[Federal Register Volume 59, Number 91 (Thursday, May 12, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-11528]


[[Page Unknown]]

[Federal Register: May 12, 1994]


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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. L-9412, et al.]

 

Proposed Exemptions; Beaumont Area Pipefitters Joint 
Apprenticeship Committee, et al.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

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SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the prohibited transaction restriction of the Employee 
Retirement Income Security Act of 1974 (the Act) and/or the Internal 
Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

    Unless otherwise stated in the Notice of Proposed Exemption, all 
interested persons are invited to submit written comments, and with 
respect to exemptions involving the fiduciary prohibitions of section 
406(b) of the Act, requests for hearing within 45 days from the date of 
publication of this Federal Register Notice. Comments and request for a 
hearing should state: (1) The name, address, and telephone number of 
the person making the comment or request, and (2) the nature of the 
person's interest in the exemption and the manner in which the person 
would be adversely affected by the exemption. A request for a hearing 
must also state the issues to be addressed and include a general 
description of the evidence to be presented at the hearing. A request 
for a hearing must also state the issues to be addressed and include a 
general description of the evidence to be presented at the hearing.

ADDRESSES: All written comments and request for a hearing (at least 
three copies) should be sent to the Pension and Welfare Benefits 
Administration, Office of Exemption Determinations, room N-5649, U.S. 
Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210. Attention: Application No. stated in each Notice of Proposed 
Exemption. The applications for exemption and the comments received 
will be available for public inspection in the Public Documents Room of 
Pension and Welfare Benefits Administration, U.S. Department of Labor, 
room N-5507, 200 Constitution Avenue, NW., Washington, DC 20210.

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all 
interested persons in the manner agreed upon by the applicant and the 
Department within 15 days of the date of publication in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and to request a hearing 
(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in 
applications filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 1990). 
Effective December 31, 1978, section 102 of Reorganization Plan No. 4 
of 1978 (43 FR 47713, October 17, 1978) transferred the authority of 
the Secretary of the Treasury to issue exemptions of the type requested 
to the Secretary of Labor. Therefore, these notices of proposed 
exemption are issued solely by the Department.
    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

Beaumont Area Pipefitters Joint Apprenticeship Committee (the Plan) 
Located in Beaumont, Texas; Proposed Exemption

[Application No. L-9412]

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and in accordance with the 
procedures set forth in 29 CFR part 2570, subpart B (55 FR 32836, 
32847, August 10, 1990). If the exemption is granted, the restrictions 
of sections 406(a) and 406(b) (1) and (2) of the Act shall not apply to 
the purchase of certain real property (the Property) by the Plan from 
Pipefitters Local 195 of the United Association of Journeymen and 
Apprentices of the Plumbing and Pipefitting Industry (the Union), a 
party in interest with respect to the Plan, provided that the following 
conditions are met:
    1. An independent fiduciary determines that the proposed 
transaction is in the best interests of the Plan;
    2. The fair market value of the Property is established by an 
appraiser unrelated to the Plan or the Union;
    3. The Plan pays no more than the lesser of $462,800 or the fair 
market value of the Property as determined at the time of purchase;
    4. The purchase is a one-time transaction for cash; and
    5. The Plan pays no fees or commissions in regard to the 
transaction.

Summary of Facts and Representations

    1. The Plan is an apprenticeship training plan established and 
administered pursuant to the provisions of section 302 of the Labor 
Management Relations Act of 1947. As of January 31, 1994, the Plan had 
580 participants and total assets of $1,248,499. On the same date, the 
number of employers contributing to the Plan totaled 21.
    2. The Property consists of 2.74 acres of land and improvements 
located adjacent to property of the Union. The improvements include 
three one and two-story buildings, constructed by the Union in 1968 and 
1978, designed for use as classroom and apprenticeship training 
facilities for the Plan and its participants. From 1968 to 1988 the 
Plan operated an apprenticeship program on the Property pursuant to a 
lease of the Property by the Union to the Plan.1 In August 1988 
the Union sold the Property to the Plan. The Plan partially financed 
this purchase by obtaining a loan from the Sabine Area Pipefitters 
Local 195 Pension Trust Fund (Local 195 Pension Plan). The Local 195 
Pension Plan, which was later merged into the Plumbers and Pipefitters 
National Pension Fund, had interlocking trustees with the Plan and the 
Plan made some contributions to the Local 195 Pension Plan on behalf of 
its participants. The loan was repaid in June 1991.
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    \1\Prohibited transaction exemption (PTE) 78-5 (43 FR 23024, May 
30, 1978) permits, under certain conditions, the leasing of real 
property by an apprenticeship plan from a sponsoring employee 
organization. The Department expresses no opinion as to whether the 
above lease satisfied the conditions of PTE 78-5 nor is any relief 
provided herein.
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    In September 1990 the Department commenced an investigation of the 
Plan regarding the sale of the Property by the Union to the Plan and 
the loan between the Plan and the Local 195 Pension Plan.2 Also, 
an application for exemption for retroactive relief from the prohibited 
transaction provisions of the Act was submitted to the Department for 
these transactions. In a letter in January 1992, the Department cited 
as reasons for denying the exemption application, among other factors, 
the lack of the review and prior approval of the transactions by an 
independent fiduciary. Following this exemption denial, an agreement 
was reached with the Department which required that the Property be 
sold back by the Plan to the Union. Such sale occurred in December 
1992. Since that date, the Plan has utilized the Property as a training 
facility without charge from the Union. However, the applicant 
represents that because of an economic downturn in the area, the Union 
considers it a hardship to continue this arrangement.
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    \2\The above described transactions may have constituted 
prohibited transactions under section 406 of the Act. Such section 
prohibits, in part, a sale or exchange of property between a plan 
and a party in interest, a use of plan assets for the benefit of a 
party in interest, and the acting of a fiduciary in a plan 
transaction on behalf of a party whose interests are adverse to 
those of the plan or its participants.
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    3. The applicant obtained an appraisal on the Property on January 
14, 1994, from Donnie M. Jones, MAI (Jones), a real estate appraiser 
located in Port Arthur, Texas. Jones represents that he is not related 
in any way to the Plan or the Union. Utilizing the income, cost and 
sales comparison approaches to value, Jones estimated that the Property 
had a fair market value of $462,800 as of the date of the appraisal. By 
letter dated March 1, 1994, Jones stated that he was aware, in 
preparing the appraisal, that the Plan was the prospective buyer of the 
Property and that this knowledge had no influence on his calculation of 
value.
    4. The Plan now proposes to purchase the Property from the Union so 
that the Plan itself will own the training and educational facilities 
used to train journeymen and apprentices. Plan fiduciaries note that 
ownership of the Property will give the Plan full control of the 
buildings, grounds and parking lots and will enable the Plan to make 
improvements to the Property as needed. The Plan will pay no more than 
current fair market value for the Property, as established by an 
updated independent appraisal. The purchase will be a one-time 
transaction for cash and the Plan will pay no fees or commissions in 
regard to the purchase. The applicant represents that, after the 
purchase of the Property, the Plan will have more than enough funds for 
operational purposes of the training program.
    5. The Plan and the Union have selected Joseph P. Connors, Sr. 
(Connors), an attorney with the firm of Connors Associates, Inc. in 
Washington, DC to serve as independent fiduciary in regard to the 
proposed transaction. The applicant represents that Connors is 
independent of the Plan and the Union. Connors states that he has had 
extensive experience working with Taft-Hartley plans, including serving 
as chairman of funds of the United Mine Workers. Connors further states 
that he is well aware that while acting as independent fiduciary he 
assumes personal liability and he must act solely in the interest of 
the Plan and its participants.
    Connors maintains that the proposed transaction is definitely in 
the best interests of the Plan. In this regard, Connors has met with 
officers of the Union and trustees of the Plan and has made an 
inspection of the Property with Russell Allen, the training director 
for the Plan. The Plan has operated an apprenticeship program utilizing 
the Property since the initial time of construction in 1968. As 
independent fiduciary, Connors will make certain that the Plan pays no 
more than fair market value for the Property and will enforce all 
rights of the Plan in regard to the proposed transaction.
    6. In summary, the applicant represents that the proposed 
transaction will satisfy the statutory criteria of section 408(a) of 
the Act because: (1) The purchase of the Property will give the Plan 
ownership of the facilities it uses for its apprenticeship training 
program; (2) an independent fiduciary has determined that the proposed 
transaction is in the best interests of the Plan and its participants; 
(3) the Plan will pay no more than fair market value for the Property, 
based on an updated independent appraisal; (4) the purchase will be a 
one-time transaction for cash; and (5) the Plan will pay no fees or 
commissions in regard to the transaction.

