Skip to page content
Secretary of Labor Thomas E. Perez
Proposed Exemptions Wells Fargo Bank [Notices] [04/04/1996]

EBSA (Formerly PWBA) Federal Register Notice

Proposed Exemptions Wells Fargo Bank [04/04/1996]

[PDF Version]

Volume 61, Number 66, Page 15123-15145

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

DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-09334, et al.]

 
Proposed Exemptions Wells Fargo Bank

AGENCY: Pension and Welfare Benefits Administration, Labor

ACTION: Notice of Proposed Exemptions.

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

SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the prohibited transaction restriction of the Employee 
Retirement Income Security Act of 1974 (the Act) and/or the Internal 
Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

     Unless otherwise stated in the Notice of Proposed Exemption, all 
interested persons are invited to submit written comments, and with 
respect to exemptions involving the fiduciary prohibitions of section 
406(b) of the Act, requests for hearing within 45 days from the date of 
publication of this Federal Register Notice. Comments and request for a 
hearing should state: (1) the name, address, and telephone number of 
the person making the comment or request, and (2) the nature of the 
person's interest in the exemption and the manner in which the person 
would be adversely affected by the exemption. A request for a hearing 
must also state the issues to be addressed and include a general 
description of the evidence to be presented at the hearing. A request 
for a hearing must also state the issues to be addressed and include a 
general description of the evidence to be presented at the hearing.

ADDRESSES: All written comments and request for a hearing (at least 
three copies) should be sent to the Pension and Welfare Benefits 
Administration, Office of Exemption Determinations, Room N-5649, U.S. 
Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C. 
20210. Attention: Application No. stated in each Notice of Proposed 
Exemption. The applications for exemption and the comments received 
will be available for public inspection in the Public Documents Room of 
Pension and Welfare Benefits Administration, U.S. Department of Labor, 
Room N-5507, 200 Constitution Avenue, N.W., Washington, D.C. 20210.

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all 
interested persons in the manner agreed upon by the applicant and the 
Department within 15 days of the date of publication in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and to request a hearing 
(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in 
applications filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990). 
Effective December 31, 1978, section 102 of Reorganization Plan No. 4 
of 1978 (43 FR 47713, October 17, 1978) transferred the authority of 
the Secretary of the Treasury to issue exemptions of the type requested 
to the Secretary of Labor. Therefore, these notices of proposed 
exemption are issued solely by the Department.
    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

Wells Fargo Bank, N.A. (the Bank); Located in San Francisco, CA

[Application No. D-09334]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Internal Revenue Code (the Code) and in accordance with the procedures 
set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 
10, 1990).<SUP>1

    \1\ For purposes of this proposed exemption, references to 
provisions of Title I of the Act, unless otherwise specified, refer 
also to corresponding provisions of the Code.
---------------------------------------------------------------------------

Section I. Exemption for the In-Kind Transfer of Assets.

    If the exemption is granted, the restrictions of sections 406(a) 
and 406(b) of the Act and the sanctions resulting from the application 
of section 4975 of the Code, by reason of section 4975(c) of the Code, 
shall not apply, effective July 2, 1993 until October 1, 1993, to the 
in-kind transfer of all or a pro rata portion of the assets of employee 
benefit plans (the Plans) that are held in certain collective 
investment funds (the CIF or CIFs), for which the Bank or any of its 
affiliates (collectively, Wells Fargo) serves as fiduciary, to the 
Stagecoach

[[Page 15124]]
Funds, Inc. (the Fund or Funds), an open-end investment company 
registered under the Investment Company Act of 1940 (the '40 Act), as 
amended, for which Wells Fargo acts as investment adviser and may 
provide other services, in exchange for shares of the Funds (the CIF 
Exchanges), in connection with the partial termination of the CIFs.
    This proposed exemption is subject to the following conditions and 
the general conditions of Section II:
    (a) The CIF Exchange is a one-time transaction between the Plan and 
the respective Fund.
    (b) No sales commissions or other fees are paid by the Plans in 
connection with the CIF Exchanges and no redemption fees are paid by 
the Plan in connection with the sale by the Plan of shares acquired in 
a CIF Exchange.
    (c) A fiduciary of each Plan who is independent of and unrelated to 
Wells Fargo (the Second Fiduciary) receives advance written notice of 
the CIF Exchange and full written disclosure of information concerning 
the Funds which includes, but is not limited to the following:
    (1) A current prospectus for each Fund in which the Plan is 
considering investing;
    (2) A statement describing the fees for investment advisory or 
similar services, any secondary services (the Secondary Services) as 
referred to in paragraph (h) of Section III, and all other fees to be 
charged to, or paid by, the Plan (and by such Fund) to Wells Fargo, 
including the nature and extent of any differential between the rates 
of the fees;
    (3) The reasons why Wells Fargo considers an investment in the Fund 
to be appropriate for the Plan; and
    (4) A statement describing whether there are any limitations 
applicable to Wells Fargo with respect to which assets of a Plan may be 
invested in a Fund, and, if so, the nature of such limitations.
    (d) On the basis of the foregoing information, the Second Fiduciary 
approves, in writing, the CIF Exchange.
    (e) Each Plan receives shares of the Funds which have a total net 
asset value equal to the value of all or the Plan's pro rata share of 
the Plan's assets invested in the CIF on the date of the transfer, 
based on the current market value of the CIF's assets, as objectively 
determined in a single valuation, performed in the same manner at the 
close of the same business day by a principal pricing service (the 
Principal Pricing Service), disclosed previously by Wells Fargo to the 
Second Fiduciary, and/or as applicable, by the amortized cost method.
    (f) The terms of the transaction are no less favorable to each Plan 
than those obtainable in an arm's length transaction with an unrelated 
party.
    (g) Wells Fargo sends by regular mail to each affected Plan a 
written confirmation, not more than 7 days after the completion of the 
transaction, containing the date of the transaction, the number of 
shares acquired by the Plan in each of the Funds, the price paid per 
share for the shares in each of the Funds and the total dollar amount 
involved in the transaction with each Fund.
    (h) As to each Plan, the combined total of all fees received by 
Wells Fargo for the provision of services to such Plan, and in 
connection with the provision of services to any of the Funds in which 
the Plan may invest, is not in excess of ``reasonable compensation'' 
within the meaning of section 408(b)(2) of the Act.
    (i) Wells Fargo does not receive any fees payable pursuant to Rule 
12b-1 of the '40 Act in connection with the transactions involving the 
Funds.
    (j) The Plans are not sponsored or maintained by Wells Fargo.
    (k) Wells Fargo provides the Second Fiduciary of such Plan with--
    (1) A copy of the proposed exemption and/or the final exemption, if 
granted;
    (2) A copy of an updated prospectus of such Fund, at least 
annually;
    (3) A report or statement (which may take the form of the most 
recent financial report, the current statement of additional 
Information, or some other written statement) which contains a 
description of all fees paid by the Fund to Wells Fargo, upon the 
request of the Second Fiduciary; and
    (4) A statement specifying--
    (A) The total, expressed in dollars, of brokerage commissions that 
are paid to Wells Fargo by such Fund;
    (B) The total, expressed in dollars, of brokerage commissions that 
are paid by such Fund to brokerage firms unrelated to Wells Fargo;
    (C) The average brokerage commissions per share, expressed as cents 
per share, paid to Wells Fargo by such Fund; and
    (D) The average brokerage commissions per share, expressed as cents 
per share, paid by such Fund to brokerage firms unrelated to Wells 
Fargo. (Such statement will be provided at least annually with respect 
to each of the Funds in which a Plan invests in the event a Fund places 
brokerage transactions with Wells Fargo.)
    (l) All dealings between the Plans and the Funds are on a basis no 
less favorable to the Plans than dealings with other shareholders of 
the Funds.

Section II. General Conditions

    (a) Wells Fargo maintains for a period of six years the records 
necessary to enable the persons described below in paragraph (b) of 
Section II to determine whether the conditions of this exemption have 
been met, except that (1) a prohibited transaction will not be 
considered to have occurred if, due to circumstances beyond the control 
of Wells Fargo, the records are lost or destroyed prior to the end of 
the six-year period, and (2) no party in interest, other than Wells 
Fargo shall be subject to the civil penalty that may be assessed under 
section 502(i) of the Act or the taxes imposed by section 4975 (a) and 
(b) of the Code if the records are not maintained or are not available 
for examination as required by paragraph (b) below; and
    (b)(1) Except as provided in paragraph (b)(2) and notwithstanding 
any provisions of section 504 (a)(2) and (b) of the Act, the records 
referred to in paragraph (a) 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 the Plans who has authority to acquire or 
dispose of shares of the Funds owned by the Plans, or any duly 
authorized employee or representative of such fiduciary, and
    (C) Any participant or beneficiary of the Plans or duly authorized 
employee or representative of such participant or beneficiary;
    (2) None of the persons described in paragraph (b)(1) (B) and (C) 
shall be authorized to examine trade secrets of Wells Fargo, or 
commercial or financial information which is privileged or 
confidential.

Section III. Definitions

    For purposes of this proposed exemption,
    (a) The term ``Wells Fargo'' means Wells Fargo Bank, N.A. and any 
affiliate of Wells Fargo Bank, N.A., as defined in paragraph (b) of 
this Section VI.
    (b) An ``affiliate'' of Wells Fargo includes--
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with Wells Fargo;
    (2) Any officer, director, employee, relative, or partner in any 
such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee;
    (c) The term ``control'' means the power to exercise a controlling

[[Page 15125]]
influence over the management or policies of a person other than an 
individual.
    (d) The term ``relative'' means a ``relative'' as that term is 
defined in section 3(15) of the Act (or a ``member of the family'' as 
that term is defined in section 4975(e)(6) of the Code), or a brother, 
a sister, or a spouse of a brother or a sister.
    (e) The term ``Second Fiduciary'' means a fiduciary of a Plan who 
is independent of and unrelated to Wells Fargo. For purposes of this 
exemption, the Second Fiduciary will not be deemed to be independent of 
and unrelated to Wells Fargo if--
    (1) Such Second Fiduciary directly or indirectly controls, is 
controlled by, or is under common control with Wells Fargo;
    (2) Such Second Fiduciary, or any officer, director, partner, 
employee, or relative of such Second Fiduciary is an officer, director, 
partner, or employee of Wells Fargo (or is a relative of such persons);
    (3) Such Second Fiduciary directly or indirectly receives any 
compensation or other consideration for his or her own personal account 
in connection with any transaction described in this proposed 
exemption.
    If an officer, director, partner, or employee of Wells Fargo (or a 
relative of such persons), is a director of such Second Fiduciary, and 
if he or she abstains from participation in the choice of the Plan's 
investment manager/adviser, the approval of any purchase or sale by the 
Plan of shares of the Funds, and the approval of any change of fees 
charged to or paid by the Plan, in connection with any of the 
transactions described in Section I above, then paragraph (e)(2) of 
this Section III, shall not apply.
    (f) The term ``Fund or Funds'' means a diversified open-end 
investment company or companies registered under the '40 Act for which 
Wells Fargo serves as investment adviser and may also provide Secondary 
Services as approved by such Fund. The Funds are limited to six 
investment Fund portfolios of the Stagecoach Funds, Inc. These Fund 
portfolios include include the Asset Allocation Fund, the Bond Index 
Fund, the Growth Stock Fund, the Short-Intermediate Term Fund, the S&P 
500 Stock Fund and the U.S. Treasury Allocation Fund.
    (g) The term ``net asset value'' means the amount for purposes of 
pricing all purchases and sales of shares in a Fund calculated by 
dividing the value of all securities, determined by a method as set 
forth in a Fund's prospectus and statement of additional information, 
and other assets belonging to such Fund, less the liabilities charged 
to the Fund, by the number of outstanding shares in such Fund.
    (h) The term ``Secondary Service'' means a service other than an 
investment management, investment advisory or similar service which is 
provided by Wells Fargo to the Funds. However, for purposes of this 
proposed exemption, Secondary Services will include only brokerage 
services provided to the Funds by Wells Fargo for the execution of 
securities transactions engaged in by the Funds.
    (i) The term ``Principal Pricing Service'' means an independent, 
recognized pricing service that has determined the aggregate dollar 
value of marketable securities involved in a CIF Exchange. Prior to the 
CIF Exchange, the Principal Pricing Service was disclosed in writing by 
Wells Fargo to the Second Fiduciary.

EFFECTIVE DATE: If granted, this proposed exemption will be effective 
from July 2, 1993 until October 1, 1993 with respect to CIF Exchanges 
that occurred on July 2, August 19, and October 1, 1993.

Summary of Facts and Representations

Description of the Parties

    1. The applicants involved herein are the Bank, Wells Fargo Nikko 
Investment Advisors (WFNIA) and Wells Fargo International Trust Company 
(WFITC).
    (a) The Bank, a wholly owned subsidiary of Wells Fargo & Company 
(WFC), is the eighth largest commercial bank in the United States. It 
serves as a non-discretionary trustee to a number of employee benefit 
plans. In addition, the Bank serves as a trustee of certain collective 
trust funds, including certain of the CIFs involved herein. Six of the 
CIFs, all of which are trusteed by the Bank, hold on a commingled 
basis, assets of the Bank's Plan clients. These six CIFs do not invest 
directly but instead are ``shadow'' CIFs (the Shadow CIFs) that hold 
interests in separate corresponding ``master'' CIFs (the Master CIFs). 
Two of the Master CIFs are trusteed by the Bank; the four remaining 
Master CIFs are trusteed by WFITC. Aside from trusteeing some of the 
CIFs, the Bank serves as an investment adviser to the Funds described 
below. As of January 6, 1996, the Bank had total assets under 
management of $5.5 billion.
    (b) WFITC is a trust company that was formerly 99.9 percent owned 
by WFNIA and 0.1 percent by WFC. In addition to serving as trustee to 
some of the Master CIFs, WFITC serves as custodian of certain Wells 
Fargo Funds.
    (c) WFNIA is a general partnership that was formerly owned 50 
percent by a subsidiary of the Bank and 50 percent by a subsidiary of 
The Nikko Securities Co., Ltd., a Japanese securities firm unaffiliated 
with the Bank or WFC. WFNIA, a registered investment adviser, serves as 
sub-adviser to some of the Funds as well as adviser to WFITC.
    Effective December 31, 1995, WFC sold interests in WFNIA and WFITC 
to Barclays Bank PLC and certain of its affiliates which are entities 
unrelated to Wells Fargo. WFNIA and WFITC were subsequently 
incorporated into BZW Barclays Global Investors, N.A. (BZW).
    2. The Plans include various pension plans, as defined in section 
3(2) of the Act, as well as Wells Fargo-sponsored master and prototype 
pension and profit sharing plans, independently sponsored pension and 
profit sharing plans and qualified plans of owner-employees. None of 
the Plans involved in the subject transactions are sponsored by Wells 
Fargo and/or its affiliates.
    3. The CIFs, as indicated in part above, consist of (a) six 
separate portfolios of the Wells Fargo Bank Declaration of Trust 
Establishing Funds for Retirement Plans, a collective investment trust 
of which the Bank serves as trustee (i.e., the Shadow CIFs) and (b) six 
corresponding Master CIFs (of which the Bank serves as trustee with 
respect to two CIFs and WFITC serves as trustee with respect to four 
CIFs). The six Shadow CIFs and their corresponding Master CIFs are 
further identified as follows:

------------------------------------------------------------------------
              Shadow CIFs                          Master CIFs          
------------------------------------------------------------------------
Asset Allocation Fund for Employee       WFITC U.S. Tactical Asset      
 Retirement Plans.                        Allocation E Fund.            
Bond Index Fund for Employee Retirement  WFITC Government/Corporate Bond
 Plans.                                   Fund.                         
Growth Stock Fund for Employee           Growth Stock Fund for          
 Retirement Plans.                        Retirement Plans.             
Intermediate Bond Fund for Retirement    Intermediate Bond Fund for     
 Plans.                                   Employee Retirement Plans.    
S&P 500 Stock Fund for Employee          WFITC Equity Index E Fund.     
 Retirement Plans.                                                      
U.S. Treasury Allocation Fund for        WFITC U.S. Treasury Allocation 
 Employee Retirement Plans.               E Fund.                       
------------------------------------------------------------------------


[[Page 15126]]


    The interests in the Shadow CIFs are owned by the Bank's trust 
clients whereas the interests of the Master CIFs are owned by the 
clients of BZW. Each of the Shadow CIFs is invested exclusively in the 
corresponding Master CIF.
    3. The Funds consist of six series or portfolio investment funds of 
the Stagecoach Funds, Inc., an open-end investment company which was 
organized on October 15, 1992 and registered under the '40 Act. The 
Funds are designed to have investment goals that correspond to the CIFs 
described above and generally have corresponding names. The Funds are 
comprised as follows: (a) the Asset Allocation Fund; (b) the Bond Index 
Fund; (c) the Growth Stock Fund; (d) the Short-Intermediate Term Fund; 
(e) the S&P 500 Stock Fund; and (f) the U.S. Treasury Allocation Fund.
    The Bank serves as investment adviser to each of the Funds. WFNIA 
serves as the sub-adviser with respect to all of the Funds except the 
Growth Stock Fund and the Short-Intermediate Term Fund. As investment 
adviser to Funds sub-advised by WFNIA, Wells Fargo provides investment 
guidance and policy direction with respect to the Funds' daily 
portfolio management. As sub-adviser, WFNIA is responsible for 
investing and reinvesting Fund assets, including implementing and 
monitoring the performance of the investment models used in connection 
with model-driven funds.
    The Bank also serves as the transfer agent and selling agent for 
the Funds. WFITC serves as the custodian. Stephens, Inc. (Stephens), a 
broker-dealer and investment advisory firm which is unrelated to Wells 
Fargo, is the sponsor and administrator of the Funds. The Funds are 
managed by a board of directors, a majority of whose members are 
independent of Wells Fargo and Stephens.

