Proposed Exemptions; RREEF America L.L.C. (RREEF)

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-09952, et al.]

Proposed Exemptions; RREEF America L.L.C. (RREEF)

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of Proposed Exemptions.

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SUMMARY: This document contains notices of pendency before the

Department of Labor (the Department) of proposed exemptions 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).

Written Comments and Hearing Requests

Unless otherwise stated in the Notice of Proposed Exemption, all

interested persons are invited to submit written comments, and with

respect to exemptions involving the fiduciary prohibitions of section

406(b) of the Act, requests for hearing within 45 days from the date of

publication of this Federal Register Notice. Comments and requests for

a hearing should state: (1) the name, address, and telephone number of

the person making the comment or request, and (2) the nature of the

person's interest in the exemption and the manner in which the person

would be adversely affected by the exemption. A request for a hearing

must also state the issues to be addressed and include a general

description of the evidence to be presented at the hearing.

ADDRESSES: All written comments and request for a hearing (at least

three copies) should be sent to the Pension and Welfare Benefits

Administration, Office of Exemption Determinations, Room N-5649, U.S.

Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C.

20210. Attention: Application No. stated in each Notice of Proposed

Exemption. The applications for exemption and the comments received

will be available for public inspection in the Public Documents Room of

Pension and Welfare Benefits Administration, U.S. Department of Labor,

Room N-5507, 200 Constitution Avenue, N.W., Washington, D.C. 20210.

Notice to Interested Persons

Notice of the proposed exemptions will be provided to all

interested persons in the manner agreed upon by the applicant and the

Department within 15 days of the date of publication in the Federal

Register. Such notice shall include a copy of the notice of proposed

exemption as published in the Federal Register and shall inform

interested persons of their right to comment and to request a hearing

(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in

applications filed pursuant to section 408(a) of the Act and/or section

4975(c)(2) of the Code, and in accordance with procedures set forth in

29 CFR Part 2570, Subpart B (55 FR 32836, 32847, 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. Therefore, these notices of proposed

exemption are issued solely by the Department.

The applications contain representations with regard to the

proposed exemptions which are summarized below. Interested persons are

referred to the applications on file with the Department for a complete

statement of the facts and representations.

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

[Application No. D-09952]

Proposed Exemption

The Department is considering granting an exemption under the

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

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

2570, Subpart B (55 FR 32836, 32847, August 10, 1990.)

Section I--Covered Transactions

The restrictions of sections 406(a), 406 (b)(1) and (b)(2) of the

Act and the sanctions resulting from the application of section 4975 of

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

shall not apply to the:

(1) The provision of certain leasing services (the Leasing

Services) by RREEF's leasing affiliates (the Leasing Affiliates, as

defined in Section IV) to certain accounts established by RREEF (the

Accounts, as defined in Section IV); and

(2) The payment of leasing commissions in connection with the

provision of Leasing Services by the Leasing Affiliates to the

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

Section II--Conditions

(1) The arrangement under which the leasing services are performed

with respect to any Account is subject to the prior authorization of

either (i) an independent plan fiduciary for each employee benefit plan

or other plan for which RREEF serves as trustee or investment manager

(a Client Plan) that invests in a Single Client Account, or (ii)

independent plan fiduciaries with respect to Client Plans or other

institutional investors holding at least 60 percent of the units of

beneficial interest in a Multiple Client Account, following disclosure

of information in the manner described in paragraph (2) below. In the

case of a Client Plan whose assets are proposed to be invested in an

Account subsequent to the provision of leasing services to the Account,

the Client Plan's investment in the Account is subject to the prior

written authorization of an authorizing plan fiduciary following

disclosure of the information described in paragraph (2).

(2) Not less than 45 days prior to the first date it proposes to

provide leasing services for any Account, RREEF, as investment manager,

shall furnish the authorizing plan fiduciary with any reasonably

available information which RREEF believes to be necessary to determine

whether such approval should be given, as well as such information

which is reasonably requested by the authorizing plan fiduciary. Such

information will include: (a) a description of the leasing services to

be performed by the Leasing Affiliate; (b) an explanation of the

potential conflicts of interest involved in selecting the Leasing

Affiliate; (c) an explanation of the selection process (including the

role of the Independent Fiduciaries (as defined in Section IV)); (d)

identification of properties for which leasing services will be

required; (e) an estimate of the leasing fees to be paid to the Leasing

Affiliate if it is selected to provide such services; and (f) a

description of the terms upon which a Client Plan may withdraw from an

Account.

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

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

RREEF, as investment manager, at least 15 days prior to the provision

of leasing services, objecting to the provision of the leasing

services, and RREEF proposes to proceed with the provision of leasing

services, the Client Plan on whose behalf the objection was tendered

will be given the opportunity to terminate its investment in the

Account, without penalty. With the exception of a Client Plan which has

invested in a closed-end Account under which the rights of withdrawal

from the Account

[[Page 46246]]

may be limited, as provided in the Client Plan's written agreement to

invest in the Account, if a written objection to the leasing services

is submitted to RREEF any time after 15 days prior to implementation of

the leasing services (or after implementation), the Client Plan must be

able to withdraw without penalty, within such time as may be necessary

to effect such withdrawal in an orderly manner that is equitable to all

withdrawing and the non-withdrawing Client Plans. However, the Leasing

Affiliate need not discontinue providing the leasing services, once

implemented, by reason of a Client Plan electing to withdraw after 15

days prior to the scheduled implementation date of the leasing

services. Any Client Plan which invests in a Single Client Account may

terminate the Leasing Services arrangement and withdraw from the

Account at any time (upon reasonable written notice).

(4)(a) RREEF shall furnish the Independent Fiduciary (as defined in

section IV) acting on behalf of the Client Plans participating in the

Account with an annual report (the RREEF Annual Report) containing the

information described in this paragraph, not less frequently than once

a year and not later than 45 days following the end of the period to

which the report relates. The RREEF Annual Report shall disclose the

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

under contracts with RREEF and its affiliates and shall include a

description of all leasing activities with respect to each property

under the responsibility of the Independent Fiduciary for which a

Leasing Affiliate provides services, including marketing/advertising

activities, leases under negotiation, lease offers rejected (and why),

and such other information as shall be reasonably requested by the

Independent Fiduciary. The RREEF Annual Report shall also delineate the

leasing commissions that are anticipated to be paid to RREEF and its

affiliates in the coming year for services provided by these entities

in connection with the properties held by the Account. The RREEF Annual

Report will contain a description of a method for the termination of

the leasing arrangement (see Section II(5)) by the Independent

Fiduciary and/or by investing Client Plans in each Account.

(b) The Independent Fiduciary shall furnish RREEF and the

authorizing plan fiduciaries with an annual report (the I/F Annual

Report), within 90 days following the end of the period to which the

report relates, summarizing its activities for the year, indicating its

opinion as to the continued validity of the leasing guidelines with

respect to any property for the next year, and recommending any

amendments to, or termination of the leasing agreement with the Leasing

Affiliate. The I/F Annual Report will contain a description of a method

for the termination of the leasing arrangement with the Leasing

Affiliate and for the confirmation and/or removal of the Independent

Fiduciary by the Client Plans investing in the Accounts.

