Proposed Exemptions Wells Fargo Bank

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.

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SUMMARY: This document contains notices of pendency before the

Department of Labor (the Department) of proposed exemptions from

certain of the prohibited transaction 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).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.

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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:

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Shadow CIFs Master CIFs

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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.

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[[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.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.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.

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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.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 77-4.5

\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.

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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, 6 except that debt securities that were within 60

days of maturity were valued by the amortized cost method, 7 in

the

[[Page 15127]]

same manner and at the close of the same business day.

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.

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).

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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.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.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.

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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.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.

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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.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.

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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.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.

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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.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.

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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.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.

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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.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.

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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.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.

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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.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.

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4. Mr. Puckett proposes to purchase the Prop

This text is long and has been trimmed here. Open the source document for the complete record.