Skip to page content
Secretary of Labor Thomas E. Perez
Grant of Individual Exemptions; U.S. West, Inc. [Notices] [11/09/1998]

EBSA (Formerly PWBA) Federal Register Notice

Grant of Individual Exemptions; U.S. West, Inc. [11/09/1998]

[PDF Version]

Volume 63, Number 216, Page 60398-60410

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

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 98-51; Exemption Application No. L-
9583, et al.]

 
Grant of Individual Exemptions; U.S. West, Inc.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of Individual Exemptions.

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

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

[[Page 60399]]

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.

U S WEST, Inc.; Located in Englewood, Colorado

[Prohibited Transaction Exemption 98-51; Application No. L-9583]

Exemption

Section I--Transactions Involving Contributions In-kind
    Effective March 31, 1994, the restrictions of sections 
406(a)(1)(E), 407(a)(2), 406(b)(1), and 406(b)(2) of the Act shall not 
apply to voluntary contributions in-kind by U S WEST, Inc., any 
successor to U S WEST, Inc., and/or any affiliates of U S WEST, Inc. 
(collectively, U S WEST) of certain shares of publicly traded common 
stock of U S WEST (the Stock) and/or any replacement publicly traded 
shares of such Stock to certain trusts (the Trusts or Trust) for the 
purpose of pre-funding welfare benefits under one or more employee 
welfare benefit plans (the Plan or Plans) maintained by U S WEST, 
provided that:
    (a) The Plan provisions explicitly authorize U S WEST to pre-fund 
benefits through in-kind contributions of Stock, and all contributions 
of Stock have been and will be made in conformity with such Plan 
provisions;
    (b) Neither the Plans nor the Trusts have paid nor will pay, 
whether in cash or in other property or in a diminution of any funding 
obligation of U S WEST, any consideration for Stock contributed in-kind 
by U S WEST;
    (c) U S WEST has no obligation to pre-fund welfare benefits 
provided to participants under any of the Plans, either pursuant to the 
plan documents, the terms of any collective bargaining agreement, or 
the provisions of the Act;
    (d) None of the Plans have ceded, nor will cede, any right to 
receive cash contributions from U S WEST;
    (e) None of the Plans or Trusts have paid, nor will pay, any 
commissions in connection with the contribution in-kind of Stock by U S 
WEST; and
    (f) Each of the conditions, as set forth below in Section II, have 
been satisfied and at all times will be satisfied.
Section II--Conditions
    The exemption is conditioned upon the adherence by       U S WEST 
to the material facts and representations described in the Notice of 
Proposed Exemption (the Notice) as modified by this exemption and upon 
satisfaction of the following requirements:
    (a) All Stock contributed in-kind by           U S WEST to any of 
the Trusts or acquired by such Trusts, as a result of the 
recapitalization of U S WEST, constituted qualifying employer 
securities (QES), as defined in section 407(d)(5) of the Act; and all 
Stock contributed in-kind in the future and any replacement publicly 
traded shares of such Stock will constitute QES;
    (b) Stock contributed in-kind by U S WEST or acquired as a result 
of the recapitalization of U S WEST has been held in Trusts, which are 
qualified under section 501(c)(9) of the Code, and which are 
established for the purpose of funding life, sickness, accident, and 
other welfare benefits for the participants and beneficiaries of the 
Plans, and all Stock contributed in-kind in the future and any 
replacement publicly traded shares of such Stock will be held in such 
Trusts;
    (c) All Stock contributed in-kind by           U S WEST to any 
Trust or acquired by any Trust as a result of the recapitalization of U 
S WEST has been held in a separate account (the Account or Accounts) 
under such Trust, and all Stock contributed in-kind in the future and 
any replacement publicly traded shares of such Stock will be held in an 
Account under such Trust. Such Accounts under a Trust have been and 
will be managed by an independent fiduciary ( the I/F), who is an 
independent, qualified investment manager, or any successor 
independent, qualified investment manager, and who has represented and 
will represent the interests of the Plans which are funded by such 
Trust for all purposes with respect to the Stock for the duration of 
the Trust's holding of any of such Stock;
    (d) The I/F of the Accounts in the Trusts which fund any welfare 
plan benefits, has accepted Stock from U S WEST, through in-kind 
contributions and recapitalization of U S WEST, and will accept Stock, 
through future in-kind contributions and through any replacement 
publicly traded shares of such Stock, only after such I/F determines at 
the time of the transactions that such transactions are feasible, in 
the interest of, and protective of participants and beneficiaries of 
the Plans funded by such Trusts;
    (e) The I/F has had sole responsibility and, at all times, will 
have sole responsibility for the ongoing management of the Accounts 
under the Trusts which hold the Stock and has taken and will take 
whatever action is necessary to protect the rights of the Plans funded 
by such Trusts, including but not limited to all decisions regarding 
the acceptance of contributions in-kind by U S WEST, the sale or 
retention of such Stock, the exercise of voting rights of such Stock, 
and any other acquisition or dispositions of such Stock;
    (f) Any contributions in-kind of Stock made by U S WEST to any Plan 
through any Trust and any acquisitions of Stock in connection with the 
recapitalization of U S WEST did not cause immediately after each such 
transaction, and in the future any contributions in-kind of Stock and 
any replacement publicly traded shares of such Stock will not cause 
immediately after each such transaction the aggregate fair market value 
of such Stock, plus the fair market value of all qualifying employer 
real property (QERP), as defined by section 407(d)(4) of the Act, and 
the fair market value of all other QES held by such Plan to exceed 25 
percent (25%) of the fair market value of the assets of such Plan as 
determined on the date of each such transaction;
    (g) The percentage limitations, as set forth above in paragraph (f) 
of this Section II, have been and will be applied without regard to 
amounts of securities issued by U S WEST that may be held by an 
unrelated common or collective trust fund maintained by an independent 
manager in which any of the Plans through the Trusts may have invested 
or may invest, provided that the fair market value of the securities 
issued by U S WEST and held in such unrelated common or collective 
trust fund does not exceed 5 percent (5%) of the fair market value of 
each such common or collective trust fund; and provided further that 
the conditions of Prohibited Transaction Class Exemption 91-38 (PTCE 
91-38) <SUP>1</SUP> are satisfied, including the requirement that the 
interests of the Plans in such unrelated common or collective trust 
fund does not exceed 10 percent (10%) of the total

[[Page 60400]]

of all assets in such common or collective trust fund;
---------------------------------------------------------------------------

    \1\ The Notice of Proposed Exemption for exemption application 
number D-8414 was published at 56 FR 4856 on February 6, 1991. PTCE 
91-38 was granted at 56 FR 31966 on July 12, 1991.
---------------------------------------------------------------------------

    (h) Nothing in the conditions, as set forth above in paragraph (f) 
of this Section II, shall preclude, the holding by any Plan of Stock, 
any other QES and QERP, in amounts in excess of 25 percent (25%) of the 
assets of such Plan, if the aggregate fair market value of such Stock, 
other QES and QERP exceeds 25 percent (25%) of the value of the assets 
of such Plan solely by reason of:
    (1) A greater rate of appreciation to the value of such Stock, 
other QES and QERP relative to the rate of appreciation to the value of 
the assets in such Plan, other than the Stock, other QES and QERP; or
    (2) A greater decline in the value of the other assets of the Plan 
relative to that of such Stock, other QES and QERP;
    (i) None of the assets of any of the Trusts have reverted, nor at 
any time will any of the assets of such Trusts revert to the use or 
benefit of U S WEST.

EFFECTIVE DATE: The exemption is effective as of March 31, 1994.

