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Employee Benefits Security Administration

EBSA Federal Register Notice

Notice of Proposed Exemption for Certain Transactions Involving Aetna Life Insurance Company (Aetna) and UBS Realty Investors LLC (UBS Realty) Located in Hartford, CT [09/29/2003]

[PDF Version]

Volume 68, Number 188, Page 55993-56006

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Application No. D-11167]

 
Notice of Proposed Exemption for Certain Transactions Involving 
Aetna Life Insurance Company (Aetna) and UBS Realty Investors LLC (UBS 
Realty) Located in Hartford, CT

AGENCY: Department of Labor.

ACTION: Notice of proposed exemption.

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SUMMARY: This document contains a notice of pendency before the 
Department of Labor (the Department) of a proposed exemption from 
certain of the prohibited transaction restrictions of the Employee 
Retirement Income Security Act of 1974 (the Act) and the Internal 
Revenue Code of 1986 (the Code). The proposed exemption would exempt 
certain transactions that may occur as a result of the sharing of real 
estate investments among various Accounts maintained by Aetna, 
including the Aetna general account and the general accounts of Aetna's 
affiliates which are insurance companies licensed to do business in at 
least one state (collectively, the General Account), and the ERISA-
Covered Accounts with respect to which both Aetna and UBS Realty are 
fiduciaries. Aetna and UBS Realty (pursuant to the arrangement 
described herein) are primarily responsible for the acquisition, 
management and disposition of the assets allocated to the ERISA-Covered 
Accounts. Aetna has hired UBS Realty as a discretionary sub-adviser for 
the ERISA-Covered Accounts maintained by Aetna. UBS Realty will perform 
such services for the Accounts as of the transition effective date 
(expected to be October 1, 2003). However, Aetna will retain fiduciary 
authority over the ERISA-Covered Accounts after such date.

DATES: Written comments and requests for a public hearing must be 
received by the Department on or before November 28, 2003.

ADDRESSES: All written comments and requests for a hearing (at least 
three copies) should be sent of the Office of Exemption Determinations, 
Employee

[[Page 55994]]

Benefits Security Administration, Room N-5649, U.S. Department of 
Labor, 200 Constitution Avenue, NW., Washington, DC 20210, Attention: 
Application No. D-11167 (Aetna and UBS Realty). The application for 
exemption and the comments received will be available for public 
inspection in the Public Documents Room of the Employee Benefits 
Security Administration, U.S. Department of Labor, Room N-1513, 200 
Constitution Avenue, NW., Washington, DC 20210.

SUPPLEMENTARY INFORMATION: Notice is hereby given of the 2 pendency 
before the Department of an application for exemption from the 
restrictions of sections 406(a), 406(b)(1) and 406(b)(2) of the Act and 
from 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. 
The proposed exemption was requested in an application filed by Aetna 
and UBS Realty pursuant to section 408(a) of the Act and section 
4975(c)(2) of the Code, and in accordance with the procedures set forth 
in 29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990).

Summary of Facts and Representations

    1. Aetna is an insurance company organized under the laws of 
Connecticut. Among the many insurance products and financial services 
Aetna offers are funding, asset management and other services for 
thousands of employee benefit plans subject to the provisions of Title 
I of the Act. Historically, Aetna had been significantly involved in 
managing real estate investments (both real estate mortgage loans and 
real estate equity interests) held both in its general account for its 
own benefit as well as in various accounts for the benefit of its 
investment clients. In connection with this real estate management 
business, Aetna obtained an exemption--Prohibited Transaction Exemption 
91-10 (``PTE 91-10'') \1\--from the Department in 1991 that provided 
exemptive relief for certain transactions involving the real estate 
investments in such accounts. For the reasons set forth below, Aetna 
and UBS Realty have jointly requested that this exemptive relief be 
modified to reflect certain changed circumstances. If the proposed 
exemption is granted, PTE 91-10 shall be superseded and replaced by the 
restated prohibited transaction exemption set forth in this notice.
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    \1\ See 56 FR 3273 (January 29, 1991).
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    2. Aetna effectively disposed of a substantial portion of its 
third-party institutional real estate advisory business a number of 
years ago by selling that business to a newly-created entity owned by 
several of the employees in its institutional real estate group and 
certain private equity investors. This entity was subsequently 
purchased by UBS AG, a leading global financial services concern and 
the largest bank in Switzerland, and currently operates as UBS Realty, 
a wholly-owned indirect subsidiary of UBS AG. The former employees of 
Aetna's institutional real estate group have (subject to normal 
turnover) continued to manage and operate the business that is now UBS 
Realty. (Aetna and UBS Realty are sometimes collectively referred to 
herein as the ``Applicant.'')
    3. UBS Realty is an independent organization that is part of one of 
the largest financial service organizations in the world. UBS Realty 
represents that it: (i) Is a registered investment adviser under the 
Investment Advisers Act of 1940; (ii) meets the requirements of a 
``qualified professional asset manager'' within the meaning of 
Prohibited Transaction Class Exemption 84-14; \2\ (iii) had net equity, 
as of December 31, 2002, of approximately $37 million; and (iv) had 
total assets under management, as of September 30, 2002, of 
approximately $9.3 billion, of which approximately $5.7 billion was 
derived from Aetna, as described further below. Significantly, UBS 
Realty had approximately $3.6 billion of U.S. commercial real estate 
assets under management as of September 30, 2002, that was independent 
of its relationship with Aetna. More generally, the entire UBS group of 
companies had approximately $16.1 billion of real estate assets under 
management as of June 30, 2002, and approximately $1.5 trillion of 
total assets under management as of August, 2002.
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    \2\ See 49 FR 9494 (March 13, 1984)
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    4. Aetna has retained, and until transitioned to UBS Realty (as 
described below) will continue to retain, discretionary authority and 
control over the management of the various real estate accounts 
maintained by Aetna, including those real estate accounts in which 
employee benefit plans participate (the ``ERISA-Covered Accounts'') 
that are structured as pooled or single customer insurance company 
separate accounts (collectively, the ``Client Accounts''). In 
connection with its exercise of this discretionary authority and 
control, Aetna has retained UBS Realty (including its predecessor) to 
provide non-discretionary advice, recommendations and related services 
regarding the management of the Client Accounts. The Applicant 
represents that, consistent with the provisions of PTE 91-10, until 
day-to-day discretionary management responsibility is transitioned to 
UBS Realty, all of the Client Accounts have continued to be ``managed'' 
by Aetna, and the various decisions covered by the exemptions contained 
in PTE 91-10 have continued to be made by Aetna.
    5. It is now anticipated that the day-to-day discretionary 
management authority with respect to the Accounts will be delegated to 
UBS Realty, with the approval of the investors having an interest in 
the Client Accounts. Aetna, however, will continue to manage the real 
estate assets in its general account and in the general accounts of one 
or more of its affiliated insurance companies (collectively, the 
``General Account'' and together with the Client Accounts, the 
``Accounts''). The receipt of the requisite investor approval is 
expected in the near future with an anticipated effective date of such 
delegation on or about October 1, 2003. On and after the effective date 
of the transition (the ``Transition Effective Date''), the Client 
Accounts will be managed by UBS Realty on a discretionary basis, 
subject to the investment guidelines applicable to the particular 
Client Account and the ultimate oversight of Aetna. Accordingly, after 
the Transition Effective Date, many of the decisions covered by the 
exemptions contained in PTE 91-10 will be made by UBS Realty rather 
than by Aetna.
    The Client Accounts will nevertheless continue to be maintained by 
Aetna as insurance company separate accounts holding assets owned by 
Aetna that, in effect, ``fund'' Aetna's obligations to the holders of 
the annuity contracts that relate to the Client Accounts. Moreover, as 
discussed above, UBS's day-to-day management authority will be 
undertaken pursuant to an investment advisory agreement with Aetna 
that, among other things, includes UBS Realty's agreement to operate 
the Client Accounts in accordance with the Act and UBS Realty's 
acknowledgement of its fiduciary status to the extent that the assets 
of the Client Accounts are ``plan assets'' subject to the Act. Finally, 
Aetna will monitor UBS Realty's performance of its responsibilities and 
retains the right to terminate its delegation to UBS Realty as a result 
of default by UBS Realty under the investment advisory agreement or if 
Aetna determines that such action is required to comply with its 
fiduciary obligations.
    6. UBS Realty's general real estate investment strategy is set by 
its senior

