduciary;

(B) ``Affiliate'' means any person, directly or indirectly through

one or more intermediaries, controlling, controlled by, or under common

control with Fidelity;

(C) ``Cross-trade transaction'' means a purchase and sale of

securities between ERISA Accounts or between an ERISA Account and a

non-ERISA account for which Fidelity or an affiliate of Fidelity acts

as a trustee or investment manager;

(D) ``Index Account'' means an Account for which Fidelity and the

Plan sponsor or other named fiduciary have agreed that the investment

of the assets in question will be designed to replicate the

capitalization-weighted composition of a stock or bond index; and

(E) ``Managed Account'' means an Account for which Fidelity and the

Plan sponsor or other named fiduciary have agreed that the investment

of the assets in question will be managed actively at the discretion of

Fidelity, pursuant to written guidelines as to which types of

securities to buy or sell for the Account.

Written Comments: The Department received one written comment and

no requests for a hearing. The comment was submitted by the applicant,

Fidelity Management Trust Company. The applicant addresses two matters

which are summarized as follows:

(1) The applicant notes a typographical error in Part III of the

proposed exemption: Within the definition of ``Cross-trade

transaction'', the word ``account'' should not be capitalized. The

applicant represents that, as described elsewhere in the Notice of

Proposed Exemption, cross-trade transactions covered by the proposed

exemption may occur between an account holding assets of one or more

employee benefit plans which are subject to the Act (``Account'') and a

non-ERISA account managed by the applicant or an affiliate

(``account'').

(2) The applicant wishes to supplement the summary of facts and

representations of the notice of proposed exemption (the Summary), by

clarifying and revising its explanation of the manner in which

opportunities for cross-trading transactions are allocated among

accounts under its management, which is found in section 10 of the

Summary. The applicant represents that subsequent to the publication of

the Summary, it determined that its cross-trading program will be

effected pursuant to a non-discretionary pro-rata allocation system.

For example, in the event that the number of shares of a particular

security which an Account proposes to sell on a given day is less than

the number of shares of such security which other Fidelity-advised

accounts propose to buy on that date, the direct cross-trade

opportunity will be allocated among potential buyers on a pro-rata

basis. A similar procedure would apply where the number of shares of a

particular security to be sold by Fidelity-advised accounts is less

than the number of such shares which an Account and one or more other

Fidelity-advised accounts proposes to buy on that date. Thus, the

Accounts participating in Fidelity's cross-trade program will have

opportunities to participate on a proportional basis in all cross-trade

transactions during the operation of the cross-trade program. The

applicant represents that this aspect of Fidelity's cross-trading

program is among the information which will be disclosed in writing to

the fiduciaries of the pension plans which invest in the Accounts.

After careful consideration of the entire record, the Department

has determined to grant the exemption, as supplemented by the

applicant's comment.

For a more complete statement of the facts and representations

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

the notice of proposed exemption published on December 10, 1993 at 58

FR 64978.

FOR FURTHER INFORMATION CONTACT: Ronald Willett of the Department,

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

Lone Star Industries, Inc. Master Retirement Trust (the Master Trust)

Located in Chicago, Illinois

[Prohibited Transaction Exemption No. 94-44; Application No. D-9295]

Exemption

Section I--Transactions

Effective September 10, 1990, the restrictions of sections 406(a),

406(b)(1), 406(b)(2), and 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 to:

(a) The lease (the Lease) by the Master Trust of a certain parcel

of real property (the Property) located in Rancho Cordova, California,

to RMC Lonestar (RMC), a party in interest with respect to plans

participating in the Master Trust (the Plans);

(b) The obligations and guarantees to the Master Trust by Lone Star

Industries, Inc. (LSI), a party in interest with respect to the Plans,

arising under the terms of the Lease on the Property, subsequent to the

assignment by LSI of its leasehold interest in the Property to RMC; and

(c) The payment in the amount of $6,000,000 by LSI to the Master

Trust in exchange for a release of LSI's obligation to perform under

the terms of a certain yield guarantee agreement signed December 18,

1992, by LSI and the Master Trust; provided that the conditions set

forth in section II below are met.\1\

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\1\For purposes of this exemption, references to specific

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

also to the corresponding provisions of the Code.