Written Comments

    In the Notice, the Department invited all interested persons to 
submit written comments and requests for a hearing on the proposed 
exemption within ninety (90) days of the date of the publication of the 
Notice in the Federal Register on March 31, 1998. All comments and 
requests for hearing were due by June 29, 1998.
    During the comment period, the Department received two (2) requests 
for a hearing. The Department has taken into consideration the concerns 
expressed by the individuals who requested a hearing. After a review of 
these concerns, the Department does not believe that any issues have 
been raised which would require the convening of a hearing.
    The Department received letters from thirty-five (35) interested 
persons commenting on the subject transaction. At the close of the 
comment period, the Department forwarded copies of these letters to the 
applicant and requested that the applicant address in writing the 
various concerns raised by the commentators. Most of the comments fell 
into broad categories that the applicant responded to generally. Where 
a single commentator raised a specific issue, such issue was responded 
to individually. A description of the comments and the applicant's 
responses thereto are summarized below.
    The applicant noted that several commentators objected to the 
granting of the requested exemption based on the belief that the assets 
of the Plans, the assets of U S WEST Pension Plan, or the assets of 
retirees would be used to purchase QES. In this regard, the applicant 
reiterated that the exemption would permit the voluntary contribution 
of QES by the applicant or its affiliates. Thus, it is represented that 
the cost of the QES contributed to the Trusts has been and will be 
borne solely by U S WEST. No assets of the Plans, of the U S WEST 
Pension Plan, or of the retirees has been or will be used to pay for 
the QES, nor have the Trusts ceded nor will the Trusts cede any right 
to receive cash contributions in exchange for the contribution by U S 
WEST of the QES.
    Three (3) commentators expressed identical beliefs that the 
applicant should be required to contribute to the Trusts the cash which 
the applicant's affiliate, U S WEST Communications (USWC) receives from 
its telephone service customers (the Rate Payers), and which is 
attributable to the expense borne by the Rate Payers as a result of the 
cost of the Plans being passed along to the Rate Payers in the state 
rate making procedures. The three commentators that raised the rate 
making issue were from Arizona, which the applicant maintains does not 
permit accrued expenses for post-retirement welfare benefits to be 
taken into account for purposes of setting the rates charged by USWC in 
that state.
    Notwithstanding the circumstances in Arizona, and in the interest 
of ensuring a complete response to the issues raised, the applicant 
considered the comments in light of each of the fourteen (14) states 
served by USWC. In this regard, it is represented that until recently 
accrued expenses for future post-retirement welfare benefits could not 
be included in the calculation of cost of service for rate making 
purposes. Instead, such expenses could be included in cost of service 
calculations only to the extent they were paid out in the form of 
benefits. Following the adoption by the Financial Accounting Standards 
Board of Financial Accounting Standard 106 ( FAS 106) in 1990, most 
state regulatory jurisdictions in which USWC does business have begun 
permitting utilities to use some type of accrual method similar to that 
provided in FAS 106 for recognizing post-retirement welfare benefit 
expenses in the cost of service. These accrued expenses are not 
automatically included in rates but may be included at the request of 
USWC.
    As part of the procedure for determining the extent to which 
accrued post-retirement welfare benefit expenses should be included in 
rates, many jurisdictions consider how these expenses are funded 
through trusts or other means, and certain states require U S WEST to 
maintain a specified minimum level of funding for benefits in one or 
more external accounts (i.e. trust accounts). More specifically, some 
of the states served by USWC may require a certain level of funding of 
benefits be designated as funded by that state's utility customers. In 
this regard, the applicant represents that no part of U S WEST's two 
prior contributions of QES was attributable to funding these 
designations. In the future, even if the applicant chooses to make an 
additional contribution attributable to a particular state's Rate 
Payers, rather than choose other alternatives, New U S WEST is able to 
ensure that no part of such contribution will consist of QES, and 
accordingly will do so.
    The three commentators who raised the rate structuring issues, 
discussed in the paragraphs above, also suggested that the Stock should 
be discounted to protect the Plans against the potential loss of value 
over time. In the opinion of the applicant the intent of the 
commentators in making this suggestion is unclear, inasmuch as Plans 
are not paying for the Stock contributed by U S WEST, and the financial 
reporting standards of the Act require plan assets to be reported at 
fair market value.
    Several commentators objected to permitting the Plans to invest 
more than the statutory limit (10%) in QES. Some of these commentators 
expressed their concern that the holding by the Plans of QES in excess 
of the statutory limit would reduce the security of Plan benefits (e.g. 
by exposing the Plans to volatility in Stock prices). In response, the 
applicant points out that welfare benefits under the Plans are not 
intended to be fully pre-funded, and that the voluntary contributions 
of Stock do not replace any required cash contributions of U S WEST. 
The applicant notes that no business purpose would be served if U S 
WEST were to contribute Stock that is expected to decline in value, 
because the cost of any benefits that are not pre-funded remain a 
liability of U S WEST. Accordingly, in the opinion of the applicant the 
exemption is in the interest of the participants and beneficiaries of 
the Plans in that U S WEST will be encouraged to make voluntary 
contributions to the Plans that would not otherwise be made.
    Finally, several commentators expressed concern that the proposed 
exemption would affect their benefits under the Plans or their benefits 
under the U S WEST Pension Plan. In response, the applicant represents 
that the exemption will have no impact on these benefits. Further, one

[[Page 60401]]

commentator noted that the applicant has made certain promises relating 
to the continuation of benefits to persons who retired prior to 1991. 
With respect to such promises, the applicant represents that it intends 
neither to enlarge nor to reduce the scope of its obligations by any 
representations made in connection with the requested exemption.
    In addition to the comments described above, in letters dated June 
29, August 10, 1998, September 17, and September 23, 1998, the 
Department also received comments and additional information from the 
applicant. In these submissions, the applicant requested certain 
modifications to the exemption as proposed, provided documentation for 
such modifications, and informed the Department of certain 
clarifications and changes in the Summary of Facts and Representations 
(SFR) in the Notice. The applicant's comments fall into four (4) 
categories: (1) clarification of the purpose of the contribution; (2) 
the application of limits on the acquisition and holding of QES; (3) 
information on the separation of U S WEST; and (4) the impact of such 
separation on the requested exemption.
    With respect to category 1, above, regarding the purpose of the 
contribution, the applicant has requested confirmation of its 
interpretation of the language in Section I of the Notice. In this 
regard, Section I states that the contribution by U S WEST of Stock to 
the Trusts was ``for the purpose of pre-funding post-retirement welfare 
benefits'' under the Plans. In its comment, the applicant expressed its 
understanding that the exemption would not require Stock or any other 
specific asset contributed to a Trust to be used solely for the 
provision of post-retirement welfare benefits. In this regard, the 
applicant notes that where a Plan provides benefits to retirees, as 
well as to active employees, and such Plan holds an interest in a 
Trust, the terms of such Trust would permit the use of plan assets held 
in the Trust to pay benefits on behalf of either group, to the extent 
that such assets are not segregated for tax and accounting purposes for 
one or the other group. The Department concurs in the understanding, as 
expressed by the applicant, and has deleted the words, ``post-
retirement,'' from the language in Section I of the exemption.
    With respect to category 2, above, regarding issues associated with 
the application of limits on the acquisition and holding of QES, the 
applicant has requested a modification of the language of Section III 
(f) of the Notice. In this regard, Section III (f) states that:

any contributions in-kind of Stock made by U S WEST to any Trust, 
any acquisitions of Stock in connection with the recapitalization of 
U S WEST, did not cause immediately after each such transaction, and 
in the future any contributions in-kind of Stock, any replacement 
publicly traded shares of such Stock or any Stock purchases in 
connection with rebalancing of a Trust's holding of Stock will not 
cause immediately after each such transaction the aggregate fair 
market value of such Stock, plus the fair market value of all 
qualifying employer real property (QERP), as defined by section 
407(d)(4) of the Act, and the fair market value of all other QES 
held by such Trust to exceed 25 percent (25%) of the fair market 
value of the assets of such Trust as determined on the date of each 
such transaction.

In the opinion of the applicant the 25 percent limitation (the 25% 
Limitation) should be calculated at the Plan level, rather than at the 
Trust level. In this regard, the applicant believes that applying the 
25% Limitation at the Plan level would ensure consistency with the 
method of accounting required under the reporting rules of the Act, and 
that the primary impact of applying the 25% Limitation at the Trust 
level would be that fewer voluntary contributions would be made to the 
trusts, specifically, to the U S WEST Occupational Welfare Benefit 
Trust (formerly the U S WEST Benefit Assurance Trust) (the Assurance 
Trust). Further, the applicant points out that if the final exemption 
were revised to provide for calculation of the 25% Limitation at the 
Plan level, rather than at the Trust level, the assets of the Assurance 
Trust that could be invested in QES would not significantly exceed 25 
percent (25%) of the asset of such trust.
    In support of its position, the applicant represents that the value 
of each Plan's interest in each Trust can be measured. In addition, the 
applicant represents that each Plan holds a proportionate interest in 
each Trust asset (that is, a Plan's interest in each Trust asset, is 
the same as such Plan's interest in the Trust as a whole). Because each 
Plan can account for its interest in the Trust and holds an undivided 
interest in each of the underlying assets of the Trust in the same 
proportion as its interest in the Trust as a whole, it is represented 
that each Plan's interest in a particular asset, including the Stock, 
can be readily determined. Because a single Plan's benefits may be 
funded under more than one Trust, the applicant believes that applying 
the 25% Limitation at the Plan level would provide a more useful and 
accurate measurement of each Plan's interest in the Stock.
    Further, it is represented that where a single Trust funds the 
benefits of more than one Plan, the assets attributable to each Plan 
are identifiable. The applicant represents that this is achieved either 
by commingling plan assets for investment purposes and attributing a 
pro rata share of each asset in the commingled Account to each Plan 
participating in the Trust, or by establishing one or more separate 
investment management Accounts solely on behalf of a plan participating 
in the Trust, or by combining both approaches. In this regard, it is 
represented that a Trust that funds benefits under more than one Plan 
functions as a ``master trust.'' Moreover, when assets of a Plan are 
utilized to pay benefits, the liquidation of the assets attributable to 
the benefit paying Plan funded under a Trust will not affect the assets 
of any other Plan funded under such Trust. Once U S WEST has determined 
that benefits are to be paid for a Plan from the assets in an Account 
that holds QES, then the Independent Fiduciary of such Account 
continues to be responsible for the allocation as between QES or cash 
equivalents in funding the benefit payment.
    The Department has decided that it is in the interests of the 
participants and beneficiaries whose Plan benefits are funded in whole 
or in part by the assets in the Accounts under the Trusts, if the 25% 
Limitation is imposed on the Plan level. This decision is based on the 
representations of the applicant, as discussed in the paragraph above, 
and on the fact that all Stock contributed in-kind by U S WEST in the 
past or in the future to any Accounts under such Trusts have been and 
will be managed by an I/F who has had and, at all times, will have sole 
responsibility for the ongoing management of the Accounts under the 
Trusts which hold the Stock and has taken and will take whatever action 
is necessary to protect the rights of the Plans funded by such Trusts, 
including but not limited to all decisions regarding the acquisition, 
retention, or disposition of such Stock. Accordingly, the Department 
concurs with the applicant's request to modify the language, as set 
forth in Section III(f) of the Notice. However, the Department notes 
that Section III(f), has been renumbered in the final exemption, as 
Section II(f) which reads as follows:

any contributions in-kind of Stock made by U S WEST to any Plan 
through any Trust and any acquisitions of Stock in connection with 
the recapitalization of U S WEST did not cause immediately after 
each such transaction, and in the future any contributions in-kind 
of Stock and any replacement publicly traded shares of such

[[Page 60402]]

Stock will not cause immediately after each such transaction the 
aggregate fair market value of such Stock, plus the fair market 
value of all qualifying employer real property (QERP), as defined by 
section 407(d)(4) of the Act, and the fair market value of all other 
QES held by such Plan to exceed 25 percent (25%) of the fair market 
value of the assets of such Plan as determined on the date of each 
such transaction.