[[Page 55995]]

management. Within these pre-determined parameters, its real estate 
acquisitions and underwriting professionals seek quality real estate 
investments for its various accounts. These potential equity 
investments are evaluated through a team approach. An acquisition 
specialist heads the team, which includes an asset manager, an 
attorney, an accountant, an engineer, an economic researcher, and a 
risk management specialist. Each member of the team must sign off on 
the investment before it is presented for approval to UBS Realty's 
Investment Committee. The Investment Committee, which consists of the 
senior management of UBS Realty, including the chief executive officer, 
all portfolio managers, the head of acquisitions, asset management, 
valuation, legal, and the chief financial officer, as well as the asset 
management region head, must approve all acquisitions in excess of 
$2,000,000 and sales in excess of $5,000,000. Approval of the 
investment transaction requires a concurrence of a majority of the 
members of the Investment Committee voting, and the portfolio manager 
for the account. In any event, either the chief executive officer or 
the head of U.S. operations must approve each transaction. Aetna 
maintains its own committee process to review investment actions taken 
by the UBS Realty Investment Committee.
    7. The Accounts, including the ERISA-Covered Accounts and the 
General Account, continue to participate in the sharing of certain real 
estate investments pursuant to PTE 91-10. As of the Transition 
Effective Date, those shared real estate investments involving the 
General Account (which were entered into before the Transition 
Effective date) will continue to be held by both the ERISA-Covered 
Accounts and the General Account. Accordingly, exemptive relief is 
requested with respect to those continuing shared investments. After 
the Transition Effective Date, the General Account will not share in 
any new real estate investments made by UBS Realty on behalf of the 
Client Accounts.
    8. UBS Realty represents that it has procedures in place that 
provide a system of fair and equitable allocation of investments to the 
Accounts. Aetna and UBS Realty do not share investment opportunities 
with each other. Each Account has written predetermined investment 
guidelines (such as product mix and geographic diversification 
standards) which are generally in place over extended periods. However, 
they may be modified by the Account's portfolio manager if appropriate, 
in conjunction with the contractholder, if applicable. An investment 
whose size or other characteristics qualify it for only one Account 
will be allocated to that Account. An investment whose size and other 
characteristics qualify it for allocation to more than one Account will 
be allocated based on a ``rotation'' system. Under this procedure, 
investments are allocated to the account that has not received an 
allocation for the longest period of time. Investments of a size 
exceeding eligible Account capacities may be shared.
    9. UBS Realty will seek to make investments in real estate on a 
shared basis for those Client Accounts that it manages, in the same 
manner that Aetna made such shared investments pursuant to PTE 91-10. 
UBS Realty will continue to manage the shared investments in real 
estate for Client Accounts in the same manner that Aetna managed such 
investments pursuant to PTE 91-10. UBS Realty represents that an 
inherent advantage of shared investments in real estate is the 
opportunity to enhance the diversity of investments available to the 
Client Accounts and their participating plans. By investing on a shared 
basis, the Client Accounts can obtain the advantage of interests in a 
larger number of high quality properties, regardless of cost. Further, 
shared investments frequently result in substantial savings associated 
with administrative and start-up costs.
    10. The Applicant frequently structures investments as 
partnerships, in which a third party (usually a real estate developer) 
participates in a partnership. It may then allocate the interest in 
such partnership to more than one Account. The Applicant states that 
partnership investments typically involve several particular features 
(by virtue of the terms and conditions of their partnership agreements) 
that may, in the case of shared investments, result in possible 
violations of section 406(a) or (b) of the Act. Therefore, an exemption 
for such partnerships is necessary.
    11. During the course of holding a real estate investment, certain 
situations may arise that require a decision to be made with regard to 
the management or disposition of the investment. For example, there may 
be a need for additional contributions of operating capital, or there 
may be an offer to purchase the investment by a third party or a joint 
venture partner. When these investments are shared among more than one 
of the Accounts, a potential for conflict arises since the same 
decision may not be in the best interest of each Account. Therefore, 
the Applicant has submitted a framework of proposed safeguards to 
protect the interests of any participating ERISA-Covered Account in the 
resolution of potential or actual conflicts.
    12. Each plan contractholder participating in an ERISA-Covered 
Account that shares or proposes to share real estate investments has 
been or will be furnished with a written description of the 
transactions that may occur involving such investments that might raise 
questions under the conflict of interest prohibitions of the Act with 
respect to the Applicant's involvement in such transactions and that 
are the subject of PTE 91-10 or this proposed exemption. This 
description will discuss the reasons why such conflicts of interest may 
be present (i.e., because the General Account has been participating in 
the investment and may benefit from the transaction \3\ or because the 
interests of the various Accounts participating in the investment may 
be adverse to each other at certain times with respect to the 
transaction). The description will also disclose the principles and 
procedures to be used to resolve anticipated impasses, as will be 
outlined below. In addition, each contractholder in an ERISA-Covered 
Account that currently shares investments has received a copy of PTE 
91-10, and will receive a copy of this exemption, if granted.
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    \3\ As noted in Paragraph 7 above, the General Account will not 
share in any new real estate investments made by UBS Realty on 
behalf of the Client Accounts after the Transition Effective Date.
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    13. With respect to new contractholders in an ERISA-Covered Account 
that currently participates in the sharing of investments, each such 
new contractholder will be provided with the above mentioned written 
description, a copy of the notice of pendency and a copy of the 
exemption, if granted, before the contractholder begins to participate 
in the ERISA-Covered Account. With respect to contractholders who are 
already in an ERISA-Covered Account that does not currently share 
investments but that proposes to participate in the sharing of 
investments in the future, each such contractholder will be provided 
with the description outlined above, a copy of the notice of pendency 
and a copy of the exemption, if granted, before the ERISA-Covered 
Account begins to participate in the sharing of investments.
    14. Withdrawals from pooled, open-end Accounts are made, at the 
written request of the contractholder, at market value, subject to the 
availability of cash. The Applicant is not obligated to liquidate 
investments to meet withdrawal requests. If cash available

[[Page 55996]]

for withdrawals is insufficient to meet all the withdrawal requests on 
any valuation date, available cash is paid to each withdrawing 
contractholder on a pro rata basis. With respect to pooled closed-end 
Accounts, the actual cash flow, including amounts received from the 
sale of investments, is generally paid out to all contractholders on a 
pro rata basis until all assets of the Account have been liquidated. 
Prior to liquidation of the Account, contractholders have the right, 
subject to the Applicant's agreement which cannot be unreasonably 
withheld, to sell their interests in the Account. For single customer 
Accounts, the contractholder with respect to wholly-owned properties 
can cause the Applicant to liquidate the investment or transfer it to a 
successor investment manager.
    15. An independent fiduciary or independent fiduciary committee 
must be appointed to act on behalf of each ERISA-Covered Account 
participating in the sharing of investments with respect to certain 
transactions and decisions contemplated by the proposed exemption. The 
independent fiduciary, acting on behalf of the ERISA-Covered Account, 
shall have the responsibility and authority to approve or reject 
recommendations made by the Applicant regarding the allocation of 
shared real estate investments to the ERISA-Covered Account and 
recommendations concerning subsequent transactions that are the subject 
of this proposed exemption. The independent fiduciary must be informed 
of the procedures set forth in the proposed exemption for the 
resolution of anticipated impasses prior to an acceptance by the 
fiduciary of the appointment. The Applicant shall provide the 
independent fiduciary with the information and materials necessary for 
the independent fiduciary to make an informed decision on behalf of the 
ERISA-Covered Account. No allocation or transaction that is the subject 
of the proposed exemption will be undertaken prior to the rendering of 
such informed decision by the independent fiduciary. The independent 
fiduciary shall also review on an as-needed basis, but not less than 
twice annually, the shared real estate investments in the ERISA-Covered 
Account's portfolio to determine whether the holding of such shared 
real estate investments continues to be in the best interest of the 
ERISA-Covered Account.\4\
    16. The independent fiduciary must be unrelated to Aetna and UBS 
Realty as well as any of their respective affiliates. The independent 
fiduciary may not be, or consist of, any officer, director or employee 
of either Aetna or UBS Realty, or be affiliated in any way with either 
Aetna or UBS Realty or any of their respective affiliates. The 
independent fiduciary must be either: (1) A business organization that 
has at least five (5) years of experience with respect to commercial 
real estate investments; (2) a committee comprised of one or more 
individuals who each have at least five (5) years of experience with 
respect to commercial real estate investments; or (3) the sponsor (or 
its designee) of a plan or plans that is the sole participant in an 
ERISA-Covered Account. An organization or individual may not serve as 
an independent fiduciary for an ERISA-Covered Account for any fiscal 
year if the gross income (other than fixed, non-discretionary 
retirement income and cost of living increases thereon) received by 
such organization or individual (or any partnership or corporation of 
which such organization or individual is an officer, director, or ten 
percent or more partner or shareholder) from either Aetna or UBS Realty 
and their respective affiliates for that fiscal year exceeds five (5) 
percent of such person's annual gross income in the aggregate from all 
sources for the prior fiscal year. If such organization or individual 
had no income for the prior fiscal year, the five (5) percent 
limitation shall be applied with reference to the fiscal year in which 
such organization or individual serves as an independent fiduciary. The 
income limitation will include services rendered to the Accounts as 
independent fiduciary under any prohibited transaction exemptions 
granted by the Department. 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 ten 
percent or more partner or shareholder, may: (i) Acquire any property 
from, sell any property to, or borrow any funds from, either Aetna or 
UBS Realty or any of their respective affiliates, or any Account 
managed by either Aetna or UBS Realty or any of their respective 
affiliates, during the period that such organization or individual 
serves as an independent fiduciary and continuing for a period of six 
(6) months after such organization or individual ceases to be an 
independent fiduciary; or (ii) negotiate any such transaction during 
the period that such organization or individual serves as independent 
fiduciary. A sponsor (or its designee) of a plan participating in an 
ERISA-Covered Account may not serve as independent fiduciary with 
respect to any pooled ERISA-Covered Account. A business organization or 
committee member may not serve as an independent fiduciary of more than 
one ERISA-Covered Account.
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    \4\ For example, in the case of an investment shared by the 
General Account and an ERISA-Covered Account, if the independent 
fiduciary of the ERISA-Covered Account determined, after its review 
of the Account's shared investment portfolio and financial 
information relating thereto, that the ERISA-Covered Account's 
interest in the shared investment should be disposed of, UBS Realty 
would be required to carry out the decision of the independent 
fiduciary. If the portfolio manager of the General Account agreed 
that its interest in the shared investment should also be disposed 
of, then the entire shared investment would be sold. If the 
portfolio manager of the General Account did not agree that its 
interest in the shared investment should be sold, UBS Realty would 
first try to sell only the ERISA-Covered Account's interest in the 
shared investment. However, to the extent that it is not feasible or 
possible to sell the ERISA-Covered Account's interest alone, the 
entire shared investment would be sold notwithstanding the non-
acquiescence of the General Account.
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    17. In the case of a single customer ERISA-Covered Account, if the 
plan sponsor or its designee decides not to act as the independent 
fiduciary, the independent fiduciary or independent fiduciary committee 
will be selected initially by either Aetna or UBS Realty. The 
independent fiduciary must be approved by the plan sponsor or another 
plan fiduciary prior to the commencement of its fiduciary 
responsibilities on behalf of the ERISA-Covered Account. In the case of 
a closed-end pooled ERISA-Covered Account, the appropriate plan 
fiduciary of each participating plan will be required to approve the 
initial selection of the independent fiduciary proposed by either Aetna 
or UBS Realty prior to the commencement of its fiduciary 
responsibilities on behalf of the ERISA-Covered Account. In the case of 
an open-end pooled ERISA-Covered Account, the independent fiduciary or 
the independent fiduciary committee will be selected initially by 
either Aetna or UBS Realty. The Applicant represents that because these 
Client Accounts often include a significant number of plan 
contractholders, the independent fiduciary will not be approved 
initially by plan contractholders. The selection of the independent 
fiduciary, however, must be approved by a majority of the 
contractholders in such a Client Account within twelve (12) months 
after the selection has been made.
    18. For both single customer and pooled ERISA-Covered Accounts, 
prior to the making of any decision to approve the selection of an 
independent fiduciary, plan contractholders must be furnished 
appropriate biographical information pertaining to the independent 
fiduciary or members of the independent fiduciary committee.

