Grant of Individual Exemptions; Real Estate Equity Trust No. 1 (the Trust), et al.

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Prohibited Transaction Exemption 97-20; Exemption Application No. D-

10227 thru D-10232, et al.]

Grant of Individual Exemptions; Real Estate Equity Trust No. 1

(the Trust), et al.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of Individual Exemptions.

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

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, D.C. 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.

Real Estate Equity Trust No. 1 (the Trust), et al. Located in

Cincinnati, OH

[Prohibited Transaction Exemption 97-20; Exemption Application Nos. D-

10227--D-10232]

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 purchase of units in the Trust by certain

multiemployer pension plans (the Plans) that will enable State Street

Global Advisors, Inc. (SSGA), the independent fiduciary for the Plans

investing in the Trust, to make initial and subsequent equity

investments on behalf of the Trust, in the Cincinnati Development Group

Limited Partnership (the Partnership), which may result in a benefit

inuring to Fifth Third Bank (Fifth Third), the trustee of the Trust and

a party in interest with respect to the Plans.

This exemption is subject to the following conditions:

(a) Each Plan investing in the Trust has total assets that are in

excess of $50 million.

(b) No Plan that purchases units in the Trust that will permit the

Partnership investment has, immediately following the acquisition of

such units, more than 5 percent of its assets invested therein.

(c) The decision to purchase units in the Trust that will allow

SSGA to make the initial and any subsequent equity contributions to the

Partnership is made by a Plan fiduciary (the Second Fiduciary) which is

independent of Fifth Third and its affiliates and which is not SSGA.

(d) As independent fiduciary for the Trust, SSGA determines

whether--

(1) It is in the best interests of the Trust and the Plans

participating therein to make the initial and subsequent investments in

the Partnership;

(2) It is appropriate for the Trust to assign, transfer, pledge or

otherwise encumber its interest in the Partnership provided the Trust

obtains written consent from Cincinnati Development Group, LLC (CDG);

(3) It is appropriate for the Trust to withdraw as a limited

partner from the Partnership or to withdraw its capital from such

Partnership provided the Trust obtains the written consent of CDG;

[[Page 17208]]

(4) It is appropriate for the Trust to consent to the sale by CDG

of substantially all of the assets of the Partnership or the transfer

by CDG of its interest in the Partnership to a third party;

(5) It is appropriate for the Trust to contribute to the

Partnership the amount necessary to complete construction of the

Fountain Square West Project and to require that CDG release control of

the Partnership to an entity designated by the Trust, if CDG fails to

provide for construction cost overruns;

(6) It is appropriate for the Trust to elect to continue the

Partnership by appointing a successor general partner.

(7) An entity designated by the Trust to serve as general partner

is appropriate upon the occurrence of (d)(5) or (d)(6).

(e) At the time the Partnership investment is made, the terms of

the transaction are at least as favorable to each Plan participating in

the Trust as those obtainable in an arm's length transaction with an

unrelated party.

(f) Prior to investing in the Partnership, Fifth Third provides

SSGA and the Second Fiduciary of each Plan participating in the Trust

with offering materials disclosing all material facts concerning the

purpose, structure and operation of the Partnership.

(g) Subsequent to investing in the Partnership, the Trust and SSGA

receive the following ongoing information from CDG:

(1) Within 120 days after the end of the Partnership's fiscal year,

an unaudited annual report containing--

(A) A balance sheet and statements of income, Partners' equity,

changes in financial position and cash flow for the year then ended;

(B) A report of the activities of the Partnership during the period

covered by the report; and

(C) An itemization of any fees or payments made to CDG or any

related party or affiliate.

(2) Within 60 days of the end of each year, an appraisal report,

prepared by a qualified, independent appraiser, of each property held

in the Partnership.

(3) Periodically (but not less frequently than quarterly),

operating and development budgets of the Partnership as well as

unaudited operations and financial reports. (Information with respect

to the Partnership is disseminated by Fifth Third to the Second

Fiduciaries of Plans investing in the Trust through annual audited

financial statements of the Trust, prepared by independent, certified

public accountants and in quarterly communications setting forth

Partnership financial data. SSGA will also be given copies of this

information.)

(h) As to each Plan participating in the Trust, the total fees paid

to Fifth Third will constitute no more than ``reasonable compensation''

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

(i) Fifth Third maintains, for a period of six years, the records

necessary to enable the persons described in paragraph (j) 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 Fifth Third

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 Fifth Third 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 (j).

(j)(1) Except as provided in section (i)(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 (i) are

unconditionally available at their customary location during normal

business hours by:

(A) Any duly authorized employee or representative of the

Department or the Internal Revenue Service;

(B) Any fiduciary of a participating Plan or any duly authorized

representative of such fiduciary;

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

authorized employee representative of such employer; and

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

any duly authorized representative of such participant or beneficiary.

(j)(2) None of the persons described above in paragraphs (j)(1)(B)-

(j)(1)(D) of this paragraph (j) are authorized to examine the trade

secrets of Fifth Third or commercial or financial information which is

privileged or confidential.