    In addition, the Department notes that reference was made in the 
language of Section III(h), as set forth in the Notice, to the 
application, under certain conditions, of the 25% Limitation to the 
Trust level. In order to maintain consistency throughout the exemption 
the Department has renumbered Section III(h), as Section II(h) and has 
substituted the word, ``Plan,'' wherever the word, ``Trust,'' appears 
in the language of Section II(h). Accordingly, the language of Section 
II(h) reads as follows:

nothing in the conditions, as set forth above in paragraph (f) of 
this Section II, shall preclude, the holding by any Plan of Stock, 
any other QES and QERP, in amounts in excess of 25 percent (25%) of 
the assets of such Plan, if the aggregate fair market value of such 
Stock, other QES and QERP exceeds 25 percent (25%) of the value of 
the assets of such Plan solely by reason of:
    (1) a greater rate of appreciation to the value of such Stock, 
other QES and QERP relative to the rate of appreciation to the value 
of the assets in such Plan, other than the Stock, other QES and 
QERP; or
    (2) a greater decline in the value of the other assets of the 
Plan relative to that of such Stock, other QES and QERP.

    With respect to category 3, above, regarding information relating 
to the separation of       U S WEST, the applicant informed the 
Department that the Board of Directors of U S WEST, on April 20, 1998, 
submitted for shareholder approval a proposal under which U S WEST 
would be separated into two (2) independent companies. In this regard, 
pursuant to the terms of the separation, those parts of the business 
representing U S WEST Communications Group (the Communications Group) 
and U S WEST's directory services (DEX) would be known as U S WEST, 
Inc. (New U S WEST), and those parts of the business representing U S 
WEST Media Group (the Media Group) would be known as MediaOne Group, 
Inc. (MediaOne). It is represented that the terms of the separation 
were approved for fairness by two (2) independent investment banking 
firms, and that the opinions of these firms were provided to all 
shareholders of U S WEST. On June 4, 1998, shareholders of U S WEST 
approved the proposal to separate U S WEST, effective June 12, 1998. It 
is represented that after the separation of U S WEST, there is no 
ownership or management relationship between New U S WEST and MediaOne 
(other than the fact that shareholders may choose to hold shares issued 
by both companies).
    Prior to the separation of U S WEST, the different lines of 
business engaged in by U S WEST through its subsidiaries were reflected 
in two (2) classes of stock, ``C'' shares and ``M'' shares (the ``C'' 
Shares and the ``M'' Shares). The ``C'' Shares represented the 
Communications Group's business involving integrated communications, 
entertainment, information and transactions services. The ``M'' Shares 
reflected the Media Group's business involving cable, wireless, 
directory, interactive and international services.
    To effect the separation of U S WEST, it is represented that the 
businesses of the Communications Group and DEX were contributed to New 
U S WEST, and stock of New U S WEST was distributed to the holders of 
``C'' Shares. It is represented that the ``M'' Shares continue to 
reflect the business of the Media Group which after the separation of U 
S WEST is engaged in by MediaOne. No additional shares were distributed 
to the holders of ``M'' shares, other than $850 million shares of New U 
S WEST stock that such holders received as compensation for the 
transfer of DEX from the Media Group to New U S WEST.
    The Department acknowledges the separation of U S WEST into New U S 
WEST and MediaOne, as described by the applicant, and notes that this 
information has been included in the record of the exemption. For a 
more detailed description of the circumstances preceding the separation 
of U S WEST and/or a description of the steps taken to effect such 
separation, interested persons are encouraged to obtain a copy of the 
exemption application file (L-9583) which is available in the Public 
Documents Room of the Pension and Welfare Benefits Administration, U.S. 
Department of Labor, Room N-5638, 200 Constitution Avenue, N.W., 
Washington, D.C. 20210.
    With respect to category 4, above, it is represented that the 
separation of           U S WEST into two distinct companies did not 
have an impact on the holding of the Stock contributed in-kind by U S 
WEST to the Assurance Trust, on March 1994, and again on March 1995. In 
this regard, the applicant represents that such Stock was not affected 
by the separation of U S WEST on June 12, 1998, because such Stock had 
already been sold out of the Assurance Trust by December 31, 1997. 
Further, it is represented that the cash proceeds from sales of ``C'' 
Shares or the ``M'' Shares were not used to purchase shares of Stock in 
connection with ``rebalancing'' the portfolio of ``C'' Shares and ``M'' 
Shares by the Assurance Trust. Accordingly, the applicant represents 
that the transactions, as described in Section II of the Notice and in 
the SFR, have not occurred and will not occur, such that relief will no 
longer be necessary, either on a retroactive or prospective basis. 
Accordingly, the applicant does not object to the removal in its 
entirety of Section II of the Notice from the final exemption.
    The Department concurs with the applicant, has deleted Section II 
from the exemption, and has renumbered the former Section III, as 
Section II in the final exemption. In addition, the Department has 
deleted any reference to transactions involving ``rebalancing'' of a 
Trust's holding of Stock from the terms and conditions of the final 
exemption.
    The separation of U S WEST into two distinct companies did cause 
changes in the employee welfare benefit plans sponsored by each 
company. In this regard, because MediaOne and New U S WEST are not 
affiliated, it is no longer possible to cover employees of each company 
under the same welfare benefit plan. Accordingly, it is represented 
that the respective boards of directors of each company have determined 
that New U S WEST will adopt the Plans previously maintained by U S 
WEST (the New U S WEST Plans), and that MediaOne will establish 
``mirror'' welfare benefit plans (the MediaOne Plans) on behalf of the 
former employees of U S WEST who transferred to MediaOne. It is 
anticipated the welfare benefit plans maintained by New U S WEST and 
MediaOne, respectively, will provide the same benefits provided by the 
Plans maintained by U S WEST. In this regard, it is represented that 
the operation and administration of the welfare benefit plans and 
trusts maintained by New       U S WEST and MediaOne will be the same 
in all material respects to the operation and administration of Plans 
and the Trusts established by U S WEST. It is further represented that 
the welfare benefits provided to employees of New U S WEST and MediaOne 
will have the same level of funding protection that such employees had 
prior to the separation of U S WEST. Each company will reserve the same 
right to amend or terminate, respectively, the New U S WEST Plans and 
the MediaOne Plans, as was reserved by U S WEST with respect to the 
Plans it sponsored. As described in the Notice, in order to pre-fund a 
portion of the welfare benefits provided under the Plans, U S WEST 
established

[[Page 60403]]