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Section II--Conditions

This exemption is conditioned upon the adherence to the material

facts and representations described herein and in the application for

exemption and upon the satisfaction of the following requirements:

(a) The Bankruptcy Court for the Southern District of New York (the

Bankruptcy Court) enters and order confirming the modified amended

consolidated plan of reorganization filed by LSI and its affiliates,

pursuant to Chapter 11 of the Bankruptcy Code;

(b) The obligations and guarantees of LSI to the Master Trust under

the Lease are assumed by LSI and continue after the plan of

reorganization is confirmed by the Bankruptcy Court;

(c) LSI pays the $6,000,000 in a single lump-sum payment in cash to

the Master Trust, not later than sixty (60) days following the later of

(1) the date of the order of the Bankruptcy Court approving the

payment, or (2) the date the grant of this exemption is published in

the Federal Register;

(d) Morrison, Karsten, Ramzy & Arthur, Inc. (MKRA), acting as

independent qualified fiduciary on behalf of the Master Trust (the I/

F), has negotiated, reviewed, and approved the transactions, and has

determined that the transactions were feasible, in the interest of, and

protective of the participants and beneficiaries of the Plans invested

in the Master Trust, as of the effective date of this exemption;

(e) MKRA at the time of its appointment was unrelated to LSI, RMC,

and any other parties involved in the Lease and will at all times

remain independent of such parties;

(f) The provisions of the amendment to the Lease, executed in

December 1992 (the First Amendment) become effective on the date that

the grant of this exemption is published in the Federal Register;

(g) The terms of the Lease, as modified by the First Amendment, are

at least as favorable to the Master Trust, the Plans, and their

participants and beneficiaries, as those which could have been obtained

by the Master Trust in an arm's length negotiation with an unrelated

third party under similar circumstances;

(h) From September 10, 1990, to June 1, 1993, the Northern Trust

Company (the Trustee), an independent party with respect to LSI, RMC,

and their affiliates, managed the Property on behalf of the Master

Trust and monitored and enforced the terms of the Lease;

(i) From June 1, 1993, MKRA managed the Property on behalf of the

Master Trust and monitored and enforced the terms of the Lease, and

MKRA or its successors, will act as I/F with respect to the Property

and will monitor and enforce the provisions of the Lease as long as

such Property is leased to a party in interest;

(j) MKRA or its successors will monitor the fair market value of

the Master Trust in order to insure that the fair market value of the

Property will at no time exceed twenty percent (20%) of the total fair

market value of the assets of the Master Trust;

(k) LSI has either paid directly or reimbursed the Master Trust for

any fees, other than trustee and investment management fees, incurred

in connection with the transactions with respect to the ownership of

the Property by the Master Trust, and in the future, the Master Trust

will incur no fees in connection with the transactions, other than fees

paid to the trustee and to the investment manager; and

(l) LSI has filed Forms 5330 and paid the excise taxes with respect

to the Lease of the Property for years 1987-1989 and, LSI, not later

than sixty (60) days after the date the grant of this exemption is

published in the Federal Register, will file Forms 5330 and will pay

the excise taxes for the period after December 31, 1989, and before the

effective date of this exemption.

EFFECTIVE DATE: This exemption will be effective as of September 10,

1990.

Written Comments

In the Notice of Proposed Exemption (the Notice), the Department

invited all interested persons to submit written comments and any

requests for a hearing on the proposed exemption within forty-five (45)

days from the date of the publication of the Notice in the Federal

Register. All written comments and requests for a hearing were to have

been received by the Department by April 22, 1994.

As of the close of the comment period, the Department had received

eight (8) letters from interested persons commenting on the proposed

exemption in addition to comment letters from the applicant. In this

regard, the Department forwarded copies of the commentators' letters to

the applicant and requested that the applicant address in writing the

concerns raised.

In a letter dated May 4 1994, the applicant responded to the

commentators, as requested by the Department. In this regard, the

applicant stated that in general the concerns of the commentators did

not identify any factual issues or express any direct objection to the

exemption. The comments from the commentators on the proposed exemption

were summarized by the applicant as follows: (1) Some of the comment

letters were generally opposed to anything that would adversely affect

their pension; (2) others of the comment letters expressed general

concerns regarding the effect of the exemption on pension benefits; and

(3) one comment letter supported the exemption.

In the opinion of the applicant the one favorable comment letter

would appear to need no response. In response to the adverse comment

letters, the applicant notes that the granting of the exemption in and

of itself does not affect the security of pensions payable from the

Plans participating in the Master Trust. In this regard, the applicant

maintains: (1) That the granting of the exemption does not reduce the

obligation to pay benefits of any of the Plans participating in the

Master Trust; (2) that the exemption does not affect the duty of the

sponsoring employer to comply with the funding requirements of

applicable law; (3) that the I/F has determined that the terms of the

agreement reached with LSI result in an overall transaction that is

equal to or superior to transactions that could be negotiated with

unrelated third parties; (4) that the terms of the agreement provide

for LSI to pay $6 million to the Master Trust; (5) that based on the

terms agreed to and the receipt of the $6 million dollar payment, the

I/F has determined that the Master Trust is assured an internal rate of

return in excess of 11% on the Property; and (6) that the terms of the

agreement provide the Master Trust with significant opportunity to

obtain an advantageous investment return with very little downside

risk. Based on these considerations, the applicant maintains that no

adverse effect on pension benefits payable by the Plans participating

in the Master Trust should occur if the exemption is granted.

