Grant of Individual Exemption to Make Permanent as Modified Prohibited Transaction Exemption (PTE) 91–8 Involving Equitable Life Assurance Society of the United States and its Affiliates (Equitable) and Equitable Real Estate Management, Inc. (ERE), Located in New York, New York

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Prohibited Transaction Exemption 97-33;

Exemption Application No. D-10011]

Grant of Individual Exemption to Make Permanent as Modified

Prohibited Transaction Exemption (PTE) 91-8 Involving Equitable Life

Assurance Society of the United States and its Affiliates (Equitable)

and Equitable Real Estate Management, Inc. (ERE)1, Located

in New York, New York

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\1\ By letter dated April 23, 1997, the applicants have informed

the Department that Equitable has agreed to sell ERE to Lend Lease

Corporation Limited, effective on or about June 10, 1997. Lend Lease

Corporation Limited is an Australian-based real estate and financial

management company with substantial business operations in the

United States. Also, see the comment submitted by Equitable and ERE

regarding the status of ERE under this exemption.

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AGENCY: Pension and Welfare Benefits Administration, Department of

Labor.

ACTION: Grant of individual exemption to make permanent as modified PTE

91-8, which involves Equitable and ERE.

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SUMMARY: This document contains a final individual exemption to make

permanent as modified the temporary relief provided by PTE 91-8 (56 FR

1411/1419, January 14, 1991). PTE 91-8 is a temporary exemption which

expired January 13, 1996. This exemption makes permanent as modified

PTE 91-8 and provides relief for the provision of property management

and/or leasing services by ERE to an Account (as defined in Section IV

below), provided that the conditions set forth in Section II are met.

EFFECTIVE DATE: The Department of Labor is extending the temporary

exemptive relief provided under PTE 91-8 until the date the final

exemption is published in the Federal Register. However, effective

January 13, 1996 until the date the final exemption is published in the

Federal Register, Equitable and ERE have a period of up to 90 days

after the end of each calendar year to prepare the annual report

required by this exemption pursuant to Section II(4)(a).

Thereafter, PTE 91-8, as modified and made permanent, is effective

on the date the final exemption is published in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Ekaterina A. Uzlyan, Office of

Exemption Determinations, U.S. Department of Labor, telephone (202)

219-8883. (This is not a toll-free number.)

SUPPLEMENTARY INFORMATION: On September 6, 1996, the Department of

Labor (the Department) published in the Federal Register (61 FR 47205/

47214) a notice of proposed exemption to make permanent as modified PTE

91-8 (the Notice). PTE 91-8 provides an exemption from the restrictions

of section 406(a), 406(b)(1) and 406(b)(2) of the Employee Retirement

Income Security Act of 1974 (the Act) and from the sanctions resulting

from the application of section 4975 of the Internal Revenue Code of

1986 (the Code), by reason of section 4975(c)(1) (A) through (E) of the

Code.

This exemption to make permanent PTE 91-8 was requested in an

exemption application by Equitable and ERE pursuant to section 408(a)

of the Act and section 4975(c)(2) of the Code, and in accordance with

the procedures set forth in 29 CFR part 2570, subpart B (55 FR 32836,

August 10, 1990). Effective December 31, 1978, section 102 of

Reorganization Plan No. 4 of 1978 (43 FR 47713, October 17, 1978)

transferred the authority of the Secretary of the Treasury to issue

exemptions of the type requested to the Secretary of Labor.

Accordingly, this exemption to make permanent PTE 91-8 is being issued

solely by the Department.

The Notice gave interested persons an opportunity to comment on the

proposed exemption and to request a hearing. The Department received

five written comments. Three comments and an additional clarifying

comment were filed by the representatives of certain pension plans that

currently participate in one or more of the Accounts to which ERE

provides property management and/or leasing services as described

herein. The comments generally raised issues about certain aspects of

the Notice, and were subsequently sent by the Department to Equitable

and ERE for their response. Set forth below in paragraph 2 is a list of

each of the points made by the commentators together with the responses

to those points from Equitable and ERE and Jackson Cross Company as the

Independent Fiduciary for the transactions described herein.

The fourth and fifth comment were filed by Equitable and ERE and

generally request clarifications and modifications to the Notice.

Accordingly, upon consideration of the entire record, including the

written comments, the Department has determined to grant the exemption

subject to certain modifications. 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 September 6, 1996 at 61

FR 47205/47214.

A summary description of PTE 91-8 and this exemption; a discussion

of the comments; and the Department's modifications are addressed

below.

1. Description of PTE 91-8 and of this exemption

This exemption makes permanent as modified PTE 91-8. PTE 91-8 was a

temporary individual exemption which permits the provision of certain

real estate property management and, in some instances, leasing

services by EREIM 2, affiliates of EREIM and Tishman Speyer

Properties 3, to various real estate separate accounts (the

Accounts) in which employee benefit plans participate. The Accounts are

managed by Equitable, EREIM or subsidiaries thereof. PTE 91-8 also

permitted the provision, by the law department of Equitable, of certain

legal services to the Accounts required in connection with individual

properties held by the Accounts 4. This exemption to make

permanent as modified PTE 91-8 was requested by Equitable and ERE

pursuant to Paragraphs IX and X of the notice of proposed exemption

relating to PTE 91-8 that was published in the Federal Register on

February 28, 1990 at 55 FR 7057/7069. Furthermore, pursuant to

Paragraphs IX and X of the notice of proposed exemption relating to PTE

91-8, the application for a

[[Page 33926]]

permanent exemption was to include a report from the Independent

Fiduciary expressing such fiduciary's views and rationales with respect

to making PTE 91-8 permanent, and whether the Independent Fiduciary

under PTE 91-8 believes that cost savings have been achieved for the

Accounts. In this regard, Jackson Cross Company (Jackson Cross), as the

Independent Fiduciary for property management and leasing services

under PTE 91-8, prepared a report regarding cost savings achieved by

the Accounts (the Report). In the Report, Jackson Cross stated that the

property management and leasing services rendered by Compass Management

and Leasing and Compass Retail, two wholly-owned subsidiaries of ERE,

to the Accounts resulted in substantial savings for the benefit of the

Accounts.

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\2\ At the time PTE 91-8 was granted, ERE or Equitable Real

Estate Investment Management, Inc. was known as EREIM, and was an

indirect wholly owned subsidiary of Equitable.