under section 501(c)(9) of the Code, three Trusts: (1) the Assurance 
Trust, (2) the U S WEST Management Benefit Assurance Trust (the 
Management Trust), and (3) the U S WEST Life Insurance and Welfare 
Trust (the Life Insurance Trust). In its comment, the applicant 
informed the Department of the effect of the separation of U S WEST on 
these three Trust and on a fourth trust, the U S WEST VEBA Trust (the 
VEBA Trust), maintained by U S WEST, pursuant to section 501(c)(9) of 
the Code, to provide short-term funding of health care benefits for any 
of the Plans.
    In this regard, it is represented that, effective with the 
separation of U S WEST, New U S WEST adopted the Assurance Trust, the 
Management Trust, and the Life Insurance Trust to provide funding for 
the New U S WEST Plans, while MediaOne has adopted the VEBA Trust. 
Further, New U S WEST has transferred a proportionate share of the 
assets and liabilities of the Management Trust and the Life Insurance 
Trust to the VEBA Trust for the purpose of funding the MediaOne Plans. 
In addition, the applicant has represented that no assets of the 
Assurance Trust were transferred to the VEBA Trust, because the assets 
of the Assurance Trust are held solely on behalf employees covered 
under collective bargaining agreements, and none of these employees are 
employed by MediaOne.
    Notwithstanding the changes caused by the separation of U S WEST, 
as described in the paragraphs above, New U S WEST and MediaOne have 
requested that the final exemption continue to be available 
prospectively to both companies; provided certain conditions are 
satisfied. It is represented that the conditions of the exemption will 
ensure that the rights of participants and beneficiaries of the New U S 
WEST Plan and the MediaOne Plan will be protected. In this regard, New 
U S WEST and MediaOne each confirm that the Department may rely on 
representations made in the exemption application and incorporated in 
the Notice, subject to those modifications necessarily resulting from 
the separation of U S WEST, as described herein. Specifically, New U S 
WEST and MediaOne have omitted representations (b) and (c) in paragraph 
12 of the SFR in the Notice, because such conditions relate solely to 
the ``rebalancing'' transactions for which exemptive relief is no 
longer requested or required.
    New U S WEST and MediaOne believe that it would be in the interest 
of participants of the welfare benefit plans sponsored respectively by 
each company to continue to receive contributions of QES. In support of 
this request, it is represented that the reasons that additional 
voluntary contribution of QES are in the best interest of participants 
are completely unchanged. In this regard, it is represented that the 
operation and administration of the welfare benefit plans and trusts 
that will be maintained respectively by New U S WEST and MediaOne 
``mirror'' the terms of the Plans in existence prior to the separation 
of U S WEST. Further, it is represented that the level of protection 
afforded to participants and beneficiaries in the New U S WEST Plans 
and the MediaOne Plans will be unaffected, in that voluntary 
contributions of QES will permit a higher level of contributions and 
will provide greater security that assets will be available to fund 
future benefits.
    Finally, the applicant argues that the separation of U S WEST into 
two (2) lines of business should not necessitate the filing of another 
application for exemption, as such a filing would only duplicate the 
information that has already been provided to the Department. 
Similarly, it is represented that a separate exemption application 
would not serve to provide notice to additional interested persons, 
because all persons who would be interested in such application have 
already been notified by the publication of Notice in the Federal 
Register.
    The Department concurs that the exemption will cover future 
contributions in-kind of QES by New       U S WEST, and accordingly, 
has altered Section I of the exemption by adding the italicized words 
to the language of Section I, as follows,

Effective March 31, 1994, the restrictions of sections 406(a)(1)(E), 
407(a)(2), 406(b)(1), and 406(b)(2) of the Act shall not apply to 
voluntary contributions in-kind by U S WEST, Inc., any successor to 
U S WEST, Inc., and/or any affiliates of U S WEST, Inc. 
(collectively, U S WEST) of certain shares of publicly traded common 
stock of U S WEST (the Stock) and/or any replacement publicly traded 
shares of such Stock to certain trusts (the Trusts or Trust) for the 
purpose of pre-funding post-retirement welfare benefits under one or 
more employee welfare benefit plans (the Plan or Plans) maintained 
by U S WEST.

    However, with regard to the request that the exemption continue to 
be available prospectively to MediaOne, the Department does not believe 
that the Notice, as published in the Federal Register, contemplated 
future contributions in-kind of QES by MediaOne to the MediaOne Plans. 
In this regard, the Department notes that the MediaOne Plans are new 
``mirror'' plans which were not in existence at the time of the 
publication of the Notice in the Federal Register. Further, the 
Department is not convinced that the notice to interested persons that 
was provided with regard to the exemption requested by U S WEST 
afforded sufficient opportunity for comment from persons who would be 
interested persons with regard to future transactions by MediaOne. As a 
result, the Department does not believe that the exemption can be 
interpreted to be available prospectively to MediaOne. MediaOne may 
submit another application for exemption relief should MediaOne wish to 
make voluntary in-kind contributions of QES in the future to MediaOne 
Plans.
    Accordingly, after full consideration and review of the entire 
record, including the written comments, the Department has determined 
to grant the exemption, as modified and amended herein. The comments 
submitted by the commentators to the Department and the applicant's 
response thereto has 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 available for 
public inspection in the Public Documents Room of the Pension Welfare 
Benefits Administration, Room N-5638, U.S. Department of Labor, 200 
Constitution Avenue N.W., Washington, D.C. 20210.
    For a complete statement of the facts and representations 
supporting the Department's decision to grant this exemption refer to 
the Notice published on March 31, 1998, 61 FR 15443.

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

RREEF America L.L.C. (RREEF); Located in San Francisco, California

[Prohibited Transaction Exemption 98-52; Exemption Application No. D-
9952]

Exemption

    The Department is 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 C.F.R. Part 2570, 
Subpart B (55 FR 32836, 32847, August 10, 1990.)
Section I--Covered Transactions
    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

[[Page 60404]]

of section 4975(c)(1)(A) through (E) of the Code, shall not apply to:
    (1) The provision of certain leasing services (the Leasing 
Services) by RREEF's leasing affiliates (the Leasing Affiliates, as 
defined in Section IV) to certain accounts established by RREEF (the 
Accounts, as defined in Section IV); and
    (2) The payment of leasing commissions in connection with the 
provision of Leasing Services by the Leasing Affiliates to the 
Accounts; provided that the conditions set forth in Section II are met.
Section II--Conditions
    (1) The arrangement under which the Leasing Services are performed 
with respect to any Account is subject to the prior authorization of 
either (i) an independent plan fiduciary for each employee benefit plan 
or other plan for which RREEF serves as trustee or investment manager 
(a Client Plan) that invests in a Single Client Account, or (ii) 
independent plan fiduciaries with respect to Client Plans or other 
institutional investors holding at least 60 percent of the units of 
beneficial interest in a Multiple Client Account, following disclosure 
of information in the manner described in paragraph (2) below. In the 
case of a Client Plan whose assets are proposed to be invested in an 
Account subsequent to the provision of Leasing Services to the Account, 
the Client Plan's investment in the Account is subject to the prior 
written authorization of an authorizing plan fiduciary following 
disclosure of the information described in paragraph (2).
    (2) Not less than 45 days prior to the first date it proposes to 
provide Leasing Services for any Account, RREEF, as investment manager, 
shall furnish the authorizing plan fiduciary with any reasonably 
available information which RREEF believes to be necessary to determine 
whether such approval should be given, as well as such information 
which is reasonably requested by the authorizing plan fiduciary. Such 
information will include: (a) a description of the Leasing Services to 
be performed by the Leasing Affiliate; (b) an explanation of the 
potential conflicts of interest involved in selecting the Leasing 
Affiliate; (c) an explanation of the selection process (including the 
role of the Independent Fiduciaries (as defined in Section IV)); (d) 
identification of properties for which Leasing Services will be 
required; (e) an estimate of the leasing fees to be paid to the Leasing 
Affiliate if it is selected to provide such services; and (f) a 
description of the terms upon which a Client Plan may withdraw from an 
Account.
    (3) In the event an authorizing plan fiduciary of any Client Plan 
whose assets are invested in an Account submits a notice in writing to 
RREEF, as investment manager, at least 15 days prior to the provision 
of Leasing Services, objecting to the provision of the Leasing 
Services, and RREEF proposes to proceed with the provision of Leasing 
Services, the Client Plan on whose behalf the objection was tendered 
will be given the opportunity to terminate its investment in the 
Account, without penalty. With the exception of a Client Plan which has 
invested in a closed-end Account under which the rights of withdrawal 
from the Account may be limited, as provided in the Client Plan's 
written agreement to invest in the Account, if a written objection to 
the Leasing Services is submitted to RREEF any time after 15 days prior 
to implementation of the Leasing Services (or after implementation), 
the Client Plan must be able to withdraw without penalty, within such 
time as may be necessary to effect such withdrawal in an orderly manner 
that is equitable to all withdrawing and the non-withdrawing Client 
Plans. However, the Leasing Affiliate need not discontinue providing 
the Leasing Services, once implemented, by reason of a Client Plan 
electing to withdraw after 15 days prior to the scheduled 
implementation date of the Leasing Services. Any Client Plan which 
invests in a Single Client Account may terminate the Leasing Services 
arrangement and withdraw from the Account at any time (upon reasonable 
written notice).
    (4)(a) RREEF shall furnish the Independent Fiduciary (as defined in 
section IV) acting on behalf of the Client Plans participating in the 
Account with an annual report (the RREEF Annual Report) containing the 
information described in this paragraph, not less frequently than once 
a year and not later than 45 days following the end of the period to 
which the report relates. The RREEF Annual Report shall disclose the 
total of all fees incurred by the Account during the preceding year 
under contracts with RREEF and its affiliates and shall include a 
description of all leasing activities with respect to each property 
under the responsibility of the Independent Fiduciary for which a 
Leasing Affiliate provides services, including marketing/advertising 
activities, leases under negotiation, lease offers rejected (and why), 
and such other information as shall be reasonably requested by the 
Independent Fiduciary. The RREEF Annual Report shall also delineate the 
leasing commissions that are anticipated to be paid to RREEF and its 
affiliates in the coming year for services provided by these entities 
in connection with the properties held by the Account. The RREEF Annual 
Report will contain a description of a method for the termination of 
the leasing arrangement (see Section II(5)) by the Independent 
Fiduciary and/or by investing Client Plans in each Account.
    (b) The Independent Fiduciary shall furnish RREEF and the 
authorizing plan fiduciaries with an annual report (the I/F Annual 
Report), within 90 days following the end of the period to which the 
report relates, summarizing its activities for the year, indicating its 
opinion as to the continued validity of the leasing guidelines with 
respect to any property for the next year, and recommending any 
amendments to, or termination of, the leasing agreement with the 
Leasing Affiliate. The I/F Annual Report will contain a description of 
a method for the termination of the leasing arrangement with the 
Leasing Affiliate and for the confirmation and/or removal of the 
Independent Fiduciary by the Client Plans investing in the Accounts.
    (c) RREEF implements procedures to ensure each authorizing plan 
fiduciary of a Client Plan investing either in a Multiple Client 
Account, or a Single Client Account, has an opportunity to vote on the 
reconfirmation of the Independent Fiduciary on an annual basis. These 
procedures require that the Independent Fiduciary: (i) provide each 
authorizing independent client plan fiduciary with a ballot 
<SUP>2</SUP> by certified mail (or another method of delivery pursuant 
to which confirmation of receipt is provided), with the ballot 
instructions that direct the authorizing independent client plan 
fiduciary to return the ballot to RREEF; (ii) ensure that the ballot 
clearly indicates that the authorizing plan fiduciary may vote for or 
against continuation of the Independent Fiduciary; (iii) ensure that 
the ballot must be accompanied by a statement that failure to return 
the ballot within 45 days following the independent plan fiduciaries' 
receipt of the ballots will be counted as a ``for'' vote (unless 
holders of a majority of the units of beneficial interests in the 
Accounts have voted against reconfirmation); and (iv) 30 days after the 
Independent Fiduciary mails the ballot to the authorizing plan 
fiduciary, RREEF must make at least one follow-up contact with the 
authorizing plan fiduciary that has not previously