(c) RREEF implements procedures to ensure each authorizing plan

fiduciary of a Client Plan investing either in a Multiple Client

Account, or a Single Client Account, has an opportunity to vote on the

reconfirmation of the Independent Fiduciary on an annual basis. These

procedures require that the Independent Fiduciary: (i) provide each

authorizing independent client plan fiduciary with a ballot

1 by certified mail (or another method of delivery pursuant

to which confirmation of receipt is provided), with the ballot

instructions that direct the authorizing independent client plan

fiduciary to return the ballot to RREEF; (ii) ensure that the ballot

clearly indicates that the authorizing plan fiduciary may vote for or

against continuation of the Independent Fiduciary; (iii) ensure that

the ballot must be accompanied by a statement that failure to return

the ballot within 45 days following the independent plan fiduciaries'

receipt of the ballots will be counted as a ``for'' vote (unless

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

Accounts have voted against reconfirmation); and (iv) 30 days after the

Independent Fiduciary mails the ballot to the authorizing plan

fiduciary, RREEF must make at least one follow-up contact with the

authorizing plan fiduciary that has not previously returned the ballot

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

does not receive a response from the authorizing plan fiduciary within

15 days after initiating contact with the authorizing plan fiduciary,

RREEF may treat the unreturned ballot as a vote for reconfirmation. The

reconfirmation will become effective on the earlier of the date

affirmative ballots are obtained from the holders of a majority of the

units of beneficial interests in the Accounts, or 45 days following the

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

a majority of the units of beneficial interests in the Accounts have

voted against reconfirmation.)

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\1\ RREEF will direct the Independent Fiduciary as to the

specific form of a ballot. The applicant represents that for a

Single Client Account, this will not be a ``ballot'', but a

``direction'' form.

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(d) The Independent Fiduciary receives confirmation, and certifies

to RREEF that the notice and the ballots sent to the authorizing plan

fiduciary pursuant to subparagraphs (b) and (c) regarding the continued

retention of the Independent Fiduciary and RREEF have been received by

the authorizing plan fiduciary. The method used to confirm notice to

the authorizing plan fiduciaries must be sufficient to ensure that the

authorizing Client Plan fiduciaries actually receive notice. In all

cases, return receipt for certified mail, printed confirmation of

facsimile transmissions and manifest or computer data entries of

independent courier services will be considered acceptable methods of

confirming receipt.

(5)(a) The leasing agreement for any property may also be

terminated or modified at any time at the written direction of the

Independent Fiduciary, and may be terminated by a vote in favor of such

termination by the holders of a majority of the units of beneficial

interests in the Account (or such greater percentage, not to exceed 60

percent, as shall be set out in the agreements establishing the

Account). Further, any Client Plan which invests in a Single Client

Account may terminate the Leasing Services arrangement and withdraw

from the Account at any time (upon reasonable notice).

(b) In the event of a vote to terminate the leasing services

arrangement pursuant to paragraph (4)(c) or (5)(a), RREEF shall cease

submitting to the Independent Fiduciary any new proposals to engage in

covered transactions and RREEF will not renew or extend any covered

transactions. Moreover, within 180 days after the vote of the Account

holders, RREEF shall cease engaging in any existing covered

transactions.

(6)(a) Each leasing services agreement shall be in writing and

shall be reviewed at least annually and approved by an Independent

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

Fiduciary, RREEF will first determine that such transaction is in the

best interest of the Account.

(b) The Independent Fiduciary shall negotiate each leasing services

agreement. The Independent Fiduciary shall also consider the cost to

the Account of such fiduciary's involvement in connection with its

consideration of whether to approve a particular leasing services

agreement.

(c) Each leasing agreement and the performance of the Leasing

Affiliate under such agreement shall be reviewed at least annually by

the Independent Fiduciary, who shall instruct RREEF of any action which

should be taken by

[[Page 46247]]

RREEF on behalf of the Account with respect to the continuation,

termination or other exercise of rights available to the Account under

the terms of the leasing agreement. RREEF will carry out such

instruction from the Independent Fiduciary to the extent it is legal

and permitted by the terms of the leasing agreement.

(d) In the case of any emergency circumstances, RREEF or the

Leasing Affiliates may provide leasing services to an Account for a

period not exceeding 90 days without entering into a leasing services

agreement, but no compensation may be paid by an Account for such

services without prior approval of the Independent Fiduciary.

(7) If RREEF holds Account properties, and any RREEF affiliate or

principal holds for its own account any properties in the same real

estate market during a period when there is leasing competition between

those properties, RREEF will hire, during such period, a third party

leasing agent for Account properties.

(8)(a) RREEF shall furnish the Independent Fiduciary with any

reasonably available information which RREEF reasonably believes to be

necessary or which the Independent Fiduciary shall reasonably request

to determine whether such approval of the transactions described above

should be given, or to accomplish the Independent Fiduciary's periodic

reviews of RREEF's performance under such agreements.

(b) With respect to RREEF, such information will include: a

description of the leasing services for the Account and the Client

Plans investing therein; the qualifications of RREEF to do the job; a

statement, supported by appropriate factual representations, of the

reasons for RREEF's belief that RREEF is qualified to provide the

services; a copy of the proposed leasing services agreement and the

terms on which RREEF would provide the services; the reasons why RREEF

believes the retention of RREEF would be in the best interest of the

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

arrangement are reasonable and comparable to the fees customarily

charged by similar firms for similar services in comparable locales;

the identities of non-affiliated service providers and the terms under

which these service providers might perform the services; and whether

any RREEF affiliate is a property manager to any properties that are in

competition for tenants with the property for which RREEF is under

consideration.

(9) Any Independent Fiduciary may be removed at any time by a vote

of holders of a majority of the units of beneficial interests in an

Account. In the event of the removal of an Independent Fiduciary,

existing leasing agreements overseen by that Independent Fiduciary will

not be affected; however, RREEF will designate a replacement

Independent Fiduciary within sixty (60) days.

(10) Seventy-five percent (75%) or more of the units of beneficial

interests in an Account must be held by Client Plans or other investors

having total assets of at least $100 million. In addition, 50 percent

(50%) or more of the Client Plans investing in an Account must have

assets of at least $100 million. For purposes of the 50% test above, a

group of Client Plans maintained by a single employer or controlled

group of employers, any of which individually has assets of less than

$100 million, will be counted as a single Client Plan if the decision

to invest in the Account (or the decision to make investments in the

Account available as an option for an individually directed account) is

made by a fiduciary other than RREEF, who exercises such discretion

with respect to Client Plan assets in excess of $100 million.

(11) No Client Plan covering employees of RREEF will be invested in

an Account.

(12) Not more than 20 percent of the assets of any Client Plan on

whose behalf RREEF proposes to provide leasing services can be invested

in RREEF Accounts.

