63064 Federal Register / Vol. 60, No. 236 / Friday, December 8, 1995 / Notices

the Plan than those which the Plan

would receive in arm’s length

transactions; (b) No interest payments or

expenses will be incurred by the Plan

with respect to the transactions; (c)

Repayment of the Advances will be

restricted to proceeds from the GIC (GIC

Proceeds); (d) Repayment of Advances

will be waived by the Employer to the

Extent that Advances exceed the GIC

Proceeds; and (e) All unpaid principal

and earned interest of the GIC will be

completely paid by the Advances to the

Plan by March 15, 2000.

For a more complete statement of the

facts and representations supporting the

Department’s decision to grant this

exemption refer to the notice of

proposed exemption published on

October 6, 1995, at 60 FR 52421.

FOR FURTHER INFORMATION CONTACT: Mr.

C. E. Beaver of the Department,

telephone (202) 219–8881. (This is not

a toll-free number.)

Universal Surety Company Profit

Sharing Plan (the Plan) Located in

Lincoln, Nebraska; Exemption

[Prohibited Transaction Exemption 95–112;

Exemption Application No. D–10098]

The restrictions of sections 406(a) and

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

extensions of credit in the form of

guarantees and advances of funds (the

Advances) to the Plan by Universal

Surety Company (the Employer), the

sponsor of the Plan, with respect to the

Guaranteed Investment Contract No.

64238 (the GIC) issued by Confederation

Life Insurance Company of Canada

(Confederation); and (2) the repayment

of the Advances by the Plan to the

Employer; provided that the following

conditions are satisfied: (a) All terms

and conditions of the transactions are

no less favorable to the Plan than those

which the Plan would receive in arm’s

length transactions; (b) No interest

payments or expenses will be incurred

by the Plan with respect to the

transactions; (c) Repayment of the

Advances will be restricted to proceeds

from the GIC (GIC Proceeds); (d)

Repayment of Advances will be waived

by the Employer to the Extent that

Advances exceed the GIC Proceeds; and

(e) All unpaid principal and earned

interest of the GIC will be completely

paid by the Advances to the Plan by

March 15, 2000.

For a more complete statement of the

facts and representations supporting the

Department’s decision to grant this

exemption refer to the notice of

proposed exemption published on

October 6, 1995, at 60 FR 52422.

FOR FURTHER INFORMATION CONTACT: Mr.

C. E. Beaver of the Department,

telephone (202) 219–8881. (This is not

a toll-free number.)

Constructors, Inc. 401(k) Plan (the Plan)

Located in Lincoln, Nebraska;

Exemption

[Prohibited Transaction Exemption 95–113;

Exemption Application No. D–10099]

The restrictions of sections 406(a) and

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

extensions of credit in the form of

guarantees and advances of funds (the

Advances) to the Plan by Constructors,

Inc. (the Employer), the sponsor of the

Plan, with respect to the Guaranteed

Investment Contract No. 64238 (the GIC)

issued by Confederation Life Insurance

Company of Canada (Confederation);

and (2) the repayment of the Advances

by the Plan to the Employer; provided

that the following conditions are

satisfied: (a) All terms and conditions of

the transactions are no less favorable to

the Plan than those which the Plan

would receive in arm’s length

transactions; (b) No interest payments or

expenses will be incurred by the Plan

with respect to the transactions; (c)

Repayment of the Advances will be

restricted to proceeds from the GIC (GIC

Proceeds); (d) Repayment of Advances

will be waived by the Employer to the

Extent that Advances exceed the GIC

Proceeds; and (e) All unpaid principal

and earned interest of the GIC will be

completely paid by the Advances to the

Plan by March 15, 2000.

For a more complete statement of the

facts and representations supporting the

Department’s decision to grant this

exemption refer to the notice of

proposed exemption published on

October 6, 1995, at 60 FR 52424.

FOR FURTHER INFORMATION CONTACT: Mr.

C.E. Beaver of the Department,

telephone (202) 219–8881. (This is not

a toll-free number.)

General Information

The attention of interested persons is

directed to the following:

(1) The fact that a transaction is the

subject of an exemption under section

408(a) of the Act and/or section

4975(c)(2) of the Code does not relieve

a fiduciary or other party in interest or

disqualified person from certain other

provisions to which the exemptions

does not apply and the general fiduciary

responsibility provisions of section 404

of the Act, which among other things

require a fiduciary to discharge his

duties respecting the plan solely in the

interest of the participants and

beneficiaries of the plan and in a

prudent fashion in accordance with

section 404(a)(1)(B) of the Act; nor does

it affect the requirement of section

401(a) of the Code that the plan must

operate for the exclusive benefit of the

employees of the employer maintaining

the plan and their beneficiaries;

(2) These exemptions are

supplemental to and not in derogation

of, any other provisions of the Act and/

or the Code, including statutory or

administrative exemptions and

transactional rules. Furthermore, the

fact that a transaction is subject to an

administrative or statutory exemption is

not dispositive of whether the

transaction is in fact a prohibited

transaction; and

(3) The availability of these

exemptions is subject to the express

condition that the material facts and

representations contained in each

application are true and complete and

accurately describe all material terms of

the transaction which is the subject of

the exemption. In the case of continuing

exemption transactions, if any of the

material facts or representations

described in the application change

after the exemption is granted, the

exemption will cease to apply as of the

date of such change. In the event of any

such change, application for a new

exemption may be made to the

Department.

