[Federal Register Volume 61, Number 101 (Thursday, May 23, 1996)]
[Notices]
[Pages 25909-25912]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-12984]
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DEPARTMENT OF LABOR
[Prohibited Transaction Exemption 96-38; Exemption Application No. D-
09410, et al.]
Grant of Individual Exemptions; RREEF USA Fund
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Grant of Individual Exemptions.
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SUMMARY: This document contains exemptions issued by the Department of
Labor (the Department) from certain of the prohibited transaction
restrictions of the Employee Retirement Income Security Act of 1974
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
Notices were published in the Federal Register of the pendency
before the Department of proposals to grant such exemptions. The
notices set forth a summary of facts and representations contained in
each application for exemption and referred interested persons to the
respective applications for a complete statement of the facts and
representations. The applications have been available for public
inspection at the Department in Washington, D.C. The notices also
invited interested persons to submit comments on the requested
exemptions to the Department. In addition the notices stated that any
interested person might submit a written request that a public hearing
be held (where appropriate). The applicants have represented that they
have complied with the requirements of the notification to interested
persons. No public comments and no requests for a hearing, unless
otherwise stated, were received by the Department.
The notices of proposed exemption were issued and the exemptions
are being granted solely by the Department because, effective December
31, 1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR
47713, October 17, 1978) transferred the authority of the Secretary of
the Treasury to issue exemptions of the type proposed to the Secretary
of Labor.
Statutory Findings
In accordance with section 408(a) of the Act and/or section
4975(c)(2) of the Code and the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon
the entire record, the Department makes the following findings:
(a) The exemptions are administratively feasible;
(b) They are in the interests of the plans and their participants
and beneficiaries; and
(c) They are protective of the rights of the participants and
beneficiaries of the plans.
RREEF USA Fund--I (The Trust), Located in San Francisco, California
[Prohibited Transaction Exemption 96-38; Exemption Application No. D-
09410]
Exemption
The restrictions of sections 406(a), 406 (b)(1) and (b)(2) of the
Act and the sanctions resulting from the application of section 4975 of
the Code, by reason of section 4975(c)(1) (A) through (E) of the Code,
shall not apply to the receipt by RREEF America L.L.C., the investment
manager of the Trust (the Manager), of a certain performance
compensation fee (the Performance Fee) in connection with the
liquidation of the Trust, provided that the following conditions are
satisfied:
(a) The terms and the payment of the Performance Fee shall be
approved in writing, through approval of an amendment to the Group
Trust Agreement, by independent fiduciaries of the plans that
participate in the Trust (the Participating Plans);
(b) The terms of the Performance Fee shall be at least as favorable
to the Participating Plans as those obtainable in an arm's-length
transaction between unrelated parties;
(c) The total fees paid to the Manager by the Participating Plans
that have invested in the Trust, shall constitute no more than
reasonable compensation;
(d) The Performance Fee will be payable only when all of the assets
of the Trust have been completely liquidated;
(e) The Performance Fee received by the Manager will be based on
distributions, adjusted for inflation and present value, and will be
calculated using two real hurdle rates of return. The Performance Fee
will equal 10% after the Participating Plans have earned a 5% real
return on the initial value of their investment and 20% after the
Participating Plans have earned an 8% real return on the initial value
of their investment;
(f) In the event of the Manager's resignation or termination as the
investment manager to the Trust, the Investment Management Agreement
would also terminate 1 and the Manager will not receive a
Performance Fee;
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\ 1\ Unless termination was in bad faith wherein the Manager may
seek legal recourse.
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(g) The Manager or its affiliates shall maintain, for a period of
six years, the records necessary to enable the persons described in
paragraph (2) of this Section (g) to determine whether the conditions
of this exemption have been met, except that:
(1) (a) a prohibited transaction will not be considered to have
occurred if, due to circumstances beyond the control of the Manager or
its affiliates, the records are lost or destroyed prior to the end of
the six year period; and (b) no party in interest, other than the
Manager, shall be subject to the civil penalty that may be assessed
under section 502(i) of the Act or the taxes imposed by section 4975(a)
and (b) of the Code if the records are not
[[Page 25910]]
maintained or are not available for the examinations required from (2)
below.