(13) At the time any leasing agreement is entered into, the terms

of the agreement must be at least as favorable to the Account as the

terms of an arm's length transaction between unrelated parties. In

addition, the compensation paid to the Leasing Affiliate for leasing

services by any Account must not exceed the amount paid in an arm's

length transaction between unrelated parties for comparable properties

in similar locales. In any event, such compensation will not exceed

reasonable compensation within the meaning of section 408(b)(2) of the

Act and regulation 29 CFR 2550.408b-2. (The Independent Fiduciary must

certify that an economic advantage to the Accounts exists before

consummation of any leasing agreement).

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

the beginning of each subsequent five-year period, each Independent

Fiduciary will prepare with the assistance of RREEF a survey of leasing

fees for the properties that have similar geographic location and

property types to those held by the Accounts for which the Independent

Fiduciary is responsible. The survey will include data regarding the

fees that have been charged to the Accounts by several firms that are

unaffiliated with RREEF for leasing services during the one year period

prior to the beginning of the new five-year period. Also, the survey

will include data as to the fees paid by RREEF for such services

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

period and other market data regarding the cost of leasing services by

geographic location and property types.

(b) Based upon its survey and its professional resources and

expertise, the Independent Fiduciary will determine a typical range of

annual fees for leasing services for the Accounts. The average of the

range, as determined from such survey, will serve as the basis of

comparison for determining for the next five-year period whether

continuation of the leasing services policy has provided cost savings

or other benefits to the Accounts.

(c) RREEF will demonstrate to the Independent Fiduciary at the end

of the applicable five-year period that leasing fees charged to each

Account by RREEF or its affiliates plus the cost of the services of the

Independent Fiduciary under the exemption that are allocated to the

Accounts, are less than the fees that would have been charged using the

benchmark rate established at the beginning of the five year period. In

making its determinations, the Independent Fiduciary shall take into

account to the extent it deems necessary property management fees paid

by the Accounts to RREEF and its affiliates.2

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\2\ With respect to Multiple Client Accounts, property

management services by RREEF are currently provided in accordance

with PTE 82-51 (47 FR 14238/14241, April 2, 1982). PTE 82-51 permits

collective investment funds (the Funds) managed by RREEF or any of

its affiliates, in which Client Plans participate, to engage in

certain transactions with parties in interest with respect to the

Client Plans that are investors in the Funds, provided that certain

conditions are met. Therefore, the requested exemption is necessary

only for the provision of Leasing Services by RREEF's affiliates to

the Multiple Client Accounts in connection with the properties held

by the Accounts.

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

RREEF and, to the extent considered necessary by the Independent

Fiduciary, data collected from the Independent Fiduciary's own surveys,

and will document its findings and analysis of such cost savings in a

report to be delivered to each of the Client Plans participating in the

Accounts within 90 days after the end of the five year period and each

subsequent five-year period and prior to the implementation of the

annual confirmation procedure

[[Page 46248]]

described in paragraph (6) of Section II with respect to such period.

In the event the Independent Fiduciary finds that cost savings have not

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

services arrangements until RREEF and its affiliates have demonstrated

to the satisfaction of the Independent Fiduciary that policies intended

to assure cost savings to the Accounts have been implemented by RREEF

and its affiliates. The survey, the Independent Fiduciary's report

reviewing the survey, and the final report of the Independent Fiduciary

analyzing whether cost savings had been achieved during the five year

period to which the survey relates, will be maintained by RREEF in

accordance with the recordkeeping requirements of Section III.

(15) The fees paid to RREEF and/or its affiliates for leasing

services provided in connection with a property held for an Account

shall not exceed: (a) 7 percent of the lease amount for new leases; (b)

2 percent of the lease amount for renewal leases; and (c) for leases in

which outside brokers are involved, 2.75 percent of the lease amount.

(16) Before entering into any leasing arrangement pursuant to the

terms of this exemption, if granted, copies of the proposed exemption

and the final exemption will be delivered to each Client Plan for which

RREEF or its affiliate propose to perform leasing services as described

herein.

Section III--Recordkeeping

(1) RREEF and any Leasing Affiliate will maintain, for a period of

six years, the relevant records necessary to enable the persons

described in paragraph (2) of this Section III to determine whether the

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

will be the written records of the Independent Fiduciary which had been

periodically furnished by the Independent Fiduciary to RREEF, and the

records described in paragraph (14) of Section II. However, a

prohibited transaction will not be considered to have occurred if, due

to circumstances beyond RREEF's, the Leasing Affiliate's, or the

Independent Fiduciary's control, the records are lost or destroyed

prior to the end of the six-year period.3

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\3\ RREEF represents that its contract with each Independent

Fiduciary will require that the Independent Fiduciary's written

records be maintained in accordance with this section.

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

notwithstanding any provisions of section 504(a)(2) and (b) of the Act,

the records referred to in paragraph (1) of this section shall be

unconditionally available at their customary location for examination

during normal business hours by:

(1) Any duly authorized employee or representative of the

Department or the Internal Revenue Service;

(2) Any fiduciary of a Client Plan who has authority to acquire or

dispose of the interests of the Client Plan in the Accounts or any duly

authorized employee or representative of such fiduciary;

(3) Any contributing employer to any Client Plan that has an

interest in the Accounts or any duly authorized employee or

representative of such employer;

(4) Any participant or beneficiary of any Client Plan participating

in the Accounts, or any duly authorized employee or representative of

such participant or beneficiary; and

(5) The Independent Fiduciaries.

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

this paragraph shall be authorized to examine the trade secrets of

RREEF or any Leasing Affiliate or commercial or financial information

which is privileged or confidential.

Section IV--Definitions

(1) The Accounts--The Accounts are any existing or future pooled

accounts (i.e., Multiple Client Accounts) or single-customer accounts

(i.e., Single Client Accounts), including joint ventures, general or

limited partnerships or other real estate investment vehicles

established by RREEF for the investment of employee benefit Client Plan

assets in real-estate related investments to the extent that (i) such

Accounts hold ``plan assets'' within the meaning of the regulations at

29 CFR section 2510.3-101 and (ii) management of their assets is

subject to the discretionary authority of RREEF.

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

means RREEF America L.L.C., and certain of their officers who may serve

as trustees of group trusts managed by RREEF America L.L.C., or who may

serve in similar fiduciary capacities with respect to other commingled

investment vehicles managed by them, and/or any other affiliates of

RREEF as defined in paragraph (4) of this section IV which act as

investment fiduciaries with respect to any Account.

(3) Leasing Affiliate--RREEF Management Company or other affiliates

of RREEF (as defined in paragraph (4) of this Section IV) retained to

provide leasing services with respect to an Account.

(4) An affiliate of a person means any person directly or

indirectly, through one or more intermediaries, controlling, controlled

by, or under common control with the person.

(5) The term ``control'' means the power to exercise a controlling

influence over the management or policies of a person other than an

individual.