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

Hartford Life Insurance Company (Hartford Life) and Hartford Investment 
Management Company (HIMCO) Located in Hartford, Connecticut; Proposed 
Exemption

[Application Nos. D-9458 and D-9459]

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2) 
of the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1) (A) through (E) of 
the Code, shall not apply to sales and transfers of assets of employee 
benefit plans (the Plans) to Hartford Life pursuant to the terms of a 
synthetic guaranteed investment contract (Synthetic GIC) entered into 
by the Plan with Hartford Life and HIMCO, provided the following 
conditions have been met: (a) Prior to the execution of such Synthetic 
GIC, an independent fiduciary of such Plan receives a full and detailed 
written disclosure of all material features of the Synthetic GIC, 
including all applicable fees and charges; (b) following receipt of 
such disclosure, the Plan's independent fiduciary approves in writing 
the execution of the Synthetic GIC on behalf of the Plan; (c) all fees 
and charges imposed under such Synthetic GIC are reasonable; (d) each 
Synthetic GIC will specifically provide for an objective means for 
determining the fair market value of the securities owned by the Plan 
pursuant to the Synthetic GIC; (e) Hartford Life will maintain books 
and records of all transactions which will be subject to annual audit 
by independent certified public accountants selected by and responsible 
solely to the Plan; and (f) the Synthetic GIC will be offered only in 
principal amounts of $50 million or more.