[[Page 60405]]

returned the ballot prior to treating the unreturned ballot as a 
``for'' vote. If RREEF does not receive a response from the authorizing 
plan fiduciary within 15 days after initiating contact with the 
authorizing plan fiduciary, RREEF may treat the unreturned ballot as a 
vote for reconfirmation. The reconfirmation will become effective on 
the earlier of the date affirmative ballots are obtained from the 
holders of a majority of the units of beneficial interests in the 
Accounts, or 45 days following the authorizing plan fiduciaries' 
receipt of the ballots (unless holders of a majority of the units of 
beneficial interests in the Accounts have voted against 
reconfirmation.)
---------------------------------------------------------------------------

    \2\ RREEF will direct the Independent Fiduciary as to the 
specific form of a ballot. The applicant represents that for a 
Single Client Account, this will not be a ``ballot'', but a 
``direction'' form.
---------------------------------------------------------------------------

    (d) The Independent Fiduciary receives confirmation, and certifies 
to RREEF that the notice and the ballots sent to the authorizing plan 
fiduciary pursuant to subparagraphs (b) and (c) regarding the continued 
retention of the Independent Fiduciary and RREEF have been received by 
the authorizing plan fiduciary. The method used to confirm notice to 
the authorizing plan fiduciaries must be sufficient to ensure that the 
authorizing Client Plan fiduciaries actually receive notice. In all 
cases, return receipt for certified mail, printed confirmation of 
facsimile transmissions and manifest or computer data entries of 
independent courier services will be considered acceptable methods of 
confirming receipt.
    (5)(a) The leasing agreement for any property may also be 
terminated or modified at any time at the written direction of the 
Independent Fiduciary, and may be terminated by a vote in favor of such 
termination by the holders of a majority of the units of beneficial 
interests in the Account (or such greater percentage, not to exceed 60 
percent, as shall be set out in the agreements establishing the 
Account). Further, any Client Plan which invests in a Single Client 
Account may terminate the Leasing Services arrangement and withdraw 
from the Account at any time (upon reasonable notice).
    (b) In the event of a vote to terminate the Leasing Services 
arrangement pursuant to paragraph (4)(c) or (5)(a), RREEF shall cease 
submitting to the Independent Fiduciary any new proposals to engage in 
covered transactions and RREEF will not renew or extend any covered 
transactions. Moreover, within 180 days after the vote of the Account 
holders, RREEF shall cease engaging in any existing covered 
transactions.
    (6)(a) Each Leasing Services agreement shall be in writing and 
shall be reviewed at least annually and approved by an Independent 
Fiduciary. However, prior to proposing a transaction to the Independent 
Fiduciary, RREEF will first determine that such transaction is in the 
best interest of the Account.
    (b) The Independent Fiduciary shall negotiate each Leasing Services 
agreement. The Independent Fiduciary shall also consider the cost to 
the Account of such fiduciary's involvement in connection with its 
consideration of whether to approve a particular Leasing Services 
agreement.
    (c) Each leasing agreement and the performance of the Leasing 
Affiliate under such agreement shall be reviewed at least annually by 
the Independent Fiduciary, who shall instruct RREEF of any action which 
should be taken by RREEF on behalf of the Account with respect to the 
continuation, termination or other exercise of rights available to the 
Account under the terms of the leasing agreement. RREEF will carry out 
such instruction from the Independent Fiduciary to the extent it is 
legal and permitted by the terms of the leasing agreement.
    (d) In the case of any emergency circumstances, RREEF or the 
Leasing Affiliates may provide Leasing Services to an Account for a 
period not exceeding 90 days without entering into a Leasing Services 
agreement, but no compensation may be paid by an Account for such 
services without prior approval of the Independent Fiduciary.
    (7) If RREEF holds Account properties, and any RREEF affiliate or 
principal holds for its own account any properties in the same real 
estate market during a period when there is leasing competition between 
those properties, RREEF will hire, during such period, a third party 
leasing agent for Account properties.
    (8)(a) RREEF shall furnish the Independent Fiduciary with any 
reasonably available information which RREEF reasonably believes to be 
necessary or which the Independent Fiduciary shall reasonably request 
to determine whether such approval of the transactions described above 
should be given, or to accomplish the Independent Fiduciary's periodic 
reviews of RREEF's performance under such agreements.
    (b) With respect to RREEF, such information will include: a 
description of the Leasing Services for the Account and the Client 
Plans investing therein; the qualifications of RREEF to do the job; a 
statement, supported by appropriate factual representations, of the 
reasons for RREEF's belief that RREEF is qualified to provide the 
services; a copy of the proposed Leasing Services agreement and the 
terms on which RREEF would provide the services; the reasons why RREEF 
believes the retention of RREEF would be in the best interest of the 
Account; information demonstrating why the fees and other terms of the 
arrangement are reasonable and comparable to the fees customarily 
charged by similar firms for similar services in comparable locales; 
the identities of non-affiliated service providers and the terms under 
which these service providers might perform the services; and whether 
any RREEF affiliate is a property manager to any properties that are in 
competition for tenants with the property for which RREEF is under 
consideration.
    (9) Any Independent Fiduciary may be removed at any time by a vote 
of holders of a majority of the units of beneficial interests in an 
Account. In the event of the removal of an Independent Fiduciary, 
existing leasing agreements overseen by that Independent Fiduciary will 
not be affected; however, RREEF will designate a replacement 
Independent Fiduciary within sixty (60) days.
    (10) Seventy-five percent (75%) or more of the units of beneficial 
interests in a Multiple Client Account must be held by Client Plans or 
other investors having total assets of at least $100 million. In 
addition, 50 percent (50%) or more of the Client Plans investing in a 
Multiple Client Account must have assets of at least $100 million. A 
group of Client Plans maintained by a single employer or controlled 
group of employers, any of which individually has assets of less than 
$100 million, will be counted as a single Client Plan if the decision 
to invest in the Account (or the decision to make investments in the 
Account available as an option for an individually directed account) is 
made by a fiduciary other than RREEF, who exercises such discretion 
with respect to Client Plan assets in excess of $100 million.
    (11) No Client Plan covering employees of RREEF will be invested in 
an Account.
    (12) Not more than 20 percent of the assets of any Client Plan on 
whose behalf RREEF proposes to provide Leasing Services can be invested 
in RREEF Accounts.
    (13) At the time any leasing agreement is entered into, the terms 
of the agreement must be at least as favorable to the Account as the 
terms of an arm's-length transaction between unrelated parties. In 
addition, the compensation paid to the Leasing Affiliate for Leasing 
Services by any Account must not exceed the amount paid in an arm's-
length transaction between unrelated parties for comparable properties 
in similar locales. In any event, such

[[Page 60406]]

compensation will not exceed reasonable compensation within the meaning 
of section 408(b)(2) of the Act and regulation 29 CFR 2550.408b-2. (The 
Independent Fiduciary must certify that an economic advantage to the 
Accounts exists before consummation of any leasing agreement).
    (14)(a) Within one-year of the grant of this exemption, and after 
the beginning of each subsequent five-year period, each Independent 
Fiduciary will prepare with the assistance of RREEF a survey of leasing 
fees for the properties that have similar geographic location and 
property types to those held by the Accounts for which the Independent 
Fiduciary is responsible. The survey will include data regarding the 
fees that have been charged to the Accounts by several firms that are 
unaffiliated with RREEF for Leasing Services during the one-year period 
prior to the beginning of the new five-year period. Also, the survey 
will include data as to the fees paid by RREEF for such services 
performed for the properties not held by the Accounts during the same 
period and other market data regarding the cost of Leasing Services by 
geographic location and property types.
    (b) Based upon its survey and its professional resources and 
expertise, the Independent Fiduciary will determine a typical range of 
annual fees for Leasing Services for the Accounts. The average of the 
range, as determined from such survey, will serve as the basis of 
comparison for determining for the next five-year period whether 
continuation of the Leasing Services policy has provided cost savings 
or other benefits to the Accounts.
    (c) RREEF will demonstrate to the Independent Fiduciary at the end 
of the applicable five-year period that leasing fees charged to each 
Account by RREEF or its affiliates, plus the cost of the services of 
the Independent Fiduciary under the exemption that are allocated to the 
Accounts, are less than the fees that would have been charged using the 
benchmark rate established at the beginning of the five-year period. In 
making its determinations, the Independent Fiduciary shall take into 
account, to the extent it deems necessary, property management fees 
paid by the Accounts to RREEF and its affiliates.<SUP>3</SUP>
---------------------------------------------------------------------------