Signed at Washington, D.C., this 5th day of

December, 1995.

Ivan Strasfeld,

Director of Exemption Determinations,

Pension and Welfare Benefits Administration,

U.S. Department of Labor.

[FR Doc. 95–29985 Filed 12–7–95; 8:45 am]

BILLING CODE 4510–29–P

[Application Nos. D–09969 and D–09970]

Proposed Exemptions; Timberland

Investment Group, Inc. (Timberland)

and Wachovia Bank of Georgia, N.A.

(the Investment Manager)

AGENCY: Pension and Welfare Benefits

Administration, Labor.

ACTION: Notice of proposed exemptions.

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).
Federal Register / Vol. 60, No. 236 / Friday, December 8, 1995 / Notices 63065

1For purposes of this exemption, reference to

provisions of Title I of the Act, unless otherwise

specified, refer also to the corresponding provisions

of 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, N.W.,

Washington, D.C. 20210. Attention:

Application No. stated in each Notice of

Proposed Exemption. The applications

for exemption and the comments

received will be available for public

inspection in the Public Documents

Room of Pension and Welfare Benefits

Administration, U.S. Department of

Labor, Room N–5507, 200 Constitution

Avenue, N.W., Washington, D.C. 20210.

Notice to Interested Persons

Notice of the proposed exemptions

will be provided to all interested

persons in the manner agreed upon by

the applicant and the Department

within 15 days of the date of publication

in the Federal Register. Such notice

shall include a copy of the notice of

proposed exemption as published in the

Federal Register and shall inform

interested persons of their right to

comment and to request a hearing

(where appropriate).

SUPPLEMENTARY INFORMATION: The

proposed exemptions were requested in

applications filed pursuant to section

408(a) of the Act and/or section

4975(c)(2) of the Code, and in

accordance with procedures set forth in

29 CFR Part 2570, Subpart B (55 FR

32836, 32847, August 10, 1990).

Effective December 31, 1978, section

102 of Reorganization Plan No. 4 of

1978 (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.

Timberland Investment Group, Inc.

(Timberland) and Wachovia Bank of

Georgia, N.A. (the Investment Manager)

Located in Atlanta, GA; Proposed

Exemption

[Application Nos. D–09969 and D–09970]

Based on the facts and representations

set forth in the application, 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).1

Section I. Covered Transaction

If the exemption is granted, the

restrictions of section 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)(E) of the Code, shall not

apply to the payment of an incentive fee

(the Incentive Fee) by Timberland, a

special purpose corporation which

holds plan assets from the American

Telephone and Telegraph Master Trust

(the AT&T Trust) and the BellSouth

Master Pension Trust (the BellSouth

Trust; collectively, the Trusts), to the

Investment Manager of Timberland, a

party in interest with respect to the

Trusts.

This proposed exemption is

conditioned upon the requirements set

forth below in Section II.

Section II. General Conditions

(a) The investment of the assets of

each Trust in Timberland, including the

terms and payment of the Incentive Fee,

is approved in writing by a Trust

fiduciary who is independent of the

Investment Manager and its affiliates

(the Independent Fiduciary).

(b) Each Trust participating in

Timberland has total assets that are in

excess of $50 million and no Trust has

invested more than one percent of its

assets in Timberland.

(c) The terms of the Trusts’

investment management agreements for

Timberland, including the Incentive

Fee, are at least as favorable to the

Trusts as those obtainable in an arm’s

length transaction with an unrelated

party.

(d) Prior to investing in Timberland,

each Independent Fiduciary entered

into an agreement with the Investment

Manager disclosing all material facts

concerning the purpose, structure and

operation of Timberland including the

fee arrangements.

(e) With respect to its ongoing

participation in Timberland, each Trust

receives the following written

documentation from the Investment

Manager:

(1) Audited financial statements of

Timberland prepared by independent,

qualified public accountants on an

annual basis, which disclose the fees

that are paid to the Investment Manager

and its affiliates.

(2) Quarterly valuations, transmitted

routinely to the Trusts, which indicate

the fair market value of Timberland’s

assets as established by appraisers who

are independent of the Investment

Manager and its affiliates.

(3) Upon request, valuations

performed by independent appraisers at

three year intervals which determine the

underlying land value of Timberland.

(4) Upon request, a timber inventory

valuation of Timberland performed

every five years by independent,

registered consulting foresters in order

to determine timber volume and growth

rates.

(f) The total fees paid to the

Investment Manager constitute no more

than reasonable compensation.

(g) The Incentive Fee is payable to the

Investment Manager upon the complete

liquidation of the Trusts’ account in

Timberland (the Timberland Account)

and only if the Trusts recover

distributions equal to their initial

investments in Timberland.

(h) In the event that the Investment

Manager resigns or is removed prior to

the complete liquidation of the

Timberland Account,

(1) The Trusts will appoint a

successor Investment Manager to effect

the liquidation of such account.

(2) The Incentive Fee will not be paid

to the former Investment Manager until

the complete liquidation of the

Timberland Account takes place.