Two of the commentators requested that the Department schedule a

hearing on the matter, in accordance section 29 CFR 2570.46 of the

Department's regulations which provides that the Department in its

discretion may convene a hearing if requested by any interested persons

who may be adversely affected by the exemption and where such exemption

proposes to grant relief from section 406(b) of the Act. In response to

this request for a hearing, the applicant points out that the

commentators do not object to any specific issue in connection with the

grant of the exemption, but expresses only general concern for how the

exemption might affect health insurance, life insurance, and monthly

pension benefits.

The Department's regulations regarding the right to a hearing state

that a request for hearing must include ``a statement of the issues to

be addressed and a general description of the evidence to be presented

at the hearing. Further, the regulations state that the Department will

grant a request for hearing ``where a hearing is necessary to fully

explore material factual issues identified by the person requesting the

hearing'' or may decline to hold a hearing ``where the factual issues

identified can be fully explored through the submission of evidence in

written form.'' The Department has concluded that the issues identified

by the commentators, who requested a hearing, have been full explored

in the case record including the material submitted by the applicant in

response to the comments. Accordingly, the Department has determined

not to hold a public hearing.

In addition to the above comments and request for a hearing

received from interested persons, the applicant informed the Department

in submissions dated April 8, 1994, and April 22, 1994, of certain

factual changes to the information contained in the application and

technical clarifications to the language of the Notice. The following

items represents a summary of the comments submitted to the Department

by the applicant subsequent to the publication of the Notice:

(1) LSI informed the Department that the Bankruptcy Court had

entered an order on March 31, 1994, that approved the $6 million dollar

payment by LSI to the Master Trust. Subsequently, the Department was

informed that on April 14, 1994, LSI emerged from bankruptcy protection

and that in connection with such emergence, LSI made the $6 million

payment to the Master Trust that is a condition, as set forth in

Section II(c), of this exemption. In this regard, such condition

provides that LSI pay ``* * * the $6,000,000 in a single lump-sum

payment in cash to the Master Trust, not later than sixty (60) days

following the later of (1) the date of the order of the Bankruptcy

Court approving the payment, or (2) the date the grant of this

exemption is published in the Federal Register.'' In the opinion of

LSI, since the condition of the exemption states that the payment be

made no later than a specified date, that LSI's payment of the $6

million dollars before the publication of the final exemption complies

with the condition for grant of the exemption. The Department agrees

with the position as expressed by LSI;

(2) LSI commented on the language concerning the condition of the

exemption, as set forth in Section II(g), which states that ``the terms

of the Lease, as modified by the First Amendment, are at least as

favorable to the Master Trust, the Plans, and their participants and

beneficiaries, as those which could have been obtained by the Master

Trust in an arm's length negotiations with an unrelated third party

under similar circumstances.'' With respect to the language in this

sentence from Section II(g), the Department wishes to correct a

typographical error in that the word, ``negotiations,'' written in the

plural should read ``negotiation,'' in the singular. Accordingly, the

Department has made this change in the language of Section II(g) in the

granted exemption.

Further in the language quoted in the paragraph above from Section

II(g), LSI points out that the I/F's opinion regarding the transaction,

including the Lease of the Property, is that the overall transaction,

taking into account all of its provisions including the $6 million

dollar payment, is equal to or superior to transactions that could be

negotiated with unrelated third parties. To the extent the inclusion of

the language in Section II(g) referring to ``under similar

circumstances'' is intended to include the other term of the overall

transaction, LSI states that the condition is accurate as it relates to

opinions provided by the I/F. The Department concurs with LSI's

position;

(3) LSI requested modification of the language in Section II(k)

which provides, in part that, ``LSI has either paid directly or

reimbursed the Master Trust for any fees, other than trustee and

investment management fees, incurred with respect to the ownership of

the Property by the Master Trust.'' In the opinion of LSI the quoted

language in the sentence above implies that the Master Trust has paid

no fees in connection with ownership of the Property other than trustee

or investment manager fees. LSI believes that this language is over

broad, because it is not limited to those fees incurred in connection

with the transactions. For this reason, LSI suggests adding after the

word, ``incurred,'' the phrase, ``in connection with the

transactions.'' The Department has no objection to LSI's proposed

modification, and accordingly, has amended the language of Section

II(k);

(4) LSI proposes clarification of the language of Section II(l)

which states that ``LSI has filed Forms 5330 and paid the excise taxes

with respect to the Lease of the Property for the years 1987-1989 and

will file Forms 5330 and pay the excise taxes for the period after

December 31, 1989, and before the effective date of this exemption.''