(6) Independent Fiduciary--A person who:

(a) is not an affiliate of RREEF as defined in Section IV(4);

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

(or affiliates thereof as defined in Section IV(4));

(c) is not a corporation or partnership in which RREEF has an

ownership interest or is a partner;

(d) does not have an ownership interest in RREEF or any of its

affiliates;

(e) is not a fiduciary with respect to any Client Plan's investment

in the Account;

(f) has represented in writing that it is qualified to perform the

services contemplated by the proposed exemption, which qualifications

shall include, among other things: (i) demonstrated experience,

generally over a period of not less than five years, in the business of

commercial real estate, brokerage, management, or appraisal generally

and in reviewing or negotiating leasing agreements and commissions

specifically; (ii) familiarity with the relevant real estate,

specifically as it relates to comparable property types with respect to

the specific properties for which the Leasing Affiliate proposes to

perform leasing services (for example, in the case of office

properties, the Independent Fiduciary's experience shall relate

specifically to office properties in the same market); (iii) experience

in complying with the fiduciary standards of the Act in connection with

the representation of the Client Plans; and

(g) has acknowledged in writing acceptance of fiduciary obligations

and has agreed not to participate in any decision with respect to any

transaction in which the Independent Fiduciary has an interest that

might affect its best judgement as a fiduciary. For purposes of the

foregoing, each Independent Fiduciary shall represent in writing that

it has no relationship with RREEF or its affiliates, or with any

Account, that would affect its best judgement as a fiduciary.

For purposes of this definition of Independent Fiduciary, no

organization or individual may serve as an Independent Fiduciary for

any fiscal year if the gross income received by

[[Page 46249]]

such organization or individual (or partnership or corporation of which

such organization or individual is an officer, director, or 10 percent

or more partner or shareholder) from RREEF or any affiliates of RREEF

(including amounts received for services as Independent Fiduciary under

any prohibited transaction exemption granted by the Department) for

that fiscal year exceeds 5 percent of its or his annual gross income

from all sources for such fiscal year.

In addition, no organization or individual who is an Independent

Fiduciary, and no partnership or corporation of which such organization

or individual is an officer, director or 10 percent or more partner or

shareholder, may acquire any property from, sell any property to or

borrow any funds from RREEF or any affiliates of RREEF, or any Account

maintained by RREEF or any affiliates of RREEF, during the period that

such organization or individual serves as an Independent Fiduciary and

continuing for a period of 6 months after such organization or

individual ceases to be an Independent Fiduciary or negotiates any such

transaction during the period that such organization or individual

serves as Independent Fiduciary.

The proposed exemption, if granted, will be subject to the express

condition that the material facts and representations contained in the

application are true and complete, and that the application accurately

describes all material terms of the transaction to be consummated

pursuant to the exemption.

Summary of Facts and Representations

1. RREEF America L.L.C and its affiliate, RREEF Management Company,

provide investment and property management services to institutional

investors, including employee benefit Client Plans and other tax-exempt

entities, through various separate accounts (Single Client Accounts)

and commingled accounts (Multiple Client Accounts; collectively, the

Accounts). On January 27, 1998, RREEF America L.L.C. and its affiliates

(collectively, RREEF) were acquired by RoProperty Services, B.V.

(RoProperty), a major Dutch investment advisory firm. As a result, the

RREEF entities were combined into a newly created Delaware limited

liability company which continues to use the name RREEF America L.L.C.

RREEF operates as an autonomous entity which continues to provide

investment management services, and its affiliate, RREEF Management

Company, continues to provide property management services.

RREEF requests an exemption to permit: (i) the provision of certain

leasing services (the Leasing Services) by RREEF's leasing affiliates

(the Leasing Affiliates) to the Accounts; and (ii) the payment of

leasing commissions in connection with the provision of Leasing

Services by the Leasing Affiliates to the Accounts, as described below.

The Leasing Services that will be performed pursuant to this proposed

exemption, if granted, would generally be provided by RREEF Management

Company.

2. RREEF acts as an investment manager as defined in section 3(38)

of the Act for each Client Plan that invests in a Single or a Multiple

Client Account. RREEF has discretion for the day-to-day operation of

each Account and, in many cases, has full discretion over an Account's

acquisition and disposition decisions. However, in certain cases, final

investment authority may remain with independent authorizing plan

fiduciaries (Authorizing Client Plan Fiduciaries) for the Account. The

applicant requests that the proposed exemption extend relief to both

discretionary and non-discretionary Accounts.4

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\4\ RREEF's non-discretionary Accounts are generally Accounts

over which an independent (in-house) Client Plan Fiduciary retains

final discretion with respect to the acquisition and disposition of

real property assets. The Client Plan may also retain discretion in

setting or approving leasing guidelines for properties held by the

Accounts.

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3. The Client Plans are various pension plans as defined in section

3(2) of the Act and other plans as defined in section 4975(e)(1) of the

Code, for which RREEF serves as a trustee or investment manager.

Several of the Client Plans participate in RREEF USA Fund-I (Fund I), a

Multiple Client Account in which non-ERISA fiduciary clients may

invest. The Client Plans may participate in other Accounts, as

described herein. In all instances, an Authorizing Client Plan

Fiduciary which is independent of RREEF and its affiliates, will make

the decision regarding the investment of Client Plan assets in an

Account which may receive leasing services performed by a Leasing

Affiliate.

4. A Client Plan may enter into one or more Single Client Account

relationships with RREEF pursuant to the individually negotiated

investment agreements with RREEF. In each case primary investment

discretion will be delegated to RREEF pursuant to an investment

management agreement between RREEF and the Account.5

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\5\ Except as set forth in paragraph 2 above.

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Alternatively, a Client Plan may invest in a commingled investment

fund (i.e., a Multiple Client Account) managed by RREEF. Currently,

Multiple Client Accounts consist primarily of tax-exempt group trusts

organized pursuant to IRS Revenue Ruling 81-100, and limited

partnerships. RREEF principals and officers serve as trustees for

Multiple Client Accounts that are group trusts. Other Multiple Client

Accounts may be organized in the future, including title-holding

corporations, real estate investment trusts, or limited liability

corporations. RREEF principals and officers may serve as directors and

officers of these vehicles.

5. The Accounts established to date have been so-called ``blind''

investment relationships where investors initially are not told about

any specific properties which the Account may acquire. In such

instances, the Account receives cash from the Client Plan and then

identifies and acquires real property investments that meet certain

investment criteria that have been agreed to by such investors. In the

future, RREEF states that so-called ``specified-property'' investment

relationships may be established with the Client Plans and/or other

investors to invest in pre-identified real property investments that

are disclosed to the Client Plans prior to such Plans' cash investment

in the Account.

6. RREEF represents that in recent years real estate investments

have become increasingly attractive to pension plan investors. The

quality of real estate-related services is of central importance in

maximizing returns available to such investors. Large real estate

investment managers typically manage properties themselves or through

property management firms they have acquired. This strategy enables

such managers to use a unified leasing strategy and other efficient

management techniques, and is a superior alternative to retaining

independent managers for property management and leasing services.

RREEF maintains that in many instances the provision of leasing

services for the properties held by the Accounts would be more

effectively provided through in-house personnel or through firms which

are affiliated with RREEF, or in which RREEF has an interest. Such

firms possess special expertise in the type of properties held by the

Accounts and knowledge of the Accounts. RREEF and the Leasing

Affiliates represent that they are in the best position to aggressively

lease properties held by an Account, and to maximize the value of the

properties to the Account.

