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Secretary of Labor Thomas E. Perez
Grant of Individual Exemptions; RREEF USA Fund [Notices] [05/23/1996]

EBSA (Formerly PWBA) Federal Register Notice

Grant of Individual Exemptions; RREEF USA Fund [05/23/1996]

[PDF Version]

Volume 61, Number 101, Page 25909-25912

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DEPARTMENT OF LABOR
[Prohibited Transaction Exemption 96-38; Exemption Application No. D-
09410, et al.]

 
Grant of Individual Exemptions; RREEF USA Fund

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of Individual Exemptions.

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SUMMARY: This document contains exemptions issued by the Department of 
Labor (the Department) from certain of the prohibited transaction 
restrictions of the Employee Retirement Income Security Act of 1974 
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
    Notices were published in the Federal Register of the pendency 
before the Department of proposals to grant such exemptions. The 
notices set forth a summary of facts and representations contained in 
each application for exemption and referred interested persons to the 
respective applications for a complete statement of the facts and 
representations. The applications have been available for public 
inspection at the Department in Washington, D.C. The notices also 
invited interested persons to submit comments on the requested 
exemptions to the Department. In addition the notices stated that any 
interested person might submit a written request that a public hearing 
be held (where appropriate). The applicants have represented that they 
have complied with the requirements of the notification to interested 
persons. No public comments and no requests for a hearing, unless 
otherwise stated, were received by the Department.
    The notices of proposed exemption were issued and the exemptions 
are being granted solely by the Department because, effective December 
31, 1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR 
47713, October 17, 1978) transferred the authority of the Secretary of 
the Treasury to issue exemptions of the type proposed to the Secretary 
of Labor.

Statutory Findings

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

RREEF USA Fund--I (The Trust), Located in San Francisco, California

[Prohibited Transaction Exemption 96-38; Exemption Application No. D-
09410]

Exemption

    The restrictions of sections 406(a), 406 (b)(1) and (b)(2) of the 
Act and the sanctions resulting from the application of section 4975 of 
the Code, by reason of section 4975(c)(1) (A) through (E) of the Code, 
shall not apply to the receipt by RREEF America L.L.C., the investment 
manager of the Trust (the Manager), of a certain performance 
compensation fee (the Performance Fee) in connection with the 
liquidation of the Trust, provided that the following conditions are 
satisfied:
    (a) The terms and the payment of the Performance Fee shall be 
approved in writing, through approval of an amendment to the Group 
Trust Agreement, by independent fiduciaries of the plans that 
participate in the Trust (the Participating Plans);
    (b) The terms of the Performance Fee shall be at least as favorable 
to the Participating Plans as those obtainable in an arm's-length 
transaction between unrelated parties;
    (c) The total fees paid to the Manager by the Participating Plans 
that have invested in the Trust, shall constitute no more than 
reasonable compensation;
    (d) The Performance Fee will be payable only when all of the assets 
of the Trust have been completely liquidated;
    (e) The Performance Fee received by the Manager will be based on 
distributions, adjusted for inflation and present value, and will be 
calculated using two real hurdle rates of return. The Performance Fee 
will equal 10% after the Participating Plans have earned a 5% real 
return on the initial value of their investment and 20% after the 
Participating Plans have earned an 8% real return on the initial value 
of their investment;
    (f) In the event of the Manager's resignation or termination as the 
investment manager to the Trust, the Investment Management Agreement 
would also terminate <SUP>1 and the Manager will not receive a 
Performance Fee;
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    \ 1\ Unless termination was in bad faith wherein the Manager may 
seek legal recourse.
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    (g) The Manager or its affiliates shall maintain, for a period of 
six years, the records necessary to enable the persons described in 
paragraph (2) of this Section (g) to determine whether the conditions 
of this exemption have been met, except that:
    (1) (a) a prohibited transaction will not be considered to have 
occurred if, due to circumstances beyond the control of the Manager or 
its affiliates, the records are lost or destroyed prior to the end of 
the six year period; and (b) no party in interest, other than the 
Manager, shall be subject to the civil penalty that may be assessed 
under section 502(i) of the Act or the taxes imposed by section 4975(a) 
and (b) of the Code if the records are not

[[Page 25910]]

maintained or are not available for the examinations required from (2) 
below.
    (2) (a) Except as provided in paragraph (3) and notwithstanding any 
provisions of section 504 (a)(2) and (b) of the Act, the records 
referred to in paragraph (1) of this Part (g) shall be unconditionally 
available at their customary location for examination during normal 
business hours by:
    (i) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service;
    (ii) Any fiduciary of a Participating Plan or any duly authorized 
employee or representative of such fiduciary;
    (iii) Any contributing employer to a Participating Plan or any duly 
authorized employee or representative of such employer; and
    (iv) Any participant or beneficiary of a Participating Plan or any 
duly authorized employee or representative of such participant or 
beneficiary.
    (3) None of the persons described above in paragraph (2)(a)(ii)-
(iv) shall be authorized to examine the trade secrets of the Manager 
and its affiliates or any commercial or financial information which is 
privileged or confidential.