(3) The Incentive Fee will only be

paid to the former Investment Manager

if it represents the lowest of three fee

amounts.
63066 Federal Register / Vol. 60, No. 236 / Friday, December 8, 1995 / Notices

(i) The Investment Manager

maintains, for a period of six years, the

records necessary to enable the persons

described in paragraph (i) of this

Section to determine whether the

conditions of this exemption have been

met, except that (1) a prohibited

transaction will not be considered to

have occurred if, due to circumstances

beyond the control of the Investment

Manager and/or its affiliates, the records

are lost or destroyed prior to the end of

the six year period, and (2) no party in

interest other than the Investment

Manager shall be subject to the civil

penalty that may be assessed under

section 502(i) of the Act, or to the taxes

imposed by section 4975 (a) and (b) of

the Code, if the records are not

maintained, or are not available for

examination as required by paragraph (i)

below.

(i)(1) Except as provided in section (2)

of this paragraph and notwithstanding

any provisions of subsections (a)(2) and

(b) of section 504 of the Act, the records

referred to in paragraph (i) of this

Section shall be unconditionally

available at their customary location

during normal business hours by:

(A) Any duly authorized employee or

representative of the Department or the

Internal Revenue Service (the Service);

(B) Any fiduciary of a plan (the Plan)

participating in the Trusts or any duly

authorized representative of such

fiduciary;

(C) Any contributing employer to any

Plan participating in the Trusts or any

duly authorized employee

representative of such employer; and

(D) Any participant or beneficiary of

any Plan participating in the Trusts, or

any duly authorized representative of

such participant or beneficiary.

(2) None of the persons described

above in subparagraphs (B)–(D) of this

paragraph (i) shall be authorized to

examine the trade secrets of the

Investment Manager or commercial or

financial information which is

privileged or confidential.

Section IV. Definitions

For purposes of this exemption:

(a) An ‘‘affiliate’’ of the Investment

Manager includes—

(1) Any person directly or indirectly

through one or more intermediaries,

controlling, controlled by, or under

common control with the Investment

Manager. (For purposes of this

subsection, the term ‘‘control’’ means

the power to exercise a controlling

influence over the management or

policies of a person other than an

individual.)

(2) Any officer, director, employee,

relative of, or partner of any such

person, and

(3) Any corporation or partnership of

which such person is an officer,

director, partner or employee.

(b) The term ‘‘control’’ means the

power to exercise a controlling

influence over the management or

policies of a person other than an

individual.

(c) An ‘‘Independent Fiduciary’’ is a

Trust fiduciary which is independent of

the Investment Manager and its

affiliates.

Summary of Facts and Representations

1. Wachovia Corporation (Wachovia)

is a Southeastern interstate bank

holding company maintaining dual

headquarters in Winston-Salem, North

Carolina and Atlanta, Georgia. The

Investment Manager is one of

Wachovia’s principal banking

subsidiaries. As of December 31, 1994,

the Investment Manager had 493

branches in 206 cities and 3 states.

2. The American Telephone &

Telegraph Company (AT&T), a New

York corporation, and BellSouth

Corporation (BellSouth), a Georgia

corporation, provide telecommunication

services. AT&T, whose headquarters are

in New York, New York, primarily

provides long distance telephone

communication services. BellSouth, one

of the seven regional telephone

companies that was divested from

AT&T in 1984 as part of the Department

of Justice’s antitrust settlement with

AT&T, is located in Atlanta, Georgia and

provides a wide array of

telecommunication services, including

mobile communications and advertising

services.

3. The AT&T Trust covers active

management and nonmanagement

employees of AT&T as well as retirees

throughout the United States. The AT&T

Trust is comprised of the AT&T

Management Pension Plan (the AT&T

Management Plan) and the AT&T

Nonmanagement Pension Plan (the

AT&T Nonmanagement Plan). As of

December 31, 1993, the participant and

asset breakdown of these Plans were as

follows:

AT&T Trust Participants Net ssset value

Management

Plan ....... 180,491 $20,024,695,000

Nonmanagement

Plan ....... 262,237 18,210,547,000

Totals .... 442,728 $38,235,242,000

The AT&T Trust has six trustees.

They are Citibank, N.A.; Chase

Manhattan Bank, N.A.; Northern Trust

Company; Bankers Trust Company;

Mellon Bank, N.A.; and State Street

Bank & Trust Company.

4. The BellSouth Trust covers active

employees and retirees of BellSouth.

The BellSouth Trust is comprised of the

BellSouth Personal Retirement Account

Pension Plan (the BellSouth PRA Plan),

which covers management employees,

the BellSouth Corporation Pension Plan

(the BellSouth Pension Plan), which

covers union employees, and the

Retirement Pension Plan of Stephens

Graphics, Inc. (the Stephens Plan),

which covers management employees.

In addition to covering active employees

of BellSouth, all three plans include

retirees. The retirees reside in all states

comprising the United States. The active

employees reside in Florida, Georgia,

Alabama, Mississippi, Louisiana,

Tennessee, Kentucky, North Carolina

and South Carolina.

As of December 31, 1993, the

participant and asset breakdown of the

BellSouth Trust were as follows:

BellSouth

Trust

Participants Net asset value

PRA Plan .. 43,669 $6,064,663,690

Pension

Plan ....... 91,797 7,065,931,097

Stephens

Plan ....... 248 24,011,213

Totals .... 135,714 $13,154,606,000

The Investment Manager serves as the

trustee of the BellSouth Trust.