Because the effective date of this exemption is September 10, 1990, LSI

believes that this provision should be revised to clarify that the

excise taxes for the period after December 31, 1989, must be paid

within sixty (60) days of the date the grant of this exemption is

published in the Federal Register. For this reason, LSI suggests adding

before the words, ``will file,'' the phrase, ``LSI not later than sixty

(60) days after the date the grant of this exemption is published in

the Federal Register.'' The Department has no objection to LSI's

proposed modification, and accordingly, has amended the language of

Section II(l);

(5) LSI requests modification of the language in the third sentence

of paragraph number one in the Summary of Facts and Representations in

the Notice which states that, ``In addition, LSI is a major source of

ready-mixed concrete and precast concrete products and is a leading

importer of cement and clinker.'' In this regard, LSI has brought to

the Department's attention a more current description of LSI's

business. Accordingly, LSI requests that the sentence be amended to

read ``In addition, LSI is a leading producer of cement, ready-mixed

concrete, sand and gravel, crushed stone, and construction materials.''

The Department has made the requested change to the description of LSI;

and

(6) LSI requests modification of the representation in the fourth

sentence in the fourth full paragraph of paragraph number six of the

Summary of Facts and Representations which states that, ``It is

represented that the royalty payments actually made by RMC have

exceeded the minimum guaranteed royalty amounts for the years 1989

through 1992.'' In this regard, LSI has informed the Department that

the date 1992 should be corrected to read 1991. The Department has made

this change as requested by LSI.

As the Department concurs with the requested the modifications and

clarifications to the language of the proposed exemption, such changes

are hereby incorporated into the exemption, as granted. Accordingly,

after giving full consideration to the record, including the comments

by interested persons and the responses of the applicant, the

Department has determined to grant the exemption, as described herein.

In this regard, the comments submitted to the Department have 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 Welfare Benefits

Administration, room N-5507, U.S. Department of Labor, 200 Constitution

Avenue NW., Washington, DC 20210.

For a more complete statement of the facts and representations

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

the Notice published on March 8, 1994, 59 FR 10832.

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

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

General Motors Hourly-Rate Employees Pension Plan; General Motors

Retirement Program for Salaried Employees; Saturn Individual Retirement

Plan for Represented Team Members; and Saturn Personal Choices

Retirement Plan for Non-Represented Team Members (Collectively, the

Plans) Located in New York, New York

[Prohibited Transaction Exemption 94-45; Application Nos. D-8402 and D-

8405]

Exemption

Section I--Transactions

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

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

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

the following transactions if the conditions set forth in Section II

below are met:

(a) The acquisition or sale of a net profits interest (NPI), a

royalty interest (Royalty), or a production payment contract

(Production Payment), in oil and gas properties (the Properties)

between the Plans and oil and gas companies or their affiliates that

are parties in interest with respect to the Plans (collectively, the

Companies);

(b) Any loan by the Plans to the Companies where such loans are

secured by interests in the Properties, including loans with conversion

rights to acquire a NPI, Royalty, or Production Payment in the

Properties;

(c) The acquisition or sale between the Plans and the Companies of

any stock or debt securities which are convertible into such stock,

issued by the Companies (Company Securities); and

(d) The acquisition or sale between the Plans and the Companies of

any interests in certain limited partnerships which invest in such

Properties where the Company is a general partner and/or operating

owner for the Properties (Company Partnership Interest), or interests

in certain joint ventures which invest in such Properties where the

Company is a joint venturer and/or operating owner for the Properties

(Company Venture Interest).

Section II--Conditions

(a) A ``qualified oil and gas investment manager'' (as defined

below) fully reviews each transaction before recommending the

transaction to the Pension Investment Committee of General Motors

Corporation (the PIC) or, as of December 1, 1992, to the General Motors

Investment Management Corporation (GMIMCo), fiduciaries of the Plans.

The decision to enter into the transaction is made by the PIC or

GMIMCo, which retains final approval authority over the transaction.

The ``qualified oil and gas investment manager'' negotiates the

transaction and manages the oil and gas investments for the Plans, in

its capacity as a fiduciary for the Plans, and monitors all

transactions on behalf of the Plans in order to take any appropriate

action necessary to safeguard the interests of the Plans.

(b) The Companies and their affiliates are independent of and

unrelated to:

(i) The General Motors Corporation (GMC);

(ii) Any person directly or indirectly controlling, controlled by,

or under common control with GMC;

(iii) Any officer or director of GMC or any of its subsidiaries or

affiliated companies;

(iv) Any partnership in which GMC is a 10 percent or more (directly

or indirectly in capital or profits) partner; and

(v) Any ``qualified oil and gas investment manager'' which acts for

the Plans with respect to an oil and gas transaction covered by the

exemption, or any other person who exercises discretionary authority,

responsibility or control or who provides investment advice for the

investment of the Plans' assets involved in oil and gas transactions.