The CIF Exchanges

    4. Since July 2, 1993, Wells Fargo has been offering the Funds 
primarily to Plans as a commingled investment vehicle alternative to 
the CIFs. Wells Fargo believes that the CIFs and the Funds have 
identical investment objectives and that the Fund option would be 
selected by Plans that desire readily obtainable daily price quotations 
and ease of trading. Further, Wells Fargo believes that the ability of 
a Plan to transfer its CIF assets to a corresponding Fund would 
substantially reduce the transaction costs that otherwise would be 
incurred in selling such securities for cash and subsequently acquiring 
shares in the Funds. To this end, Wells Fargo has offered a Plan the 
opportunity to designate one or more Funds in lieu of the CIFs with 
respect to all or a pro rata portion of the Plan's assets through a CIF 
Exchange. Wells Fargo represents that the decision by a Plan to invest 
in any Fund has been made solely by a Second Fiduciary which is 
independent of Wells Fargo. Also, no dealer mark-up or sales 
commissions have been paid by the Plans in connection with any CIF 
Exchange. Further, Wells Fargo nor an affiliate, including any officer 
or director, has been permitted to purchase from or sell to any of the 
Plans shares of the Funds.
    Accordingly, Wells Fargo requests retroactive exemptive relief from 
the Department with respect to the CIF Exchanges commencing in July 
1993. Wells Fargo is not requesting exemptive relief with respect to 
future acquisitions or sales of shares of the Funds by the affected 
Plans. Instead, Wells Fargo represents that such transactions would be 
covered under Prohibited Transaction Exemption (PTE) 77-4 (42 FR 18732, 
April 8, 1977). In pertinent part, PTE 77-4 permits the purchase and 
sale by an employee benefit plan of shares of a registered open-end 
investment company when a fiduciary with respect to the plan is also 
the investment adviser of the investment company.<SUP>2 In addition, 
Wells Fargo states that it is not receiving any commissions or 12b-1 
fees in connection with the investment of Plan assets in shares of the 
Funds. Further, Wells Fargo has confirmed that as to each Plan 
investing in the Funds, the combined total of all fees it or its 
affiliates are receiving for the provision of services to the Plans, 
and in connection with the provision of investment advisory services or 
Secondary Services to any of the Funds in which the Plans may invest, 
has not and will not be in excess of ``reasonable compensation'' within 
the meaning of section 408(b)(2) of the Act.<SUP>3

    \2\ In this proposed exemption, the Department expresses no 
opinion on whether any transactions between the Plans the Funds 
would be covered by PTE 77-4.
    \3\ The fact that certain transactions and fee arrangements are 
the subject of an administrative exemption does not relieve the 
fiduciaries of the Plans from the general fiduciary responsibility 
provisions of section 404 of the Act. Thus, the Department cautions 
the fiduciaries of the Plans investing in the Funds that they have 
an ongoing duty under section 404 of the Act to monitor the services 
provided to the Plans to assure that the fees paid by the Plans for 
such services are reasonable in relation to the value of the 
services provided. Such responsibilities would include 
determinations that the services provided are not duplicative and 
that the fees are reasonable in light of the level of services 
provided.
---------------------------------------------------------------------------

    5. Wells Fargo represents that the CIF Exchanges were effected on 
July 2, August 19, and October 1, 1993. On these dates, all or a Plan's 
pro rata interest in the securities held by the Shadow CIFs were 
exchanged for shares of the Funds.<SUP>4 Each affected Plan was 
notified of the opportunity to participate in a CIF Exchange with 
respect to its interest. The Master CIFs also participated in the CIF 
Exchanges to the extent that they held securities which were required 
to be transferred in-kind or redeemed. Further, a Second Fiduciary 
approved, in writing, the CIF Exchange. Plans that elected to engage in 
the CIF Exchanges, received shares in the respective Fund. In effect, 
the applicants represent that the disclosures and approvals were 
consistent with the requirements of PTE 77-4.<SUP>5

    \4\ Due to the ``feeder'' relationship existing between the 
Shadow CIFs and the Master CIFs, the effect of the in-kind transfers 
was such that all or a pro rata portion of a Plan's interest held in 
the Master CIFs was exchanged for shares of the Funds.
    \5\ Section II(d) of PTE 77-4 requires, among other things, that 
an independent plan fiduciary receive a current prospectus issued by 
the investment company and a full and detailed written disclosure of 
the investment advisory and other fees charged to or paid by the 
plan and the investment company, including a discussion of whether 
there are any limitations on the fiduciary/investment adviser with 
respect to which plan assets may be invested in shares of the 
investment company and, if so, the nature of such limitations.
---------------------------------------------------------------------------

    6. The assets exchanged during the CIF Exchanges consisted of 
stocks, U.S. Treasury obligations, other government and agency 
obligations, certain fixed income obligations, asset-backed securities 
and other securities. All of the securities exchanged were valued on 
the date of the transfer, by an independent, recognized Principal 
Pricing Service, <SUP>6 except that debt securities that were within 60 
days of maturity were valued by the amortized cost method, <SUP>7 in 
the

[[Page 15127]]
same manner and at the close of the same business day.

     <SUP>6 Wells Fargo represents that a pricing service is 
recognized within the industry when it is used on a regular basis by 
a number of clients other than Wells Fargo. In effect, the Principal 
Pricing Service agrees to perform all of the functions of obtaining 
the (closing) market price or last-reported bid price where 
available, determining a price where market or bid prices are not 
available or consulting with market-makers where it cannot determine 
the price. For this purpose, Wells Fargo asserts that the Principal 
Pricing Service would have its own internal procedures and pricing 
methodologies and would provide a single quotation to its clients.
     <SUP>7 Wells Fargo states that the ``amortized cost'' method 
refers to an approach to valuing debt securities that are recognized 
in different contexts by various regulatory agencies and accounting 
standards boards. Wells Fargo notes that the amortized cost method 
is a permitted, rather than required, valuation approach and that 
the term also refers to the value of a security derived from the 
methodology. For example, Wells Fargo explains that the Securities 
and Exchange Commission's ``Codification of Financial Reporting 
Policies,'' describes in detail the use of the amortized cost 
methodology and recognizes that a mutual fund's board of directors 
may determine in good faith that, except in unusual circumstances, 
amortized cost approximates the fair market value of debt securities 
with remaining maturities of 60 days or less (based on cost for 
securities acquired within 60 days of maturity or fair market value 
on the 61st day prior to maturity for securities already owned).
---------------------------------------------------------------------------

    7. Wells Fargo represents that with respect to the CIF Exchanges, 
on each of the closing dates, the CIFs did not hold any securities 
other than securities that could be valued by a Principal Pricing 
Service selected by Wells Fargo, or, if applicable, by the amortized 
cost method, prior to such CIF Exchange. In this regard, Wells Fargo 
states that pricing of the securities held by the CIFs and the Funds 
was determined by the same Principal Pricing Service such that the 
price of each security involved in each CIF Exchange was identical for 
the purposes of valuing the Plan's interest in the CIF and for purposes 
of valuing the net asset value of the relevant Funds. In effect, Wells 
Fargo explains that the determination of the net asset value of the 
Funds and of the value of securities held by the CIF involved in the 
exchange was objectively determined because, for purposes of the 
transaction, each security was valued either by an independent, 
recognized Principal Pricing Service identified prior to each CIF 
exchange or mechanically by the amortized cost method.
    8. Wells Fargo states that the pro rata interest of the Plans in 
the securities underlying the CIFs were transferred to the Funds in 
connection with each CIF exchange, except to the extent that fractional 
shares of the underlying securities would have been created by the 
transaction. In this event, the fraction of the share to be transferred 
was automatically rounded up or down to the next nearest whole number 
(i.e., up or down from 0.50 for fractional shares or up and down from 
$0.005 in the case of fractional dollar amounts). The cash value of any 
fractional shares of securities that were transferred to the respective 
Fund or retained by the CIFs was calculated. To the extent the value of 
the fractional shares retained by the respective CIF exceeded the value 
of the fractional shares transferred to the respective Fund, that net 
amount was transferred in cash to the respective Fund. Assuming the 
value of the fractional shares involved in the transfer to the 
respective Fund was less than the value of the fractional shares to be 
retained by the respective CIF, the net amount was transferred in cash 
from the Fund to the CIF.

Written Disclosures

    9. After a CIF Exchange, each Plan received a confirmation which 
provided the date of the transaction, the number of shares acquired by 
the Plan in each of the Funds, the price paid per share for the shares 
in each of the Funds and the total dollar amount involved in the 
transaction with each Fund. Such confirmations were sent to Plan 
investors not more than 7 days after the completion of the transaction.
    With respect to ongoing disclosures, Wells Fargo represents that it 
will provide a copy of the proposed exemption and/or the final 
exemption, if granted, to the Second Fiduciary of each affected Plan. 
In addition, at least annually, Wells Fargo will furnish the Second 
Fiduciary of a Plan with a copy of a current prospectus for the Funds 
and, upon the request of the Second Fiduciary, with a copy of the 
statement of additional information containing a description of all 
fees paid by the Funds to Wells Fargo. Further, in the event that a 
Fund places brokerage transactions with it, Wells Fargo will provide 
the Second Fiduciary, at least on an annual basis, with a statement 
specifying (a) the total, expressed in dollars, of brokerage 
commissions that are paid to Wells Fargo by such Fund; (b) the total, 
expressed in dollars, of brokerage commissions that are paid by such 
Fund to brokerage firms unrelated to Wells Fargo; (c) the average 
brokerage commissions per share, expressed as cents per share, paid to 
Wells Fargo by such Fund; and (d) the average brokerage commissions per 
share, expressed as cents per share, paid by such Fund to brokerage 
firms that are unrelated to Wells Fargo.
    10. In summary, it is represented that the CIF Exchanges have 
satisfied the statutory criteria for an exemption under section 408(a) 
of the Act for the following reasons:
    (a) Neither the CIFs nor the Plans have paid any sales commissions 
or redemption fees in connection with the CIF Exchanges nor will they 
pay any fees in connection with purchases or redemptions of shares of 
the Funds.
    (b) Prior to the investment by a Plan in the Funds, the Second 
Fiduciary has received a full and detailed written disclosure of 
information concerning such Fund and, on the basis of such disclosures, 
such Second Fiduciary has authorized the transactions.
    (c) Each CIF or Plan has received shares of a Fund that are equal 
in value to the assets of the CIF or the Plan exchanged for such 
shares, as determined in a single valuation performed in the same 
manner and as of the close of the same business day using either an 
independent, recognized Principal Pricing Service that has been 
disclosed by Wells Fargo to the Second Fiduciary prior to the CIF 
Exchange and/or, if applicable, by the amortized cost method.
    (d) With respect to the CIF Exchanges, Wells Fargo has sent the 
Second Fiduciary of each affected Plan written confirmation, not more 
than 7 days after the completion of each transaction, containing the 
date of the transaction, the number of shares acquired by the Plan in 
each of the Funds, the price paid per share for each of the Funds and 
the total dollar amount involved in the transaction with each Fund.
    (e) Neither Wells Fargo nor an affiliate, including any officer or 
director has been or will be permitted to purchase from or sell to any 
of the Plans shares of any of the Funds.
    (f) Wells Fargo has not and will not receive any 12b-1 Fees in 
connection with the transactions.
    (g) As to each individual Plan, the combined total of all fees 
received by Wells Fargo for the provision of services to the Plan, and 
in connection with the provision of services to any of the Funds in 
which the Plan may invest, has not and will not be in excess of 
``reasonable compensation'' within the meaning of section 408(b)(2) of 
the Act.
    (h) All dealings between the Plans, the Funds and Wells Fargo have 
or will be on a basis no less favorable to such Plans than dealings 
between the Funds and other shareholders holding the same shares of the 
same class as the Plans.

Notice to Interested Persons

    Those persons who may be interested in the pendency of the 
requested exemption include fiduciaries of Plans invested in the CIFs 
or the Funds on each of the dates the CIF Exchanges were completed. 
Accordingly, the Department has determined that the only practical form 
of providing notice to interested persons is the distribution, by Wells 
Fargo, of a copy of the proposed exemption by first class mail within 
30 days of the date of the publication of the pendency notice in the 
Federal Register. Such distribution will be made to Second Fiduciaries 
of the Plans that engaged in the CIF Exchanges. The distribution will 
include a copy of the notice of proposed exemption, as published in the 
Federal Register, as well as a supplemental statement, as required, 
pursuant to 29 CFR 2570.43(b)(2), which shall inform interested persons 
of their right to comment on and/or to request a hearing. Comments and 
hearing requests with

[[Page 15128]]
respect to the proposed exemption are due 60 days after the date of 
publication of the proposed exemption in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

Teachers Insurance and Annuity Association of America (TIAA), Located 
in New York, New York

[Application No. D-09915]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990).

Section I--Exemption for Certain Transactions Involving the Purchase 
and Sale of Certain Units in a Real Estate Separate Account by TIAA

    If the exemption is granted, 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, effective 
October 2, 1995, to the transactions described below, if each of the 
conditions set forth in
    Section III have been satisfied:
    (a) the purchase by TIAA of certain units (the Liquidity Units), as 
defined in Section IV(g) below, in a real estate separate account 
established and operated by TIAA (the Separate Account), as defined in 
Section IV(l) below, in the event of net withdrawals from the Separate 
Account; and
    (b) the sale of Liquidity Units of the Separate Account by TIAA in 
the event of net contributions to the Separate Account.

Section II--Exemption for the Purchase of Liquidity Units owned by TIAA 
in the Separate Account In Connection with a Decrease in TIAA's 
Participation in the Separate Account under Certain Circumstances

    If the exemption is granted, 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, effective 
October 2, 1995, to: (a) the use of cash flow from the Separate Account 
(the Cash Flow), as defined in Section IV(d) below; (b) the use of 
liquid investments in the Separate Account; or (c) the use of the 
proceeds from the sale of certain properties (the Properties), as 
defined in Section IV(i) below, owned by the Separate Account, for the 
purpose of purchasing Liquidity Units in the Separate Account from TIAA 
in connection with a decrease in the participation by TIAA in the 
Separate Account after the trigger point (the Trigger Point), as 
defined in Section IV(o) below, has been reached or during the wind 
down period of the Separate Account (the Wind Down), as defined in 
Section IV(q) below, provided that the conditions set forth in Section 
III have been satisfied.<SUP>8

    \8\ For purposes of this proposed exemption references to 
specific provisions of Title I of the Act, unless otherwise 
specified, refer also to the corresponding provisions of the Code.
---------------------------------------------------------------------------

Section III--General Conditions

    The exemption is conditioned upon the adherence by TIAA to the 
material facts and representations described in this notice of proposed 
exemption (the Notice) and upon satisfaction of the following 
requirements:
    (a) The decision to elect to add the Separate Account as an 
additional pension funding option for employee benefit plans (the Plan 
or Plans), as defined in Section IV(h) below, which invest in the 
Separate Account has been and is made by the fiduciaries of such Plans 
(the Fiduciary or Fiduciaries), as defined in Section IV(e) below, or 
in the case of a contract between TIAA and a supplemental retirement 
account (SRA) or an individual retirement account (IRA), the decision 
to elect to add the Separate Account as an additional pension funding 
option to a SRA or an IRA has been and is made by the participant in 
such SRA or IRA, if the Fiduciaries of the Plans and the IRA and SRA 
participants are unrelated to TIAA and its affiliates (the Affiliates 
or Affiliate), as defined in Section IV(b) below;
    (b) Each of the Properties in the Separate Account has been and is 
valued at least annually by an independent, qualified appraiser;
    (c) Except as otherwise specified below in paragraph (c)(10) of 
this Section III, prior to investment of funds in the Separate Account 
by any participant in a Plan (the Participant or Participants) (and, if 
applicable, by any of the Plans) which participate in the Separate 
Account, TIAA has furnished and will furnish to the Fiduciaries of such 
Plans and, in the case of a contract between TIAA and a SRA or an IRA, 
to the participant in such SRA or IRA, the following information:
    (1) a copy of the most recent prospectus for the Separate Account, 
the most recent quarterly and other financial reports for the Separate 
Account filed with the Securities and Exchange Commission (SEC), and 
the most recent copy of any supplemental schedule of information, 
publications, or ancillary materials which have been made available to 
Plan Sponsors or Participants invested in the Separate Account;
    (2) full disclosure concerning the investment guidelines, 
structure, manner of operation, and administration of the Separate 
Account; the method of valuation applicable to accumulation units (the 
Accumulation Units), as defined in Section IV(a) below, and the method 
of valuation of the Properties, and all other assets owned by the 
Separate Account;
    (3) a written description of potential conflicts of interest that 
may result from TIAA's acquisition, purchase, retention, redemption, or 
sale of Accumulation Units in the Separate Account;
    (4) the rules and procedures for withdrawal, transfer, redemption, 
distribution, and payout applicable throughout the term of the Separate 
Account to TIAA, to individual Participants (and, if applicable, to 
Plans) which participate in the Separate Account;
    (5) the expense and fee provisions of the Separate Account 
(including but not limited to a description of any services rendered by 
TIAA, a schedule of fees for such services, and an estimate of the 
amount of fees to be paid by the Separate Account annually);
    (6) a list of all assets in the Separate Account, as of the end of 
the most recent fiscal period of the Separate Account, and a list of 
the Properties which the Separate Account acquired or sold within 
twelve months prior to the end of the most recent fiscal period of the 
Separate Account;
    (7) the appropriate financial statements pertaining to the Separate 
Account (including but not limited to the most recent audited annual 
report, income statement, and balance sheet on the Separate Account);
    (8) copies of the most recent reports on the Separate Account, 
including but not limited to information relating the value of units in 
the Separate Account (the Units), as defined in Section IV(p) below; 
and the quarterly return for the Separate Account, and the most recent 
quarterly updates of the valuation of the Separate Account (including a 
list of the holdings of the Separate Account during the period);
    (9) any reasonably available information which TIAA believes to be 
necessary, or which any fiduciary of a plan or any sponsor of a plan 
reasonably