Summary of Facts and Representations

    1. Hartford Life is a stock life insurance company organized under 
the laws of the State of Connecticut. As of December 31, 1992, Hartford 
Life had assets of approximately $20.8 billion and insurance in force 
of approximately $93.5 billion. Hartford Life is currently rated as 
follows: A.M. Best--A++; Standard & Poor's--AAA; Duff & Phelps--AAA; 
and Moody's--Aa2. Hartford Life is a wholly owned subsidiary of 
Hartford Life and Accident Company, which is in turn a subsidiary of 
Hartford Fire Insurance Company. Hartford Fire Insurance Company is 
owned by the ITT Corporation. A significant portion of Hartford Life's 
business consists of writing insurance and annuity contracts, 
guaranteed investment contracts, and other types of funding agreements 
for numerous pension plans, most of which are subject to title I of the 
Act.
    2. HIMCO, a wholly owned subsidiary of Hartford Life, is an 
investment management company registered as an investment adviser under 
the Investment Advisers Act of 1940. As of March 31, 1993, HIMCO had 
$3.06 billion in assets under management. HIMCO manages assets in 
various Hartford Life separate accounts and other portfolios.
    3. For many years, Hartford Life has offered various guaranteed 
investment contracts (GICs) for sale in the qualified plan market. A 
GIC is a type of contract under which an insurance company, in exchange 
for a sum of money, guarantees that it will return that sum to the 
contractholder on a specified maturity date, with interest at the 
specified rate. In anticipation of its obligation, the insurance 
company invests the funds received from the contractholder primarily in 
fixed-income instruments, in order to achieve a return that will enable 
the company to meet its guarantee at maturity. Typically, these fixed-
income investments are held in the company's general asset account, 
although under some type of GIC products, the investments are held in a 
separate account.
    4. Recently, many pension fund investment managers have expressed 
interest in achieving an even higher degree of security for plan 
investments than that afforded by conventional GICs. In response, some 
insurance companies have begun to offer Synthetic GICs. Under some 
Synthetic GICs, instead of paying a premium to the insurance company on 
the effective date of the contract, the plan places assets in a 
custodial bank account owned by the plan. The assets are held in that 
account by the bank custodian and are managed exclusively by the 
insurance company or an affiliate until the contract's maturity. If the 
market value of the assets in the custodial account at maturity is less 
than the amount initially placed in the account plus guaranteed 
interest, the insurer must make the plan whole for the difference. The 
assets in the account are never owned by the insurance company, 
however, and the plan's investment is therefore not affected by risks 
to which the insurer's own assets may be subject.
    5. Hartford Life now intends to offer a Synthetic GIC product to 
Plans. Hartford Life's Synthetic GIC will be offered in principal 
amounts of $50 million or more. Thus, Hartford Life intends to offer 
its Synthetic GICs only to large Plans.
    6. Essentially, the Synthetic GIC will consist of an investment 
management agreement under which HIMCO, acting in a fiduciary capacity, 
will manage assets of a Plan placed in the custody of a bank (the Bank) 
selected by the Plan (with the approval of Hartford Life). The 
Synthetic GICs offered by Hartford Life will differ from conventional 
management agreements, however, in that Hartford Life will guarantee 
that the amounts placed in the bank custodial account for management by 
HIMCO will be released to the Plan, with interest at a specified rate, 
on certain specified dates. The Synthetic GIC will be benefit 
responsive in that it may be tailored to meet the Plan's predictable 
benefit obligations by establishing Scheduled Account Distribution 
Dates (see rep. 10, below) at appropriate times. In addition, 
unscheduled interim distributions, referred to as Benefit Sensitivity 
Advances (see rep. 22, below), will also be available under certain 
circumstances. At all times, the Plan, not Hartford Life, will remain 
the legal owner of the account.
    7. The decision to enter into a Synthetic GIC will be made on 
behalf of a Plan by a Plan fiduciary who is independent of Hartford 
Life and HIMCO. The applicants represent that due to the large size of 
the Plans involved, the independent fiduciaries authorizing Plans to 
enter into the Synthetic GICs can be expected to be (or to retain) 
sophisticated professional asset managers with specialized expertise in 
the area of GICs and similar investments. Prior to the Plan's 
investment, Hartford Life will furnish the Plan's independent fiduciary 
full and detailed disclosure of all features of the Synthetic GIC, 
including all applicable fees (see rep. 24, below) and charges (see 
reps. 16 and 23, below). There is no additional fee or charge for the 
guarantee.
    8. When a Plan enters into a Synthetic GIC with Hartford Life, an 
account (the Account) will be established for the Plan. Contributions 
made by the Plan to the Account on the ``Account Commencement Date'' 
and on any subsequent dates specified in the Synthetic GIC will be 
delivered to the Bank and credited to the Account. The assets in the 
Account will be held in the Bank's custody and subject to management by 
HIMCO. Contributions placed into the Account will be invested 
immediately; there will be no time lag between the time the 
contributions are put in the Account and the time they are invested.
    9. The Synthetic GICs will not be offered on a pooled basis; in 
other words, a separate custodial Account will be established for each 
Plan that enters into a Synthetic GIC with Hartford Life and the assets 
in that Account will be managed separately from any assets subject to a 
Synthetic GIC with another Plan.
    10. Hartford Life's guarantee as to principal and interest under a 
Synthetic GIC will come into play on certain specified dates, namely, 
the ``Scheduled Account Termination Date'' and any ``Scheduled Account 
Distribution Date(s)'' provided for prior to the Scheduled Account 
Termination Date. On those dates, as described in greater detail below 
(see reps. 15 and 16, below), the Plan will be entitled to 
distributions from the Account of the ``Adjusted Book Value'' of 
contributions previously made to the Account. (Specific amounts will be 
distributed on the Scheduled Account Distribution Date(s), if any, and 
the balance of the Account's Adjusted Book Value will be distributed on 
the Scheduled Account Termination Date, at which time the Synthetic GIC 
will terminate.) Adjusted Book Value is defined as the net asset 
balance of the Account derived from contributions plus interest at a 
specified ``Guaranteed Rate of Interest'' determined by mutual 
agreement between Hartford Life and the Plan, less prior withdrawals. 
(The Guaranteed Rate of Interest that Hartford Life will be willing to 
offer under a particular Synthetic GIC will be based on yields on 
securities of various durations currently available in the marketplace 
at the time the Synthetic GIC is executed.) In other words, Hartford 
Life will guarantee that on the Scheduled Account Distribution Date(s) 
(if any) and on the Scheduled Account Termination Date, distributions 
will be made to the Plan in amounts at least equal to contributions 
previously made to the Account, plus interest at the Guaranteed Rate of 
Interest, with appropriate adjustments for withdrawals (i.e., Scheduled 
Account Distributions, and Benefit Sensitivity Advances as described in 
rep. 22, below).
    11. The applicants represent that the Guaranteed Rate of Interest 
for a particular Synthetic GIC will be established by arm's-length 
negotiation between the Plan and Hartford Life in advance of entering 
into the contract, and will be set forth in writing in the Synthetic 
GIC instrument. Once established, the Guaranteed Rate of Interest will 
not be modified for the term of the agreement. The considerations that 
will be taken into account in the negotiation process will be 
essentially the same as those that affect guaranteed interest rates 
offered under conventional GICs. Under its Synthetic GIC, Hartford Life 
will be willing to offer a Guaranteed Rate of Interest that takes into 
account the rate of return it believes it will be able to achieve in 
managing the assets in the Account, based on currently available 
investments that are consistent with the investment guidelines imposed 
by the Plan, and with allowance for Hartford Life's quarterly 
management fees (see rep. 24, below). The applicants further represent 
that they and the Plans will be aware of the rates that other companies 
are offering for similar products. Hartford Life represents that this, 
together with the Plans' ability to negotiate the investment guidelines 
(and thus the level of risk) applicable to the Account, will avoid any 
realistic potential for abuse.
    12. HIMCO will acknowledge in writing that it will be a fiduciary 
of each Plan and will be subject to the Act's fiduciary standards in 
managing the assets in each such Plan's Account. The general investment 
objectives of the Account will be current income with stability of 
principal. The agreement governing each Synthetic GIC will instruct 
HIMCO to manage the Account to achieve a total return over the holding 
period to maturity which is sufficient to produce the Synthetic GIC's 
Guaranteed Rate of Interest.
    13. Each Synthetic GIC will provide investment guidelines for 
achieving these investment objectives. While there will be some 
flexibility in the investment guidelines to allow each Synthetic GIC 
portfolio to be customized to meet the unique needs of the particular 
Plan, the guidelines will essentially call for HIMCO to apply the same 
investment techniques that Hartford Life and other life insurance 
companies use in investing their own general account assets so as to 
meet guaranteed benefit obligations under life insurance and annuity 
contracts. A central feature of these techniques is the selection of a 
portfolio of securities matching contractual obligations as to timing 
and amount.
    14. Under the guidelines, the Account will be required to be 
primarily invested in fixed income securities, while maintaining a 
level of liquidity sufficient to provide for anticipated benefit 
payments by investing partly in traditional money market securities. As 
a means of achieving a higher guaranteed return than would be possible 
by investing exclusively in fixed income and money market securities, 
the guidelines will allow limited and properly hedged investment in 
riskier securities such as common stocks, but they will not permit 
direct investment in real estate. The applicants represent that limited 
investment in riskier securities will benefit the Plan by allowing 
Hartford Life to offer a slightly higher Guaranteed Rate of Return than 
would be possible if the Account supporting the Synthetic GIC were 
invested exclusively in fixed income and money market investments. Any 
investment in employer securities (within the meaning of section 407(d) 
of the Act) will be subject to guidelines established by the Plan.
    15. Distributions prior to the Scheduled Account Termination Date 
which are subject to Hartford Life's guarantee as to principal and 
interest (Scheduled Account Distributions) will occur on Scheduled 
Account Distribution Dates (see rep. 10, above) and in amounts which 
will be agreed upon between a Plan and Hartford Life prior to the 
execution of a Synthetic GIC and will be specified in writing. On each 
Scheduled Account Distribution date, HIMCO will be required to 
liquidate securities sufficient to meet the Scheduled Account 
Distribution. In most instances, the assets will be liquidated by a 
sale in the open market. However, Hartford Life reserves the right to 
purchase the assets to be liquidated. When it elects to do so, Hartford 
Life must pay the fair market value of the asset as of the close of 
business on the date of the sale, determined as set forth in rep. 21, 
below. Hartford Life will then distribute to the Plan an amount equal 
to the Adjusted Book Value of the Scheduled Account Distribution. The 
Adjusted Book Value of the Account will then be reduced by the amount 
of the Scheduled Account Distribution. To the extent that the market 
value of the assets liquidated on a Scheduled Account Distribution Date 
exceeds the amount of the Scheduled Account Distribution, the excess 
will be retained in the Account and reinvested.
    16. On the Scheduled Account Termination Date, the Bank will 
distribute to Hartford Life all of the assets in the Account, and 
Hartford Life will simultaneously distribute to the Plan an amount 
which will not be less than the aggregate Adjusted Book Value of the 
Account. As noted above, (see rep. 10, above), the Adjusted Book Value 
will generally be equal to contributions plus the applicable Guaranteed 
Rate of Interest, with adjustments for previous withdrawals. If the 
aggregate market value of the assets in the Account (determined as 
described in rep. 21, below) exceeds their Adjusted Book Value on the 
Scheduled Account Termination Date, Hartford Life will be entitled to a 
portion of such excess, the amount of which will be determined as a 
specified percentage of the Adjusted Book Value of the Account 
determined by agreement between the Plan and Hartford Life and 
specified in the Synthetic GIC (the Book Value Assurance Charge), and 
will be required to pay the remaining balance to the Plan. The Book 
Value Assurance Charge will be equal to a specified percentage of the 
Adjusted Book Value of the Account, but will not exceed the market 
value of the Account less the Adjusted Book Value of the Account, or be 
less than zero. To summarize, if the proceeds of the liquidated assets 
exceed the sum of the Adjusted Book Value of the Account on that date 
and the Book Value Assurance Charge, such remainder will be distributed 
to the Plan, thus allowing the Plan to receive a rate of return which 
is in excess of the Guaranteed Rate of Interest.
    17. Hartford Life's guarantee will be implemented on Scheduled 
Account Distribution Dates and on Scheduled Account Termination Dates 
in the following manner: (1) On Scheduled Account Distribution Dates, 
HIMCO will liquidate assets in the Account with a fair market value 
equal to the Scheduled Account Distribution. The assets liquidated will 
be sold either on the securities market or to Hartford Life (the asset 
liquidation procedure is described in detail in rep. 18, below). The 
proceeds will then be distributed to the Plan; and (2) On the Scheduled 
Account Termination Date, HIMCO will liquidate the remaining assets in 
the Account. The assets liquidated will again be sold either on the 
securities market or to Hartford Life. The Adjusted Book Value of the 
Account will be distributed from the Account to the Plan. To the extent 
that the proceeds of the assets in the Account exceed the Adjusted Book 
Value of the Account, Hartford Life will be entitled to the Book Value 
Assurance Charge (see rep. 16, above). The balance, if any, of the 
proceeds of the asset liquidation will be paid to the Plan. HIMCO will 
select the assets that are sold to Hartford Life (instead of being sold 
on the open market) on those dates (see reps 18 and 19, below).
    As a result, some of the investments in the Account may end up in 
Hartford Life's hands. The applicants represent that this is an 
essential feature of the Synthetic GICs that will materially (and 
favorably) affect the Guaranteed Rate of Interest that Hartford Life 
will be able to offer to a Plan. If assets trading at a discount from 
their face amount on the Scheduled Account Termination Date had to be 
disposed of or simply distributed to the Plan from the Account on that 
date, Hartford Life would be compelled to realize an immediate loss 
with respect to those assets in meeting its contractual guarantee. By 
allowing these assets to be transferred to Hartford Life on the 
Scheduled Account Distribution Dates and the Scheduled Account 
Termination Date, the foregoing procedures for implementing the 
contractual guarantees will make it possible for Hartford Life to hold 
such assets to maturity or until market conditions warrant disposing of 
them. This in turn will enable Hartford Life to guarantee a higher rate 
of return than it would otherwise be able to guarantee.
    18. The applicants have made the following representations with 
respect to how securities to be sold to Hartford Life on Scheduled 
Account Distribution Dates and the Scheduled Account Termination Date 
will be selected by HIMCO. The applicants state that the management of 
assets pursuant to an agreement to provide a guaranteed return calls 
for the use of complex and sophisticated management techniques to make 
certain that cash flows will be available when needed. In particular, 
fixed-income assets must be selected with maturities and yields that 
will enable the insurer to match the maturity and yield of the 
guaranteed return agreement. To this end, securities are purchased in 
the expectation that they will be liquidated on a particular date in 
order to provide the cash necessary to satisfy the insurer's obligation 
to the contractholder on that date.
    Under the terms of Hartford Life's Synthetic GIC, the assets of the 
Account will be managed in accordance with these risk management 
techniques. There will be a specific, identifiable pool of assets that 
will be internally designated from the establishment of the Account for 
liquidation on each Scheduled Account Distribution Date (as well as on 
the Scheduled Account Termination Date, when all of the remaining 
assets will be liquidated). In general, the securities designated to be 
disposed of on a particular date will have maturities on or relatively 
soon after that date. From time to time, depending on prevailing market 
conditions, the assets in an Account may be ``rebalanced''--i.e., 
reallocated among the Scheduled Account Distribution Dates and the 
Scheduled Account Termination Date. (The applicants represent that the 
flexibility to reallocate the assets among the Synthetic GIC's maturity 
dates in the face of changing market conditions is essential to the 
effective management of investment risks under a guaranteed return 
contract.) At all times, however, all the assets in the Account will be 
designated for liquidation on a particular Scheduled Account 
Distribution Date or the Scheduled Account Termination Date. The assets 
that will be disposed of on each Scheduled Account Distribution Date 
and the Scheduled Account Termination Date will thus be those assets 
designated to be disposed of on the relevant date, and in most cases, 
this designation will have been made at the time of acquisition.
    Regardless of whether they are sold to Hartford Life or on the open 
market, the assets designated for disposition on each Scheduled Account 
Distribution Date and the Scheduled Account Termination Date will be 
disposed of on the relevant date at fair market value. The securities 
that will be sold to Hartford Life on the Scheduled Account 
Distribution Dates and the Scheduled Account Termination Date will be 
selected by HIMCO from among the securities designated to be disposed 
of on those dates, based on Hartford Life's needs for securities with 
specific cash-flow patterns and maturities for its general account 
portfolio.
    19. The applicants represent that they recognize that HIMCO's 
``rebalancing'' of Account securities could be viewed as involving a 
conflict of interest, in that HIMCO would be in a position to deprive 
the Plan of any return in excess of the Guaranteed Rate of Interest by 
targeting assets expected to appreciate for sale to Hartford Life on 
Scheduled Account Distribution Dates.3 However, the applicants 
represent that there will be no realistic opportunity for abuse in the 
subject transactions for the following reasons:
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    \3\The applicants represent that this concern will not be 
present in connection with sales of assets to Hartford Life on the 
Scheduled Account Termination Date because on that date all of the 
assets in the Account will be disposed of in any event.
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    (a) The likelihood that the fair market value of the assets in the 
Account on the Scheduled Account Termination Date will exceed the sum 
of the Adjusted Book Value of the Account and the Book Value Assurance 
Charge will be negligible. The securities that will be purchased for 
the Account will consist primarily of fixed-income securities with 
limited potential for capital appreciation, and will generally be 
targeted to mature on or near the Scheduled Account Distribution Dates 
and the Scheduled Account Termination Date. Plans will not purchase the 
Synthetic GIC in the expectation of a return in excess of the 
Guaranteed Rate of Interest; instead, they will purchase it in order to 
receive a guaranteed return with the additional security that direct 
ownership of the underlying assets will afford.
    (b) Any potential for abuse will be offset by a countervailing 
interest on the part of Hartford Life in making certain that the value 
of the Account is adequate to meet its contractual guarantee on the 
Scheduled Account Termination Date. As noted above, any excess return 
to the Plan will be unanticipated and unlikely. Hartford Life, on the 
other hand, will bear the risk that the assets in the Account will be 
inadequate to provide the amount guaranteed on the Scheduled Account 
Termination Date. This risk will be minimized if the Account retains 
assets which are expected to appreciate.
    (c) As a practical matter, abuses on a scale sufficient to 
materially benefit Hartford Life and adversely affect a Plan will 
simply not be feasible. The need to manage the assets in the Account to 
achieve the Guaranteed Rate of Interest will severely constrict HIMCO's 
flexibility to manipulate the assets disposed of on Scheduled Account 
Distribution Dates. To systematically pick and choose those assets with 
a view to selling desirable assets to Hartford Life would seriously 
upset the predictability of cash flows available to meet subsequent 
guarantees, imposing unacceptable risks on Hartford Life that would far 
outweigh any potential benefit of such a scheme.
    (d) The Plan will have complete records of all transactions of the 
Account (see rep. 25, below) and will be able to discontinue the 
Synthetic GIC (see rep. 23, below) if it discovers that HIMCO has 
engaged in abusive conduct.
    20. The applicants represent that no brokerage costs will be 
imposed with respect to the sale of the assets in an Account to 
Hartford Life or an affiliate pursuant to these provisions. With 
brokerage costs eliminated, the only transaction costs that will be 
incurred in selling the assets in question will be the costs of 
recording the change in ownership of these assets. The ability to 
minimize transaction costs will run to the benefit of the Plan by 
enabling Hartford Life to provide a higher Guaranteed Rate of Interest 
to the Plan.
    21. The applicants represent that the assets in which the Account 
has invested (which are expected to be primarily fixed-income 
securities, and to a lesser extent common stocks and other assets) will 
be valued as follows:
    (a) In the case of a security traded on a national securities 
exchange which is registered under section 6 of the Securities Exchange 
Act of 1934, Hartford Life will pay the closing price on the exchange 
on the date of the transaction; and
    (b) In the case of a security other than one traded on a national 
securities exchange which is registered under section 6 of the 
Securities Exchange Act of 1934, HIMCO will obtain quotations in U.S. 
dollars (regardless of whether the security in question is denominated 
in a foreign currency) from at least three unaffiliated financial 
institutions that serve as market makers for the security, and Hartford 
Life will pay a price equal to the highest of the three quotations. The 
three quotations will be obtained on the date of the transaction (i.e., 
a Scheduled Account Distribution Date or the Scheduled Account 
Termination Date). Each quotation will represent the bid price offered 
by the financial institution in question as of the time of the 
quotation, which will be simultaneous with the processing of the 
distribution to the Plan.
    In no event will Hartford Life or HIMCO make valuations themselves. 
The role of Hartford Life and HIMCO in the valuation process will be 
limited to ministerial functions and the selection of the independent 
financial institutions from which valuations will be obtained.
    22. The Synthetic GICs will be designed to provide adequate 
liquidity to enable Plans to meet their benefit obligations. Thus, a 
Synthetic GIC will allow for unscheduled withdrawals from the Account 
(Benefit Sensitivity Advances) prior to the Scheduled Account 
Termination Date under certain circumstances. A Plan will be able to 
make Benefit Sensitivity Advances on ten days' notice for the purpose 
of providing the necessary funds to meet the Plan's benefit obligations 
as they fall due. A Plan fiduciary may be required by Hartford Life to 
furnish documentation demonstrating that the benefit payment is in fact 
required under the terms of the Plan. There is no charge or fee for 
Benefit Sensitivity Advances. Benefit Sensitivity Advances will consist 
of cash distributions from the Account. When a Benefit Sensitivity 
Advance is requested, HIMCO will be required to liquidate securities in 
the Account on the open securities market with an aggregate fair market 
value equal to the amount necessary to meet the Plan's request. The 
proceeds will then be distributed to the Plan, and the amount 
distributed will be subtracted from the Adjusted Book Value of the 
Account.
    23. A Plan will be allowed to discontinue its Account on 15 days' 
notice at any time, effective as of the last trading day of the month, 
except on the Scheduled Account Termination Date or a Scheduled Account 
Distribution Date.4 On discontinuance, the market value of the 
Account will be distributed to the Plan, subject to a ``Discontinuance 
Charge''. Like the Book Value Assurance Charge (see rep. 16, above), 
the Discontinuance Charge will be equal to a specified percentage of 
the Adjusted Book Value of the Account determined by agreement between 
Hartford Life and the Plan and specified in the Synthetic GIC, but will 
not be greater than the excess of the market value of the Account over 
the Adjusted Book Value on the date of discontinuance nor less than 
zero.
---------------------------------------------------------------------------