[[Page 46250]]

7. The services provided to the Accounts by the Leasing Affiliates

6 will be day-to-day leasing responsibilities associated

with operating income-producing properties owned by the Accounts. These

responsibilities will include using best efforts to lease a property to

desirable tenants and negotiating the terms and renewals of such

leases. Any hiring of a Leasing Affiliate to provide leasing services

for a property owned by an Account will be negotiated with, and subject

to the approval of, the Independent Fiduciary appointed on behalf of an

Account for the particular leasing market to which the property is

subject (as discussed more fully below).

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\6\ Currently, RREEF anticipates that RREEF Management will be

the Leasing Affiliate which performs the leasing services.

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8. RREEF, as the investment manager or trustee for the Account,

will consider the type, size and location of an Account property, and

whether the Leasing Affiliates are best suited to provide leasing

services to that property. Upon determining that the provision of

services by the Leasing Affiliate would be in the best interest of that

Account, RREEF will propose to the Independent Fiduciary that the

Leasing Affiliate be retained for the property. Because the Leasing

Affiliates currently perform property management services for most of

the properties managed by RREEF and its affiliates under PTE 82-51 (see

footnote 2), RREEF expects that a Leasing Affiliate will be considered

to provide leasing services to each of the properties. RREEF maintains

that the Account will benefit from the Leasing Affiliate's

comprehensive knowledge of the local market and from the expertise of

the staff in that location.

9. RREEF may hold properties in a relevant real estate market

7 both as the investment manager or trustee for an Account,

and on behalf of RREEF or any entity in which RREEF owns a 10% or

greater interest. In the event there is a potential for leasing

competition among these properties, RREEF will retain an independent,

qualified leasing agent for the Account's properties.

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\7\ The applicant represents that the term ``relevant real

estate market'' is a term used by managers, leasing agents,

appraisers, etc. to mean a general geographic area from which the

property is most likely to draw its tenant base. Within this area a

specific property will be competing with similar properties for

tenants. The area varies based on property type, size, age and

location, access to transportation, etc. Typically, an assessment of

the relevant real estate market is included, as part of the overall

economic analysis, in the materials prepared at the time the

property is acquired. The applicant maintains that, under the

condition of this proposed exemption, the Independent Fiduciary will

make its own independent assessment of the relevant real estate

market.

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The Independent Fiduciary will have the same responsibilities when

the Account acquires a new property with a Leasing Affiliate acting as

a pre-existing leasing agent as when RREEF proposes to provide leasing

services with a Leasing Affiliate for an existing property. In both

cases, the leasing agreement with a Leasing Affiliate for a property

will be negotiated with, and approved by, the Independent Fiduciary for

the Account. This negotiation of the leasing agreement may be

concurrent with RREEF's acquisition of the property.

RREEF may also acquire a property with a Leasing Affiliate acting

as a pre-existing leasing agent for an Account where RREEF is not yet

authorized to perform leasing services for the property with a Leasing

Affiliate. In such situations, under the terms of this proposed

exemption, RREEF must obtain approval from the Client Plans

8 before it can receive compensation for such services.

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\8\ Such approval will be obtained pursuant to Section II(1) and

(2) of this proposed exemption.

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10. RREEF will appoint several Independent Fiduciaries, subject to

confirmation by the holders of a majority of the units of beneficial

interest in the Accounts (or by the Client Plan in the case of a Single

Client Account), to act on behalf of the Accounts for the provision of

leasing services by the Leasing Affiliates. Each Independent Fiduciary

will be an individual, group of individuals or a business entity which

has substantial experience with commercial real estate investments,

including the expertise to make decisions required under the exemption.

RREEF proposes to use the same Independent Fiduciary for all Accounts

that have properties in the same real estate market. However, because

individual Client Plans can veto RREEF's selection of an Independent

Fiduciary, RREEF cannot guarantee that the same Independent Fiduciary

will be used for all such Accounts.

An Independent Fiduciary will not have any ownership interest in

RREEF nor will RREEF have any ownership interest in the Independent

Fiduciary. An Independent Fiduciary may have a preexisting relationship

as a service provider (including as a fiduciary) for one or more of the

Client Plans. However, all business dealings between the Independent

Fiduciary and RREEF, including services rendered to the Accounts as

Independent Fiduciary under all other prohibited transaction exemptions

granted by the Department, 9 may not in the aggregate result

in the Independent Fiduciary receiving in any one of its fiscal years

more than five percent (5%) of its gross income from RREEF. No person

hired as an Independent Fiduciary for any real property held by the

Account will provide any other service for such property while that

person is serving as the Independent Fiduciary. In addition, an

Independent Fiduciary will not be retained by the Account, RREEF, or

any affiliate thereof, under a contract to perform leasing, property

management, or real estate brokerage services with respect to such

property for at least a six month period after having served as the

Independent Fiduciary.

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\9\ See, for example, PTE 82-51, which was mentioned earlier.

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Generally, the compensation and expenses of each Independent

Fiduciary will be proportionately paid by the Account(s) which it

serves.

11. Any Independent Fiduciary may be removed with or without cause

by a vote of the holders of a majority of the units of beneficial

interests in an Account. A vote removing the Independent Fiduciary will

not affect existing covered transactions, but RREEF will cease

submitting to the Independent Fiduciary any proposals to engage in new

transactions. RREEF will designate within sixty (60) days a replacement

Independent Fiduciary, whose appointment will be subject to the same

confirmation by the Client Plans as was the initial Independent

Fiduciary.

12. The Independent Fiduciary will select the Leasing Affiliates to

provide the leasing services described herein. The selection process

will proceed as follows:

(a) RREEF will propose a Leasing Affiliate to provide services for

a specific property if it believes it is in the best interest of the

Account to do so. If RREEF does not propose a Leasing Affiliate to

provide services to an Account property, it will select an unrelated

service provider.

(b) The Independent Fiduciary will determine the qualifications of

the Leasing Affiliate by thoroughly reviewing its background and

experience, and those of its personnel. The Independent Fiduciary will

consider, among other things, the following factors:

(1) The compensation and the terms of the service arrangement

proposed by the Leasing Affiliate will be compared to those from

similarly qualified firms for similar services in the similar locales.

If no similar firms exist for

[[Page 46251]]

comparison, the Independent Fiduciary will determine whether the

agreement is reasonable within the meaning of section 408(b)(2) of the

Act. If the Leasing Affiliate is replacing another service provider,

the Independent Fiduciary will make similar determinations, and will

consider whether the change in service providers will increase costs to

the Accounts.

(2) The Independent Fiduciary must determine if the Leasing

Affiliate is the best qualified candidate to provide a particular

service under the arrangement in question. If the qualifications are

equal among potential service providers, the Independent Fiduciary may

choose the Leasing Affiliate if its proposed fee arrangement is most

advantageous to the Account. If the qualifications and the proposed

fees are essentially equal, the Independent Fiduciary will select the

Leasing Affiliate only where it makes a determination that the

affiliated service provider is the best-qualified, considering the

affiliate's experience and familiarity with the Account and the

property. The Independent Fiduciary is not required to regard the

Leasing Affiliate as its first choice for providing services for any

particular property.