[[Page 15129]]
requests in order to determine whether such plan should elect to add 
the Separate Account as an additional pension funding option for the 
benefit of participants (or, if applicable, for such plan), or, in the 
case of a contract between TIAA and a SRA or an IRA, which the 
participant in such SRA or IRA reasonably requests in order to 
determine if he or she should elect to add the Separate Account as an 
additional pension funding option under such SRA or IRA contract with 
TIAA; and
    (10) upon publication of this Notice, a copy of such Notice, as it 
appears in the Federal Register, shall be provided to the Fiduciaries 
of the Plans, to the sponsors of the Plans (the Plan Sponsors or Plan 
Sponsor), to the sponsors of any SRA, and to the participants in any 
TIAA IRA which have elected to add the Separate Account as an 
additional pension funding option and which have been or are invested 
in the Separate Account. If this proposed exemption is granted, the 
Fiduciaries of the Plans, the Plan Sponsors, the sponsors of any SRA, 
and the participants in any TIAA IRA which have elected to add the 
Separate Account as an additional pension funding option and which have 
been or are invested in the Separate Account shall receive upon 
publication of a Grant of Exemption (the Grant), a copy of such Grant, 
as it appears in the Federal Register. If subsequent to the publication 
of the Grant, any fiduciaries of plans, any sponsors of plans, the 
sponsors of any SRA, or the participants in any TIAA IRA choose to 
elect to add the Separate Account as an additional pension funding 
option to enable such plans to invest in the Separate Account, the 
fiduciaries of such plans, the sponsors of such plans, the sponsors of 
such SRA, and the participants in any such IRA shall be provided, at 
least thirty (30) days prior to investment in the Separate Account, 
with a copy of both the Notice and the Grant, as such documents 
appeared upon publication in the Federal Register.
    (d) TIAA has made and will make available, within the time periods 
specified below in subparagraphs (1) through (4) of this paragraph (d), 
to the Fiduciaries of the Plans, or in the case of a contract between 
TIAA and a SRA or an IRA, to the participant in such SRA or IRA:
    (1) information relating to the value of the Units in the Separate 
Account to be available daily over a toll-free telephone number and/or 
to be distributed in writing to Participants in the Separate Account in 
quarterly confirmation statements within five (5) to ten (10) days 
after the end of each calendar quarter;
    (2) information concerning the quarterly return of the Separate 
Account to be available daily over a toll-free telephone number and/or 
to be distributed in writing to Participants in the Separate Account in 
quarterly confirmation statements within five (5) to ten (10) days 
after the end of each calendar quarter;
    (3) a prospectus for the Separate Account to be distributed 
annually; and
    (4) any information or TIAA publication, to be distributed from 
time to time, which TIAA reasonably believes to be necessary or which 
the Fiduciaries request, or in the case of a contract between TIAA and 
a SRA or an IRA, which the participant in such SRA or IRA requests 
(including but not limited to quarterly financial reports filed with 
the SEC) in order to determine whether any Participant in such Plan, or 
participant in such SRA or IRA should buy, sell, or continue to hold 
the Units in the Separate Account, as defined in Section IV(p) below;
    (e) An independent, qualified fiduciary (the Independent 
Fiduciary), as defined in Section IV(f) below, has been appointed prior 
to or coincident with the start of operations of the Separate Account 
(and is subject to renewal and removal described herein) whose 
responsibilities include, but are not limited to:
    (1) reviewing and approving the written investment guidelines of 
the Separate Account as established by TIAA, and approving any changes 
to such investment guidelines;
    (2) monitoring whether the Properties acquired by the Separate 
Account conform with the requirements of such investment guidelines;
    (3) reviewing and approving valuation procedures for the Separate 
Account and approving changes in those procedures;
    (4) reviewing and approving the valuation of Units in the Separate 
Account and the valuation of Properties held in the Separate Account, 
as described in the Summary of Facts and Representations in the Notice;
    (5) approving the appointment of all independent, qualified 
appraisers retained by TIAA to perform periodic valuations of the 
Properties in the Separate Account;
    (6) requiring appraisals in addition to those normally conducted, 
whenever, the Independent Fiduciary believes that the characteristics 
of any of the Properties have changed materially, or with respect to 
any of the Properties, whenever the Independent Fiduciary deems an 
additional appraisal to be necessary or appropriate in order to assure 
the correct valuation of the Separate Account;
    (7) reviewing the purchases and sales of Units in the Separate 
Account by TIAA and the Participants (and, if applicable, by the Plans) 
which participate in the Separate Account to assure that the correct 
values of the Units and of the Separate Account are applied; reviewing 
the fixed repayment schedule applicable to the redemption of certain 
seed money units (the Seed Money Units), as defined in Section IV(k) 
below, as approved by the State of New York Insurance Department; 
reviewing any exercise of discretion by TIAA to accelerate the fixed 
repayment schedule applicable to the redemption of Seed Money Units; 
and, approving TIAA's exercise of discretion only if such acceleration 
would benefit the Participants in the Separate Account;
    (8) after (and, if necessary, during) the Start Up Period, as 
defined in Section IV(m) below, determining the appropriate Trigger 
Point, with respect to the ongoing ownership by TIAA of Liquidity 
Units; establishing a method to implement any changes to the Trigger 
Point; adjusting the percentage which serves as the Trigger Point; 
approving or requiring any reduction of TIAA's interest in the Separate 
Account; and, approving the manner in which such reduction of TIAA's 
participation in the Separate Account in excess of the Trigger Point is 
to be effected;
    (9) in the event the Trigger Point is reached, participating and 
planning any program of sales of the assets of the Separate Account, 
which would include the selection of the Properties to be sold, the 
guidelines to be followed in making such sales, and the approval of 
such sales, if in the opinion of the Independent Fiduciary, such sales 
are desirable at the Trigger Point in order to reduce the ownership by 
TIAA of Liquidity Units in the Separate Account or to facilitate the 
Wind Down;
    (10) supervising the operation of the Separate Account during the 
Wind Down of such Separate Account;
    (11) during the Wind Down, planning any program of sales of the 
assets of the Separate Account, including the selection of the 
Properties to be sold, determining the guidelines to be followed in 
making such sales, and approving the sale of the Properties in the 
Separate Account, in the event of the termination of the Separate 
Account, if in the opinion of the Independent Fiduciary, such sales are 
desirable to facilitate the Wind Down; and
    (12) reviewing any other transactions or matters involving the 
Separate Account that are submitted to the

[[Page 15130]]
Independent Fiduciary by TIAA and determining whether such transactions 
or other matters are fair to the Separate Account and in the best 
interest of the Separate Account.
    (f) The exemption is also subject to the condition that the 
following transactions involving the Separate Account have not occurred 
and will not occur:
    (1) participation by the Independent Fiduciary, TIAA, any Affiliate 
of TIAA, TIAA's general account (the General Account), or any other 
separate account over which TIAA or its Affiliates has any investment 
control in any joint venture with the Separate Account, or in the 
ownership of the Properties of the Separate Account either alone or 
together with a joint venture partner;
    (2) the borrowing of funds from the Separate Account by the 
Independent Fiduciary, TIAA, any Affiliate of TIAA, TIAA's General 
Account, or any other separate account over which TIAA or its 
Affiliates has investment control, or the lending of funds to the 
Separate Account by the Independent Fiduciary, TIAA, any Affiliate of 
TIAA, TIAA's General Account, or any other separate account over which 
TIAA or its Affiliates has investment control in order to leverage any 
purchase by the Separate Account of any of the Properties, or 
otherwise; and
    (3) the acquisition by the Separate Account of any Properties from 
or the sale by the Separate Account of any Properties to the 
Independent Fiduciary, TIAA, any Affiliate of TIAA, TIAA's General 
Account, or any other separate account over which TIAA or its 
Affiliates has investment control.
    (g) The liquidation of any Accumulation Units held by a Participant 
or participating Plan, for which a withdrawal request is pending, has 
not been and will not be delayed by reason of the redemption of Seed 
Money Units held by TIAA, and TIAA has advanced and will always advance 
funds by purchasing Liquidity Units to fund the withdrawal requests of 
Participants or Plans on a timely basis;
    (h) TIAA must maintain for a period of six (6) years from the date 
of any transaction, the records necessary to enable the persons 
described in paragraph (i) of this Section III to determine whether the 
conditions of this exemption have been met. However, a prohibited 
transaction will not be considered to have occurred if, due to 
circumstances beyond the control of TIAA and its Affiliates, the 
records are lost or destroyed prior to the end of the six-year period, 
and no parties in interest, other than TIAA or its Affiliates, shall be 
subject to a civil penalty that may be assessed under section 502(i) of 
the Act, or to taxes imposed by section 4975(a) and (b) of the Code, if 
the records are not maintained, or are not available for examination as 
required by paragraph (i) below.
    (i)(1) Except as provided in subparagraph (2) of this paragraph (i) 
and notwithstanding any provision of subsection (a)(2) and (b) of 
section 504 of the Act, the records referred to in paragraph (h) of 
this Section III are unconditionally available at their customary 
location for examination during normal business hours by:
    (A) Any duly authorized employee or representative of the 
Department of Labor or the Internal Revenue Service;
    (B) Any Fiduciary of a Plan which participates in the Separate 
Account, or in the case of a contract between TIAA and a SRA or an IRA, 
any participant in such SRA or IRA, who has authority to acquire or 
dispose of the interests of such SRA or IRA contract, or any duly 
authorized employee or representative of such Fiduciary of a Plan or 
participant in such SRA or IRA;
    (C) Any contributing employer to any Plan participating in the 
Separate Account, or any duly authorized employee or representative of 
such employer; and
    (D) Any Participant or beneficiary of any Plan participating in the 
Separate Account, or any duly authorized employee or representative of 
such Participant or beneficiary.
    (2) None of the persons described in subparagraphs (1)(B) through 
(D) of this paragraph (i) shall be authorized to examine the trade 
secrets of TIAA or any of its Affiliates, or any of its commercial or 
financial information which is privileged or confidential.

Section IV--Definitions

    For the purpose of this exemption:
    (a) ``Accumulation Units'' mean the units of interest into which 
equity participation in the Separate Account is divided during the 
accumulation phase of the annuity contracts prior to retirement by a 
Participant. Seed Money Units, as defined in Section IV(k) below, and 
Liquidity Units, as defined in Section IV(g) below, are Accumulation 
Units.
    (b) ``Affiliate'' or ``Affiliates'' of TIAA include(s):
    (1) any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by or under common control with 
TIAA.
    (2) any officer, director, or employee of TIAA, or of a person 
described in paragraph (b)(1) of Section IV, and
    (3) any partnership in which TIAA is a partner.
    (c) ``Control'' means the power to exercise a controlling influence 
over the management or policies of a person other than an individual.
    (d) ``Cash Flow'' means: (1) the sum of: (a) income received by the 
Separate Account from investments (including dividends and/or interest 
from non-real estate investments, and net operating income, less 
payment of capital expenditures and changes in reserves for capital 
expenditures, from equity real estate investments); and (b) Participant 
and Plan contributions (including transfers to the Separate Account) 
MINUS (2) the sum of: (a) Separate Account expense charges (including 
investment and administrative expenses for mortality and expense 
guarantees); and (b) any redemption of Seed Money Units at fair market 
value.
    (e) ``Fiduciary'' or ``Fiduciaries'' mean(s) the individual 
fiduciary or fiduciaries acting on behalf of each of the Plans that 
invest in the Separate Account.
    (f) ``Independent Fiduciary''--
    (1) For purposes of this definition, an Independent Fiduciary means 
a person who:
    (A) Is not an Affiliate of TIAA;
    (B) Does not have an ownership interest in TIAA or its Affiliates;
    (C) Is not a corporation or partnership in which TIAA or any of its 
Affiliates has an ownership interest;
    (D) Is not a Fiduciary with respect to any Plan which participates 
in the Separate Account;
    (E) Has acknowledged in writing acceptance of fiduciary 
responsibility; and
    (F) Is either:
    (i) a business organization which has at least five (5) years of 
experience with respect to commercial real estate investments or other 
appropriate experience;
    (ii) a committee comprised of three to five individuals who each 
have had at least five (5) years of experience with respect to 
commercial real estate investments or other appropriate experience; or
    (iii) a committee comprised both of a business organization or 
organizations and individuals having the qualifications described in 
paragraphs (f)(1)(A) through (E) of Section IV above.
    (2) For the purposes of the definition of Independent Fiduciary, no 
organization or individual may serve as Independent Fiduciary for the 
Separate Account for any fiscal year, if the gross income received from 
TIAA or its Affiliates by such organization or

[[Page 15131]]
individual (or by any partnership or corporation of which such 
organization or individual is an officer, director, or ten percent 
(10%) or more partner or shareholder) for that fiscal year exceeds five 
percent (5%) 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 (5%) limitation is applied with 
reference to the fiscal year in which such organization or individual 
serves as an Independent Fiduciary. The income limitation includes 
services rendered to the Separate Account as Independent Fiduciary, as 
described in this exemption.
    (3) 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 (10%) or more 
partner or shareholder, 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, may
    (A) acquire any property from or sell any property to TIAA, its 
Affiliates, TIAA's General Account, or any separate account maintained 
by TIAA or its Affiliates, including the Separate Account;
    (B) borrow any funds from, or lend any funds to TIAA, its 
Affiliates, TIAA's General Account, or any separate account maintained 
by TIAA or its Affiliates, including the Separate Account;
    (C) participate in any joint venture with TIAA, its Affiliates, 
TIAA's General Account, or any separate account maintained by TIAA or 
its Affiliates, including the Separate Account, or participate, either 
alone or together with a joint venture partner, in the ownership of the 
Properties with TIAA, its Affiliates, TIAA's General Account, or any 
separate account maintained by TIAA or its Affiliates, including the 
Separate Account; or
    (D) negotiate any such transactions, described above in paragraph 
(f)(3) (A) through (C) of Section IV.
    (4) No Fiduciary of a Plan or Plan Sponsor which participates in 
the Separate Account or a designee of such Fiduciary, Plan Sponsor, or 
Plan may serve as the Independent Fiduciary with respect to the 
Separate Account.
    (g) ``Liquidity Units'' mean Accumulation Units, as defined in 
Section IV(a) above, that are purchased from Participants (or, if 
applicable, from the Plans who participate in the Separate Account) by 
TIAA's General Account, when the Cash Flow of the Separate Account, as 
defined above in Section IV(d), and liquid investments of the Separate 
Account are insufficient, in order to guarantee liquidity for such 
Participants (or, if applicable, for such Plans) who wish to withdraw 
or transfer funds from the Separate Account.
    (h) ``Plan or Plans'' mean(s) an employee benefit plan or employee 
benefit plans (primarily participant-directed defined contribution 
plans, but also some defined benefit plans) qualified pursuant to 
sections 401(a), 403(a), 403(b), 414(d) and 457(b) of the Code, as well 
as any TIAA IRA and SRA, as described, respectively, under section 408 
and section 403(b) of the Code, which may participate in ownerships of 
Units in the Separate Account and which are subject to section 406 of 
the Act and/or section 4975 of the Code.
    (i) ``Properties'' mean the geographically dispersed retail and 
office buildings, light industrial facilities, and residential 
apartment space with good operating income (and such other Properties 
that may be acquired pursuant to changes in the investment guidelines 
for the Separate Account that are approved by the Independent 
Fiduciary) which TIAA has acquired on behalf of the Participants (and, 
if applicable, the Plans) that invest in the Separate Account.
    (j) ``Seed Money'' means the total amount (not to exceed $100 
million) actually contributed by TIAA's General Account to the Separate 
Account for the purpose of acquiring Properties for the Separate 
Account. Seed Money will be applied to purchase Accumulation Units at 
the fair market value of those Units at the time of purchase.
    (k) ``Seed Money Units'' mean the Accumulation Units, as defined in 
Section IV(a) above, that are issued by the Separate Account to TIAA's 
General Account in exchange for Seed Money, as defined above in Section 
IV(j), during the Start Up Period of the Separate Account.
    (l) ``Separate Account'' means the real estate equity pooled 
separate account invested in by Participants (and, if applicable by 
Plans), as described herein.
    (m) ``Start Up Period'' means the period during which repayment of 
TIAA's General Account of Seed Money, as defined in Section IV(j) 
above, must be made on a fixed repayment schedule as approved by the 
State of New York Insurance Department (NYID). In this regard, the 
redemption of Seed Money Units by TIAA will begin on the earlier to 
occur of:
    (1) two (2) years from the date on which TIAA first opened the 
Separate Account to Participants (and, if applicable, to Plans) for 
paying premiums to the Separate Account, or
    (2) the date on which the value of the Separate Account first 
reaches $200 million. Thereafter, at least 20 percent (20%) of the 
original number of Seed Money Units acquired by TIAA's General Account 
from the contribution of Seed Money to the Separate Account are to be 
redeemed on predetermined dates in each year, as established by TIAA, 
for a period of five (5) years (at fair market value based on the value 
of Accumulation Units on the date of each redemption). The exercise of 
any discretion by TIAA to accelerate the fixed repayment schedule 
applicable to the redemption of Seed Money Units is subject to the 
advance review and approval of the Independent Fiduciary, and any such 
acceleration will not be applied so as to prevent a redemption of Seed 
Money Units scheduled to occur on any of the predetermined dates during 
any year. The Start Up Period will expire when all the Seed Money Units 
originally acquired by TIAA's General Account from the contribution of 
Seed Money to the Separate Account have been redeemed by TIAA.
    (n) ``TIAA Pension Plans'' mean certain defined benefit and certain 
defined contribution plans maintained by TIAA. Among the defined 
contribution plans maintained by TIAA are the TIAA Retirement Plan, 
which is tax-qualified under the Code, and the TIAA Tax-Deferred 
Annuity Plan, which is a salary reduction annuity plan, pursuant to 
section 403(b) of the Code. Participants in the TIAA Retirement Plan 
and the TIAA Tax-Deferred Annuity Plan are permitted to invest in the 
Separate Account.
    (o) ``Trigger Point'' means the point, as established by the 
Independent Fiduciary, at which TIAA's participation in the Separate 
Account through the ownership of Liquidity Units is decreased with the 
approval of or as required by the Independent Fiduciary, acting on 
behalf of the Participants (and, if applicable, the Plans).
    (p) ``Units'' mean the units of interest into which equity 
participation in the Separate Account is divided.
    (q) ``Wind Down'' means the period which begins on the date on 
which TIAA notifies all Participants (and, if applicable, all Plans 
invested in the Separate Account) that TIAA has decided to terminate 
the Separate Account and concludes on the date on which no Accumulation 
Units are held

[[Page 15132]]
by Participants (or, if applicable, by Plans).
    Effective Date: If the proposed exemption is granted, the exemption 
will be effective, as of October 2, 1995, the date the Separate Account 
was first opened to Participants and Plans for investment.