\3\ In the Notice, Equitable represented that Tishman Speyer

Properties (TSP), a partnership in which Equitable had a 50 percent

ownership interest at the time PTE 91-8 was issued, is no longer

affiliated with Equitable, and requested that this exemption be

inapplicable to TSP. Accordingly, the Department determined that

this exemption will not apply to TSP.

\4\ In the Notice, Equitable represented that under PTE 91-8 the

exemption for the provision of legal services to the Accounts by

Equitable's in-house law department was never implemented.

Therefore, Equitable requested that this exemption eliminate

reference to the relief for the provision of legal services by the

law department to the Accounts. Accordingly, in this exemption the

Department eliminates relief for the provision of legal services by

the law department to the Accounts.

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As stated briefly above, this exemption will permit, on a permanent

basis, the provision of property management and/or leasing services by

ERE to an Account, provided that the conditions set forth in Section II

are met. These conditions require extensive structural safeguards

intended to ensure that the transactions described in this exemption

operate in the interests of the Accounts and the plans participating

therein.

Although PTE 91-8 expired on January 13, 1996, the Department has

determined to extend the temporary exemptive relief provided under PTE

91-8 from January 13, 1996, until the date the final exemption is

published in the Federal Register. Thereafter, PTE 91-8, as modified

and made permanent, is effective on the date the final exemption is

published in the Federal Register.

2. Discussion of the Comments

a. Annual Reconfirmation of the Independent Fiduciary

One of the modifications to PTE 91-8 proposed by the Department

provided for a procedure pursuant to which authorizing fiduciaries of

the plans participating in the Accounts which do not vote in the annual

reconfirmation of the Independent Fiduciary would be deemed to support

continuation of that Independent Fiduciary. The commentators assert

that ``the right to vote in favor or against reconfirmation is an

important investor privilege,'' but add that the right to vote ``should

not be given up simply by the passage of time.'' Consequently, the

commentators urge that a lack of a timely response from investors

(within 30 days) should not be interpreted as a vote in favor of

reconfirmation of the Independent Fiduciary.

Equitable and ERE agree that the annual reconfirmation procedure is

an important protective element of this exemption, but do not believe

that a requirement for an affirmative vote is needed to preserve the

integrity of this procedure. In administering the multiple services

program under PTE 91-8, Equitable and ERE have learned that the

authorizing fiduciaries sometimes delay returning, or simply fail to

return, the ballot for reconfirmation even though they do not object,

and in fact support, the continued service of the Independent

Fiduciary. This can be detrimental not only to the plan represented by

such an authorizing fiduciary, but also to all the other plans that

participate in the Accounts. An authorizing fiduciary's failure to

respond to the reconfirmation request by returning the ballot in a

timely fashion creates uncertainty as to whether the exemption will

continue to be available for ERE and its affiliates to continue

providing property management and leasing services to the Accounts.

Therefore, in the event Equitable and ERE do not receive a requisite

number of affirmative votes, there is a risk that the multiple services

program will have to be discontinued and, accordingly, the savings to

the Accounts will be lost. It is the view of Equitable and ERE that the

commentators have not given sufficient attention to this risk.

Equitable and ERE believe that there is an acceptable alternative

to the affirmative reconfirmation procedure envisioned by the

commentators. Equitable and ERE propose instituting additional

procedures to assure that each authorizing fiduciary has an opportunity

to vote and that the implications of a vote or a failure to vote are

made clear. These procedures would include: (i) A requirement that each

authorizing fiduciary be provided a ballot by certified mail (or

another method of delivery pursuant to which confirmation of receipt is

provided); (ii) a requirement that the ballot clearly indicate that the

authorizing fiduciary may vote for or against continuation of the

Independent Fiduciary; (iii) a requirement that the ballot must be

accompanied by a statement that failure to return the ballot within 45

days after receipt of the ballot will be counted as a ``for'' vote; and

(iv) a requirement that 30 days after Equitable or ERE mails the ballot

to the authorizing fiduciary, Equitable and ERE must make at least one

follow-up contact with the authorizing fiduciary that has not

previously returned the ballot prior to treating the unreturned ballot

as a ``for'' vote. If Equitable or ERE does not receive a response from

the authorizing fiduciary within 15 days after initiating contact with

the authorizing fiduciary, Equitable and ERE may treat the unreturned

ballot as a vote for reconfirmation. The reconfirmation would be

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 fiduciaries' receipt

of the ballots (unless holders of a majority of the units of beneficial

interests in the Accounts have voted against reconfirmation).

Therefore, to address the commentators' concern regarding the right

to vote and the integrity of the voting process, Equitable and ERE

believe that the following paragraph should be substituted in place of

the language that is currently in paragraph (b) at the end of Section

II(4), such that the new Section II(4)(b) should read as follows:

``Equitable or ERE implements procedures to ensure each authorizing

fiduciary has an opportunity to vote on the reconfirmation of the

Independent Fiduciary. These procedures require that Equitable or ERE:

(i) Provide each authorizing fiduciary with a ballot by certified mail

(or another method of delivery pursuant to which confirmation of

receipt is provided); (ii) ensure that the ballot clearly indicates

that the authorizing 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 authorizing 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 Equitable and ERE mails the

ballot to the authorizing fiduciary, Equitable and ERE must make at

least one follow-up contact with the authorizing fiduciary that has not

previously returned the ballot prior to treating the unreturned ballot

as a ``for'' vote. If Equitable or ERE does not receive a response from

the authorizing fiduciary within 15 days after initiating contact with

the authorizing fiduciary, Equitable and ERE 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

[[Page 33927]]

authorizing fiduciaries' receipt of the ballots (unless holders of a

majority of the units of beneficial interests in the Accounts have

voted against reconfirmation.)''

In this way, it will be confirmed that each of the authorizing

fiduciaries has received a hard copy of the ballot, and that each

authorizing fiduciary has the right to exercise its voting power if it

so desires.

The Department concurs with this suggestion and has incorporated

the language stated above into a new paragraph (b) at the end of

Section II(4) of this exemption.

b. The 90-day Annual Reporting Time Frame

The Notice specified that Equitable and ERE would have a period of

up to 90 days after the end of each calendar year to prepare the annual

report required by this exemption. The commentators object to this

modification, although they recognize Equitable and ERE's need for

additional time to produce the annual report, and therefore indicate

that they are less averse to ``* * * some additional time for this type

of special report (e.g., 60 days after quarter end) * * *''.