[[Page 55997]]

This biography must set forth the background and qualifications of the 
fiduciary (or fiduciaries) to serve in that capacity. In the case of 
any biographical information furnished after the date of this proposed 
exemption, the information must also disclose the total amount of 
compensation received by the fiduciary (or each member of a fiduciary 
committee) from either Aetna or UBS Realty or any of their respective 
affiliates during the preceding year, including pension or other 
deferred compensation paid to fiduciaries who may be former employees 
of either Aetna or UBS Realty or any of their respective affiliates, 
and compensation for any business services performed by the fiduciary 
or any affiliate for either Aetna or UBS Realty or any of their 
respective affiliates. The disclosure relating to compensation must be 
updated annually thereafter. Subsequent disclosures must also include 
the amount of fees and expenses paid for independent fiduciary 
services. The plans will be able to use this information to determine 
whether to approve the initial selection of the fiduciary committee and 
whether to continue such approval each year thereafter.\5\
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    \5\ The Applicant represents that the contractholders in its 
single customer and pooled closed-end real estate Client Accounts 
are knowledgeable and sophisticated investors who fully understand 
the operation of the ERISA-Covered Accounts.
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    19. Once an independent fiduciary is appointed, the independent 
fiduciary will continue to serve subject to an annual nomination by the 
Applicant and vote by each of the plans participating in the ERISA-
Covered Account. An independent fiduciary may be removed by a majority 
vote of the ERISA-Covered Account's contractholders. The Applicant will 
not have the authority to remove an independent fiduciary during the 
term of that independent fiduciary. If a vacancy occurs by virtue of 
the death, resignation or removal of an independent fiduciary, a 
replacement independent fiduciary will be nominated by either Aetna or 
UBS Realty and approved by a majority vote of the ERISA-Covered 
Account's contractholders. Possible replacements may also be nominated 
by any of the ERISA-Covered Account's contractholders.
    20. The independent fiduciary will normally be compensated by the 
ERISA-Covered Account. However, upon advance notice to the independent 
fiduciary and the ERISA-Covered Account's contractholders, the 
Applicant (or the Plan Sponsor in the case of a Single Customer 
Account) may pay such fees itself. The Applicant will indemnify any 
independent fiduciary or members of an independent fiduciary committee 
with respect to any action or threatened action to which such person is 
made a party by reason of his or her service as an independent 
fiduciary. Indemnification will be provided as permitted under the laws 
of the State of Connecticut and subject to the requirement that such 
person acted in good faith and in a manner reasonably believed to be 
solely in the interests of the participants and beneficiaries of the 
plans participating in the ERISA-Covered Account.
    21. The independent fiduciary will record in writing all decisions 
that are made in such capacity. In addition to the decisions of such 
independent fiduciary, the rationale and support thereof must also be 
set forth in writing and maintained by the Applicant pursuant to the 
recordkeeping requirements outlined in the General Conditions below. An 
independent fiduciary committee will be required to make its decisions 
on the basis of a two-thirds majority.
    22. The independent fiduciary of each ERISA-Covered Account is 
required to approve any recommendation by UBS Realty, acting on behalf 
of the ERISA-Covered Accounts, involving a shared investment. 
Situations may arise where a conflict of interest may develop and the 
independent fiduciaries of the ERISA-Covered Accounts may not agree on 
what the appropriate course of action should be for a proposed 
transaction. In such cases, UBS Realty, acting on behalf of the ERISA-
Covered Accounts, will make recommendations, which may be outlined as 
alternatives, to the independent fiduciaries regarding the proposed 
transaction. If an alternative course of action is not found that is 
acceptable, and the independent fiduciaries of such ERISA-Covered 
Accounts are in effect stalemated, a procedure has been developed by 
the Applicant to ensure that a decision can be made.
    23. This stalemate procedure is designed to provide a result that 
is the same as would be followed in comparable situations where 
unrelated parties to a transaction were dealing at arm's length. This 
means that the action that will be taken in such cases is the one that 
does not require an ERISA-Covered Account to invest new money and will 
not change the terms of an existing agreement or the existing 
relationship between the Client Accounts. For example, in the case of a 
proposed modification to a debt investment shared by two ERISA-Covered 
Accounts, if the independent fiduciaries cannot agree on such 
modification, no modification will be made. Rather, the terms of the 
loan agreement, as originally stated, will be carried out. Or, in the 
case of a partnership interest shared by two ERISA-Covered Accounts, 
the exercise of a buy-sell provision in the partnership agreement by a 
co-partner will require the two ERISA-Covered Accounts that share the 
interest in the partnership to either sell their partnership interest 
to the co-partner at a stated price, as determined by the partnership 
agreement, or buy the co-partner's interest at the stated price. If the 
independent fiduciaries cannot agree on the action to be taken, and no 
alternative course of action is found to be acceptable, the ERISA-
Covered Accounts will be required to sell their interest to the co-
partner. This action would be taken because the other (purchase) option 
would require the expenditure of additional funds by an objecting 
ERISA-Covered Account.
    In addition, situations may arise where an ERISA-Covered Account 
and a non-ERISA-Covered Client Account wish to pursue different courses 
of action. In such situations the decision on behalf of the non-ERISA-
Covered Client Account will be made by persons independent of Aetna, 
UBS Realty and any of their respective affiliates.\6\
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    \6\ In this regard, the Applicant represents that persons 
independent of Aetna, UBS Realty and any of their respective 
affiliates will make the decisions on behalf of non-ERISA-Covered 
Client Accounts pursuant to Section I(e)(2) and Sections II (b)(2) 
and (c)(2) (d)(2) of the proposed exemption.
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Specific Transactions

I. Direct Real Estate Investments

(a) Transfers Between Accounts

    24. Following the initial sharing of investments, it may be in the 
best interests of the Accounts participating in the investment for one 
Account to sell its interest to the other(s). Such a situation may 
arise, for example, when one Account experiences a need for liquidity 
in order to satisfy the cash needs of the plans participating in the 
Account, while for the other Account(s) the investment remains 
appropriate. One possible means of reconciling this situation is for 
the ``selling'' Account to sell its interest in the shared investment 
to the remaining participating Account(s) or to another Account(s) at 
current fair market value. Such sales may not, however, be appropriate 
in all circumstances. An inter-Account transfer will only be permitted 
when it is determined to be in the best interests of each Account that 
would be involved

[[Page 55998]]

in the transaction. Where two or more Accounts are involved in such a 
transfer, the transfer would also be subject to the approval of the 
Connecticut Insurance Department. In addition, the Applicant has 
determined that no such transfers will be permitted between the General 
Account and an ERISA-Covered Account. Because the Applicant would be 
acting on behalf of both the ``buying'' and ``selling'' Accounts in 
such an inter-Account transfer, the transfer might be deemed to 
constitute a prohibited transaction under section 406 of the Act. 
Accordingly, exemptive relief is requested herein for the sale or 
transfer of an interest in a shared real estate investment by one 
ERISA-Covered Account to another Client Account of which either Aetna 
or UBS Realty is a fiduciary. Such transfers would have to be at fair 
market value and approved by the independent fiduciary for each ERISA-
Covered Account involved in the transfer. See Section I(a).