(2) (a) Except as provided in paragraph (3) and notwithstanding any
provisions of section 504 (a)(2) and (b) of the Act, the records
referred to in paragraph (1) of this Part (g) shall be unconditionally
available at their customary location for examination during normal
business hours by:
(i) Any duly authorized employee or representative of the
Department or the Internal Revenue Service;
(ii) Any fiduciary of a Participating Plan or any duly authorized
employee or representative of such fiduciary;
(iii) Any contributing employer to a Participating Plan or any duly
authorized employee or representative of such employer; and
(iv) Any participant or beneficiary of a Participating Plan or any
duly authorized employee or representative of such participant or
beneficiary.
(3) None of the persons described above in paragraph (2)(a)(ii)-
(iv) shall be authorized to examine the trade secrets of the Manager
and its affiliates or any commercial or financial information which is
privileged or confidential.
EFFECTIVE DATE: This exemption will be effective as of January 1, 1993.
FOR FURTHER INFORMATION CONTACT: Ekaterina A. Uzlyan, U.S. Department
of Labor, telephone (202) 219-8883. (This is not a toll-free number.)
Timberland Investment Group, Inc. (Timberland) and Wachovia Bank of
Georgia, N.A. (the Investment Manager), Located in Atlanta, GA
[Prohibited Transaction Exemption 96-39; Exemption Application Nos. D-
09969 and D-09970]
Exemption
Section I. Covered Transaction
The restrictions of section 406(b)(1) and (b)(2) of the Act and the
sanctions resulting from the application of section 4975 of the Code,
by reason of section 4975(c)(1)(E) of the Code, shall not apply to the
payment of an incentive fee (the Incentive Fee) by Timberland, a
special purpose corporation which holds plan assets from the American
Telephone and Telegraph Master Trust (the AT&T Trust) and the BellSouth
Master Pension Trust (the BellSouth Trust),2 to the Investment
Manager of Timberland, a party in interest with respect to the Trusts.
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\ 2\ The AT&T Trust and the BellSouth Trust are collectively
referred to herein as the Trusts.
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This exemption is conditioned upon the requirements set forth below
in Section II.
Section II. General Conditions
(a) The investment of the assets of each Trust in Timberland,
including the terms and payment of the Incentive Fee, is approved in
writing by a Trust fiduciary who is independent of the Investment
Manager and its affiliates (the Independent Fiduciary).
(b) Each Trust participating in Timberland has total assets that
are in excess of $50 million and no Trust has invested more than one
percent of its assets in Timberland.
(c) The terms of the Trusts' investment management agreements for
Timberland, including the Incentive Fee, are at least as favorable to
the Trusts as those obtainable in an arm's length transaction with an
unrelated party.
(d) Prior to investing in Timberland, each Independent Fiduciary
entered into an agreement with the Investment Manager disclosing all
material facts concerning the purpose, structure and operation of
Timberland including the fee arrangements.
(e) With respect to its ongoing participation in Timberland, each
Trust receives the following written documentation from the Investment
Manager:
(1) Audited financial statements of Timberland prepared by
independent, qualified public accountants on an annual basis, which
disclose the fees that are paid to the Investment Manager and its
affiliates.
(2) Quarterly valuations, transmitted routinely to the Trusts,
which indicate the fair market value of Timberland's assets as
established by appraisers who are independent of the Investment Manager
and its affiliates.
(3) Upon request, valuations performed by independent appraisers at
three year intervals which determine the underlying land value of
Timberland.
(4) Upon request, a timber inventory valuation of Timberland
performed every five years by independent, registered consulting
foresters in order to determine timber volume and growth rates.
(f) The total fees paid to the Investment Manager constitute no
more than reasonable compensation.