(c) The Independent Fiduciary's decisions will be based solely upon

the interests of the Account. The Independent Fiduciary will

independently compile, or retain others to compile, information

relevant to its determination. This information will include the

qualifications of and the terms for engaging the Leasing Affiliate,

whether RREEF Management is also providing property management services

to the property, and the fees charged by RREEF Management for these

various services.

The Independent Fiduciary can also consider certain additional

information provided by RREEF. Such information will include: (1) a

description of the Account's policy for leasing services and the Client

Plans investing therein; (2) a description of the leasing services to

be provided; (3) the qualifications of the Leasing Affiliate to perform

the required services; (4) a statement, supported by appropriate

factual representations, as to why RREEF believes the Leasing Affiliate

is qualified to provide the services; (5) a copy of the proposed

arrangement for services, and the Leasing Affiliate's terms for the

provision of such services; (6) RREEF's reasons as to why retaining the

Leasing Affiliate is in the interest of the Account; (7) information as

to why the fees and other terms of the arrangement are reasonable as

compared to the fees charged by similar firms for similar services in

comparable locales; (8) the identity of the current non-affiliated

leasing agent, if any, and the terms under which it renders services;

(9) the identities of other non-affiliated service providers and the

terms under which they would render such services; and (10) whether the

Leasing Affiliate or any affiliate thereof is a property manager with

respect to any properties that are in competition for tenants with the

property for which the Leasing Affiliate is under consideration.

(d) If the Independent Fiduciary selects the Leasing Affiliate to

provide leasing services to an Account property, it will negotiate the

terms of the leasing agreement directly with the Leasing Affiliate.

(e) If the Independent Fiduciary does not select the Leasing

Affiliate, the Independent Fiduciary will so advise RREEF. RREEF will

then select an unrelated leasing agent and negotiate the terms of the

arrangement with the unrelated leasing agent.

13. If the Leasing Affiliate is replacing another leasing agent, or

if a leasing agreement with a Leasing Affiliate is significantly

modified, advance approval of the Independent Fiduciary will be

required. Advance approval of the Independent Fiduciary will also be

required when the Account acquires a property subject to a leasing

agreement with the Leasing Affiliate. Any decision by the Leasing

Affiliate that may affect its compensation will be reviewed and

approved by the Independent Fiduciary.

14. RREEF will have the authority to retain a Leasing Affiliate in

certain emergency situations where advance approval by the Independent

Fiduciary would be impractical (e.g., an existing leasing agent

suddenly goes out of business). Under these circumstances, RREEF will

retain the Leasing Affiliate for a period not to exceed 90 days.

However, the Independent Fiduciary will have to approve any fees paid

to the Leasing Affiliate prior to their actual payment.

15. The Independent Fiduciary will also review, at least annually

(or more frequently if it deems appropriate), the performance of the

Leasing Affiliates under each leasing agreement with the Accounts. In

conducting these periodic reviews, the Independent Fiduciary will

consider: (i) The information contained in RREEF's annual reports, as

furnished by RREEF; (ii) information furnished in connection with

RREEF's selection of the Leasing Affiliates; (iii) summaries of all

leases executed by the Leasing Affiliates; and (iv) any other

information the Independent Fiduciary believes necessary.

In addition, the Independent Fiduciary will: (i) prepare an annual

report of its activities for the prior year; (ii) render its opinion as

to the continued validity of the leasing guidelines for the subsequent

year; and (iii) recommend any amendments to, or termination of, the

leasing agreement.

If the Independent Fiduciary determines that the services of any

Leasing Affiliate are no longer necessary, or that such Leasing

Affiliate has failed to comply with its obligations under the leasing

agreement, it will instruct RREEF to terminate or modify the leasing

agreement, or to exercise other rights available under the leasing

agreement.10 RREEF will carry out such instruction from the

Independent Fiduciary to the extent it is legal and permitted by the

terms of the leasing agreement.

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\10\ In this regard, RREEF acknowledges that the Department's

regulations issued under section 408(b)(2) (29 CFR 2550.408b-2)

provide, in relevant part, that no contract or arrangement for the

provision of services is reasonable within the meaning of section

408(b)(2) and regulation 2550.408b-2(a)(2) if it does not permit

termination by the Client Plan without penalty to the Client Plan on

reasonably short notice under the circumstances to prevent the

Client Plan from becoming locked into an arrangement that has become

disadvantageous.

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16. The Independent Fiduciary will maintain written records with

respect to the determinations it makes regarding Leasing Affiliates.

The written records will reflect, among other things, the information

considered, including the identity of non-affiliated leasing agents,

the source of the information, the steps taken by the Independent

Fiduciary in reaching its decision, and the reasons for its decision.

The Independent Fiduciary will also document any actions it takes in

connection with its periodic review of the Leasing Affiliates'

performance, as well as its approval or disapproval of the fees paid to

the Leasing Affiliates for services rendered pursuant to any emergency

procedures. These written records will be delivered periodically to

RREEF or the Leasing Affiliates and kept in accordance with the

Department's recordkeeping requirements under this exemption, if

granted.

17. RREEF is one of the largest real estate managers in the United

States. RREEF maintains portfolios for its clients which represent

different types of real estate, including office, retail, residential

and industrial properties. RREEF states that it cannot use a single

Independent Fiduciary for the transactions described herein due to the

large number of Account properties it manages in many diverse real

estate markets. While some of RREEF's

[[Page 46252]]

Accounts may contain all these properties, other Accounts may have

investment guidelines that limit them to specific categories or

subcategories (e.g. office properties may include large urban ``core''

properties, other high-rise properties, suburban ``build-to-suit''

space, etc.).

RREEF represents that there are very few real estate firms

qualified to act as Independent Fiduciaries which can review leasing

arrangements on a national basis. RREEF states that even those firms

may not be the most qualified in specific markets or for specific

properties. RREEF further states that the few real estate firms that

are qualified may also manage competing properties in relevant markets.

Thus, these firms will have a conflict of interest in reviewing such

leasing arrangements. Given the large number of properties which RREEF

manages, some candidates may be disqualified because the fees they

would receive from RREEF for serving as an Independent Fiduciary would

exceed 5% of their annual revenues. In addition, RREEF states that it

cannot use a single Independent Fiduciary for the transactions

described herein because, under RREEF's agreement with the Client

Plans, a single Client Plan that invests in an Account can prevent the

use of an Independent Fiduciary that has been selected by the Client

Plans for other Accounts.

RREEF represents that each Independent Fiduciary selected for the

leasing transactions will be an experienced and recognized real estate

consulting/brokerage firm familiar with the specific markets in which

each Account property is located.

18. RREEF represents further that the leasing commissions charged

pursuant to the proposed exemption, if granted, will not exceed market

rates. The Leasing Affiliates will agree to certain limitations

regarding the aggregate leasing commissions and property management

fees they will receive for services rendered to the same property. For

purposes of this proposed exemption, the fees paid to RREEF and/or its

affiliates for leasing services provided in connection with a property

held for an Account shall not exceed: (a) 7 percent of the lease amount

for new leases; (b) 2 percent of the lease amount for renewal leases;

and (c) for leases in which outside brokers are involved, 2.75 percent

of the lease amount.