    \3\ With respect to Multiple Client Accounts, property 
management services by RREEF are currently provided in accordance 
with PTE 82-51 (47 FR 14238/14241, April 2, 1982). PTE 82-51 permits 
collective investment funds (the Funds) managed by RREEF or any of 
its affiliates, in which Client Plans participate, to engage in 
certain transactions with parties in interest with respect to the 
Client Plans that are investors in the Funds, provided that certain 
conditions are met. Therefore, the requested exemption is necessary 
only for the provision of Leasing Services by RREEF's affiliates to 
the Multiple Client Accounts in connection with the properties held 
by the Accounts.
---------------------------------------------------------------------------

    (d) The Independent Fiduciary will review the data supplied by 
RREEF and, to the extent considered necessary by the Independent 
Fiduciary, data collected from the Independent Fiduciary's own surveys, 
and will document its findings and analysis of such cost savings in a 
report to be delivered to each of the Client Plans participating in the 
Accounts within 90 days after the end of the five-year period and each 
subsequent five-year period and prior to the implementation of the 
annual confirmation procedure described in paragraph (6) of Section II 
with respect to such period. In the event the Independent Fiduciary 
finds that cost savings have not been achieved for the Accounts, it 
will not approve any additional services arrangements until RREEF and 
its affiliates have demonstrated to the satisfaction of the Independent 
Fiduciary that policies intended to assure cost savings to the Accounts 
have been implemented by RREEF and its affiliates. The survey, the 
Independent Fiduciary's report reviewing the survey, and the final 
report of the Independent Fiduciary analyzing whether cost savings had 
been achieved during the five-year period to which the survey relates, 
will be maintained by RREEF in accordance with the recordkeeping 
requirements of Section III.
    (15) The fees paid to RREEF and/or its affiliates for Leasing 
Services provided in connection with a property held for an Account 
shall not exceed: (a) 7 percent of the lease amount for new leases; (b) 
2 percent of the lease amount for renewal leases; and (c) for leases in 
which outside brokers are involved, 2.75 percent of the lease amount.
    (16) Before entering into any leasing arrangement pursuant to the 
terms of this exemption, copies of the proposed exemption and the final 
exemption will be delivered to each Client Plan for which RREEF or its 
affiliate propose to perform Leasing Services as described herein.
Section III--Recordkeeping
    (1) RREEF and any Leasing Affiliate will maintain, for a period of 
six years, the relevant records necessary to enable the persons 
described in paragraph (2) of this Section III to determine whether the 
conditions of this exemption have been met. Included in these records 
will be the written records of the Independent Fiduciary which had been 
periodically furnished by the Independent Fiduciary to RREEF, and the 
records described in paragraph (14) of Section II. However, a 
prohibited transaction will not be considered to have occurred if, due 
to circumstances beyond RREEF's, the Leasing Affiliate's, or the 
Independent Fiduciary's control, the records are lost or destroyed 
prior to the end of the six-year period.<SUP>4</SUP>
---------------------------------------------------------------------------

    \4\ RREEF represents that its contract with each Independent 
Fiduciary will require that the Independent Fiduciary's written 
records be maintained in accordance with this section.
---------------------------------------------------------------------------

    (2)(a) Except as provided in subsection (b) of this paragraph and 
notwithstanding any provisions of section 504(a)(2) and (b) of the Act, 
the records referred to in paragraph (1) of this section shall be 
unconditionally available at their customary location for examination 
during normal business hours by:
    (1) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service;
    (2) Any fiduciary of a Client Plan who has authority to acquire or 
dispose of the interests of the Client Plan in the Accounts or any duly 
authorized employee or representative of such fiduciary;
    (3) Any contributing employer to any Client Plan that has an 
interest in the Accounts or any duly authorized employee or 
representative of such employer;
    (4) Any participant or beneficiary of any Client Plan participating 
in the Accounts, or any duly authorized employee or representative of 
such participant or beneficiary; and (5) The Independent Fiduciaries.
    (b) None of the persons described above in subparagraphs (2)-(5) of 
this paragraph shall be authorized to examine the trade secrets of 
RREEF or any Leasing Affiliate or commercial or financial information 
which is privileged or confidential.
Section IV--Definitions
    (1) The Accounts--The Accounts are any future pooled accounts 
(i.e., Multiple Client Accounts) or any existing or future single-
customer accounts (i.e., Single Client Accounts), including joint 
ventures, general or limited partnerships or other real estate 
investment vehicles established by RREEF for the investment of employee 
benefit Client Plan assets in real-estate related investments to the 
extent that (i) such Accounts hold ``plan assets'' within the meaning 
of the regulations at 29 CFR section 2510.3-101 and (ii) management of 
their assets is subject to the discretionary authority of RREEF.

[[Page 60407]]

    (2) RREEF--For purposes of this exemption, the term RREEF means 
RREEF America L.L.C., and certain of their officers who may serve as 
trustees of group trusts managed by RREEF America L.L.C., or who may 
serve in similar fiduciary capacities with respect to other commingled 
investment vehicles managed by them, and/or any other affiliates of 
RREEF as defined in paragraph (4) of this section IV which act as 
investment fiduciaries with respect to any Account.
    (3) Leasing Affiliate--RREEF Management Company or other affiliates 
of RREEF (as defined in paragraph (4) of this Section IV) retained to 
provide Leasing Services with respect to an Account.
    (4) An ``affiliate'' of a person means any person directly or 
indirectly, through one or more intermediaries, controlling, controlled 
by, or under common control with the person.
    (5) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (6) Independent Fiduciary--A person who:
    (a) Is not an affiliate of RREEF as defined in Section IV(4);
    (b) Is not an officer, director, employee of, or partner in, RREEF 
(or affiliates thereof as defined in Section IV(4));
    (c) Is not a corporation or partnership in which RREEF has an 
ownership interest or is a partner;
    (d) Does not have an ownership interest in RREEF or any of its 
affiliates;
    (e) Is not a fiduciary with respect to any Client Plan's investment 
in the Account;
    (f) Has represented in writing that it is qualified to perform the 
services contemplated by the exemption, which qualifications shall 
include, among other things: (i) Demonstrated experience, generally 
over a period of not less than five years, in the business of 
commercial real estate, brokerage, management, or appraisal generally 
and in reviewing or negotiating leasing agreements and commissions 
specifically; (ii) familiarity with the relevant real estate, 
specifically as it relates to comparable property types with respect to 
the specific properties for which the Leasing Affiliate proposes to 
perform Leasing Services (for example, in the case of office 
properties, the Independent Fiduciary's experience shall relate 
specifically to office properties in the same market); (iii) experience 
in complying with the fiduciary standards of the Act in connection with 
the representation of the Client Plans; and
    (g) Has acknowledged in writing acceptance of fiduciary obligations 
and has agreed not to participate in any decision with respect to any 
transaction in which the Independent Fiduciary has an interest that 
might affect its best judgement as a fiduciary. For purposes of the 
foregoing, each Independent Fiduciary shall represent in writing that 
it has no relationship with RREEF or its affiliates, or with any 
Account, that would affect its best judgement as a fiduciary.
    For purposes of this definition of Independent Fiduciary, no 
organization or individual may serve as an Independent Fiduciary for 
any fiscal year if the gross income received by such organization or 
individual (or partnership or corporation of which such organization or 
individual is an officer, director, or 10 percent or more partner or 
shareholder) from RREEF or any affiliates of RREEF (including amounts 
received for services as Independent Fiduciary under any prohibited 
transaction exemption granted by the Department) for that fiscal year 
exceeds 5 percent of its or his annual gross income from all sources 
for such fiscal year.
    In addition, no organization or individual who is an Independent 
Fiduciary, and no partnership or corporation of which such organization 
or individual is an officer, director or 10 percent or more partner or 
shareholder, may acquire any property from, sell any property to, or 
borrow any funds from RREEF or any affiliates of RREEF, or any Account 
maintained by RREEF or any affiliates of RREEF, during the period that 
such organization or individual serves as an Independent Fiduciary and 
continuing for a period of 6 months after such organization or 
individual ceases to be an Independent Fiduciary or negotiates any such 
transaction during the period that such organization or individual 
serves as Independent Fiduciary.
    This exemption is subject to the express condition that the 
material facts and representations contained in the application are 
true and complete, and that the application accurately describes all 
material terms of the transactions to be consummated pursuant to the 
exemption.
    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 August 31, 1998 at 63 FR 
46245 (the Notice).