    \4\Hartford Life determined not to provide for discontinuance of 
its Synthetic GIC as of a Scheduled Account Distribution Date for 
administrative reasons. If discontinuance were permitted as of 
Scheduled Account Distribution Dates, it would be necessary to 
allocate the assets liquidated on that date between the assets 
supporting the Scheduled Account Distribution, with respect to which 
the Plan would be entitled to Adjusted Book Value, and other assets, 
as to which the Plan would be entitled to fair market value. 
Hartford Life concluded that this would be unduly burdensome. 
Allowing the Plan to discontinue the Synthetic GIC on Scheduled 
Account Distribution Dates seems unnecessary, since the Synthetic 
GIC can be discontinued at the end of the previous month or at the 
end of the following month if appropriate.
---------------------------------------------------------------------------

    Accordingly, a Plan will be free to give notice of discontinuance 
of the arrangement and realize its investment return from its Account 
(subject to the Discontinuance Charge) at any time up to 45 days before 
the Scheduled Account Termination Date. For example, if the Plan 
determines that the return generated by HIMCO's investment management 
net of the Discontinuance Charge is more valuable than Hartford Life's 
guarantee, the Plan will be able to realize that return through the 
discontinuance provision.
    24. Under its Synthetic GICs, Hartford Life will be entitled to a 
quarterly fee based on a percentage of the average Adjusted Book Value 
of the assets in the Account for the current quarter. This percentage 
will be established by agreement with each Plan and will be specified 
in writing. Out of its quarterly fee, Hartford Life will pay HIMCO a 
quarterly management fee which will also be specified in writing. No 
separate fee will be paid directly to HIMCO. HIMCO will have the right 
to withdraw from the Account certain expenses incurred directly in the 
investment management of the Account. Any such expenses withdrawn 
directly from the Account by HIMCO are not subtracted from the adjusted 
book value of the Account.
    25. Hartford Life will keep full and complete records and books of 
account reflecting all transactions of each Plan's Account and will 
make them available on an annual basis for audit by independent 
certified public accountants selected by and responsible to the Plan. 
Hartford Life will also furnish annual reports of the operations of the 
Account containing a list of the investments of the Account to an 
independent fiduciary of the Plan.
    26. To summarize, the applicants represent that the Synthetic GIC 
is fundamentally a guaranteed investment contract. A Plan will place 
specified assets in the Account, and on the Scheduled Account 
Distribution Dates and the Scheduled Account Termination Date, Hartford 
Life will repay the Plan its principal plus interest at a guaranteed 
rate, in exchange for the asset value of the Account (in cash or in 
kind). Thus, the fundamental nature of the Synthetic GIC is equivalent 
to that of the conventional GICs which have funded employee benefit 
plans for many years. With the Synthetic GIC, the Plan is afforded a 
higher degree of security because the assets underlying the Synthetic 
GIC will be held in a custodial bank account owned by the Plan and will 
not become part of the insurance company's assets. In addition, the 
Synthetic GIC will offer the Plan a limited opportunity to realize a 
return in excess of the Guaranteed Rate of Interest. This will occur if 
the market value of the Account on the Scheduled Account Termination 
Date exceeds the sum of the Adjusted Book Value of the Account and the 
Book Value Assurance Charge. The Plan will also have the option of 
discontinuing the arrangement if it believes that the market value of 
the assets in the Account (less the Discontinuance Charge) is more 
valuable than Hartford Life's guarantee. The applicants represent that 
it is not very likely that such an excess return will occur, because 
the assets in the Account will be managed with the intention of 
achieving the guaranteed return. In this regard, the applicants 
represent that on the Scheduled Account Termination Date, the assets 
will consist primarily of fixed-income securities at or near maturity 
with predictable values. Nevertheless, the Plan enjoys downside 
protection through Hartford Life's guarantee, and also has an 
opportunity to realize a return in excess of the Guaranteed Rate of 
Return.
    27. In summary, the applicants represent that the proposed 
transactions will satisfy the criteria contained in section 408(a) of 
the Act for the following reasons: (a) the decision to enter into a 
Synthetic GIC will be made on behalf of a Plan by a fiduciary of the 
Plan who is independent of Hartford Life and HIMCO, after receipt of 
full and detailed disclosure of all material features of the contract, 
including all applicable fees and charges; (b) the guaranteed return to 
the Plan cannot be modified by the proposed transactions; (c) all fees 
and charges imposed under the Synthetic GIC will be reasonable; (d) 
each Synthetic GIC will specifically provide for determinations of the 
market value of the securities by an objective means of valuation; (e) 
Hartford Life will maintain books and records of all transactions which 
will be subject to annual audit by independent certified public 
accountants selected by and responsible solely to the Plan; and (f) the 
Synthetic GIC will be offered only in principal amounts of $50 million 
or more, so that the Plan fiduciaries can be expected to be 
knowledgeable, sophisticated professional asset managers.