19. The fees paid to the Leasing Affiliate for providing leasing

services will be governed by a written leasing agreement that will be

binding on the Leasing Affiliates and the respective Account. The

compensation and other terms under the leasing agreement will be

comparable to the compensation and terms between unrelated parties for

similar services in connection with comparative properties in the same

or similar locales.

20. In the event RREEF offers leasing services to any existing

Account, RREEF will issue separate policy statements to the investors

in the Account. The policy statements will disclose that RREEF or the

Leasing Affiliates are under consideration to provide leasing services

to the Account properties. The policy regarding these services will be

subject to prior approval of the authorizing independent fiduciaries of

the Client Plans (the Authorizing Fiduciaries) holding at least 60

percent of the units of beneficial interest in the Multiple Client

Account.

With respect to Fund I, RREEF represents that it has already

reviewed and negotiated with an Independent Fiduciary for each Client

Plan the possibility of the Account retaining the Leasing Affiliates.

RREEF states that it has received approval from all such Independent

Fiduciaries to proceed with the proposed transactions. Accordingly, the

Client Plans that participate in Fund I should be fully aware of (a)

the potential conflicts of interest involved in the selection of the

Leasing Affiliates as service providers; (b) the identification of the

properties which may require leasing services; (c) the services to be

rendered and the fees to be charged; and (d) the selection process. In

addition, RREEF will provide the Client Plans that participate in Fund

I with notice of the proposed exemption and the final exemption, and

will require approval of the appointment of one or more Independent

Fiduciaries.

21. RREEF, as the investment manager or trustee, will furnish each

Authorizing Fiduciary, not less than 45 days prior to the

implementation of the leasing policy, with any reasonably available

information necessary for the Authorizing Fiduciary to determine

whether to give its approval. Such information will include: (a) an

explanation of the potential conflicts of interest involved in

selecting RREEF and the Leasing Affiliates to provide leasing services;

(b) properties that may require such services at the time of

disclosure; (c) a description of the services and the fees to be

charged; (d) an explanation of the selection process (including the

selection of the Independent Fiduciary); and (e) a description of the

terms, if any, upon which a Client Plan may withdraw from the Account.

In the event an authorizing plan fiduciary of any Client Plan whose

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

as investment manager, at least 15 days prior to the provision of

leasing services, objecting to the provision of the leasing services,

and RREEF proposes to proceed with the provision of leasing services,

the Client Plan on whose behalf the objection was tendered will be

given the opportunity to terminate its investment in the Account,

without penalty. With the exception of a Client Plan which has invested

in a closed-end Account under which the rights of withdrawal from the

Account may be limited, as provided in the Client Plan's written

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

leasing services is submitted to RREEF any time after 15 days prior to

implementation of the leasing services (or after implementation), the

Client Plan must be able to withdraw without penalty, within such time

as may be necessary to effect such withdrawal in an orderly manner that

is equitable to all withdrawing and the non-withdrawing Client Plans.

However, the Leasing Affiliate need not discontinue providing the

leasing services, once implemented, by reason of a Client Plan electing

to withdraw after 15 days prior to the scheduled implementation date of

the leasing services. Any Client Plan which invests in a Single Client

Account may terminate the Leasing Services arrangement and withdraw

from the Account at any time (upon reasonable written notice).

As in the case of a new Account, the Client Plan's assets may be

invested in an Account which already retains the Leasing Affiliate. If

that Client Plan has not yet authorized the leasing arrangement in the

manner described above, the Authorizing Client Plan Fiduciary will

execute a prior written authorization approving the investment in the

Account and the service arrangements. Also, RREEF will provide such

Authorizing Client Plan Fiduciary with the same disclosures as those it

provided to Authorizing Fiduciaries of the Client Plans currently

invested in the Account.

Each leasing agreement may be terminated by a vote in favor of such

termination by the holders of a majority of units of beneficial

interests in the Account. Within 180 days after the vote terminating

the leasing agreement, RREEF will replace the Leasing Affiliate with an

unaffiliated leasing agent.

22. To ensure that the Client Plans investing in the Accounts have

resources and necessary investment sophistication to evaluate the

[[Page 46253]]

contemplated service arrangements, RREEF proposes the following

standard to be applied to the Multiple Client Accounts. Seventy-five

percent (75%) or more of the units of beneficial interests in the

Account must be held by Client Plans or other investors having total

assets of at least $100 million. In addition, 50 percent (50%) or more

of the Client Plans investing in the Account must have assets of at

least $100 million. For purposes of the 50% test, a group of Client

Plans maintained by a single employer or controlled group of employers,

any of which individually has assets of less than $100 million, will be

counted as a single Client Plan, if the decision to invest in the

Account (or the decision to make investments in the Account available

as an option for an individually directed account) is made by a

fiduciary other than RREEF, who exercises such discretion with respect

to plan assets in excess of $100 million. RREEF represents that this

requirement will only have an impact on Multiple Client Accounts.

Single Client Accounts will be established on behalf of Client Plans

that have more than $100 million in assets.

As an added condition to the exemption, RREEF proposes that no more

than 20 percent of a particular Client Plan's assets will be invested

in all RREEF Accounts on whose behalf the Leasing Affiliates will

provide leasing services.

23. In summary, RREEF represents that the proposed transactions

will satisfy the statutory criteria of section 408(a) of the Act and

section 4975(c)(2) of the Code because:

(a) Following full disclosure by RREEF, independent Client Plan

Fiduciaries will authorize the Client Plans to participate in an

Account that will utilize the services of RREEF or a Leasing Affiliate;

(b) RREEF, as the investment manager for the Accounts, will first

determine on a property-by-property basis that it is in the best

interests of the Accounts for RREEF or a Leasing Affiliate to provide

the leasing services before it recommends to the Independent Fiduciary

that RREEF or the Leasing Affiliate provide such services;

(c) the Independent Fiduciary must consider the recommendation and

specific alternatives for obtaining leasing services for a particular

property before RREEF or a Leasing Affiliate is selected to perform

leasing services for the property;

(d) the Independent Fiduciary will evaluate the reasonableness of

the fees charged by RREEF and its Leasing Affiliates for leasing

services and will negotiate the terms of each leasing agreement;

(e) the Independent Fiduciary will review the performance of RREEF

or any Leasing Affiliate under the leasing arrangements and instruct

RREEF, as the investment manager, to terminate or modify the contract

or exercise other rights available under the contract, whenever such

actions are appropriate;

(f) the compensation paid to RREEF and the Leasing Affiliates will

be no greater than that charged by similar firms for comparable

services in connection with comparable properties in similar locales,

and such compensation will not exceed what RREEF or the Leasing

Affiliate would charge an unrelated party;

(g) the Client Plans investing in the Accounts will be subject to a

minimum Plan size requirement to assure that such Client Plans have the

resources and investment sophistication necessary to evaluate the

risks, benefits and costs associated with the service arrangements; and

(h) limitations will also be placed on the percentage of a

particular Client Plan's assets that may be invested in all of the

Accounts maintained by RREEF, on whose behalf the Leasing Affiliates

will provide leasing services.