(c) In any transaction where the Plans acquire a NPI, Royalty,

Production Payment, Company Security, Company Partnership Interest, or

Company Venture Interest from the Companies, the Plans pay a purchase

price which is no greater than the fair market value of such interests

or securities based on an appraisal developed by the Plans' fiduciaries

or an independent, qualified appraiser selected by the Plans'

fiduciaries.

(d) In any transaction where the Plans sell a NPI, Royalty,

Production Payment, Company Security, Company Partnership Interest, or

Company Venture Interest to the Companies, the Plans receive a price

which is no less than the fair market value of such interests or

securities based on an appraisal developed by the Plans' fiduciaries or

an independent, qualified appraiser selected by the Plans' fiduciaries.

(e) In instances involving the acquisition of the Properties by a

Company from a third party with a simultaneous sale of a NPI, Royalty,

or Production Payment by the Company to the Plans, the Plans pay a

purchase price which reflects the fair market value of the interest as

agreed to by the Plans' fiduciaries in arms-length negotiations

directly involving the Plans, the Company, and the third party seller.

(f) In instances involving the sale of a NPI, Royalty, or

Production Payment by the Plans to a Company in connection with the

Company's simultaneous sale of a WI in the Properties to a third party,

the Plans receive a sales price which reflects the fair market value of

the interest as agreed to by the Plans' fiduciaries in arm's-length

negotiations directly involving the Plans, the Company, and the third

party buyer.

(g) In any loan by the Plans to a Company in connection with an oil

and gas investment, the Plans obtain terms which include: (1) An

interest rate that is commensurate with the prevailing market rate for

such loans at the time of the transaction, as determined by the Plans'

fiduciaries in accordance with rates quoted by established commercial

lenders offering similar loans; and (ii) a security interest in

designated oil and gas investment interests in the Properties, which

have a fair market value that equals at least 150% of the amount loaned

by the Plans throughout the duration of such loan, based on an

appraisal of such interests developed by the Plans' fiduciaries or by

an independent, qualified appraiser selected by the Plans' fiduciaries.

(h) All other terms of each such transaction are not less favorable

to the Plans than the terms generally available in an arm's-length

transaction between unrelated parties.

(i) The amount of each Plan's total assets involved in all

transactions with the Companies represents no more than three percent

(3%) of such Plan's total assets as of the date of approval of each

transaction by the PIC or GMIMCo.

(j) No investment management fee, advisory fee, underwriting fee,

brokerage or sales commission, or similar compensation is paid to the

Companies by the Plans with regard to the transactions.

(k) GMC maintains for the duration of each transaction and for six

years thereafter records necessary to enable persons described below in

subsection (1) to determine whether the conditions of this exemption

have been met, except that (1) a prohibited transaction will not be

considered to have occurred if, due to circumstances beyond the control

of GMC or an affiliate, the records are lost or destroyed prior to the

end of the six-year period, and (2) no party in interest, other than

GMC and its affiliates, shall be subject to the civil penalty that may

be assessed under section 502(i) of the Act or to taxes imposed by

section 4975(a) and (b) of the Code if the records are not maintained

or are not available for examination as required by subsection (1)

below; and

(l)(1) Except as provided in subsection (1)(2) and notwithstanding

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

referred to in subsection (k) are unconditionally available at their

customary location for examination during normal business hours by--

(i) Any duly authorized employee or representative of the

Department or the Internal Revenue Service, and

(ii) Any participant or beneficiary of the Plans or duly authorized

representative of such participant or beneficiary.

(2) None of the persons described in subsection (l)(1)(ii) shall be

authorized to examine trade secrets of the Companies or any commercial

or financial information which is privileged or confidential.

Section III--Definitions

For purposes of this exemption,

(a) The term ``Company'' means a publicly or privately owned oil

and gas exploration, development and operating company or partnership

which is independent of an unrelated to GMC, its affiliates, and

various Plan fiduciaries described in Section II(a) above.

(b) The term ``affiliate'' of a Company means any entity directly

or indirectly, through one or more intermediaries, controlling,

controlled by, or under common control with the Company.

(c) The term ``control,'' for purposes of the above definition,

means the power to exercise a controlling influence over the management

or policies of an entity.

(d) The term ``qualified oil and gas investment manager'' means a

fiduciary as defined in section 3(21) of the Act which: (i) Is

independent of and unrelated to any of the Companies and their

affiliates (as defined above); (ii) is a financial institution or

business organization that in the normal course of business advises

institutional investors regarding oil and gas investments; (iii)

acknowledges in writing to the Plans that is will manage specific oil

and gas investments on behalf of the Plans, in its capacity as a

fiduciary of the Plans, as designated by the PIC or GMIMCo; and (iv)

satisfies the definition of ``qualified professional asset manager''

(QPAM) under Section V(a) of Prohibited Transaction Exemption 84-14

(PTE 84-14, 49 FR 9494, March 13, 1984), except for the fact that

either the PIC or GMIMCo retains final approval authority for all oil

and gas investments recommended by such fiduciary.