Summary of Facts and Representations

    1. TIAA, a non-profit stock life insurance company, was founded on 
March 18, 1918, by the Carnegie Foundation for the Advancement of 
Teaching. TIAA offers traditional annuities, which guarantee principal 
and a specified rate of interest while providing the opportunity for 
the crediting of additional amounts. TIAA also offers life insurance, 
long-term disability insurance, and long-term care insurance.
    TIAA is organized as a corporation under the laws of the State of 
New York. All of the stock of TIAA is held by the TIAA Board of 
Overseers, a non-profit New York corporation. The TIAA Board of 
Overseers generally monitors TIAA's affairs to assure that TIAA is 
meeting its Charter purpose. The Board of Overseers do not directly 
supervise the management of TIAA, but they do elect members of the 
Board of Trustees of TIAA, which does exercise such supervision. The 
Board of Trustees consists of twenty (20) members, three of whom are 
employees of TIAA.
    TIAA is the companion organization of the College Retirement 
Equities Fund (CREF). CREF is a non-profit membership corporation 
established under the laws of the State of New York in 1952. CREF is 
registered with the SEC as an investment company under the Investment 
Company Act of 1940. CREF typically offers to Plans individual annuity 
contracts with a variety of investment funds. In this regard, CREF 
currently offers seven (7) investment funds, namely, a stock fund, a 
money market fund, a bond fund, a social choice fund, a global equities 
fund, an equity index fund, and a growth fund.
    As of December 31, 1993, TIAA had approximately $67 billion in 
assets. As of the same date, the combined assets of TIAA and CREF 
totalled approximately $128 billion. In 1993, TIAA's General Account 
contained $7 billion in real estate investments.
    2. It is represented that TIAA and CREF together form the principal 
retirement annuity funding system for education and research 
communities in the United States. In this regard, TIAA and CREF serve 
approximately 1.8 million individuals who are employed at approximately 
5,500 educational and research institutions. Typically, TIAA and CREF 
issue individual annuity contracts (and occasionally group annuity 
contracts) in order to provide funding for pension plans which are 
sponsored by these educational institutions for their employees.
    It is represented that the Plans involved in the proposed 
transactions are participant directed defined contribution plans, as 
described in section 401(a), 403(a), 403(b), 414(d) and 457(b) of the 
Code, as well as any TIAA IRA and SRA, as described, respectively, 
under section 408 and section 403(b) of the Code. In addition, 
participants in certain TIAA Pension Plans, as defined in Section IV(n) 
above, are permitted to invest in the Separate Account.<SUP>9 Further, 
it is represented that less than fifty (50) defined benefit pension 
plans may also be involved in the proposed transactions.

    \9\ It is represented that any acquisition of Units in the 
Separate Account by plans sponsored by TIAA will not violate section 
406(a) or 406(b) of the Act by reason of the statutory exemption 
contained in section 408(b)(5) of the Act. The Department is 
offering no view, herein, as to whether the acquisition by any plans 
sponsored by TIAA of Units in the Separate Account is covered by the 
statutory exemption provided in section 408(b)(5) of the Act.
---------------------------------------------------------------------------

    3. TIAA anticipates that almost all of the educational institutions 
participating in the TIAA annuity funding system are interested in 
adding a real estate separate account as an endorsed enhancement to 
individual annuity contracts. For this reason, TIAA established the 
Separate Account in which certain Plans covered by the Act and their 
participants and beneficiaries have invested and will invest.<SUP>10

    \10\ TIAA has represented its understanding that this proposed 
exemption, if granted, will apply only to those Plans that are 
subject to section 406 of the Act and/or section 4975 of the Code.
---------------------------------------------------------------------------

    4. The Separate Account is an open-end commingled equity real 
estate separate account which invests eligible retirement plan assets 
primarily in equity real estate, and other real estate related 
investments, including marketable securities. It is represented that 
the Separate Account has not invested and will not invest in loans and 
leases to, or securities issued by, TIAA or its Affiliates. The 
Separate Account is a separate account, as defined in section (3)(17) 
of the Act, and was established and is operated in accordance with 
section 4240 of the New York Insurance law. Units in the Separate 
Account are registered with the SEC under the Securities Act of 1933. 
It is represented that TIAA operates the Separate Account so that it is 
not subject to registration as an investment company under the 
Investment Company Act of 1940.
    TIAA provides investment management services to the Separate 
Account.<SUP>11 As investment manager to the Separate Account, TIAA is 
a fiduciary, within the meaning of section 3(21)(A) of the Act, with 
respect to the assets of the Plans held in the Separate Account, and 
therefore, qualifies as a party in interest, pursuant to section 
3(14)(A) of the Act, with respect to the Plans which participate in the 
Separate Account.

    \11\ It is represented that TIAA receives fees for serving as 
investment manager of the Separate Account. In this regard, TIAA 
anticipates that the total investment management fees to 
Participants (and, if applicable, to Plans) which invest in the 
Separate Account will be in the range of from 50 to 75 basis points. 
It is represented that the overall expenses charged for the Separate 
Account will not exceed a maximum of 250 basis points. No other fees 
or charges are made or will be made, except for operating expenses 
and taxes that are net of gross income for a specific Property. TIAA 
maintains that statutory exemptions, pursuant of sections 408(b)(2) 
or 408(b)(5) of the Act, are available to provide relief for the 
fees received by TIAA with respect to the management of the Separate 
Account. The Department is offering no view, herein, as to whether 
the receipt of fees from the Separate Account by TIAA is covered by 
the statutory exemptions provided in sections 408(b)(2) or 408(b)(5) 
of the Act, nor is the Department providing any relief herein with 
respect to such fees charged by TIAA to the Separate Account.
---------------------------------------------------------------------------

    5. TIAA proposes to operate the Separate Account with a 
sufficiently diverse portfolio of Properties to offer to investing 
Participants (and, if applicable, to investing Plans). In this regard, 
it is anticipated that the Properties acquired by the Separate Account 
will be geographically dispersed retail and office buildings, light 
industrial facilities, and residential apartment space with good 
operating income. In order to acquire such Properties, TIAA believes 
that the Separate Account required an initial contribution of $100 
million in Seed Money.
    Accordingly, on July 3, 1995, TIAA contributed $100 million in Seed 
Money in a lump sum to the Separate Account from its General Account. 
In return for the contribution of Seed Money, TIAA received from the 
Separate Account, Seed Money Units representing 100% of the value of 
the Separate Account at the time of the contribution. Thereafter, TIAA 
proposes to redeem Seed Money Units under a fixed repayment schedule, 
subject to the approval of the NYID. In the opinion of TIAA, this 
approach would permit the Separate Account flexibility to acquire 
equity real estate investments, thereby enhancing the ability of the 
Separate Account to generate greater returns sooner for Participants 
(and, if applicable, for Plans).

[[Page 15133]]

    It is represented that the NYID has approved the redemption by TIAA 
of its Seed Money Units to begin on the earlier to occur of: (i) two 
years from the date (i.e. October 2, 1995) on which TIAA first opened 
the Separate Account to Participants (and, if applicable, to Plans) for 
paying premiums to the Separate Account, or (ii) the date on which the 
value of the Separate Account first reaches $200 million. Thereafter, 
it is represented that at least 20 percent (20%) of the original number 
of Seed Money Units acquired by TIAA's General Account from the 
contribution of the Seed Money to the Separate Account will be redeemed 
on predetermined dates in each year, as established by TIAA, for a 
period of five (5) years. In this regard, it is represented that TIAA 
will select twelve dates each year (i.e. the fifteenth day of each 
calendar month, or if such date is not a business day, then the next 
following day on which TIAA is open for business) on which it will 
redeem one-twelfth of the number of Seed Money Units to be redeemed in 
that calendar year in order to satisfy the requirement that at least 20 
percent (20%) of its Seed Money Units is redeemed annually.<SUP>12

    \12\ TIAA believes that the analysis contained in Advisory 
Opinion 83-38A (July 22, 1983) is applicable to TIAA's transfer of 
the Seed Money to the Separate Account, and to the Separate 
Account's redemption of Seed Money Units from TIAA which were 
acquired when TIAA contributed the Seed Money to the Separate 
Account. This opinion held that seed money allocated to separate 
accounts by an insurance company in order to aid in the start-up and 
management of those accounts would not be treated as assets of the 
plans which invested in the separate accounts, and that the 
redemption by the insurance company of participation units in the 
separate accounts would not constitute a violation of the prohibited 
transaction provisions of the Act, solely by reason of the transfer 
of seed money from the separate accounts to the insurance company's 
general account. In this regard, TIAA maintains that similar 
transfers of Seed Money between its Separate Account and its General 
Account do not violate section 406(a)(1) (A) and (D) or section 406 
(b)(1) and (b)(2) of the Act. The Department is offering no relief, 
herein, for the transfer of the Seed Money into the Separate Account 
or the redemption by the Separate Account of TIAA's Seed Money Units 
acquired with the Seed Money, as above described. The Department 
notes that Advisory Opinion 83-38A did not address the situation 
involving the redemption of units of the separate account by the 
insurance company, when, at the same time, there were outstanding 
requests for withdrawal or transfer by participants (or, if 
applicable, plans) invested in the separate account.
---------------------------------------------------------------------------

    Notwithstanding the fixed repayment schedule, described above, TIAA 
has discretion to accelerate the redemption of Seed Money Units, but 
represents that it will exercise such discretion, subject to the 
advance review and approval of the Independent Fiduciary, and only if 
such exercise would be in the best interest of the Participants 
invested in the Separate Account. It is further represented that any 
such acceleration will not be applied so as to prevent a redemption of 
Seed Money Units scheduled to occur on any of the predetermined dates 
during any year.
    TIAA proposes to redeem the Seed Money Units at the fair market 
value of such Units on the date of each redemption. TIAA believes that 
the redemption by the General Account of TIAA's Seed Money Units at the 
fair market value of such units on the date redeemed is equitable and 
appropriate from the standpoint of both the General Account and the 
Separate Account. In this regard, it is represented that New York 
Insurance law requires TIAA to invest General Account assets in a 
prudent fashion. Further, TIAA maintains that Seed Money, as part of 
the General Account, must be invested for the benefit of those who 
depend upon the assets of the General Account to support their 
contractual obligations. Accordingly, in the opinion of TIAA, the 
General Account must share in both the upside and downside risks 
resulting from its investment of the Seed Money in the Separate 
Account.
    TIAA represents that cash to redeem its Seed Money Units at fair 
market value will be obtained from the following sources: (a) Cash Flow 
from the Separate Account; (b) liquid investments in the Separate 
Account; or (c) the proceeds from the sale of Properties held by the 
Separate Account. TIAA believes this method of redemption of TIAA's 
Seed Money Units will allow the Separate Account to purchase additional 
Properties even during the time when the Seed Money initially 
contributed by TIAA is being repaid. In the opinion of TIAA, the 
creation of a more substantial, more diverse real estate portfolio in 
the Separate Account benefits Participants (and, if applicable, Plans) 
which invest in the Separate Account by achieving greater investment 
returns.
    6. In accordance with the provisions of the Separate Account, each 
Participant (and, if applicable, each Plan) that invests in the 
Separate Account is entitled to withdraw or transfer funds from the 
Separate Account at the current daily fair market value of the Units of 
the Separate Account pursuant to the valuation methodology described 
below. Payouts to individual Participants are made in accordance with 
any limitations on the timing and frequency of such payouts which may 
be imposed under applicable Plan provisions.
    In order to ensure that Participants (and, if applicable, Plans) 
may withdraw or transfer amounts from the Separate Account at any time, 
TIAA proposes to guarantee the liquidity of the Separate Account. In 
this regard, TIAA will provide a ``safety net'' or ``back-up'' 
liquidity feature to the Separate Account whenever certain sources of 
funds in the Separate Account are insufficient to satisfy all of the 
requests for withdrawal or for transfer from the Separate Account. In 
this regard, it is represented that in satisfying withdrawal or 
transfer requests from Participants (and, if applicable, from Plans), 
the Separate Account first relies on Cash flow, as defined in Section 
IV(d).
    If the Cash Flow of the Separate Account is not sufficient to fund 
such requests, then TIAA looks to the liquid investments in the 
Separate Account. It is represented that generally the liquid 
investments of the Separate Account are expected to represent from 10 
to 25 percent (10%-25%) of the assets of the Separate Account and to 
include Treasury bonds and notes, corporate bonds, money market 
instruments, collateralized mortgage obligations, shares of real estate 
investment trusts, and other real estate related companies. Finally, if 
the Cash Flow and liquid investments of the Separate Account are 
insufficient, TIAA represents that it will purchase a sufficient number 
of Liquidity Units, as defined in Section IV(g), from the Separate 
Account to fund the request for withdrawal or transfer from an exiting 
Participant (or, if applicable, from an exiting Plan).
    TIAA recognizes that, through potential purchases of Liquidity 
Units, it may retain an unanticipated level of ownership in the 
Separate Account. As a result of such purchases, TIAA's interest in the 
Separate Account may at any time increase beyond a predetermined 
percentage (i.e. the Trigger Point, as defined in Section IV(o)) of the 
total value of the Accumulation Units of the Separate Account, as 
defined in Section IV(a). In the event of such an increase beyond the 
Trigger Point through the purchase of Liquidity Units by TIAA from the 
Separate Account, TIAA proposes to reduce its holding of Liquidity 
Units by selling such Liquidity Units to the Separate Account. In this 
regard, cash to purchase Liquidity Units is obtained from the following 
sources: (a) Cash Flow from the Separate Account; (b) liquid 
investments in the Separate Account; or (c) the proceeds from the sale 
of Properties held by the Separate Account.
    7. TIAA retains the authority to terminate the Separate Account and 
wind down the operation of the Separate Account. It is represented that