(b) Joint Sales of Property

    25. In situations involving shared real estate investments, an 
opportunity may arise to sell the entire investment to a third party, 
and it may be determined that the sale is desirable for all of the 
participating Accounts. When the General Account is participating in 
the investment, and the sale is therefore determined to be in the best 
interests of the General Account (in addition to being in the interests 
of the other Account(s)), the sale might be deemed to constitute a 
prohibited transaction under section 406 of the Act and section 4975 of 
the Code.\7\ Similarly, the Applicant may be acting on behalf of two 
ERISA-Covered Accounts or an ERISA-Covered Account and a non-ERISA-
Covered Account other than the General Account. Accordingly, exemptive 
relief is requested for these joint sales. The sales would have to be 
approved by the independent fiduciary for each ERISA-Covered Account 
involved in the sale. See Section I(b).
---------------------------------------------------------------------------

    \7\ The Department notes that all future references to the 
provisions of the Act shall be deemed to include the parallel 
provisions of the Code.
---------------------------------------------------------------------------

(c) Additional Capital Contributions

    26. On occasion, commercial real estate investments require 
infusions of additional capital in order to fulfill the investment 
expectations of the property. For example, developmental real estate 
investments sometimes require additional capital in order to complete 
the construction of the property. In addition, the cash flow to improve 
or operate completed buildings may also result in the need for 
additional capital. Such additional capital is frequently provided by 
the owners of the property. In the case of a property that is owned 
entirely on behalf of the Accounts, it is contemplated that needed 
additional capital will ordinarily be contributed in connection with 
the investment in the form of an equity capital contribution made by 
each participating Account in an amount equal to such Account's 
existing percentage equity interest in the shared investment;\8\ that 
is, in the first instance, each Account would be afforded the 
opportunity to contribute additional capital on a fully proportionate 
basis. In the case of ERISA-Covered Accounts, all decisions regarding 
the making of additional capital contributions must be approved by the 
independent fiduciary for the ERISA-Covered Account. The making of an 
additional capital contribution could be deemed to involve a prohibited 
transaction under section 406 of the Act. If one or more participating 
Accounts in a shared investment is unable to provide its share of the 
needed additional capital, various alternatives may be appropriate, 
including having the other Account(s) make a disproportionate 
contribution. For example, where the General Account and an ERISA-
Covered Account participate in a shared investment and the need for 
additional capital arises, it might be determined for liquidity reasons 
or other factors involving the ERISA-Covered Account that the 
additional contribution should not be made by that ERISA-Covered 
Account. As a result, the additional equity capital may be provided 
entirely by the General Account with the further consequence that the 
General Account would thereafter have a larger interest in the 
investment and, therefore, a larger share in the appreciation and 
income to be derived from the property.\9\ Such an adjustment in 
ownership interests might be deemed to constitute a prohibited 
(indirect sales) transaction under section 406 of the Act. In addition, 
these situations could also occur where two ERISA-Covered Accounts or 
an ERISA-Covered Account and a non-ERISA-Covered Client Account are 
involved. Accordingly, the Applicant is requesting exemptive relief 
that would permit the contribution of additional equity capital for a 
shared investment by Accounts participating in the investment. Any 
decision made or action taken by an ERISA-Covered Account (i.e., the 
contribution of either no additional capital, the ERISA-Covered 
Account's pro rata share of additional capital, less than or more than 
the ERISA-Covered Account's pro rata share, etc.) must be approved by 
such independent fiduciary. See Section I(c).
---------------------------------------------------------------------------

    \8\ In any case where the General Account participates in a 
shared investment with one or more ERISA-Covered Accounts and a call 
for additional capital is made, the General Account will always 
contribute at least its pro rata share of such capital.
    \9\ In the case of shared real estate investments owned entirely 
by Aetna, if an Account contributes capital equaling less than its 
pro rata interest in the investment (or makes no contribution at 
all), that Account's equity interest will be re-adjusted and reduced 
based on the change in the fair market value of the property caused 
by the infusion of new capital.
---------------------------------------------------------------------------

(d) Lending of Funds To Meet Additional Capital Requirements

    27. If the General Account and an ERISA-Covered Account participate 
in a shared investment that experiences the need for additional 
capital, and it is determined that the ERISA-Covered Account does not 
have sufficient funds available to meet the call for additional 
capital, the General Account might be willing and able to loan the 
required funds to the ERISA-Covered Account. Prior to any loan being 
made, it must be approved by the independent fiduciary for the ERISA-
Covered Account. Such loan will be unsecured and non-recourse, will 
bear interest at a rate that will not exceed the prevailing interest 
rate on 90-day Treasury Bills, will not be callable at any time by the 
General Account, and will be prepayable at any time without penalty at 
the discretion of the independent fiduciary of the ERISA-Covered 
Account. See Section I(d).

(e) Shared Debt Investments

    28. The Applicant occasionally makes real estate investments 
consisting of interim construction loans or medium or long-term 
mortgage loans on a property. In some instances, the Applicant may have 
the opportunity to obtain an equity ownership interest in the 
underlying real property upon maturity of the debt or at the election 
of the Applicant. It is possible that shared real estate debt 
investments might raise questions under section 406 of the Act in 
essentially two situations: (1) A material modification in the terms of 
a loan agreement, or (2) a default on a loan. From time to time, the 
terms of outstanding real estate loans need to be modified to take into 
account new developments. Such modifications may commonly include 
extensions of the terms of the loan, revised interest rates, revised 
repayment schedules, changes in covenants or warranties to permit, for 
example, additional financing to be provided by others, and the 
provision of additional financing to the borrower by the Applicant. 
These situations require a decision on behalf of the lender as to

[[Page 55999]]

whether it would be in its own interest to make the modifications in 
question. Similarly, when a borrower commits an act of default under a 
loan agreement, the lender must determine, in its own interest, what 
action, if any, it wishes to take. Such action might involve 
foreclosure on the loan, a restructuring of the loan arrangement, or, 
in some cases as appropriate, no action at all. When a debt investment 
is shared among Accounts, a decision must be made on behalf of each 
Account with respect to the action to be taken when a loan modification 
or loan default situation occurs. In some cases, moreover, it is 
conceivable that different actions might be desired by different 
Accounts. Normally, however, only one unified course of action is 
possible in the situation. Since UBS Realty manages each of the Client 
Accounts (while the General Account is managed by Aetna), the action 
the Applicant decides to take for the particular Accounts may raise 
questions under section 406 of the Act. Accordingly, exemptive relief 
is being requested that will permit the Applicant on behalf of the 
Accounts to take appropriate action with respect to the modification of 
the material terms of a loan, or with respect to a default situation 
when the loan is a shared investment involving one or more ERISA-
Covered Accounts, or with respect to the acquisition of additional 
debt. Each such action would require approval of the independent 
fiduciary for each ERISA-Covered Account and the Applicant or the 
client for each non-ERISA-Covered Client Account. If there is an 
agreement among the independent fiduciaries and the non-ERISA-Covered 
Client Accounts as to the course of action to follow with regard to a 
proposed loan modification, or an adjustment in the rights upon 
default, such modification or adjustment will be implemented. If, upon 
full discussion of the matter, no course of action can be agreed upon 
by the independent fiduciaries and the non-ERISA-Covered Client 
Accounts, no modification of the terms of the loan or adjustment in the 
rights upon default would be made. The terms of the loan agreement as 
originally stated would be carried out. With respect to shared debt 
investments involving ERISA-Covered Accounts and non-ERISA-Covered 
Client Accounts, decisions on behalf of the non-ERISA-Covered Accounts 
will be made by persons independent of Aetna, UBS Realty and any of 
their respective affiliates. See Section I(e).

II. Partnership Investments

    29. Many real estate investments are structured as partnership 
arrangements (rather than 100 percent ownership interest in property) 
in which the Applicant and another party, such as a real estate 
developer or manager, participate as co-partners. Generally, the 
Applicant's co-partner acts as managing partner of the joint venture. 
The Applicant, in turn, may allocate its interest in the partnership to 
more than one Account. Partnership investments typically involve 
several particular features by virtue of the terms and conditions of 
the partnership agreements that may, when the partnership interest is 
shared, result in possible violations of section 406 of the Act.

(a) Additional Capital Contributions to Joint Ventures

    30. As in the case of investments made entirely by Aetna, 
partnership real estate investments sometimes require additional 
operating capital. Typically, the partnership agreements entered into 
by Aetna and many other real estate investors provide for a capital 
call by the general partner of the partnership to be made to each 
partner and that each partner provide the needed capital on a pro rata 
basis either in the form of an equity contribution or a loan to the 
partnership. If one partner refuses to contribute its pro rata equity 
share of the capital call, the other partner(s) may contribute 
additional capital to cover the short-fall and thereby ``squeeze down'' 
the interest in the venture of the non-contributing partner.\10\ 
Alternatively, if sufficient additional capital is not provided by the 
partners, other financing may be sought or the partnership may be 
liquidated. In the case of a capital call where Aetna's partnership 
interest is shared by two or more Accounts, a determination must be 
made on behalf of each Account participating in the shared investment 
with respect to whether it is appropriate for the Account to provide 
its proportionate share of additional capital requested by the 
partnership. The general rule that the Applicant will follow is that 
each Account will be given the opportunity to provide its pro rata 
share of the capital call, but for some Accounts it may be determined 
to be appropriate to provide less than a full share or no additional 
capital at all. In such cases, the interest of the Account would be 
reduced proportionately on a fair market basis. In the case of ERISA-
Covered Accounts, all decisions regarding the making of additional 
capital contributions must be approved by the independent fiduciary for 
the ERISA-Covered Account. In addition to situations where some 
Accounts participating in the ownership of Aetna's partnership interest 
may not be in a position to provide their share of a capital call, 
other situations may arise where a partner is unable to make its 
additional capital contributions. Both of these situations may result 
in prohibited transactions under section 406 of the Act. See Section 
II(a).
---------------------------------------------------------------------------