Equitable and ERE note that with respect to the annual reports

previously prepared, Equitable had to frequently rely on estimated,

rather than actual data. When Equitable relied only on estimated data

it could meet the 45-day time frame provided by PTE 91-8. However,

Equitable and ERE believe it would be in the interest of the Accounts

and the plans participating therein, to receive an annual report which

is based on actual financial information.5

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\5\ However, the annual report would still contain some

information garnered from estimated data, but such information would

be minimal and in conformance with standard accounting procedures.

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Equitable and ERE believe that it would be appropriate for the

Accounts to wait a modest amount of time in order to obtain a more

accurate annual report. However, in response to the commentators'

concerns, the applicants propose that Equitable and ERE would have a

period of 75 days after the end of each calendar year to prepare the

annual report required by this exemption. The 75-day period is

necessary because: (i) The preparation of the annual report involves

two different entities, ERE and the Independent Fiduciary, which have

manually-intensive computation responsibilities; and (ii) the extensive

financial information that ERE must compile is a major part of an

annual report, and such information is not generally available until

sometime early in the second month following year-end. Thus, Equitable

and ERE cannot even initiate the process for preparing an annual report

containing actual data until after that time.

Furthermore, ERE's responsibilities include preparing a separate

package of information with respect to each property. This package

includes information extracted from the property's year-end financial

results, budget projections, an analysis of market conditions, ERE's

internal valuations, and projections for management and leasing fees.

At this stage, the appropriate ERE manager reviews for accuracy the

data compiled manually for each package and tests overall property and

portfolio limitations. ERE then finalizes each package of information

by including additional property-specific information.

In this regard, the Department concurs with Equitable and ERE's

arguments as set forth herein, and has determined to modify Section

II(4)(a) of the Notice by substituting ``75 days'' for ``90 days'',

such that Section II(4)(a) of this exemption should read, in relevant

part: ``* * * with the Annual Report containing the information

described in this paragraph, not less frequently than once a year and

not later than 75 days following the end of the period to which the

report relates.''

c. Increase of Investment Limitation for Equitable In-House Plans

The Notice proposed to increase the investment limitation for

Equitable in-house plans from 5 percent to 10 percent, and thus,

Equitable in-house plans may invest up to 10 percent of its assets in

any Accounts covered by PTE 91-8. The commentators approve of the

increase, but maintain that Equitable in-house plans should not receive

the same voting rights as those granted to the other investors.

In their response to these comments, Equitable and ERE state that

the commentators recognize that ``* * * the right to vote * * * is an

important investor privilege.'' (See discussion at 2.a., above).

Accordingly, Equitable and ERE maintain that Equitable in-house plans,

and the participants and beneficiaries of such plans, should not be

denied their right to vote on issues affecting operation of such plans

simply because of their relationship with Equitable.

Moreover, Equitable and ERE propose and represent that Equitable's

in-house plans continue to have voting rights equivalent to other non-

Equitable plan investors. However, to address the concerns of the

commentators, Equitable and ERE represent that the votes of Equitable's

in-house plans will not be taken into account if such votes are

outcome-dispositive with respect to any issue, including the annual

reconfirmation of the Independent Fiduciary, a matter that was of

particular concern to the commentators. Therefore, Equitable and ERE

propose that the following language be added as a new paragraph(d) in

Section II(10) of this exemption:

``Equitable in-house plans shall have the same voting rights as

those given to non-Equitable plan investors. However, the votes of

Equitable in-house plans shall be disregarded if such votes are

outcome-dispositive with respect to any issue.''

The Department concurs with this suggestion and has modified

Section II(10) of this exemption by adding new paragraph (d).

d. Proposed Increase in Maximum Leasing Commission

The Notice proposes an increase in the fee ceiling amount to ERE

for leases involving outside brokers from 1 percent to 2.75 percent of

the lease amount. The commentators suggest that ``the proposed fee

increase is substantial and the maximum fee appears high.'' The

commentators also maintain that because leasing structures vary by

market, they desire to review the leasing commission survey prepared by

Equitable to evaluate the reasonableness of the proposed threshold.

The preamble to the Notice explained that Equitable and ERE have

determined that the 1 percent limitation was not consistent with the

current practice of establishing leasing commissions for transactions

involving outside brokers. Equitable and ERE further determined that in

most leasing markets, such co-broker leasing fees for the project

leasing broker are computed at fifty percent (50%) of the normal new or

renewal lease commission fee, which is typically between four (4%) and

seven (7%) percent of the total lease payments. Before requesting an

increase in the fee limitation, Equitable and ERE obtained an opinion

from Jackson Cross, the Independent Fiduciary for property management

and leasing services. Accordingly, Mr. Charles F. Seymor, CRE, MAI and

chairman of Jackson Cross, stated that based on their experience and

studies, leasing fees vary with building size and the competitive

situation in individual markets. In most markets, the project leasing

broker received 50% of the normal new or releasing commission. Jackson

Cross concluded that because the normal full

[[Page 33928]]

leasing commission is typically in the range of 4% to 7% of the one

year lease amount, the project leasing broker usually received 2% to

3.5% of the annual lease amount. Accordingly, Jackson Cross concluded

that restricting ERE to a maximum fee of 1% does not provide adequate

compensation and that a higher fee may be required to adequately

compensate the responsible agent. Jackson Cross recommended that this

ceiling be raised to 2.75%,6 still subject to the

requirement that the Independent Fiduciary must certify an economic

benefit to the Accounts before the terms of each contract for leasing

and management services are approved. Mr. Seymor of Jackson Cross

explained that the proposed maximum 2.75% fee is ample enough to

provide adequate incentive to ERE for co-brokered transactions, while

providing an economic advantage to the Accounts, when viewed against

market data. Furthermore, Jackson Cross reviewed their own and outside

contractual fees negotiated for leasing services, derived from data

covering 92 properties in 33 separate markets in 24 states. Also,

Jackson Cross reviewed additional relevant market data and consulted

with established real estate professionals in the relevant market

areas. However, to address the commentators' concerns, the applicants

represent that during regular business hours, the Independent Fiduciary

will provide access to, or copies of, the survey prepared by Equitable

to the authorizing fiduciaries upon their request. The Independent

Fiduciary may assess a reasonable charge to the authorizing fiduciaries

for costs associated with providing access to, or copies of, the

survey.

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\6\ It is represented that 2.75% is the median point between the

typical project leasing broker commission range of 2% to 3.5%.