5. On January 1, 1985, AT&T and the

First National Bank of Atlanta,

predecessor in interest to the Investment

Manager, entered into an investment

management agreement (the AT&T

Agreement) whereby the Investment

Manager agreed to serve as investment

manager with respect to a portion of the

assets held in the AT&T Trust.

Similarly, on September 20, 1990,

BellSouth Corporation entered into an

investment management agreement (the

BellSouth Agreement) whereby the

Investment Manager agreed to serve as

investment manager with respect to a

portion of the assets held in the

BellSouth Trust. The decision by AT&T

and BellSouth to enter into the

Agreements with the Investment

Manager was made by fiduciaries of the

Trusts who are independent of the

Investment Manager following written

disclosure of all of the relevant facts and

information concerning the purpose,

structure and operation of Timberland

including the proposed fee

arrangements described herein and their
Federal Register / Vol. 60, No. 236 / Friday, December 8, 1995 / Notices 63067

2With respect to the proposed Incentive Fee,

section 404 of the Act requires, among other things,

that a plan fiduciary act prudently and solely in the

interest of the plan’s participants and beneficiaries.

Thus, the Department expects a plan fiduciary,

prior to entering into any performance-based

compensation arrangement with an investment

manager, to fully understand the risks and benefits

associated with the compensation formula

following disclosure by the investment manager of

all relevant information pertaining to the proposed

arrangement. In addition, a plan fiduciary must be

capable of periodically monitoring the actions taken

by the investment manager in the performance of

its duties and must consider, prior to entering into

the arrangement, whether such plan fiduciary is

able to provide adequate oversight of the

investment manager during the course of the

arrangement.

3Although Timberland is currently structured as

a corporation, the parties may, for tax reasons,

decide to change that form to, or make additional

timberland investments through, a partnership. The

ownership interest in the partnership would be

unchanged, i.e., BellSouth and AT&T would each

retain a 50 percent ownership interest in the new

entity. Furthermore, any change in the form of

ownership would only occur if agreed to by

BellSouth, AT&T and the Investment Manager.

4The applicants are assuming, for purposes of

this exemption, that the assets of the Trusts that

have been invested in Timberland are ‘‘plan assets’’

within the meaning of 29 CFR 2510.3–101.

Although the applicants represent that they have

considered whether Timberland qualifies as a ‘‘real

estate operating company’’ within the meaning of

29 CFR 2510.3–101(e), they are unable to conclude

that Timberland can qualify primarily due to the

absence of direct authority on whether the activities

associated with timberland management are real

estate management activities as contemplated by

the regulatory definition of ‘‘real estate operating

company.’’

probable effect on the management of

the assets of the Trusts.2

6. As contemplated by both the AT&T

Agreement and the BellSouth

Agreement, Timberland is a special

purpose corporation with a projected

duration of 7 years.3 Timberland was

formed in 1990 for the purpose of

holding title to timberland investments

made on behalf of the AT&T Trust and

the BellSouth Trust. The stock of

Timberland is owned in equal shares by

the Trusts. The assets of the Trusts that

are invested in Timberland have been

placed in an account which is referred

to herein as the ‘‘Timberland

Account.’’ 4 As of June 21, 1994, the

Timberland Account had total assets of

$100,000,000.

7. Timberland holds title to the

underlying land and timber on

properties located in the States of

Arkansas, Mississippi, Florida, Georgia,

North Carolina, South Carolina,

Michigan, Alabama and Louisiana. Such

forest properties are primarily ‘‘mature’’

in that they predominately consist of

sawtimber-sized trees that can be

converted into lumber. Timberland also

holds a fewer number of acres on which

smaller trees are grown. Some of these

smaller trees are merchantable as

pulpwood while the remainder are

premerchantable in that they have not

yet attained sufficient size to have any

marketable value.

8. Effective October 15, 1990,

Timberland entered into an investment

management agreement with the

Investment Manager (the Timberland

Agreement). The Timberland Agreement

was contemplated by both the BellSouth

Agreement and the AT&T Agreement

and is intended to ensure that the

Timberland would bear directly on the

investment management fees for the

Investment Manager’s services to the

corporation. The Timberland Agreement

is designed to reflect the operative

provisions of the BellSouth and AT&T

Agreements as they pertain to

timberland investments.

9. Pursuant to the Timberland

Agreement, the Investment Manager has

full discretion and authority to

purchase, sell convey or transfer

timberland properties. To date, the

Investment Manager has not incurred

any debt in connection with the

timberland properties. According to the

applicants, it is not contemplated that

such debt will ever be incurred.

The Investment Manager is also

empowered to establish an overall plan

for the management of timberland

properties. In this regard, day-to-day

management of the timber is performed

by independent consulting foresters or

their subcontractors who are retained on

a per diem basis by the Investment

Manager. Some of the duties performed

by the consulting foresters include the

construction and maintenance of

firelines, timber stand improvement,

inspection for and control of forest

insects and disease, site preparation and

planting, boundary line marking and

maintenance and estimation of forest

inventory.