    \10\ In the case of a call for additional capital involving a 
typical partnership arrangement entered into between parties dealing 
at arm's-length, the partnership agreement may commonly provide that 
the equity interest of any non-contributing partner be re-adjusted, 
or ``squeezed down,'' on a capital interest basis. This involves re-
adjusting the equity interests of the partners solely on the basis 
of the percentage of total capital contributed without taking into 
account any appreciation on the underlying property. This ``capital 
interest'' adjustment can substantially diminish the equity interest 
of the non-contributing partner in the actual current market value 
of the underlying property. Thus, this type of re-adjustment is 
intended to provide an incentive to all partners to make their 
proportionate capital contributions so that improvements can be made 
and the operation of a property continued without burdening the 
other partners.
---------------------------------------------------------------------------

    31. Aetna Shortfall. In situations where the General Account and an 
ERISA-Covered Account are sharing an investment in a partnership, the 
General Account and an ERISA-Covered Account may experience a capital 
call from the general partner of the partnership for either an 
additional equity or debt contribution. If it is determined that the 
ERISA-Covered Account does not have sufficient funds available to meet 
its contribution requirement,\11\ the General Account may make an 
additional equity contribution to the partnership to cover the ERISA-
Covered Account's shortfall. However, in any case where the General 
Account contributes an ERISA-Covered Account's shortfall, the ERISA-
Covered Account's share of the partnership interest will be readjusted 
and reduced based upon the change in the fair market value of the 
partnership interest held by Aetna which is caused by the infusion of 
new capital, thus recognizing any appreciation in the investment. There 
is no ``capital basis squeeze down'' effect under these circumstances 
as there might be under the partnership agreement should Aetna (in its 
role as a partner) fail to meet a

[[Page 56000]]

call for additional capital. See Section II(a)(1).
---------------------------------------------------------------------------

    \11\ In any case where the General Account and one or more 
ERISA-Covered Accounts share Aetna's interest in a partnership, the 
General Account will always make a capital contribution that is at 
least equivalent proportionately to the highest capital contribution 
made by an ERISA-Covered Account (but not higher than the General 
Account's pro rata share of the required additional capital except, 
as described in paragraph 30, in the event of a co-venturer 
shortfall). Thus, as between the Accounts, the General Account will 
never be the cause of a capital contribution shortfall by Aetna that 
would result in a capital basis squeeze down by a partner.
---------------------------------------------------------------------------

    Additionally, the General Account may make a loan to the ERISA-
Covered Account to enable the ERISA-Covered Account to make its 
required pro rata capital contribution. Accordingly, subject to the 
conditions of the proposed exemption, this proposed exemption would 
provide relief for loans of this type. Prior to any loan being made, it 
would have to be approved by the independent fiduciary for the ERISA-
Covered Account. Such loan will be unsecured and non-recourse, will 
bear interest at a rate that will not exceed the prevailing interest 
rate on 90-day Treasury Bills, will not be callable at any time by the 
General Account, and will be prepayable at any time without penalty at 
the discretion of the independent fiduciary of the ERISA-Covered 
Account. In this way, the needed capital may be provided without 
causing a ``squeeze down'' in the equity interest of the participating 
ERISA-Covered Account. A similar situation may arise where two ERISA-
Covered Accounts, or an ERISA-Covered Account and a non-ERISA-Covered 
Client Account participate in a partnership investment. If one Client 
Account is unable or unwilling to provide its proportionate share of a 
capital call, the other Client Account may be interested in making up 
the shortfall. This might be accomplished by means of an equity 
contribution with a resulting re-adjustment on a current fair market 
value basis in the equity ownership interests of the participating 
Client Accounts. Thus, any of these disproportionate contribution 
situations between Client Accounts might result in a violation of 
section 406(b)(2) of the Act. Subject to the generally applicable 
conditions of this proposed exemption, Section II(a)(3) provides 
limited relief for these disproportionate contributions.
    32. Co-Partner Shortfall. In some cases, Aetna's partner in a 
partnership investment may be unable to meet its additional capital 
obligation, and the Applicant may deem it advisable for some or all of 
the participating Accounts to contribute capital in excess of their pro 
rata share in the partnership in order to finance the operation of the 
property (and thereby squeeze down the equity interest of the 
partner).\12\ The Applicant is requesting exemptive relief that would 
permit additional capital contributions to be made by participating 
Accounts on a non-proportionate basis if the need arises. Any instance 
involving the infusion of additional capital to a partnership will be 
considered by the independent fiduciary for each ERISA-Covered Account 
participating in the investment and any action to be taken by the 
Account must be approved by the independent fiduciary. These actions 
might include contributing a pro rata share of additional equity 
capital (including a capital contribution that squeezes down the 
interest of a partner on the basis provided in the partnership 
agreement), contributing more or less than a pro rata share, or 
contributing no additional capital. See Section II(a)(4).
---------------------------------------------------------------------------

    \12\ In any case involving a shared partnership interest held by 
the General Account and an ERISA-Covered Account, if it is 
determined that the ERISA-Covered Account will contribute its pro 
rata share of extra capital the General Account would also 
contribute at least its pro rata share of such capital.
---------------------------------------------------------------------------

(b) Third Party Purchase of Partnership Properties

    33. Under the terms of certain partnership agreements entered into 
by Aetna and other real estate investors, if an offer is received from 
a third party to purchase the assets of the partnership, and one 
partner (irrespective of the percentage ownership interest of the 
partner) wishes to accept the offer, the other partner must either (1) 
also accept the offer, or (2) buy out the first partner's interest at 
the portion of the offer price that is proportionate to the first 
partner's share of the partnership. For example, if Aetna on behalf of 
the Accounts and a real estate developer are partners in a property and 
an offer is received from another person to acquire the entire property 
that the developer wants to accept, the Applicant on behalf of the 
Accounts would be obligated either to sell its interest also to the 
third party or to buy out the interest of the developer at the portion 
of the price offered by the third party proportionate to the 
developer's share of the partnership. When the Applicant's interest in 
a real estate partnership is shared by two or more Accounts, it is 
likely that the same decision will be appropriate for each Account in 
any third-party purchase situation. See Sections I(b) and II(b)(1). It 
is also possible, however, that it might be in the interests of some 
Accounts to reject the offer and buy-out the partner, while other 
Accounts might not have the funds to do so or, for some other reason, 
would elect to sell to the third party. The partnership agreements 
typically require, however, that Aetna on behalf of the Accounts 
provide its co-partner with a buy or sell reply. Thus, in making a buy 
or sell decision in any of these cases involving an ERISA-Covered 
Account, the Applicant might be deemed to be acting in violation of 
section 406 of the Act. Further, in order to resolve situations where 
the same reply is not appropriate for all participating Accounts, 
various alternatives may be adopted. For example, the Account(s) that 
wishes to continue owning the property may be willing and able itself 
to buy-out not only the co-partner, but also the other participating 
Account(s) that wishes to accept the third party offer to sell. The 
General Account, however, will not participate in the buy-out of 
another Account(s). Or, one Account may itself be willing and able to 
buy-out the co-partner while the other Account chooses to continue 
holding its original interest in the property. Alternatively, all of 
the Accounts may choose to participate in the buy-out, but on a basis 
that is not in proportion to their existing ownership interests. When 
an ERISA-Covered Account is involved, such potentially desirable 
alternatives may also raise questions under section 406 of the Act 
(whether or not the General Account is a participant in the 
investment). Accordingly, the Applicant is requesting exemptive relief 
that would permit the Applicant to respond to third-party property 
purchase offers as appropriate under the circumstances. Such a response 
might involve acceptance of the offer on behalf of all participating 
Accounts, a buy-out of a partner by some or all of the participating 
Accounts on a pro rata or non-pro rata basis, or a buy-out of the 
interest of one participating Account (and of the co-partner) by other 
participating Accounts. Any action by any ERISA-Covered Account in 
these situations will be required to be approved by the independent 
fiduciary for the Account. Further, in any case involving the sharing 
of a partnership interest between the General Account and an ERISA-
Covered Account, the Applicant has determined that the action taken by 
the General Account in such third-party purchase offer situations will 
not be inconsistent with the action approved for the ERISA-Covered 
Account by the independent fiduciary for such Account. For example, 
where the Applicant recommends that a third-party purchase offer be 
accepted and the independent fiduciary nevertheless determines that the 
interest of the co-partner should be bought out, both Accounts will buy 
out the interest of the co-partner on a proportionate basis, unless a 
disproportionate buy-out is agreeable to both the Applicant and the 
independent fiduciary. However, where an offer to sell is acceptable to 
the co-partner (and the Applicant has the option of selling

[[Page 56001]]

to the third party or buying out the co-partner) and it is determined 
that the General Account is willing and able alone to buy out the co-
partner's interest, the independent fiduciary may elect that the ERISA-
Covered Account retain its existing ownership interest. In such case, 
the General Account may buy out the co-partner pursuant to Section 
II(b)(1). In any case in which more than one ERISA-Covered Account 
participates in a shared partnership investment and there is a lack of 
agreement among the independent fiduciaries with respect to whether to 
accept a ``sell'' offer or to buy-out a co-partner, the Applicant, as 
indicated above, must nevertheless provide a unified response to the 
co-partner on behalf of all participating Accounts. Accordingly, in 
these instances, all participating Accounts will be required to accept 
the ``sell'' offer, unless the Account or Accounts that prefer the buy-
out can buy-out both the co-partner's and the ``selling'' Account's 
interest, or unless one Account elects to retain its original ownership 
interest while the other Account(s) alone buys out the co-partner's 
interest. The Applicant represents that this action is preferred 
because the purchase option would require the expenditure of additional 
funds by an objecting Account.\13\ See Section II(b).
---------------------------------------------------------------------------