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

Radiation Medical Group Inc. Profit Sharing--401(k) Salary Savings Plan 
(the Original Plan), and Radiology Medical Group, Inc. 401(k) Salary 
Savings Plan (the New Plan; Together, the Plans) Located in San Diego, 
California; Proposed Exemption

[Application Nos. D-9343 & D-9344]

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 F.R. 32836, 32847, August 10, 1990). If the 
exemption is granted the restrictions of sections 406(a), 406 (b)(1) 
and (b)(2) of the Act and the sanctions resulting from the application 
of section 4975 of the Code, by reason of section 4975(c)(1) (A) 
through (E) of the Code, shall not apply to (1) the proposed transfer 
by the Original Plan of a 57 percent interest (the Interest) in certain 
real property (the Property), including a 57 percent lessor's interest, 
to the New Plan; and (2) the proposed leases of the Property (the New 
Leases) by the Original Plan and the New Plan to Radiology Medical 
Group, Inc., and Radiation Medical Group, Inc. (together, the 
Employers), the sponsors of the Plans; provided the following 
conditions are satisfied:
    (A) All terms of the transactions are no less favorable to the 
Plans than those which the Plans could obtain in arm's-length 
transactions with unrelated parties;
    (B) The interests of the Plans under the New Leases are represented 
by an independent fiduciary, the Union Bank of San Diego, California 
(the Fiduciary), which will monitor the Employers' performance of 
obligations under the New Leases and compliance with the conditions of 
this exemption, including all actions necessary to enforce such 
obligations and conditions;
    (C) At all times under the New Leases, the Plans receive rent which 
is no less than the fair market rental value of the Property and which 
is net of all real estate taxes and costs of repair, maintenance and 
insurance;
    (D) At all times under the New Leases, each Plan's interest in the 
Property constitutes less than twenty-five percent of the total value 
of all assets held by the Plan; and
    (E) Any extension or renewal of the New Leases beyond the initial 
terms is expressly approved by the Fiduciary.