Written Comments

    The Department received two written comments (the Comments) with 
respect to the Notice and no requests for a public hearing. The 
Comments were filed by RREEF and generally request clarifications and 
modifications to the Notice. Set forth below in section I is a 
discussion of those aspects of the Comments which relate to the 
language of the final exemption (the Exemption). In addition, section 
II below discusses those aspects of the Comments which relate to the 
Summary of Facts and Representations (the Summary) contained in Notice.

I. Discussion of the Comments Regarding the Exemption

    1. Section II(10) of the Notice relates to the appropriate 
percentage of beneficial interests in an Account which must be held by 
Client Plans with a certain minimum asset size. Specifically, Section 
II(10) of the Notice states, in relevant part, that 75% or more of the 
units of beneficial ownership in ``an Account'' must be held by Client 
Plans or other investors having total assets of at least $100 million. 
In addition, Section II(10) of the Notice states that 50% or more of 
the Client Plans investing in ``an Account'' must have assets of at 
least $100 million.
    The Comments state that the foregoing 75% and 50% tests are 
relevant only in the case of, and are meant to apply to, Multiple 
Client Accounts (see paragraph 22 of the Summary contained in the 
Notice). For purposes of this Exemption, RREEF has represented that 
Single Client Accounts will be established only for Client Plans with 
at least $100 million in assets. Accordingly, RREEF requests that the 
foregoing references to ``an Account'' in the first and second 
sentences of Section II(10) of the Exemption be changed to ``Multiple 
Client Account.''
    The Department acknowledges RREEF's request, as stated in the 
Comments, and has modified the language of Section II(10) of the 
Exemption accordingly.
    2. The Comments also state that the third sentence in Section 
II(10) of the Notice provides that ``for purposes of the 50% test'', a 
group of Client Plans maintained by a single employer or controlled 
group of employers, any of which individually has assets of less than 
$100 million, will be counted as a single Client Plan if the decision 
to invest in the Account is made at the direction of an unaffiliated 
fiduciary who exercises discretion with respect to

[[Page 60408]]

total Client Plan assets in excess of $100 million.
    The Comments state that the phrase ``. . . . For purposes of the 
50% test'', as it appears in the third sentence of Section II(10) of 
the Notice, should be deleted. The Comments note that this reference to 
only the ``50% test'' is not completely accurate in the context of 
RREEF's Multiple Client Accounts, as contemplated under this Exemption. 
In this regard, the Comments state that if a fiduciary unaffiliated 
with RREEF directs the investment of multiple affiliated plans (usually 
through a single ``master trust'') into a Multiple Client Account, it 
is appropriate to treat the affiliated plans as a Single Client Plan 
for both the ``75% test'' and the ``50% test'' referred to in Section 
II(10). In addition, the Comments state that it is RREEF's 
understanding that multiple plans of a single employer, invested as a 
unit at the direction of a fiduciary independent of RREEF, would be 
treated as a single Client Plan for purposes of establishing a Single 
Client Account under the Exemption.
    The Department acknowledges RREEF's request and has modified the 
Exemption by deleting the phrase ``. . . . For purposes of the 50% 
test'' in the third sentence of Section II(10) of the Exemption.

II. Discussion of the Comments Regarding the Summary

    1. The Comments state that the Exemption will not be relevant to 
RREEF USA Fund-I because this Multiple Client Account is in 
liquidation. Moreover, as stated in the Notice, the Comments reaffirm 
that RREEF has no intention of using the Exemption for any other 
current Multiple Client Accounts. Therefore, the Comments note that the 
references to USA Fund-I in the Notice, which are located in Paragraphs 
3 and 20 of the Summary, should be disregarded.
    The Department acknowledges the applicant's clarification regarding 
the applicability of the Exemption to existing Multiple Client 
Accounts, including USA Fund-I. Thus, in response to this Comment, the 
Department has modified the definition of the term ``Accounts,'' as it 
appears in Section IV(1) of the Notice, to clarify that this term does 
not apply to any existing Multiple Client Accounts. Section IV(1) of 
the Exemption states, in pertinent part, that the Accounts are any 
future pooled accounts (i.e., Multiple Client Accounts) or any existing 
or future single-customer accounts (i.e., Single Client Accounts).
    2. With respect to Paragraph 9 of the Summary, the Comments state 
that the discussion regarding the potential for leasing competition 
among properties held by an Account and another property held by a 
RREEF affiliate for its own account in the same real estate market, is 
not meant to refer in any way to the potential for competition between 
two properties held by two different Accounts. In the latter case, 
RREEF and the Independent Fiduciary, subject to the veto rights of the 
Client Plan(s), will determine whether it would be appropriate for a 
Leasing Affiliate to provide Leasing Services to one or both of the 
properties held by such Accounts.
    3. With regard to Paragraph 10 of the Summary, the Comments state 
that the reference to the use of the same Independent Fiduciary for all 
Accounts that have properties in the same real estate market is not 
entirely accurate. In this regard, the Comments note that RREEF 
proposes to use the same Independent Fiduciary for all Accounts that 
have properties of the same type in the same real estate market. Thus, 
for example, different Independent Fiduciaries may be retained in the 
same real estate market for retail and commercial properties.
    The Department concurs with all of the Comments relating to the 
Summary.
    Accordingly, after giving full consideration to the entire record, 
including the Comments, the Department has decided to grant the 
exemption subject to the modifications and clarifications described 
above. The Comments have been included as part of the public record of 
the exemption application.
    Interested persons should note that the complete exemption file is 
available for public inspection in the Public Disclosure Room of the 
Pension and Benefits Administration, Room N-5638, U.S. Department of 
Labor, 200 Constitution Avenue, NW., Washington DC 20210.

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

Pacific Income Advisers, Inc. (PIA); Located in Santa Monica, CA

[Prohibited Transaction Exemption 98-53; Exemption Application No. D-
10324]

Exemption

Section I--Exemption Involving Plans Where PIA Is Both a Fiduciary or 
Other Party in Interest With Respect to the Plan and Investment Adviser 
of Certain Trusts in Which the Plans Invest
    The restrictions of sections 406(a) and 406(b) 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 (F) of the Code shall not 
apply to: (1) the acquisition, sale or redemption of trust units (the 
Units) in the Pacific Income Advisers Fixed-Income Group Investment 
Trust (Fixed Income Trust), the Pacific Income Advisers Short-Term 
Group Investment Trust (Short-Term Trust), the Pacific Income Advisers 
Equity Group Investment Trust (Equity Trust), and the Pacific Income 
Advisers Global Group Investment Trust (Global Trust; each a Trust and 
collectively, the Trusts), by employee benefit plans, and Individual 
Retirement Accounts (IRA's; collectively, the Plan(s)); and (2) the 
payment of fees by a Trust to Pacific Income Advisers (PIA) where PIA 
is a fiduciary or other party in interest with respect to a Plan 
investing in a Trust and the investment adviser to each of the Trusts, 
provided the conditions of Section II are met.
Section II--Conditions
    (1) (a) The investment of a Plan's assets in the each of the Trusts 
and the fees to be paid by a Trust to PIA are authorized in writing by 
a Plan fiduciary who is independent of PIA (Independent 
Fiduciary).<SUP>5</SUP> Such authorization shall be consistent with the 
responsibilities, obligations and duties imposed on fiduciaries by Part 
4 of Title I of the Act. In addition, such authorization shall be 
either: (1) Set forth in the investment management agreement between 
the Plan and PIA; (2) indicated in writing prior to each purchase or 
sale; or (3) indicated in writing prior to the commencement of a 
specified purchase or sale program in the Units of the Trusts.
---------------------------------------------------------------------------

    \5\ A fiduciary will not be deemed independent of PIA if: (1) 
such fiduciary is directly or indirectly controlled by PIA or an 
affiliate thereof; (2) such fiduciary or any officer, director, 
partner, highly compensated employee, or the relative of such 
fiduciary is an officer, director, partner, or highly compensated 
employee, of PIA or an affiliate of PIA; and (3) such fiduciary 
directly or indirectly receives any compensation or other 
consideration for that fiduciary's own personal account in 
connection with any transaction described in this exemption.
---------------------------------------------------------------------------

    (b) PIA does not provide investment advice to a Plan's Independent 
Fiduciary within the meaning of 29 CFR 2510.3-21(c)(1)(ii) with respect 
to a Plan's acquisition of Units of a Trust.
    (2) Prior to making an initial investment in the Units, each Plan's 
Independent Fiduciary shall receive the following written disclosures 
from PIA:
    (a) The proposed exemption and grant notice describing the 
exemptive relief provided herein;
    (b) The applicable Trust's Offering Memorandum, outlining the 
investment