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Furthermore, Mr. Seymor reiterates, as alluded to in the Notice,

that Jackson Cross as the Independent Fiduciary, will certify that an

economic advantage to the Accounts exists before the terms of any

leasing or management service contract is approved (61 FR 47210).

Equitable and ERE also emphasize herein that the fee limitation of

2.75% is merely a ceiling, and the Independent Fiduciary would consider

a fee up to this ceiling only in cases where the market conditions

dictate that a fee higher than 1% would be warranted.

To clarify this point, Equitable and ERE suggest that the following

new language be added at the end of Section II(13)(b)(3):

``(The Independent Fiduciary must certify that an economic

advantage to the Accounts exists before consummation of any leasing or

management service contract).''

The Department concurs with this suggestion and has added this new

language at the end of Section II(13)(b)(3) of this exemption.

e. Property Management and Leasing Fees

In the notice of proposed exemption relating to PTE 91-8 published

in the Federal Register on February 28, 1990 (55 FR 7057/7069),

Equitable represented that property management and leasing fees charged

by the unaffiliated property management firms generally ranged from 4

to 5 percent of gross receipts and average approximately 4.5 percent of

the gross receipts. Paragraph X of the notice of proposed exemption

relating to PTE 91-8 provided that Equitable, in a future application

to the Department for a permanent exemption, demonstrate that the

aggregate annual property management and leasing fees charged to each

Account (including the allocable cost of the Independent Fiduciary

under the exemption) were less than 4.5 percent of the gross receipts

earned during each year that ERE or TSP has provided property

management and leasing services pursuant to the exemption.7

Also, the notice of proposed exemption relating to PTE 91-8

specifically stated that if such fees are less than 4.5 percent of the

gross receipts, Equitable believes the Department can be assured that

the exemption has operated in the best interest of the Accounts. In

this regard, the Independent Fiduciary's cost savings report submitted

to the Department in the exemption application to make PTE 91-8

permanent demonstrated that the fees charged to the Accounts under PTE

91-8 were in fact less than the 4.5 percent benchmark (61 FR 47207).

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\7\ 4.5 percent is the median point in the range.

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Two commentators suggest that the Department should not rely on the

4.5% threshold which was established in the notice of proposed

exemption relating to PTE 91-8. Alternatively, the commentators would

prefer to see separate thresholds established for property management

and leasing fees because these fees are typically calculated off

different bases (i.e., leasing commissions are generally based on the

total lease payments, and property management fees are based on gross

property revenues). Additionally, the commentators desire to review the

survey of leasing commissions and property management fees to evaluate

the reasonableness of these thresholds.

In the notice of proposed exemption relating to PTE 91-8, a 4.5

percent benchmark was the test for the initial period following the

grant of PTE 91-8. This reviewing standard was subject to change during

the period PTE 91-8 was in effect. However, under this exemption, the

4.5 percent benchmark will not, necessarily, be the standard for

periods after the expiration of PTE 91-8. The Notice proposes certain

cost saving procedures (Cost Saving Procedures) to assure continued

savings to the Accounts. Pursuant to the Cost Saving Procedures, the

Independent Fiduciary will be required to determine a typical range of

annual fees for property management and leasing services for the

Accounts. The Independent Fiduciary will also establish a new benchmark

rate for comparison for each subsequent five-year period following the

grant of this exemption.

Equitable and ERE state in their response that the approach

reflected in the Cost Saving Procedures is appropriate for arriving at

a reasonable range of property management and leasing fees, and,

ultimately, a new benchmark. In fact, as noted in the notice of

proposed exemption relating to PTE 91-8 (55 FR 7065), these procedures

are rather conservative because a zero dollar value is assigned to the

quality of property management and leasing services provided by ERE,

even when the Independent Fiduciary is mandated to take the anticipated

quality of services into account in approving ERE to provide property

services.

Furthermore, the Cost Saving Procedures require the Independent

Fiduciary to determine and document whether the Accounts have received

an economic benefit during each five-year period. In the event the

Independent Fiduciary concludes that such a benefit has not been

achieved for the Accounts, it will not approve any additional service

arrangements pursuant to the property services policy until Equitable

and ERE have demonstrated to the Independent Fiduciary that policies to

assure cost savings to the Accounts have been implemented by Equitable

and ERE (61 FR 47208 and 47213).

The Independent Fiduciary explains that, as part of its

responsibilities, it has surveyed (and as required by the Cost Saving

Procedures will continue to periodically survey) management and leasing

fees. Such surveys will be based upon a review of market information,

property performance, and outside leasing and management fees.

Additionally, each year the Independent Fiduciary reinspects

approximately one-third of the properties, and compares

[[Page 33929]]

contract leasing and management fees to other fees in the market area.

In this regard, the Independent Fiduciary acknowledges that it has

fiduciary responsibilities directly to the Accounts and the plans

participating therein.

However, Equitable and ERE and the Independent Fiduciary state that

they will meet, if requested, with the representatives of any affected

plan to answer any questions and explain the basis for the Independent

Fiduciary's conclusions. Furthermore, during regular business hours,

the Independent Fiduciary will provide access to, or copies of, the

survey prepared by Equitable to the auhorizing fiduciaries upon their

request. The Independent Fiduciary may assess a reasonable charge to

the authorizing fiduciaries for costs associated with providing access

to, or copies of, the survey.

f. Original PTE 91-8

The commentators noted that a copy of PTE 91-8 was not provided in

the materials distributed with the investor notification pursuant to

the Notice. Equitable has since provided each of the commentators with

a copy of PTE 91-8.

g. Data on Benchmark Fees

As stated above, the Notice contains the Cost Saving Procedures

which require ERE to prepare a survey of property management and

leasing fees for the properties that have similar geographic location

and property types to those held by the Accounts . The survey will

include data regarding the fees that have been charged to the Accounts

by real estate investment management firms that are unaffiliated with

Equitable and ERE. The Independent Fiduciary will review ERE's internal

survey, and will verify the accuracy of the data by independently

reviewing a sampling of the properties to which such fees apply.

The commentators express concern over Equitable and ERE

establishing a benchmark amount against which its own activities will

be judged. Alternatively, the commentators suggest that Equitable and

ERE use independent data obtained from the Internal Revenue Service

(IRS) transfer pricing database or certain national real estate

organizations.

In this regard, Equitable and ERE state that the transfer pricing

database referred to by the commentators, relates to the pricing of

goods and services between related and commonly controlled entities,

and would not be helpful in determining property management and leasing

fees that are described in the Notice. Furthermore, the Independent

Fiduciary confirms that there is no publicly available standard similar

to the transfer pricing database for Equitable and ERE to use for

leasing and property management service fees.