EFFECTIVE DATE: This exemption will be effective as of January 1, 1993.

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

Timberland Investment Group, Inc. (Timberland) and Wachovia Bank of 
Georgia, N.A. (the Investment Manager), Located in Atlanta, GA

[Prohibited Transaction Exemption 96-39; Exemption Application Nos. D-
09969 and D-09970]

Exemption

Section I. Covered Transaction

    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),<SUP>2 to the Investment 
Manager of Timberland, a party in interest with respect to the Trusts.
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    \ 2\ The AT&T Trust and the BellSouth Trust are collectively 
referred to herein as the Trusts.
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    This 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.
    (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 III. Definitions

    For purposes of this exemption:
    (a) An ``affiliate'' of the Investment Manager includes--

[[Page 25911]]

    (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.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on December 8, 1995 at 60 FR 
63065.

Written Comments

    The Department received 54 written comments with respect to the 
notice of proposed exemption and no requests for a public hearing. The 
written comments were submitted by participants in the BellSouth Trust 
and were essentially the same, with the commentators expressing their 
concern that the granting of the exemption would somehow jeopardize the 
security of the participants' pension rights under Plans investing in 
the BellSouth Trust.
    In response to these concerns, the Investment Manager represented 
that participants' pension rights would not be adversely affected by 
the granting of the exemption because the estimated annualized rate of 
return attributed to assets of the Trusts invested in Timberland, net 
of expenses, would be 11.02 percent if the Incentive Fee was imposed 
and 10.49 percent if the exemption was not granted. The Investment 
Manager noted that these estimates were based on both actual and 
estimated earnings generated by the timberland under its management to 
date.
    The Investment Manager noted that if the value of any remaining 
timberland held by Timberland was to decline significantly before the 
liquidation of Timberland was completed, the rate of return to the 
Trusts also would be reduced. Such a reduction, according to the 
Investment Manager, would occur whether or not the exemption was 
granted. If the exemption was granted, the Investment Manager stated 
that it would receive a lower Incentive Fee assuming the investment 
return to the Trusts was reduced.
    Thus, after giving full consideration to the entire record, the 
Department has decided to grant the subject exemption. The comment 
letters have been included as part of the public record of the 
exemption application. The complete application file, including all 
supplemental submissions received by the Department, is made available 
for public inspection in the Public Documents Room of the Pension and 
Welfare Benefits Administration, Room N-5638, U.S. Department of Labor, 
200 Constitution Avenue, N.W., Washington, D.C. 20210.

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

Herzog, Heine, Geduld, Inc., Located in New York, New York

[Prohibited Transaction Exemption 96-40; Exemption Application No. D-
10018]

Exemption

    The sanctions resulting from the application of section 4975 of the 
Code by reason of section 4975(c)(1)(A) through (D) of the Code, shall 
not apply to the extension of credit between Herzog, Heine, Geduld, 
Inc. (HHG) and various individual retirement accounts for which HHG 
serves as passive trustee or custodian (the HHG IRA or HHG IRAs) 
resulting from the in-kind transfer to HHG IRAs at the direction of the 
owners of such HHG IRAs of certain senior subordinated notes (the 
Notes) issued by HHG, and thereafter the holding of such Notes by the 
HHG IRAs; provided that: (1) officers, directors, and employees in HHG 
who are also owners of HHG IRAs do not participate in the transactions; 
(2) the owners of the HHG IRAs have exclusive responsibility and 
control over the investment of the assets of such accounts; (3) HHG has 
no discretionary authority or control with respect to the investment of 
the assets of the HHG IRAs involved in the transactions, nor does HHG 
render investment advice (within the meaning of 29 CFR 2510.3-21(c)) 
with respect to those assets; (4) a separate accounting of the assets 
in the HHG IRAs, including the Notes which have been acquired by such 
accounts, will be maintained by HHG; (5) the value of the Notes in each 
HHG IRA will at no time exceed 25 percent (25%) of the value of the 
assets of each HHG IRA; (6) the HHG IRAs will pay no fees or 
commissions in connection with the transactions; and (7) the combined 
total of all fees received by HHG for the provision of services to the 
HHG IRAs is not in excess of ``reasonable compensation'' within the 
meaning of section 4975(d)(2) of the Code.<SUP>3
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    \ 3\  Pursuant to 29 CFR 2510.3-2(d), the HHG IRAs are not 
within the jurisdiction of Title I of the Act. However, there is 
jurisdiction under Title II of the Act, pursuant to section 4975 of 
the Code.
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    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption refer to 
the Notice published on March 22, 1996 at 61 FR 11892.