(g) The Incentive Fee is payable to the Investment Manager upon the
complete liquidation of the Trusts' account in Timberland (the
Timberland Account) and only if the Trusts recover distributions equal
to their initial investments in Timberland.
(h) In the event that the Investment Manager resigns or is removed
prior to the complete liquidation of the Timberland Account,
(1) The Trusts will appoint a successor Investment Manager to
effect the liquidation of such account.
(2) The Incentive Fee will not be paid to the former Investment
Manager until the complete liquidation of the Timberland Account takes
place.
(3) The Incentive Fee will only be paid to the former Investment
Manager if it represents the lowest of three fee amounts.
(i) The Investment Manager maintains, for a period of six years,
the records necessary to enable the persons described in paragraph (i)
of this Section to determine whether the conditions of this exemption
have been met, except that (1) a prohibited transaction will not be
considered to have occurred if, due to circumstances beyond the control
of the Investment Manager and/or its affiliates, the records are lost
or destroyed prior to the end of the six year period, and (2) no party
in interest other than the Investment Manager shall be subject to the
civil penalty that may be assessed under section 502(i) of the Act, or
to the taxes imposed by section 4975(a) and (b) of the Code, if the
records are not maintained, or are not available for examination as
required by paragraph (i) below.
(i)(1) Except as provided in section (2) of this paragraph and
notwithstanding any provisions of subsections (a)(2) and (b) of section
504 of the Act, the records referred to in paragraph (i) of this
Section shall be unconditionally available at their customary location
during normal business hours by:
(A) Any duly authorized employee or representative of the
Department or the Internal Revenue Service (the Service);
(B) Any fiduciary of a plan (the Plan) participating in the Trusts
or any duly authorized representative of such fiduciary;
(C) Any contributing employer to any Plan participating in the
Trusts or any duly authorized employee representative of such employer;
and
(D) Any participant or beneficiary of any Plan participating in the
Trusts, or any duly authorized representative of such participant or
beneficiary.
(2) None of the persons described above in subparagraphs (B)-(D) of
this paragraph (i) shall be authorized to examine the trade secrets of
the Investment Manager or commercial or financial information which is
privileged or confidential.
Section III. Definitions
For purposes of this exemption:
(a) An ``affiliate'' of the Investment Manager includes--
[[Page 25911]]
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with the Investment Manager. (For purposes of this subsection, the term
``control'' means the power to exercise a controlling influence over
the management or policies of a person other than an individual.)
(2) Any officer, director, employee, relative of, or partner of any
such person, and
(3) Any corporation or partnership of which such person is an
officer, director, partner or employee.
(b) The term ``control'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.
(c) An ``Independent Fiduciary'' is a Trust fiduciary which is
independent of the Investment Manager and its affiliates.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on December 8, 1995 at 60 FR
63065.
Written Comments
The Department received 54 written comments with respect to the
notice of proposed exemption and no requests for a public hearing. The
written comments were submitted by participants in the BellSouth Trust
and were essentially the same, with the commentators expressing their
concern that the granting of the exemption would somehow jeopardize the
security of the participants' pension rights under Plans investing in
the BellSouth Trust.
In response to these concerns, the Investment Manager represented
that participants' pension rights would not be adversely affected by
the granting of the exemption because the estimated annualized rate of
return attributed to assets of the Trusts invested in Timberland, net
of expenses, would be 11.02 percent if the Incentive Fee was imposed
and 10.49 percent if the exemption was not granted. The Investment
Manager noted that these estimates were based on both actual and
estimated earnings generated by the timberland under its management to
date.
The Investment Manager noted that if the value of any remaining
timberland held by Timberland was to decline significantly before the
liquidation of Timberland was completed, the rate of return to the
Trusts also would be reduced. Such a reduction, according to the
Investment Manager, would occur whether or not the exemption was
granted. If the exemption was granted, the Investment Manager stated
that it would receive a lower Incentive Fee assuming the investment
return to the Trusts was reduced.