[[Page 60409]]

objective(s) of the Trust and the policies employed to achieve these 
objectives and a description of all fees associated with investment in 
the Trust; and
    (c) The applicable Trust's Agreement and Declaration of Trust, 
disclosing the structure and manner of operation of the Trust.
    (d) A statement describing the relationship between PIA and the 
Trusts.
    (3) The Independent Fiduciary shall acknowledge in writing that the 
Plan is an ``accredited investor'' as defined in Rule 501 of Regulation 
D of the Securities Act of 1933 (1933 Act). In addition, the 
Independent Fiduciary shall acknowledge in writing that it has not 
relied upon the advice of PIA with respect to the acquisition, sale or 
redemption of the Units.
    (4) No Plan shall pay a sales commission or redemption fee, in 
connection with the acquisition, sale or redemption of the Units of the 
Trusts.
    (5) (a) No participating Plan may invest more than 25% of its total 
assets in the Global Trust.
    (b) No Plan, other than a multiple employer welfare arrangement 
(MEWA), a multiple employer trust (MET), or voluntary employee benefit 
association (VEBA), may acquire or hold Units representing more than 
20% of the assets of a Trust.<SUP>6</SUP> A MEWA, MET, or VEBA may 
acquire and hold Units representing up to 35% of the assets of either 
the Short-Term Trust or Fixed Income Trust only. As to investment in 
any other Trust, a MEWA, MET, or VEBA may not acquire or hold Units 
representing more than 20% of the assets of such Trust.
---------------------------------------------------------------------------

    \6\ A MEWA is defined in section 3 (40)(A) of the Act and 
provides benefits described in section 3(1) of the Act for employees 
of two or more employers. Although the term ``MET'' is not used or 
defined in Title I of the Act, a MET may be covered by Title I of 
the Act, to the extent that it provides benefits described in 
section 3(1) of the Act and it is established or maintained by an 
employer, an employee organization, or both. A VEBA is defined in 
section 501(c)(9) of the Code and is subject to Title I to the 
extent that it provides benefits described in section 3(1) of the 
Act and it is established or maintained by an employer, an employee 
organization, or both.
---------------------------------------------------------------------------

    (c) For purposes of determining the percentage of the assets of a 
Trust being held by a single Plan, PIA shall first make the calculation 
90 days after the first Unit of a Trust is sold to such Plan.
    (6)(a) At the time the transactions are entered into, the terms of 
the transactions shall be at least as favorable to the Plans as those 
obtainable in arm's length transactions between unrelated parties.
    (b) PIA, including any officer or director of PIA, does not 
purchase or sell shares of the Trusts from or to any Plan Client.
    (c) The price paid or received by a Plan Client for Units of a 
Trust is the net asset value per Unit at the time of the transaction 
and it is the same price which would have been paid or received for the 
Units of a Trust by any other investor at that time. For purposes of 
this paragraph, the term ``net asset value'' means the amount for 
purposes of pricing all purchases and sales calculated by dividing the 
value of all securities, determined by an objective method as set forth 
in each Trust's relevant Trust documents and Trust Offering Memorandum, 
and other assets belonging to the Trust, less the liabilities charged 
to such Trust, by the total number of Units of the Trust.
    (7) The combined total of all fees paid by a participating Plan 
shall constitute no more than reasonable compensation within the 
meaning of section 408(b)(2)of the Act.
    (8) The Plan does not pay any Plan-level investment management 
fees, investment advisory fees or similar fees to PIA with respect to 
any of the assets of such Plan which are invested in Units of a Trust. 
This condition does not preclude the payment of investment advisory or 
similar fees by the Trusts to PIA under the terms of investment 
management agreements between PIA and each of the Trusts.
    (9) All authorizations and approvals made by the Independent 
Fiduciary regarding investment in a Trust and the fees paid to PIA are 
subject to an annual reauthorization wherein any such prior 
authorization shall be terminable at will by the Plan, without penalty 
to the Plan, upon written notice of termination. A form expressly 
providing an election to terminate the authorization (the Termination 
Form) with instructions on the use of the form must be supplied to the 
Independent Fiduciary no less than annually; provided that the 
Termination Form need not be supplied sooner pursuant to paragraph (10) 
below. The Termination Form must include the following information:
    (a) The authorization is terminable at will by the Plan, without 
penalty to the Plan, upon receipt by PIA of written notice from the 
Independent Fiduciary; and
    (b) Failure of the Independent Fiduciary to return the Termination 
Form will result in continued authorization of PIA to continue to 
engage in the transactions described in Sections I.
    (10) PIA will provide, at least 30 days in advance of the 
implementation of an additional service to a Trust by PIA or a fee 
increase for investment management, investment advisory or similar 
services, a written notice to the Independent Fiduciary of the Plan 
Client explaining the nature and amount of the additional service for 
which a fee is charged or the increase in fees.
    (11) Each Plan shall receive the following:
    (a) A monthly report disclosing the performance and the value of 
the Plan's investment in each of the Trusts. Such monthly report shall 
disclose the extent to which assets of a Plan have been shifted between 
the Trusts by PIA and any fee differential resulting from such shifting 
between the Trusts;
    (b) An audited financial statement of each of the Trusts in which a 
Plan is invested, prepared annually by a independent, certified public 
accountant, including a list of investments of each Trust and their 
valuations, provided to the Plan not later than 45 days after the end 
of the period to which the report relates; and
    (c) An annual statement of a Plan's percentage interest in each 
Trust and the value of the Plan's Units, provided to the Plan not later 
than 45 days after the end of the period to which the report relates. 
Such report shall also include the total fees paid to PIA by each 
Trust. Further, such report shall also include the brokerage fees paid 
by each Trust to unrelated broker-dealers, as well as the total of all 
fees and expenses paid by PIA to third parties.
    (12) Brokerage transactions for the Trusts are performed by 
entities unrelated to PIA for no more than reasonable compensation 
within the meaning of section 408(b)(2) of the Act.
    (13) PIA shall maintain, for a period of six years, the records 
necessary to enable the persons described in paragraph (14) of this 
section to determine whether the conditions of this exemption have been 
satisfied, except that (a) prohibited transaction will not be 
considered to have occurred if, due to circumstances beyond the control 
of PIA, the records are lost or destroyed prior to the end of the six 
year period, and (b) no party in interest other than PIA 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 (14) below.
    (14) (a) Except as provided in section (b) of this paragraph and 
notwithstanding any provisions of subsection (a)(2) and (b) of section 
504 of the Act, the records referred to in paragraph (13) of this 
section shall be unconditionally available at their

[[Page 60410]]

customary location during normal business hours for examination by:
    (1) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service (the Service);
    (2) Any Independent Fiduciary of a Plan investing in a Trust, or 
any duly authorized representative of such fiduciary;
    (3) Any contributing employer to any Plan investing in a Trust, or 
any duly authorized employee representative of such employer;
    (4) Any participant or beneficiary of any participating Plan 
investing in a Trust, or any duly authorized representative of such 
participant or beneficiary; and
    (5) Any other person or entity investing in a Trust.
    (b) None of the persons described above in subparagraphs (2)-(5) of 
this paragraph (14) shall be authorized to examine the trade secrets of 
PIA or commercial or financial information which is privileged.

EFFECTIVE DATE: This exemption is effective August 29, 1997.
    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 July 20, 1998 at 63 FR 
38855.

Written Comments

    The applicant submitted a letter and certain other information 
commenting on the notice of proposed exemption (the Notice) and the 
Summary of Facts and Representations contained therein (the Summary). 
The major points raised by such comments are summarized below.
    First, the applicant states that references made in the Notice to 
the ``Pacific Income Advisers International Group Investment Trust'' 
should be changed to refer to the ``Pacific Income Advisers Global 
Group Investment Trust''. Thus, the applicant requests that the first 
reference to this Trust in the operative language of the exemption 
should be changed to reflect the proper name, and that references made 
thereafter in the exemption to the ``International Trust'' should be 
changed to refer to the ``Global Trust''.
    The Department acknowledges the applicant's request and has so 
modified the language of the exemption.
    Second, with respect to Paragraphs 4, 5 and 7 of the Summary, the 
applicant's comments seek to clarify the relationships between PIA and 
its clients, including the Plans. In this regard, the applicant states 
that it is unlikely that a Plan would discontinue a separate account 
investment advisory relationship with PIA and subsequently invest all 
of its assets under PIA's management in Units of one or more of the 
Trusts. The applicant states that it would be more likely that a Plan 
would instruct PIA to sell some of the assets separately managed by PIA 
and invest the proceeds in such Units.
    Third, with respect to the discussion in Paragraph 10 of the 
Summary regarding the fees charged to Plans for investments in each of 
the Trusts, the applicant's comments state that the investment advisory 
fees payable to PIA by each Trust are subject to change. Such change 
must be approved in accordance with the terms and conditions set forth 
in the Notice and this exemption. Thus, for example, Section II(10) of 
this exemption requires that PIA provide, at least 30 days in advance 
of the implementation of any fee increase for investment management, 
investment advisory or similar services, a written notice to the 
Independent Fiduciary of the Plan explaining the increase in fees. 
Section II(9)(a) and (b) also requires that the Independent Fiduciary 
be provided with a Termination Form which allows the Plan to authorize 
such a fee increase under the procedures described therein.
    The Department acknowledges these and other clarifications to the 
information contained in the Summary, as stated in the applicant's 
comment letter and accompanying materials.
    Accordingly, the Department has determined to grant the exemption 
as modified.

FOR FURTHER INFORMATION CONTACT: Ms. Janet Schmidt of the Department, 
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 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 4th day of November, 1998.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, Department of Labor.
[FR Doc. 98-29963 Filed 11-6-98; 8:45 am]
BILLING CODE 4510-29-P