    \13\ Similarly, in any case involving an ERISA-Covered Account 
and a non-ERISA-Covered Client Account, if there is a lack of 
agreement between the independent fiduciary and, for example, the 
trustees of a foreign or public plan (or the Applicant in the case 
of a discretionary non-ERISA-Covered Account), all participating 
Accounts will be required to accept the ``sell'' offer unless an 
alternative accommodation as described above is made.
---------------------------------------------------------------------------

(c) Rights of First Refusal in Partnership Agreements

    34. Under the terms of certain partnership agreements entered into 
by Aetna and other real estate investors, if a partner wishes to sell 
its interest in the partnership to a third party, the other partner 
must be given the opportunity to exercise a right of first refusal to 
purchase the first partner's interest at the price offered by the third 
party. For example, if Aetna and a real estate developer are joint 
venture partners and the developer decided to sell its interest to a 
third party, Aetna would have the right to purchase the developer's 
interest at the price offered by the third party. In the case of shared 
real estate partnerships, the decision by the Applicant on behalf of 
the Accounts with respect to whether or not to exercise a right of 
first refusal might raise questions under section 406 of the Act since 
each Account participating in the investment might be affected 
differently by such decision. Because, under the terms of the 
partnership agreement, only one option (exercise or not exercise) may 
be chosen by the Applicant on behalf of the Accounts, exemptive relief 
is being requested that would permit the Applicant to exercise or not 
exercise a right of first refusal as may be appropriate under the 
circumstances. Any action taken on behalf of an ERISA-Covered Account 
regarding the exercise of such a right would have to be approved by the 
independent fiduciary. Further, under the requested exemption, if the 
General Account and an ERISA-Covered Account share a partnership 
investment, even though Aetna may initially decide on behalf of the 
General Account not to make a purchase under a right of first refusal 
option, the General Account will be required to participate in the 
purchase of the other partner's interest if the independent fiduciary 
determines that it is appropriate for the ERISA-Covered Account to 
participate in the exercise of the right of first refusal on at least a 
pro rata basis. If, however, two Client Accounts participate in a 
shared partnership interest and agreement cannot be reached on behalf 
of the Client Accounts on whether to exercise a right of first refusal, 
the right will not be exercised and the partner will be permitted to 
sell its interest to the third party, unless one Client Account decides 
to buy-out the partner alone. In this regard, it is conceivable that 
some participating Accounts may elect to take advantage of a right of 
first refusal opportunity and buy-out a co-partner without other 
participating Accounts taking part in the transaction. For example, in 
the case of a shared partnership investment involving the General 
Account (or any other Account) and an ERISA-Covered Account, if the co-
partner wishes to accept an offer to sell its interest and the 
independent fiduciary of the ERISA-Covered Account decides not to have 
the Client Account participate in purchasing that partner's interest, 
the General Account (or other participating Account) would be free to 
make the purchase on its own. The exercise of a right of first refusal 
on such a disproportionate basis might also raise questions under 
section 406 of the Act for which exemptive relief may be needed. See 
Section II(c).

(d) Buy-Sell Provisions in Partnership Agreements

    35. Certain partnership agreements entered into by Aetna may 
provide that one partner may demand that the other partner either sell 
its interest to the first partner at a price as determined by the terms 
of the partnership agreement or buy out the interest of the first 
partner at such price. If the other partner refuses to exercise either 
option within a specified period, it must sell its interest to the 
first partner at the stated price. These ``buy-sell'' provisions are 
generally used to resolve serious difficulties or impasses in the 
operation of a partnership, but generally a partnership agreement 
permits the buy-sell provision to be exercised at any time. As in the 
situations discussed above, the decision by the Applicant on behalf of 
the Accounts to make a buy-sell offer, or its reaction to such an offer 
made by a co-partner, may affect various participating Accounts 
differently. Accordingly, any decision made by the Applicant in these 
cases involving ERISA-Covered Accounts might raise questions under 
section 406 of the Act. The Applicant is requesting exemptive relief 
that would permit the Applicant to make an appropriate decision under 
the circumstances on behalf of all participating Accounts to make a 
buy-sell offer to a co-partner or to react to a buy-sell offer from a 
co-partner. Any such decision must be approved by the independent 
fiduciary for each ERISA-Covered Account participating in the 
investment. Further, under the requested exemption, if the Applicant 
decides to exercise (i.e., initiate) a buy-sell option with respect to 
the co-partner's interest and the independent fiduciary of a 
participating ERISA-Covered Account objects, the buy-sell option will 
not be exercised. Similarly, if the buy-sell option is initiated by the 
co-partner and there is a split among the independent fiduciaries of 
participating ERISA-Covered Accounts with respect to whether to buy or 
sell, all such Accounts will be required to sell, unless the Account(s) 
that wishes to buy-out the co-partner (or the co-partner and the other 
participating Account) can do so without the participation of the other 
Accounts. Also, where a buy-sell option is initiated by the co-partner 
and Aetna determines that the General Account should purchase the co-
partner's interest, if the independent fiduciary of a participating 
ERISA-Covered Account determines that, as between ``buy'' or ``sell'', 
such Account's interest should be sold, Aetna's entire partnership 
interest will be sold unless the independent fiduciary agrees that it 
would be preferable for the ERISA-Covered Account to retain its share 
of the partnership interest and Aetna determines that the General 
Account is willing and able to purchase the entire interest of the co-
partner. Any such disproportionate purchases may,

[[Page 56002]]

however, also raise questions under section 406 of the Act. See Section 
II(d).

(e) Transactions With Partnership Party in Interest.

    36. The Applicant represents that when the General Account holds a 
50 percent or more interest in a partnership, the partnership itself 
may be deemed to be a party in interest under section 3(14)(G) of the 
Act. Thus, any subsequent transaction involving the partnership and an 
ERISA-Covered Account that is also participating in the partnership 
(e.g., an additional contribution of capital) may be deemed to be a 
transaction between the plans participating in such ERISA-Covered 
Account and a party in interest (the partnership itself) in violation 
of section 406. Also, as a result of the partnership becoming a party 
in interest under section 3(14)(G) of the Act, other partners in the 
partnership having a ten percent or more interest may be parties in 
interest under section 3(14)(I). Therefore, transactions such as buy-
outs, sales of property, leases, etc., may occur that involve possible 
violations of section 406. Accordingly, the Applicant is requesting 
exemptive relief from the restrictions of section 406(a) of the Act, 
only, which would permit: (1) Any additional equity or debt capital 
contributions to a partnership by an ERISA-Covered Account that is 
participating in an interest in the partnership, where the partnership 
is a party in interest solely by reason of the General Account's 
ownership of a 50 percent or more interest in such partnership; (2) any 
material modification in the terms of, or action taken upon default 
with respect to, a loan to the partnership in which the ERISA-Covered 
Account has an interest as a lender; or (3) other transactions with the 
co-partners that arise in connection with the operation of the 
partnership. Any such action would be conditioned upon the approval of 
the independent fiduciary for the ERISA-Covered Account. In addition, 
the transactions would be conducted on a totally arm's-length basis, 
and the party in interest involved would have no power or authority to 
influence any of the transactions engaged in by the Applicant on behalf 
of any of the Accounts managed by the Applicant. See Section III.

Approvals and Disclosures Pursuant to PTE 91-10

    1. Because the proposed exemption in this notice is a modification 
and replacement of an existing exemption (PTE 91-10), any approvals, 
appointments, disclosures and decisions made or given pursuant to PTE 
91-10 shall remain in full force and effect with respect to this 
replacement exemption. Accordingly, the Applicant is not required to 
seek or request any such additional approvals, appointments or 
decisions or make any additional disclosures (except as provided in 
paragraphs 12 and 13 hereof) by virtue of this proposed exemption. See 
Section IV(j).

Initial Proportionate Allocations

    The Applicant has not requested exemptive relief for the initial 
allocation of shared real estate investments by Aetna among two or more 
Accounts, at least one of which is an ERISA-Covered Account, where each 
of the Accounts participating in a real estate investment participates 
in the debt and equity interests in the same relative proportions.
    Accordingly, since it appears that the method by which the 
interests in the real estate investments are allocated to the Accounts 
does not result in per se prohibited transactions under the Act, the 
Department has not proposed exemptive relief with respect to the 
initial sharing of these investments.\14\
---------------------------------------------------------------------------

    \14\ See preamble to the Proposed Exemption for Aetna, 55 FR 
45671, at 45678 (October 30, 1990).
---------------------------------------------------------------------------

Notice to Interested Persons

    Those persons who may be interested in the pendency of the 
requested exemption include fiduciaries of employee benefit plans 
investing in ERISA-Covered Accounts that would be affected by the 
transition of Accounts from Aetna to UBS Realty. Because of the number 
of affected persons, the Department has determined that the only 
practical form of providing notice to interested persons is the 
distribution, by Aetna or UBS Realty, of the notice of proposed 
exemption, as published in the Federal Register, to the appropriate 
fiduciaries of each plan described above. The distribution will occur 
within 30 days of the publication of the notice of proposed exemption 
in the Federal Register. The information provided will include a notice 
to interested persons of their right to comment or request a public 
hearing, as described in 29 CFR 2570.43(b).
    In addition, Aetna or UBS Realty will provide copies of the 
proposed exemption, upon request, to other interested persons, 
including plan fiduciaries that may invest in ERISA-Covered Accounts in 
the future during this period.
    Written comments and/or requests of a hearing must be made within 
sixty (60) days of the date of publication of this notice in the 
Federal Register.