[[Page 15134]]
the Wind Down will begin when TIAA informs the Participants (and, if 
applicable, the Plans) which participate in the Separate Account of its 
intention to terminate the Separate Account, and will conclude on the 
date on which no Units are held by any of the Participants or Plans 
which participate in the Separate Account. Such notification of the 
intent to terminate the Separate Account must be provided in writing by 
TIAA at least one year in advance of the termination of the Separate 
Account to Participants (and, if applicable, Plans) at their last known 
addresses in TIAA's business records. It is represented, that for one 
year prior to its termination, the Separate Account will continue to 
operate and honor withdrawal requests from Participants (and, if 
applicable, Plans). However, no new contributions or transfers from 
Participants (and, if applicable, from Plans) will be permitted into 
the Separate Account during that one-year period.
    TIAA has provided rules for the redemption of Units during the Wind 
Down by Participants (and, if applicable, by Plans) which must be 
approved by the Independent Fiduciary prior to becoming effective. It 
is represented that once such rules are approved, TIAA has no 
discretion regarding their application. Under the rules applicable to 
Participants, there is no limitation on the amount of withdrawals 
during Wind Down. With respect to any Plan funded with a TIAA deposit 
administration type group annuity contract, the redemption of 
Accumulation Units is tied to the size of such Plan's interest in the 
Separate Account. If the value of the Accumulation Units held by such a 
Plan is equal to or less than $1 million on the effective date of the 
termination of the Separate Account, the entire interest of the Plan 
will be redeemed. If the value of the Accumulation Units held by such 
Plan exceeds $1 million on the effective date of the termination of the 
Separate Account, the distribution of the value of the Accumulation 
Units of that Plan will occur pro rata (with other similarly situated 
Plans) over no longer than a twelve (12) month period. It is further 
represented that any Participant (and, if applicable, any Plan) may 
elect to defer the redemption of Accumulation Units until all 
Properties in the Separate Account are sold. It is represented that 
upon termination and liquidation of the Separate Account, any 
Accumulation Units held by TIAA will be the last Units redeemed, unless 
the Independent Fiduciary directs otherwise.
    8. In the absence of an exemption, under the circumstances 
described above, the transactions which may be deemed to violate the 
prohibited transactions provisions of the Act include: (a) the purchase 
of Liquidity Units by TIAA to provide liquidity to the Participants 
(and, if applicable, to the Plans) which participate in the Separate 
Account in the event of net withdrawals; (b) the purchase of Liquidity 
Units by the Separate Account from TIAA in the event of net 
contributions to the Separate Account; and (c) the use of Cash Flow and 
liquid investments in the Separate Account and proceeds from the sale 
of Properties owned by the Separate Account in order to generate cash 
to purchase TIAA's Liquidity Units after the Trigger Point has been 
exceeded or during the Wind Down Period. In addition, because cash is 
transferred indirectly between the General Account and the Separate 
Account, in connection with contributions, withdrawals, and transfers 
of Units, such acquisitions or dispositions theoretically could be 
viewed as an indirect transfer or use of plan assets between TIAA and 
the Plans and their Participants. TIAA believes that the methods of 
reducing TIAA's ownership in the Separate Account to a percentage equal 
to or below the Trigger Point and the process of increasing and 
decreasing TIAA's interest in the Separate Account through the purchase 
or sale of Liquidity Units, involve transactions between the General 
Account and the Separate Account which may constitute prohibited 
transactions. Accordingly, TIAA requests exemptive relief from sections 
406(a), 406(b)(1) and 406(b)(2) of the Act for the subject 
transactions.
    9. TIAA believes that the requested exemption is in the best 
interest of Participants (and, if applicable, Plans) who participate in 
the Separate Account. The establishment and operation of the Separate 
Account permits Participants in the TIAA-CREF annuity funding system to 
take advantage of valuable investment opportunities available in real 
estate. In this regard, it is represented that Participants (and, if 
applicable, Plans) in the Separate Account are better able to diversify 
risk in a mixed asset pension portfolio. Moreover, the Separate Account 
is designed to permit unlimited withdrawal and transfer flexibility. 
This structure makes it possible for Participants (and, if applicable, 
Plans) to invest in real estate which is by nature too illiquid to 
permit rapid withdrawals and transfers. In this regard, TIAA represents 
that under no circumstances will the liquidation of any Accumulation 
Units held by a Participant or participating Plan, for which a 
withdrawal request is pending, be delayed by reason of the redemption 
of Seed Money Units held by TIAA. It is represented that TIAA will 
always advance funds by purchasing Liquidity Units to fund withdrawal 
requests from Participants or Plans on a timely basis.
    10. TIAA has adopted a number of safeguards intended to fully 
protect the interests of Participants (and, if applicable, Plans) which 
invest in the Separate Account. In this regard, the Independent 
Fiduciary approves and monitors nearly all material transactions that 
occur during the establishment, operation, and Wind Down of the 
Separate Account. In addition, other procedures have been adopted to 
ensure that appropriate valuations and appraisals are made of the Units 
and of the assets in the Separate Account. Moreover, TIAA is required 
to provide disclosures to participants and to plans that contemplate 
investing in the Separate Account and is required to provide 
Participants, Plan Fiduciaries, and Plan Sponsors access to certain 
information about the Separate Account on a continuing basis.
    One such safeguard is the specified valuation rules and procedures 
which TIAA and the Independent Fiduciary use in the operation of the 
Separate Account. In this regard, it is represented that on the day the 
Separate Account was established, the initial value of each of the 
Accumulation Units in the Separate Account was set at $100. Thereafter, 
the value of one Accumulation Unit equals the total value of the net 
assets of the Separate Account divided by the number of outstanding 
Accumulation Units in the Separate Account. It is represented that as 
of October 2, 1995, when the Separate Account was opened for investment 
by Participants (and, if applicable, Plans), the value of a Unit was 
$101.25.
    In order to calculate the value of an Accumulation Unit, each of 
the Properties held in the Separate Account is valued at its initial 
price. Thereafter, each of the Properties is valued annually (the 
Annual Appraisals) by an independent, qualified appraiser. TIAA is 
responsible for designating one or more independent appraisers, subject 
to the approval of the Independent Fiduciary, to perform such Annual 
Appraisals.
    It is represented that the Annual Appraisals are conducted during 
an assigned valuation month for each Property. Each assigned valuation 
month is chosen with the intent to schedule the independent appraisals 
in as even a pattern as is practical over the course of a calendar 
year. It is represented that the Independent

[[Page 15135]]
Fiduciary is involved in the assignment of each valuation month and any 
alternative thereto.
    It is represented that procedures are in place to obtain 
independent appraisals of the Properties and to ensure the integrity of 
the valuation of the assets of the Separate Account. In this regard, it 
is represented that the portfolio manager of the Separate Account has 
no contact with the independent appraisers of the Properties. Instead, 
asset managers for the Separate Account, who are responsible for the 
leasing strategy and capital improvement program for each of the 
Properties and for oversight of the performance of third-party property 
managers, convey information about the Properties to the independent 
appraisers. In addition, TIAA's appraisal group, which reports directly 
to the Senior Vice President of TIAA's Mortgage & Real Estate Division, 
is responsible for communicating with the independent appraisers on an 
ongoing basis, and for reviewing draft appraisals in order to recommend 
corrections of misinformation and obvious errors, such as mathematical 
calculations.
    It is represented that the independent appraisers have the final 
authority in the preparation of the Annual Appraisals. In this regard, 
in preparing the Annual Appraisals of the Properties in the Separate 
Account, the independent appraiser(s) take into account appropriate 
valuation methodologies which may include replacement cost, comparable 
costs, comparable sales, discounted cash flow, current and projected 
occupancy levels, market conditions, and the condition of the Property 
where appropriate. The cost of the Annual Appraisals, and any other 
appraisals as necessary, are reflected in the investment management fee 
charged to the Separate Account. Once prepared, it is represented that 
the Independent Fiduciary receives copies of the Annual Appraisals 
which are subject to the Independent Fiduciary's review and approval.
    The Annual Appraisals, as approved by the Independent Fiduciary, 
are updated at least once every three (3) months by the staff of TIAA 
(the Quarterly Updates) and will be updated more frequently should 
events occur which have an impact on the value of any Property. TIAA 
takes into consideration the current rate of interest and inflation, 
occupancy levels, cash flow, regional and local market conditions, and 
other relevant factors, including such other appraisal tools and 
methodologies as in TIAA's judgment are deemed reasonable, prudent, and 
appropriate. It is represented that the Quarterly Updates are subject 
to approval by the Independent Fiduciary and are effective as of the 
quarterly anniversary of the Annual Appraisals. If at any time between 
Quarterly Updates or between Quarterly Updates and the Annual 
Appraisals, an event occurs which impacts the value of any of the 
Properties, TIAA will review such impact on value. It is represented 
that the Independent Fiduciary receives copies of the internal 
appraisals for review and any change in the value of a Property is 
subject to the approval of the Independent Fiduciary. In addition, the 
Independent Fiduciary has the authority to require an independent 
appraisal whenever necessary. In that circumstance, the Independent 
Fiduciary would select such independent appraiser, who would be deemed 
approved by TIAA, if TIAA does not object within fourteen (14) days 
thereof. If TIAA does not object to the Independent Fiduciary's choice, 
then the independent appraiser will be retain to perform the appraisal. 
If TIAA objects to the Independent Fiduciary choice, the Independent 
Fiduciary will choose another independent appraiser. Further, the 
Independent Fiduciary is authorized to select the appropriate value in 
the event any appraisals of Properties performed by TIAA conflict with 
those prepared by independent third party appraisers or a conflict 
arises between different appraisals each of which was prepared by an 
independent appraiser.
    In addition to updating and reviewing the values of the Properties, 
TIAA calculates daily accruals (the Daily Accruals) for the recognition 
of income and expenses of the Properties in the Separate Account. It is 
represented that such Daily Accruals are based on the projected net 
monthly operating income or loss for each of the Properties divided by 
the number of days in the month. The projected net monthly operating 
income or loss for each of the Properties is based on occupancy and 
rental information, anticipated expenses and other information. In this 
regard, it is represented that the Daily Accruals are modified as 
actual performance is determined and projected amounts change. The 
Independent Fiduciary is responsible for reviewing and approving the 
methodology to calculate such Daily Accruals and for monitoring the 
recurring calculation of such Daily Accruals. The Independent 
Fiduciary's duties also include observing the methodology and analyzing 
the calculations employed by TIAA in arriving at the Unit value set by 
the Daily Accruals and by the ongoing monthly reviews of the value of 
the Properties.
    It is represented that all of the valuation procedures utilized by 
TIAA regarding the value of Properties in the Separate Account, as well 
as any other investments in the Separate Account, are subject to the 
monitoring and approval of the Independent Fiduciary. In this regard, 
non-real estate assets of the Separate Account are generally liquid 
investments. For public market securities, TIAA calculates the value of 
the assets as of the close of every valuation day. It is represented 
that TIAA generally uses market quotations or independent pricing 
services to value securities and other investments of the Separate 
Account. If market quotations or independent pricing services are not 
readily available, and for ``non-public market assets'' (e.g., 
mortgages), TIAA uses the fair market value of such assets, as 
determined in good faith by TIAA. It is represented that as of February 
29, 1996, there are no ``non-public market assets'' in the Separate 
Account. In this regard, TIAA represents that while there is no maximum 
percentage limitation on the amount of ``non-public market assets,'' 
TIAA does not anticipate that the Separate Account will invest in a 
significant percentage of such assets.
    It is represented that TIAA's valuations are subject to examination 
every five (5) years by the New York State Insurance Department. 
Further, the Separate Account is audited periodically by TIAA's 
internal auditor and annually by an independent outside auditor, 
currently the firm of Deloitte & Touche LLP (Deloitte). As part of its 
audit, Deloitte examines samples of valuations performed by TIAA, 
including valuations of assets for which there is no readily 
ascertainable market value. In addition, Deloitte is responsible for 
determining whether the valuation methods used by TIAA are in 
accordance with generally accepted accounting principles.
    It is represented that TIAA will not alter its valuation 
methodology without the approval of the Independent Fiduciary and that 
all valuations of investments of the Separate Account are subject to 
review and approval by the Independent Fiduciary. Further, without the 
prior approval of the Independent Fiduciary, TIAA is not permitted to 
alter any valuation, which results in an increase or decrease of: (a) 
more than 6 percent (6%) of the value of any of the Properties in the 
Separate Account since the last independent Annual Appraisal; or (b) 
more than 2 percent (2%) of the value of the Separate Account since the 
prior month; or (c) more than 4 percent (4%) in the

[[Page 15136]]
value of the Separate Account within any calendar quarter. In addition 
to these percentage limitations, it is represented that any adjustments 
to the value of the Properties which are made by TIAA during the first 
three (3) months after receipt of an Annual Appraisal prepared by an 
independent, qualified appraiser, are subject to the review and 
approval of the Independent Fiduciary.
    11. It is represented that the proposed exemption is feasible in 
that it imposes no continuing administrative burden on the Department, 
because the Independent Fiduciary is responsible for monitoring and 
approving all significant transactions relating to the establishment 
and operation of the Separate Account. In this regard, among other 
things, the Independent Fiduciary must review and approve prior to 
adoption, the investment guidelines of the Separate Account established 
by TIAA under which the day-to-day investments of the Separate Account 
are made. Thereafter, the Independent Fiduciary is responsible for 
approving any changes to such investment guidelines. Further, it is the 
duty of the Independent Fiduciary to monitor whether the Properties 
acquired by the Separate Account conform to the requirements of such 
investment guidelines.
    Prior to adoption by TIAA, the Independent Fiduciary must review 
and approve the valuation procedures of the Separate Account. In this 
regard, the Independent Fiduciary, among other things, is responsible 
for overseeing the methodology used in establishing the value of the 
Units, monitoring the calculation of Daily Accruals and the procedures 
for valuing the Properties and other assets of the Separate Account, 
and assigning the valuation month for each of the Properties. Further, 
any changes to the existing valuation procedures of the Separate 
Account are also subject to review and approval by the Independent 
Fiduciary.
    The Independent Fiduciary must oversee the quality of the appraisal 
functions performed by TIAA and by outside independent, qualified 
appraisers with respect to the valuation of the Properties in the 
Separate Account. In this regard, the appointment of all the 
independent appraisers retained by TIAA to perform periodic valuation 
of the Properties in the Separate Account must first be reviewed and 
approved by the Independent Fiduciary. Further, the Independent 
Fiduciary is responsible for approving the list of appraisers submitted 
by TIAA, and is authorized to remove any names of appraisers from such 
list.
    The Independent Fiduciary is responsible for reviewing and 
approving the valuation of the Units in the Separate Account and the 
value of the Properties held in the Separate Account. In this regard, 
the Independent Fiduciary is authorized to conduct visits to the 
Properties. The Independent Fiduciary has discretion to adjust the 
valuation of the Properties at any time. Whenever the Independent 
Fiduciary believes that the characteristics of any of the Properties 
have changed materially, or with respect to any of the Properties, 
whenever it deems an additional appraisal to be necessary or 
appropriate in order to assure the correct valuation of the Separate 
Account, the Independent Fiduciary has discretion to require appraisals 
in addition to those normally conducted. TIAA is not permitted to alter 
the valuation of any Property or the Separate Account beyond the 
limits, described in paragraph ten above, without first obtaining the 
prior approval of the Independent Fiduciary. The opinion of the 
Independent Fiduciary on the value of any Property controls in the 
event of a conflict.
    As described earlier in this proposed exemption, TIAA received from 
the Separate Account Seed Money Units upon contribution of the Seed 
Money to the Separate Account from its General Account, and 
subsequently intends to redeem such Seed Money Units under a fixed 
repayment schedule. It is represented that such fixed repayment 
schedule in addition to being subject to the approval of the NYID is 
also subject to review and approval by the Independent Fiduciary. 
Further, the Independent Fiduciary is responsible for reviewing any 
exercise of discretion by TIAA to accelerate the fixed repayment 
schedule applicable to the redemption of Seed Money Units, and 
approving TIAA's exercise of discretion only if such acceleration would 
benefit the Participants in the Separate Account.
    The Independent Fiduciary must monitor and oversee the liquidity 
guarantee feature of the Separate Account, as described herein, if, 
during or after the Start Up Period, the Cash Flow or liquid 
investments of the Separate Account are insufficient to fund requests 
for withdrawal by Participants (and, if applicable, by Plans). In this 
regard, the Independent Fiduciary is responsible for reviewing the 
purchase and sale of Units by TIAA and the Participants (and, if 
applicable, the Plans) that are withdrawing from the Separate Account, 
in order to assure that the correct values of Units and of the Separate 
Account are applied.
    As noted earlier, it is intended that TIAA's interest in the 
Separate Account will not exceed a certain percentage of the Separate 
Account established by the Independent Fiduciary as a Trigger Point. In 
this regard, it is represented that the Independent Fiduciary is 
responsible for determining the appropriate percentage to serve as the 
Trigger Point. Further, the Independent Fiduciary must determine 
whether or not to impose a Trigger Point during or after the Start Up 
Period with respect to TIAA's ongoing ownership of Liquidity Units in 
the Separate Account, or whether to impose different Trigger Points 
during or after the Start Up Period. With respect to TIAA's ongoing 
ownership of Liquidity Units, both during and after the Start Up 
Period, the duties of the Independent Fiduciary include: (a) 
establishing a method to implement any changes to the Trigger Point; 
(b) adjusting the percentage which serves as the Trigger Point; (c) 
approving or requiring any adjustment of TIAA's ownership interest in 
the Separate Account in the form of Liquidity Units; and (d) approving 
the manner in which TIAA' participation in the Separate Account in 
excess of the Trigger Point is effected.
    In the event the Trigger Point is reached, during or after the 
Start Up Period, the Independent Fiduciary is authorized to sell assets 
of the Separate Account, if in the opinion of the Independent Fiduciary 
such sales are desirable at the Trigger Point to reduce TIAA's 
ownership of Liquidity Units in the Separate Account. In this regard, 
the Independent Fiduciary is responsible for: (a) participating in the 
planning of any program of sales of the assets of the Separate Account, 
including the selection of Properties to be sold; (b) approving the 
order which causes the sale of any of the Properties; (c) establishing 
the guidelines to be allowed in making such sales; and (d) approving of 
such sales. It is represented that the opinion of the Independent 
Fiduciary controls in any conflict with TIAA over the sale of any of 
the Properties, and that the Independent Fiduciary is authorized to 
request appraisals upon the sale of any of the Properties in the 
Separate Account.
    In addition to overseeing the redemption of Seed Money Units, 
controlling the Trigger Point, and managing the liquidity feature 
offered by TIAA's General Account to the Separate Account, the 
Independent Fiduciary is responsible for the activity of the Separate 
Account in the event of