10. Prior to the purchase of a

property, the Investment Manager has

the underlying bare land value and

timber value independently appraised,

along with an inventory of the volume

of timber on the property, including

estimates of the growth rates of the

various species and timber products

present on the property. At the end of

each calendar quarter, the Investment

Manager determines the closing market

valuation of the timberland assets

(excluding any then pending trades,

accruals and cash) as of the end of that

period. The Investment Manager derives

the current volume of timber, net of

growth and removals (sales and

harvests), based on the independently

arrived at growth rates. The Investment

Manager retains the services of the

independent consulting foresters

licensed to do business in states in

which the timber in question is located

to provide estimates of the per unit

value of the various timber species and

products on each tract of timberland in

which Timberland has an interest.

As an additional method of valuation,

the Investment Manager utilizes the

services of Timber Mart South, a price

reporting service which regularly quotes

per unit market prices for timber

products in conjunction with the

information provided by the consulting

foresters to establish a range of unit

values of those areas. The Investment

Manager may also use its own judgment

to determine the appropriate unit values

applicable to current volumes,

employing the independently

established ranges of values and thus

arriving at closing market values for

each timberland property in which

Timberland has an interest.

In addition to quarterly valuations,

the Investment Manager will have the

underlying land value (bare land value)

reappraised every three years by

independent, state-certified appraisers.

The purpose of these appraisals is to

assist the Investment Manager in

deciding whether to liquidate a tract of

timberland. Further, the Investment

Manager will have the timber inventory

of Timberland appraised every five

years by independent, registered

consulting foresters to determine timber

volume and growth rates.

The Investment Manager will select

the independent, registered foresters

referred to above based upon their prior

satisfactory performance or their

professional reputations as ascertained

from knowledgeable sources within the

industry. The consultants on timber

value will be chosen on the basis of

their reputations for reliability within

the timber industry.

11. As compensation for its services

under the Timberland Agreement, the

Investment Manager is entitled to

receive an investment management fee

(the Management Fee). Initially, the

Management Fee was paid quarterly in

arrears at the annual rate of $600,000.

The first payment was made at the

conclusion of the calendar quarter

which included October 2, 1990. Over

the next 11 quarters, Management Fee

payments continued to be calculated at

this rate until September 30, 1993 when

a final payment was made to the

Investment Manager.

Commencing in December 1993, the

twelfth full quarter, the Management

Fee is being paid quarterly in arrears in

accordance with the following Annual

Fee Schedule:

Annual fee schedule

First $100 Million .......................... 0.60%
63068 Federal Register / Vol. 60, No. 236 / Friday, December 8, 1995 / Notices

5The applicants represent that the Management

Fee is statutorily exempt under section 408(b)(2) of

the Act. However, the Department expresses no

opinion herein on whether such fee is statutorily

exempt under section 408(b)(2) of the Act.

6 Initially, October 2, 1997 was the expected

‘‘termination date’’ for Timberland, subject to an

extension for two additional years. However, no

reinvestments in Timberland are currently being

made and proceeds from the disposition of

properties are being distributed to the Trusts as the

proceeds are collected. It is not anticipated that

further reinvestments will occur. Thus, absent

agreement by the parties that changes in the

investment climate warrant further investment,

Timberland will cease to operate when its present

holdings have been disposed of. Although the rate

of disposition of these holdings will depend on

prevailing market conditions, the current

expectation is that liquidation will be completed by

October 2, 1997.

7For purposes of calculating the IRR, the rate of

inflation used will be defined as the ‘‘Consumer

Price Index-U, United States, all items (1982–84 =

100)’’ (the CPI) currently prepared and published by

the Department’s Bureau of Labor Statistics.

8 If the requested exemption is not granted, the

Timberland Agreement provides for the payment, to

the Investment Manager, of an alternative fee (the

Alternative Fee) (in addition to the Management

Fee) upon the termination of Timberland. The

Alternative Fee is based upon the value of the assets

that are under the control of the Investment

Manager. The Alternative Fee consists of (a) the

payment of $100,000 for each of the first twelve

quarters of the Timberland investment and (b) for

the remaining period prior to complete liquidation

of Timberland removal), an amount equal to a fixed

percentage of the closing market value of

timberland assets as of the end of each calendar

quarter. The applicants represent that the

Alternative Fee would be covered by section

408(b)(2) of the Act and the regulations

promulgated thereunder (see 29 CFR 2550.408b–2).

However, the Department expresses no opinion

herein on whether the payment of such fee would

satisfy the conditions of section 408(b)(2) of the Act.

Annual fee schedule

Next $200 Million .......................... 0.50%

Next $300 Million .......................... 0.40%

Balance ..................................... 0.30%

Such fee is being computed on the

basis of the closing market value of

timberland assets as of the end of each

calendar quarter based on independent

appraisals of timber volume and bare

land.5

12. In addition to the Management

Fee, the Investment Manager is entitled

to receive an Incentive Fee upon the

complete liquidation of the Trusts’

Timberland Account provided the

Trusts recover distributions equal to

their initial investments. Liquidation of

the Trusts’ Timberland Account is to be

completed by October 2, 1997. This is

also the ‘‘termination date’’ for

Timberland.6

The intent of the Incentive Fee is to

induce the Investment Manager to

liquidate the assets of the Timberland

Account in a manner that maximizes the

return to the Trusts. However, market

conditions at the time of the liquidation

will dictate the pattern governing the

sale of assets in the Timberland Account

as well as the sales price of such assets.

To the extent that the Investment

Manager can exercise discretion

regarding the timing or the amount of

the Incentive Fee, the applicants

recognize that a violation of the

prohibited transaction rules may occur.