In its response, the Independent Fiduciary explained that it relies

on ERE to gather data with respect to property management and leasing

fees. However, the gathering of additional data and the verification

and interpretation of all data are the responsibility of the

Independent Fiduciary. Also, the Independent Fiduciary represents that

it knows of no public resources which provide adequate independent

benchmarks similar to the IRS's transfer pricing database against which

to judge fees for property management and leasing services. In fact,

individual practitioners are prohibited from sharing this information

with competitors to avoid any action which might be construed to

restrict free market competition for fees and charges. National real

estate organizations do not have this information. The response

submitted by the Independent Fiduciary concludes that it does not

believe that it would be appropriate to limit itself to one source of

data but, instead, use its own professional resources to obtain

additional market data and to verify and interpret all the data

received.

In addition, the exemption contains comprehensive safeguards,

including a qualified Independent Fiduciary to oversee the transactions

related thereto. Equitable and ERE therefore represent that these

safeguards effectively eliminate any risk that services provided to the

Accounts and fees charged under the exemption would be excessive or

unnecessary.

The Department concurs with the argument set forth by Equitable,

ERE and the Independent Fiduciary and has determined that no

modification is necessary regarding data on benchmark fees.

3. Discussion of Equitable's and ERE's Comments

a. Sale of ERE to the Lend Lease Corporation Limited

By letter dated April 23, 1997, Equitable and ERE have notified the

Department that on April 10, 1997, Equitable has agreed to sell ERE to

Lend Lease Corporation Limited (Lend Lease), an Australian-based real

estate and financial management company with substantial business

operations in the United States (the Sale). The Sale is expected to

close on or about June 10, 1997. The transaction is contingent on the

receipt of various regulatory approvals and the satisfaction of various

conditions. As part of the Sale, Lend Lease will also purchase Compass

Management and Leasing, Inc. and Compass Retail, Inc. (collectively;

Compass), wholly-owned subsidiaries of ERE. As a result of the Sale,

ERE will cease to be a wholly-owned subsidiary of Equitable.

After consummation of the Sale, Equitable anticipates that ERE will

continue to serve as investment advisor to Equitable in connection with

the performance by Equitable of its duties as investment manager for

the Accounts as described herein. Thus, the responsibilities of

Equitable and ERE with respect to the Accounts will be unchanged in all

material respects after consummation of the Sale. The exemption is

still needed because Equitable will continue to rely on ERE to select

persons to provide property management and related services permitted

by the exemption, and in many cases, ERE may determine that ERE or an

affiliate is best suited to provide those services. As is presently the

case, ERE may be considered to be acting as a fiduciary in these

circumstances and, therefore, could be viewed as engaging in certain

prohibited transactions under the Act with respect to such selections

unless the exemption is granted.

Although Equitable and ERE are bringing the Sale to the

Department's attention in order to assure that the record in this

exemption proceeding is complete, they believe that the Sale will have

absolutely no effect on the standards and conditions established by the

Notice. The potential prohibited transactions that would be covered by

the exemption remain the same and the scope of the exemption remains

the same. The Independent Fiduciary will continue to be responsible for

the selecting the property managers and for monitoring the extent to

which, and in the manner which, ERE makes use of the exemption to

provide additional services to the Accounts.

After the Sale, each covered service provision will still be

reviewed and approved by the Independent Fiduciary whose appointment is

confirmed by the plans participating in the Accounts, the Independent

Fiduciary will still be required to certify that the multiple service

transactions result in the savings to the Accounts, each affected plan

will continue receiving reports describing the multiple services

transactions and will continue to be given the opportunity to object to

the continued provision of multiple services pursuant to this

exemption.

Equitable and ERE also note that PTE 91-8 was granted, and this

exemption is

[[Page 33930]]

proposed to be granted to both Equitable and ERE. Therefore, no

significant restructuring of the Notice will be required on the account

of the Sale. This exemption should continue to be applicable to both

Equitable and ERE because it must cover the period retroactive to

January 13, 1996 through the date of closing of the Sale and

beyond.8

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\8\ It is represented that there is a slight possibility that

the Sale might not be completed.

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In this regard, Equitable and ERE suggest that the Department

eliminate any identification of ERE as Equitable's wholly-owned

subsidiary, and include the following language (or language

substantially similar) in this exemption:

``The applicants have informed the Department that Equitable has

agreed to sell ERE to the Lend Lease Corporation, effective on or about

June 10, 1997.''

The Department concurs with this comment and has added this

language to this exemption. The Department also eliminated any

identification of ERE as Equitable's wholly-owned subsidiary in this

exemption.

b. Equitable's and ERE's Comments Regarding the Notice

In another written comment submitted to the Department, Equitable

and ERE have requested that certain aspects of the Notice be clarified.

The requested clarifications are as follows:

a. Page 47206 of the Notice contained a section titled PTE 91-8.

The first sentence of the second paragraph of that section should have

read, ``Equitable is a stock life insurance company organized under the

laws of the State of New York''.

While Equitable was a mutual life insurance company at the time PTE

91-8 was originally issued, pursuant to a plan of reorganization

adopted by Equitable on November 27, 1991, Equitable became a stock

life insurance company. The Department concurs with this comment.

b. Pages 47207/47208 of the Notice contain a section titled

Permanent Exemption for Transactions Under PTE 91-8, which describes

how the Cost Saving Procedures will be carried out. Page 47213 of the

Notice in Section II--Conditions also contains the Cost Saving

Procedures as condition (12). The Cost Saving Procedures require, among

other things, that, at the end of each five year period during which

property management and leasing services are performed under the

exemption, Equitable and ERE demonstrate to the Independent Fiduciary

that the aggregate fees charged to each Account for the provision of

property management and leasing services are less than the fees that

would have been charged using a benchmark rate established at the

beginning of the five-year period. In order to determine the benchmark

pursuant to which cost savings will be determined, the Notice states

that the Cost Saving Procedures require, in relevant part, that ``After

the fifth anniversary of the grant of the exemption, and after the

beginning of each subsequent five-year period, ERE will prepare a

survey of property management and leasing fees for the properties * *

*''