[[Page 15137]]
its termination and during the subsequent liquidation of its assets. 
During the Wind Down, the Independent Fiduciary must supervise the 
operation of the Separate Account. It is represented that in the event 
of termination of the Separate Account, the Independent Fiduciary is 
responsible for approving all sales of Properties in the Separate 
Account, and will do so, only if in the opinion of the Independent 
Fiduciary such sales are desirable to facilitate the Wind Down. In this 
regard, the Independent Fiduciary must review any program of sales of 
the assets of the Separate Account, including the selection of 
Properties to be sold, and the guidelines to be followed in making such 
sales. It is represented that the Independent Fiduciary also is 
responsible for approving the order in which the Properties are sold, 
approving the price for such Properties, and determining the timing of 
the disposition of such Properties.
    It is represented that in addition to performing the duties 
described herein, the Independent Fiduciary, acting on behalf of 
Participants (and, if applicable, Plans) invested in the Separate 
Account, is responsible for reviewing any other transactions or matters 
involving the Separate Account that are submitted to the Independent 
Fiduciary by TIAA, and determining whether such transactions are fair 
to the Separate Account and in the best interest of such account. In 
order to fulfill all of its duties, it is represented that the 
Independent Fiduciaries is responsible for developing formats for 
periodic reports of information on the Separate Account to be provided 
by TIAA.
    12. The Independent Fiduciary must be qualified to act on behalf of 
the Plans with respect to this proposed exemption. In this regard, the 
Independent Fiduciary must be an established firm with substantial 
expertise in real estate matters, such as the acquisition, management, 
investment valuation, financing, and disposition of real estate.
    Such Independent Fiduciary appointed for the Separate Account must 
be independent of TIAA or its Affiliates. In this regard, the 
Independent Fiduciary cannot have an ownership interest in TIAA or its 
Affiliates, and cannot be a fiduciary with respect to any of the Plans 
that participate in the Separate Account. Further, the Independent 
Fiduciary may not receive from TIAA or its Affiliates more than 5 
percent (5%) of such Independent Fiduciary's annual gross income from 
all sources, including amounts received for services rendered to the 
Separate Account during its term as Independent Fiduciary. The 
Independent Fiduciary must also agree that during its term as 
Independent Fiduciary (and for six (6) months after the conclusion of 
its term as Independent Fiduciary), it will not: (a) acquire property 
from, sell any property to, borrow money from, or lend money to TIAA, 
its Affiliates, TIAA's General Account, or any separate account over 
which TIAA or its Affiliates have any investment control, including the 
Separate Account; (b) participate in any joint venture with TIAA, its 
Affiliates, TIAA's General Account, or any separate account maintained 
by TIAA or its Affiliates, including the Separate Account, or 
participate, either alone or together with a joint venture partner, in 
the ownership of the Properties with TIAA, its Affiliates, TIAA's 
General Account, or any separate account maintained by TIAA or its 
Affiliates, including the Separate Account; or (c) negotiate any such 
transactions.
    It is represented that TIAA has the discretion to appoint the 
Independent Fiduciary. The Board of Trustees of TIAA established on 
December 19, 1995, a special subcommittee (the Subcommittee) of the 
Mortgage Committee. The Mortgage Committee is one of several standing 
committees of the Board of Trustees of TIAA which traditionally has 
been responsible for supervising the investment of funds of TIAA's 
General Account in real estate mortgages and real estate. The 
Subcommittee is composed exclusively of trustees who are independent 
outside members of the Mortgage Committee. In this regard, it is 
represented that the Subcommittee consists of five (5) individuals at 
least two (2) of which are employees of institutions participating in 
the TIAA annuity funding system and three (3) of which are otherwise 
independent of TIAA.
    It is represented that TIAA has contractually bound itself to rely 
solely on the judgment of the Subcommittee with respect to the removal 
of the Independent Fiduciary ``with'' or ``without cause,'' under the 
terms of the Agreement between TIAA and the current Independent 
Fiduciary. It is represented that the current Independent Fiduciary, 
was appointed for an initial term of five (5) years and thereafter may 
be reappointed for successive terms of three (3) years each. It is 
represented that the Subcommittee may remove the Independent Fiduciary, 
``without cause,'' only at the expiration of the initial 5-year term or 
at the expiration of any successive 3-year term. In this regard, the 
Independent Fiduciary is subject to removal ``with'' or ``without 
cause,'' if a majority of the Subcommittee members (i.e. three of the 
five members) vote in favor of such removal, following receipt by the 
Subcommittee of a report on the Independent Fiduciary's activities 
respecting the Separate Account.
    It is represented that the Board of Trustees has delegated to the 
Subcommittee alone the power to renew the Independent Fiduciary 
agreement. In this regard, any agreement with the Independent Fiduciary 
will not be renewed, if 40 percent (40%) of the Subcommittee members 
(i.e. two of the five members) disapprove of such renewal.
    In the event the Independent Fiduciary is removed or the agreement 
with Independent Fiduciary is not renewed, it is represented that the 
Board of Trustees of TIAA will delegate to the Subcommittee the 
authority to select and appoint any successor Independent Fiduciary for 
the Separate Account. In this regard, it is represented that any 
successor Independent Fiduciary will perform all of the duties of 
Independent Fiduciary and comply with all of the conditions, as 
described herein.
    The Independent Fiduciary may resign upon providing TIAA with 180 
days' advance written notice of such resignation. In the event of 
resignation, it is represented that the Board of Trustees of TIAA will 
delegate to the Subcommittee the authority to select and appoint any 
successor Independent Fiduciary for the Separate Account, who will 
perform all of the duties of Independent Fiduciary and comply with all 
of the conditions, as described herein.
    Prior to investing in the Separate Account, it is represented that 
each prospective participant (and, if applicable, each fiduciary of 
prospective participating plans) has been and will be provided with 
information regarding the role of the Independent Fiduciary with 
respect to the Separate Account and has been and will be advised of the 
identity of the party appointed to serve as the Independent Fiduciary. 
In this regard, a decision by a Fiduciary or Plan Sponsor or by a 
participant in a SRA or IRA to elect to add the Separate Account as an 
additional pension funding option and to participate in the Separate 
Account, after full disclosure by TIAA, constitutes approval and 
acceptance by such Fiduciary or Plan Sponsor or such participant in a 
SRA or IRA of such Independent Fiduciary.
    Further, it is represented that in the event the Independent 
Fiduciary were to change, TIAA would within thirty (30) days of such 
change supplement the prospectus of the Separate Account

[[Page 15138]]
and distribute such prospectus to participating institutions and to 
participants who express an interest in the Separate Account or who 
transfer money into the Separate Account.
    13. As of May 17, 1995, TIAA appointed Institutional Property 
Consultants, Inc. (IPC) to serve as the Independent Fiduciary on behalf 
of the Separate Account. Thereafter, TIAA and IPC entered into an 
agreement (the Agreement) for a term of five (5) years which describes 
the conditions of such appointment and the duties performed by each 
party in accordance with the requirements of the Act. It is represented 
that on June 9, 1995, IPC accepted and executed the Agreement.
    IPC is a sub-Chapter S Corporation, 100% owned by its senior 
professionals, which provides professional real estate counseling 
services nationwide. In this regard, it is represented that IPC 
maintains a principal office in San Diego, California, and a secondary 
office in Hudson, Wisconsin. It is further represented that IPC is a 
Registered Investment Advisor under the Investment Advisors Act of 1940 
and qualifies as a Women Business Enterprise.
    IPC provides services for business, financial, and non-profit 
institutions. In this regard, IPC clients are tax-exempt institutions, 
including public pension funds, corporate funds, Taft Hartley funds, 
and retirement funds. It is represented that the total plan assets of 
the IPC client group are approximately $250 billion, with real estate 
investments comprising $12 billion. Of IPC's corporate and Taft Hartley 
clients, approximately 10 percent (10%), calculated on the basis of 
total plan assets, are subject to the Act.
    It is represented that IPC has considerable background, 
qualifications, and expertise in order to perform Independent Fiduciary 
services for the Separate Account. In this regard, IPC has represented 
to TIAA that it has at least five (5) years of experience with respect 
to commercial real estate investments.
    It is represented that IPC is independent of TIAA and its 
Affiliates. In this regard, it is represented that gross income 
received by IPC (or by any partnership or corporation of which IPC is a 
10 percent (10%) or more partner or shareholder) from TIAA and its 
Affiliates for any fiscal year ending during the term of the Agreement 
does not exceed 5 percent (5%) of its annual gross income from all 
sources for the preceding fiscal years. Such income limitation includes 
the fees for services rendered to the Separate Account by IPC for 
serving as the Independent Fiduciary.
    It is represented that IPC has acknowledged in writing that it has 
assumed responsibility, as a fiduciary under the Act, with regard to 
the Separate Account, particularly on behalf of the Participants (and, 
if applicable, the Plans) who participate in the Separate Account. It 
is represented that IPC has undertaken to perform for the exclusive 
benefit for the individual Participants in the Plans and their 
beneficiaries the duties of the Independent fiduciary, as described in 
TIAA's Application for a Prohibited Transaction Exemption and in 
subsequent supplemental information submitted by TIAA, and as described 
herein.
    On September 13, 1995, IPC provided the Department with a report on 
its activities to date with respect to the Separate Account. As of that 
date, IPC reported that the Separate Account was in its Start-Up 
Period, no Properties had been acquired by the Separate Account, and no 
Units had been issued to the public. Nevertheless, subsequent to its 
appointment as Independent Fiduciary, it is represented that TIAA 
furnished IPC with detailed information on the expected operation of 
the Separate Account. Further, IPC has engaged in numerous discussions 
with the senior TIAA real estate staff involved in establishing and 
managing the Separate Account. In this regard, IPC represents that to 
date, it has reviewed and approved the investment guidelines 
established by TIAA for the Separate Account and that TIAA and IPC are 
currently working out specific procedures to ensure the flow, on a 
weekly and monthly basis, of all the information, including real estate 
valuations, that IPC deems necessary to fulfill its fiduciary 
obligation to the Separate Account.
    With respect to valuation, IPC has reviewed, and approved the 
valuation procedures of the Separate Account. In this regard, IPC 
represents that it understands the need for independence in the 
valuation structure and has maintained an independent position with 
respect to TIAA and its staff. Because no Properties had, as of 
September 13, 1995, been acquired by the Separate Account, no 
independent appraisers had been appointed. IPC has been provided with a 
list of appraisers that TIAA intends to use for valuation purposes, and 
IPC has approved such list. In carrying out its responsibility as 
Independent Fiduciary once Properties are acquired by the Separate 
Account, IPC will oversee the appraisal function conducted by TIAA and 
by outside independent appraisers and will, if it deems necessary, 
conduct surprise visits of Separate Account Properties. Further, IPC 
has authority to require an independent appraisal whenever it deems it 
necessary to do so. While TIAA would hire the independent appraiser in 
that circumstance, such independent appraiser would initially be chosen 
by IPC and will be deemed approved, if TIAA does not object within 
fourteen (14) days thereof.
    IPC expects that the structuring of the relationship between TIAA, 
as investment manager, and IPC, as Independent Fiduciary, protects 
against the manipulation of the Separate Account by TIAA. Further, IPC 
represented that it will maintain a written record of its monitoring of 
appraisals and valuation of Properties acquired by the Separate 
Account. In this regard, IPC believes that the monitoring process is 
protective of the interests of Participants (and, if applicable, of 
Plans) in the Separate Account.
    14. It is represented that during the operation of the Separate 
Account, no member of the Board of Trustees of TIAA or of CREF has had 
or will have a role in the selection of the Separate Account as a 
funding vehicle for any of the Plans or has served or will serve as a 
Fiduciary to any Plan participating in TIAA investment funding options. 
In this regard, Fiduciaries of the Plans unrelated to TIAA, or in the 
case of a SRA or an IRA, participants unrelated to TIAA who participate 
in such SRA or IRA, have made and will make the decision to invest in 
the Separate Account.<SUP>13

    \13\ TIAA has not requested and the Department is not proposing, 
herein, any relief for the selection of the Separate Account as a 
funding vehicle for any of the Plans for which TIAA or CREF issue 
annuity contracts.
---------------------------------------------------------------------------

    Before making the decision to invest in the Separate Account, TIAA 
is required to make certain disclosures to prospective investors in the 
Separate Account. Such disclosures include the information described 
above in Section III(c) of this proposed exemption. TIAA proposes to 
meet these disclosure obligations, by distributing a prospectus of the 
Separate Account, under the Securities Act of 1933. It is represented 
that the prospectus contains, among other things, a list of all the 
Properties in the Separate Account and their values, detailed audited 
financial information, and information about the operation and 
investment objectives of the Separate Account. Specifically, TIAA 
represents that prior to the investment in the Separate Account by any 
Participants (and, if applicable, by

[[Page 15139]]
any Plans), it has furnished and will furnish, either in a prospectus 
of the Separate Account or in ancillary materials, the disclosures, as 
required pursuant to Section III(c) of this proposed exemption, to any 
participant who expresses an interest in the Separate Account, all Plan 
Sponsors and Fiduciaries of Plans which participate in the Separate 
Account, and in the case of a contract between TIAA and a SRA or an 
IRA, to the participant in such SRA or IRA. In the event a Participant 
transfers money to the Separate Account before receiving a prospectus, 
it is represented that such a prospectus is sent to him concurrently 
with the required confirmation statement.
    With respect to disclosure on an on-going basis to Fiduciaries of 
the Plans or in the case of a contract between TIAA and an SRA or an 
IRA, to the participant in such SRA or IRA, it is represented that TIAA 
under the Securities Act of 1933 is required to update information set 
forth in the prospectus on an annual basis. In addition, the prospectus 
is updated as the Separate Account acquires or sells Properties; 
provided such acquisition or sale has a material impact on the Separate 
Account. It is represented that each Participant and all of the Plan 
Sponsors have received and will receive annually an updated prospectus 
and such updated information has and will become part of the prospectus 
sent to potential investors in the Separate Account.
    The Separate Account is required to file quarterly and other 
financial reports with the SEC, pursuant to the Securities and Exchange 
Act of 1934. It is represented that these reports are available 
directly from the SEC. In addition, TIAA represents that it includes, 
either as part of these financial reports filed with the SEC, or as a 
supplemental schedule, a list of the Properties in the Separate Account 
and their market values. It is represented that TIAA has made and will 
make such quarterly and other financial reports, including the 
supplemental schedule, available to Plan Sponsors and Participants in 
the Separate Account upon request.
    It is represented that TIAA has sent and will send to Participants 
written information relating the value of the Units in the Separate 
Account and information on the quarterly return for the Separate 
Account in quarterly confirmation statements which are mailed within 
five (5) to ten (10) days after the end of a calendar quarter. Further, 
TIAA has published and will publish in a TIAA publication, which is 
provided at least quarterly to all Plan Sponsors and Fiduciaries of the 
Plans, a written notice that the quarterly financial reports (including 
the list of Properties and their current values) are available on 
request. It is represented that TIAA intends to establish an 800 number 
telephone system that allows Fiduciaries and Participants access 24 
hours per day every day to information about the current market value 
of the Units in the Separate Account. Starting with the quarter ending 
December 31, 1995, it is represented that the 800 number telephone 
system will also include a quarterly valuation update on the investment 
performance of the Separate Account. It is represented that once 
established TIAA will publish the 800 telephone number in its quarterly 
publication in order to enable Plan Sponsors and Fiduciaries of the 
Plan to easily get prompt delivery of quarterly financial reports upon 
request.
    In addition, upon publication of this Notice and, if this proposed 
exemption is granted, upon publication of the Grant, a copy of such 
Notice and such Grant, as each appears in the Federal Register, will be 
provided to the Fiduciaries of the Plans, to Plan Sponsors, to the 
sponsors of any SRA, and to participants in any TIAA IRA which were 
invested in the Separate Account and have withdrawn or are at the time 
invested in the Separate Account. Further, if subsequent to the 
publication of the Grant, any fiduciaries of plans, plan sponsors, the 
sponsors of any SRA, or the participants in any TIAA IRA chose to elect 
to add the Separate Account as an additional pension funding option to 
enable such participants (or, if applicable plans) to invest in the 
Separate Account, the fiduciaries of such plans, plan sponsors, the 
sponsors of such SRA, or the participants in any such IRA will be 
provided, at least thirty (30) days prior to investment in the Separate 
Account, with a copy of both the Notice and the Grant, as such 
documents appeared upon publication in the Federal Register.
    15. In summary, TIAA, the applicant, represents that the proposed 
transactions meet the statutory criteria of section 408(a) of the Act 
because:
    (a) The decision to elect to add the Separate Account as an 
additional pension funding option for the Plans which invest in the 
Separate Account has been and is made by the Fiduciaries of such Plans 
or in the case of a contract between TIAA and a SRA or an IRA, the 
decision to elect to add the Separate Account as an additional pension 
funding option to a SRA or and IRA has been and is made by the 
participant in such SRA or IRA;
    (b) Each of the Properties in the Separate Account is valued at 
least annually by an independent, qualified appraiser;
    (c) Prior to the investment of funds in the Separate Account by any 
Participants (and, if applicable, by any of the Plans) which 
participate in the Separate Account, TIAA has furnished and will 
furnish certain disclosures to the Fiduciaries of such Plans and, in 
the case of a contract between TIAA and a SRA or an IRA, to the 
participant in such SRA or IRA;
    (d) TIAA periodically has made and will make available information 
which TIAA reasonably believes to be necessary or which the Fiduciaries 
of the Plans, or in the case of a contract between TIAA and a SRA or an 
IRA, which the participant in such SRA or IRA may reasonably request in 
order to determine whether any Participant in such Plan, or participant 
in such SRA or IRA should buy, sell, or continue to hold Units in the 
Separate Account;
    (e) the Independent Fiduciary was appointed prior to or coincident 
with the start of operations of the Separate Account (and is subject to 
renewal and removal described herein) and is responsible, among other 
things, for reviewing and approving the value of the Units and the 
assets of the Separate Account, establishing the Trigger Point, and 
supervising the operation of the Separate Account during the Wind Down 
of such Separate Account;
    (f) Neither the Independent Fiduciary, TIAA, any Affiliate of TIAA, 
TIAA's General Account, nor any other separate account over which TIAA 
or its Affiliates has any investment control:
    (i) has participated or will participate in any joint venture with 
the Separate Account, or in the ownership of the Properties of the 
Separate Account either alone or together with a joint venture partner;
    (ii) has borrowed or will borrow any funds from the Separate 
Account or has lent or will lend any funds to the Separate Account in 
order to leverage any purchase of any of the Properties, or otherwise; 
or
    (iii) has acquired or will acquire any Properties from or has sold 
or will sell any Properties to the Separate Account;
    (g) The liquidation of any Accumulation Units held by a Participant 
or participating Plan, for which a withdrawal request is pending, has 
not been and will not be delayed by reason of the redemption of Seed 
Money Units held by TIAA, and TIAA has advanced and will always advance 
funds by purchasing Liquidity Units to fund Participants' or Plans' 
withdrawal requests on a timely basis; and

[[Page 15140]]

    (h) TIAA will maintain for a period of six (6) years from the date 
of any transaction, the records necessary to enable certain persons to 
determine whether the conditions of this exemption have been met.