Accordingly, the applicants request an

administrative exemption from the

Department.

The Incentive Fee is a one-time fee

that will be based on the annual, real

internal rate of return (the IRR) achieved

on the assets of Timberland. The IRR is

the periodic rate at which an investment

of a given size grows to a terminal value

of a given size. The IRR is determined

by the interaction of three variables—(a)

the percentage gain in net asset value of

the Timberland Account, (b) the time

over which the gain is achieved, and (c)

the rate of inflation.7

13. The proposed Incentive Fee

payment would be based upon the IRR

achieved on Timberland’s assets

consisting of a capital commitment (the

Capital Commitment) of $100 million or

other amount as mutually agreed to by

the Trusts and the Investment Manager.

Such amount will be net of all fees,

expenses, income taxes and debt and

calculated in accordance with the

Timberland Account Incentive Fee

Payment Schedule which sets forth

various IRRs (which begin at 1 percent

and have no limit) and Incentive Fee

payments (which are capped at $10.5

million) applicable to the IRRs.

Basically, the Incentive Fee Payment

Schedule provides that for each 0.1

percent increase in the IRR, the

Incentive Fee is increased by the dollar

amount of the prior increment plus

$500. For example, to determine the

Incentive Fee earned with respect to an

IRR of 3 percent, the incremental

difference between the Incentive Fee

earned with respect to an IRR of 2.8 and

2.9 percent must be determined

initially. This difference, as reflected in

the Incentive Fee Payment Schedule, is

$11,750 ($137,750 minus $126,000).

Thus, the Incentive Fee for achieving an

IRR of 3 percent would be $150,000

according to the Incentive Fee Payment

Schedule ($137,750 plus $11,750 plus

$500).

According to the applicant, the parties

agreed to this formula for determining

the Incentive Fee after considerable

negotiation based on the understanding

that each 0.1 percent increase in the IRR

would be more difficult to achieve. In

other words, increasing the IRR from 2.8

percent to 2.9 percent is more difficult

than increasing it from 1.8 percent to 1.9

percent. Therefore, the Incentive Fee is

designed to encourage this extra effort.

14. For purposes of computing the

Incentive Fee, when calculating the IRR,

any distributions made from the

Timberland Account by the Investment

Manager prior to October 2, 1994 and

not recalled to fund additional

timberland investments, will be

subtracted from the cash flow used to

determine the IRR. Also, any portion of

the Capital Commitment not called prior

to October 1, 1994 will cause the

Incentive Fee payment amounts to be

reduced by the same proportion as the

ratio of uncalled capital to the Capital

Commitment. All capital distributed to

the Trusts from which said capital is

contributed must be recalled prior to

any additional portion of the Capital

Commitment being called.8

15. The Incentive Fee is payable to the

Investment Manager upon the

termination of Timberland (i.e., October

2, 1997). However, if the Investment

Manager resigns or is removed for any

reason prior to October 2, 1997 by either

AT&T, BellSouth or by both Trusts, the

Trusts may appoint a successor

Investment Manager to complete the

liquidation of the Timberland Account.

In this event, the Incentive Fee will

calculated, but it will not be paid to the

former Investment Manager until the

Timberland Account is completely

liquidated (i.e., by October 2, 1997). The

actual fee that is paid to the former

Investment Manager will be the lesser

of:

(a) An amount based on the IRR achieved

from the inception of the Timberland

Account to completion of the liquidation of

such account;

(b) An amount based on the IRR achieved

from the inception of the Timberland

Account to the effective date of the former

Investment Manager’s removal or resignation,

which shall be determined based upon the

assumption that the liquidation proceeds are

distributed to the Trusts on the termination

date of the former Investment Manager in an

amount equal to the independently appraised

value of the property of Timberland as of

such termination date (net of all fees,

expenses and taxes); or

(c) An amount based upon the Alternative

Fee described in the preceding footnote.

Under such circumstances, the Alternative

Fee will be computed through the date of the

Investment Manager’s resignation or removal.

For purposes of calculating the

Incentive Fee, if the Investment

Manager is removed or resigns prior to

the complete liquidation of the

Timberland Account, any required

appraisal will be performed by an

independent appraiser approved by

both the Trusts and the Investment

Manager. The independent appraiser

will determine the fair market value of
Federal Register / Vol. 60, No. 236 / Friday, December 8, 1995 / Notices 63069

the properties in the Timberland

Account by assuming the orderly

liquidation of said properties, normal

expenses of liquidation and income tax

liabilities based on an estimate prepared

by an independent certified public

accounting firm approved by both the

Trusts and the Investment Manager.

16. The following examples illustrate

the manner in which the Incentive Fee

would be calculated in four

hypothetical situations:

• Example 1.

Assume that Timberland has a life of 7

years and that the Trusts invest a total of

$100 million in Timberland. At the end of

year 7, the sales price of timber plus land, net

of all expenses, is $207,620,000. Assume also

that the rate of inflation is 0%. The IRR for

this investment can be calculated directly

because there is a single cash outflow of

$100,000,000 and a single cash inflow of

$207,620,000. The calculation is as follows:

[($207,620,000/

$100,000,000) 1/7¥1]×100=11%

Once the IRR is calculated, the Incentive

Fee that will be paid by the Trusts can be

determined from the Incentive Fee Payment

Schedule which has been reproduced, in

part, as follows:

Annual real IRR (> or =) Incentive fee

payment

10.8% .................................... $2,646,000

10.9% .................................... 2,697,750

11.0% .................................... 2,750,000

Thus, the total Incentive Fee that will be

paid by the Trusts to the Investment Manager

based upon an IRR of 11% is $2,750,000.

