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Secretary of Labor Thomas E. Perez
Proposed Exemptions; RREEF America L.L.C. (RREEF) [Notices] [08/31/1998]

EBSA (Formerly PWBA) Federal Register Notice

Proposed Exemptions; RREEF America L.L.C. (RREEF) [08/31/1998]

[PDF Version]

Volume 63, Number 168, Page 46245-46254

[[Page 46245]]

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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 
<SUP>1</SUP> by certified mail (or another method of delivery pursuant 
to which confirmation of receipt is provided), with the ballot 
instructions that direct the authorizing independent client plan 
fiduciary to return the ballot to RREEF; (ii) ensure that the ballot 
clearly indicates that the authorizing plan fiduciary may vote for or 
against continuation of the Independent Fiduciary; (iii) ensure that 
the ballot must be accompanied by a statement that failure to return 
the ballot within 45 days following the independent plan fiduciaries' 
receipt of the ballots will be counted as a ``for'' vote (unless 
holders of a majority of the units of beneficial interests in the 
Accounts have voted against reconfirmation); and (iv) 30 days after the 
Independent Fiduciary mails the ballot to the authorizing plan 
fiduciary, RREEF must make at least one follow-up contact with the 
authorizing plan fiduciary that has not previously 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.<SUP>2</SUP>
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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.<SUP>3</SUP>
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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.<SUP>4</SUP>
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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.<SUP>5</SUP>
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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 
<SUP>6</SUP> 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).
---------------------------------------------------------------------------

    \6\ Currently, RREEF anticipates that RREEF Management will be 
the Leasing Affiliate which performs the leasing services.
---------------------------------------------------------------------------

    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 
<SUP>7</SUP> 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.
---------------------------------------------------------------------------

    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 
<SUP>8</SUP> before it can receive compensation for such services.
---------------------------------------------------------------------------

    \8\ Such approval will be obtained pursuant to Section II(1) and 
(2) of this proposed exemption.
---------------------------------------------------------------------------

    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, <SUP>9</SUP> 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.
---------------------------------------------------------------------------

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

    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.<SUP>10</SUP> 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.
---------------------------------------------------------------------------

    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