Summary of Facts and Representations

    1. The Original Plan is a 401(k) profit sharing plan formerly named 
``Radiology Medical Group Profit Sharing Plan'', which was established 
by Radiology Medical Group, Inc. (the Original Employer), a California 
professional corporation engaged in the general practice of 
radiological medicine in San Diego, California. Effective January 1, 
1990, the Original Employer underwent a corporate reorganization, 
resulting in the creation of an additional professional corporation, 
Radiation Medical Group, Inc. (the New Employer), to assume the 
radiation therapy portion of the medical practice previously performed 
by the Original Employer. The employees performing the radiation 
therapy services were transferred to the New Employer. The Employers 
are separate entities, with no common shareholders or employees. The 
Original Plan was amended to change its name to its current name and to 
enable the New Employer to adopt the Original Plan for its employees.
    Effective January 1, 1992, the boards of directors of the Original 
Employer and the New Employer (together, the Employers) determined that 
the Employers should maintain separate retirement plans. The New 
Employer continued as the sponsor of the Original Plan, and the 
Original Employer adopted the New Plan as a 401(k) profit sharing plan 
for its employees. The assets of both Plans are maintained under one 
trust, the trustee of which is the Union Bank in San Diego, California 
(the Trustee), which was formerly named California First Bank.
    2. Among the assets in the Original Plan is the Property, a parcel 
of real property located at 2466 First Avenue in San Diego, California. 
The Original Employer owns a medical office building and other 
improvements on the Property which are maintained as the Employers' 
principal place of business. The Original Employer leases the Property 
from the Original Plan (the Original Lease) pursuant to an individual 
administrative exemption granted by the Department, Prohibited 
Transaction Exemption 84-175 (PTE 84-175, 49 FR 48834, December 14, 
1984). Pursuant to PTE 84-175, the interests of the Original Plan under 
the Original Lease are represented by the Trustee. Since the corporate 
reorganization, the Employers share the use of the Property, and the 
Original Employer continues as lessee under the Original Lease. The 
Original Plan, sponsored by the New Employer, continues to hold title 
to the Property. The participant accounts of employees of the Original 
Employer, now participating in the New Plan, constitute 57 percent of 
the assets of the Original Plan. The participant accounts of employees 
of the New Employer, now participating in the Original Plan, constitute 
43 percent of the assets of the Original Plan.
    The Employers have determined that each Plan should own a 
proportionate interest in the Property, in direct relation to each 
Plan's proportionate interests in the assets of the Original Plan. 
Accordingly, the Employers propose to direct the Trustee to transfer a 
57 percent interest in the Property (the Interest) from the Original 
Plan to the New Plan, representing the ownership interest of the New 
Plan participants in the Property. Additionally, the Employers propose 
that the Plans lease their respective interests in the Property to the 
Employers pursuant to a modification and continuation of the Original 
Lease in the form of two separate leases. The Employers are requesting 
an exemption for such transactions under the terms and conditions 
described herein.
    3. To effect the transfer of the Interest from the Original Plan to 
the New Plan, the Employers will direct the Trustee to establish 
separate trusts for each of the Plans, and to transfer from the 
existing Original Plan trust a 57 percent ownership interest in the 
Property to a new trust established exclusively for assets of the New 
Plan. The Original Plan will retain the remaining 43 percent interest 
in the Property. The Interest will be transferred subject to the 
Original Lease, and the Employers will direct the Trustee to transfer 
to the New Plan a 57 percent lessor's interest in the Original Lease, 
while the Original Plan will continue to own a 43 percent lessor's 
interest in the Original Lease. The Property had a fair market value of 
$1,050,000 as of December 16, 1992, according to Steven L. Bowen, MAI 
(Bowen), an independent professional real estate appraiser in San 
Diego, California. The Employers represent that total assets in the 
Original Plan were valued at $13,177,499.29 as of December 31, 1992, 
including account balances of all participants in both Plans.
    4. It is proposed that each Employer, as lessee, will execute a 
separate lease with both Plans, as lessors (the New Leases), to enable 
the Employers' lease of the Property from the Plans under the same 
terms and conditions as the Original Lease (except for provisions 
relating to rental review, described below). Under each New Lease, the 
Plans will be co-lessors of the Property, and each Employer will be a 
lessee. Based upon their proportionate uses of the Property and the 
improvements thereon, the Employers have determined that the Original 
Employer will execute a New Lease with respect to 58 percent of the 
Property, while the New Employer will execute a New Lease with respect 
to the remaining 42 percent, and each Employer will be responsible for 
the corresponding percentage of the Property's total rent and all other 
expenses relating to taxes, insurance, maintenance, and repair of the 
Property.
    The Trustee will continue to act as an independent fiduciary and 
will represent the interests of the Plans under the New Leases by 
overseeing and enforcing the Employers' performance of lease 
obligations and by securing compliance with the conditions of this 
exemption, if granted. The Trustee represents that at all times under 
the Original Lease, the Original Employer has been in compliance with 
all lease terms and all conditions of PTE 84-175.
    5. The proposed New Leases are triple net leases with initial terms 
ending April 30, 2004, the same termination date of the Original Lease 
initial term. Rent is payable monthly under the New Leases, which 
provide for a review of the annual rent every two years on February 1, 
commencing as soon after February 1, 1994 as the Department publishes 
the exemption proposed herein, if granted. Such review will be 
conducted by an independent, unrelated professional real estate 
appraiser selected by the Trustee. Any adjustment of rent resulting 
from such review shall be upward only, and any decrease in the fair 
market rental value of the Property shall not result in any decrease in 
the rent under the New Leases. In accordance with this procedure, 
initial rent under the New Leases will be no less than the greater of 
(a) $13,750 per month, which is the current rent under the Original 
Lease, or (b) the fair market rental value of the Property as 
determined as of the initial date of the New Leases by the appraiser 
selected by the Trustee.
    The New Leases require the Employers to pay all repair and 
maintenance costs of the Property, to pay all real estate taxes on the 
Property, and to carry fire, extended coverage and public liability 
insurance on the Property to the full extent of the insurable value of 
the Property, with the Plans as the named insured. Under the New 
Leases, the Employers agree to indemnify the Plans and hold the Plans 
harmless from all claims, demands, liens, losses and liabilities of any 
nature arising from the Employers' use of the Property.
    Each New Lease will provide that upon the expiration of its initial 
term, with the approval of the Trustee, the Employers may extend the 
New Lease for up to two additional terms of five years each upon 
written notice to the Trustee at least six months prior to the 
expiration of the initial term or the expiration of the first five-year 
renewal term, whichever is applicable. Rental under such extended five-
year term(s) will be payable pursuant to the same procedures required 
by the New Leases during the initial term, including rental review 
every two years.
    6. The Trustee represents that after a review and analysis, it has 
approved the proposed transactions on behalf of the participants and 
beneficiaries of the Plans. In this regard, the Trustee engaged the 
services of two independent advisers (the Advisers) to serve in 
fiduciary capacities on behalf of the Plans in determining whether the 
retention of a 43 percent interest in the Property by the Original Plan 
and the receipt of a 57 percent interest in the Property by the New 
Plan are prudent investments for the Plans and in the best interests of 
their participants and beneficiaries. The Advisers were also engaged to 
determine whether the New Leases constitute prudent investments for the 
Plans and whether their terms and conditions are protective of the 
Plans' participants and beneficiaries.
    7. One of the Advisers is Moody, Nation and Smith (Moody), a 
financial consulting firm located in San Diego, which was retained by 
the Trustee to make determinations as a fiduciary on behalf of the 
Original Plan with respect to the proposed transactions. Moody, which 
represents that it is independent of and unrelated to the Employers, 
represents that it undertook a complete analysis of the real estate 
market in which the Property is situated as part of its evaluation of 
the Property and the New Leases as an investment for the Original Plan. 
In a written report to the Trustee, Moody concluded that the Original 
Plan's 43 percent interest in the Property, and its lease to the 
Employers under the New Leases, will constitute a prudent investment 
which features adequate protections and safeguards for the participants 
and beneficiaries of the Original Plan. Moody states that it has 
determined that the Property provides a favorable and secure rate of 
return and will remain a stable real estate investment well into the 
future. Moody represents that its research reveals that the Property is 
located in a stable and well-established market area which fared better 
than other areas in San Diego during the protracted city-wide real 
estate market declines between 1980 and 1990. Moody represents that 
other factors involved in and supporting its recommendation included 
the following findings:
    (A) The Original Plan's assets will remain adequately diversified, 
in that its interest in the Property constitutes approximately 10.6 
percent of all assets of the Original Plan's participants as of 
February 1994; (B) The Original Plan's return on its investment in the 
Property, the rental under the New Leases, is net of real estate taxes 
and all expenses related to repair, maintenance and insurance of the 
Property; (C) Any extension of the New Leases after the expiration of 
the initial term on April 30, 2004 will require the approval of the 
Trustee and will be limited to no more than two terms of five years 
each; (D) Rental under the New Leases will always be at least the fair 
market value of the Property, due to provisions requiring periodic 
rental review, and rent is adjustable only upward, never reduced, in 
the event of changes in the Property's fair market value as the New 
Leases proceed. Moody states that it determined that the fair market 
rental for comparable land leases in the same market as the Property is 
a 10 percent annual return on the fair market value of the subject 
land, and the current rental under the Original Lease, which can not be 
reduced under the New Lease, provides an annual return of approximately 
15 percent; (E) The provisions of the New Leases further protect the 
Original Plan's investment in the Property by requiring the Employers 
to indemnify and hold harmless the Plans, including costs and attorneys 
fees, with respect to all claims, demands, liens, losses and 
liabilities arising from the lessees' use and occupancy of the 
Property; and (F) The interests of the Original Plan under the New 
Leases will continue to be represented and protected by the Trustee, an 
independent fiduciary which will monitor and enforce the Employers' 
performance of obligations under the New Leases.
    Moody also represents that it has analyzed the proposed 
transactions in the context of other alternatives available to the 
Original Plan with respect to its interest in the Property. Moody 
states that alternative investments returning a comparable rate are not 
available to the Original Plan in the marketplace without a material 
attendant risk or large losses of principal. Moody represents that 
market conditions are unfavorable for any attempt to sell the Property, 
and additionally, that it would be disadvantageous for the Original 
Plan to accept cash in lieu of its undivided 43 percent ownership 
interest in the Property, because the alternative investments available 
will provide significantly lower returns than those provided by the 
Property and the New Leases. Moody states that its market research 
demonstrates that the area in which the Property is situated will 
continue to experience stability and attractiveness to both tenants and 
owners, due to the proximity to major medical and commercial centers 
and the lack of vacant land for new developments. Moody contends that 
these conditions present a realistic potential for increases in the 
rent under the New Leases over the next ten years.
    8. The other Adviser is Ernst & Young (E&Y) a financial consulting 
firm located in San Diego, which was retained by the Trustee to make 
determinations as a fiduciary on behalf of the New Plan with respect to 
the proposed transactions. E&Y represents that it is independent of and 
unrelated to the Employers, and that it undertook a thorough evaluation 
of the proposed transactions which included an investigation of the 
decline in commercial real property values in San Diego over the past 
several years, an overview of current and historical market conditions 
specific to medical office properties, an overview of the currently 
local economy and real estate market conditions, and an evaluation of 
the Property's rate of return and long term potential. In a written 
report to the Trustee, E&Y concluded that the New Plan's receipt of a 
57 percent interest in the Property, and its lease to the Employers 
under the New Leases, will constitute a prudent investment which 
features adequate protections and safeguards for the participants and 
beneficiaries of the New Plan. E&Y states that it determined that the 
Property offers the Plan a secure rate of return above market rates, 
with a likelihood of continuing stability well into the future. E&Y 
represents that through market research it has determined that the 
Property is located in a market area which has achieved stability after 
the declines in San Diego real estate markets during the 1980's. E&Y 
states that the Property has good long-term potential as a plan 
investment and that the New Leases provide a protected, favorable rate 
of return on the investment in the Property. E&Y represents that 
factors involved in and supporting its recommendation included the 
following findings:
    (A) Rental under the New Leases will always be no less than the 
Property's fair market rental value, as determined every two years, and 
may not be decreased, so that the rate of return of approximately 15 
percent is assured and is substantially higher than the prevailing 
market rate of approximately 10 percent; (B) The New Plan is protected 
by the Employers' indemnification of the Plans for all claims, demands, 
and liabilities arising from the Employers' occupancy of the Property; 
(C) The triple net provisions of the New Leases will protect the New 
Plan's return on the Property from all costs and expenses associated 
with the Property; and (D) The interests of the New Plan under the New 
Leases will continue to be represented and protected by the Trustee, an 
independent fiduciary which will monitor and enforce the Employers' 
performance of obligations under the New Leases.
    E&Y also represents that it determined that the New Plan's 57 
percent interest in the Property constituted approximately 6.25 percent 
of the value of all assets held by the New Plan as of February 1994, 
and that this low composition of real estate investments minimizes risk 
to the Plan's investment portfolio. E&Y represents that its evaluation 
of the proposed transactions also included consideration of 
alternatives available to the New Plan with respect to its interest in 
the Property. E&Y states that the investments that would be available 
for the New Plan's investment of cash, in the amount of and in lieu of 
its interest in the Property, would provide returns significantly 
reduced from the return offered by the Property. E&Y also states that 
any prospective sale of the Property would be unlikely to generate cash 
equal to the fair market value of the Property, due to the costs 
involved and the lengthy, aggressive marketing required by current 
economic conditions. E&Y concludes its report with its finding that its 
``de novo'' analysis of the proposed transactions indicates that it is 
in the best interests and protective of the New Plan's participants and 
beneficiaries to accept the interest in the Property and proceed with 
the New Leases of the Property to the Employers.
    9. In summary, the applicants represent that the proposed 
transactions satisfy the criteria of section 408(a) of the Act for the 
following reasons: (1) The transactions enable the participants of both 
Plans to continue to share interests in the Property and its lease to 
the Employers pursuant to the New Leases, under the same material terms 
and conditions of the Original Lease; (2) The interests of the Plans 
will be represented under the New Leases by the Trustee, an independent 
fiduciary which has represented the Original Plan under the Original 
Lease and which will continue to monitor performance of the terms and 
conditions of the New Leases on behalf of the Plans; (3) The New 
Leases, under which rent may not be reduced, will provide a favorable 
return, net of all costs and expenses, of no less than the Property's 
fair market rental value; (4) The New Leases, with initial terms 
expiring April 30, 2004, may be renewed only with the approval of the 
Trustee and for no more than two terms of five years each; and (5) The 
Trustee has approved the proposed transactions on the basis of the 
evaluations and analyses performed by the Advisers.