The above IRR is both a nominal and a real

rate because inflation was assumed to be 0%.

If inflation is positive, however, the nominal

IRR will be greater than the real IRR. With

positive inflation as measured by the CPI, the

nominal IRR must be adjusted for inflation

and the Incentive Fee calculated on the basis

of the adjusted or real IRR. This is done in

Example 2.

• Example 2.

Same as Example 1, except now assume

inflation occurred at a 4% annual rate over

the life of the Trusts’ investment in

Timberland.

To determine the real IRR, the 11%

nominal IRR must be adjusted for 4%

inflation. This figure is calculated by

dividing the nominal IRR by the CPI: 1.11/

1.04=1.0673=6.73%.

Once the real IRR is computed, the

Incentive Fee that will be paid by Trusts can

be determined by referring to the Incentive

Fee Payment Schedule which has been

reproduced, in part, as follows:

Annual real IRR (> or =) Incentive fee

payment

6.6% ...................................... $924,000

6.7% ...................................... 954,750

6.8% ...................................... 986,000

Thus, the total Incentive Fee that will be

paid by the Trusts to the Investment Manager

based upon a real IRR of 6.73% is $954,750.

• Example 3.

Assume the Trusts give the Investment

Manager $100 million to invest in

Timberland and that the Investment Manager

increases the investment amount to $170

million (which is the fair market value

determined by independent appraisals), net

of expenses, by the end of 4 years. Assume

also that the Investment Manager resigns and

is replaced by a new Investment Manager.

Assume further that the rate of inflation over

the 4 year period is 4% annually.

The nominal IRR can be computed directly

because there is one cash inflow and one

cash outflow: [($170,000,000/

$100,000,000)1/4¥1]×100=14.19%. To

determine the real IRR, the 14.19% nominal

IRR must be adjusted for 4% inflation. This

figure is calculated by dividing the nominal

IRR by the CPI: 1.1419/1.04=1.0979=9.79%.

From the Incentive Fee Payment Schedule,

the Trusts would pay the former Investment

Manager an Incentive Fee of $2,109,750

based upon a real IRR of 9.79%.

Annual real IRR (> or =) Incentive fee

payment

9.6% ...................................... $2,064,000

9.7% ...................................... 2,109,750

9.8% ...................................... 2,156,000

However, the actual fee paid to the former

Investment Manager would be the lowest of

(a) $2,109,750, (b) the Alternative Fee or (c)

an Incentive Fee determined by reference to

the IRR achieved through the complete

liquidation of Timberland (including

investment results achieved by the successor

Investment Manager).

Example 4 demonstrates how poor

performance by a successor Investment

Manager can reduce the actual payment

made to the former Investment Manager.

• Example 4.

Same as Example 3, assuming further that

the successor Investment Manager continues

for a year and that all of Timberland’s assets

are liquidated in one transaction at the end

of that period. During the extra year, the fair

market value of Timberland remains at $170

million and the rate of inflation remains at

4 percent.

The nominal IRR can be computed as

follows: [($170,000,000/

$100,000,000)1/5¥1]×100=11.20%.

To determine the real IRR, the 11.20%

nominal IRR must be adjusted for 4%

inflation. This figure is calculated by

dividing the nominal IRR by the CPI: 1.112/

1.04=6.92%.

From the Incentive Fee Payment Schedule,

shown in part below, the former Investment

Manager would be entitled to an Incentive

Fee of $1,017,750 based on a real IRR of 6.92

percent.

Annual real IRR (> or =) Incentive fee

payment

6.8% ...................................... $986,000

6.9% ...................................... 1,017,750

7.0% ...................................... 1,050,000

Since this Incentive Fee is lower than the

Incentive Fee based on independent

appraisals (see Example 3), the Trusts would

pay the former Investment Manager the lower

of this fee or the Alternative Fee.

17. The Investment Manager will

provide the Trusts with quarterly

unaudited financial statements prepared

by Price Waterhouse & Company (Price

Waterhouse). In addition, the

Investment Manager will provide the

Trusts with annual audited financial

statements, also prepared by Price

Waterhouse. These documents will

generally be issued within thirty days

following their preparation.

18. In summary, it is represented that

the proposed transaction will satisfy the

statutory criteria for an exemption

under section 408(a) of the Act because:

(a) The investment of the assets of

each Trust in Timberland, including the

terms and payment of the Incentive Fee,

has been approved in writing by a

fiduciary who is independent of the

Investment Manager and its affiliates.

(b) Each Trust participating in

Timberland has total assets that are in

excess of $50 million and no Trust may

invest more than one percent of its

assets in Timberland.

(c) The terms of the Trusts’

investment management agreements for

Timberland, including the Incentive

Fee, will remain at least as favorable to

the Trusts as those obtainable in an

arm’s length transaction with an

unrelated party.

(d) Prior to investing in Timberland,

each Independent Fiduciary received

offering materials which disclose all

material facts concerning the purpose,

structure and operation of Timberland

including the fee arrangements.