Thus, after giving full consideration to the entire record, the
Department has decided to grant the subject exemption. The comment
letters have been included as part of the public record of the
exemption application. The complete application file, including all
supplemental submissions received by the Department, is made available
for public inspection in the Public Documents Room of the Pension and
Welfare Benefits Administration, Room N-5638, U.S. Department of Labor,
200 Constitution Avenue, N.W., Washington, D.C. 20210.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Herzog, Heine, Geduld, Inc., Located in New York, New York
[Prohibited Transaction Exemption 96-40; Exemption Application No. D-
10018]
Exemption
The sanctions resulting from the application of section 4975 of the
Code by reason of section 4975(c)(1)(A) through (D) of the Code, shall
not apply to the extension of credit between Herzog, Heine, Geduld,
Inc. (HHG) and various individual retirement accounts for which HHG
serves as passive trustee or custodian (the HHG IRA or HHG IRAs)
resulting from the in-kind transfer to HHG IRAs at the direction of the
owners of such HHG IRAs of certain senior subordinated notes (the
Notes) issued by HHG, and thereafter the holding of such Notes by the
HHG IRAs; provided that: (1) officers, directors, and employees in HHG
who are also owners of HHG IRAs do not participate in the transactions;
(2) the owners of the HHG IRAs have exclusive responsibility and
control over the investment of the assets of such accounts; (3) HHG has
no discretionary authority or control with respect to the investment of
the assets of the HHG IRAs involved in the transactions, nor does HHG
render investment advice (within the meaning of 29 CFR 2510.3-21(c))
with respect to those assets; (4) a separate accounting of the assets
in the HHG IRAs, including the Notes which have been acquired by such
accounts, will be maintained by HHG; (5) the value of the Notes in each
HHG IRA will at no time exceed 25 percent (25%) of the value of the
assets of each HHG IRA; (6) the HHG IRAs will pay no fees or
commissions in connection with the transactions; and (7) the combined
total of all fees received by HHG for the provision of services to the
HHG IRAs is not in excess of ``reasonable compensation'' within the
meaning of section 4975(d)(2) of the Code.3
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\ 3\ Pursuant to 29 CFR 2510.3-2(d), the HHG IRAs are not
within the jurisdiction of Title I of the Act. However, there is
jurisdiction under Title II of the Act, pursuant to section 4975 of
the Code.
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For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption refer to
the Notice published on March 22, 1996 at 61 FR 11892.
FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the
Department, telephone (202) 219-8883 (This is not a toll-free number.)
The Buchanan Broadcasting Co., Inc. Profit Sharing Plan and Trust (the
Plan), Located in Birmingham, AL
[Prohibited Transaction Exemption 96-41; Exemption Application Nos. D-
10133 and D-10134]
Exemption
The restrictions of sections 406(a), 406(b)(1) and (b)(2) of the
Act and the sanctions resulting from the application of section 4975 of
the Code, by reason of section 4975(c)(1)(A) through (E) of the Code,
shall not apply to the leasing of certain office space in a building
(the Property) by the individual account of Robert M. Buchanan, Jr.
(the Account) in the Plan to Buchanan Broadcasting Co., Inc. (Buchanan
Broadcasting) and to Westwood Square, Ltd. (Westwood Square), both
parties in interest with respect to the Plan, provided that the
following conditions are satisfied:
(a) The terms and conditions of the leases are and continue to be
at least as favorable to the Account as those the Account could obtain
in comparable arm's length transactions with unrelated parties;
(b) The rent charged by the Account under the leases is and
continues to be no less than the fair market rental value of the
Property, as established every three years by the independent property
manager;
(c) At all times, the fair market value of the leased premises
represents no more than 25 percent of the total assets of the Account;
(d) Mr. Buchanan is the only participant of the Plan to be affected
by the proposed transactions; and
(e) Within 90 days of the publication in the Federal Register of a
notice granting this proposed exemption, both Buchanan Broadcasting and
Westwood Square file Form 5330 with the Internal Revenue Service (the
Service) and pay
[[Page 25912]]
all excise taxes applicable under section 4975(a) of the Code that are
due by reason of certain prior prohibited lease transactions.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on April 4, 1996 at 61 FR
15142.
FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
James Flynn & Associates, Ltd. Pension Plan (the Plan), Located in
Scottsdale, Arizona
[Prohibited Transaction Exemption 96-42; Exemption Application No. D-
10164]
Exemption
The sanctions resulting from the application of section 4975 of the
Code, by reason of section 4975(c)(1) (A) through (E) of the Code,
shall not apply to: (1) the transfer of a parcel of real property (Lot
1) to the Plan by James T. and Britt Marie Flynn (the Flynns),
disqualified persons with respect to the Plan, together with a cash
payment by the Flynns to the Plan of $29,000, and (2) the transfer of a
parcel of real property (Lot 2) by the Plan to the Flynns, provided the
following conditions are satisfied: (a) the Plan receives not less than
the fair market value of Lot 2 as of the date of the transfers; (b) the
fair market values of Lots 1 and 2 are determined by a qualified,
independent appraiser; and (c) the Flynns are the only participants in
the Plan to be affected by the transactions, and they both desire that
the transactions be consummated.4
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\ 4\ Since Mr. Flynn is the sole stockholder of JFA and the
Flynns are the only participants in the Plan, there is no
jurisdiction under Title I of the Act pursuant to 29 CFR 2510.3-3
(b) and (c). However, there is jurisdiction under Title II of the
Act pursuant to section 4975 of the Code.
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For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on April 4, 1996 at 61 FR
15144.
FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Pierre W. Mornell, M.D., A Sole Proprietorship, Defined Benefit Plan
(the Plan), Located in Mill Valley, California
[Prohibited Transaction Exemption 96-43; Exemption Application No. D-
10170]
Exemption
The sanctions resulting from the application of section 4975 of the
Code, by reason of section 4975(c)(1) (A) through (E) of the Code,
shall not apply to the sale of certain unimproved real property located
in Mill Valley, California (the Property) by the Plan to Pierre W.
Mornell and Linda C. Mornell, parties in interest with respect to the
Plan; provided that the following conditions are satisfied:
(A) All terms and conditions of the transaction are no less
favorable to the Plan than those which the Plan could obtain in an
arm's-length transaction with an unrelated party;
(B) The Plan receives a cash purchase price for the Property in the
amount of the fair market value of the Property; and
(C) The Plan does not incur any expenses or suffer any loss with
respect to the transaction.
For a more complete statement of the facts and representations
supporting this exemption, refer to the notice of proposed exemption
published on March 22, 1996 at 61 FR 11894.
FOR FURTHER INFORMATION CONTACT: Ronald Willett of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions to which the exemptions does not
apply and the general fiduciary responsibility provisions of section
404 of the Act, which among other things require a fiduciary to
discharge his duties respecting the plan solely in the interest of the
participants and beneficiaries of the plan and in a prudent fashion in
accordance with section 404(a)(1)(B) of the Act; nor does it affect the
requirement of section 401(a) of the Code that the plan must operate
for the exclusive benefit of the employees of the employer maintaining
the plan and their beneficiaries;
(2) These exemptions are supplemental to and not in derogation of,
any other provisions of the Act and/or the Code, including statutory or
administrative exemptions and transactional rules. Furthermore, the
fact that a transaction is subject to an administrative or statutory
exemption is not dispositive of whether the transaction is in fact a
prohibited transaction; and
(3) The availability of these exemptions is subject to the express
condition that the material facts and representations contained in each
application accurately describes all material terms of the transaction
which is the subject of the exemption.
Signed at Washington, D.C., this 20th day of May, 1996.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 96-12984 Filed 5-22-96; 8:45 am]
BILLING CODE 4510-29-P