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

Knoxville Surgical Group Profit Sharing Plan (the Plan) Located in 
Knoxville, Tennessee, Proposed Exemption

[Application No. D-9486]

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990.) If the exemption 
is granted, the restrictions of sections 406(a), 406 (b)(1) and (b)(2) 
of the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the 
Code, shall not apply to the: (1) The proposed lease (the Lease) of 
certain real property (the Condominium) by the Plan to Knoxville 
Surgical Group, P.C. (the Employer), the Plan sponsor and a party in 
interest with respect to the Plan, following the exchange (the Swap) of 
real property owned by the Plan for the Condominium owned by Fort 
Sanders Medical Center, an unrelated party; and (2) a future exercise 
of (a) a certain indemnity agreement (the Indemnity Agreement) between 
the Employer and the Plan; and (b) a certain guarantee (the Guarantee) 
of Lease payments to the Plan by the principals of the Employer; 
provided that the following conditions are satisfied:
    (1) All terms and conditions of the Swap, the Lease, the Indemnity 
Agreement, and the Guarantee are at least as favorable to the Plan as 
those the Plan could obtain in an arm's-length transaction with an 
unrelated party;
    (2) The fair market value of the Condominium will be determined by 
an independent qualified appraiser at the time the Swap transaction is 
consummated;
    (3) With respect to the Lease, the fair market rental amount (the 
Rental Amount) has been determined by an independent qualified 
appraiser, and will never be below the initial fair market annual 
rental amount of $75,000;
    (4) The Condominium will be appraised by an independent qualified 
appraiser each time that the Renewal option (the Renewal) on the Lease 
is exercised.
    (5) The fair market value of the Condominium will at no time exceed 
25% of the Plan's total assets;
    (6) The Lease is a triple net lease under which the Employer is 
obligated for all costs of maintenance and repair, and all taxes, 
insurance, utilities and condominium fees related to the Condominium;
    (7) The fees received by the independent fiduciary for serving in 
such capacity, combined with any other fees derived from the Employer 
or related parties, will not exceed 1% of his annual income for each 
fiscal year that he continues to serve in the independent fiduciary 
capacity with respect to the transactions described herein;
    (8) The independent fiduciary evaluated the proposed transactions 
described herein and deemed them to be administratively feasible, 
protective and in the interest of the Plan;
    (9) The independent fiduciary will monitor the terms and the 
conditions of the exemption and the Lease throughout its initial term 
plus the two Renewal terms and will take whatever action is necessary 
to protect the Plan's rights;
    (10) The Plan will bear no costs or expenses with respect to the 
proposed transactions described herein; and
    (11) The Employer will file form 5330 and pay the appropriate 
excise taxes for the period beginning June 9, 1989, to the date this 
proposed exemption, if granted, is published in the Federal Register, 
within ninety (90) days of the publication date.