(e) The Investment Manager will make

periodic written disclosures to the

Trusts with respect to the financial

condition of Timberland and the fees

paid to the Investment Manager.

(f) The total fees paid to the

Investment Manager will constitute no

more than reasonable compensation.

(g) The Incentive Fee will be payable

to the Investment Manager upon the

complete liquidation of the Timberland

Account and only if the Trusts recover

distributions equal to their initial

investments in Timberland.

(h) In the event that the Investment

Manager resigns or is removed prior to

the complete liquidation of the

Timberland Account, the Trusts will

appoint a successor Investment Manager

to effect the liquidation of such account.

Under such circumstances, the

Incentive Fee will not be paid to the

former Investment Manager until the

Timberland Account is fully liquidated

and if paid, such Incentive Fee must be
63070 Federal Register / Vol. 60, No. 236 / Friday, December 8, 1995 / Notices

represent the lowest of three fee

amounts.

Notice to Interested Persons

Notice of the proposed exemption

will be provided to all interested

persons within 30 days of the

publication of the notice of pendency in

the Federal Register. The notice will

include a copy of the notice of proposed

exemption as published in the Federal

Register and a statement informing

interested persons of their right to

comment on and/or to request a hearing

with respect thereto. The notice will be

provided to all active employees of

AT&T and BellSouth by posting. Mailed

notice will be given to AT&T and

BellSouth union representatives, plan

administrators and representatives of

retirees. Comments to the Department

are due within 60 days of the

publication of the proposed exemption

in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Ms.

Jan D. Broady of the Department,

telephone (202) 219–8881. (This is not

a toll-free number.)

General Information

The attention of interested persons is

directed to the following:

(1) The fact that a transaction is the

subject of an exemption under section

408(a) of the Act and/or section

4975(c)(2) of the Code does not relieve

a fiduciary or other party in interest 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 5th day of

December, 1995.

Ivan Strasfeld,

Director of Exemption Determinations,

Pension and Welfare Benefits Administration,

U.S. Department of Labor.

[FR Doc. 95–29984 Filed 12–07–95; 8:45 am]

BILLING CODE 4510–29–P

NATIONAL AERONAUTICS AND

SPACE ADMINISTRATION

[Notice 95–111]

Notice of Prospective Patent License

ACTION: Notice of Prospective Patent

License.

SUMMARY: NASA hereby gives notice

that MicroMed Systems Ltd., Co.,

Houston, TX 77019, has requested an

exclusive license to practice the

inventions protected by U.S. Patent

Application Numbers 08/153,595

entitled ‘‘ROTARY BLOOD PUMP’’ and

U.S. Patent Application No. 08/451,709

entitled ‘‘ROTARY BLOOD PUMP,’’

which were respectively filed November

10, 1993 and May 26, 1995, by the

United States of America as represented

by the Administrator of the National

Aeronautics and Space Administration.

Written objections to the prospective

grant of a license should be sent to Mr.

Hardie R. Barr, Patent Attorney, NASA

Johnson Space Center.

DATES: Responses to this Notice must be

received by February 6, 1996.

FOR FURTHER INFORMATION CONTACT:

Mr. Hardie R. Barr, NASA Johnson

Space Center, Mail Code HA, Houston,

TX 77058; telephone number (713) 483–

1003.

Dated: December 1, 1995.

Edward A. Frankle,

General Counsel.

[FR Doc. 95–29939 Filed 12–7–95; 8:45 am]

BILLING CODE 7510–01–M

NUCLEAR REGULATORY

COMMISSION

[Docket No. 50–289]

GPU Nuclear Corporation; Notice of

Withdrawal of Application for

Amendment to Facility Operating

License

The U.S. Nuclear Regulatory

Commission (the Commission) has

granted a request by GPU Nuclear

Corporation (the licensee) to withdraw

its May 20, 1994, application for an

amendment to Facility Operating

License No. DPR–50, issued to the

licensee for operation of the Three Mile

Island Nuclear Station, Unit No. 2,

located in Dauphin County,

Pennsylvania. Notice of Consideration

of Issuance of this amendment was

published in the Federal Register on

June 14, 1994 (59 FR 30621).

The purpose of the licensee’s

amendment request was to revise the

Technical Specifications to raise the

limit on maximum control rod drop

time and was requested only for the

duration of operating cycle 10, which

was concluded on September 8, 1995.

Subsequently the licensee informed

the staff that the amendment is no

longer required. Thus, the amendment

application is considered to be

withdrawn by the licensee.

For further details with respect to this

action, see (1) the application for

amendment dated May 20, 1994, and (2)

the staff’s letter dated November 14,

1995.

These documents are available for

public inspection at the Commission’s

Public Document Room, the Gelman

Building, 2120 L Street, NW.,

Washington, DC and at the Law/

Government Publications Section, State

Library of Pennsylvania, (REGIONAL

DEPOSITORY) Walnut Street and

Commonwealth Avenue, Box 1601,

Harrisburg, PA 17105.

Dated at Rockville, Maryland, this 30th day

of November 1995.

For the Nuclear Regulatory Commission.

Ronald W. Hernan,

Project Manager, Project Directorate I–3,

Division of Reactor Projects—I/II, Office of

Nuclear Reactor Regulation.

[FR Doc. 95–29938 Filed 12–7–95; 8:45 am]

BILLING CODE 7590–01–P