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

The Buchanan Broadcasting Co., Inc. Profit Sharing Plan and Trust (the 
Plan), Located in Birmingham, AL

[Prohibited Transaction Exemption 96-41; Exemption Application Nos. D-
10133 and D-10134]

Exemption

    The restrictions of sections 406(a), 406(b)(1) and (b)(2) of the 
Act and the sanctions resulting from the application of section 4975 of 
the Code, by reason of section 4975(c)(1)(A) through (E) of the Code, 
shall not apply to the leasing of certain office space in a building 
(the Property) by the individual account of Robert M. Buchanan, Jr. 
(the Account) in the Plan to Buchanan Broadcasting Co., Inc. (Buchanan 
Broadcasting) and to Westwood Square, Ltd. (Westwood Square), both 
parties in interest with respect to the Plan, provided that the 
following conditions are satisfied:
    (a) The terms and conditions of the leases are and continue to be 
at least as favorable to the Account as those the Account could obtain 
in comparable arm's length transactions with unrelated parties;
    (b) The rent charged by the Account under the leases is and 
continues to be no less than the fair market rental value of the 
Property, as established every three years by the independent property 
manager;
    (c) At all times, the fair market value of the leased premises 
represents no more than 25 percent of the total assets of the Account;
    (d) Mr. Buchanan is the only participant of the Plan to be affected 
by the proposed transactions; and
    (e) Within 90 days of the publication in the Federal Register of a 
notice granting this proposed exemption, both Buchanan Broadcasting and 
Westwood Square file Form 5330 with the Internal Revenue Service (the 
Service) and pay

[[Page 25912]]

all excise taxes applicable under section 4975(a) of the Code that are 
due by reason of certain prior prohibited lease transactions.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on April 4, 1996 at 61 FR 
15142.

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

James Flynn & Associates, Ltd. Pension Plan (the Plan), Located in 
Scottsdale, Arizona

[Prohibited Transaction Exemption 96-42; Exemption Application No. D-
10164]

Exemption

    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 transfer of a parcel of real property (Lot 
1) to the Plan by James T. and Britt Marie Flynn (the Flynns), 
disqualified persons with respect to the Plan, together with a cash 
payment by the Flynns to the Plan of $29,000, and (2) the transfer of a 
parcel of real property (Lot 2) by the Plan to the Flynns, provided the 
following conditions are satisfied: (a) the Plan receives not less than 
the fair market value of Lot 2 as of the date of the transfers; (b) the 
fair market values of Lots 1 and 2 are determined by a qualified, 
independent appraiser; and (c) the Flynns are the only participants in 
the Plan to be affected by the transactions, and they both desire that 
the transactions be consummated.<SUP>4
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    \ 4\ Since Mr. Flynn is the sole stockholder of JFA and the 
Flynns are the only participants in the Plan, there is no 
jurisdiction under Title I of the Act pursuant to 29 CFR 2510.3-3 
(b) and (c). However, there is jurisdiction under Title II of the 
Act pursuant to section 4975 of the Code.
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    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on April 4, 1996 at 61 FR 
15144.

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

Pierre W. Mornell, M.D., A Sole Proprietorship, Defined Benefit Plan 
(the Plan), Located in Mill Valley, California

[Prohibited Transaction Exemption 96-43; Exemption Application No. D-
10170]

Exemption

    The sanctions resulting from the application of section 4975 of the 
Code, by reason of section 4975(c)(1) (A) through (E) of the Code, 
shall not apply to the sale of certain unimproved real property located 
in Mill Valley, California (the Property) by the Plan to Pierre W. 
Mornell and Linda C. Mornell, parties in interest with respect to the 
Plan; provided that the following conditions are satisfied:
    (A) All terms and conditions of the transaction are no less 
favorable to the Plan than those which the Plan could obtain in an 
arm's-length transaction with an unrelated party;
    (B) The Plan receives a cash purchase price for the Property in the 
amount of the fair market value of the Property; and
    (C) The Plan does not incur any expenses or suffer any loss with 
respect to the transaction.
    For a more complete statement of the facts and representations 
supporting this exemption, refer to the notice of proposed exemption 
published on March 22, 1996 at 61 FR 11894.

FOR FURTHER INFORMATION CONTACT: Ronald Willett 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 accurately describes all material terms of the transaction 
which is the subject of the exemption.

    Signed at Washington, D.C., this 20th day of May, 1996.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 96-12984 Filed 5-22-96; 8:45 am]
BILLING CODE 4510-29-P