(e) The term ``Property'' or ``Properties'' means any oil and gas

properties such as long-term leasehold interests in oil and gas

producing fields and the oil and gas in place on the properties. Such

``Property'' may include an interest in the oil and gas wells,

platforms, wellheads, piping, as well as the gas gathering system or

processing facility through which gas produced from the wells is either

transported to the gas pipeline for shipment to various end users or

treated before delivery to the end users.

For a more complete statement of the facts and representations

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

the notice of proposed exemption published on December 29, 1993 at 58

FR 68958.

EFFECTIVE DATE: The effective date of this exemption is May 8, 1990.

TEMPORARY NATURE OF EXEMPTION: This exemption will be effective for all

transactions described herein which have been entered into by the Plans

and the Companies since May 8, 1990. However, this exemption will not

apply to any transactions which are entered into with the Companies

after five years from the date on which this exemption is published in

the Federal Register.

NOTICE TO INTERESTED PERSONS: The applicant represents that it was

unable to notify interested persons within the time period specified in

the Federal Register notice published on December 29, 1993. The

applicant states that all interested persons were notified, in the

manner agreed upon between the applicant and the Department, by January

28, 1994. Interested persons were advised that they had until February

28, 1994 to comment on the proposed exemption.

WRITTEN COMMENTS AND MODIFICATIONS: The applicant submitted a comment

letter which requests that certain modifications be made to the notice

of proposed exemption (the Proposal).

The applicant states that the Plans covered by the exemption should

include the Saturn Individual Retirement Plan for Represented Team

Members and the Saturn Personal Choices Retirement Plan for Non-

Represented Team Members (the Saturn Plans), whose assets are now

included in the trusts which hold the assets of the other Plans

sponsored by GMC and its subsidiaries or affiliated companies. The

applicant has confirmed that the participants of the Saturn Plans

received notice of the proposed exemption in the same manner and during

the same time period as the other participants of the Plans. Therefore,

the Department has modified the Proposal to include such Plans.

With respect to the Summary of Facts and Representations in the

Proposal (the Summary), the applicant wishes to add the following

additional information for purposes of clarification:

First, Paragraph 1of the Summary should state that Mellon Bank,

N.A. (Mellon), in addition to Bankers Trust Company, is a trustee of

the Plans. However, Mellon does not have any discretionary authority

over the investment management of the assets held in the Plans relating

to the subject transactions.

Second, Paragraph 6 of the Summary should be clarified to reflect

the following:

(a) The Company may receive additional compensation, in the form of

operating fees, if the Company operates some or all of the Properties

pursuant to agreements with the Plans which allow the Company to

operate the Properties (Operating Agreements). In addition, a

conveyance of a NPI (the Conveyance) may allow the Company to recoup

certain general or administrative expenses incurred by the Company as

WI owner of the Properties. Such operating fees or expenses are

disclosed in detail in the Operating Agreement and the Conveyance,

respectively, and are not subject to arbitrary changes by the Company.

The applicant states that increases in any operating fees generally

involve expenses related to the operation of a Property and are not

related to any element of operation within the Company's control, such

as the ability to increase the level of production on a Property. The

nature and extent of any operating fees under an Operating Agreement,

and any general or administrative expenses under a Conveyance, will be

reviewed, approved and monitored by the ``qualified oil and gas

investment manager'' acting for the Plans.\2\

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\2\The applicant states that any fees or expenses received by a

Company for operation of a Property in connection with a NPI owned

by the Plans will meet section 408(b)(2) of the Act. However, the

Department is providing no opinion as to whether payment of any fees

or expenses to a Company under the circumstances described herein

would meet section 408(b)(2) of the Act and the regulations

thereunder (see 29 CFR 2550.408b-2).

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

(b) The Company's annual report provided to the Plans containing

detailed information on the Company's activities with respect to the

Properties during the preceding year is not ``audited'' by the

``qualified oil and gas investment manager'' each year, but is

``audited'' at intervals recommended by the investment manager and

authorized by GMIMCo. However, the ``qualified oil and gas investment

manager'' will review the information throughout the year for problems

or mistakes which will be corrected by the Company.

Paragraph 10 of the Summary should be clarified to reflect the fact

that, as previously noted, the Company may receive additional

compensation for operating the Properties in the form of operating fees

pursuant to an Operating Agreement and may recoup certain general or

administrative expenses as permitted by the Conveyance.