Notice to Interested Persons

    Those persons who may be interested in the pendency of the 
requested exemption include, but are not limited to, the Fiduciaries of 
the Plans which have in the past invested, are invested, and may invest 
in the Separate Account, the individual Participants in such Plans, and 
in the case of a contract between TIAA and an IRA or SRA, to the 
participants in any such IRA or SRA which have in the past invested, 
are invested, and may invest in the Separate Account. Because of the 
large number of potentially interested parties and because TIAA does 
not know which participants (or, if applicable, which plans) may choose 
from time to time in the future to invest in the Separate Account, TIAA 
maintains that it is not possible to provide a separate copy of the 
Notice to each participant (or, if applicable, to each plan) which 
therefore may be affected by the requested exemption. Accordingly, the 
Department has determined that the only practical form of providing 
notice to interested persons is the distribution by TIAA of a copy of 
the Notice, as published in the Federal Register, together with a 
supplemental statement, in the form set forth in the Department's 
regulations under 29 CFR 2570.43(b)(2), to the Fiduciaries of any 
Plans, to the Plan Sponsors, to the sponsors of any SRA, and to the 
participants any TIAA IRA which have in the past or are invested in the 
Separate Account at the time the Notice is published in the Federal 
Register. Distribution of the Notice will be effected by first-class 
mail, postage prepaid, within fifteen (15) days of the date of 
publication of the Notice in the Federal Register.
    Further, if this proposed exemption is granted, the Fiduciaries of 
the Plans, the Plan Sponsors, the sponsors of any SRA, and the 
participants in any TIAA IRA which have elected to add the Separate 
Account as an additional pension funding option and which have been or 
are invested in the Separate Account shall receive upon publication of 
the Grant, a copy of such Grant, as it appears in the Federal Register. 
If subsequent to the publication of the Grant, any fiduciaries of 
plans, the sponsors of plans, the sponsors of any SRA, or the 
participants in any TIAA IRA choose to elect to add the Separate 
Account as an additional pension funding option to enable such plans to 
invest in the Separate Account, the fiduciaries of such plans, the 
sponsors of such plans, the sponsors of such SRA, and the participants 
in any such IRA shall be provided, at least thirty (30) days prior to 
investment in the Separate Account, with a copy of both the Notice and 
the Grant, as such documents appeared upon publication in the Federal 
Register.

FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the 
Department, telephone (202) 219-8883 (This is not a toll-free number.)

Sprague Electric Company Retirement and Savings Plan (the Plan), 
Located in Cincinnati, Ohio

[Application No. D-10049]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted, 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 the proposed cash sale (the Sale) 
by the Plan of its 34.2 interest in both the Group Annuity Contract No. 
CG0128203A (ELIC Contract) issued by Executive Life Insurance Company 
(ELIC) and the Group Annuity Contract No. GA-4724 (MBL Contract) issued 
by Mutual Benefit Life Insurance Company (MBL) to American Annuity 
Group, Inc., the current sponsor of the Plan (the Employer), and a 
party in interest with respect to the Plan; provided that the following 
conditions are met: (1) the Sale is a one-time transaction for cash; 
(2) the Plan experiences no loss and incurs no expense from the Sale; 
(3) the Plan receives as consideration for the Sale the greater of 
either (a) 34.2 percent of the fair market value of the ELIC Contract 
and the MBL Contract, respectively, as determined on the date of the 
Sale, or (b) 34.2 percent of the accumulated book value of the ELIC 
Contract and the MBL Contract, respectively, as set forth in paragraph 
4 of this Notice, with such determinations as to the consideration for 
the Sale to be made by the State Street Bank and Trust Company, the 
Plan fiduciary.

Summary of Facts and Representations

    1. The Employer, a Delaware corporation, the current sponsor of the 
Plan with its principal offices located in Cincinnati, Ohio, is a 
holding company whose primary asset is the capital stock of Great 
American Life Insurance Company (GALIC). GALIC was incorporated in New 
Jersey in 1959, and redomiciled as an Ohio corporation in 1982. Prior 
to 1976, GALIC primarily wrote whole-life, term-life, and accident and 
health insurance policies; and in 1976, GALIC entered the tax-deferred 
annuity business.
    The Employer also is the successor corporation to the STI Group, 
Inc. (STI), which was formerly known as Sprague Technologies, Inc. In 
May 1987 STI was formed for the purpose of divesting itself of the 
electronic components businesses. In two transactions on December 19, 
1990, and November 14, 1991, STI disposed of substantially all of its 
assets, including Sprague Electric Company, a wholly-owned subsidiary, 
and the original sponsor of the Plan, to Allegro Microsystems, Inc. and 
Vishay Intertechnology, Inc.
    2. The Plan is a defined contribution plan intended to be tax-
qualified under sections 401(a) and 401(k) of the Code. It has a total 
of 1,396 participants and beneficiaries, as of May 22, 1995, and total 
assets of $1,548,598.20, as of May 31, 1995. As provided by Plan 
documents and instruments, the Board of Directors of the sponsoring 
employer from time to time appointed a committee (the Committee) from 
its employees to administer the Plan. The duties of the Committee 
included, inter alia, selecting the investment funds or vehicles used 
by the Plan participants when self-directing investments for their 
respective Plan accounts, and appointing a trustee, accountants, 
investment advisors, and legal counsel for the Plan. The assets of the 
Plan are held in trust and invested in accordance with a Master Trust 
Agreement executed by and between the sponsoring employer of the Plan 
and State Street Bank and Trust Company (the Trustee), a Massachusetts 
trust company, with its principal offices located in Boston, 
Massachusetts. The Trustee is represented by the applicant to not only 
hold in trust the Plan assets, but is the investment manager for the 
Plan, overseeing the establishment and maintenance of investments and 
disbursements of the respective participant accounts in the Plan.
    The Plan provided for investments in several different investment 
vehicles or funds, which included one designated as the Selection Fund. 
The Selection Fund was invested in several guaranteed contracts, 
including the ELIC Contract and the MBL Contract. The ELIC Contract was 
issued to the Trustee of the Plan, as of February 10,

[[Page 15141]]
1988, guaranteeing an interest rate yield of 7.90 percent net, and 
maturing on June 30, 1992. The MBL Contract was issued to the Trustee 
of the Plan and is dated July 1, 1985, and provided a guaranteed 
interest rate of 8.65 percent through June 30, 1988, and 8.30 percent 
from July 1, 1988, through the maturity date of June 30, 1992. After 
STI divested itself of its electronics business in two transactions on 
December 19, 1990, and November 14, 1991, respectively, the applicant 
represents that on January 23, 1991, the Plan's Selection Fund spun-off 
32.6 percent of its interest in the ELIC Contract and MBL Contract to 
the Allegro Plan, and on May 15, 1992, 33.2 percent of its interest in 
the ELIC Contract and MBL Contract to the Vishay Plan.\14\ The transfer 
of these parital interests was done to allow certain former employees 
of the Employer and former participants of the Plan to transfer their 
accounts in the Selection Fund of the Plan to employee benefit plans 
sponsored by their new employers.

    \14\ The Allegro Plan is sponsored by Allegro Microsystems, 
Inc., a Delaware corporation located in Worcester, Massachusetts, 
which is a wholly-owned subsidiary of Sanken Electric Co., Ltd., a 
Japanese corporation located in Saitama-ken, Japan. The Vishay Plan 
is sponsored by Vishay Intertechnology, Inc., a Delaware corporation 
located in Malvern, Pennsylvania.
---------------------------------------------------------------------------

    As of December 31, 1992, the assets in the Plan totalled 
$2,860,686.94, of which the ELIC Contract represented 3.2 percent and 
involved approximately 1,131 participants, and the MBL Contract 
represented 2.09 percent of the total assets and involved approximately 
1,074 participants, Also, as of December 31, 1992, the book value of 
the Plan's 34.2 percent interest in the ELIC Contract was $91,514.88 
and the book value of the Plan's 34.2 percent interest in the MBL 
Contract was $59,686.08. The book value of each contract was determined 
from the total deposits made to each contract, plus the interest 
earned, and less any withdrawals or distributions from each contract.
    On May 5, 1995, the Plan filed an application with the Internal 
Revenue Service requesting a favorable determination letter with 
respect to terminating the Plan. The Plan is being terminated because 
no active employees of the Employer remain as participants in the Plan. 
Other than the partial investment (34.2 percent) in the ELIC Contract 
and the MBL Contract, respectively, all assets of the Plan are now 
invested in short-term funds to provide liquidity for distribution of 
its assets to Plan participants and beneficiaries when the Plan 
terminates.
    3. On April 11, 1991, the California Department of Insurance 
obtained a court order from the Superior Court of California for the 
County of Los Angeles placing ELIC under conservatorship and freezing 
as of March 31, 1991, the value of the ELIC Contract and any interest 
payments thereunder.<SUP>15 The following month First Executive 
Corporation, a Delaware corporation, which wholly owns ELIC, filed for 
reorganization under Chapter 11 of the Bankruptcy Code.

    \15\ The Department notes that the decision to acquire and hold 
the ELIC Contract is governed by the fiduciary responsibility 
provisions of Part 4, Subtitle B, Title I of the Act. In this 
regard, the Department is not herein proposing relief for any 
violations of Part 4 which may have arisen as a result of the 
acquisition and holding of the ELIC Contract by the Plan.
---------------------------------------------------------------------------

    On August 13, 1993, the Superior Court of California approved a 
Rehabilitation Plan of the Department of Insurance for California with 
respect to ELIC and its successor, Aurora National Life Insurance 
Company (Aurora), a California corporation. The Rehabilitation Plan 
provided two options to every contract-holder with ELIC. Under the 
first option the contract-holder could continue coverage through 
Aurora. The second option provides a choice to opt-out of the 
Rehabilitation Plan and receive the book value of the ELIC Contract as 
of April 11, 1991, which includes interest to April 11, 1991, computed 
at the contract rate, and thereafter at a specified reduced rate of 
return over an extended period of time.
    In 1994, the Trustee, as investment manager for the Plan, decided 
to have the Plan opt-out of the ELIC Rehabilitation Plan. To reach this 
decision the Trustee conducted a credit review of Aurora and completed 
an economic analysis of the option provisions. Also, consideration was 
given to other factors, such as, priority legislation in California, 
the status of a new contract with Aurora in any liquidation proceedings 
in the future, and the ability of Aurora to meet cash flow requirements 
when its contracts mature.
    On July 16, 1991, the New Jersey Department of Insurance took 
control of MBL pursuant to an order of the Superior Court of New 
Jersey. The court's order imposed a moratorium on cash withdrawals from 
the MBL Contract.<SUP>16 On November 10, 1993, the Superior Court of 
New Jersey approved a Rehabilitation Plan for MBL which provided two 
options to the Plan. The first option allowed the holders of the MBL 
Contract to opt-in the Rehabilitation Plan, allowing the Plan to 
receive the accumulated book value of the MBL Contract (which 
represents the deposits made to MBL by the Plan), less distributions, 
and plus interest earned. The interest will be calculated at the 
guaranteed rate as provided by the MBL Contract, which is 8.65 percent 
through June 30, 1988, and 8.30 percent from July 1, 1988, through 
maturity date of June 30, 1992, and thereafter the rate prescribed by 
the Rehabilitation Plan of 5.75 percent in 1992, 5.25 percent in 1993, 
5.10 percent in 1994, 5.10 percent in 1995, and 5.10 percent through 
1996.

    \16\ The Department notes that the decision to acquire and hold 
the MBL Contract is governed by fiduciary responsibility provisions 
of Part 4, Subtitle B, Title I of the Act. In this regard, the 
Department is not herein proposing relief for any violations of Part 
4 which may have arisen as a result of the acquisition and holding 
of the MBL Contract by the Plan.
---------------------------------------------------------------------------

    The second option allowed the holders of the MBL Contract to opt-
out of the Rehabilitation Plan and receive on April 29, 1994, 55 
percent of the MBL Contract value as of July 16, 1991, in a lump sum 
and interest at the rate of 3.50 percent from July 16, 1991 through 
April 29, 1994.
    The Trustee of the plan elected to have the Plan opt-in the MBL 
Rehabilitation Plan.
    There have been quarterly distributions from the MBL Contract in 
the amount of 0.25 percent of the contract balance for the months of 
August 1991 through October 1991, 1.375 percent for November 1991 
through September 1992, and 0.375 percent for October 1992 through 
December 1992.
    4. The Employer seeks an exemption from the prohibited transaction 
provisions of the Act so that the Plan may be terminated and the cash 
received by the Plan from the proposed Sale may be distributed to Plan 
participants and beneficiaries whose respective accounts remain 
invested in the ELIC Contract and the MBL Contract. The Employer 
proposes to pay the Trustee of the Plan cash in an amount equal to the 
greater of either the fair market value of the Plan's 34.2 percent 
interest in the ELIC Contract, as determined by the Trustee on the date 
of the Sale, or an amount equal to 34.2 percent of the Plan's deposits 
under the ELIC Contract, plus the 7.90 percent net interest yield 
guaranteed through the maturity date of June 30, 1992, of the ELIC 
Contract, and thereafter at an interest rate equal to the interest 
yield of the ``Yield Enhanced STIF Interest Checking Rate Fund'', which 
is sponsored by the Trustee, and invests in

[[Page 15142]]
CDs, Time Deposits, and Short Term Bonds.<SUP>17

    \17\ The Fund, which is sponsored by the Trustee had an interest 
rate of 3.85 percent for 1992, 3.42 percent for 1993, 4.08 percent 
for 1994, 5.88 percent for 1995.
---------------------------------------------------------------------------

    Any proceeds received by the Plan from the ELIC Contract on or 
before the date of the Sale will be subtracted from the consideration 
for the Sale.
    The Employer proposes also to purchase from the Trustee of the Plan 
in a one-time, cash transaction the 34.2 percent interest in the MBL 
Contract owned by the Plan. The consideration for the partial interest 
in the MBL Contract will be the greater of either the fair market value 
of the 34.2 percent interest in the MBL Contract as determined by the 
Trustee on the date of the Sale, or 34.2 percent of the amount of the 
funds deposited with MBL, plus interest credited to the date of the 
Sale. This interest yield will be determined by the Trustee by 
computing the guaranteed rate under the terms of the MBL Contract 
during the period the terms of the MBL Contract provided accrual, plus, 
thereafter through the date of the Sale, at the rate of interest 
provided for under the Rehabilitation Plan for MBL, described above in 
paragraph 3. Any proceeds received by the Plan from MBL on or before 
the date of Sale will be subtracted from the consideration paid by the 
Employer for the Plan's 34.2 percent interest in the MBL Contract.
    All expenses incurred from the Sale of both the ELIC Contract and 
the MBL Contract will be paid by the Employer.
    The applicant and the Trustee both represent that the proposed Sale 
is in the best interests of the Plan and its participants and 
beneficiaries and is protective of the rights of the participants and 
beneficiaries. It is represented that the Sale will permit the Plan to 
avoid the risks associated with continuing to hold the ELIC Contract 
and the MBL Contract and will permit the Plan to complete its 
termination. The Trustee further represents that in its capacity of 
independent fiduciary for the Plan, it will calculate the values of 
both the ELIC Contract and MBL Contract so that the consideration for 
the Sale will be the greater of either the fair market value or the 
alternatives as stated above.
    5. In summary, the applicant represents that the proposed exemption 
will satisfy the criteria for an exemption under section 408(a) of the 
Act because (a) the proposed transaction is a one-time transaction for 
cash; (b) the proposed transaction will enable the plan and its 
participants and beneficiaries to avoid any risks associated with the 
continue holding of the ELIC Contract and the MBL Contract and permit 
the termination of the Plan; (c) the Plan will receive the greater of 
either the fair market value of 34.2 percent interest in the ELIC 
Contract and MBL Contract, respectively, or the accumulated book value 
as determined by the Trustee and described above in paragraph 3, for 
the 34.2 percent interest in the ELIC Contract and for the 34.2 
interest in the MBL Contract, respectively; and (d) the Plan will not 
incur any expense or loss from the proposed transaction.