For a more complete statement of the facts and representations

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

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

FR 66314.

Written Comments

The Department received one written comment with respect to the

proposed exemption and no requests for a public hearing. The written

comment was submitted by the applicant, Fifth Third, and is intended to

clarify the notice of proposed exemption in the following areas:

(1) Role of the Independent Fiduciary. Fifth Third notes that SSGA

serves as the independent fiduciary with respect to investments by the

Trust in the Partnership. Because the Trust is a limited partner in the

Partnership and many actions that may be undertaken by the Trust would

require the consent of CDG, the general partner of the Partnership,

Fifth Third represents that the opportunity for the Trust to act

unilaterally would be extremely rare. In this regard, Fifth Third

explains that the operative and conditional language of the proposal

state that SSGA will make the initial and any subsequent investments in

the Trust as well as monitor the Trust on behalf of the investing

Plans. Although Fifth Third represents that this language is not

inconsistent with the provisions of the proposal, it asserts that it

will remain the Trustee of the Trust and that it will not be replaced

by SSGA.

In response, the Department notes that SSGA has been appointed to

serve as the independent fiduciary for the Trust with respect to the

initial, and possibly, future equity investments made by the Trust to

the Partnership. In undertaking these duties, we further note that SSGA

is responsible for monitoring and protecting the rights of the Trust

and the Plans investing therein to the extent that any actions by Fifth

Third may impact adversely on the Partnership. Because actions that may

be taken by Fifth Third could result in a conflict of interest by

reason of the Trust's investment, through the Partnership, in the

Fountain Square West Project, we would expect that SSGA will have a

continuing role in enforcing the rights of the Plans investing in the

Trust.

(2) Assets Required for Investment. Footnote 5 of the proposed

exemption states, in relevant part, that if ``less than'' $6.5 million

in units are subscribed for by the investing Plans, the Trust will

combine those proceeds with its existing liquid assets to make the $7

million investment in the Partnership. Fifth Third wishes to modify the

language in the footnote by clarifying that if ``at least'' $6.5

million in units are subscribed for by the Plans, the Trust will

combine those proceeds with existing assets to make the investment in

the Partnership.

(3) Rents under the Lease with the City of Cincinnati (the City

Lease). Fifth Third notes that a portion of Footnote 7 of the proposal

indicates that no gross rents in excess of $3 million for any year are

projected during the initial 10 years

[[Page 17209]]

of the Fountain Square West Project. Fifth Third wishes to emphasize

that no gross rents in excess of $3 million are actually projected for

any year during the initial term of the Fountain Square West Project.

Fifth Third also points out that the issue of gross rents in excess of

$3 million is relevant because such rents would result in additional

payments being made to the City of Cincinnati under the City Lease.

Thus, after giving full consideration to the entire record,

including the written comment, the Department has made the

aforementioned changes to the proposed exemption. In addition, the

Department has decided to grant the exemption subject to the

clarifications described above. The comment letter has been included as

part of the public record of the exemption application. The complete

application file, as well as 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-5638, 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.)

Orders Distributing Co., Inc. Profit Sharing Plan and 401(k) Retirement

Savings Plan (the Plan) Located in Greenville, South Carolina

[Prohibited Transaction Exemption 97-21; Exemption Application No. D-

10341]

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 past sale by the Plan of certain units of

limited partnership interests (the Units) to Orders Distributing Co.,

Inc. (the Employer), a party in interest with respect to the Plan,

provided that the following conditions are satisfied: (1) The terms of

the sale were at least as favorable to the Plan as those the Plan could

have obtained in a comparable arm's length transaction with an

unrelated party; (2) the sale was a one-time transaction for cash; (3)

the Plan paid no commissions nor other expenses relating to the sale;

(4) the Plan received an amount no less than the fair market value of

the Units as of the date of the sale, as determined by an independent

appraisal; and (5) within 30 days of publication in the Federal

Register of the notice of the grant of this exemption, the Employer

makes an additional cash contribution to the Plan to make up for

opportunity costs attributable to the Units.

EFFECTIVE DATE: The exemption is effective as of January 1, 1995.

For a more complete statement of the facts and representations

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

the notice of proposed exemption published on January 31, 1997 at 62 FR

4802.

FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the Department,

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

General Information

The attention of interested persons is directed to the following:

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

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

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

person from certain other provisions to which the exemptions does not

apply and the general fiduciary responsibility provisions of section

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

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

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

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

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

for the exclusive benefit of the employees of the employer maintaining

the plan and their beneficiaries;

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

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

administrative exemptions and transactional rules. Furthermore, the

fact that a transaction is subject to an administrative or statutory

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

prohibited transaction; and

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

condition that the material facts and representations contained in each

application are true and complete and accurately describe all material

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

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

or representations described in the application change after the

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

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

exemption may be made to the Department.

Signed at Washington, D.C., this 3rd day of April, 1997.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, Department of Labor

[FR Doc. 97-8972 Filed 4-8-97; 8:45 am]

BILLING CODE 4510-29-P