Equitable and ERE comment that the literal application of this

language will allow ERE a five-year grace period before the Cost Saving

Procedures are required to be applied. Equitable and ERE believe that

such a grace period was unintended by the Department and, accordingly,

Equitable and ERE propose that the language be modified to ensure that

the Cost Saving Procedures will be initiated shortly after the final

exemption is issued by the Department. In order to ensure this result,

Equitable and ERE request that the following language, ``Within one-

year of the grant of this exemption * * *'' be substituted for ``After

the fifth anniversary of the grant of this exemption * * *'' at the

beginning of condition 12(a). The Department concurs with this comment,

and has modified condition 12(a) in Section II of this exemption

accordingly.

c. Equitable and ERE also comment that the definition of Accounts

which is contained in the Notice in Section IV--Definitions on page

47214 should not include Separate Account Nos. 16-IV and 16-VII and

Separate Accounts Nos. 136, 141, 149 and 174 for the IBM Retirement

Plan, as being covered by the exemption. In this regard, Equitable and

ERE state that these accounts either are not covered by the Employee

Retirement Income Security Act of 1974, or Equitable and ERE do not

provide services to these accounts pursuant to the exemption. In order

to clarify this point, Equitable and ERE propose that the definition of

Accounts be modified as follows:

``The Accounts--The Accounts are Equitable's Separate Account No.

8, Separate Account No. 16-I, Separate Account No. 16-II, Separate

Account No. 16-III, Investment Management Account No. 230 for the

Westinghouse Electric Corporation Pension Plan; and such other pooled

or single-customer accounts, joint ventures, general or limited

partnerships or other real estate investment vehicles that may be

established by Equitable for the investment of employee benefit plan

assets in real estate related investments to the extent disposition of

its assets is subject to the discretionary authority of Equitable.''

The Department concurs with this comment and has modified

definition of Accounts in Section IV--Definitions in this exemption

accordingly.

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 section 4975(c)(2) of the Code does

not relieve a fiduciary or other party in interest or disqualified

person from certain other provisions of the Act and the Code, including

any prohibited transaction provisions to which the exemption does not

apply, and to the extent jurisdiction exists under Title I of the Act,

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

requirements of section 401(a) of the Code, e.g., the plan must operate

for the exclusive benefit of the employees of the employer maintaining

the plan and their beneficiaries;

(2) This exemption will not extend to transactions prohibited under

section 406(b)(3) of the Act and section 4975(c)(1)(F) of the Code;

(3) In accordance with section 408(a) of the Act and section

4975(c)(2) of the Code, and based upon the entire record, including the

written comments submitted in response to the notice of proposed

exemption, the Department makes the following determinations:

(a) The exemption set forth herein is administratively feasible;

(b) It is in the interest of the plans investing in the Accounts

and their participants and beneficiaries; and

(c) It is protective of the rights of participants and

beneficiaries of the plans.

(4) The availability of this exemption is subject to the express

condition that the material facts and representations contained in the

application accurately describe all material terms of the transactions

which are the subject of this exemption;

(5) The availability of this exemption is subject to the express

condition that the summary of facts and representations set forth in

the notice of proposed exemption relating to PTE 91-8 (40 FR 7057/

7069), as amended by a notice of proposed exemption to make

[[Page 33931]]

permanent as modified PTE 91-8 (61 FR 47205/47214) accurately describe,

where relevant, the material terms of the transactions to be

consummated pursuant to this exemption;

(6) This exemption is supplemental to, and not in derogation of,

any other provisions of the Act and the Code, including statutory or

administrative exemptions. 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

(7) This exemption is applicable to particular transactions only if

the transactions satisfy the conditions specified in the exemption.

Exemption

Accordingly, the following exemption is hereby granted under the

authority of section 408(a) of the Act and section 4975(c)(2) of the

Code and in accordance with the procedures set forth in 29 CFR part

2570, subpart B (55 FR 32836, August 10, 1990).

Section I--Covered Transactions

The restrictions of section 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 provision of property management and/or leasing

services by ERE 9 to an Account (as defined in Section IV),

provided that the conditions set forth in Section II are met.

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

\9\ See Footnote 1, supra.

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Section II--Conditions

(1) The arrangement under which the covered transactions are

performed is subject to the prior authorization of an independent plan

fiduciary with respect to each plan whose assets are invested in an

Account, following disclosure of information in the manner described in

paragraph (2) below. For plans which have previously authorized their

participation in the Accounts under PTE 91-8, no reauthorization will

be required. 10 In the case of a plan whose assets are

proposed to be invested in an Account subsequent to implementation of

the property management and leasing services (the Property Services

Policy), the plan's investment in the Account is subject to the prior

written authorization of an independent plan fiduciary following

disclosure of the information described in paragraph (2). The

requirement that the authorizing fiduciary be independent of Equitable

shall not apply in the case of plans maintained by Equitable on behalf

of its employees.

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\10\ However, during the notification of interested persons

period, Equitable provided to all interested parties, including the

plans participating in the Accounts, a copy of the notice of the

proposed exemption. Accordingly, the plans were given the

opportunity to submit written comments on the pending exemption

during the comment period.

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

(2) In the event Equitable proposes to implement the Property

Services Policy for any additional Account, not less than 45 days prior

to the implementation of the Property Services Policy, Equitable or ERE

shall furnish the authorizing plan fiduciary with any reasonably

available information which Equitable or ERE 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 description of the services

to be performed by ERE; identification of properties for which services

will be required; an estimate of the fees that would be paid to ERE if

it is selected to provide such services; an explanation of the

potential conflicts of interest involved in selecting ERE; an

explanation of the selection process; and a description of the terms

upon which a plan may withdraw from an Account.

(3) In the event an authorizing plan fiduciary of any plan whose

assets are invested in an Account submits a notice in writing to

Equitable or ERE at least 15 days prior to implementation of the

Property Services Policy, objecting to the implementation of the

Property Services Policy, the 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 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 plan's written

agreement to invest in the Account, if written objection to the

Property Services Policy is submitted to Equitable or ERE any time

after 15 days prior to implementation of the Property Services Policy

(or after implementation), the 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 plans and to

the non-withdrawing plans. However, Equitable or ERE need not

discontinue operating pursuant to the Property Services Policy, once

implemented, by reason of a plan electing to withdraw after 15 days

prior to the scheduled implementation date of the Property Services

Policy. Any plan which has a discretionary asset management arrangement

with Equitable may terminate such arrangement and withdraw from an

Account at any time.