Notice to Interested Persons

RREEF will notify each Client Plan, which maintains a Single Client

Account with RREEF, of the proposed exemption by first class mail,

facsimile, or overnight delivery via commercial courier, within 15 days

of publication of the proposed exemption in the Federal Register. With

respect to the Multiple Client Accounts, RREEF represents that Client

Plans that currently invest in such Accounts will not receive copies of

the proposed exemption because such Accounts will not be affected by

this exemption, if granted. However, for the Client Plans that invest

in any future Multiple Client Accounts, RREEF will provide copies of

this notice of proposed exemption as well as the final exemption, if

granted, prior to such investment.

For Further Information Contact: Ekaterina A. Uzlyan of the

Department, telephone (202) 219-8883. (This is not a toll-free number.)

John B. Vick, D.D.S., P.A. Pension Plan (the Plan) Located in

Minneapolis, Minnesota

[Exemption Application No. D-10578]

Proposed Exemption

The Department is considering granting an exemption under the

authority of section 408(a) of the Act and 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). If the exemption is granted,

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 proposed cash sale (the Sale) of two promissory notes

(the Notes) by the Plan to Dr. John B. Vick, a party in interest and

disqualified person with respect to the Plan, provided the following

conditions are met:

(a) The Sale is a one-time transaction for cash;

(b) The terms and conditions of the Sale are at least as favorable

to the Plan as those obtainable in an arm's length transaction with an

unrelated party;

(c) The Plan receives an amount equal to the fair market value of

the Notes as determined by a qualified, independent appraiser as of the

date of Sale; and

(d) The Plan is not required to pay any commissions, costs or other

expenses in connection with the Sale.

Summary of Facts and Representations

1. The Plan, a profit sharing plan, was terminated on June 30,

1996. The Plan was sponsored by Dr. John B. Vick, a dentist practicing

in Minneapolis, Minnesota. At the time of termination, the Plan had

four participants and held assets in excess of $1.4 million.

2. Among the remaining assets in the Plan are two Notes originally

purchased in an arm's length transaction from an unrelated party. The

first promissory note carries a principal amount of $58,500 at an

interest rate of 13.75%. The term is 48 months. Interest only payments

of $2010.94 are due each quarter with a balloon payment of the

principal due on April 15, 2000. The second note, which is subordinated

to the debt of the first, carries a principal amount of $15,660 with an

interest rate of 20%. Interest only payments of $783 are due each

quarter with a balloon payment of the principal due on April 15, 2000.

The collateral for both notes is a parcel of improved real property

located in Glendale, Arizona and owned by the unrelated party.

3. The applicant requests an exemption for the proposed Sale of the

Notes to Dr. John Vick. At present, every participant in the Plan,

excluding Dr. Vick, has received his or her distribution. Dr. Vick has

transferred the majority of the assets in his account to his IRA and is

awaiting the opportunity to transfer the remainder. Because the trustee

of the IRA refuses to accept transfer of the Notes, Dr. Vick is

[[Page 46254]]

currently unable to complete the termination of the Plan and obtain, in

his personal capacity, the remaining portion of his assets from his

account in the Plan.

4. Robert N. Prentiss (Mr. Prentiss), president of the Independent

Service Company located, in Minneapolis, Minnesota, appraised the Notes

on November 19, 1997, and supplemented the appraisal on April 28, 1998.

Mr. Prentiss is an investment banker with over 20 years of experience

in valuing financial instruments, and represents that he has no present

or prospective interest in the Notes, no personal interest or bias with

respect to the parties involved, and is otherwise independent. After

analyzing the Notes, specifically focusing on the risk, liquidity,

collateral, and legal rights pertaining thereto, Mr. Prentiss

determined the value of the Notes to be equal to their face amounts.

Mr. Prentiss cited a number of reasons in support of his

conclusion. Specifically, he emphasized the following points: (1) the

Notes are highly speculative; (2) the Notes are illiquid as they cannot

be sold or paid off before their maturity dates; (3) the Notes are of

the interest only variety with the entire principal at risk during the

term; and (4) it would be difficult to obtain title in the event of

default because the collateral for the Notes is a parcel of real estate

which is subject to junior liens of $250,000. In light of the

foregoing, Mr. Prentiss believes that the Notes should be sold at par,

or $58,500 for the first note and $15,660 for the second note.

5. The applicant represents that the proposed transaction would be

administratively feasible in that it would be a one-time transaction

for cash. Furthermore, the applicant states that the transaction would

be in the best interests of the Plan in that it would enable the Plan

to dispose of the Notes thus facilitating the termination and saving on

future administrative costs. Finally, the applicant asserts that the

transaction only involves the account of Dr. Vick and will be

protective because the Plan will receive the fair market value of the

Notes as determined by a qualified, independent appraiser on the date

of Sale and will incur no commissions, costs, or other expenses as a

result of the Sale.

6. In summary, the applicant represents that the subject

transaction satisfies the statutory criteria for an exemption because:

(a) The Sale is a one-time transaction for cash; (b) The terms and

conditions of the Sale are at least as favorable to the Plan as those

obtainable in an arm's length transaction with an unrelated party; (c)

The Plan receives an amount equal to the fair market value of the Notes

as determined by a qualified, independent appraiser as of the date of

Sale; and (d) The Plan is not required to pay any commissions, costs or

other expenses in connection with the Sale.

Notice to Interested Persons

Because Dr. Vick is the only remaining participant in the Plan, it

has been determined that there is no need to distribute the notice of

the Proposed exemption (the Notice) to interested persons. Comments and

requests for a hearing are due (30) days after publication of the

Notice in the Federal Register.

For Further Information Contact: Mr. James Scott Frazier, 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 of disqualified

person from certain other provisions of the Act and/or the Code,

including any prohibited transaction provisions to which the exemption

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) Before an exemption may be granted under section 408(a) of the

Act and/or section 4975(c)(2) of the Code, the Department must find

that the exemption is administratively feasible, in the interests of

the plan and of its participants and beneficiaries and protective of

the rights of participants and beneficiaries of the plan;

(3) The proposed exemptions, if granted, will be supplemental to,

and not in derogation of, any other provisions of the Act and/or the

Code, including statutory or administrative exemptions and transitional

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

(4) The proposed exemptions, if granted, will be subject to the

express condition that the material facts and representations contained

in each application are true and complete and accurately describe all

material terms of the transaction which is the subject of the

exemption. In the case of continuing exemption transactions, if any of

the material facts or representations described in the application

change after the exemption is granted, the exemption will cease to

apply as of the date of such change. In the event of any such change,

application for a new exemption may be made to the Department.

Signed at Washington, DC, this 24th day of August, 1998.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, Department of Labor.

[FR Doc. 98-23282 Filed 8-28-98; 8:45 am]

BILLING CODE 4510-29-P