Summary of Facts and Representations

    1. In 1991, a pension plan (the Pension Plan) sponsored by the 
Employer was terminated, and a form 5310 (Application for Determination 
upon Termination) was filed with the Internal Revenue Service (IRS), 
and a favorable IRS determination was received. At that time the assets 
of the Pension Plan were merged into the Plan, including the \1/2\ 
interest in the property located at 1831 West Clinch Avenue, Knoxville, 
Tennessee (the Clinch Property). The Plan is a profit sharing plan, 
currently with 16 participants. As of February 18, 1994, the Plan had 
total assets of $3,716,331. The Employer is a Tennessee subchapter 
``C'' corporation engaged in the practice of medicine. The owners and 
officers of the Employer are the following doctors: Dr. Richard A. 
Brinner, Dr. Randal O. Graham, Dr. Hugh C. Hyatt, Dr. Michael D. 
Kropilak and Dr. P. Kevin Zirkle. The Trust Company of Knoxville is the 
trustee and the named fiduciary for the Plan.
    2. The Employer was granted an individual exemption by the 
Department in 1982 (PTE 82-162), for the Plan and the Pension Plan to 
purchase (the Past Purchase) the Clinch Property from a certain 
partnership which was a party in interest with respect to the Plans, 
and for a subsequent lease (the Past Lease) of the Clinch Property by 
the Plans to the Employer. The Past Lease was for a term of five years 
with an option to renew for an additional five years. PTE 82-162 also 
required an annual appraisal of the Clinch Property, and for the 
rentals to be adjusted to reflect the fair market rental value of the 
Clinch Property. Valley Fidelity Bank and Trust Company (Valley Bank) 
of Knoxville, Tennessee was the independent fiduciary which monitored 
the Past Purchase and the Past Lease for the Plans. PTE 82-162 also 
provided for an Employer guarantee that if the Clinch Property was ever 
sold during the initial five year term of the Lease and the five year 
renewal of the Lease for below the original purchase price, the 
Employer would indemnify the Plans for the difference between the 
original purchase price of the Property and the selling price.
    3. In 1988 Valley Bank was replaced by a new independent fiduciary, 
the Trust Company of Knoxville (the Trust Company). Also, in July, 
1988, significant improvements of a capital nature were made to the 
Clinch Property. The applicant represented that these improvements cost 
approximately $102,685.76, and were paid for by the Plan.5 The 
applicant also represented that immediately after the improvements were 
installed, the Clinch Property was appraised. The appraisal did not 
result in an increase in value of the Clinch Property, and therefore, 
in accordance with the Past Lease, no rental increase was made. 
Nevertheless, it is represented that the Trust Company demanded an 
increase in rent from the Employer, in order to amortize the expenses 
sustained by the Plan. A rental increase of $2,000 per month was agreed 
to in May, 1989, and by letter of agreement dated June 9, 1989, between 
the Trust Company and the Employer, a new rental rate was set for the 
next five years until May, 1994.6 This modification of the Past 
Lease by the applicant caused the Past Lease to extend beyond the 
original ten (10) year term specified under PTE 82-162. Under PTE 82-
162, the Past Lease was to expire October 15, 1992.7
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    \5\In addition to these improvements, the Employer has made 
additional improvements to the Building at their own expense.
    \6\The applicant represents that as of September, 1993, the 
expenses sustained by the Plan for the improvements made to the 
Clinch Property, have been fully amortized.
    \7\The above-referenced changes to the Past Lease were outside 
the scope of exemptive relief provided by PTE 82-162, and, as a 
result, as of June 9, 1989, that exemption was no longer effective. 
In this regard, the applicant has agreed to file forms 5330 with the 
Internal Revenue Service and pay the appropriate excise taxes for 
the period beginning June 9, 1989, to the date when this proposed 
exemption, if granted, is published in the Federal Register, within 
ninety (90) days of the publication date.
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    4. The applicant now proposes the following transactions. 
Initially, the Plan desires to swap (the Swap) the Clinch Property, 
currently appraised at $425,000, for a certain condominium (the 
Condominium), projected to have a fair market value of $750,000, once 
it is completed.8 The Condominium is Unit 501 in the Professional 
Office Building III located at 501 Nineteenth Street, Knoxville, 
Tennessee. Neither the Clinch Property nor the Condominium are 
encumbered by debt. The Swap will be an even exchange and will not 
involve any cash payments or other consideration by the involved 
parties. The Condominium will represent approximately 20% of the Plan's 
total assets.
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    \8\In this regard, it is represented that all interior 
construction and remodeling of the Condominium will be done by the 
Employer as the lessee, and will be in accordance with the Lease and 
the Condominium documents. The applicant further represents that the 
Condominium documents provide a certain allowance for this purpose, 
and that any overhead will be paid for by the Employer.
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    5. The Plan will be acquiring the Condominium from Fort Sanders 
Medical Center (the Center), formerly known as Fort Sanders 
Presbyterian Hospital (the Hospital). The applicant represented that 
the Center is not a related party with respect to the Plan and the 
Employer.9 It is represented that the Center is desirous of 
proceeding with the Swap primarily because it owns all the properties 
surrounding it with the exception of the Clinch Property. It is further 
represented that the Clinch Property is more valuable to the Center for 
its raw land than to another party as a free standing building.
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    \9\In this regard, the applicant stated that Dr. Hugh C. Hyatt, 
one of the owners of the Employer, was Chief of Staff at the 
Hospital in 1990, and that the doctors of the Employer also have 
staff privileges at the Center. Otherwise, there is no relationship 
between the Employer and the Center, which is the developer of the 
Condominium.
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    6. The Clinch Property and the Condominium were appraised by 
Richard E. Wallace, MAI, SRA (Mr. Wallace), an independent qualified 
appraiser. The Clinch Property was appraised by Mr. Wallace (the 
Appraisal) on November 4, 1991, at a fair market value of $425,000. The 
Clinch Property is located at the northeast corner of Clinch Avenue and 
19th Street in Knoxville, Tennessee. The Clinch Property is a one story 
masonry office building with a finished basement. Mr. Wallace maintains 
that properties similar to the Clinch Property are most often bought 
and sold based on their income producing ability, and, as such, he 
gives the income approach the most emphasis. The income approach as it 
is utilized herein is based on market derived income and expense 
estimates as well as general investor demands for this type of an 
investment. On June 30, 1993, in an update to the Appraisal, Mr. 
Wallace restated his opinion that the Clinch Property has a fair market 
value of $425,000.
    7. On July 2, 1992, Mr. Wallace also determined the fair market 
value of the Condominium. Because the Condominium office space was 
unfinished, Mr. Wallace prepared a consultation report (the Report), 
rather than an appraisal. Mr. Wallace represents that a fully 
documented appraisal would yield the same value as a consultation 
report that was prepared. In determining the fair market value of the 
Condominium, Mr. Wallace considered sales of other medical condominiums 
in Knoxville. In the Report, Mr. Wallace determined that as of July 2, 
1992, the fair market value of the Condominium, which consists of 6,000 
square feet, was $125 per square foot for finished space. On June 30, 
1993, in an update to the Report, Mr. Wallace estimated the fair market 
value of the Condominium to be $750,000. In establishing the fair 
rental value of the Condominium, Mr. Wallace examined rentals of 
medical facilities in the Knoxville area, and determined that as of 
July 2, 1992, the fair market rental rate for the Condominium is 
estimated at $12.50 per square foot for a triple net lease, increasing 
at 3% annually.
    8. Once the Plan acquires the Condominium from the Center, it is 
proposed that the Plan lease (the Lease) the Condominium to the 
Employer. The Lease will be a triple net lease and will be net of 
maintenance, repairs, insurance, taxes, utilities and condominium fees. 
The Lease will have a term of three years, with two renewal options 
(Renewal) of three years each. Renewals will occur upon the Employer, 
as the Lessee, notifying the Plan, as the Lessor, in writing at least 
60 days before the end of the expiring term. The rental rate will be 
determined by an independent qualified appraiser at each Renewal. In 
this regard, Mr. Wallace determined the rental rate for the Condominium 
as of July 2, 1992, to be $12.50 per square foot. The rental rate will 
be $75,000 per year for the first year, payable in equal monthly 
installments of $6,250 per month. For the second year, the rental rate 
will be $77,250 per year payable at the rate of $6,437.50 per month, 
and for the third year the rental rate will be $79,567.50 per year, 
payable at the rate of $6,630.63 per month. The Employer will obtain a 
fire and hazard/casualty insurance policy for the Condominium. The Plan 
as the Lessee will be the beneficiary and loss payee with respect to 
the hazard and liability insurance on the Condominium.
    9. The Employer has also represented that if the Condominium is 
sold during the initial term of the Lease plus the two Renewal terms 
for less than $425,000 (the fair market value of the Clinch Property), 
the Employer will indemnify the Plan for the difference between the 
price received by the Plan and $425,000 (the Indemnity Agreement), in 
cash within six months after notice and verification of sale. It is 
represented that if it is contemplated that the Condominium be sold to 
a party in interest with respect to the Plan, as defined by section 
3(14) of the Act, the applicant will seek exemptive relief from the 
Department prior to the consummation of the sale.
    In addition to the Indemnity Agreement, in the event the Employer 
defaults on the Lease, the principals of the Employer (the Principals) 
have guaranteed (the Guarantee) the rental payments to the Plan for the 
duration of the Lease, including the Renewals. It is represented that 
as of September 2, 1993, the Principals had minimum net worth of 
approximately $2,600,000.
    10. The independent fiduciary for the Swap, the Lease, the 
Indemnity Agreement and the Guarantee will be Earl W. Johnson (Mr. 
Johnson), a certified public accountant and an executive vice president 
over tax and financial planning with Lawhorn Johnson and Company, P.C. 
Mr. Johnson represents that he is independent of all parties to these 
transactions, and that he had no prior professional or personal 
association with any of the parties. Mr. Johnson also maintains that 
the fees received by him for serving in the independent fiduciary 
capacity in these transactions, combined with any other fees derived 
from the Employer or related parties will not exceed 1% of his annual 
income for each fiscal year that he continues to serve in the 
independent fiduciary capacity with respect to the transactions 
described herein.
    11. Mr. Johnson states that he is qualified to serve in the 
independent fiduciary capacity for the Plan because of his professional 
experience which includes providing administrative services to 
qualified retirement plans, and handling real estate transactions. 
Specifically, with respect to his clients, Mr. Johnson has prepared 
retirement plan calculations, made investment projections and reviewed 
investment alternatives. Mr. Johnson has also reviewed audits of 
retirement plans.
    12. Mr. Johnson represents that he has consulted with legal counsel 
regarding his ERISA fiduciary responsibilities and accepts and 
acknowledges these responsibilities as they relate to the proposed Plan 
transactions. Mr. Johnson also maintains that he has knowledge of ERISA 
and understands the fiduciary responsibilities under the law associated 
with qualified retirement plans. In his capacity as the independent 
fiduciary, he reviewed the Plan's assets with respect to the Swap and 
the Lease, and concluded that the Swap offers a significant premium to 
the Plan, and is in the best interest of the Plan participants. Mr. 
Johnson also states that the Lease offers a fair rental value to the 
Plan. According to Mr. Johnson, under the Lease terms, the Plan has the 
option to renew the Lease pursuant to the two Renewal options. As 
required by the Lease, the Condominium will be appraised every time 
that the Lease is renewed. Mr. Johnson represents that the Condominium 
will be appraised at the time it is finished and the Swap is completed. 
He further represents that as an additional safeguard the Condominium 
will also be appraised annually by an independent qualified appraiser. 
With respect to the Indemnity Agreement, Mr. Johnson represents that 
the Principals of the Employer have sufficient financial net worth to 
indemnify the Plan. Also, Mr. Johnson states that the Guarantee by the 
Principals of the Lease payments to the Plan during the initial Lease 
and the Renewal periods, is additional security for the Plan. As such, 
Mr. Johnson represents that the Swap and the Lease are also protective 
of the Plan and administratively feasible. The Condominium will be 
considered part of the fixed income portion of the Plan's portfolio, 
and when the value of the Condominium increases, there will be an 
offsetting reduction in existing fixed assets to maintain the proper 
asset allocation. The remaining Plan assets are represented by stocks 
and bonds. There are participant loans in the Plan, but these loans 
represent a very small percentage of the Plan's assets.
    13. Mr. Johnson represents that the proposed transactions are 
administratively feasible, in the interest and protective of the Plan. 
Mr. Johnson states that the Swap is in the best interest and protective 
of the Plan because the Condominium has been appraised by an 
independent qualified appraiser at $750,000, and the acquisition of the 
Condominium will result in a significant premium to the Plan. 
Subsequently, the Plan will lease the Condominium to the Employer. The 
fair market value of the Condominium represents approximately 20% of 
the Plan's total assets. Mr. Johnson will monitor the Lease throughout 
its initial term of three years and during the two year Renewal terms. 
The Condominium will be appraised annually and at every Renewal, and 
the fair market rental will be determined by an independent qualified 
appraiser at each Renewal. The annual rental amounts will never be 
below $75,000, which is the annual rental amount for the initial year 
of the Lease. Furthermore, the rental payments have been personally 
guaranteed by the Principals for the initial term of the Lease plus the 
two Renewal terms. The Principals have also indemnified the Plan in the 
event that the Condominium is sold for an amount less than $425,000 
during the initial term of the Lease and during the two Renewal terms. 
The Plan will incur no expenses as a result of the proposed 
transactions described herein.
    14. In summary, the applicant represents that the transaction 
satisfies the statutory criteria of section 408(a) of the Act and 
section 4975(c)(2) of the Code because:
    (1) All terms and conditions of the Swap, the Lease, the Indemnity 
Agreement and the Guarantee are at least as favorable to the Plan as 
those the Plan could obtain in an arm's-length transaction with an 
unrelated party;
    (2) The fair market value of the Condominium will be determined by 
an independent qualified appraiser at the time the Swap transaction is 
consummated;
    (3) With respect to the Lease, the Rental Amount has been 
determined by an independent qualified appraiser, and will never be 
below $75,000, which is the fair market rental amount for the initial 
year of the Lease;
    (4) The Condominium will be appraised by an independent qualified 
appraiser each time that the Renewal option on the Lease is exercised;
    (5) The fair market value of the Condominium will at no time exceed 
25% of the Plan's total assets;
    (6) The Lease is a triple net lease under which the Employer is 
obligated for all costs of maintenance and repair, and all taxes, 
insurance, utilities and condominium fees related to the Condominium;
    (7) The fees received by the independent fiduciary for serving in 
such capacity, combined with any other fees derived from the Employer 
or related parties, will not exceed 1% of his annual income for each 
fiscal year that he continues to serve in the independent fiduciary 
capacity with respect to the transactions described herein;
    (8) The independent fiduciary evaluated the proposed transactions 
described herein and deemed them to be administratively feasible, 
protective and in the interest of the Plan;
    (9) The independent fiduciary will monitor the terms and the 
conditions of the exemption and the Lease throughout its initial term 
plus the two Renewal terms and will take whatever action is necessary 
to protect the Plan's rights;
    (10) The Plan will bear no costs or expenses with respect to the 
proposed transactions; and
    (11) The Employer will file form 5330 and pay the appropriate 
excise taxes for the period beginning June 9, 1989, to the date this 
proposed exemption, if granted, is published in the Federal Register, 
within ninety (90) days of the publication date.

FOR FURTHER INFORMATION CONTACT: Ekaterina A. Uzlyan, U.S. Department 
of Labor, telephone (202) 219-8883. (This is not a toll-free number).

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest of disqualified 
person from certain other provisions of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
section 404 of the Act, which among other things require a fiduciary to 
discharge his duties respecting the plan solely in the interest of the 
participants and beneficiaries of the plan and in a prudent fashion in 
accordance with section 404(a)(1)(b) of the act; nor does it affect the 
requirement of section 401(a) of the Code that the plan must operate 
for the exclusive benefit of the employees of the employer maintaining 
the plan and their beneficiaries;
    (2) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete and accurately describe all 
material terms of the transaction which is the subject of the 
exemption. In the case of continuing exemption transactions, if any of 
the material facts or representations described in the application 
change after the exemption is granted, the exemption will cease to 
apply as of the date of such change. In the event of any such change, 
application for a new exemption may be made to the Department.

    Signed at Washington, DC, this 6th day of May, 1994.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 94-11528 Filed 5-11-94; 8:45 am]
BILLING CODE 4510-29-P