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 Code does not relieve a fiduciary or other 
party in interest or disqualified person from certain other provisions 
of the Act and the Code, including any prohibited transaction 
provisions to which the exemption does not apply and 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) The proposed exemption, if granted, will not extend to 
transactions prohibited under section 406(b)(3) of the Act and section 
4975(c)(1)(F) of the Code;
    (3) 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; and
    (4) The proposed exemption, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and 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.

Written Comments and Hearing Requests

    All interested persons are invited to submit written comments or 
requests for a hearing on the pending exemption to the address above, 
within the time period set forth above. All comments will be made a 
part of the record. Comments and requests for a hearing should state 
the reasons for the writer's interest in the pending exemption. 
Comments received will be available for public inspection with the 
application for exemption at the address set forth above.

[[Page 56003]]

Proposed Exemption

    Under section 408(a) of the Act and section 4975(c)(2) of the Code 
and in accordance with the procedures set forth in 29 CFR Part 2570, 
subpart B (55 FR 32836, August 10, 1990), the Department proposes to 
amend and replace Prohibited Transaction Exemption 91-10, 56 FR 3273 
(January 29, 1991), with the following exemption.

Section I--Exemption for Certain Transactions Involving the Management 
of Investments Shared by Two or More Accounts

    If the exemption is granted, as indicated below, the restrictions 
of certain sections of the Act and the sanctions resulting from the 
application of certain parts of section 4975 of the Code shall not 
apply to the following transactions if the conditions set forth in 
Section IV are met:
    (a) Transfers Between Accounts--The restrictions of section 
406(b)(2) of the Act shall not apply to the sale or transfer of an 
interest in a shared investment (including a shared partnership 
interest) between two or more Accounts (except the General Account), 
provided that each ERISA-Covered Account pays no more, or receives no 
less, than fair market value for its interest in a shared investment.
    (b) Joint Sales of Property--The restrictions of sections 406(a), 
406(b)(1) and 406(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 sale to a 
third party of the entire interest in a shared investment (including a 
shared partnership interest) by two or more Accounts, provided that 
each ERISA-Covered Account receives no less than fair market value for 
its interest in the shared investment.
    (c) Additional Capital Contributions--The restrictions of sections 
406(a), 406(b)(1) and 406(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 either to the 
making of a proportionate equity capital contribution by one or more of 
the Accounts to a shared investment; or to the making of a 
Disproportionate [as defined in Section V(e)] equity capital 
contribution (or the failure to make such additional contribution) by 
one or more of such Accounts which results in an adjustment in the 
equity ownership interests of the Accounts in the shared investment on 
the basis of the fair market value of such interests subsequent to such 
contribution, provided that each ERISA-Covered Account is given an 
opportunity to make a proportionate contribution.
    (d) Lending of Funds--The restrictions of sections 406(a), 
406(b)(1) and 406(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 lending 
of funds from the General Account to an ERISA-Covered Account to enable 
the ERISA-Covered Account to make an additional proportionate 
contribution, provided that such loan--
    (A) Is unsecured and non-recourse with respect to participating 
plans,
    (B) Bears interest at a rate not to exceed the prevailing rate on 
90-day Treasury Bills,
    (C) Is not callable at any time by the General Account, and
    (D) Is prepayable at any time without penalty.
    (e) Shared Debt Investments--In the case of a debt investment that 
is shared between two or more Accounts, including one or more of the 
ERISA-Covered Accounts:
    (1) The restrictions of sections 406(a) and 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 any material modification in the terms of the 
loan agreement resulting from a request by the borrower or any decision 
regarding the action to be taken, if any, on behalf of the Accounts in 
the event of a loan default by the borrower.
    (2) The restrictions of section 406(b)(2) of the Act shall not 
apply to any decision by Aetna or UBS Realty on behalf of one or more 
ERISA-Covered Accounts: (A) Not to modify a loan agreement as requested 
by the borrower; or (B) to exercise any rights provided in the loan 
agreement in the event of a loan default by the borrower, even though 
the independent fiduciary for one of such Accounts has approved such 
modification or has not approved the exercise of such rights; and
    (3) The restrictions of section 406(a), 406(b)(1) and 406(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 either to the proportionate acquisition of 
additional debt by one or more of the Accounts to a shared debt 
investment, or to the acquisition of Disproportionate additional debt 
(or the failure to acquire such additional debt) by one or more of such 
Accounts which results in an adjustment in the amount of debt held by 
the Accounts in the shared investment provided that each ERISA-Covered 
Account is given an opportunity to acquire additional debt on a 
proportionate basis.

Section II--Exemption for Certain Transactions Involving the Management 
of Partnership Interests Shared by Two or More Accounts

    If the exemption is granted, the restrictions of certain sections 
of the Act and the sanctions resulting from the application of certain 
parts of section 4975 of the Code shall not apply to the following 
transactions resulting from the sharing of an investment in a real 
estate partnership between two or more Accounts, if the conditions set 
forth in Section IV are met:
    (a) Additional Capital Contributions--(1) The restrictions of 
sections 406(a), 406(b)(1) and 406(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 
either to the making of additional proportionate equity capital 
contributions by one or more Accounts participating in the partnership; 
or to the making of Disproportionate (as defined Section V(e)) equity 
capital contributions by one or more of such Accounts which results in 
an adjustment in the equity ownership interest of the Accounts in the 
shared partnership investment on the basis of the fair market value of 
such interests subsequent to such contributions; provided that each 
ERISA-Covered Account is given an opportunity to make a proportionate 
contribution.
    (2) The restrictions of sections 406(a), 406(b)(1) and 406(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 lending of funds from the General Account 
to an ERISA-Covered Account to enable the ERISA-Covered Account to make 
an additional proportionate capital contribution, provided that such 
loan--
    (A) Is unsecured and non-recourse with respect to the participating 
plans,
    (B) Bears interest at a rate not to exceed the prevailing rate on 
90-day Treasury Bills,
    (C) Is not callable at any time by the General Account, and
    (D) Is prepayable at any time without penalty.
    (3) The restrictions of section 406(b)(2) of the Act shall not 
apply to the making of Disproportionate

[[Page 56004]]

additional equity capital contributions (or the failure to make such 
additional contributions) to the partnership by Accounts other than the 
General Account which result in an adjustment in the equity ownership 
interests of the ERISA-Covered Accounts in the partnership on the basis 
of the fair market value of such partnership interests subsequent to 
such contributions, provided that each ERISA-Covered Account is given 
an opportunity to provide its proportionate share of the additional 
equity capital contributions; and
    (4) In the event a co-partner fails to provide all or any part of 
its proportionate share of an additional equity capital contribution, 
the restrictions of sections 406(a), 406(b)(1) and 406(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 making of Disproportionate additional equity capital 
contributions to the partnership by an Account up to the amount of such 
contribution not provided by the co-partner which result in an 
adjustment in the equity ownership interests of the Accounts in the 
partnership on the basis provided in the partnership agreement, 
provided that such ERISA-Covered Account is given an opportunity to 
participate in all additional equity capital contributions on a 
proportionate basis.
    (b) Third Party Purchase Offers--(1) In the case of an offer by a 
third party to purchase any property owned by the partnership, the 
restrictions of sections 406(a), 406(b)(1) and 406(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 acquisition by the Accounts, including one or more 
ERISA-Covered Account[s], on either a proportionate or Disproportionate 
basis of a co-partner's interest in the partnership in connection with 
a decision on behalf of such Accounts to reject such purchase offer, 
provided that each ERISA-Covered Account is first given an opportunity 
to participate in the acquisition on a proportionate basis; and
    (2) The restrictions of section 406(b)(2) of the Act shall not 
apply to any acceptance by Aetna or UBS Realty on behalf of two or more 
Accounts, including one or more ERISA-Covered Account[s], of an offer 
by a third party to purchase a property owned by the partnership even 
though the independent fiduciary for one or more of such ERISA-Covered 
Account[s] has not approved the acceptance of the offer where all of 
the Accounts (other than the General Account) participating in such 
investment are not in agreement on how to proceed with respect to such 
offer, provided that the declining Account[s] are first afforded the 
opportunity to buy out both the co-partner and ``selling'' Account's 
interests in the partnership.
    (c) Rights of First Refusal--(1) In the case of the right to 
exercise a right of first refusal described in a partnership agreement 
to purchase a co-partner's interest in the partnership at the price 
offered for such interest by a third party, the restrictions of 
sections 406(a), 406(b)(1) and 406(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 acquisition by such Accounts, including one or more ERISA-Covered 
Account[s], on either a proportionate or Disproportionate basis of a 
co-partner's interest in the partnership in connection with the 
exercise of such a right of first refusal, provided that each ERISA-
Covered Account is first given an opportunity to participate on a 
proportionate basis; and
    (2) The restrictions of section 406(b)(2) of the Act shall not 
apply to any decision by Aetna or UBS Realty on behalf of the ERISA-
Covered Accounts not to exercise such a right of first refusal even 
though the independent fiduciary for one or more of such ERISA-Covered 
Accounts has approved the exercise of the right of first refusal where 
all of the Accounts participating in such investment (other than the 
General Account) are not in agreement on how to proceed with respect to 
such right of first refusal, provided that the Accounts that approved 
the exercise of the right of first refusal are offered the opportunity 
to buy-out the co-partner on their own.
    (d) Buy-Sell Options--(1) In the case of the exercise of a buy-sell 
option set forth in the partnership agreement, the restrictions of 
sections 406(a), 406(b)(1) and 406(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 
acquisition by one or more of the Accounts on either a proportionate or 
Disproportionate basis of a co-partner's interest in the partnership in 
connection with the exercise of such a buy-sell option, provided that 
each ERISA-Covered Account is first given the opportunity to 
participate on a proportionate basis; and
    (2) The restrictions of section 406(b)(2) of the Act shall not 
apply to any decision by Aetna or UBS Realty on behalf of two or more 
Accounts, including one or more ERISA-Covered Account[s], to sell the 
interest of such Accounts in the partnership to a co-partner even 
though the independent fiduciary for one or more of such ERISA-Covered 
Account[s] has not approved such sale where all of the Accounts 
participating in such investment (other than the General Account) are 
not in agreement on how to proceed with respect to the buy-sell option, 
provided that such disapproving Account is first afforded the 
opportunity to purchase the entire interest of the co-partner.