Paragraph 12 of the Summary should be clarified to reflect the fact

that GMIMCo has appointed other ``qualified oil and gas investment

managers'' for the Plans, in addition to RPI Institutional Services,

Inc., and such managers have met all the requirements of Section III(d)

of the Proposal.

Paragraph 14 of the Summary should be clarified to reflect the

correct NPI sharing percentages of the May 8, 1990 NPI transaction with

Callon Offshore Production Inc. (Callon). The applicant states that

although the Plans did in fact pay 98% of the $28 million purchase

price, the Plans received a 98% NPI in the Properties which will

continue until the Plans recoup their entire share of the purchase

price. After the Plans receive their entire investment in the NPI

acquisition, there will be a reversion to an 88% NPI for the Plans at

that point in time. The applicant believes that this clarification is

important because the Plans will receive all of their investment in the

Properties before Callon is able to collect from its additional NPI

percentage.

The Department also received eleven comment letters from

participants in the Plans regarding the Proposal. Two of the commenters

were opposed to the granting of the exemption. One of these commenters

was concerned that the oil and gas transactions are risky investments

for the Plans and that any appraisal of such assets by the Plans may be

overvalued. The other commenter stated that he was opposed to the

exemption because GMC may either knowingly or unknowingly exercise a

controlling influence over various oil and gas suppliers when it buys

oil and gas to meet its own energy needs and that such influence may be

to the detriment of the Plans' oil and gas investments. This commenter

also stated that GMC's oil and gas purchasing power could be used to

affect certain local markets. Many of the Commenters stated that they

supported the granting of the exemption, but only if GMC offers an

``early retirement package'' to all salaried employees, regardless of

job classification, that meet certain age and service criteria. Some of

these commenters noted that notices regarding the Proposal were posted

late and that interested persons were not given enough time to reply.

By letter dated March 18, 1994, the applicant responded to these

comments.

First, with respect to the comment that oil and gas transactions

are risky investments for the Plans and that appraisals of such assets

may be overvalued, the applicant states that the subject transactions

under the terms and conditions described in the Proposal are in the

best interests of the Plans and their participants and beneficiaries.

The applicant represents that oil and gas investments can be reasonable

and appropriate for a large pension plan, such as the Plans, and that

the subject transactions have been and will continue to be carefully

monitored by GMIMCo. The oil and gas transactions by the Plans under

the requested exemption will represent only a small percentage of each

Plan's total assets (see Section II(i) above) and the existing

investments have yielded the Plans a high rate of return (see Paragraph

11 of the Summary). The applicant states that any activity by GMIMCo or

the ``qualified oil and gas investment manager'' acting for the Plans

that is outside the scope of activity described to the Department in

the Proposal, including any methods for overvaluing the fair market

value of proposed or existing oil and gas assets of the Plans, would be

a breach of fiduciary duty in violation of the Act. In addition, such

activity would be outside the scope of the conditions of the Proposal

and would not be subject to the prohibited transaction relief which

would be afforded by the exemption.

Second, regarding the comment that GMC may exercise a controlling

influence over various oil and gas suppliers when GMC buys oil and gas

to meet its own energy needs and that such influence may be to the

detriment of the Plans' oil and gas investments, the applicant states

that the comment is without merit and is inconsistent with the facts

and representations contained in the Proposal. The applicant maintains

that GMC has a de minimus involvement with any oil and gas suppliers

when acquiring oil and gas to run its own operations. With respect to

GMC's relationship to any such suppliers in the subject oil and gas

transactions by the Plans, the applicant states that the definition of

``Company'' in Section III(a) of the Proposal excludes any operating

company or partnership which is related to GMC or its affiliates. In

addition, the oil and gas investments covered by the Proposal involve

the Plans' in a passive investment role, with very limited control over

the actual sale or distribution of oil and gas obtained from the

Properties.

Third, with respect to whether notification of interested persons

was adequate and timely, the applicant states that all notices,

together with copies of the Proposal as published in the Federal

Register on December 29, 1993, were posted and distributed by GMC in

all primary business locations on or prior to January 28, 1994. In

addition, each of the appropriate unions received copies of the notices

and the Proposal. These notices, a copy of which has been submitted to

the Department by the applicant, informed interested persons of their

right to comment on the Proposal in writing to the Department on or

before February 28, 1994. An authorized representative of GMC has

provided the Department with a declaration under penalty of perjury

attesting to the truth of the information regarding GMC's notice to

interested persons as required by the Department's regulations (see 29

CFR 2570.43). Thus, the applicant represents that GMC has complied with

the Department's exemption procedures regarding notification of

interested persons in the manner agreed to between the applicant and

the Department.

Fourth, with respect to comments which linked the Proposal to GMC

providing an early retirement benefits package to its employees, the

applicant states that matters concerning the eligibility of Plan

participants to certain benefits are totally unrelated to the Proposal.