(4)(a) Equitable or ERE shall furnish the authorizing plan

fiduciary and the Independent Fiduciary acting on behalf of the plans

participating in the Account with the Annual Report containing the

information described in this paragraph, not less frequently than once

a year and not later than 75 days following the end of the period to

which the report relates. Such Annual Report shall disclose the total

of all fees incurred by the Account during the preceding year under

contracts with ERE; include a description of the properties and the

services that have been performed by ERE for an Account; and delineate

the fees that are anticipated to be paid to ERE in the coming year for

services provided by these entities in connection with properties held

by an Account. The Annual Report will contain a description of a method

for the termination of the multiple services arrangement (see Section

II(5)), and for the confirmation and/or removal of the Independent

Fiduciary by investing plans in the Accounts. The Annual Report will

also contain a ballot regarding reconfirmation of the Independent

Fiduciary, which is to be returned to Equitable. In this respect, at

the time of delivery of each Annual Report, Equitable will specifically

indicate to each plan that the Independent Fiduciary 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 and will request such

plan to confirm the Independent Fiduciary's appointment. Following a

plan's receipt of the Annual Report, Equitable may treat a plan's

failure to return the ballot within forty five (45) days after receipt

of a request for reconfirmation as a vote in favor of continued

retention of the Independent Fiduciary (see procedures described in

Section II(4)(b)).

(b) Equitable or ERE implements procedures to ensure each

authorizing fiduciary has an opportunity to vote on the reconfirmation

of the Independent Fiduciary. These procedures require that Equitable

or ERE: (i) Provide each authorizing fiduciary with a ballot by

certified mail (or another method of delivery pursuant to which

confirmation of receipt is provided); (ii) ensure that the ballot

clearly indicates that the authorizing 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

[[Page 33932]]

authorizing 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 Equitable or ERE mails the ballot to the authorizing

fiduciary, Equitable and ERE must make at least one follow-up contact

with the authorizing fiduciary that has not previously returned the

ballot prior to treating the unreturned ballot as a ``for'' vote. If

Equitable or ERE does not receive a response from the authorizing

fiduciary within 15 days after initiating contact with the authorizing

fiduciary, Equitable and ERE 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 fiduciaries' receipt of the ballots

(unless holders of a majority of the units of beneficial interests in

the Accounts have voted against reconfirmation.)

(5) The multiple services arrangement for an Account shall be

subject to annual confirmation following receipt of the Annual Report,

pursuant to which the arrangement shall 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. In the event of a vote to

terminate the arrangement, Equitable shall cease submitting to the

Independent Fiduciary (as defined in Section IV) any new proposals to

engage in covered transactions and Equitable will not renew or extend

any covered transactions. Moreover, within 180 days after the vote of

the contract holders, Equitable shall cease engaging in any existing

covered transactions.

(6)(a) Each transaction shall be reviewed and approved by an

Independent Fiduciary. However, prior to proposing a transaction to the

Independent Fiduciary, Equitable or ERE shall first determine that such

transaction is in the best interests of the Account.

(b) The Independent Fiduciary shall negotiate the contracts for the

provision of services by ERE. 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 the particular

transaction.

(c) The Independent Fiduciary shall review, as applicable, the

performance of ERE under each of its contracts with the Accounts at

least once each year and shall instruct Equitable and ERE of any action

which should be taken by Equitable on behalf of the Accounts with

respect to the continuation, termination or other exercise of rights

available to the Account under the terms of the contracts. Equitable

will carry out such instruction from the Independent Fiduciary to the

extent it is legal and permitted by the terms of the service provision

arrangement.

(7)(a) The terms of each such arrangement shall be in writing and

must be reviewed by the Independent Fiduciary prior to implementation.

(b) If Equitable or ERE hold Account properties and general account

properties in the same real estate market during a period when there is

leasing competition between those properties, ERE will hire, during

such period, a third party leasing agent for Account properties.

(c) In the case of any emergency circumstances, ERE may provide

property services to an Account for a period not exceeding 90 days, but

no compensation may be paid by an Account for such services without the

prior approval of the Independent Fiduciary.

(8)(a) Equitable and ERE shall furnish the Independent Fiduciary

with any reasonably available information which Equitable 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 the performance of ERE

under the contracts.

(b) With respect to ERE, such information will include: A

description of the Property Services Policy for the Account and the

plan clients investing therein; a description of the real estate

services which are required; the qualifications of ERE to do the job; a

statement, supported by appropriate factual representations, of the

reasons for Equitable's belief that ERE is qualified to provide the

services; a copy of the proposed arrangement for services and the terms

on which ERE would provide the services; the reasons why Equitable

believes the retention of ERE would be in the best interests of the

Account; information demonstrating why the fees and other terms of the

arrangement are reasonable and comparable to 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 in any

case that it is determined that the property manager will also provide

leasing services, Equitable will disclose whether any affiliated

property manager under consideration by the Independent Fiduciary is a

property manager to any properties that are in competition for tenants

with the property for which ERE is under consideration.

(9) Seventy-five percent or more of the units of beneficial

interests in an Account must be held by plans or other investors having

total assets of at least $50 million. In addition, 50 percent or more

of the plans investing in an Account must have assets of at least $50

million. For purposes of the 50 percent test above, a group of plans

will be counted as a single plan if either 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 Equitable who exercises such discretion with

respect to plan assets in excess of $50 million.

(10)(a) Not more than 10 percent of the assets of a plan covering

employees of Equitable will be invested in an Account. Notwithstanding

the foregoing, this percentage requirement will continue to be

satisfied by any plan that exceeds the 10 percent limitation of this

subsection provided that no portion of any excess results from an

increase in the assets transferred by such plan to the Accounts.

(b) Not more than 10 percent of the assets of an Account will be

represented by the plans covering employees of Equitable.

(c) For other plans, not more than 20 percent of the assets of each

such plan can be invested in the Accounts. Notwithstanding the

foregoing, this percentage requirement will continue to be satisfied by

any plan that exceeds the 20 percent limitation of this subsection

provided that no portion of any excess results from an increase in the

assets transferred by such plan to the Accounts. Moreover, this 20

percent limitation shall not apply to any plan which, as of February

28, 1990, the date of the proposed exemption relating to PTE 91-8, had

more than 20 percent of its assets invested in the Accounts provided

that the plan makes no additional contribution to such Accounts

subsequent to that date.

(d) Equitable in-house plans shall have the same voting rights as

those given to non-Equitable plan investors. However, the votes of

Equitable in-house plans shall be disregarded if such votes are

outcome-dispositive with respect to any issue.