Section III--Exemption for Transactions Involving a Partnership or 
Persons Related to a Partnership

    The restrictions of section 406(a) 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 (D) of the Code, shall not apply, if 
the conditions in Section IV are met, to any additional equity or debt 
capital contributions to a partnership, or any transaction with the co-
partner which arises in connection with the operation of the 
partnership, by an ERISA-Covered Account that is participating in an 
interest in the partnership, or to any material modification in the 
terms of, or action taken upon default with respect to, a loan to the 
partnership in which the ERISA-Covered Account has an interest as a 
lender, where the partnership is a party in interest solely by reason 
of the ownership on behalf of the General Account of a 50 percent or 
more interest in such joint venture.

Section IV--General Conditions

    (a) The decision to participate in any ERISA-Covered Account that 
shares real estate investments must be made by plan fiduciaries who are 
totally unrelated to Aetna, UBS Realty and their respective affiliates. 
This condition shall not apply to plans covering employees of Aetna, 
UBS Realty or any of their respective affiliates.
    (b) Each contractholder or prospective contractholder in an ERISA-
Covered Account which shares or proposes to share real estate 
investments is provided with a written description of potential 
conflicts of interest that may result from the sharing, a copy of the 
notice of pendency, and a copy of the exemption if granted.
    (c) An independent fiduciary must be appointed on behalf of each 
ERISA-Covered Account participating in the sharing of investments. The 
independent fiduciary shall be either:

[[Page 56005]]

    (1) A business organization which has at least five years of 
experience with respect to commercial real estate investments,
    (2) A committee comprised of one or more individuals who each have 
at least five years of experience with respect to commercial real 
estate investments, or
    (3) The plan sponsor (or its designee) of a plan (or plans) that is 
the sole participant in an ERISA-Covered Account.
    (d) The independent fiduciary or independent fiduciary committee 
member shall not be or consist of Aetna, UBS Realty or any of their 
respective affiliates.
    (e) No organization or individual may serve as an independent 
fiduciary for an ERISA-Covered Account for any fiscal year if the gross 
income (other than fixed, non-discretionary retirement income and any 
cost of living increases thereon) received by such organization or 
individual (or any partnership or corporation of which such 
organization or individual is an officer, director, or ten percent or 
more partner or shareholder) from Aetna, UBS Realty, any of their 
respective affiliates, and the ERISA-Covered Accounts for that fiscal 
year exceeds five percent of its or his annual gross income from all 
sources for the prior fiscal year. If such organization or individual 
had no income for the prior fiscal year, the five percent limitation 
shall be applied with reference to the fiscal year in which such 
organization or individual serves as an independent fiduciary. The 
income limitation will include income for services rendered to the 
Accounts as independent fiduciary under any prohibited transaction 
exemption(s) granted by the Department. However, such income limitation 
shall not include any income for services rendered to a Single Customer 
ERISA-Covered Account by an independent fiduciary selected by the Plan 
Sponsor to the extent determined by the Department in any subsequent 
prohibited transaction proceeding.
    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 ten percent or more partner or 
shareholder, may acquire any property from, sell any property to, or 
borrow any funds from, Aetna, UBS Realty, any of their respective 
affiliates, or any Account managed by Aetna, UBS Realty or any of their 
respective affiliates, during the period that such organization or 
individual serves as an independent fiduciary and continuing for a 
period of six months after such organization or individual ceases to be 
an independent fiduciary, or negotiate any such transaction during the 
period that such organization or individual serves as independent 
fiduciary.
    (f) The independent fiduciary acting on behalf of an ERISA-Covered 
Account shall have the responsibility and authority to approve or 
reject recommendations made by Aetna, UBS Realty or any of their 
respective affiliates for each of the transactions in this proposed 
exemption. Aetna, UBS Realty and any of their respective affiliates 
shall involve the independent fiduciary in the consideration of 
contemplated transactions prior to the making of any decisions, and 
shall provide the independent fiduciary with whatever information may 
be necessary in making its determinations.
    In addition, the independent fiduciary shall review on an as-needed 
basis, but not less than twice annually, the shared real estate 
investments in the ERISA-Covered Account to determine whether the 
shared real estate investments are held in the best interest of the 
ERISA-Covered Account.
    (g) Neither UBS Realty nor any of its affiliates is a co-investor 
in the shared investment or partnership to which an exemption provided 
by Sections I, II or III above is being applied; provided, however, 
that this condition shall not preclude an employee benefit plan 
maintained by Aetna, UBS Realty or any of their affiliates from 
participating in an ERISA-Covered Account that is such a co-investor.
    (h) Aetna or UBS Realty maintains for a period of six years from 
the date of the transaction the records necessary to enable the persons 
described in paragraph (i) of this Section to determine whether the 
conditions of this exemption have been met, except that a prohibited 
transaction will not be considered to have occurred if, due to 
circumstances beyond the control of Aetna, UBS Realty or any of their 
respective affiliates, the records are lost or destroyed prior to the 
end of the six-year period.
    (i) Except as provided in paragraph (2) of this subsection (i) and 
notwithstanding any provisions of subsection (a)(2) and (b) of section 
504 of the Act, the records referred to in subsection (h) of this 
Section are unconditionally available at their customary location for 
examination during normal business hours by--
    (A) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service,
    (B) Any fiduciary of a plan participating in an ERISA-Covered 
Account who has authority to acquire or dispose of the interests of the 
plan, or any duly authorized employee or representative of such 
fiduciary,
    (C) Any contributing employer to any plan participating in an 
ERISA-Covered Account or any duly authorized employee or representative 
of such employer, and
    (D) Any participant or beneficiary of any plan participating in an 
ERISA-Covered Account, or any duly authorized employee or 
representative of such participant or beneficiary.
    (2) None of the persons described in subparagraphs (B) through (D) 
of this subsection (i) shall be authorized to examine trade secrets of 
Aetna, UBS Realty or any of their respective affiliates, or commercial 
or financial information which is privileged or confidential.

Section V--Definitions

    For the purposes of this proposed exemption:
    (a) An ``affiliate'' of Aetna or UBS Realty, respectivley, 
includes--
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with Aetna or UBS Realty, respectivley,
    (2) Any officer, director or employee of Aetna, UBS Realty or any 
person described in section V(a)(1), and
    (3) Any partnership in which Aetna or UBS Realty is a partner.
    (b) An ``Account'' means any account maintained by Aetna and, 
except in the case of the General Account, managed by UBS Realty. The 
term ``Account'' includes the General Account, ERISA-Covered Accounts, 
Pooled Accounts and Single Customer Accounts, as well as combinations 
of accounts other than the General Account which are consolidated for 
investment management purposes as if they were a single account.
    (c) The ``General Account'' means the general asset account of 
Aetna and any of its affiliates which are insurance companies licensed 
to do business in at least one State as defined in section 3(10) of the 
Act.
    (d) An ``ERISA-Covered Account'' means any Account (other than the 
General Account) in which employee benefit plans subject to Title I or 
Title II of the Act participate.
    (e) ``Disproportionate'' means not in proportion to an Account's 
existing equity ownership interest in an investment, partnership or 
partnership interest in a debt.
    (f) The ``Transition Effective Date'' is the effective date of the 
delegation by Aetna to UBS Realty of the management

[[Page 56006]]

of the Accounts, which has been designated as October 1, 2003.

EFFECTIVE DATE: This proposed exemption, if granted, will be effective 
as of October 1, 2003, the Transition Effective Date.
    The proposed exemption, if granted, will be subject to the express 
conditions 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 transactions to be consummated 
pursuant to the exemption.

FOR FURTHER INFORMATION CONTACT: Brian J. Buyniski of the Department, 
telephone (202) 693-8545. (This is not a toll-free number.)

    Signed at Washington, DC, this 24th day of September, 2003.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, Department of Labor.
[FR Doc. 03-24594 Filed 9-26-03; 8:45 am]

BILLING CODE 4510-29-P