Since the Proposal only involves investing assets of the Plans in

specific oil and gas investments and has nothing to do with any early

retirement benefits for GMC employees, the applicant requests that the

Department not link the granting of an exemption to any requirement

that GMC provide early retirement benefits for its employees.

The Department agrees with the applicant that the merits of

granting an exemption for the subject oil and gas investments by the

Plans should be judged independent of any decisions by GMC regarding

the eligibility of participants to certain benefits under the terms of

the Plans. In addition, the Department believes that the applicant has

adequately addressed all of the issues raised by the commenters and

that the subject oil and gas transactions, under the terms and

conditions described herein, are in the interests and protective of the

Plans and their participants and beneficiaries.

Accordingly, after consideration of the entire record, the

Department has determined to grant the exemption as modified.

FOR FURTHER INFORMATION CONTACT:

Mr. E.F. Williams of the Department at (202) 219-8194. (This is not a

toll-free number.)

Alberici Companies Retirement Plan (the Plan) Located in St. Louis,

Missouri

[Prohibited Transaction Exemption 94-46; Application No. D-9633]

Exemption

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

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

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

shall not apply to the cash sale (the Sale) by the Plan of Group

Annuity Policy No. GA-3363 (the GAP) issued by the New England Life

Insurance Company (New England Life) to Alberici Corporation, the Plan

sponsor and a party in interest with respect to the Plan; provided that

the following conditions are satisfied: (1) The Sale is a one-time

transaction for cash; (2) the Plan receives no less than the fair

market value of the GAP at the time of the Sale or, the cost of the GAP

to the Plan, whichever is greater; (3) the Plan does not suffer any

loss nor incur any expenses in connection with the transaction; and (4)

the Trustees of the Plan have determined that the proposed transaction

is appropriate for and in the best interests of the Plan and its

participants and beneficiaries.

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 April 22, 1994 at 59 FR

19254.

FOR FURTHER INFORMATION CONTACT: PMs. Virginia J. Miller of the

Department, telephone (202) 219-8971. (This is not a toll-free number.)

Laney & Duke Terminal Warehouse Co., Inc. Profit Sharing Plan and Trust

(the Plan) Located in Jacksonville, Florida

[Prohibited Transaction Exemption 94-48; Exemption Application No. D-

9552]

Exemption

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

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

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

shall not apply to the sale of two adjacent commercial buildings

(collectively; the Buildings) by the Plan to Laney & Duke Terminal

Warehouse Co. Inc. (the Employer), the Plan sponsor and a party in

interest with respect to the Plan; provided that the following

conditions are satisfied:

(1) The Plan will receive the greater of: (1) $1,958,000,

representing the Plan's total investment in the Buildings; or (2) the

aggregate fair market value of the Buildings as determined at the time

of the sale by an independent, qualified appraiser;

(2) The sale will be a one-time transaction; and

(3) The Plan will pay no costs or commissions as a result of this

transaction.

For a more complete statement of facts and representations

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

the notice of proposed exemption published on April 22, 1994 at 59 FR

19252/19253.

FOR FURTHER INFORMATION CONTACT: Ekaterina A. Uzlyan of the Department,

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

Atlanta Consulting Group, Inc. Retirement Plan (the Plan) Located in

Atlanta, Georgia

[Prohibited Transaction Exemption 94-49; Exemption Application No. D-

9638]

Exemption

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

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

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

shall not apply to the cash sale (the Sale) of certain shares of stock

(the Stock) from the Plan to Atlanta Consulting Group, Inc., a party in

interest with respect to the Plan.

This exemption is conditioned upon the following requirements: (1)

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

Plan as those obtainable in an arm's-length transaction; (2) the Sale

is a one-time cash transaction; (3) the Plan is not required to pay any

commissions, costs or other expenses in connection with the Sale; and

(4) the Plan receives a sales price equal to the greater of: (a) The

fair market value of the Stock on the date of the Sale; or (b) the

Stock's original acquisition price of $25,000.

For a more complete statement of the facts and representations

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

the Notice published on April 22, 1994 at 59 FR 19260.

FOR FURTHER INFORMATION CONTACT: Kathryn Parr of the Department,

telephone (202) 219-8971. (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 exemption does not

apply and the general fiduciary responsibility provisions of section

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

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

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

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

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

for the exclusive benefit of the employees of the employer maintaining

the plan and their beneficiaries;

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

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

administrative exemptions and transactional rules. Furthermore, the

fact that a transaction is subject to an administrative or statutory

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

prohibited transaction; and

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

condition that the material facts and representations contained in each

application are true and complete and accurately described all material

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

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

or representations described in the application change after the

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

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

exemption may be made to the Department.

Signed at Washington, DC, this 7th day of June 1994.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 94-14169 Filed 6-9-94; 8:45 am]

BILLING CODE 4510-29-M