(11) At the time the transactions are entered into, the terms of

the transactions must be at least as favorable to the Accounts as the

terms generally

[[Page 33933]]

available in arm's length transactions between unrelated parties. In

addition, the compensation paid to ERE for services under its contracts

with any Account must not exceed payments in an arm's length

transaction between unrelated parties for comparable properties in

similar locales, and shall not be in excess of reasonable compensation

within the meaning of section 408(b)(2) of the Act and regulation 29

CFR 2550.408b-2.

(12)(a) Within one-year of the grant of this exemption, and after

the beginning of each subsequent five-year period, ERE will prepare a

survey of property management and leasing fees for the properties that

have similar geographic location and property types to those held by

the Accounts. The survey will include data regarding the fees that have

been charged to the Accounts by several property management firms that

are unaffiliated with Equitable or ERE for services that are

contemplated by the exemption 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 Equitable or ERE for such services

performed for the properties not held by the Accounts during the same

period and other market data regarding the cost of property management

and leasing services by geographic location and property types.

(b) The Independent Fiduciary will review ERE's internal survey

referred to in (a) above, and will verify the accuracy of the data by

independently reviewing a sampling of the properties to which such fees

apply. Based upon its review of the survey and its own professional

resources and expertise, the Independent Fiduciary will determine a

typical range of annual fees for property management and 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 property

management and leasing services policy (the Property Services Policy)

has provided cost savings to the Accounts.

(c) Equitable and ERE will demonstrate to the Independent Fiduciary

at the end of the applicable five-year period that the aggregate

property management and leasing fees charged to each Account pursuant

to the Property Services Policy 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.

(d) The Independent Fiduciary will review the data supplied by ERE

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 plans participating in the Accounts within

75 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 (5) 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 pursuant to the Property Services

Policy until Equitable and ERE have demonstrated to the satisfaction of

the Independent Fiduciary that policies intended to assure cost savings

to the Accounts have been implemented by Equitable and ERE. 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 Equitable or ERE in accordance with the

recordkeeping requirements of Section III.

(13)(a) The fees paid to ERE and/or its affiliates for property

management services provided in connection with a property held for an

Account shall not exceed for any one year period: (1) In the case of

property management services which include leasing services, 7 percent

of the overall gross receipts of the property; and (2) in the case of

property management services which do not include leasing services, 4

percent of the overall gross receipts of the property.

(b) Where a property manager is separately compensated for leasing

services; (1) The fee for new leases will not exceed 7 percent of the

lease amount; (2) the fee for renewal leases will not exceed 2 percent

of the lease amount; and (3) the fee for leases in which outside

brokers are involved will not exceed 2.75 percent of the lease amount

(the Independent Fiduciary must certify that an economic advantage to

the Accounts exists before consummation of any leasing or management

service contract).

Section III--Recordkeeping

(1) Equitable or ERE will maintain for a period of six years from

the date of the transaction, the records necessary to enable the

persons described in paragraph (2) of this section to determine whether

the conditions of this exemption have been met. Included in these

records maintained by Equitable or ERE will be written records of the

Independent Fiduciary which had been periodically furnished by the

Independent Fiduciary to ERE or Equitable and the records described in

paragraph (12) of Section II. Such records are described in Parts III

and VI of the summary of facts and representations of the notice of

proposed exemption relating to PTE 91-8 and in paragraph (12) of

Section II. However, a prohibited transaction will not be considered to

have occurred if, due to circumstances beyond Equitable's or ERE's

control, the records are lost or destroyed or the records of the

Independent Fiduciary are not maintained or produced prior to the end

of the six-year period.

(2)(a) Except as provided in subsection (b) 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 (1) of this

section are unconditionally available at their customary location for

examination during normal business hours by:

(1) Any duly authorized employee or representative of the

Department and the Internal Revenue Service;

(2) Any fiduciary of a plan who has authority to acquire or dispose

of the interests of the plan in the Accounts or any duly authorized

employee or representative of such fiduciary;

(3) Any contributing employer to any 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 plan participating in the

Accounts, or any duly authorized employee or representative of such

participant or beneficiary; and

(5) The Independent Fiduciary.

(b) None of the persons described in subparagraphs (2)-(5) of this

paragraph shall be authorized to examine trade secrets of Equitable,

ERE or commercial or financial information which is privileged or

confidential.

Section IV--Definitions

(1) The Accounts--The Accounts are Equitable's Separate Account No.

8, Separate Account No. 16-I, Separate Account No. 16-II, Separate

Account No. 16-III, Investment Management Account No. 230 for the

Westinghouse Electric Corporation Pension Plan; and such other pooled

or single-customer accounts, joint ventures, general or limited

partnerships or other real estate investment vehicles that may be

[[Page 33934]]

established by Equitable for the investment of employee benefit plan

assets in real estate related investments to the extent disposition of

its assets is subject to the discretionary authority of Equitable.

(2) Equitable--For purposes of this exemption, the term Equitable

includes Equitable and/or affiliates of Equitable as defined in

paragraph (4) of this section which act as investment managers with

respect to an Account.

(3) ERE--For purposes of this exemption, the term ERE includes ERE

and/or affiliates of ERE as defined in paragraph (4) of this section,

which provides services to an Account pursuant to this exemption.

(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 [as defined in Section IV(4)] of Equitable

or ERE;

(b) Is not an officer, director, employee of, or partner in,

Equitable or ERE [or affiliates thereof as defined in Section IV(4)];

(c) Is not a corporation or partnership in which Equitable or ERE

has an ownership interest or is a partner;

(d) Does not have an ownership interest in Equitable or ERE, or its

affiliates;

(e) Is not a fiduciary with respect to any plan participating in an

Account; and

(f) 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 judgment 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 Equitable or ERE, or their affiliates, (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 Equitable or ERE, their affiliates, or any

Account maintained by Equitable or ERE, their affiliates, 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 summary

of facts and representations set forth in the notice of proposed

exemption relating to PTE 91-8 (40 FR 7057/7069), as amended by the

notice of proposed exemption to make permanent as modified PTE 91-8 (61

FR 47205/47214) and the written comments submitted in response thereto,

accurately describe, where relevant, the material terms of the

transactions to be consummated pursuant to this exemption.

Signed at Washington, DC, this 18th day of June, 1997.

Ivan Strasfeld,

Director of the Office of Exemption Determinations, Pension and Welfare

Benefits Administration, Department of Labor.

[FR Doc. 97-16362 Filed 6-20-97; 8:45 am]

BILLING CODE 4510-29-U