Grant of Individual Exemptions; RREEF USA Fund

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