FOR FURTHER INFORMATION CONTACT: Mr. C. E. Beaver of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

The Buchanan Broadcasting Co., Inc. Profit Sharing Plan and Trust 
(the Plan), Located in Birmingham, AL

[Application Nos. D-10133 and D-10134]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2) 
of the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the 
Code, shall not apply to the proposed leasing of certain office space 
in a building (the Property) by the individual account of Robert M. 
Buchanan, Jr. (the Account) in the Plan to Buchanan Broadcasting Co., 
Inc. (Buchanan Broadcasting) and to Westwood Square, Ltd. (Westwood 
Square), both parties in interest with respect to the Plan, provided 
that the following conditions are satisfied:
    (a) The terms and conditions of the leases are and continue to be 
at least as favorable to the Account as those the Account could obtain 
in comparable arm's length transactions with unrelated parties;
    (b) The rent charged by the Account under the leases is and 
continues to be no less than the fair market rental value of the 
Property, as established every three years by the independent property 
manager;
    (c) At all times, the fair market value of the leased premises 
represents no more than 25 percent of the total assets of the Account;
    (d) Mr. Buchanan is the only participant of the Plan to be affected 
by the proposed transactions; and
    (e) Within 90 days of the publication in the Federal Register of a 
notice granting this proposed exemption, both Buchanan Broadcasting and 
Westwood Square file Form 5330 with the Internal Revenue Service (the 
Service) and pay all excise taxes applicable under section 4975(a) of 
the Code that are due by reason of certain prior prohibited lease 
transactions.

Summary of Facts and Representations

    1. The Plan is a profit sharing plan sponsored by Buchanan 
Broadcasting. Buchanan Broadcasting, a Mississippi corporation, is 
engaged in the business of radio broadcasting and is located in 
Jackson, Mississippi. The Plan, which was established on January 1, 
1995, is as yet completely unfunded. The Plan provides for individually 
directed accounts and is to have approximately 4 participants and 
beneficiaries. It is represented that Mr. Buchanan will roll over to 
the Account all of his assets in the Union Health Care, Inc. d/b/a 
Laird Hospital Profit Sharing Plan and Trust (the Laird Plan), which is 
sponsored by his former employer. As of March 31, 1994, the Laird Plan 
had 411 participants and beneficiaries and total assets of $3,766,262. 
As of that date, Mr. Buchanan's Laird Plan account had total assets of 
$1,433,609. The trustee of both the Plan and the Laird Plan is J. 
Thomas Murfee IV, an independent third party.
    2. Among Mr. Buchanan's assets in the Laird Plan to be rolled over 
to the Account is the Property. The Property consists of a two-story 
commercial office building located at 1985 Lakeland Drive, Jackson, 
Mississippi. The applicant represents that the Property is not near any 
other real property personally owned or used by Mr. Buchanan. The 
applicant further represents that the Property is not subject to any 
debt.
    The Property is currently being leased to seven tenants. Among 
these tenants are Buchanan Broadcasting and Westwood Square. Westwood 
Square is a partnership organized for purposes of investing in 
commercial real estate. In light of the fact that Mr. Buchanan is the 
sole owner of Buchanan Broadcasting and a limited partner (having a 99% 
interest) in Westwood Square, the applicant acknowledges that the 
leases of office space by Mr. Buchanan's Laird Plan account to Buchanan 
Broadcasting and to Westwood Square constitute violations of the 
prohibited transaction provisions of the Act. Further details 
concerning these prohibited leases and the steps taken by the applicant 
to correct them are provided in paragraph 4.

[[Page 15143]]

    3. The fair market rental value of the Property was initially 
established by the independent property manager, Chad D. Clark. Mr. 
Clark is president of Chad D. Clark, Commercial Properties, a real 
estate brokerage firm. Taking into account other comparable rentals and 
the condition, location, and features of the Property, Mr. Clark 
concluded that the fair market rental value of the Property was the 
annual rate of $7 per square foot. Mr. Clark twice later updated his 
appraisal, on July 20, 1995 and again on January 18, 1996, and 
concluded that the fair market rental value of the Property remained 
unchanged.
    The Property was appraised by Robert L. Lloyd, SRA, an independent 
general real estate appraiser certified in the State of Mississippi. 
Mr. Lloyd employed all three basic valuation methodologies utilized in 
the appraisal field but gave greatest credence to the income approach, 
due to the nature of the Property's use, along with consideration of 
the sales comparison approach. He concluded that the fair market value 
of the Property, as of September 9, 1994, was $245,000. Mr. Lloyd also 
concluded as of that date, that the Property, with its net rentable 
area of 8,061 square feet, had a fair market rental value of $7 per 
square foot per annum, thus corroborating Mr. Clark's valuation. In 
arriving at this figure, Mr. Lloyd took into account the occupancy 
levels of nearby competing buildings, the Property's past leasing 
history, and the average quality of the improvements.
    4. Mr. Buchanan's Laird Plan account first began leasing 
approximately 300 square feet of office space in the Property to 
Buchanan Broadcasting on January 1, 1994. On December 1, 1994, an 
additional 1,117 square feet of office space was leased to Buchanan 
Broadcasting, for a total of approximately 1,417 square feet. On 
December 1, 1994, Mr. Buchanan's Laird Plan account also began leasing 
approximately 846 square feet of office space in the Property to 
Westwood Square. The applicant represents that Buchanan Broadcasting 
and Westwood Square have each paid rent at the annual rate of $7 per 
square foot (or $9,919/yr. and $5,922/yr., respectively), since the 
inception of their leases.
    The applicant represents that the then trustee of the Laird Plan 
Charles E. Gibson III, who negotiated the leases on behalf of Mr. 
Buchanan's Laird Plan account, was not aware that such leasing was in 
violation of the Act. Both Buchanan Broadcasting and Westwood Square 
have since filed Form 5330 with the Service and paid all excise taxes 
applicable under section 4975(a) of the Code that were due for the 
years 1994-1995 by reason of these prior prohibited transactions with 
the Laird Plan. It is represented that within 90 days of the 
publication in the Federal Register of a notice granting this proposed 
exemption, both Buchanan Broadcasting and Westwood Square will pay any 
additional excise taxes that are still outstanding.
    5. The applicant now requests an exemption to lease office space in 
the Property by the Account to Buchanan Broadcasting and to Westwood 
Square, after rolling over all of Mr. Buchanan's assets in the Laird 
Plan to the Account. Both of these entities are employers whose 
employees are covered by the Plan. The proposed leases each provide for 
a primary term of 10 years, which may be extended at the option of the 
lessor for a period of five years. Buchanan Broadcasting and Westwood 
Square will each pay rent to the Account at the annual rate of $7 per 
square foot (or $9,919/yr. and $5,922/yr., respectively), which is the 
fair market rental value of the Property, with the rent to be adjusted 
(upwards only) every three years.
    Mr. Clark, the independent property manager, and Mr. Murfee, the 
Plan trustee, have both reviewed the terms and conditions of the leases 
on behalf of the Account. Mr. Clark represents that such terms and 
conditions are at least as favorable to the Account as those the 
Account could obtain in comparable arm's length transactions for 
commercial property in Jackson, Mississippi. Mr. Murfee represents that 
he believes the leases are in the best interests of the Account and 
that he will monitor and enforce compliance with the terms and 
conditions of the leases and of the exemption for the duration of the 
leases.
    The applicant himself represents that the leases are in the best 
interests of the Account because they will maximize the cash flow and 
earnings from the Property. Further, the costs of this exemption 
application will be borne by Buchanan Broadcasting and Westwood Square.
    6. In summary, the applicant represents that the proposed 
transactions satisfy the statutory criteria for an exemption under 
section 408(a) of the Act for the following reasons: (a) the terms and 
conditions of the leases will be at least as favorable to the Account 
as those the Account could obtain in comparable arm's length 
transactions with unrelated parties; (b) the rent charged by the 
Account under the leases will be no less than the fair market rental 
value of the Property, as established every three years by the 
independent property manager; (c) at all times, the fair market value 
of the leased premises will represent no more than 25 percent of the 
total assets of the Account; (d) Mr. Buchanan will be the only 
participant of the Plan to be affected by the proposed transactions; 
and (e) within 90 days of the publication in the Federal Register of a 
notice granting this proposed exemption, both Buchanan Broadcasting and 
Westwood Square will file Form 5330 with the Service and pay all excise 
taxes applicable under section 4975(a) of the Code that are due by 
reason of the prior prohibited lease transactions.

Notice to Interested Persons

    Because the only Plan assets involved in the proposed transactions 
are those to be rolled over to the Account, and Mr. Buchanan is the 
only participant affected by the proposed transactions, it has been 
determined that there is no need to distribute the notice of proposed 
exemption to interested persons. Comments and requests for a hearing on 
the proposed exemption are due 30 days after the date of publication of 
this notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the Department, 
telephone (202) 219-8881. (This is not a toll-free number)

Puckett Machinery Company Profit Sharing Plan (the Plan), Located 
in Jackson, Mississippi

[Exemption Application No. D-10149]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR, part 
2570, subpart B (55 FR 32847, August 10, 1990). If the exemption is 
granted, 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 proposed sale (the Sale) of improved 
real property (the Property) by the Plan to Richard H. Puckett, a party 
in interest with respect to the Plan provided that: (a) the Sale is a 
one time transaction for cash; (b) the Plan will receive the greater of 
$315,000 or the fair market value of the Property at the time of the 
Sale; (c) the Property has been appraised by a independent and 
qualified real estate appraiser; (d) the Plan will pay no fees or 
commissions associated with the Sale; and (e) the terms and conditions 
of the

[[Page 15144]]
Sale are at least as favorable as those obtainable with an unrelated 
third party.

Summary of Facts and Representations

    1. The Plan is a defined contribution plan having 200 participants 
and net assets of $6,030,711 as of December 31, 1995. The trustee of 
the Plan, Trustmark National Bank, has investment discretion over the 
assets involved in the Sale.
    2. The Plan is sponsored by Puckett Machinery Company (the 
Employer) which maintains its principal place in Jackson, Mississippi 
and is engaged in the business of selling equipment and machinery. 
Richard H. Puckett is an officer of the Employer and holder of 17% of 
the issued and outstanding common shares of the Employer. In addition, 
Mr. Puckett is the son of Ben Puckett who holds 43% of the issued and 
outstanding shares of the Employer.
    3. The Property consists of a 6.5 acre tract of real property and a 
building located on Highway 61 North in Natchez, Mississippi. In 1970, 
a predecessor to the Plan acquired the Property for $250,000. The 
Property is currently leased to the Employer.<SUP>18 Under the terms of 
this lease, the Employer has paid all real estate taxes, insurance 
premiums and certain repair and maintenance costs incurred on the 
Property. On March 28, 1995, the Property was appraised by Dan Bland, a 
Certified Real Estate Appraiser who calculated the fair market value of 
the Property to be $240,000. The appraisal method employed by Mr. Bland 
was the market approach which is directly related to the sales prices 
and asking prices of similar properties in competing areas near the 
subject property. The Property was also appraised by Robert E. Gavin, a 
Certified Real Estate Appraiser, who determined the fair market value 
of the Property to be $315,000 as of February 1995.

    \18\ On October 26, 1988, the Department granted PTE 88-98 to 
permit the lease of the Property by the Plan to the Employer.
---------------------------------------------------------------------------

    4. Mr. Puckett proposes to purchase the Property for $315,000 for 
cash. The Applicant represents that the Sale will result in a 
conversion of Plan assets from real property to a liquid investment. 
This will enable the Plan to offer participants and beneficiaries an 
additional opportunity for self-directed investments. Further, 
retaining the Property in the Plan would make it difficult to properly 
and fairly allocate the value of the earnings from the Property to 
those participants and beneficiaries who desire self-directed 
investments.
    5. In summary, the applicant represents that the requested 
exemption will satisfy the criteria of section 408(a) of the Act for 
the following reasons: (a) the Sale is a one time transaction for cash; 
(b) the Plan will receive the greater of $315,000 or the fair market 
value of the Property at the time of the transaction; (c) the fair 
market value of the Property has been determined by an independent and 
qualified real estate appraiser; and (d) the Plan will pay no fees or 
commissions associated with the Sale.

FOR FURTHER INFORMATION CONTACT: Allison Padams of the Department, 
telephone (202) 219-8971. (This is not a toll-free number.)

James Flynn & Associates, Ltd. Pension Plan (the Plan), Located in 
Scottsdale, Arizona

[Application No. D-10164]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of 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). If the exemption is granted, the sanctions 
resulting from the application of section 4975 of the Code, by reason 
of section 4975(c)(1) (A) through (E) of the Code, shall not apply to: 
1) the proposed transfer of a parcel of real property (Lot 1) to the 
Plan by James T. and Britt Marie Flynn (the Flynns), disqualified 
persons with respect to the Plan, together with a cash payment by the 
Flynns to the Plan of $29,000, and 2) the proposed transfer of a parcel 
of real property (Lot 2) by the Plan to the Flynns, provided the 
following conditions are satisfied: a) the Plan receives not less than 
the fair market value of Lot 2 as of the date of the transfers; b) the 
fair market values of Lots 1 and 2 are determined by a qualified, 
independent appraiser; and c) the Flynns are the only participants in 
the Plan to be affected by the transactions, and they both desire that 
the transactions be consummated.<SUP>19

    \19\ Since Mr. Flynn is the sole stockholder of JFA and the 
Flynns are the only participants in the Plan, there is no 
jurisdiction under Title I of the Act pursuant to 29 CFR 2510.3-3 
(b) and (c). However, there is jurisdiction under Title II of the 
Act pursuant to section 4975 of the Code.
---------------------------------------------------------------------------

Summary of Facts and Representations

    1. In 1972, James Flynn established James Flynn & Associates, Ltd. 
(JFA) as a professional service corporation providing architectural 
services. Since that time, Mr. Flynn has been the sole shareholder and 
the only corporate officer of JFA. Shortly after incorporating, Mr. 
Flynn adopted the Plan, a defined benefit plan. In 1989, Mr. Flynn 
began to wind down his practice, and several employees approached him 
about forming their own architectural firm with intentions of 
continuing the practice that JFA had operated. A transition period was 
established, and shortly thereafter, JFA became inactive with two 
employees, the Flynns.
    2. In 1989, the benefits that had accrued to the Plan participants 
(other than the Flynns) were distributed and set aside in a profit 
sharing plan which became the plan of the new architectural firm. 
Shortly thereafter, the Flynns began to take distributions from the 
Plan as retired participants, and to this date they remain the only 
employees of JFA and the only participants covered by the Plan. The 
Plan currently has assets with an approximate aggregate fair market 
value of $4,893,100.
    3. The Flynns currently own Lot 1, a parcel of property located on 
136 Street, Maricopa County, Arizona. The Plan owns Lot 2, a parcel of 
real property adjacent to Lot 1, also located on 136 Street, Maricopa 
County, Arizona. The Flynns have requested the exemption proposed 
herein to permit the transfer of the two Lots, so that the Plan would 
own Lot 1 and the Flynns would own Lot 2. The applicants represent that 
the Plan would enter into the transaction for the following reasons. 
Lot 2, which is currently held by the Plan, is more suitable for 
improvements on a near-term basis. Such improvements, if completed, 
would increase the marketability of both Lots 1 and 2. However, the 
Plan does not wish to get involved with the project of improving Lot 2. 
The applicants represent that Lot 1, currently owned by the Flynns, has 
greater long-term potential as investment property. The applicants 
further represent that if the improvements are made to Lot 2, the 
marketability of both Lots 1 and 2 would improve, thus protecting the 
Plan's prospective investment in Lot 1.
    4. The Lots have both been appraised by Roy E. Morris III, SRA 
FASA, an independent certified real estate appraiser in Scottsdale, 
Arizona. Mr. Morris has determined that as of July 18, 1995, Lot 1 had 
a fair market value of $191,000, and Lot 2 had a fair market value of 
$220,000. The applicants represent that if the exemption proposed 
herein is granted, the Flynns would also make a cash payment to the 
Plan of $29,000, which is equal to the difference in appraised values 
of the Lots as determined by Mr. Morris.

[[Page 15145]]

    5. In summary, the applicants represent that the proposed 
transactions satisfy the criteria contained in section 4975(c)(2) of 
the Code because: a) the Plan will receive not less than the fair 
market value of Lot 2; b) the fair market values of Lots 1 and 2 have 
been determined by a qualified, independent appraiser; and c) the only 
Plan participants to be affected by these transactions are the Flynns, 
and they both desire that the transactions be consummated.

NOTICE TO INTERESTED PERSONS: Since the Flynns are the only Plan 
participants to be affected by the proposed transactions, the 
Department has determined that there is no need to distribute the 
notice of proposed exemption to interested persons. Comments and 
requests for a hearing are due within 30 days from the date of 
publication of this notice of proposed exemption in the Federal 
Register.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest of disqualified 
person from certain other provisions of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
section 404 of the Act, which among other things require a fiduciary to 
discharge his duties respecting the plan solely in the interest of the 
participants and beneficiaries of the plan and in a prudent fashion in 
accordance with section 404(a)(1)(b) of the Act; nor does it affect the 
requirement of section 401(a) of the Code that the plan must operate 
for the exclusive benefit of the employees of the employer maintaining 
the plan and their beneficiaries;
    (2) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete and accurately describe all 
material terms of the transaction which is the subject of the 
exemption. In the case of continuing exemption transactions, if any of 
the material facts or representations described in the application 
change after the exemption is granted, the exemption will cease to 
apply as of the date of such change. In the event of any such change, 
application for a new exemption may be made to the Department.

    Signed at Washington, DC, this 29th day of March, 1996.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 96-8138 Filed 4-3-96; 8:45 am]
BILLING CODE 4510-29-P